UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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
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(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 Principle Executive Offices
(Zip Code)
417-235-6652
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(Registrant's telephone number, including area code)
N/A
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(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Indicated 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 May 1, 2006, Registrant has 92,678,455 shares of common stock
outstanding ($0.01 par value)
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION Reference
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2006 and June 30, 2005 (Unaudited) 3
Condensed Consolidated Statements of Income
for the Three and Nine Months Ended
March 31, 2006 and 2005 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 2006 and
2005 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
ITEM 3 Quantitative and Qualitative Disclosures about
Market Risk 19
ITEM 4 Controls and Procedures 19
PART II OTHER INFORMATION
ITEM 2 Unregistered Sales of Equity Securities
and Use of Proceeds 20
ITEM 6 Exhibits 20
PART 1. 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, June 30,
2006 2005
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 38,805 $ 11,608
Investments, at amortized cost 2,109 993
Receivables 99,717 209,922
Prepaid expenses and other 15,900 14,986
Prepaid cost of product 14,340 20,439
Deferred income taxes 2,650 2,345
---------- ----------
Total current assets 173,521 260,293
PROPERTY AND EQUIPMENT, net 250,876 243,191
OTHER ASSETS:
Prepaid cost of product 14,753 10,413
Computer software, net of amortization 40,496 29,488
Other non-current assets 8,452 6,868
Customer relationships, net of amortization 64,824 68,475
Trade names 4,010 4,010
Goodwill 212,442 191,415
---------- ----------
Total other assets 344,977 310,669
Total assets $ 769,374 $ 814,153
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,255 $ 15,895
Accrued expenses 21,457 24,844
Accrued income taxes 360 3,239
Note payable 25,000 45,000
Deferred revenues 72,664 157,605
---------- ----------
Total current liabilities 125,736 246,583
LONG TERM LIABILITIES:
Deferred revenues 19,015 13,331
Deferred income taxes 44,725 37,085
---------- ----------
Total long term liabilities 63,740 50,416
Total liabilities 189,476 296,999
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 500,000
shares authorized, none issued - -
Common stock - $0.01 par value:
250,000,000 shares authorized;
Shares issued at 03/31/06 were 93,717,101
Shares issued at 06/30/05 were 92,050,778 937 920
Additional paid-in capital 219,948 195,878
Retained earnings 381,541 330,308
Less treasury stock at cost 1,240,500 shares
at 03/31/06, 553,300 shares at 06/30/05 (22,528) (9,952)
---------- ----------
Total stockholders' equity 579,898 517,154
Total liabilities and stockholders' equity $ 769,374 $ 814,153
========== ==========
See notes to 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,
-------------------- --------------------
2006 2005 2006 2005
------- ------- ------- -------
REVENUE
License $ 20,566 $ 20,943 $ 58,310 $ 62,642
Support and service 106,083 92,509 312,008 263,883
Hardware 18,846 20,930 59,577 67,913
------- ------- ------- -------
Total 145,495 134,382 429,895 394,438
COST OF SALES
Cost of license 222 1,085 2,134 4,428
Cost of support and service 67,962 61,436 198,555 178,412
Cost of hardware 13,629 14,584 43,486 49,010
------- ------- ------- -------
Total 81,813 77,105 244,175 231,850
GROSS PROFIT 63,682 57,277 185,720 162,588
OPERATING EXPENSES
Selling and marketing 12,292 11,598 36,032 34,250
Research and development 8,435 7,738 23,187 20,621
General and administrative 8,239 6,915 27,174 22,507
------- ------- ------- -------
Total 28,966 26,251 86,393 77,378
OPERATING INCOME 34,716 31,026 99,327 85,210
INTEREST INCOME (EXPENSE)
Interest income 731 171 1,599 989
Interest expense (590) (110) (897) (127)
------- ------- ------- -------
Total 141 61 702 862
INCOME BEFORE INCOME TAXES 34,857 31,087 100,029 86,072
PROVISION FOR INCOME TAXES 11,397 11,658 35,511 32,277
------- ------- ------- -------
NET INCOME $ 23,460 $ 19,429 $ 64,518 $ 53,795
======= ======= ======= =======
Diluted net income per share $ 0.25 $ 0.21 $ 0.69 $ 0.58
======= ======= ======= =======
Diluted weighted average
shares outstanding 94,390 93,421 94,008 92,954
======= ======= ======= =======
Basic net income per share $ 0.26 $ 0.21 $ 0.70 $ 0.59
======= ======= ======= =======
Basic weighted average
shares outstanding 91,952 91,212 91,622 90,716
======= ======= ======= =======
See notes to condensed consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
March 31,
-----------------------
2006 2005
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 64,518 $ 53,795
Adjustments to reconcile net income from
operations to cash from operating activities:
Depreciation 24,689 21,900
Amortization 7,843 6,548
Deferred income taxes 5,777 5,045
Expense for stock-based compensation 364 -
Loss on disposal of property and equipment 108 1,016
Changes in operating assets and liabilities,
net of acquisitions:
Receivables 110,872 94,879
Prepaid expenses, prepaid cost of product,
and other (716) 382
Accounts payable (9,906) (2,819)
Accrued expenses (4,105) (5,354)
Income taxes (including tax benefit of
$3,463 from exercise of stock options
for 2005) (2,905) 1,380
Deferred revenues (83,155) (71,656)
---------- ----------
Net cash from operating activities 113,384 105,116
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net (20,744) (119,616)
Capital expenditures (32,228) (33,428)
Computer software developed (11,908) (4,607)
Proceeds from investments 3,327 4,000
Purchase of investments (2,746) (3,983)
Proceeds from sale of property and equipment 29 150
Other, net 223 105
---------- ----------
Net cash from investing activities (64,047) (157,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable, net (20,000) 14,000
Purchase of treasury stock (12,576) -
Dividends paid (13,285) (11,346)
Excess tax benefits from stock-based
compensation 6,471 -
Proceeds from issuance of common stock
upon exercise of stock options 16,711 11,238
Proceeds from sale of common stock, net 539 565
---------- ----------
Net cash from financing activities (22,140) 14,457
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 27,197 $ (37,806)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 11,608 $ 53,758
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,805 $ 15,952
========== ==========
Net cash paid for income taxes was $25,600 and $25,865 for the nine months
ended March 31, 2006 and 2005, respectively. The Company paid interest
of $908 and $127 for the nine months ended March 31, 2006 and 2005,
respectively.
