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 March 31, 2002 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 I.R.S. Employer of incorporation) Identification No.) 663 Highway 60, P. O. Box 807, Monett, MO 65708 ------------------------------------------------ (Address of principal executive offices) (Zip Code) 417-235-6652 ---------------------------------------------------- (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 2002 ---------------------------- ----------------------------- Common Stock, $.01 par value 90,447,691
JACK HENRY & ASSOCIATES, INC. CONTENTS Page No. -------- PART I. FINANCIAL INFORMATION Item I - Financial Statements Condensed Consolidated Balance Sheets - March 31, 2002, (Unaudited) and June 30, 2001 3 - 4 Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2002 and 2001 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2002 and 2001 (Unaudited) 6 Notes to the Condensed Consolidated Financial Statements (Unaudited) 7 - 12 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 12 - 16 Item 3 - Quantitative and Qualitative Disclosure about Market Risk 17 Part II OTHER INFORMATION Item 2 - Changes in Securities and Use of Proceeds 17
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) March 31, 2002 June 30, (Unaudited) 2001 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 47,808 $ 18,589 Investments, at amortized cost 998 985 Trade receivables 76,947 116,573 Income taxes receivable 934 537 Prepaid cost of product 18,889 17,191 Prepaid expenses and other 10,595 17,425 Deferred income taxes 1,415 750 -------- -------- Total $ 157,586 $ 172,050 PROPERTY AND EQUIPMENT $ 220,489 $ 176,193 Accumulated depreciation 52,820 37,754 -------- -------- $ 167,669 $ 138,439 OTHER ASSETS: Goodwill $ 40,335 $ 29,348 Other intangible assets, net of amortization 68,022 72,041 Computer software, net of amortization 6,972 5,806 Prepaid cost of product 14,086 12,007 Other non-current assets 4,167 3,430 -------- -------- Total $ 133,582 $ 122,632 -------- -------- Total assets $ 458,837 $ 433,121 ======== ======== March 31, 2002 June 30, (Unaudited) 2001 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 9,886 $ 17,846 Accrued expenses 7,540 9,595 Current portion of long-term debt - 87 Deferred revenues 60,399 79,490 -------- -------- Total $ 77,825 $ 107,018 LONG-TERM DEBT - 228 DEFERRED REVENUES 17,146 15,514 DEFERRED INCOME TAXES 14,706 7,857 -------- -------- Total liabilities $ 109,677 $ 130,617 STOCKHOLDERS' EQUITY: Preferred stock - $1 par value; 500,000 shares authorized; none issued - - Common stock - $0.01 par value; 250,000,000 shares authorized; 90,377,736 issued @ 03/31/02 88,846,710 issued @ 6/30/01 $ 904 $ 888 Less treasury stock at cost; 318,549 shares @ 03/31/02 0 shares @ 6/30/01 (6,708) - Additional paid-in capital 165,823 145,211 Retained earnings 189,141 156,405 -------- -------- Total stockholders' equity $ 349,160 $ 302,504 -------- -------- Total liabilities and stockholders' equity $ 458,837 $ 433,121 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, ----------------- ------------------ 2002 2001 2002 2001 ------ ------ ------- ------- <S> <C> <C> <C> <C> REVENUES Licensing and installation $24,751 $26,233 $ 69,895 $ 74,281 Support and services 42,976 34,221 126,470 96,933 Hardware sales 24,825 32,357 73,864 79,337 Customer reimbursements 7,232 5,392 20,349 15,072 ------ ------ ------- ------- Total $99,784 $98,203 $290,578 $265,623 COST OF SALES Cost of hardware 17,243 22,962 50,493 54,566 Cost of services 35,217 30,167 101,584 86,904 Customer reimbursement expenses 7,232 5,392 20,349 15,072 ------ ------ ------- ------- Total $59,692 $58,521 $172,426 $156,542 ------ ------ ------- ------- GROSS PROFIT $40,092 $39,682 $118,152 $109,081 40% 40% 41% 41% OPERATING EXPENSES Selling and marketing 7,766 7,328 21,310 20,726 Research and development 2,952 2,883 9,405 8,095 General and administrative 8,502 6,115 24,664 18,384 ------ ------ ------- ------- Total $19,220 $16,326 $ 55,379 $ 47,205 ------ ------ ------- ------- OPERATING INCOME $20,872 $23,356 $ 62,773 $ 61,876 OTHER INCOME (EXPENSE) Interest income 365 684 1,755 1,632 Interest expense (53) (74) (141) (848) ------ ------ ------- ------- Total $ 312 $ 610 $ 1,614 $ 784 ------ ------ ------- ------- INCOME BEFORE INCOME TAXES $21,184 $23,966 $ 64,387 $ 62,660 PROVISIONS FOR INCOME TAXES 7,626 8,628 23,179 22,558 ------ ------ ------- ------- NET INCOME $13,558 $15,338 $ 41,208 $ 40,102 ====== ====== ======= ======= Diluted net income per share $ .15 $ .17 $ .45 $ .44 ====== ====== ======= ======= Diluted weighted average shares outstanding 92,483 91,966 92,485 90,908 ====== ====== ======= ======= Basic net income per share $ .15 $ .17 $ .46 $ .46 ====== ====== ======= ======= Basic weighted average shares outstanding 89,608 87,935 89,181 86,254 ====== ====== ======= ======= The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE>
