JAC K HEN RY & ASS OCIATES, INC. ® | 2 0 0 9 ANN UAL REP OR T
Jack Henry & Associates® is a financially sound, customer-focused
technology company that provides the products and services
financial institutions and other diverse businesses need to respond to
business opportunities and solve operational challenges. Our products
and services are supporting more than 9,800 customers and are
delivered through three primary brands.
Jack Henry Banking™
is a leading provider of the core
and complementary solutions banks need to process financial transactions,
automate business processes, and manage mission-critical information. Our
original business line supports approximately 1,500 banks, ranging from recently
chartered de novo institutions to multi-billion dollar mid-tier banks, with three
functionally distinct core systems and more than 100 complementary products
and services.
Symitar™ is a leading provider of the core and complementary
solutions credit unions need to process financial transactions, automate business
processes, and manage mission-critical information. Symitar supports more than
700 credit unions of all asset sizes with two functionally distinct core systems and
approximately 50 complementary products and services.
ProfitStars®
is a leading provider of highly specialized products and
services that financial services organizations of all asset sizes and charters, and
diverse businesses outside the financial industry use to capitalize on revenue
growth opportunities, mitigate and control financial and operational risks,
and contain operating costs. ProfitStars’ products and services have been
implemented by approximately 7,500 customers and enabled Jack Henry &
Associates to enter large nontraditional markets.
Financial Highlights
Shareholders’ Letter
Jack Henry & Associates, Inc.® Overview
Jack Henry Banking™ Overview
Symitar® Overview
ProfitStars® Overview
Financials
1
2
4
6
8
10
12
REVENUE
NET INCOME
DILUTED EARNINGS per share
$746
$743
$666
$105
$104
$103
$1.14
$1.16
$1.22
2007
2008
2009
2007
2008
2009
2007
2008
2009
TOTAL ASSETS
STOCKHOLDERS’ EQUITY
DIVIDENDS DECLARED per share
$1,051
$1,021
$999
$627
$601
$598
$0.28
$0.32
$0.24
2007
2008
2009
2007
2008
2009
2007
2008
2009
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WWW.JACKHENRY.COM | 1
For 33 years, our company has prospered in a highly competitive
and consolidating industry and weathered various economic
cycles by narrowly focusing on providing high quality,
technology-driven products and services backed by distinct
levels of customer care. Through this most recent economic
downturn and its impact on our financial performance, our
strategic focus has not changed and each of our three brands
continues to execute its successful business strategy.
We are confident the economy will recover and with our
customers’ loyalty and guidance, our associates’ determination
and dedication, and our shareholders’ confidence Jack Henry
& Associates will emerge from this challenging business
environment strategically and financially positioned to
pursue the burgeoning business opportunities that will once
again generate the company-wide progress and financial
performance we expect.
Chief Executive Officer
President
Chief Financial Officer & Treasurer
TO OUR SHAREHOLDERS
The recession’s impact on the financial services industry the
primary market for our products and services – has been
unprecedented. Our existing and prospective financial
institution customers were not insulated from these challenges,
and like the industry at-large, many responded by decreasing
discretionary
spending and postponing non-essential
buying decisions.
Despite the recession’s impact on our ability to earn new
customers and expand existing customer relationships at
historic levels, our solid balance sheet, conservative business
principles, recurring revenue, long-term contracts, large and
loyal customer base, and diversified product offering enabled
us to continue to generate solid financial results. During fiscal
year 2009 ended June 30, total revenue increased to a record
$746 million. Net income was $103 million or $1.22 per diluted
share, as compared to net income of $104.2 million or $1.16
per diluted share reported in fiscal year 2008. We generated
strong cash flow from operating activities of $207 million,
return on assets was 10 percent, and return on equity was
17 percent.
Our revenue mix for the year consisted of $58 million in
software license fees or eight percent of total revenue,
$614 million in support and services or 82 percent of total
revenue, and $73 million in hardware sales or 10 percent of
total revenue.
Recurring revenue, which provides the financial stability to
support our ongoing growth, was approximately 75 percent
in fiscal year 2009, compared to 70 and 66 percent in fiscal
years 2008 and 2007, respectively.
Backlog, which consists of contracted sales of products and
services that were not delivered by fiscal year-end, reached
$289 million, a 12 percent increase over the $257.4 million
reported last year.
We generated excellent profitability with a 21 percent
operating margin.
Our company-wide focus on expense reduction also positively
impacted the fiscal year’s financial performance. Opportunities
to reduce near- and long-term expenses were carefully
scrutinized and numerous cost containment initiatives were
implemented, including several that reduced our payroll
expenditure which is our largest expense. Voluntary time off
without pay, staff reassignments, and company-wide salary
reductions enabled us to reduce payroll while avoiding layoffs
that negatively impact our customers and employees, and
dilute the highly specialized workforce we have recruited
and trained, and that we will need when the economy
recovers and financial institutions begin buying technology at
historic levels.
2 | 2009 ANNUAL REPORT
JACK PRIM
Chief Executive Officer
TONY WORMINGTON
President
KEVIN WILLIAMS
Chief Financial Officer
& Treasurer
For 33 years, our company has prospered in a highly competitive
and consolidating industry and weathered various economic cycles
by narrowly focusing on providing high quality, technology-driven
products and services backed by distinct levels of customer care.
WWW.JACKHENRY.COM | 3
performance measurement and management, check and
document imaging, retail delivery, and risk mitigation solutions
to augment their primary technology platforms.
COMPETITIVE ADVANTAGE
Our primary and sustainable competitive advantage is premier
customer service. We are driven by a genuine commitment
to provide service levels that exceed customer expectations
and foster rewarding customer satisfaction and retention. We
regularly measure customer satisfaction using comprehensive
annual surveys, including executive and operations versions,
and more than 50,000 random surveys initiated by the service
requests we receive each year. Dedicated surveys are also
used to grade specific aspects of our customer experience,
including product implementation, education, and consulting
services. The results of this year’s survey process once again
confirmed that our company-wide service quality exceeded
our customers’ expectations and generated satisfaction levels
we believe to be among the highest in the markets we serve.
GUIDING PRINCIPLES
We have maintained the focused work ethic and ideals
established by our co-founders – Jack Henry and Jerry Hall
– 33 years ago. The time-tested fundamentals guiding our
company are:
Do the right thing,
Do what ever it takes, and
Have fun.
Despite the growing complexity of our technology solutions
and our traditional and nontraditional markets, these three
simple tenets have enabled us to:
Develop and execute a business strategy
that is governed by conservative business
principles and performance management;
Provide and support an extensive line of
products and services for technology-
dependent businesses;
Earn a large, loyal customer base;
Capture substantial market share;
Establish a corporate culture that
values integrity-based business
relationships and recognizes premier
customer service as our primary and
sustainable competitive advantage;
Provide rewarding opportunities for
our workforce;
Prosper in a competitive and
consolidating industry; and
Maintain a solid balance sheet.
Jack Henry & Associates was
founded in 1976 to provide
data processing solutions for
community banks. Today,
our diversified, customer-
focused company provides
technology solutions that
blend proven functionality,
personal service, and integrity-
based business relationships.
PRODUCTS AND SERVICES
Our products and services process financial transactions,
automate business processes, and manage mission-critical
business information. Our solutions are delivered through
three primary brands – Jack Henry Banking, Symitar, and
ProfitStars – and hallmarked by premier customer service, full
integration of appropriate solutions, leading-edge research
and development, customer-driven enhancements, and the
integration of practical and proven new technologies. Through
internal product development, disciplined acquisitions, and
alliances with successful companies offering best-of-breed
solutions, we regularly introduce new products and services
that strategically expand our offering.
CUSTOMERS
We currently serve more than 9,800 technology-dependent
businesses, including financial institutions of all asset sizes
and charters, and diverse businesses outside the financial
industry. The functionality of our solutions, our company-
wide commitment to provide outstanding service, and the
fundamental way we do business typically foster long-term
and highly referenceable customer relationships, attract new
and prospective customers, and have enabled us to capture
substantial market share.
MARKETS
Our traditional market consists of banks with up to $50 billion
in assets and credit unions of all asset sizes that plan to replace
their existing core systems with the technology platforms
provided by Jack Henry Banking and Symitar. Our nontraditional
market consists of financial services organizations of all asset
sizes and charters, and businesses outside the financial industry
that need ProfitStars’ best-of-breed payment processing,
4 | 2009 ANNUAL REPORT
LOOKING FORWARD
We will continue to leverage our strategic and financial position
to optimize five primary growth drivers:
Increase market share by earning new
traditional and nontraditional customers;
Expand existing customer relationships
by cross selling additional products
and services;
Add new products and services
in response to customer and
market demands;
Increase recurring revenue by optimizing
outsourcing opportunities, transaction-
based processing fees, and software
maintenance and support fees; and
Pursue disciplined acquisitions that
complement our organic growth and
support our focused diversification strategy.
OUR CORPORATE MISSION IS …
To protect and increase the value of our
stockholders’ investment by providing
quality products and services to our
customers. In accomplishing this we
feel it is important to:
• Concentrate our activities on what we
know best – information systems and
services for financial institutions,
• Provide outstanding commitment
and service to our customers so that
the perceived value of our products
and services will be consistent with
the real value, and
• Maintain a work environment that
is personally, professionally, and
financially rewarding for
our employees.
Detailed information about Jack Henry & Associates is available at www.jackhenry.com.
WWW.JACKHENRY.COM | 5
systems support banks’ dynamic processing requirements and
optimize their operating flexibility and technology investments
with in-house or outsourced implementation, customer-driven
enhancements, open system architecture, scalable hardware
platforms, the regular introduction of new complementary
solutions and practical new technologies, and compliance
with regulatory requirements. We will continue to support
our existing customers’ dynamic transaction and information
processing requirements, and attract new customers with our
best-of-breed, fully integrated, highly scalable core systems.
PROVIDE BEST-OF-SUITE COMPLEMENTARY
PRODUCTS AND SERVICES
We offer approximately 100 complementary solutions that
enhance the functionality of our core systems and enable
banks to support their evolving business strategies, address
specific business opportunities and operational issues, and
improve speed-to-market with highly competitive financial
products. Our best-of-suite complementary solutions include
business intelligence and bank management, retail delivery,
business banking, Internet banking, electronic funds transfer,
risk management and protection, and item and document
introduce new
imaging solutions. We will continue to
complementary solutions that strategically enhance our
technology platforms through internal product development,
strategic acquisitions, and alliances with successful companies
that provide best-of-breed solutions.
the
PROVIDE SUPERIOR CUSTOMER SERVICE
Jack Henry Banking embodies
company-wide
commitment to exceed customers’ service-related expectations.
Our experience providing banks with mission-critical
technology platforms since 1976 has enabled us to fully
understand
importance of providing consistent,
outstanding service and the benefits of serving as the
single point of contact and support for complex banking
platforms. We will continue to provide premier service
by leveraging our comprehensive support infrastructure,
enforcing our exacting service standards, and accurately
measuring customer satisfaction.
the
PROVIDE STATE-OF-THE-ART INTEGRATION
Our integrated approach to bank-wide automation eliminates
the islands of technology generated by interfacing disparate
products and the inherent operational issues. Full integration
also eliminates the efforts required to interface multiple
products from multiple vendors, the impact of ongoing
releases on interfaced products, and the manual processes
required to perform business functions that are not fully
automated by interfaced products.
Although we provide one of the most extensive product
offerings available today, banks can have niche product
requirements outside our offering. In response, we developed
jXchange™, a services-oriented architecture on a
.NET
platform that provides open connectivity between our core
and complementary solutions and third-party products.
Our original business
was founded in 1976 in
response to the growing
demand for off-the-shelf
banking software. More than
three decades later, Jack Henry
Banking is a leading provider
of the technology platforms
banks need to process financial
transactions, automate business
processes, and maintain vital
business information.
We now serve as the primary technology partner for
approximately 1,500 banks ranging from recently chartered
de novo institutions to multi-billion dollar mid-tier banks
and multi-bank holding companies. Our customer base also
includes approximately 20 percent of mid-tier banks with
assets ranging from $1 billion to $30 billion.
Our product and service offering enables banks to implement
integrated technology platforms tailored to meet their unique
business strategies. Our banking solutions encompass three
functionally distinct core systems, more than 100 integrated
complementary solutions, in-house and outsourced delivery
alternatives, and the support infrastructure required to serve
as a single point of contact, support, and accountability.
BUSINESS STRATEGY
Unprecedented advances in technology have revolutionized
the banking industry since our company was founded. Despite
these dramatic advances, Jack Henry Banking’s fundamental
business strategy has remained consistent and focused on five
fundamental principles.
PROVIDE BEST-OF-BREED, HIGHLY SCALABLE
CORE SOLUTIONS
Jack Henry Banking provides three functionally distinct core
systems that diverse banks have selected to replace every
major competitive alternative marketed today. The SilverLake
System® is a highly customizable IBM® Power™ System-
based solution for commercial-focused banks, CIF 20/20® is a
parameter-driven IBM Power System-based solution, and Core
Director® is a Windows®-based client/server solution. Our
6 | 2009 ANNUAL REPORT
Our contemporary integration methodology increases our
customers’ operating flexibility and enables them to leverage
existing and future technology investments.
We will continue to tightly integrate our core and complementary
solutions, and provide innovative business tools like jXchange
that generate key differentiators in a highly competitive market.
PROVIDE UNPRECEDENTED DATA CONVERSIONS
AND SYSTEM IMPLEMENTATIONS
We have developed a production-proven conversion and
implementation process that is executed by highly trained
professionals and supported by constant communications.
On average, approximately 30 new bank customers and
approximately 60 banks that are acquired by our existing
customers are converted to our core systems each year.
Successfully converting hundreds of banks from virtually every
competitive platform has provided us with unique expertise
and real-world experience. We will continue to deploy our
change management process to perform complex data
conversions and system implementations that are virtually
transparent to bank customers.
satisfaction and
Looking Forward
levels of
We will continue to maintain our rewarding
retention, expand existing
customer
customer relationships through the cross sales of additional
complementary solutions, aggressively and successfully
compete for new bank customers, and optimize our market
presence and potential by remaining focused on these
fundamental tenets of our successful business strategy.
We now serve as the primary
technology partner for
approximately 1,500 banks
ranging from recently chartered
de novo institutions to multi-
billion dollar mid-tier banks and
multi-bank holding companies.
Our product and service offering
enables banks to implement
integrated technology platforms
tailored to meet their unique
business strategies.
Detailed information about Jack Henry Banking and its product and service offering is available at www.jackhenrybanking.com.
WWW.JACKHENRY.COM | 7
with in-house or outsourced implementation, customer-
driven enhancements, scalable hardware platforms, and the
regular introduction of new complementary solutions and
practical new technologies. We will continue to support our
customers’ dynamic processing requirements and attract new
customers with our best-of-breed technology platforms.
MAINTAIN OUR COMMITMENT TO SUPERIOR SERVICE
Symitar was founded on the belief that customer acquisition,
satisfaction, and retention are dependent on the ability to
provide exceptional service. Throughout Symitar’s 25-year
history, it has maintained its commitment to superior service
and enjoys a customer retention rate that exceeds 99 percent –
the highest among the major core providers in the credit union
space. We will continue to strategically focus on maintaining
our industry-leading customer satisfaction and retention
rates by continually surveying our customers to identify
specific opportunities to refine our support infrastructure and
best practices methodology, and enhance the overall
service experience.