See notes to condensed consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and 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
leading provider of integrated computer systems 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) and by providing the conversion and software implementation
services for financial institutions to utilize JHA software systems. JHA
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 significant intercompany
accounts and transactions have been eliminated.
STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (R), "Share-
Based Payment", ("SFAS 123(R)"), a revision of SFAS 123. SFAS 123 (R)
supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and amends SFAS No. 95 "Statement of Cash
Flows". SFAS 123(R) is similar to the approach described in SFAS 123 except
that SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the consolidated
statements of income, in lieu of pro forma disclosure. Also, SFAS 123 (R)
requires companies to calculate a pool of income tax benefits ("APIC pool")
that were previously recorded in additional paid-in capital and are
available to absorb future income tax benefit deficiencies that can result
from the exercise or maturity of stock awards. SFAS 123 (R) is effective
for fiscal periods beginning after June 15, 2005. The Company adopted the
provisions of SFAS 123 (R) as of July 1, 2005, the first day of fiscal 2006
and is using the modified-prospective transition method with the Black-
Scholes model for estimating the fair value of equity compensation. Prior
interim periods and fiscal years do not reflect any restated amounts.
Further, the Company has calculated its APIC pool based on the actual income
tax benefits received from exercises and maturities of stock awards granted
after the effective date of SFAS No. 123 using the long method.
In March 2005, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 107, "Share-Based Payment" that provided
additional guidance to public companies relating to share-based payment
transactions and the implementation of SFAS 123(R), including guidance
regarding valuation methods and related assumptions, classification of
compensation expense and income tax effects of share-based compensation.
On June 29, 2005, the Board of Directors approved the immediate vesting of
all stock options previously granted under the 1996 Stock Option Plan ("1996
SOP") that had exercise prices higher than the market price of the Company's
stock on such date. As a result of this action, the vesting of 201,925
options was accelerated by an average of 15 months. No other changes to
these options were made. The weighted average exercise price of these
accelerated options was $21.15, and exercise prices of the affected options
ranged from $18.64 to $25.00. The accelerated options constitute only 2.1%
of the company's outstanding options. No options held by any directors or
executive officers of the Company were accelerated or affected in any manner
by this action.
The purpose of accelerating vesting of the options was to enable the Company
to reduce the impact of recognizing future compensation expense associated
with these options upon adoption of SFAS 123(R). Commencing with the
Company's fiscal year that began July 1, 2005, SFAS 123(R) requires that the
Company recognize compensation expense equal to the fair value of equity-
based compensation awards over the vesting period of each such award. The
aggregate pre-tax expense for the shares subject to acceleration that,
absent the acceleration of vesting, would have been reflected in the
Company's consolidated financial statements beginning in fiscal 2006 is
estimated to be a total of approximately $802 (approximately $510 in fiscal
2006, approximately $185 in fiscal 2007, approximately $89 in fiscal 2008
and approximately $18 in fiscal 2009).
For the three and nine months ended March 31, 2006, there was $107 and $364,
respectively, in compensation expense from equity-based awards. As of
March 31, 2006, no compensation expense from equity-based awards has been
capitalized. The adoption of SFAS 123 (R) did not materially impact
the Company's consolidated financial statements. The following table
illustrates the effect on net income and net income per share for the nine
months of fiscal 2005 had the Company accounted for its stock-based awards
under the fair value method of SFAS 123.
Three Months Ended Nine Months Ended
March 31, March 31,
2005 2005
------------ ------------
Net income, as reported $ 19,429 $ 53,795
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 295 900
-------- --------
Pro forma net income $ 19,134 $ 52,895
======== ========
Diluted net income per share
As reported $ 0.21 $ 0.58
Pro forma $ 0.20 $ 0.57
Basic net income per share
As reported $ 0.21 $ 0.59
Pro forma $ 0.21 $ 0.58
If the Company had adopted SFAS 123(R) for fiscal year 2005, net cash from
financing activities would have been increased by $3,463 for the nine months
ended March 31, 2005, and operating activities would have decreased by the
$3,463 for the same period.
The Company currently can issue options under two stock option plans: the
1996 Stock Option Plan ("1996 SOP") and the Non-Qualified Stock Option Plan
("NSOP").
1996 SOP
The 1996 SOP was adopted by the Company on October 29, 1996, for its
employees. Terms and vesting periods of the options are determined by the
Compensation Committee of the Board of Directors when granted and for
options outstanding include vesting periods up to four years. Shares of
common stock are reserved for issuance under this plan at the time of each
grant, which must be at or above fair market value of the stock at the grant
date. The options terminate 30 days after termination of employment, three
months after retirement, one year after death or 10 years after grant. In
October 2002, the stockholders approved an increase in the number of stock
options available from 13.0 million to 18.0 million shares.
On April 11, 2003, the Company granted approximately 3,670,000 stock options
to approximately 2,100 full time employees, or 94% of all full time
employees as of that date. The options were issued at the exercise price of
$10.84 per share, which represented the fair market value of the stock as of
that date and vest in two equal portions based on stock price performance or
on specific dates. The two portions vested and became fully exercisable
when the Company's common stock achieved a closing market price of 125% or
more and 150% or more, respectively, of the exercise price for 10
consecutive trading days. Such options fully vested during the first
quarter of fiscal 2004. As of June 30, 2005, there were 2,344,533 shares
available for future grants under the plan from the 18,000,000 shares
approved by the stockholders.
On June 29, 2005, the Board of Directors approved the immediate vesting of
all stock options previously granted under the 1996 SOP that had exercise
prices higher than the market price on such date.
