FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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.
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(Exact name of registrant as specified in its charter)
Delaware 43-1128385
---------------------------- ---------------
(State or other jurisdiction I.R.S. Employer
of incorporation) Identification No.)
663 Highway 60, P. O. Box 807, Monett, MO 65708
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(Address of principal executive offices)
(Zip Code)
417-235-6652
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(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, 2002
---------------------------- -----------------------------
Common Stock, $.01 par value 90,447,691
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2002, (Unaudited) and June 30, 2001 3 - 4
Condensed Consolidated Statements of
Income for the Three and Nine Months Ended
March 31, 2002 and 2001 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
March 31, 2002 and 2001 (Unaudited) 6
Notes to the Condensed Consolidated Financial
Statements (Unaudited) 7 - 12
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 12 - 16
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 17
Part II OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds 17
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)
March 31,
2002 June 30,
(Unaudited) 2001
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,808 $ 18,589
Investments, at amortized cost 998 985
Trade receivables 76,947 116,573
Income taxes receivable 934 537
Prepaid cost of product 18,889 17,191
Prepaid expenses and other 10,595 17,425
Deferred income taxes 1,415 750
-------- --------
Total $ 157,586 $ 172,050
PROPERTY AND EQUIPMENT $ 220,489 $ 176,193
Accumulated depreciation 52,820 37,754
-------- --------
$ 167,669 $ 138,439
OTHER ASSETS:
Goodwill $ 40,335 $ 29,348
Other intangible assets, net of amortization 68,022 72,041
Computer software, net of amortization 6,972 5,806
Prepaid cost of product 14,086 12,007
Other non-current assets 4,167 3,430
-------- --------
Total $ 133,582 $ 122,632
-------- --------
Total assets $ 458,837 $ 433,121
======== ========
March 31,
2002 June 30,
(Unaudited) 2001
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,886 $ 17,846
Accrued expenses 7,540 9,595
Current portion of long-term debt - 87
Deferred revenues 60,399 79,490
-------- --------
Total $ 77,825 $ 107,018
LONG-TERM DEBT - 228
DEFERRED REVENUES 17,146 15,514
DEFERRED INCOME TAXES 14,706 7,857
-------- --------
Total liabilities $ 109,677 $ 130,617
STOCKHOLDERS' EQUITY:
Preferred stock - $1 par value;
500,000 shares authorized;
none issued - -
Common stock - $0.01 par value;
250,000,000 shares authorized;
90,377,736 issued @ 03/31/02
88,846,710 issued @ 6/30/01 $ 904 $ 888
Less treasury stock at cost;
318,549 shares @ 03/31/02
0 shares @ 6/30/01 (6,708) -
Additional paid-in capital 165,823 145,211
Retained earnings 189,141 156,405
-------- --------
Total stockholders' equity $ 349,160 $ 302,504
-------- --------
Total liabilities and
stockholders' equity $ 458,837 $ 433,121
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------- ------------------
2002 2001 2002 2001
------ ------ ------- -------
REVENUES
Licensing and installation $24,751 $26,233 $ 69,895 $ 74,281
Support and services 42,976 34,221 126,470 96,933
Hardware sales 24,825 32,357 73,864 79,337
Customer reimbursements 7,232 5,392 20,349 15,072
------ ------ ------- -------
Total $99,784 $98,203 $290,578 $265,623
COST OF SALES
Cost of hardware 17,243 22,962 50,493 54,566
Cost of services 35,217 30,167 101,584 86,904
Customer reimbursement expenses 7,232 5,392 20,349 15,072
------ ------ ------- -------
Total $59,692 $58,521 $172,426 $156,542
------ ------ ------- -------
GROSS PROFIT $40,092 $39,682 $118,152 $109,081
40% 40% 41% 41%
OPERATING EXPENSES
Selling and marketing 7,766 7,328 21,310 20,726
Research and development 2,952 2,883 9,405 8,095
General and administrative 8,502 6,115 24,664 18,384
------ ------ ------- -------
Total $19,220 $16,326 $ 55,379 $ 47,205
------ ------ ------- -------
OPERATING INCOME $20,872 $23,356 $ 62,773 $ 61,876
OTHER INCOME (EXPENSE)
Interest income 365 684 1,755 1,632
Interest expense (53) (74) (141) (848)
------ ------ ------- -------
Total $ 312 $ 610 $ 1,614 $ 784
------ ------ ------- -------
INCOME BEFORE INCOME TAXES $21,184 $23,966 $ 64,387 $ 62,660
PROVISIONS FOR INCOME TAXES 7,626 8,628 23,179 22,558
------ ------ ------- -------
NET INCOME $13,558 $15,338 $ 41,208 $ 40,102
