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UNITED STATES
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
For the fiscal year ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission Number 0-14112
JACK HENRY AND ASSOCIATES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 43-1128385
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State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
663 Highway 60, P.O. Box 807, Monett, MO 65708
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(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 ($.01 par value)
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes X No
As of August 17, 2004, the Registrant had 90,268,193 shares of Common
Stock outstanding ($.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 $1,338,115,095 (based on the
average of the reported high and low sales prices on NASDAQ on such
date).
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Company's Notice of Annual Meeting of Stockholders
and Proxy Statement for its 2004 Annual Meeting of Stockholders (the "Proxy
Statement"), as described in the footnotes to the Table of Contents below,
are incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
PART I Page Reference
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 14
ITEM 3. LEGAL PRECEEDINGS 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS (1) 15
ITEM 6. SELECTED FINANCIAL DATA 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 43
ITEM 9A. CONTROLS AND PROCEDURES 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT (2) 44
ITEM 11. EXECUTIVE COMPENSATION (3) 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (4) 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (5) 44
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES (6) 44
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 44
(1) Proxy Statement section entitled "Equity Compensation Plan Information"
(2) Proxy Statement sections entitled "Election of Directors", "Corporate
Governance," "Audit Committee Report," "Executive Officers and
Significant Employees," and "Section 16(a) Beneficial Ownership
Reporting Compliance."
(3) Proxy Statement sections entitled "Executive Compensation",
"Compensation Committee Report", and "Company Performance."
(4) Proxy Statement sections entitled "Stock Ownership of Certain
Stockholders," "Election of Directors," and "Equity Compensation
Plan Information."
(5) Proxy Statement section entitled "Certain Relationships and Related
Transactions."
(6) Proxy Statement sections entitled "Audit Committee Report" and
"Independent Registered Public Accounting Firm - Audit and Non-Audit
Fees."
PART I
Item 1. Business
Jack Henry & Associates, Inc. ("JHA" or the "Company") is a leading provider
of integrated computer systems providing data processing and management
information to banks, credit unions and other financial institutions in the
United States. The Company was formed in 1976 and made its initial public
offering in 1985. Since formation, JHA has grown by developing highly
specialized products and services for its financial institution customers,
acquiring organizations that complemented and added to the infrastructure of
the Company and adding new customers.
We offer a complete, integrated suite of data processing system solutions
to improve our customers' management of their entire back-office and
customer/member interaction processes. We believe our solutions enable our
financial institution customers to provide better service to their customers
and compete more effectively against other banks, credit unions, and
alternative financial institutions. Our customers either install and use
our systems in-house or outsource these operations to us. We perform data
conversion and hardware and software installation 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. For
our customers who prefer not to acquire hardware and software, we provide
outsourcing services through seven data centers and seventeen item-
processing centers located across the United States.
Our gross revenue has grown from $239.8 million in fiscal 2000 to $467.4
million in fiscal 2004, representing a compound annual growth rate over this
five-year period of 18%. Net income from continuing operations has grown
from $34.4 million in fiscal 2000 to $62.3 million in fiscal 2004, a
compound annual growth rate of 14%.
Industry Background
According to the Automation in Banking 2004 report, United States financial
institutions, including commercial banks, thrifts and credit unions,
increased spending on hardware, software, services and telecommunications to
$42.4 billion in calendar 2003 from $36.6 billion in calendar 1999,
representing a compound annual growth rate of 4%. The increase of industry
spending was 2% from December 31, 2002 to December 31, 2003.
In an article in June 2004, the Silicon Valley Biz Ink, Financial Services
News, IDC of Silicon Valley, a premier advisory firm in the information
technology and telecommunications industries, conducted a survey of banks
regarding the role of information technology and future strategic priorities
within the industry. The top bank survey responses were meeting regulatory
requirements, managing customer relationships, managing risks, reducing
costs and attracting new customers.
The Federal Deposit Insurance Corporation ("FDIC") reported there were
approximately 9,200 commercial and savings banks in the United States as of
December 31, 2003. Our primary market segment, bank systems and services,
which represented approximately 82% of our total revenues in fiscal 2004, is
commercial banks with less than $30.0 billion in assets, of which there were
approximately 9,140 at December 31, 2003. Consolidation within the banking
and savings services industry has resulted in a 3% compound annual decline
in the population of commercial banks from calendar years 1999 and 2003.
Even with the decline in the population, there was a 7% compound annual
increase in their aggregate assets between calendar year 1999 and 2003.
Comparing years 2003 and 2002, new bank charters increased 27%, while
mergers decreased 22%.
Our other market segment is credit union systems and services within the
United States. The National Credit Union Association reported there were
9,400 credit unions in the United States as of December 31, 2003. This
segment represented approximately 18% of our total revenues in fiscal 2004.
These are primarily cooperative, not-for-profit financial institutions
organized to promote savings and provide credit to their members. Although
the number of these credit unions has declined at a 3% compound annual rate
between calendar year 1999 and 2003, their aggregate assets have increased
at a compound annual growth rate of 9% to $610.2 billion at December 31,
2003.
According to Callahan and Associates, 2004 Credit Union Technology Survey,
Credit Unions participating in the survey are looking for technology
enhancements in customer relationship management to expand member services
and generate product usage, enhance credit union websites and home banking
platforms and upgrade ATMs for imaging and Check 21 capability. According
to the respondents, 72% indicated their technology-spending budget for the
upcoming year included security upgrades dealing with the internet.
We believe that commercial and regional banks and credit unions play an
important role with the geographic and demographic communities and the
customers they serve. Typically, customers and members of these financial
institutions rely on them because of their ability to provide personalized,
relationship-based service and their focus on retail, commercial and
business needs. We believe these core strengths will allow our financial
institution customers to effectively compete with other banks, credit unions
and alternative financial institutions. In order to succeed and to maintain
strong customer relationships, we believe these banks and credit unions must
continue to:
* focus on excellence in delivery to customers and members of their
primary products and service offerings;
* sell more products and services to existing customers through
utilization of customer relationship management ("CRM") products;
* implement advanced technologies and services, such as Internet
banking services, imaging, and platform automation;
* use advanced technologies in back-office processes to improve
operating efficiency and control costs, while increasing service
and lowering costs to their customers; and
* integrate products and services into their core, complementary
service offerings and data processing infrastructure, to provide
competitive products and services to their customers and members.
* manage risks by implementing technology that monitors and tracks
transactions for fraud and criminal behavior.
According to Automation in Banking 2004, in calendar 2003 approximately 55%
of all commercial banks and 65% of all credit unions utilized in-house
hardware and software systems to perform all of their core systems and data
processing functions. Off-site data processing centers provided system
services on an outsourced basis for 45% of all banks and 31% of all credit
unions. We have expanded our outsourcing services and capacity to include
all of our core solution products.
Internet banking, bill payment, and other services for individuals, plus
cash management, Automated Clearing House ("ACH") management and other
services for the commercial customers of financial institutions continue to
grow rapidly within the industry.
Passage of the Check Truncation Act (Check 21) will impact industry
practices with respect to clearing checks. Under the new legislation, a new
electronic image instrument will now be recognized and known as "the
substitute check" or "image replacement document" ("IRD"). This will pave
the way for widespread adoption of clearing electronic images of checks as
opposed to the current practice of physically sending a check to the draw on
bank for payment.
Our Solution
We are a single-source provider of a comprehensive and flexible suite of
integrated products and services that address the information technology and
data processing needs of financial institutions on various hardware
platforms and operating systems. Our business derives revenues from three
primary sources of revenue:
* sales of software licenses;
* support and service fees which include installation services; and
* hardware sales.
We develop software applications designed primarily for use on hardware
supporting IBM and UNIX/NT operating systems. Our marketed product and
service offerings are centered on five proprietary software applications,
each comprising the core data processing and information management
functions of a commercial bank or credit union. Any of these core systems
can be utilized either through an in-house or outsourced delivery method
depending on the financial institution's management style and philosophy.
Key functions of each of our core software applications include deposits,
loans, general ledger, and customer information file. Our software
applications make extensive use of parameters allowing our customers to
tailor the software to their needs without needing to customize or program
the software. Our software applications are designed to provide maximum
flexibility in meeting our customer data processing requirements within a
single, integrated system. To complement our core software applications, we
provide a variety of complementary products and services for use on an in-
house or an outsourced basis by financial institutions.
We believe our solutions provide strategic advantages to our customers by
enabling them to:
* Implement Advanced Technologies with Full Functionality. Our
comprehensive suite of products and services is designed to meet
our customers' information technology needs through custom-
tailored solutions using proprietary software products. Our
clients can either perform these functions themselves on an in-
house basis through the installation of our hardware and software
systems or outsource those functions to us.
* Rapidly Deploy New Products and Services. Once a financial
institution has implemented our core software, either in-house or
on an outsourced basis, we can quickly and efficiently install
additional applications and functions. This allows our customers
to rapidly deploy new products and services.
* Focus on Customer Relationships. Our products and services allow
our customers to stay focused on their primary business of
gaining, maintaining and expanding their customer relationships
while providing the latest financial products and services.
* Access Outsourcing Solutions to Improve Operating Efficiency.
Customers utilizing our outsourcing solutions benefit from access
to all of our products and services without having to maintain
personnel to develop, update and run these systems and without
having to make large up-front capital expenditures to implement
these advanced technologies.
Our Strategy
Our objective is to grow our revenue and earnings organically, supplemented
by strategic acquisitions. The key components of our business strategy are
to:
* Provide High Quality, Value-Added Products and Services to Our
Clients. We compete on the basis of providing our customers with
the highest-value products and services in the market. We believe
we have achieved a reputation as a premium product and service
provider.
* Continue to Expand Our Product and Service Offerings. We
continually upgrade our core software applications and expand our
complementary product and service offerings to respond to
technological advances and the changing requirements of our
clients. For example, we offer several turn-key solutions that
enable financial institutions to rapidly deploy sophisticated new
products and services. Our integrated solutions enable our
customers to offer competitive services relative to larger banks
and alternative financial institutions. We intend to continue to
expand our range of Internet solutions and other products and
services.
* Expand Our Existing Customer Relationships. We seek to increase
the information technology products and services we provide to
those customers that do not utilize our full range of products and
services. In this way, we are able to increase revenues from
current customers with minimal additional sales and marketing
expenses.
* Expand Our Customer Base. We seek to establish long-term
relationships with new customers through our sales and marketing
efforts and selected acquisitions. As of June 30, 2004, we had
over 5,900 customers, up from 2,850 in 2000.
* Build Recurring Revenue. We enter into contracts with customers
to provide services that meet their information technology needs.
We provide ongoing software support for our in-house customers.
Additionally, we provide data processing for our outsourcing
customers and ATM and debit card transaction switching services,
both on contracts that typically extend for periods of five to ten
years.
* Maximize Economies of Scale. We strive to develop and maintain a
sufficiently large client base to create economies of scale,
enabling us to provide value-priced products and services to our
clients while expanding our operating margins.
* Attract and Retain Capable Employees. We believe attracting and
retaining high-quality employees is essential to our continued
growth and success. Our corporate culture focuses on the needs of
employees, a strategy we believe has resulted in low employee
turnover. In addition, we selectively use employee stock options
to serve as a strong incentive and retention tool.
Our Acquisitions
To complement and accelerate our internal growth, we selectively acquire
companies that provide us with one or more of the following:
* new customers;
* products and services to complement our existing offerings;
* additional outsourcing capabilities; and/or
* entry into new markets related to financial institutions.
When evaluating acquisition opportunities, we focus on companies with a
strong employee base and management team and excellent customer
relationships. Since the start of our fiscal year 2000, we have completed
the following acquisitions:
Fiscal
Year Company or Product Name Products and Services
---- ----------------------- ---------------------
2004 Call Report Analyzer, Y9 Regulatory Reporting
2004 e-ClassicSystems, Inc. Software products to manage ATM
networks
2004 PowerPay.ach, .rck, and .arc Suite of Automated Clearing House
products
2004 Yellow Hammer Software, Inc. Fraud Protection for financial
institutions
2003 National Bancorp Data Item Processing services
Services, LLC
2003 Credit Union Solutions, Inc. Data processing systems and
services for smaller credit unions
2002 Transcend Systems Group Customer Relationship Management
software and related services
2002 System Legacy Solutions Image data conversion systems
2000 Symitar Systems, Inc. Data processing systems and
services for credit unions
2000 Sys-Tech, Inc. Uninterruptible power supply
systems and computer facilities
design
2000 BancData Systems Data processing services
2000 Open Systems Group UNIX/NT-based data processing
systems for banks
Our Products and Services
Changing technologies, business practices and financial products have
resulted in issues of compatibility, scalability and increased complexity
for the hardware and software used in many financial institutions. We have
responded to these issues by developing a fully integrated suite of products
and services consisting of core software systems, hardware, complementary
products, and services.
We provide our full range of products and services to financial institutions
on either an in-house or outsourced basis. For those customers who prefer
to purchase systems for their in-house facilities, we contract to sell
computer hardware, licenses for core and complementary software and contract
to provide installation, data conversion, training and ongoing support, and
other services.
We also offer our full suite of software products and services on an
outsourced basis to customers who do not wish to maintain, update, and run
these systems or to make large up-front capital expenditures to implement
these advanced technologies. Our principal outsourcing service is the
delivery of mission-critical data processing services using our data centers
located within the United States. We provide our outsourcing services
through an extensive national data and service center network, comprised of
7 data centers and 17 item-processing centers. We monitor and maintain our
network on a seven-day, 24-hour basis. Customers typically pay monthly fees
on service contracts of up to 5 years for these services.
Information regarding the classification of our business into separate
segments serving the banking and credit union industries is set forth in
Note 13 to the Consolidated Financial Statements (see item 8 below).
Hardware Systems
Our software operates on a variety of hardware systems. We have entered
into remarketing agreements with IBM Corporation, Avnet, Inc. and other
hardware providers which allow us to purchase hardware at a discount and
sell (remarket) it to our customers together with our software
applications. We currently sell the IBM eServer systems (iSeries, pSeries
and xSeries); IBM workstations; Dell servers and workstations; NCR, BancTec
and Unisys check transports; and a variety of other devices that complement
our software solutions.
