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 December 31, 1997
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 January 31, 1998
Common Stock, $.01 par value 18,890,849
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997, (Unaudited) and June
30, 1997 3-4
Condensed Consolidated Statements of
Operations for the Quarter and Six Months
Ended December 31, 1997 and 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended December 31,
1997 and 1996 (Unaudited) 6
Notes to the Condensed Consolidated Financial
Statements 7-8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 8-10
Part II. OTHER INFORMATION
Item 2(c) Changes in Securities and use of Proceeds 10
Part I. Financial Information
Item 1. Financial Statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)
December 31,
1997 June 30,
(Unaudited) 1997
ASSETS
Current assets:
Cash and cash equivalents $ 20,748 $ 7,948
Held-to-maturity securities 3,468 5,919
Receivables 16,897 22,703
Income taxes receivable 0 1,982
Prepaid expenses and other 4,530 4,177
Total current assets $45,643 $42,729
Property and equipment, net $23,445 $21,869
Other assets:
Intangible assets, net of amortization $16,716 $15,469
Computer software 2,119 1,226
Investments and other 1,091 776
Total other assets $19,926 $17,471
Total assets $89,014 $82,069
December 31,
1997 June 30,
(Unaudited) 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,641 $ 2,911
Accrued expenses 2,451 3,648
Accrued income taxes payable 954 0
Deferred revenue 17,106 20,680
Total current liabilities $25,152 $27,239
Deferred income taxes 2,048 2,048
Total liabilities $27,200 $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;
18,867,215 outstanding @ 12/31/97
18,517,309 outstanding @ 06/30/97 $ 189 $ 185
Less Treasury Stock 15,410 shares 0 (293)
Additional paid-in capital 16,727 14,744
Retained earnings 44,898 38,146
Total stockholders' equity $61,814 $52,782
Total liabilities and
stockholders' equity $89,014 $82,069
The accompanying notes are an integral part of these consolidated financial
statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<S><C>
Quarter Ended Six Months Ended
December 31, December 31,
Revenues: 1997 1996 1997 1996
Software licensing & installation $ 7,024 $ 5,388 $13,146 $11,221
Maintenance/support & service 8,709 6,730 17,218 13,007
Hardware sales & commissions 11,651 9,230 17,079 15,470
Total revenues $27,384 $21,348 $47,443 $39,698
Cost of sales:
Cost of hardware 7,425 6,399 10,820 10,717
Cost of services 6,318 4,775 11,741 8,800
Total cost of sales $13,743 $11,174 $22,561 $19,517
Gross profit $13,641 $10,174 $24,882 $20,181
50% 48% 52% 51%
Operating expenses:
Selling and marketing 3,030 2,147 5,202 4,349
Research and development 826 705 1,497 1,228
General and administrative 2,050 1,482 3,850 2,863
Total operating expenses $ 5,906 $ 4,334 $10,549 $ 8,440
Operating income $ 7,735 $ 5,840 $14,333 $11,741
Other income:
Interest income 308 207 586 384
Other, net 95 55 206 129
Total other income $ 403 $ 262 $ 792 $ 513
Income before income taxes $ 8,138 $ 6,102 $15,125 $12,254
Provision for income taxes 3,065 2,324 5,625 4,673
Income from continuing operations $ 5,073 $ 3,778 $ 9,500 $ 7,581
Income (loss) from discontinued opera- 54 (150) (207) (150)
tions
Net income $ 5,127 $ 3,628 $ 9,293 $ 7,431
Basic earnings per share: *
Income from continuing operations $ .27 $ .21 $ .51 $ .42
Income (loss) from discontinued .00 (.01) (.01) (.01)
operations
Net income $ .27 $ .20 $ .50 $ .41
Basic weighted average shares 18,803 17,926 18,773 17,876
outstanding *
Diluted earnings per share: *
Income from continuing operations $ .26 $ .20 $ .49 $ .40
Income (loss) from discontinued .00 (.01) (.01) (.01)
operations
Net income $ .26 $ .19 $ .48 $ .39
Diluted weighted average shares 19,623 19,119 19,573 19,073
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.<PAGE>
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Six Months Ended
December 31,
1997 1996
Cash flows - operating activities:
Cash received from customers $49,635 $44,235
Cash paid to suppliers and employees (31,221) (27,520)
Interest and dividends received, net 653 363
Income taxes paid, net (2,728) (4,519)
Other, net (6) 1
Net cash flow provided by operating
activities $16,333 $12,560
Cash flows from discontinued operations (522) (283)
Cash flows from investing activities:
Proceeds on sale of property & equipment $ 56 $ 7
Capital expenditures (2,705) (4,941)
Short-term investment activity, net 2,381 (4,012)
Long-term investment activity, net - 2
Computer software development (63) (85)
Acquisition costs, net (842) (314)
Net cash used in investing activities $(1,173) $(9,343)
Cash flows from financing activities:
Proceeds from issuance of common stock
upon exercise of stock options $ 285 $ 929
Proceeds from sale of common stock 82 -
Dividends paid (2,066) (1,673)
Principle payments on notes payable (139) (131)
Purchase of treasury stock - (1,454)
Net cash used in financing activities $(1,838) $(2,329)
Net increase in cash $12,800 $ 605
Cash at beginning of period 7,948 4,952
Cash at end of period $20,748 $ 5,557
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
NCIAL 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 December 31, 1997, and the results of its operations and its cash
flows for the quarter and six-month periods then ended.
