jackhenry.com • 1
Jack Henry & Associates® is a financially sound, service-focused company that
provides technology-driven products and services needed by financial institutions
and diverse businesses. Our solutions are supporting more than 11,200 customers
and are delivered through four 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
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® provides highly specialized products and services that financial services organizations of all sizes and diverse
businesses outside the financial industry use to improve revenue and growth, mitigate and control financial and operational risks,
and contain operating costs. ProfitStars provides approximately 65 products and services that have been implemented by more
than 8,800 customers and enable Jack Henry & Associates to serve large nontraditional markets.
Jack Henry & Associates established its fourth primary brand with the June 2010 acquisition of iPay Technologies which is
the largest independent provider of electronic bill pay services in the United States. iPay Technologies’ sophisticated bill pay engine
integrates with any online banking platform and provides feature-rich consumer and small business bill payment solutions backed by
extensive payments expertise and outstanding service. Through strategic partnerships with more than 50 providers of information
processing and online banking solutions, iPay’s turnkey, highly configurable electronic payments platform is supporting more than
half of the nation’s credit unions and approximately 40 percent of the nation’s community banks that offer bill payment services.
Financial Highlights
Shareholders’ Letter
Jack Henry & Associates, Inc. Overview
Jack Henry Banking Overview
Symitar Overview
ProfitStars Overview
iPay Technologies Overview
Financials
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2
4
6
8
10
12
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Financial Highlights
(In millions except per share data)
REVENUE
NET INCOME
DILUTED EARNINGS per share
$837
$746
$743
$104
$103
$118
$1.16
$1.22
$1.38
2008
2009
2010
2008
2009
2010
2008
2009
2010
TOTAL ASSETS
STOCKHOLDERS’ EQUITY
DIVIDENDS DECLARED per share
$1,564
$1,051
$1,021
$750
$627
$601
$0.32
$0.36
$0.28
2008
2009
2010
2008
2009
2010
2008
2009
2010
jackhenry.com • 1
To Our Shareholders
For 34 years, our company has prospered in a highly competitive
and consolidating industry and weathered various economic
cycles by focusing on providing high-quality business solutions
backed by high levels of customer care and service. Through this
most recent recession, our strategic focus has not changed and
each of our brands continues to execute its successful business
strategy. This strategy provides banks and credit unions with
core accounting systems, a wide array of complementary
products and services, and a suite of products and services for
banks and credit unions that use competitive core accounting
systems. This strategy is executed through our own internal
product development efforts, by strategic acquisitions where
appropriate, and strategic partnerships.
During this past year, we executed three acquisitions that brought
additional scale to our payments business, additional products
to cross sell to existing customers, and new relationships with
hundreds of customers who are now candidates for the cross
sale of other products and services. We will continue to refine
our strategy as appropriate, while maintaining our focus on
product and service quality, and providing the innovative
solutions diverse financial institutions and businesses need to
prosper in their competitive and evolving markets.
During fiscal year 2010 (ended June 30), total revenue increased
to a record $837 million. Net income was $118 million or $1.38
per diluted share, as compared to net income of $103 million
or $1.22 per diluted share reported in fiscal year 2009. We
generated strong cash flow from operating activities of $219
million, return on assets was 9 percent, and return on equity
was 17 percent. We generated excellent profitability with a 22
percent operating margin.
Our revenue mix for the year consisted of $52 million in software
license fees or 6 percent of total revenue, $721 million in support
and services or 86 percent of total revenue, and $64 million in
hardware sales or 8 percent of total revenue.
Recurring revenue, which provides the financial stability to
support our ongoing growth, was approximately 78 percent in
fiscal year 2010, compared to 75 and 70 percent in fiscal years
2009 and 2008, respectively.
Backlog, which consists of contracted sales of products and
services that were not delivered by fiscal year-end, reached $329
million, a 14 percent increase over the $289 million reported
last year.
Our company-wide focus on expense reduction positively
impacted the fiscal year’s financial performance. We scrutinized
2 • 2010 annual report
opportunities to reduce near- and long-term expenses, and
numerous cost containment initiatives were implemented,
including voluntary time off without pay, staff reassignments,
and temporary salary reductions. These initiatives enabled us
to reduce payroll, our largest expense, while avoiding layoffs
that would negatively impact our customers and the highly
specialized workforce we need as the economy recovers
and financial institutions return to buying technology at
historic levels.
During fiscal year 2010 we acquired three companies that
strategically expanded our product and service offering with
proven solutions, added loyal customers to our client roster,
generated cross-sales opportunities among our respective
customer bases, increased our market presence and potential,
and diversified our revenue stream. Each company had
a successful business model and shared our dedication to
providing high-quality business solutions and exceptional
customer service.
In October 2009, we acquired Goldleaf Financial Solutions,
Inc. (NASDAQ: GFSI). This acquisition expanded our product
offering with approximately 25 lending, retail banking, and
payment processing solutions which are used by more than
3,500 domestic and international financial institutions, including
numerous Jack Henry & Associates customers. Goldleaf was
integrated into our ProfitStars division and its products and
services expanded the innovative solutions we can sell to all
financial services organizations regardless of charter, asset size,
or core processing platform.
In October 2009, we also acquired Pemco Technology Solutions,
a leading provider of payment processing solutions used by
approximately 235 credit unions, including numerous Symitar
customers. Pemco Technologies has been rebranded as JHA
Payment Processing Solutions™ and will continue to provide ATM,
debit, credit, and prepaid card solutions to the financial industry.
This acquisition supported our ongoing expansion in the
growing electronic payments segment of the financial services
industry and provided select products we are introducing to the
bank market.
In June 2010, we acquired iPay Technologies, the largest electronic
bill pay provider in the United States. This acquisition, our largest
to-date, continued our strategic expansion in the payments
industry with a sophisticated bill pay engine that integrates with
any online banking platform and provides turnkey consumer
and small business bill payment solutions that are backed by
extensive payments expertise and outstanding service. iPay’s
highly configurable electronic payments platform is supporting
more than 1,700 financial institutions, including more than 50
percent of the nation’s credit unions and approximately 40
percent of the community banks that offer bill payment services.
iPay Technologies operates as Jack Henry & Associates’ fourth
primary brand.
We believe each of these strategic acquisitions increases the
value that we provide to our shareholders and our customers.
During this unprecedented economic cycle, many of our existing
and prospective financial institution customers decreased their
discretionary spending and postponed 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 conservative business principles, solid
balance sheet, recurring revenue, long-term contracts, large and
loyal customer base, and diversified product offering enabled us
to grow and generate solid financial results.
We are optimistic that the economy is recovering and with
our customers’ loyalty, our associates’ dedication, and our
shareholders’ confidence, Jack Henry & Associates will emerge
from this challenging business environment strategically and
financially positioned to pursue the business opportunities
that will once again generate the financial performance
we expect.
Chief Executive Officer
President
Chief Financial Officer & Treasurer
JACK PRIM
Chief Executive Officer
TONY WORMINGTON
President
KEVIN WILLIAMS
Chief Financial Officer
& Treasurer
jackhenry.com • 3
Jack Henry & Associates was founded in 1976 to provide data processing solutions for
community banks. Today, our focused diversification allows us to provide technology
solutions for community and mid-tier banks, credit unions of all sizes, diverse businesses
outside the financial services industry, and to other technology providers.
PRODUCTS AND SERVICES
Our products and services are delivered through four primary
brands – Jack Henry Banking, Symitar, ProfitStars, and iPay
Technologies – and automate financial transaction processing,
business processes, and
information management. Our
solutions are hallmarked by premier customer service, proven
functionality, full integration of appropriate solutions, customer-
driven enhancements, the integration of practical and proven
new technologies, and integrity-based business relationships.
Through internal product development, disciplined acquisitions,
and alliances with companies offering best-of-breed solutions,
we regularly
introduce new products and services that
strategically expand our offering and generate new cross-
sales opportunities.
CUSTOMERS
We currently serve more than 11,200 technology-dependent
businesses, including financial institutions of all sizes and charters,
and diverse businesses outside the financial industry. The quality
of our solutions, our commitment to provide outstanding service,
and the 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
We currently serve three primary markets:
● Banks with up to $30 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;
● Financial services organizations of all asset sizes
and charters, and businesses outside the financial
industry that need ProfitStars’ best-of-breed payment
processing, performance measurement and
management, check and document imaging, retail
delivery, and risk mitigation solutions to augment their
technology platforms; and
● Financial institutions that need iPay Technology’s
sophisticated electronic bill payment platform to
support consumers and small business customers.