We have a long-term strategic relationship with IBM, dating to the initial
design of our first core software applications more than 20 years ago. In
addition to our remarketing agreement with IBM, which we regularly renew, we
have been named a "Premier Business Partner'' of IBM for the last twelve
consecutive years. Our relationship with IBM provides us with a substantial
and ongoing source of revenue.
Core Software Applications
Each of our core software systems consists of several fully-integrated
application modules, such as deposits, loans, general ledger, and the
customer information file, which is a centralized file containing customer
data for all applications. We can custom-tailor these modules utilizing
parameters determined by our customers. The applications can be connected
to a wide variety of peripheral hardware devices used in financial
institutions' operations. Our software is designed to provide maximum
flexibility in meeting our customers' data processing requirements within a
single system to minimize data entry and improve efficiencies.
For our customers who choose to acquire in-house capabilities, we generally
license our core system under standard license agreements, which provide the
customer with a fully paid, nonexclusive, nontransferable right to use the
software on a single computer and at a single location. These same systems
can be delivered on an outsourced basis as well.
Our core software applications are differentiated broadly by size of
customer, scalability, functionality, customer competitive environment and,
to a lesser extent, cost. Our core applications include:
Bank Systems and Services Segment
* Silverlake System[R], which operates on the IBM iSeries and is
used primarily by banks with total assets up to $30.0 billion;
* CIF 20/20[R], which operates on the IBM iSeries and is used
primarily by banks with total assets up to $300.0 million;
* Core Director[R], which operates on hardware supporting a UNIX/NT
environment and is used by banks employing client-server
technology.
Credit Union Systems and Services Segment
* Episys[R], which operates on the IBM pSeries with a UNIX/NT
operating system and is used primarily by credit unions with total
assets greater than $50.0 million. According to Callahan and
Associates 2004 Credit Union Directory, our Episys[R] core product
is the most installed data processing solution among the top 25
largest credit unions in the United States.
* Cruise[TM], which operates on the IBM xSeries and is used
primarily by credit unions with total assets under $50.0 million.
Complementary Products and Services
To enhance our core software applications, we provide a number of
complementary products and services, including:
* 4|sight[TM] item image solution is our new generation of imaging
products, which allows our customers to create and store digital
check images for inclusion in monthly statements, facilitate their
customer support services and leverage their investments with system
integration.
* Automated Teller Machine ("ATM") Network Solutions provide the tools
to manage and the equipment needed to run all aspects of ATM networks
nationwide. The newest product ATM Manager Pro[TM] provides a suite
of software products to enable financial institutions and independent
companies to manage the complete operations, accounting, and measure
profitability of their ATM network. (See section of ATM Network
Solutions for detailed information).
* Centurion Disaster Recovery[R] provides multi-tiered disaster
recovery protection, including comprehensive disaster planning and
procedures.
* Customer Relationship Management Solutions includes ARGOKeys, a
suite of platform automation solutions for clients using our
Silverlake core systems. ARGOKeys is a joint product delivered
through our alliance with ARGO Data Resource Corporation ("ARGO").
Another offering is Synapsys[TM]; a Windows[R] based sales and
marketing performance solution. (See section on Customer Relationship
Management for detailed information).
* Eyewire[TM] generates and delivers customer statements and notices
electronically.
* FormSmart[R] provides day-to-day operating forms, year-end tax forms
and other printing and office supplies.
* Fraud Detective[R] provides a suite of software products to protect
financial institutions from fraudulent activity, such as money
laundering, and kiting.
* Intellix is a consulting service specifically for our bank system
and services segment. Services assist customers to fully utilize
their core software products.
* Internet Banking Solutions for banks and credit unions has many
modules included in the suite of products allowing financial
institutions to offer online banking and e-commerce to their
customers and members. (See section on Internet Banking Solutions
for detailed information).
* InTouch Voice Response[TM] provides a fully-automated interactive
voice response system for 24-hour telephone-based customer account
management.
* Matrix Network Services [SM] provides network design, implementation,
security and related consulting services to financial institutions.
* OnTarget[TM] provides a fully integrated deposit platform, lending
platform, and teller solution for our Core Director and Banker II
customers through a partnering alliance with ARGO.
* PinPoint Report Retrieval[R] enables system-wide storage and
retrieval of computer-generated reports for simplified information
access.
* Silhouette Document Imaging[R] utilizes digital storage and
retrieval technology to provide online instant access to document
images, such as loan documents and signature cards.
* Streamline Platform Automation[R] is a fully automated new account
origination and documentation preparation solution that integrates
new customer data, including signature cards, disclosure statements,
and loan applications into the core customer data files on a real-
time basis.
* SuperIMAGE[R] is a check image system that provides enhanced
integration, automation, and dependability in item imaging.
* Sys-Tech [SM] provides design consultation necessary to determine the
appropriate back-up power for in-house, and data center systems.
* TimeTrack Payroll System [TM] is a fully integrated payroll
accounting and human resources software system.
* Vertex Teller Automation System[TM] is an online teller automation
system that enables tellers to process transactions more efficiently
and with greater accuracy.
Other software products such as proof of deposit, secondary market loan
servicing, account reclassification, and investment sweeps further
complement our core systems.
Installation and Training
Although not a requirement of the software contract, the majority of
our customers contract with us for installation and training services
in connection with their purchase of in-house systems. The complete
installation process of a core system typically includes planning, design,
data conversion, hardware set-up, and testing. At the culmination of this
installation process, one of our installation teams travels to our
customer's facilities to ensure the smooth transfer of data to the new
system. Separate charges for installation fees are billed to our customers
on either a fixed fee or hourly charge model depending on the system,
with full pass-through to our customers of travel and other expenses.
Installation and training services are also required in connection with new
outsourcing customers, and are billed separately at the time of
installation.
Both in connection with installation of new systems and on an ongoing basis,
our customers require, and we provide, extensive training services and
programs related to our products and services. Training is provided in our
regional training centers, at meetings and conferences, onsite at our
customers' location, or online with JHA Webex. Training can be customized to
meet our customers' requirements. The large majority of our customers
acquire training services from us, both to improve their employees'
proficiency and productivity and to make full use of the functionality of
our systems. Generally, training services are paid for on an hourly basis,
however, we have recently been successful in marketing annual subscriptions
for training services, representing blocks of training time that can be used
by our customers in a flexible fashion and the related revenue is recognized
as the services are provided.
Support and Services
Following the installation of our integrated software and hardware systems
at a customer site, we provide ongoing software support services to assist
our customers in operating the systems. We also offer support services for
hardware, primarily through our hardware suppliers, providing customers who
have contracted for this service with "one-call'' system support covering
hardware and software applications.
Support is provided through a 24-hour telephone service available to our
customers seven days a week. Our experienced support staff can resolve most
questions and problems quickly. For more complicated issues, our staff,
with our customers' permission and assistance, can log on to our customers'
systems remotely. We maintain our customers' software largely through
releases which contain improvements and incremental additions. Updates are
issued also when required by changes in applicable laws and regulations. We
provide support services on our core systems as well as our complementary
software products.
Nearly all of our in-house customers contract for annual support services
from us. These services are a significant source of recurring revenue, and
are contracted for on an annual basis and are typically priced at
approximately 18 to 20% of the particular software product's license fee.
These fees will increase as our customers' asset base increases and as they
increase the level of functionality of their system by purchasing additional
complementary products. Software support fees are generally billed at June
30 and are paid in advance for the entire fiscal year, with pro-ration for
new contracts that start during the year at the time of final conversion.
Hardware support fees are also paid in advance for the entire contract
period that ranges from one to five years. Most contracts automatically
renew annually unless our customer or we give notice of termination at least
60 days prior to expiration. Identical support is provided to our
outsourced customers by the same support personnel, but is included as part
of their overall monthly fees and therefore not billed separately.
Internet Banking Solutions
We provide a suite of fully integrated Internet products and services that
enables financial institutions to offer Internet banking and e-commerce
solutions to their customers and members. Our offerings include:
* DirectLine[TM] allows NetTeller customers to offer a direct connect
service utilizing personal financial management tools for their
customers;
* MemberConnect Web[TM], an Internet-based home banking system for
credit union members;
* NetTeller[R], an Internet-based home banking system for individual
customers and commercial cash management for business customers of
banks;
* PowerPay[TM] , which allows customers to pay bills online.
ACH Solutions
We provide a suite of ACH payment solutions for financial insitituons and
their commercial customers. Our offerings include:
* PowerPay.ach allows processing of ACH transactions for businesses,
including all electronic payments, direct deposit payroll, and the
conversion of checks to electronic items;
* PowerPay.arc is a web enabled software solution that businesses use
for converting checks they receive in the mail or in a drop box into
ACH items, and
* PowerPay.rck allows the conversion of NSF paper checks into ACH
items.
ATM Solutions
We provide a suite of ATM solutions that offers financial institutions the
ability to manager all aspects of their ATM and debit card transactions.
Our offerings include:
* ATM Manager Pro, a stand-alone product, provides the reporting and
operational analysis tools for ATM owners from small to very large
deplorers to properly manage their ATM network;
* PassPort.atm[TM] can drive and monitor all types of lease lines and
dial-up ATM's, along with the switch processing services connecting
financial institutions to regional and national networks;
* PassPort.dc[TM] allows financial institutions to issue, support, and
manage signature based Visa[R] Check or MasterMoney[TM] debit cards
worldwide;
* PassPort.pro[TM] provides all the capabilities a financial
institution needs for online authorization as well as for driving
and monitoring its own network of hundreds of ATMs.
Customer Relationship Management
We offer two different CRM solutions for our customers:
* Synapsys[TM] is a powerful stand-alone tool integrated with our
strategic core products and provides an enterprise-wide relationship
management solution for both retail and commercial customers that
integrates sales management, customer profiling, automated sales
tracking, profitability assessment, lead generation, and referral
tracking capabilities. Its client/server system allows users to
download data from existing in-house and external processing
systems;
* ARGOKeys[TM] is the ARGO/JHA joint solution for our Silverlake
customers' that provides an enterprise wide branch sales and
automation solution, including a deposit platform, a lending
platform with an advanced automated decision module, and a complete
CRM solution, all of which is fully integrated with our core and
teller systems.
Research and Development
We devote significant effort and expense to develop new software, service
products and continually upgrade and enhance our existing offerings.
Typically, we upgrade our core software applications and complementary
services once per year. We believe our research and development efforts are
highly efficient because of the extensive experience of our research and
development staff and because our product development is highly customer-
driven. Through our regular contact with customers at user group meetings,
sales contacts and our ongoing maintenance services, our customers inform
us of the new products and functionalities they desire. Research and
development expenses for fiscal 2004, 2003, and 2002 were $23.7 million,
$15.9 million, $12.5 million, respectively.
Sales and Marketing
Our primary markets consist of commercial banks and credit unions.
Dedicated sales forces, inside sales teams, and technical sales support
teams conduct our sales efforts for our two market segments, and are
overseen by regional sales managers. Our dedicated sales executives are
responsible for pursuing lead generation activities for new core solutions.
Our account executives nurture long-term relationships with our client base
and cross sell our many complementary products and services. Our inside
sales force markets specific complementary products to our existing
customers. All sales force personnel have responsibility for a specific
territory. The sales support teams write business proposals and contracts
and prepare responses to request-for-proposals regarding our software and
hardware solutions. All of our sales professionals receive a base salary
and performance-based commission compensation.
Our marketing efforts consist of sponsorship and attendance at trade shows,
e-mail newsletters, print media advertisement placements, telemarketing, and
national and regional marketing campaigns. We also conduct a number of
national user group meetings each year, which enable us to keep in close
contact with our customers and demonstrate new products and services to
them.
We have 18 installations in the Caribbean. Our international sales have
accounted for less than 1% of our total revenues in each of the three years
ended June 30, 2004, 2003, and 2002.
Backlog
Our backlog consists of contracted in-house products and services (prior to
delivery) and the remaining portion of outsourcing contracts, which are
typically for five-year periods and represents the minimum guaranteed
payments over the remainder of the contract period. Our backlog at June 30,
2004 was $67.2 million for in-house products and services and $124.1 million
for outsourcing services, with a total backlog of $191.3 million. Of the
$124.1 million amount of the backlog for outsourcing service at June 30,
2004, approximately $90.5 million is not expected to be realized in our
current fiscal year due to the long-term nature of many of our outsourcing
service contracts. Backlog at June 30, 2003 was $69.4 million for in-house
products and services and $113.7 million for outsourcing services, with a
total backlog of $183.1 million. Our backlog is subject to seasonal
variations and can fluctuate quarterly due to various factors, including
slower contract processing rates during the summer months.
Competition
The market for companies providing technology solutions to financial
institutions is competitive and fragmented, and we expect continued
competition from both existing competitors and companies entering our
existing or future markets. Some of our current competitors have longer
operating histories, larger customer bases, and greater financial resources.
The principal competitive factors affecting the market for our services
include comprehensiveness of the applications, features and functionality,
flexibility and ease of use, customer support, references from existing
customers and price. We compete with large vendors that offer transaction
processing products and services to financial institutions, including
Fidelity National Financial Inc., Fiserv, Inc., Intercept Inc., and
Metavante. In addition, we compete with a number of providers that offer
one or more specialized products or services. There has been significant
consolidation among providers of information technology products and
services to financial institutions, and we believe this consolidation will
continue in the future.
Intellectual Property, Patents, and Trademarks
Although we believe that our success depends upon our technical expertise
more than on our proprietary rights, our future success and ability to
compete depends in part upon our proprietary technology. We have registered
or filed applications for our primary trademarks. Most of our technology is
not patented. Instead, we rely on a combination of contractual rights and
copyrights, trademarks and trade secrets to establish and protect our
proprietary technology. We generally enter into confidentiality agreements
with our employees, consultants, resellers, customers, and potential
customers. We restrict access to and distribution of our source code and
further limit the disclosure and use of other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain or use our products or technology.
We cannot be sure the steps taken by us in this regard will be adequate to
prevent misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or
superior to our technology.
