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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission Number 0-14112
JACK HENRY & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1128385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
663 Highway 60, P. O. Box 807, Monett, MO 65708
(Address of principal executive offices)
Registrant's telephone number
including area code: (417) 235-6652
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
As of August 17, 1999, Registrant had 20,117,855 shares of Common Stock
outstanding ($.01 par value). On that date, the aggregate market value of the
Common Stock held by persons other than those who may be deemed affiliates of
Registrant was $571,062,848 (based on the average of the reported high and low
sales prices on NASDAQ on such date).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
The below indicated portions of the Jack Henry & Associates, Inc. definitive
Proxy Statement for the 1999 Annual Meeting of Stockholders (the "Proxy
Statement") are incorporated by reference into Part III of this Report.
CROSS REFERENCE SHEET
Part of
Form 10-K Proxy Statement
Part III, Item 10 "Election of Directors" and
"Executive Officers and
Significant Employees"
Part III, Item 11 "Executive Compensation";
"Compensation Committee
Report"; and "Company
Performance"
Part III, Item 12 "Stock Ownership of Certain
Stockholders" and
"Election of Directors"
PART I
ITEM 1. BUSINESS
INTEGRATED BANKING SOFTWARE SYSTEMS
OVERVIEW -- Jack Henry & Associates, Inc. ("JHA" or the "Company") provides
integrated computer systems for in-house and service bureau data processing to
banks and other financial institutions. JHA has developed several banking
applications software systems which it markets, along with the computer
hardware, to financial institutions throughout the United States. JHA also
performs data conversion, software installation and software customization for
the implementation of its systems, and provides continuing customer mainte-
nance/support services after the systems are installed.
Over the last five years, the Company s revenues have grown from $54.8 million
to $184.5 million; and earnings have grown from $5.5 million to $31.8 million.
The Company s growth has resulted primarily from acquisitions and internal
expansion. This growth has allowed the Company to develop new products and
expand its core systems customer base to approximately 1,400. The number of
Company employees has increased from 274 to 977.
MARKETS AND COMPETITION -- JHA's primary market consists of the approximately
8,800 commercial banks in the United States with less than $10 billion in total
assets. Community banks account for approximately 8,700 of that number. The
population of community banks decreased by 4% in 1998. In 1998, statistics
reported in "Automation in Banking 1999" showed that financial institutions
spent approximately $34 billion on hardware, software, services and telecommuni-
cations. In-house vendors have 61% of the commercial banks as customers.
Centralized off-site service bureaus provide data processing for 39% of the
banks, down from two-thirds in the mid 80's. Many organizations provide data
processing to banks through a service bureau approach. Some service bureaus are
affiliated with large financial institutions which may have other relationships
with potential bank customers, but this is less prevalent than in the past.
Typically, a bank which is making a data processing decision will consider both
service bureau and in-house alternatives.
Of the small-to-mid-size banks with in-house installations, 42% utilize IBM
hardware, 24% NCR and 21% Unisys Corporation, respectively. All other vendors
were under 6% shares of the in-house community bank market. In 1998, eight of
the top ten software providers in this market, ranked by number of installed
customers, offered their products on IBM hardware. According to that survey,
JHA had the most installed customers (approximately 1,275 at 12-31-98) of all
providers. Although the top ten software providers accounted for about 88% of
in-house systems installed, the study identified 21 other software vendors in
this arena. That number has been declining in recent years.
JHA believes that the primary competitive factors in software selection are
comprehensiveness of applications, features and functions, flexibility and ease
of use, customer support, references of existing customers, and hardware
preferences and pricing. The price of the software and the related services is
also a significant competitive factor which may be determinative, particularly
for smaller banks. Management believes that JHA's results and the size of its
customer base indicate that JHA generally compares favorably in the competitive
factors. However, the in-house banking software industry includes several
competitors, based upon the size of their respective customer bases. Over half
of the most successful competitors utilize IBM hardware.
PRODUCTS AND SERVICES -- JHA's business and operations include three major
categories which are software and installation, maintenance/support and
hardware. Software includes the development and licensing of applications
software systems and the conversion, installation and customization services
required for the customer's installation of the systems. Maintenance/support
consists of the ongoing services to assist the customer in operating the systems
and to modify and update the software to meet changes in banking. Hardware
sales (often referred to as remarketing) include both the computer equipment and
the equipment maintenance on which the JHA software systems operate. Also,
included in hardware is the resale of forms and supplies. The following table
illustrates the significance of each of these three areas, expressed as a
percentage of total revenues:
Year Ended June 30,
1999 1998 1997
Software licensing and installation 26% 28% 26%
Maintenance/support and services 37% 32% 30%
Hardware sales 37% 40% 44%
Total Revenues 100% 100% 100%
JHA's primary banking software systems are CIF 20/20(TM) and the Silverlake
System(R). CIF 20/20 is the latest version of a series of systems that has
evolved from JHA's original system which was first installed in 1977. It is
written using the RPG/400 language to take advantage of the relational data base
features and functions of the IBM AS/400(TM ) computer. CIF/36, CIF/34 and
CIF/32 are all predecessors of this software system, which ran on IBM System 36,
34 and 32 hardware. CIF 20/20 operates on IBM AS/400 and IBM System 36 hardware
and is designed primarily for financial institutions with total assets ranging
up to $300 million. The Silverlake System was developed (rather than having
been migrated from equipment with other architecture) by JHA in 1986 and 1987 to
take advantage of the relational data base characteristics of IBM System 38 and
AS/400 hardware. It is designed generally for somewhat larger banks than CIF
20/20 and multi-bank groups ranging up to $10 billion in total assets. The
computer equipment now being offered extends this system into the low end of the
large bank arena, previously limited to "mainframe" computer systems. JHA is
one of the few vendors that offers its customers truly native software products
for use on the AS/400.
Each of the systems consists of several fully integrated applications software
modules, such as Deposits, Loans, General Ledger, and the Customer Information
File (which is a centralized file containing customer data for all
applications). The systems make extensive use of parameters established by the
customer. The systems can be interfaced with (connected to) a variety of
peripheral devices used in bank operations including teller machines, on-line
teller terminals and magnetic character readers. JHA software is designed to
provide maximum flexibility in meeting a bank's data processing requirements
within a single system, minimizing data entry.
JHA devotes significant effort and expense to develop and continually upgrade
and enhance its software. Upgrades and enhancement efforts are directed
primarily through prioritized lists prepared by its national users organization
and in response to changes in the banking environment. Bank regulation, by
federal and state banking agencies, has a significant impact on JHA's software
since JHA must maintain its systems in compliance with those regulations. JHA's
research and development expenditures were $5,138,000, $4,155,000 and $3,131,000
in FY '99, '98 and '97, respectively. Portions of the expenditures are required
to be capitalized when incurred and then amortized in subsequent periods.
Including the effect of this amortization, the amount of research and
development costs charged to expense in those years is $5,073,000, $4,163,000
and $3,012,000, respectively.
The Company licenses CIF 20/20 and the Silverlake System under standard license
agreements which provide the customer with a fully-paid, nonexclusive,
nontransferable right to use the software for a term of 25 years on a single
computer and for a single financial institution location upon payment of the
license fee. Generally, license fees are payable 25% upon execution of a
license agreement, 65% upon delivery of the software, and the balance at the
installation of the last application module. The Company provides a limited
warranty for its unmodified software for a period of 60 days from delivery.
Under the warranty, the Company will correct any program errors at no additional
charge to the customer.
JHA claims a proprietary interest in its software programs, documentation,
methodology and know-how. It also utilizes copyright protection, trademark
registration, trade secret laws and contract restrictions to protect its
interest in these products.
