UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 25, 1999
JACK HENRY & ASSOCIATES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 0-14112 43-1128385
(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
663 Highway 60, P.O. Box 807, Monett, MO 65708
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (417) 235-6652
ITEM 5. OTHER EVENTS
On December 16, 1998 Jack Henry & Associates, Inc. (the Company ) exchanged
826,931 shares of its common stock for all the outstanding shares of Peerless
Group, Inc. ( Peerless ). The transaction was accounted for as a pooling of
interests. The Company s revenues, income before income taxes and net income
for the 30 calendar day period ended January 15, 1999 were $14.4 million,
$1.9 million and $1.2 million, respectively. The revenue and net income
amounts set forth above include 30 days of combined operating results for the
Company and Peerless. This information is reported for purposes of complying
with the Securities and Exchange Commission s Accounting Series Release 135.
This information includes operations from the Company s second and third
quarters of fiscal year 1999 and is not necessarily indicative of the results of
operations for the quarters ending December 31, 1998 or March 31, 1999 or the
fiscal year ending June 30, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Item 7 of the Company s Current Report on Form 8-K dated December 17, 1998, is
hereby amended as set forth below. The exhibits referenced therein are not
amended hereby.
As previously reported on a Current Report on Form 8-K dated December 17, 1998,
the Company acquired all of the outstanding common stock of Peerless effective
December 16, 1998 in exchange for 826,931 shares of the Company s common stock.
As a result of the transaction, Peerless became a wholly owned subsidiary of the
Company.
(a) Financial Statements of Business Acquired
Audited
Report of Ernst & Young LLP, Independent Auditors;
Consolidated Balance Sheets as of December 31, 1997 and 1996;
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995;
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1997, 1996 and 1995;
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995; and
Notes to Consolidated Financial Statements.
Unaudited
Consolidated Balance Sheets as of September 30, 1998 and December
31, 1997;
Consolidated Statements of Income for three months and six months
ended September 30, 1998 and 1997;
Consolidated Statements of Cash Flows for nine months ended
September 30, 1998 and 1997; and
Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1998;
Unaudited Pro Forma Combined Statement of Operations for the three
months ended September 30, 1998;
Unaudited Pro Forma Combined Statement of Operations for the years
ended June 30, 1998, 1997 and 1996; and
Notes to Unaudited Pro Forma Combined Financial Information.
(c) Exhibits
23.1 Consent of Ernst & Young LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 25, 1999 JACK HENRY & ASSOCIATES, INC.
(Registrant)
By: /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board
INDEX TO FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
PAGE
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . F-2
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-7
Unaudited Financial Statements:
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . F-17
Consolidated Statements of Income for three months
and six months ended September 30, 1998 and 1997 . . . . . . . . F-18
Consolidated Statements of Cash Flows for nine
months ended September 30, 1998 and 1997 . . . . . . . . . . . . F-19
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Peerless Group, Inc.
We have audited the accompanying consolidated balance sheets of Peerless
Group, Inc. (the Company), as of December 31, 1997 and 1996, and the related
consolidated statements of income, cash flows, and stockholders' equity
(deficit) for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peerless
Group, Inc., at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
Dallas, Texas
January 20, 1998
PEERLESS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS (NOTE 4)
<TABLE>
<S><C>
DECEMBER 31,
1997 1996
Current assets:
Cash and cash equivalents $2,845 $8,378
Trade accounts receivable 9,346 5,712
Prepaid expenses and other current assets 1,152 541
Total current assets 13,343 14,631
Computer and other equipment, at cost 4,337 2,335
Less accumulated depreciation 1,135 589
3,202 1,746
Computer software, maintenance contracts, and other assets,
net of accumulated amortization of $396 and $1,482 at
December 31, 1997 and 1996, respectively 897 982
Investment in preferred stock, at cost 2,500 -
Total assets $19,942 $17,359
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . $3,014 $1,865
Accrued liabilities . . . . . . . . . . . . . . . . . . 1,002 1,041
Sales tax payable . . . . . . . . . . . . . . . . . . . 646 568
Unearned revenues . . . . . . . . . . . . . . . . . . . 7,121 7,573
Total current liabilities . . . . . . . . . . . . . . 11,783 11,047
Commitments (Note 6)
Stockholders' equity (Notes 4 and 8):
Preferred stock, $.01 par value:
Authorized shares 5,000
Issued shares none
Common stock, $.01 par value:
Authorized shares 10,000
Issued shares 4,948 and 4,598 at December 31, 1997 and
1996, respectively 49 46
Additional paid-in capital . . . . . . . . . . . . . . 7,958 7,720
Retained earnings (deficit) . . . . . . . . . . . . . . 649 (1,254)
Treasury stock, at cost (73 and 1 at December 31, 1997
and 1996, respectively) . . . . . . . . . . . . . . . (379) (1)
Unearned compensation . . . . . . . . . . . . . . . . . (118) (199)
Total stockholders' equity . . . . . . . . . . . . . 8,159 6,312
Total liabilities and stockholders' equity . . . . . $19,942 $17,359
<PAGE>
See accompanying notes
</TABLE>
PEERLESS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S><C>
YEAR ENDED DECEMBER 31,
1997 1996 1995
Revenues:
Software license and installation . . . . . . $10,339 $9,987 $7,181
Hardware and equipment . . . . . . . . . . . 11,171 10,303 6,727
Maintenance and services . . . . . . . . . . 8,621 6,235 5,782
Total revenues . . . . . . . . . . . . . . 30,131 26,525 19,690
Cost of revenues:
Hardware and equipment . . . . . . . . . . . 8,528 7,754 5,258
Software license and installation, maintenance
and services . . . . . . . . . . . . . 11,794 8,882 6,872
Total cost of revenues . . . . . . . . . . 20,322 16,636 12,130
Gross margin . . . . . . . . . . . . . . . . . . 9,809 9,889 7,560
Operating costs and expenses:
Research and development . . . . . . . . . . 2,004 1,696 1,398
Selling and marketing . . . . . . . . . . . . 3,412 3,477 2,502
General and administrative . . . . . . . . . 2,216 1,512 1,222
Severance charge (Note 11) . . . . . . . . . - 341 -
Total operating costs and expenses . . . . 7,632 7,026 5,122
Income from operations . . . . . . . . . . . . . 2,177 2,863 2,438
Other income (expense):
Interest expense . . . . . . . . . . . . . . (20) (548) (612)
Interest income . . . . . . . . . . . . . . . 280 133 68
Total other income (expense) . . . . . . . 260 (415) (544)
Income before income taxes . . . . . . . . . . . 2,437 2,448 1,894
Provision for income taxes . . . . . . . . . . . 534 155 64
Net income . . . . . . . . . . . . . . . . . . . $1,903 $2,293 $1,830
Basic earnings per share . . . . . . . . . . . . $0.40 $0.82 $0.90
Diluted earnings per share . . . . . . . . . . . $0.37 $0.55 $0.49
Shares used in computing basic earnings per share 4,712 2,745 1,976
Shares used in computing diluted earnings per share 5,130 4,055 3,648
</TABLE>
See accompanying notes.
