<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 June 30, 1995
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 July 31, 1995, there were 14,506,415 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 - June 30, 1995
and March 31, 1995 2-3
Consolidated Statements of Income -
Three-months ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Three-months ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6(a). Exhibits 9
Item 6(b). Reports on Form 8-K 9
Signatures 10
------------------
Note: Items 1, 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
-1-
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<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<CAPTION>
June 30, March 31,
1995 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,299 $ 7,764
Accounts receivable, net of
allowance for doubtful accounts of $908
and $911 42,743 40,577
Deferred income taxes 905 905
Prepaid expenses and other current assets 1,054 1,685
------- -------
Total current assets 50,001 50,931
Long-term receivables 363 359
Property and equipment at cost, net of accumulated
depreciation of $8,778 and $8,220 6,906 7,236
Capitalized software costs, net of accumulated
amortization of $12,407 and $10,894 32,283 32,149
Intangible assets 5,001 5,136
Other assets 783 870
------- -------
Total assets $95,337 $96,681
======= =======
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
June 30, March 31,
1995 1995
-------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,039 $ 5,666
Accrued salary and employee benefits 5,057 7,795
Working capital line of credit 3,875 1,920
Deferred maintenance revenue 10,183 11,741
Deferred support revenue 815 1,011
Other 4,443 4,027
------- ------
Total current liabilities 28,412 32,160
Deferred maintenance revenue 2,748 3,092
Deferred income taxes 4,648 4,502
Other long-term liabilities 226 257
------- -------
Total liabilities 36,034 40,011
Shareholders' equity:
Preferred stock, no par value -
authorized 1,000 shares - none issued
Common stock, par value $.01 - authorized 50,000
shares - issued 15,149 shares at June 30, 1995
and 15,078 shares at March 31, 1995 - outstanding
14,461 and 14,390, respectively 151 151
Capital in excess of par value 45,067 44,618
Foreign currency translation adjustments (954) (886)
Retained earnings 20,888 18,636
------- -------
65,152 62,519
Less: Treasury stock at cost, 688 shares (5,849) (5,849)
------- -------
Shareholders' equity 59,303 56,670
------- -------
Total liabilities and shareholders' equity $95,337 $96,681
======= =======
<FN>
See accompanying notes to these 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 Months
Ended June 30,
1995 1994
---- ----
<S> <C> <C>
Revenues:
Professional service fees $16,878 $13,738
License fees 4,202 2,129
Maintenance fees 3,869 3,917
------- -------
Total revenues 24,949 19,784
Expenses:
Professional services 11,243 11,616
Development and product support 4,061 2,551
Selling and marketing 3,954 3,594
General and administrative 2,106 1,909
------- -------
Total expenses 21,364 19,670
------- -------
Operating income 3,585 114
Interest income, net 32 46
------- -------
Income before taxes 3,617 160
Provision for income taxes 1,365 80
------- -------
Net income 2,252 80
======= =======
Net income per common share $ 0.15 $ 0.01
======= =======
Weighted average number
of common shares 15,200 15,100
======= =======
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Three months
Ended June 30
1995 1994
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,252 $ 80
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,206 1,168
Foreign currency translation (68) 150
Changes in assets and liabilities:
Accounts receivable (2,166) (3,929)
Prepaid expenses and other current assets 631 256
Accounts payable (1,627) 358
Accrued salary and employee benefits (2,738) (1,757)
Deferred maintenance revenue (1,902) (919)
Deferred support revenue (196) 711
Deferred income taxes 146 (93)
Other assets 83 (2)
Other liabilities 385 (81)
------- -------
(2,994) (4,058)
Cash flow from investing activities:
Purchase of property and equipment (228) (3,917)
Additions to capitalized software (1,647) (4,443)
------- -------
(1,875) (8,360)
Cash flow from financing activities:
Cash dividend - (2,443)
Exercise of stock options 449 10
Proceeds from working capital line of credit 1,955 6,114
------- -------
2,404 3,681
------- -------
Net decrease in cash and cash equivalents (2,465) (8,737)
Cash and cash equivalents at beginning of period 7,764 10,374
------- -------
Cash and cash equivalents at end of period $ 5,299 $ 1,637
======= =======
<FN>
See accompanying notes to these 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 1995 Annual Report on Form 10-K. 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
1995 Annual Report on Form 10 K has been omitted. The results of operations
for the quarter ended June 30, 1995, are not necessarily indicative of results
for the fiscal year ending March 31, 1996.
(2) Certain items included in the financial statements for the prior year
period have been reclassified to conform with the current year presentation.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (In thousands, except per share data)
-----------------------------------------------------------
The following table sets forth the relative percentages which certain items in
Hogan's Consolidated Statements of Income bear to revenues and the percentage
changes in these items from the first quarter of fiscal 1995 to the first
quarter of fiscal 1996.
