<PAGE>
UNITED STATES
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 December 31, 1994
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: 0-12317
HOGAN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1558550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5080 Spectrum Drive
Suite 400E
Dallas, Texas 75248
(Address of principal executive offices)
(Zip code)
(214) 386-0020
(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), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
As of January 31, 1995, there were 14,386,990 shares of the registrant's $.01
par value common stock outstanding.
<PAGE>
HOGAN SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets - December 31, 1994
and March 31, 1994. . . . . . . . . . . . . . . . . . . . 2-3
Consolidated Statements of Income - Three-months and
Nine-months ended December 31, 1994 and 1993. . . . . . . 4
Consolidated Statements of Cash Flows -
Nine-months ended December 31, 1994 and 1993. . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 7-9
PART II. OTHER INFORMATION
Item 6(a). Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6(b). Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Note: Items 1, 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
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<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<CAPTION>
December 31, March 31,
1994 1994
------------ ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . $ 2,636 $10,374
Accounts receivable, net of
allowance for doubtful accounts
of $558 and $525. . . . . . . . . . . . . 31,568 35,484
Prepaid expenses and other current
assets .. . . . . . . . . . . . . . . . . 3,265 3,253
------- -------
Total current assets. . . . . . . . . . . 37,469 49,111
Long-term receivables. . . . . . . . . . . . 1,026 1,204
Building at cost, net of accumulated
depreciation of $33. . . . . . . . . . . . 2,840 -
Furniture, equipment and leasehold
improvements at cost, net of
accumulated depreciation of
$7,601 and $6,365. . . . . . . . . . . . . 4,843 4,587
Software at cost, net of accumulated
amortization of $5,863 and
$5,201. .. . . . . . . . . . . . . . . . . 29,547 20,853
Other assets . . . . . . . . . . . . . . . . 6,286 6,936
------- -------
Total assets. . . . . . . . . . . . . . . $82,011 $82,691
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
December 31, March 31,
1994 1994
----------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable. . . . . . . . . . . . . . $ 4,265 $ 3,630
Accrued salary and employee
benefits. . . . . . . . . . . . . . . . . 4,608 5,291
Deferred maintenance revenue. . . . . . . . 8,973 10,097
Deferred support. . . . . . . . . . . . . . 1,076 538
Royalties payable . . . . . . . . . . . . . 620 957
Other . . . . . . . . . . . . . . . . . . . 4,175 3,289
------- -------
Total current liabilities . . . . . . . . 23,717 23,802
Deferred maintenance revenue. . . . . . . . . 3,585 4,115
Deferred income taxes . . . . . . . . . . . . 2,760 2,485
Other long-term liabilities . . . . . . . . . 276 160
------- -------
Total liabilities . . . . . . . . . . . . 30,338 30,562
------- -------
Shareholders' equity:
Preferred stock, no par value -
authorized 1,000 shares - none issued
Common stock, par value $.01 - authorized
48,479 shares - issued 15,076 shares
at December 31, 1994 and 15,070 shares
at March 31, 1994 . . . . . . . . . . . . 151 151
Capital in excess of par value. . . . . . . 44,652 44,625
Foreign currency translation adjustments. . (1,348) (1,577)
Retained earnings . . . . . . . . . . . . . 14,073 14,785
------- -------
57,528 57,984
Less: Treasury stock at cost,
689 shares . . . . . . . . . . . . . (5,855) (5,855)
------- -------
Shareholders' equity . . . . . . . . 51,673 52,129
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . . $82,011 $82,691
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
Three Nine
Months Ended Months Ended
December 31, December 31,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Professional service fees. . . . $15,481 $10,935 $44,753 $30,361
License fees . . . . . . . . . . 717 4,647 6,859 10,484
Maintenance fees . . . . . . . . 4,118 3,026 11,897 8,118
------- ------- ------- -------
Total revenues. . . . . . . . . 20,316 18,608 63,509 48,963
