FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
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 January 28, 2000
Common Stock, $.01 par value 20,222,471
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
<PAGE>
Item I - Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999, (Unaudited) and June
30, 1999 3
Condensed Consolidated Statements of
Income for the Quarter and Six Months Ended
December 31, 1999 and 1998 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended December 31,
1999 and 1998 (Unaudited) 6
Notes to the Condensed Consolidated Financial
Statements 7 - 10
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 10 - 13
Part II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 13
Part I. Financial Information
Item 1. Financial Statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
December 31,
1999 June 30,
(Unaudited) 1999
ASSETS
Current assets:
Cash and cash equivalents $ 3,285 $ 3,185
Investments 6,697 6,702
Trade receivables 55,672 51,387
Income taxes receivable 1,858 1,244
Prepaid expenses and other 18,944 17,324
Total $ 86,456 $ 79,842
Property, plant and equipment $ 96,945 $ 84,540
Accumulated depreciation 22,809 18,945
Property and equipment, net $ 74,136 $ 65,595
Other assets:
Intangible assets, net of amortization $ 66,945 $ 25,181
Computer software, net of amortization 4,244 3,015
Other non-current assets 1,286 1,088
Total $ 72,475 $ 29,284
Total assets $233,067 $174,721
December 31,
1999 June 30,
(Unaudited) 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,481 $ 4,836
Short-term borrowings 37,500 -
Accrued expenses 7,107 8,166
Deferred revenues 51,986 44,664
Total $106,074 $ 57,666
Deferred income taxes 1,907 2,586
Total liabilities $107,981 $ 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;
20,144,883 issued @ 12/31/99
20,099,678 issued @ 6/30/99 $ 201 $ 201
Additional paid-in capital 33,371 31,999
Retained earnings 91,514 82,269
Total stockholders' equity $125,086 $114,469
Total liabilities and
stockholders' equity $233,067 $174,721
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>
<S><C>
Quarter Ended Six Months Ended
December 31, December 31,
Revenues: 1999 1998 1999 1998
Software licensing & installation $ 9,074 $11,731 $20,613 $24,910
Maintenance/support & services 23,645 17,305 43,833 32,624
Hardware sales 18,749 18,547 29,387 39,175
Total revenues $ 51,468 $47,583 $93,833 $96,709
Cost of sales:
Cost of hardware 13,411 12,718 20,836 27,765
Cost of services 20,415 13,158 35,172 25,019
Total cost of sales $ 33,826 $25,876 $56,008 $52,784
Gross profit $ 17,642 $21,707 $37,825 $43,925
34% 46% 40% 45%
Operating expenses:
Selling and marketing 4,704 3,843 8,038 7,914
Research and development 1,879 1,239 3,538 2,511
General and administrative 4,840 5,665 8,478 8,812
Total operating expenses $ 11,423 $10,747 $ 20,054 $19,237
Operating income $ 6,219 $10,960 $ 17,771 $24,688
Other income (expense):
Interest income 160 523 504 991
Interest expense (452) (20) (546) (27)
Other, net 129 142 1,459 180
Total other income (expense) $ (163) $ 645 $ 1,417 $ 1,144
Income before income taxes $ 6,056 $11,605 $ 19,188 $25,832
Provision for income taxes 2,059 4,485 6,389 9,942
Income from continuing operations $ 3,997 $ 7,120 $ 12,799 $15,890
Loss from discontinued operations - (249) (332) (227)
Net income $ 3,997 $ 6,871 $ 12,467 $15,663
Diluted earnings per share:
Income from continuing operations $ .19 $ .34 $ .61 $ .75
Loss from discontinued operations - (.01) (.02) (.01)
Net income per share $ .19 $ .33 $ .59 $ .74
Diluted weighted average shares 20,874 21,180 20,837 21,090
outstanding
Basic earnings per share:
Income from continuing operations $ .20 $ .36 $ .64 $ .80
Loss from discontinued operations - (.01) (.02) (.01)