LEVERAGE OUR HIGH-PROFILE CUSTOMER BASE
Symitar’s customer list reads like a Who’s Who of technologically
progressive credit unions that are managed by respected
industry leaders. Our customers are also among the most
active in the industry, self-organizing into five regional user
groups that provide valuable collaboration. Each group shares
business strategies, specific ways to improve operations with
Episys’ standard and customized functionality, and internally-
developed niche applications. It is understood throughout our
customer base that if an Episys-automated credit union needs
an internally developed application, there is likely another
credit union that has already developed the solution and is
willing to share it.
Episys also boasts the largest user base in the industry which
has grown organically by replacing competitively installed
systems following the evaluations conducted by more than
500 individual credit unions rather than through the acquisition
and conversion of competitive customer bases. We consider
the fact that more than 500 credit unions evaluated core
systems and ultimately selected Episys as an unprecedented
endorsement of the system’s functionality.
We will continue to leverage our high-profile customer base
as our single most powerful sales tool in an industry that
is dependent on customer references to attract new and
prospective customers.
PROVIDE FLEXIBLE, OPEN SYSTEMS
System flexibility and openness represent one of our key
competitive differentiators. We have developed innovative
business tools and programs, including PowerOn®, SymConnect™,
and our Vendor
Integration Program (VIP) to optimize
this differentiator.
PowerOn is a sophisticated scripting language credit unions
use to customize any aspect of the Episys system and develop
add-on applications such as member rewards programs
and sales tracking tools. The customization capabilities and
operating flexibility provided by PowerOn make it virtually
impossible for credit unions to outgrow Episys.
Symitar was founded in 1985
and acquired by Jack Henry &
Associates in 2000. Today,
Symitar is a leading provider
of the technology platforms
credit unions of all asset sizes
need to process financial
transactions, automate business
processes, and maintain
business information.
During the nine years since the acquisition, Symitar has more
than doubled its customer base. We now provide enterprise-
wide automation to more than 700 credit unions, ranging
from recently chartered de novo organizations to corporate
credit unions. Our customer base also includes approximately
33 percent – more than twice the market share of our closest
competitor – of the 153 credit unions having assets that
exceed $1 billion (as of June 30, 2009).
Our core and complementary solutions enable credit unions
to implement technology platforms customized to meet
their business strategies and operating environments.
Our solutions encompass two functionally distinct core
systems, more than 50 integrated complementary solutions,
in-house and outsourced delivery alternatives, and the support
infrastructure required to serve as a single point of contact
and support.
BUSINESS STRATEGY
The five principles of our business strategy have generated
significant growth, enabled the company to maintain a 99
percent customer retention rate throughout its 25-year history,
and positioned Symitar as a recognized industry leader.
PROVIDE BEST-OF-BREED TECHNOLOGY PLATFORMS
Symitar provides two core systems that credit unions have
selected to replace every major competitive alternative.
Episys® is a highly customizable IBM Power System-based
system marketed to credit unions with more than $50
million in assets, and Cruise® is a Windows-based client/
server solution acquired in 2002 as a production-proven
core system for smaller credit unions. Our complementary
solutions enhance the functionality of these core systems
with
intelligence and profitability,
retail delivery, member business services, Internet banking,
electronic funds transfer, risk management and security, and
item and document imaging solutions. Our systems support
diverse processing requirements and operating environments
integrated business
8 | 2009 ANNUAL REPORT
Although we provide an extensive array of complementary
products and services, credit unions want product and vendor
flexibility and typically do not buy all of their complementary
solutions from a single provider. Through SymConnect, our
application programming interface (API), Episys can be easily
interfaced with third-party and internally developed solutions.
Our Vendor Integration Program (VIP) allows third-party
vendors to contract with Symitar for the technical support
required to ensure the ongoing compatibility of their
complementary solutions with Episys. VIP represents a level of
inclusiveness that is unmatched in our industry today.
We are equally committed to keeping the Cruise system
current and relevant with a major development initiative that
is transitioning the system to a .Net architecture that complies
with the latest industry standards. Symitar is also developing a
Cruise-equivalent of SymConnect.
We will continue to provide open, flexible technology platforms
that can be easily augmented with Symitar’s integrated
complementary solutions, third-party products, and the internally
developed applications that our diverse customers need.
from
to benefit
is positioned
CAPITALIZE ON INDUSTRY CONSOLIDATION
Symitar
the ongoing
consolidation in the credit union industry. The net effect
of recent consolidation activity has been among smaller
institutions. These mergers increase the number of credit
unions with approximately $100 million or more in combined
assets, which increases the number of institutions in the target
market for our flagship Episys product. Also, Episys is selected
to automate a significant number of credit unions formed by
the merger of Symitar customers and non-customers. Despite
the consolidation, approximately 80 percent of credit unions
have less than $100 million in assets, so there continues to be
significant sales opportunities for our Cruise platform.
Looking Forward
We will continue to maintain Symitar’s industry leadership with
a strict focus on product and service quality, by aggressively
and effectively leveraging our competitive distinctions, and by
providing the products and services that diverse credit unions
need to prosper in the competitive and evolving financial
services industry.
Twenty-five years ago, three credit union veterans
met at a Wendy’s in San Diego and decided to
form a technology company. Their strategy was
to develop a data processing system for credit
unions that addressed the shortcomings of the
systems available at that time. Focused on their
first challenge – naming the company – they
discovered scimitar in the dictionary but disliked
the spelling. So in May of 1984, with a kitchen
table as the corporate headquarters, “scimitar”
became “Symitar” and the rest is history.
A number of strategic milestones and tremendous
progress have been realized during the past 25
years. And there is probably no better measure
of that progress than our customer base. Cabrillo
Credit Union – a customer to this day – became
the company’s first customer even before the
Episys system was developed. Today, more
than 700 credit unions are automated by
Symitar systems.
This landmark birthday provides an ideal
opportunity to reflect on all that has been
accomplished, to thank our associates for
their commitment to our customers and
mission, and to thank our customers for
their business and loyalty.
Detailed information about Symitar and its product and service offering is available at www.symitar.com.
WWW.JACKHENRY.COM | 9
We initiated our focused
diversification strategy in
2004 to acquire companies
and products that broaden
our reach well beyond our
traditional markets, and
established ProfitStars in
2006 as Jack Henry &
Associates’ third primary
brand to encompass our
diversification acquisitions.
ProfitStars now provides more than 60 best-of-breed solutions
that enable financial services organizations and diverse
businesses to capitalize on specific revenue and growth
opportunities, mitigate and control financial and operational
risks, and contain operating costs. These solutions can be sold
to virtually any financial services organization – regardless of
asset size, charter, or core processing platform – and select
solutions are sold to businesses outside the financial industry
and internationally. These highly specialized products and
services are also cross sold to the banks and credit unions
served by Jack Henry Banking and Symitar, and among the
customer bases of the companies acquired by Jack Henry
& Associates.
Through 17 strategic acquisitions and targeted sales and
cross-sales initiatives, ProfitStars’ solutions are now supporting
approximately 7,500 domestic and international financial
services organizations and business entities.
BUSINESS STRATEGY
ProfitStars has executed a dynamic and successful business
strategy encompassing six fundamental principles that have
enabled our customer base, product offering, and revenue
contribution to increase significantly each year since the
division’s inception.
MAINTAIN STRICT FOCUS ON HIGH QUALITY
PRODUCTS, EXCEPTIONAL SERVICE, AND
CUSTOMER SATISFACTION
ProfitStars provides best-of-breed payment processing,
performance measurement and management, check and
document imaging, retail delivery, and risk mitigation solutions
that can be implemented individually or as comprehensive
solution suites. These highly specialized products and
10 | 2009 ANNUAL REPORT
services leverage Jack Henry & Associates’ extensive support
infrastructure and service standards to consistently provide
service levels that exceed customer expectations. We will
continue to strategically focus on providing the best-of-breed
products and the distinct support services required to maintain
distinct levels of customer satisfaction and retention, and to
attract new and prospective customers in our traditional and
nontraditional markets.
EXPAND PRODUCT AND SERVICE OFFERING
Through the acquisition of 17 companies and internal product
development, ProfitStars’ now offers more than 60 products
and services. We will continue to introduce new market-driven
solutions that expand our solution suites, sales and cross-sales
opportunities, and market presence and potential through
internal product development, strategic acquisitions, and
alliances with successful companies.
INTRODUCE NEW PRODUCTS THROUGH
LEVERAGED DEVELOPMENT
Dynamic customer, market, and competitive demands
are shaping financial institutions’ business strategies and
generating ongoing need for new products and services. The
architecture of select ProfitStars’ products enables us to expedite
our response with innovative new solutions that leverage
existing product engines. For example, ProfitStars’ Remote
Deposit Capture solution enables businesses to remotely
deposit checks by scanning the checks and converting them
into electronic transactions that are deposited and processed
online. This sophisticated payment processing platform was
leveraged to develop Dep@sit™, a micro business capture
solution that enables small businesses and individuals to
deposit checks remotely using off-the-shelf home flatbed
scanners. We will continue to leverage appropriate ProfitStars
products and services to develop new solutions that we can
sell to virtually any financial services organization, including
our core bank and credit union customers.
INCREASE PRESENCE AND POTENTIAL IN
NONTRADITIONAL MARKETS
Jack Henry & Associates’ traditional markets include community
and mid-tier banks, and credit unions of all sizes. Prior to
2004, our acquisition strategy primarily focused on companies
that provided complementary solutions that could be
integrated and sold almost exclusively to our core bank and
credit union customers. Through our focused diversification
strategy, ProfitStars has now assembled an array of solutions
that enabled our entrance into large nontraditional markets
that have significant sales and growth opportunities. These
nontraditional markets include thousands of financial services
organizations for which we previously had no appropriate
offering, including the industry’s largest institutions. ProfitStars’
customer roster now includes 42 of the largest 50 domestic
banks, including all of the top 15 banks, 29 of the 50 largest
credit unions, and leading securities and insurance companies.
Our nontraditional market also includes diverse businesses
outside the financial industry, including healthcare, non-profit
organizations, the public sector, utilities, retailers, distribution,
and manufacturing and processing. We will continue to
aggressively promote our best-of-breed solutions to increase
our presence and potential in these nontraditional markets
and to cross sell additional solutions to our top-tier customers.
LEVERAGE ISO AND VAR PARTNERSHIPS
We are establishing strategic partnerships with Independent
Sales Organizations (ISOs) and Value Added Resellers (VARs)
to sell select ProfitStars solutions to new markets and outside
customer bases. These third-party sales initiatives are natural
extensions of ProfitStars’ direct sales and cross sales approach,
and are expected to become an increasingly important
component of the sales model targeting businesses outside
the financial industry. We will continue to partner with ISOs
and VARs that offer expertise and proven sales success in
specific segments of our nontraditional markets.
OPTIMIZE ORGANIC GROWTH AND PURSUE
DISCIPLINED ACQUISITIONS
Despite the limited opportunities to identify companies that
meet our disciplined acquisition criteria during fiscal year
2009, ProfitStars is positioned to generate significant organic
growth through the sales and cross sales of its existing product
offering. We will continue to pursue acquisitions of successful
companies and specialized solutions that expand our product
offering and customer base, generate additional sales and
cross-sales opportunities in our traditional and nontraditional
markets, and facilitate our entrance into new markets.
Looking Forward
We will continue to refine our successful business strategy in
response to the industries we serve and the advances in the
technologies driving our solutions. ProfitStars is positioned to
enhance its growing brand identity by continuing to serve as
an innovative and responsive technology partner for diverse
financial services organizations and business entities.
Through the acquisition of 17
companies and internal product
development, ProfitStars now
provides more than 60 best-of-
breed solutions that enable
financial services organizations
and diverse businesses to
capitalize on specific revenue
and growth oppor tunities,
mitigate and control financial
and operational risks, and
contain operating costs.
Detailed information about ProfitStars and its product and service offering is available at www.profitstars.com.
WWW.JACKHENRY.COM | 11
FISCAL YEAR 2009
Financials
Market for Common Stock and Related Shareholder Matters
Performance Graph
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
Quarterly Financial Information
13
14
15
33
36
37
38
39
40
57
12 | 2009 ANNUAL REPORT
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is quoted on the NASDAQ Global Select Market (“NASDAQ”), formerly known as
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 NASDAQ.
Fiscal 2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2008
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
$20.99
19.94
20.39
24.45
High
$27.48
26.11
29.24
27.50
Low
$16.95
14.29
14.76
19.02
Low
$21.62
22.22
24.34
23.39
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, 2009 and 2008 are as follows:
Fiscal 2009
Dividend
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$0.085
0.085
0.075
0.075
Fiscal 2008
Dividend
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$0.075
0.075
0.065
0.065
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 21, 2009, there were approximately 47,000 holders of the Company’s common stock. On that same date
the last sale price of the common shares as reported on NASDAQ was $23.59 per share.
WWW.JACKHENRY.COM | 13
PERFORMANCE GRAPH
The following chart presents a comparison for the five-year period ended June 30, 2009, of the market performance
of the Company’s common stock with the S & P 500 Index and an index of peer companies selected by the
Company:
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Jack Henry & Associates, Inc., The S&P 500 Index
And A Peer Group
$160
$140
$120
$100
$80
$60
$40
$20
$0
6/04
6/05
6/06
6/07
6/08
6/09
Jack Henry & Associates, Inc.
S&P 500
Peer Group
This comparison assumes $100 was invested on June 30, 2004, and assumes reinvestments of dividends. Total
returns are calculated according to market capitalization of peer group members at the beginning of each period.
Peer companies selected are in the business of providing specialized computer software, hardware and related
services to financial institutions and other businesses. Companies in the peer group are Affiliated Computer
Services, Inc., Bottomline Technology, Inc., Cerner Corp., DST Systems, Inc., Euronet Worldwide, Inc., Fair Isaac
Corp., Fidelity National Financial, Inc., Fiserv, Inc., Goldleaf Financial Solutions, Inc., Metavante Technologies,
Inc., Online Resources Corp., S1 Corp., SEI Investments Company, Telecommunications Systems, Inc., and Tyler
Technologies Corp.
14 | 2009 ANNUAL REPORT
SELECTED FINANCIAL DATA
Selected Financial Data
(In Thousands, Except Per Share Data)
Income Statement Data
2009
2008
2007
2006
2005
Revenue (1)
Income from continuing operations
$
$
745,593
103,102
$
$
742,926
105,287
$
$
666,467
105,644
$
$
590,877
90,863
$
$
535,191
76,050
YEAR ENDED JUNE 30,
Diluted net
continuing operations
income per share,
$
1.22
$
1.17
$
1.15
$
0.97
$
0.82
Dividends declared per share
$
0.32
$
0.28
$
0.24
$
0.20
$
0.17
Balance Sheet Data
Working capital
Total assets
Long-term debt
Stockholders’ equity
15,239
1,050,700
$
$
$
-
$
626,506
$
$
$
$
(11,418)
1,021,044
24
601,451
$
$
$
$
19,908
999,340
128
598,365
$
$
$
$
42,918
906,067
421
575,212
13,710
814,153
$
$
$
-
$
517,154
(1) Revenue includes license sales, support and service revenues, and hardware sales, less returns and allowances.
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
BACKGROUND AND 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 implementation services for our systems and provide continuing
customer support services after the systems are implemented. 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 eight data centers in six physical locations and 12 item-processing centers located
throughout the United States.
A detailed discussion of the major components of the results of operations follows. All dollar amounts are in
thousands and discussions compare fiscal 2009 to fiscal 2008 and compare fiscal 2008 to fiscal 2007.
We derive revenues from three primary sources:
- software licenses;
- support and service fees, which include implementation services; and
- hardware sales, which includes all non-software remarketed products.
Over the last five fiscal years, our revenues have grown from $535,191 in fiscal 2005 to $745,593 in fiscal 2009.