JHA provides data conversion and software installation services to assist its
customers in implementing their JHA software system. JHA provides these
services on an hourly or a fixed-fee basis, depending on the customers'
preference. After a customer installation is complete, the customer is
encouraged (but not required) to contract with JHA for software mainte-
nance/support. These services, which are provided for an annual fee, include
updates of the software to meet regulatory requirements and telephone support to
assist the customer in operating the system. JHA also offers maintenance
services for hardware, providing customers who have contracted for this service
with "one-call" system support covering hardware, system software and
applications software. The hardware maintenance contract is between JHA and its
customer. The actual hardware maintenance is performed by the hardware
manufacturer under a contract between the manufacturer and JHA.
Silverlake System(R) is a registered trademark of Jack Henry & Associates, Inc.
CIF 20/20(TM) is a trademark of Jack Henry & Associates, Inc. AS/400(TM) is a
trademark of International Business Machines Corporation.
Hardware manufacturers enter into marketing and other arrangements with software
companies, such as JHA, because each depends upon the products of the other.
These arrangements generally include financial incentives paid by the
manufacturer to the software company. They may be structured as hardware
commissions based upon hardware sold by the manufacturer in conjunction with the
company's software or as a remarketer arrangement. A remarketer arrangement
allows the software company to purchase hardware from the manufacturer at a
discount and sell (remarket) it to customers along with the company's software.
Remarketer arrangements usually require the software company to assume more of
the marketing and customer contact responsibilities. The margin earned by a
remarketer on hardware it sells is generally greater than the amounts received
on commission arrangements. Only a minor portion of JHA s revenues are realized
from commission arrangements. Remarketer arrangements are generally not
exclusive. Effective January 1, 1999, JHA renewed its industry remarketer (IR)
agreement with IBM for an additional two year term. The Company continues to
operate under the IBM Business Partner marketing program, and under that program
has been a Premier Business Partner for the past seven years.
The IR agreement allows JHA to sell IBM's newest mid-range computer system, the
AS/400, along with its banking software system. It also allows JHA to provide
upgraded and additional equipment to its existing IBM customers. IBM hardware
maintenance will also continue to be offered to customers, providing "one-call"
customer support service for hardware, system software and applications software
support.
JHA offers outsourcing solutions to customers through service bureaus, which
give the customers the same capabilities as the in-house offering, which perform
data and item processing. Customers pay monthly usage fees on the multi-year
service contracts for these services.
JHA offers automatic teller machine (ATM) software and provides regional and
national switching services for various electronic fund transactions. Customers
pay license and maintenance fees for the software and monthly usage and item
processing fees for the switching services.
JHA also offers emergency facilities backup to its core system customers using
its Bank Business Recovery Services ("BBRS"). The Company has established nine
locations, strategically located geographically, to provide backup to its
customers. Each location contains the computer equipment needed to provide bank
data processing in the event a subscriber s equipment is destroyed in a fire or
natural disaster.
The service bureau, electronic funds switching services and bank business
recovery services provided by JHA are subject to specific review by various
banking regulatory agencies.
MARKETING -- JHA markets its products throughout the United States using sales
representatives who are employed by and work directly for JHA. The Company
offers both Silverlake System, CIF 20/20 and its other ancillary products
through the efforts of its company sales representatives.
JHA's primary market is commercial banks. JHA has not devoted significant
marketing and sales efforts to other financial institutions such as savings and
loans. JHA does have some savings and loan and savings bank customers, but most
of them operate more like a commercial bank than a traditional thrift
institution. With its current range of products, JHA systems are appropriate
for all but the largest regional money center banks. Most of the sales effort
and success has been in banks from $2 million to $2 billion in total assets.
JHA also has a few installations in the Caribbean and one in West Africa through
the marketing efforts of its small foreign sales corporation, Jack Henry
International Limited ("JHI"). JHI's international sales have historically
accounted for substantially less than 5% of JHA's revenues.
The Company's backlog of business was $86,556,000 and $72,465,000 at June 30,
1999, and 1998. Backlog at August 17, 1999, was $80,714,000.
RISK FACTORS AFFECTING THE COMPANY S BUSINESS AND PROSPECTS
The Company's business and the results of its operations are affected by
numerous factors and uncertainties, some of which are beyond the control of the
Company. The following is a description of some of the important risk factors
and uncertainties that may cause the actual results of the Company's operations
in future periods to differ materially from those currently expected or desired.
TECHNOLOGICAL CHANGE. The market for the Company s software and hardware is
characterized by technological advances and evolving standards. In addition,
changes in banking requirements and new equipment introductions and enhancements
could render the Company s existing products unmarketable. Accordingly, the
Company s future success depends heavily upon its ability to enhance its current
products in a timely fashion and develop and introduce new products that keep
pace with technological developments.
AGGRESSIVE COMPETITION. Competition in the banking software and services
industries is expected to remain vigorous. The Company competes on the basis of
product quality, reliability, performance, ease of use, quality of support and
product pricing. Some of the Company's competitors have strong financial,
marketing, manufacturing and technological resources, broad product lines and
larger installed customer bases than does the Company.
DEPENDENCE ON IBM RELATIONSHIP. The Company s products incorporate and use
computer hardware and equipment developed by IBM. There can be no assurance
that IBM will continue to manufacture hardware that supports the Company s
product lines or that IBM s products will be available to the Company on a
timely basis.
RAPID GROWTH OF THE COMPANY. The Company is growing at a rapid pace, both
internally and through acquisitions. The Company s ability to compete
effectively and to manage future growth, if any, also will depend on its ability
to implement and improve operational, financial and management information
systems on a timely basis. The Company's continued success and profitability
partly depends on its ability to continue to improve its infrastructure to keep
pace with this growth in its business activities.
CHANGES IN THE BANKING AND FINANCIAL SERVICES INDUSTRIES. The Company s primary
market for its products consists of approximately 8,800 commercial banks in the
United States. The number of commercial banks in the United States has
decreased, and will continue to decrease due to the increasing consolidation of
banks around the country. While the Company to date has generally profited from
this consolidation trend, over the long term the Company s growth could be
affected by the shrinking pool of bank customers. Due to challenges posed to
the financial services industry by the year 2000 calendar change and a
regulatory environment which discourages software and hardware changes in the
last half of 1999, there has been an industry-wide decrease in the sale and
installation of core systems. This slowdown could have a significant short-term
impact on the Company s growth.
YEAR 2000 COMPLIANCE. The Company provides integrated computer systems for in-
house and service bureau data processing to banks and other financial
institutions. Failure by the Company in making its proprietary software systems
Year 2000 ( Y2K ) compliant would have a material adverse effect on its
business. The Company has completed its assessment of its proprietary mission
critical and non-mission critical systems and tested (including customer
testing) for Y2K compliance. The Company believes the products it currently
sells and its internal systems are Y2K compliant.
Notwithstanding the Company s Y2K compliance efforts to date, Y2K compliance is
dependent on many factors, some of which are not completely within JHA's
control. The Company has received Y2K disclosures prepared by its principal
vendors indicating that they will be Y2K compliant in all material respects.
The Company has developed and continuously updates contingency plans should any
vendor experience Y2K-related problems. Should the systems of one or more
significant vendors or suppliers fail to achieve Y2K compliance, the Company s
business and financial condition could be adversely affected.
The Company believes that it has and will continue to meet Y2K compliance
commitments using existing resources, without incurring significant incremental
expenses. 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 has not and will not be material to the Company s
financial statements.
OTHER INFORMATION
SUBSIDIARIES
From July 1, 1996 through June 30, 1999, the Company has had the following
subsidiaries and affiliates:
Company Effective Dates Percent Ownership Comments
Jack Henry Interna- July '86 - Present 100% Markets USA products
tional, Ltd. outside the U.S.A.
BankVision Software, August '93 - Present 100% Marketed banking
Ltd. products outside the
U.S.