PEERLESS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<S><C>
COMMON STOCK TREASURY STOCK
ADDITIONAL RETAINED
NUMBER OF PAID-IN EARNINGS NUMBER OF UNEARNED
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT COMPENSATION
Balance at December 31, 1994 2,080 $20 $(3,948) $(5,377) 237 $(281) $ -
Net income . . . - - - 1,830 - - -
Common stock issued, net of
unearned compensation 162 2 291 - - - (195)
Common stock repurchased - - 141 - 67 (154) -
Accretion of redeemable common
stock - - (58) - - - -
Balance at December 31, 1995 2,242 22 (3,574) (3,547) 304 (435) (195)
Net income - - - 2,293 - - -
Common stock issued upon
exercise of warrants 506 5 8 - - - -
Common stock issued upon
exercise of options 79 1 79 - - - -
Common stock issued, net
of unearned compensation 45 1 295 - - - (4)
Common stock repurchased - - - - 8 (9) -
Cancellation of treasury
stock upon change-of-domicile (311) (3) (440) - (311) 443 -
Common stock issued upon
initial public offering 2,037 20 10,117 - - - -
Accretion of redeemable
common stock - - (44) - - - -
Compensation expense on options - - 268 - - - -
Reclassification of redeemable
common stock upon exercise of
underlying options - - 1,011 - - - -
Balance at December 31, 1996 4,598 46 7,720 (1,254) 1 (1) (199)
Net income - - - 1,903 - - -
Common stock issued upon
exercise of warrants 182 2 3 - - - -
Common stock issued upon
exercise of options 168 1 247 - - - -
Common stock issued, net of
unearned compensation - - 1 - (2) 10 72
Common stock issued, employee
stock purchase plan - - (13) - (30) 202 -
Common stock repurchased - - - - 104 (590) 9
Balance at December 31, 1997 4,948 $49 $7,958 $649 73 $(379) $(118)
</TABLE>
See accompanying notes.
PEERLESS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<S><C>
YEAR ENDED DECEMBER 31,
1997 1996 1995
OPERATING ACTIVITIES
Net income $1,903 $2,293 $1,830
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization . . . . . . . 1,052 757 523
Compensation expense . . . . . . . . . . . 83 366 54
Changes in operating assets and liabilities:
Trade accounts receivable . . . . . . . . (3,634 (1,506) (584)
Prepaid expenses and other current assets (660) (451) 34
Accounts payable and accrued liabilities 1,188 812 939
Unearned revenues (452) (594) (87)
Net cash provided by (used in) operating
activites (520) 1,677 2,709
INVESTING ACTIVITIES
Additions to computer and other equipment (2,246) (1,419) (381)
Investment in preferred stock (2,500) - -
Other (120) (160) -
Net cash used in investing activities (4,866) (1,579) (381)
FINANCING ACTIVITIES
Note receivable from officer - 271 -
Proceeds from borrowings - - 4,111
Payments on borrowings - (3,627) (5,953)
Issuance of common stock 297 94 30
Purchase of treasury stock (436) (9) (140)
Net proceeds from initial public offering - 10,137 -
Other (8) 20 (63)
Net cash provided by (used in) financing
activities (147) 6,886 (2,015)
Net increase (decrease) in cash and cash
equivalents (5,533) 6,984 313
Cash and cash equivalents at beginning of
period 8,378 1,394 1,081
Cash and cash equivalents at end of period $2,845 $8,378 $1,394
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest $19 $542 $737
Cash paid for income taxes $545 $265 $38
</TABLE>
See accompanying notes.
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF THE COMPANY
Peerless Group, Inc., formerly known as TPG Holdings, Inc. (the
Company ), is a computer software company which develops and provides banking
and credit union software systems and services. The Company markets these
systems along with the computer equipment (hardware) to financial institutions
primarily located in the United States and Canada and provides conversion,
support, and maintenance and outsourcing services to customers using the
systems. In conjunction with the initial public offering of its common stock on
October 3, 1996 (the Offering ), TPG Holdings, Inc. formed a new wholly-owned
Delaware subsidiary, Peerless Group, Inc., and TPG Holdings, Inc., was merged
into this new corporation. The financial statements included herein reflect the
merger and resulting change in capitalization as all share and per share amounts
have been retroactively restated to reflect the merger. In conjunction with this
change in capitalization, all treasury shares outstanding were canceled.