<TABLE>
<CAPTION>
Quarter to Quarter
Percentage Percentage
of Revenues Increase (Decrease)
1995 1994 1995 vs 1994
----- ----- -------------------
<S> <C> <C> <C>
Revenue:
Professional service fees 68% 69% 23%
License fees 17 11 97
Maintenance fees 15 20 (1)
--- ---
Total revenues 100 100 26
Expenses:
Professional services 45 59 (3)
Development and product support 16 13 59
Selling and marketing 16 18 10
General and administrative 9 9 10
--- ---
Total expenses 86 99 9%
--- ---
Operating income 14% 1%
=== ===
<FN>
</TABLE>
Revenues for the quarter ended June 30, 1995, aggregated $24,949 compared to
$19,784 for the comparable quarter of the prior fiscal year. The Company
reported net income of $2,252 ($.15 per share) as compared to net income of
$80 ($.01 per share) for the quarter ended June 30, 1994. Contributing to the
profitable quarter were the Company's license sales of $4,202, an increase of
97% over the first quarter of fiscal 1995. The Company's success stems from
the sale of its Credit Card System to a major European financial institution
and the sale of its Customer Information System to a leading financial
institution in South Africa.
Professional service revenues for the current fiscal quarter increased 23% as
compared to the comparable quarter of the prior fiscal year. This increase is
primarily attributable to current period additions to the number and scope of
new service contracts. Professional service expenses decreased 3% during the
quarter ended June 30, 1995, as the Company continued its steady improvement
of its professional service margins this quarter. As a result of cost
reduction steps (including decreased subcontractor and personnel costs) taken
by the management team, the professional services margin has increased from
15% a year ago to 33% in the current quarter.
-7-
<PAGE>
Results of Operations (continued)
---------------------------------
Maintenance fees for the quarter ended June 30, 1995 remained relatively
stable as compared to the quarter ended June 30, 1994.
As compared to the same quarter of the prior fiscal year, development and
product support expenses increased by $1,510 or 59%. This is attributable to
a significant increase in software amortization expense ($800) and customer
support expense ($200) resulting from new product releases during fiscal year
1995 and the shift of activity from capitalizable projects to product
support. The remaining increase is related to ongoing research and
development efforts.
Selling and marketing expenses have increased by $360 or 10% during the
current quarter as compared to the same period a year ago. This change
results from increases in compensation due to the addition of personnel to
meet the Company's planned worldwide sales force goals.
The increase of $197 or 10% in the current quarter, when compared to the same
period a year ago is primarily attributable to staffing increases in the human
resources department required to service the Company's growing worldwide
employee base.
Liquidity and Capital Resources (In thousands)
----------------------------------------------
The Company's principal sources of liquidity have historically resulted from
cash flow from operations and draws on its revolving line of credit. During
the current quarter, the Company made several large scheduled payments,
including royalty and bonus payments, which contributed to the negative cash
flow from operations. The Company believes, subject to market changes, that
its working capital, capital equipment and software development expenditures
for the foreseeable future will be met by cash flow from operations and
available borrowing capacity under its $20,000 revolving bank line of credit
($16,125 available at June 30, 1995).
Seasonality
-----------
The Company's quarterly revenues and net income have historically been
variable. This is due principally to the number of software licenses executed
and products delivered in any fiscal quarter. These products are sophisticated
software products that typically require a significant purchase commitment by
customers. Therefore, the sales cycle varies in length as the Company markets
to customers having different business needs and financial resources.
-8-
<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 periods ended June 30, 1995 and 1994.
Item 6(b): Reports on Form 8-K
On June 7, 1995, the Company filed a report on Form 8K for the
purpose of announcing that it had engaged the investment banking
firm of Morgan Stanley and Co., Inc. as its financial advisor
for the purpose of evaluating strategic alternatives intended to
maximize shareholder value. The Form 8K filing incorporated by
reference the related press release filed as Exhibit 99.1 to that
filing.
-9-
<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.
August 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)
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<TABLE>
HOGAN SYSTEMS, INC.
EXHIBIT 11
Weighted Average Number of Common Shares and
Common Share Equivalents Outstanding
(In thousands)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Three-month period ended
June 30, 1995:
Shares outstanding at beginning of period 14,390 14,381
Exercise of stock options 72 1
Common stock equivalents 738 718
------ ------
Weighted average number of common
shares and common share equivalents
outstanding 15,200 15,100
====== ======
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000709139
<NAME> HOGAN SYSTEMS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 5,299
<SECURITIES> 0
<RECEIVABLES> 43,651
<ALLOWANCES> 908
<INVENTORY> 0
<CURRENT-ASSETS> 50,001
<PP&E> 15,684
<DEPRECIATION> 8,778
<TOTAL-ASSETS> 95,337
<CURRENT-LIABILITIES> 28,412
<BONDS> 0
<COMMON> 151
0
0
<OTHER-SE> 59,152
<TOTAL-LIABILITY-AND-EQUITY> 95,337
<SALES> 24,949
<TOTAL-REVENUES> 24,949
<CGS> 19,205
<TOTAL-COSTS> 21,364
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 3,617
<INCOME-TAX> 1,365
<INCOME-CONTINUING> 2,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,252
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