CommLink Corp. July '94 - Present 100% Markets ATM
switching products
and services
Liberty Banking September 96 - June 100% Marketed service
Services, Inc. 97 bureau in Rocky
Mountain region
GG Pulley &
Associates, Inc. July 97 - Present 100% Markets image and
item processing
products and
services
Financial Software September 97 - June
Systems, Inc. 98 100% Marketed payroll
software and
services
Vertex, Inc. December 97 - 100% Markets teller
Present software and
services
Hewlett Computer July 98 - June 99 100% Marketed service
Services, Inc. bureaus in Midwest
region
Digital Data November 98 - June 100% Marketed service
Services, Inc. 99 bureaus in Florida
Peerless Group, Inc. December 98 - 100% Markets banking
Present software systems and
service bureaus
throughout the
United States
CORPORATE HISTORY
JHA was incorporated in Missouri in 1977 and was privately held until November
1985 when it sold 725,000 shares of its common stock to the public (along with
375,000 shares sold by stockholders). JHA also reincorporated in Delaware at
that time. The Company became subject to periodic reporting and certain other
requirements of the Securities Exchange Act of 1934 as a result of that initial
public stock offering. The common stock was then qualified for quotation on the
National Market System of the NASDAQ interdealer quotation system. The
Company's stock symbol is JKHY.
The Company paid a 50% stock dividend March 3, 1992, March 8, 1993, and March
13, 1997. It also paid a 33 1/3% stock dividend March 10, 1994. These,
combined with new shares issued under stock options exercised and shares issued
to purchase businesses, have increased the total number of shares of common
stock outstanding to 20,117,855 as of August 17, 1999.
EMPLOYEES
As of August 17, 1999 the Company had 982 full-time employees. The Company's
employees are not covered by a collective bargaining agreement and there have
been no labor-related work stoppages. The Company considers its employee
relations to be good.
ITEM 2. PROPERTIES
The Company owns approximately 132 acres located in the town of Monett, MO on
which it maintains five existing office buildings and three maintenance and
storage buildings. The Company also owns buildings in Houston, TX, Allen, TX,
and Angola, IN. Office space owned totals approximately 197,000 square feet.
Leased office facilities in various cities in the United States total
approximately 140,000 square feet.
The Company owns five aircraft which are utilized for business purposes. Many
of the Company's customers are located in communities which do not have easily
accessible commercial airline service. The Company uses its airplanes in
connection with installation, maintenance and sales of its systems.
Transportation costs for installation and other customer services are billed to
the Company's customers. The Company leases property, which includes real
estate, a hangar, and related facilities at the Monett, MO municipal airport.
In addition, JHA leases a smaller plane for shorter flights and fewer
passengers.
ITEM 3. LEGAL PROCEEDINGS
As in prior years, the Company is subject to various routine legal proceedings
and claims arising in the ordinary course of business. The Company's management
does not expect that the results in any of these legal proceedings will have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market and is
quoted on the NASDAQ - National Market System under the symbol JKHY . The
following table shows the reported closing sales prices for the common stock
during the last two fiscal years. Prices and cash dividends have been adjusted
for stock dividends as appropriate.
FISCAL 1999
HIGH LOW
First Quarter $50.25 $34.75
Second Quarter 55.00 30.38
Third Quarter 50.13 32.00
Fourth Quarter 40.75 26.44
Fiscal 1998
First Quarter $30.25 $22.00
Second Quarter 28.13 22.75
Third Quarter 36.75 24.75
Fourth Quarter 38.88 29.00
Cash dividends of $.055 per share were paid on September 23, 1997 and December
9, 1997. Cash dividends of $.065 per share were paid on March 12, 1998, May
27, 1998, September 24, 1998 and December 10, 1998. Cash dividends of $.08 per
share were paid on March 10, 1999 and May 20, 1999. Further, a cash dividend of
$.08 per share was declared on August 25, 1999, payable September 23, 1999 to
stockholders of record on September 7, 1999.
The Company established a practice of paying quarterly dividends at the end of
fiscal year 1990. Payment of dividends will continue to be at the discretion of
the Board of Directors and will depend, among other factors, upon the earnings,
capital requirements, and operating and financial condition of the Company. The
Company does not foresee any changes in its dividend practices in the immediate
future.
As of September 1, 1999, there were 11,860 holders of the Company's common
stock. On that same date the last sale price of the common shares as reported
on NASDAQ was $40.16 per share.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Information (A)
(In Thousands, Except Per Share Information)
YEAR ENDED JUNE 30,
INCOME STATEMENT DATA 1999 1998 1997 1996 1995
Gross revenue (1) $184,497 142,547 120,751 $89,569 $63,269
Income from continuing opera- $ 32,526 $23,950 $18,269 $13,791 $ 9,065
tions
Loss from discontinued oper- $ (758) $ (668) $ (450) $ (2,620) -
ations (2)
Net income $ 31,768 $23,282 $17,819 $11,171 $ 9,065
Income (loss) per share (3):
Continuing operations $ 1.54 $ 1.16 $ .91 $ .71 $ .49
Discontinued operations $ (.04) $ (.03) $ (.02) $ (.14) -
Net income $ 1 .50 $ 1.13 $ .89 $ .57 $ .49
Dividends declared per share $ .29 $ .24 $ .20 $ .17 $ .15
JUNE 30,
BALANCE SHEET DATA 1999 1998 1997 1996 1995
Working capital $ 22,176 $35,123 $16,669 $ 2,681 $(6,232)
Total assets $174,721 131,962 $97,581 $66,010 $62,339
Long-term debt (4): - - - $ 2,933 $ 2,862
Stockholders' equity $114,469 $82,612 $60,231 $31,790 $ 22,170
Notes:
(A) The selected financial information has been restated to reflect the
acquisition of Peerless Group, Inc., ( Peerless ) which was accounted for
as a pooling of interests and finalized December 16, 1998. Therefore, all
periods have been adjusted to reflect the acquisition as if it had
occurred at the beginning of the earliest period reported.
(1) Gross revenue includes software licensing and installation revenues;
support revenues; and hardware sales; less sales returns and allowances.
(2) Losses from discontinued operations are reported as such from the
appropriate date.
(3) Per share data have been adjusted to reflect the stock dividends paid in
prior years and are the diluted numbers required by FASB 128.
(4) Long-term debt relates to Peerless.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Introduction - All of the revenues (and costs and expenses) in the statements of
income relate to JHA's continuing operations, i.e., the installation and support
of banking software systems that JHA developed and the marketing of the JHA
software along with computer hardware manufactured by others to provide a
complete data processing system for in-house or outsourced operations in finan-
cial institutions.
The Company established a Year 2000 (Y2K) Committee. 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 has completed its assessment of its proprietary,
mission critical and non-mission critical systems and tested (including customer
testing) for Y2K compliance. The Company believes the products it currently
sells and its internal systems are Y2K compliant. 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 has not and will
not be material to the Company s financial statements.
Total revenues, presented in the statements of income, include software
licensing and installation revenues; maintenance/support and services revenues;
and hardware sales which includes revenues from the sale of forms and supplies.
Business operations for fiscal years 1999 and 1998 continue to reflect JHA's
success in its market niche. JHA s approach of expanding its product and
service offerings to provide a top quality, comprehensive data processing
installation for its customers helps to drive its success. Results of
operations for JHA's banking system business in each of the last two fiscal
years are discussed separately below.
The comparisons reflect the restated numbers for the Peerless acquisition which
was accounted for as a pooling of interests. Prior periods have been restated
to reflect the acquisition as if it had occurred at the beginning of the
earliest period reported.
FISCAL YEAR 1999 AS COMPARED TO 1998
REVENUE - The Company continued significant growth with each major component of
revenue contributing to the record $184.5 million, - a 29% increase over FY
98. Continued demand for the Company s core products and related hardware was a
driving force in the revenue growth. Sales of ancillary products and services,
which, are primarily provided to customers utilizing the core products provided
a significant amount of revenue during the year. Acquisitions, electronic
transaction fees, service bureau, Internet banking, form sales and customer
support fees all contributed to the significant growth in total revenues.
