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EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER - HENRY JACK & ASSOCIATES INCjkhy-2014930xex311a.htm
EX-32.1 - WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER - HENRY JACK & ASSOCIATES INCjkhy-2014930xex321a.htm
EX-32.2 - WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER - HENRY JACK & ASSOCIATES INCjkhy-2014930xex322a.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - HENRY JACK & ASSOCIATES INCjkhy-2014930xex312a.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended September 30, 2014
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 Principle 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 [ ]  No [ X ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ]  No [ X ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[X]
  
Accelerated filer
[ ]
 
 
 
 
 
Non-accelerated filer
[  ]
(Do not check if a smaller reporting company)
Smaller reporting company
[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  
Yes [  ] No [ X ]
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.




As of November 3, 2014, Registrant had 81,775,635 shares of Common Stock outstanding ($0.01 par value).



JACK HENRY & ASSOCIATES, INC.
TABLE OF CONTENTS
 
 
Page Reference
 
 
 
 
EXPLANATORY PARAGRAPH
 
 
 
 
PART I
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Consolidated Balance Sheets as of September 30, 2014 and June 30, 2014 (Unaudited) (As Restated)
 
 
 
 
Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2014 and 2013 (Unaudited) (As Restated)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2014 and 2013 (Unaudited) (As Restated)
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
 
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
ITEM 4.
Controls and Procedures
 
 
 
PART II
OTHER INFORMATION
 
 
 
ITEM 6.
Exhibits
 
 
 
 
Signatures

In this report, all references to “JHA”, the “Company”, “we”, “us”, and “our”, refer to Jack Henry & Associates, Inc., and its wholly owned subsidiaries.

FORWARD LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements are identified at “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2014. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.


3


Explanatory Note
Restatement of Consolidated Financial Statements
On May 6, 2015, Jack Henry & Associates, Inc. (the "Company") announced that it had identified historical accounting errors relating to its accounting for certain software license and maintenance agreements.
The Company has corrected these errors in the accompanying restated condensed consolidated financial statements (unaudited).
See Note 11 - Restatement of Condensed Consolidated Financial Statements which is included in "Financial Statements" in Item 1 of this Amended Quarterly Report for the fiscal quarter ended 30 September, 2014 on Form 10-Q/A.
Internal Control over Financial Reporting
Management reevaluated its assessment of disclosure controls and procedures as of September 30, 2014. As a result of that reassessment, management concluded that disclosure controls and procedures were not effective due to a material weakness. For a description of the material weakness and actions taken and to be taken to remediate the material weakness, see "Part I - Item 4 - Controls and Procedures."
This Amended Quarterly Report on Form 10-Q/A does not reflect events occurring after the Original Filing on November 5, 2014 or modify or update those disclosures affected by subsequent events, except for the effects of the restatement. Disclosures not affected by the restatement are unchanged and reflect the disclosures made at the time of Original Filing.
The following items in the Original Filing have been amended:
Part I, Item 1 Financial Statements
Part I, Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Part I, Item 4 Controls and Procedures
Part II, Item 6 Exhibits
The Company's Chief Executive Officer and Chief Financial Officer are providing currently dated certifications in connection with this Amended Quarterly Report on Form 10-Q/A; the certifications are filed as Exhibits 31.1, 31.2 and 32.1.
The Company is concurrently filing an amended Annual Report on Form 10-K/A for the year ended June 30, 2014 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 2014 and March 31, 2015 to reflect the effects of the restatement therein.


4


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)
(Unaudited)
 
September 30,
2014
 
June 30,
2014
 
As Restated, See Note 11
 
As Restated, See Note 11
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
39,402

 
$
70,377

Receivables, net
159,110

 
224,041

Income tax receivable
2,618

 
7,937

Prepaid expenses and other
73,928

 
61,074

Deferred costs
35,265

 
27,077

Total current assets
310,323

 
390,506

PROPERTY AND EQUIPMENT, net
301,132

 
291,675

OTHER ASSETS:
 
 
 
Non-current deferred costs
83,965

 
78,458

Computer software, net of amortization
167,585

 
160,391

Other non-current assets
44,333

 
44,657

Customer relationships, net of amortization
132,893

 
136,602

Other intangible assets, net of amortization
27,805

 
25,653

Goodwill
552,761

 
552,761

Total other assets
1,009,342

 
998,522

Total assets
$
1,620,797

 
$
1,680,703

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
8,316

 
$
10,516

Accrued expenses
58,038

 
63,299

Accrued income taxes
14,690

 

Deferred income tax liability
21,440

 
30,094

Notes payable and current maturities of long term debt
9,964

 
5,407

Deferred revenues
292,276

 
337,493

Total current liabilities
404,724

 
446,809

LONG TERM LIABILITIES:
 
 
 
Non-current deferred revenues
166,519

 
155,375

Non-current deferred income tax liability
103,693

 
97,720

Debt, net of current maturities
1,041

 
3,729

Other long-term liabilities
10,349

 
9,683

Total long term liabilities
281,602

 
266,507

Total liabilities
686,326

 
713,316

STOCKHOLDERS' EQUITY
 
 
 
Preferred stock - $1 par value; 500,000 shares authorized, none issued

 

Common stock - $0.01 par value; 250,000,000 shares authorized;
102,611,471 shares issued at September 30, 2014;
102,429,926 shares issued at June 30, 2014
1,026

 
1,024

Additional paid-in capital
412,092

 
412,512

Retained earnings
1,159,678

 
1,131,632


5


Less treasury stock at cost
20,843,232 shares at September 30, 2014;
19,794,559 shares at June 30, 2014
(638,325
)
 
(577,781
)
Total stockholders' equity
934,471

 
967,387

Total liabilities and equity
$
1,620,797

 
$
1,680,703

See notes to condensed consolidated financial statements

6


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 
Three Months Ended
 
September 30,
 
2014
 
2013
 
As Restated, See Note 11
 
As Restated, See Note 11
REVENUE
 
 
 