The consolidated financial statements of the Company include the accounts
of the Company and all its subsidiaries. All significant intercompany
transactions and balances are eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of money market funds, certificates of
deposit and Treasury Bills with original purchased maturities of three months or
less.
DEPRECIATION
Depreciation is provided on computer and other equipment using the
straight-line method over a five- to ten-year estimated useful life.
COMPUTER SOFTWARE AND MAINTENANCE CONTRACTS
Computer software and maintenance contracts consist of fair values
assigned to acquired software and maintenance contracts. The amounts are being
amortized on a straight-line basis over the estimated economic benefit period of
five years. The amounts amortized and charged to cost of sales were
approximately $358,000, $403,000, and $308,000 in 1997, 1996 and 1995,
respectively.
CAPITALIZED SOFTWARE
The Company expenses all software development costs as incurred until
technological feasibility has been established for the product, at which time
the costs are capitalized until the product is available for general release to
customers.
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company's sources of revenue and the methods of revenue recognition
are as follows:
Software license and installation Revenues from software contracts
involving installation are recognized when the installation is performed
according to contractual terms, which, in the case of long-term contracts,
involves the use of the percentage-of-completion method of accounting.
Progress towards completion is measured based upon the percentage
relationship that costs incurred to date bear to total estimated costs to
complete the installation. Revenues from license fees not involving
installation are recognized upon delivery of the software to the customer
when no significant vendor obligations remain.
Hardware and equipment Commissions and revenues from hardware and
equipment sales are recognized upon shipment by the manufacturer.
Maintenance and services Revenues from maintenance and service contracts
are recognized ratably over the periods of the respective contracts.
Revenues from data and check and statement imaging processing services are
recognized in the period in which the services are performed.
UNEARNED REVENUES
Deposits received and amounts billed for software licenses, installation
and hardware in advance of installation or delivery, and for annual software
maintenance prior to performance of related services, are reflected as unearned
until such amounts are recognized in accordance with the Company's revenue
recognition policy.
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
Cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities and unearned revenues are stated at expected settlement values which
approximate fair value.
Accounts receivable potentially subject the Company to concentrations of
credit risk as the Company markets its products and services primarily to
financial institutions throughout the United States and Canada. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral; however, deposits for future services or
products are frequently required.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 9, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation (Statement 123), requires use of option valuation
models that were not developed for use in valuing employee stock options.
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statement, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(Statement 128). Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will adopt the new
requirements retroactively in 1998. Management has not completed its review of
Statement 131, but does not anticipate that the adoption of this statement will
affect results of operations or financial position, but will affect the
disclosure of segment information.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Public Accountants issued Statement of Position (SOP)
97-2, Software Revenue Recognition, which supersedes SOP 91-1. The Company will
be required to adopt SOP 97-2 for software transactions entered into beginning
January 1, 1998. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements (i.e., software products,
upgrades/enhancements, postcontract customer support, installation, training,
etc.) to be allocated to each element based on the relative fair values of the
elements. The fair value of an element must be based on evidence which is
specific to the vendor. The revenue allocated to software products (including
specified upgrades/enhancements) generally is recognized upon delivery of the
products. The revenue allocated to postcontract customer support generally is
recognized ratably over the term of the support and revenue allocated to service
elements (such as training and installation) generally is recognized as the
services are performed. If a vendor does not have evidence of the fair value for
all elements in a multiple-element arrangement, all revenue from the arrangement
is deferred until such evidence exists or until all elements are delivered. The
Company's management anticipates that the adoption of SOP 97-2 will not have a
material impact on the Company's results of operations.
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHANGES IN PRESENTATION
Certain prior year amounts have been reclassified to conform to current
year presentation.
3. INVESTMENT IN PREFERRED STOCK
In May 1997, the Company purchased 25,000 shares of the preferred stock of
Online Resources & Communications Corporation ( Online ), a private electronic
financial services company, for $2.5 million. This preferred stock is
convertible into approximately 833,000 shares of Online's common stock. The
Company also received warrants to purchase approximately 333,000 shares of
Online's common stock at $3.00 per share. The Company understands that Online is
seeking additional financing. If Online is not able to obtain additional
financing, the Company may be required to write off some or all of this
investment.
4. DEBT AND CREDIT AGREEMENTS
LINE OF CREDIT
In January 1997, the Company amended its line of credit agreement with a
bank that provides for borrowings up to $2,500,000, reduced by the value of
outstanding letters of credit issued by the bank on behalf of the Company.
Borrowings using this line of credit bear interest at the bank's prime rate
(8.50% at December 31, 1997) plus .5% and are collateralized by the assets of
the Company's wholly owned subsidiaries. The facility will expire on February 1,
1999. No amounts were outstanding on the line of credit at December 31, 1997,
and a letter of credit in the amount of $600,000 was issued by the bank on
behalf of the Company at that date.
The line of credit agreement contains restrictive covenants, the most
significant of which relate to minimum defined annual net income, quarterly cash
flow and the restriction on the payment of cash dividends. At December 31, 1997,
the Company was in compliance with such covenants.
Under the terms of the line of credit agreement, the bank was issued a
warrant to purchase at any time on or before October 1, 2002, 115,680 shares of
the Company's common stock at a purchase price of $5.42 per share. Included in
the warrant agreement was a provision allowing the bank to put the warrant back
to the Company at any time after October 1, 1999, at a price equal to the
then-current market price of the Company's common stock. No value was assigned
to the warrant at the date of issuance and no accretion was recorded, as the
Company determined that there was no significant value separately assignable to
the warrant and put option. In June 1996, the line of credit agreement was
amended such that the provision allowing the bank to put the warrant back to the
Company was terminated.
