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 SECURE-
TIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 29, 1998
Common Stock, $.01 par value 19,071,779
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998, (Unaudited) and June
30, 1998 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
September 30, 1998 and 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended September 30,
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
Part II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of
Security Holders 11
Part I. Financial Information
Item 1. Financial Statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
September 30,
1998 June 30,
(Unaudited) 1998
ASSETS
Current assets:
Cash and cash equivalents $ 39,025 $ 23,306
Investments 3,145 3,217
Trade receivables 22,314 36,826
Prepaid expenses and other 7,520 5,789
Total $ 72,004 $ 69,138
Property and equipment, net $ 33,888 $ 26,855
Other assets:
Intangible assets, net of amortization $ 19,721 $ 15,272
Computer software 2,762 2,838
Other non-current assets 1,323 1,183
Total $ 23,806 $ 19,293
Total assets $129,698 $115,286
September 30,
1998 June 30,
(Unaudited) 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,207 $ 6,854
Accrued expenses 6,591 3,968
Accrued income taxes 4,834 136
Deferred revenues 28,527 28,302
Total $ 45,159 $ 39,260
Deferred income taxes 2,526 2,526
Total liabilities $ 47,685 $ 41,786
Stockholders' equity:
Preferred stock - $1 par value;
500,000 shares authorized;
none issued - -
Common stock - $0.01 par value;
50,000,000 shares authorized;
19,034,279 issued @ 9/30/98
18,950,527 issued @ 6/30/98 $ 190 $ 189
Additional paid-in capital 20,051 18,599
Retained earnings 61,772 54,712
Total stockholders' equity $ 82,013 $ 73,500
Total liabilities and
stockholders' equity $129,698 $115,286
The accompanying notes are an integral part of these condensed consolidated
financial statements.
JACK HENRY & ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<S><C>
Quarter Ended
September 30,
1998 1997
Revenues:
Software licensing & installation $11,659 $ 6,122
Maintenance/support & service 11,550 8,509
Hardware sales & commissions 17,519 5,428
Total revenues $40,728 $20,059
Cost of sales:
Cost of hardware $12,691 $ 3,395
Cost of services 8,192 5,423
Total cost of sales $20,883 $ 8,818
Gross profit $19,845 $11,241
49% 56%
Operating expenses:
Selling and marketing $ 3,512 $ 2,172
Research and development 952 671
General and administrative 2,439 1,800
Total operating expenses $ 6,903 $ 4,643
Operating income from continuing operations $12,942 $ 6,598
Other income (expense):
Interest income $ 445 $ 278
Other, net 35 111
Total other income $ 480 $ 389
Income before income taxes $13,422 $ 6,987
Provision for income taxes 5,148 2,560
Income from continuing operations $ 8,274 $ 4,427
Income (loss) from discontinued operations 22 (261)
Net income $ 8,296 $ 4,166
Diluted earnings per share:
Income from continuing operations $ .41 $ .23
Loss from discontinued operations - .02
Net income per share $ .41 $ .21
Diluted weighted average shares outstanding 20,154 19,533
Basic earnings per share:
Income from continuing operations $ .44 $ .24
Loss from discontinued operations - .02
Net income per share $ .44 $ .22
Basic weighted average shares outstanding 18,982 18,744
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Three Months Ended
September 30,
1998 1997
Cash flows - operating activities:
Cash received from customers $ 55,619 $27,714
Cash paid to suppliers and employees (27,109) (14,971)
Interest and dividends received, net 558 345
Income taxes paid, net (450) 1,423
Other, net (136) 10
Net cash flow provided by operating
activities $ 28,482 $14,521
Cash flows from discontinued operations (118) (397)
Cash flows from investing activities:
Proceeds on sale of property & equipment $ 2 $ 51
Capital expenditures (7,274) (1,424)
Proceeds from sales of investments - 2,000
Computer software development cost (90) (36)
Business acquisitions, net (4,867) 25
Net cash provided by (used in)
investing activities $(12,229) $ 616
Cash flows from financing activities:
Principal payment on notes payable $ (633) $ (119)
Proceeds from issuance of common stock
upon exercise of stock options 1,386 222
Proceeds from sale of common stock 67 46
Dividends paid (1,236) (1,033)
Net cash used in financing activities $ (416) $ (884)
Net increase in cash and cash equivalents $15,719 $13,856
Cash and cash equivalents at
beginning of period 23,306 7,948
Cash and cash equivalents at end of period $39,025 $21,804
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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
ription of the Company - Jack Henry & Associates, Inc. ("JHA" or the
"Company") is a computer software company which has developed several banking
software systems. The Company markets these systems to financial institutions
in the United States along with the computer equipment (hardware), and
provides the conversion and software customization services necessary for a
financial institution to install a JHA software system. It also provides
continuing support and maintenance services to customers using the system.
The Company also processes ATM transactions for financial institutions in the
U.S. 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, 1998.
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 Company's audited consolidated financial statements and
accompanying notes which are included in its Form 10-K, for the year ended
June 30, 1998.