NSOP
The NSOP was adopted by the Company on October 31, 1995, for its outside
directors. Options are exercisable beginning six months after grant at an
exercise price equal to 100% of the fair market value of the stock at the
grant date. The options terminate upon surrender of the option, upon the
expiration of one year following notification of a deceased optionee, or 10
years after grant. 1,200,000 shares of common stock have been reserved for
issuance under this plan with a maximum of 300,000 for each director. As of
June 30, 2005, there were 445,833 shares available for future grants under
the plan. In November 2005, 40,000 shares were granted to the outside
directors and are all still outstanding as of March 31, 2006.
Changes in stock options outstanding and exercisable are as follows:
Aggregate
Intrinsic
Number of Weighted Average Value as of
Shares Exercise Price March 31,
---------- -------------- -----------
Outstanding July 1, 2005 9,766,397 $14.55
Granted 40,000 18.47
Forfeited or expired (181,716) 21.15
Exercised (1,641,363) 10.16
---------- -------------- -----------
Outstanding March 31, 2006 7,983,318 $15.33 $62,850
========== ============== ===========
Exercisable March 31, 2006 7,827,500 $15.28 $62,049
========== ============== ===========
Following is an analysis of stock options outstanding and exercisable as of
March 31, 2006:
Weighted-Average
Remaining
Range of Contractural Weighted-Average
Exercise Prices Shares Life in Years Exercise Price
--------------- ------------------------ ------------- ------------------------
Outstanding Exercisable Outstanding Outstanding Exercisable
----------- ----------- ----------- ----------- -----------
$ 6.03 - $10.75 1,515,134 1,515,134 2.34 $ 8.15 $ 8.15
$10.76 - $10.84 1,457,857 1,457,857 7.03 10.84 10.84
$10.85 - $16.49 241,450 227,210 4.40 12.07 11.95
$16.50 - $16.88 2,896,410 2,896,410 4.01 16.88 16.88
$16.89 - $25.65 1,433,467 1,291,889 5.98 21.11 21.44
$25.66 - $31.00 439,000 439,000 5.06 27.70 27.70
--------------- ----------- ----------- ----------- ----------- -----------
$ 6.03 - $31.00 7,983,318 7,827,500 4.67 $15.33 $15.28
=============== =========== =========== =========== =========== ===========
No options were granted in the quarter ended March 31, 2006. The weighted
average fair value of options granted was $8.42 for the three months ended
March 31, 2005. For the nine months ended March 31, 2006 and 2005, the
weighted average fair value of options granted was, $10.13 and $6.97,
respectively, using the Black-Scholes option pricing model. The total
intrinsic value of options exercised during the three months ended March 31,
2006 and 2005 were $11,484 and $4,609, respectively. While the total
intrinsic value of options exercised during the nine months ended March 31,
2006 and 2005 was $17,488 and $9,211, respectively.
The assumptions used in this model to estimate fair value and resulting
values are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
Weighted Average Assumptions:
Expected life (years) no grants 4.23 7.65 3.53
Volatility during 48% 42% 49%
Risk free interest rate this 3.6% 4.4% 2.9%
Dividend yield period 0.94% 0.89% 0.86%
The option pricing model input assumptions such as expected term, expected
volatility, risk-free interest rate, and dividend yield impact the fair
value estimate. These assumptions are subjective and generally require
significant analysis and judgment to develop. When estimating fair value,
some of the assumptions were based on or determined from external data (for
example the risk-free interest rate) and other assumptions were derived
from our historical experience with share-based payment arrangements (for
example, volatility expected term and dividend yield). The appropriate
weight to place on historical experience is a matter of judgment, based on
relevant facts and circumstances.
As of March 31, 2006, there was $838 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements under the plan.
That cost is expected to be recognized over a weighted-average period of 3.5
years.
COMPREHENSIVE INCOME
Comprehensive income for the three and nine-month periods ended March 31,
2006 and 2005 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 facility. The share repurchase program does not include
specific price targets or timetables and may be suspended at any time. At
June 30, 2005, there were 553,300 shares in treasury stock and the Company
had the remaining authority to repurchase up to 4,437,316 shares. During
the nine months ended March 31, 2006, the Company repurchased 687,200
treasury shares for $12,576. The total cost of treasury shares at March
31, 2006 is $22,528. At March 31, 2006, there were 1,240,500 shares in
treasury stock and the Company had the authority to repurchase up to
3,750,116 shares.
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
("Form 10-K") for the year ended June 30, 2005. 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 for the year
ended June 30, 2005.
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
results of operations, financial position and cash flows for each interim
period shown.
The results of operations for the three and nine-month periods ended March
31, 2006 are not necessarily indicative of the results to be expected for
the entire year.
NOTE 2. ADDITIONAL INTERIM FOOTNOTE INFORMATION
The following additional information is provided to update the notes to the
Company's annual consolidated financial statements for the developments
during the three and nine months ended March 31, 2006.
ACQUISITIONS
On November 1, 2005, the Company acquired all of the capital stock of
Profitstar, Inc. ("Profitstar"). Profitstar is a leading provider of
asset/liability management, risk management, profitability accounting and
financial planning software and related services to banks, credit unions and
other financial institutions. The purchase price for Profitstar, $19,182
paid in cash, was preliminarily allocated to the assets and liabilities
acquired based on then estimated fair values at the acquisition date,
resulting in an allocation of ($4,889) to working capital, $1,234 to
deferred tax liability, $1,871 capitalized software, $1,420 to customer
relationships, and $19,546 to goodwill. The acquired goodwill has been
allocated to the bank segment and is non-deductible for federal income tax
purposes.
The following unaudited pro forma consolidated financial information is
presented as if the acquisitions completed in each fiscal year had occurred
at the beginning of such periods. In addition, this unaudited pro forma
financial information is provided for illustrative purposes only and should
not be relied upon as necessarily being indicative of the historical results
that would have been obtained if these acquisitions had actually occurred
during those periods, or the results that may be obtained in the future as a
result of these acquisitions.