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT AND CREDIT AGREEMENTS (CONTINUED)
LONG-TERM DEBT DUE TO RELATED PARTIES
The Company repaid all of its debt upon completion of the Offering. In
prior years, the terms of certain Subordinated Debentures and Acquisition notes
included warrants to purchase up to 65% of the Company's common stock by the
holders of the Subordinated Debentures (the Holders ). After giving effect to
several transactions, including the repurchase of warrants for $3,776,000 in
cash and notes, which were recorded as reductions to additional paid-in-capital,
the Holders had warrants to purchase 37.5% of the outstanding common stock of
the Company at December 31, 1995. In June 1996, the Holders exercised warrants
to purchase 505,710 shares of the Company's common stock, and in October 1996,
in conjunction with the Offering, they sold warrants to the underwriters to
purchase 597,360 shares of the Company's common stock. In December 1997, the
Holders exercised warrants to purchase an additional 181,654 shares of the
Company's common stock. Therefore, at December 31, 1997, the Holders own
warrants to purchase 181,654 shares of the Company's common stock. The warrants
are exercisable at a price of $0.025 per share and expire in October, 2000.
5. INCOME TAXES
The Company uses the liability method in accounting for income taxes as
required by Statement of Financial Accounting Standards No. 109 Accounting for
Income Taxes. The components of the provision for income taxes are as follows
(in thousands):
<TABLE>
<S><C>
DECEMBER 31,
1997 1996 1995
Current:
Federal $312 $51 $38
State 124 362 26
______ ______ ______
Total Current 436 413 64
Deferred:
Federal 70 (245) -
State 28 (13) -
______ ______ ______
Total Deferred 98 (258) -
______ ______ ______
Total provision for income taxes $534 $155 $64
</TABLE>
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The effective income tax rate on income before income taxes differed from
the Federal income tax statutory rate for the following reasons (in thousands):
<TABLE>
<S><C>
YEAR ENDED DECEMBER 31,
1997 1996 1995
Income tax charge:
At Federal statutory rate $824 $832 $644
Unbenefitted (utilized) net operating losses (832) (644) -
Benefit of research and development tax credits (459) - -
Federal alternative minimum tax - 48 38
Deferred federal benefit relating to
the elimination of the valuation allowance - (245) -
State income tax 96 271 26
Other 73 81 -
$534 $155 $64
</TABLE>
Given the historical trends in generating taxable income and the expected
future earnings, in the fourth quarter of 1996 the Company determined that it
was more likely than not that its net deferred tax assets would be realized. As
a result of the Company's judgement, the valuation allowance was eliminated and
a deferred tax benefit of approximately $250,000 was recorded.
During the three months ended September 30, 1997, the Company identified
research and development tax credits totaling $459,000. As a result, the
estimated effective tax rate for the fiscal year was lowered to 21.9%. As of
December 31, 1997, the Company had $302,000 of research and development tax
credits available for carryforward to future periods. These credits begin to
expire in 2008.
The significant components of the Company's deferred tax assets and
liabilities consist of the following (in thousands):
<TABLE>
<S><C>
DECEMBER 31,
1997 1996
Deferred tax assets:
Alternative minimum tax credit carryforward $ $ 85
Net operating loss carryforwards - 65
Compensation expense on options - 103
Research and development tax credits 302 -
Allowance for bad debts 52 -
Other 43 24
______ ______
Total deferred tax assets 397 277
Deferred tax liabilities:
Prepaid expenses 185 -
Amortization 51 19
______ ______
Total deferred tax liabilities 236 19
Deferred income tax assets, net of deferred
income tax liabilities $161 $258
</TABLE>
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LEASE COMMITMENTS
In May 1997, the Company entered into an agreement to lease a building and
certain real property for fifteen years. This operating lease requires monthly
base rent payments of approximately $84,000 plus operating expenses and taxes,
with the monthly base rent amount escalating every five years during the lease
term. The lease is expected to commence in the third quarter of 1998. The
Company intends to sublease certain of its existing facilities upon moving to
the new facility.
Minimum noncancelable lease payments required under operating leases for
the years subsequent to December 31, 1997, are as follows (in thousands):
<TABLE>
<S><C>
NEW EXISTING
YEAR LEASE LEASES TOTAL
1998 $ 505 $ 396 $ 901
1999 1,009 356 1,365
2000 1,009 320 1,329
2001 1,009 160 1,169
2002 1,009 65 1,074
Thereafter 12,994 6 13,000
</TABLE>
Rental expense totaled approximately $323,000, $269,000, and $247,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
7. EMPLOYEE 401(K) PLAN
The Company has a plan which provides retirement benefits under the
provisions of Section 401(k) of the Internal Revenue Code (the Plan ) for
substantially all employees who have completed a specified term of service. The
Company's contributions equal 50% of employee contributions, up to a maximum of
6% of eligible employee compensation, as defined. Benefits under the Plan are
limited to the assets of the Plan. Contributions by the Company charged to
expense during the years ended December 31, 1997, 1996 and 1995, were
approximately $128,000, $122,000, and $90,000, respectively.
8. COMMON STOCK
In July 1996, the Company adopted an employee stock purchase plan under
Section 423 of the Internal Revenue Code of 1986, as amended. Under the employee
stock purchase plan, employees may make annual purchases of the Company's common
stock at a price equal to 85% of the market value of the common stock on certain
specified dates. The Company has reserved 250,000 shares of its common stock for
issuance under the employee stock purchase plan.
During 1997 and 1996, the Company issued 1,675 and 19,620 shares,
respectively, of restricted stock to employees at weighted-average fair values
of $6.38 and $5.38 per share, respectively. The Company recorded approximately
$10,000 and $102,000, respectively, of unearned compensation for the excess of
the deemed value for accounting purposes of the common stock issued over the
proceeds received upon issuance. The unearned compensation is charged to expense
ratably over the vesting period of the common stock. During 1997 and 1996,
approximately $83,000 and $98,000 was charged to operations.