====== ====== ======= =======
Diluted net income per share $ .15 $ .17 $ .45 $ .44
====== ====== ======= =======
Diluted weighted average shares outstanding 92,483 91,966 92,485 90,908
====== ====== ======= =======
Basic net income per share $ .15 $ .17 $ .46 $ .46
====== ====== ======= =======
Basic weighted average shares outstanding 89,608 87,935 89,181 86,254
====== ====== ======= =======
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)
(Unaudited)
Nine Months Ended
March 31,
----------------------
2002 2001
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 41,208 $ 40,102
Adjustments to reconcile net income to
cash from operating activities:
Depreciation 15,250 8,667
Amortization 5,015 7,001
Deferred income taxes 6,184 2,650
Other (76) (13)
Changes in:
Trade receivables 39,626 11,593
Prepaid expenses and other (3,571) (10,291)
Accounts payable (7,960) 219
Accrued expenses (2,266) (2,327)
Accrued income taxes (including tax
benefit from exercise of stock options) 6,658 16,184
Deferred revenues (17,459) (6,170)
------- -------
Net cash from operating activities $ 82,609 $ 67,615
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $(37,752) $(42,380)
Computer software developed/purchased (991) (960)
Payment for acquisition, net (11,111) -
Purchase of investment (1,992) -
Proceeds from maturity of investments 2,000 -
Other, net 170 (160)
------- -------
Net cash from investing activities $(49,676) $(43,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
upon exercise of stock options $ 11,181 $ 12,274
Proceeds from sale of common stock, net 600 61,130
Short-term borrowings, net - (70,500)
Principal payments on notes payable (315) (108)
Purchase of treasury stock (6,708) -
Dividends paid (8,472) (6,952)
------- -------
Net cash from financing activities $ (3,714) $ (4,156)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 29,219 $ 19,959
Cash and cash equivalents
at beginning of period 18,589 5,186
------- -------
Cash and cash equivalents
at end of period $ 47,808 $ 25,145
======= =======
Net cash paid for income taxes was $11,132 and $5,138 for the nine months
ended March 31, 2002 and 2001, respectively.
On January 1, 2002, 117,738 restricted shares of the Company's common stock
valued at $2,400, was issued as a portion of the total consideration paid
for the acquisition of Transcend System Group, Inc.
The Company paid interest of $ 125 and $ 1,081 for the nine months ended
March 31, 2002 and 2001, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE 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 or
acquired several 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) and by
providing the conversion and software customization services for a financial
institution to install a JHA software system. JHA also provides continuing
support and services to customers using the systems either in-house or
outsourced.
Consolidation - The consolidated financial statements include the
accounts of JHA and all of its wholly-owned subsidiaries and all significant
intercompany accounts and transactions have been eliminated.
Comprehensive Income - Comprehensive income for each of the nine-month
periods ended March 31, 2002 and 2001, equals the Company's net income.
Reclassification - Where appropriate, prior period financial
information has been reclassified to conform with the current period's
presentation.
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, 2001.
2. New Accounting Standard
Effective January 1, 2002, the Company adopted Emerging Issues Task
Force Issue No. 01-14, "Income Statement Characterization of Reimbursements
Received for 'Out of Pocket' Expenses Incurred", which requires that
customer reimbursements received for direct cost paid to third parties and
related expenses be characterized as revenue. Comparative financial
statements for prior periods have been reclassified to provide consistenet
presentation. For the three and nine month periods ended March 31, 2002 and
2001, the Company's has presented customer reimbursement revenue and
expenses of $7.2 million and $5.4 million, and $20.3 million and $15.1
million, respectively, in accordance with Issue No. 01-14. Customer
reimbursements represent direct costs paid to third parties primarily for
data communication, travel and postage costs. The adoption of Issue No. 01-
14 did not impact the Company's financial position, operating income or net
income.
Statement of Financial Accounting Standards("SFAS")No.144, Accounting for
the Impairment or Disposal of Long-Lived Assets, was issued in August 2001.
This Statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business (as previously defined in that Opinion). The
provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001 (July 1, 2002 for JHA),
and interim periods within those fiscal years, with early application
encouraged. Management has not completed the process of evaluating the
impact that this statement will have on the Company's consolidated financial
position or results of operations.
3. 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
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 Form 10-K, for the year ended
June 30, 2001.
In the opinion of management of the Company, the accompanying condensed
consolidated 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, 2002 and the results of
its operations for the three and nine month periods then ended and its cash
flows for the nine months ended March 31, 2002.
The results of operations for the period ended March 31, 2002 are not
necessarily indicative of the results to be expected for the entire year.
4. Additional Interim Footnote Information
The following additional information is provided to update the notes to
the Company's annual consolidated financial statements for developments
during the nine months ended March 31, 2002:
Stock Repurchase Program
On September 21, 2001, the Board of Directors approved a program to
repurchase up to 3.0 million shares of common stock. To date 318,549 shares
have been purchased for $6.7 million.
Acquisition of System Legacy Solutions, Inc. (SLS)
On December 1, 2001, the Company acquired all the outstanding shares of
SLS for $3.0 million in cash. SLS provides technology to convert data from
legacy systems into formats that can be used by newer technologies. The
purchase price for SLS was allocated to the assets and liabilities acquired
based on the estimated fair values at the acquisition date, resulting in
allocation to goodwill of $2.5 million and to software $.45 million, which
is being amortized on a straight-line basis over 10 years.
Acquisition of Transcend Systems Group, Inc. (TSG)
On January 1, 2002, the Company acquired all the outstanding shares of
TSG for $7.3 million in cash and 117,738 restricted shares of the Company's
Common Stock valued at $2.4 million, for a total consideration to the TSG
shareholders of $9.7 million. The Company also advanced to TSG $851,000 for
the repayment of bank debt and certain TSG obligations to its shareholders.
TSG provides customer relationship management software and related services
to financial institutions. The purchase price for TSG was allocated to the
assets and liabilities acquired based on the estimated fair values at the
acquisition date, resulting in allocation to goodwill of $8.5 million,
software of $.93 million, and customer contracts of $1.1 million, of which
software and customer contracts are being amortized on a straight-line basis
over 10 years.
5. Shares used in computing net income per share
(In Thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ----------------
2002 2001 2002 2001
------ ------ ------ ------
Weighted average number
of common shares
outstanding - basic 89,608 87,935 89,181 86,254
Common stock equivalents 2,875 4,031 3,304 4,654
------ ------ ------ ------
Weighted average number
of common and common
equivalent shares
outstanding - diluted 92,483 91,966 92,485 90,908
====== ====== ====== ======
Per share information is based on the weighted average number of common
shares outstanding for the periods ended March 31, 2002 and 2001. Stock
options have been included in the calculation of income per share to the
extent they are dilutive.
6. Business Segment Information
The Company is a leading provider of integrated computer systems that
perform data processing (available for in-house or outsourced installations)
for banks and credit unions. The Company evaluates the performance of the
banking and credit union segments and allocates resources to them based on
various factors, including prospects for growth, return on investment and
return on revenues. Revenue amounts in the following table are exclusive of
the customer reimbursement amounts on the statement of income.