Government Regulation
The financial services industry is subject to extensive and complex federal
and state regulation. Our current and prospective customers, which consist
of financial institutions such as commercial banks and credit unions,
operate in markets that are subject to substantial regulatory oversight and
supervision. We must ensure our products and services work within the
extensive and evolving regulatory requirements applicable to our customers,
including those under the federal truth-in-lending and truth-in-savings
rules, usury laws, the Equal Credit Opportunity Act, the Fair Housing Act,
the Electronic Funds Transfer Act, the Fair Credit Reporting Act, the Bank
Secrecy Act, the USA Patriot Act, the Gramm-Leach-Bliley Act, and the
Community Reinvestment Act. The compliance of our products and services
with these requirements depends on a variety of factors including the
particular functionality, the interactive design and the classification of
customers. Our customers must assess and determine what is required of them
under these regulations and they contract with us to ensure that our
products and services conform to their regulatory needs. It is not possible
to predict the impact any of these regulations could have on our business in
the future.
The Sarbanes-Oxley Act of 2002 implemented a variety of regulations that are
intended to restore the public faith in the financial information that is
publicized by corporate entities. For our fiscal year ending June 2005, we
will be impacted by these rules through assessing and testing our internal
control over financial reporting.
We are not chartered by the Office of the Comptroller of Currency, the Board
of Governors of the Federal Reserve System, the National Credit Union
Administration or other federal or state agencies that regulate or supervise
depository institutions. The services provided by our OutLink Data Centers
are subject to examination by the Federal Financial Institution Examination
Council regulators under the Bank Service Company Act. On occasion, these
services are also subject to examination by state banking authorities.
We provide outsourced data and item processing through our geographically
dispersed OutLink Data Centers, electronic transaction processing through
PassPort ATM and Transaction Processing Solutions, Internet banking through
NetTeller online banking, and bank business recovery services through
Centurion Disaster Recovery. We are a service provider to financial
institutions and our operations are governed by the same regulatory
requirements as those imposed on financial institutions. As to these data
processing services, we are subject to periodic review by federal depository
institution regulators who have broad supervisory authority to remedy any
shortcomings identified in such reviews.
Employees
As of June 30, 2004 and 2003, we had 2,533 and 2,257 full time employees
respectively. Our employees are not covered by a collective bargaining
agreement and there have been no labor-related work stoppages. We consider
our relationship with our employees to be good.
Available Information
Our internet website is easily accessible to the public at
www.jackhenry.com. Our key corporate governance documents and our Code of
Conduct addressing matters of business ethics are available in the "Investor
Relations" portion of the website, together with archives of press releases
and other materials. Our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and other filings and amendments
thereto that we make with the U.S. Securities Exchange Commission (the
"SEC") are available free of charge on the website as soon as reasonably
practicable after such reports have been filed with or furnished to the SEC.
RISK FACTORS
The Company's business and the results of its operations are affected by
numerous factors and uncertainties, some of which are beyond our control.
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.
Changes within the banking and credit union industry could reduce demand for
our products. In the current environment of low interest rates, the profit
margins of commercial banks and credit unions have narrowed. As the economy
has stumbled, loan demand has slackened and loan defaults have increased.
As a result, many banks and credit unions have slowed or stopped their
capital spending, including spending on computer software and hardware,
affecting both sales to new customers and upgrade/complimentary product
sales to existing customers.
We may not be able to manage growth. We have grown both internally and
through acquisitions. Our expansion has and will continue to place
significant demands on our administrative, operational, financial and
management personnel and systems. We cannot assure you that we will be able
to enhance and expand our product lines, manage costs, adapt our
infrastructure and modify our systems to accommodate future growth.
If we fail to adapt our products and services to changes in technology, we
could lose existing customers and be unable to attract new business. The
markets for our software and hardware products and services are
characterized by changing customer requirements and rapid technological
changes. These factors and new product introductions by our existing
competitors or by new market entrants could reduce the demand for our
existing products and services and we may be required to develop or acquire
new products and services. Our future success is dependent on our ability
to enhance our existing products and services in a timely manner and to
develop or acquire new products and services. If we are unable to develop
or acquire new products and services as planned, or fail to achieve timely
market acceptance of our new or enhanced products and services, we may incur
unanticipated expenses, lose sales or fail to achieve anticipated revenues.
Acquisitions may be costly and difficult to integrate. We have acquired
several businesses and will continue to explore possible business
combinations in the future. We may not be able to successfully integrate
acquired companies. We may encounter problems in connection with the
integration of new businesses including: financial control and computer
system compatibility; unanticipated costs; unanticipated quality or customer
problems with acquired products or services; diversion of management's
attention; adverse effects on existing business relationships with suppliers
and customers; loss of key employees; and significant amortization expenses
related to identifiable intangible assets. Without additional acquisitions,
we may not be able to grow and to develop new products and services as
quickly as we have in the past to meet competitive challenges. If our
integration strategies fail, our business, financial condition and results
of operations could be materially and adversely affected.
If our strategic relationship with IBM were terminated, it could have
a negative impact on the continuing success of our business. We have
developed a strategic relationship with IBM. As part of this collaborative
relationship, we market and sell IBM hardware and equipment to our customers
under an IBM Business Partner Agreement and resell maintenance on IBM
hardware products to our customers. Much of our software is designed to be
compatible with the IBM hardware that is run by a majority of our
customers. If IBM were to terminate or fundamentally modify our strategic
relationship, our relationship with our customers and our revenues and
earnings would suffer. We could also lose software market share or be
required to redesign existing products or develop new products that would be
compatible with the hardware used by our customers.
Competition may result in price reductions and decreased demand for our
products and services. We expect competition in the markets we serve will
remain vigorous. We compete on the basis of product quality, reliability,
performance, ease of use, quality of support and pricing. We cannot
guarantee that we will be able to compete successfully with our existing
competitors or with companies entering our markets in the future. Certain
of our competitors have strong financial, marketing and technological
resources and, in some cases, a larger customer base than we do. They may
be able to adapt more quickly to new or emerging technologies or to devote
greater resources to the promotion and sale of their products and services.
The loss of key employees could adversely affect our business. We depend to
a significant extent on the contributions and abilities of our senior
management. Our Company has grown significantly in recent years and our
management remains concentrated in a small number of key employees. If we
lose one or more of our key employees, we could suffer a loss of sales and
delays in new product development, and management resources would have to be
diverted from other activities to compensate for this loss. We do not have
employment agreements with any of our executive officers; however, we
currently have a management succession plan in place.
Consolidation of financial institutions could reduce the number of our
customers and potential customers. Our primary market consists of
approximately 9,140 commercial banks (includes savings & loans ) and 9,400
credit unions. The number of commercial banks and credit unions has
decreased because of mergers and acquisitions over the last decade and is
expected to continue to decrease as more consolidation occurs, which will
reduce our number of potential customers. Because of this consolidation,
some of our existing customers could terminate, or refuse to renew their
contracts with us and potential customers could break off negotiations with
us.
The services we provide to our customers are subject to government
regulation that could hinder our ability to develop portions of our business
or impose additional constraints on the way we conduct our operations. The
financial services industry is subject to extensive and complex federal and
state regulation. As a supplier of services to financial institutions, some
of our operations are examined by the Office of the Comptroller of the
Currency, the Federal Reserve Board and the Federal Deposit Insurance
Corporation, among other regulatory agencies. These agencies regulate
services we provide and the manner in which we operate, and we are required
to comply with a broad range of applicable laws and regulations. In
addition, existing laws, regulations, and policies could be amended or
interpreted differently by regulators in a manner that has a negative impact
on our existing operations or that limits our future growth or expansion.
Our customers are also regulated entities, and the form and content of
actions by regulatory authorities could determine both the decisions they
make concerning the purchase of data processing and other services and the
timing and implementation of these decisions. The development of financial
services over the Internet has raised concerns with respect to the use,
confidentiality, and security of private customer information. Regulatory
agencies, Congress and state legislatures are considering numerous
regulatory and statutory proposals to protect the interests of consumers and
to require compliance by the industry with standards and policies that have
not been defined.
Network or Internet security problems could damage our reputation and
business. We rely on standard network and Internet security systems, most
of which we license from third parties, to provide the security and
authentication necessary to effect secure transmission of data. Computer
networks and the Internet are vulnerable to unauthorized access, computer
viruses and other disruptive problems. In addition, advances in computer
capabilities, new discoveries in the field of cryptography or other events
or developments may render our security measures inadequate. Someone who is
able to circumvent security measures could misappropriate proprietary
information or cause interruptions in our operations or those of our
customers. Security risks may result in liability to us and also may deter
financial institutions from purchasing our products. We may need to expend
significant capital or other resources protecting against the threat of
security breaches or alleviating problems caused by breaches. Eliminating
computer viruses and alleviating other security problems may result in
interruptions, delays or cessation of service to users, any of which could
harm our business.
As technology becomes less expensive and more advanced, purchase prices of
hardware may decline and our revenues and profits from remarketing
arrangements may decrease. Computer hardware technology is rapidly
developing. Hardware manufacturers are producing less expensive and more
powerful equipment each year, and we expect this trend to continue into the
future. As computer hardware becomes less expensive, revenues and profits
derived from our hardware remarketing may decrease and become a smaller
portion of our revenues and profits.
An operational failure in our outsourcing facilities could cause us to
lose customers. Damage or destruction that interrupts our provision of
outsourcing services could damage our relationship with certain customers
and may cause us to incur substantial additional expense to repair or
replace damaged equipment. Although we have installed back-up systems and
procedures to prevent or reduce disruption, we cannot assure you that we
will not suffer a prolonged interruption of our transaction processing
services. In the event that an interruption of our network extends for more
than several hours, we may experience data loss or a reduction in revenues
by reason of such interruption. In addition, a significant interruption of
service could have a negative impact on our reputation and could lead our
present and potential customers to choose service providers other than us.
If others claim that we have infringed their intellectual property rights,
we could be liable for significant damages. We do not believe that any of
our products or services infringe the proprietary rights of third parties.
We cannot be sure, however, that others will not make infringement claims,
and we have agreed to indemnify many of our customers against those claims.
We anticipate that the number of infringement claims will increase as the
number of software solutions and services increases and the functionality of
our products and services expands. Any of those claims, whether with or
without merit, could be time-consuming, result in costly litigation and may
not be resolved on terms favorable to us.
Expansion of services to non-traditional customers could expose us to new
risks. Some of our recent acquisitions include business lines that are
marketed outside our traditional, regulated, and litigation-averse base of
financial institution customers. These non-regulated customers may entail
greater operational, credit and litigation risks than we have faced before
and could result in increases in bad debts and litigation costs
Competitive pressures in our industry or general economic conditions may
require that we reduce our prices or offer other favorable terms to
customers on our products and services which could result in lower margins
and reduce net income. We compete with a variety of software vendors in all
of our major product lines. Some of our competitors may have advantages
over us due to their size, product lines, greater marketing resources, or
exclusive intellectual property rights. If competitors offer more favorable
pricing, payment or other contractual terms, warranties, or functionality,
or if general economic conditions decline such that customers are less
willing or able to pay the cost of our products, we may need to lower prices
or offer other favorable terms in order to successfully compete.
If requirements relating to the accounting treatment for employee stock
options are changed, we may be forced to change our business practices or
our earnings may be affected. We currently account for the issuance of
stock options under APB Opinion No. 25, "Accounting for Stock issued to
Employees." Certain proposals related to accounting for the grant of an
employee stock option as an expense are currently under consideration by
accounting standards organizations and governmental authorities. If such
proposals are adopted, our earnings will be negatively impacted. As a
result, we may decide to reduce the number of stock options granted to
employees or to grant options to fewer employees. This could affect our
ability to retain existing employees and attract qualified candidates, and
also could increase the cash compensation we would have to pay them.
Increases in service revenue as a percentage of total revenues may decrease
overall margins. We continue to experience a trend of a greater proportion
of our products being sold as outsourcing services rather than in-house
licenses. We realize lower margins on service revenues than on license
revenues. Thus, if service revenue increases as a percentage of total
revenue, our gross margins would be lower and our operating results may be
impacted.
Item 2. Properties
We own approximately 153 acres located in Monett, Missouri on which we
maintain eight office and shipping & receiving and maintenance buildings.
We also own buildings in Houston, Texas; Allen, Texas; Albuquerque, New
Mexico; Birmingham, Alabama; Angola, Indiana; Lenexa, Kansas; Shawnee
Mission, Kansas; Rogers, Arkansas; Oklahoma City, Oklahoma and San Diego,
CA. Our owned facilities represent approximately 692,000 square feet of
office space in nine states. We have 34 leased office facilities in 21
states, which total approximately 240,000 square feet. All of the space is
utilized for normal business purposes.
Of these facilities, leased office space totaling approximately 44,500 in
one facility is devoted primarily to serving our credit union business
segment, with the remainder of our leased and all owned facilities primarily
devoted to serving our bank business segment. We have purchased a building
in San Diego, CA with approximately 93,000 square feet, that when occupied
in the future, will replace the leased building in San Diego, CA
specifically for the credit union segment of our business.
We own seven aircraft, which are utilized for business purposes. Many of
our customers are located in communities that do not have an easily
accessible commercial airline service. We primarily use our airplanes in
connection with installation, sales of systems and internal requirements for
day-to-day operations. Transportation costs for installation and other
customer services are billed to our customers. We lease property, including
real estate and related facilities, at the Monett, Missouri municipal
airport.
Item 3. Legal Proceedings
We are subject to various routine legal proceedings and claims arising in
the ordinary course of business. We do not expect that the results in any of
these legal proceedings will have a material adverse effect on our business,
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 quoted on the Nasdaq National Market under the
symbol "JKHY". The following table sets forth, for the periods indicated,
the high and low sales price per share of the common stock as reported by
the Nasdaq National Market.