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS
The Board of Directors and the stockholders of the Company approved the
Peerless Group, Inc. 1997 Stock Option Plan (the Plan ) effective as of April
22, 1997. The Plan reserves 450,000 shares of the Company's common stock for
future issuance. Each option to be granted under the Plan will be exercisable as
provided by the terms of each option, but in no case longer than ten years from
the date of the option's grant. Historically, the Company's options have
generally vested 20% on the date of grant and 20% each year for the following
four years, with an exercise period of five years from the date of grant.
A summary of the Company's stock option activity and related information
for the years ended December 31 follows (in thousands except for per share
data):
<TABLE>
<S><C>
1997 1996 1995
WEIGHTED NUMBER WEIGHTED WEIGHTED
NUMBER OF AVERAGE OF AVERAGE NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
Outstanding at
beginning of year 433 $4.14 348 $1.76 299 $1.09
Granted-Exercise price
exceeds market price
on date of grant 170 8.05 10 8.80 24 2.87
Granted-Exercise price
equals market price
on date of grant 10 4.50 154 7.60 95 2.74
Exercised (168) 1.48 (79) 1.01 (60) 0.44
Forfeited (39) 8.00 - - (10) 1.93
Outstanding at end of year 406 6.51 433 4.14 348 1.76
Exercisable at end of year 148 $5.67 241 $2.53 148 $1.48
Weighted average fair
value of options
granted-Exercise
price exceeds market
price on date of grant $1.83 $1.98 $0.86
Weighted average fair value
of options granted-Exercise
price equals market price on
date of grant $1.97 $2.22 $0.99
</TABLE>
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
The total options outstanding at December 31, 1997, included 96,000
options with exercise prices ranging from $2.60 to $2.87 and a weighted-average
remaining contractual life of 2.0 years; and 310,000 options with exercise
prices ranging from $4.50 to $8.80 and a weighted-average remaining contractual
life of 4.2 years. Exercisable options at December 31, 1997, included 58,800
options with exercise prices ranging from $2.60 to $2.87 and a weighted-average
exercise price of $2.67; and 89,540 options with exercise prices ranging from
$4.50 to $8.80 and a weighted-average exercise price of $7.64. Under APB 25,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995 respectively: risk-free interest rates of
5.82%, 5.79% and 7.37%; volatility factors of the expected market price of the
Company's common stock of .502, .347 and .447; and no dividend yields. In
addition, the fair value of these options was estimated based on an expected
life of one year from the vesting date using the multiple option method.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for earnings per share
information): <PAGE>
<TABLE>
<S><C>
1997 1996 1995
Pro forma net income $1,698 $2,170 $1,789
Pro forma basic earnings per share $0.36 $0.77 $0.88
Pro forma diluted earnings per share $0.34 $0.53 $0.48
</TABLE>
The pro forma disclosures only include the effect of options granted
subsequent to December 31, 1994. Accordingly, the pro forma information does not
reflect the pro forma effect of all previous stock option grants of the Company,
and thus is not indicative of future amounts until Statement No. 123 is applied
to all outstanding stock options.
10. OPERATIONS
The Company is dependent upon International Business Machines Corporation
(IBM) as its principal computer hardware vendor for its financial institution
applications systems. Additionally, operating systems on which the Company's
products function have been developed by IBM. Since its inception in 1989, the
Company has been a value-added remarketer of IBM products pursuant to standard
IBM Remarketer Agreements. The Company's current remarketing agreement with IBM
expires on February 28, 1999. Both IBM and the Company may, with or without
cause, upon three months written notice, terminate the agreement. The Company
has no indication that IBM will discontinue the remarketing agreement. The
Company believes that its relationships with IBM are good.
PEERLESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEVERANCE CHARGE
During the year ended December 31, 1996, the Company incurred a severance
charge of $341,000 related to the resignation of a former officer ($289,000 of
which were non-cash compensation charges related to the extension of the
exercise period of certain stock options and the acceleration of vesting of
restricted stock awards).
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands except for earnings per share amounts):
<TABLE>
<S><C>
1997 1996 1995
Numerator:
Net income $1,903 $2,293 $1,830
Accretion on redeemable common stock - (44) (58)
Numerator for basic and diluted earnings per share $1,903 $2,249 $1,772
Denominator:
Denominator for basic earnings per
share-weighted average 4,712 2,745 1,976
Effect of dilutive securities:
Stock options 76 266 169
Warrants 365 1,072 1,503
Employee stock purchase plan 4 - -
Non-vested stock (27) (28) -
Dilutive potential common shares 418 1,310 1,672
Denominator for diluted earnings per
share-adjusted weighted average shares and
assumed conversions 5,130 4,055 3,648
Basic earnings per share $0.40 $0.82 $0.90
Diluted earnings per share $0.37 $0.55 $0.49
</TABLE>
Options to purchase 251,200 shares of common stock at $8.00 per share and
20,000 shares of common stock at $8.80 per share were outstanding during 1997
but were not included in the computation of diluted earnings per share because
the options' exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
PEERLESS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . $ 455 $ 2,845
Trade accounts receivable . . . . . . . 5,754 9,346
Finished goods inventory . . . . . . . . 1,150 409
Prepaid expenses and other current assets 1,097 743
Total current assets . . . . . . . 8,456 13,343
Computer and other equipment, at cost . . . 7,229 4,337
Less accumulated depreciation . . . . . . . 1,823 1,135
Total . . . . . . . . . . . . . . 5,406 3,202
Computer software, maintenance contracts,
and other assets, netof accumulated
amortization of $565 and $396 at September
30, 1998 and December 31, 1997, respectively 719 897
Investment in preferred stock, at cost . . 2,500 2,500
Total assets . . . . . . . . . . . $ 17,081 $ 19,942
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . $ 1,725 $ 3,014
Accrued liabilities . . . . . . . . . . 1,796 1,002
Sales tax payable . . . . . . . . . . . 468 646
Unearned revenues . . . . . . . . . . . 3,398 7,121
Total current liabilities . . . . . 7,387 11,783
Commitments
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 5,000
Issued shares -- none
Common stock, $.01 par value:
Authorized shares -- 10,000
Issued shares -- 4,976 and 4,948 at
September 30, 1998 and December 31,
1997, respectively . . . . . . . . . . 50 49
Additional paid-in capital . . . . . . . 7,994 7,958
Retained earnings . . . . . . . . . . . 1,992 649
Treasury stock, at cost -- 53 and 73
at September 30, 1998 and December 31,
1997, respectively . . . . . . . . . . . (289) (379)
Unearned compensation . . . . . . . . . (53) (118)
Total stockholders' equity . . . 9,694 8,159
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $ 17,081 $ 19,942
See accompanying notes to unaudited consolidated financial statements.