COMPETITIVE ADVANTAGE
Our primary and sustainable competitive advantage is premier
customer service. Our comprehensive support infrastructure,
exacting service standards, and company-wide commitment
to provide service levels that exceed customer expectations
foster high 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 service quality exceeded our customers’
expectations and generated satisfaction levels we believe
are among the highest in the markets we serve. We will
continue to strategically focus on maintaining our customer
satisfaction and retention rates by surveying our customers
to
identify specific opportunities to refine our support
infrastructure and best practices methodology, and enhance
the overall service experience.
GUIDING PRINCIPLES
We have maintained the focused work ethic and ideals established
by our co-founders – Jack Henry and Jerry Hall – 34 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 governed
by conservative business principles and performance
management;
● Prosper in a competitive and consolidating industry;
● Provide and support an extensive and growing line of
products and services;
● Earn a large, loyal customer base;
4 • 2010 annual report
● Capture substantial market share;
● Establish a corporate culture that values integrity-based
business relationships and recognizes premier customer
service as our competitive advantage;
● Provide rewarding opportunities for our workforce;
● Maintain a fortress balance sheet; and
● Produce consistent returns for our stockholders.
Looking Forward
We will continue to leverage our strategic and financial position to
optimize six primary growth drivers:
● Maintain our rewarding levels of customer satisfaction
and retention by delivering high-quality business
solutions, exceptional customer service, and proactive
account management programs;
● Increase market share with targeted sales efforts focused
on earning new clients;
● Expand our existing customer relationships by cross
selling additional products and services;
● Introduce new products and services in response to
customer and market demands for specialized solutions;
● Increase recurring revenue by optimizing outsourcing
opportunities, transaction-based processing fees, and
ongoing software maintenance and support fees; and
● Pursue disciplined acquisitions that complement our
internal growth, continue our focused diversification,
add proven solutions that complement our existing
products and services, and expand our presence and
potential in our markets.
JACK HENRY & ASSOCIATES’
MISSION STATEMENT
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 is 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.
jackhenry.com • 5
In 1976 our original business was founded to provide community banks with 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 manage vital business information.
the primary
technology partner
CUSTOMERS
We now serve as
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 nationwide customer base includes
approximately 20 percent of mid-tier banks with assets ranging
from $1 billion to $15 billion.
PRODUCTS AND SERVICES
The core and complementary solutions provided by Jack Henry
Banking enable banks to implement integrated technology
platforms tailored to support their unique operating environments
and evolving business strategies. Jack Henry Banking provides:
● Three proven, highly scalable, functionally distinct core
systems that have been selected to replace every major
competitive alternative marketed today;
● More than 100 complementary solutions that enhance
the functionality of our core systems and enable banks
to support their dynamic business strategies, address
unique business opportunities and operational issues,
and expedite speed-to-market with new, highly
competitive financial products;
● In-house and outsourced delivery alternatives;
● State-of-the-art integration that eliminates the islands
of technology and operational issues generated by
disparate products;
● Open architecture that provides open connectivity
between our core and complementary solutions and
third-party products;
● Scalable hardware platforms;
● A production-proven conversion and implementation
process that has been used to convert banks from
virtually every competitive platform; and
● The support infrastructure required to serve our
customers as a single point of contact, support, and
accountability.
6 • 2010 annual report
WHAT JACK HENRY BANKING CUSTOMERS ARE SAYING:
“When we choose vendors, we look for the best, the strongest – the ones
that really understand our vision and can represent us. I’ve worked with four
processors, and Jack Henry & Associates is the best. They are great to work
with, they are always there for us, and we work well as a team.”
Sandra Dixon, Executive Vice President of Operations
Extraco Banks, Waco, Texas
“Our move to outsourcing was absolutely seamless and we honestly wouldn’t
change a thing about Jack Henry Banking’s outsourced delivery model – not
one thing. Outsourcing has made our day-to-day work life easier and if we
knew then what we know now, we would have moved to outsourcing sooner.
Outsourcing is the best thing we’ve done for our bank in years.”
Sandra Minor, Technology Officer
Peoples Southern Bank, Clanton, Alabama
“Opening Act has allowed us to open hundreds of new deposit accounts
every year. This solution has enabled us to extend our hours of operation and
geographic reach without the expense of additional personnel or facilities
needed with traditional brick and mortar.”
Joshua Everton, Assistant Vice President and e-Banking Manager
Bank of American Fork, American Fork, Utah
“With the implementation of Vertex Teller™ Capture, Extraco eliminated 6.5
positions totaling approximately $228,000 in salary and benefits per year.
These savings came from the elimination of the back office functions of proof
and reconciliation of second-day items. The time between contract signing and
implementation allowed us to reposition these employees within the company.”
Sandra Dixon, Executive Vice President of Operations
Extraco Banks, Waco, Texas
“I’d say that the integration was the key factor in determining that Synergy™
Express is right for us. We already trust our data processing to Jack Henry
Banking, so it was easy to integrate the current data that we already have with
our regular deposits and loan files and account numbers. It just made sense.”
Julie Hobart, IT Specialist
Leaders Bank, Oak Brook, Illinois
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JACK HENRY BANKING LEVERAGES ITS QUALITY PRODUCTS AND HIGH
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APPROXIMATELY 1,500 BANKS NATIONWIDE.
Detailed information about
Jack Henry Banking and its product and service
offering is available at www.jackhenrybanking.com.
jackhenry.com • 7
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 manage
business information.
CUSTOMERS
During the 10 years since Symitar was acquired, it has more
than doubled its customer base. We now provide enterprise-
wide automation to more than 700 credit unions, including
approximately 35 percent – more than twice the market share of
our closest competitor – of the 160 credit unions having assets
that exceed $1 billion (as of June 30, 2010). Throughout Symitar’s
26-year history, it has maintained a 98 percent customer retention
rate – a strong endorsement of our product and service quality
and business practices.
PRODUCTS AND SERVICES
The core and complementary solutions provided by Symitar
integrated technology
enable credit unions to
platforms tailored to support their unique operating environments
and evolving business strategies. Symitar provides:
implement
● Two highly scalable, functionally distinct core systems
that have been selected to replace every major
competitive alternative marketed today;
● More than 50 complementary solutions that enhance
the functionality of our core systems and enable credit
unions to support their dynamic business strategies,
address unique business opportunities and operational
issues, and expedite speed-to-market with new, highly
competitive financial products;
● In-house and outsourced delivery alternatives;
● Innovative business tools and programs that
provide open connectivity between our core and
complementary solutions and third-party products;
● Scalable hardware platforms;
● A production-proven conversion and implementation
process that has been used to convert credit unions
from virtually every competitive platform; and
● The support infrastructure required to serve our
customers as a single point of contact, support,
and accountability.
WHAT SYMITAR CUSTOMERS ARE SAYING:
“We’ve gained efficiency throughout our operations, cut our maintenance
costs, and rolled out new products for our members. With Symitar, instead of
us working for our core system, we have a system working for us.”
Patrick Williams, CIO
Philadelphia Federal Credit Union, Philadelphia, Pennsylvania
“We haven’t asked for anything from Symitar we haven’t gotten, we’re very
pleased with the service and the direction as well as the product. It’s just
not an issue for us, it’s just there, it just works, it just does what we want it
to do.”
Lee Fogle, CEO
Duke University Federal Credit Union, Durham, North Carolina
“With Symitar EASE, we have gained security and system redundancy. If
any branch or main office gets hit with a hurricane, our other branches are
unaffected. Additionally, because of shared branching, members can continue
to have service from other branches that are online. Outsourcing with Symitar
will definitely benefit our credit union going forward. It will help us meet the
needs of our members and expand our products and services. Outsourcing
Episys is an excellent strategy to help credit unions grow.”
Wayne Harubin, President and CEO
Coastline FC, Jacksonville, Florida
“The payment, processing, and core systems are all integrated. New account
creation and cardholder issuance are automated as well. We can handle all
service in-house, which gives us the opportunity to make sure members are
serviced the way we want them to be. Also, almost our entire staff can see credit
card activity because it’s on the same system as loan information. That not only
lets us provide better service, but also spreads out the workload for us.”
Joel Forbess, Executive Vice President
Kimberly Clark CU, Memphis, Tennessee
“Replacing expensive and outdated hardware with less expensive servers and
reducing the total amount of hardware have delivered real benefits. We don’t
have to maintain separate hardware for separate environments of Episys, and
we don’t have to keep growing our data center. As a result, we can run Episys
more cost effectively. The economies of scale have paid benefits ten-fold
over costs.”
