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 March 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 April 30, 1998 Common Stock, $.01 par value 18,937,006 JACK HENRY & ASSOCIATES, INC. CONTENTS Page No. PART I. FINANCIAL INFORMATION Item I - Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998, (Unaudited) and June 30, 1997 3-4 Condensed Consolidated Statements of Income for the Quarter and Nine Months Ended March 31, 1998 and 1997 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 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 8-9 Part II. OTHER INFORMATION None 10 Part I. Financial Information Item 1. Financial Statements JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Share Data) March 31, 1998 June 30, (Unaudited) 1997 ASSETS Current assets: Cash $20,260 $ 7,948 Held-to-maturity securities 3,018 5,919 Receivables 14,103 22,703 Income taxes receivable 0 1,982 Prepaid expenses and other 5,131 4,177 Total current assets $42,512 $42,729 Property and equipment, net 24,605 21,869 Other assets: Intangible assets, net of amortization $15,642 $15,469 Computer software 2,813 1,226 Investments and other 1,168 776 Total other assets $19,623 $17,471 Total assets $86,740 $82,069 March 31, 1998 June 30, (Unaudited) 1997 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,876 $ 2,911 Accrued expenses 2,872 3,648 Accrued income taxes payable 651 0 Deferred revenue 12,754 20,680 Total current liabilities $18,153 $27,239 Deferred income taxes 2,048 2,048 Total liabilities $20,201 $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; 18,935,458 issued @ 3/31/98 18,517,309 issued @ 6/30/97 $ 189 $ 185 Less Treasury Stock shares 0 (293) Additional paid-in capital 17,477 14,744 Retained earnings 48,873 38,146 Total stockholders' equity $66,539 $52,782 Total liabilities and stockholders' equity $86,740 $82,069 The accompanying notes are an integral part of these consolidated financial statements. JACK HENRY & ASSOCIATES, INC. CONSOLIDATED FINANCIAL INFORMATION (Unaudited) (In Thousands, Except Per Share Data) STATEMENTS OF INCOME Quarter Ended Nine Months Ended March 31 March 31 <TABLE> <S><C> Revenues 1998 1997 1998 1997 Software licensing & installation $ 8,931 $ 5,072 $22,077 $16,293 Maintenance/support & services 8,938 7,162 26,156 20,169 Hardware sales & commissions 9,378 9,827 26,457 25,297 Total revenues 27,247 22,061 74,690 61,759 Cost of sales: Cost of hardware 6,450 7,041 17,270 17,758 Cost of services 6,281 4,708 18,022 13,844 Total cost of sales $12,731 $11,749 $35,292 $31,602 Gross profit $14,516 $10,312 $39,398 $30,157 53% 47% 53% 49% Operating expenses: Selling and marketing 3,125 2,279 8,327 6,628 Research and development 789 525 2,286 1,492 General and administrative 2,388 1,665 6,238 4,453 Total operating expenses $ 6,302 $ 4,469 $16,851 $12,573 Operating income $ 8,214 $ 5,843 $22,547 $17,584 Other income (expense): Interest and dividend income 297 172 883 556 Other, net 101 26 307 155 Total other income $ 398 $ 198 $ 1,190 $ 711 Income before income taxes $ 8,612 $ 6,041 $23,737 $18,295 Provision for income taxes 3,215 2,306 8,840 6,979 Net income from continuing $ 5,397 $ 3,735 $14,897 $11,316 operations 191 89 398 239 Net loss from discontinued $ 5,206 $ 3,646 $14,499 $11,077 operations Net income Diluted earnings per share: * Income from continuing operations $ .27 $ .20 $ .76 $ .59 Income (loss) from discontinued (.01) (.01) (.02) (.01) operations Net income $ .26 $ .19 $ .74 $ .58 Diluted weighted average shares 19,886 19,155 19,677 19,100 outstanding Basic earnings per share: * Income from continuing operations $ .29 $ .21 $ .79 $ .63 Income (loss) from discontinued operations (.01) - (.02) (.01) Net income $ .28 $ .21 $ .77 $ .62 Basic weighted average s hares 18,908 17,942 18,818 17,898 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 STATEMENTS OF CASH FLOWS (In Thousands of Dollars) (Unaudited) Nine Months Ended March 31, 1998 1997 Cash flows - operating activities: Cash received from customers $75,371 $ 64,352 Cash paid to suppliers and employees (52,132) (42,237) Interest and dividends received, net 1,010 603 Income taxes paid, net (6,247) (7,272) Other, net 57 (10) Net cash flow provided by operating activities $18,059 $ 15,436 Cash flows from discontinued operations (790) (371) Cash flows from investing activities: Proceeds on sale of property & equipment $ 104 $ 15 Capital expenditures (4,649) (6,792) Short-term investment activity, net 2,871 (2,887) Long-term investment activity, net - 2 Computer software development (90) (151) Acquisition costs, net (867) (314) Net cash used in investing activities $(2,631) $(10,127) Cash flows from financing activities: Proceeds from issuance of common stock upon exercise of stock options $ 995 $ 1,249 Proceeds from sale of common stock 122 0 Dividends paid (3,297) (2,630) Principle payments on notes payable (146) (132) Purchase of treasury stock - (1,875) Net cash used in financing activities $(2,326) $ (3,388) Net increase in cash $12,312 $ 1,550 Cash at beginning of period 7,948 4,952 Cash at end of period $20,260 $ 6,502 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 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 March 31, 1998, and the results of its operations and its cash flows for the quarter and nine-month period then ended. The results of operations for the periods ended March 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 March 31, 1998: None. 