License
$
503

 
$
762

Support and service
288,216

 
262,630

Hardware
12,755

 
14,338

Total revenue
301,474

 
277,730

 
 
 
 
COST OF SALES
 
 
 
Cost of license
409

 
344

Cost of support and service
165,090

 
149,156

Cost of hardware
9,385

 
10,941

Total cost of sales
174,884

 
160,441

 
 
 
 
GROSS PROFIT
126,590

 
117,289

 
 
 
 
OPERATING EXPENSES
 
 
 
Selling and marketing
21,663

 
20,738

Research and development
16,791

 
15,673

General and administrative
16,510

 
14,250

Total operating expenses
54,964

 
50,661

 
 
 
 
OPERATING INCOME
71,626

 
66,628

 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
Interest income
57

 
131

Interest expense
(266
)
 
(280
)
Total interest income (expense)
(209
)
 
(149
)
 
 
 
 
INCOME BEFORE INCOME TAXES
71,417

 
66,479

 
 
 
 
PROVISION FOR INCOME TAXES
25,329

 
23,258

 
 
 
 
NET INCOME
$
46,088

 
$
43,221

 
 
 
 
Diluted earnings per share
$
0.56

 
$
0.50

Diluted weighted average shares outstanding
82,589

 
85,854

 
 
 
 
Basic earnings per share
$
0.56

 
$
0.51

Basic weighted average shares outstanding
82,195

 
85,294


See notes to condensed consolidated financial statements

7


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Three Months Ended
 
September 30,
 
2014
 
2013
 
As Restated, See Note 11
 
As Restated, See Note 11
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
46,088

 
$
43,221

Adjustments to reconcile net income from operations
     to net cash from operating activities:
 
 
 
Depreciation
13,631

 
12,963

Amortization
15,817

 
12,893

Change in deferred income taxes
(2,682
)
 
(2,287
)
Excess tax benefits from stock-based compensation
(3,801
)
 
(2,947
)
Expense for stock-based compensation
2,068

 
1,922

(Gain)/loss on disposal of assets
(56
)
 
(30
)
Changes in operating assets and liabilities:
 
 
 
Change in receivables  
64,931

 
78,489

Change in prepaid expenses, deferred costs and other
(26,225
)
 
(19,806
)
Change in accounts payable
(2,200
)
 
2,213

Change in accrued expenses
(4,680
)
 
(16,238
)
Change in income taxes
24,329

 
21,531

Change in deferred revenues
(34,072
)
 
(34,234
)
Net cash from operating activities
93,148

 
97,690

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(21,485
)
 
(7,351
)
Proceeds from sale of assets
58

 
2,702

Internal use software
(3,455
)
 
(3,183
)
Computer software developed
(17,999
)
 
(14,076
)
Net cash from investing activities
(42,881
)
 
(21,908
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repayments on credit facilities
(170
)
 
(2,798
)
Purchase of treasury stock
(60,544
)
 

Dividends paid
(18,042
)
 
(17,054
)
Excess tax benefits from stock-based compensation
3,801

 
2,947

Proceeds from issuance of common stock upon exercise of stock options
161

 
111

Minimum tax withholding payments related to share based compensation
(7,602
)
 
(6,176
)
Proceeds from sale of common stock, net
1,154

 
1,070

Net cash from financing activities
(81,242
)
 
(21,900
)
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
(30,975
)
 
$
53,882

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
70,377

 
$
127,905

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
39,402

 
$
181,787


See notes to condensed consolidated financial statements

8


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
(Unaudited)

NOTE 1.    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Jack Henry & Associates, Inc. and subsidiaries (“JHA” or the “Company”) is a provider of integrated computer systems and services that has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide together with computer equipment (hardware), by providing the conversion and software implementation services for financial institutions to utilize JHA software systems, and by providing other related services. JHA also provides continuing support and services to customers using in-house or outsourced systems.
CONSOLIDATION
The consolidated financial statements include the accounts of JHA and all of its subsidiaries, which are wholly-owned, and all intercompany accounts and transactions have been eliminated.
COMPREHENSIVE INCOME
Comprehensive income for the three months ended September 30, 2014 and 2013 equals the Company’s net income.
COMMON STOCK
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or short-term borrowings on its existing credit facilities. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At September 30, 2014, there were 20,843 shares in treasury stock and the Company had the remaining authority to repurchase up to 4,147 additional shares. The total cost of treasury shares at September 30, 2014 is $638,325. During the first quarter of fiscal 2015, the Company repurchased 1,049 treasury shares for $60,544. At June 30, 2014, there were 19,795 shares in treasury stock and the Company had authority to repurchase up to 5,196 additional shares.
Dividends declared per share were $0.22 and $0.20 for the three months ended September 30, 2014 and 2013, respectively.
INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America applicable to interim condensed consolidated financial statements, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K/A  (“Form 10-K/A”) for the fiscal year ended June 30, 2014. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Form 10-K/A for the fiscal year ended June 30, 2014.
In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to present fairly the financial position of the Company as of September 30, 2014, the results of its operations for the three months ended September 30, 2014 and 2013, and its cash flows for the three months ended September 30, 2014 and 2013.
The results of operations for the period ended September 30, 2014 are not necessarily indicative of the results to be expected for the entire year.
LITIGATION
We are subject to various routine legal proceedings and claims, including the following:
In May 2013 a patent infringement lawsuit entitled DataTreasury Corporation v. Jack Henry & Associates, Inc. et. al. was filed against the Company, several subsidiaries and a number of customer financial institutions in the US District Court for the Eastern District of Texas.  The complaint seeks damages, interest, injunctive relief, and attorneys' fees for the alleged infringement of two patents, as well as trebling of damage awards for alleged willful infringement.  We

9


believe we have strong defenses and intend to defend the lawsuit vigorously.  At this stage, we cannot make a reasonable estimate of possible loss or range of loss, if any, arising from this lawsuit.