COST OF SALES - Cost of sales increased 30%, reflecting the strong revenue
growth. Cost of hardware increased 21% compared to the 18% increase in revenue
due to product mix of hardware sold. Cost of services increased 40% compared to
a 38% increase in the related components of revenue.
GROSS PROFIT - Gross profit increased 29%, which is consistent with the revenue
growth. Minor changes in product mix helped to maintain a gross margin of 46%,
which is consistent with FY 98.
OPERATING EXPENSES - The 18% increase in operating expenses reflects
efficiencies recognized by the overall growth of the Company compared to the
increase in gross profit. The selling and marketing decrease of 8% reflects the
change in product mix with a higher percentage of revenues being generated by
non-commission sources, such as services relating to service bureau, electronic
transaction fees and customer support fees. Research and development costs
increased 22%, which were directly related to continued development and
refinement of new and existing products. General and administrative costs
increased by 50%, supporting the overall growth of the Company and acquisitions,
which excluding one time acquisition costs for the Peerless transaction of
$2,200,000, these costs increased 30% which is reflective of the increase in
revenues.
OTHER INCOME - Other income rose 16% over last year, primarily due to the
increased amount of invested funds throughout the current year compared to last
year.
DISCONTINUED OPERATIONS - The Company incurred a $758,000 loss from discontinued
operations, a $90,000 increase compared to last year. The Company continues to
honor prior commitments to existing customers and anticipates final resolution
regarding its discontinued operation by third quarter fiscal 2000. Adjustments
have been made to the carrying value of the discontinued operations to its
current estimated net realizable value.
Fiscal Year 1998 As Compared to 1997
REVENUE - The Company continued great strides forward with each major component
contributing to the record $142.5 million, - a 18% increase. Increased demand
for the Company s flagship products continued to be a driving force in the
revenue growth. Acquisitions, electronic transaction fees, service bureau,
forms sales and customer support fees also contributed to the significant growth
with increases at similar levels.
COST OF SALES - Cost of sales increased 12%, significantly less than the rate of
revenue growth due to the product mix. Cost of hardware increased 8% while cost
of services increased 17%.
GROSS PROFIT - Gross profit increased 26%, significantly higher than the revenue
increase due to product mix. This change helped to increase the gross margin at
46% compared to 43% in FY 97.
OPERATING EXPENSES - The 21% increase in operating expenses was favorable when
compared to the gross profit increase. The selling and marketing increase of
18% was directly related to the increase in revenues. Research and development
costs increased 38% which is directly related to the development of new
products. General and administrative expenses increased 21%, supporting the
overall growth of the Company and acquisitions.
OTHER INCOME - Other income rose 97% over last year, primarily due to the
increased amount of invested funds throughout the year.
DISCONTINUED OPERATIONS - The Company incurred a $668,000 loss from discontinued
operations, a $218,000 increase compared to last year. Due to a planned sale
not closing within the expected timeframe, the Company is honoring commitments
to customers by providing support and maintenance.
FINANCIAL CONDITION
Liquidity - JHA's liquidity position (cash plus short-term investments minus
working capital borrowings) at June 30, 1999, decreased significantly to
$9,887,000 versus $27,900,000 last year. The Company generated significantly
higher cash flows from operations, but the additional outlays for capital
expenditures (some of which resulted from acquisitions) and dividends decreased
the Company s liquidity position to its current level. Working capital
decreased significantly from $35,123,000 last year to $22,176,000 in the current
year primarily due to capital expenditures.
The Company believes its liquid assets on hand and those generated from
operations are sufficient to meet its cash requirements for FY '00. Cash and
investments are expected to increase during the first quarter of FY '00 as the
annual software maintenance billings in trade receivables at June 30, 1999, are
collected. The Company expects to utilize its $8,000,000 credit line minimally
for operations during the next fiscal year.
Capital Requirements and Resources - JHA generally uses existing resources and
funds generated from operations to meet its capital requirements. Capital
expenditures of $38,819,000 were made for purchase and expansion of facilities
and additional equipment to provide for the Company's current and future growth.
The most significant individual outlays were the acquisition of the Peerless
facility in Allen, TX and for upgrades and additions to the corporate aircraft.
The Company has no long-term debt and anticipates capital expenditures could
approach $25,000,000 during the next fiscal year. There will also be an
expenditure of $50,000,000 for the purchase of the community banking division
of BancTec, Inc. These will be paid with funds from operations and proceeds
from a revolving line of credit obtained from a commercial lender. (See Note 13
to the consolidated financial statements).
Subsequent to June 30, 1999, the Company's Board of Directors declared a cash
dividend of $.08 per share on its common stock payable on September 23, 1999, to
stockholders of record as of September 7, 1999. Current funds from operations
are adequate for this purpose. The Board has indicated that it plans to
continue paying dividends so long as the Company's financial picture continues
to be favorable.
Forward Looking Statements
The Management s Discussion and Analysis of Results of Operations and Financial
Condition, and the discussion under Year 2000 Compliance (included in Item 1),
contain forward-looking statements within the meaning of federal securities
laws. Actual results are subject to risks and uncertainties, including both
those specific to the Company and those specific to the industry, which could
cause results to differ materially from those contemplated. The risks and
uncertainties include, but are not limited to, third-party or Company failures
to achieve timely, effective remediation of the Year 2000 issues, general
economic conditions, actions of competitors, regulatory actions, changes in
legislation and technology changes. Undue reliance should not be placed on the
forward-looking statements, which speak only as of the date of this Form 10-K.
The Company does not undertake any obligation to publicly update any forward-
looking statements.
ITEM 7A. QUANTITATIVES AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk refers to the risk that a change in the level of one or more market
prices, interest rates, indices, volatilities, correlations or other market
factors, such as liquidity, will result in losses for a certain financial
instrument or group of financial instruments. The Company is currently exposed
to credit risk (on credit extended to customers) and interest risk (on
investments in U.S. government securities). The Company actively monitors these
risks through a variety of control procedures involving senior management.