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 September 30, 1998 and the results of its operations and its cash
flows for the three month period then ended. The results of operations for the
period ended September 30, 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 three months
ended September 30, 1998:
Effective July 1, 1998, the Company purchased all the outstanding stock of
Hewlett Computer Services, Inc. (HCS). HCS was a privately owned company
engaged in the business of providing a variety of service bureau options to
community banks. The total consideration paid to HCS s stockholders was
$2,250,000 in cash. The transaction was accounted for using the purchase method
of accounting.
During the quarter ended September 30, 1998, the Company entered into
contracts with multiple banks to provide products and services through one of
its service bureaus. Pursuant to an agreement, the Company pays the prior
service bureau provider an amount based on each customer s revenues. Total
purchase price for customer contracts signed in the quarter was $2,611,000 in
cash.
After the close of business on August 18, 1998, the Company entered a
definitive agreement to acquire Peerless Group, Inc. (NASDAQ:PLSS), through a
merger agreement expected to close in the fourth calendar quarter of 1998,
pending regulatory and PLSS shareholder approval. PLSS is a publicly owned
company that installs and supports integrated information systems for community
banks and credit unions throughout the United States. The price is
approximately $36 million, or $7.25 per PLSS share to be paid with Company
stock. Peerless Group generated profits of $1.9 million on revenues of $30.1
million in calendar 1997.
4. Income Per Share Information
Earnings per common share are computed by dividing income by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding for the three month period ended September 30, 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 AS/400 computers, is offered under two systems: CIF 1
20/20, typically for banks with less than $300 million in assets, and the 2
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 1560 banks and financial institutions.
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
1 CIF 20/20 is a trademark of Jack Henry & Associates, Inc.
2 Silverlake System is a registered trademark of Jack Henry
& Associates, Inc.
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 financial condition.
A detailed discussion of the major components of the results of operations for
the quarter ended September 30, 1998, as compared to the same period in the
previous year follows.
Revenues
Revenues increased 103% to $40,728,000 in the quarter ended September 30,
1998. Software licensing and installation increased 90%. Maintenance, support
and service revenues increased 36%. Hardware sales increased 223% from last
year's quarter. The Company's non-hardware products and services (higher margin
sales) increased 59% over last year. The increases reflect continued growth and
demand for the Company s products and services.
The backlog of sales at September 30, 1998 was $64,132,000. This is up from
the June 30, 1998 level, and is consistent with management's expectations for
the first quarter. Backlog at October 30, 1998 was $64,058,000.
Cost of Sales
The 137% increase in cost of sales for the first quarter of FY '99 is
relatively consistent with the increase in revenues. Cost of hardware increased
274% while cost of services increased 51%, both mirroring the related revenue.
Gross Profit
Gross profit increased to $19,845,000 in the first quarter ended September 30,
1998, a 77% increase over last year. The gross margin percentage was 49% of
sales compared to 56% last year due to hardware (lower margin sales)
representing 43% of total revenues compared to 27% last year.
Operating Expenses
Total operating expenses increased 49%. This is less than the gross profit
increase of 77%. Selling expenses increased 62%, research & development
increased 42% and general & administrative expenses increased 36%.
Other Income and Expense
Other income for the quarter ended September 30, 1998 reflects an increase
when compared to the same period last year due primarily to the level of cash
and cash equivalents invested being much higher this year than last.
Net Income
Net income from continuing operations for the first quarter was $8,274,000, or
$.41 earnings per share compared to $4,427,000, or $.23 earnings per share in
the same period last year.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents and investments increased to
$42,170,000 at September 30, 1998, from $26,523,000 at June 30, 1998. This is
reflecting the seasonal influx of cash due to the receipt in the first quarter
of annual maintenance fees billed June 30, 1998.
JHA has an available credit line totaling $5,000,000, although the Company
expects its use to be minimal during FY '99. 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 $7,274,000 for the
quarter ended September 30, 1998, were made for expansion of facilities and
additional equipment. These were funded from cash generated by operations. The
consolidated capital expenditures of JHA could exceed $11,000,000 for FY '99.
The Company paid a $.065 per share cash dividend on September 24, 1998 to
stockholders of record September 8, 1998 which was funded from working capital.
In addition, the Company's Board of Directors, subsequent to September 30, 1998,
declared a quarterly cash dividend of $.065 per share on its common stock
payable December 10, 1998 to stockholders of record on November 19, 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 September 30, 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
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Stockholders of Jack Henry & Associates, Inc. was
held on October 29, 1998, for the purpose of electing a board of directors.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities and Exchange Act of 1934 and there was no solicitation in opposition
to management's solicitations. Management's nominees for director, all
incumbents, were elected with the number of votes for and withheld as indicated
below:
For Withheld
John W. Henry 16,590,944 64,850
Jerry D. Hall 16,590,910 64,884
Michael E. Henry 16,590,944 64,850
James J. Ellis 16,591,245 64,549
Burton O. George 16,587,615 68,179
George R. Curry 16,587,840 67,954
Michael R. Wallace 16,590,794 65,000
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 of the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: November 12, 1998 /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board
Chief Executive Officer
Date: November 12, 1998 /s/ Terry W. Thompson
Terry W. Thompson
Vice President and
Chief Financial Officer<PAGE>
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