NOTE 2.    FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash equivalents, amounts receivable or payable and short-term borrowings, fair values approximate carrying value, based on the short-term nature of the assets and liabilities. The fair value of long term debt also approximates carrying value as estimated using discounted cash flows based on the Company’s current incremental borrowing rates or quoted prices in active markets.
The Company's estimates of the fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows:
Level 1: inputs to the valuation are quoted prices in an active market for identical assets
Level 2: inputs to the valuation include quoted prices for similar assets in active markets that are observable either directly or indirectly
Level 3: valuation is based on significant inputs that are unobservable in the market and the Company's own estimates of assumptions that we believe market participants would use in pricing the asset
Fair value of financial assets, included in cash and cash equivalents, is as follows:
 
 
Estimated Fair Value Measurements
 
Total Fair
 
 
Level 1
 
Level 2
 
Level 3
 
Value
September 30, 2014
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
2,915

 
$

 
$

 
$
2,915

June 30, 2014
 
 

 
 
 
 
 
 

Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
28,877

 
$

 
$

 
$
28,877


NOTE 3.    RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers in May 2014. The new standard will supersede much of the existing authoritative literature for revenue recognition. The standard and related amendments will be effective for the Company for its annual reporting period beginning July 1, 2017, including interim periods within that reporting period. Early application is not permitted. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. The Company is currently evaluating the newly issued guidance, including which transition approach will be applied and the estimated impact it will have on our consolidated financial statements.

NOTE 4.    DEBT
The Company’s outstanding long and short term debt is as follows:
 
September 30,
 
June 30,
 
2014
 
2014
LONG TERM DEBT
 
 
 
Capital leases
$
6,365

 
$
7,757

 
6,365

 
7,757

Less current maturities
5,324

 
4,028

Debt, net of current maturities
$
1,041

 
$
3,729


10


SHORT TERM DEBT
 
 
 
Capital leases
$
4,640

 
$
1,379

Current maturities of long-term debt
5,324

 
4,028

Notes payable and current maturities of long term debt
$
9,964

 
$
5,407

Capital leases
The Company has entered into various capital lease obligations for the use of certain computer equipment. Long term capital lease obligations were entered into of which $6,365 remains outstanding at September 30, 2014 and $5,324 will be maturing within the next twelve months. The Company also has short term capital lease obligations totaling $4,640 at September 30, 2014.
Other lines of credit
The long term revolving credit facility allows for borrowings of up to $150,000, which may be increased by the Company at any time until maturity to $250,000. The credit facility bears interest at a variable rate equal to (a) a rate based on LIBOR or (b) an alternate base rate (the greater of (a) the Federal Funds Rate plus 0.5%, (b) the Prime Rate or (c) LIBOR plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit facility is secured by pledges of capital stock of certain subsidiaries of the Company and also guaranteed by certain subsidiaries of the Company. The credit facility is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the agreement. As of September 30, 2014, the Company was in compliance with all such covenants. The revolving loan terminates June 4, 2015 and at September 30, 2014, there was no outstanding revolving loan balance.
The Company renewed an unsecured bank credit line on March 3, 2014 which provides for funding of up to $5,000 and bears interest at the prime rate less 1%. The credit line was renewed through April 30, 2017. At September 30, 2014, no amount was outstanding.
Interest
The Company paid interest of $285 and $299 during the three months ended September 30, 2014 and 2013, respectively.
Property and Equipment
Property and equipment included $1,605 and $5,337 in accrued liabilities or acquired via capital lease at September 30, 2014 and 2013, respectively. These amounts were excluded from capital expenditures on the statement of cash flows.

NOTE 5.    INCOME TAXES
The effective tax rate of 35.5% of income before income taxes for the quarter ended September 30, 2014 is higher than 35.0% for the same quarter in fiscal 2014 primarily due to the effect of the Research and Experimentation Credit (“R&E Credit”) which expired December 31, 2013.
The Company paid income taxes of $3,681 and $4,015 in the three months ended September 30, 2014 and 2013, respectively.
At September 30, 2014, the Company had $8,235 of gross unrecognized tax benefits, $5,627 of which, if recognized, would affect our effective tax rate. We had accrued interest and penalties of $1,433 and $682 related to uncertain tax positions at September 30, 2014 and 2013, respectively.
The U.S. federal and state income tax returns for June 30, 2011 and all subsequent years remain subject to examination as of September 30, 2014 under statute of limitations rules. We anticipate potential changes could reduce the unrecognized tax benefits balance by $1,700 - $2,300 within twelve months of September 30, 2014.

NOTE 6.    STOCK-BASED COMPENSATION
Our pre-tax operating income for the three months ended September 30, 2014 and 2013, includes $2,068 and $1,922 of equity-based compensation costs, respectively.
2005 NSOP and 1996 SOP
The Company previously issued options to employees under the 1996 Stock Option Plan (“1996 SOP”) and to outside directors under the 2005 Non-Qualified Stock Option Plan (“2005 NSOP”). No stock options were issued under the 1996 SOP or the 2005 NSOP during the three months ended September 30, 2014.