Based on the controls in place, creditworthiness of the customer base and the
relative size of these financial instruments, management believes the risk
associated with these instruments at June 30, 1999, will not have a material
adverse effect on the Company s consolidated financial position or results of
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Independent Auditors' Report...................................13
Financial Statements:
Consolidated Statements of Income,
Years Ended June 30, 1999, 1998 and
1997................................................14
Consolidated Balance Sheets,
June 30, 1999 and
1998................................................15
Consolidated Statements of Changes
in Stockholders' Equity, Years Ended
June 30, 1999, 1998 and 1997........................16
Consolidated Statements of Cash Flows,
Years Ended June 30, 1999, 1998 and
1997................................................17
Notes to Consolidated Financial State
ments...............................................18
Financial Statement Schedules:
There are no schedules included because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
Supplementary Data:
The information required by this item is contained under the caption Quarterly
Financial Information on page 18 of the 1999 Annual Report. Such information is
hereby incorporated by reference.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Jack Henry & Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Jack Henry &
Associates, Inc. and Subsidiaries (the "Company") as of June 30, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, such consolidated financial statements present fairly, in all
material respects, the financial position of Jack Henry & Associates, Inc. and
Subsidiaries at June 30, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1999
in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
August 23, 1999 (September 8, 1999, as to Note 13)
St. Louis, Missouri
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
YEAR ENDED JUNE 30,
1999 1998 1997
REVENUES
Software licensing & installation $ 47,181 $ 39,484 $ 31,930
Maintenance/support & service 69,065 45,043 35,994
Hardware sales 68,251 58,020 52,827
Total $184,497 $142,547 $120,751
COST OF SALES
Cost of hardware $ 48,644 $ 40,321 $ 37,504
Cost of services 50,811 36,172 30,856
Total $ 99,455 $ 76,493 $ 68,360
GROSS PROFIT $ 85,042 $ 66,054 $ 52,391
OPERATING EXPENSES
Selling and marketing $ 13,638 $ 14,754 $ 12,516
Research and development 5,073 4,163 3,012
General and administrative 16,925 11,284 9,358
Total $ 35,636 $ 30,201 $ 24,886
OPERATING INCOME FROM CONTINUING OPERATIONS $ 49,406 $ 35,853 $ 27,505
Percent of total revenue 26.8% 25.2% 22.8%
OTHER INCOME
Interest income $ 1,571 $ 1,315 $ 738
Other, net 370 354 111
Total $ 1,941 $ 1,669 $ 849
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 51,347 $ 37,522 $ 28,354
PROVISION FOR INCOME TAXES 18,821 13,572 10,085
INCOME FROM CONTINUING OPERATIONS $ 32,526 $ 23,950 $ 18,269
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES $ 758 $ 668 $ 450
NET INCOME $ 31,768 $ 23,282 $ 17,819
Diluted earnings per share:
Income from continuing operations $ 1.54 $ 1.16 $ .91
Loss from discontinued operations $ .04 $ .03 $ .02
Net income $ 1.50 $ 1.13 $ .89
Diluted weighted average shares outstanding 21,112 20,582 20,120
Basic earnings per share:
Income from continuing operations $ 1.63 $ 1.22 $ .96
Loss from discontinued operations $ .04 $ .03 $ .02
Net income $ 1.59 $ 1.19 $ .94
Basic weighted average shares outstanding 19,960 19,630 18,931
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
JUNE 30,
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 3,185 $ 24,671
Investments, at amortized cost 6,702 3,229
Trade receivables 51,387 42,560
Income taxes receivable 1,244 -
Prepaid cost of product 8,437 3,612
Prepaid expenses and other 8,887 8,036
Total $ 79,842 $ 82,108
PROPERTY AND EQUIPMENT, net $ 65,595 $ 30,917
OTHER ASSETS:
Intangible assets, net of amortization $ 25,181 $ 15,272
Computer software, net of amortization 3,015 2,838
Other 1,088 827
Total $ 29,284 $ 18,937
Total assets $174,721 $131,962
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,836 $ 8,097
Accrued expenses 8,166 5,646
Accrued income taxes - 146
Deferred revenues 44,664 33,096
Total $ 57,666 $ 46,985
DEFERRED INCOME TAXES 2,586 2,365
Total liabilities $ 60,252 $ 49,350
STOCKHOLDERS' EQUITY:
Preferred stock; $1 par value; 500,000 shares authorized;
none issued - -
Common stock; $.01 par value; 50,000,000 shares authorized;
shares issued 1999 - 20,099,678; 1998 - 19,777,458 201 198
Additional paid-in capital 31,999 26,206
Retained earnings 82,269 56,208
Total stockholders' equity $114,469 $ 82,612
Total liabilities and stockholders' equity $174,721 $131,962
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
YEAR ENDED JUNE 30,
1999 1998 1997
PREFERRED SHARES (500,000 AUTHORIZED): - - -
COMMON SHARES (50,000,000 AUTHORIZED):
Shares, beginning of year 19,777,458 19,606,277 12,941,151
Shares issued upon exercise of stock options 314,277 104,465 618,750
Shares issued for Employee Stock Purchase
Plan 7,943 5,926 1,659
Shares issued for acquisitions - 60,790 56,144
Stock dividend - - 5,988,573
20,099,678 19,777,458 19,606,277
Less: Held in treasury - - (15,410)
Shares, end of year 20,099,678 19,777,458 19,590,867
COMMON STOCK - PAR VALUE $.01 PER SHARE:
Balance, beginning of year $ 198 $ 196 $ 129
Shares issued upon exercise of stock options 3 2 6
Shares issued for acquisitions - - 1
Stock dividend - - 60
Balance, end of year $ 201 $ 198 $ 196
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $ 26,206 $22,406 $18,373
Shares issued upon exercise of stock options 3,264 1,620 2,788
Shares issued for Employee Stock Purchase
Plan 312 176 42
Shares issued for acquisitions - 1,228 (306)
Stock dividend - - (60)
Sale of treasury stock - - (451)
Tax benefit on exercise of options 2,217 776 2,020
Balance, end of year $ 31,999 $ 26,206 $22,406
TREASURY STOCK:
Balance, beginning of year $ - $ (293) $ -
Purchases of treasury stock (5) - (7,469)
Sales of treasury stock 5 - 6,871
Shares issued for acquisitions - 293 305
Balance, end of year $ - $ - $ (293)
RETAINED EARNINGS:
Balance, beginning of year $ 56,208 $37,516 $23,408
Retained deficit of acquired businesses (19) (62) (80)
Net income 31,768 23,282 17,819
Dividends (1999 - $.29 per share; 1998 - $.24
per share; 1997 - $.20 per share) (5,688) (4,528) (3,631)
Balance, end of year $ 82,269 $56,208 $37,516
TOTAL STOCKHOLDERS' EQUITY $114,469 $82,612 $59,825
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEAR ENDED JUNE 30,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 32,526 $ 23,950 $ 18,269
Adjustments to reconcile income from continuing
operations to cash from operating activities
Depreciation and amortization 7,858 6,325 5,179
Provision for deferred income taxes 221 478 322
Other 157 89 87
Changes in:
Trade receivables (8,621) (11,859) (8,065)
Prepaid expenses and other (5,795) (3,167) (1,742)
Accounts payable (3,474) 2,073 241
Accrued expenses 2,509 81 2,535
Income taxes 827 872 -
Deferred revenues 11,568 7,625 3,088
Net cash from continuing operations $ 37,776 $ 26,467 $ 19,914
CASH FLOWS FROM DISCONTINUED OPERATIONS $ (608) $ (1,075) $ (819)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (38,819) (9,915) (13,701)
Purchases of investments (6,708) (3,177) (5,887)
Proceeds from sales of investments 3,100 5,800 3,002
Other assets - - (2,500)
Purchases of customer contracts (7,105) - (33)
Computer software developed/purchased (867) (281) (191)
Acquisition costs, net of cash acquired (5,905) (1,046) (282)
Other, net (241) (346) (12)
Net cash from investing activities $(56,545) $(8,965) $(19,604)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
upon exercise of stock options $ 3,267 $ 1,463 $ 1,532
Proceeds from sale of common stock 312 201 10,595
Dividends paid (5,688) (4,528) (3,631)
Principal payments on notes payable - - (3,540)
Purchase of treasury stock (5) - (5,444)
Proceeds from sale of treasury stock 5 - 5,646
Net cash from financing activities $ (2,109) $ (2,864) $ 5,158
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS $(21,486) $ 13,563 $ 4,649
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 24,671 11,108 6,459
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,185 $ 24,671 $ 11,108
See notes to consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND 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's
revenues are predominately earned by marketing those systems to financial
institutions nationwide along with the computer equipment (hardware) and by
providing the conversion and software customization services necessary for a
financial institution to install a JHA software system. JHA also provides
continuing support and maintenance services to customers using the system.
CONSOLIDATION
The consolidated financial statements include the accounts of JHA and its
wholly-owned subsidiaries: Jack Henry International, Ltd., BankVision Software,
Ltd., CommLink Corp., G.G. Pulley & Associates, Inc., Vertex, Inc., Hewlett
Computer Services, Inc., Digital Data Services, Inc., and Peerless Group, Inc.
All significant intercompany accounts and transactions have been eliminated.
The financial statements for all periods presented have been restated to include
Peerless Group, Inc. ( Peerless ) which was acquired on December 16, 1998. The
acquisition was accounted for as a pooling of interests and therefore all
periods have been adjusted to reflect the acquisition as if it had occurred at
the beginning of the earliest period reported (see Note 12).
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's various sources of revenue and the methods of revenue recognition
are as follows:
SOFTWARE LICENSING FEES - Initial licensing fees are recognized upon
delivery of the
unmodified software. Monthly software usage charges are recognized ratably
over the contract period.
