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 March 31, 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 410 332-7532
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)0, 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 April 30, 1996.
Class: Common Stock Number of Shares: 8,989,607
Part 1.
Item 1. Financial Statements
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(in thousands)
March 31, Dec 31,
1996 1995
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents...................... $ 4,359 $ 3,190
Short-term investments......................... 20,582 23,280
Trade accounts receivable, net of allowance for
doubtful accounts of $542 in 1996 and $454
in 1995...................................... 18,222 16,623
Prepaid expenses and other current assets...... 2,858 2,236
-------- -------
Total current assets.......................... 46,021 45,329
Furniture and equipment, net..................... 6,356 6,576
Computer software costs, net..................... 12,297 11,012
Other intangible assets, net..................... 42,813 42,338
Deferred tax asset, net.......................... 2,940 3,090
Other............................................ 777 56
-------- -------
Total assets.................................. $111,204 $108,401
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,222 $ 732
Accrued salaries, benefits and other
liabilities................................... 4,121 4,222
Capital lease obligations....................... 125 174
Notes payable................................... 1,529 2,265
Income taxes payable............................ 1,694 1,098
Deferred revenue................................ 2,281 1,167
-------- --------
Total current liabilities..................... 10,972 9,658
Notes payable................................... 699 699
-------- --------
Total liabilities............................. 11,671 10,357
-------- --------
Stockholders' equity:
Common stock-$.01 par value;15,000,000 shares
authorized; 8,989,607 issued and outstanding
as of March 31, 1996........................... 90 90
Additional paid-in capital....................... 103,147 102,882
Accumulated deficit.............................. (3,662) (4,953)
Cumulative unrealized (depreciation)/appreciation
of short-term investments...................... (22) 44
Cumulative effect of currency translation
adjustment..................................... (20) (19)
-------- ------
Total stockholders' equity................... 99,533 98,044
------- ------
Total liabilities and stockholders' equity....... $111,204 $108,401
======= =======
See accompanying notes to consolidated financial statements.
Page 1
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 1996 and 1995
(in thousands, except per share data)
(Unaudited)
1996 1995
Revenue............................................ $14,229 $8,749
Salaries, wages and benefits....................... 6,686 4,542
Other operating expenses........................... 3,303 2,479
Depreciation....................................... 518 262
Amortization....................................... 1,792 1,029
------- ------
Operating income............................. 1,930 437
Interest income.................................... 282 176
Interest expense................................... (83) (25)
------- ------
Income before income taxes and minority
interest in income of consolidated
subsidiaries.............................. 2,129 588
Provision for income taxes......................... (838) (238)
Minority interest in income of consolidated
subsidiaries..................................... - (7)
------- ------
Net income.................................. $1,291 $ 343
======= =======
Net income per share............................... $ 0.14 $ 0.05
======= =======
Shares used in per share calculation............... 9,460 6,508
======= =======
See accompanying notes to consolidated financial statements.
Page 2
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Year ended December 31, 1995
and the three months ended March 31, 1996
(in thousands)
Cumulative
Unrealized Cumulative
Appreciation/ Effect of
Additional (Depreciation) of Currency Total
Common Paid-in Accumulated Short-term Translation Stockholders'
Stock Capital Deficit Investments Adjustment Equity
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 -- 265 -- -- -- 265
Net income -- -- 1,291 -- -- 1,291
Effect of currency translation
adjustment -- -- -- -- (1) (1)
Unrealized (depreciation) of
short-term investments -- -- -- (66) -- (66)
------- --------- --------- ---------- --------- ----------
BALANCE AT MARCH 31, 1996 (unaudited) $ 90 $103,147 $(3,662) $ (22) $ (20) $99,533
======== ========= ========= ========= ========== ===========
See accompanying notes to consolidated financial statements.
