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 September 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 October 31, 1995, there were 14,509,415 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 - September 30, 1995
and March 31, 1995 2-3
Consolidated Statements of Income - Three months and
Six months ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Six months ended September 30, 1995 and 1994 5
Note 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.
- 1-
<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<CAPTION>
September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,745 $ 7,764
Accounts receivable, net of
allowance for doubtful accounts of $995 and $911 44,103 40,577
Deferred income taxes 905 905
Prepaid expenses and other current assets 1,445 1,685
------------- ------------
Total current assets 51,198 50,931
Long-term receivables 3,008 359
Property and equipment at cost, net of accumulated
depreciation of $9,312 and $8,220 6,577 7,236
Capitalized software costs, net of accumulated
amortization of $14,085 and $10,894 31,896 32,149
Intangible assets 4,866 5,136
Other assets 813 870
------------- ------------
Total assets $ 98,358 $ 96,681
============= ============
<FN>
See accompanying note to these consolidated financial statements.
</FN>
</TABLE>
- 2-
<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,491 $ 5,666
Accrued salary and employee benefits 6,247 7,795
Working capital line of credit 3,050 1,920
Deferred maintenance revenue 10,018 11,741
Deferred support revenue 274 1,011
Other 5,063 4,027
------------ -------------
Total current liabilities 29,143 32,160
Deferred maintenance revenue 3,278 3,092
Deferred income taxes 4,609 4,502
Other long-term liabilities 116 257
------------ -------------
Total liabilities 37,146 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 15,198 shares at September 30, 1995 and 15,078 shares at
March 31, 1995 - outstanding
14,510 and 14,390, respectively 152 151
Capital in excess of par value 45,314 44,618
Foreign currency translation adjustments (1,151) (886)
Retained earnings 22,746 18,636
<CAPTION>
------------ -------------
67,061 62,519
Less: Treasury stock at cost, 688 shares (5,849) (5,849)
------------ -------------
Shareholders' equity 61,212 56,670
------------ -------------
Total liabilities and shareholders' equity $ 98,358 $ 96,681
============ =============
<FN>
See accompanying note to these consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
Three Six
Months Ended Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Professional services $ 17,407 $ 15,535 $ 34,285 $ 29,273
License 3,828 4,013 8,030 6,142
Maintenance 4,942 3,862 8,811 7,779
--------- ---------- ---------- ----------
Total revenues 26,177 23,410 51,126 43,194
Expenses:
Professional services 11,188 12,557 22,431 24,173
Development and product support 4,945 2,794 9,006 5,345
Selling and marketing 4,620 3,565 8,574 7,159
General and administrative 2,306 2,145 4,412 4,054
--------- ---------- ---------- ----------
Total expenses 23,059 21,061 44,423 40,731
--------- ---------- ---------- ----------
Operating income 3,118 2,349 6,703 2,463
Interest income (expense), net (56) 64 (24) 110
--------- ---------- ---------- ----------
Income before taxes 3,062 2,413 6,679 2,573
Provision for income taxes 1,204 1,070 2,569 1,150
--------- ---------- ---------- ----------
Net income $ 1,858 $ 1,343 $ 4,110 $ 1,423
========= ========== ========== ==========
Net income per common share $0.12 $0.09 $0.27 $0.10
========= ========== ========== ==========
Weighted average number
of common shares 15,500 14,800 15,500 14,900
========= ========== ========== ==========
<FN>
See accompanying note to these consolidated financial statements.
</FN>
</TABLE>
- 4-
<PAGE>
<TABLE>
HOGAN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Six Months
Ended September 30,
1995 1994
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 4,110 $ 1,423
Adjustments to reconcile net income to cash used by
operating activities:
Depreciation and amortization 4,554 2,604
Provision for losses on accounts receivable 200 60
Foreign currency translation (265) 224
Changes in assets and liabilities:
Accounts receivable (6,375) (3,685)
Prepaid expenses and other current assets 240 58
Accounts payable (1,175) 187
Accrued salary and employee benefits (1,548) (1,010)
Deferred maintenance revenue (1,537) (699)
Deferred support revenue (737) (293)
Deferred income taxes 107 1,047
Other assets 57 40
Other liabilities 895 (577)
------------ ------------
(1,474) (621)
Cash flow from investing activities:
Purchase of property and equipment (433) (1,643)
Additions to capitalized software (2,939) (10,646)
------------ ------------
(3,372) (12,289)
Cash flow from financing activities:
Cash dividend - (2,443)
Exercise of stock options 697 10
Proceeds from working capital line of credit 1,130 6,840
------------ ------------
1,827 4,407
------------ ------------
Net decrease in cash and cash equivalents (3,019) (8,503)
Cash and cash equivalents at beginning of period 7,764 10,374
------------ ------------
Cash and cash equivalents at end of period $ 4,745 $ 1,871
============ ============
<FN>
See accompanying note to these consolidated financial statements.
</FN>
</TABLE>
- 5-
<PAGE>
HOGAN SYSTEMS, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(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 September 30, 1995, are not necessarily indicative of results for
the fiscal year ending March 31, 1996.
- 6-
<PAGE>
<TABLE>
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 second quarter of fiscal 1995 to the second
quarter of fiscal 1996.