Income from continuing operations has grown from $76,050 in fiscal 2005 to $103,102 in fiscal 2009. This growth
has resulted primarily from internal expansion supplemented by strategic acquisitions, allowing us to develop and
acquire new products and services for approximately 9,800 customers who utilize our software systems as of June
30, 2009.
WWW.JACKHENRY.COM | 15
Since the start of fiscal 2007, we have completed 3 acquisitions. All 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.
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.
Support and services fees are generated from implementation 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 Electronic Funds Transfer (“EFT”) support services. Outsourcing
services are performed through our data and item processing centers. Revenues from outsourced item and data
processing and EFT support services are primarily derived from monthly usage or transaction fees typically under
five-year service contracts with our customers.
Cost of license fees represents the third party vendor costs associated with license fee revenue.
Cost of services represents costs associated with conversion and implementation efforts, ongoing support for
our in-house customers, operation of our data and item processing centers providing services for our outsourced
customers, EFT services, and direct operation costs.
We have entered into remarketing agreements with several hardware manufacturers under which we sell computer
hardware and related services 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.
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 2009 COMPARED TO FISCAL 2008
In fiscal 2009, revenues remained fairly even compared to the prior year as growth in Support and services revenue
was offset by decreases in license and hardware revenue. This continuing shift in sales mix resulted in slightly
leaner gross and operating margins. As a result, revenue that was consistent with the prior year yielded income
from continuing operations that was down 2% in comparison to fiscal 2008.
The US financial crisis is a primary concern at this time as it threatens our customers and our industry. The profits of
many financial institutions have decreased and this has resulted in some reduction of demand for new products and
services. We remain cautiously optimistic, however, with increasing portions of our business coming from recurring
revenue, increases in backlog and encouraging sales pipeline in specific areas. Our customers will continue to
face regulatory and operational challenges which our products and services address, and in these times have an
even greater need for some of our solutions that directly address institutional profitability and efficiency. We face
these uncertain times with a strong balance sheet and an unwavering commitment to superior customer service,
and we believe that we are well positioned to address current opportunities as well as those which will arise when
the economic rebound occurs.
REVENUE
License Revenue
Year Ended June 30,
% Change
2009
2008
License
Percentage of total revenue
$
58,434
8%
$
73,553
10%
-21%
License revenue represents the delivery and acceptance 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.
16 | 2009 ANNUAL REPORT
As a result of the current economic downturn, we have seen some of our customers postpone making large capital
investments in technology, including software. In addition, our customers are often electing to contract for our
products via an outsourced delivery rather than a traditional license agreement. Our outsourced delivery does
not require our customers to make a large, up-front capital investment in license fees or hardware. During fiscal
2009, our core software products either had a decrease in license revenue or they remained even compared to
the prior year. In particular, Episys®, our flagship core solution for credit unions experienced a decrease. Episys
revenue has decreased as we have seen a decrease in the average size of contracts delivered during the year.
Those contracts were smaller on average since they were made with smaller credit unions. Our license revenues
for most of our complementary software solutions are also down compared to the prior year with the exception of
certain of our item and document imaging solutions, particularly Synergy Enterprise Content Management, which
has experienced 31% growth over the prior year.
Support and Service Revenue
Year Ended June 30,
% Change
2009
2008
Support and service
Percentage of total revenue
$
614,242
$
580,334
+6%
82%
78%
Year Over Year Change
$ Change
% Change
In-House Support & Other Services
$
19,692
EFT Support
Outsourcing Services
Implementation Services
Total Increase
15,699
4,059
(5,542)
$
33,908
8%
12%
3%
-9%
Support and service revenues are generated from implementation services (including conversion, installation,
configuration and training), annual support to assist the customer in operating their systems and to enhance and
update the software, outsourced data processing services and EFT Support services.
There was strong growth in most support and service revenue components in fiscal 2009. In-house support and
other services increased partially as a result of license agreements for which the implementations were completed
during the latest twelve months. In addition, because annual maintenance fees are based on supported institutions’
asset size, in-house support revenues increase as our customers’ assets grow.
EFT support, including ATM and debit card transaction processing, online bill payment services, remote deposit
capture and transaction processing services, experienced the largest percentage growth as we have seen strong
growth in our bill pay and enterprise payment solutions. In addition, we have seen continuing expansion of our
customer basis for EFT support as a whole.
Overall, Outsourcing services revenue grew only slightly. However, our core data processing revenue increased
over 8% year-to-date compared to last year as our customers continue to choose outsourcing for the delivery of
our solutions. These gains have been largely offset by a decrease in de-conversion revenue and in item processing
revenue. We expect the trend towards outsourced product delivery to benefit Outsourcing services revenue;
however, we also expect item-processing revenue to continue to decline as fewer paper checks are processed in
favor of check images and remote deposit capture.
WWW.JACKHENRY.COM | 17
The decrease in implementation services revenue is related to fewer convert/merger implementations for our bank
customers due to the slowdown in bank merger and acquisition activity in the current market environment.
Hardware Revenue
Year Ended June 30,
% Change
2009
2008
Hardware
Percentage of total revenue
$
72,917
10%
$
89,039
12%
-18%
The Company has entered into remarketing agreements with several hardware manufacturers under which we sell
computer hardware, hardware maintenance and related services to our customers. Revenue related to hardware
sales is recognized when the hardware is shipped to our customers.
Hardware revenue decreased mainly due to a decrease in the number of hardware systems and components
delivered in the current year compared to a year ago. Hardware revenue has been negatively impacted by the
decrease in the number of implementations of licensed core systems and the increase in outsourcing contracts,
which typically do not include hardware. Additionally, during the prior fiscal year, hardware revenue was increased
by increased IBM System i upgrades, which have not occurred at the same level in the current fiscal year.
18 | 2009 ANNUAL REPORT
COST OF SALES AND GROSS PROFIT
Cost of license represents the cost of software from third party vendors through remarketing agreements. These
costs are recognized when license revenue is recognized. Cost of support and service represents costs associated
with conversion and implementation efforts, ongoing support for our in-house customers, operation of our data
and item centers providing services for our outsourced customers, EFT processing services and direct operating
costs. These costs are recognized as they are incurred. 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 hardware revenue is recognized. Ongoing operating costs to provide support to our
customers are recognized as they are incurred.
Cost of Sales and Gross Profit
Year Ended June 30,
% Change
2009
2008
Cost of License
Percentage of total revenue
License Gross Profit
Gross Profit Margin
$
6,885
<1%
$
6,698
<1%
$
51,549
88%
$
66,855
91%
Cost of support and service
Percentage of total revenue
$
385,837
52%
$
364,140
49%
Support and Service Gross Profit
Gross Profit Margin
$
228,405
37%
$
216,194
37%
Cost of hardware
Percentage of total revenue
Hardware Gross Profit
Gross Profit Margin
TOTAL COST OF SALES
Percentage of total revenue
TOTAL GROSS PROFIT
Gross Profit Margin
$
53,472
7%
$
64,862
9%
$
19,445
27%
$
24,177
27%
$
446,194
60%
$
435,700
59%
$
299,399
40%
$
307,226
41%
+3%
-23%
+6%
+6%
-18%
-20%
+2%
-3%
Cost of license increased for the fiscal year due to greater third party reseller agreement software vendor costs.
These costs have led to gross profit margin on license revenue being lower than the prior year. We expect this
impact of third party software to continue to result in license gross profit margins that are lower than in prior years
as third party software becomes a larger portion of our total license revenue.
Cost of support and service increased for the year commensurate with an increase in support and service revenue,
which led to gross profit margin consistent with that realized in the prior year.
Cost of hardware decreased for the year in line with the decrease in hardware revenue. Hardware gross profit
margin remained at 27% for both years.
WWW.JACKHENRY.COM | 19
OPERATING EXPENSES
Selling and M arketing
Year Ended June 30,
% Change
2009
2008
Selling and marketing
Percentage of total revenue
$
54,931
7%
$
55,916
8%
-2%
Dedicated sales forces, inside sales teams, technical sales support teams and channel partners conduct our sales
efforts for our two market segments, and are overseen by regional sales managers. Our sales executives are
responsible for pursuing lead generation activities for new core customers. Our account executives nurture long-
term relationships with our client base and cross sell our many complementary products and services.
For the 2009 fiscal year, the selling and marketing expenses decrease was due to lower marketing expenses,
including lower product promotion and trade show expenses, than were incurred in the prior year. Overall, Selling and
marketing expenses decreased slightly as a percentage of total revenue in comparison to a year ago. Commission
expense has remained level compared to last year due to lower license and hardware revenues, partially offset by
growth in support and service revenue.
Research and Development
Year Ended June 30,
% Change
2009
2008
Research and development
Percentage of total revenue
$
42,901
6%
$
43,326
6%
-1%
We devote significant effort and expense to develop new software, service products and continually upgrade and
enhance our existing offerings. Typically, we upgrade our various core and complementary software applications
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.
Research and development expenses decreased slightly for fiscal year 2009 primarily due to cost control measures
undertaken by the Company. These measures included a reduction in the use of consultants and independent
contractors compared to last year. As a result of these efforts, Research and development expenses have remained
level at 6% of total revenue.
General and Administrative
Year Ended June 30,
% Change
2009
2008
General and administrative
Percentage of total revenue
$
43,681
6%
$
43,775
6%
-0%
General and administrative costs include all expenses related to finance, legal, human resources, plus all
administrative costs. General and administrative expense have remained level for the current year compared
to prior year, as cost control measures have slowed the growth in personnel costs and reduced travel and other
operating expenses. General and administrative expenses have remained a consistent 6% of total revenue for both
years.
INTEREST INCOME (EXPENSE)
Interest income decreased 64% from $2,145 to $781 due primarily to lower average invested balances coupled with
lower interest rates on invested balances. Interest expense decreased 30% from $1,928 to $1,357 due to lower
average interest rates on outstanding borrowings on the revolving bank credit facilities.
20 | 2009 ANNUAL REPORT
PROVISION FOR INCOME TAXES
The provision for income taxes was $54,208 or 34.5% of income before income taxes in fiscal 2009 compared
with $59,139 or 36.0% of income before income taxes fiscal 2008. The decrease was primarily due to the renewal
of the Research and Experimentation Credit (“R&E Credit”), during fiscal year 2009, retroactive to January 1,
2008. Renewal of this credit had a significant tax benefit in fiscal year 2009 since retroactive renewal required the
recording of an additional six months of credit during fiscal year 2009 related to fiscal year 2008.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations decreased slightly, moving from $105,287, or $1.17 per diluted share in fiscal
2008 to $103,102, or $1.22 per diluted share in fiscal 2009.
DISCONTINUED OPERATIONS
There was no gain or loss from discontinued operations for fiscal 2009. Loss on discontinued operations, net of
taxes, was $1,065 for fiscal 2008. The loss included a loss on the sale of Banc Insurance Services, Inc. and Banc
Insurance Agency, Inc. of $2,718, and a $1,457 loss on the operations of the two companies. The income tax
benefit on the loss amount was $3,110.
FISCAL 2008 COMPARED TO FISCAL 2007
Fiscal 2008 showed strong growth in support and service revenues, tempered somewhat by leaner gross and
operating margins. As a result, an 11% increase in total revenue yielded income from continuing operations that
was flat in comparison to fiscal 2007.
REVENUE
License Revenue
Year Ended June 30,
% Change
2008
2007
License
Percentage of total revenue
$
73,553
10%
$
76,403
11%
-4%
License revenue represents the delivery and acceptance 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.
License revenue decreased by $2,850 compared to last fiscal year mainly due to a decrease in the number of new
license agreements and an overall decrease in the average transaction size in comparison to the prior fiscal year.
When compared with last year, many of our software solutions experienced a decrease in license revenue. Those
products that had the most significant decreases included Yellow Hammer Fraud Detective™ (our fraud detection/
prevention solution), Silverlake® (our flagship core software solution for larger banks), and Synergy (our enterprise
content management solution). A significant portion of the decrease in license revenue can be attributed to the
continuing shift in demand by banks and credit unions toward our outsourcing services from an in-house delivery.
While many products had decreases in revenue during the current fiscal year, some products did very well, including
Episys®, our flagship core processing system aimed at larger credit unions, and Yellow Hammer™ BSA, our new
compliance and risk mitigation solution.
Support and Service Revenue
Year Ended June 30,
% Change
2008
2007
Support and service
Percentage of total revenue
$
580,334
$
501,722
+16%
78%
75%
WWW.JACKHENRY.COM | 21
Year Over Year Change
$ Change
% Change
In-House Support & Other Services
$
32,685
EFT Support
Outsourcing Services
Implementation Services
Total Increase
30,601
11,467
3,859
$
78,612
15%
29%
10%
6%
Support and service revenues are generated from implementation services (including conversion, installation,
configuration and training), annual support to assist the customer in operating their systems and to enhance and
update the software, outsourced data processing services and EFT Support services (including ATM and debit card
transaction processing, online bill payment services, remote deposit capture and Check 21 transaction processing
services).
There was strong growth in all of the support and service revenue components. In-house support and other
services increased partially as a result of increased implementations of recently acquired products. In addition,
because annual maintenance fees are based on supported institutions’ asset size, in-house support revenues
increase as our customers’ assets grow. EFT support, which includes ATM/debit card processing, on-line bill pay,
remote deposit capture and Check 21 transaction processing services, experienced the largest percentage growth
due to increased customer activity and expansion of our customer base. Outsourcing services for banks and credit
unions also continue to drive revenue growth at a strong pace as we add new bank and credit union customers and
increase volume. Implementation services revenue increased during the year partially due to implementations of
newly acquired or developed software products, as well as an increase in merger conversions for existing customers
that acquired other financial institutions.
Hardware Revenue
Year Ended June 30,
% Change
2008
2007
Hardware
Percentage of total revenue
$
89,039
12%
$
88,342
13%
+1%
The Company has entered into remarketing agreements with several hardware manufacturers under which we sell
computer hardware, hardware maintenance and related services to our customers. Revenue related to hardware
sales is recognized when the hardware is shipped to our customers.
Hardware revenue increased slightly in the current fiscal year because a small decrease in the sale of major
hardware components was offset by slight increases in revenue from the sale of financial institution forms and
supplies and from hardware maintenance contracts.
22 | 2009 ANNUAL REPORT
COST OF SALES AND GROSS PROFIT
Cost of license represents the cost of software from third party vendors through remarketing agreements. These
costs are recognized when license revenue is recognized. Cost of support and service represents costs associated
with conversion and implementation efforts, ongoing support for our in-house customers, operation of our data
and item centers providing services for our outsourced customers, EFT processing services and direct operating
costs. These costs are recognized as they are incurred. 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 hardware revenue is recognized. Ongoing operating costs to provide support to our
customers are recognized as they are incurred.
Cost of Sales and Gross Profit
Year Ended June 30,
% Change
2008
2007
Cost of License
Percentage of total revenue
License Gross Profit
Gross Profit Margin
$
6,698
<1%
$
4,277
<1%
$
66,855
91%
$
72,126
94%
Cost of support and service
Percentage of total revenue
$
364,140
49%
$
309,919
47%
Support and Service Gross Profit
Gross Profit Margin
$
216,194
37%
$
191,803
38%
Cost of hardware
Percentage of total revenue
Hardware Gross Profit
Gross Profit Margin
TOTAL COST OF SALES
Percentage of total revenue
TOTAL GROSS PROFIT
Gross Profit Margin
$
64,862
9%
$
65,469
10%
$
24,177
27%
$
22,873
26%
$
435,700
59%
$
379,665
57%
$
307,226
41%
$
286,802
43%
+57%
-7%
+17%
+13%
-1%
+6%
+15%
+7%
Cost of license increased for the fiscal year due to greater third party reseller agreement software vendor costs.