PEERLESS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1998 1997 1998 1997
------- ------- -------- --------
Revenues:
Software license and installation $ 3,136 $ 1,999 $ 8,611 $ 8,041
Hardware and equipment . . . . 2,023 1,664 5,983 7,958
Maintenance and services . . . 2,799 2,216 7,865 6,139
Total revenues . . . . . 7,958 5,879 22,459 22,138
Cost of revenues:
Hardware and equipment . . . . 1,550 1,273 4,587 6,052
Software license and installation,
maintenance and services . . . 3,822 2,676 10,335 8,497
Total cost of revenues . 5,372 3,949 14,922 14,549
Gross margin . . . . . . . . . . 2,586 1,930 7,537 7,589
Operating costs and expenses:
Research and development . . . 568 523 1,558 1,530
Selling and marketing . . . . 560 802 2,024 2,701
General and administrative . . 672 419 1,842 1,730
Total operating costs
and expenses . . . . . . 1,800 1,744 5,424 5,961
Income from operations . . . . . 786 186 2,113 1,628
Other income:
Interest expense . . . . . . . (3) (6) (11) (16)
Interest income . . . . . . . 22 32 88 263
Total other income . . . 19 26 77 247
Income before income taxes . . . 805 212 2,190 1,875
Income tax expense (benefit) . . 309 (218) 847 408
Net income . . . . . . . . . . . $ 496 $ 430 $ 1,343 $ 1,467
Basic earnings per share . . . . $ 0.10 $ 0.09 $ 0.27 $ 0.31
Diluted earnings per share . . . $ 0.10 $ 0.08 $ 0.26 $ 0.28
Shares used in computing basic
earnings per share . . . . . . . 4,918 4,734 4,903 4,708
Shares used in computing diluted
earnings per share . . . . . . . 5,166 5,147 5,113 5,151
See accompanying notes to unaudited consolidated financial statements.
PEERLESS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . $ 1,343 $ 1,467
Adjustments to reconcile net income to net
cash provided by (used in)operating activities:
Depreciation and amortization . . . . . 938 787
Compensation expense . . . . . . . . . . 63 63
Changes in operating assets and liabilities:
Trade accounts receivable . . . . . 3,592 1,021
Prepaid expenses and other current assets (346) (241)
Finished goods inventory . . . . . (741) (137)
Accounts payable and accrued liabilities (518) (700)
Unearned revenues . . . . . . . . . (3,722) (4,130)
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . 609 (1,870)
INVESTING ACTIVITIES
Additions to computer and other equipment . (2,975) (2,136)
Investment in preferred stock . . . . . . . - (2,500)
Other . . . . . . . . . . . . . . . . . . . - (120) _______
Net cash used in investing activities . . . (2,975) (4,756)
FINANCING ACTIVITIES
Issuance of common stock . . . . . . . . . 12 107
Purchase of treasury stock . . . . . . . . (36) (380)
Other . . . . . . . . . . . . . . . . . . . - (8) _______
Net cash used in financing activities . . . (24) (281)
Net decrease in cash and cash equivalents . (2,390) (6,907)
Cash and cash equivalents at beginning of period 2,845 8,378
Cash and cash equivalents at end of period $ 455 $ 1,471
See accompanying notes to unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF THE COMPANY
Peerless Group, Inc. (the "Company") designs, develops, installs and
supports integrated information systems, including proprietary computer software
and third-party software and hardware, for community banks and credit unions.
The Company was incorporated in 1989 when a group of management executives from
Electronic Data Systems Corporation ("EDS") purchased EDS's turnkey community
bank data processing systems division, which EDS had acquired in 1980. In 1992,
the Company acquired and began offering a credit union information software
system. In 1994, the Company began marketing a check and statement imaging
system that is fully integrated with Peerless21(R), the Company's flagship
banking product. In 1996, the Company began an outsourcing service bureau. On
October 3, 1996, the Company completed an initial public offering of its Common
Stock.
On August 18, 1998, the Company entered into a definitive agreement with
Jack Henry & Associates, Inc. ("Jack Henry") for Jack Henry to acquire all of
the outstanding common shares of the Company for approximately $36 million, or
$7.25 per Peerless Group common share.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three- and nine-month periods
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Peerless Group, Inc. Annual Report on Form 10-K for the year ended December 31,
1997.