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Nine Months Ended March 31, ---------------------- 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 41,208 $ 40,102 Adjustments to reconcile net income to cash from operating activities: Depreciation 15,250 8,667 Amortization 5,015 7,001 Deferred income taxes 6,184 2,650 Other (76) (13) Changes in: Trade receivables 39,626 11,593 Prepaid expenses and other (3,571) (10,291) Accounts payable (7,960) 219 Accrued expenses (2,266) (2,327) Accrued income taxes (including tax benefit from exercise of stock options) 6,658 16,184 Deferred revenues (17,459) (6,170) ------- ------- Net cash from operating activities $ 82,609 $ 67,615 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures $(37,752) $(42,380) Computer software developed/purchased (991) (960) Payment for acquisition, net (11,111) - Purchase of investment (1,992) - Proceeds from maturity of investments 2,000 - Other, net 170 (160) ------- ------- Net cash from investing activities $(49,676) $(43,500) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock upon exercise of stock options $ 11,181 $ 12,274 Proceeds from sale of common stock, net 600 61,130 Short-term borrowings, net - (70,500) Principal payments on notes payable (315) (108) Purchase of treasury stock (6,708) - Dividends paid (8,472) (6,952) ------- ------- Net cash from financing activities $ (3,714) $ (4,156) ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 29,219 $ 19,959 Cash and cash equivalents at beginning of period 18,589 5,186 ------- ------- Cash and cash equivalents at end of period $ 47,808 $ 25,145 ======= ======= Net cash paid for income taxes was $11,132 and $5,138 for the nine months ended March 31, 2002 and 2001, respectively. On January 1, 2002, 117,738 restricted shares of the Company's common stock valued at $2,400, was issued as a portion of the total consideration paid for the acquisition of Transcend System Group, Inc. The Company paid interest of $ 125 and $ 1,081 for the nine months ended March 31, 2002 and 2001, respectively. The accompanying notes are an integral part of these condensed consolidated financial statements.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO THE 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 or acquired several banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide together with computer equipment (hardware) and by providing the conversion and software customization services for a financial institution to install a JHA software system. JHA also provides continuing support and services to customers using the systems either in-house or outsourced. Consolidation - The consolidated financial statements include the accounts of JHA and all of its wholly-owned subsidiaries and all significant intercompany accounts and transactions have been eliminated. Comprehensive Income - Comprehensive income for each of the nine-month periods ended March 31, 2002 and 2001, equals the Company's net income. Reclassification - Where appropriate, prior period financial information has been reclassified to conform with the current period's presentation. Other Significant Accounting Policies - The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Annual Report on Form 10-K ("Form 10-K") for the fiscal year ended June 30, 2001. 2. New Accounting Standard Effective January 1, 2002, the Company adopted Emerging Issues Task Force Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out of Pocket' Expenses Incurred", which requires that customer reimbursements received for direct cost paid to third parties and related expenses be characterized as revenue. Comparative financial statements for prior periods have been reclassified to provide consistenet presentation. For the three and nine month periods ended March 31, 2002 and 2001, the Company's has presented customer reimbursement revenue and expenses of $7.2 million and $5.4 million, and $20.3 million and $15.1 million, respectively, in accordance with Issue No. 01-14. Customer reimbursements represent direct costs paid to third parties primarily for data communication, travel and postage costs. The adoption of Issue No. 01- 14 did not impact the Company's financial position, operating income or net income. Statement of Financial Accounting Standards("SFAS")No.144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued in August 2001. This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001 (July 1, 2002 for JHA), and interim periods within those fiscal years, with early application encouraged. Management has not completed the process of evaluating the impact that this statement will have on the Company's consolidated financial position or results of operations. 