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 September 30, 2008 |
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.
Delaware |
43-1128385 |
(State or Other Jurisdiction of Incorporation) |
(I.R.S Employer Identification No.) |
663 Highway 60, P.O. Box 807, Monett, MO 65708
417-235-6652
N/A
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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] |
Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting company [ ] |
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 November 3, 2008, Registrant has 84,514,725 shares of common stock outstanding ($0.01 par value)
JACK HENRY & ASSOCIATES, INC. |
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CONTENTS |
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Page |
ITEM 1 |
Financial Statements |
|
Condensed Consolidated Balance Sheets |
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September 30, 2008 and June 30, 2008 (Unaudited) |
3 |
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Condensed Consolidated Statements of Income for the Three |
||
Months Ended September 30, 2008 and 2007 (Unaudited) |
4 |
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Condensed Consolidated Statements of Cash Flows for the Three |
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Months Ended September 30, 2008 and 2007 (Unaudited) |
5 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 |
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ITEM 2 |
Management's Discussion and Analysis of Financial Condition and |
|
Results of Operations |
11 |
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ITEM 3 |
Quantitative and Qualitative Disclosures about Market Risk |
19 |
ITEM 4 |
Controls and Procedures |
19 |
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PART II |
OTHER INFORMATION |
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ITEM 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
20 |
ITEM 6 |
Exhibits |
20 |
PART 1. FINANCIAL INFORMATION |
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ITEM 1. FINANCIAL STATEMENTS |
|||||
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
|||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||
(In Thousands, Except Share and Per Share Data) |
|||||
(Unaudited) |
|||||
September 30, |
June 30, |
||||
|
|
||||
ASSETS |
|||||
CURRENT ASSETS: |
|||||
Cash and cash equivalents |
$ |
24,835 |
$ |
65,565 |
|
Investments, at amortized cost |
996 |
997 |
|||
Receivables |
125,958 |
213,947 |
|||
Prepaid expenses and other |
27,992 |
25,143 |
|||
Prepaid cost of product |
26,622 |
19,515 |
|||
Deferred income taxes |
4,453 |
4,590 |
|||
|
|
||||
Total current assets |
210,856 |
329,757 |
|||
PROPERTY AND EQUIPMENT, net |
234,179 |
239,005 |
|||
OTHER ASSETS: |
|||||
Prepaid cost of product |
10,606 |
9,584 |
|||
Computer software, net of amortization |
77,099 |
74,943 |
|||
Other non-current assets |
10,058 |
10,564 |
|||
Customer relationships, net of amortization |
61,710 |
63,819 |
|||
Trade names |
3,999 |
3,999 |
|||
Goodwill |
292,385 |
289,373 |
|||
|
|
||||
Total other assets |
455,857 |
452,282 |
|||
|
|
||||
Total assets |
$ |
900,892 |
$ |
1,021,044 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||
CURRENT LIABILITIES: |
|||||
Accounts payable |
$ |
7,098 |
$ |
6,946 |
|
Accrued expenses |
28,837 |
35,996 |
|||
Accrued income taxes |
408 |
15,681 |
|||
Note payable and current maturities of capital leases |
20,147 |
70,177 |
|||
Deferred revenues |
176,084 |
212,375 |
|||
|
|
||||
Total current liabilities |
232,574 |
341,175 |
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LONG TERM LIABILITIES: |
|||||
Deferred revenues |
12,115 |
11,219 |
|||
Deferred income taxes |
62,894 |
61,710 |
|||
Other long-term liabilities, net of current maturities |
5,413 |
5,489 |
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|
|
||||
Total long term liabilities |
80,422 |
78,418 |
|||
Total liabilities |
312,996 |
419,593 |
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STOCKHOLDERS' EQUITY |
|||||
Preferred stock - $1 par value; 500,000 shares |
|
|
|||
Common stock - $0.01 par value: |
|||||
Shares issued at 09/30/08 were 97,805,533 |
|||||
Shares issued at 06/30/08 were 97,702,098 |
978 |
977 |
|||
Additional paid-in capital |
292,772 |
291,120 |
|||
Retained earnings |
576,654 |
560,534 |
|||
Less treasury stock at cost |
|||||
12,830,003 shares at 09/30/08, |
|
|
|||
|
|
||||
Total stockholders' equity |
587,896 |
601,451 |
|||
|
|
||||
Total liabilities and stockholders' equity |
$ |
900,892 |
$ |
1,021,044 |
|
|
|||||
See notes to condensed consolidated financial statements |
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
|||||
(In Thousands, Except Per Share Data) |
|||||
(Unaudited) |
|||||
|
Three Months Ended |
||||
September 30, |
|||||
|
|||||
2008 |
2007 |
||||
REVENUE |
|||||
License |
$ |
13,294 |
$ |
13,522 |
|
Support and service |
151,947 |
137,912 |
|||
Hardware |
17,857 |
23,442 |
|||
|
|
||||
Total |
183,098 |
174,876 |
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COST OF SALES |
|||||
Cost of license |
1,089 |
770 |
|||
Cost of support and service |
96,132 |
87,206 |
|||
Cost of hardware |
13,348 |
17,298 |
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|
|
||||
Total |
110,569 |
105,274 |
|||
|
|
||||
GROSS PROFIT |
72,529 |
69,602 |
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OPERATING EXPENSES |
|||||
Selling and marketing |
13,932 |
13,680 |
|||
Research and development |
11,546 |
9,959 |
|||
General and administrative |
11,459 |
9,808 |
|||
|
|