The consolidated financial statements of the Company include the accounts
of the Company and all its subsidiaries. All significant intercompany
transactions and balances are eliminated. Certain prior year amounts have been
reclassified to conform to current year presentation.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands except for earnings per share amounts):
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Numerator for basic and diluted
earnings per share . . . . . . . $ 496 $ 430 $ 1,343 $ 1,467
Denominator:
Denominator for basic earnings
per share-weighted average shares 4,918 4,734 4,903 4,708
Effect of dilutive securities:
Stock options . . . . . . . . 77 58 46 87
Warrants . . . . . . . . . . . 181 376 181 378
Employee stock purchase plan . 1 3 1 3
Non-vested stock . . . . . . . (11) (24) (18) (25)
Dilutive potential common shares 248 413 210 443
Denominator for diluted earnings
per share-adjusted weighted average
shares and assumed conversions . 5,166 5,147 5,113 5,151
Basic earnings per share . . . . $ 0.10 $ 0.09 $ 0.27 $ 0.31
Diluted earnings per share . . . $ 0.10 $ 0.08 $ 0.26 $ 0.28
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Position 97-2. As of January 1, 1998, the Company adopted
AICPA Statement of Position (SOP) 97-2, Software Revenue Recognition, which was
effective for transactions that the Company entered into beginning on that date
and retroactive application to years prior to adoption was prohibited. The
effect of adopting SOP 97-2 has not had a material impact on the Company's
results of operations.
Statement of Financial Accounting Standards No. 131. In June 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, which is effective for years beginning after December 15, 1997.
Statement 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company will adopt the new requirements retroactively in 1998. Management
anticipates that the adoption of Statement 131 will not affect results of
operations or financial position, but will affect the disclosure of segment
information.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information presents the
Pro Forma Combined Balance Sheet at September 30, 1998, giving effect to the
acquisition of Peerless (which was accounted for as a pooling of interests as
described below) as if it had been consummated on that date. Also presented are
the Pro Forma Combined Statements of Operations for the three month period ended
September 30, 1998 and the fiscal years ended June 30, 1998, 1997 and 1996,
giving effect to the acquisition of Peerless as if it had been consummated as of
the beginning of the respective periods presented. The Company s fiscal year
ends on June 30, Peerless fiscal year ended on December 31.
The pro forma data is based on the historical combined statements of the Company
and Peerless giving effect to the Peerless acquisition under the pooling of
interests method of accounting and to the assumptions and adjustments (which the
Company believes to be reasonable) described in the accompanying Notes to
Unaudited Pro Forma Combined Financial Information. Under the pooling of
interests method of accounting, the recorded assets and liabilities of the
separate entities become the recorded assets and liabilities of the combined
entity. The pro forma adjustments set forth in the following unaudited pro
forma combined financial information are estimated and may differ from the
actual adjustments when they become known; however, no material differences are
anticipated by the Company.
The pro forma data is provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if the
acquisition of Peerless had been consummated on the date indicated or that may
be obtained in the future. The unaudited pro forma combined financial
information should be read in conjunction with the financial statements and
financial information pertaining to the Company and Peerless included elsewhere
herein and documents previously filed with the Securities and Exchange
Commission by the Company.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA
JACK HENRY PEERLESS ADJUSTMENT COMBINED
-------------------------------------------
<TABLE>
<S><C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,025 $ 455 $ 39,480
Investments 3,145 3,145
Trade receivables 22,314 5,754 28,068
Prepaid expenses and other 7,520 2,247 9,767
Total $ 72,004 $ 8,456 $ 80,460
PROPERTY AND
EQUIPMENT, NET $ 33,888 $ 5,406 $ 39,294
OTHER ASSETS:
Intangible assets, net $ 19,721 $ 19,721
of amortization 2,762 719 3,481
Computer software 1,323 2,500 3,823
Other non-current
assets $ 23,806 $ 3,219 $ 27,025
Total $129,698 $ 17,081 $146,779
Total assets
LIABILITIES AND
STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,207 $ 1,725 $ 6,932
Accrued expenses 6,591 2,264 8,855
Accrued income taxes 4,834 4,834
Deferred revenue 28,527 3,398 31,925
Total $ 45,159 $ 7,387 $ 52,546
LONG-TERM DEBT
DEFERRED INCOME TAXES $ 2,526 $ 2,526
Total Liabilities $ 47,685 $ 7,387 $ 55,072
STOCKHOLDERS EQUITY:
JKHY preferred stock; $1
par value; 500,000 shares
authorized; none issued - - -
PLSS preferred stock; $.01
par value; 5,000,000
shares authorized; none
issued - - -
JKHY common stock; $.01
par value; 50,000,000
shares authorized; shares
issued and outstanding -
19,034,279 $ 190 - $ 8 $ 198
PLSS common stock; $.01
par value; 10,000,000
shares authorized; shares
issued - 4,976,650 $ 50 $ (50) -
Less treasury shares; PLSS
- 74,000 - (289) 289 -
Additional paid-in capital 20,051 7,994 (300) 27,745
Retained earnings 61,772 1,992 63,764
Unearned compensation (53) 53 -
Total stockholders equity $ 82,013 $ 9,694 $ 91,707
Total liabilities and
stockholders equity $129,698 $ 17,081 $146,779
</TABLE>