3. Interim Financial Statements The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America applicable to interim consolidated financial statements, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes which are included in its Form 10-K, for the year ended June 30, 2001. In the opinion of management of the Company, the accompanying condensed consolidated financial statements reflect all adjustments necessary (consisting solely of normal recurring adjustments) to present fairly the financial position of the Company as of March 31, 2002 and the results of its operations for the three and nine month periods then ended and its cash flows for the nine months ended March 31, 2002. The results of operations for the period ended March 31, 2002 are not necessarily indicative of the results to be expected for the entire year. 4. Additional Interim Footnote Information The following additional information is provided to update the notes to the Company's annual consolidated financial statements for developments during the nine months ended March 31, 2002: Stock Repurchase Program On September 21, 2001, the Board of Directors approved a program to repurchase up to 3.0 million shares of common stock. To date 318,549 shares have been purchased for $6.7 million. Acquisition of System Legacy Solutions, Inc. (SLS) On December 1, 2001, the Company acquired all the outstanding shares of SLS for $3.0 million in cash. SLS provides technology to convert data from legacy systems into formats that can be used by newer technologies. The purchase price for SLS was allocated to the assets and liabilities acquired based on the estimated fair values at the acquisition date, resulting in allocation to goodwill of $2.5 million and to software $.45 million, which is being amortized on a straight-line basis over 10 years. Acquisition of Transcend Systems Group, Inc. (TSG) On January 1, 2002, the Company acquired all the outstanding shares of TSG for $7.3 million in cash and 117,738 restricted shares of the Company's Common Stock valued at $2.4 million, for a total consideration to the TSG shareholders of $9.7 million. The Company also advanced to TSG $851,000 for the repayment of bank debt and certain TSG obligations to its shareholders. TSG provides customer relationship management software and related services to financial institutions. The purchase price for TSG was allocated to the assets and liabilities acquired based on the estimated fair values at the acquisition date, resulting in allocation to goodwill of $8.5 million, software of $.93 million, and customer contracts of $1.1 million, of which software and customer contracts are being amortized on a straight-line basis over 10 years. 5. Shares used in computing net income per share (In Thousands) Three Months Ended Nine Months Ended March 31, March 31, ---------------- ---------------- 2002 2001 2002 2001 ------ ------ ------ ------ Weighted average number of common shares outstanding - basic 89,608 87,935 89,181 86,254 Common stock equivalents 2,875 4,031 3,304 4,654 ------ ------ ------ ------ Weighted average number of common and common equivalent shares outstanding - diluted 92,483 91,966 92,485 90,908 ====== ====== ====== ====== Per share information is based on the weighted average number of common shares outstanding for the periods ended March 31, 2002 and 2001. Stock options have been included in the calculation of income per share to the extent they are dilutive. 6. Business Segment Information The Company is a leading provider of integrated computer systems that perform data processing (available for in-house or outsourced installations) for banks and credit unions. The Company evaluates the performance of the banking and credit union segments and allocates resources to them based on various factors, including prospects for growth, return on investment and return on revenues. Revenue amounts in the following table are exclusive of the customer reimbursement amounts on the statement of income. (In Thousands) Three Months Ended Nine Months Ended March 31, March 31, ---------------- ------------------ 2002 2001 2002 2001 ------ ------ ------- ------- Revenues: Bank systems and services $77,929 $78,662 $228,360 $218,602 Credit union systems and services 14,623 14,149 41,869 31,949 ------ ------ ------- ------- Total $92,552 $92,811 $270,229 $250,551 ====== ====== ======= ======= Gross Profit: Bank systems and services $35,171 $35,879 $104,001 $101,420 Credit union systems and services 4,921 3,803 14,151 7,661 ------ ------ ------- ------- Total $40,092 $39,682 $118,152 $109,081 ====== ====== ======= ======= 7. Goodwill and Other Intangible Assets The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective July 1, 2001. Under SFAS No. 142, goodwill and tradenames are no longer amortized but reviewed for impairment annually, or more frequently if certain indicators arise. The Company completed the transitional impairment test for tradenames with indefinite useful lives during the quarter ended September 30, 2001, and for goodwill during the quarter ended December 31, 2001, and has determined that no impairment exists. Had the Company been accounting for its goodwill and tradenames under SFAS No. 142 for all periods presented, the Company's net income and net income per share would have been adjusted as follows: (In Thousands, Except Per Share Data) Three Months