EXHIBIT 99.02
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information
has been prepared to give effect to the acquisition of the assets of the Blaze
business unit ("Blaze") from Brokat Technologies, Inc. on August 15, 2001 as
well as the following: i) the acquisition of Systems/Link Corporation
("Systems/Link") that occurred on September 8, 2000 and ii) the distribution of
all of our shares of Retek Inc. ("Retek") to our stockholders on September 29,
2000. The pro forma condensed consolidated financial information is based on the
following:
1. Our unaudited historical consolidated financial statements as of
June 30, 2001 and for the six months then ended;
2. Blaze's unaudited historical consolidated financial statements as of
June 30, 2001 and for the six months then ended;
3. Our audited historical consolidated financial statements for the
year ended December 31, 2000;
4. Blaze's historical consolidated financial statements for the year
ended December 31, 2000, derived from Blaze's audited historical
consolidated financial statements for the nine months ended December
31, 2000 and Blaze's unaudited historical consolidated financial
statements for the three months ended March 31, 2000;
5. Systems/Link's unaudited historical financial statements for the
period from January 1, 2000 through September 8, 2000;
6. Retek's unaudited historical consolidated financial statements for
the period from January 1, 2000 through September 29, 2000; and
7. Pro forma adjustments as described in the accompanying notes.
The pro forma condensed consolidated balance sheet at June 30, 2001 gives effect
to the acquisition of Blaze as if it occurred as of June 30, 2001. The pro forma
condensed consolidated statement of operations for the six months ended June 30,
2001 gives effect to the acquisition of Blaze as if it occurred as of January 1,
2001. The pro forma condensed consolidated statement of operations for the year
ended December 31, 2000 gives effect to the acquisitions of Blaze and
Systems/Link and the distribution of Retek as if they each occurred as of
January 1, 2000.
The related adjustments are described in the accompanying notes. The unaudited
pro forma condensed consolidated financial information is based upon available
information and certain assumptions set forth in the notes to the unaudited pro
forma condensed consolidated financial information, which have been made solely
for purposes of developing such unaudited pro forma financial information. The
unaudited pro forma condensed consolidated financial information does not
purport to represent what our results of operations or financial condition would
have been had the acquisitions of Blaze and Systems/Link or the distribution of
our shares of Retek occurred as of the pro forma dates specified above, or to
project our results of operations or financial condition for any future period
or date.
The unaudited pro forma condensed consolidated financial information should be
read in conjunction with our historical financial statements and notes, Retek's
historical financial statements and notes, and the historical financial
statements of Blaze and notes thereto, the latter of which are included herein.
HNC SOFTWARE INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2001
(IN THOUSANDS)
PRO FORMA
HNC PRO FORMA CONSOLIDATED
AS REPORTED BLAZE ADJUSTMENTS HNC
----------- ----------- ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 51,496 $ -- $ (16,500)(a) $ 32,996
(2,000)(b)
Marketable securities available for sale-debt 53,090 -- -- 53,090
Trade accounts receivable, net 47,148 3,750 -- 50,898
Current portion of deferred income taxes 16,900 -- -- 16,900
Other current assets 6,455 961 -- 7,416
--------- --------- --------- ---------
Total current assets 175,089 4,711 (18,500) 161,300
Marketable securities available for sale-debt 65,028 -- -- 65,028
Equity investments 14,112 -- -- 14,112
Property and equipment, net 20,366 1,996 -- 22,362
Goodwill, net 84,202 -- 11,882(c) 96,084
Intangible assets, net 40,398 -- 12,142(c) 52,540
Deferred income taxes, less current portion 34,579 -- 200(f) 34,779
Other assets 883 1,184 2,000(b) 4,067
--------- --------- --------- ---------
Total assets $ 434,657 $ 7,891 $ 7,724 $ 450,272
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 24,175 $ 8,057 $ 3,251(d) $ 35,483
Deferred revenue 7,655 2,766 -- 10,421
--------- --------- --------- ---------
Total current liabilities 31,830 10,823 3,251 45,904
Non-current liabilities 430 28 2,000(b) 2,458
--------- --------- --------- ---------
Total liabilities 32,260 10,851 5,251 48,362
--------- --------- --------- ---------
Contingencies
Stockholders' equity:
Preferred stock -- -- -- --
Common stock 35 -- -- 35
Common stock in treasury (3,251) -- -- (3,251)
Paid-in capital 532,747 -- -- 532,747
Accumulated deficit (126,155) (2,452) 2,452(e) (126,642)
(487)(f)
Notes receivable from stockholders (405) -- -- (405)
Unearned stock-based compensation (442) -- -- (442)
Accumulated other comprehensive loss (132) (508) 508(e) (132)
--------- --------- --------- ---------
Total stockholders' equity 402,397 (2,960) 2,473 401,910
--------- --------- --------- ---------
Total liabilities and stockholders' equity $ 434,657 $ 7,891 $ 7,724 $ 450,272
========= ========= ========= =========
See accompanying notes to unaudited pro forma condensed
consolidated financial information.