Gross profit margin on license revenue decreased because a larger percentage of the revenue from licenses was
attributable to these sales under reseller agreements where the gross margins are significantly lower than on our
owned products. Cost of support and service increased for the year primarily due to additional personnel costs,
costs related to the expansion of infrastructure (including depreciation, amortization, and maintenance contracts)
and increases in the direct costs of providing services (such as transaction processing charges and the cost of
third party maintenance) as compared to last year. These increases were commensurate with the increase in
support and service revenue. The gross profit margin decreased to 37% from 38% in support and service. Cost of
hardware decreased for the year. Hardware gross profit margin increased slightly due to sales mix.
WWW.JACKHENRY.COM | 23
OPERATING EXPENSES
Selling and M arketing
Year Ended June 30,
% Change
2008
2007
Selling and marketing
Percentage of total revenue
$
55,916
8%
$
50,195
8%
+11%
Dedicated sales forces, inside sales teams, technical sales support teams and channel partners conduct our sales
efforts for our two market segments, and are overseen by regional sales managers. Our sales executives are
responsible for pursuing lead generation activities for new core customers. Our account executives nurture long-
term relationships with our client base and cross sell our many complementary products and services.
For the 2008 fiscal year, the selling and marketing expenses increase was due to growth in personnel costs,
particularly commission expenses on sales of services, which resulted from increased services revenue. Selling
and Marketing expenses remained steady for both years at 8% of total revenue.
Research and Development
Year Ended June 30,
% Change
2008
2007
Research and development
Percentage of total revenue
$
43,326
6%
$
35,962
5%
+20%
We devote significant effort and expense to develop new software, service products and continually upgrade and
enhance our existing offerings. Typically, we upgrade our various core and complementary software applications
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.
Research and development expenses grew primarily due to employee costs associated with an 11% increase in
headcount for ongoing development of new products and enhancements to existing products. In addition, recent
acquisitions have research and development expenses that exceed the average for the remainder of the Company,
which has contributed to the increase from the prior fiscal year. Research and development expenses increased
slightly to 6% of total revenue from 5% in fiscal 2007.
General and Administrative
Year Ended June 30,
% Change
2008
2007
General and administrative
Percentage of total revenue
$
43,775
6%
$
40,617
6%
+8%
General and administrative costs include all expenses related to finance, legal, human resources, plus all
administrative costs. General and administrative expense increased primarily due to employee costs associated
with a 4% increase in headcount and to an increase in professional services fees (fees for accounting, legal and
business consultants). Also impacting the increase was growth in travel and lodging expenses (including the cost
of aircraft fuel). General and administrative costs remained at 6% of total revenue for both fiscal years.
INTEREST INCOME (EXPENSE)
Interest income decreased 37% from $3,406 to $2,145 due primarily to lower average invested balances coupled
with lower interest rates on invested balances. Interest expense increased 10% from $1,757 to $1,928 due to
higher average outstanding borrowings on the revolving bank credit facilities.
24 | 2009 ANNUAL REPORT
PROVISION FOR INCOME TAXES
The provision for income taxes was $59,139 or 36.0% of income before income taxes in fiscal 2008 compared with
$56,033 or 34.7% of income before income taxes fiscal 2007. The increase was due to the renewal of the Research
and Experimentation Credit (“R&E Credit”), during fiscal year 2007, retroactive to January 1, 2006. Renewal of
this credit had a significant tax benefit in fiscal year 2007 since retroactive renewal required the recording of an
additional six months of credit during fiscal year 2007 related to fiscal year 2006. In addition, the R&E Credit expired
as of December 31, 2007, which also contributed to the increase in the tax rate for fiscal year 2008.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations remained relatively flat, moving from $105,644, or $1.15 per diluted share in
fiscal 2007 to $105,287, or $1.17 per diluted share in fiscal 2008.
DISCONTINUED OPERATIONS
Loss on discontinued operations, net of taxes, was $1,065 for fiscal 2008. The loss included a loss on the sale of
Banc Insurance Services, Inc. and Banc Insurance Agency, Inc. of $2,718, and a $1,457 loss on the operations of
the two companies. The income tax benefit on the loss amount was $3,110. The loss on operations of the disposed
companies for fiscal 2007 included a loss from operations of $1,474, netted with the income tax benefit of $511.
BUSINESS SEGMENT DISCUSSION
Bank Systems and Services
Revenue
Gross Profit
$617,711
$247,812
+<1%
-3%
$616,390
$255,870
+11%
+5%
$555,861
$244,788
2009
% Change
2008
% Change
2007
Gross Profit Margin
40%
42%
44%
In fiscal 2009, revenue remained essentially even in the bank systems and services business segment compared
to the prior year. Support and service revenue increased for most lines, particularly EFT support which experienced
9% revenue growth and in-house support which experienced 8% revenue growth. The growth in these components
was offset by a 14% decrease in license revenue and a 15% decrease in hardware revenue. Gross profit margin
decreased as the mix of revenue shifted away from license revenue (which carries the largest margins) toward
support and service revenue. Hardware profit margins remained even compared to fiscal 2008.
In fiscal 2008, the revenue increase in the bank systems and services business segment is primarily due to continued
growth in support and service revenue, particularly EFT support which experienced 29% revenue growth and in-
house support which experienced 16% revenue growth. The growth in these components was partially offset by a
13% decrease in license revenue. Gross profit margin decreased as the mix of revenue shifted away from license
revenue (which carries the largest margins) toward support and service revenue. Hardware revenue decreased by
2%; however, a shift in sales mix during fiscal 2008 compared to fiscal 2007 led to a slightly higher hardware margin.
Credit Union Systems and Services
2009
% Change
2008
% Change
2007
Revenue
Gross Profit
$127,882
$51,587
+1%
+<1%
$126,536
$51,356
+14%
+22%
$110,606
$42,014
Gross Profit Margin
40%
41%
38%
In fiscal 2009, revenues in the credit union systems and services business segment increased 1% from fiscal
2008. Support and service revenue, which is the largest component of total revenues for the credit union segment,
experienced strong growth in all revenue components and 18 percent growth overall. In particular, EFT Support
experienced 32% revenue growth over the prior year. The growth in Support and service revenue was offset by
decreases in both license and hardware revenue. Gross profit in this business segment remained even in fiscal
2009 compared to fiscal 2008.
WWW.JACKHENRY.COM | 25
In fiscal 2008, revenues in the credit union systems and services business segment increased 14% from fiscal 2007.
All revenue components within the segment experienced growth during fiscal 2008. License revenue generated
the largest dollar growth in revenue as Episys®, our flagship core processing system aimed at larger credit unions,
experienced strong sales throughout the year. Support and service revenue, which is the largest component of
total revenues for the credit union segment, experienced 34 percent growth in EFT support and 10 percent growth
in in-house support. Gross profit in this business segment increased $9,344 in fiscal 2008 compared to fiscal 2007,
due primarily to the increase in license revenue, which carries the highest margins.
LIQUIDITY AND CAPITAL RESOURCES
We have historically generated positive cash flow from operations and have generally used funds generated from
operations and short-term borrowings on our revolving credit facility to meet capital requirements. We expect this
trend to continue in the future.
The Company’s cash and cash equivalents increased to $118,251 at June 30, 2009 from $65,565 at June 30, 2008.
The following table summarizes net cash from operating activities in the statement of cash flows:
Net income
Non-cash expenses
Change in receivables
Change in deferred revenue
Change in other assets and liabilities
Year ended June 30,
2009
2008
2007
$
103,102
74,397
21,214
21,943
(14,068)
$
104,222
70,420
(2,913)
5,100
4,172
$
104,681
56,348
(28,853)
24,576
17,495
Net cash from operating activities
$
206,588
$
181,001
$
174,247
Cash provided by operations increased $25,587 to $206,588 for the fiscal year ended June 30, 2009 as compared
to $181,001 for the fiscal year ended June 30, 2008. This increase is primarily attributable to a decrease in
receivables compared to the same period a year ago of $21,214. This decrease is largely the result of fiscal 2010
annual software maintenance billings being provided to customers earlier than in the prior year, which allowed more
cash to be collected before the end of the fiscal year than in previous years. Further, we collected more cash overall
related to revenues that will be recognized in subsequent periods in the current year than in fiscal 2008.
Cash used in investing activities for the fiscal year ended June 2009 was $59,227 and includes $3,027 in contingent
consideration paid on prior years’ acquisitions. Cash used in investing activities for the fiscal year ended June 2008
was $102,148 and includes payments for acquisitions of $48,109, plus $1,215 in contingent consideration paid on
prior years’ acquisitions. Capital expenditures for fiscal 2009 were $31,562 compared to $31,105 for fiscal 2008.
Cash used for software development in fiscal 2009 was $24,684 compared to $23,736 during the prior year.
Net cash used in financing activities for the current fiscal year was $94,675 and includes the repurchase of 3,106
shares of our common stock for $58,405, the payment of dividends of $26,903 and $13,489 net repayment on
our revolving credit facilities. Cash used in financing activities was partially offset by proceeds of $3,773 from the
exercise of stock options and the sale of common stock (through the employee stock purchase plan) and $348
excess tax benefits from stock option exercises. During fiscal 2008, net cash used in financing activities for the
fiscal year was $101,905 and includes the repurchase of 4,200 shares of our common stock for $100,996, the
payment of dividends of $24,683 and $429 net repayment on our revolving credit facilities. Cash used in financing
activities was partially offset by proceeds of $20,394 from the exercise of stock options and the sale of common
stock and $3,809 excess tax benefits from stock option exercises.
Beginning during fiscal 2008, US financial markets and many of the largest US financial institutions have been
shaken by negative developments in the home mortgage industry and the mortgage markets, and particularly
the markets for subprime mortgage-backed securities. Since that time, these and other such developments have
resulted in a broad, global economic downturn. While we, as is the case with most companies, have experienced
the effects of this downturn, we have not experienced any significant issues with our current collection efforts,
and we believe that any future impact to our liquidity will be minimized by cash generated by recurring sources of
revenue and due to our access to available lines of credit.
26 | 2009 ANNUAL REPORT
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this
authorization, the Company may finance its share repurchases with available cash reserves of short-term borrowings
on its existing credit facility. The share repurchase program does not include specific price targets or timetables and
may be suspended at any time. At June 30, 2008, there were 11,301 shares in treasury stock and the Company had
the remaining authority to repurchase up to 3,690 additional shares. On August 25, 2008, the Company’s Board of
Directors approved a 5,000 share increase to the stock repurchase authorization. During fiscal 2009, the Company
repurchased 3,106 treasury shares for $58,405. The total cost of treasury shares at June 30, 2009 is $309,585.
At June 30, 2009, there were 14,407 shares in treasury stock and the Company had the authority to repurchase up
to 5,584 additional shares.
Subsequent to June 30, 2009, the Company’s Board of Directors declared a cash dividend of $.085 per share on
its common stock payable on September 17, 2009, to stockholders of record on September 4, 2009. 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.
The Company renewed a bank credit line on April 28, 2008 which provides for funding of up to $5,000 and bears
interest at the bank’s prime rate less 1% (2.25% at June 30, 2009). The credit line matures on April 29, 2010. At
June 30, 2009, no amount was outstanding.
The Company renewed a credit line on March 7, 2009 which provides for funding of up to $8,000 and bears interest
at the Federal Reserve Board’s prime rate (3.25% at June 30, 2009). The credit line expires March 7, 2010 and is
secured by $1,000 of investments. There were no outstanding amounts at June 30, 2009.
An unsecured revolving bank credit facility allows short-term borrowings of up to $150,000, which may be increased
by the Company at any time until maturity to $225,000. The unsecured revolving bank credit facility bears interest
at a rate equal to (a) LIBOR or (b) an alternate base rate (the greater of (a) the Federal Funds Rate plus 0.5% or
(b) the Prime Rate), plus an applicable percentage in each case determined by the Company’s leverage ratio. The
unsecured revolving credit line terminates May 31, 2012. At June 30, 2009, the outstanding revolving bank credit
facility balance was $60,000. This outstanding balance bears interest at a weighted average rate of 0.73%. This
credit line is subject to various financial covenants that require the Company to maintain certain financial ratios as
defined in the agreement. As of June 30, 2009, the Company was in compliance with all such covenants.
The Company has entered into various capital lease obligations for the use of certain computer equipment. Included
in property and equipment are related assets of $6,907, less accumulated depreciation of $877. At June 30, 2009,
$3,461 was outstanding, all of which will be maturing in the next twelve months.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At June 30, 2009 the Company’s total off balance sheet contractual obligations were $50,820. This balance consists
of $24,660 of long-term operating leases for various facilities and equipment which expire from 2010 to 2017 and
the remaining $26,160 is for purchase commitments related to property and equipment, particularly for contractual
obligations related to the on-going construction of a new facility in Springfield, Missouri. The table excludes $6,249
of liabilities under the Financial Accounting Standards Board’s Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” as we are unable to reasonably estimate the ultimate amount or timing of settlement.
Contractual obligations by
period as of June 30, 2009
Less than
1 year
1-3 years
3-5 years
More than
5 years
TOTAL
Operating lease obligations
Capital lease obligations
Note payable, including
accrued interest
Purchase obligations
$
8,759
3,461
$
7,994
-
$
4,519
-
$
3,388
-
$
24,660
3,461
60,045
25,750
-
410
-
-
-
-
60,045
26,160
Total
$98,015
$8,404
$4,519
$3,388
$114,326
WWW.JACKHENRY.COM | 27
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting
Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes
a framework for measuring fair value in GAAP and requires enhanced disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements. Relative to SFAS 157, the FASB issued Staff
Positions (“FSP”) 157-1, 157-2 and 157-3. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, “Accounting
for Leases” (“SFAS 13”), and its related interpretive accounting pronouncements that address leasing transactions.
FSP 157-2 delayed the effective date of the application of SFAS 157 to fiscal years beginning after November
15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. FSP 157-3 clarifies the application of SFAS 157 in a market that is not
active and provides an example to illustrate key considerations in determining fair value of a financial asset when
the market for that financial asset is not active. SFAS 157 was effective for the Company beginning on July 1, 2008.
Its adoption did not have a material impact on the Company’s financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”) which replaces
SFAS No. 141. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in
the acquire and the goodwill acquired. The Statement also establishes disclosure requirements which will enable
users of the financial statements to evaluate the nature and financial effects of the business combination. Relative
to SFAS 141(R), the FASB issued FSP 141(R)-1 on April 1, 2009. FSP 141(R)-1 eliminates the requirement under
FAS 141(R) to record assets or liabilities at the acquisition date for noncontractual contingencies at fair value where
it is deemed “more-likely-than-not” that an asset or liability would result. Under FSP 141(R)-1, such assets and
liabilities would only need to be recorded where the fair value can be determined during the measurement period
or where it is probable that an asset or liability exists at the acquisition date and the amount of fair value can be
reasonably determined. SFAS 141(R) is effective for the Company on July 1, 2009. SFAS 141(R) will have an
impact on the Company’s accounting for business combinations on a prospective basis once adopted; however, the
materiality of that impact cannot be determined at this time.