Expenses:
Professional services. . . . . . 11,732 8,865 35,877 24,023
Development and product
support. . . . . . . . . . . . 2,381 1,687 7,754 4,321
Selling and marketing. . . . . . 3,544 3,128 10,702 9,551
General and administrative . . . 2,012 1,858 6,030 5,382
------- ------- ------- ------
Total expenses. . . . . . . . . 19,669 15,538 60,363 43,277
Operating income. . . . . . . . . . 647 3,070 3,146 5,686
Interest income, net. . . . . . . . (69) 136 5 608
------- ------- ------- -------
Income before taxes . . . . . . . . 578 3,206 3,151 6,294
Provision for income taxes. . . . . 271 1,548 1,421 2,850
------- ------- ------- ------
Income before cumulative effect
of accounting change . . . . . . 307 1,658 1,730 3,444
Cumulative effect of change in
accounting for income taxes. . . - - - 350
------- ------ ------- -------
Net income. . . . . . . . . . . . . $ 307 $ 1,658 $ 1,730 $ 3,794
======= ======= ======= =======
Per share data:
Income before cumulative
effect of accounting change . . $0.02 $0.11 $0.12 $0.23
===== ===== ===== =====
Net income . . . . . . . . . . . $0.02 $0.11 $0.12 $0.25
===== ===== ===== =====
Weighted average number
of common shares. . . . . . . . 14,631 15,122 14,837 15,294
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Nine months
Ended December 31,
1994 1993
------ ------
<S> <C> <C>
Cash flow from operating activities:
Income before cumulative effect of
accounting change. . . . . . . . . . . . . $ 1,730 $ 3,444
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . - 350
. . . . . . . . . . . . . . . . . . . . ------- -------
Net income . . . . . . . . . . . . . . . . . . 1,730 3,794
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization. . . . . . . . 3,979 1,915
Changes in assets and liabilities:
Allowance for doubtful accounts . . . . . 90 341
Accounts receivable . . . . . . . . . . . 4,004 (4,483)
Note receivable . . . . . . . . . . . . . - 825
Prepaid expenses and other current assets. (12) (358)
Accounts payable. . . . . . . . . . . . . 635 3
Accrued salary and employee benefits. . . (683) (916)
Deferred maintenance revenue. . . . . . . (1,654) (836)
Deferred support. . . . . . . . . . . . . 538 (569)
Royalties payable . . . . . . . . . . . . (337) 398
Deferred income taxes . . . . . . . . . . 666 1,431
Other assets. . . . . . . . . . . . . . . 56 (537)
Other liabilities . . . . . . . . . . . . 693 (380)
Other long-term liabilities . . . . . . . 116 (57)
------ ------
9,821 571
Cash flow from investing activities:
Purchase of building . . . . . . . . . . . . (2,894) -
Purchase of furniture, equipment and
leasehold improvements. . . . . . . . . . . (1,624) (3,052)
Additions to capitalized software. . . . . . (10,626) (12,295)
-------- -------
(15,144) (15,347)
Cash flow from financing activities:
Cash dividend. . . . . . . . . . . . . . . . (2,443) (2,510)
Purchase of treasury stock . . . . . . . . . - (5,855)
Exercise of stock options. . . . . . . . . . 28 2,230
------- -------
(2,415) (6,135)
Net decrease in cash and cash equivalents . . (7,738) (20,911)
Cash and cash equivalents at beginning
of period. . . . . . . . . . . . . . . . . . 10,374 39,353
-------- -------
Cash and cash equivalents at end of period. . $ 2,636 $18,442
======== =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
HOGAN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) In the opinion of management, the unaudited financial information
contained herein reflects all adjustments which are necessary to fairly state
the Company's consolidated financial position and the consolidated results of
its operations and cash flows for the periods presented. All such adjustments
are of a normal recurring nature. This report on Form 10 Q should be read in
conjunction with the Company's 1994 Annual Report, including the consolidated
financial statements and notes included therein. The Company presumes that
users of the accompanying interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, disclosure of information included in the Company's 1994 Annual
Report has been omitted. The results of operations for the nine-month period
ended December 31, 1994, are not necessarily indicative of results for the
fiscal year ending March 31, 1995.
