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 September 30, 2001
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
------------------------------------------------
(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 30, 2001
---------------------------- -----------------------------
Common Stock, $.01 par value 88,829,012
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2001, (Unaudited) and June
30, 2001 3 - 4
Condensed Consolidated Statements of
Income for the Three Months Ended
September 30, 2001 and 2000 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended September 30,
2001 and 2000 (Unaudited) 6
Notes to the Condensed Consolidated Financial
Statements (Unaudited) 7 - 10
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 11 - 13
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 13
Part II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of
Security Holders 14
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,
2001 June 30,
(Unaudited) 2001
------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 45,008 $ 18,589
Investments, at amortized cost 994 985
Trade receivables 78,060 116,573
Income taxes receivable - 537
Prepaid cost of product 15,998 17,191
Prepaid expenses and other 16,625 17,425
Deferred income taxes 750 750
------- -------
Total $157,435 $172,050
PROPERTY AND EQUIPMENT $187,139 $176,193
Accumulated depreciation 42,258 37,754
------- -------
$144,881 $138,439
OTHER ASSETS:
Goodwill, net of amortization $ 33,047 $ 33,047
Customer relationships, net of amortization $ 65,480 $ 68,342
Computer software, net of amortization 5,856 5,806
Prepaid cost of product 12,843 12,007
Other non-current assets 3,693 3,430
------- -------
Total $120,919 $122,632
------- -------
Total assets $423,235 $433,121
======= =======
September 30,
2001 June 30,
(Unaudited) 2001
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,511 $17,846
Accrued expenses 6,255 9,595
Accrued income taxes 7,113 -
Current portion of long-term debt 87 87
Deferred revenues 62,469 79,490
------- -------
Total $ 88,435 $107,018
LONG-TERM DEBT 206 228
DEFERRED REVENUES 16,735 15,514
DEFERRED INCOME TAXES 7,413 7,857
------- -------
Total liabilities $ 112,789 $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;
89,077,012 issued @ 9/30/01
88,846,710 issued @ 6/30/01 $ 891 $ 888
Less treasury stock at cost;
285,000 shares @ 9/30/01
0 shares @ 6/30/01 (5,965) -
Additional paid-in capital 147,171 145,211
Retained earnings 168,349 156,405
------- -------
Total stockholders' equity $310,446 $302,504
------- -------
Total liabilities and
stockholders' equity $423,235 $433,121
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
JACK HENRY & ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
September 30,
2001 2000
------ ------
REVENUES
Software licensing and installation $22,270 $23,512
Support and service 41,606 30,446
Hardware sales 22,256 23,050
------ ------
Total $86,132 $77,008
COST OF SALES
Cost of hardware $14,879 $15,969
Cost of services 32,204 26,407
------ ------
Total $47,083 $42,376
------ ------
GROSS PROFIT $39,049 $34,632
45% 45%
OPERATING EXPENSES
Selling and marketing $ 6,569 $ 7,655
Research and development 2,910 2,383
General and administrative 7,505 5,906
------ ------
Total $16,984 $15,944
------ ------
OPERATING INCOME $22,065 $18,688
OTHER INCOME (EXPENSE)
Interest income $ 819 $ 560
Interest expense (47) (679)
------ ------
Total $ 772 $ (119)
------ ------
INCOME BEFORE INCOME TAXES $22,837 $18,569
PROVISIONS FOR INCOME TAXES 8,221 6,685
------ ------
NET INCOME $14,616 $11,884
====== ======
Diluted net income per share $ .16 $ .13
====== ======
Diluted weighted average shares
outstanding 92,724 89,091
====== ======
Basic net income per share $ .16 $ .14
====== ======
Basic weighted average shares
outstanding 88,952 84,310
====== ======
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)
Three Months Ended
September 30,
2001 2000
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from operations $ 14,616 $ 11,884
Adjustments to reconcile income from
operations to cash from operating
activities
Depreciation 4,570 2,235
Amortization 1,777 2,334
Deferred income taxes (444) -
Other (136) (106)
Changes in:
Trade receivables 38,513 28,985
Prepaid expenses and other 3,155 (1,883)
Accounts payable (9,093) (2,785)
Accrued expenses (3,340) (2,775)
Accrued income taxes (including tax
benefit from exercise of stock options) 7,562 7,548
Deferred revenues (15,800) (7,944)
------- -------
Net cash from operations $ 41,380 $ 37,493
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $(11,222) $(11,114)
Proceeds from note receivable 50 250
Computer software developed/purchased (402) (209)
Other, net - 6
------- -------
Net cash from investing activities $(11,574) $(11,067)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock upon exercise of stock options $ 1,318 $ 1,012
Proceeds from sale of common stock, net 196 60,517
Short-term borrowings, net - (70,500)
Principal payments on notes payable (22) (41)
Purchase of treasury stock (2,207) -
Dividends paid (2,672) (2,146)
------- -------
Net cash from financing activities $( 3,387) $(11,158)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 26,419 $ 15,268
Cash and cash equivalents at
beginning of period 18,589 5,186
------- -------
Cash and cash equivalents at
end of period $ 45 008 $ 20,454
======= =======
Net cash paid (received) from income taxes of $566 and $(1,391) for the
three months ended September 30, 2001 and 2000, respectively.
