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 September 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 November 1, 1996:
Class: Common Stock Number of Shares: 11,775,026
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(in thousands)
Part 1
Item 1. Financial Statements
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 21,538 $ 3,190
Short-term investments......................................................... 6,615 23,280
Trade accounts receivable, net of allowance for doubtful accounts
of $831 in 1996 and $454 in 1995.............................................. 26,656 16,623
Prepaid expenses and other current assets...................................... 4,457 2,236
Income tax receivable.......................................................... 601 --
Deferred compensation funds held in trust...................................... 29,909 --
-------- --------
Total current assets.......................................................... 89,776 45,329
Furniture and equipment, net..................................................... 10,163 6,576
Computer software costs, net..................................................... 17,418 11,012
Other intangible assets, net..................................................... 107,084 42,338
Net deferred tax asset........................................................... 17,670 3,090
Other............................................................................ 897 56
Deferred compensation funds held in trust........................................ 3,801 --
-------- --------
Total assets.................................................................. $246,809 $108,401
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 1,782 $ 732
Accrued salaries, benefits and other liabilities................................ 5,589 4,222
Capital lease obligations....................................................... 152 174
Notes payable................................................................... 1,622 2,265
Income taxes payable............................................................ 200 1,098
Deferred revenue................................................................ 1,370 1,167
Acquired deferred compensation liability ....................................... 35,232 --
-------- --------
Total current liabilities..................................................... 45,947 9,658
Notes payable................................................................... -- 699
Acquired deferred compensation liability........................................ 3,801 --
-------- --------
Total liabilities............................................................. 49,748 10,357
-------- --------
Stockholders' equity:
Common stock-$.01 par value;50,000,000 shares authorized; issued and
outstanding 11,775,026 as of September 30, 1996 and 8,955,932 as of
December 31, 1995......................................................... 118 90
Additional paid-in capital....................................................... 249,512 102,882
Deferred compensation shares held in trust....................................... (5,323) --
Accumulated deficit.............................................................. (47,222) (4,953)
Cumulative unrealized (depreciation)/appreciation of short-term investments...... (2) 44
Cumulative effect of currency translation adjustment............................. (22) (19)
-------- --------
Total stockholders' equity................................................... 197,061 98,044
-------- --------
Total liabilities and stockholders' equity....................................... $246,809 $108,401
======== ========
See accompanying notes to consolidated financial statements.
Page 1
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 1996 and 1995
(in thousands, except per share data)
(Unaudited)
1996 1995
Revenue.................................................................. $ 18,684 $ 13,220
Salaries, wages and benefits............................................. 8,245 5,859
Other operating expenses................................................. 4,703 3,021
Depreciation............................................................. 683 510
Amortization............................................................. 2,926 1,341
Write-off of acquired in-process research and development costs.......... 41,507 --
-------- --------
Operating income (loss) ........................................... (39,380) 2,489
Interest income.......................................................... 244 382
Interest expense ........................................................ 294 65
-------- --------
Income (loss) before income taxes and minority interest in income
of consolidated subsidiaries................................... (39,430) 2,806
Provision for income taxes............................................... 3,803 1,150
Minority interest in income of consolidated subsidiaries................. -- (38)
-------- --------
Net income (loss)................................................. $(43,233) $ 1,618
======== ========
Net income (loss) per share.............................................. $ (4.13) $ 0.19
======== ========
Shares used in per share calculation..................................... 10,466 8,586
======== ========
See accompanying notes to consolidated financial statements.
Page 2
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended September 30, 1996 and 1995
(in thousands, except per share data)
(Unaudited)
1996 1995
Revenue................................................................... $ 49,402 $34,225
Salaries, wages and benefits.............................................. 21,803 16,022
Other operating expenses.................................................. 11,520 8,559
Depreciation.............................................................. 1,772 1,165
Amortization.............................................................. 6,642 3,646
Write-off of acquired in-process research and development costs........... 45,879 --
-------- -------
Operating income (loss)............................................. (38,214) 4,833
Interest income........................................................... 811 799
Interest expense ......................................................... 437 104
-------- -------
Income (loss) before income taxes and minority interest in income
of consolidated subsidiaries.................................... (37,840) 5,528
Provision for income taxes................................................ 4,429 2,339
Minority interest in income of consolidated subsidiaries.................. -- (64)
-------- -------
Net income (loss).................................................. $(42,269) $ 3,125
======== =======
Net income (loss) per share............................................... $ (4.43) $ 0.41
======== =======
Shares used in per share calculation...................................... 9,533 7,661
======== =======
See accompanying notes to financial statements.