Steve Mooney, Vice President, IS Operations
Tinker Federal Credit Union, Oklahoma City, Oklahoma
8 • 2010 annual report
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SYMITAR HAS MAINTAINED A 98 PERCENT CUSTOMER RETENTION RATE THROUGHOUT
ITS 26-YEAR HISTORY BASED ON THE BELIEF THAT CUSTOMER ACQUISITION,
SATISFACTION, AND RETENTION REQUIRE CONSISTENT, EXCEPTIONAL SERVICE.
Detailed information about Symitar and its product
and service offering is available at www.symitar.com.
jackhenry.com • 9
We initiated our focused diversification strategy in 2004 and began acquiring companies
and products that can be sold to virtually any financial services organization regardless of
asset size, charter, or core processing platform. These 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 acquired companies. Select solutions are
sold to diverse businesses outside the financial industry and internationally.
We established ProfitStars in 2006 as our third primary brand to encompass our focused
diversification acquisitions, and its revenue contribution has increased significantly each
year since the division’s inception.
CUSTOMERS
Through 19 strategic acquisitions and targeted sales and cross-
sales initiatives, ProfitStars’ solutions are now supporting more than
8,800 domestic and international financial services organizations,
including 42 of the 50 largest domestic banks, all of the top 15
banks, 24 of the 50 largest credit unions, and leading securities and
insurance companies. ProfitStars’ client roster also includes diverse
businesses outside the financial industry including healthcare,
non-profit organizations, the public sector, utilities, retailers,
distribution, manufacturing, and processing.
financial performance,
PRODUCTS AND SERVICES
imaging, payment
ProfitStars provides approximately 65
processing,
security,
risk management, and retail delivery solutions that enable
its customers to capitalize on specific revenue and growth
opportunities, mitigate and control financial and operational
risks, and contain operating costs.
information
These 65 specialized products and services can be implemented
individually or as comprehensive solution suites, and leverage
Jack Henry & Associates’ extensive support infrastructure and
service methods to consistently provide service levels that exceed
customer expectations.
We continue to establish strategic partnerships with Independent
Sales Organizations (ISOs) and Value Added Resellers (VARs) that
have the expertise to sell select ProfitStars solutions in new markets
and specific segments of our nontraditional markets. These third-
party sales initiatives are natural extensions of ProfitStars’ direct
sales and cross-sales initiatives, and are an increasingly important
component of the sales model targeting businesses outside the
financial industry.
10 • 2010 annual report
WHAT PROFITSTARS CUSTOMERS ARE SAYING:
“Recent experiences in which Gladiator has quickly alerted me to potential
issues have verified the true value of RTA [Raw Traffic Analysis] for me.”
Sean Williams, IT Officer
Quantum National Bank, Suwanee, Georgia
“Before the move to Matrix, we had outdated technology, avoided the Internet,
and had limited to no redundancy, which restricted the bank’s growth and
frustrated employees. With Matrix by our side, we have been able to change
that philosophy and truly embrace new applications and technologies,
and we have never regretted the jump.”
Kalee Carpenter, Senior VP and Controller
The Bank of Western Oklahoma, Elk City, Oklahoma
“Consolidating reporting systems has long been a critical challenge facing the
banking industry. Information silos still exist across different lines of business
in banks today. Using Microsoft’s platform provided through this partnership,
ProfitStars is uniquely able to quickly integrate these disparate silos and
unlock value by arming decision makers with information that will enhance
profitability and overall operational efficiency.”
Joe Pagano, Managing Director
Banking and Capital Markets Worldwide Financial Services Group, Microsoft
“Loan officers don’t like change, so there was the potential for panic at first.
But Margin Maximizer is very user-friendly. Some of the other products we
tried were quite complicated and required a lot of training and unnecessary
data input. But with Margin Maximizer, a lot of the work is done for us.
Origination costs, for example, are worked in and we have the ability to drill
down and put our own costs into the model. So after testing it and verifying the
data, we jumped in and started using it.”
Gary Quisenberry, Senior Vice President
Central Valley Community Bank, Fresno, California
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PROFITSTARS’ HIGHLY SPECIALIZED PRODUCTS AND SERVICES SERVE LARGE
MARKETS THAT HAVE SIGNIFICANT SALES AND GROWTH OPPORTUNITIES.
Detailed information about ProfitStars
and its product and service offering is available
at www.profitstars.com.
jackhenry.com • 11
In 2010, we materially expanded our presence in the growing electronic payments industry,
strengthened our payments offering, and established our fourth primary brand with the
acquisition of iPay Technologies. iPay was founded in 2001 and now serves more financial
institutions with online bill payment solutions than any other provider in the United States.
CUSTOMERS
iPay’s highly configurable electronic payments platform and
turnkey online bill payment solutions are supporting more than
1,700 financial institutions, including approximately 40 percent
of the nation’s community banks and more than half the credit
unions that offer bill payment services. iPay’s online bill payment
solutions help financial institutions attract, retain, and grow their
most profitable customers.
PRODUCTS AND SERVICES
iPay’s bill pay solutions integrate with any online banking platform
and offer financial institutions a high degree of configurability,
turnkey
implementations and operations, superior end-user
customer service, and user-friendly technology. The majority of
iPay financial institution customers also outsource their bill pay
customer support to iPay’s in-house call center.
iPay’s product suite consists of a consumer bill pay solution and a
suite of small business payment services. The consumer solution
supports electronic bill presentment, account-to-account transfers,
person-to-person payments, expedited payments, and the ability
to make payments at anytime from anywhere. The small business
suite is designed to meet the unique needs of businesses with less
than 50 employees, a historically underserved market. The small
business solution provides the ability to transfer funds between
accounts, make payroll deposits, generate electronic invoices,
receive payments electronically, and delegate payment tasks to
employees with strict permission controls. The small business
suite provides financial institutions with an additional revenue
stream and the opportunity to capture an increased share of the
profitable small business market.
WHAT iPAY CUSTOMERS ARE SAYING:
“What I would say to a fellow financial institution concerning a switch to iPay
is you should do it yesterday. It’s the best decision we’ve made in online bill
pay solutions.”
Jerenda Pancho, Vice President
Spirit of Alaska Federal Credit Union, Fairbanks, Alaska
“Having iPay makes us the best at online bill pay services. You can’t get any
better than having iPay.”
Coni Bills, Marketing
County National Bank, Hillsdale, Michigan
“The conversion team we had with iPay was excellent. They walked you
through step by step.”
Amy Long, Senior Operations Assistant
Peoples Bancorporation, Easley, South Carolina
“I’ve had wonderful support from iPay. They’ve always been
very professional.”
Alon Sutton, Manager
Mutual Savings Credit Union, Atlanta, Georgia
“It was just a matter of converting the data, installing the programs, and
flipping the switch.”
Wes Carlisle, IT Manager
Merchants and Farmers Bank, Kosciusko, Mississippi
“iPay has proven to have one of the most outstanding conversion teams I
have ever had the pleasure to work with!”
Romaine Russo, Administrative Vice President
QNB Bank, Quakertown, Pennsylvania
12 • 2010 annual report
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iPAY’S ONLINE BILL PAYMENT SOLUTIONS ARE HELPING MORE THAN 1,700
FINANCIAL INSTITUTIONS ATTRACT, RETAIN, AND GROW THEIR MOST PROFITABLE
CUSTOMERS AND MEMBERS.
Detailed information about iPay and its service
offering is available at www.ipaytechnologies.com.
jackhenry.com • 13
Fiscal Year 2010 Financials
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Performance Graph
Selected Financial Data
Quantitative and Qualitative Disclosures About Market Risk
Report of Independent Registered Public Accounting Firm
Management’s Annual Report on Internal Control
Over Financial Reporting
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Quarterly Financial Information
15
16
17
31
33
34
36
37
38
39
40
60
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 2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
$26.50
24.88
24.75
24.66
High
$20.99
19.94
20.39
24.45
Low
$22.55
21.01
22.22
19.56
Low
$16.95
14.29
14.76
19.02
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, 2010 and 2009 are as follows:
Fiscal 2010
Dividend
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$0.095
0.095
0.085
0.085
Fiscal 2009
Dividend
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$0.085
0.085
0.075
0.075
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 20, 2010, there were approximately 45,000 holders of the Company’s common stock. On that same date
the last sale price of the common shares as reported on NASDAQ was $24.05 per share.
jackhenry.com • 15
PERFORMANCE GRAPH
The following chart presents a comparison for the five-year period ended June 30, 2010, 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:
This comparison assumes $100 was invested on June 30, 2005, 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 Bottomline Technology,
Inc., Cerner Corp., DST Systems, Inc., Euronet Worldwide, Inc., Fair Isaac Corp., Fidelity National Financial, Inc.,
Fiserv, Inc., Online Resources Corp., S1 Corp., SEI Investments Company, Telecommunications Systems, Inc., and
Tyler Technologies Corp.
