SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange act of 1934 For the Quarterly Period Ended June 30, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ____________________________ to
___________________.
Commission File Number 0-25378
HCIA Inc.
(Exact name of registrant as specified in its charter)
Maryland 52-1407998
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
300 East Lombard Street, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 895-7470
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, at August 1, 1996:
Class: Common Stock Number of Shares: 9,274,387
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(in thousands)
Part 1
Item 1. Financial Statements
<TABLE>
<CAPTION>
1996 1995
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 6,387 $ 3,190
Short-term investments..................................................... 19,752 23,280
Trade accounts receivable, net of allowance for doubtful accounts
of $868 in 1996 and $454 in 1995........................................ 24,531 16,623
Prepaid expenses and other current assets.................................. 3,167 2,236
------- -------
Total current assets...................................................... 53,837 45,329
Furniture and equipment, net................................................. 7,554 6,576
Computer software costs, net................................................. 15,086 11,012
Other intangible assets, net................................................. 43,012 42,338
Deferred tax asset, net...................................................... 3,697 3,090
Other........................................................................ 868 56
------- -------
Total assets.............................................................. $124,054 $108,401
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 1,211 $ 732
Accrued salaries, benefits and other liabilities............................ 4,959 4,222
Capital lease obligations................................................... 116 174
Notes payable............................................................... 2,160 2,265
Income taxes payable........................................................ 1,413 1,098
Deferred revenue............................................................ 2,007 1,167
------- -------
Total current liabilities................................................. 11,866 9,658
Notes payable............................................................... -- 699
------- -------
Total liabilities......................................................... 11,866 10,357
------- -------
Stockholders' equity:
Preferred stock-$.01 par value; authorized 500,000 shares; no shares
issued and outstanding in 1996 and 1995................................ -- --
Common stock-$.01 par value;15,000,000 shares authorized; issued
and outstanding 9,274,387 as of June 30, 1996 and 8,955,932 as of
December 31, 1995...................................................... 92 90
Additional paid-in capital................................................... 116,141 102,882
Accumulated deficit.......................................................... (3,989) (4,953)
Cumulative unrealized (depreciation)/appreciation of short-term investments.. (32) 44
Cumulative effect of currency translation adjustment......................... (24) (19)
------- -------
Total stockholders' equity............................................... 112,188 98,044
------- -------
Total liabilities and stockholders' equity................................... $124,054 $108,401
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 1
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30, 1996 and 1995
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenue...................................................................... $ 16,489 $ 12,256
Salaries, wages and benefits................................................. 6,871 5,621
Other operating expenses..................................................... 3,514 3,057
Depreciation................................................................. 572 393
Amortization................................................................. 1,923 1,276
Write-off of acquired in-process research and development costs.............. 4,372 -
------- ------
Operating income (loss) ............................................... (763) 1,909
Interest income.............................................................. 284 241
Interest expense ............................................................ (60) (14)
------- ------
Income (loss) before income taxes and minority interest in income
of consolidated subsidiaries....................................... (539) 2,136
Benefit (provision) for income taxes......................................... 212 (951)
Minority interest in income of consolidated subsidiaries..................... - (21)
------- -------
Net income (loss)..................................................... $ (327) $ 1,164
======= =======
Net income (loss) per share.................................................. $ (0.04) $ 0.15
======= =======
Shares used in per share calculation......................................... 9,153 7,804
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, 1996 and 1995
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenue...................................................................... $ 30,718 $ 21,005
Salaries, wages and benefits................................................. 13,558 10,163
Other operating expenses..................................................... 6,816 5,536
Depreciation................................................................. 1,090 655
Amortization................................................................. 3,716 2,305
Write-off of acquired in-process research and development costs.............. 4,372 -
------ ------
Operating income....................................................... 1,166 2,346
Interest income.............................................................. 566 417
