FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 0-14112
JACK HENRY & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1128385
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
663 Highway 60, P. O. Box 807, Monett, MO 65708
(Address of principal executive offices)
(Zip Code)
417-235-6652
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1998
Common Stock, $.01 par value 18,937,006
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998, (Unaudited) and June
30, 1997 3-4
Condensed Consolidated Statements of
Income for the Quarter and Nine Months
Ended March 31, 1998 and 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended March 31,
1998 and 1997 (Unaudited) 6
Notes to the Condensed Consolidated Financial
Statements 7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 8-9
Part II. OTHER INFORMATION
None 10
Part I. Financial Information
Item 1. Financial Statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)
March 31,
1998 June 30,
(Unaudited) 1997
ASSETS
Current assets:
Cash $20,260 $ 7,948
Held-to-maturity securities 3,018 5,919
Receivables 14,103 22,703
Income taxes receivable 0 1,982
Prepaid expenses and other 5,131 4,177
Total current assets $42,512 $42,729
Property and equipment, net 24,605 21,869
Other assets:
Intangible assets, net of amortization $15,642 $15,469
Computer software 2,813 1,226
Investments and other 1,168 776
Total other assets $19,623 $17,471
Total assets $86,740 $82,069
March 31,
1998 June 30,
(Unaudited) 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,876 $ 2,911
Accrued expenses 2,872 3,648
Accrued income taxes payable 651 0
Deferred revenue 12,754 20,680
Total current liabilities $18,153 $27,239
Deferred income taxes 2,048 2,048
Total liabilities $20,201 $29,287
Stockholders' equity:
Preferred stock - $1.00 par value;
500,000 shares authorized;
none issued - -
Common stock - $0.01 par value;
50,000,000 shares authorized;
18,935,458 issued @ 3/31/98
18,517,309 issued @ 6/30/97 $ 189 $ 185
Less Treasury Stock shares 0 (293)
Additional paid-in capital 17,477 14,744
Retained earnings 48,873 38,146
Total stockholders' equity $66,539 $52,782
Total liabilities and
stockholders' equity $86,740 $82,069
The accompanying notes are an integral part of these consolidated financial
statements.
JACK HENRY & ASSOCIATES, INC.
CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(In Thousands, Except Per Share Data)
STATEMENTS OF INCOME Quarter Ended Nine Months Ended
March 31 March 31
<TABLE>
<S><C>
Revenues 1998 1997 1998 1997
Software licensing & installation $ 8,931 $ 5,072 $22,077 $16,293
Maintenance/support & services 8,938 7,162 26,156 20,169
Hardware sales & commissions 9,378 9,827 26,457 25,297
Total revenues 27,247 22,061 74,690 61,759
Cost of sales:
Cost of hardware 6,450 7,041 17,270 17,758
Cost of services 6,281 4,708 18,022 13,844
Total cost of sales $12,731 $11,749 $35,292 $31,602
Gross profit $14,516 $10,312 $39,398 $30,157
53% 47% 53% 49%
Operating expenses:
Selling and marketing 3,125 2,279 8,327 6,628
Research and development 789 525 2,286 1,492
General and administrative 2,388 1,665 6,238 4,453
Total operating expenses $ 6,302 $ 4,469 $16,851 $12,573
Operating income $ 8,214 $ 5,843 $22,547 $17,584
Other income (expense):
Interest and dividend income 297 172 883 556
Other, net 101 26 307 155
Total other income $ 398 $ 198 $ 1,190 $ 711
Income before income taxes $ 8,612 $ 6,041 $23,737 $18,295
Provision for income taxes 3,215 2,306 8,840 6,979
Net income from continuing $ 5,397 $ 3,735 $14,897 $11,316
operations 191 89 398 239
Net loss from discontinued $ 5,206 $ 3,646 $14,499 $11,077
operations
Net income
Diluted earnings per share: *
Income from continuing operations $ .27 $ .20 $ .76 $ .59
Income (loss) from discontinued (.01) (.01) (.02) (.01)
operations
Net income $ .26 $ .19 $ .74 $ .58
Diluted weighted average shares 19,886 19,155 19,677 19,100
outstanding
Basic earnings per share: *
Income from continuing operations $ .29 $ .21 $ .79 $ .63
Income (loss) from discontinued
operations (.01) - (.02) (.01)
Net income $ .28 $ .21 $ .77 $ .62
Basic weighted average s hares 18,908 17,942 18,818 17,898
outstanding
</TABLE>
* All EPS and share data are calculated in accordance with FASB #128.