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Total |
36,937 |
33,447 |
|||
|
|
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OPERATING INCOME |
35,592 |
36,155 |
|||
INTEREST INCOME (EXPENSE) |
|||||
Interest income |
563 |
1,349 |
|||
Interest expense |
(427) |
(83) |
|||
|
|
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Total |
136 |
1,266 |
|||
|
|
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INCOME FROM CONTINUING OPERATIONS |
|
|
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PROVISION FOR INCOME TAXES |
13,219 |
13,658 |
|||
|
|
||||
INCOME FROM CONTINUING OPERATIONS |
22,509 |
23,763 |
|||
DISCONTINUED OPERATIONS (Note 6) |
|||||
Loss from operations of discontinued component |
- |
(352) |
|||
Income tax benefit |
- |
128 |
|||
|
|
||||
Loss on discontinued operations |
- |
(224) |
|||
|
|
||||
NET INCOME |
$ |
22,509 |
$ |
23,539 |
|
Continuing operations |
$ |
0.26 |
$ |
0.26 |
|
Discontinued operations |
0.00 |
(0.00) |
|||
|
|
||||
Diluted net income per share |
$ |
0.26 |
$ |
0.26 |
|
Diluted weighted average shares outstanding |
86,622 |
90,833 |
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Continuing operations |
$ |
0.26 |
$ |
0.27 |
|
Discontinued operations |
0.00 |
(0.00) |
|||
|
|
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Basic net income per share |
$ |
0.26 |
$ |
0.26 |
|
Basic weighted average shares outstanding |
85,744 |
89,168 |
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See notes to condensed consolidated financial statements |
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(In Thousands) |
|||||
(Unaudited) |
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Three Months Ended |
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September 30, |
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|
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2008 |
2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
|||||
Net Income |
$ |
22,509 |
$ |
23,539 |
|
Adjustments to reconcile net income from operations |
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to cash from operating activities: |
|||||
Depreciation |
9,841 |
9,533 |
|||
Amortization |
5,986 |
4,872 |
|||
Deferred income taxes |
1,183 |
836 |
|||
Expense for stock-based compensation |
392 |
111 |
|||
Loss on disposal of property and equipment |
- |
245 |
|||
Other, net |
(4) |
(11) |
|||
Changes in operating assets and liabilities, net of acquisitions: |
|||||
Receivables |
87,989 |
77,733 |
|||
Prepaid expenses, prepaid cost of product, and other |
(10,485) |
4,030 |
|||
Accounts payable |
151 |
(5,307) |
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Accrued expenses |
(8,069) |
(5,854) |
|||
Income taxes |
(14,946) |
(1,673) |
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Deferred revenues |
(35,395) |
(38,926) |
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|
|
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Net cash from operating activities |
59,152 |
69,128 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
|||||
Payment for acquisitions, net of cash acquired |
(3,012) |
(17,365) |
|||
Capital expenditures |
(4,241) |
(9,673) |
|||
Proceeds from sale of property and equipment |
7 |
2,069 |
|||
Computer software developed |
(6,033) |
(5,652) |
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Proceeds from investments |
1,000 |
1,000 |
|||
Purchase of investments |
(996) |
(981) |
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Other, net |
12 |
(72) |
|||
|
|
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Net cash from investing activities |
(13,263) |
(30,674) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
|||||
Borrowings under lines of credit |
10,037 |
1,495 |
|||
Repayments under lines of credit |
(60,076) |
(71,420) |
|||
Purchase of treasury stock |
(31,328) |
(5,183) |
|||
Dividends paid |
(6,388) |
(5,807) |
|||
Excess tax benefits from stock-based compensation |
242 |
1,141 |
|||
Proceeds from issuance of common stock upon |
|||||
exercise of stock options |
950 |
6,987 |
|||
Minimum tax witholding payments related to option exercises |
(538) |
- |
|||
Proceeds from sale of common stock, net |
482 |
243 |
|||
|
|
||||
Net cash from financing activities |
(86,619) |
(72,544) |
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|
|
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NET CHANGE IN CASH AND CASH EQUIVALENTS |
$ |
(40,730) |
$ |
(34,090) |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
$ |
65,565 |
$ |
88,617 |
|
|
|
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ |
24,835 |
$ |
54,527 |
|
Net cash paid for income taxes was $27,297 and $13,227 for the three months ended September 30, 2008 and 2007, respectively. The Company paid interest of $585 and $542 for the three months ended September 30, 2008 and 2007, respectively. Capital expenditures exclude property and equipment additions totaling $781 that were in accrued liabilities.
See notes to condensed consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
(Unaudited)
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Jack Henry & Associates, Inc. and Subsidiaries ("JHA" or the "Company") is a leading provider of integrated computer systems and services that has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide together with computer equipment (hardware) and by providing the conversion and software implementation services for financial institutions to utilize JHA software systems, and by providing other related services. JHA also provides continuing support and services to customers using in-house or outsourced systems.