(2) On May 5, 1994, the Board of Directors approved payment of a $0.17 per
share special dividend to shareholders of record as of May 31, 1994, with a
payment date of June 16, 1994.
(3) In April 1994, the Company made a cash payment of approximately $2,875 to
purchase the building which it had previously leased for its United Kingdom
office through March 31, 1994.
(4) Certain items included in the financial statements for the prior year
period have been reclassified to conform with the current year presentation.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (In thousands, except per share data)
-----------------------------------------------------------
Revenues for the quarter ended December 31, 1994, aggregated $20,316 compared
to $18,608 for the comparable quarter of the prior fiscal year. The Company
reported net income of $307 ($.02 per share) as compared to net income of
$1,658 ($.11 per share) for the quarter ended December 31, 1993.
For the nine-month period ended December 31, 1994, revenues totaled $63,509
compared to $48,963 in the same period of the prior fiscal year, an increase
of $14,546 (30%). Net income of $1,730 ($.12 per share) for the nine-month
period ended December 31, 1994 compares to net income of $3,794 ($.25 per
share) for the nine-month period ended December 31, 1993. Net income and per
share amounts for the nine-month period ended December 31, 1993 included a
gain of $350 ($.02 per share) as a result of a change in accounting for income
taxes.
Professional service revenues for the current fiscal quarter increased to
$15,481 from $10,935 in the comparable quarter of last fiscal year, an
increase of 42 percent. For the nine-month period ended December 31, 1994,
professional service revenues increased 47 percent to $44,753 from $30,361 in
the comparable period a year ago. These increases are primarily attributable
to increased consulting rates and current period additions to the number and
scope of new service contracts attached to the license agreements entered into
by the Company during fiscal 1994.
License fees decreased by $3,930 and $3,625 for the quarter and nine-month
periods ended December 31, 1994, respectively, as compared to the comparable
periods of the prior fiscal year. These decreases are attributable to the
number of software products delivered in the respective fiscal periods. These
products are sophisticated software products that typically require a
significant purchase commitment by customers; and therefore, result in a
lengthy and variable sales cycle.
Maintenance fees increased by $1,092 (36%) and $3,779 (47%) during the three
month and nine-month periods ended December 31, 1994, respectively, as
compared to the comparable periods of the prior fiscal year. These increases
are principally a result of the March 1994 acquisition of IBM's rights to
provide maintenance support services for the Company's IBA software products
in the United States, Canada, Puerto Rico and Latin America.
-7-
<PAGE>
Professional service expenses increased from $8,865 during the quarter ended
December 31, 1993 to $11,732 during the quarter ended December 31, 1994, while
the services margin (ratio of professional service revenues exceeding
professional service expenses to professional service revenues) has
increased from 19 percent to 24 percent. For the nine-month periods ended
December 31, 1993 and 1994, this expense increased from $24,023 to $35,877,
while the services margin decreased slightly from 21 percent to 20 percent.
The overall expense increases result principally from increased personnel and
sub-contractor costs resulting from escalating demand for the Company's
professional services business, while the margins have improved in the
current quarter due to increased consulting rates and improved
utilization of personnel.
As compared to the comparable periods for the prior fiscal year, development
and product support expenses increased by $694 and $3,433 for the quarter and
nine-month periods ended December 31, 1994, respectively. These increases are
attributable to a significant increase in software amortization expense
resulting from new product releases during the fourth quarter of the fiscal
year ended March 31, 1994, as well as additional software amortization
resulting from a sale of the Company's branch automation software during the
second quarter of the current fiscal year. Also, the Company has incurred
increased labor costs during the periods as a result of the acquisition
of IBM's rights to provide support services for the Company's IBA software
products as discussed above.
Selling and marketing expenses have increased by $416 (13%) and $1,151 (12%),
respectively, for the current quarter and the nine-month period ended
December 31, 1994, as compared to the same periods a year ago. This change
results from increases in compensation due to additional headcount.