Interest expense ............................................................ (142) (39)
------ ------
Income before income taxes and minority interest in income of
consolidated subsidiaries.......................................... 1,590 2,724
Provision for income taxes................................................... (626) (1,189)
Minority interest in income of consolidated subsidiaries..................... - (28)
------ ------
Net income............................................................ $ 964 $ 1,507
====== ======
Net income per share......................................................... $ 0.10 $ 0.21
====== ======
Shares used in per share calculation......................................... 9,549 7,173
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Year ended December 31, 1995 and the six months ended
June 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Cumulative
Unrealized Cumulative
Appreciation/ Effect of
Additional (Depreciation) Currency Total
Common Paid-In Accumulated of Short-term Translation Stockholders'
Stock Capital Deficit Investments Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31,
1994 $ 54 $ 36,876 $ (2,548) $ - $ (11) $ 34,371
---- -------- -------- ------- ------ ----------
Sale of common
stock to the
public 36 66,006 - - - 66,042
Net loss - - (2,405) - - (2,405)
Effect of currency
translation
adjustment - - - - (8) (8)
Unrealized
appreciation of
short-term
investments - - - 44 - 44
---- -------- -------- ------- ------ ----------
BALANCE AT
DECEMBER 31,
1995 90 102,882 (4,953) 44 (19) 98,044
---- -------- -------- ------- ------ ----------
Exercise of stock
options - 503 - - - 503
Sale of common
stock to the
public 2 12,756 - - - 12,758
Net income - - 964 - - 964
Effect of currency
translation
adjustment - - - - (5) (5)
Unrealized
(depreciation) of
short-term
investments - - - (76) - (76)
---- -------- -------- ------- ------ ----------
BALANCE AT
JUNE 30, 1996
(unaudited) $ 92 $ 116,141 $ (3,989) $ (32) $ (24) $ 112,188
==== ========= ======== ======= ====== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 964 $ 1,507
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................................. 4,806 2,960
Write-off of acquired in-process research and development costs................ 4,372 -
Deferred tax provision......................................................... (386) -
Changes in operating assets and liabilities:
Accounts receivable......................................................... (6,767) (2,206)
Income taxes payable........................................................ 315 1,109
Prepaid expenses............................................................ (485) (308)
Accounts payable............................................................ 336 19
Accrued salaries, benefits and other liabilities............................ (110) (811)
Deferred revenue............................................................ 629 (10)
Minority interest........................................................... - 29
--------- ------------
Net cash provided by operating activities.............................. 3,674 2,289
--------- ------------
Cash flows from investing activities:
Purchases of furniture and equipment................................................. (2,369) (1,650)
Cost of acquisitions, net of cash acquired........................................... (6,782) (14,976)
Computer software purchased or capitalized........................................... (5,517) (2,684)
Other intangible assets purchased or capitalized..................................... (820) (453)
Purchases of short-term investments.................................................. (45,329) -
Proceeds from disposals of short-term investments.................................... 48,781 -
Other................................................................................ (812) (28)
--------- ------------
Net cash used in investing activities.................................. (12,848) (19,791)
--------- ------------
Cash flows from financing activities:
Proceeds from exercise of stock options.............................................. 503 -
Proceeds from public offerings....................................................... 12,758 25,675
Borrowing from related party......................................................... - 600
Repayments of notes payable.......................................................... (804) (71)
Repayments of related party borrowings............................................... - (1,900)
Principal payments on capital leases................................................. (81) (147)
--------- ------------
Net cash provided by financing activities............................. 12,376 24,157
--------- ------------
Impact of currency fluctuations on cash and cash equivalents.............................. (5) (4)
--------- ------------
Increase in cash and cash equivalents ..................................................... 3,197 6,651
Cash & cash equivalents - beginning of period.............................................. 3,190 696
--------- ------------
Cash & cash equivalents - end of period.................................................... $ 6,387 $ 7,347
========= ============
Supplemental cash flow information - cash paid during period for interest.................. $ 72 $ 79
========= ============
- cash paid during period for income taxes.............. $ 699 $ -
========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited interim financial statements of the Company have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management, these statements reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
Company's financial condition, results of operations, changes in stockholders'
equity and cash flows for the periods presented. The results of operations for
the three- and six-month periods ended June 30, 1996 may not be indicative of
the results that may be expected for the full year ending December 31, 1996.
