FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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.
(Exact name of registrant as specified in its charter)
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
(Address of principal executive offices)
(Zip Code)
417-235-6652
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2000
Common Stock, $.01 par value 40,728,202
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2000, (Unaudited) and June
30, 1999 3-4
Condensed Consolidated Statements of
Income for the Quarter and Nine Months
Ended March 31, 2000 and 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended March 31,
2000 and 1999 (Unaudited) 6
Notes to the Condensed Consolidated Financial
Statements 7-8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9-11
Part II. OTHER INFORMATION
Part I. Financial Information
Item 1. Financial Statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)
March 31,
2000 June 30,
(Unaudited) 1999
Current assets:
Cash and cash equivalents $12,976 $ 3,185
Investments 1,034 6,702
Trade receivables 36,017 51,387
Income taxes receivable - 1,244
Prepaid expenses and other 22,347 17,324
Total $ 72,374 $ 79,842
Property, plant and equipment $103,455 $ 84,540
Accumulated depreciation 23,566 18,945
Property and equipment, net $ 79,889 $ 65,595
Other assets:
Intangible assets, net of amortization $ 65,551 $ 25,181
Computer software, net of amortization 3,626 3,015
Other non-current assets 1,272 1,088
Total $ 70,449 $ 29,284
Total assets $222,712 $174,721
March 31,
2000 June 30,
(Unaudited) 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,476 $ 4,836
Short-term borrowings 29,500 -
Accrued expenses 5,973 8,166
Accrued income taxes 1,722 -
Deferred revenues 41,300 44,664
Total $ 84,971 $ 57,666
Deferred income taxes 1,907 2,586
Total liabilities $ 86,878 $ 60,252
Stockholders' equity:
Preferred stock - $1 par value;
500,000 shares authorized;
none issued - -
Common stock - $0.01 par value;
50,000,000 shares authorized;
40,704,390 issued @ 3/31/00
40,199,354* issued @ 6/30/99 $ 407 $ 402
Additional paid-in capital 35,818 31,798
Retained earnings 99,609 82,269
Total stockholders' equity $135,834 $114,469
Total liabilities and
stockholders' equity $222,712 $174,721
* All prior period share data has been adjusted for the 100% stock dividend paid
March 2, 2000.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
JACK HENRY & ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
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<S><C>
Quarter Ended Nine Months Ended
March 31, * March 31, *
Revenues: 2000 1999 2000 1999
Software licensing & installation $15,275 $11,198 $ 35,888 $ 36,108
Maintenance/support & services 24,802 18,437 68,635 51,060
Hardware sales 16,329 14,356 45,716 53,532
Total revenues $56,406 $43,991 $150,239 $140,700
Cost of sales:
Cost of hardware 11,290 10,345 32,126 38,110
Cost of services 18,156 13,467 53,328 38,486
Total cost of sales $ 29,446 $ 23,812 $ 85,454 $ 76,596
Gross profit $ 26,960 $ 20,179 $ 64,785 $ 64,104
48% 46% 43% 46%
Operating expenses:
Selling and marketing 4,260 3,177 12,298 11,090
Research and development 2,242 1,248 5,780 3,758
General and administrative 4,974 3,601 13,452 12,412
Total operating expenses $ 11,476 $ 8,026 $ 31,530 $ 27,260
Operating income $ 15,484 $ 12,153 $ 33,255 $ 36,844
Other income (expense):
Interest income 221 440 725 1,430
Interest expense (550) (8) (1,096) (35)
Other, net 180 161 1,639 339
Total other income (expense) $ (149) $ 593 $ 1,268 $ 1,734
Income before income taxes $ 15,335 $ 12,746 $ 34,523 $ 38,578
Provision for income taxes 5,214 4,479 11,603 14,421
Income from continuing operations $ 10,121 $ 8,267 $ 22,920 $ 24,157
Loss from discontinued operations - (531) (332) (758)
Net income $ 10,121 $ 7,736 $ 22,588 $ 23,399
Diluted earnings per share:
Income from continuing operations $ .24 $ .20 $ .55 $ .57
Loss from discontinued operations - (.01) (.01) (.02)
Net income $ .24 $ .19 $ .54 $ .55
Diluted weighted average shares 42,429 42,378 41,925 42,245
outstanding
Basic earnings per share:
Income from continuing operations $ .25 $ .21 $ .57 $ .61
Loss from discontinued operations - (.01) (.01) (.02)
Net income $ .25 $ .20 $ .56 $ .59
Basic weighted average shares 40,533 40,011 40,354 39,832
outstanding
</TABLE>
* All prior period share and per share data has been adjusted for the 100%
stock dividend paid March 2, 2000.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Nine Months Ended
March 31,
2000 1999
Cash flows from operating activities:
Income from continuing operations $ 22,920 $ 24,157
Adjustments to reconcile income from
continuing operations to cash provided
by operating activities
Depreciation and amortization 10,651 6,207
(Gain) loss on sale of fixed assets 4 7
(Gain) loss on sale of investment (1,105) (78)
Changes in:
Trade receivables 22,652 22,907
Prepaid expenses and other (7,094) (2,532)
Accounts payable 1,128 (8,966)
Accrued expenses (3,216) (380)
Income taxes 2,966 224
Deferred revenues (7,047) (6,550)
Net cash from operating activities $ 41,859 $ 34,996
Cash flows from discontinued operations $ 700 $ (306)
Cash flows from investing activities:
Proceeds on sale of property & equipment $ 218 $ 4
Capital expenditures (18,688) (31,435)
Short-term investment activity, net 5,668 (3,422)
Proceeds from sale of investments 3,605 -
Computer software developed/purchased (632) (362)
Acquisition costs, net (51,215) (8,129)
Net cash from investing activities $(61,044) $(43,344)
Cash flows from financing activities:
Proceeds from issuance of common stock
upon exercise of stock options $ 3,700 $ 2,734
Proceeds from sale of common stock 325 225
Proceeds from short-term borrowings, net 29,500 -
Dividends paid (5,249) (4,075)
Principal payments on notes payable - (822)
Purchase of treasury stock - (6)
Net cash from financing activities $ 28,276 $ (1,944)
Net increase (decrease) in cash and cash
equivalents $ 9,791 $(10,598)
Cash and cash equivalents at beginning
of period 3,185 24,683
Cash and cash equivalents at end
of period $ 12,976 $ 14,085
The Company paid income taxes of $9,061,000 and $13,406,000 for the nine months
ended March 31, 2000 and 1999, respectively.
The Company paid interest of $793,000 and $35,000 for the nine months ended
march 31, 2000 and 1999, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Description of the Company - Jack Henry & Associates, Inc. ( JHA or the
(Unaudited)
1. Summary of Significant Accounting Policies
Description of the Company - Jack Henry & Associates, Inc. ( JHA or the
Company ) is a computer software company which has developed several banking
software systems. The Company markets these systems to financial institutions
in the United States along with the computer equipment (hardware), and provides
the conversion and software customization services necessary for a financial
institution to install a JHA software system. The institution can elect to have
this system in-house or outsourced through one of the Company s service bureau
locations which provides account processing and data center capabilities. The
Company provides continuing support and maintenance services to customers using
the system. The Company also processes ATM transactions and provides internet
banking solutions for financial institutions in the U.S. All of these related
activities are considered a single business segment.
Consolidation - The consolidated financial statements include the accounts of
JHA and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the consolidation.
Comprehensive Income - Comprehensive income for each of the nine-month periods
ended March 31, 2000 and 1999, approximates the Company s net income.
Reclassification - Where appropriate, prior year s financial information has
been reclassified to conform with the current year s presentation.
Other Significant Accounting Policies - The accounting policies followed by
the Company are set forth in Note 1 to the Company's consolidated financial
statements included in its Annual Report on Form 10-K ("Form 10-K") for the
fiscal year ended June 30, 1999.
2. Interim Financial Statements
The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q of the Securities and Exchange
Commission and in accordance with generally accepted accounting principles
applicable to interim financial statements, and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements should be read in
conjunction with the Company s audited consolidated financial statements and
accompanying notes which are included in its Form 10-K, for the year ended June
30, 1999.
In the opinion of management of the Company, the accompanying condensed
financial statements reflect all adjustments necessary (consisting solely of
normal recurring adjustments) to present fairly the financial position of the
Company as of March 31, 2000, and the results of its operations and its cash
flows for the quarter and nine months then ended.
The results of operations for the periods ended March 31, 2000, are not
necessarily indicative of the results to be expected for the entire year.
3. Additional Interim Footnote Information
The following additional information is provided to update the notes to the
Company's annual financial statements for developments during the nine months
ended March 31, 2000:
Acquisition of BancTec s community banking business - On September 8, 1999,
the Company completed the acquisition of BancTec, Inc s community banking
business. The assets were acquired and the liabilities assumed by Open Systems
Group ( OSG ), a newly formed, wholly-owned subsidiary of the Company. OSG
markets banking software systems to financial institutions in the United States
along with computer equipment (hardware), and provides the conversion and
software customization necessary to install the software system. OSG also
provides account processing capabilities and data center operations to community
banks.
The acquisition was accounted for by the purchase method of accounting.
Accordingly, the accompanying condensed consolidated statements of income do not
include any revenues and expenses related to this acquisition prior to the
closing date.
The following unaudited proforma consolidated information is presented as if
the acquisition had occurred as of the beginning of each period presented.