Pro Forma (unaudited) Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
2006 2005 2006 2005
------- ------- ------- -------
Revenue $145,495 $136,678 $433,995 $419,534
Gross profit 63,682 58,818 188,611 175,424
------- ------- ------- -------
Net Income $ 23,460 $ 19,693 $ 64,992 $ 57,398
======= ======= ======= =======
Earnings per share - diluted $ 0.25 $ 0.21 $ 0.69 $ 0.62
======= ======= ======= =======
Diluted Shares 94,390 93,421 94,008 92,954
======= ======= ======= =======
Earnings per share - basic $ 0.26 $ 0.22 $ 0.71 $ 0.63
======= ======= ======= =======
Basic Shares 91,952 91,212 91,622 90,716
======= ======= ======= =======
LINES OF CREDIT
The Company renewed a bank credit line on March 22, 2006 which provides for
funding of up to $8,000 and bears interest at the prime rate (7.75% at March
31, 2006). The credit line expires March 22, 2007 and is secured by $1,000
of investments. At March 31, 2006, no amount was outstanding.
An unsecured revolving bank credit facility allows borrowing of up to
$150,000 which may be increased by the Company at any time prior to April
20, 2008 to $225,000. The unsecured revolving bank credit facility bears
interest at a rate equal to (a) LIBOR or (b) an alternate base rate (the
greater of (a) the Federal Funds Rate plus 1/2% or (b) the Prime Rate), plus
an applicable percentage in each case determined by the Company's leverage
ratio. The unsecured revolving credit line terminates April 19, 2010.
At June 30, 2005, the revolving bank credit facility balance was $45,000.
At March 31, 2006, the revolving bank credit facility balance was $25,000.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued FASB Staff Position No. 109-1, Application
of FASB Statement No. 109 ("SFAS 109"), Accounting for Income Taxes,
to the Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004 ("FSP 109-1"). FSP 109-1 clarifies the
manufacturer's deduction provided for under the American Jobs Creation Act
of 2004 ("AJCA") should be accounted for as a special deduction in
accordance with SFAS 109. Pursuant to the AJCA, the deduction for qualified
production activities is effective for the Company's tax year ending June
30, 2006. The effect of the estimated deduction to be taken in the 2006
consolidated federal income tax return is expected to result in
approximately $600 of tax savings for the fiscal year ended June 30, 2006.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No.3"
("SFAS 154"). SFAS 154 changes the requirements for the accounting for, and
reporting of, a change in accounting principle. SFAS 154 requires that a
voluntary change in accounting principle be applied retrospectively with all
prior period financial statements presented using the accounting principle.
SFAS 154 is effective for accounting changes and corrections of errors in
fiscal years beginning after December 15, 2005. The Company will comply
with the provisions of SFAS 154, although the impact of such adoption of not
determinable at this time.
NOTE 4. SHARES USED IN COMPUTING NET INCOME PER SHARE
Three Months Ended Nine Months Ended
March 31, March 31,
--------------- ---------------
2006 2005 2006 2005
------ ------ ------ ------
Weighted average number of common
shares outstanding - basic 91,952 91,212 91,622 90,716
Common stock equivalents 2,438 2,209 2,386 2,238
------ ------ ------ ------
Weighted average number of common
and common equivalent shares
outstanding - diluted 94,390 93,421 94,008 92,954
====== ====== ====== ======
Per share information is based on the weighted average number of common
shares outstanding for the periods ended March 31, 2006 and 2005. Stock
options have been included in the calculation of income per share to
the extent they are dilutive. Non-dilutive stock options to purchase
approximately 994 and 1,667 shares and 1,577 and 1,746 shares for the three
and nine-month periods ended March 31, 2006 and 2005, respectively, were not
included in the computation of diluted income per common share.
NOTE 5. BUSINESS SEGMENT INFORMATION
The Company is a leading provider of integrated computer systems that
perform data processing (both in-house and outsourced) for banks and credit
unions. The Company's operations are classified into two business segments:
bank systems and services and credit union systems and services. 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
March 31, 2006 March 31, 2005
---------------------------- ----------------------------
Bank Credit Union Total Bank Credit Union Total
------- ------------ ------- ------- ------------ -------
REVENUE
License $ 17,360 $ 3,206 $ 20,566 $ 11,614 $ 9,329 $ 20,943
Support and service 88,590 17,493 106,083 77,076 15,433 92,509
Hardware 14,104 4,742 18,846 15,551 5,379 20,930
------- ------- ------- ------- ------- -------
Total 120,054 25,441 145,495 104,241 30,141 134,382
------- ------- ------- ------- ------- -------
COST OF SALES
Cost of license 209 13 222 285 800 1,085
Cost of support and service 55,414 12,548 67,962 49,148 12,288 61,436
Cost of hardware 10,046 3,583 13,629 10,647 3,937 14,584
------- ------- ------- ------- ------- -------
Total 65,669 16,144 81,813 60,080 17,025 77,105
------- ------- ------- ------- ------- -------
GROSS PROFIT $ 54,385 $ 9,297 $ 63,682 $ 44,161 $ 13,116 $ 57,277
======= ======= ======= ======= ======= =======
Nine Months Ended Nine Months Ended
March 31, 2006 March 31, 2005
---------------------------- ----------------------------
Bank Credit Union Total Bank Credit Union Total
------- ------------ ------- ------- ------------ -------
REVENUE
License $ 44,280 $ 14,030 $ 58,310 $ 40,997 $ 21,645 $ 62,642
Support and service 259,874 52,134 312,008 222,242 41,641 263,883
Hardware 45,154 14,423 59,577 52,123 15,790 67,913
------- ------- ------- ------- ------- -------
Total 349,308 80,587 429,895 315,362 79,076 394,438
------- ------- ------- ------- ------- -------
COST OF SALES
Cost of license 1,089 1,045 2,134 1,820 2,608 4,428
Cost of support and service 161,254 37,301 198,555 143,300 35,112 178,412
Cost of hardware 32,368 11,118 43,486 36,928 12,082 49,010
------- ------- ------- ------- ------- -------
Total 194,711 49,464 244,175 182,048 49,802 231,850
------- ------- ------- ------- ------- -------
GROSS PROFIT $154,597 $ 31,123 $185,720 $133,314 $ 29,274 $162,588
======= ======= ======= ======= ======= =======
March 31, June 30,
----------- -----------
2006 2005
----------- -----------
Property and equipment, net
Bank systems and services $ 217,013 $ 208,541
Credit Union systems and services 33,863 34,650
----------- -----------
Total $ 250,876 $ 243,191
=========== ===========
Identified intangible assets, net
Bank systems and services $ 271,341 $ 241,054
Credit Union systems and services 50,431 52,334
----------- -----------
Total $ 321,772 $ 293,388
=========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Background and Overview
We provide integrated computer systems for in-house and outsourced data
processing to commercial banks, credit unions and other financial
institutions. We have developed and acquired banking and credit union
application software systems that we market, together with compatible
computer hardware, to these financial institutions. We also perform data
conversion and software implementation services of our systems and provide
continuing customer support services after the systems are implemented. For
our customers who prefer not to make an up-front capital investment in
software and hardware, we provide our full range of products and services on
an outsourced basis through our six data centers and 22 item-processing
centers located throughout the United States.
