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 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 0-14112 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 31, 1995 Common Stock, $.01 par value 11,746,481 JACK HENRY & ASSOCIATES, INC. CONTENTS Page No. PART I. FINANCIAL INFORMATION Item I - Financial Statements Condensed Consolidated Balance Sheets - September 30, 1995, (Unaudited) and June 30, 1995 3 Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1995 and 1994 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1995 and 1994 (Unaudited) 6 Notes to the Condensed Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Part II. OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 12 Item 5 - Other Information 12 Item 6 - Exhibits and Reports on Form 8-K 12 Part I. Financial Information Item 1. Financial Statements JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Share Data) September 30, 1995 June 30, (Unaudited) 1995 ASSETS Current assets: Cash $ 5,012 $ 3,423 Short-term investments 3,609 4,650 Receivables 6,778 16,740 Prepaid expenses and other 2,893 2,661 Total current assets $18,292 $27,474 Property and equipment, net 11,917 10,302 Other assets: Intangible assets, net of amortization $17,789 $17,790 Computer software 1,778 1,740 Investments and other 1,643 1,415 Marketable equity securities 3 - Total other assets $21,213 $20,945 Total assets $51,422 $58,721 September 30, 1995 June 30, (Unaudited) 1995 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,918 $ 5,124 Accrued expenses 1,562 2,468 Income taxes 1,654 - Accrued acquisition costs 500 5,398 Deferred revenue 13,114 15,150 Total current liabilities $18,748 $28,140 Deferred income taxes 1,097 1,097 Total liabilities $19,845 $29,237 Stockholders' equity: Preferred stock - $1.00 par value; 500,000 shares authorized; none issued - - Common stock - $0.01 par value; 30,000,000 shares authorized; 11,744,148 issued @ 9/30/95 11,732,028 issued @ 6/30/95 $ 118 $ 117 Additional paid-in capital 9,095 9,425 Retained earnings 22,364 19,942 Total stockholders' equity $31,577 $29,484 Total liabilities and stockholders' equity $51,422 $58,721 The accompanying notes are an integral part of these consolidated financial statements. JACK HENRY & ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited) <TABLE> <S><C> Quarter Ended September 30, 1995 1994 Revenues: Software licensing & installation $ 4,842 $ 3,513 Maintenance/support & service 5,451 2,557 Hardware sales & commissions 5,857 3,579 Total revenues $16,150 $ 9,649 Cost of sales: Cost of hardware 4,007 2,654 Cost of services 3,904 1,925 Total cost of sales 7,911 4,579 Gross profit $ 8,239 $ 5,070 51% 53% Operating expenses Selling and marketing 1,832 1,160 Research and development 454 281 General and administrative 1,218 995 Total operating expenses 3,504 2,436 Operating income $ 4,735 $ 2,634 Other income (expense): Interest and dividend income 163 163 Other, net 76 6 Total other income 239 169 Income before income taxes $ 4,974 $ 2,803 Provision for income taxes 1,879 972 Net income $ 3,095 $ 1,831 Net income per share $ .25 $ .15 Weighted Average Shares Outstanding 12,342 11,957 </TABLE> 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) Three Months Ended September 30, 1995 1994 Cash flows - operating activities: Cash received from customers $24,093 $14,255 Cash paid to suppliers and employees (14,856) (8,072) Interest and dividends received, net 191 163 Income taxes paid, net (105) (219) Other, net 69 4 Net cash flow provided by operating activities $ 9,392 $ 6,131 Cash flows from investing activities: Proceeds on sale of property & equipment $ 2 $ 1 Capital expenditures (1,978) (589) Short-term investment activity, net 1,023 (2,001) Long-term investment activity, net - (19) Software development (101) (48) Payment of long-term debt - - Acquisition costs, net (5,514) (1,370) Net cash used in investing activities $(6,568) $(4,026) Cash flows from financing activities: Proceeds from issuance of common stock upon exercise of stock options $ 229 $ 26 Dividends paid (673) (584) Purchase of Treasury Stock (791) - Net cash used in financing activities $(1,235) $ (558) Net increase (decrease) in cash $ 1,589 $ 1,547 Cash at beginning of period 3,423 1,942 Cash at end of period $ 5,012 $ 3,489 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 worldwide 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 transac- tions 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, 1995. 2. Interim Financial Statements The accompanying condensed financial statements have been prepared in accor- dance with the instructions to Form 10-Q of the Securities and Exchange Commis- sion 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, 1995, 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 September 30, 1995 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, 1995, 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, 1995: Effective September 1, 1995, the Company exercised its option, and purchased all the outstanding stock of Central Interchange, Inc.(CII). CII's primary offering is the processing of ATM transactions for financial institutions in the Midwest. The initial consideration paid to CII's stockholder (who now works for JHA) was $250,000 in Company stock. Additional payments may be made over the next two years, based on CII's average annual net income. As of August 31, 1995, the Company had a $419,206 note receivable amount on its books. CII's results of operations have been included in these statements for all activity subsequent to September 1, 1995. The stock transaction was accounted for as a purchase. 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, 1995 and 1994. 