Net income per share $ .20 $ .35 $ .62 $ .79
Basic weighted average shares 20,145 19,932 20,132 19,872
outstanding
</TABLE>
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)
Six Months Ended
December 31,
1999 1998
Cash flows from operating activities:
Income from continuing operations $ 12,799 $ 15,894
Adjustments to reconcile income from
continuing operations to cash from
operating activities
Depreciation and amortization 6,926 3,916
Gain on sale of investments (1,105) -
Other 36 100
Changes in:
Trade receivables 2,966 15,596
Prepaid expenses and other (4,038) (2,880)
Accounts payable 4,133 (4,054)
Accrued expenses (2,083) 3,321
Accrued income taxes (614) (1,613)
Deferred revenues 3,639 1,920
Net cash from continuing
Operations $ 22,659 $ 32,200
Cash flows from discontinued operations $ 700 $ (264)
Cash flows from investing activities:
Capital expenditures $(10,897) $(14,698)
Proceeds from sale of investments 3,605 1,600
Computer software developed/purchased (570) (183)
Payment for acquisitions, net (51,047) (7,835)
Net cash from investing activities $(58,909) $(21,116)
Cash flows from financing activities:
Proceeds from issuance of common stock
upon exercise of stock options $ 1,181 $ 2,226
Proceeds from sale of common stock 191 134
Proceeds from short-term borrowings 37,500 -
Principal payments on notes payable - (696)
Dividends paid (3,222) (2,477)
Purchase of treasury stock - (6)
Net cash from financing activities $ 35,650 $ (819)
Net increase in cash and
Cash equivalents $ 100 $ 10,001
Cash and cash equivalents at beginning
of period 3,185 24,683
Cash and cash equivalents at end of period $ 3,285 $34,684
The Company paid income taxes of $7,763,000 and $12,107,000 for the six months
ended December 31, 1999 and 1998, respectively.
The Company paid interest of $260,000 and $27,000 for the six months ended
December 31, 1999 and 1998, 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
S TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Description of the Company - Jack Henry & Associates, Inc. ("JHA" or the
"Company") is a computer software company which has developed 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 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 six-month periods
ended December 31, 1999 and 1998, 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. The
statements of cash flows are prepared using the indirect method, which
represents a reclassification of the prior year s presentation using the direct
method.
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 December 31, 1999 and the results of its operations and its cash
flows for the quarter and six months then ended.
The results of operations for the period ended December 31, 1999 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 six months
ended December 31, 1999:
Purchase Acquisition and Short Term Borrowings - 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 aggregate purchase price was approximately $56,136,000 including
$50,000,000 in cash, $5,475,000 in assumed liabilities and transaction costs of
approximately $661,000. The cash portion of the purchase price was provided by
$25,000,000 from operations, and $25,000,000 in proceeds from a line of credit
with a commercial lender. The line of credit provides for advances of up to
$40,000,000, bears interest at variable LIBOR-Based Rates (6.75% at December 31,
1999) and is due September 7, 2000.
The purchase price was allocated to the assets and liabilities acquired based
on their estimated fair value at the acquisition date. The allocation has
resulted in acquired goodwill of approximately $44,296,000 which is being
amortized on a straight-line basis over 20 years.
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.