(In Thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ------------------
2002 2001 2002 2001
------ ------ ------- -------
Revenues:
Bank systems and services $77,929 $78,662 $228,360 $218,602
Credit union systems and
services 14,623 14,149 41,869 31,949
------ ------ ------- -------
Total $92,552 $92,811 $270,229 $250,551
====== ====== ======= =======
Gross Profit:
Bank systems and services $35,171 $35,879 $104,001 $101,420
Credit union systems and
services 4,921 3,803 14,151 7,661
------ ------ ------- -------
Total $40,092 $39,682 $118,152 $109,081
====== ====== ======= =======
7. Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective July 1, 2001. Under SFAS No. 142, goodwill and tradenames are no
longer amortized but reviewed for impairment annually, or more frequently if
certain indicators arise. The Company completed the transitional impairment
test for tradenames with indefinite useful lives during the quarter ended
September 30, 2001, and for goodwill during the quarter ended December 31,
2001, and has determined that no impairment exists. Had the Company been
accounting for its goodwill and tradenames under SFAS No. 142 for all
periods presented, the Company's net income and net income per share would
have been adjusted as follows:
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ------------------
2002 2001 2002 2001
------ ------ ------- -------
Reported net income $13,558 $15,338 $41,208 $40,102
Goodwill and tradenames
amortization, net of tax - 277 - 830
------ ------ ------- -------
Adjusted net income $13,558 $15,615 $41,208 $40,932
====== ====== ======= ======
Reported diluted net income
per share $ .15 $ .17 $ .45 $ .44
Goodwill and tradenames
amortization, net of tax - - - .01
------ ------ ------- -------
Adjusted diluted net income
per share $ .15 $ .17 $ .45 $ .45
====== ====== ======= =======
Reported basic net income
per share $ .15 $ .17 $ .46 $ .46
Goodwill and tradenames
amortization, net of tax - - - .01
------ ------ ------- -------
Adjusted basic net income
per share $ .15 $ .18 $ .46 $ .47
====== ====== ======= =======
Changes in the carrying amount of goodwill for the nine months ended March
31, 2002, by reportable segments, are as follows:
(In Thousands)
Banking Credit Union
Systems and Systems and
Services Services Total
-------- -------- -------
Balance, July 1, 2001 $14,508 $14,840 $29,348
Goodwill acquired during
the year $10,987 - $10,987
-------- -------- -------
Balance, March 31, 2002 $25,495 $14,840 $40,335
======== ======== =======
Information regarding our other intangible assets is as follows:
(In Thousands)
March 31, 2002 June 30, 2001
------------------------------- ------------------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------- ------- ------- ------- ------- -------
Customer
Relationships $88,197 ($23,874) $64,323 $90,612 ($22,270) $68,342
Tradenames 3,915 (216) 3,699 3,915 (216) 3,699
------- ------- ------- ------- ------- -------
Totals $92,112 ($24,090) $68,022 $94,527 ($22,486) $72,041
======= ======= ======= ======= ======= =======
Tradenames have been determined to have indefinite lives and therefore as of
July 1, 2001 are no longer amortized. Customer relationships have lives
ranging from 3 to 20 years.
Amortization expense for other intangible assets was $1,202 and $1,425 for
the three month and $3,814 and $4,497 for the nine month periods ended March
31, 2002 and 2001, respectively. The estimated aggregate future amortization
expense for intangible assets remaining as of March 31, 2002 is as follows:
Remainder of Fiscal 2002 $1,331
2003 $6,078
2004 $5,723
2005 $5,130
2006 $4,803
Item 2. - Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Background and Overview
The Company is a leading provider of integrated computer systems to banks
with under $10 billion of total assets, credit unions and other financial
institutions in the United States. We offer a complete, integrated suite of
data processing system solutions to improve our customers' management of
their entire back-office and customer interaction processes. We believe our
solutions enable our customers to provide better service to their customers
and compete more effectively against larger banks and alternative financial
institutions. Our customers either install and use our systems in-house or
outsource these operations to us. We perform data conversion, hardware and
software installation and software customization for the implementation of
our systems and applications. We also provide continuing customer support
services to ensure proper product performance and reliability, which
provides us with continuing client relationships and recurring revenue.
A detailed discussion of the major components of the results of operations
for the three and nine month periods ended March 31, 2002, as compared to
the same period in the previous year, which does not include the revenue and
expense components related to customer reimbursements, follows (In Millions,
Except Per Share Data):
Revenues
Revenues decreased 0.3% to $92.6 for the three months ended March 31,
2002 from $92.8 for the same period last year. Non-hardware revenues
increased 12% to $67.7, accounting for 73% of third quarter 2002 revenues,
compared to $60.5 in the third quarter a year ago, representing 65% of
revenue. The Support and services revenues increased 26% to $43.0 for the
three months ended March 31, 2002 compared to $34.2 in the same period in
the previous year. Licensing and installation revenues decreased 6% from
$26.2 for the three months ended March 31, 2001 to $24.7 for the three
months ended March 31, 2002. Hardware revenues totaled $24.8 or 27% of total
revenues for the third quarter compared to $32.4 or 35% of total revenues in
the same period in the previous year.
For the nine months ended March 31, 2002, total revenues grew 8% to
$270.3 compared to $250.6 for the nine months ended March 31, 2001. Non-
hardware revenues increased 15% to $196.4 compared to $171.2. Support and
services revenues rose 30% to $126.5 with licensing and installation
revenues decreasing 6% at $69.9. For the nine months ended March 31, 2002,
hardware sales declined 7% to $73.9 compared to $79.3 a year ago.
