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, 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 January 31, 1999
Common Stock, $.01 par value 19,972,745
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998, (Unaudited) and June
30, 1998 3-4
Condensed Consolidated Statements of
Operations for the Quarter and Six Months
Ended December 31, 1998 and 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended December 31,
1998 and 1997 (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 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 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,
1998 June 30,
(Unaudited) 1998
ASSETS
Current assets:
Cash and cash equivalents $ 34,684 $ 24,683
Investments 1,509 3,217
Trade receivables 27,610 42,615
Income taxes receivable 1,477 -
Prepaid expenses and other 10,320 8,174
Total current assets $ 75,600 $ 78,689
Property and equipment, net $ 43,951 $ 30,918
Other assets:
Intangible assets, net of amortization $ 22,115 $ 15,272
Computer software 3,358 3,616
Other non-current assets 3,755 3,683
Total other assets $ 29,228 $ 22,571
Total assets $148,779 $132,178
December 31,
1998 June 30,
(Unaudited) 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,944 $ 8,119
Accrued expenses 6,912 5,634
Accrued income taxes payable - 136
Deferred revenue 35,071 33,151
Total current liabilities $ 47,297 $ 47,040
Deferred income taxes 2,526 2,526
Total liabilities $ 50,453 $ 49,566
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;
19,963,596 outstanding @ 12/31/98
19,777,458 outstanding @ 06/30/98 $ 200 $ 198
Less Treasury Stock (6) -
Additional paid-in capital 28,738 26,206
Retained earnings 69,394 56,208
Total stockholders' equity $ 98,326 $ 82,612
Total liabilities and
stockholders' equity $148,779 $132,178
The accompanying notes are an integral part of these condensed consolidated
financial statements.
JACK HENRY & ASSOCIATES, INC.
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<S><C>
Quarter Ended Six Months Ended
December 31, December 31,
Revenues: 1998 1997 1998 1997
Software licensing & installation $13,507 $ 9,322 $28,302 $17,443
Maintenance/support & service 16,763 11,191 31,112 21,916
Hardware sales & commissions 17,059 14,864 36,601 21,956
Total revenues $47,329 $35,377 $96,015 $61,315
Cost of sales:
Cost of hardware 11,740 9,901 25,981 14,569
Cost of services 13,698 9,615 25,712 17,714
Total cost of sales $25,438 $19,516 $51,693 $32,283
Gross profit $21,891 $15,861 $44,322 $29,032
46% 45% 46% 47%
Operating expenses:
Selling and marketing 3,842 3,741 7,914 6,715
Research and development 1,512 1,300 3,032 2,494
General and administrative 5,584 2,536 8,695 4,755
Total operating expenses $10,938 $ 7,577 $19,641 $13,964
Operating income $10,953 $ 8,284 $24,681 $15,068
Other income:
Interest income 510 325 977 635
Other, net 142 91 174 196
Total other income $ 652 $ 416 $ 1,151 $ 831
Income before income taxes $11,605 $ 8,700 $25,832 $15,899
Provision for income taxes 4,485 3,191 9,942 5,533
Income from continuing operations $ 7,120 $ 5,509 $15,890 $10,366
Income (loss) from discontinued opera- (249) 54 (227) (207)
tions
Net income $ 6,871 $ 5,563 $15,663 $10,159
Diluted earnings per share:
Income from continuing operations $ .34 $ .27 $ .75 $ .51
Income (loss) from discontinued (.01) - (.01) (.01)
operations
Net income $ .33 $ .27 $ .74 $ .50
Diluted weighted average shares 21,180 20,437 21,090 20,388
outstanding
Basic earnings per share:
Income from continuing operations $ .36 $ .28 $ .80 $ .53
Income (loss) from discontinued (.01) - (.01) (.01)
operations
Net income $ .35 $ .28 $ .79 $ .52
Basic weighted average shares 19,932 19,566 19,872 19,522
outstanding
</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)
(Unaudited)
Six Months Ended
December 31,
1998 1997
Cash flows - operating activities:
Cash received from customers $113,340 $62,641
Cash paid to suppliers and employees (70,093) (43,533)
Interest and dividends received, net 1,144 692
Income taxes paid, net (12,107) (2,772)
Other, net (84) (6)
Net cash flow provided by operating
activities $ 32,200 $17,022
Cash flows from discontinued operations (264) (522)
Cash flows from investing activities:
Proceeds on sale of property & equipment $ 5 $ 56
Capital expenditures (14,703) (3,512)
Short-term investment activity, net 1,600 2,381
Computer software development (183) (63)
Acquisition costs, net (7,835) (842)
Net cash used in investing activities $(21,116) $(1,980)
Cash flows from financing activities:
Proceeds from issuance of common stock
upon exercise of stock options $ 2,226 $ 285
Proceeds from sale of common stock 134 272
Dividends paid (2,477) (2,066)
Principal payments on notes payable (696) (139)
Purchase of treasury stock (6) (387)
Net cash used in financing activities $ (819) $(2,035)
Net increase in cash and cash equivalents $10,001 $12,485
Cash and cash equivalents at beginning
of period 24,683 11,108
Cash and cash equivalents at end of period $ 34,684 $23,593
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
"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, 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 audited consolidated financial statements and accompanying
notes of the Company for the year ended June 30, 1998, 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, 1998, 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, 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
December 31, 1998:
Acquisition of Peerless Group, Inc. - December 16, 1998: JHA acquired all the
outstanding shares of Peerless Group, Inc.( Peerless ), for approximately
827,000 shares of Company stock. Peerless, a wholly owned subsidiary, was a
publicly owned company that installs and supports integrated information systems
for community banks and credit unions throughout the United States. This
acquisition was accounted for as a pooling-of-interests and all prior periods
have been restated to reflect the acquisition as if it had occurred at the
beginning of the period reported.