CONSOLIDATION
The consolidated financial statements include the accounts of JHA and all of its subsidiaries, which are wholly-owned, and all significant intercompany accounts and transactions have been eliminated.
STOCK-BASED COMPENSATION
For the three months ended September 30, 2008 and 2007, there was $392 and $111, respectively, in compensation expense from equity-based awards.
Changes in stock options outstanding and exercisable are as follows:
|
Weighted |
|
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|
|
|
||||||
Outstanding July 1, 2008 |
3,977 |
$ |
17.42 |
|||||
Granted |
- |
- |
||||||
Forfeited |
- |
- |
||||||
Exercised |
(119) |
11.75 |
||||||
|
|
|||||||
Outstanding September 30, 2008 |
3,858 |
$ |
17.60 |
$ |
15,166 |
|||
Exercisable September 30, 2008 |
3,833 |
$ |
17.55 |
$ |
15,162 |
|||
As of September 30, 2008, there was $68 of total unrecognized compensation cost related to outstanding options that is expected to be recognized over a weighted-average period of 1.14 years. The weighted-average remaining contractual term on options currently exercisable as of September 30, 2008 was 2.96 years.
The Restricted Stock Plan was adopted by the Company on November 1, 2005, for its employees. Up to 3,000 shares of common stock are available for issuance under the plan. Upon issuance, shares of restricted stock are subject to forfeiture and to restrictions which limit the sale or transfer of the shares during the restriction period.
The following table summarizes non-vested share awards as of September 30, 2008, as well as activity for the three months then ended:
|
Weighted |
||||
|
|
||||
Non-vested shares at July 1, 2008 |
130 |
$ |
24.87 |
||
Granted |
139 |
19.21 |
|||
Vested |
(9) |
25.60 |
|||
Forfeited |
- |
- |
|||
|
|
||||
Non-vested shares at September 30, 2008 |
260 |
$ |
21.81 |
||
The non-vested shares will not participate in dividends during the restriction period. As a result, the weighted-average fair value of the non-vested share awards is based on the fair market value of the Company's equity shares on the grant date, less the present value of the expected dividends to be declared during the restriction period.
At September 30, 2008, there was $4,798 of compensation expense that has yet to be recognized related to non-vested restricted stock share awards, which will be recognized over a weighted-average period of 3.24 years.
INCOME TAXES
At September 30, 2008, the Company had $4,070 of gross unrecognized tax benefits, $3,769 of which, if recognized would affect our effective tax rate. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. As of September 30, 2008, we had accrued interest and penalties of $793 related to uncertain tax positions.
During the fiscal year ended June 30, 2008, the Internal Revenue Service concluded its examination of the Company's U.S. federal income tax returns for fiscal years ended June 2005 through 2006. However, the U.S. federal and state income tax returns for these two years and all subsequent fiscal years still remain subject to examination as of September 30, 2008 under statute of limitations rules. We anticipate potential changes of up to $500 could reduce the unrecognized tax benefits balance within twelve months of September 30, 2008.
COMPREHENSIVE INCOME
Comprehensive income for the three-month periods ended September 30, 2008 and 2007 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, 2008, there were 11,301 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,690 additional shares. On August 25, 2008, the Company's Board of Directors approved an additional 5,000 share increase to the stock repurchase authorization. During the first quarter of fiscal 2009, the Company repurchased 1,529 treasury shares for $31,328. The total cost of treasury shares at September 30, 2008 is $282,508. At September 30, 2008, there were 12,830 shares remaining in treasury stock and the Company had the authority to repurchase up to 7,161 additional 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, 2008. 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 fiscal year ended June 30, 2008.
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, 2008, and the results of its operations and its cash flows for the three-month periods ended September 30, 2008 and 2007.
The results of operations for the period ended September 30, 2008 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 months ended September 30, 2008.
ACQUISITION ACTIVITY
On January 1, 2005, the Company acquired all of the membership interests in RPM Intelligence, LLC, doing business as Stratika ("Stratika"). Stratika provides customer and product profitability solutions for financial institutions. As part of the purchase agreement, contingent purchase consideration was payable to the former members based upon the attainment of certain net operating income targets. As of June 30, 2008, up to $9,752 of the purchase consideration was still contingent. During the first quarter of fiscal 2009, the Company paid $3,000 in full settlement of this contingency to the former members of Stratika. This amount is included in goodwill. This acquired goodwill has been allocated to the banking systems and services segment and is deductible for federal income tax purposes.
The following unaudited pro forma consolidated financial information is presented as if the acquisition of AudioTel, Inc., completed in the prior fiscal year, had occurred at the beginning of the earliest period presented. This unaudited pro forma financial information is provided for illustrative purposes only and should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had actually occurred during that period, or the results that may be obtained in the future as a result of that acquisition.