A detailed discussion of the major components of the results of operations
for the three and nine-month periods ended March 31, 2006 follows. All
amounts are in thousands and discussions compare the current three and nine-
month periods ended, March 31, 2006, to the prior year three and nine-month
periods ended March 31, 2005.
REVENUE
License Revenue Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
---------------- ------ ---------------- ------
2006 2005 2006 2005
---- ---- ---- ----
License $ 20,566 $ 20,943 -2% $ 58,310 $ 62,642 -7%
Percentage of total revenue 14% 16% 13% 16%
License revenue represents the delivery of application software systems
contracted with us by the customer. We license our proprietary software
products under standard license agreements that typically provide the
customer with a non-exclusive, non-transferable right to use the software on
a single computer and for a single financial institution location.
The reduction in license revenue for the quarter and year to date can be
attributed to the continued increased demand for item and data processing by
banks and credit unions for delivery through our outsourcing services.
Outsourcing services do not require software licenses and the financial
institution's initial capital outlay is dramatically reduced by the choice
of this delivery alternative.
Support and Service Revenue Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
---------------- ------ ---------------- ------
2006 2005 2006 2005
---- ---- ---- ----
Support and service $106,083 $ 92,509 +15% $312,008 $263,883 +18%
Percentage of total revenue 73% 69% 73% 67%
Qtr over Qtr Change Year over Year Change
------------------- ---------------------
$ Change % Change $ Change % Change
-------- ---------- -------- ----------
In-house support & other services $ 4,858 +11% $ 20,967 +17%
EFT support 5,122 +36% 12,009 +29%
Outsourcing services 4,146 +18% 11,736 +18%
Implementation services (552) -5% 3,414 +11%
------- -------
Total Increase $ 13,574 $ 48,126
======= =======
Support and service fees are generated from implementation services
(including conversion, installation, implementation, configuration and
training), annual support to assist the customer in operating their systems
and to enhance and update the software, outsourced data processing services
and ATM and debit card processing (EFT Support) services.
There was strong growth in most support and service revenue components for
the third quarter and the first nine months of fiscal 2006. There is
continuing growth for the on-going demand for EFT support (ATM and debit
card transaction processing services). EFT support experienced strong
quarter over quarter revenue growth due to increased customer activity and
expansion of our customer base, especially in our bank segment. Outsourcing
services continue to grow as we add new customers, increase volume and
streamline business processes. In-house annual support revenue increased
due to software implementations performed in prior periods. Implementation
services revenue decreased slightly for the quarter due to a decrease in
number of license implementations, as well as a decrease in merger
conversions for existing customers.
Hardware Revenue Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
---------------- ------ ---------------- ------
2006 2005 2006 2005
---- ---- ---- ----
Hardware $ 18,846 $ 20,930 -10% $ 59,577 $ 67,913 -12%
Percentage of total revenue 13% 15% 14% 17%
The Company has entered into remarketing agreements with several hardware
manufacturers under which we sell computer hardware, hardware maintenance
and related services to our customers. Revenue related to hardware sales is
recognized when the hardware is shipped to our customers.
Hardware revenue decreased mainly due to a lower unit cost of systems
delivered for the current quarter and the first nine months of the current
year as compared to the same periods last year. Hardware revenue in the
prior year was 15% and 17% of total revenue for prior year quarter and year-
to-date, respectively, while hardware revenue in the current year is 13% and
14% of total revenue for the current quarter and year to date, respectively.
We expect this decrease as a percentage of total revenue to continue as the
entire industry is experiencing the impact of rising equipment processing
power and decreasing equipment prices. This is also impacted by increased
demand for outsourcing services, as significant sales of hardware normally
accompany only in-house sales.
BACKLOG
Our backlog increased 8% at March 31, 2006 to $213,300 ($62,800 in-house and
$150,500 outsourcing) from $198,200 ($67,100 in-house and $131,100
outsourcing) at March 31, 2005. The current quarter backlog remained nearly
flat compared to December 31, 2005, when backlog was $213,800 ($63,800 in-
house and $150,000 outsourcing).
COST OF SALES AND GROSS PROFIT
Cost of license represents the cost of software from third party vendors
through remarketing agreements. These costs are recognized when license
revenue is recognized. Cost of support and service represents costs
associated with conversion and implementation efforts, ongoing support for
our in-house customers, operation of our data and item processing centers
providing services for our outsourced customers, ATM and debit card
processing services and direct operating costs. These costs are recognized
as they are incurred. Cost of hardware consists of the direct and related
costs of purchasing the equipment from the manufacturers and delivery to our
customers. These costs are recognized at the same time as the related
hardware revenue is recognized. Ongoing operating costs to provide support
to our customers are recognized as they are incurred.