16 • 2010 annual report
SELECTED FINANCIAL DATA
Selected Financial Data
(In Thous ands , Except Per Share Data)
Income Statement Data
2010
2009
2008
2007
2006
Revenue (1)
Income from continuing operations
$
$
836,586
117,870
$
$
745,593
103,102
$
$
742,926
105,287
$
$
666,467
105,644
$
$
590,877
90,863
YEAR ENDED JUNE 30,
Diluted net
income
continuing operations
per
share,
$
1.38
$
1.22
$
1.17
$
1.15
$
0.97
Dividends declared per share
$
0.36
$
0.32
$
0.28
$
0.24
$
0.20
Balance Sheet Data
W orking capital
Total assets
Long-term debt, net of current
maturities
Stockholders’ equity
$
$
$
(53,883)
1,564,146
272,732
15,239
1,050,700
$
$
$
-
$
$
$
(11,418)
1,021,044
24
$
$
$
19,908
999,340
128
$
$
$
42,918
906,067
421
$
750,371
$
626,506
$
601,451
$
598,365
$
575,212
(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 10 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 2010 to fiscal 2009 and compare fiscal 2009 to fiscal 2008.
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 $590,877 in fiscal 2006 to $836,586 in fiscal 2010.
Income from continuing operations has grown from $90,863 in fiscal 2006 to $117,870 in fiscal 2010. This growth
has resulted primarily from internal expansion supplemented by strategic acquisitions, allowing us to develop and
acquire new products and services for approximately 11,200 customers who utilize our software systems or services
as of June 30, 2010.
Since the start of fiscal 2008, we have completed 5 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.
jackhenry.com • 17
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,
which includes ATM and debit card transaction processing, online bill payment services, remote deposit capture
and transaction processing 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 2010 COMPARED TO FISCAL 2009
In fiscal 2010, revenues increased 12% or $90,993 compared to the prior year due primarily to the current year
acquisition of Goldleaf Financial Solutions, Inc. (“GFSI”), PEMCO Technology Services, Inc. (“PTSI”) and iPay
Technologies Holding Company, LLC (“iPay”). During fiscal 2010, the Company’s management engaged in various
cost-cutting efforts that, when combined with the growth in revenue, resulted in a 14% increase in net income.
The US financial crisis is a primary concern at this time as it affects 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 an 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 they have
an even greater need for some of our solutions that directly address institutional profitability and efficiency. We
face these 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 strengthens. Our cautious optimism has been expressed through our acquisitions of GFSI, PTSI
and iPay during the year ended June 30, 2010. These are the three largest acquisitions in our Company’s history
and present us with opportunities to extend our customer base and produce returns for our stockholders.
18 • 2010 annual report
REVENUE
License Revenue
License
Percentage of total revenue
$
52,225
6%
$
58,434
8%
-11%
Year Ended June 30,
% Change
2010
2009
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.
The decrease in license revenue for the current year is due mostly to decreases in complementary product license
revenue compared to the prior year. Overall, license revenue from our core software products were up 16% from the
prior year. In addition, our acquisition of GFSI in October added $5,638 in license revenue during fiscal 2010. These
gains were more than offset by decreases in license revenue for most of our complementary software products.
These decreases in complementary software product license revenue result from the recent economic downturn, as
we have seen some of our customers postpone making non-essential capital investments in technology, including
software. In addition, our customers are often electing to contract for our products via 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.
Support and Service Revenue
Year Ended June 30,
% Change
2010
2009
Support and service
$
720,504
$
614,242
+17%
Percentage of total revenue
86%
82%
Year Over Year Change
Year Over Year Change
$ Change
% Change
$ Change
% Change
In-House Support & Other Services
In-House Support & Other Services
$
17,952
7%
$
17,952
EFT Support
EFT Support
67,451
45%
67,451
Outsourcing Services
Implementation Services
Outsourcing Services
Implementation Services
15,223
5,636
Total Increase
Total Increase
$
106,262
11%
10%
$
15,223
5,636
106,262
7%
45%
11%
10%
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 all support and service revenue components in fiscal 2010. In-house support and other
services increased mostly as a result of the acquisition of GFSI, which added revenue of $15,527 since acquisition.
EFT support experienced the largest percentage growth. Most of the revenue growth in EFT is attributable to the
acquisition of GFSI, PTSI and iPay. Combined, the acquisitions added $55,020 to this line during the current year.
However, organic revenue growth within EFT support continues to be strong with an increase of 8% over the prior
fiscal year.
Outsourcing services for banks and credit unions continue to drive revenue growth as customers continue to choose
outsourcing for the delivery of our solutions. We expect the trend towards outsourced product delivery to benefit
outsourcing services revenue for the foreseeable future.
The increase in implementation services revenue is primarily related to the acquisition of GFSI, which added $4,452
in implementation revenue for the current year.
jackhenry.com • 19
Hardware Revenue
Year Ended June 30,
% Change
2010
2009
Hardware
Percentage of total revenue
$
63,857
8%
$
72,917
10%
-12%
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 generally commensurate with
the trends in license revenue; however, while hardware revenue has benefitted from the acquisition of GFSI, it
has not benefitted to the same degree as license revenue. GFSI added hardware revenue of $1,301 since its
acquisition.
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
2010
2009
Cost of License
Percentage of total revenue
License Gross Profit
Gross Profit Margin
$
5,827
1%
$
6,885
1%
$
46,398
89%
$
51,549
88%
Cost of support and service
Percentage of total revenue
$
438,476
52%
$
385,837
52%
Support and Service Gross Profit
Gross Profit Margin
$
282,028
39%
$
228,405
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
$
47,163
6%
$
53,472
7%
$
16,694
26%
$
19,445
27%
$
491,466
59%
$
446,194
60%
$
345,120
41%
$
299,399
40%
-15%
-10%
+14%
+23%
-12%
-14%
+10%
+15%
The current year decrease in cost of license is generally commensurate with the related trends in license revenue.
Cost of license depends greatly on third party reseller agreement software vendor costs. During the current year,
these costs have decreased as a percentage of license revenue as complementary software sales that have
associated third party vendor costs have decreased.
20 • 2010 annual report
Cost of support and service increased for the year commensurate with the increase in support and services revenue.
Combined, the companies acquired during fiscal 2010 added $50,480 to this line. Support and services gross profit
margin has increased for the year due to cost control measures undertaken by the Company and as EFT support
services, with higher margins than other components of Support and services revenue, have become a larger
percentage of that revenue line.
Cost of hardware has fluctuated in line with hardware revenue for the current year, with slightly leaner margins
resulting from a shift in sales mix.
OPERATING EXPENSES
Selling and M arketing
Year Ended June 30,
% Change
2010
2009
Selling and marketing
Percentage of total revenue
$
60,875
7%
$
54,931
7%
+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 2010 fiscal year, selling and marketing expenses increased primarily due to current year acquisitions,
which added $10,272 to this line during the current year. The acquisition-related increases were partially offset by
decreases in selling and marketing personnel costs throughout the rest of the Company, which were the result of
cost-cutting measures undertaken by management.
Research and Development
Year Ended June 30,
% Change
2010
2009
Research and development
Percentage of total revenue
$
50,820
6%
$
42,901
6%
+18%
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 increased for the current year due primarily to current year acquisitions,
which added $8,126 in expense during fiscal 2010.
General and Administrative
Year Ended June 30,
% Change
2010
2009
General and administrative
Percentage of total revenue
$
51,172
6%
$
43,681
6%
+17%
General and administrative costs include all expenses related to finance, legal, human resources, plus all
administrative costs. General and administrative expenses increased for the year due to current year acquisitions,
including costs directly related to the acquisition transactions. Combined, the acquired companies added $7,700
of general and administrative costs during fiscal 2010, including $4,237 of one-time acquisition transaction costs.
INTEREST INCOME (EXPENSE)
Interest income decreased 79% from $781 to $161 due primarily to lower interest rates on invested balances.