11


A summary of option plan activity under the plan is as follows:
 
Number of Shares
 
Weighted Average Exercise Price
 
Aggregate
 Intrinsic
 Value
Outstanding July 1, 2014
125

 
22.29

 
 
Granted

 

 
 
Forfeited

 

 
 
Exercised
(9
)
 
19.04

 
 
Outstanding September 30, 2014
116

 
$
22.54

 
$
3,842

Vested September 30, 2014
116

 
$
22.54

 
$
3,842

Exercisable September 30, 2014
116

 
$
22.54

 
$
3,842

Compensation cost related to outstanding options has been fully recognized. The weighted average remaining contractual term on options currently exercisable as of September 30, 2014 was 3.48 years.
Restricted Stock Plan
The Company issues both share awards and unit awards under the Restricted Stock Plan. The following table summarizes non-vested share awards as of September 30, 2014, as well as activity for the three months then ended:
Share awards
Shares
 
Weighted
Average
Grant Date
Fair Value
Outstanding July 1, 2014
138

 
33.56

Granted
9

 
56.06

Vested
(32
)
 
26.18

Forfeited
(7
)
 
46.39

Outstanding September 30, 2014
108

 
$
36.79

At September 30, 2014, there was $1,496 of compensation expense that has yet to be recognized related to non-vested restricted stock share awards, which will be recognized over a weighted-average period of 1.18 years.
The following table summarizes non-vested unit awards as of September 30, 2014, as well as activity for the three months then ended:
Unit awards
Shares
 
Weighted
Average
Grant Date
Fair Value
Outstanding July 1, 2014
709

 
31.66

Granted
164

 
53.04

Vested
(277
)
 
19.69

Forfeited
(101
)
 
19.69

Outstanding September 30, 2014
495

 
47.83

The weighted average assumptions used in this model to estimate fair value at the measurement date and resulting values are as follows:
Volatility
17.8
%
Risk free interest rate
1.06
%
Dividend yield
1.5
%
Stock Beta
0.765

At September 30, 2014, there was $15,369 of compensation expense that has yet to be recognized related to non-vested restricted stock unit awards, which will be recognized over a weighted-average period of 1.94 years.


12


NOTE 7.    EARNINGS PER SHARE
The following table reflects the reconciliation between basic and diluted earnings per share:
 
Three Months Ended September 30,
 
2014
 
2013
Net Income
$
46,088

 
$
43,221

Common share information:
 
 
 
Weighted average shares outstanding for basic earnings per share
82,195

 
85,294

Dilutive effect of stock options and restricted stock
394

 
560

Weighted average shares outstanding for diluted earnings per share
82,589

 
85,854

Basic earnings per share
$
0.56

 
$
0.51

Diluted earnings per share
$
0.56

 
$
0.50

Per share information is based on the weighted average number of common shares outstanding for each of the fiscal years. Stock options and restricted stock have been included in the calculation of earnings per share to the extent they are dilutive. There were 78 anti-dilutive restricted shares excluded for the three months ended September 30, 2014 (18 restricted shares were excluded for the three months ended September 30, 2013).

NOTE 8.    BUSINESS ACQUISITION
Banno, LLC
Effective March 1, 2014, the Company acquired all of the equity interests of Banno, an Iowa-based company that provides Web hosting, mobile banking, and transaction marketing services with a focus on the mobile medium, for $27,910 paid in cash. This acquisition was funded using existing operating cash. The acquisition of Banno expanded the Company’s presence in online and mobile technologies within the industry.
Management has completed a preliminary purchase price allocation of Banno and its assessment of the fair value of acquired assets and liabilities assumed. The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as of March 1, 2014 are set forth below:
Current assets
$
610

Long-term assets
87

Identifiable intangible assets
9,255

Total liabilities assumed
(1,512
)
Total identifiable net assets
8,440

Goodwill
19,470

Net assets acquired
$
27,910

The amounts shown above may change in the near term as management continues to assess the fair value of acquired assets and liabilities and evaluate the income tax implications of this business combination.
The goodwill of $19,470 arising from this acquisition consists largely of the growth potential, synergies and economies of scale expected from combining the operations of the Company with those of Banno, together with the value of Banno’s assembled workforce. Goodwill from this acquisition has been allocated to our Banking Systems and Services segment. Approximately 95% of the goodwill is expected to be deductible for income tax purposes.
Identifiable intangible assets from this acquisition consists of customer relationships of $3,946, $3,546 of computer software and other intangible assets of $1,763. The weighted average amortization period for acquired customer relationships, acquired computer software, and other intangible assets is 15 years, 8 years, and 20 years, respectively.
Current assets is inclusive of cash acquired of $16. The fair value of current assets acquired included accounts receivable of $476. The gross amount receivable is $501, of which $25 is expected to be uncollectible.
The accompanying consolidated statements of income for the three months ended September 30, 2013 do not include any revenues and expenses related to this acquisition. The impact of this acquisition was considered immaterial to both the current and prior periods of our consolidated financial statements and pro forma financial information has not been provided.

13



NOTE 9.    REPORTABLE SEGMENT INFORMATION
The Company is a provider of integrated computer systems that perform data processing (available for in-house installations or outsourced services) for banks and credit unions. The Company’s operations are classified into two reportable segments: bank systems and services (“Bank”) and credit union systems and services (“Credit Union”). The Company evaluates the performance of its segments and allocates resources to them based on various factors, including prospects for growth, return on investment, and return on revenue.
 
Three Months Ended
 
Three Months Ended
 
September 30, 2014
 
September 30, 2013
 
Bank
 
Credit Union
 
Total
 
Bank
 
Credit Union
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
 
 
License
$
441

 
$
62

 
$
503

 
$
533

 
$
229

 
$
762

Support and service
221,216

 
67,000

 
288,216

 
200,435

 
62,195

 
262,630

Hardware
9,745

 
3,010

 
12,755

 
10,585

 
3,753

 
14,338

Total revenue
231,402

 
70,072

 
301,474

 
211,553

 
66,177

 
277,730

COST OF SALES
 
 
 
 
 
 
 
 
 
 
 
Cost of license
366

 
43

 
409

 
163

 
181

 
344

Cost of support and service
128,887

 
36,203

 
165,090

 
115,690

 
33,466

 
149,156

Cost of hardware
7,171

 
2,214

 
9,385

 
8,180

 
2,761

 
10,941

Total cost of sales
136,424

 
38,460

 
174,884

 
124,033

 
36,408

 
160,441

GROSS PROFIT
$
94,978

 
$
31,612

 
126,590

 
$
87,520

 
$
29,769

 
117,289

 
 
 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
54,964

 
 
 
 
 
50,661

 
 
 
 
 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
(209
)
 
 
 
 
 
(149
)
 
 
 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
 
 
 
$
71,417

 
 
 
 
 
$
66,479


 
September 30,
 
June 30,
 
2014
 
2014
Property and equipment, net
 
 
 
Bank systems and services
$
268,698

 
$
258,437

Credit Union systems and services
32,434

 
33,238

Total
$
301,132

 
$
291,675

Intangible assets, net
 
 
 
Bank systems and services
$
650,637

 
$
643,972

Credit Union systems and services
230,407

 
231,435

Total
$
881,044

 
$
875,407

The Company has not disclosed any additional asset information by segment, as the information is not produced internally and its preparation is impracticable.