Fiscal 2004 High Low
-------------------------------------
First Quarter $19.75 $16.25
Second Quarter 22.04 17.46
Third Quarter 21.00 17.70
Fourth Quarter 20.16 17.70
Fiscal 2003 High Low
-------------------------------------
First Quarter $17.22 $11.76
Second Quarter 13.71 7.24
Third Quarter 14.89 9.90
Fourth Quarter 18.32 10.34
The Company established a practice of paying quarterly dividends at the end
of fiscal 1990 and has paid dividends with respect to every quarter since
that time. Quarterly dividends per share paid on the common stock for the
two most recent fiscal years ended June 30, 2004 and 2003 are as follows:
Fiscal 2004 Dividend
-----------------------------
First Quarter $0.035
Second Quarter 0.035
Third Quarter 0.040
Fourth Quarter 0.040
Fiscal 2003 Dividend
-----------------------------
First Quarter $0.035
Second Quarter 0.035
Third Quarter 0.035
Fourth Quarter 0.035
The declaration and payment of any future dividends will continue to be at
the discretion of our Board of Directors and will depend upon, among other
factors, our earnings, capital requirements, contractual restrictions, and
operating and financial condition. The Company does not currently foresee
any changes in its dividend practices.
Information regarding the Company's equity compensation plans is set forth
under the caption "Equity Compensation Plan Information" in the Company's
definitive Proxy Statement and is incorporated herein by reference.
On August 17, 2004, there were approximately 49,909 holders of the Company's
common stock. On that same date the last sale price of the common shares as
reported on NASDAQ was $17.96 per share.
Item 6. Selected Financial Data
Selected Financial Information*
(In Thousands, Except Per Share Data)
YEAR ENDED JUNE 30,
-------------------------------------------------------
Income Statement Data 2004 2003 2002 *2001 *2000
---------------------------------------------------------------------------------------------
Revenue (1) $467,415 $404,627 $396,657 $366,903 $239,841
Income from continuing operations $ 62,315 $ 49,397 $ 57,065 $ 55,631 $ 34,350
Loss from discontinued operations $ - $ - $ - $ - $ 332
Net income $ 62,315 $ 49,397 $ 57,065 $ 55,631 $ 34,018
Diluted income per share:
Income from continuing operations $ 0.68 $ 0.55 $ 0.62 $ 0.61 $ 0.40
Loss from discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Net income $ 0.68 $ 0.55 $ 0.62 $ 0.61 $ 0.40
Dividends declared per share $ 0.15 $ 0.14 $ 0.13 $ 0.11 $ 0.09
Balance Sheet Data
------------------
Working capital $ 85,818 $ 70,482 $ 67,321 $ 65,032 $(47,990)
Total assets $653,614 $548,575 $486,142 $433,121 $321,082
Long-term debt $ - $ - $ - $ 228 $ 320
Stockholders' equity $442,918 $365,223 $340,739 $302,504 $154,545
* Selected financial information for 2000 has been restated to include an
acquisition that had been accounted for as pooling-of-interests as if it had
occurred at the beginning of the earliest period reported. Revenue for the
years ended June 30, 2001 and 2000 have been restated for the adoption
of Emerging Issues Task Force Issue No. 01-14, "Income Statement
Characterization of Reimbursements Received for 'Out of Pocket' Expenses
Incurred".
(1) Revenue includes license sales, support and service revenues, and
hardware sales, less returns and allowances.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the consolidated financial statements and
related notes included elsewhere in this report.
OVERVIEW
We provide integrated computer systems for in-house and outsourced data
processing to commercial banks, credit unions and other financial
institutions. We have developed and acquired banking and credit union
application software systems that we market, together with compatible
computer hardware, to these financial institutions. We also perform data
conversion and software installation for the implementation of our systems
and provide continuing customer support services after the systems are
installed. For our customers who prefer not to make an up-front capital
investment in software and hardware, we provide our full range of products
and services on an outsourced basis through our seven data centers and 17
item-processing centers located throughout the United States.
We derive revenues from three primary sources of revenue:
- sales of software licenses;
- support and service fees, which include installation services; and
- hardware sales.
Over the last five fiscal years, our revenues have grown from $239.8 million
in fiscal 2000 to $467.4 million in fiscal 2004. Income from continuing
operations has grown from $34.4 million in fiscal 2000 to $62.3 million in
fiscal 2004. This growth has resulted primarily from internal expansion
supplemented by strategic acquisitions, allowing us to develop and acquire
new products and services and expand the number of customers who use our
core software systems to approximately 2,340 as of June 30, 2004.
Since the start of our fiscal year 2000, we have completed twelve accretive
acquisitions. Eleven of these acquisitions were accounted for using the
purchase method of accounting and our consolidated financial statements
include the results of operations of the acquired companies from their
respective acquisition dates. The remaining acquisition was accounted for
using the pooling-of-interests method.
License revenue represents the sale and delivery of application software
systems contracted with us by the customer. We license our proprietary
software products under standard license agreements that typically provide
the customer with a non-exclusive, non-transferable right to use the
software on a single computer and for a single financial institution
location. In revenue arrangements with multiple elements, the components
are all separately and independently priced within the related contracts.
Allocation of revenue is consistent with pricing when each product or
service is sold separately establishing Vendor Specific Objective Evidence
("VSOE"). Generally, a deposit is payable upon execution of the license
agreement with additional payments due at specified times after contract
signing. We recognize software license revenue upon delivery and acceptance
of the software and documentation.
Support and services fees are generated from installation services
contracted with us by the customer, ongoing support services to assist the
customer in operating the systems and to enhance and update the software,
and from providing outsourced data processing services and ATM and debit
card processing services. We recognize installation services revenue as
services are performed under hourly contracts and at the completion of the
installations under fixed fee contracts. Revenues from software support are
generated pursuant to annual agreements and are recognized ratably over the
life of the agreements. Outsourcing services are performed through data and
item centers. Revenues from outsourced item and data processing and ATM and
debit card processing services are derived from monthly usage fees typically
under five-year service contracts with our customers. We recognize the
revenues under these contracts as services are performed.
Cost of license fees represents the third party vendor costs associated with
license fee revenue.
Cost of services represents costs associated with conversion and
installation efforts, ongoing support for our in-house customers, operation
of our data and item centers providing services for our outsourced
customers, ATM and debit card processing services, and direct operation
costs. These costs are recognized as they are incurred.
We have entered into remarketing agreements with several hardware
manufacturers under which we sell computer hardware and related services to
our customers. Revenues from hardware sales are recognized when the
manufacturers ship the hardware directly to our customers. Cost of hardware
consists of the direct and related costs of purchasing the equipment from
the manufacturers and delivery to our customers. These costs are recognized
at the same time as the related revenue.
We have two business segments: bank systems and services and credit union
systems and services. The respective segments include all related license,
support and service, and hardware sales along with the related cost of
sales.
RESULTS OF OPERATIONS
FISCAL 2004 COMPARED TO FISCAL 2003
Fiscal year 2004 showed strong growth in revenues and improved gross and
operating margins, which allowed us to leverage a 16% increase in revenues
to a 26% increase in net income.
REVENUE - Revenues increased 16% from $404.6 million in fiscal 2003 to
$467.4 million in fiscal 2004. Fiscal 2004 license revenue increased 30% to
$62.6 million from $48.3 million. Support and service revenue increased 20%
to $311.3 million from $260.5 million in fiscal 2003. In fiscal 2004,
hardware revenue decreased by 2%, to $93.5 million from $95.9 million.
License revenue grew by $14.3 million dollars compared to last fiscal year
due to increased delivery of software relating to the timing of
installations. Support and service revenue, which includes outsourcing, in-
house support, ATM and debit card processing, and installation services
increased by $50.8 million and contributed to 67% of fiscal revenues
compared with 64% in fiscal 2003. The increase reflects an increase of
$23.8 million for in-house support, a 19% increase from fiscal 2003. In-
house support increased due to our continued installation of core and
complementary products during the fiscal year, for which most of these
customers contract for ongoing support service, beginning upon final
installation. Outsourcing services grew by $11.8 million, which reflects a
17% increase in fiscal 2004 due to growth in volume with existing customers
and installations of new customers which led to expansion of our data
centers. ATM and debit card processing services realized growth of $9.6
million for the year with an increase of 36%. We began offering these
services to the credit union segment this year, which contributed to the
growth. Installation services grew by $5.6 million or 15% over the prior
year correlating to the increase of license revenue. Recurring revenue
(support and service revenue less installation services) increased to 57% of
total revenue in fiscal 2004 from 55% of total fiscal 2003 revenue.
Support and Services Revenue
(in millions) Fiscal 2004 Compared to Fiscal 2003
-----------------------------------
Dollar Increase Percent Increase
--------------- ----------------
In-House Support $23.8 19%
Outsourcing Services $11.8 17%
ATM and Debit Card Services $9.6 36%
Installation Services $5.6 15%
----- ----
Total Increase $50.8 20%
===== ====
Hardware revenue remained relatively flat year over year, while decreasing
to 20% of revenues compared with 24% of fiscal 2003 revenues primarily due
to the increase in our license revenue and expansion and growth in our
support and service revenue for the year.
COST OF SALES - Cost of sales increased 11% for the year, from $251.3
million in fiscal 2003 to $279.4 million in fiscal 2004. Cost of support
and service increased 17% to $207.7 million from $178.3 million in fiscal
2003. The increase is primarily due to a 12% increase in employee related
expenses for increased headcount and a 24% increase in depreciation and
amortization expense included in the cost of support and service. This is
due mainly to our efforts to continue improving operating efficiencies by
investing and upgrading technology equipment. Both fiscal years' cost of
support and service remained constant at 44% of total revenue. Cost of
license increased 22%, from $3.9 million in fiscal 2003 to $4.7 million in
fiscal 2004, mainly due to obligations to third party vendors for the
software we resell. Cost of hardware decreased 3% to $67.0 million or 14%
of total revenue in fiscal year 2004 from $69.1 million or 17% of revenue in
2003 fiscal year. The decrease in cost of hardware correlates to the
decrease in hardware revenue.
GROSS PROFIT - Gross profit increased 23% to $188.0 million in fiscal 2004
from $153.3 million in fiscal 2003. The gross margin for fiscal 2004 was 40%
compared to 38% for fiscal 2003. Gross profit on license revenue increased
$13.5 million or 30% in fiscal 2004. Gross margin on license revenue
remained consistent at 92% for both fiscal years. The gross profit
improvement is due to a significant increase in the delivery of the
Company's core and complementary software licenses. For fiscal year 2004,
delivery of third party license revenue and cost remained flat when compared
with fiscal 2003.
Gross profit for support and service increased $21.4 million or 26% in
fiscal year 2004 compared to fiscal 2003. Support and service gross margin
improved to 33% this year from 32% in the prior year. The increase is
primarily due to increased volumes, increased number of customers, and
continued leveraging of resources of employees and equipment in our
outsourcing and ATM/Debit card processing services.
Hardware gross margin for fiscal year 2004 and fiscal 2003 remained even at
28%.
OPERATING EXPENSES - Operating expenses increased 17% for the current year,
with the majority of the increase generated from research and development
expenses. Research and development expenses increased 49% to $23.7 million
for fiscal 2004, compared to $15.9 million for fiscal 2003. The increase is
primarily attributable to a 45% increase in employee related expenses. The
increase includes standard salary increases along with additional employee
headcount for ongoing development of new products and enhancements to
existing products in both segments of our business.
Selling and marketing expenses increased 17% to $36.0 million in 2004
compared to $30.7 million for fiscal year 2003. The increase relates to
higher employee related expenses in fiscal 2004 compared with fiscal 2003,
which is relatively in line with the growth in revenue. General and
administrative expenses remained flat at $29.5 million for both fiscal
years. This is due to overall cost control measures implemented throughout
the year.
INTEREST INCOME (EXPENSE) - Interest income (expense) increased from $0.5
million in fiscal 2003 to $0.9 million in fiscal 2004. Interest income
increased 60% from $0.6 million to $1.0 million due to higher invested
balances. Interest expense decreased 3% from $110,000 in fiscal year 2003
to $107,000 in fiscal 2004.
PROVISION FOR INCOME TAXES - The provision for income taxes was $37.4
million or 37.5% of income before income taxes in fiscal 2004 compared with
$28.4 million, or 36.5% of income before income taxes in fiscal 2003. The
increase in the percentage for fiscal 2004 is due to changes in various
state tax laws and the allocation of income amongst states.
NET INCOME - Net income increased 26% from $49.4 million, or $0.55 per
diluted share in fiscal 2003 to $62.3 million, or $0.68 per diluted share in
fiscal 2004.
FISCAL 2003 COMPARED TO FISCAL 2002
Fiscal year 2003 was a profitable but challenging year due to being one of
the most difficult markets the technology industry has seen in more than a
decade. Revenue was relatively flat compared to the prior year with
decreased gross margins primarily due to a 7% increase in cost of sales,
which resulted in a 13% decrease in net income
REVENUE - Revenues increased 2% from $396.7 million in fiscal 2002 to $404.6
million in fiscal 2003. Compared to fiscal 2002, license fees decreased 27%,
support and service revenues increased 14%, and hardware sales decreased 5%.
Reflecting the strength in new outsourcing business, revenues from support
and services continues to grow, increasing to 64% of revenues in 2003
compared to 58% of 2002 revenues. The increase is composed of $10.8 million
or 17% increase in outsourcing services, $5.2 million or 24% growth in ATM
and debit card processing services, $16.4 million or 16% growth in in-house
support and, a slight decrease of $0.6 million or 2% for installation
services. Recurring revenue (support and service revenue less installation
services) increased to 55% of total revenue in fiscal 2003 from 47% of total
fiscal 2002 revenue.
Continued softness in banking core system sales negatively impacted revenues
from license fees and hardware sales in 2003. For the year, license fees
dropped 27% to $48.3 million or 12% of total 2003 revenues, compared to
$66.6 million, or 17% of 2002 revenues. The decrease is due to the overall
reduced number of software licenses delivered during the year in our bank
segment. Hardware revenue decreased 5% to $95.9 million or 24% of fiscal
2003 revenues compared with $101.3 million or 26% of fiscal 2002 revenues.
This decline is primarily attributable to the decrease in software sales
which typically drives the sale of related hardware.
COST OF SALES - Cost of sales increased 7% during the fiscal year, primarily
due to a 9% increase in employee related expenses included in cost of
services. Cost of license increased 55%, from $2.5 million in fiscal 2002
to $3.9 million in fiscal 2003, primarily due to obligations to third party
vendors for the software we resell. Cost of services increased 10% to
$178.3 million or 44% of revenue in fiscal 2003 compared to $161.5 million
or 41% of revenue in the fiscal 2002, which is in line with the increase in
revenue. Cost of hardware decreased 3% from $71.4 million or 18% of revenue
in year 2002 to $69.1 million or 17% of revenue in current 2003 fiscal year.