<CAPTION>
Quarter to Quarter
Percentage
Percentage of Revenues Increase (Decrease)
1996 1995 1996 vs 1995
---- ---- ------------
<S> <C> <C> <C>
Revenues:
Professional services 66% 66% 12%
License 15 17 (5)
Maintenance 19 17 28
------ ------
Total revenues 100 100 12
Expenses:
Professional services 43 54 (11)
Development and product support 18 12 77
Selling and marketing 18 15 30
General and administrative 9 9 8
------ ------
Total expenses 88 90 9
------ ------
Operating income 12% 10% 33%
====== ======
</TABLE>
Revenues for the quarter ended September 30, 1995 aggregated $26,177 compared to
$23,410 for the comparable quarter of the prior fiscal year. The Company
reported net income of $1,858 ($.12 per share) as compared to net income of
$1,343 ($.09 per share) for the quarter ended September 30, 1994.
Revenues for the six months ended September 30, 1995 aggregated $51,126 compared
to $43,194 for the comparable quarter of the prior fiscal year. The Company
reported net income of $4,110 ($.27 per share) as compared to net income of
$1,423 ($.10 per share) for the six months ended September 30, 1994.
Contributing to the profitable period were the Company's license sales of
$8,030, an increase of 31% over the same period of fiscal 1995, and continuing
strong results in professional services. The Company's improvement in
license revenues over the prior period is a result of an international sales
effort which secured several new license agreements in Europe and South Africa,
as well as obtaining a global upgrade fee from yet another European institution.
- 7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Continued)
- - ---------------------------------
Professional service revenues for the current fiscal quarter increased $1,872 or
12% 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 $1,369
or 11% during the quarter ended September 30, 1995, as the Company continued its
improvement of its professional service margins. For the six-month period ended
September 30, 1995 professional service revenues grew $5,012 or 17% while the
related expenses dropped $1,742 or 7% compared to the same period in the prior
year. As a result of cost reduction steps (including decreased subcontractor and
personnel costs) taken by the management team, the professional service margin
has increased from 17% a year ago to 35% in the current six-month period.
Maintenance revenues for the quarter ended September 30, 1995 increased $1,080
or 28% over the same period last year as the Company continued to benefit from
maintenance agreements related to license sales made in 1995 and 1996. Also
contributing to the exceptional quarter was the positive resolution of several
individually insignificant contractual issues held over from earlier periods.
These factors, coupled with the first quarter results, combined to produce a 13%
increase in maintenance revenues for the first six months of fiscal 1996
compared to the first six months of fiscal 1995.
As compared to the same quarter of the prior fiscal year, development and
product support expenses increased by $2,151 or 77%. This is attributable to a
significant increase in software amortization expense ($800) and customer
support expense ($300) resulting from new product releases during the latter
part of 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. The $3,661 or 68% increase for the six-month period as
compared to the same period last year is attributable to the same factors.
Selling and marketing expenses have increased by $1,055 or 30% during the
current quarter and $1,415 or 20% during the current six-month period as
compared to the respective periods a year ago. This change results from
increases in compensation due to a 30% increase in the number of personnel
required to meet the Company's planned worldwide sales force goals.
General and administrative expense remained stable as a percent of revenues (9%)
for the three-month and six-month periods ended September 30, 1995 and 1994.
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
six months ended September 30, 1995, the Company's cash flow from operations was
negatively impacted by an increase in trade accounts receivable of $6,175. This
increase is attributable to several factors, including market conditions,
contractual issues and timing of product deliveries.
- 8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
- - -------------------------------------------
During the current quarter, one of the Company's South American customers was
placed under government control. Management is actively monitoring the
situation.
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 more recently, available
borrowing capacity under its $20,000 revolving bank line of credit.
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.
- 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 six-month periods ended September 30, 1995 and
1994.
Item 6(b): Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1995.
- 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.
November 10, 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-
<PAGE>
<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 September 30:
Shares outstanding at beginning of period 14,461 14,383
Exercise of share options 48 -
Common share equivalents 991 417
--------- --------
Weighted average number of common
shares and common share equivalents
outstanding 15,500 14,800
========= ========
Six-month period ended September 30:
Shares outstanding at beginning of period 14,390 14,381
Exercise of share options 120 1
Common share equivalents 990 518
--------- --------
Weighted average number of common
shares and common share equivalents 15,500 14,900
========= ========
outstanding
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND ON
PAGES 2, 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000709139
<NAME> Hogan Systems, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-01-1995
<PERIOD-END> Sep-30-1995
<EXCHANGE-RATE> 1.000
<CASH> 4,745
<SECURITIES> 0
<RECEIVABLES> 45,098
<ALLOWANCES> 995
<INVENTORY> 0
<CURRENT-ASSETS> 51,198
<PP&E> 61,870
<DEPRECIATION> 23,397
<TOTAL-ASSETS> 98,358
<CURRENT-LIABILITIES> 29,143
<BONDS> 0
<COMMON> 152
0
0
<OTHER-SE> 61,060
<TOTAL-LIABILITY-AND-EQUITY> 98,358
<SALES> 51,126
<TOTAL-REVENUES> 51,251
<CGS> 44,223
<TOTAL-COSTS> 44,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 6,679
<INCOME-TAX> 2,569
<INCOME-CONTINUING> 4,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,110
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<PAGE>
</TABLE>