Pro Forma (unaudited) |
Three Months Ended |
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September 30, |
||||
|
||||
2008 |
2007 |
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(Actual) |
(Pro Forma) |
|||
Revenue |
$ |
183,098 |
$ |
177,991 |
Gross profit |
72,529 |
70,941 |
||
Net Income |
$ |
22,509 |
$ |
23,849 |
Earnings per share - diluted |
$ |
0.26 |
$ |
0.26 |
Diluted Shares |
86,622 |
90,833 |
||
Earnings per share - basic |
$ |
0.26 |
$ |
0.27 |
Basic Shares |
85,744 |
89,168 |
||
DEBT
The Company renewed a bank credit line on March 7, 2008 which provides for funding of up to $8,000 and bears interest at the Federal Reserve Board's prime rate (5.00% at September 30, 2008). The credit line expires March 7, 2009 and is secured by $1,000 of investments. At September 30, 2008, no amount was outstanding.
The Company obtained a bank credit line on April 28, 2008 which provides for funding of up to $5,000 and bears interest at the bank's prime rate less 1% (4.00%
at September 30, 2008). The credit line matures on April 29, 2010. At September 30, 2008, no amount was outstanding.An unsecured revolving bank credit facility allows short-term borrowings of up to $150,000 which may be increased by the Company at any time until maturity 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 0.5% 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 May 31, 2012. At June 30, 2008, the revolving bank credit facility balance was $70,000. At September 30, 2008, the balance was $20,000. This outstanding balance bears interest at a weighted average rate of 3.22%. This credit line is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the agreement. As of September 30, 2008, the Company was in compliance with all covenants.
The Company has entered into various capital lease obligations for the use of certain computer equipment. Included in property and equipment are related assets of $896, less accumulated depreciation of $503. At September 30, 2008, $163 was outstanding, of which $147 was included in current maturities.
During the quarter ended September 30, 2008, the Company incurred interest totaling $441, $14 of which was capitalized.
COMMITMENTS AND CONTINGENCIES
For fiscal 2009, the Board of Directors approved bonus plans for its executive officers and general managers for the current fiscal year. Under the plan, bonuses may be paid following the end of the current fiscal year based upon achievement of operating income targets and upon attainment of a superior return on average assets in comparison with a group of peer companies selected by the Compensation Committee. For general managers, one half of each manager's bonus is contingent upon meeting individualized business unit objectives established by the executive officer to whom the general manager reports.
The Company has entered into agreements that provide its executive officers with compensation totaling two years' base salary and target bonus in the event the Company terminates the executive without cause within the period from 90 days before to two years after a change in control of the Company. The Company has also entered into agreements that provide its general managers with compensation totaling one year of base salary and target bonus under circumstances identical to those contained in the executive officer agreements.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement on Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and requires enhanced disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. Relative to SFAS 157, the FASB issued FASB Staff Positions ("FSP") 157-1, 157-2 and 157-3. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, "Accounting for Leases" ("SFAS 13"), and its related interpretive accounting pronouncements that address leasing transactions. FSP 157-2 delays the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP 157-3, which was issued after the end of the current fiscal quarter, clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. SFAS 157 was effective for the Company beginning on July 1, 2008. Its adoption did not have a material impact on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," ("SFAS 141(R)") which replaces SFAS No. 141. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquired entity, and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for the Company on July 1, 2009. SFAS 141(R) will have an impact on the Company's accounting for business combinations on a prospective basis once adopted; however, the future materiality of that impact cannot be determined at this time.
NOTE 4. EARNINGS PER SHARE
The following table reflects the reconciliation between basic and diluted earnings per share:
Three Months Ended |
|||||
September 30, |
|||||
|
|||||
2008 |
2007 |
||||
Income from continuing operations |
$ |
22,509 |
$ |
23,763 |
|
Discontinued operations |
- |
(224) |
|||
|
|
||||
Net Income |
$ |
22,509 |
$ |
23,539 |
|
Common share information: |
|||||
Weighted average shares outstanding for basic EPS |
85,744 |
89,168 |
|||
Dilutive effect of stock options and restricted stock |
878 |
1,665 |
|||
|
|
||||
Shares for diluted EPS |
86,622 |
90,833 |
|||
Basic Earnings per Share: |
|||||
Income from continuing operations |
$ |
0.26 |
$ |
0.27 |
|
Discontinued operations |
0.00 |
(0.00) |
|||
|
|
||||
Basic Earnings per Share |
$ |
0.26 |
$ |
0.26 |
|
Diluted Earnings per Share: |
|||||
Income from continuing operations |
$ |
0.26 |
$ |
0.26 |
|
Discontinued operations |
0.00 |
(0.00) |
|||
|
|
||||
Diluted Earnings per Share |
$ |
0.26 |
$ |
0.26 |
|
Per share information is based on the weighted average number of common shares outstanding for the three month periods ended September 30, 2008 and 2007. Stock options have been included in the calculation of income per share to the extent they are dilutive. Anti-dilutive stock options to purchase approximately 1,058 and 384 shares for the three-month periods ended September 30, 2008 and 2007, 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 |