GROSS PROFIT - Gross profit decreased 5% from $161.2 million in fiscal 2002
to $153.3 million in fiscal 2003. The total gross margin for fiscal 2003
was 38% compared to 41% for fiscal 2002. Gross profit on license sales
decreased $19.7 million or 31% and gross margin decreased from 96% in fiscal
2002 to 92% in fiscal 2003. The decrease in gross profit was due to the
overall weakness in the capital goods market and the reduction in the margin
is primarily due to the decrease in license revenue, which is our highest
margin revenue.
Gross profit for support and services increased $15.0 million or 22% in
fiscal year 2003 compared to fiscal 2002. Support and service margins
continue to strengthen to 32% this year from 29% in the prior year. The
increase is primarily due to increased volumes, increased number of
customers, and continued leveraging of resources in our outsourcing and
ATM/Debit card processing services.
Hardware gross margin for the current fiscal year 2003 was 28%, compared to
30% margin in fiscal year 2002. The decrease in hardware margin for the
year is primarily attributable to the sales mix of products. In fiscal 2003
our hardware sales included a higher percentage of servers and personal
computers related to networks than in 2002. Network hardware has a
significantly lower margin than midrange hardware and reader sorters.
Another contributing factor to lower gross margin has been reduced vendor
incentives in fiscal 2003.
OPERATING EXPENSES - Operating expenses increased 2% for the current year,
with the majority of the increase generated from research and development
expenses. Research and development expenses went up by 27% to $15.9 million
for fiscal 2003 as compared to $12.5 million for fiscal 2002. The increase
is primarily attributable to a 27% increase in employee related expenses for
ongoing development of new products and enhancements to existing products in
both segments of our business. Selling and marketing annual expenses
increased 4% to $30.7 million in 2003 compared to $29.4 million for fiscal
year 2002. General and administrative expenses decreased 10% to $29.5
million this year from $32.7 million in fiscal year 2002, mainly due from
ongoing efforts to control expenses by management.
INTEREST INCOME (EXPENSE) - Interest income (expense) decreased from $1.8
million in fiscal 2002 to $0.5 million in fiscal 2003. Interest income
decreased 69% from $2.0 million to $0.6 million due to lower interest rates
on investments. Interest expense decreased $81,000 from $191,000 in fiscal
year 2002 to $110,000 in fiscal 2003. The decrease is due to short term
borrowings being paid off in January 2002, with no additional borrowings
since that date.
PROVISION FOR INCOME TAXES - The provision for income taxes was $28.4
million or 36.5% of income before income taxes in fiscal 2003, compared with
$31.4 million, or 36% of income before income taxes in fiscal 2002. The
increase in the tax rate in the current fiscal year is due to changes in
effective state income tax rates.
NET INCOME - Net income decreased 13% from $57.1 million, or $.62 per
diluted share in fiscal 2002 to $49.4 million, or $.55 per diluted share in
fiscal 2003.
Business Segment Discussion
Bank Systems and Services
(in millions) 2004 2003
Increase/ Increase/
2004 2003 2002 Decrease Decrease
---- ---- ---- -------- --------
Revenue $382.1 $343.1 $339.3 11% 1%
Gross Profit $154.6 $135.0 $143.6 15% -6%
Gross Profit Margin 40% 39% 42%
Revenues in the bank systems and services business segment increased 11% to
$382.1 million in fiscal 2004 from $343.1 million in fiscal 2003. This
increase was primarily due to improved license sales for most products and
continued growth in support and service revenue. Gross profit in this
business segment increased 15% to $154.6 million or 40% gross margin in
fiscal 2004 from $135.0 million or 39% gross margin for the year ended June
30, 2003. The increase in gross profit is primarily due to increases in
revenue combined with improved procedures, leverage of infrastructure and
overall cost controls.
Revenues in the bank systems and services business segment increased 1% from
$339.3 million in fiscal 2002 to $343.1 million in fiscal 2003. Gross
profit in this business segment decreased 6% from $143.6 million or 42%
gross margin in fiscal 2002 to $135.0 million or 39% gross margin for the
year ended June 30, 2003. This decline in gross profit is primarily due to
the industry trend of an overall decrease in capital spending for the fiscal
year and is reflected by the significant decrease in software and hardware
revenues offset somewhat by the increase in services revenue. The decrease
in gross margin is primarily due to the significant reduction in license
revenue, which is our highest margin revenue
Credit Union Systems and Services
(in millions) 2004 2003
2004 2003 2002 Increase Increase
---- ---- ---- -------- --------
Revenue $85.3 $61.5 $57.3 39% 7%
Gross Profit $33.3 $18.3 $17.7 82% 3%
Gross Profit Margin 39% 30% 31%
Revenues in the credit union systems and services business segment increased
to $85.3 million in fiscal 2004 from $61.5 million in fiscal 2003,
representing a 39% increase. This increase was primarily due to improved
license sales and strong growth in support and service revenue from new
services introduced this year. Gross profit in this business segment
increased from $18.3 million or 30% gross profit margin in fiscal 2003 to
$33.3 million or 39% gross profit margin for the year ended June 30, 2004.
The credit union segment margin growth is primarily due to additional
products and services sold which carry a higher gross profit margin,
continued leverage of existing resources, improved processes and procedures
combined with overall cost controls.
Revenues in the credit union systems and services business segment
increased from $57.3 million in fiscal 2002 to $61.5 million in fiscal
2003, representing a 7% increase. Gross profit in this business segment
increased from $17.7 million or 31% gross profit margin in fiscal 2002 to
$18.3 million or 30% gross profit margin for the year ended June 30, 2003.
Despite the sluggish economy, the credit union segment was able to achieve
growth in revenue and maintain a consistent gross margin. The increase in
revenue was due to additional core customers during the year and expanded
product offerings in this segment.
Liquidity and Capital Resources
We have historically generated positive cash flow from operations and have
generally used existing resources and funds generated from operations to
meet capital requirements. We expect this trend to continue in the future.
The Company's cash and cash equivalents increased to $53.8 million at June
30, 2004, from $32.0 million at June 30, 2003. Cash provided by operations
increased $13.9 million to $112.8 million for the fiscal year ended June 30,
2004 as compared to $98.9 million for the fiscal year ended June 30, 2003.
The increase consists of an increase in net income of $12.9 million, an
increase in depreciation and amortization expense of $3.3 million, a $2.4
million decrease in deferred income taxes, an increase in loss on disposal
of property and equipment of $2.3 million, and a decrease of $0.7 million in
other expenses. There was an increase of $0.6 million in the change of
trade receivables, prepaid expenses, accounts payable and accrued expenses,
plus an increase of $10.4 million in the change in accrued income taxes and
a decrease of $12.5 in the change in deferred revenues.
Cash used in investing activities for the fiscal year ended June 2004 was
$100.0 million, which included capital expenditures of $49.1 million,
primarily for an office building in San Diego, CA, a new facility
in Birmingham, AL, and building infrastructure within the company.
Acquisitions of four businesses which expanded our product offerings and
expanded our potential market, used $48.3 million, while $4.4 million was
used for software development costs. Financing activities generated cash of
$9.0 million, primarily from the proceeds from issuance of stock upon
exercise of stock options less dividends paid of $13.4 million.
On September 21, 2001, the Company's Board of Directors approved a stock
buyback of the Company's common stock of up to 3.0 million shares, and
approved an increase to 6.0 million shares on October 4, 2002. The buyback
has been funded with cash from operations. As of June 30, 2003, 3,012,933
shares had been purchased for $49,218,870. No shares were repurchased during
fiscal 2004. During fiscal 2004 there were 2,009,694 shares and 37,776
shares reissued from treasury stock for the shares exercised in the employee
stock option plan and the employee stock purchase plan, respectively. At
June 30, 2004, there were 315,651 shares remaining in treasury stock.
During fiscal 2003, 501,740 shares and 60,249 shares were reissued from
treasury stock for the shares exercised in the employee stock option plan
and the employee stock purchase plan, respectively.
We currently have a bank credit line that provides for funding of up to $8.0
million and bears interest at the prime rate (4 1/4 % at June 30, 2004).
There were no outstanding amounts during the years ended and as of June 30,
2004 and 2003.
Subsequent to June 30, 2004, the Company's Board of Directors declared a
cash dividend of $.04 per share on its common stock payable on September 21,
2004, to stockholders of record on September 8, 2004. Current funds from
operations are adequate for this purpose. The Board has indicated that it
plans to continue paying dividends as long as the Company's financial
picture continues to be favorable.
Contractual Obligations and Other Commitments
At June 30, 2004, the Company's total off-balance sheet contractual
obligations were $10.9 million. This balance consists of $4.0 million of
long-term operating leases for various facilities which expire from 2005 to
2009 and the remaining $6.9 million is for purchase commitments related to
property and equipment.
Recent Accounting Pronouncements
Effective November 22, 2002, the Emerging Issues Task Force ("EITF") reached
a consensus regarding EITF Issue No. 02-16, Accounting by a Customer,
Including a Reseller, for Cash Consideration Received from a Vendor. This
consensus requires that payments from a vendor be classified as a reduction
to the price of the vendor's goods and taken as a reduction to cost of sales
unless the payments are (1) a reimbursement for costs incurred to sell the
product or (2) a payment for assets or services provided. The consensus
also requires that payments from a vendor be recognized as a reduction to
cost of sales on a rational and systematic basis. This consensus is
effective for fiscal years beginning after December 15, 2002 (July 1, 2003
for JHA). The adoption of this consensus on July 1, 2003 did not have a
material impact on the Company's consolidated financial position or results
of operations.
In January and December 2003, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 46 ("FIN 46") and No. 46, revised
("FIN 46R"), Consolidation of Variable Interest Entities, ("VIE"). These
statements, which address accounting for entities commonly known as special-
purpose or off-balance-sheet entities, require consolidation of certain
interest or arrangements by virtue of holding a controlling financial
interest in such entities. Certain provisions of FIN 46R related to
interests in special-purposes entities were applicable for the period ended
March 31, 2004. The Company has considered the application of FIN 46 and
FIN 46R to certain business relationships, and concluded that the adoption
of this new method of accounting for variable interest entities did not and
is not expected to have a material impact on the consolidated results of
operations and financial position.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No.
150 requires classification of a financial instrument that is within its
scope as a liability, or an asset in some circumstances. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and was therefore effective for the Company on July 1, 2003. The
adoption of this standard did not have a material impact on the Company's
financial statements.
In December 2003, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition. SAB No. 104
supercedes SAB No. 101, Revenue Recognition in Financial Statements. The
primary purpose of SAB No. 104 is to rescind accounting guidance contained
in SAB No. 101 related to multiple element revenue arrangements, superceded
as a result of the issuance of EITF Issue No. 00-21. Additionally, SAB No.
104 rescinds the SEC's Revenue Recognition in Financial Statements
Frequently Asked Questions and Answers ("the FAQ") issued with SAB No. 101
that has been codified in SEC Topic 13, Revenue Recognition. Selected
portions of the FAQ have been incorporated into SAB No. 104. While the
wording of SAB No. 104 has changed to reflect the issuance of EITF Issue No.
00-21, the revenue recognition principles of SAB No. 101 remain largely
unchanged by the issuance of SAB No. 104. The adoption of SAB No. 104 did
not have a material impact on the Company's financial statements.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States. The
significant accounting policies are discussed in Note 1 to the consolidated
financial statements. Certain of these accounting policies as discussed
below require management to make estimates and assumptions about future
events that could materially affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
We record revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended. We recognize revenue from sales
of hardware, software and services and from arrangements involving multiple
elements of each of the above. Revenue for multiple element arrangements is
recorded based on contractual amounts, which are determined based upon the
price charged when sold separately. Revenue is not recognized until
persuasive evidence of an arrangement exists, delivery has occurred, the fee
is fixed and determinable, and collectibility is probable. Sales of
hardware and equipment are recorded when title and risk of loss transfers.
Licensing revenues are recorded upon delivery and acceptance of the
software. Service fees for training and installation are recognized as the
services are provided. Support revenues are recorded evenly over the
related contract period.
As discussed previously in the overview, the Company has established VSOE
separately for all the individual components of licensing, installation,
support, and hardware and recognizes revenue separately for the various
components. The components are all independently priced and consistent with
pricing when each element is sold separately. There are no rights of
return, conditions of acceptance or price protections in our contracts.
The calculation of depreciation and amortization expense is based on the
estimated economic lives of the underlying property, plant and equipment and
intangible assets, which have been examined for their useful life and
determined that no impairment exists. We believe it is unlikely that any
significant changes to the useful lives of our tangible and intangible
assets will occur in the near term, but rapid changes in technology or
changes in market conditions could result in revisions to such estimates
that could materially affect the carrying value of these assets and the
Company's future consolidated operating results. All long lived assets are
tested for valuation and potential impairment on a scheduled periodic basis.
Forward Looking Statements
Except for the historical information contained herein, the matters
discussed in the Management's Discussion and Analysis of Financial Condition
and Results of Operations 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 in "Risk
Factors" in Item 1 of the Company's 2004 Form 10-K annual report filed with
the Securities and Exchange Commission. Undue reliance should not be placed
on the forward-looking statements. The Company does not undertake any
obligation to publicly update any forward-looking statements.
Potential risks and uncertainties which could adversely affect the Company
include: the financial health of the banking industry, our ability to
continue or effectively manage growth, adapting our products and services to
changes in technology, changes in our strategic relationships, price
competition, loss of key employees, consolidation in the banking industry,
increased government regulation, network or internet security problems,
declining computer hardware prices, and operational problems in our
outsourcing facilities.