In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-
3”). This pronouncement amends SFAS No. 142, regarding the factors that should be considered in developing the
useful lives for intangible assets with renewal or extension provisions. FSP 142-3 requires an entity to consider its
own historical experience in renewing or extending similar arrangements, regardless of whether those arrangements
have explicit renewal or extension provisions, when determining the useful life of an intangible asset. In the absence
of such experience, an entity shall consider the assumptions that market participants would use about renewal or
extension, adjusted for entity-specific factors. FSP 142-3 also requires an entity to disclose information regarding
the extent to which the expected future cash flows associated with an intangible asset are affected by the entity’s
intent and/or ability to renew or extend the arrangement. FSP 142-3 will be effective for qualifying intangible assets
acquired by the Company on or after July 1, 2009. The application of FSP 142-3 is not expected to have a material
impact on the Company’s financial statements; however, it could impact future transactions entered into by the
Company.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”), which
establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles
recognized by the FASB to be applied in the preparation of financial statements in conformity with generally
accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of the SEC under
federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become effective in the first fiscal
quarter of fiscal 2010 and is not expected to 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 (“U.S. GAAP”). The significant accounting policies are discussed in Note 1 to the consolidated
financial statements. The preparation of consolidated financial statements in accordance with U.S. GAAP requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses,
as well as disclosure of contingent assets and liabilities. We base our estimates and judgments upon historical
experience and other factors believed to be reasonable under the circumstances. Changes in estimates or
assumptions could result in a material adjustment to the consolidated financial statements.
28 | 2009 ANNUAL REPORT
We have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a)
the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved,
and (b) the impact of changes in the estimates and assumptions would have a material effect on the consolidated
financial statements.
Revenue Recognition
We recognize revenue in accordance with the provisions of Statement of Position (“SOP”) 97-2, “Software Revenue
Recognition,” as amended by SOP 98-9, “Software Revenue Recognition, with Respect to Certain Transactions,”
and clarified by Staff Accounting Bulletin (“SAB”) 101, “Revenue Recognition in Financial Statements,” SAB 104,
“Revenue Recognition,” and Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”), “Accounting for Revenue
Arrangements with Multiple Deliverables.” The application of these pronouncements requires judgment, including
whether a software arrangement includes multiple elements, whether any elements are essential to the functionality
of any other elements, and whether vendor-specific objective evidence (“VSOE”) of fair value exists for those
elements. Customers receive certain elements of our products over time. Changes to the elements in a software
arrangement or in our ability to identify VSOE for those elements could materially impact the amount of earned and
unearned revenue reflected in the financial statements.
License Fee Revenue. For software license agreements that do not require significant modification or customization
of the software, the Company recognizes software license revenue when persuasive evidence of an arrangement
exists, delivery of the product has occurred, the license fee is fixed and determinable and collection is probable.
The Company’s software license agreements generally include multiple products and services or “elements.” None
of these elements alone are deemed to be essential to the functionality of the other elements. SOP 97-2, as
amended by SOP 98-9, generally requires revenue earned on software arrangements involving multiple elements
to be allocated to each element based on VSOE of fair value. Fair value is determined for license fees based upon
the price charged when sold separately. In the event that we determine that VSOE does not exist for one or more
of the delivered elements of a software arrangement, but does exist for all of the undelivered elements, revenue
is recognized the residual method allowed by SOP 98-9. Under the residual method, a residual amount of the
total arrangement fee is recognized as revenue for the delivered elements after the established fair value of all
undelivered elements has been deducted.
Support and Service Fee Revenue. Implementation services are generally for installation, implementation, and
configuration of our systems and for training of our customer’s employees. These services are not considered
essential to the functionality of the related software. VSOE of fair value is established by pricing used when these
services are sold separately. Generally revenue is recognized when services are completed. On certain larger
implementations, revenue is recognized based on milestones during the implementation. Milestones are triggered
by tasks completed or based on direct labor hours.
Maintenance support revenue is recognized pro-rata over the contract period, typically one year. VSOE of fair value
is determined based on contract renewal rates.
Outsourced data processing services and ATM, debit card, and other transaction processing services revenues are
recognized in the month the transactions were processed or the services were rendered.
Hardware Revenue: Hardware revenue is recognized upon delivery to the customer, when title and risk of loss are
transferred. In most cases, we do not stock in inventory the hardware products we sell, but arrange for third-party
suppliers to drop-ship the products to our customers on our behalf. Some of our hardware revenues are derived
under “arrangements” as defined by SOP 97-2. To the extent hardware revenue is subject to SOP 97-2 and is not
deemed essential to the functionality of any of the other elements to the arrangement, it is recognized based on
VSOE of fair value at the time of delivery. For these transactions, the Company follows the guidance provided in
Emerging Issues Task Force Issue (“EITF”) No. 99-19, “Reporting Revenue Gross as a Principal versus Net as
an Agent.” Based upon the indicators provided within this consensus, the Company records the revenue related
to our drop-ship transactions at gross and the related costs are included in cost of hardware. The Company also
remarkets maintenance contracts on hardware to our customers. Hardware maintenance revenue is recognized
ratably over the agreement period.
WWW.JACKHENRY.COM | 29
Depreciation and Amortization Expense
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 annual basis.
Capitalization of software development costs
We capitalize certain costs incurred to develop commercial software products and to develop or purchase internal-
use software. Significant estimates and assumptions include: determining the appropriate period over which to
amortize the capitalized costs based on the estimated useful lives, estimating the marketability of the commercial
software products and related future revenues, and assessing the unamortized cost balances for impairment. For
commercial software products, determining the appropriate amortization period is based on estimates of future
revenues from sales of the products. We consider various factors to project marketability and future revenues,
including an assessment of alternative solutions or products, current and historical demand for the product, and
anticipated changes in technology that may make the product obsolete. A significant change in an estimate related
to one or more software products could result in a material change to our results of operations.
Estimates used to determine current and deferred income taxes
We make certain estimates and judgments in determining income tax expense for financial statement purposes.
These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from
differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We also must
determine the likelihood of recoverability of deferred tax assets, and adjust any valuation allowances accordingly.
Considerations include the period of expiration of the tax asset, planned use of the tax asset, and historical and
projected taxable income as well as tax liabilities for the tax jurisdiction to which the tax asset relates. Valuation
allowances are evaluated periodically and will be subject to change in each future reporting period as a result of
changes in one or more of these factors. Also, Financial Accounting Standards Board (“FASB”) Interpretation No. 48
(“FIN 48”) – “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” requires
significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of
each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the
estimate of the effective tax rate and consequently, affect our financial results.
Assumptions related to purchase accounting and goodwill
We account for our acquisitions using the purchase method of accounting. This method requires estimates to
determine the fair values of assets and liabilities acquired, including judgments to determine any acquired intangible
assets such as customer-related intangibles, as well as assessments of the fair value of existing assets such as
property and equipment. Liabilities acquired can include balances for litigation and other contingency reserves
established prior to or at the time of acquisition, and require judgment in ascertaining a reasonable value. Third
party valuation firms may be used to assist in the appraisal of certain assets and liabilities, but even those
determinations would be based on significant estimates provided by us, such as forecasted revenues or profits on
contract-related intangibles. Numerous factors are typically considered in the purchase accounting assessments,
which are conducted by Company professionals from legal, finance, human resources, information systems, program
management and other disciplines. Changes in assumptions and estimates of the acquired assets and liabilities
would result in changes to the fair values, resulting in an offsetting change to the goodwill balance associated with
the business acquired.
As goodwill is not amortized, goodwill balances are regularly assessed for potential impairment. Such assessments
require an analysis of future cash flow projections as well as a determination of an appropriate discount rate to
calculate present values. Cash flow projections are based on management-approved estimates, which involve the
input of numerous Company professionals from finance, operations and program management. Key factors used
in estimating future cash flows include assessments of labor and other direct costs on existing contracts, estimates
of overhead costs and other indirect costs, and assessments of new business prospects and projected win rates.
Significant changes in the estimates and assumptions used in purchase accounting and goodwill impairment testing
can have a material effect on the consolidated financial statements.
30 | 2009 ANNUAL REPORT
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 1A of this report. 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
financial services 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 or credit union industry, increased government regulation, network or internet security
problems, operational problems in our outsourcing facilities and others listed in “Risk Factors” at Item 1A.
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.
WWW.JACKHENRY.COM | 31
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Management's Annual Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Statements of Income,
Years Ended June 30, 2009, 2008, and 2007
Consolidated Balance Sheets, June 30, 2009 and 2008
Consolidated Statements of Changes in Stockholders' Equity,
Years Ended June 30, 2009, 2008, and 2007
Consolidated Statements of Cash Flows,
Years Ended June 30, 2009, 2008, and 2007
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
33
34
35
36
37
38
39
40
There are no schedules included because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
32 | 2009 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Jack Henry & Associates, Inc.
Monett, Missouri
We have audited the accompanying balance sheets of Jack Henry & Associates, Inc. and subsidiaries (the
“Company”) as of June 30, 2009 and 2008, and the related statements of income, stockholders’ equity, and cash
flows for each of the three years in the period ended June 30, 2009. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the 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 financial statements present fairly, in all material respects, the financial position of the Company
at June 30, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the
period ended June 30, 2009, in conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1 to the financial statements, in fiscal 2008 the Company changed its method of accounting
for income taxes to conform to FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109.”
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of June 30, 2009, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated August 28, 2009 expressed an unqualified opinion on the Company’s
internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 28, 2009
WWW.JACKHENRY.COM | 33
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The management of Jack Henry & Associates, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s
consolidated financial statements for external reporting purposes in accordance with accounting principles generally
accepted in the United States of America.
The Company’s internal control over financial reporting includes policies and procedures pertaining to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of
assets; provide reasonable assurance transactions are recorded as necessary to permit preparation of consolidated
financial statements in accordance with accounting principles generally accepted in the United States of America,
and receipts and expenditures are being made only in accordance with authorizations of management and
the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
Company’s consolidated financial statements. All internal controls, no matter how well designed, have inherent
limitations. Therefore, even where internal control over financial reporting is determined to be effective, it can
provide only reasonable assurance. Projections of any evaluation of effectiveness to future periods are subject to
the risk controls may become inadequate because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate.
As of the end of the Company’s 2009 fiscal year, management conducted an assessment of the effectiveness of
the Company’s internal control over financial reporting based on the framework established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management has determined the Company’s internal control over financial reporting as
of June 30, 2009 was effective.
The Company’s internal control over financial reporting as of June 30, 2009 has been audited by the Company’s
independent registered public accounting firm, as stated in their report appearing on the next page.
34 | 2009 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Jack Henry & Associates, Inc.
Monett, Missouri
We have audited the internal control over financial reporting of Jack Henry & Associates, Inc. and subsidiaries (the
“Company”) as of June 30, 2009, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the 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
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of June 30, 2009, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee on Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended June 30, 2009 of the Company and our report
dated August 28, 2009 expressed an unqualified opinion, and includes an explanatory paragraph relating to a change in
accounting for income taxes.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 28, 2009
WWW.JACKHENRY.COM | 35
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
REVENUE
License
Support and service
Hardware
Total
COST OF SALES
Cost of license
Cost of support and service
Cost of hardware
Total
YEAR ENDED JUNE 30,
2009
2008
2007
$
58,434
614,242
72,917
745,593
$
73,553
580,334
89,039
742,926
$
76,403
501,722
88,342
666,467
6,885
385,837
53,472
446,194
6,698
364,140
64,862
435,700
4,277
309,919
65,469
379,665
GROSS PROFIT
299,399
307,226
286,802
OPERATING EXPENSES
Selling and marketing
Research and development
General and administrative
Total
54,931
42,901
43,681
141,513
55,916
43,326
43,775
143,017
50,195
35,962
40,617
126,774
OPERATING INCOME
157,886
164,209
160,028
INTEREST INCOME (EXPENSE)
Interest income
Interest expense
Total
781
(1,357)
(576)
2,145
(1,928)
217
3,406
(1,757)
1,649
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
157,310
164,426
161,677
PROVISION FOR INCOME TAXES
54,208
59,139
56,033
INCOME FROM CONTINUING OPERATIONS
103,102
105,287
105,644
DISCONTINUED OPERATIONS (Note 12)
Loss from operations of discontinued
component (including loss on disposal of
$2,718 in 2008)
Income tax benefit
Loss on discontinued operations
-
-
-
(4,175)
3,110
(1,065)
(1,474)
511
(963)
NET INCOME
$
103,102
$
104,222
$
104,681
Continuing operations
Discontinued operations
Diluted net income per share
Diluted weighted average shares outstanding
Continuing operations
Discontinued operations
Basic net income per share
Basic weighted average shares outstanding
See notes to consolidated financial statements.
36 | 2009 ANNUAL REPORT
$
$
1.22
-
1.22
84,830
$
$
1.23
-
1.23
84,118
$
$
$
$
$
$
$
$
1.17
(0.01)
1.16
89,702
1.19
(0.01)
1.18
88,270
1.15
(0.01)
1.14
92,032
1.17
(0.01)
1.16
90,155
JACK HENRY & ASSOCIATES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Investments, at amortized cost
Receivables
Income tax receivable
Prepaid expenses and other
Prepaid cost of product
Deferred income taxes
Total current assets
PROPERTY AND EQUIPMENT, net
OTHER ASSETS:
Prepaid cost of product
Computer software, net of amortization
Other non-current assets
Customer relationships, net of amortization
Trade names
Goodwill
Total other assets
Total assets
LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Accrued income taxes
Note payable and current maturities of capital leases
Deferred revenues
Total current liabilities
LONG TERM LIABILITIES:
Deferred revenues
Deferred income taxes
Other long-term liabilities, net of current maturities
Total long term liabilities
Total liabilities
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 06/30/09 were 98,020,796
Shares issued at 06/30/08 were 97,702,098
Additional paid-in capital
Retained earnings
Less treasury stock at cost
14,406,635 shares at 06/30/09, 11,301,045 shares at 06/30/08
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to consolidated financial statements.
JUNE 30,
2009
2008
$
118,251
1,000
192,733
2,692
24,371
19,717
882
359,646
237,778
6,793
82,679
11,955
55,450
3,999
292,400
453,276
$
65,565
997
213,947
-
25,143
19,515
4,590
329,757
239,005
9,584
74,943
10,564
63,819
3,999
289,373
452,282
$
1,050,700
$
1,021,044
$
8,206
34,018
1,165
63,461
237,557
$
6,946
35,996
15,681
70,177
212,375
344,407
341,175
7,981
65,066
6,740
79,787
11,219
61,710
5,489
78,418
424,194
419,593
-
-
980
298,378
636,733
977
291,120
560,534
(309,585)
(251,180)
626,506
601,451
$
1,050,700
$
1,021,044
WWW.JACKHENRY.COM | 37
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
PREFERRED SHARES:
YEAR ENDED JUNE 30,
2009
-
2008
-
2007
-
COMMON SHARES:
Shares, beginning of year
Shares issued for equity-based payment arrangements
Shares issued for Employee Stock Purchase Plan
Shares, end of year
97,702,098
196,727
121,971
98,020,796
96,203,030
1,443,071
55,997
97,702,098
93,955,663
2,218,395
28,972
96,203,030
COMMON STOCK - PAR VALUE $0.01 PER SHARE:
Balance, beginning of year
Shares issued for equity-based payment arrangements
Shares issued for Employee Stock Purchase Plan
Balance, end of year
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year
Shares issued upon exercise of stock options
Shares issued for Employee Stock Purchase Plan
Tax benefits from share-based compensation
Stock-based compensation expense
Balance, end of year
RETAINED EARNINGS:
Balance, beginning of year
Net income
FASB Interpretation No. 48 transition amount
Dividends (2009-$0.32 per share;
2008- $0.28 per share; 2007-$0.24 per share)
Balance, end of year
TREASURY STOCK:
Balance, beginning of year
Purchase of treasury shares
Balance, end of year
$
$
$
$
962
14
1
977
$
939
23
-
962
$
$
$
$
262,742
19,151
1,228
6,555
1,444
291,120
224,195
28,557
632
8,355
1,003
262,742
$
$
$
977
2
1
980
291,120
1,882
1,888
1,216
2,272
298,378
$
560,534
103,102
-
$
484,845
104,222
(3,850)
$
401,849
104,681
-
(26,903)
636,733
$
(24,683)
560,534
$
(21,685)
484,845
$
$
$
(251,180)
(58,405)
(309,585)
$
$
(150,184)
(100,996)
(251,180)
$
(51,771)
(98,413)
(150,184)
$
TOTAL STOCKHOLDERS' EQUITY
$
626,506
$
601,451
$
598,365
See notes to consolidated financial statements.