These financial statements and notes should be read in conjunction with the
financial statements and notes included in the audited consolidated financial
statements of the Company for the year ended December 31, 1995 as
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (1934 Act File No. 0-25378).
(2) Public Offerings
On May 6, 1996, approximately 4.2 million shares of common stock of the Company
were sold by AMBAC Inc. ("AMBAC") in a registered public offering. In connection
with the offering, the Company sold 261,591 shares of common stock at $51.00
per share. The Company did not receive any of the proceeds from the sale of the
shares by AMBAC.
(3) Cash Equivalents
As of June 30, 1996, cash equivalents consist of highly liquid securities with
original maturities of three months or less at the date acquired by the Company.
The Company's short term investments consist of preferred stocks, variable rate
debenture bonds and municipal bonds.
(4) Acquisitions
In May 1996 the Company acquired Response Healthcare Information Management,
Inc. ("Response") for approximately $6.2 million in cash. The acquisition has
been accounted for using the purchase method of accounting and, accordingly, the
assets acquired are valued at their estimated fair market value.
Page 6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six months ended June 30, 1996 compared to six months ended June 30, 1995
Revenue. Revenue for the six months ended June 30, 1996 was $30.7 million, an
increase of $9.7 million or 46% over the six months ended June 30, 1995. The
increase was primarily the result of a 49% increase in revenue from the sale of
Decision Support Systems. Revenue from the sale of Decision Support Systems
represented 81% of revenue for the first six months of 1996 and Syndicated
Products represented the remaining 19% of revenue.
The increase in Decision Support Systems revenue was primarily the result of the
Company's continued success in expanding its customer relationships in the
provider and supplier markets, and as a result of the acquisitions of Datis
Corporation ("Datis") and the CHAMP unit of William M. Mercer, Incorporated
("CHAMP").
Salaries, Wages and Benefits. Salaries, wages and benefits decreased to 44% of
revenue for the six months ended June 30, 1996 from 48% for the six months ended
June 30, 1995. This decrease was a result of the continued leveraging of the
Company's historical investments in technology and basic infrastructure as
revenue increased.
Other Operating Expenses. Other operating expenses, which include occupancy,
travel and marketing expenses, decreased to 22% of revenue for the six months
ended June 30, 1996 from 26% for the six months ended June 30, 1995. This
decrease was a result of certain of these expenses growing at a slower rate than
revenue.
Depreciation and Amortization. Depreciation and amortization increased to 16% of
revenue for the six months ended June 30, 1996 from 14% of revenue for the six
months ended June 30, 1995. The increase was a result of the additional
amortization associated with the acquisitions of Datis and CHAMP as well as
depreciation of other acquired assets.
Write-off of Acquired In-process Research and Development Costs. In connection
with the acquisition of Response, the Company acquired Response's ongoing
research and development activities. At the time of the acquisition, the Company
recorded a one-time $4.4 million charge resulting from the write-off of the
acquired in-process research and development costs.
Interest Income and Expense. Net interest income was $424,000 for the six months
ended June 30, 1996 compared with net interest income of $378,000 for the six
months ended June 30, 1995. This increase was the result of a higher invested
balance in 1996.
Income Taxes. The Company's effective income tax rate was 39.4% for the six
months ended June 30, 1995 compared with 43.6% for the six months ended June 30,
1995. The decrease was the result of a portion of the Company's investments
being placed in tax-exempt securities, as well as the tax benefit associated
with the exercise of certain non-qualified stock options. This decrease was
partially offset by an increase in non-deductible goodwill and the
non-deductible write-off of the acquired in-process research and development
costs resulting from the Response acquisition.