||||||||||||
September 30, 2008 |
September 30, 2007 |
||||||||||||
|
|
||||||||||||
|
Credit |
|
|
Credit |
|
||||||||
REVENUE |
|||||||||||||
License |
$ |
10,284 |
$ |
3,010 |
$ |
13,294 |
$ |
8,919 |
$ |
4,603 |
$ |
13,522 |
|
Support and service |
126,325 |
25,622 |
151,947 |
117,181 |
20,731 |
137,912 |
|||||||
Hardware |
13,313 |
4,544 |
17,857 |
17,945 |
5,497 |
23,442 |
|||||||
|
|
|
|
|
|
||||||||
Total |
149,922 |
33,176 |
183,098 |
144,045 |
30,831 |
174,876 |
|||||||
|
|
|
|
|
|
||||||||
COST OF SALES |
|||||||||||||
Cost of license |
896 |
193 |
1,089 |
654 |
116 |
770 |
|||||||
Cost of support |
|
|
|
|
|
|
|||||||
Cost of hardware |
9,847 |
3,501 |
13,348 |
13,162 |
4,136 |
17,298 |
|||||||
|
|
|
|
|
|
||||||||
Total |
90,719 |
19,850 |
110,569 |
86,905 |
18,369 |
105,274 |
|||||||
|
|
|
|
|
|
||||||||
GROSS PROFIT |
$ |
59,203 |
$ |
13,326 |
$ |
72,529 |
$ |
57,140 |
$ |
12,462 |
$ |
69,602 |
|
September 30, |
|
June 30, |
||
|
|
|||
2008 |
2008 |
|||
Property and equipment, net |
||||
Bank systems and services |
$ |
203,933 |
$ |
208,288 |
Credit Union systems and services |
30,246 |
30,717 |
||
|
|
|||
Total |
$ |
234,179 |
$ |
239,005 |
Identified intangible assets, net |
||||
Bank systems and services |
$ |
389,318 |
$ |
385,671 |
Credit Union systems and services |
45,875 |
46,463 |
||
|
|
|||
Total |
$ |
435,193 |
$ |
432,134 |
NOTE 6: DISCONTINUED OPERATIONS
On June 30, 2008, the Company sold its insurance agency outsourcing business, Banc Insurance Services, Inc. ("BIS") and Banc Insurance Agency, Inc. ("BIA"), to the division's management team and a private equity group for a nominal amount. The transaction resulted in a pre-tax loss of $2,718.
In accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," the results of operations of this business for prior periods were reported as discontinued operations. The following presents the results of the discontinued operations for the quarters ended September 30, 2008 and 2007:
Three Months Ended |
||||
|
||||
2008 |
2007 |
|||
Revenue |
$ |
- |
$ |
450 |
Loss before income taxes |
- |
(352) |
||
Income tax benefit |
- |
128 |
||
|
|
|||
Loss on discontinued operations |
$ |
- |
$ |
(224) |
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 regarding 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 eight data centers in six physical locations and 19 item-processing centers located throughout the United States.
The US financial crisis is a primary concern at this time as it threatens our customers and our industry. The profits of many financial institutions have decreased and this may result in some reduction of demand for new products and services. We remain cautiously optimistic, however, with increasing portions of our business coming from recurring revenue, increases in backlog and encouraging sales pipeline in specific areas. Discussions with our bank customers at our recent National Users Group Meeting were also encouraging, as many report strong deposit growth and new business opportunities. Our customers will continue to face regulatory and operational challenges which our products and services address, and in these times have an even greater need for some of our solutions that directly address institutional profitability and efficiency. We face these uncertain times with a strong balance sheet and an unwavering commitment to superior customer service, and we believe that we are well positioned to address current opportunities as well as those which will arise when the economic rebound occurs.
A detailed discussion of the major components of the results of operations for the three months ended September 30, 2008 follows. All amounts are in thousands and discussions compare the current three-month period ended, September 30, 2008, to the prior year three-month period ended September 30, 2007.
REVENUE
License Revenue |
Three Months Ended |
% |
||||
September 30, |
Change |
|||||
|
|
|||||
2008 |
2007 |
|||||
License |
$ |
13,294 |
$ |
13,522 |
-2% |
|
Percentage of total revenue |
7% |
8% |
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 compared to the same quarter a year ago is mainly attributable to the credit union systems and services segment. When compared to last year, Episys®, our flagship core processing system aimed at larger credit unions, experienced a decrease in license revenue after having strong revenue during the prior fiscal year. This decrease is attributable largely to a decrease in average transaction size compared to last year.
A portion of the decrease in license revenue can be attributed to the continuing shift in demand from banks and credit unions from in-house delivery to our outsourcing services, which do not require software license agreements. Another contributing factor is the high market penetration we have with several of our products which has caused reduced license sales for these products compared to prior years.
Support and Service Revenue |
Three Months Ended |
% |
||||
September 30, |
Change |
|||||
|
|
|||||
2008 |
2007 |
|||||
Support and service |
$ |
151,947 |
$ |
137,912 |
+10% |
|
Percentage of total revenue |
83% |
79% |
||||
Quarter Over Quarter Change |
$ Change |
% Change |
||||
In-House Support & Other Services |
$ |
7,383 |
+12% |
|||
EFT Support |
5,103 |
+16% |
||||
Outsourcing Services |
2,312 |
+8% |
||||
Implementation Services |
(763) |
-5% |
||||
|
||||||
Total Increase |
$ |
14,035 |
||||
Support and services fees are generated from implementation services (including conversion, installation, 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 EFT Support services.