Six Months Ended
December 31,
<TABLE>
<S><C>
1999 1998
Revenues $ 97,330 $119,660
Income from continuing operations $ 11,746 $ 15,379
Net Income $ 11,414 $ 15,152
Diluted earnings per share:
Income from continuing operations $ .56 $ .73
Net income $ .54 $ .72
</TABLE>
4. Earnings Per Share Information
Per share information is based on the weighted average number of common shares
outstanding for the six month period ended December 31, 1999 and 1998. 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 is payable 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 December 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 six months ended December
31, 1999 and 1998, were based on the number of shares outstanding before giving
effect to the stock split. On a proforma basis, giving effect to the stock
split, outstanding shares and revised earnings per share would have been as
follows:
Quarter Ended Six Months Ended
December 31, December 31,
<TABLE>
<S><C>
<PAGE>
1999 1998 1999 1998
Proforma diluted earnings per share:
Income from continuing operations $ .10 $ .17 $ .31 $ .38
Loss from discontinued operations - (.01) (.01) (.01)
Net income per share $ .10 $ .16 $ .30 $ .37
Proforma diluted weighted average
shares outstanding 41,748 42,360 41,674 42,180
Proforma basic earnings per share:
Income from continuing operations $ .10 $ .18 $ .32 $ .40
Loss from discontinued operations - (.01) (.01) (.01)
Net income per share $ .10 $ .17 $ .31 $ .39
Proforma diluted weighted average
shares outstanding 40,290 39,864 40,264 39,744
</TABLE>
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 1
operates on IBM computers, is offered under two systems: CIF 20/20 ,
typically for financial institutions ranging up to $300 million in assets, and
2 the Silverlake System , for banks and multi-bank groups ranging up to $10
billion in total assets. Its acquired proprietary applications software, which
operates in the UNIX and NT client-server environment, operates on various
hardware platforms. JHA frequently sells hardware with its software products.
It also provides continuing maintenance and support services to customers using
the system. The Company's software systems have been installed at over 2,600
banks and credit unions.
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 milestone of the turn of the century with no major issues
pertaining to the date change, 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
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 quarter and six months ended December 31, 1999, as compared to the same
periods in the previous year follows:
Revenues
Revenues increased 8% to $51,468,000 in the quarter ended December 31, 1999.
Software licensing and installation revenues decreased 23% as financial
institutions curtailed system upgrades awaiting the turn of the century.
Maintenance, support and service revenues increased 37% due to increased service
bureau fees, in-house maintenance fees and ATM switching fees. Hardware sales
increased 1% from last year s quarter. OSG contributed $6,904,000 in total
revenue during this quarter.
Six month revenues this year were $93,833,000, down 3% from last year s
corresponding period. Software licensing and installation decreased 17%.
Maintenance, support and service revenues increased 34%. Hardware sales were
down 25% from last year due to the significant decrease in the first quarter
ended September 30, 1999. OSG contributed $7,848,000 in total revenue during
the six months ended December 31, 1999.
The backlog of sales at December 31, 1999 was $90,158,000 ($30,364,000 In-
House and $59,794,000 Outsourcing). This is up slightly from the June 30, 1999
level, and is consistent with management s expectations for the second quarter.
Backlog at January 28, 2000 was $92,767,000 ($33,473,000 In-House and
$59,294,000 Outsourcing).
Cost of Sales
Cost of sales increased 31% in the second quarter ended December 31, 1999.
Cost of hardware increased 5%, slightly more than the 1% increase in hardware
revenue. Cost of services increased 55% primarily due to the OSG acquisition
and maintaining resources for the future growth expected in the Company s core
business. The increase in cost of services is considerably higher than the 13%
increase in non-hardware revenues.
Cost of sales increased 6% for the first six months of fiscal 00, compared to
a 3% decrease in revenues. Cost of hardware decreased 25%, which is consistent
with the 25% decrease in hardware revenue. Cost of services increased 41%
compared to the 12% increase in non-hardware revenues, primarily due to the OSG
acquisition and continued growth.
Gross Profit
Gross profit decreased to $17,642,000 in the second quarter ended December 31,
1999, a 19% decrease from last year. The gross margin percentage was 34% of
sales compared to 46% last year. The decrease is primarily due to change in
sales mix as software licensing (higher margin sales) decreased significantly
due to financial institutions curtailing system upgrades until after the turn of
the century and the addition of OSG which is currently operating at lower gross
profit margins.
The six month gross profit this year was down 14% at $37,825,000. The gross
margin percentage for the first six months was 40% of sales, down from last
year s rate of 45%.