Support and services revenues growth for the three and nine months ended
March 31, 2002 is attributable to continuing growth in both in-house and
outsourcing services, much of which is recurring revenue. We believe that
the decline in licensing, installation and hardware revenue is due to the
industry-wide softness in the capital goods marketplace and the reduction in
capital spending for technology services.
Our backlog increased at March 31, 2002 to $136.5 ($54.0 in-house and
$82.5 outsourcing) from $132.1 ($52.3 in-house and $79.8 outsourcing) at
December 31, 2001 and $124.0 ($50.9 in-house and $73.1 outsourcing) at March
31, 2001. Backlog at April 30, 2002 was $136.8 ($53.8 in-house and $83.0
outsourcing).
Cost of Sales
Cost of sales decreased 1.3% for the three months ended March 31, 2002.
Cost of services increased 17%, while the cost of hardware decreased 25%
over the same three month period last year.
Cost of sales increased 8% for the first nine months of fiscal 2002. Cost
of services increased 17%, while the cost of hardware decreased 7.5% over
the same nine months last year.
For the three and nine month period ended March 31, 2002, cost of
services have increased consistently with non-hardware revenues plus
additional depreciation due to capital expenditures. Cost of hardware have
decreased consistently with the hardware revenue.
Gross Profit
Gross profit increased slightly, up 1% for the three months ended March
31, 2002 to $40.1 or 43% of total revenues, compared to $39.7, also 43% of
total revenues. Non-hardware margin was 48% for this quarter compared to 50%
in the same quarter last year. Hardware margin increased to 31% compared to
29% in the third quarter a year ago.
For the nine months ended March 31, 2002, gross profit was up 8% to
$118.2 or 44% of revenues compared to $109.1, also 44% of the revenues for
the same period last year. Non-hardware margin was 48% or $94.8 in the nine
months of fiscal 2002, compared to 49% or $84.3 for the same period last
year. Hardware margin was 32% or $23.3 for the first nine months this
fiscal year compared to 31% or $24.7 for the same nine months last year.
Gross margin can fluctuate from quarter to quarter due to the mix of
products and services sold, incentives from hardware suppliers, and other
factors. Over the course of the nine months ended March 31, 2002, however,
these influences tend to balance out.
Operating Expenses
Total operating expenses increased 17.7% in the three months ended March
31, 2002 compared to the same period in the prior year. Selling and
marketing expenses increased 6%, research and development expenses
increased 2.4% and general and administrative expenses increased 39% in the
same three month period.
Total operating expenses increased 17% in the nine months ended March 31,
2002 compared to the same period in the prior year. Selling and marketing
increased 3%, research and development increased 16% and general and
administrative increased 34% compared to the same nine month period last
year.
Selling and marketing expense increased for the third quarter, but
remained fairly flat for the nine months of the fiscal year 2002. The
fluctuation is attributable to the sales of different product mix and
incentives. Research and development increased due to the development costs
associated with continued growth and refinement of new and existing
products. General and administrative expenses increased primarily due to
employee benefits and depreciation expense. Depreciation and amortization
expenses were higher due to capital investments made in fiscal 2001 for
infrastructure expansion.
Other Income (Expense)
Other income for the three months ended March 31, 2002 reflects a
decrease of $298,000 when compared to the same period last year. Interest
income decreased $319,000, due to lower interest rates on our investments.
The net increase in other income of $830,000 for the nine months of
fiscal 2002 is due to net interest expense last year from short-term
borrowing compared to this year. Short term debt was paid off in January
2002, therefore interest expense for this fiscal year is much lower than the
same period last year.
Net Income
Net income for the third quarter was $13.5, or $.15 per diluted share
compared to $15.3, or $.17 per diluted share in the same period last year.
Net income for the nine months of fiscal 2002 was $41.2, or $.45 per
diluted share compared to $40.1, or $.44 per diluted share in the same
period last year.
Business Segment Discussion
Revenues in the bank systems and services business segment decreased 0.9%
from $78.6 to $77.9 for the three months ended March 31, 2001 and 2002,
respectively. Gross profit decreased 2% from $35.8 in the third quarter of
the previous year to $35.2 in the current third quarter, while gross margins
stayed the same at 45% for the current third quarter compared to the same
quarter in the previous year. Gross margins remained unchanged primarily due
to sales mix.
