-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WriO3BZBVhQafqPMtZ6+Hb05ytjKhVqkXd+3pFyvjhk549u7/fzfnovYfZ91Nyk9 4NyEl1V25fM+a1xAuW7VAw== 0000936392-96-000179.txt : 19960621 0000936392-96-000179.hdr.sgml : 19960621 ACCESSION NUMBER: 0000936392-96-000179 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HNC SOFTWARE INC/DE CENTRAL INDEX KEY: 0000945093 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 330248788 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26146 FILM NUMBER: 96562319 BUSINESS ADDRESS: STREET 1: 5930 CORNERSTONE CT WEST CITY: SAN DIEGO STATE: CA ZIP: 92121-3728 BUSINESS PHONE: 6195468877 MAIL ADDRESS: STREET 1: 5930 CORNERSTONE CT WEST CITY: SAN DIEGO STATE: CA ZIP: 92121-3728 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996 1 ================================================================================ 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 0-26146 ================================================================================ HNC SOFTWARE INC. (Exact name of registrant as specified in its charter) ================================================================================ DELAWARE 33-0248788 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5930 CORNERSTONE COURT WEST SAN DIEGO, CA 92121 (Address of principal executive offices) (619) 546-8877 (Registrant's telephone number, including area code) ----------------------------------------------------- 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 REPORTS) YES X NO AND (2) HAS BEEN SUBJECT TO SUCH --- --- FILING REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO --- --- AS OF APRIL 30, 1996 THERE WERE 15,377,192 SHARES OF $0.001 PAR VALUE COMMON STOCK OUTSTANDING. ================================================================================ 2
INDEX LISTING ===================================================================================================== Page Number ------ PART I FINANCIAL INFORMATION Item 1: FINANCIAL STATEMENTS Consolidated Balance Sheet at March 31, 1996 1 and December 31, 1995 Consolidated Statement Of Income for the 2 three month periods ended March 31, 1996 and 1995 Consolidated Statement Of Cash Flows for the 3 three month periods ended March 31, 1996 and 1995 Notes To Consolidated Financial Statements 4 Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6 PART II EXHIBITS Item 3: STATEMENT REGARDING COMPUTATION OF PRO FORMA PER SHARE EARNINGS 10
3 PART I - FINANCIAL INFORMATION =============================================================================== Item 1: FINANCIAL STATEMENTS HNC SOFTWARE INC. CONSOLIDATED BALANCE SHEET (in thousands, except per share data) ASSETS
March 31, December 31, 1996 1995 --------- ------------ (Unaudited) Current Assets: Cash and cash equivalents $ 7,042 $ 19,929 Accounts receivable, net 5,214 4,597 Investments available for sale 13,206 14,590 Other current assets 3,475 2,852 -------- -------- Total current assets 28,937 41,968 Investments available for sale 23,452 8,336 Property and equipment, net 3,140 2,593 Other assets 1,395 533 -------- -------- $ 56,924 $ 53,430 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,016 $ 669 Accrued liabilities 1,864 2,451 Deferred revenue 2,801 2,041 -------- -------- Total current liabilities 5,681 5,161 -------- -------- Stockholders' Equity: Common stock, $0.001 par value - 20,000 shares authorized: 15,167 and 14,719 shares issued and outstanding, respectively 15 15 Paid in capital 51,285 49,124 Accumulated deficit (57) (870) -------- -------- Total stockholders' equity 51,243 48,269 -------- -------- $ 56,924 $ 53,430 ======== ========
See accompanying notes to consolidated financial statements. 1 4 HNC SOFTWARE INC. CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) (unaudited)
Three Months Ended ------------------------------------ March 31, 1996 March 31, 1995 -------------- -------------- Revenues: Software license and installation $ 4,789 $ 2,988 Contracts and other 2,979 2,100 ------- ------- Total revenues 7,768 5,088 ------- ------- Operating expenses: Software license and installation 964 565 Contracts and other 2,079 1,587 Research and development 1,589 909 Sales and marketing 1,502 1,017 General and administrative 846 503 ------- ------- Total operating expenses 6,980 4,581 ------- ------- Operating income 788 507 Other income, net 561 34 ------- ------- Income before income tax provision 1,349 541 Income tax provision 536 168 ------- ------- Net income $ 813 $ 373 ======= ======= Net income per share $ 0.05 ======= Pro forma net income per share $ 0.03 ======= Shares used in computing net income per share 16,747 ======= Shares used in computing pro forma net income per share 12,666 =======
See accompanying notes to consolidated financial statements. 2 5 HNC SOFTWARE INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited)