Item 7A. Quantitative and Qualitative Disclosures 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 instruments will not have a material adverse effect on our
consolidated financial position or results of operations.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm 25
Financial Statements
Consolidated Statements of Income,
Years Ended June 30, 2004, 2003, and 2002 26
Consolidated Balance Sheets, June 30, 2004 and 2003 27
Consolidated Statements of Changes in Stockholders' Equity,
Years Ended June 30, 2004, 2003, and 2002 28
Consolidated Statements of Cash Flows,
Years Ended June 30, 2004, 2003, and 2002 29
Notes to Consolidated Financial Statements 30
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and
2003, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended June 30, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 2004, in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 24, 2004
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
YEAR ENDED JUNE 30,
--------------------------------
2004 2003 2002
-------- -------- --------
REVENUE
License $ 62,593 $ 48,284 $ 66,576
Support and service 311,287 260,452 228,744
Hardware 93,535 95,891 101,337
-------- -------- --------
Total 467,415 404,627 396,657
COST OF SALES
Cost of license 4,738 3,890 2,509
Cost of support and service 207,730 178,256 161,523
Cost of hardware 66,969 69,145 71,405
-------- -------- --------
Total 279,437 251,291 235,437
-------- -------- --------
GROSS PROFIT 187,978 153,336 161,220
OPERATING EXPENSES
Selling and marketing 35,964 30,664 29,380
Research and development 23,674 15,892 12,526
General and administrative 29,534 29,509 32,668
-------- -------- --------
Total 89,172 76,065 74,574
-------- -------- --------
OPERATING INCOME 98,806 77,271 86,646
INTEREST INCOME (EXPENSE)
Interest income 1,006 630 2,018
Interest expense (107) (110) (191)
-------- -------- --------
Total 899 520 1,827
-------- -------- --------
INCOME BEFORE INCOME TAXES 99,705 77,791 88,473
PROVISION FOR INCOME TAXES 37,390 28,394 31,408
-------- -------- --------
NET INCOME $ 62,315 $ 49,397 $ 57,065
======== ======== ========
Diluted net income per share $ 0.68 $ 0.55 $ 0.62
======== ======== ========
Diluted weighted average shares outstanding 91,859 89,270 92,367
======== ======== ========
Basic net income per share $ 0.70 $ 0.56 $ 0.64
======== ======== ========
Basic weighted average shares outstanding 89,325 87,866 89,316
======== ======== ========
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,
--------------------------
2004 2003
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 53,758 $ 32,014
Investments, at amortized cost 998 998
Trade receivables 169,873 150,951
Prepaid expenses and other 14,023 13,816
Prepaid cost of product 19,086 18,483
Deferred income taxes 1,320 1,000
---------- ----------
Total 259,058 217,262
PROPERTY AND EQUIPMENT, net 215,100 196,046
OTHER ASSETS:
Prepaid cost of product 6,758 10,021
Computer software, net of amortization 18,382 12,500
Other non-current assets 5,791 5,146
Customer relationships, net of amortization 61,368 59,358
Trade names 4,029 3,699
Goodwill 83,128 44,543
---------- ----------
Total 179,456 135,267
---------- ----------
Total assets $ 653,614 $ 548,575
========== ==========
LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,171 9,617
Accrued expenses 21,509 17,250
Accrued income taxes 6,258 421
Deferred revenues 136,302 119,492
---------- ----------
Total 173,240 146,780
DEFERRED REVENUES 8,694 12,732
DEFERRED INCOME TAXES 28,762 23,840
---------- ----------
Total liabilities 210,696 183,352
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 500,000
shares authorized, none issued - -
Common stock - $0.01 par value: 250,000,000
shares authorized; Shares issued at
6/30/04 and 6/30/03 were 90,519,856 905 905
Additional paid-in capital 175,706 169,299
Retained earnings 271,433 233,396
Less treasury stock at cost 315,651 shares
at 6/30/04, 2,363,121 shares at 6/30/03 (5,126) (38,377)
---------- ----------
Total stockholders' equity 442,918 365,223
---------- ----------
Total liabilities and stockholders' equity $ 653,614 $ 548,575
========== ==========
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,
------------------------------------
2004 2003 2002
---------- ---------- ----------
PREFERRED SHARES: - - -
========== ========== ==========
COMMON SHARES:
Shares, beginning of year 90,519,856 90,519,856 88,846,710
Shares issued upon exercise of
stock options - - 1,523,446
Shares issued for Employee Stock
Purchase Plan - - 31,962
Shares issued in acquisition - - 117,738
---------- ---------- ----------
Shares, end of year 90,519,856 90,519,856 90,519,856
========== ========== ==========
COMMON STOCK - PAR VALUE $.01 PER SHARE:
Balance, beginning of year $ 905 $ 905 $ 888
Shares issued upon exercise of
stock options - - 15
Shares issued for Employee Stock
Purchase Plan - - 1
Shares issued in acquisition - - 1
---------- ---------- ----------
Balance, end of year $ 905 $ 905 $ 905
---------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $ 169,299 $ 168,061 $ 145,211
Shares issued upon exercise of
stock options 21,661 3,539 13,650
Shares issued for Employee Stock
Purchase Plan 719 771 792
Shares issued in acquisition - - 2,399
Tax benefit on exercise of
stock options 6,408 1,227 6,992
Cost of treasury shares reissued (22,381) (4,299) (983)
---------- ---------- ----------
Balance, end of year $ 175,706 $ 169,299 $ 168,061
---------- ---------- ----------
RETAINED EARNINGS:
Balance, beginning of year $ 233,396 $ 201,162 $ 156,405
Net income 62,315 49,397 57,065
Reissuance of treasury shares (10,870) (4,873) (682)
Dividends (2004-$0.15 per share;
2003-$0.14 per share;
2002-$0.13 per share) (13,408) (12,290) (11,626)
---------- ---------- ----------
Balance, end of year $ 271,433 $ 233,396 $ 201,162
---------- ---------- ----------
TREASURY STOCK:
Balance, beginning of year $ (38,377) $ (29,389) $ -
Purchase of treasury shares - (18,165) (31,054)
Reissuance of treasury shares upon
exercise of stock options 32,638 8,187 1,601
Reissuance of treasury shares for
Employee Stock Purchase Plan 613 990 64
---------- ---------- ----------
Balance, end of year (5,126) $ (38,377) $ (29,389)
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY $ 442,918 $ 365,223 $ 340,739
========== ========== ==========
See notes to consolidated financial statements
JACK HENRY AND ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEAR ENDED JUNE 30,
--------------------------------
2004 2003 2002
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 62,315 $ 49,397 $ 57,065
Adjustments to reconcile net income
from continuing operations to cash
from operating activities:
Depreciation 26,790 24,025 20,885
Amortization 6,750 6,169 6,585
Deferred income taxes 5,588 7,940 7,793
(Gain) Loss on disposal of property
and equipment 2,293 (29) 428
Other, net (69) 671 (486)
Changes in operating assets and
liabilities, net of acquisitions:
Trade receivables (17,897) (19,675) (14,858)
Prepaid expenses, prepaid cost
of product, and other 1,636 (647) (1,621)
Accounts payable (471) 555 (8,795)
Accrued expenses 3,414 5,896 1,546
Income taxes (including tax benefit
of $6,408, $1,227, and $6,992
from exercise of stock options). 11,787 1,428 7,428
Deferred revenues 10,673 23,131 13,971
-------- -------- --------
Net cash from operating activities 112,809 98,861 89,941
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (49,141) (45,958) (49,509)
Purchase of investments (3,991) (3,988) (2,987)
Purchase of customer contracts - (304) -
Proceeds from sale of property
and equipment 971 38 24
Proceeds from investments 4,633 4,000 3,000
Computer software developed (4,409) (5,162) (1,895)
Payment for acquisitions, net (48,288) (6,537) (11,111)
Other, net 188 (561) 250
-------- -------- --------
Net cash from investing activities (100,037) (58,472) (62,228)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock upon exercise of stock options 21,661 3,539 13,666
Proceeds from sale of common stock, net 719 776 792
Dividends paid (13,408) (12,290) (11,626)
Principal payments on long-term debt - - (315)
Purchase of treasury stock - (18,165) (31,054)
-------- -------- --------
Net cash from financing activities 8,972 (26,140) (28,537)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 21,744 $ 14,249 $ (824)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 32,014 $ 17,765 $ 18,589
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 53,758 $ 32,014 $ 17,765
======== ======== ========
See notes to consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts In Thousands, Except Share and Per Share Amounts)
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Jack Henry & Associates, Inc. and Subsidiaries ("JHA" or the "Company") is a
leading provider of integrated computer systems that 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 along with the computer equipment (hardware) and by
providing the conversion and software installation services for a financial
institution to utilize 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 subsidiaries, which are wholly- owned, and all significant intercompany
accounts and transactions have been eliminated.
STOCK OPTIONS
As permitted under Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation ("SFAS No.123"), the Company
has elected to follow Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"), 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 in financial statements for periods beginning after December 15,
2002, by SFAS No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure, an amendment of FASB Statement 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 is as follows:
Year Ended June 30,
-----------------------------------
2004 2003 2002
--------- --------- ---------
Net income, as reported $ 62,315 $ 49,397 $ 57,065
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 7,187 6,572 9,394
--------- --------- ---------
Pro forma net income $ 55,128 $ 42,825 $ 47,671
========= ========= =========
Diluted net income per share
As reported $ 0.68 $ 0.55 $ 0.62
Pro forma $ 0.60 $ 0.48 $ 0.52
Basic net income per share
As reported $ 0.70 $ 0.56 $ 0.64
Pro forma $ 0.62 $ 0.49 $ 0.53
The weighted average fair value of options granted was $7.43, $4.68 and
$10.63 for 2004, 2003, and 2002 respectively using the Black-Scholes option
pricing model.
Year Ended June 30,
-----------------------------------
2004 2003 2002
--------- --------- ---------
Assumptions:
Expected life (years) 3.88 4.35 3.10
Volatility 53% 55% 55%
Risk free interest rate 1.6% 1.3% 3.2%
Dividend yield 0.75% 1.16% 0.78%
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of 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
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified 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.
The Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin ("SAB") No. 104, Revenue Recognition, on December 17, 2003. SAB
No. 104 provides the SEC Staff's views on selected revenue recognition
issues and was adopted by the Company in the fourth fiscal quarter of fiscal
year 2004. The adoption of SAB No. 104 did not have a material effect on
the Company's consolidated financial statements.
For multiple element arrangements, the Company has established Vendor
Specific Objective Evidence ("VSOE") separately for all the individual
components of licensing, installation, support, and hardware and recognizes
revenue separately for the various components. The components are all
independently priced and consistent with pricing when each element is sold
separately. There are no rights of return, condition of acceptance or price
protection in the Company's sales contracts.
The Company's various sources of revenue and the methods of revenue
recognition are as follows:
License - Licensing fees are recognized upon delivery and acceptance of
the software. All software of the Company is sold unmodified. Cost of
licenses purchased and remarketed are reported as cost of license in
cost of sales. These revenues include reimbursements for out of pocket
expenses incurred.
Software installation and related services - Fees for these services
are recognized as the services are performed on hourly contracts and at
completion and acceptance on fixed-fee contracts. These revenues
include reimbursements for out of pocket expenses incurred.
Support and service - Fees from these contracts are recognized ratably
over the life of the in-house support or outsourcing service contract.
Regulatory requirement changes and technical enhancements to the
software are specifically referenced and included in the annual support
contracts.
Hardware - Revenues from sales of hardware are recognized upon direct
shipment to the Company's customers from the supplier. Costs of items
purchased and remarketed are reported as cost of hardware in cost
of sales. Revenues and related costs of hardware maintenance are
recognized ratably over the life of the contract.
RECLASSIFICATION
Where appropriate, prior year's financial information has been reclassified
to conform to the current year's presentation.
PREPAID COST OF PRODUCT
Costs for remarketed hardware and software maintenance contracts, which are
prepaid, are recognized ratably over the life of the contract, generally one
to five years, with the related revenue amortized from deferred revenues.
DEFERRED REVENUES
Deferred revenues consist primarily of prepaid annual software support fees
and prepaid hardware maintenance fees. Hardware maintenance contracts are
multi-year; therefore, the deferred revenue and maintenance are classified
in accordance with the terms of the contract. Software and hardware
deposits received 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 the product is ready for general availability. Software
development costs that are capitalized are evaluated on a product-by-product
basis annually and are assigned an estimated economic life based on the type
of product, market characteristics, and maturity of the market for that
particular product. The Company's amortization policy for these capitalized
costs is to amortize the costs in accordance with SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Generally, these costs are initially amortized on a straight-line
basis, and are monitored on a regular basis to assess that the amortization
method is still appropriate and that the remaining estimated life of the
asset is reasonable (generally five to ten years).
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the time of acquisition to be cash equivalents.
INVESTMENTS
The Company invests its cash that is not required for current operations
primarily in U.S. government securities and money market accounts. The
Company has the positive intent and ability to hold its debt securities
until maturity and accordingly, these securities 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. The held-to-maturity securities typically
mature in less than one year. Interest on investments in debt securities is
included in income when earned.
The amortized cost of held-to-maturity securities is $998 at June 30,
2004 and 2003. 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.
PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
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 consist of goodwill, customer relationships, computer
software, and trade names acquired in business acquisitions. The amounts
are amortized, with the exception of goodwill and trade names, over an
estimated economic benefit period, generally five to twenty years, using the
straight-line method.
The Company reviews its long-lived assets and identifiable intangible assets
with finite lives for impairment whenever events or changes in circumstances
have indicated that the carrying amount of its assets might not be
recoverable. The Company evaluates goodwill and trade names for impairment
of value on an annual basis and between annual tests if events or changes in
circumstances indicate that the asset might be impaired.
COMPREHENSIVE INCOME
Comprehensive income for each of the three years ended June 30, 2004 equals
the Company's net income.
BUSINESS SEGMENT INFORMATION
In accordance with SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information, the Company's operations are classified as two
business segments: bank systems and services and credit union systems and
services (see Note 13). Revenue by type of product and service is presented
on the face of the consolidated statements of income. Substantially all the
Company's revenues are derived from operations and assets located within the
United States of America.
COMMON STOCK
On September 21, 2001, the Company's Board of Directors approved a stock
buyback of the Company's common stock of up to 3.0 million shares, and
approved an increase on October 4, 2002 to 6.0 million shares. Through June
30, 2004, 3,012,933 shares had been purchased for $49,219. No shares were
repurchased during fiscal 2004. At June 30, 2003, 2,363,121 shares remained
in treasury stock. During fiscal 2004, 2,009,694 shares and 37,776 shares
were reissued from treasury stock for shares exercised in the employee stock
option plan and the employee stock purchase plan, respectively. At June 30,
2004, 315,651 shares remained in treasury stock.