Even so, the total sales and marketing costs as a percentage of revenues
have remained stable, at 17 percent in the corresponding quarters,
but have decreased from 20 percent to 17 percent for the nine-month periods
ended December 31, 1993 and 1994, respectively.
General and administrative expense increases of 8 percent and 12 percent,
respectively, for the quarter and nine-month periods ended December 31, 1994,
as compared to the same periods a year ago, resulted from increased
headcount to support the Company's growing management information systems.
Net interest income decreased by $205 and $603 for the quarter and nine-
month periods ended December 31, 1994, respectively, as compared to the
comparable periods of the prior fiscal year. The decrease in net interest
income is attributable to reduced cash balances and the related interest
expense incurred as a result of the Company's borrowing on its line of
credit.
-8-
<PAGE>
Liquidity and Capital Resources (In thousands)
- - - - ----------------------------------------------
The Company's principal sources of liquidity have historically resulted from
cash flow from operations, the issuance of common stock, existing cash
balances and its line of credit. During the nine-month period ended
December 31, 1994, the Company generated $9,821 in cash and cash
equivalents from operations, offset by its investment in capitalized
software ($10,626), purchase of a building ($2,894) and payment of a
cash dividend ($2,443).
The Company believes that its working capital, capital equipment and software
development expenditures for the foreseeable future, including those for the
current product marketing and development plan, will be met by cash flow from
operations and available borrowing capacity under its $20,000 revolving bank
line of credit (fully available at December 31, 1994).
Seasonality
- - - - -----------
Operating results do not usually follow a predictable seasonal pattern. As
discussed earlier, the software products and services delivered are
sophisticated in nature and require a significant purchase commitment by
customers. Therefore, this process results in a lengthy and variable sales
cycle.
-9-
<PAGE>
PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable.
Item 6(a): Exhibits
Exhibit 11 - Calculation of weighted average number of common
shares and common share equivalents outstanding for the
three-month and nine-month periods ended December 31, 1994 and
1993.
Item 6(b): Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1994.
-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.
February 14, 1995
HOGAN SYSTEMS, INC.
- - - - ------------------------------------
(Registrant)
/s/MICHAEL H. ANDERSON
- - - - --------------------------------------
Michael H. Anderson
Chairman, President and
Chief Executive Officer
(Principal Executive Officer and Director)
/s/DAVID R. BANKHEAD
- - - - ---------------------------------------
David R. Bankhead
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
-11-
<TABLE>
HOGAN SYSTEMS, INC.
EXHIBIT 11
Weighted Average Number of Common Shares and
Common Share Equivalents Outstanding
(In thousands)
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Three-month period ended
December 31:
Shares outstanding at beginning of
period. . . . . . . . . . . . . . 14,383 14,186
Exercise of stock options. . . . . . 2 9
Common stock equivalents . . . . . . 246 927
------ ------
Weighted average number of common
shares and common share equivalents
outstanding. . . . . . . . . . . . . 14,631 15,122
====== ======
Nine-month period ended
December 31:
Shares outstanding at beginning of
period. . . . . . . . . . . . . . 14,381 14,405
Exercise of stock options. . . . . . 3 75
Common stock equivalents . . . . . . 453 814
. . . . . . . . . . . . . . . . . . ------ ------
Weighted average number of common
shares and common share equivalents
outstanding. . . . . . . . . . . . . 14,837 15,294
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000709139
<NAME> HOGAN SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> DEC-31-1995
<CASH> 2636
<SECURITIES> 0
<RECEIVABLES> 32126
<ALLOWANCES> 558
<INVENTORY> 0
<CURRENT-ASSETS> 37469
<PP&E> 15317
<DEPRECIATION> 7634
<TOTAL-ASSETS> 82011
<CURRENT-LIABILITIES> 23717
<BONDS> 0
<COMMON> 151
0
0
<OTHER-SE> 51522
<TOTAL-LIABILITY-AND-EQUITY> 82011
<SALES> 20316
<TOTAL-REVENUES> 20316
<CGS> 17657
<TOTAL-COSTS> 19669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> 578
<INCOME-TAX> 271
<INCOME-CONTINUING> 307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