NOTE 10.    SUBSEQUENT EVENTS
Sale of business
On October 3, 2014, it was announced that the Profitstars® division of the Company had sold its TeleWeb suite of Internet and mobile banking software products to Data Center Inc. (DCI). The transaction completed on October 1, 2014 and will result in a gain, net of tax, of approximately $3,000 in the second quarter of fiscal 2015.

14



NOTE 11.    RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Correction of Accounting Errors
Subsequent to the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2014 on November 5, 2014, management identified historical accounting errors relating to its accounting for certain software license, maintenance and service agreements. The prior period errors primarily relate to the Company's accounting for its bundled software multi-element arrangements.
More specifically, the Company concluded it had improperly accounted for contracts containing multiple software products delivered at different points in time as separate arrangements within a contract versus as a single arrangement with multiple elements, resulting in revenue being recognized on these contracts before all licenses, for which no vendor-specific objective evidence (“VSOE”) of fair value exists, had been delivered. Furthermore, the Company concluded that its mechanisms for tracking and estimating implementation hours was not capable of producing reliable estimates in support of its assertion of VSOE for its implementation services and that its pricing for stand-alone sales of post-contract support ("PCS") was not consistent enough to support its assertion of VSOE for PCS during prior periods.
Our previous accounting resulted in revenue being recognized earlier than would be appropriate for bundled software multi-element arrangements where VSOE does not exist for any of the software elements.  Our current conclusions result in the deferral of revenue on such arrangements until the only undelivered element is PCS.  The total arrangement revenue is then recognized ratably over the remaining initial bundled PCS period provided all other revenue recognition criteria have been met.  Direct and incremental costs, including direct labor and sales commissions, related to obtaining and implementing these contracts have also been deferred until the only undelivered element is PCS and are recognized ratably over the remaining initial bundled PCS period.
Due to the above errors, including the related tax impact, net income for the fiscal quarters ended September 30, 2014 and 2013 was overstated by $6,674 and $6,567, respectively. On the balance sheet, total assets as of September 30, 2014 and June 30, 2014 increased $62,743 and $56,411, respectively; total liabilities increased $140,191 and $127,185 respectively; and stockholders' equity decreased $77,448 and $70,774 respectively.
The following tables present the effects of the restatement on each line of the Company's previously issued condensed consolidated financial statements as of September 30, 2014 and June 30, 2014 and for the fiscal quarters ended September 30, 2014 and 2013.



15


Condensed Consolidated Statements of Income:
 
 
 
 
 
(In Thousands, Except Per Share Data)
 
 
 
 
 
 
 
Quarter Ended
 
September 30, 2014
 
As Previously Reported
 
Effect of Restatement
 
As Restated
REVENUE
 
 
 
 
 
License
$
13,610

 
$
(13,107
)
 
$
503

Support and service
292,454

 
(4,238
)
 
288,216

Hardware
12,755

 

 
12,755

Total revenue
318,819

 
(17,345
)
 
301,474

 
 
 
 
 
 
COST OF SALES
 
 
 
 
 
Cost of license
1,389

 
(980
)
 
409

Cost of support and service
169,697

 
(4,607
)
 
165,090

Cost of hardware
9,385

 

 
9,385

Total cost of sales
180,471

 
(5,587
)
 
174,884

 
 
 
 
 
 
GROSS PROFIT
138,348

 
(11,758
)
 
126,590

 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
Selling and marketing
22,408

 
(745
)
 
21,663

Research and development
16,791

 

 
16,791

General and administrative
16,510

 

 
16,510

Total operating expenses
55,709

 
(745
)
 
54,964

 
 
 
 
 
 
OPERATING INCOME
82,639

 
(11,013
)
 
71,626

 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
Interest income
57

 

 
57

Interest expense
(266
)
 

 
(266
)
Total interest income (expense)
(209
)
 

 
(209
)
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
82,430

 
(11,013
)
 
71,417

 
 
 
 
 
 
PROVISION FOR INCOME TAXES
29,668

 
(4,339
)
 
25,329

 
 
 
 
 
 
NET INCOME
$
52,762

 
$
(6,674
)
 
$
46,088

 
 
 
 
 
 
Diluted earnings per share
$
0.64

 
$
(0.08
)
 
$
0.56

Diluted weighted average shares outstanding
82,589

 
82,589

 
82,589

 
 
 
 
 
 
Basic earnings per share
$
0.64

 
$
(0.08
)
 
$
0.56

Basic weighted average shares outstanding
82,195

 
82,195

 
82,195



16


Condensed Consolidated Statements of Income:
 
 
 
 
 
(In Thousands, Except Per Share Data)
 
 
 
 
 
 
 
Quarter Ended
 
September 30, 2013
 
As Previously Reported
 
Effect of Restatement
 
As Restated
REVENUE
 
 
 
 
 
License
$
11,779

 
$
(11,017
)
 
$
762

Support and service
269,544

 
(6,914
)
 
262,630

Hardware
14,338

 

 
14,338

Total revenue
295,661

 
(17,931
)
 
277,730

 
 
 
 
 
 
COST OF SALES
 
 
 
 
 
Cost of license
1,412

 
(1,068
)
 
344

Cost of support and service
154,583

 
(5,427
)
 