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 diluted share to the extent they are dilutive.
The difference between basic and diluted weighted average shares outstanding
is the dilutive effect of outstanding stock options (see Note 10).
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 would be established to reduce deferred
tax assets if it is more likely than not that a deferred tax asset will not
be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective November 22, 2002, the Emerging Issues Task Force ("EITF") reached
a consensus regarding EITF Issue No. 02-16, Accounting by a Customer,
Including a Reseller, for Cash Consideration Received from a Vendor. This
consensus requires that payments from a vendor be classified as a reduction
to the price of the vendor's goods and taken as a reduction to cost of sales
unless the payments are (1) a reimbursement for costs incurred to sell the
product or (2) a payment for assets or services provided. The consensus
also requires that payments from a vendor be recognized as a reduction to
cost of sales on a rational and systematic basis. This consensus is
effective for fiscal years beginning after December 15, 2002. The adoption
of this consensus by JHA on July 1, 2003 did not have a material impact on
the Company's consolidated financial position or results of operations.
In January and December 2003, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 46 ("FIN 46") and No. 46, revised
("FIN 46R"), Consolidation of Variable Interest Entities, ("VIEs"). These
statements, which address accounting for entities commonly known as special-
purpose or off-balance-sheet entities, require consolidation of certain
interest or arrangements by virtue of holding a controlling financial
interest in such entities. Certain provisions of FIN 46R related to
interests in special-purposes entities were applicable for the period ended
March 31, 2004. The Company has considered the application of FIN 46 and
FIN 46R to certain business relationships, and concluded that the adoption
of this new method of accounting for variable interest entities did not have
a material impact on the consolidated results of operations and financial
position.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
SFAS No. 150 requires classification of a financial instrument that is
within its scope as a liability, or an asset in some circumstances. SFAS
No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and was therefore effective for the Company on July 1,
2003. The adoption of this standard did not have a material impact on the
Company's financial statements.
NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values for held-to-maturity securities are based on quoted market
prices. For all other financial instruments, including amounts receivable
or payable and short-term borrowings, fair values approximate carrying
value, based on the short-term nature of the assets and liabilities and the
variability of the interest rates on the borrowings.
NOTE 3: PROPERTY AND EQUIPMENT
The classification of property and equipment, together with their estimated
useful lives is as follows:
June 30,
----------------------- Estimated
2004 2003 Useful Life
---------- ---------- -----------
Land $ 9,458 $ 9,750
Land improvements 16,418 16,050 5-20 years
Buildings 73,087 73,660 25-30 years
Equipment and furniture 108,703 104,528 5-8 years
Aircraft and equipment 49,478 48,542 8-10 years
Construction in progress 32,218 4,834
---------- ----------
$ 289,362 $ 257,364
Less accumulated depreciation 74,262 61,318
---------- ----------
Propery and equipment, net $ 215,100 $ 196,046
========== ==========
At June 30, 2004, the Company had commitments of $6,900 to purchase property
and equipment.
NOTE 4: OTHER ASSETS
Changes in the carrying amount of goodwill for the years ended June 30, 2004
and 2003, by reportable segments, are:
Banking Credit Union
Systems Systems
and and
Services Services Total
-------- -------- ---------
Balance, as of July 1, 2002 $ 25,495 $ 14,840 $ 40,335
Goodwill acquired during the year 1,819 2,389 4,208
-------- -------- ---------
Balance, as of June 30, 2003 $ 27,314 $ 17,229 $ 44,543
Goodwill acquired during the year 38,585 - 38,585
-------- -------- ---------
Balance, as of June 30, 2004 $ 65,899 $ 17,229 $ 83,128
======== ======== =========
Information regarding other identifiable intangible assets is as follows:
June 30,
2004 2003
---------------------------- -----------------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------- --------- ------- ------- --------- -------
Customer
relationships $ 96,254 $(34,886) $61,368 $89,212 $(29,854) $59,358
Trade names 4,029 - 4,029 3,699 - 3,699
------- --------- ------- ------- --------- -------
Totals $100,283 $(34,886) $65,397 $92,911 $(29,854) $63,057
======= ========= ======= ======= ========= =======
Trade names have been determined to have indefinite lives and are no longer
amortized. Customer relationships have lives ranging from five to 20 years.
Computer software includes the unamortized cost of software products
developed or acquired by the Company, which are capitalized and amortized
over three to five years.
Following is an analysis of the computer software capitalized:
Carrying Accumulated
Amount Amortization Total
-------- -------- ---------
Balance, July 1, 2002 $ 12,470 $ (4,971) $ 7,499
Acquired software 1,222 - 1,222
Capitalizated development cost 5,162 - 5,162
Amortization expense - (1,383) (1,383)
-------- -------- ---------
Balance, June 30, 2003 $ 18,854 $ (6,354) $ 12,500
Acquired software 3,191 - 3,191
Capitalizated development cost 4,409 - 4,409
Amortization expense - (1,718) (1,718)
-------- -------- ---------
Balance, June 30, 2004 $ 26,454 $ (8,072) $ 18,382
======== ======== =========
Amortization expense for all intangible assets was $6,750, $6,169, and
$6,585 for the fiscal years ended June 30, 2004, 2003, and 2002,
respectively. The estimated aggregate future amortization expense for each
of the next five years for all intangible assets remaining as of June 30,
2004, is as follows:
Customer
Year Relationships Software Total
---- ------------- -------- -------
2005 $ 5,377 $ 2,830 $ 8,207
2006 5,123 2,528 7,651
2007 4,648 2,250 6,898
2008 4,358 2,228 6,586
2009 4,248 1,737 5,985
NOTE 5: LINES OF CREDIT
The Company's credit line provides for funding of up to $8,000 and bears
interest at the prime rate (4 1/4 % at June 30, 2004). The credit line
expires March 22, 2005, and is secured by $1,000 of investments with the
remainder unsecured. There were no outstanding amounts during the years
ended and at June 30, 2004, or 2003.
The Company paid interest of $107, $110, and $126 in 2004, 2003, and 2002,
respectively.
NOTE 6: LEASE COMMITMENTS
The Company leases certain property under operating leases which expire over
the next six years. As of June 30, 2004, net future minimum lease payments
under non-cancelable terms are as follows: $2,038, $880, $517, $326, $207 in
2005, 2006, 2007, 2008, and 2009, respectively. Rent expense for all
operating leases amounted to $4,233, $3,921, and $3,965 in 2004, 2003, and
2002, respectively.
NOTE 7: INCOME TAXES
The provision for income taxes consists of the following:
Year ended June 30,
-----------------------------------
2004 2003 2002
-------- -------- --------
Current:
Federal $ 28,096 $ 19,001 $ 22,387
State 3,706 1,453 1,228
Deferred:
Federal 5,306 7,577 7,548
State 282 363 245
-------- -------- --------
$ 37,390 $ 28,394 $ 31,408
======== ======== ========
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets were:
June 30,
--------------------
2004 2003
------- -------
Deferred tax assets:
Carryforwards (operating losses) $ 1,094 $ 155
Expense reserves (bad debts, insurance,
franchise tax and vacation) 754 705
Intangible assets 583 680
Other, net 565 295
------- -------
$ 2,996 $ 1,835
------- -------
Deferred tax liabilities:
Accelerated tax depreciation (22,992) (19,450)
Accelerated tax amortization (7,446) (5,225)
------- -------
(30,438) (24,675)
------- -------
Net deferred tax liability $(27,442) $(22,840)
======= =======
The deferred taxes are classified on the balance sheets as follows:
June 30,
--------------------
2004 2003
------- -------
Deferred income taxes (current) $ 1,320 $ 1,000
Deferred income taxes (long-term) (28,762) (23,840)
------- -------
$(27,442) $(22,840)
======= =======
The following analysis reconciles the statutory federal income tax rate to
the effective income tax rates reflected above:
Year Ended June 30,
----------------------------
2004 2003 2002
---- ---- ----
Computed "expected" tax expense (benefit) 35.0% 35.0% 35.0%
Increase (reduction) in taxes
resulting from:
State income taxes, net of federal
income tax beneefits 4.0% 2.5% 2.0%
Research and development credit -1.5% -1.0% -1.5%
---- ---- ----
37.5% 36.5% 35.5%
==== ==== ====
Net operating loss carryforwards of $3,343 (from acquisitions) expire
through the year 2019. The Company paid income taxes of $20,314, $19,025,
and $15,900 in 2004, 2003, and 2002, respectively.
The Company's federal income tax returns for the years ended June 30, 1999 -
June 30, 2001, are currently under examination by the Internal Revenue
Service ("IRS"). In connection with the examination of these returns, the
IRS is proposing to disallow research & experimentation ("R&E") credits
claimed on these returns. The complete disallowance of these credits would
increase the Company's federal income tax liability by approximately $1,500
plus interest. The Company believes that the R&E credits claimed for these
years are appropriate and is currently contesting the disallowance of these
credits. While there can be no assurance that the Company would prevail in
contesting any disallowance, it believes the facts or the relevant tax law
does not support any such disallowance. Consequently, the Company has not
accrued any liability in connection with this matter.
NOTE 8: INDUSTRY AND SUPPLIER CONCENTRATIONS
The Company sells its products to banks, credit unions, and financial
institutions throughout the United States and generally does not require
collateral. All billings to customers are due net 30 days from date of
billing. Reserves (which are insignificant at June 30, 2004 and 2003) are
maintained for potential credit losses.
In addition, the Company purchases most of its computer 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. If these relationships were terminated, it could
have a significant negative impact on the future operations of the Company.
NOTE 9: STOCK OPTION PLANS
The Company currently issues options under two stock option plans: the 1996
Stock Option Plan ("1996 SOP") and the Non-Qualified Stock Option Plan
("NSOP").
1996 SOP
The 1996 SOP was adopted by the Company on October 29, 1996, for its
employees. Terms and vesting periods 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 four 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 of the stock at the grant
date. The options terminate 30 days after termination of employment, three
months after retirement, one year after death or 10 years after grant. In
October 2002, the stockholders approved an increase in the number of stock
options available from 13.0 million to 18.0 million shares.
On April 11, 2003, the Company granted approximately 3,670,000 stock options
to approximately 2,100 full time employees, or 94% of all full time
employees as of that date. The options were issued at the exercise price of
$10.84 per share, which represented the fair market value of the stock as of
that date and vest in two equal portions based on stock price performance or
on specific dates. The two portions vested and became fully exercisable
when the Company's common stock achieved a closing market price of 125% or
more and 150% or more, respectively, of the exercise price for 10
consecutive trading days. Such options fully vested during the first
quarter of fiscal year 2004. As of June 30, 2004, there were 2,373,706
shares available for future grants under the plan from the 18,000,000 shares
approved by the stockholders.
NSOP
The NSOP was adopted by the Company on October 31, 1995, for its outside
directors. Options are exercisable beginning six months after grant at an
exercise price equal to 100% of the fair market value of the stock at the
grant date. The options terminate upon surrender of the option, upon the
expiration of one year following notification of a deceased optionee, or 10
years after grant. 1,200,000 shares of common stock have been reserved for
issuance under this plan with a maximum of 300,000 for each director. As of
June 30, 2004, there were 485,833 shares available for future grants under
the plan.
Changes in stock options outstanding are as follows:
Number of Weighted Average
Shares Exercise Price
---------- --------------
Outstanding July 1, 2001 11,289,799 $ 12.68
Granted 618,116 23.26
Forfeited (82,500) 22.26
Exercised (1,607,846) 8.50
---------- --------------
Outstanding June 30, 2002 10,217,569 13.90
Granted 3,897,150 10.92
Forfeited (313,925) 17.89
Exercised (501,740) 7.04
Expired 1,200 6.39
---------- --------------
Outstanding June 30, 2003 13,300,254 13.19
Granted 192,167 18.65
Forfeited (98,391) 21.59
Exercised (2,009,694) 10.78
---------- --------------
Outstanding June 30, 2004 11,384,336 $ 13.64
========== ==============
For the year ended June 30, 2004, 2,009,694 shares and 37,776 shares were
reissued from treasury stock for shares exercised in the employee stock
option plan and the employee stock purchase plan (See Note 11),
respectively.
For the year ended June 30, 2003, 501,740 shares and 60,249 shares were
reissued from treasury stock for shares exercised in the employee stock
option plan and the employee stock purchase plan (See Note 11),
respectively.
Following is an analysis of stock options outstanding and exercisable as of
June 30, 2004:
Weighted-Average
Remaining
Range of Contractural Weighted-Average
Exercise Prices Shares Life in Years Exercise Price
--------------- ------------------------ ------------- ------------------------
Outstanding Exercisable Outstanding Outstanding Exercisable
----------- ----------- ----------- ----------- -----------
$ 1.67 - $ 6.03 1,972,440 1,972,440 2.16 $ 4.50 $ 4.50
$ 6.04 - $10.75 1,145,133 1,145,133 4.48 9.16 9.16
$10.76 - $10.84 2,278,437 2,278,437 8.78 10.84 10.84
$10.85 - $16.53 370,949 237,676 6.65 12.01 11.81
$16.54 - $16.87 3,645,960 3,645,960 5.76 16.88 16.88
$16.88 - $31.00 1,971,417 1,627,584 7.01 22.93 23.45
--------------- ---------- ---------- ----------- ----------- -----------
$ 1.67 - $31.00 11,384,336 10,907,230 5.86 $13.64 $13.44
=============== ========== ========== =========== =========== ===========
NOTE 10: EARNINGS PER SHARE
The following table reflects the reconciliation between basic and diluted
net income per share:
Year ended June 30,
-------------------
2004 2003 2002
--------------------------- ---------------------------- ----------------------------
Net Weighted Per Share Net Weighted Per Share Net Weighted Per Share
Income Average Amount Income Average Amount Income Average Amount
Shares Shares Shares
------ ------ ---- ------ ------ ---- ------ ------ ----
Basic Income Per Share:
Net income available to
stockholders $62,315 89,325 $0.70 $49,397 87,866 $0.56 57,065 $89,316 $0.64
Effect of dilutive
securities:
Stock options - 2,534 0.02 - 1,404 0.01 - 3,051 0.02
------ ------ ---- ------ ------ ---- ------ ------ ----
Diluted Income Per Share:
Net income available to
common stockholders $62,315 91,859 $0.68 $49,397 89,270 $0.55 $57,065 92,367 $0.62
====== ====== ==== ====== ====== ==== ====== ====== ====
Stock options to purchase approximately 1,758,583 shares for fiscal 2004,
5,972,949 shares for fiscal 2003, and 690,858 shares for fiscal 2002, were
not dilutive and therefore, were not included in the computations of diluted
income per common share amounts.