JACK HENRY & ASSOCIATES AND PEERLESS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended
September 30, 1998
<TABLE>
<S><C>
JKHY PLSS COMBINED
REVENUES:
Software Licensing & Installation $ 11,659 $ 3,136 $ 14,795
Maintenance/Support & Service 11,550 2,799 14,349
Hardware Sales & Commissions 17,519 2,023 19,542
Total 40,728 7,958 48,686
COST OF SALES:
Cost of Hardware 12,691 1,550 14,241
Cost of Services 8,192 3,822 12,014
Total $ 20,883 $ 5,372 $ 26,255
GROSS PROFIT $ 19,845 $ 2,586 $ 22,431
OPERATING EXPENSES:
Selling and marketing 3,512 560 4,072
Research and development 952 568 1,520
General and administrative 2,439 672 3,111
Total $ 6,903 $ 1,800 $ 8,703
OPERATING INCOME $ 12,942 $ 786 $ 13,728
OTHER INCOME (EXPENSE):
Interest income 445 22 467
Other, net
Total 35 (3) 32
$ 480 $ 19 $ 499
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES $ 13,422 $ 805 $ 14,227
PROVISION FOR INCOME TAXES 5,148 309 5,457
INCOME FROM CONTINUING OPERATIONS $ 8,274 $ 496 $ 8,770
INCOME FROM DISCONTINUED OPERATIONS 22 22
NET INCOME $ 8,296 $ 496 $ 8,792
As reported:
Diluted earnings per share $ 0.41 $ 0.10
Basic earnings per share $ 0.44 $ 0.10
Shares used in computing diluted
earnings per share 20,154 5,166
Shares used in computing basic
earnings per share 18,982 4,918
Pro Forma:
Diluted earnings per share $ 0.42
Basic earnings per share $ 0.44
Shares used in computing diluted
earnings per share 20,999
Shares used in computing basic
earnings per share 19,811
</TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S><C>
JACK JACK JACK
HENRY PEERLESS COMBINED HENRY PEERLESS COMBINED HENRY PEERLESS COMBINED
FYE FYE FYE FYE FYE FYE FYE FYE FYE
REVENUES: 6/30/98 6/30/98 6/30/98 6/30/97 6/30/97 6/30/97 6/30/96 6/30/96 6/30/96
Software licensing & installation $32,988 $9,772 $42,760 $22,955 $11,388 $34,343 $18,111 $7,774 $25,885
Maintenance/support & service 35,444 9,764 45,208 27,433 7,211 34,644 22,595 6,015 28,610
Hardware 44,991 8,837 53,828 32,212 11,745 43,957 26,852 8,222 35,074
Total 113,423 28,373 141,796 82,600 30,344 112,944 67,558 22,011 89,569
COST OF SALES:
Cost of hardware 30,832 6,786 37,618 22,397 8,872 31,269 17,764 6,149 23,913
Cost of servic 24,798 12,486 37,284 18,679 10,505 29,184 15,829 7,610 23,439
Total 55,630 19,272 74,902 41,076 19,377 60,453 33,593 13,759 47,352
GROSS PROFIT 57,793 9,101 66,894 41,524 10,967 52,491 33,965 8,252 42,217
OPERATING EXPENSES:
Selling and marketing 11,804 2,977 14,781 9,162 3,841 13,003 7,573 2,784 10,357
Research and development 3,132 1,987 5,119 2,045 1,863 3,908 1,775 1,576 3,351
General and administrative 9,081 2,075 11,156 6,076 2,110 8,186 5,411 1,679 7,090
Total 24,017 7,039 31,056 17,283 7,814 25,097 14,759 6,039 20,798
OPERATING INCOME FROM CONTINUING
OPERATIONS 33,776 2,062 35,838 24,241 3,153 27,394 19,206 2,213 21,419
OTHER INCOME (EXPENSE):
Interest income 1,221 115 1,336 660 307 967 541 91 632
Interest expense (18) (18) (229) (229) (670) (670)
Other, net 367 367 186 186 126 126
Total 1,588 97 1,685 846 78 924 667 (579) 88
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 35,364 2,159 37,523 25,087 3,231 28,318 19,873 1,634 21,507
PROVISION FOR INCOME TAXES 13,127 446 13,573 9,332 702 10,034 7,605 111 7,716
INCOME FROM CONTINUING OPERATIONS 22,237 1,713 23,950 15,755 2,529 18,284 12,268 1,523 13,791
LOSS FROM DISCONTINUED OPERATIONS 668 - 668 450 - 450 2,620 - 2,620
NET INCOME $21,569 $1,713 $23,282 $15,305 $2,529 $17,834 $9,648 $1,523 $11,171
As reported:
Diluted earnings per share $ 1.09 $ 0.34 $ 0.80 $ 0.53 $ 0.51 $ 0.40
Basic earnings per share $ 1.14 $ 0.36 $ 0.85 $ 0.61 $ 0.55 $ 0.73
Shares used in computing
diluted earnings per share 19,761 5,097 19,072 4,787 18,726 3,691
Shares used in computing basic
earnings per share 18,850 4,811 17,977 4,101 17,656 1,998
Pro Forma:
Diluted earnings per share $ 1.13 $ 0.90 $ 0.58
Basic earnings per share $ 1.19 $ 0.96 $ 0.62
Shares used in computing
diluted earnings per share 20,584 19,845 19,322
Shares used in computing basic
earnings per share 19,627 18,639 17,979
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited pro forma combined financial statements have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, all adjustments considered necessary for a fair
presentation of the unaudited pro forma combined financial statements have been
included therein. These financial statements are not necessarily indicative of
the results that would have occurred had the Merger occurred on the indicated
dates and not necessarily indicative of the results to be expected for future
operations. The unaudited pro forma combined financial information should be
read in conjunction with the financial statements and financial information
pertaining to the Company and Peerless included elsewhere herein and documents
previously filed with the Securities and Exchange Commission by the Company.
EARNINGS PER SHARE INFORMATION
Earnings per common share are computed by dividing income by the diluted
and basic (as required by FASB No. 128) weighted average number of shares of
common stock and dilutive common stock equivalents outstanding for each of the
years and twelve-month periods then ended. For all applicable periods presented
in the unaudited pro forma combined statements of income, dilutive and basic
common stock and common stock equivalents used in the computation of earnings
give effect to the conversion ratio of 0.16145.
CONSENT OF ERNST & YOUNG LLP
We consent to the use of our report dated January 20, 1998, with respect
to the financial statements of Peerless Group, Inc. included in the Current
Report on Form 8-K/A dated January 25, 1999 of Jack Henry & Associates, Inc.
filed with the Securities and Exchange Commission.<PAGE>
Ernst & Young LLP
January 25, 1999<PAGE>