38 | 2009 ANNUAL REPORT
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$
103,102
$
104,222
$
104,681
YEAR ENDED JUNE 30,
2009
2008
2007
Adjustments to reconcile net income from operations
to cash from operating activities:
Depreciation
Amortization
Deferred income taxes
Expense for stock-based compensation
Loss on property and equipment (including 6/30/08 loss on
discontinued operations)
Other, net
Changes in operating assets and liabilities, net of acquisitions:
Receivables
Prepaid expenses, prepaid cost of product, and other
Accounts payable
Accrued expenses
Income taxes
Deferred revenues
38,859
25,288
7,047
2,272
938
(7)
21,214
1,969
1,260
(2,430)
(14,867)
21,943
40,195
21,811
5,320
1,444
1,683
(33)
(2,913)
9,670
(4,951)
541
(1,088)
5,100
36,427
14,527
4,239
1,003
167
(15)
(28,853)
(2,987)
(3,050)
5,667
17,865
24,576
Net cash from operating activities
206,588
181,001
174,247
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net of cash acquired
Capital expenditures
Purchase of investments
Proceeds from sale of property and equipment
Proceeds from investments
Computer software developed
Other, net
(3,027)
(31,562)
(2,996)
42
3,000
(24,684)
-
0
(49,324)
(31,105)
(1,975)
2,098
2,000
(23,736)
(106)
(39,307)
(34,202)
(3,603)
25
4,810
(20,743)
109
Net cash from investing activities
(59,227)
(102,148)
(92,911)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon
exercise of stock options
Minimum tax withholding payments related to option exercises
Proceeds from sale of common stock, net
Borrowings under lines of credit
Repayments under lines of credit
Excess tax benefits from stock-based compensation
Purchase of treasury stock
Dividends paid
2,720
(836)
1,889
76,692
(90,181)
19,165
-
1,229
145,097
(145,526)
349
3,809
(58,405)
(26,903)
(100,996)
(24,683)
28,580
-
632
115,595
(96,207)
4,640
(98,413)
(21,685)
Net cash from financing activities
(94,675)
(101,905)
(66,858)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
$
52,686
$
(23,052)
$
14,478
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
$
65,565
$
88,617
$
74,139
CASH AND CASH EQUIVALENTS, END OF YEAR
$
118,251
$
65,565
$
88,617
See notes to consolidated financial statements.
WWW.JACKHENRY.COM | 39
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except 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 and services that has developed and acquired a number of banking and credit union software systems.
The Company’s revenues are predominately earned by marketing those systems to financial institutions nationwide
together with computer equipment (hardware) and by providing the conversion and software implementation
services for financial institutions to utilize JHA software systems, and by providing other related services. JHA
provides continuing support and services to customers using in-house or outsourced systems.
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.
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
The Company derives revenue from the following sources: license fees, support and service fees and hardware
sales. There are no rights of return, condition of acceptance or price protection in the Company’s sales contracts.
License Fee Revenue: For software license agreements that do not require significant modification or customization
of the software, the Company recognizes software license revenue when persuasive evidence of an arrangement
exists, delivery of the product has occurred, the license fee is fixed and determinable and collection is probable. The
Company’s software license agreements generally include multiple products and services or “elements.” None of
these elements are deemed to be essential to the functionality of the other elements. Statement of Position (“SOP”)
97-2, “Software Revenue Recognition,” as amended, generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on vendor-specific objective evidence (“VSOE”)
of fair value. Fair value is determined for license fees based upon the price charged when sold separately or, if the
product is not yet sold separately, the price determined by management with relevant authority. In the event that
we determine that VSOE does not exist for one or more of the delivered elements of a software arrangement, but
does exist for all of the undelivered elements, revenue is recognized using the residual method allowed by SOP 98-
9, “Software Revenue Recognition, with Respect to Certain Transactions”. Under the residual method, a residual
amount of the total arrangement fee is recognized as revenue for the delivered elements after the established fair
value of all undelivered elements has been deducted.
Support and Service Fee Revenue: Implementation services are generally for installation, training, implementation,
and configuration. These services are not considered essential to the functionality of the related software. VSOE of
fair value is established by pricing used when these services are sold separately or, if the services are not yet sold
separately, the price determined by management with relevant authority. Generally revenue is recognized when
services are completed. On certain larger implementations, revenue is recognized based on milestones during the
implementation. Milestones are triggered by tasks completed or based on direct labor hours.
Maintenance support revenue is recognized pro-rata over the contract period, typically one year. VSOE of fair value
is determined based on contract renewal rates.
40 | 2009 ANNUAL REPORT
Outsourced data processing and ATM, debit card, and other transaction processing services revenue is recognized
in the month the transactions are processed or the services are rendered.
Hardware Revenue: Hardware revenue is recognized upon delivery to the customer, when title and risk of loss are
transferred. In most cases, we do not stock in inventory the hardware products we sell, but arrange for third-party
suppliers to drop-ship the products to our customers on our behalf. Some of our hardware revenues are derived
under “arrangements” as defined by SOP 97-2. To the extent hardware revenue is subject to SOP 97-2 and is not
deemed essential to the functionality of any of the other elements to the arrangement, it is recognized based on
VSOE of fair value at the time of delivery. For these transactions, the Company follows the guidance provided in
Emerging Issues Task Force Issue (“EITF”) No. 99-19, “Reporting Revenue Gross as a Principal versus Net as
an Agent.” Based upon the indicators provided within this consensus, the Company records the revenue related
to our drop-ship transactions at gross and the related costs are included in cost of hardware. The Company also
remarkets maintenance contracts on hardware to our customers. Hardware maintenance revenue is recognized
ratably over the agreement period.
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 amortized based on current and estimated future revenue from the product or on a
straight-line basis, whichever yields greater amortization expense.
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 $1,000 and $997 at June 30, 2009 and 2008, respectively. Fair
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.
WWW.JACKHENRY.COM | 41
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 in addition to internally developed computer software. 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 as of January 1 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 years ended June 30, 2009, 2008 and 2007 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 14). 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
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this
authorization, the Company may finance its share repurchases with available cash reserves of short-term borrowings
on its existing credit facility. The share repurchase program does not include specific price targets or timetables and
may be suspended at any time. At June 30, 2008, there were 11,301 shares in treasury stock and the Company had
the remaining authority to repurchase up to 3,690 additional shares. On August 25, 2008, the Company’s Board of
Directors approved a 5,000 share increase to the stock repurchase authorization. During fiscal 2009, the Company
repurchased 3,106 treasury shares for $58,405. The total cost of treasury shares at June 30, 2009 is $309,585. At
June 30, 2009, there were 14,407 shares in treasury stock and the Company had the authority to repurchase up to
5,584 additional shares.
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.
On July 1, 2007, the Company adopted the provisions of FIN 48, which provides a financial statement recognition
threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN 48,
the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based upon the technical merits of the position.
The tax benefits recognized in the financial statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, under FIN
48, interest and penalties expense are recognized on the full amount of deferred benefits for uncertain tax positions.
Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.
42 | 2009 ANNUAL REPORT
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting
Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes
a framework for measuring fair value in GAAP and requires enhanced disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements. Relative to SFAS 157, the FASB issued Staff Positions
(“FSP”) 157-1, 157-2, 157-3 and 157-4. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, “Accounting for
Leases” (“SFAS 13”), and its related interpretive accounting pronouncements that address leasing transactions.
FSP 157-2 delayed the effective date of the application of SFAS 157 to fiscal years beginning after November
15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. FSP 157-3 clarifies the application of SFAS 157 in a market that is not
active and provides an example to illustrate key considerations in determining fair value of a financial asset when
the market for that financial asset is not active. FSP 157-4 provides guidelines for a broad interpretation of when to
apply market-based fair value measurements, requiring judgment to determine when a market has become inactive
and in determining fair values in markets that are no longer active. SFAS 157 was effective for the Company
beginning on July 1, 2008. Its adoption did not have a material impact on the Company’s financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”) which replaces
SFAS No. 141. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in
the acquire and the goodwill acquired. The Statement also establishes disclosure requirements which will enable
users of the financial statements to evaluate the nature and financial effects of the business combination. Relative
to SFAS 141(R), the FASB issued FSP 141(R)-1 on April 1, 2009. FSP 141(R)-1 eliminates the requirement under
FAS 141(R) to record assets or liabilities at the acquisition date for noncontractual contingencies at fair value where
it is deemed “more-likely-than-not” that an asset or liability would result. Under FSP 141(R)-1, such assets and
liabilities would only need to be recorded where the fair value can be determined during the measurement period
or where it is probable that an asset or liability exists at the acquisition date and the amount of fair value can be
reasonably determined. SFAS 141(R) is effective for the Company on July 1, 2009. SFAS 141(R) will have an
impact on the Company’s accounting for business combinations on a prospective basis once adopted; however, the
materiality of that impact cannot be determined at this time.
In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-
3”). This pronouncement amends SFAS No. 142, regarding the factors that should be considered in developing the
useful lives for intangible assets with renewal or extension provisions. FSP 142-3 requires an entity to consider its
own historical experience in renewing or extending similar arrangements, regardless of whether those arrangements
have explicit renewal or extension provisions, when determining the useful life of an intangible asset. In the absence
of such experience, an entity shall consider the assumptions that market participants would use about renewal or
extension, adjusted for entity-specific factors. FSP 142-3 also requires an entity to disclose information regarding
the extent to which the expected future cash flows associated with an intangible asset are affected by the entity’s
intent and/or ability to renew or extend the arrangement. FSP 142-3 will be effective for qualifying intangible assets
acquired by the Company on or after July 1, 2009. The application of FSP 142-3 is not expected to have a material
impact on the Company’s financial statements; however, it could impact future transactions entered into by the
Company.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”), which
establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles
recognized by the FASB to be applied in the preparation of financial statements in conformity with generally
accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of the SEC under
federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become effective in the first fiscal
quarter of fiscal 2010 and is not expected to 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 and long-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.
WWW.JACKHENRY.COM | 43
NOTE 3: PROPERTY AND EQUIPMENT
The classification of property and equipment, together with their estimated useful lives is as follows:
June 30,
2009
2008
Estimated Useful Life
Land
Land improvements
Buildings
Leasehold improvements
Equipment and furniture
Aircraft and equipment
Construction in progress
Less accumulated depreciation
Property and equipment, net
$
$
24,411
19,845
99,400
21,946
194,149
40,060
16,694
416,505
178,727
237,778
5-20 years
25-30 years
5-10 years (1)
5-8 years
8-10 years
24,411
19,826
97,594
21,995
179,613
38,874
4,995
387,308
148,303
239,005
$
$
(1) Lesser of lease term or estimated useful life
The Company had material commitments to purchase property and equipment related to the construction of a
new facility in Springfield, Missouri, totaling $24,382 at June 30, 2009. There were no material commitments to
purchase property and equipment at June 30, 2008. Property and equipment included $273 and $455 that was in
accrued liabilities at June 30, 2009 and 2008, respectively. Also, during fiscal 2009, the Company acquired $6,748
of computer equipment through a capital lease. These amounts were excluded from capital expenditures on the
statement of cash flows.
NOTE 4: OTHER ASSETS
Changes in the carrying amount of goodwill for the years ended June 30, 2009 and 2008, by reportable segments,
are:
Banking
Systems
and Services
Credit Union
Systems and
Services
Total
Balance, as of July 1, 2007
Goodwill acquired during the year
Balance, as of June 30, 2008
Goodwill acquired during the year
Balance, as of June 30, 2009
$
$
$
224,065
40,510
264,575
3,027
267,602
24,798
-
24,798
-
24,798
248,863
40,510
289,373
3,027
292,400
$
$
$
The Banking Systems and Services segment additions for fiscal 2009 relate primarily to the ultimate resolution of
contingent consideration amounts for the acquisitions of RPM Intelligence, LLC, and AudioTel Corporation. The
additions for fiscal 2008 relate primarily to the acquisitions of Gladiator Technology Services, Inc. and AudioTel
Corporation. See Note 13-Business Acquisitions for further details.
Information regarding other identifiable intangible assets is as follows:
Carrying
Amount
2009
Accumulated
Amortization
Net
Carrying
Amount
2008
Accumulated
Amortization
Net
June 30,
Customer relationships
$
126,244
$
(70,794)
$
55,450
$
126,245
$
(62,426)
$
63,819
Trade names
3,999
-
3,999
3,999
-
3,999
Totals
$
130,243
$
(70,794)
$
59,449
$
130,244
$
(62,426)
$
67,818
44 | 2009 ANNUAL REPORT
Trade names have been determined to have indefinite lives and are not 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 useful lives ranging from five to ten years.
Following is an analysis of the computer software capitalized:
Carrying
Amount
Accumulated
Amortization
Total
Balance, July 1, 2007
Acquired software
Capitalized development cost
Disposals
Amortization expense
Balance, June 30, 2008
Acquired software
Capitalized development cost
Disposals
Amortization expense
Balance, June 30, 2009
$
$
$
77,367
5,728
23,736
(2,199)
-
104,632
-
24,684
(45)
-
129,271
(18,177)
-
-
1,993
(13,505)
(29,689)
-
-
17
(16,920)
(46,592)
59,190
5,728
23,736
(206)
(13,505)
74,943
-
24,684
(28)
(16,920)
82,679
$
$
$
Amortization expense for all intangible assets was $25,288, $21,811 and $14,527 for the fiscal years ended June
30, 2009, 2008, and 2007, respectively. The estimated aggregate future amortization expense for each of the next
five years for all intangible assets remaining as of June 30, 2009, is as follows:
Year
2010
2011
2012
2013
2014
Customer
Relationships
Software
Total
8,236
7,673
6,647
5,282
5,282
17,596
16,876
12,688
6,690
2,716
25,832
24,549
19,335
11,972
7,998
NOTE 5: DEBT
The Company renewed a bank credit line on April 28, 2008 which provides for funding of up to $5,000 and bears
interest at the bank’s prime rate less 1% (2.25% at June 30, 2009). The credit line matures on April 29, 2010. At
June 30, 2009, no amount was outstanding.
The Company renewed a credit line on March 7, 2009 which provides for funding of up to $8,000 and bears interest
at the Federal Reserve Board’s prime rate (3.25% at June 30, 2009). The credit line expires March 7, 2010 and is
secured by $1,000 of investments. There were no outstanding amounts at June 30, 2009.
An unsecured revolving bank credit facility allows short-term borrowings of up to $150,000, which may be increased
by the Company at any time until maturity to $225,000. The unsecured revolving bank credit facility bears interest
at a rate equal to (a) LIBOR or (b) an alternate base rate (the greater of (a) the Federal Funds Rate plus 0.5% or
(b) the Prime Rate), plus an applicable percentage in each case determined by the Company’s leverage ratio. The
unsecured revolving credit line terminates May 31, 2012. At June 30, 2009, the outstanding revolving bank credit
facility balance was $60,000. This outstanding balance bears interest at a weighted average rate of 0.73%. This
credit line is subject to various financial covenants that require the Company to maintain certain financial ratios as
defined in the agreement. As of June 30, 2009, the Company was in compliance with all such covenants.