Interest expense increased 19% from $1,357 to $1,618 due to primarily to borrowings made in the fourth quarter of
fiscal 2010 to consummate the acquisition of iPay.
jackhenry.com • 21
PROVISION FOR INCOME TAXES
The provision for income taxes was $62,926 or 34.8% of income before income taxes in fiscal 2010 compared with
$54,208 or 34.5% of income before income taxes fiscal 2009. The increase was primarily due to the expiration
of the Research and Experimentation Credit (“R&E Credit”), effective January 1, 2010, as well as increases in the
rate at which deferred tax liabilities are expected to reverse in future years. These increases were mostly offset
by additional benefits received through an extensive analysis of the Domestic Production Activities Deduction (IRC
Section 199).
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations increased, moving from $103,102, or $1.22 per diluted share in fiscal 2009 to
$117,870, or $1.38 per diluted share in fiscal 2010.
DISCONTINUED OPERATIONS
There was no gain or loss from discontinued operations for fiscal 2010 or 2009.
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.
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
22 • 2010 annual report
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
EFT Support
Outsourcing Services
Implementation Services
Total Increase
$
19,692
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.
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.
jackhenry.com • 23
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.
24 • 2010 annual report
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.
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
jackhenry.com • 25
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.
Business Segment Discussion
Bank System s and Services
Revenue
Gross Profit
$672,282
$283,100
9%
14%
$617,711
$247,812
+<1%
-3%
$616,390
$255,870
2010
% Change
2009
% Change
2008
Gross Profit Margin
42%
40%
42%
In fiscal 2010, revenue increased 9% overall in the bank systems and services business segment compared to the
prior year. Most of the increase is due to the acquisition of GFSI, which added $44,794 of revenue in the current
year. In addition, EFT support experienced organic revenue growth of nearly 10% over the prior year and Data
Center Maintenance had organic growth of 12% within the bank systems and services business segment. Gross
profit margin increased from the prior year primarily due to cost control measures, particularly related to personnel
costs, undertaken by management during fiscal 2010.
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.
Credit Union Systems and Services
2010
% Change
2009
% Change
2008
Revenue
Gross Profit
$164,304
$62,020
28%
20%
$127,882
$51,587
+1%
+<1%
$126,536
$51,356
Gross Profit Margin
38%
40%
41%
In fiscal 2010, revenues in the credit union systems and services business segment increased 28% from fiscal
2009. Support and service revenue, which is the largest component of total revenues for the credit union segment,
experienced strong growth in most revenue components. In particular, EFT Support experienced 163% revenue
growth over the prior year due primarily to the acquisition of PTSI, which added revenue of $33,839 to current year
revenue. Gross profit margins have decreased from the prior year as license revenue, which carries the largest
margins, have decreased as a percentage of total revenue.
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% 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.
26 • 2010 annual report
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 $125,518 at June 30, 2010 from $118,251 at June 30,
2009.
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,
2010
2009
2008
$
117,870
92,317
(1,539)
10,775
(725)
$
103,102
74,397
21,214
21,943
(14,068)
$
104,222
70,420
(2,913)
5,100
4,172
Net cash from operating activities
$
218,698
$
206,588
$
181,001
Cash provided by operations increased $12,110 to $218,698 for the fiscal year ended June 30, 2010 as compared to
$206,588 for the fiscal year ended June 30, 2009. This increase is primarily attributable to increase in net income.
Cash used in investing activities for the fiscal year ended June 2010 was $505,715 and includes a net cash outlay
for acquisitions of $426,652, capital expenditures of $54,509, and capitalized software development of $25,586.
During fiscal 2009, cash used in investing activities was $59,227 and included contingent consideration paid on prior
years’ acquisitions of $3,027. Capital expenditures for fiscal 2009 were $31,562 and cash used in the development
of software was $24,684.
Net cash from financing activities for the current fiscal year was $294,284 and includes $303,160 net borrowing on
our credit facilities, proceeds of $28,522 from the exercise of stock options and the sale of common stock (through
the employee stock purchase plan) and $661 excess tax benefits from stock option exercises. Cash from financing
activities was partially offset by the payment of dividends of $30,461 and debt acquisition costs of $7,598. During
fiscal 2009, 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 $349
excess tax benefits from stock option exercises.
At June 30, 2010, the Company had negative working capital of $53,883; however, the largest component of
current liabilities was deferred revenue of $264,219, which primarily relates to our annual in-house maintenance
agreements. The cash outlay necessary to provide the services related to these deferred revenues is significantly
less than this recorded balance. In addition, we continue to have access to unused lines of credit in excess of
$40,000 and continue to generate substantial cash inflows from operations. Therefore, we do not anticipate any
liquidity problems arising from this condition.
US financial markets and many of the largest US financial institutions have been shaken by negative developments
over the last two years in the mortgage markets and the general economy. While the effects of these events
continue to impact our customers, we have not experienced any significant issues with our current collection efforts,
and we believe that any future impact to our liquidity would be minimized by our access to available lines of credit.
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, 2010, there were 14,407 shares in treasury stock and the Company
had the remaining authority to repurchase up to 5,584 additional shares. The total cost of treasury shares at June
30, 2010 is $309,585.
On August 23, 2010, the Company’s Board of Directors declared a cash dividend of $0.095 per share on its common
stock payable on September 22, 2010, to stockholders of record on September 7, 2010. 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.
jackhenry.com • 27
The Company renewed an unsecured bank credit line on April 29, 2010 which provides for funding of up to $5,000
and bears interest at the prime rate less 1% (2.25% at June 30, 2010). The credit line was renewed through April
29, 2012. At June 30, 2010, $762 was outstanding.
The Company renewed a bank credit line on March 7, 2010 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, 2010). The credit line expires March 7, 2011
and is secured by $1,000 of investments. At June 30, 2010, no amount was outstanding.
The Company has entered into a bank credit facility agreement that includes a revolving loan, a term loan and a
bullet term loan. The revolving loan allows short-term borrowings of up to $150,000, which may be increased by the
Company at any time until maturity to $250,000. The revolving loan terminates June 4, 2015. At June 30, 2010, the
outstanding revolving loan balance was $120,000. The term loan has an original principal balance of $150,000, with
quarterly principal payments of $5,625 beginning on September 30, 2011, and the remaining balance due June 4,
2015. The bullet term loan had an original principal balance of $100,000. The full balance, which would have been
due on December 4, 2010, was paid in full on July 8, 2010 as set forth in Note 15 to the Consolidated Financial
Statements (see Item 8). Each of the loans bear interest at a variable rate equal to (a) a rate based on LIBOR or (b)
an alternate base rate (the greater of (a) the Federal Funds Rate plus 0.5%, (b) the Prime Rate or (c) LIBOR plus
1.0%), plus an applicable percentage in each case determined by the Company’s leverage ratio. The outstanding
balances bear interest at a weighted average rate of 2.99%. The loans are secured by pledges of capital stock of
certain subsidiaries of the Company. The loans are also guaranteed by certain subsidiaries of the Company. The
credit facility is subject to various financial covenants that require the Company to maintain certain financial ratios
as defined in the agreement. As of June 30, 2010, 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 $8,872. At June 30, 2010, $5,689 was outstanding, of which $4,380
will be maturing in the next twelve months.
Contractual Obligations and Other Commitments
At June 30, 2010 the Company’s total off balance sheet contractual obligations were $36,935. This balance consists
of $27,228 of long-term operating leases for various facilities and equipment which expire from 2011 to 2017 and
the remaining $9,707 is for purchase commitments related to property and equipment, particularly for contractual
obligations related to the on-going construction of new facilities. The table excludes $7,548 of liabilities for uncertain
tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement.
Contractual obligations by
period as of June 30, 2010
Less than
1 year
1-3 years
3-5 years
More than
5 years
Operating lease obligations
Capital lease obligations
Notes payable, including
accrued interest
Purchase obligations
$
8,765
4,380
102,493
$
9,422
1,309
46,210
-
225,213
$
5,851
$
3,190
9,707
-
-
TOTAL
$
27,228
5,689
373,916
9,707
-
-
-
Total
$125,345
$56,941
$231,064
$3,190
$416,540
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting
Standards (“SFAS”) No. 141(R), “Business Combinations,” (“SFAS 141(R)”) which replaces SFAS No. 141 and
has since been incorporated into the Accounting Standards Codification (“ASC”) as ASC 805-10. ASC 805-10
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 acquired entity 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, which is now incorporated in ASC 805-20. ASC 805-20 eliminates the
requirement under FAS 141(R) to record assets and 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 ASC 805-20,
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. ASC 805-10 was effective for the Company on July 1, 2009. The adoption
28 • 2010 annual report
of ASC 805-10 did not have a material impact on the Company’s financial statements.