HNC SOFTWARE INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
HNC PRO FORMA CONSOLIDATED
AS REPORTED BLAZE ADJUSTMENTS HNC
----------- --------- ----------- ------------
Total Revenues $ 112,992 $ 15,097 $ -- $ 128,089
--------- --------- --------- ---------
Operating expenses:
Cost of revenues 43,978 6,917 -- 50,895
Research and development 22,318 6,219 -- 28,537
Sales and marketing 20,832 13,948 -- 34,780
General and administrative 15,733 5,816 -- 21,549
Transaction-related amortization and costs 27,579 443,754 (443,754)(g) 29,288
1,709 (h)
Restructuring charge 2,960 1,393 -- 4,353
--------- --------- --------- ---------
Total operating expenses 133,400 478,047 (442,045) 169,402
Operating loss (20,408) (462,950) 442,045 (41,313)
Other income (expense):
Interest expense (167) (1) -- (168)
Other income (expense), net 3,509 (27) -- 3,482
--------- --------- --------- ---------
Loss before income taxes (17,066) (462,978) 442,045 (37,999)
Income tax provision (benefit) 4,880 -- (701)(i) 4,179
--------- --------- --------- ---------
Net loss $ (21,946) $(462,978) $ 442,746 $ (42,178)
========= ========= ========= =========
Earnings per share:
Basic and diluted net loss per common share $ (0.65) $ (1.25)
========= =========
Shares used in computing basic and diluted net loss per
common share 33,830 33,830
========= =========
See accompanying notes to unaudited pro forma condensed
consolidated financial information.
HNC SOFTWARE INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HNC SYSTEMS/LINK
HNC DISTRIBUTION EXCLUDING PRO FORMA
AS REPORTED OF RETEK RETEK SYSTEMS/LINK ADJUSTMENTS
----------- ------------ --------- ------------ ------------
Total Revenues $ 254,884 $ (59,915)(j) $ 194,969 $ 9,877 $ --
--------- --------- --------- --------- --------
Operating expenses:
Cost of revenues 133,382 (36,101)(j) 97,281 2,873 19(k)
Research and development 75,490 (30,121)(j) 45,369 3,910 88(k)
Sales and marketing 89,925 (30,053)(j) 59,872 2,423 19(k)
General and administrative 53,321 (8,466)(j) 44,855 3,286 68(k)
Transaction-related amortization and costs 43,734 (5,440)(j) 38,294 -- 9,612(l)
In-process research and development 7,601 (4,000)(j) 3,601 -- --
Other 1,172 -- 1,172 -- --
--------- --------- --------- --------- ---------
Total operating expenses 404,625 (114,181) 290,444 12,492 9,806
Operating income (loss) (149,741) 54,266 (95,475) (2,615) (9,806)
Other income (expense):
Interest expense (4,231) -- (4,231) (181) --
Other income (expense), net 9,546 (1,643)(j) 7,903 -- --
Expense related to debt conversion (12,676) -- (12,676) -- --
Minority interest in losses (income) of
consolidated subsidiary 7,582 (7,582)(j) -- -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes (149,520) 45,041 (104,479) (2,796) (9,806)
Income tax provision (benefit) (33,102) 16,488(j) (16,614) 25 (3,941)(m)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations $(116,418) $ 28,553 $ (87,865) $ (2,821) $ (5,865)
========= ========= ========= ========= =========
Earnings per share:
Basic and diluted net loss per common share
from continuing operations $ (4.08) $ (3.08)
========= =========
Shares used in computing basic and diluted net loss per
common share from continuing operations 28,529 28,529
========= =========
BLAZE PRO FORMA
PRO FORMA CONSOLIDATED
BLAZE ADJUSTMENTS HNC
--------- ----------- ------------
Total Revenues $ 31,913 $ -- $ 236,759
--------- --------- ----------
Operating expenses:
Cost of revenues 16,671 -- 116,844
Research and development 12,762 -- 62,129
Sales and marketing 34,775 -- 97,089
General and administrative 17,536 -- 65,745
Transaction-related amortization and costs 25,429 (25,429)(n) 51,324
3,418(o)
In-process research and development -- -- 3,601
Other -- -- 1,172
--------- --------- ---------
Total operating expenses 107,173 (22,011) 397,904
Operating income (loss) (75,260) 22,011 (161,145)
Other income (expense):
Interest expense (257) -- (4,669)
Other income (expense), net 2,385 -- 10,288
Expense related to debt conversion -- -- (12,676)
Minority interest in losses (income) of
consolidated subsidiary -- -- --
--------- --------- ---------
Income (loss) from continuing operations before
income taxes (73,132) 22,011 (168,202)
Income tax provision (benefit) 66 (1,401)(p) (21,865)
--------- --------- ---------
Income (loss) from continuing operations $ (73,198) $ 23,412 $(146,337)
========= ========= =========
Earnings per share:
Basic and diluted net loss per common share
from continuing operations $ (5.13)
=========
Shares used in computing basic and diluted net loss per
common share from continuing operations 28,529
=========
See accompanying notes to unaudited pro forma condensed
consolidated financial information.