The accompanying notes are an integral part of these consolidated financial
statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Nine Months Ended
March 31,
1998 1997
Cash flows - operating activities:
Cash received from customers $75,371 $ 64,352
Cash paid to suppliers and employees (52,132) (42,237)
Interest and dividends received, net 1,010 603
Income taxes paid, net (6,247) (7,272)
Other, net 57 (10)
Net cash flow provided by operating
activities $18,059 $ 15,436
Cash flows from discontinued operations (790) (371)
Cash flows from investing activities:
Proceeds on sale of property & equipment $ 104 $ 15
Capital expenditures (4,649) (6,792)
Short-term investment activity, net 2,871 (2,887)
Long-term investment activity, net - 2
Computer software development (90) (151)
Acquisition costs, net (867) (314)
Net cash used in investing activities $(2,631) $(10,127)
Cash flows from financing activities:
Proceeds from issuance of common stock
upon exercise of stock options $ 995 $ 1,249
Proceeds from sale of common stock 122 0
Dividends paid (3,297) (2,630)
Principle payments on notes payable (146) (132)
Purchase of treasury stock - (1,875)
Net cash used in financing activities $(2,326) $ (3,388)
Net increase in cash $12,312 $ 1,550
Cash at beginning of period 7,948 4,952
Cash at end of period $20,260 $ 6,502
The accompanying notes are an integral part of these consolidated financial
statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Description of the Company - Jack Henry & Associates, Inc. ("JHA" or the
"Company") is a computer software company which has developed several banking
software systems. It markets those systems to financial institutions throughout
the United States along with the computer equipment (hardware) and provides the
conversion and software services necessary for a financial institution to
install a JHA software system. It also provides continuing maintenance and
support services to customers using the system. All of these related activities
are considered a single business segment.
Consolidation - The consolidated financial statements include the accounts of
JHA and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the consolidation.
Other Significant Accounting Policies - The accounting policies followed by
the Company are set forth in Note 1 to the Company's consolidated financial
statements included in its Annual Report on Form 10-K ("Form 10-K") for the
fiscal year ended June 30, 1997.
2. Interim Financial Statements
The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q of the Securities and Exchange
Commission and in accordance with generally accepted accounting principles
applicable to interim financial statements, and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements should be read in
conjunction with the audited consolidated financial statements and accompanying
notes of the Company for the year ended June 30, 1997, which are included in its
Form 10-K.
In the opinion of management of the Company, the accompanying condensed
financial statements reflect all adjustments necessary (consisting solely of
normal recurring adjustments) to present fairly the financial position of the
Company as of March 31, 1998, and the results of its operations and its cash
flows for the quarter and nine-month period then ended.
The results of operations for the periods ended March 31, 1998, are not
necessarily indicative of the results to be expected for the entire year.
3. Additional Interim Footnote Information
The following additional information is provided to update the notes to the
Company's annual financial statements for developments during the quarter
ended March 31, 1998:
None.
4. Income Per Share Information
Earnings per common share are computed by dividing income by the basic and
diluted (as required by FASB #128) weighted average number of shares of common
stock and dilutive common stock equivalents outstanding for the quarter and nine
month periods ended March 31, 1998 and 1997.
Item 2. - Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Background and Overview
Jack Henry & Associates, Inc. ("JHA" or the "Company"), is a leading provider
of integrated computer systems that perform data processing (available for in-
house or service bureau installations) for banks and related financial institu-
tions. The Company was founded in 1976. Its proprietary applications software,
which operates on IBM computers, is offered under two systems: CIF 20/20 ,
typically for banks with less than $300 million in assets, and the Silverlake
System , for banks with assets up to $10 billion. Domestically, JHA
frequently sells hardware with its software products. It also provides customer
support and related services. The Company's software systems have been
installed at over 1515 banks and financial institutions.
Year 2000
The Company has established a Year 2000 (Y2K) Committee. This Committee has
prepared a documented, systematic approach (the Y2K Plan) to review all products
and internal systems for Y2K compliance. The Company s Board of Directors have
reviewed and approved the Plan as required by the banking regulators of all
service bureau providers. The Company believes the products it currently sells
to be Y2K ready and that the majority, if not all, of its internal systems will
be Y2K ready by December 31, 1998. The estimated cost of the above efforts is
not reasonably determinable at the current time and is not expected to be
material to the Company s financials.