The Company has entered into various capital lease obligations for the use of certain computer equipment. Included
in property and equipment are related assets of $6,907, less accumulated depreciation of $877. At June 30, 2009,
$3,461 was outstanding, all of which will be maturing in the next twelve months.
WWW.JACKHENRY.COM | 45
The Company paid interest of $1,606, $2,521, and $1,975 in 2009, 2008, and 2007 respectively. During fiscal 2009,
the Company incurred a total of $1,468 of interest, $111 of which was capitalized.
NOTE 6: LEASE COMMITMENTS
The Company leases certain property under operating leases which expire over the next 9 years, but certain of the
leases contain options to extend the lease term. All lease payments are based on the lapse of time but include, in
some cases, payments for operating expenses and property taxes. There are no purchase options on real estate
leases at this time, but most real estate leases have one or more renewal options. Certain leases on real estate are
subject to annual escalations for increases in operating expenses and property taxes.
As of June 30, 2009, net future minimum lease payments are as follows:
Years Ending June 30,
Lease Payments
2010
2011
2012
2013
2014
Thereafter
Total
$
8,759
5,053
2,941
2,392
2,127
3,388
24,660
$
Rent expense was $8,314, $7,895, and $5,797 in 2009, 2008, and 2007, respectively.
NOTE 7: INCOME TAXES
The provision for income taxes from continuing operations consists of the following:
Current:
Federal
State
Deferred:
Federal
State
Year ended June 30,
2009
2008
2007
$
39,616
7,527
$
48,472
5,347
$
46,369
5,425
7,345
(280)
54,208
$
4,972
348
59,139
$
4,080
159
56,033
$
46 | 2009 ANNUAL REPORT
The tax effects of temporary differences related to deferred taxes shown on the balance sheets were:
Deferred tax assets:
Deferred revenue
Expense reserves (bad debts, insurance,
franchise tax and vacation)
Capital loss carryforward
Net operating loss carryforwards
Other, net
Deferred tax liabilities:
Accelerated tax depreciation
Accelerated tax amortization
Other, net
June 30,
2009
2008
$
577
$
6,286
1,834
-
401
2,273
5,085
2,670
2,168
-
2,580
13,704
(20,579)
(47,995)
(418)
(68,992)
(20,105)
(45,359)
(5,360)
(70,824)
Net deferred tax liability before valuation allowance
(63,907)
(57,120)
Valuation allowance
Net deferred tax liability
(277)
-
$
(64,184)
$
(57,120)
The deferred taxes are classified on the balance sheets as follows:
June 30,
2009
2008
Deferred income taxes (current)
Deferred income taxes (long-term)
$
882
(65,066)
(64,184)
$
$
4,590
(61,710)
(57,120)
$
The following analysis reconciles the statutory federal income tax rate to the effective income tax rates reflected
above:
Computed "expected" tax expense
Increase (reduction) in taxes resulting from:
State income taxes,
net of federal income tax benefits
Research and development credit
Permanent book/tax differences
Valuation Allowance
Other (net)
Year Ended June 30,
2009
2008
2007
35.0%
35.0%
35.0%
2.7%
-3.0%
-0.4%
0.2%
0.0%
2.3%
-1.0%
-0.3%
0.0%
0.0%
2.3%
-2.7%
0.0%
0.0%
0.1%
34.5%
36.0%
34.7%
The effective income tax rate for fiscal year 2009 decreased from the fiscal year 2008 tax rate due primarily to the
renewal of the Research and Experimentation Credit (“R&E Credit”), during fiscal year 2009, retroactive to January
1, 2008. Renewal of this credit had a significant tax benefit in fiscal year 2009 since retroactive renewal required
the recording of an additional six months of credit during fiscal year 2009 related to fiscal year 2008.
WWW.JACKHENRY.COM | 47
As of June 30, 2009, the Company had net operating loss carryforwards of $401. These losses have varying
expiration dates, ranging from 2012 to 2028. Based on state tax rules which restrict our usage of these losses, we
believe it is more likely than not that $277 of these losses will expire unutilized. Accordingly, a valuation allowance
of $277 has been recorded against these assets as of June 30, 2009.
The Company paid income taxes of $62,965, $51,709, and $28,887 in 2009, 2008, and 2007, respectively.
Adopting FIN 48 had the following impact on our financial statements: decreased retained earnings by $3,850 and
increased long term liabilities by $3,850.
At June 30, 2008, the Company had $4,055 of unrecognized tax benefits. At June 30, 2009, the Company had
$5,518 of unrecognized tax benefits, of which, $4,163, if recognized, would affect our effective tax rate. We had
accrued interest and penalties of $732 and $738 related to uncertain tax positions at June 30, 2009 and 2008,
respectively.
A reconciliation of the unrecognized tax benefits for the years ended June 30, 2009 and 2008 follows:
Balance at July 1, 2007
Additions for current year tax positions
Reductions for prior year tax positions
Reductions related to expirations of statute of limitations
Balance at June 30, 2008
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Settlements
Reductions related to expirations of statute of limitations
Balance at June 30, 2009
Unrecognized
Tax Benefits
$ 5,838
671
(2,131)
(323)
4,055
1,044
2,052
(110)
(936)
(587)
$
5,518
During the fiscal year ended June 30, 2008, the Internal Revenue Service concluded its examination of the
Company’s U.S. federal income tax returns for fiscal years ended June 2005 through 2006. However, the U.S.
federal and state income tax returns for June 30, 2006 and all subsequent fiscal years still remain subject to
examination as of June 30, 2009 under statute of limitations rules. We anticipate potential changes resulting from
the expiration of statutes of limitations of up to $740 could reduce the unrecognized tax benefits balance within
twelve months of June 30, 2009.
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 30 days from date of billing. Reserves (which
are insignificant at June 30, 2009, 2008 and 2007) 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 two suppliers. There are a limited number of hardware suppliers for
these required items. If these relationships were terminated, it could have a significant negative impact on the
future operations of the Company.
48 | 2009 ANNUAL REPORT
NOTE 9: STOCK BASED COMPENSATION PLANS
The Company previously issued options to employees under the 1996 Stock Option Plan (“1996 SOP”) and currently
issues options to outside directors under the 2005 Non-Qualified Stock Option Plan (“2005 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 were 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 were 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 the date of 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. The plan terminated by its terms on October 29, 2006,
although options previously granted under the 1996 SOP are still outstanding and vested.
2005 NSOP
The NSOP was adopted by the Company on September 23, 2005, for its outside directors. Generally, 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. For individuals who have served less than four continuous years, 25% of all options will
vest after one year of service, 50% shall vest after two years, and 75% shall vest after three years of service on the
Board. 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. 700 shares of common stock have been reserved for issuance under
this plan with a maximum of 100 for each director. As of June 30, 2009, there were 530 shares available for future
grants under the plan.
A summary of option plan activity under the plans is as follows:
Number of
Shares
Weighted
Average
Exercise Price
Aggregate
Intrinsic Value
Outstanding July 1, 2006
Granted
Forfeited
Exercised
Outstanding June 30, 2007
Granted
Forfeited
Exercised
Outstanding June 30, 2008
Granted
Forfeited
Exercised
Outstanding June 30, 2009
Vested and Expected to Vest June 30, 2009
Exercisable June 30, 2009
7,700
30
(123)
(2,218)
5,389
50
(8)
(1,454)
3,977
50
(19)
(248)
3,760
3,760
3,729
$15.34
21.79
21.22
12.90
16.24
28.52
24.64
13.38
17.42
17.45
20.77
12.28
$17.75
$17.75
$17.71
$15,468
$15,468
$15,421
WWW.JACKHENRY.COM | 49
The weighted-average fair value of options granted during fiscal 2009, fiscal 2008 and fiscal 2007 was $7.87,
$11.83, and $10.43, respectively. The only options granted during fiscal years 2009, 2008 and 2007 were to
non-employee members of the Company’s board of directors. The assumptions used in estimating fair value and
resulting compensation expenses are as follows:
Weighted Average Assumptions:
Expected life (years)
Volatility
Risk free interest rate
Dividend yield
Year Ended June 30,
2009
2008
2007
3.72
30%
1.4%
1.72%
7.41
28%
4.1%
0.98%
7.41
37%
4.7%
0.96%
The option pricing model assumptions such as expected life, volatility, risk-free interest rate, and dividend yield impact
the fair value estimate. These assumptions are subjective and generally require significant analysis and judgment
to develop. When estimating fair value, some of the assumptions were based on or determined from external data
(for example, the risk-free interest rate) and other assumptions were derived from our historical experience with
share-based payment arrangements (e.g., volatility, expected life and dividend yield). The appropriate weight to
place on historical experience is a matter of judgment, based on relevant facts and circumstances.
Our pre-tax operating income for the years ended June 30, 2009, 2008 and 2007 includes $2,272, $1,444 and
$1,003 of stock-based compensation costs, respectively. The total cost for the year ended June 30, 2009 and 2008
includes $1,620 and $871 relating to the restricted stock plan, respectively. There was no such cost for 2007.
As of June 30, 2009, there was $77 of total unrecognized compensation costs related to stock options that have
not yet vested. These costs are expected to be recognized over a weighted average period of 0.73 years. The
weighted average remaining contractual term on options currently exercisable as of June 30, 2009 was 2.32 years.
Following is an analysis of stock options outstanding and exercisable as of June 30, 2009:
Range of
Weighted-Average Remaining
Weighted-Average
Exercise Prices
Shares
Contractural Life in Years
Exercise Price
Outstanding
Exercisable
Outstanding
Outstanding
Exercisable
$ 9.44 - $10.83
$10.84 - $11.50
$11.51 - $16.87
$16.88 - $17.38
$17.39 - $21.52
$21.53 - $25.71
$25.72 - $28.62
$28.63 - $29.62
$29.63 - $29.99
$30.00 - $30.00
25
865
55
25
865
55
1,398
1,398
573
407
395
29
10
3
557
404
383
29
10
3
$ 9.44 - $30.00
3,760
3,729
0.28
3.77
3.21
0.76
3.75
2.78
2.67
1.68
1.43
1.93
2.37
$
9.44
$
9.44
10.84
13.04
16.88
19.58
23.33
27.54
28.88
29.63
30.00
10.84
13.04
16.88
19.63
23.34
27.51
28.88
29.63
30.00
$
17.75
$
17.71
The income tax benefits from stock option exercises totaled $1,233 for the year ended June 30, 2009.
The total intrinsic value of options exercised was $1,999, $18,010 and $22,643 for the fiscal years ended June 30,
2009, 2008 and 2007, respectively.
50 | 2009 ANNUAL REPORT
Restricted Stock Plan
The Restricted Stock Plan was adopted by the Company on November 1, 2005, for its employees. Up to 3,000
shares of common stock are available for issuance under the plan. Upon issuance, shares of restricted stock are
subject to forfeiture and to restrictions which limit the sale or transfer of the shares during the restriction period. The
restrictions will be lifted over periods ranging from three to seven years from grant date. On certain awards, the
restrictions may be lifted sooner if certain targets for shareholder return are met.
The following table summarizes non-vested share awards as of June 30, 2009, as well as activity for the year then
ended:
Non-vested shares at July 1, 2007
Granted
Vested
Forfeited
Non-vested shares at June 30, 2008
Granted
Vested
Forfeited
Non-vested shares at June 30, 2009
Weighted
Average Grant
Date Fair
Value
$
-
24.86
-
24.50
24.87
19.04
25.60
-
21.66
$
Shares
-
133
-
(3)
130
146
(9)
-
267
The non-vested shares will not participate in dividends during the restriction period. As a result, the weighted-
average fair value of the non-vested share awards is based on the fair market value of the Company’s equity shares
on the grant date, less the present value of the expected future dividends to be declared during the restriction period.
At June 30, 2009, there was $3,567 of compensation expense that has yet to be recognized related to non-vested
restricted stock share awards, which will be recognized over a weighted-average period of 2.50 years.
NOTE 10: EARNINGS PER SHARE
The following table reflects the reconciliation between basic and diluted net income per share:
Year Ended June 30,
Income from continuing operations
Discontinued Operations
Net Income
Common share information:
Weighted average shares outstanding for basic EPS
Dilutive effect of stock options
Shares for diluted EPS
Basic Earnings per Share:
Income from continuing operations
Discontinued operations
Basic Earnings per Share
Diluted Earnings per Share:
Income from continuing operations
Discontinued operations
Diluted Earnings per Share
2009
103,102
$
-
$
103,102
2008
105,287
(1,065)
104,222
$
$
2007
105,644
(963)
104,681
$
$
84,118
712
84,830
88,270
1,432
89,702
90,155
1,877
92,032
$
$
$
$
1.23
-
1.23
1.22
-
1.22
$
$
$
$
$
$
$
$
1.19
(0.01)
1.18
1.17
(0.01)
1.16
1.17
(0.01)
1.16
1.15
(0.01)
1.14
Stock options to purchase approximately 1,267 shares for fiscal 2009, 536 shares for fiscal 2008, and 772 shares
for fiscal 2007, were not dilutive and therefore, were not included in the computations of diluted income per common
share amounts.
WWW.JACKHENRY.COM | 51
NOTE 11: EMPLOYEE BENEFIT PLANS
The Company established an employee stock purchase plan in 2006. The plan originally allowed the majority of
employees the opportunity to directly purchase shares of the Company at a 5% discount. On October 30, 2007,
the shareholders approved an amendment to the plan that increased the discount to 15% beginning January 1,
2008. With this amendment, the plan no longer met the criteria as a non-compensatory plan. As a result, beginning
January 1, 2008, the Company began recording the total dollar value of the stock discount given to employees
under the plan as expense. Total expense recorded by the Company under the plan for the year ended June 30,
2009 and 2008 was $333 and $125, respectively.
The Company has a defined contribution plan for its employees, the 401(k) Retirement Savings Plan (the “Plan”).
The Plan is 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 per year. Employees must be 18 years of age and be employed for at least six months. 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 $8,341, $7,937, and $7,148 for fiscal
2009, 2008, and 2007, respectively.
NOTE 12: DISCONTINUED OPERATIONS
On June 30, 2008, the Company sold its insurance agency outsourcing business, Banc Insurance Services, Inc.
(“BIS”) and Banc Insurance Agency, Inc. (“BIA”), to the division’s management team and a private equity group for
a nominal amount. The transaction resulted in a pre-tax loss of $2,718.
In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets,”
the results of operations of this business for the current and prior periods have been reported as discontinued
operations. The divesture of this business was made as a result of poorer than expected operating results.
The insurance agency outsourcing business provided turnkey outsourced insurance agency solutions for financial
institutions. Operations of the business, which were formerly included in the Bank Systems and Services segment,
are summarized as follows:
Revenue
Loss before income taxes
Income tax benefit
Year Ended June 30,
2008
2007
$
1,680
(1,457)
536
$
1,595
(1,474)
511
Net loss from discontinued operations
Less loss on disposal, net of income taxes
(921)
(144)
(963)
-
Loss on discontinued operations
$
(1,065)
$
(963)
Assets and liabilities of the insurance agency outsourcing business before disposal, were as follows:
Cash
Accounts receivable
Other assets
Property and equipment, net
Total assets
Accounts payable and other
Total liabilities
June 30,
2008
$
656
688
90
1,007
2,441
194
$
194
In connection with the sale, the Company accrued $471 lease loss, net of estimated subleases.
52 | 2009 ANNUAL REPORT
NOTE 13: BUSINESS ACQUISITIONS
Fiscal 2008 Acquisitions:
On July 1, 2007, the Company acquired all of the capital stock of Gladiator Technology Services, Inc. (“Gladiator”).