Page 3
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996 and 1995
(in thousands)
(Unaudited)
1996 1995
Cash flows from operating activities:
Net income .......................................... $ 1,291 $ 343
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 2,310 1,291
Deferred tax provision......................... 150 -
Changes in operating assets and liabilities:
Accounts receivable......................... (1,263) 174
Income taxes payable........................ 596 209
Prepaid expenses............................ (553) (169)
Accounts payable............................ 403 808
Accrued salaries, benefits and other
liabilities............................... (317) 147
Deferred revenue............................ 1,114 531
Minority interest........................... - 7
-------- -------
Net cash provided by operating
activities............................. 3,731 3,341
--------- -------
Cash flows from investing activities:
Purchases of furniture and equipment................. (892) (678)
Cost of acquisitions, net of cash acquired........... (613) (520)
Computer software purchased or capitalized........... (2,095) (961)
Other intangible assets purchased or capitalized..... (352) (258)
Purchases of short-term investments.................. (15,112) -
Proceeds from disposals of short-term investments.... 17,744 -
Other................................................ (721) (12)
-------- -------
Net cash used in investing activities.. (2,041) (2,429)
Cash flows from financing activities:
Proceeds from exercise of stock options.............. 265 -
Proceeds from public offerings....................... - 25,753
Repayments of notes payable.......................... (736) -
Repayments of related party borrowings............... - (1,300)
Principal payments on capital leases................. (49) (37)
-------- ------
Net cash provided by (used in)
financing activities................ (520) 24,416
--------- ------
Impact of currency fluctuations on cash and cash
equivalents.............................................. (1) (11)
--------- ------
Increase in cash and cash equivalents...................... 1,169 25,317
Cash & cash equivalents - beginning of period.............. 3,190 696
-------- ------
Cash & cash equivalents - end of period.................... $ 4,359 $26,013
======== ======
Supplemental cash flow information - cash paid during period
for interest $ 65 $ -
======== =======
- cash paid during period
for income taxes $ 93 $ -
======== =======
See accompanying notes to consolidated financial statements.
Page 4
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 position,
results of operations, changes in stockholders' equity and
cash flows for the periods presented. The results of
operations for the three month period ended March 31, 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 (No. 0-25378).
(2) Cash Equivalents
As of March 31, 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.
Page 5
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1996 compared to three months
ended March 31, 1995
Revenue. Revenue for the three months ended March 31,1996
was $14.2 million, an increase of $5.5 million or 63% over
the three months ended March 31, 1995. The increase was
primarily the result of a 77% increase in revenue from the
sale of Decision Support Systems. Revenue from the sale of
Decision Support Systems represented 83% of the revenue for
the three months ended March 31, 1996 and Syndicated
Products represented the remaining 17% 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") both of which occurred after
March 31, 1995.
Salaries, Wages and Benefits. Salaries, wages and benefits
decreased to 47% of revenue for the three months ended March
31, 1996 from 52% for the three months ended March 31, 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 23% of revenue for the three months ended March 31, 1996
from 28% for the three months ended March 31, 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 three
months ended March 31,1996 from 15% for the three months
ended March 31, 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.
Interest Income and Expense. Net interest income was
$199,000 for the three months ended March 31, 1996 compared
with net interest income of $151,000 for the three months
ended March 31, 1995. This increase was the result of a
higher invested balance in 1996.
Income Taxes. The Company's effective tax rate was 39.4%
for the three months ended March 31, 1996 compared with
40.5% for the three months ended March 31, 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 6
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 .25%. The Company
also pays a commitment fee on the average daily unused
portion of the line of credit at a rate of .25% per annum.
Borrowings are collateralized by the Company's accounts
receivable. There were no borrowings under the line of
credit as of March 31, 1996. The line of credit agreement
expires on January 2, 1997.
Page 7
PART II Other Information
Item 5. Other Information
In May 1996, approximately 4.2 million shares of common
stock of the Company were sold by AMBAC Inc. in a registered
public offering. In connection with the offering, the
Company granted the underwriters a 30-day option to purchase
415,951 shares of common stock at $51.00 per share. As of
the date of this report 261,951 shares had been exercised.
The Company did not receive any of the proceeds from the
sale of the shares by AMBAC Inc.
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
None
Page 8
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: May 13, 1996
By:
___________________________
Barry C. Offutt
Senior Vice President and
Chief Financial Officer
(principal financial officer)
Page 9
EXHIBIT INDEX
Exhibit Number Page
11 Statement Re: Computation of earnings per share 11
Page 10