Page 3
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Year ended December 31, 1995 and the nine months ended
September 30, 1996
(in thousands)
Cumulative
Unrealized Cumulative
Appreciation/ Effect of
Additional (Depreciation) of Currency Total
Common Paid-in Shares Held Accumulated Short-term Translation Stockholders'
Stock Capital in Trust 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 -- 506 -- -- -- -- 506
Sale of common
stock to the public 23 116,286 -- -- -- -- 116,309
Tax benefits related
to stock options -- 1,128 -- -- -- -- 1,128
Issuance of stock in
connection with the
LBA acquisition 5 28,710 -- -- -- -- 28,715
Shares held in trust (5,323) (5,323)
Net loss -- -- -- (42,269) -- -- (42,269)
Effect of currency
translation
adjustment -- -- -- -- -- (3) (3)
Unrealized
(depreciation) of
short-term
investments -- -- -- -- (46) -- (46)
-------- --------- ---------- ---------- ---------- -------- --------
BALANCE AT
SEPTEMBER 30,
1996 (unaudited) $ 118 $ 249,512 $ (5,323) $ (47,222) $ (2) $ (22) $197,061
======== ========= ========== ========== ========== ======== ========
See accompanying notes to consolidated financial statements.
Page 4
HCIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1996 and 1995
(in thousands)
(Unaudited)
1996 1995
Cash flows from operating activities:
Net income (loss) ........................................................ $ (42,269) $ 3,125
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................................... 8,414 4,811
Write-off of acquired in-process research and development costs..... 45,879 --
Deferred tax provision.............................................. 4,175 1,082
Changes in operating assets and liabilities:
Accounts receivable.............................................. (6,860) (5,141)
Income taxes payable............................................. (1,098) 634
Income taxes receivable.......................................... (601) --
Prepaid expenses................................................. (973) (1,098)
Accounts payable................................................. (755) (122)
Accrued salaries, benefits and other liabilities................. (407) (275)
Deferred revenue................................................. (8) (1,405)
Minority interest................................................ -- 64
--------- --------
Net cash provided by operating activities................... 5,497 1,675
--------- --------
Cash flows from investing activities:
Purchases of furniture and equipment...................................... (4,127) (2,073)
Cost of acquisitions, net of cash acquired................................ (133,253) (14,976)
Computer software purchased or capitalized................................ (8,867) (4,487)
Other intangible assets purchased or capitalized.......................... (1,303) (617)
Purchases of short-term investments....................................... (59,640) (47,385)
Proceeds from disposals of short-term investments......................... 76,259 15,975
Other..................................................................... (841) 38
-------- --------
Net cash used in investing activities....................... (131,772) (53,525)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options................................... 506 --
Proceeds from public offerings............................................ 117,437 65,993
Issuance of stock for acquisition......................................... 28,715 --
Acquisition related borrowings............................................ 86,000 --
Repayment of acquisition related borrowings............................... (86,000) --
Fees paid to establish credit facilities.................................. (510) --
Borrowing from related party.............................................. -- 800
Repayments of notes payable............................................... (1,342) (144)
Repayments of related party borrowings.................................... -- (1,900)
Principal payments on capital leases...................................... (180) (286)
-------- --------
Net cash provided by financing activities.................. 144,626 64,463
-------- --------
Impact of currency fluctuations on cash and cash equivalents.................... (3) (4)
-------- --------
Increase in cash and cash equivalents .......................................... 18,348 12,609
Cash & cash equivalents - beginning of period................................... 3,190 696
-------- --------
Cash & cash equivalents - end of period......................................... $ 21,538 $ 13,305
======== ========
Supplemental cash flow information - cash paid during period for interest $ 351 $ 610
======== ========
- cash paid during period for income taxes $ 825 $ 127
======== ========
See accompanying notes to consolidated financial statements.