149,156

Cost of hardware
10,941

 

 
10,941

Total cost of sales
166,936

 
(6,495
)
 
160,441

 
 
 
 
 
 
GROSS PROFIT
128,725

 
(11,436
)
 
117,289

 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
Selling and marketing
21,458

 
(720
)
 
20,738

Research and development
15,673

 

 
15,673

General and administrative
14,250

 

 
14,250

Total operating expenses
51,381

 
(720
)
 
50,661

 
 
 
 
 
 
OPERATING INCOME
77,344

 
(10,716
)
 
66,628

 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
Interest income
131

 

 
131

Interest expense
(280
)
 

 
(280
)
Total interest income (expense)
(149
)
 

 
(149
)
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
77,195

 
(10,716
)
 
66,479

 
 
 
 
 
 
PROVISION FOR INCOME TAXES
27,407

 
(4,149
)
 
23,258

 
 
 
 
 
 
NET INCOME
$
49,788

 
$
(6,567
)
 
$
43,221

 
 
 
 
 
 
Diluted earnings per share
$
0.58

 
$
(0.08
)
 
$
0.50

Diluted weighted average shares outstanding
85,854

 
85,854

 
85,854

 
 
 
 
 
 
Basic earnings per share
$
0.58

 
$
(0.08
)
 
$
0.51

Basic weighted average shares outstanding
85,294

 
85,294

 
85,294



17


Condensed Consolidated Balance Sheets:
 
 
 
 
 
(In Thousands, Except Share and Per Share Data)
 
 
 
 
 
 
September 30, 2014
 
As Previously Reported
 
Effect of Restatement
 
As Restated
ASSETS
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
Cash and cash equivalents
$
39,402

 
$

 
$
39,402

Receivables, net
159,110

 

 
159,110

Income tax receivable
2,618

 

 
2,618

Prepaid expenses and other
72,340

 
1,588

 
73,928

Deferred costs
28,649

 
6,616

 
35,265

Total current assets
302,119

 
8,204

 
310,323

PROPERTY AND EQUIPMENT, net
301,132

 

 
301,132

OTHER ASSETS:
 
 
 
 
 
Non-current deferred costs
36,370

 
47,595

 
83,965

Computer software, net of amortization
167,585

 

 
167,585

Other non-current assets
37,389

 
6,944

 
44,333

Customer relationships, net of amortization
132,893

 

 
132,893

Other intangible assets, net of amortization
27,805

 

 
27,805

Goodwill
552,761

 

 
552,761

Total other assets
954,803

 
54,539

 
1,009,342

Total assets
$
1,558,054

 
$
62,743

 
$
1,620,797

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
Accounts payable
$
8,316

 
$

 
$
8,316

Accrued expenses
58,038

 

 
58,038

Deferred income tax liability
37,592

 
(16,152
)
 
21,440

Accrued income taxes
14,690

 

 
14,690

Notes payable and current maturities of long term debt
9,964

 

 
9,964

Deferred revenues
260,552

 
31,724

 
292,276

Total current liabilities
389,152

 
15,572

 
404,724

LONG TERM LIABILITIES:
 
 
 
 
 
Non-current deferred revenues
9,017

 
157,502

 
166,519

Non-current deferred income tax liability
136,576

 
(32,883
)
 
103,693

Debt, net of current maturities
1,041

 

 
1,041

Other long-term liabilities
10,349

 

 
10,349

Total long term liabilities
156,983

 
124,619

 
281,602

Total liabilities
546,135

 
140,191

 
686,326

STOCKHOLDERS' EQUITY
 
 
 
 
 
Preferred stock - $1 par value; 500,000 shares authorized, none issued

 

 

Common stock - $0.01 par value; 250,000,000 shares authorized;
102,611,471 shares issued at September 30, 2014
1,026

 

 
1,026

Additional paid-in capital
412,092

 

 
412,092

Retained earnings
1,237,126

 
(77,448
)
 
1,159,678

Less treasury stock at cost
20,843,232 shares at September 30, 2014
(638,325
)
 

 
(638,325
)
Total stockholders' equity
1,011,919

 
(77,448
)
 
934,471

Total liabilities and equity
$
1,558,054

 
$
62,743

 
$
1,620,797



18


Condensed Consolidated Balance Sheets:
 
 
 
 
 
(In Thousands, Except Share and Per Share Data)
 
 
 
 
 
 
June 30, 2014
 
As Previously Reported
 
Effect of Restatement
 
As Restated
ASSETS
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
Cash and cash equivalents
$
70,377

 
$

 
$
70,377

Receivables, net
224,041

 

 
224,041

Income tax receivable
7,937

 

 
7,937

Prepaid expenses and other
59,824

 
1,250

 
61,074

Deferred costs
22,202

 
4,875

 
27,077

Total current assets
384,381

 
6,125

 
390,506

PROPERTY AND EQUIPMENT, net
291,675

 

 
291,675

OTHER ASSETS:
 
 
 
 
 
Non-current deferred costs
34,708

 
43,750

 
78,458

Computer software, net of amortization
160,391

 

 
160,391

Other non-current assets
38,121

 
6,536

 
44,657

Customer relationships, net of amortization
136,602

 

 
136,602

Other intangible assets, net of amortization
25,653

 

 
25,653

Goodwill
552,761

 

 
552,761

Total other assets
948,236

 
50,286

 
998,522

Total assets
$
1,624,292

 
$
56,411

 
$
1,680,703

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
Accounts payable
$
10,516

 
$

 
$
10,516

Accrued expenses
63,299

 

 
63,299

Deferred income tax liability
37,592

 
(7,498
)
 
30,094

Notes payable and current maturities of long term debt
5,407

 

 
5,407

Deferred revenues
312,002

 
25,491

 
337,493

Total current liabilities
428,816

 
17,993

 
446,809

LONG TERM LIABILITIES:
 
 
 
 
 