Three Months Ended ------------------------------------------ March 31, 1996 March 31, 1995 ------------------- ----------------- Cash flows from operating activities: Net Income $ 813 $ 373 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 432 156 Changes in assets and liabilities: Accounts receivable, net (617) (204) Other assets 83 78 Accounts payable 347 (280) Accrued liabilities (275) 43 Deferred revenue 760 507 -------- ------- Net cash provided by operating activities 1,543 673 -------- ------- Cash flows from investing activities: Purchases of investments (18,443) -- Maturities of investments 4,382 1,182 Acquisitions of property and equipment (864) (266) -------- ------- Net cash (used in) provided by investing activities (14,925) 916 -------- ------- Cash flows from financing activities: Net proceeds from issuance of common stock 495 2 Repayments of bank notes payable -- (66) -------- ------- Net cash provided by (used in) financing activities 495 (64) -------- ------- Net (decrease) increase in cash and cash equivalents (12,887) 1,525 Cash and cash equivalents at beginning of period 19,929 4,786 -------- ------- Cash and cash equivalents at end of period $ 7,042 $ 6,311 ======== ======= Supplemental cash flow disclosure: Unrealized tax benefit from stock option plans 1,584 -- ======== ======= Accretion of dividends on mandatorily redeemable convertible preferred stock -- 179 ======== ======= Interest paid -- 16 ======== ======= Income taxes paid 10 51 ======== =======
See accompanying notes to consolidated financial statements. 3 6 HNC SOFTWARE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) =============================================================================== Note I GENERAL In management's opinion, the accompanying unaudited consolidated financial statements for HNC Software Inc. (the "Company") for the three months ended March 31, 1996 and 1995 have been prepared in accordance with generally accepted accounting principles for interim financial statements and include all adjustments (consisting only of normal recurring accruals) that the Company considers necessary for a fair presentation of its financial position, results of operations, and cash flows for such periods. All such financial statements are unaudited except the December 31, 1995 balance sheet. This report and the accompanying financial statements should be read in conjunction with the Company's audited financial statements and notes thereto presented in its 1995 Annual Report. Footnotes and other disclosures for the fiscal year ended December 31, 1995, which would substantially duplicate the disclosures in the Company's audited financial statements for Fiscal Year 1995 contained in the 1995 Annual Report, have been omitted. The interim financial information herein is not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 1996. Note 2 PENDING ACQUISITION On February 19, 1996, the Company announced that it would acquire Credit & Risk Management Associates, Inc., a consumer credit consulting firm located in Baltimore, Maryland, subject to the satisfactory resolution of certain contingencies. This transaction has not yet been consummated and remains subject to the satisfaction of certain conditions. The consideration to be paid by the Company will consist of a number of shares of the Company's common stock equal to the greater of 180,000 shares or the number of shares with an aggregate value of $4,000,000 as determined by the average closing price of the Company's common stock for the twenty days preceding the closing of the transaction. Note 3 STOCK SPLIT On March 5, 1996, the Company announced that its Board of Directors approved a two-for-one stock split effected in the form of a common stock dividend. This stock dividend was paid to the corporation's stockholders of record as of the close of business on March 18, 1996. Such stockholders of record received stock certificates representing one additional share of HNC Software Inc. common stock for each outstanding share of common stock then held. Distribution of shares issued pursuant to the stock dividend occurred on April 3, 1996. All references in the accompanying interim financial information to share and per share amounts have been adjusted to give retroactive effect to the stock split. 4 7 Note 4 NET INCOME PER SHARE Net income per share is computed based on the weighted average number of common shares and common stock equivalents, using the treasury stock method, outstanding during the respective periods. Pro forma net income per share is computed based on the weighted average number of common shares and common stock equivalents, using the treasury stock method, outstanding during the respective periods after giving retroactive effect to the conversion of all outstanding shares of preferred stock into 4,478,332 shares of common stock which occurred upon the closing of the Company's initial public offering on June 26, 1995. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, all stock options granted since May 5, 1994 and through May 5, 1995 have been included as outstanding for all periods prior to June 26, 1995 using the treasury stock method. Note 5 LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which the Company adopted as required on January 1, 1996. Pursuant to this Statement, companies are required to investigate potential impairments of long-lived assets, certain identifiable intangibles, and associated goodwill, on an exception basis, when there is evidence that events or changes in circumstances have made recovery of an asset's carrying value unlikely. An impairment loss would be recognized when the sum of the expected future net cash flows is less than the carrying amount of the asset. The adoption of FAS 121 did not have a significant impact on the Company's financial position or results of operations. Note 6 STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (FAS) No. 123, "Accounting for Stock-Based Compensation." FAS 123 was adopted by the Company as required for its fiscal 1996 financial statements and is not expected to have a material effect on the Company's financial position or results of operations. The Company will continue to measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," and will provide pro forma disclosures of net income and earnings per share in its annual financial statements as if the fair value-based method prescribed by FAS 123 had been applied in measuring compensation expense. 5 8 HNC SOFTWARE INC. =============================================================================== Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Item 2 contains certain forward-looking statements regarding the Company, its business, prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause the Company's actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitation: the Company's ability to successfully develop new products for new markets; the Company's loss of a large customer; the Company's inability to secure new government contracts for technology development; the impact of competition on the Company's revenues, market share or ability to maintain its premium usage-based pricing terms and to generate recurring revenue; the availability to the Company, at reasonable cost, of data required to operate or update its intelligent decision software products; changes in law or regulatory requirements that adversely affect or preclude customers from using the Company's products for certain applications; delays in the Company's introduction of new products; and failure by the Company to keep pace with emerging technologies. THREE MONTHS ENDED MARCH 31, 1996 AND 1995 REVENUES. Revenues for the three months ended March 31, 1996 were $7.8 million, an increase of 53% over revenues of $5.1 million for the same period in the prior year. This increase was primarily due to greater software license and installation revenues which were $4.8 million for the quarter ended March 31, 1996, an increase of 60% from $3.0 million for the comparable quarter in 1995. This increase in software license and installation revenues resulted primarily from an increase in revenues from the Company's Falcon credit card fraud detection product and to a lesser extent from the Colleague automated mortgage underwriting product, SkuPLAN, the demand forecasting product for the retail market and the AREAS property valuation product. Contracts and other revenues for the three months ended March 31, 1996 were $3.0 million, compared to $2.1 million for the same period in the prior year. The increase in contracts and other revenues was due primarily to increased commercial contract revenues for new product pilots. SOFTWARE LICENSE AND INSTALLATION EXPENSES. Software license and installation expense primarily consists of the Company's expenses for personnel engaged in installation and support and the costs of documentation materials. Software license and installation expenses for the first quarter of 1996 were $964,000 and constituted 20% of software and installation revenues for the quarter, whereas such expenses were 6 9 $565,000 and represented 19% of software and installation revenues in the first quarter of 1995. The primary reason for the increase in these expenses was increased staffing and associated costs in client services to support the increased volume of business. CONTRACTS AND OTHER EXPENSES. Contracts and other expenses consist primarily of personnel-related expenses. Contracts and other expenses in the first quarter of 1996 were $2.1 million or 70% of contracts and other revenues as compared to $1.6 million or 76% of such revenues in the first quarter of 1995. The reduction in expenses as a percent of revenues is due to improved pricing on certain contracts. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in the first quarter of 1996 were $1.6 million and 20% of total revenues compared to $909,000 and 18% of total revenues in the first quarter of the prior year. The increase in expenses was due primarily to increases in staffing and related costs to support increased new product development activities including the initial quarter of expenses for the Company's new text analysis products. SALES AND MARKETING EXPENSES. Sales and marketing expenses were $1.5 million or 19% of total revenues in the first quarter of 1996 compared to $1.0 million and 20% of total revenues in the first quarter of 1995. The increase in sales and marketing expenses was due primarily to increased staffing and product promotion activities to support higher sales volumes and new product introductions, including the Company's new text analysis products. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $846,000 and 11% of total revenues in the first quarter of 1996, compared to $503,000 and 10% of total revenues in the prior year. The primary reason for the increase in these costs was increased staffing and related expenses to support higher levels of activity of the Company. OPERATING INCOME. The above factors resulted in operating income of $788,000 and 10% of total revenues for the first quarter of 1996, compared to an operating income of $507,000 and 10% of total revenues in the same quarter of the prior year. The Company has experienced fluctuations in quarterly operating profits and margins due to variations in expense growth and some revenue seasonality. The Company has continued to invest in research and development and sales and marketing to better service its customers and markets. The Company expects to continue to increase absolute dollar spending on both research and development and sales and marketing in the future. 7 10 OTHER INCOME, NET. Other income (expense) for the first quarter of 1996 was $561,000 compared to $34,000 in the first quarter of the prior year. The increase was due to increased interest income in 1996 from higher cash and investment balances which consisted primarily of the proceeds from the Company's initial public offering in June, 1995 and secondary public offering in December, 1995. INCOME BEFORE INCOME TAX PROVISION. The resulting income before tax provision for the first quarter of 1996 was $1.3 million or 17% of total revenues, compared to income before tax provision of $541,000 or 11% of total revenues for the comparable quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES FINANCING ACTIVITIES During the three months ended March 31, 1996 the Company obtained $495,000 of cash from financing activities. These funds came primarily from the exercise of stock options and the purchase of shares under the Company's employee stock purchase plan. As of March 31, 1996 the Company had $43.7 million in cash, cash equivalents and investments. Management believes that the Company's cash and investments and cash generated from operations are expected to be adequate for the Company's cash requirements for the next twelve months. OPERATING ACTIVITIES Cash provided by operating activities for the three months ended March 31, 1996 was $1.5 million compared to cash provided by operations of $673,000 for the first three months of the prior year. The increase in cash provided compared to the same period in the prior year was due primarily to increased profitability and increased deferred revenues due to customer prepayments. INVESTING ACTIVITIES Cash used in investing activities was $14.9 million for the three months ended March 31, 1996 compared to cash provided by investing activities of $916,000 for the first three months of the prior year. This was due to net purchases of short and long term investments of $14.1 million and acquisitions of property and equipment, primarily computer equipment of $864,000. 8 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. HNC SOFTWARE INC. Date: May 7, 1996 By: /s/ Raymond V. Thomas ------------------------------------------- Raymond V. Thomas Vice President Finance & Administration and Chief Financial Officer (for Registrant as duly authorized officer and as Principal Financial and Accounting Officer) 9 EX-11.01 2 COMPUTATION OF PRO FORMA PER SHARE EARNINGS 1 PART II - EXHIBITS ================================================================================ EXHIBIT 11.01 HNC SOFTWARE INC. STATEMENT REGARDING COMPUTATION OF PRO FORMA PER SHARE EARNINGS (in thousands, except per share data)
THREE MONTHS ENDED MARCH 31, 1996 1995 ----------- ------- NET INCOME $ 813 $ 373 =========== ======= SHARES(1) Weighted average common shares outstanding 14,970 1,976 Weighted average common stock options 1,777 1,734 and warrants as determined by application of the treasury stock method (2) Weighted average preferred shares outstanding assuming conversion to common stock -- 8,956 =========== ======= Weighted average common and common equivalent shares outstanding 16,747 -- =========== ======= Pro forma weighted average common and common equivalent shares outstanding -- 12,666 =========== ======= NET INCOME PER SHARE OF COMMON STOCK $ 0.05 $ -- =========== ======= PRO FORMA NET INCOME PER SHARE OF COMMON STOCK $ -- $ 0.03 =========== =======
----------------- (1) All share and per share amounts have been adjusted to give retroactive effect to the stock split. (2) Includes an adjustment for options pursuant to SAB No. 83 using the treasury stock method at the initial public offering price of $14.00 per share for 1995 shares. 10 EX-27 3 FINANCIAL DATA SCHEDULE
5 1 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 7,042 36,658 5,669 455 411 28,937 4,851 1,711 56,924 5,681 0 0 0 15 51,285 51,243 7,768 7,768 3,043 6,980 0 33 0 1,349 536 813 0 0 0 813 .05 .05
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