There was strong growth in most of the support and service revenue components for the quarter ended September 30, 2008. In-house support and other services increased partially as a result of recent acquisitions and partially as a result of new license agreements for which implementation was completed during the period since the first quarter of fiscal 2008. In addition, because annual maintenance fees are based on supported institutions' asset size, in-house support revenues increase as our customers' assets grow. EFT support, including ATM and debit card transaction processing, online bill payment services, remote deposit capture and Check 21 transaction processing services, experienced the largest percentage growth due to increased customer activity and expansion of our customer base. Outsourcing services for banks and credit unions continue to drive revenue growth as we add new bank and credit union customers and increase volume. The decrease in implementation services revenue is directly related to fewer convert/merge implementations for our bank customers due to the slowdown in the merger and acquisition activity in the current market environment.
Hardware Revenue |
Three Months Ended |
% |
||||
September 30, |
Change |
|||||
|
|
|||||
2008 |
2007 |
|||||
Hardware |
$ |
17,857 |
$ |
23,442 |
-24% |
|
Percentage of total revenue |
10% |
13% |
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 decrease in the number of hardware systems and components delivered in the current quarter compared to a year ago. During the quarter ended September 30, 2007, hardware revenue was increased by IBM System i upgrades and due to higher sales of hardware components used in our remote deposit capture product for imaging and exchanging checks.
BACKLOG
Our backlog increased 12% at September 30, 2008 to $266,200 ($65,100 in-house and $201,100 outsourcing) from $237,600 ($64,000 in-house and $173,600 outsourcing) at September 30, 2007.
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, EFT 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 |
% |
||||
September 30, |
Change |
|||||
|
|
|||||
2008 |
2007 |
|||||
Cost of License |
$ |
1,089 |
$ |
770 |
+41% |
|
Percentage of total revenue |
1% |
<1% |
||||
License Gross Profit |
$ |
12,205 |
$ |
12,752 |
-4% |
|
Gross Profit Margin |
92% |
94% |
||||
|
|
|
||||
Cost of support and service |
$ |
96,132 |
$ |
87,206 |
+10% |
|
Percentage of total revenue |
53% |
50% |
||||
Support and Service Gross Profit |
$ |
55,815 |
$ |
50,706 |
+10% |
|
Gross Profit Margin |
37% |
37% |
||||
|
|
|
||||
Cost of hardware |
$ |
13,348 |
$ |
17,298 |
-23% |
|
Percentage of total revenue |
7% |
10% |
||||
Hardware Gross Profit |
$ |
4,509 |
$ |
6,144 |
-27% |
|
Gross Profit Margin |
25% |
26% |
||||
|
|
|
||||
TOTAL COST OF SALES |
$ |
110,569 |
$ |
105,274 |
+5% |
|
Percentage of total revenue |
60% |
60% |
||||
TOTAL GROSS PROFIT |
$ |
72,529 |
$ |
69,602 |
+4% |
|
Gross Profit Margin |
40% |
40% |
Cost of license increased for the current quarter due to greater third party reseller agreement software vendor costs. This increase in cost of support and service was commensurate with an increase in support and service revenue. Cost of hardware decreased due to a decrease in hardware sales. Also, hardware incentives and rebates received from vendors fluctuate quarterly due to changing thresholds established by the vendors.
Gross margin on license revenue decreased because a larger percentage of the revenue from licenses was attributable to sales of third party products under reseller agreements where gross margins are significantly lower than on our owned products. We expect third party reseller agreement software to continue to trend upward as a percentage of our total license revenue. The gross profit margin remained at 37% in support and service. Hardware gross margin in the first quarter of fiscal 2009 decreased to 25% from 26% in the first quarter of fiscal 2008, primarily due to sales mix and decreased incentives and rebates received from vendors during the quarter.
OPERATING EXPENSES
Selling and Marketing |
Three Months Ended |
% |
||||
September 30, |
Change |
|||||
|
|
|||||
2008 |
2007 |
|||||
Selling and marketing |
$ |
13,932 |
$ |
13,680 |
+2% |
|
Percentage of total revenue |
8% |
8% |
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.
For the three months ended September 30, 2008, selling and marketing expenses increased mainly due to increasing personnel costs, which resulted from increased headcount and employee benefit expenses . Selling and marketing expense remained even as a percentage of sales compared to the first quarter of last fiscal year at 8%.
Research and Development |
Three Months Ended |
|||||
September 30, |
Change |
|||||
|
|
|||||
2008 |
2007 |
|||||
Research and development |
$ |
11,546 |
$ |
9,959 |
+16% |
|
Percentage of total revenue |
6% |
6% |
We devote significant effort and expense to develop new software, to service products and to 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 16% over last year's first quarter primarily due to employee related costs from increased salaries and benefit expenses; however, they remained at 6% of total revenue for each period.
General and Administrative |
Three Months Ended |
% |
||||
September 30, |
Change |
|||||
|
|
|||||
2008 |
2007 |
|||||
General and administrative |
$ |
11,459 |
$ |
9,808 |
+17% |
|
Percentage of total revenue |
6% |
6% |
General and administrative expense increased for the quarter due to increased personnel costs (including increased benefit costs), increased travel expenses and additional legal expenses compared to a year ago. General and administrative expenses remained at 6% of total revenue for both periods.