Ended Nine Months Ended March 31, March 31, ---------------- ------------------ 2002 2001 2002 2001 ------ ------ ------- ------- Reported net income $13,558 $15,338 $41,208 $40,102 Goodwill and tradenames amortization, net of tax - 277 - 830 ------ ------ ------- ------- Adjusted net income $13,558 $15,615 $41,208 $40,932 ====== ====== ======= ====== Reported diluted net income per share $ .15 $ .17 $ .45 $ .44 Goodwill and tradenames amortization, net of tax - - - .01 ------ ------ ------- ------- Adjusted diluted net income per share $ .15 $ .17 $ .45 $ .45 ====== ====== ======= ======= Reported basic net income per share $ .15 $ .17 $ .46 $ .46 Goodwill and tradenames amortization, net of tax - - - .01 ------ ------ ------- ------- Adjusted basic net income per share $ .15 $ .18 $ .46 $ .47 ====== ====== ======= ======= Changes in the carrying amount of goodwill for the nine months ended March 31, 2002, by reportable segments, are as follows: (In Thousands) Banking Credit Union Systems and Systems and Services Services Total -------- -------- ------- Balance, July 1, 2001 $14,508 $14,840 $29,348 Goodwill acquired during the year $10,987 - $10,987 -------- -------- ------- Balance, March 31, 2002 $25,495 $14,840 $40,335 ======== ======== ======= Information regarding our other intangible assets is as follows: (In Thousands) March 31, 2002 June 30, 2001 ------------------------------- ------------------------------ Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net ------- ------- ------- ------- ------- ------- Customer Relationships $88,197 ($23,874) $64,323 $90,612 ($22,270) $68,342 Tradenames 3,915 (216) 3,699 3,915 (216) 3,699 ------- ------- ------- ------- ------- ------- Totals $92,112 ($24,090) $68,022 $94,527 ($22,486) $72,041 ======= ======= ======= ======= ======= ======= Tradenames have been determined to have indefinite lives and therefore as of July 1, 2001 are no longer amortized. Customer relationships have lives ranging from 3 to 20 years. Amortization expense for other intangible assets was $1,202 and $1,425 for the three month and $3,814 and $4,497 for the nine month periods ended March 31, 2002 and 2001, respectively. The estimated aggregate future amortization expense for intangible assets remaining as of March 31, 2002 is as follows: Remainder of Fiscal 2002 $1,331 2003 $6,078 2004 $5,723 2005 $5,130 2006 $4,803 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 to banks with under $10 billion of total assets, credit unions and other financial institutions in the United States. We offer a complete, integrated suite of data processing system solutions to improve our customers' management of their entire back-office and customer interaction processes. We believe our solutions enable our customers to provide better service to their customers and compete more effectively against larger banks and alternative financial institutions. Our customers either install and use our systems in-house or outsource these operations to us. We perform data conversion, hardware and software installation and software customization for the implementation of our systems and applications. We also provide continuing customer support services to ensure proper product performance and reliability, which provides us with continuing client relationships and recurring revenue. A detailed discussion of the major components of the results of operations for the three and nine month periods ended March 31, 2002, as compared to the same period in the previous year, which does not include the revenue and expense components related to customer reimbursements, follows (In Millions, Except Per Share Data): Revenues Revenues decreased 0.3% to $92.6 for the three months ended March 31, 2002 from $92.8 for the same period last year. Non-hardware revenues increased 12% to $67.7, accounting for 73% of third quarter 2002 revenues, compared to $60.5 in the third quarter a year ago, representing 65% of revenue. The Support and services revenues increased 26% to $43.0 for the three months ended March 31, 2002 compared to $34.2 in the same period in the previous year. Licensing and installation revenues decreased 6% from $26.2 for the three months ended March 31, 2001 to $24.7 for the three months ended March 31, 2002. Hardware revenues totaled $24.8 or 27% of total revenues for the third quarter compared to $32.4 or 35% of total revenues in the same period in the previous year. For the nine months ended March 31, 2002, total revenues grew 8% to $270.3 compared to $250.6 for the nine months ended March 31, 2001. Non- hardware revenues increased 15% to $196.4 compared to $171.2. Support and services revenues rose 30% to $126.5 with licensing and installation revenues decreasing 6% at $69.9. For the nine months ended March 31, 2002, hardware sales declined 7% to $73.9 compared to $79.3 a year ago. Support and services revenues growth for the three and nine months ended March 31, 2002 is attributable to continuing growth in both in-house and outsourcing