Nine Months Ended
March 31,
2000 1999
Revenues $153,736 $184,963
Income from continuing operations $ 22,025 $ 23,232
Net Income $ 21,693 $ 22,474
Diluted earnings per share:
Income from continuing operations $ .53 $ .55
Net income $ .52 $ .53
Acquisition of BancData Solutions, Inc. ( BDS ) - April 1, 2000, JHA acquired
all the outstanding shares of BDS for $5 million in cash. BDS is a provider of
a variety of service bureau options to community banks, primarily in southern
California. Systems are AS/400 based and are already using the JKHY core
application system. This acquisition will be accounted for by the purchase
method of accounting.
4. Earnings Per Share Information
Per share information is based on the weighted average number of common shares
outstanding for the nine month period ended March 31, 2000 and 1999. Stock
options have been included in the calculation of earnings per share to the
extent they are dilutive. Reconciliation from basic to diluted weighted average
shares outstanding is the dilutive effect of outstanding stock options.
5. Stock Dividend
On January 31, 2000, the Company s Board of Directors declared a 100% stock
dividend on its common stock, effectively a 2 for 1 stock split. The stock
dividend was paid March 2, 2000 to stockholders of record at the close of
business on February 17, 2000. The shares presented in the condensed
consolidated balance sheets as of March 31 and June 30, 1999, and the number of
shares used in the computation of earnings per share in the condensed
consolidated statements of income for the quarter and nine months ended March
31, 2000 and 1999, were based on the number of shares outstanding after giving
effect to the stock split.
Item 2. - Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Background and Overview
The Company is a leading provider of integrated computer systems and ATM
networking products that perform data processing (available for in-house or
service bureau installations) for banks and credit unions. The Company was
founded in 1976. Its developed proprietary applications software, which
operates on IBM computers, is offered under two systems: CIF 20/20 ,
typically for banks with less than $300 million in assets, and the Silverlake2
System , for banks with assets up to $10 billion. Its acquired proprietary
application s software, which operates in the UNIX and NT client server
environment, operates on various hardware applications. JHA frequently sells
hardware with its software products. It also provides customer support and
related services. The Company's software systems and products have been
installed at over 2625 banks and credit unions.
Year 2000
The Company established a Year 2000 (Y2K) Committee in 1997. This Committee
prepared a documented, systematic approach (the Y2K Plan) to review all products
and internal systems for Y2K compliance. The Company s Board of Directors
reviewed and approved the Y2K Plan as required by the banking regulators of all
service bureau providers. The Company had completed its assessment of its
proprietary, mission critical and non-mission critical systems and tested
(including customer testing) for Y2K compliance prior to December 31,1999. The
Company passed the established milestones with no major issues pertaining to
date changes and does not anticipate any in the future. Although the Company
does not maintain accounting records that separately identify all of the costs
associated with its Y2K activities, it is estimated that the total cost was not
material to the Company s financial statements.
A detailed discussion of the major components of the results of operations for
the quarter and nine months ended March 31, 2000, as compared to the same
periods in the previous year follows.
Revenues
Revenues increased 28% to $56,406,000 in the quarter ended March 31, 2000.
Software licensing and installation revenues increased 36%. Maintenance,
support and service revenues increased 35% due to increased service bureau fees,
in-house maintenance fees and ATM switching fees. Hardware sales increased 14%
from last years quarter.
Nine month revenues this year were $150,239,000, up 7% from last year's
corresponding period. Software licensing and installation decreased 1%.
Maintenance, support and service revenues increased 34%. Hardware sales were
down 15% from last year due to the significant decrease in the first quarter
ended September 30, 1999. OSG contributed $15,991,000 in total revenue during
the nine months ended March 31, 2000.
1
CIF 20/20 is a trademark of Jack Henry & Associates, Inc.
2
Silverlake System is a registered trademark of Jack
Henry & Associates, Inc.
The backlog of sales at March 31, 2000, was $91,168,000 ($32,669,000 in-house
and $58,499,000 outsourcing). This is up slightly from the June 30, 1999 level,
and is consistent with management s expectations for the third quarter. Backlog
at April 30, 2000 was $89,276,000.
Cost of Sales
Cost of sales increased 24% in the third quarter ended March 31, 2000. Cost
of hardware increased 9%, slightly less than the 14% increase in hardware
revenue. Cost of services increased 35% primarily due to the OSG acquisition
and maintaining resources for the growth expected in the Company s core
business. The increase in cost of services mirrors the 35% increase in non-
hardware revenues.
Cost of sales increased 12% for the first nine months of fiscal year 2000,
compared to a 7% increase in revenues. Cost of hardware decreased 16%, which is
consistent with the 15% decrease in hardware revenue. Cost of services
increased 39% compared to the 20% increase in non-hardware revenues, primarily
due to the OSG acquisition and continued growth.