A detailed discussion of the major components of the results of operations for
the quarter and the nine months ended March 31, 1998, as compared to the same
periods in the previous year follows.
Revenues
Revenues increased 24% to $27,247,000 in the quarter ended March 31, 1998.
Software licensing and installation increased 76%. Maintenance, support and
service revenues increased 25%. Hardware sales were down from last year's
quarter. The Company's non-hardware products and services (higher margin sales)
increased 46% over last year.
Nine month revenues this year were $74,690,000, up 21% over last year's
corresponding period. Each of the three major revenue categories increased with
the largest in maintenance, support and service revenues. Sales increased only
slightly, primarily due to the lower margin hardware mix and timing of sales and
the overall trend of hardware prices reducing on a long term basis. The Company
continues to maintain its margin levels on the hardware it sells.
The backlog of sales at March 31, 1998, was $47,821,000. Backlog at April 30,
1998 was $47,602,000
Cost of Sales
The 8% increase in cost of sales for the third quarter of FY '98 is relatively
consistent with the increase in revenues considering the sales mix. A large
portion of the increase results from the increase in hardware revenues and the
related increase in cost of hardware sales. Cost of services increased 33%
primarily due to growth in the Company's core business, less than the 46%
increase in non-hardware revenues. Cost of hardware decreased slightly,
1
CIF 20/20 is a trademark of Jack Henry & Associates,
Inc.
2
Silverlake System is a registered trademark of Jack
Henry & Associates, Inc.
consistent with the small decrease in hardware revenue.
Cost of sales increased 12% for the first nine months of fiscal '98,
relatively consistent with the 21% increase in revenues considering the sales
mix. Cost of hardware decreased 3% while cost of services increased 30%, both
more favorable than the corresponding revenue increases.
Gross Profit
Gross profit increased to $14,516,000 in the third quarter ended March 31,
1998, a 41% increase over last year. The gross margin percentage was 53% of
sales reasonably consistent with last year.
The nine month gross profit this year was up 31% at $39,398,000. The gross
margin percentage for the first nine months was 53%, similar to last year's
rate.
Operating Expenses
Total operating expenses increased 41% in the quarter ended 3/31/98. Selling
expenses increased 37% while research and development expenses increased 50%.
General and administrative expenses increased by 43%.
Operating expenses were $16,851,000 in the first nine months of fiscal '98, a
34% increase.
Other Income and Expense
Other income and expense for the quarter and year-to-date periods ended March
31, 1998, were up when compared to the same periods last year.
Net Income
Net income from continuing operations for the third quarter was $5,397,000, or
$.27 per share, an increase of 35%, compared to $3,735,000, or $.20 per share in
the same period last year.
Net income from continuing operations for the nine months ended March 31, 1998
was $14,897,000, or $.76 per share (up 29%), compared to $11,316,000, or $.59
per share.
FINANCIAL CONDITION
Liquidity
The Company's cash and held-to-maturity securities increased to $23,278,000 at
March 31, 1998, up from $13,867,000 at June 30, 1997.
JHA has available credit lines totaling $4,000,000, although the Company
expects their use to be minimal during FY '97. The Company currently has no
short-term or long-term debt obligations.
Capital Requirements and Resources
JHA generally uses existing resources and funds generated from operations to
meet its capital requirements. Capital expenditures totaling $4,649,000 for the
nine months ended March 31, 1998, were made for expansion of its facilities and
additional equipment. These were funded from cash generated by operations. The
consolidated capital expenditures of JHA could exceed $6,000,000 for FY '98.
The Company paid an $.065 per share cash dividend on March 12, 1998 to
stockholders of record February 19, 1998 which was funded from working capital.
In addition, subsequent to March 31, 1998, the Company's Board of Directors,
declared a quarterly cash dividend of $.065 per share on its common stock
payable May 27, 1998 to stockholders of record on May 12, 1998. This will be
funded out of working capital.
CONCLUSION
JHA's results of operations and its financial position continued to be quite
favorable during the quarter ended March 31, 1998. This reflects the continuing
attitude of cooperation and commitment by each employee, management's ongoing
cost control efforts and commitment to deliver top quality products and services
to the markets it serves.
PART II. OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
behalf by the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: May 14, 1998 /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1998 /s/ Terry W. Thompson
Terry W. Thompson
Vice President and
Chief Financial Officer<PAGE>
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