Gladiator is a provider of technology security services for financial institutions. The purchase price for Gladiator,
$17,425 paid in cash, was allocated to the assets and liabilities acquired based on then-estimated fair values at the
acquisition date, resulting in an allocation of $(729) to working capital, $799 to property and equipment, $4,859 to
customer relationships, and $12,496 to goodwill. The acquired goodwill has been allocated to the banking systems
and services segment. The Company and the former shareholders of Gladiator jointly made an IRC Section 338(h)
(10) election for this acquisition. This election allows treatment of this acquisition as an asset acquisition, which
permits the Company to amortize the customer relationships and goodwill for tax purposes.
On October 1, 2007, the Company acquired all of the capital stock of AudioTel Corporation (“AudioTel”). AudioTel
is a provider of remittance, merchant capture, check imaging, document imaging and management, and telephone
and internet banking solutions. The purchase price for AudioTel, $32,092 paid in cash, was preliminarily allocated
to the assets and liabilities acquired based upon then-estimated fair values at the acquisition date, resulting in an
allocation of $(2,634) to working capital, $528 to property and equipment, $6,017 to customer relationships, $5,728
to capitalized software, $(4,346) to deferred taxes, and $26,799 to goodwill. As part of the purchase agreement,
$3,000 of consideration was contingent upon the achievement of operating income targets over the two-year period
ending on September 30, 2009. During the third quarter of fiscal 2009, the Company and the former shareholders
of AudioTel agreed to amend the purchase agreement to fully settle the contingency for $15. The acquired goodwill
has been allocated to the banking systems and services segment and is non-deductible for tax purposes.
Fiscal 2007 Acquisition:
On November 1, 2006, the Company acquired all of the capital stock of Margin Maximizer Group, Inc., which does
business as US Banking Alliance (“USBA”). USBA is a leading provider of loan and deposit pricing software and
related consulting services to banks and credit unions. The purchase price for USBA, $34,006 paid in cash, was
allocated to the assets and liabilities acquired based on then estimated fair values at the acquisition date, resulting
in an allocation of $(2,147) to working capital, $69 to property and equipment, $2,515 to capitalized software,
$4,705 to customer relationships, and $28,864 to goodwill. The capitalized software and customer relationships
have weighted-average useful lives of approximately 5 years. The acquired goodwill has been allocated to the
bank systems and services segment. The Company and the former shareholders of Margin Maximizer Group, Inc.
jointly made a Section 338(h)(10) election for this acquisition. This election allows treatment of this acquisition as
an asset acquisition, which permits the Company to amortize the capitalized software, customer relationships and
goodwill for tax purposes. The results of USBA’s operations have been included with the Company’s from the date
of acquisition, November 1, 2006, to the end of the period.
Fiscal 2005 Acquisition:
On January 1, 2005, the Company acquired all of the membership interests in RPM Intelligence, LLC, doing business
as Stratika (“Stratika”). Stratika provides customer and product profitability solutions for financial institutions. As
part of the original agreement, there was contingent purchase consideration of up to $9,752 that may have been
paid to the former members based upon the net operating income of Stratika. In fiscal 2006, $248 was paid to
the former members of Stratika as part of this contingent consideration. During the first quarter of fiscal 2009, the
Company paid $3,000 in full settlement of the remaining contingency. These amounts were included in goodwill.
The acquired goodwill has been allocated to the bank segment and is deductible for federal income tax.
The accompanying consolidated statements of income for the fiscal years ended June 30, 2008 and 2007 do
not include any revenues and expenses related to these acquisitions prior to the respective closing dates of
each acquisition. The following unaudited pro forma consolidated financial information is presented as if these
acquisitions had occurred at the beginning of the periods presented. In addition, this unaudited pro forma financial
information is provided for illustrative purposes only and should not be relied upon as necessarily being indicative of
the historical results that would have been obtained if these acquisitions had actually occurred during those periods,
or the results that may be obtained in the future as a result of these acquisitions.
WWW.JACKHENRY.COM | 53
Pro Forma (unaudited)
Revenue
Gross profit
Year Ended
June 30,
2008
746,041
$
2007
685,647
$
$
308,565
$
298,488
Income from continuing operations
$
105,373
$
107,296
Earnings per share - continuing operations
$
1.17
$
1.17
Diluted shares
89,702
92,032
Earnings per share - continuing operations
$
1.19
$
1.19
Basic shares
88,270
90,155
NOTE 14: 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. The following amounts
have been adjusted to exclude discontinued operations (See Note 12):
REVENUE
License
Support and service
Hardware
Total
COST OF SALES
Cost of license
Cost of support and service
Cost of hardware
Total
For the Year Ended June 30, 2009
Bank
Credit Union
Total
$
45,169
514,748
57,794
617,711
$
13,265
99,494
15,123
127,882
$
58,434
614,242
72,917
745,593
6,113
321,489
42,297
369,899
772
64,348
11,175
76,295
6,885
385,837
53,472
446,194
GROSS PROFIT
$
247,812
$
51,587
$
299,399
54 | 2009 ANNUAL REPORT
REVENUE
License
Support and service
Hardware
Total
COST OF SALES
Cost of license
Cost of support and service
Cost of hardware
Total
For the Year Ended June 30, 2008
Bank
Credit Union
Total
$
52,528
495,687
68,175
616,390
$
21,025
84,647
20,864
126,536
$
73,553
580,334
89,039
742,926
5,376
305,640
49,504
360,520
1,322
58,500
15,358
75,180
6,698
364,140
64,862
435,700
GROSS PROFIT
$
255,870
$
51,356
$
307,226
REVENUE
License
Support and service
Hardware
Total
COST OF SALES
Cost of license
Cost of support and service
Cost of hardware
Total
For the Year Ended June 30, 2007
Bank
Credit Union
Total
$
60,683
425,912
69,266
555,861
$
15,720
75,810
19,076
110,606
$
76,403
501,722
88,342
666,467
4,103
255,743
51,227
311,073
174
54,176
14,242
68,592
4,277
309,919
65,469
379,665
GROSS PROFIT
$
244,788
$
42,014
$
286,802
For the Year Ended June 30,
2009
2008
2007
Depreciation expense, net
Bank systems and services
Credit Unions systems and services
Total
Amortization expense, net
Bank systems and services
Credit Unions systems and services
Total
Capital expenditures
Bank systems and services
Credit Unions systems and services
Total
$
$
36,816
2,043
38,859
$
$
22,779
2,509
25,288
$
$
30,752
810
31,562
$
$
37,970
2,225
40,195
$
$
19,580
2,231
21,811
$
$
30,994
111
31,105
$
$
34,219
2,208
36,427
$
$
12,070
2,457
14,527
$
$
33,510
692
34,202
WWW.JACKHENRY.COM | 55
For the Year Ended June 30,
2009
2008
Property and equipment, net
Bank systems and services
Credit Unions systems and services
Total
Identified intangible assets, net
Bank systems and services
Credit Unions systems and services
Total
$
$
208,488
29,290
237,778
$
$
389,252
45,276
434,528
$
$
208,288
30,717
239,005
$
$
385,671
46,463
432,134
The Company has not disclosed any additional asset information by segment, as the information is not produced
internally and its preparation is impracticable.
NOTE 15: SUBSEQUENT EVENTS
In accordance with SFAS 165, Subsequent Events, the Company has evaluated any significant events occurring
from the date of these financial statements through August 28, 2009 the date they were issued. The effects of
any such events upon conditions existing as of the balance sheet date have been reflected within the financial
statements to the extent that the effects were material. Any significant events occurring after the balance sheet date
that do not relate to conditions existing as of that date are disclosed below.
On August 17, 2009, the Company announced that it had entered into a definitive agreement to acquire Goldleaf
Financial Solutions, Inc. (“Goldleaf”), a provider of integrated technology-based solutions designed to improve the
performance of financial institutions. Goldleaf’s shareholders will receive $0.98 per share in cash in exchange
for their shares. In addition, the Company will retire certain of Goldleaf’s outstanding debt and accrued interest
obligations, which is anticipated to equal approximately $42,000 at closing. The Goldleaf Board of Directors has
unanimously approved the merger and will recommend that Goldleaf shareholders approve the merger. The
transaction, which is expected to be completed by the end of the Company’s first fiscal quarter or early in the second
fiscal quarter, is subject to the approval of Goldleaf’s shareholders and customary closing conditions.
On August 24, 2009, the Company’s Board of Directors declared a quarterly cash dividend of $0.085 per share of
common stock, payable on September 17, 2009 to shareholders of record on September 4, 2009.
56 | 2009 ANNUAL REPORT
QUARTERLY FINANCIAL INFORMATION (unaudited)
REVENUE
License
Support and service
Hardware
Total
COST OF SALES
Cost of license
Cost of support and service
Cost of hardware
Total
GROSS PROFIT
OPERATING EXPENSES
Selling and marketing
Research and development
General and administrative
Total
OPERATING INCOME
INTEREST INCOME (EXPENSE)
Interest income
Interest expense
Total
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES
For the Year Ended June 30, 2009
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Total
$ 13,294
151,947
17,857
183,098
$ 14,860
155,053
20,291
190,204
$ 12,730
151,839
15,839
180,408
$ 17,550
155,403
18,930
191,883
$ 58,434
614,242
72,917
745,593
1,089
96,132
13,348
110,569
2,052
96,502
14,277
112,831
1,436
96,732
12,002
110,170
2,308
96,471
13,845
112,624
6,885
385,837
53,472
446,194
72,529
77,373
70,238
79,259
299,399
13,932
11,546
11,459
36,937
13,845
10,191
11,725
35,761
12,873
10,694
9,595
33,162
14,281
10,470
10,902
35,653
54,931
42,901
43,681
141,513
35,592
41,612
37,076
43,606
157,886
563
(427)
136
146
(524)
(378)
56
(241)
(185)
16
(165)
(149)
781
(1,357)
(576)
35,728
41,234
36,891
43,457
157,310
PROVISION FOR INCOME TAXES
13,219
13,249
12,089
15,651
54,208
INCOME FROM CONTINUING
OPERATIONS
DISCONTINUED OPERATIONS
Loss from operations of discontinued
operations
Income tax benefit
Loss on discontinued operations
22,509
27,985
24,802
27,806
103,102
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NET INCOME
$ 22,509
$ 27,985
$ 24,802
$ 27,806
$ 103,102
Continuing operations
Discontinued operations
Diluted net income per share
Diluted weighted average shares
outstanding
Continuing operations
Discontinued operations
Basic net income per share
Basic weighted average shares
outstanding
$ 0.26
-
$ 0.26
$ 0.33
-
$ 0.33
$ 0.30
-
$ 0.30
$ 0.33
-
$ 0.33
$ 1.22
-
$ 1.22
86,622
84,958
83,480
84,261
84,830
$ 0.26
-
$ 0.26
$ 0.33
-
$ 0.33
$ 0.30
-
$ 0.30
$ 0.33
-
$ 0.33
$ 1.23
-
$ 1.23
85,744
84,314
82,873
83,541
84,118
WWW.JACKHENRY.COM | 57
QUARTERLY FINANCIAL INFORMATION (unaudited)
REVENUE
License
Support and service
Hardware
Total
COST OF SALES
Cost of license
Cost of support and service
Cost of hardware
Total
For the Year Ended June 30, 2008
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Total
$ 13,522
137,912
23,442
174,876
$ 23,294
144,979
23,596
191,869
$ 18,441
148,772
20,267
187,480
$ 18,296
148,671
21,734
188,701
$ 73,553
580,334
89,039
742,926
770
87,206
17,298
105,274
1,770
88,781
16,352
106,903
1,739
93,871
14,875
110,485
2,419
94,282
16,337
113,038
6,698
364,140
64,862
435,700
GROSS PROFIT
69,602
84,966
76,995
75,663
307,226
OPERATING EXPENSES
Selling and marketing
Research and development
General and administrative
Total
13,680
9,959
9,808
33,447
13,803
11,404
13,463
38,670
13,597
11,340
9,514
34,451
14,836
10,623
10,990
36,449
55,916
43,326
43,775
143,017
OPERATING INCOME
36,155
46,296
42,544
39,214
164,209
INTEREST INCOME (EXPENSE)
Interest income
Interest expense
Total
1,349
(83)
1,266
339
(104)
235
267
(583)
(316)
190
(1,158)
(968)
2,145
(1,928)
217
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
37,421
46,531
42,228
38,246
164,426
PROVISION FOR INCOME TAXES
13,658
17,101
15,430
12,950
59,139
INCOME FROM CONTINUING OPERATIONS
23,763
29,430
26,798
25,296
105,287
DISCONTINUED OPERATIONS
Loss from operations of discontinued
operations
Income tax benefit
Loss on discontinued operations
(352)
128
(224)
(440)
161
(279)
(293)
107
(186)
(3,090)
2,714
(376)
(4,175)
3,110
(1,065)
NET INCOME
$ 23,539
$ 29,151
$ 26,612
$ 24,920
$ 104,222
Continuing operations
Discontinued operations
Diluted net income per share
Diluted weighted average shares
outstanding
Continuing operations *
Discontinued operations *
Basic net income per share
Basic weighted average shares
outstanding
* Amounts may not add due to rounding
$ 0.26
(0.00)
$ 0.26
$ 0.32
(0.00)
$ 0.32
$ 0.30
(0.00)
$ 0.30
$ 0.29
(0.00)
$ 0.28
$ 1.17
(0.01)
$ 1.16
90,833
90,922
88,907
88,145
89,702
$ 0.27
(0.00)
$ 0.26
$ 0.33
(0.00)
$ 0.33
$ 0.31
(0.00)
$ 0.30
$ 0.29
(0.00)
$ 0.29
$ 1.19
(0.01)
$ 1.18
89,168
89,393
87,615
86,902
88,270
58 | 2009 ANNUAL REPORT
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60 | 2009 ANNUAL REPORT
BOARD OF DIRECTORS
MICHAEL E. HENRY
Chairman
Jack Henry & Associates
Tucson, Arizona
JOHN F. “JACK” PRIM
Chief Executive Officer
Jack Henry & Associates
Monett, Missouri
JERRY D. HALL
Executive Vice President
Jack Henry & Associates
Monett, Missouri
JAMES J. ELLIS
Managing Partner
Ellis/Rosier Financial Services
Dallas, Texas
MATTHEW C. FLANIGAN
Senior Vice President and Chief Financial Officer
Leggett & Platt, Incorporated
Carthage, Missouri
CRAIG R. CURRY
Chairman of the Board
Central Bank
Lebanon, Missouri
WESLEY A. BROWN
Managing Director
St. Charles Capital, LLC.
Denver, Colorado
MARLA K. SHEPARD
President and Chief Executive Officer
California Coast Credit Union
San Diego, California
EXECUTIVE OFFICERS
MICHAEL E. HENRY
Chairman
JOHN F. “JACK” PRIM
Chief Executive Officer
TONY L. WORMINGTON
President
JERRY D. HALL
Executive Vice President
KEVIN D. WILLIAMS
Chief Financial Officer and Treasurer
MARK S. FORBIS
Vice President and Chief Technology Officer
ANNUAL MEETING
The annual meeting of shareholders will be held at 11:00 a.m.
Central on November 10, 2009 at Jack Henry & Associates’
Corporate Headquarters, Monett, MO.
FORM 10-K
A copy of the Company’s Form 10-K is available upon request
to the Chief Financial Officer at the corporate headquarters
address or from our Web site at www.jackhenry.com.
TRANSFER AGENT AND REGISTRAR
Computershare
PO Box 43069
Providence, RI 02940-3069
(800) 446-2617
www.computershare.com
663 H ighway 60 | P.O. B ox 807
M onett, MO 65708
Phone | 417-2 35 -6652
Fax | 417-235-4281
w w w.jack henr y.com