SOFTWARE INSTALLATION AND RELATED SERVICES - Fees for these services are
recognized as the services are performed on hourly contracts and at
completion on fixed-fee contracts.
MAINTENANCE/SUPPORT FEES - Fees from these contracts are recognized ratably
over the life of the contract.
HARDWARE - Revenues from sales of hardware are recognized upon direct
shipment by the supplier to the Company s customers. Hardware maintenance
revenues are also included. Costs of items purchased and remarketed are
reported as cost of hardware in cost of sales.
DEFERRED REVENUES
Deferred revenues consist primarily of prepaid annual software and hardware
maintenance fees. Nonrefundable software and hardware deposits are also
reflected as deferred revenues.
COMPUTER SOFTWARE DEVELOPMENT
The Company capitalizes new product development costs incurred from the point at
which technological feasibility has been established through the point at which
customer installations begin. The capitalized costs, which include salaries and
related expenses, equipment/facility costs and other direct expenses, are
amortized to expense based on estimated revenues over the estimated product life
(generally five years).
INCOME PER SHARE
Per share information is based on the weighted average number of common shares
outstanding during the year. Stock options have been included in the
calculation of income 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.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVESTMENTS
The Company invests its cash not required for current operations primarily in
U.S. government securities.
Debt securities for which the Company has the positive intent and ability to
hold until maturity are classified as held-to-maturity and are carried at
historical cost adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.
Interest on investments in debt securities is included in income when earned.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated principally using the
straight-line method over the estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets consist primarily of excess purchase price over the fair value
of net assets acquired, software maintenance/support contracts and marketing
agreements acquired in business acquisitions. The amounts are amortized over an
estimated economic benefit period, generally five to fifteen years using the
straight-line method.
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances have indicated that the
carrying amount of its assets might not be recoverable.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards ( SFAS ) No.
130, Reporting Comprehensive Income, which established standards for the
reporting and display of comprehensive income and its components. Comprehensive
income for each of the years in the period ended June 30, 1999, approximates the
Company s net income.
BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information, which establishes standards for the disclosure
required related to segments of an enterprise.
The Company is a leading provider of financial data processing systems for
financial institutions. In accordance with SFAS No. 131, the Company s
operations are classified as one business segment. The financial performance
and productivity of the Company is monitored as a single unit as all products
and services relate to one line of business, providing comprehensive services
for data processing to the financial institution industry. Revenue by type of
product and service is presented on the face of the statements of income.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is likely that a deferred tax asset will not be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In October, 1997, the Accounting Standards Executive Committee of the American
Institute of Public Accountants ( AcSEC ) issued Statement of Position
( SOP )97-2, Software Revenue Recognition . The Company adopted SOP 97-2
effective July 1, 1998. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. In March 1998, AcSEC issued SOP
98-4, Deferral of the Effective Date of a Provision of SOP 97-2, Software
Recognition , which deferred portions of SOP 97-2 for one year. Revenues in
fiscal year 1999 from the sales of software are recognized in accordance with
the enacted portions of SOP 97-2 and the Company s management anticipates that
the adoption of SOP 98-4 in fiscal year 2000 will not have a material impact on
the Company s result of operations.
RECLASSIFICATION
Where appropriate, prior years 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.
NOTE 2: INVESTMENTS
The amortized cost and approximate fair values of held-to-maturity securities at
June 30, 1999, and 1998 is included in the following table. Fair market values
of these securities did not differ significantly from amortized cost due to the
nature of the securities and minor interest rate fluctuations during the
periods.
(In Thousands)
1999 1998
U.S. treasury notes $6,583 $3,101
Accrued interest 119 128
Total $6,702 $3,229
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values for held-to-maturity securities are based on quoted market prices
(See Note 2). For all other financial instruments, including amounts receivable
and payable, fair values approximate carrying value.
NOTE 4: PROPERTY AND EQUIPMENT
The classification of property and equipment, together with their estimated
useful lives is as follows:
(In Thousands)
June 30, Estimated
1999 1998 useful life
Land $ 2,699 $ 699
Land Improvements 1,154 708 5-20 years
Buildings 16,056 5,236 25-30 years
Equipment and furniture 34,500 24,091 5-8 years
Aircraft 18,957 10,565 8-10 years
Construction in process and deposits 11,174 2,555
$84,540 $43,853
Less accumulated depreciation 18,945 12,936
Property and equipment, net $65,595 $30,917
NOTE 5: OTHER ASSETS
Following is an analysis of intangible assets:
(In Thousands)
Year ended June 30,
1999 1998
Balance, beginning of year $15,272 $15,469
Excess purchase price over net assets acquired 11,999 1,339
Amortization (2,090) (1,536)
Balance, end of year $25,181 $15,272
Computer software includes the unamortized cost of software products developed
or acquired by the Company which were required to be capitalized by generally
accepted accounting principles. The costs are amortized over an estimated
economic benefit period, generally five years. Following is an analysis of the
computer software costs:
(In Thousands)
Year ended June 30,
1999 1998
Balance, beginning of year $2,838 $3,071
Software development costs capitalized 515 281
Software acquired 352 -
Amortization (690) (514)
Balance, end of year $3,015 $2,838
NOTE 6: LINE OF CREDIT
The Company has a line of credit with First State Bank of Purdy at June 30,
1999, for $8 million as described below. It also had a line of credit with the
same bank at June 30, 1998. There were no amounts outstanding under the line at
June 30, 1999, or 1998. Utilization of the line was minimal during each of the
last three fiscal years.
The line of credit is payable upon demand or March 15, 2000, and is secured by
$1 million of investments with the remainder unsecured. Borrowings under the
line bear interest at a floating prime rate, 7.75% at June 30, 1999.
NOTE 7: INCOME TAXES
The provision for income taxes on income from continuing operations consists of
the following:
(In Thousands)
Year ended June 30,
1999 1998 1997
Current:
Federal $16,800 $11,936 $ 8,864
State 1,800 1,158 899
Deferred:
Federal 204 431 297
State 17 47 25
$18,821 $13,572 $10,085
Effective tax rate 37% 36% 36%
The tax effects of temporary differences related to deferred taxes shown on the
balance sheets were:
(In Thousands)
Year ended June 30,
1999 1998
Deferred tax assets:
Carryforwards (operating losses, capi
tal losses, credits, etc.) $ 347 $ 68
Expense reserves (bad debts, insur-
ance, franchise tax, vacation, etc.) 624 588
Intangible assets 1,236 535
2,207 1,191
Deferred tax liabilities:
Excess tax depreciation (4,104) (2,998)
Excess tax amortization (674) (526)
Other, net (15) (32)
(4,793) (3,556)
Net deferred tax liability $(2,586) $(2,365)
The following analysis reconciles the statutory federal income tax rate to the
effective income tax rates reflected above:
Year ended June 30,
1999 1998 1997
Computed "expected" tax expense
(benefit) 35% 35% 35%
Increase (reduction) in taxes resulting
from:
State income taxes, net of federal 3% 3% 3%
income tax benefits
Research & Development Credit - (1%) (1%)
Other (1%) (1%) (1%)
37% 36% 36%
Net operating less carryforwards of $847,00 (from acquisitions) and capital loss
carryforwards of $57,000 expire through the year 2014. The Company paid income
taxes of $13,920,000, $10,481,000 and $8,343,000 in 1999, 1998 and 1997,
respectively.
NOTE 8: INDUSTRY AND SUPPLIER CONCENTRATIONS
The Company sells its products to banks and financial institutions throughout
the United States and generally does not require collateral. Adequate reserves
(which are insignificant at June 30, 1999, and 1998) are maintained for
potential credit losses.
In addition, the Company purchases most of its computer equipment (hardware) and
related maintenance for resale in relation to installation of JHA software
systems from one supplier. There are a limited number of hardware suppliers for
these required materials.