Non-current deferred revenues
8,985

 
146,390

 
155,375

Non-current deferred income tax liability
134,918

 
(37,198
)
 
97,720

Debt, net of current maturities
3,729

 

 
3,729

Other long-term liabilities
9,683

 

 
9,683

Total long term liabilities
157,315

 
109,192

 
266,507

Total liabilities
586,131

 
127,185

 
713,316

STOCKHOLDERS' EQUITY
 

 
 
 
 

Preferred stock - $1 par value; 500,000 shares authorized, none issued

 

 

Common stock - $0.01 par value; 250,000,000 shares authorized;
102,429,926 shares issued at June 30, 2014
1,024

 

 
1,024

Additional paid-in capital
412,512

 

 
412,512

Retained earnings
1,202,406

 
(70,774
)
 
1,131,632

Less treasury stock at cost
19,794,559 shares at June 30, 2014
(577,781
)
 

 
(577,781
)
Total stockholders' equity
1,038,161

 
(70,774
)
 
967,387

Total liabilities and equity
$
1,624,292

 
$
56,411

 
$
1,680,703



19


Condensed Consolidated Statements of Cash Flows:
 
 
 
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
September 30, 2014
 
As Previously Reported
 
Effect of Restatement
 
As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net Income
$
52,762

 
$
(6,674
)
 
$
46,088

Adjustments to reconcile net income from operations
     to net cash from operating activities:
 
 
 
 
 
Depreciation
13,631

 

 
13,631

Amortization
15,817

 

 
15,817

Change in deferred income taxes
1,658

 
(4,340
)
 
(2,682
)
Excess tax benefits from stock-based compensation
(3,801
)
 

 
(3,801
)
Expense for stock-based compensation
2,068

 

 
2,068

(Gain)/loss on disposal of assets
(56
)
 

 
(56
)
Changes in operating assets and liabilities:
 
 
 
 
 
Change in receivables  
64,931

 

 
64,931

Change in prepaid expenses, deferred costs and other
(19,893
)
 
(6,332
)
 
(26,225
)
Change in accounts payable
(2,200
)
 

 
(2,200
)
Change in accrued expenses
(4,680
)
 

 
(4,680
)
Change in income taxes
24,329

 

 
24,329

Change in deferred revenues
(51,418
)
 
17,346

 
(34,072
)
Net cash from operating activities
93,148

 

 
93,148

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Capital expenditures
(21,485
)
 

 
(21,485
)
Proceeds from sale of assets
58

 

 
58

Internal use software
(3,455
)
 

 
(3,455
)
Computer software developed
(17,999
)
 

 
(17,999
)
Net cash from investing activities
(42,881
)
 

 
(42,881
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
Repayments on credit facilities
(170
)
 

 
(170
)
Purchase of treasury stock
(60,544
)
 

 
(60,544
)
Dividends paid
(18,042
)
 

 
(18,042
)
Excess tax benefits from stock-based compensation
3,801

 

 
3,801

Proceeds from issuance of common stock upon exercise of stock options
161

 

 
161

Minimum tax withholding payments related to share based compensation
(7,602
)
 

 
(7,602
)
Proceeds from sale of common stock, net
1,154

 

 
1,154

Net cash from financing activities
(81,242
)
 

 
(81,242
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
(30,975
)
 
$

 
$
(30,975
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
70,377

 

 
70,377

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
39,402

 
$

 
$
39,402



20


Condensed Consolidated Statements of Cash Flows:
 
 
 
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
September 30, 2013
 
As Previously Reported
 
Effect of Restatement
 
As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net Income
$
49,788

 
$
(6,567
)
 
$
43,221

Adjustments to reconcile net income from operations
     to net cash from operating activities:
 
 
 
 
 
Depreciation
12,963

 

 
12,963

Amortization
12,893

 

 
12,893

Change in deferred income taxes
1,862

 
(4,149
)
 
(2,287
)
Excess tax benefits from stock-based compensation
(2,947
)
 

 
(2,947
)
Expense for stock-based compensation
1,922

 

 
1,922

(Gain)/loss on disposal of assets
(30
)
 

 
(30
)
Changes in operating assets and liabilities:
 
 
 
 
 
Change in receivables  
78,489

 

 
78,489

Change in prepaid expenses, deferred costs and other
(12,591
)
 
(7,215
)
 
(19,806
)
Change in accounts payable
2,213

 

 
2,213

Change in accrued expenses
(16,238
)
 

 
(16,238
)
Change in income taxes
21,531

 

 
21,531

Change in deferred revenues
(52,165
)
 
17,931

 
(34,234
)
Net cash from operating activities
97,690

 

 
97,690

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Capital expenditures
(7,351
)
 

 
(7,351
)
Proceeds from sale of assets
2,702

 

 
2,702

Internal use software
(3,183
)
 

 
(3,183
)
Computer software developed
(14,076
)
 

 
(14,076
)
Net cash from investing activities
(21,908
)
 

 
(21,908
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
Repayments on credit facilities
(2,798
)
 

 
(2,798
)
Purchase of treasury stock

 

 

Dividends paid
(17,054
)
 

 
(17,054
)
Excess tax benefits from stock-based compensation
2,947

 

 
2,947

Proceeds from issuance of common stock upon exercise of stock options
111

 

 
111

Minimum tax withholding payments related to share based compensation
(6,176
)
 

 
(6,176
)
Proceeds from sale of common stock, net
1,070

 

 
1,070

Net cash from financing activities
(21,900
)
 

 
(21,900
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
53,882

 
$

 
$
53,882

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
127,905

 
$

 
$
127,905

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
181,787

 
$

 
$
181,787


Prior Period Reclassification
Certain amounts included within the condensed consolidated statements of cash flows for the three months ended September 30, 2013 have been restated to correct an error related to the presentation of excess tax benefits from stock based compensation within cash flows from operating activities. Such correction adjusted the cash flow statement for the three months ended September 30, 2013 by presenting excess tax benefits from stock based compensation

21


as a separate line item and increasing the change in income taxes by $2,947. There was no change in total cash flows from operating, investing or financing activities.