Page 5
HCIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine-month periods ended September 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 Inc.
On August 14, 1996, approximately 2.2 million shares of common stock of the
Company were sold at $54.125 per share in a registered public offering. Of these
shares, 216,696 were sold by certain selling stockholders. The remaining shares
were sold by the Company. The Company did not receive any of the proceeds from
the sale of shares by the selling stockholders
(3) Cash Equivalents
As of September 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 money market funds,
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. In August 1996, the
Company acquired LBA Health Care Management, Inc. ("LBA") for approximately $130
million. The Company paid $100 million in cash and approximately $30 million
through delivery of 492,961 shares of the Company's common stock. These
acquisitions have been accounted for using the purchase method of accounting
and, accordingly, the assets acquired are valued at their estimated fair market
value.
Page 6
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
Revenue. Revenue for the nine months ended September 30, 1996 was $49.4 million,
an increase of $15.2 million or 44% over the nine months ended September 30,
1995. The increase was primarily the result of a 48% 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 nine 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 market, and as a result of the acquisitions of Datis Corporation
("Datis"), the CHAMP unit of William M. Mercer, Incorporated ("CHAMP"), and LBA.
Salaries, Wages and Benefits. Salaries, wages and benefits decreased to 44% of
revenue for the nine months ended September 30, 1996 from 47% for the nine
months ended September 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 23% of revenue for the nine months
ended September 30, 1996 from 25% for the nine months ended September 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 17% of
revenue for the nine months ended September 30, 1996 from 14% of revenue for the
nine months ended September 30, 1995. The increase was a result of the
additional amortization associated with the acquisitions of Datis, CHAMP,
Response and LBA as well as depreciation of other acquired assets.
Write-off of Acquired In-process Research and Development Costs. In connection
with the acquisitions of Response and LBA, the Company acquired ongoing research
and development activities. At the time of these acquisitions the Company
recorded one-time charges of approximately $4.4 million and $41.5 million
resulting form the write-off of the acquired in-process research and development
activities of Response and LBA, respectively.
Income Taxes. The Company's effective tax rate was (11.7%) for the nine months
ended September 30, 1996 compared with 42.3% for the nine months ended September
30, 1995. This change resulted primarily from the increase in non-deductible
goodwill amortization and the non-deductible write-off of in-process research
and development costs acquired in the Response and LBA acquisitions.
Page 7
Three months ended September 30, 1996 compared to three months ended September
30, 1995
Revenue. Revenue for the three months ended September 30,1996 was $18.7 million,
an increase of $5.4 million or 41% over the three months ended September 30,
1995. The increase was primarily the result of a 47% increase in revenue from
the sale of Decision Support Systems. Revenue from the sale of Decision Support
Systems represented 81% of the revenue for the three months ended September 30,
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 market, and as a result of the acquisitions of CHAMP and LBA.
Salaries Wages and Benefits. Salaries, wages and benefits were 44% of revenue
for each of the three month periods ended September 30, 1996 and 1995.
Other Operating Expenses. Other operating expenses, which include occupancy,
travel, and marketing expenses, increased to 25% of revenue for the three months
ended September 30, 1996 from 23% for the three months ended September 30, 1995.
This increase was a result of certain of these expenses, including marketing and
travel, growing at a faster rate than revenue.
Depreciation and Amortization. Depreciation and amortization increased to 19% of
revenue for the three months ended September 30, 1996 from 14% for the three
months ended September 30, 1995. This increase was a result of the additional
amortization and depreciation associated with the acquisitions of CHAMP,
Response and LBA.
Write-off of Acquired In-process Research and Development Costs. In connection
with the acquisition of LBA, the Company acquired LBA's ongoing research and
development activities. At the time of the acquisition, the Company recorded a
one-time charge of $41.5 million resulting from the write-off of the acquired
in-process research and development costs.