In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets,” which is
now incorporated into ASC 350-30. This position amends ASC 350 regarding the factors that should be considered
in developing the useful lives for intangible assets with renewal or extension provisions. ASC 350-30 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. ASC 350-30 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 agreement. ASC 350-30 is effective for qualifying
intangible assets acquired by the Company on or after July 1, 2009. The application of FSP142-3 did not have a
material impact on the Company’s financial statements upon adoption.
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,” which is now incorporated
as ASC 105-10 and 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 (“GAAP”). ASC 105-10 explicitly recognizes rules and interpretive
releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants. ASC 105-10 was
effective for the Company as of the beginning of fiscal 2010, but it did not have a material impact on the Company’s
financial statements.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in
the United States (“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.
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 generally accepted accounting principles and with guidance provided
within Staff Accounting Bulletins issued by the Securities and Exchange Commission. 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. Generally accepted
accounting principles require 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. When 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 current accounting pronouncements. 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.
jackhenry.com • 29
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 within U.S. GAAP. To the extent hardware revenue is part of such an arrangement
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. The Company also remarkets maintenance contracts on
hardware to our customers. Hardware maintenance revenue is recognized ratably over the agreement period.
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, liabilities for uncertain tax positions require 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
30 • 2010 annual report
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.
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 the Company’s Form 10-K filed with the Securities and Exchange Commission.
Undue reliance should not be placed on the forward-looking statements. The Company does not undertake any
obligation to publicly update any forward-looking statements.
Potential risks and uncertainties which could adversely affect the Company include: the financial health of the
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 outstanding debt. We do not currently use any derivative financial instruments. We actively monitor
these risks through a variety of controlled procedures involving senior management.
Based on the controls in place and the credit worthiness of the customer base, we believe the credit risk associated
with the extension of credit to our customers will not have a material adverse effect on our consolidated financial
position or results of operations.
Based on our outstanding debt with variable interest rates as of June 30, 2010, a 1% increase in our borrowing rate
would increase annual interest expense in fiscal 2011 by less than $3,000.
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, 2010, 2009, and 2008
Consolidated Balance Sheets, June 30, 2010 and 2009
Consolidated Statements of Changes in Stockholders' Equity,
Years Ended June 30, 2010, 2009, and 2008
Consolidated Statements of Cash Flows,
Years Ended June 30, 2010, 2009, and 2008
Notes to Consolidated Financial Statements
33
38
34
39
35
40
41
36
37
42
43
38
39
44
45
40
FINANCIAL STATEMENT SCHEDULES
There are no schedules included because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
32 • 2010 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 consolidated balance sheets of Jack Henry & Associates, Inc. and subsidiaries
(the “Company”) as of June 30, 2010 and 2009, and the related consolidated statements of income, stockholders’
equity, and cash flows for each of the three years in the period ended June 30, 2010. 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 consolidated financial statements present fairly, in all material respects, the financial position
of Jack Henry & Associates, Inc. and subsidiaries at June 30, 2010 and 2009, and the results of their operations
and their cash flows for each of the three years in the period ended June 30, 2010, in conformity with accounting
principles generally accepted in the United States of America.
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, 2010, 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 27, 2010 expressed an unqualified opinion on the Company’s
internal control over financial reporting.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 27, 2010
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 2010 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, 2010 was effective.
Management’s annual report on internal control over financial reporting excluded iPay Technologies Holding
Company, LLC, acquired on June 4, 2010. This acquisition is a wholly-owned subsidiary with total assets
representing 21% of consolidated total assets and both revenue and net income representing less than 1% of
consolidated revenue and net income, respectively as of and for the year ended June 30, 2010. If adequately
disclosed, companies are allowed to exclude acquisitions made near the fiscal year end from their assessment of
internal control over financial reporting while integrating the acquired company under guidelines established by the
US Securities and Exchange Commission.
The Company’s internal control over financial reporting as of June 30, 2010 has been audited by the Company’s
independent registered public accounting firm, as stated in their report appearing on the next page.
34 • 2010 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, 2010, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report
on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over
financial reporting at iPay Technologies Holding Company, LLC, which was acquired on June 4, 2010 and whose financial
statements constitute 21% of consolidated total assets and both revenue and net income constitute less than 1% of
consolidated revenues and net income, respectively as of and for the year ended June 30, 2010. Accordingly, our audit
did not include the internal control over financial reporting at iPay Technologies Holding Company, LLC. 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, 2010, 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, 2010 of the Company and our report
dated August 27, 2010 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 27, 2010
jackhenry.com • 35
36 • 2010 annual report
jackhenry.com • 37
38 • 2010 annual report
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
Descriptions 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. U.S. GAAP generally require 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.
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.
Arrangements with customers that include significant customization, modification, or production of software are accounted
for under contract accounting, with the revenue being recognized using the percentage-of-completion method.
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.
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 within U.S. GAAP. To the extent hardware revenue is part of such an arrangement and is not
40 • 2010 annual report
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. 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 U.S. GAAP.
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 at both June 30, 2010 and 2009. 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.
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
those with an indefinite life (such as goodwill), 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, 2010, 2009, and 2008 equals the Company’s net income.
jackhenry.com • 41
Business Segment Information
In accordance with generally accepted accounting principles, 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, 2009, there were 14,407 shares in treasury stock and the Company had
the remaining authority to repurchase up to 5,584 additional shares. During fiscal 2009, the Company repurchased
3,106 treasury shares for $58,405. The total cost of treasury shares at June 30, 2010 is $309,585. At June 30,
2010, there were 14,407 shares in treasury stock and the Company had the authority to repurchase up to 5,584
additional shares. There were no repurchases of treasury stock in 2010.
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.
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 is measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, 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.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting
Standards (“SFAS”) No. 141(R), “Business Combinations,” (“SFAS 141(R)”) which replaces SFAS No. 141 and
has since been incorporated into the Accounting Standards Codification (“ASC”) as ASC 805-10. ASC 805-10
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 acquired entity 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, which is now incorporated in ASC 805-20. ASC 805-20 eliminates the
requirement under FAS 141(R) to record assets and 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 ASC 805-20,
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. ASC 805-10 was effective for the Company on July 1, 2009. The adoption
of ASC 805-10 did not have a material impact on the Company’s financial statements.
In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets,” which is
now incorporated into ASC 350-30. This position amends ASC 350 regarding the factors that should be considered
in developing the useful lives for intangible assets with renewal or extension provisions. ASC 350-30 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. ASC 350-30 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 agreement. ASC 350-30 is effective for qualifying
intangible assets acquired by the Company on or after July 1, 2009. The application of FSP142-3 did not have a
42 • 2010 annual report
material impact on the Company’s financial statements upon adoption.
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,” which is now incorporated
as ASC 105-10 and 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 (“GAAP”). ASC 105-10 explicitly recognizes rules and interpretive
releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants. ASC 105-10 was
effective for the Company as of the beginning of fiscal 2010, but it did not have a material impact on the Company’s
financial statements.
NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values for held-to-maturity securities are based on quoted market prices. For cash equivalents, amounts
receivable or payable and short-term borrowings, fair values approximate carrying value, based on the short-
term nature of the assets. The fair value of long term debt also approximates carrying value as estimated using
discounting cash flows based on the Company’s current incremental borrowing rates or quoted prices in active
markets.
NOTE 3: PROPERTY AND EQUIPMENT
The classification of property and equipment, together with their estimated useful lives is as follows:
June 30,
2010
2009
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
$
$
24,911
19,838
103,744
21,012
211,698
40,192
53,596
474,991
200,321
274,670
5-20 years
25-30 years
5-10 years (1)
5-8 years
6-10 years
24,411
19,845
99,400
21,946
194,149
40,060
16,694
416,505
178,727
237,778
$
$
(1) Lesser of lease term or estimated useful life
The Company had material commitments to purchase property and equipment related to the construction of new
facilities, totaling $4,153 and $24,382 at June 30, 2010 and 2009, respectively. Property and equipment included
$723 and $273 that was in accrued liabilities at June 30, 2010 and 2009, respectively. Also, the Company acquired
$8,896 and $6,748 of computer equipment through a capital lease for the years ended June 30, 2010 and 2009,
respectively. 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, 2010 and 2009, by reportable segments,
are:
Banking
Systems
and Services
Credit Union
Systems and
Services
Total
Balance, as of July 1, 2008
Goodwill acquired during the year
Balance, as of June 30, 2009
Goodwill acquired during the year
Balance, as of June 30, 2010
$
$
$
264,575
3,027
267,602
138,319
405,921
24,798
-
24,798
106,387
131,185
$
$
$
289,373
3,027
292,400
244,706
537,106
jackhenry.com • 43
The Banking Systems and Services segment additions for fiscal 2010 relate primarily to the acquisitions of iPay and
GFSI. The Credit Union Systems and Services segment additions for fiscal 2010 relate to the acquisitions of iPay
and PTSI. The additions for fiscal 2009 relate primarily to the ultimate resolution of contingent consideration amounts
for the acquisitions of RPM Intelligence, LLC, and AudioTel Corporation. See Note 13-Business Acquisitions for
further details.