Cost of Sales and Gross Profit
Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
---------------- ------ ---------------- ------
2006 2005 2006 2005
---- ---- ---- ----
Cost of License $ 222 $ 1,085 -80% $ 2,134 $ 4,428 -52%
Percentage of total revenue <1% <1% <1% 1%
License Gross Profit $ 20,344 $ 19,858 +2% $ 56,176 $ 58,214 -4%
Gross Profit Margin 99% 95% 96% 93%
Cost of support and service $ 67,962 $ 61,436 +11% $198,555 $178,412 +11%
Percentage of total revenue 47% 46% 46% 45%
Support and Service
Gross Profit $ 38,121 $ 31,073 +23% $113,453 $ 85,471 +33%
Gross Profit Margin 36% 34% 36% 32%
Cost of hardware $ 13,629 $ 14,584 -7% $ 43,486 $ 49,010 -11%
Percentage of total revenue 9% 11% 10% 12%
Hardware Gross Profit $ 5,217 $ 6,347 -18% $ 16,091 $ 18,903 -15%
Gross Profit Margin 28% 30% 27% 28%
TOTAL COST OF SALES $ 81,813 $ 77,105 +6% $244,175 $231,850 +5%
Percentage of total revenue 56% 57% 57% 59%
TOTAL GROSS PROFIT $ 63,682 $ 57,277 +11% $185,720 $162,588 +14%
Gross Profit Margin 44% 43% 43% 41%
Cost of license decreased for the current quarter and the first nine months
of fiscal 2006 due to a decrease in the delivery of third party software
compared to last year. Cost of support and service increased for the
quarter and year to date in fiscal 2006 due to additional headcount and
depreciation expense for new facilities and equipment as compared to last
year. Cost of hardware decreased due to a decrease in hardware sales and a
change in product sales mix during the current quarter and the first nine
months of fiscal 2006. Hardware incentives and rebates received decreased
during the quarter and nine months ended due to changing thresholds
established by the vendors and related hardware sales.
Gross margin on license revenue increased to 99% and 96% for the current
quarter and the first nine months of the fiscal year, respectively, compared
to 95% and 93% for the same periods last year due to a decrease in third
party software sales, where the gross margins on third party software is
significantly lower than our owned products. The gross profit increase
for the third quarter and year to date in support and service is due to
consistent revenue growth. Gross margin for support and service grew to 36%
for the current quarter and for the nine-month period, due to the
continuation of company-wide cost control measures. Hardware gross margin
decreased from 30% in the third quarter last year to 28% in the third
quarter of the current year, but remained fairly flat for the nine months in
both years; variations are primarily due to sales mix and vendor rebates on
hardware delivered.
OPERATING EXPENSES
Selling and Marketing Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
---------------- ------ ---------------- ------
2006 2005 2006 2005
---- ---- ---- ----
Selling and marketing $ 12,292 $ 11,598 +6% $ 36,032 $ 34,250 +5%
Percentage of total revenue 8% 9% 8% 9%
Dedicated sales forces, inside sales teams, technical sales support teams
and channel partners conduct our sales efforts for our two market segments,
and are overseen by regional sales managers. Our sales executives are
responsible for pursuing lead generation activities for new core customers.
Our account executives nurture long-term relationships with our client base
and cross-sell our many complementary products and services. Our inside
sales team is responsible for marketing and sales of specific complementary
products and services to our existing core customers.
For the three and nine months ended March 31, 2006, selling and marketing
expenses increased due to additional headcount, primarily from new personnel
gained through recent acquisitions, plus the related employee costs.
Selling and marketing expense decreased slightly as a percentage of sales to
8% of revenue as compared to 9% of revenue for both periods of last fiscal
year, reflecting a change in the sales mix.
Research and Development Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
---------------- ------ ---------------- ------
2006 2005 2006 2005
---- ---- ---- ----
Research and development $ 8,435 $ 7,738 +9% $ 23,187 $ 20,621 +12%
Percentage of total revenue 6% 6% 5% 5%
We devote significant effort and expense to develop new software, service
products and continually upgrade and enhance our existing offerings.
Typically, we upgrade all of our core and complementary software
applications once per year. We believe our research and development efforts
are highly efficient because of the extensive experience of our research and
development staff and because our product development is highly customer-
driven.
Research and development expenses increased primarily due to employee
related costs from increased headcount for ongoing development of new
products and enhancements to existing products, plus depreciation and
equipment maintenance expense for upgrading technology equipment. Research
and development expenses increased for the third quarter and the first nine
months of 2006 by 9% and 12% respectively; however they remained at 6% of
total revenue for the third quarter of both years and 5% for the nine months
in both years.
General and Administrative Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
---------------- ------ ---------------- ------
2006 2005 2006 2005
---- ---- ---- ----
General and administrative $ 8,239 $ 6,915 +19% $ 27,174 $ 22,507 +21%
Percentage of total revenue 6% 5% 6% 6%
General and administrative costs include all expenses related to finance,
legal, human resources, employee benefits, plus all administrative costs.
General and administrative expenses increased for the third quarter and the
first nine months of fiscal year 2006, due to a combination of increased
rent, travel and insurance expense. The year to date employee related costs
and headcount increased compared to the same period last year.
INTEREST INCOME (EXPENSE) - Net interest income for the three months ended
March 31, 2006 reflects an increase of $80 when compared to the same period
last year. Interest income increased $560, while interest expense increased
$480. Net interest income for the current nine month period reflects a
decrease of $161, with interest income increasing $610 and interest expense
increasing $771. For both periods, the modest increases in interest income
are due to higher cash and cash equivalent balances while the additional
interest expense is due to borrowings on the revolving bank credit facility.