services, much of which is recurring revenue. We believe that the decline in licensing, installation and hardware revenue is due to the industry-wide softness in the capital goods marketplace and the reduction in capital spending for technology services. Our backlog increased at March 31, 2002 to $136.5 ($54.0 in-house and $82.5 outsourcing) from $132.1 ($52.3 in-house and $79.8 outsourcing) at December 31, 2001 and $124.0 ($50.9 in-house and $73.1 outsourcing) at March 31, 2001. Backlog at April 30, 2002 was $136.8 ($53.8 in-house and $83.0 outsourcing). Cost of Sales Cost of sales decreased 1.3% for the three months ended March 31, 2002. Cost of services increased 17%, while the cost of hardware decreased 25% over the same three month period last year. Cost of sales increased 8% for the first nine months of fiscal 2002. Cost of services increased 17%, while the cost of hardware decreased 7.5% over the same nine months last year. For the three and nine month period ended March 31, 2002, cost of services have increased consistently with non-hardware revenues plus additional depreciation due to capital expenditures. Cost of hardware have decreased consistently with the hardware revenue. Gross Profit Gross profit increased slightly, up 1% for the three months ended March 31, 2002 to $40.1 or 43% of total revenues, compared to $39.7, also 43% of total revenues. Non-hardware margin was 48% for this quarter compared to 50% in the same quarter last year. Hardware margin increased to 31% compared to 29% in the third quarter a year ago. For the nine months ended March 31, 2002, gross profit was up 8% to $118.2 or 44% of revenues compared to $109.1, also 44% of the revenues for the same period last year. Non-hardware margin was 48% or $94.8 in the nine months of fiscal 2002, compared to 49% or $84.3 for the same period last year. Hardware margin was 32% or $23.3 for the first nine months this fiscal year compared to 31% or $24.7 for the same nine months last year. Gross margin can fluctuate from quarter to quarter due to the mix of products and services sold, incentives from hardware suppliers, and other factors. Over the course of the nine months ended March 31, 2002, however, these influences tend to balance out. Operating Expenses Total operating expenses increased 17.7% in the three months ended March 31, 2002 compared to the same period in the prior year. Selling and marketing expenses increased 6%, research and development expenses increased 2.4% and general and administrative expenses increased 39% in the same three month period. Total operating expenses increased 17% in the nine months ended March 31, 2002 compared to the same period in the prior year. Selling and marketing increased 3%, research and development increased 16% and general and administrative increased 34% compared to the same nine month period last year. Selling and marketing expense increased for the third quarter, but remained fairly flat for the nine months of the fiscal year 2002. The fluctuation is attributable to the sales of different product mix and incentives. Research and development increased due to the development costs associated with continued growth and refinement of new and existing products. General and administrative expenses increased primarily due to employee benefits and depreciation expense. Depreciation and amortization expenses were higher due to capital investments made in fiscal 2001 for infrastructure expansion. Other Income (Expense) Other income for the three months ended March 31, 2002 reflects a decrease of $298,000 when compared to the same period last year. Interest income decreased $319,000, due to lower interest rates on our investments. The net increase in other income of $830,000 for the nine months of fiscal 2002 is due to net interest expense last year from short-term borrowing compared to this year. Short term debt was paid off in January 2002, therefore interest expense for this fiscal year is much lower than the same period last year. Net Income Net income for the third quarter was $13.5, or $.15 per diluted share compared to $15.3, or $.17 per diluted share in the same period last year. Net income for the nine months of fiscal 2002 was $41.2, or $.45 per diluted share compared to $40.1, or $.44 per diluted share in the same period last year. Business Segment Discussion Revenues in the bank systems and services business segment decreased 0.9% from $78.6 to $77.9 for the three months ended March 31, 2001 and 2002, respectively. Gross profit decreased 2% from $35.8 in the third quarter of the previous year to $35.2 in the current third quarter, while gross margins stayed the same at 45% for the current third quarter compared to the same quarter in the previous year. Gross margins remained unchanged primarily due to sales mix. Revenues in the credit union systems and services business segment increased 3.3% from $14.1 to $14.6 for the three months ended March 31, 2001 and 2002, respectively. Gross profit increased 29% from $3.8 