The Company paid interest of $42 and $990 for the three months ended
September 30, 2001 and 2000, respectively.
Non Cash Financing Activities
-----------------------------
Treasury stock was purchased for $5,965,000, of which $3,758,000 was payable
at September 30, 2001.
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 along 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 three-month
periods ended September 30, 2001 and 2000, equals the Company's net income.
Common Stock Split - Prior period share and per share data have been
adjusted for the 100% stock dividend paid March 2, 2001.
Reclassification - Where appropriate, prior period's 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
Statement of Financial Accounting Standards 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 FASB
Statement 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, 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 financial position or
results of operation.
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 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 September 30, 2001 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, 2001 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 three months ended September 30, 2001:
Stock Repurchase Program
On September 21, 2001, the Board of Directors approved a program to
repurchase up to 3,000,000 shares of common stock. 285,000 shares were
purchased for $5,965,000, of which $3,758,000 was payable at September 30,
2001 with the balance subsequently paid.
5. Shares used in computing net income per share
(In Thousands)
Three Months Ended
September 30,
2001 2000
------ ------
Weighted average number of common
shares outstanding - basic 88,952 84,310
Common stock equivalents 3,772 4,781
------ ------
Weighted average number of common
and common equivalent shares
outstanding - diluted 92,724 89,091
====== ======
Per share information is based on the weighted average number of common
shares outstanding for the three month period ended September 30, 2001 and
2000. Stock options have been included in the calculation of income per
share to the extent they are dilutive. Reconciliation from basic to diluted
weighted average shares outstanding is the dilutive effect of outstanding
stock options.
6. Business Segment Information
The Company is a leading provider of integrated computer systems that
perform data processing (available for in-house or service bureau installa-
tions) 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.
(In Thousands)
Three Months Ended
September 30,
2001 2000
------ ------
Revenues:
Bank systems and services $73,171 $70,399
Credit union systems and
services 12,961 6,609
------ ------
Total $86,132 $77,008
====== ======
Gross Profit:
Bank systems and services $34,173 $34,589
Credit union systems and
services 4,876 43
------ ------
Total $39,049 $34,632
====== ======
The Company has not disclosed asset information by segment, as the informa-
tion is not produced internally and its preparation is impracticable.
7. Goodwill and Intangible Assets
The Company adopted Statement of Financial Accounting Standards ("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 has completed the first step of the transitional impairment test
for tradenames with indefinite useful lives and have determined that no
potential impairment exists. The Company is required to complete the first
step of the transitional impairment test for goodwill and finite life
intangible assets within six months of adoption of SFAS No.142 and to
complete the final step of the transitional impairment test by the end of
the fiscal year. 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 as follows:
Three Months Ended
September 30,
2001 2000
------ ------
Reported net income $14,616 $11,884
Add back goodwill amortization, net
of tax - 199
------ ------
Pro forma adjusted net income $14,616 $12,083
====== ======
Diluted net income per share $ .16 $ .13
Goodwill amortization, net of tax - -
------ ------
Pro forma diluted net income per share $ .16 $ .14
====== ======
Basic net income per share $ .16 $ .14
Goodwill amortization of tax - -
------ ------
Pro forma basic net income per share $ .16 $ .14
====== ======
The allocation of assets following SFAS 142 as of June 30, 2001 and
September 30, 2001 is summarized in the following table:
September 30, 2001 June 30, 2001
-------------------------- -------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
---------- ------------ ----------- ------------
Goodwill $32,355,000 $ 3,007,000 $32,355,000 $ 3,007,000
Tradenames $ 3,915,000 $ 216,000 $ 3,915,000 $ 216,000
Intangible assets with finite lives:
Customer
Relationships $86,965,000 $21,485,000 $90,612,000 $22,270,000
Estimated fiscal year amortization expense is as follows:
2002 $6,032,000
2003 $5,665,000
2004 $5,311,000
2005 $4,738,000
2006 $4,476,000
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 months ended September 30, 2001, as compared to the same
period in the previous year follows:
Revenues
Revenues increased 12% to $86,132,000 for the three months ended
September 30, 2001. The increase is attributable to our continuous growth
in support and services for in-house and outsourcing revenue streams which
increased 37% over the same period in the previous year. Software licensing
and installation decreased 5% along with hardware sales decreasing 3%. Both
of these slight decreases are due primarily to the September 11th terrorist
attacks which for a period restricted the sales and installation teams from
calling on customers and delayed the shipment of products to our customers.