Revenues in the credit union systems and services business segment
increased 3.3% from $14.1 to $14.6 for the three months ended March 31, 2001
and 2002, respectively. Gross profit increased 29% from $3.8 in the third
quarter of the previous year to $4.9 in the current third quarter, while
gross margins increased in the current third quarter compared to the same
quarter in the previous year to 34% from 27%. Increase in gross margin is
primarily due to increased utilization of resources and the mix of products
and services sold.
Revenues in the bank systems and services business segment increased 4.5%
from $218.6 to $228.4 for the nine months ended March 31, 2001 and 2002,
respectively. Gross profit increased 2.5% from $101.4 for the nine months
ended March 31, 2001 to $104.0 for the nine months ending March 31, 2002.
Gross margins decreased slightly from 46% last year to date, to 45% in the
nine months of fiscal year 2002.
Revenues in the credit union systems and services business segment
increased 31% from $31.9 to $41.9 for the nine months ended March 31, 2001
and 2002, respectively. Gross profit increased 85% from $7.6 in the nine
month period of the previous year to $14.1 in the current nine month period,
while gross margins increased from 24% to 34% for the nine months ended
March 31, 2001 and 2002, respectively. Increase in gross margin is primarily
due to significant increase in revenue which allows better utilization of
resources and the mix of products and services sold.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents and investments increased to
$48.8 at March 31, 2002, from $19.6 at June 30, 2001.
JHA has available credit lines totaling $58.0, although the Company
expects additional borrowings to be minimal during fiscal year 2002.
Capital Requirements and Resources
JHA generally uses existing resources and funds generated from operations
to meet its capital requirements. Capital expenditures totaling $37.8 and
$42.4 for the nine month periods ended March 31, 2002 and 2001,
respectively, were made for expansion of facilities and additional
equipment. These were funded from cash generated by operations. The
consolidated capital expenditures of JHA, excluding acquisition costs, could
exceed $53.0 for fiscal year 2002.
The Company has acquired all the outstanding shares of two different
companies during the nine month period ended March 31, 2002, for total net
cash portion of the purchase price of $11.1. These were funded from cash
generated by operations.
The Company paid a $.035 per share cash dividend on February 28, 2002 to
stockholders of record on February 13, 2002 which was funded from
operations. In addition, the Company's Board of Directors, subsequent to
March 31, 2002, declared a quarterly cash dividend of $.035 per share on its
common stock payable May 17, 2002 to stockholders of record on May 2, 2002.
This dividend will be funded by cash generated from operations.
Forward Looking Statements
The Management's Discussion and Analysis of Results of Operations and
Financial Condition and other portions of this report contain forward-
looking statements within the meaning of federal securities laws. Actual
results are subject to risks and uncertainties, including both those
specific to the Company and those specific to the industry, which could
cause results to differ materially from those contemplated. The risks and
uncertainties include, but are not limited to, the matters detailed at Risk
Factors in its Annual Report on Form 10-K for the fiscal year ended June 30,
2001. Undue reliance should not be placed on the forward-looking
statements. The Company does not undertake any obligation to publicly
update any forward-look statements.
CONCLUSION
JHA's results of operations and its financial position continued to be
favorable during the nine months ended March 31, 2002. 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.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk refers to the risk that a change in the level of one or more
market prices, interest rates, indices, volatilities, correlations or other
market factors such as liquidity, will result in losses for a certain
financial instrument or group of financial instruments. We are currently
exposed to credit risk on credit extended to customers and interest risk on
investments in U.S. government securities. We actively monitor these risks
through a variety of controlled procedures involving senior management. We
do not currently use any derivative financial instruments. Based on the
controls in place, credit worthiness of the customer base and the relative
size of these financial instruments, we believe the risk associated with
these exposures will not have a material adverse effect on our consolidated
financial position or results of operations.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
c. On January 1, 2002, the Company issued 117,738 shares of fully paid
non-assessable common stock to certain shareholders of Transcend Systems
Group, Inc. as a portion of the consideration for a transaction whereby all
of the outstanding capital stock of Transcend Systems Group, Inc. was
acquired by the Company. These shares were issued under the exemption
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 of the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: May 14, 2002 /s/ Michael E. Henry
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Michael E. Henry
Chairman of the Board
Chief Executive Officer
Date: May 14, 2002 /s/ Kevin D. Williams
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Kevin D. Williams
Treasurer and
Chief Financial Officer