NOTE 9: STOCK OPTION PLANS
The Company has two stock option plans: the 1996 Stock Option Plan ("1996 SOP")
and the Non-Qualified Stock Option Plan ("NSOP").
The 1996 SOP was adopted by the Company October 29, 1996, for its employees.
This plan replaced the terminating 1987 SOP. Terms of the options are
determined by the Compensation Committee of the Board of Directors when granted
and for options outstanding include vesting periods up to 2 1/2 years. Shares
of common stock are reserved for issuance under this plan at the time of each
grant which must be at or above fair market value at the grant date. The
options terminate upon termination of employment, three months after retirement,
one year after death or ten years after grant. As of June 30, 1999, there were
1,132,000 shares available for future grants under the plan from the original
2,250,000 shares approved by the stockholders.
The NSOP was adopted by the Company on October 31, 1995, for its outside
directors. Options are exercisable beginning six months after grant at a price
equal to 100% of the fair market value of the stock at the grant date. The
options terminate when director status ends, upon surrender of the option or ten
years after grant. A total of 300,000 shares of common stock have been reserved
for issuance under this plan with a maximum of 75,000 for each director.
A summary of the activity of all of the Company's stock option plans is:
Year ended June 30,
1999 1998 1997
Options outstanding, beginning of
year: 2,161,092 1,560,130 1,456,801
Options granted 347,387 717,427 94,750
Options exercised (322,889) (104,465) (660,225)
Options forfeited (16,400) (12,000) (7,500)
Increase in options outstanding due
to 50% stock dividend - - 676,304
Options outstanding, end of year: 2,169,190 2,161,092 1,560,130
Currently exercisable 1,661,203 1,519,134 1,497,631
Weighted-average exercise price for to $21.582 to $16.647 to $10.987
options outstanding
Weighted-average exercise price for to $42.611 to $25.094 to $21.855
options granted
Weighted-average exercise price for to $10.373 to $12.144 to $ 5.051
options exercised
Weighted-average fair value of to $19.215 to $ 9.868 to $ 5.775
options granted
Following is an analysis of stock options outstanding (O) and exercisable (E) as
of June 30, 1999:
RANGE OF EXERCISE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
PRICES SHARES REMAINING CONTRACTUAL EXERCISE PRICE
LIFE IN YEARS
O E O O E
$ 3 to 10 397,299 397,299 4.61 $ 5.79 $ 5.79
11 to 18 602,820 602,820 6.47 15.11 15.11
19 to 24 640,784 381,984 8.28 23.88 23.71
25 to 37 243,420 109,620 8.89 30.85 28.00
37 to 55 284,867 169,480 9.32 44.21 44.27
$ 3 to 55 2,169,190 1.661,203 7.31 $21.58 $18.69
OPTIONS
FORFIETED:
FISCAL YEAR RANGE OF SHARES WEIGHTED-AVERAGE
EXERCISE EXERCISE PRICE
PRICE
1999 $24 to 45 16,400 $37.41
1998 $24 to 25 12,000 $24.13
1997 $13 to 18 7,500 $17.92
As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to continue to follow Accounting Principles Board ( APB )
No. 25 Accounting for Stock Issued to Employees, in accounting for stock-based
awards to employees. Under APB No. 25, the Company generally recognizes no
compensation expense with respect to such awards, since the exercise price of
the stock options awarded are equal to the fair market value of the underlying
security on the grant date.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 for awards granted after December 31, 1994, as if the Company had
accounted for its stock-based awards to employees under the fair value method of
SFAS No. 123. The fair value of the Company s stock-based awards to employees
was estimated as of the date of the grant using a Black-Scholes option pricing
model.
The Company s pro forma information for continuing operations follows:
Year ended June 30,
1999 1998 1997
Net income As reported $ 32,526 $ 23,950 $ 18,269
Pro forma $ 27,253 $ 21,895 $ 18,038
Diluted earnings per share As reported $ 1.54 $ 1.16 $ .91
Pro forma $ 1.29 $ 1.06 $ .90
Basic earnings per share As reported $ 1.63 $ 1.22 $ .96
Pro forma $ 1.37 $ 1.12 $ .95
Assumptions:
Expected life (years) 2.97 2.16 2.16
Volatility 56% 40% 40%
Risk free interest rate 5.0% 6.1% 5.9%
Dividend yield .7% .7% .7%
NOTE 10: EMPLOYEE BENEFIT PLANS
Stock Purchase Plan - The Company established an employee stock purchase plan on
January 1, 1996. The plan allows the majority of employees the opportunity to
directly purchase shares of the Company. Purchase prices for all participants
are based on the closing bid price on the last business day of the month.
401(k) Employee Stock Ownership Plan ( ESOP ) - The Company has a 401(k)
Employee Stock Ownership Plan (the "Plan ) covering substantially all employees
of the Company and its subsidiaries. As of July 1, 1987, the plan was amended
and restated to include most of the existing ESOP provisions and to add salary
reduction contributions allowed under Section 401(k) of the Internal Revenue
Code and to require employer matching contributions. The Company has the option
of making a discretionary contribution to the Plan, however, none has been made
for any of the three most recent fiscal years. The Company assumed
responsibility for the Peerless Employee 401(k) Plan as of acquisition date (see
Note 12), and will merge it into the Plan as of December 31, 1999. The total
expense related to the Plans was $1,321,000, $952,000, and $723,000 for 1999,
1998, and 1997, respectively.
NOTE 11: DISCONTINUED OPERATIONS
In the last quarter of 1996, the Company discontinued the operations of its
BankVision Software, Ltd. subsidiary ( BankVision ) which it planned to sell by
December 31, 1996. The estimated loss on disposal recorded in 1996 consisted of
the following:
Estimated loss on sale, net of applicable income tax benefit $2,390,000
Operating losses from April 1, 1996, through June 30, 1996, net of
income tax benefit of $78,000 $ 130,000
Estimated operating losses from July 1, 1996, to anticipated dis-
posal date, net of income tax benefit of $38,000 $ 100,000
$2,620,000
The planned sale of BankVision was not concluded as of June 30, 1999. Thus,
additional losses of $758,000, $668,000 and $450,000 were reported for the
discontinued BankVision unit for the years ended June 30, 1999, 1998 and 1997,
respectively. Several issues which were raised during negotiations for the sale
of BankVision caused a delay in the Company s plan for disposing of this
subsidiary. These issues have now been addressed. The Company is currently
honoring commitments to existing customers and anticipates final resolution
regarding its discontinued operations by January 31, 2000. The Company has
notified customers that maintenance contracts will not be renewed upon normal
expiration. (See Note 13).
NOTE 12: BUSINESS ACQUISITIONS
POOLING OF INTERESTS TRANSACTIONS
The Company acquired all the outstanding shares of Peerless on December 16,
1998, for approximately 827,000 shares of Company stock.
The Company acquired all the outstanding shares of Financial Software Systems,
Inc. on September 2, 1997, for $600,000 in Company stock.
The Company acquired all the outstanding shares of G. G. Pulley & Associates,
Inc. on July 1, 1997, for $5,000,000 in Company stock.
The Company acquired all the outstanding shares of Liberty Banking Services,
Inc. on September 1, 1996, for $2,000,000 in Company stock.
Prior year financial statements have been restated for the effect of the pooling
transactions. The following table presents a reconciliation of revenue and net
income previously reported by the Company and Peerless to those presented in the
accompanying consolidated financial statements.
Three Months Ended
September 30, 1998 Fiscal 1998 Fiscal 1997
Revenues:
JHA $ 40,728 $113,423 $ 82,600
Peerless 8,921 29,124 38,151
Combined $ 49,649 $142,547 $120,751
Net Income
JHA $ 8,296 $ 21,569 $ 15,305
Peerless 497 1,713 2,514
Combined $ 8,793 $ 23,282 $ 17,819
PURCHASE TRANSACTIONS
On November 25, 1998, the Company acquired all the outstanding shares of Digital
Data Services, Inc. common stock for $2,750,000 in cash.