Page 7
<PAGE>
Three months ended June 30, 1996 compared to three months ended June 30, 1995
Revenue. Revenue for the three months ended June 30,1996 was $16.5 million, an
increase of $4.2 million or 35% over the three months ended June 30, 1995. The
increase was primarily the result of a 28% increase in revenue from the sale of
Decision Support Systems. Revenue from the sale of Decision Support Systems
represented 79% of the revenue for the three months ended June 30, 1996 and
Syndicated Products represented the remaining 21% of revenue.
The increase in Decision Support Systems revenue was primarily the result of the
Company's continued success in expanding its customer relationships in the
provider and supplier markets, and as a result of the acquisition of CHAMP.
Salaries Wages and Benefits. Salaries, wages and benefits decreased to 42% of
revenue for the three months ended June 30, 1996 from 46% for the three months
ended June 30, 1995. This decrease resulted from leveraging the Company's
historical investments in technology and basic infrastructure as revenue
increased.
Other Operating Expenses. Other operating expenses, which include occupancy,
travel, and marketing expenses, decreased to 21% of revenue for the three months
ended June 30, 1996 from 25% for the three months ended June 30, 1995. This
decrease was a result of certain of these expenses growing at a slower rate than
revenue.
Depreciation and Amortization. Depreciation and amortization increased to 15% of
revenue for the three months ended June 30, 1996 from 13% for the three months
ended June 30, 1995. This increase was a result of the additional amortization
associated with the acquisitions of Datis and CHAMP as well as depreciation of
other acquired assets.
Write-off of Acquired In-process Research and Development Costs. In connection
with the acquisition of Response, the Company acquired Response's ongoing
research and development activities. At the time of the acquisition, the Company
recorded a one-time $4.4 million charge resulting from the write-off of the
acquired in-process research and development costs.
Income Taxes. The Company's effective tax rate was 39.3% for the three months
ended June 30, 1996 compared with 44.5% for the three months ended June 30,
1995. The decrease was the result of a portion of the Company's investments
being placed in tax-exempt securities, as well as the tax benefit associated
with the exercise of certain non-qualified stock options. This decrease was
partially offset by an increase in non-deductible goodwill.
Page 8
<PAGE>
Liquidity and Capital Resources
In May 1995, the Company entered into a line of credit agreement with a bank
providing for a borrowing capacity of $4.0 million. Borrowings bear interest at
a fluctuating rate equal to the Bank's prime rate plus 0.25%. The Company
also pays a commitment fee on the average daily unused portion of the line of
credit at a rate of 0.25% per annum. Borrowings are collateralized by the
Company's accounts receivable. There were no borrowings under the line of
credit as of June 30, 1996. This line of credit was terminated effective August
8, 1996.
On August 8, 1996, the Company obtained a credit facility from First Union
National Bank of North Carolina ("First Union") totaling $100 million,
consisting of a $50 million term loan and a $50 million revolving line of
credit. Borrowings bear interest at varying rates based on an index tied to
First Union's prime rate or LIBOR. The Company will pay a commitment fee on the
average daily unused portion of the facility at a rate from 0.25% to 0.375% per
annum, depending on the Company's debt/cash flow ratio. The Company has drawn
down the entire $50 million term loan and $36 million of the revolving line
of credit in connection with its recent acquisition of LBA Health Care
Management, Inc. ("LBA"), and intends to repay the borrowings with a portion of
the net proceeds to the Company of a public offering of 2,000,000 shares of
common stock. The Company will then maintain a $50 million revolving line of
credit for general corporate purposes, including future acquisitions and working
capital requirements. Borrowings are collateralized by substantially all of the
Company's assets.
In May 1996, the Company acquired all of the capital stock of Response for
approximately $6.2 million in cash. The acquisition has been accounted for using
the purchase method of accounting, and, accordingly, the assets have been valued
at their estimated fair market value.