INTEREST INCOME (EXPENSE) - Net interest income for the three months ended September 30, 2008 reflects a decrease of $1,130 when compared to the same period last year. Interest income decreased $786 due to lower average cash, cash equivalent and investment balances. Interest expense increased $344, due to fluctuations in the average outstanding balance and interest rates on the revolving bank credit facility, which as of September 30, 2008 had a balance of $20,000, but had been fully paid as of September 30, 2007.
PROVISION FOR INCOME TAXES - The provision for income taxes was $13,219 for the three months ended September 30, 2008 compared with $13,658 for the same period last year. As of the end of the current quarter, the rate of income taxes is estimated at 37.0% of income before income taxes compared to 36.5% as reported for the same quarter in fiscal 2008. The current year rate does not include any impact of the Research and Experimentation Credit ("R&E Credit") since it had expired as of the end of the second quarter of fiscal 2008, but was included in last year's first quarter provision. Subsequent to September 30, 2008, the R&E Credit was reinstated, which will decrease our effective tax rate beginning in the second quarter.
INCOME FROM CONTINUING OPERATIONS - Income from continuing operations decreased 5% for the three months ended September 30, 2008. For the first quarter of fiscal 2009, it was $22,509 or $0.26 per diluted share compared to $23,763, which was also $0.26 per diluted share in the same period last year.
DISCONTINUED OPERATIONS
For the quarter ended September 30, 2007, loss on discontinued operations, net of income tax, was $224. The loss was comprised of a loss on operations of Banc Insurance Services, Inc. and Banc Insurance Agency, Inc. which were sold by the Company on June 30, 2008. The income tax benefit on the loss amount was $128. There was no gain or loss from discontinued operations for the quarter ended September 30, 2008.
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 |
|||||
September 30, |
Change |
|||||
|
||||||
2008 |
2007 |
|||||
Revenue |
$ |
149,922 |
$ |
144,045 |
4% |
|
Gross Profit |
$ |
59,204 |
$ |
57,140 |
4% |
|
Gross Profit Margin |
39% |
40% |
Revenue growth in bank systems and services is primarily due to an increase in license revenue and to continue growth in support and service revenue, particularly in-house support which experienced 12% growth compared to the same quarter a year ago. Gross profit margin decreased slightly compared to the first quarter of fiscal 2008 due to the cost of third party software, increases in support and service costs and personnel related costs.
Credit Union Systems and Services |
||||||
Three Months Ended |
Percent |
|||||
September 30, |
Change |
|||||
|
||||||
2008 |
2007 |
|||||
Revenue |
$ |
33,176 |
$ |
30,831 |
8% |
|
Gross Profit |
$ |
13,326 |
$ |
12,462 |
7% |
|
Gross Profit Margin |
40% |
40% |
Revenue in the credit union system and services segment grew in all components of support and service revenue, particularly EFT Support, which experienced 50% growth over last year's quarter. This increase in support and services revenue was opposed by decreases in license and hardware revenue. License revenue was impacted by a decrease in the size of core product license agreements in comparison to the same period last year. Hardware revenue decreased due to sales mix and the amount of hardware shipped during the quarter. Credit union gross profit increased 7% from the prior year, but gross profit margin remained at 40% for both periods.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents decreased to $24,835 at September 30, 2008, from $65,565 at June 30, 2008 and decreased from $54,527 at September 30, 2007. The decrease in the cash balance from June 30, 2008 is primarily due to the repayment of short term obligations and the purchase of additional shares for the treasury.
The following table summarizes net cash from operating activities in the statement of cash flows:
Three months ended |
||||
|
||||
2008 |
2007 |
|||
Net income |
$ |
22,509 |
$ |
23,539 |
Non-cash expenses |
17,398 |
15,586 |
||
Change in receivables |
87,989 |
77,733 |
||
Change in deferred revenue |
(35,395) |
(38,926) |
||
Change in other assets and liabilities |
(33,349) |
(8,804) |
||
|
|
|||
Net cash provided by operating activities |
$ |
59,152 |
$ |
69,128 |
During the first quarter of fiscal 2009, as is the case during the first quarter of each fiscal year, the Company's cash flow from operations benefit from the collection of receivables related to our annual maintenance billings which are issued during the fourth quarter each year. In the current quarter, those inflows were partially offset by cash outflows related to an increase in prepaid expenses and a decrease in accrued income taxes.
Cash used in investing activities for the current quarter totaled $13,263. The largest use of cash was for software development projects totaling $6,033. Other major uses of cash included $4,241 of capital expenditures for facilities and equipment and $3,012 in acquisition-related payments. In the first quarter of fiscal 2008, cash used in investing activities totaled $30,674. The largest use of cash was for acquisition activity, including the acquisition of Gladiator Technology Services, Inc., totaling $17,365. Other major uses of cash included $9,673 in capital expenditures for facilities and equipment and $5,652 for the development of software.