PROVISION FOR INCOME TAXES - The provision for income taxes was $11,397 and
$35,511 for the three and nine-month periods ended March 31, 2006 compared
with $11,658 and $32,277 for the same periods last year. In the current
third quarter, an income tax adjustment was made to 32.7% of income before
income taxes to bring the year to date income before income taxes rate to
35.5%. For the current fiscal year, the rate of income taxes is currently
estimated at 35.5% of income before income taxes compared to 37.5% as
reported for the same periods in fiscal 2005, prior to adjustment. The
decrease reflects changes in the effective tax rate partially attributable
to a special manufacturing deduction resulting from the American Job
Creation Act of 2004, plus our reevaluation of changes in state tax laws and
rules in relation to our corporate tax structure during the current fiscal
year.
NET INCOME - Net income increased 21% for the three months ended March 31,
2006. Net income for the third quarter of fiscal 2006 was $23,460 or $0.25
per diluted share compared to $19,429 or $0.21 per diluted share in the same
period last year. Net income increased 20% for the nine-month period ended
March 31, 2006 to $64,518 or $0.69 per diluted share compared to $53,795 or
$0.58 per diluted share for the same nine month period last year.
BUSINESS SEGMENT DISCUSSION
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's operations are classified
into two business 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.
Bank Systems and Services
Three Months Ended Percent Nine Months Ended Percent
March 31, Change March 31, Change
-------------------------- -------------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenue $ 120,054 $ 104,242 15% $ 349,308 $ 315,362 11%
Gross Profit $ 54,385 $ 44,162 23% $ 154,597 $ 133,314 16%
Gross Profit Margin 45% 42% 44% 42%
Revenue growth in bank systems and services is attributable to the increase
in support and service revenue related to maintenance for in-house and
outsourced customers, plus the ongoing steady increase in ATM and debit card
processing activity. We expect this increase to continue as we further
improve our processes and continue to create demand and value for our
customers. License revenue increased and hardware revenue decreased for the
current quarter and nine-month period primarily due to the sales mix and
products delivered during the current fiscal year compared to the prior
year. Bank segment gross profit increased from the last year and the gross
profit margin increased from 42% to 45% for the quarter and 42% and 44% year
to date when comparing period over period.
Credit Union Systems and Services
Three Months Ended Percent Nine Months Ended Percent
March 31, Change March 31, Change
-------------------------- -------------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenue $ 25,441 $ 30,141 -16% $ 80,587 $ 79,076 2%
Gross Profit $ 9,297 $ 13,116 -29% $ 31,123 $ 29,275 6%
Gross Profit Margin 37% 44% 39% 37%
Revenue in the credit union system and services segment grew substantially
in the support and service component directly relating to maintenance for
in-house and outsourced customers, along with ATM and debit card processing
activity. This growth in support and service was offset by decreases in
license revenue and hardware revenue. The decrease in license revenue is
partially attributable to the expansion of our outsourcing options available
to our credit union customers. The decrease in hardware revenue is due to
sales mix and reduction in the amount of hardware shipped during the
quarter. The credit union gross profit and margin decreased for the third
quarter from 44% to 37% due to the reduction of license revenue. The gross
profit margin increased year to date from 37% to 39% due to continued
delivery of products and services that carry higher margins like ATM/Debit
card processing and outsourcing services as we continue to improve operating
procedures, leverage our resources and gain new customers.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents increased to $38,805 at March 31,
2006, from $11,608 million at June 30, 2005 and from $15,952 at March 31,
2005. The increase in the cash balance from June 30, 2005 is primarily due
to collection of our June 2005 annual maintenance billings, offset by the
use of cash as outlined below in investing and financing activities.
Cash provided by operations totaled $113,384 in the current year compared to
$105,116 last year. Cash provided by operations consisted of $64,518 in net
income, depreciation and amortization expense of $32,532, plus a combined
increase of $5,885 in deferred income taxes and the loss on disposal of
property and the addition of the expense for stock-based compensation of
$364. The balance consists of the change in receivables of $110,872, less
the change of $14,727 for prepaid and accrued expenses, and accounts
payable, less $83,155 for the change in deferred revenues, and less the
change in income taxes of $2,905. For fiscal year 2005, cash flow from
operations consisted of $53,795 in net income, depreciation and amortization
expense of $28,448, plus a combined increase of $6,061 in deferred income
taxes and the loss on disposal of property and equipment. The balance
consisted of the change in receivables of $94,879 less the change of $7,791
for prepaid and accrued expenses, accounts payable, plus the change in
income taxes of $1,380, minus $71,656 change in deferred revenues.
Net cash used in investing activities for the current year was $64,047 and
included payment for the Profitstar acquisition of $19,177, plus $1,567 paid
on earn-outs and other acquisition adjustments, capital expenditures of
$32,228, and capitalized software development of $11,908. In the first nine
months of fiscal 2005, net cash used in investing activities of $157,379 and
consisted mainly of $119,616 in payment for acquisitions, $33,428 in capital
expenditures and $4,607 for capitalized software development.
Net cash from financing activities for the current year used cash of $22,140
and included a net repayment of the revolving bank credit facility of
$20,000, payment of dividends of $13,285 and the purchase of treasury stock
of $12,576. Cash used was offset by proceeds of $17,250 from the exercise
of stock options and the sale of common stock plus $6,471 from the excess
tax benefit from stock-based compensation. For the first nine months of
fiscal 2005, cash provided by financing activities was $14,457 and included
$14,000 in line of credit borrowings and the proceeds from the exercise of
stock options and sale of common stock of $11,803, offset by $11,346 for
dividends paid.
Capital Requirements and Resources
The Company generally uses existing resources and funds generated from
operations to meet its capital requirements. Capital expenditures totaling
$32,228 and $33,428 for the nine-month periods ended March 31, 2006 and
2005, respectively, were made for additional equipment. These additions
were funded from cash generated by operations. Total consolidated capital
expenditures for the Company are not expected to exceed $50,000 for fiscal
year 2006.
The Company renewed a bank credit line on March 22, 2006 which provides for
funding of up to $8,000 and bears interest at the prime rate (7.75% at March
31, 2006). The credit line expires March 22, 2007 and is secured by $1,000
of investments. At March 31, 2006, no amount was outstanding.
