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 SECURE- TIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 October 29, 1998 Common Stock, $.01 par value 19,071,779 JACK HENRY & ASSOCIATES, INC. CONTENTS Page No. PART I. FINANCIAL INFORMATION Item I - Financial Statements Condensed Consolidated Balance Sheets - September 30, 1998, (Unaudited) and June 30, 1998 3 Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1998 and 1997 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 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 Part II. OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 11 Part I. Financial Information Item 1. Financial Statements JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Data) September 30, 1998 June 30, (Unaudited) 1998 ASSETS Current assets: Cash and cash equivalents $ 39,025 $ 23,306 Investments 3,145 3,217 Trade receivables 22,314 36,826 Prepaid expenses and other 7,520 5,789 Total $ 72,004 $ 69,138 Property and equipment, net $ 33,888 $ 26,855 Other assets: Intangible assets, net of amortization $ 19,721 $ 15,272 Computer software 2,762 2,838 Other non-current assets 1,323 1,183 Total $ 23,806 $ 19,293 Total assets $129,698 $115,286 September 30, 1998 June 30, (Unaudited) 1998 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,207 $ 6,854 Accrued expenses 6,591 3,968 Accrued income taxes 4,834 136 Deferred revenues 28,527 28,302 Total $ 45,159 $ 39,260 Deferred income taxes 2,526 2,526 Total liabilities $ 47,685 $ 41,786 Stockholders' equity: Preferred stock - $1 par value; 500,000 shares authorized; none issued - - Common stock - $0.01 par value; 50,000,000 shares authorized; 19,034,279 issued @ 9/30/98 18,950,527 issued @ 6/30/98 $ 190 $ 189 Additional paid-in capital 20,051 18,599 Retained earnings 61,772 54,712 Total stockholders' equity $ 82,013 $ 73,500 Total liabilities and stockholders' equity $129,698 $115,286 The accompanying notes are an integral part of these condensed consolidated financial statements. JACK HENRY & ASSOCIATES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited) <TABLE> <S><C> Quarter Ended September 30, 1998 1997 Revenues: Software licensing & installation $11,659 $ 6,122 Maintenance/support & service 11,550 8,509 Hardware sales & commissions 17,519 5,428 Total revenues $40,728 $20,059 Cost of sales: Cost of hardware $12,691 $ 3,395 Cost of services 8,192 5,423 Total cost of sales $20,883 $ 8,818 Gross profit $19,845 $11,241 49% 56% Operating expenses: Selling and marketing $ 3,512 $ 2,172 Research and development 952 671 General and administrative 2,439 1,800 Total operating expenses $ 6,903 $ 4,643 Operating income from continuing operations $12,942 $ 6,598 Other income (expense): Interest income $ 445 $ 278 Other, net 35 111 Total other income $ 480 $ 389 Income before income taxes $13,422 $ 6,987 Provision for income taxes 5,148 2,560 Income from continuing operations $ 8,274 $ 4,427 Income (loss) from discontinued operations 22 (261) Net income $ 8,296 $ 4,166 Diluted earnings per share: Income from continuing operations $ .41 $ .23 Loss from discontinued operations - .02 Net income per share $ .41 $ .21 Diluted weighted average shares outstanding 20,154 19,533 Basic earnings per share: Income from continuing operations $ .44 $ .24 Loss from discontinued operations - .02 Net income per share $ .44 $ .22 Basic weighted average shares outstanding 18,982 18,744 </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) Three Months Ended September 30, 1998 1997 Cash flows - operating activities: Cash received from customers $ 55,619 $27,714 Cash paid to suppliers and employees (27,109) (14,971) Interest and dividends received, net 558 345 Income taxes paid, net (450) 1,423 Other, net (136) 10 Net cash flow provided by operating activities $ 28,482 $14,521 Cash flows from discontinued operations (118) (397) Cash flows from investing activities: Proceeds on sale of property & equipment $ 2 $ 51 Capital expenditures (7,274) (1,424) Proceeds from sales of investments - 2,000 Computer software development cost (90) (36) Business acquisitions, net (4,867) 25 Net cash provided by (used in) investing activities $(12,229) $ 616 Cash flows from financing activities: Principal payment on notes payable $ (633) $ (119) Proceeds from issuance of common stock upon exercise of stock options 1,386 222 Proceeds from sale of common stock 67 46 Dividends paid (1,236) (1,033) Net cash used in financing activities $ (416) $ (884) Net increase in cash and cash equivalents $15,719 $13,856 Cash and cash equivalents at beginning of period 23,306 7,948 Cash and cash equivalents at end of period $39,025 $21,804 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 ription of the Company - Jack Henry & Associates, Inc. ("JHA" or the "Company") is a computer software company which has developed several banking software systems. The Company markets these systems to financial institutions in the United States 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 transactions 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, 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 Company's audited consolidated financial statements and accompanying notes which are included in its Form 10-K, for the year ended June 30, 1998. 