Financing activities used cash of $86,619 during the current quarter. There were net cash outflows to repay short-term borrowings on our lines of credit of $50,039; $31,328 was used to purchase treasury stock, and $6,388 was used to fund dividends paid to stockholders. Cash used was partially offset by $1,136 proceeds from the issuance of stock for stock options exercised, excess tax benefits from stock-based compensation and the sale of common stock. In the first quarter of last year, financing activities used cash of $72,544, including repayments of short-term borrowings of $70,000, $5,183 used to repurchase shares of our common stock and $5,807 used to pay dividends. Cash used in the prior year quarter was partially offset by $8,371 from the proceeds for the issuance of stock for stock options exercised, excess tax benefits from stock-based compensation and the sale of common stock.
At September 30, 2008, the Company had negative working capital of $21,718; however, the largest component of current liabilities was deferred revenue of $176,084, which primarily relates to our annual in-house maintenance agreements. The cash outlay necessary to provide the services related to these deferred revenues is significantly less than this recorded balance. Therefore, we do not anticipate any liquidity problems arising from this condition.
The U.S. financial markets continue to face regulatory and operational challenges. In these uncertain times, it is extremely difficult to predict what affect these developments may have on our customers and ultimately us. We have not experienced any significant issues with our current collection efforts, and we believe that any future impact to our liquidity would be minimized by our current cash balances and our available lines of credit.
Capital Requirements and Resources
The Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $4,241 and $9,673 for the three-month periods ended September 30, 2008 and 2007, respectively, were made primarily for additional equipment and the development or improvement of facilities. 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 2009.
The Company renewed a bank credit line on March 7, 2008 which provides for funding of up to $8,000 and bears interest at the Federal Reserve Board's prime rate (5.00% at September 30, 2008). The credit line expires March 7, 2009 and is secured by $1,000 of investments. At September 30, 2008, no amount was outstanding.
The Company obtained a bank credit line on April 28, 2008 which provides for funding of up to $5,000 and bears interest at the bank's prime rate less 1% (4.00%
at September 30, 2008). The credit line matures on April 29, 2010. At September 30, 2008, no amount was outstanding.An unsecured revolving bank credit facility allows short-term borrowings of up to $150,000 which may be increased by the Company at any time until maturity 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 0.5% 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 May 31, 2012. At June 30, 2008, the revolving bank credit facility balance was $70,000. At September 30, 2008, the balance was $20,000.
The Company has entered into various capital lease obligations for the use of certain computer equipment. Included in property and equipment are related assets of $896, less accumulated depreciation of $503. At September 30, 2008, $163 was outstanding, of which $147 was included in current maturities.
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, 2008, there were 11,301 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,690 additional shares. On August 25, 2008, the Company's Board of Directors approved an additional 5,000 share increase to the stock repurchase authorization. During the first quarter of fiscal 2009, the Company repurchased 1,529 treasury shares for $31,328. The total cost of treasury shares at September 30, 2008 is $282,508. At September 30, 2008, there were 12,830 shares remaining in treasury stock and the Company had the authority to repurchase up to 7,161 additional shares.
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, 2008.
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, 2008. 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
Even in this current challenging market, the Company's results of operations and its financial position continue to be solid, with increased revenue and gross profit for the three months ended September 30, 2008, compared to the same period a year ago. We continue to be cautiously optimistic as we see the increases in our recurring revenue and the increases in our backlog of contracts for products and services yet to be delivered. Our overall results reflect the continuing attitude of cooperation and commitment by each employee, management's ongoing cost control efforts and our commitment to continue delivering top quality products and superior services to all of our customers in the markets we serve. We believe that we are well positioned to address current challenges and opportunities as well as those which will arise when the economic rebound occurs.
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
As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. For this purpose, disclosure controls and procedures include controls and procedures designed to ensure that information that is required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, as a ppropriate to allow timely decisions regarding required disclosure.
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 during the quarter ended September, 30, 2008:
|
Total |
|
Total Number of |
Maximum Number |
||||
|
|
|
|
|
||||
July 1 - July 31, 2008 |
400,000 |
|
$ 21.43 |
400,000 |
3,289,571 |
|||
August 1-31, 2008 |
720,000 |
$ 20.25 |
720,000 |
7,569,571 |
||||
September 1-30, 2008 |
408,958 |
$ 19.98 |
408,958 |
7,160,613 |
||||
|
|
|||||||
Total |
1,528,958 |
$ 20.49 |
1,528,958 |
7,160,613 |
||||
(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, increased by 2.0 million shares on April 29, 2005, by 5.0 million shares on August 28, 2006, and by 5.0 million shares on February 4, 2008. On August 25, 2008, the Company's Board of Directors approved an additional 5.0 million share increase to the stock repurchase authorization. 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 November 6, 2008. |
|
31.2 |
Certification of the Chief Financial Officer dated November 6, 2008. |
|
32.1 |
Written Statement of the Chief Executive Officer dated November 6, 2008. |
|
32.2 |
Written Statement of the Chief Financial Officer dated November 6, 2008. |
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: November 6, 2008 |
/s/ John F. Prim |
||
John F. Prim |
|||
Chief Executive Officer and Director |
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Date: November 6, 2008 |
/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:
November 6, 2008
/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: November 6, 2008
/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 months ended September 30, 2008 (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: November 6, 2008
*/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 months ended September 30, 2008 (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.
Date: November 6, 2008
*/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.