NOTE 11: EMPLOYEE BENEFIT PLANS
Employee 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.
The Company has two plans, the Employee Stock Ownership Plan (the "ESOP"
Plan) and the 401(k) Retirement Savings Plan (the "Plan"). Both plans are
subject to the Employee Retirement Income Security Act of 1975 ("ERISA") as
amended.
Under the Plan, the Company matches 100% of full time employee contributions
up to 5% of compensation subject to a maximum of $5. Employees must be 18
years of age and be employed for at least six months. Under the ESOP plan,
employees must be 21 years of age and employed full time for at least six
months. Under the ESOP Plan and the Plan, the Company has the option of
making a discretionary contribution; however, none has been made for any of
the three most recent fiscal years. The total matching contributions for
the Plan were $4,487, $4,139, and $3,862 for fiscal 2004, 2003, and 2002,
respectively.
NOTE 12: BUSINESS ACQUISITIONS
PURCHASE TRANSACTIONS
Fiscal 2004 Acquisitions
On February 2, 2004, the Company acquired all of the common stock of Yellow
Hammer Software, Inc. ("YHS"). The purchase price for YHS was allocated to
the assets and liabilities acquired based on then estimated fair values at
the acquisition date, resulting in the allocation of ($637) to working
capital, $704 to capitalized software, $1,200 to customer relationships,
$17,737 to goodwill and $330 to trade names. The acquired goodwill was
allocated to the bank segment and is non-deductible for federal income tax.
On February 19 and April 1, 2004, the Company acquired specific assets
consisting of a suite of Automated Clearing House payment products. The
purchase price was allocated as follows: ($39) to working capital, $4,837 to
goodwill, $1,000 to customer relationships, and $304 to capitalized
software. The acquired goodwill was allocated to the bank segment and is
non-deductible for federal income tax.
On May 1, 2004, the Company acquired all of the outstanding stock of e-
ClassicSystems, Inc. ("e-Classic"). The purchase price for e-Classic was
allocated to the assets and liabilities acquired based on then estimated
fair values at the acquisition date, resulting in the allocation of ($7) to
working capital, $1,493 to capitalized software, $990 to customer
relationships, $11,382 to goodwill, and $987 to deferred income tax assets.
The acquired goodwill was allocated to the bank segment and is non-
deductible for federal income tax.
On June 1, 2004, the Company acquired specific assets consisting of a suite
of regulatory reporting products. The purchase price was allocated as
follows: ($1,164) to working capital, $4,629 to goodwill, $3,852 to customer
relationships and $690 to capitalized software. The acquired goodwill was
allocated to the bank segment and is non-deductible for federal income tax.
Fiscal 2003 Acquisitions
On January 1, 2003, the Company acquired all the outstanding membership
interests in National Bancorp Data Services, LLC ("NBDS"). NBDS provides
item processing and imaging services to financial institutions in the
greater Chicago, Illinois area. This acquisition expanded the geographic
footprint for item processing centers and expands the potential market for
outsourcing customers. The purchase price for NBDS was allocated to the
assets and liabilities acquired based on then estimated fair values at the
acquisition date resulting in allocation of $300 to working capital and
$1,800 to goodwill. The acquired goodwill was allocated to the bank segment
and is non-deductible for federal income tax.
On November 15, 2002, the Company acquired all the outstanding shares
of Credit Union Solutions, Inc. ("CUSI"). CUSI provides in-house data
processing software, related hardware, and services to smaller credit
unions, primarily those with assets less than $50,000. This acquisition
expanded the potential market for the Company, as the Company's existing
core products were too expensive to sell to credit unions of this size. The
purchase price for CUSI was allocated to the assets and liabilities acquired
based on then estimated fair values at the acquisition date. This resulted
in an allocation of $97 to working capital, $2,408 to goodwill, capitalized
software of $1,222 and customer contracts of $710. The acquired goodwill
was allocated to the credit union segment and is non-deductible for federal
income tax.
Fiscal 2002 Acquisitions
On January 1, 2002, the Company acquired all the outstanding shares of
Transcend Systems Group ("TSG") for $7,300 in cash and 117,738 restricted
shares of the Company's common stock valued at $2,400, for a total
consideration to the TSG shareholders of $9,700. As part of the purchase
price, the Company also advanced to TSG $850 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 an allocation of $48 to working capital, $8,514 to
goodwill, $926 to capitalized software, and $1,100 to customer contracts.
The acquired goodwill was allocated to the bank segment and is non-
deductible for federal income tax.
On December 1, 2001, the Company acquired all the outstanding shares of
System Legacy Solutions ("SLS"). 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 of $2,473 to goodwill and $450 to capitalized
software. The acquired goodwill was allocated to the bank segment and is
non-deductible for federal income tax.
The acquisitions discussed above were paid for using cash from operations
and restricted shares of the Company's Common Stock. The accompanying
consolidated financial statements do not include any revenues and expenses
related to these acquisitions prior to their respective closing dates. Pro
Forma results of these acquisitions were not material, therefore such
amounts have not been presented.
NOTE 13: BUSINESS SEGMENT INFORMATION
The Company is a leading provider of integrated computer systems that
perform data processing (available for in-house or service bureau
installations) for banks and credit unions. The Company's operations are
classified into two business segments: bank systems and services ("Bank")
and credit union systems and services ("Credit Union"). The Company
evaluates the performance of its segments and allocates resources to them
based on various factors, including prospects for growth, return on
investment, and return on revenue.
For the Year Ended June 30, 2004
----------------------------------------
Bank Credit Union Total
---------- ---------- ----------
REVENUE
License $ 38,338 $ 24,255 $ 62,593
Support and service 268,249 43,038 311,287
Hardware 75,497 18,038 93,535
---------- ---------- ----------
Total 382,084 85,331 467,415
---------- ---------- ----------
COST OF SALES
Cost of license 2,444 2,294 4,738
Cost of support and service 171,359 36,371 207,730
Cost of hardware 53,635 13,334 66,969
---------- ---------- ----------
Total 227,438 51,999 279,437
---------- ---------- ----------
GROSS PROFIT $ 154,646 $ 33,332 $ 187,978
========== ========== ==========
For the Year Ended June 30, 2003
----------------------------------------
Bank Credit Union Total
---------- ---------- ----------
REVENUE
License $ 29,275 $ 19,009 $ 48,284
Support and service 234,095 26,357 260,452
Hardware 79,757 16,134 95,891
---------- ---------- ----------
Total 343,127 61,500 404,627
---------- ---------- ----------
COST OF SALES
Cost of license 1,834 2,056 3,890
Cost of support and service 148,921 29,335 178,256
Cost of hardware 57,377 11,768 69,145
---------- ---------- ----------
Total 208,132 43,159 251,291
---------- ---------- ----------
GROSS PROFIT $ 134,995 $ 18,341 $ 153,336
========== ========== ==========
For the Year Ended June 30, 2002
----------------------------------------
Bank Credit Union Total
---------- ---------- ----------
REVENUE
License $ 49,764 $ 16,812 $ 66,576
Support and service 207,181 21,563 228,744
Hardware 82,397 18,940 101,337
---------- ---------- ----------
Total 339,342 57,315 396,657
---------- ---------- ----------
COST OF SALES
Cost of license 2,509 - 2,509
Cost of support and service 134,641 26,882 161,523
Cost of hardware 58,638 12,767 71,405
---------- ---------- ----------
Total 195,788 39,649 235,437
---------- ---------- ----------
GROSS PROFIT $ 143,554 $ 17,666 $ 161,220
========== ========== ==========
For The Year Ended June 30,
-----------------------------------
2004 2003 2002
--------- --------- ---------
Depreciation expense, net
Bank systems and services $ 25,970 $ 23,370 $ 20,328
Credit Unions systems and services 820 655 557
--------- --------- ---------
Total $ 26,790 $ 24,025 $ 20,885
========= ========= =========
Amortization expense, net
Bank systems and services $ 5,301 $ 4,787 $ 5,295
Credit Unions systems and services 1,449 1,382 1,290
--------- --------- ---------
Total $ 6,750 $ 6,169 $ 6,585
========= ========= =========
Capital expenditures, net
Bank systems and services $ 23,505 $ 45,759 $ 48,451
Credit Unions systems and services 25,636 199 1,058
--------- --------- ---------
Total $ 49,141 $ 45,958 $ 49,509
========= ========= =========
June 30,
----------------------
2004 2003
--------- ---------
Property and equipment, net
Bank systems and services $ 187,242 $ 192,846
Credit Unions systems and services 27,858 3,200
--------- ---------
Total $ 215,100 $ 196,046
========= =========
Identified intangible assets, net
Bank systems and services $ 125,650 $ 77,520
Credit Unions systems and services 41,257 42,580
--------- ---------
Total $ 166,907 $ 120,100
========= =========
The Company has not disclosed any additional asset information by segment,
as the information is not produced internally and its preparation is
impracticable.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures
None.
Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, an
evaluation was carried out under the supervision and with the participation
of our management, including our Company's Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15 and 15d-15. Based upon that evaluation, the CEO and CFO
concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company
(including our consolidated subsidiaries) required to be included in our
periodic SEC filings.
During the period covered by this Annual Report, there have been no
significant changes in internal control over financial reporting or in other
factors that could significantly affect internal control over financial
reporting, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K are
certifications of the CEO and the CFO, which are required in accord with
Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). This
Controls and Procedures section includes the information concerning the
controls evaluation referred to in the certifications and it should be read
in conjunction with the certifications.
PART III
Item 10. Directors and Executive Officers of the Registrant
See the information under the captions "Election of Directors", "Corporate
Governance", "Audit Committee Report", "Executive Officers and Significant
Employees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's definitive Proxy Statement which is incorporated herein by
reference.*
Item 11. Executive Compensation
See the information under 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 and
Related Stockholder Matters
See the information under the captions "Stock Ownership of Certain
Stockholders", "Election of Directors" and "Equity Compensation Plan
Information" in the Company's definitive Proxy Statement which is
incorporated herein by reference.*
Item 13. Certain Relationships and Related Transactions
See the information under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement which is
incorporated herein by reference.*
Item 14. Principal Accountant Fees and Services
See the information under the captions "Audit Committee Report" and
"Independent Registered Public Accounting Firm - Audit and Non-Audit Fees"
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.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
(1) The following Consolidated Financial Statements of the Company and its
subsidiaries and the Report of Independent Registered Public Accounting Firm
thereon appear under Item 8 of this Report:
- Report of Independent Registered Public Accounting Firm.
- Consolidated Statements of Income for the Years Ended June 30, 2004,
2003 and 2002.
- Consolidated Balance Sheets as of June 30, 2004 and 2003.
- Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 2004, 2003 and 2002.
- Consolidated Statements of Cash Flows for the Years Ended June 30,
2004, 2003 and 2002.
- Notes to the Consolidated Financial Statements.
(2) 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.
(3) All exhibits not followed herewith are incorporated by reference to a
prior filing as indicated, pursuant to Rule 12b-32:
Index to Exhibits
-----------------
Exhibit No. Description
----------- -----------
3.1.7 Restated Certificate of Incorporation.
3.2.1 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.
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.
10.3 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.
10.8 Form of Indemnity Agreement which has been entered into as
of August 27, 1996, between the Company and each of its
Directors and Executive Officers, attached as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the Year Ended
June 30, 1996.
10.9 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.
10.17 IBM Business Partner Agreement dated January 1, 2003, attached
as Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the Year Ended June 30, 2003.
21.1 List of the Company's subsidiaries.
23.1 Consent of Independent Registered Public Accounting Firm.
32.1 Certification of Chief Executive Officer.
32.2 Certification of Chief Financial Officer.
32.1 Written Statement of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350.
32.2 Written Statement of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last quarter of
the period covered by this report:
- On April 14, 2004, the Company filed a report on Form 8-K, which
announced the acquisition of e-Classic Systems, Inc.
- On April 21, 2004, the Company filed a report on Form 8-K, which
reported fiscal 2004 third quarter financial results under Item
12.
- On April 21, 2004, the Company filed a report on Form 8-K, which
announced changes in senior officers.
- On June 14, 2004, the Company filed a report on Form 8-K, which
announced the acquisition of specific assets from Alex eSolutions,
Inc.
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 30th
day of August, 2004.
JACK HENRY & ASSOCIATES, INC., Registrant
By /s/ John F. Prim
-----------------------
John F. Prim
-----------------------
Chief Executive Officer
-----------------------
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 Board and August 30, 2004
---------------------- Director
Michael E. Henry
s/ John F. Prim Chief Executive Officer August 30, 2004
----------------------
John F. Prim
/s/ Kevin D. Williams Chief Financial Officer August 30, 2004
---------------------- and Treasurer (Principal
Kevin D. Williams Accounting Officer)
/s/ John W. Henry Vice Chairman, Senior Vice August 30, 2004
---------------------- President and Director
John W. Henry
/s/ Jerry D. Hall Executive Vice President and August 30, 2004
---------------------- Director
Jerry D. Hall
/s/ Joseph J. Maliekel Director August 30, 2004
----------------------
Joseph J. Maliekel
/s/ James J. Ellis Director August 30, 2004
----------------------
James J. Ellis
/s/ Burton O. George Director August 30, 2004
----------------------
Burton O. George
/s/ Craig R. Curry Director August 30, 2004
----------------------
Craig R. Curry
[ Exhibits are omitted, but are available upon request directed to Kevin D.
Williams, CFO at the address set forth on the cover page and are also
available in the Form 10-K posted at our investor relations website,
www.jackhenry.com/ir/. ]