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, 1998 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, 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 three months ended September 30, 1998: Effective July 1, 1998, the Company purchased all the outstanding stock of Hewlett Computer Services, Inc. (HCS). HCS was a privately owned company engaged in the business of providing a variety of service bureau options to community banks. The total consideration paid to HCS s stockholders was $2,250,000 in cash. The transaction was accounted for using the purchase method of accounting. During the quarter ended September 30, 1998, the Company entered into contracts with multiple banks to provide products and services through one of its service bureaus. Pursuant to an agreement, the Company pays the prior service bureau provider an amount based on each customer s revenues. Total purchase price for customer contracts signed in the quarter was $2,611,000 in cash. After the close of business on August 18, 1998, the Company entered a definitive agreement to acquire Peerless Group, Inc. (NASDAQ:PLSS), through a merger agreement expected to close in the fourth calendar quarter of 1998, pending regulatory and PLSS shareholder approval. PLSS is a publicly owned company that installs and supports integrated information systems for community banks and credit unions throughout the United States. The price is approximately $36 million, or $7.25 per PLSS share to be paid with Company stock. Peerless Group generated profits of $1.9 million on revenues of $30.1 million in calendar 1997. 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, 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 AS/400 computers, is offered under two systems: CIF 1 20/20, typically for banks with less than $300 million in assets, and the 2 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 1560 banks and financial institutions. 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 1 CIF 20/20 is a trademark of Jack Henry & Associates, Inc. 2 Silverlake System is a registered trademark of Jack Henry & Associates, Inc. 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 financial condition. A detailed discussion of the major components of the results of operations for the quarter ended September 30, 1998, as compared to the same period in the previous year follows. Revenues Revenues increased 103% to $40,728,000 in the quarter ended September 30, 1998. Software licensing and installation increased 90%. Maintenance, support and service revenues increased 36%. Hardware sales increased 223% from last year's quarter. The Company's non-hardware products and services (higher margin sales) increased 59% over last year. The increases reflect continued growth and demand for the Company s products and services. The backlog of sales at September 30, 1998 was $64,132,000. This is up from the June 30, 1998 level, and is consistent with management's expectations for the first quarter. Backlog at October 30, 1998 was $64,058,000. Cost of Sales The 137% increase in cost of sales for the first quarter of FY '99 is relatively consistent with the increase in revenues. Cost of hardware increased 274% while cost of services increased 51%, both mirroring the related revenue. Gross Profit Gross profit increased to $19,845,000 in the first quarter ended September 30, 1998, a 77% increase over last year. The gross margin percentage was 49% of sales compared to 56% last year due to hardware (lower margin sales) representing 43% of total revenues compared to 27% last year. Operating Expenses Total operating expenses increased 49%. This is less than the gross profit increase of 77%. Selling expenses increased 62%, research & development increased 42% and general & administrative expenses increased 36%. Other Income and Expense Other income for the quarter ended September 30, 1998 reflects an increase when compared to the same period last year due primarily to the level of cash and cash equivalents invested being much higher this year than last. Net Income Net income from continuing operations for the first quarter was $8,274,000, or $.41 earnings per share compared to $4,427,000, or $.23 earnings per share in the same period last year. FINANCIAL CONDITION Liquidity The Company's cash and cash equivalents and investments increased to $42,170,000 at September 30, 1998, from $26,523,000 at June 30, 1998. This is reflecting the seasonal influx of cash due to the receipt in the first quarter of annual maintenance fees billed June 30, 1998. JHA has an available credit line totaling $5,000,000, although the Company expects its 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 $7,274,000 for the quarter ended September 30, 1998, were made for expansion of facilities and additional equipment. These were funded from cash generated by operations. The consolidated capital expenditures of JHA could exceed $11,000,000 for FY '99. The Company paid a $.065 per share cash dividend on September 24, 1998 to stockholders of record September 8, 1998 which was funded from working capital. In addition, the Company's Board of Directors, subsequent to September 30, 1998, declared a quarterly cash dividend of $.065 per share on its common stock payable December 10, 1998 to stockholders of record on November 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 September 30, 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 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 29, 1998, for the purpose of electing a board of directors. 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 16,590,944 64,850 Jerry D. Hall 16,590,910 64,884 Michael E. Henry 16,590,944 64,850 James J. Ellis 16,591,245 64,549 Burton O. George 16,587,615 68,179 George R. Curry 16,587,840 67,954 Michael R. Wallace 16,590,794 65,000 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 of the undersigned thereunto duly authorized. JACK HENRY & ASSOCIATES, INC. Date: November 12, 1998 /s/ Michael E. Henry Michael E. Henry Chairman of the Board Chief Executive Officer Date: November 12, 1998 /s/ Terry W. Thompson Terry W. Thompson Vice President and Chief Financial Officer