Gross Profit
Gross profit increased to $26,960,000 in the third quarter ended March 31,
2000, a 34% increase from last year. The gross margin percentage was 48% of
sales compared to 46% last year. The increase is primarily due to change in
sales mix as software licensing (higher margin sales) increased significantly
due to financial institutions acquiring system upgrades after the curtailment
created by the turn of the century.
The nine month gross profit this year was up 1% at $64,785,000. The gross
margin percentage for the first nine months was 43% of sales, down from last
year s rate of 46%, primarily due to changes in sales mix.
Operating Expenses
Total operating expenses increased 43% in the quarter compared to last year s
period. Selling expenses increased 34% which mirrors the increase in software
licensing and installation revenues, while research and development expenses
increased 80% primarily due to the acquisition of OSG and the continued
development and refinement of new and existing products. General and
administrative expenses increased 38%, supporting the overall growth of the
Company and acquisitions.
Total operating expenses increased 16% in the nine months ended March 31,
2000. Selling expenses increased 11%, research and development increased 54%
and general and administrative expenses increased 8% compared to the same period
last year.
Other Income and Expense
Other income (expense) for the quarter ended March 31, 2000 reflects a
decrease when compared to same period last year. This is primarily due to
interest expense this year on short-term borrowings, compared to interest income
last year from cash investments.
Other income for the nine months ended March 31, 2000 reflects a 27% decrease.
The $1,105,000 gain on sale of stock acquired in the Peerless acquisition in the
first quarter ended September 30, 1999, offsets the majority of the increase in
interest expense of $1,061,000, and the decrease in interest income of $705,000
from cash investments compared to the prior year.
Net Income
<PAGE>
Net income from continuing operations for the third quarter was
$10,121,000, or $.24 per diluted share, an increase of 22%, compared to
$8,267,000, or $.20 per diluted share in the same period last year.
Net income from continuing operations for the nine months ended March 31, 2000
was $22,920,000, or $.55 per diluted share (down 5%), compared to $24,157,000,
or $.57 per diluted share during the same period last year.
Discontinued Operations
The Company incurred a $332,000 loss from discontinued operations for the
quarter ended September 30, 1999 and the nine months ended March 31, 2000. Due
to the sale of the BankVision subsidiary on September 7, 1999, there was no
impact on the quarter ended March 31, 2000.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents increased to $12,976,000 at March 31,
2000, from $3,185,000 at June 30, 1999. This reflects the seasonal influx of
cash due to the receipt of the Peerless and OSG annual maintenance fees billed
December 31, 1999. The influx of all other annual maintenance fees billed June
30, 1999 were offset by the $25,000,000 cash from operations used in OSG s
acquisition of BancTec, Inc s community banking business.
JHA has available credit lines totaling $18,500,000, although the Company
expects additional borrowings to be minimal during fiscal Year 2000. The
Company currently has short-term obligations for $29,500,000 to a commercial
lender, which provides for advances of up to $40,000,000, bears interest at
variable LIBOR-Based Rates (6.53% at March 31, 2000) and is due September 7,
2000.
Capital Requirements and Resources
JHA generally uses existing resources and funds generated from operations to
meet its capital requirements. Capital expenditures totaling $18,688,000 for
the nine months ended March 31, 2000, were made for expansion of facilities and
additional equipment. These were funded from cash generated by operations and
additional short-term borrowing. Cash acquisition costs totaling $50,661,000
for the nine months ended March 31, 2000, for the purchase of BancTec, Inc s.
community banking services, were funded with $25,661,000 from operations and
$25,000,000 from short-term borrowings. The consolidated capital expenditures
of JHA excluding acquisition costs could exceed $30,000,000 for fiscal Year
2000.
The Company paid a $.05 per share cash dividend on March 2, 2000 to
stockholders of record February 16, 2000 which was funded from operations. In
addition, the Company s Board of Directors, subsequent to March 31, 2000,
declared a quarterly cash dividend of $.05 per share on its common stock payable
May 19, 2000 to stockholders of record on May 4, 2000. This will be funded from
operations.
CONCLUSION
JHA's results of operations and its financial position continued to be
favorable during the quarter ended March 31, 2000, notwithstanding the unusual
market conditions of financial institutions curtailing system upgrades created
by the turn of the century. This reflects the continuing attitude of
cooperation and commitment by each employee, management's ongoing cost control
efforts and commitment to deliver top quality products and services to the
markets it serves.
PART II. OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
behalf by the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: May 5, 2000 /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board and
Chief Executive Officer
Date: May 5, 2000 /s/ Terry W. Thompson
Terry W. Thompson
Vice President and
Chief Financial Officer
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