The results of operations for the periods ended December 31, 1997, 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
December 31, 1997:
Acquisition of Vertex, Inc. - December 12, 1997: Vertex, acquired for $3
million in cash and JKHY stock, is a leading vendor of teller systems to
community banks, primarily in the southeastern United States. Systems are
AS/400 based and are already integrated with JKHY core application systems.
This acquisition is accounted for as a purchase and results of its operations
from the date of acquisition have been included in the Company s results of
operations.
Effective with the periods ended December 31, 1997, the Company adopted FASB
#128 for reporting all its earnings per share calculations. Appropriate prior
period share and per share data have been adjusted to be reported consistent
with the current period.
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 six
month periods ended December 31, 1997 and 1996.
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 1480 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 six months ended December 31, 1997, as compared to the same
periods in the previous year follows.
Revenues
Revenues increased 28% to $27,384,000 in the quarter ended December 31, 1997.
The Company's non-hardware products and services (higher margin sales) increased
30% over last year.
Six month revenues this year were $47,443,000, up 20% over the last year's
corresponding period. Software licensing and installation increased 17%.
Maintenance, support and service revenues increased 32%. Hardware sales were up
10% over last year's quarter.
The backlog of sales at December 31, 1997, was $40,294,000. Backlog at
January 31, 1998 was $40,540,000.
Cost of Sales
The 23% increase in cost of sales for the second quarter of FY '98 is
relatively consistent with the increase in revenues. A portion of the increase
results from the increase in hardware revenues and the related increase in cost
of hardware sales. Cost of services increased 32% primarily due to growth and
future growth expected in the Company's core business, slightly more than the
30% increase in non-hardware revenues.
Cost of sales increased 16% for the first six months of fiscal '98, relatively
consistent with the 20% increase in revenues. Cost of hardware increased 1%,
1 CIF 20/20 is a trademark of Jack Henry & Associates, Inc.
2 Silverlake System is a registered trademark of Jack Henry &
Associates, Inc.
less than the 10% increase in hardware revenue. The most significant factor
contributing to this variation related to a large one-time sale of hardware last
year on which the Company had a low profit margin. Cost of services increased
33% compared to a 25% increase in non-hardware revenues for same reasons as the
second quarter.
Gross Profit
Gross profit increased to $13,641,000 in the second quarter ended December 31,
1997, a 34% increase over last year. The gross margin percentage was 50% of
sales compared to 48% last year.
The six month gross profit this year was up 23% at $24,882,000. The gross
margin percentage for the first six months was 52%, similar to last year's rate
of 51%.
Operating Expenses
Total operating expenses increased 36% in the quarter compared to last year s
period. This is slightly more than the gross profit increased of 34%. Selling
expenses increased 41% while research and development expenses increased 17%.
General and administrative expenses increased by 38%.
The $10,549,000 in the first six months of fiscal '98 for operating expenses
was a 25% increase. This is relatively consistent with the 23% increase in
gross profits.
Other Income and Expense
Other income for the quarter ended December 31, 1997, was up 54% when compared
to the same period last year. This results primarily from increased interest
income because the Company had more cash invested during the period. The year-
to-date 54% increase is due to the same reasons.
Net Income
Net income from continuing operations for the second quarter was $5,073,000,
or $.26 per share, an increase of 30%, compared to $3,778,000, or $.20 per share
in the same period last year.
Net income from continuing operations for the six months ended December 31,
1997 was $9,500,000, or $.49 per share (up 23%), compared to $7,581,000, or $.40
per share.
The per share data are the diluted amounts required by FASB 128. Appropriate
share and per share data have been revised to be consistent with the current
year presentation.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents and investments increased to
$24,216,000 at December 31, 1997, 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 '98. 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 $2,705,000 for the
six months ended December 31, 1997, 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 a $.055 per share cash dividend on December 9, 1997 to
stockholders of record November 18, 1997 which was funded from working capital.
In addition, the Company's Board of Directors, subsequent to December 31, 1997,
declared a quarterly cash dividend of $.065 per share on its common stock
payable March 12, 1998 to stockholders of record on February 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 December 31, 1997. This reflects the
continuing attitude of cooperation and commitment by each employee, management's
ongoing cost control efforts and the Company s commitment to deliver top quality
products and services to the markets it serves.
PART II. OTHER INFORMATION
Item 2(c). Changes in Securities and Use of Proceeds
On December 12, 1997, the Company issued 76,200 shares of fully paid and non-
assessable JHA common stock, valued at approximately $1,905,000 plus $1,095,000
in cash to the shareholders of Vertex, Inc. (Vertex), as total consideration for
a transaction whereby all of the outstanding capital stock of Vertex was
acquired by the Company. These shares of the Company s common stock were issued
in an unregistered, non-public transaction in which no underwriters
participated. These shares were issued under the exemption from registration
provided by Section 4(2) of the Securities Act.
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: February 13, 1998 /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board and
Chief Executive Officer
Date: February 13, 1998 /s/ Terry W. Thompson
Terry W. Thompson
Vice President and
Chief Financial Officer<PAGE>
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