Operating Expenses
Total operating expenses increased 6% in the quarter compared to last year s
period which mirrors the increase in revenue. Selling expenses increased 22%
while research and development expenses increased 52% related to continued
development and refinement of new and existing products. General and
administrative expenses increased 34% excluding the $2,040,000 one time
transaction costs relating to the acquisition of Peerless in this period last
year, without excluding these costs there was a 15% decrease.
Total operating expenses increased 4% in the six months ended December 31,
1999. Selling expenses increased 2%, research and development increased 41% and
general and administrative expenses decreased 4% (increase of 25% excluding the
one time transaction costs relating to the acquisition of Peerless) compared to
the same period last year.
Other Income and Expense
Other income for the quarter ended December 31, 1999 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 six months ended December 31, 1999 reflects a 24%
increase primarily due to the $1,105,000 gain on sale of stock acquired in the
Peerless acquisition in the first quarter ended September 30, 1999, which
offsets the increased interest expense.
Net Income
Net income from continuing operations for the second quarter was $3,997,000,
or $.19 per diluted share, a decrease of 44%, compared to $7,120,000, or $.34
per diluted share in the same period last year.
Net income from continuing operations for the six months ended December 31,
1999 was $12,799,000, or $.61 per diluted share (down 19%), compared to
$15,890,000, or $.75 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 six months ended December 31, 1999.
Due to the sale of the BankVision subsidiary on September 7, 1999, there was no
impact on the quarter ended December 31, 1999.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents and investments increased to
$3,285,000 at December 31, 1999, from $3,185,000 at June 30, 1999. This
reflects the seasonal influx of cash due to the receipt of annual maintenance
fees billed June 30, 1999, 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 $10,500,000, although the Company
expects additional borrowings to be minimal during Fiscal Year 2000. The
Company currently has short-term obligations for $37,500,000 to a commercial
lender, which provides for advances of up to $40,000,000, bears interest at
variable LIBOR-Based Rates (6.75% at December 31, 1999) 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 $10,897,000 for
the six months ended December 31, 1999, 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 six months ended December 31, 1999, 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 an $.08 per share cash dividend on December 9, 1999 to
stockholders of record November 18, 1999 which was funded from operations. In
addition, the Company's Board of Directors, subsequent to December 31, 1999,
declared a quarterly cash dividend of $.10 per share on its common stock payable
March 2, 2000 to stockholders of record on February 16, 2000. This will be
funded from operations. Further, the Company s Board of Directors declared a
100% stock dividend on its common stock, effectively a 2 for 1 split, to be paid
March 2, 2000 to stockholders of record on February 17, 2000.
CONCLUSION
JHA's results of operations and its financial position continued to be
favorable during the quarter ended December 31, 1999, 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
Item 6. Exhibits and Reports on Form 8-K
(b) The Company filed a Current Report on Form 8-K/A on December 28, 1999,
amending the Company s Current Report on Form 8-K dated September 20,
1999, for the purpose of filing the audited financial statements of
BancTec Financial Systems, a unit of BancTec Inc., and the pro forma
combined financial statements of the Company and BancTec Financial
Systems.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
behalf of the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: February 11, 2000 /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board
Chief Executive Officer
Date: February 11, 2000 /s/ Terry W. Thompson
Terry W. Thompson
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3285
<SECURITIES> 6697
<RECEIVABLES> 55672
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 86456
<PP&E> 96945
<DEPRECIATION> 22809
<TOTAL-ASSETS> 233067
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0
0
<COMMON> 201
<OTHER-SE> 124885
<TOTAL-LIABILITY-AND-EQUITY> 233067
<SALES> 51468
<TOTAL-REVENUES> 51468
<CGS> 33826
<TOTAL-COSTS> 11423
<OTHER-EXPENSES> (289)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 452
<INCOME-PRETAX> 6056
<INCOME-TAX> 2059
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</TABLE>