On July 1, 1998, the Company acquired all the outstanding shares of Hewlett
Computer Services, Inc. common stock for $2,250,000 in cash.
On December 12, 1997, the Company acquired all the outstanding shares of Vertex,
Inc. common stock for $1,905,000 in Company stock and $1,095,000 in cash.
The consolidated operations of the Company include the operations of the
acquirees from their acquisition dates for acquisitions accounted for as
purchases. Pro Forma information for acquisitions accounted for as purchases is
not presented as the impact was not material.
NOTE 13: SUBSEQUENT EVENTS
On September 7, 1999, the Company completed the sale of its BankVision
subsidiary (see discontinued operations, Note 11) for $1,000,000. Under the
terms of the agreement, the purchaser, made a $500,000 down payment and executed
promissory notes to pay $250,000 (plus interest) in each of the next two years.
The net assets of the subsidiary, as of that date, approximately equal the sales
proceeds, and as a result, the Company expects the transaction to have minimal
effect on its financial results for fiscal year 2000.
On September 8, 1999, the Company completed the acquisition of BancTec, Inc. s
community banking business, providing software, account processing capabilities
and data center operations to over 800 community banks throughout the united
States and the Caribbean. Revenues from these acquired community banking
operations total approximately $17 million and $43 million for the six months
ended June 30, 1999 and calendar 19998, respectively. The total value of the
transaction was approximately $58,000,000, of which $50,000,000 was in cash and
the remainder in the assumption of certain liabilities. The purchase price was
paid with approximately $25,000,000 cash from operations and $25,000,000
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 and is due September 7, 2000.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information under the captions "Election of Directors" and "Executive
Officers and Significant Employees" in the Company's definitive Proxy Statement
which is incorporated herein by reference.*
*Incorporated by reference pursuant to Rule 12b-23 and General Instruction G(3)
to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
See the information under the captions "Executive Compensation"; "Compensation
Committee Report"; and "Company Performance" in the Company's definitive Proxy
Statement which is incorporated herein by reference.*
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information under the captions "Stock Ownership of Certain Stockholders
and "Election of Directors" in the Company's definitive Proxy Statement which is
incorporated herein by reference.*
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements:
The following Consolidated Financial Statements of the Company and its
subsidiaries and the Reports of Independent Accountants thereon appear under
Item 8 of this Report:
Independent Auditors Report.
- Consolidated Statements of Income for the Years Ended June 30, 1999, 1998
and
1997.
- Consolidated Balance Sheets as of June 30, 1999 and 1998.
- Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended
June 30, 1999, 1998 and 1997.
- Consolidated Statements of Cash Flows for the Years Ended June 30, 1999,
1998 and 1997.
- Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
The following Financial Statement Schedules filed as part of this Report appear
under Item 8 of this Report:
There are no schedules included because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
(2) Plan of acquisition
2.1 Agreement for purchase and sale of assets regarding the acquisition of
certain assets from BancTec, Inc. dated September 8, 1999, attached as
exhibit 2.1 to the Company s current report on Form 8-K dated
September 20, 1999.
(3) Articles of Incorporation and Bylaws
Except as otherwise specifically noted, the following documents are
incorporated by reference as exhibits hereto pursuant to Rule 12b-32:
3.1 Certificate of Incorporation attached as Exhibit 3.1 to the Company s
Registration Statement on Form S-1, filed November 17, 1985.
3.2 Certificate of Amendment of Certificate of Incorporation attached as
Exhibit 4 to the Company s Quarterly Report on Form 10-Q for the
Quarter ended December 31, 1987.
3.3 Certificate of Amendment of Certificate of Incorporation attached as
Exhibit 3.1 to the Company s Annual Report on Form 10-K for the Year
Ended June 30, 1993.
3.4 Amended and Restated Bylaws attached as Exhibit A to the Company s
Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996.
3.5 Certificate of Amendment of Certificate of Incorporation attached as
Exhibit 3.5 to the Company s Annual Report on Form 10-K for the Year
Ended June 30, 1997.
3.6 Certificate of Amendment of Certificate of Incorporation attached as
Exhibit 3.6 to the Company s Annual Report on Form 10-K for the Year
Ended June 30, 1998.
(10) Material Contracts
Except as otherwise noted, the following Material Contracts are
incorporated herein by reference as Exhibits hereto pursuant to Rule 12b-32:
10.1 The Company's 1987 Stock Option Plan, as amended as of October
27, 1992, attached as Exhibit 19.1 to the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 1992.
10.2 The Company's Non-Qualified Stock Option Plan, as amended as of
October 26, 1993, attached as Exhibit 19.2 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1993.
10.3 The Company's 1995 Non-Qualified Stock Option Plan, attached as
Exhibit 10.3 to the Company s Annual Report on Form 10-K for
the Year Ended June 30, 1996.
10.4 IBM Remarketer Agreement dated May 21, 1992, attached as Exhibit
10.1 to the Company's Annual Report on Form 10-K for the
Year Ended June 30, 1992.
10.5 Form of Indemnity Agreement which has been entered into as of
August 27, 1996, between the Company and each of its Directors,
attached as Exhibit 10.8 to the Company s Annual Report on Form
10-K for the Year Ended June 30, 1996.
10.6 The Company s 1996 Stock Option Plan, attached as Exhibit 10.9
to the Company s Annual Report on Form 10-K for the Year Ended
June 30, 1997.
10.7 The Agreement and Plan of Merger regarding acquisition of
Peerless Group, Inc., dated August 18, 1998, attached as Exhibit
10.7 to the Company s Annual Report on Form 10-K for the Year
Ended June 30, 1998.
10.11 Line of Credit Agreement dated September 7, 1999, between the
Company and Commerce Bank, N.A., attached as exhibit 10.11 to
the Company s current report on Form 8-K dated September 20,
1999.
(21) Subsidiaries of the Registrant
A list of the Company's subsidiaries is attached hereto as Exhibit
21.
(23) Consents of Experts and Counsel
Consent of Independent Auditors is attached hereto as Exhibit 23.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 24th day of September,
1999.
JACK HENRY & ASSOCIATES, INC., Registrant
By /s/ Michael E. Henry
Michael E. Henry
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
/s/ Michael E. Henry Chairman of the September 24, 1999
Michael E. Henry Board and Chief
Executive Officer
and Director
/s/ Michael R. Wallace President, Chief September 24, 1999
Michael R. Wallace Operating Officer
and Director
/s/ John W. Henry Vice Chairman, Senior September 24, 1999
John W. Henry Vice President and
Director
/s/ Jerry D. Hall Executive Vice September 24, 1999
Jerry D. Hall President and
Director
/s/ Terry W. Thompson Vice President, September 24, 1999
Terry W. Thompson Treasurer and
Chief Financial
Officer
(Principal
Accounting
Officer)
/s/ James J. Ellis Director September 24, 1999
James J. Ellis
/s/ Burton O. George Director September 24, 1999
Burton O. George
/s/ George R. Curry Director September 24, 1999
George R. Curry
Exhibit 21
JACK HENRY & ASSOCIATES, INC.
MONETT, MO 65708
LIST OF SUBSIDIARIES AT 6/30/99
Jack Henry International, Ltd.
U.S. Virgin Islands
BankVision Software, Ltd.
Delaware
G.G. Pulley, Inc.
New Mexico
Vertex, Inc.
Delaware
Peerless Group, Inc
Delaware
CommLink Corp.
Delaware
Exhibit 23
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the Registration Statements of
the Jack Henry & Associates, Inc. 1996 Stock Option Plan on Form S-8 (File Nos.
33-65231, 33-65251 and 33-16989) of our report dated August 23, 1999 (September
8, 1999, as to note 13) appearing in the Annual Report on Form 10-K of Jack
Henry & Associates, Inc. for the year ended June 30, 1999.
/s/ Deloitte & Touche LLP
St Louis, Missouri
September 24, 1999