Acquisition of Digital Data Services, Inc. (DDSI) - November 25, 1998: DDSI,
acquired for $2.75 million in cash, is a provider of a variety of service bureau
options to community banks, primarily in the state of Florida. Systems are
AS/400 based and are already using the JKHY core application system. This
acquisition was accounted for as a purchase and DDSI s results of operations
from the date of acquisition have been included in the Company s results of
operations.
4. Income Per Share Information
Earnings per common share are computed by dividing income by the basic and
diluted weighted average number of shares of common stock and dilutive common
stock equivalents outstanding for the quarter and six month periods ended
December 31, 1998 and 1997. The difference between basic and diluted weighted
average shares outstanding is due to employee stock options.
Item 2. - Management's Discussion and Analysis of Results of Operations and
Financial Condition<PAGE>
RESULTS OF OPERATIONS
Background and Overview
The Company is a leading provider of integrated computer systems and ATM
networking products that perform data processing (available for in-house or
service bureau installations) for banks and credit unions. 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. JHA frequently sells hardware with its software
products. It also provides customer support and related services. The
Company's software systems and products have been installed at over 1800 banks
and credit unions.
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
are Y2K compliant and that the majority, if not all, of its internal systems
will be Y2K compliant by March 31, 1999. 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, 1998, as compared to the same
periods in the previous year follows.
Revenues
Revenues increased 34% to $47,329,000 in the quarter ended December 31, 1998.
The Company's non-hardware products and services (higher margin sales) increased
48% over last year.
Six month revenues this year were $96,015,000, up 57% over the last year's
corresponding period. Software licensing and installation increased 62%.
Maintenance, support and service revenues increased 42%. Hardware sales were up
67% over last year.
The backlog of sales at December 31, 1998, was $80,206,000. Backlog at
January 31, 1999 was $79,466,000.
Cost of Sales
The 30% increase in cost of sales for the second quarter of FY '99 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 42% primarily due to growth and
future growth expected in the Company's core business, slightly less than the
48% increase in non-hardware revenues.
Cost of sales increased 60% for the first six months of fiscal '99, relatively
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 57% increase in revenues. Cost of hardware increased 78%,
slightly more than the 67% increase in hardware revenue. Cost of services
increased 45% compared to a 51% increase in non-hardware revenues.
Gross Profit
Gross profit increased to $21,891,000 in the second quarter ended December 31,
1998, a 38% increase over last year. The gross margin percentage was 46% of
sales compared to 45% last year.
The six month gross profit this year was up 53% at $44,322,000. The gross
margin percentage for the first six months was 46%, similar to last year's rate
of 47%.
Operating Expenses
Total operating expenses increased 44% in the quarter compared to last year s
period. This is slightly more than the gross profit increase of 38%. Selling
expenses increased 3% while research and development expenses increased 16%.
General and administrative expenses increased by 40% without one time
transaction costs of $2,040,000 relating to the acquisition of Peerless.
The $19,641,000 in the first six months of fiscal '99 for operating expenses
was a 41% increase. This is relatively consistent with the 53% increase in
gross profits.
Other Income and Expense
Other income for the quarter ended December 31, 1998, was up 57% 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 39% increase is due to the same reasons.
Net Income
Net income from continuing operations for the second quarter was $7,120,000,
or $.34 per diluted share, an increase of 29%, compared to $5,509,000, or $.27
per diluted share in the same period last year.
Net income from continuing operations for the six months ended December 31,
1998 was $15,890,000, or $.80 per share (up 53%), compared to $10,366,000, or
$.51 per share during the same period last year.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents and investments increased to
$36,193,000 at December 31, 1998, up from $27,900,000 at June 30, 1998.
JHA has available credit lines totaling $5,000,000, although the Company
expects their 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 $14,703,000 for
the six months ended December 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
$18,000,000 for FY '99.
The Company paid a $.065 per share cash dividend on December 10, 1998 to
stockholders of record November 19, 1998 which was funded from working capital.
In addition, the Company's Board of Directors, subsequent to December 31, 1998,
declared a quarterly cash dividend of $.08 per share on its common stock payable
March 10, 1999 to stockholders of record on February 17, 1999. 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, 1998. 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 5. Other Information
On December 16, 1998, the Company issued 826,931 shares of fully paid and non-
assessable JHA common stock, valued at approximately $39.4 million to the
shareholders of Peerless, as total consideration for a transaction whereby all
of the outstanding capital stock of Peerless was acquired by the Company. These
shares of the Company s common stock were issued pursuant to a registration
statement under the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
The Company filed one current report on Form 8-K on December 17, 1998,
reporting the completion of the Company s acquisition of Peerless, and
describing certain details of the transaction.
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 12, 1999 /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board and
Chief Executive Officer
Date: February 12, 1999 /s/ Terry W. Thompson
Terry W. Thompson
Vice President and
Chief Financial Officer<PAGE>
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