An unsecured revolving bank credit facility allows borrowing of up to
$150,000, which may be increased by the Company at any time prior to April
20, 2008 to $225,000. The unsecured revolving bank credit facility bears
interest at a rate equal to (a) LIBOR or (b) an alternate base rate (the
greater of (a) the Federal Funds Rate plus 1/2% or (b) the Prime Rate), plus
an applicable percentage in each case determined by the Company's leverage
ratio. The unsecured revolving credit line terminates April 19, 2010.
At June 30, 2005, the revolving bank credit facility balance was $45,000.
At March 31, 2006, the revolving bank credit facility balance was $25,000.
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 facility. The share repurchase program does not include
specific price targets or timetables and may be suspended at any time. At
June 30, 2005, there were 553,300 shares in treasury stock and the Company
had the remaining authority to repurchase up to 4,437,316 shares. No shares
were repurchased during the most recent quarter. During the nine months
ended March 31, 2006, the Company repurchased 687,200 treasury shares for
$12,576. The total cost of treasury shares at March 31, 2006 is $22,528.
At March 31, 2006, there were 1,240,500 shares in treasury stock and the
Company had the authority to repurchase up to 3,750,116 shares.
Subsequent to March 31, 2006, the Company's Board of Directors declared a
cash dividend of $.055 per share on its common stock payable on May 31,
2006, to stockholders of record on May 15, 2006. Current funds from
operations are adequate for this purpose. The Board has indicated that it
plans to continue paying dividends as long as the Company's financial
condition continues to be favorable.
Critical Accounting Policies
The Company regularly reviews its selection and application of significant
accounting policies and related financial disclosures. The application of
these accounting policies requires that management make estimates and
judgments. The estimates that affect the application of our most critical
accounting policies and require our most significant judgments are outlined
in Management's Discussion and Analysis of Financial Condition and Results
of Operations - "Critical Accounting Policies" - contained in our annual
report on Form 10-K for the year ended June 30, 2005.
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, 2005. Undue reliance should not be placed on the forward-looking
statements. The Company does not undertake any obligation to publicly
update any forward-looking statements.
CONCLUSION
The Company's results of operations and its financial position continue to
be strong with increased earnings, increased gross margin growth, and strong
cash flow for the three and nine months ended March 31, 2006. This reflects
the continuing attitude of cooperation and commitment by each employee,
management's ongoing cost control efforts and our commitment to deliver top
quality products and services to the markets we serve.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the
participation of our management, including our Company's Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the
design and operations of our disclosure controls and procedures pursuant to
Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation as of the
end of the period covered by this report, the CEO and CFO concluded that our
disclosure controls and procedures are effective in timely alerting them
to material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic SEC filings.
During the three months ended March 31, 2006, the Company completed the
phase one implementation of general ledger and financial reporting, supply
chain, contract and project, and human capital management systems. These
integrated accounting and business management systems are provided by a
third party vendor. Except for the implementation of these financial
systems, there was no change in the Company's internal control over
financial reporting that occurred during the quarter ended March 31, 2006
that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting. There have not
been any significant changes in our internal control over financial
reporting or in other factors that could significantly affect these controls
subsequent to the date of evaluation.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
The following shares of the Company were repurchased for the three month
period ended March, 31, 2006:
Maximum Number
Total Total Number of of Shares that
Number Average Shares Purchased as May Yet Be
of Shares Price Part of Publicly Purchased Under
Period Purchased of Share Announced Plans the Plans (1)
-------------------- --------- -------- ------------------- ---------------
January 1-31, 2006 - - - 3,750,116
February 1-28, 2006 - - - 3,750,116
March 1-31, 2006 - - - 3,750,116
--------- -------- ------------------- ---------------
- $ - - 3,750,116
========= ======== =================== ===============
(1) Purchases made under the stock repurchase authorization approved by the
Company's Board of Directors on October 4, 2002 with respect to 3.0 million
shares, which was increased by 2.0 million shares on April 29, 2005.
These authorizations have no specific dollar or share price targets and no
expiration dates.
ITEM 6. EXHIBITS
31.1 Certification of the Chief Executive Officer dated May 9, 2006.
31.2 Certification of the Chief Financial Officer dated May 9, 2006.
32.1 Written Statement of the Chief Executive Officer dated May 9, 2006.
32.2 Written Statement of the Chief Financial Officer dated May 9, 2006.
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 its behalf by the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: May 9, 2006 /s/ John F. Prim
---------------------
John F. Prim
Chief Executive Officer
Date: May 9, 2006 /s/ Kevin D. Williams
---------------------
Kevin D. Williams
Chief Financial Officer and Treasurer
EXHIBIT 31.1
CERTIFICATION
-------------
I, John F. Prim, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jack Henry &
Associates, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter, (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information ; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: May 9, 2006
/s/ John F. Prim
------------------------------
John F. Prim
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
-------------
I, Kevin D. Williams, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jack Henry &
Associates, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter, (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information ; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: May 9, 2006 /s/ Kevin D. Williams
-------------------------------
Kevin D. Williams
Chief Financial Officer
EXHIBIT 32.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chief Executive Officer of Jack Henry & Associates, Inc. (the
"Company"), hereby certify that the Quarterly Report on Form 10-Q of the
Company for the three and nine months ended March 31, 2006 (the "Report")
fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: May 9, 2006
*/s/ John F. Prim
-----------------------------------
John F. Prim
Chief Executive Officer
* A signed original of this written statement required by Section 906 has
been provided to Jack Henry & Associates, Inc. and will be retained by Jack
Henry & Associates, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
EXHIBIT 32.2
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chief Financial Officer of Jack Henry & Associates, Inc. (the
"Company"), hereby certify that the Quarterly Report on Form 10-Q of the
Company for the three and nine months ended March 31, 2006 (the "Report")
fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: May 9, 2006
*/s/ Kevin D. Williams
------------------------------------
Kevin D. Williams
Chief Financial Officer
* A signed original of this written statement required by Section 906 has
been provided to Jack Henry & Associates, Inc. and will be retained by Jack
Henry & Associates, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.