Interest Income and Expense. Net interest expense was $50,000 for the three
months ended September 30, 1996 compared with net interest income of $317,000
for the three months ended September 30, 1995. This change was the result of a
lower invested balance in 1996 and interest expense incurred in connection with
the LBA acquisition.
Income Taxes. The Company's effective tax rate was (9.6%) for the three months
ended September 30, 1996 compared with 41.0% for the three months ended
September 30, 1995. This change resulted primarily from the increase in
non-deductible goodwill amortization and the non-deductible write-off of
in-process research and development costs acquired in the Response and LBA
acqusitions.
Page 8
Liquidity and Capital Resources
In August 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. The Company
drew down the entire $50 million term loan and approximately $36 million of the
revolving line of credit in connection with its acquisition of LBA. The Company
subsequently repaid these borrowings with a portion of the proceeds from its
August 1996 public offering of 2.2 million shares of its Common Stock. The
Company maintains the $50 million revolving line of credit with First Union for
general corporate purposes including future acquisitions and working capital
requirements. Borrowings under this line are collaterized by substantially all
of the Company's assets, and 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. There were no
borrowings outstanding as of September 30, 1996.
In May 1996, the Company acquired all of the capital stock of Response for
approximately $6.2 million in cash. In August 1996, the Company acquired LBA for
approximately $130 million, $100 million of which was paid in cash and
approximately $30 million of which was paid through the delivery of 492,961
shares of common stock of the Company.
Page 9
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held at
11:00 a.m., Baltimore time, on August 9, 1996 at the corporate headquarters of
the Company, Baltimore, Maryland. The following is a summary of the votes cast
as to the propositions presented:
Proposal No. 1. The election as directors of all nominees named below.
DIRECTORS: FOR WITHHELD
George D. Pillari 7,895,923 20,735
Richard Dulude 7,895,853 20,805
Richard A. Berman 7,875,613 41,045
Mark C. Rogers 7,894,423 22,235
CONTINUING DIRECTORS:
W. Grant Gregory
Phillip B. Lassiter
Carl J. Schramm
Proposal No. 2. The approval of an amendment of the Articles of
Incorporation increasing the authorized shares of Common Stock to
50,000,000 shares.
FOR AGAINST ABSTAIN NONVOTED
6,151,180 1,557,533 77,635 130,310
Proposal No. 3. The approval of amendments to the 1994 Stock and
Incentive Plan.
FOR AGAINST ABSTAIN NONVOTED
4,971,644 2,065,061 80,929 799,024
Proposal No. 4. The approval of amendments to the 1995 Non-Employee
Directors Stock Option Plan.
FOR AGAINST ABSTAIN NONVOTED
6,632,452 404,793 80,389 799,024
Proposal No. 5. The ratification of the appointment of KPMG Peat
Marwick LLP to serve as the Company's independent public accountants
for the fiscal year ending December 31, 1996.
FOR AGAINST ABSTAIN
7,844,137 3,616 68,905
Page 10
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 following Reports on Form 8-K were filed in connection with
the Company's acquisition of HealthVISION, Inc. ("HVI") and its
wholly-owned subsidiary, LBA.
Form 8-K - dated July 19, 1996
Form 8-K/A-1 - filed August 13, 1996
The above summarized the terms of the acquisition of HVI and LBA
and contained the following financial statements:
Financial statements of Datis Corporation
Financial statements of the National Health Analysis Unit of
William M. Mercer, Incorporated
Financial statements of HVI
On October 23, 1996, the Company filed a Form 8-K/A-2
containing the above-referenced financial statements, as well as financial
statements of LBA and certain pro forma financial statements, which had been
previously filed as part of the Company's Registration Statement on Form S-3
(File No. 333-08639).
Page 11
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: November 14, 1996
By: ________________________________
Barry C. Offutt
Senior Vice President and
Chief Financial Officer
(principal financial officer)
Page 12
EXHIBIT INDEX
Exhibit Number Page
- -------------- ----
11 Statement Re: Computation of Earnings per share 14
Page 13