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.
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