On August 9, 1996, the Company acquired LBA for approximately $130 million,
$100 million of which was paid in cash and $30 million of which was paid
through the delivery of 492,961 shares of common stock of the Company. See Part
II, Item 5 - Other Information.
Page 9
<PAGE>
PART II Other Information
Item 5. Other Information
On August, 9 1996, the Company acquired LBA for approximately $130 million, $100
million of which was paid in cash and $30 million of which was paid through the
delivery of 492,961 shares of common stock of the Company.
In July 1996, the Company filed a registration statement covering the sale of
2,000,000 shares of common stock by the Company and 216,696 shares acquired
by certain former stockholders of the parent company of LBA. The Company will
not receive any of the proceeds from the sale of the shares of common stock
sold by the selling stockholders. In addition, the Company has granted the
underwriters of the offering an option to purchase an additional 332,505
shares of common stock to cover over-allotments, if any.
Item 6-Exhibits and Reports on Form 8-K
(a) The following are annexed as exhibits:
Exhibit Number Description
11 Statement Re: Computation of Earnings per share.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated July 19, 1996, which was amended on
August 13, 1996.
Page 10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HCIA Inc.
(Registrant)
Date: August 13, 1996
By: /s/ Barry C. Offutt
________________________________
Barry C. Offutt
Senior Vice President and
Chief Financial Officer
(principal financial officer)
Page 11
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
11 Statement Re: Computation of Earnings per share 13
Page 12
<PAGE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Primary (1) Fully Diluted(1)
(In thousands, except per share data)
<S> <C> <C>
Three months ended June 30, 1996
Weighted average shares outstanding............................ 9,153
Effect of dilutive common stock equivalents.................... 0 N/A
---------
Weighted average shares outstanding for EPS purposes........... 9,153
Net income..................................................... $ (327)
---------
Net income per share (2)....................................... $ (0.04)
=========
Six months ended June 30, 1995
Weighted average shares outstanding............................ 9,061 9,061
Effect of dilutive common stock equivalents.................... 488 515
--------- ---------
Weighted average shares outstanding for EPS purposes........... 9,549 9,576
Net income..................................................... $964 $964
--------- ---------
Net income per share (2)....................................... $0.10 $0.10
========= =========
</TABLE>
(1) As of June 30, 1996, options to purchase 692,306 shares of common stock were
outstanding. In the calculation of primary net income per share, these options
were included in the average number of common shares outstanding using the
treasury stock method based on the average price of the common stock for the
period.
As the price of the Company's common stock on June 30, 1996 was in excess of the
average price for the six months ended June 30, 1996, the number of shares used
to calculate net income per share on a fully diluted basis is increased as using
the treasury stock method with the period end price result in a higher number of
shares deemed outstanding.
As the Company had a loss for the three months ended June 30, 1996, the fully
diluted earnings per share is not applicable.
(2) In accordance with Accounting Principle Board Opinion No. 15, any reduction
of less than 3% need not be considered dilutive. Accordingly, the consolidated
statements of operations reflect net income per share and the weighted average
number of shares used in the calculation on a primary basis only.
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 6,387 6,387
<SECURITIES> 19,752 19,752
<RECEIVABLES> 24,531 24,531
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 53,837 53,837
<PP&E> 7,554 7,554
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 124,054 124,054
<CURRENT-LIABILITIES> 11,866 11,866
<BONDS> 0 0
0 0
0 0
<COMMON> 92 92
<OTHER-SE> 116,141 116,141
<TOTAL-LIABILITY-AND-EQUITY> 124,054 124,054
<SALES> 16,489 30,718
<TOTAL-REVENUES> 16,489 30,718
<CGS> 0 0
<TOTAL-COSTS> 17,252 29,552
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (224) (424)
<INCOME-PRETAX> (539) 1,590
<INCOME-TAX> (212) 626
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (327) 964
<EPS-PRIMARY> (0.04) 0.10
<EPS-DILUTED> 0 0.10
</TABLE>