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 in-house integrated computer systems that perform data processing for banks and related financial institutions. The Company was founded in 1976. Its propri- etary applications software, which operates on IBM computers, is offered under two systems: CIF 20/20(TM), typically for banks with less than $200 million in assets, and the Silverlake System(R), for banks with assets of $100 million to $3 billion. Domestically, JHA frequently sells hardware with its software prod- ucts. It also provides customer support and related services. The Company's software systems have been installed at over 1240 banks and financial institu- tions worldwide. A detailed discussion of the major components of the results of operations for the quarter ended September 30, 1995, as compared to the same period in the previous year follows. Revenues Revenues increased 67% to $16,150,000 in the quarter ended September 30, 1995. Software licensing and installation increased 38%. Maintenance, support and service revenues increased 113% with Liberty contributing a significant portion of the increase. Hardware sales were up 64% from last year's quarter. Overall, revenues continue to be strong as a result in growth in the Company's core business plus contributions from the June acquisitions of SECTOR and Liberty. The Company's non-hardware products and services (higher margin sales) increased 70% over last year. The backlog of sales at September 30, 1995 was $8,913,000, up from $6,739,000 last year. This is down from the record June 30, 1995 level, and is consistent with management's expectations for the first quarter. Backlog at October 26, 1995 was $9,010,000. Cost of Sales The 73% increase in cost of sales for the first quarter of FY '96 is relative- ly consistent with the increase in revenues. 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 significantly due to growth in the Company's core business plus the increase in costs as a result of the SECTOR and Liberty acquisitions. Silverlake System(R) is a registered trademark of Jack Henry & Associates, Inc. CIF 20/20(TM) is a trademark of Jack Henry & Associates, Inc. Gross Profit Gross profit increased to $8,239,000 in the first quarter ended September 30, 1995, a 63% increase over last year. The gross margin percentage was 51% of sales compared to 53% last year. The relative mix of the core business and new acquisitions contributed to this being below last year's level. Operating Expenses Total operating expenses increased 44%. This is a favorable picture, since gross profit increased 63%. Thus, the Company continues to gain efficiencies through growth. Selling expenses increased 58% while research & development and general & administrative expenses increased 62% and 22%, respectively. Other Income and Expense Other income for the quarter ended September 30, 1995 reflects a net increase when compared to the same period last year. Net Income Net income from continuing operations for the first quarter was $3,095,000, or $.25 earnings per share compared to $1,831,000, or $.15 earnings per share in the same period last year. FINANCIAL CONDITION Liquidity The Company's cash and held-to-maturity securities increased to $9,624,000 at September 30, 1995, from $9,488,000 at June 30, 1995. During the quarter the Company paid out a net of $5,092,000 as a result of the Liberty acquisition. Customer payments and Company profitability more than offset these payments to help improve the Company's net working capital position. JHA has available credit lines totaling $2,215,000, although the Company expects their use to be minimal during FY '96. 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 $1,978,000 for the quarter ended September 30, 1995, were made for additional equipment. These were funded from cash generated by operations. The consolidated capital expenditures of JHA could exceed $2,500,000 for FY '96. The Company paid a $.0575 per share cash dividend on September 22, 1995 to stockholders of record September 8, 1995 which was funded from working capital. In addition, the Company's Board of Directors, subsequent to September 30, 1995, declared a quarterly cash dividend of $.0575 per share on its common stock payable December 12, 1995 to stockholders of record on November 21, 1995. 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, 1995. 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 served. 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 31, 1995, for the purpose of electing a board of directors and approving the adoption of the 1995 Non-Qualified Stock Option Plan. 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 10,640,073 30,286 Jerry D. Hall 10,640,289 30,070 Michael E. Henry 10,640,289 30,070 James J. Ellis 10,639,973 30,386 Burton O. George 10,640,089 30,270 George R. Curry 10,638,589 31,770 Michael R. Wallace 10,640,589 29,770 William W. Caraway 10,627,151 43,208 Also approved was the adoption of the 1995 Non-Qualified Stock Option Plan with the number of votes for, against and withheld as indicated below: For Against Withheld 10,006,036 612,299 52,024 Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K 19.1 (a) Exhibits None. (b) Reports on Form 8-K The Company filed a Form 8-K dated July 17, 1995, to report the acquisition of the Community Banking Business (CFI) unit of Broadway & Seymour, Inc. ("BSI") under Item 2. CFI financial statements as of June 30, 1995 were filed with the 8-K and pro forma financial information were filed under cover of a Form 8-KA on September 15, 1995 pursuant to Item 7(a)(4) of Form 8-K. 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: November 14, 1995 /s/ Michael E. Henry Michael E. Henry Chairman of the Board Chief Executive Officer Date: November 14, 1995 /s/ Terry W. Thompson Terry W. Thompson Vice President and Chief Financial Officer