in the third quarter of the previous year to $4.9 in the current third quarter, while gross margins increased in the current third quarter compared to the same quarter in the previous year to 34% from 27%. Increase in gross margin is primarily due to increased utilization of resources and the mix of products and services sold. Revenues in the bank systems and services business segment increased 4.5% from $218.6 to $228.4 for the nine months ended March 31, 2001 and 2002, respectively. Gross profit increased 2.5% from $101.4 for the nine months ended March 31, 2001 to $104.0 for the nine months ending March 31, 2002. Gross margins decreased slightly from 46% last year to date, to 45% in the nine months of fiscal year 2002. Revenues in the credit union systems and services business segment increased 31% from $31.9 to $41.9 for the nine months ended March 31, 2001 and 2002, respectively. Gross profit increased 85% from $7.6 in the nine month period of the previous year to $14.1 in the current nine month period, while gross margins increased from 24% to 34% for the nine months ended March 31, 2001 and 2002, respectively. Increase in gross margin is primarily due to significant increase in revenue which allows better utilization of resources and the mix of products and services sold. FINANCIAL CONDITION Liquidity The Company's cash and cash equivalents and investments increased to $48.8 at March 31, 2002, from $19.6 at June 30, 2001. JHA has available credit lines totaling $58.0, although the Company expects additional borrowings to be minimal during fiscal year 2002. Capital Requirements and Resources JHA generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $37.8 and $42.4 for the nine month periods ended March 31, 2002 and 2001, respectively, were made for expansion of facilities and additional equipment. These were funded from cash generated by operations. The consolidated capital expenditures of JHA, excluding acquisition costs, could exceed $53.0 for fiscal year 2002. The Company has acquired all the outstanding shares of two different companies during the nine month period ended March 31, 2002, for total net cash portion of the purchase price of $11.1. These were funded from cash generated by operations. The Company paid a $.035 per share cash dividend on February 28, 2002 to stockholders of record on February 13, 2002 which was funded from operations. In addition, the Company's Board of Directors, subsequent to March 31, 2002, declared a quarterly cash dividend of $.035 per share on its common stock payable May 17, 2002 to stockholders of record on May 2, 2002. This dividend will be funded by cash generated from operations. Forward Looking Statements The Management's Discussion and Analysis of Results of Operations and Financial Condition and other portions of this report contain forward- looking statements within the meaning of federal securities laws. Actual results are subject to risks and uncertainties, including both those specific to the Company and those specific to the industry, which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to, the matters detailed at Risk Factors in its Annual Report on Form 10-K for the fiscal year ended June 30, 2001. Undue reliance should not be placed on the forward-looking statements. The Company does not undertake any obligation to publicly update any forward-look statements. CONCLUSION JHA's results of operations and its financial position continued to be favorable during the nine months ended March 31, 2002. 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. Item 3. Quantitative 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. We are currently exposed to credit risk on credit extended to customers and interest risk on investments in U.S. government securities. We actively monitor these risks through a variety of controlled procedures involving senior management. We do not currently use any derivative financial instruments. Based on the controls in place, credit worthiness of the customer base and the relative size of these financial instruments, we believe the risk associated with these exposures will not have a material adverse effect on our consolidated financial position or results of operations. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds c. On January 1, 2002, the Company issued 117,738 shares of fully paid non-assessable common stock to certain shareholders of Transcend Systems Group, Inc. as a portion of the consideration for a transaction whereby all of the outstanding capital stock of Transcend Systems Group, Inc. was acquired by the Company. These shares were issued under the exemption provided by Section 4(2) of the Securities Act.
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: May 14, 2002 /s/ Michael E. Henry ------------ --------------------- Michael E. Henry Chairman of the Board Chief Executive Officer Date: May 14, 2002 /s/ Kevin D. Williams ------------ --------------------- Kevin D. Williams Treasurer and Chief Financial Officer