HNC SOFTWARE INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (IN
THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- BASIS OF PRESENTATION
During the year ended December 31, 2000, HNC completed two significant
transactions: i) the acquisition of Systems/Link on September 8, 2000; and ii)
the distribution of all of our shares of Retek Inc. to our stockholders on
September 29, 2000.
On August 15, 2001, we acquired the assets of the Blaze business unit from
Brokat Technologies, Inc. in exchange for approximately $16,500 in cash. We
applied the purchase method of accounting for the acquisition of Blaze, which
resulted in a purchase price of $21,751. The purchase price included $2,000 in
restricted cash held back to secure potential future indemnification rights,
$1,500 in assumed severance obligations and approximately $1,751 of acquisition
costs, each of which we accrued. The preliminary allocation of the purchase
price using balances at August 15, 2001 is summarized below:
Goodwill $ 9,142
Software development costs 10,247
In-process research and development 487
Other identified intangible assets 1,895
Net liabilities assumed (20)
--------
Total purchase price $ 21,751
========
The purchase price including consideration paid and liabilities assumed was
allocated among the assets acquired based on the fair values of all assets
acquired, including purchased in-process research and development with the
residual purchase price assigned to goodwill. We are awaiting further
information regarding receivables acquired in a foreign jurisdiction and expect
to finalize our preliminary allocation by December 31, 2001. The fair values of
the intangible assets and purchased in-process research and development were
determined through an independent appraisal. The amount allocated to in-process
research and development represents the purchased in-process research and
development for projects that, as of the date of the acquisition, had not yet
reached technological feasibility and had no alternative future use. The value
of these projects was determined by estimating the resulting net cash flows from
the sale of the products from completion of the projects, reduced by the portion
of revenue attributable to developed technology and the
percentage completion of the project. The resulting cash flows were then
discounted back to their present value at appropriate discount rates. The
amounts allocated to in-process research and development were charged to our
statement of operations in the third quarter of 2001.
NOTE 2 -- NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141") and
No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method. Under FAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of FAS 142 apply immediately to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, HNC is required to adopt FAS 142 effective
January 1, 2002. We are currently evaluating the effect that adoption of the
provisions of FAS 142 will have on our consolidated financial position, results
of operations or disclosures in future periods. The historical financial
statements contained herein do not reflect the provisions of FAS 142; however,
FAS 142 has been applied to the Blaze transaction.
On October 3, 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 supercedes Statement of Financial Accounting Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." FAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30, "Reporting Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business." FAS 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. FAS 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell. Additionally, FAS 144 expands the
scope of discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity and (2)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. HNC is required to adopt FAS 144 effective January 1, 2002.
NOTE 3 -- PRO FORMA ADJUSTMENTS
(a) Reflects cash we paid to Brokat Technologies, Inc. as of the
acquisition date.
(b) Reflects the reclassification to a restricted designation of the $2,000
portion of the cash purchase price held back to secure potential future
indemnification rights, and the establishment of a corresponding
liability.
(c) Reflects the recording of goodwill and other intangible assets
resulting from the acquisition of Blaze based on the purchase price
allocation described in Note 1.
(d) Reflects accrued liabilities related to assumed severance obligations
along with transaction costs incurred by HNC.
(e) Reflects the elimination of Blaze's equity accounts.
(f) Reflects the amount allocated to in-process research and development
based on the purchase price allocation described in Note 1, and
resultant deferred tax asset established.
(g) Reflects the elimination of Blaze's historical amortization and
impairment of goodwill and intangible assets.
(h) Reflects the amortization of identifiable intangible assets resulting
from the Blaze acquisition over their estimated useful lives of two to
four years, as if the acquisition had occurred on January 1, 2001.
(i) Reflects the estimated tax benefit resulting from the amortization of
the intangible assets recorded as part of the Blaze acquisition, as if
it had occurred on January 1, 2001.
(j) Reflects the reported results of operations of Retek Inc. as if our
distribution of Retek Inc. common stock to our stockholders occurred as
of January 1, 2000.
(k) Reflects amortization of unearned stock-based compensation recorded in
connection with the acquisition of Systems/Link, as if the acquisition
had occurred on January 1, 2000.
(l) Reflects the amortization of goodwill and other identifiable intangible
assets resulting from the Systems/Link acquisition over their estimated
useful lives of three to four years, as if the acquisition had occurred
on January 1, 2000.
(m) Reflects the estimated tax benefit resulting from the amortization of
the intangible assets recorded as part of the Systems/Link acquisition,
as if it had occurred on January 1, 2000.
(n) Reflects the elimination of Blaze's historical amortization of goodwill
and intangible assets.
(o) Reflects the amortization of identifiable intangible assets resulting
from the Blaze acquisition over their estimated useful lives of two to
four years, as if the acquisition had occurred on January 1, 2000.
(p) Reflects the estimated tax benefit resulting from the amortization of
the intangible assets recorded as part of the Blaze acquisition, as if
it had occurred on January 1, 2000.