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 nine month periods ended March 31, 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 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 1515 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 nine months ended March 31, 1998, as compared to the same periods in the previous year follows. Revenues Revenues increased 24% to $27,247,000 in the quarter ended March 31, 1998. Software licensing and installation increased 76%. Maintenance, support and service revenues increased 25%. Hardware sales were down from last year's quarter. The Company's non-hardware products and services (higher margin sales) increased 46% over last year. Nine month revenues this year were $74,690,000, up 21% over last year's corresponding period. Each of the three major revenue categories increased with the largest in maintenance, support and service revenues. Sales increased only slightly, primarily due to the lower margin hardware mix and timing of sales and the overall trend of hardware prices reducing on a long term basis. The Company continues to maintain its margin levels on the hardware it sells. The backlog of sales at March 31, 1998, was $47,821,000. Backlog at April 30, 1998 was $47,602,000 Cost of Sales The 8% increase in cost of sales for the third quarter of FY '98 is relatively consistent with the increase in revenues considering the sales mix. 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 33% primarily due to growth in the Company's core business, less than the 46% increase in non-hardware revenues. Cost of hardware decreased slightly, 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 small decrease in hardware revenue. Cost of sales increased 12% for the first nine months of fiscal '98, relatively consistent with the 21% increase in revenues considering the sales mix. Cost of hardware decreased 3% while cost of services increased 30%, both more favorable than the corresponding revenue increases. Gross Profit Gross profit increased to $14,516,000 in the third quarter ended March 31, 1998, a 41% increase over last year. The gross margin percentage was 53% of sales reasonably consistent with last year. The nine month gross profit this year was up 31% at $39,398,000. The gross margin percentage for the first nine months was 53%, similar to last year's rate. Operating Expenses Total operating expenses increased 41% in the quarter ended 3/31/98. Selling expenses increased 37% while research and development expenses increased 50%. General and administrative expenses increased by 43%. Operating expenses were $16,851,000 in the first nine months of fiscal '98, a 34% increase. Other Income and Expense Other income and expense for the quarter and year-to-date periods ended March 31, 1998, were up when compared to the same periods last year. Net Income Net income from continuing operations for the third quarter was $5,397,000, or $.27 per share, an increase of 35%, compared to $3,735,000, or $.20 per share in the same period last year. Net income from continuing operations for the nine months ended March 31, 1998 was $14,897,000, or $.76 per share (up 29%), compared to $11,316,000, or $.59 per share. FINANCIAL CONDITION Liquidity The Company's cash and held-to-maturity securities increased to $23,278,000 at March 31, 1998, 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 '97. 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 $4,649,000 for the nine months ended March 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 $6,000,000 for FY '98. The Company paid an $.065 per share cash dividend on March 12, 1998 to stockholders of record February 19, 1998 which was funded from working capital. In addition, subsequent to March 31, 1998, the Company's Board of Directors, declared a quarterly cash dividend of $.065 per share on its common stock payable May 27, 1998 to stockholders of record on May 12, 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 March 31, 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 None. 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: May 14, 1998 /s/ Michael E. Henry Michael E. Henry Chairman of the Board and Chief Executive Officer Date: May 14, 1998 /s/ Terry W. Thompson Terry W. Thompson Vice President and Chief Financial Officer