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included in this Amended Quarterly Report on this Form 10-Q/A for the quarter ended September 30, 2014.
All of the financial information presented in this Item 2 has been revised to reflect the restatement of our condensed consolidated financial statements more fully described in Note 11 - Restatement of Consolidated Financial Statements which is included in "Financial Statements" in Item 1 of this Form 10-Q/A.
OVERVIEW
Jack Henry & Associates, Inc. (JHA) is a leading provider of technology solutions and payment processing services primarily for financial services organizations. Our solutions are marketed and supported through three primary brands. Jack Henry Banking® supports banks ranging from community to mid-tier, multi-billion dollar institutions with information and transaction processing solutions. Symitar® is a leading provider of information and transaction processing solutions for credit unions of all sizes. ProfitStars® provides specialized products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. JHA's integrated solutions are available for in-house installation, outsourced services and hosted delivery.
A significant proportion of our revenue is derived from recurring outsourcing fees and transaction processing fees that predominantly have contract terms of five years or greater at inception. Support and service fees also include in-house maintenance fees on primarily annual contract terms. Less predictable software license fees and hardware sales complement our primary revenue sources. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.
RESULTS OF OPERATIONS
In the first quarter of fiscal 2015, revenues increased 9% or $23,744 compared to the same period in the prior year, with strong growth continuing in our support & service revenue component. Cost of sales increased 9%, in line with revenue, operating expenses increased 8% for the quarter due mainly to increased headcount and related salaries, and provision for income taxes increased slightly over the prior year first quarter. The increased revenue and above changes resulted in a 7% increase in net income for the quarter.
We move into the second quarter of fiscal 2015 following strong performance in the first quarter. Significant portions of our business continue to come from recurring revenue and our healthy sales pipeline is also encouraging. Our customers continue to face regulatory and operational challenges which our products and services address, and in these times they have an even greater need for our solutions that directly address institutional profitability and efficiency. Our strong balance sheet, access to extensive lines of credit, the strength of our existing product line and an unwavering commitment to superior customer service position us well to address current and future opportunities.
A detailed discussion of the major components of the results of operations for the three months ended September 30, 2014 follows. All dollar amounts are in thousands and discussions compare the current three months ended September 30, 2014 to the prior year three months ended September 30, 2013.
REVENUE
License Revenue
Three Months Ended September 30,
 
% Change
 
2014
 
2013
 
 
License
$
503

 
$
762

 
(34
)%
Percentage of total revenue
%
 
%
 
 

License revenue represents the sale and delivery of application software systems contracted with us by the customer, that are not part of a bundled arrangement. Non-bundled license revenue decreased due mainly to a decrease in standalone license sales in our credit union segment. Such license fees will fluctuate as non-bundled license sales are sporadic in nature.

22


Support and Service Revenue
Three Months Ended September 30,
 
%
Change
 
2014
 
2013
 
 
Support and service
$
288,216

 
$
262,630

 
10
%
Percentage of total revenue
96
%
 
95
%
 
 
 
 
 
 
 
 
 
Qtr over Qtr
 
 
 
$ Change
 
% Change
 
 
In-House Support & Other Services
$
1,273

 
2
%
 
 
Electronic Payment Services
9,920

 
9
%
 
 
Outsourcing Services
7,244

 
13
%
 
 
Implementation Services
4,465

 
32
%
 
 
Bundled Products & Services
2,684

 
60
%
 
 
Total Increase
$
25,586

 
 

 
 
There was growth in all support and service revenue components in the first quarter of fiscal 2015.
In-house support and other services revenue increased due to annual maintenance renewal fee increases for both core and complementary products as our customers’ assets grow.
Electronic payment services continue to experience the largest dollar growth. The revenue increases are attributable to strong performance across debit/credit card transaction processing services, online bill payment services and ACH processing.
Outsourcing services for banks and credit unions continue to drive revenue growth as customers continue to show a preference for outsourced delivery of our solutions. We expect the trend towards outsourced product delivery to benefit outsourcing services revenue for the foreseeable future. Revenues from outsourcing services are typically earned under multi-year service contracts and therefore provide a long-term stream of recurring revenues.
Implementation services include implementation services for our outsourcing and electronic payment services customers as well as standalone customization services, merger conversion services, image conversion services and network monitoring services. Implementation services revenue increased, particularly for our online banking and imaging solutions products.
Bundled products and services revenue is combined revenue from the multiple elements in our bundled arrangements, including license, implementation services and maintenance, which cannot be recognized separately due to a lack of vendor-specific objective evidence of fair value. Bundled products and services revenue increased from last year's quarter mainly due to increased installations of our Alogent suite of products.
Hardware Revenue
Three Months Ended September 30,
 
%
Change
 
2014
 
2013
 
 
Hardware
$
12,755

 
$
14,338

 
(11
)%
Percentage of total revenue
4
%
 
5
%
 
 
Hardware revenue decreased due to a decrease in complementary hardware products. Although there will be continuing quarterly fluctuations, we expect there to be an overall decreasing trend in hardware sales due to the change in sales mix towards outsourcing contracts, which typically do not include hardware, and the general deflationary trend of computer prices.

23


COST OF SALES AND GROSS PROFIT
 
Three Months Ended September 30,
 
%
Change
 
2014
 
2013
 
 
Cost of License
$
409

 
$
344

 
19
 %
Percentage of total revenue
<1%

 
<1%

 
 
License Gross Profit
$
94

 
$
418

 
(78
)%
Gross Profit Margin

19
%
 
55
%
 
 
Cost of support and service
$
165,090

 
$
149,156

 
11
 %
Percentage of total revenue
55
%
 
54
%
 
 
Support and Service Gross Profit
$
123,126

 
$
113,474

 
9
 %
Gross Profit Margin