Information regarding other identifiable intangible assets is as follows:
Carrying
Amount
2010
Accumulated
Amortization
Net
Carrying
Am ount
2009
Accum ulated
Am ortization
Net
June 30,
Cus tom er relations hips
$
279,273
$
(82,945)
$
196,328
$
126,244
$
(70,794)
$
55,450
Trade nam es
10,834
(19)
10,815
3,999
-
3,999
Totals
$
290,107
$
(82,964)
$
207,143
$
130,243
$
(70,794)
$
59,449
Most of our trade name assets 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, 2008
Acquired software
Capitalized development cost
Disposals
Amortization expense
Balance, June 30, 2009
Acquired software
Capitalized development cost
Disposals
Amortization expense
Balance, June 30, 2010
$
$
$
104,632
-
24,684
(45)
-
129,271
30,801
25,586
(783)
-
184,875
(29,689)
-
-
17
(16,920)
(46,592)
(4,870)
-
16
(17,782)
(69,228)
74,943
-
24,684
(28)
(16,920)
82,679
25,931
25,586
(767)
(17,782)
115,647
$
$
$
Amortization expense for all intangible assets was $34,919, $25,288, and $21,811 for the fiscal years ended June
30, 2010, 2009, and 2008, respectively. The estimated aggregate future amortization expense for each of the next
five years for all intangible assets remaining as of June 30, 2010, is as follows:
Year
2011
2012
2013
2014
2015
Customer
Relationships
Software
Total
12,326
11,299
9,935
9,935
9,180
19,616
15,428
9,430
5,456
3,097
31,942
26,727
19,365
15,391
12,277
44 • 2010 annual report
NOTE 5: DEBT
The Company’s outstanding long and short term debt is as follows:
June 30,
2010
2009
LONG TERM DEBT
Long term revolving credit facility
Term loan
Capital leases
Other borrowings
Less current maturities
Long-term debt, net of current maturities
SHORT TERM DEBT
Short term revolving credit facility
Bullet term loan
Current maturities of long-term debt
Other borrowings
$
$
120,000
150,000
5,689
2,244
277,933
5,201
272,732
-
$
-
-
-
-
-
$
-
$
-
100,000
5,201
762
105,963
$
$
$
60,000
-
-
3,461
63,461
The following table summarizes the annual principal payments required as of June 30, 2010:
Years ended June 30,
2011
2012
2013
2014
2015
Thereafter
105,963
24,499
23,020
22,696
202,517
-
$
378,695
The Company has entered into a bank credit facility agreement that includes a revolving loan, a term loan and a
bullet term loan.
Revolving Credit Facilities
The long term revolving loan allows for borrowings of up to $150,000, which may be increased by the Company at
any time until maturity to $250,000. The revolving loan terminates June 4, 2015. At June 30, 2010, the outstanding
revolving loan balance was $120,000.
Term loan
The term loan has an original principal balance of $150,000, with quarterly principal payments of $5,625 beginning
on September 30, 2011, and the remaining balance due June 4, 2015.
Bullet term loan
The bullet term loan had an original principal balance of $100,000. The full balance, which would have been due on
December 4, 2010, was paid in full on July 8, 2010 as set forth in Note 15.
Each of the above loans bear interest at a variable rate equal to (a) a rate based on LIBOR or (b) an alternate
base rate (the greater of (a) the Federal Funds Rate plus 0.5%, (b) the Prime Rate or (c) LIBOR plus 1.0%), plus
an applicable percentage in each case determined by the Company’s leverage ratio. The outstanding balances
bear interest at a weighted average rate of 2.99%. The loans are secured by pledges of capital stock of certain
subsidiaries of the Company. The loans are also guaranteed by certain subsidiaries of the Company. The credit
facility is subject to various financial covenants that require the Company to maintain certain financial ratios as
defined in the agreement. As of June 30, 2010, the Company was in compliance with all such covenants.
Capital Leases
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 $8,872. At June 30, 2010, $5,689 was outstanding, of which $4,380
will be maturing in the next twelve months.
jackhenry.com • 45
Other Lines of Credit
The Company renewed an unsecured bank credit line on April 29, 2010 which provides for funding of up to $5,000
and bears interest at the prime rate less 1% (2.25% at June 30, 2010). The credit line was renewed through April
29, 2012. At June 30, 2010, $762 was outstanding.
The Company renewed a bank credit line on March 7, 2010 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, 2010). The credit line expires March 7, 2011
and is secured by $1,000 of investments. At June 30, 2010, no amount was outstanding.
Interest
The Company paid interest of $759, $1,606, and $2,521 in 2010, 2009, and 2008 respectively. During fiscal 2010,
the Company incurred a total of $1,625 of interest, $7 of which was capitalized.
NOTE 6: LEASE COMMITMENTS
The Company leases certain property under operating leases which expire over the next 8 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, 2010, net future minimum lease payments are as follows:
Years Ending June 30,
Lease Payments
2011
2012
2013
2014
2015
Thereafter
Total
$
8,765
5,362
4,060
3,286
2,565
3,190
$
27,228
Rent expense was $9,733, $8,314, and $7,895 in 2010, 2009, and 2008, respectively.
NOTE 7: INCOME TAXES
The provision for income taxes from continuing operations consists of the following:
Year ended June 30,
2010
2009
2008
$
39,994
6,238
$
39,616
7,527
$
48,472
5,347
14,327
2,367
62,926
$
7,345
(280)
54,208
$
4,972
348
59,139
$
Current:
Federal
State
Deferred:
Federal
State
46 • 2010 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)
Net operating loss carryforwards
Other, net
Deferred tax liabilities:
Accelerated tax depreciation
Accelerated tax amortization
Other, net
June 30,
2010
2009
$
1,198
$
577
6,591
12,222
514
20,525
(17,425)
(74,341)
(16,307)
(108,073)
1,834
401
2,273
5,085
(20,579)
(47,995)
(418)
(68,992)
Net deferred tax liability before valuation allowance
(87,548)
(63,907)
Valuation allowance
Net deferred tax liability
(306)
(277)
$
(87,854)
$
(64,184)
The deferred taxes are classified on the balance sheets as follows:
June 30,
2010
2009
Deferred income taxes (current)
Deferred income taxes (long-term)
$
$
(13,265)
(74,589)
(87,854)
$
882
(65,066)
(64,184)
$
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
Section 199 - prior year benefits
Deferred tax adjustments
Valuation Allowance
Year Ended June 30,
2010
2009
2008
35.0%
35.0%
35.0%
2.5%
-0.7%
-0.9%
-1.8%
0.7%
0.0%
2.7%
-3.0%
-0.4%
0.0%
0.0%
0.2%
2.3%
-1.0%
-0.3%
0.0%
0.0%
0.0%
34.8%
34.5%
36.0%
The effective income tax rate for fiscal 2010 increased from fiscal 2009 due primarily to the expiration of the
Research and Experimentation Credit (“R&E Credit”), effective January 1, 2010, as well as increases in the rate
at which deferred tax liabilities are expected to reverse in future years. These increases were mostly offset by
additional benefits received through an extensive analysis of the Domestic Production Activities Deduction (IRC
Section 199).
As a result of the acquisition of GFSI, we recorded a net deferred tax asset of $1,776. A net deferred tax liability of
$8,043 was recorded upon the acquisition of iPay.
jackhenry.com • 47
As part of the acquisition of GFSI, we acquired gross net operating loss (“NOL”) carry forwards of $64,431; of which,
only $34,592 are expected to be utilized due to the application of IRC Section 382. Separately, as of June 30, 2010,
we had state NOL carry forwards of $838. These losses have varying expiration dates, ranging from 2012 to 2029.