We believe the interruption in our normal order flow process is temporary,
and our sales pipeline remains healthy.
The backlog of sales at September 30, 2001 was $128,942,000 ($49,812,000
in-house and $79,130,000 outsourcing). This is up slightly from the June
30, 2001 level, and is consistent with management's expectations for the
first quarter. Backlog at October 31, 2001 was $129,978,000.
Cost of Sales
The 11% increase in cost of sales for the first quarter of fiscal year
2002 is consistent with the increase in revenues. Cost of hardware
decreased 7%, slightly more than the decrease of 3% in hardware revenue.
Cost of services increased 22%, which is also fairly consistent with the
increase in non-hardware revenue of 18%.
Gross Profit
Gross profit increased $4,417,000 for the three months ended September
30, 2001, a 13% increase from last year. The gross margin percentage was
45% of sales for both three month periods.
Operating Expenses
Total operating expenses increased 7%. Selling expenses decreased 14%
which is a direct reflection of the decrease in software, installation and
hardware revenues as a result of the events of September 11th. Research &
development increased 22% due to continued development and refinement of new
and existing products. General & administrative expenses increased 27%,
supporting the overall growth of the Company.
Other Income (Expense)
Other income for the three months ended September 30, 2001 reflects a
significant increase when compared to the same period last year. This is
primarily due to net interest expense last year from short-term borrowing
compared to net interest income this year from cash investments.
Provision for Income Taxes
An effective tax rate of 36% was utilized for the three months ended
September 30, 2001 and 2000.
Net Income
Net income for the first quarter was $14,616,000, or $.16 per share
compared to $11,884,000, or $.13 per share in the same period last year.
Business Segment Discussion
Revenues in the bank systems and services business segment increased 4%
from $70,399,000 to $73,171,000 for the three months ended September 30,
2000 and 2001, respectively. Gross profit decreased 1% from $34,589,000 in
the first quarter of the previous year to $34,173,000 in the current first
quarter, while gross margins decreased slightly in the current first quarter
compared to the same quarter in the previous year to 47% from 49%.
Revenues in the credit union systems and services business segment
increased 96% from $6,609,000 to $12,961,000 for the three months ended
September 30, 2000 and 2001, respectively. Gross profit increased
significantly from $43,000 in the first quarter of the previous year to
$4,876,000 in the current first quarter, while gross margins also increased
significantly in the current first quarter compared to the same quarter in
the previous year to 38% from 1%. This significant increase is due to
stronger core system sales in the current period compared to the previous
year.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents and investments increased to
$46,002,000 at September 30, 2001, from $19,574,000 at June 30, 2001. This
reflects the seasonal influx of cash due to the receipt of annual
maintenance fees billed June 30, 2001.
JHA has available credit lines totaling $58,000,000, although the Company
expects additional borrowings to be minimal during fiscal year 2002. The
Company currently has no short-term obligations outstanding. Short-term
borrowings were all retired with the proceeds from the secondary offering on
August 16, 2000.
Capital Requirements and Resources
JHA generally uses existing resources and funds generated from operations
to meet its capital requirements. Capital expenditures totaling $11,222,000
for the three months ended September 30, 2001, 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 $50,000,000 for fiscal year 2002.
The Company paid a $.03 per share cash dividend on September 20, 2001 to
stockholders of record on September 6, 2001 which was funded from
operations. In addition, the Company's Board of Directors, subsequent to
September 30, 2001, declared a quarterly cash dividend of $.03 per share on
its common stock payable December 4, 2001 to stockholders of record on
November 20, 2001. This dividend will be funded out of cash generated by
operations.
Forward Looking Statements
The Management's Discussion and Analysis of Financial Condition and
Results of Operations 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 three months ended September 30, 2001. 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, interest risk on
investments in U.S. government securities and long-term debt. 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 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 30, 2001, 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 recommendations. 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 67,773,120 15,274,272
Jerry D. Hall 68,303,290 14,744,102
Michael E. Henry 68,498,857 14,548,535
James J. Ellis 82,654,670 392,722
Burton O. George 82,639,807 407,585
George R. Curry 82,553,269 494,123
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 14, 2001 /s/ Michael E. Henry
----------------- --------------------
Michael E. Henry
Chairman of the Board
Chief Executive Officer
Date: November 14, 2001 /s/ Kevin D. Williams
----------------- --------------------
Kevin D. Williams
Chief Financial Officer