Based on state tax rules which restrict our usage of these losses, we believe it is more likely than not that $306 of
these losses will expire unutilized. Accordingly, a valuation allowance of $306 has been recorded against these
assets as of June 30, 2010.
The Company paid income taxes of $42,116, $62,965, and $51,709 in 2010, 2009, and 2008, respectively.
At June 30, 2009, the Company had $5,518 of unrecognized tax benefits. At June 30, 2010, the Company had
$7,187 of unrecognized tax benefits, of which, $4,989, if recognized, would affect our effective tax rate. We had
accrued interest and penalties of $890 and $732 related to uncertain tax positions at June 30, 2010 and 2009,
respectively.
A reconciliation of the unrecognized tax benefits for the years ended June 30, 2010 and 2009 follows:
Balance at July 1, 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
Additions for current year tax positions
Reductions 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, 2010
Unrecognized
Tax Benefits
$ 4,055
1,044
2,052
(110)
(936)
(587)
5,518
691
(39)
2,049
(298)
-
(734)
$
7,187
During the fiscal year ended June 30, 2010, the Internal Revenue Service commenced an examination of the
Company’s U.S. federal income tax returns for fiscal years ended June 2008 through 2009. The U.S. federal and
state income tax returns for June 30, 2007 and all subsequent years still remain subject to examination as of June
30, 2010 under statute of limitations rules. We anticipate potential changes resulting from the expiration of statutes
of limitations of up to $965 could reduce the unrecognized tax benefits balance within twelve months of June 30,
2010.
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, 2010, 2009 and 2008) 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.
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
48 • 2010 annual report
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, 2010, there were 480 shares available for future
grants under the plan.
A summary of option plan activity under the plans is as follows:
Num ber of
Shares
Weighted
Average
Aggregate
Exercis e Price
Intrins ic Value
Outstanding July 1, 2007
Granted
Forfeited
Exercised
Outstanding June 30, 2008
Granted
Forfeited
Exercised
Outstanding June 30, 2009
Gra nte d
Forfe ite d
Ex e rcise d
Outstanding June 30, 2010
Vested and Expected to Vest June 30, 2010
Exercisable June 30, 2010
5,389
50
(8)
(1,454)
3,977
50
(19)
(248)
3,760
50
(71)
(1,842)
1,897
1,897
1,882
$16.24
28.52
24.64
13.38
17.42
17.45
20.77
12.28
17.75
23.65
26.64
16.70
$18.58
$18.58
$18.55
$11,712
$11,712
$11,678
T h e
weighted-average fair value of options granted during fiscal 2010, fiscal 2009, and fiscal 2008 was $8.90, $7.87,
and $11.83, respectively. The only options granted during fiscal years 2010, 2009 and 2008 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,
2010
2009
2008
6.67
33%
3.0%
1.52%
3.72
30%
1.4%
1.72%
7.41
28%
4.1%
0.98%
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.
jackhenry.com • 49
Our pre-tax operating income for the years ended June 30, 2010, 2009 and 2008 includes $3,251, $2,272 and
$1,444 of stock-based compensation costs, respectively. The total cost for the years ended June 30, 2010, 2009
and 2008 includes $2,347, $1,620, and $871 relating to the restricted stock plan, respectively.
As of June 30, 2010, there was $42 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 0.51 years. The
weighted average remaining contractual term on options currently exercisable as of June 30, 2010 was 2.75 years.
Following is an analysis of stock options outstanding and exercisable as of June 30, 2010:
Range of
Weighted-Average Remaining
Weighted-Average
Exercise Prices
Shares
Contractural Life in Years
Exercise Price
Outstanding
Exercisable
Outstanding
Outstanding
Exercisable
$10.84 - $11.50
$11.51 - $18.55
$18.56 - $21.52
$21.53 - $22.86
$22.87 - $25.71
$25.72 - $27.14
$27.15 - $27.22
$27.23 - $29.61
$29.62 - $29.99
$30.00 - $30.00
698
202
195
190
210
5
250
134
10
3
698
197
195
190
205
5
250
129
10
3
$ 10.84 - $30.00
1,897
1,882
2.78
5.02
2.82
2.34
3.23
1.15
0.97
3.16
0.43
0.93
2.80
$
10.84
$
10.84
17.05
19.76
21.87
24.39
25.72
27.15
28.46
29.63
30.00
17.04
19.76
21.87
24.41
25.72
27.15
28.45
29.63
30.00
$
18.58
$
18.55
The income tax benefits from stock option exercises totaled $4,666 for the year ended June 30, 2010.
The total intrinsic value of options exercised was $12,694, $1,999 and $18,010 for the fiscal years ended June 30,
2010, 2009 and 2008, respectively.
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, 2010, as well as activity for the year then
ended:
Weighted
Average Grant
Date Fair
Value
Shares
Non-vested shares at July 1, 2008
Granted
Vested
Forfeited
Non-vested shares at June 30, 2009
Granted
Vested
Forfeited
Non-vested shares at June 30, 2010
130
146
(9)
-
267
139
(19)
-
387
$
$
24.87
19.04
25.60
-
21.66
22.59
22.36
-
21.96
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
50 • 2010 annual report
on the grant date, less the present value of the expected future dividends to be declared during the restriction period.
At June 30, 2010, there was $4,339 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 2.09 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
2010
117,870
$
2009
103,102
$
-
-
$
117,870
$
103,102
2008
105,287
(1,065)
104,222
$
$
Common share information:
W eighted average shares outstanding for basic EPS
Dilutive effect of stock options
Shares for diluted EPS
84,558
823
85,381
84,118
712
84,830
88,270
1,432
89,702
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
$
$
$
$
$
$
$
$
$
$
$
$
1.23
-
1.23
1.22
-
1.22
1.39
-
1.39
1.38
-
1.38
1.19
(0.01)
1.18
1.17
(0.01)
1.16
Stock options to purchase approximately 602 shares for fiscal 2010, 1,267 shares for fiscal 2009, and 536 shares
for fiscal 2008, were not dilutive and therefore, were not included in the computations of diluted income per common
share amounts.
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,
2010 and 2009 was $345 and $333, 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 $9,369, $8,341, and $7,937 for fiscal
2010, 2009, and 2008, 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 GAAP, 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
jackhenry.com • 51
institutions. Operations of the business, which were formerly included in the Bank Systems and Services segment,
are summarized as follows:
Year Ended June 30, 2008
Revenue
Loss before income taxes
Income tax benefit
$
1,680
(1,457)
536
Net loss from discontinued operations
Less loss on disposal, net of income taxes
(921)
(144)
Loss on discontinued operations
$
(1,065)
In connection with the sale, the Company accrued $471 lease loss, net of estimated subleases.
NOTE 13: BUSINESS ACQUISITIONS
Fiscal 2010 Acquisitions
Goldleaf Financial Solutions, Inc.
On October 1, 2009, the Company acquired all of the issued and outstanding shares of GFSI, a provider of
integrated technology and payment processing solutions to financial institutions of all sizes. According to the terms
of the merger agreement, each share of GFSI stock issued and outstanding was converted into the right to receive
$0.98 in cash, for a total cash outlay of $19,085. The acquisition of GFSI is expected to broaden the Company’s
market presence, strengthen our competitive position by diversifying our product and service offerings and provide
significant cost synergies to the combined organization. In addition to the cash paid to acquire the outstanding
shares of GFSI, the Company also paid $48,532 in cash at closing to settle various outstanding obligations of GFSI,
resulting in a total cash outlay of $67,617. This cash outlay was funded using existing operating cash.
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of
October 1, 2009 are set forth below:
Current assets (inclusive of cash acquired of $1,319)
Long-term assets
Identifiable intangible assets
Total liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$ 12,952
7,466
39,845
(25,727)
34,536
33,081
67,617
$
The goodwill of $33,081 arising from the acquisition consists largely of the synergies and economies of scale
expected from combining the operations of the Company with those of GFSI, along with the value of GFSI’s
assembled workforce. All of the goodwill was assigned to the Banking Systems and Services segment. None of
this goodwill is expected to be deductible for income tax purposes.
The fair value of current assets acquired includes trade accounts receivable with a fair value of $8,089. The gross
amount receivable is $8,769, of which $680 is expected to be uncollectible. In addition, the Company acquired an
investment in direct financing leases, which includes lease payments receivable of $4,210, all of which is assumed
to be collectible.
During fiscal 2010, the Company incurred $1,708 in costs related to the acquisition of GFSI. These costs included
fees for legal, accounting, valuation and other professional fees. These costs have been included within general
and administrative expenses.
The results of GFSI’s operations included in the Company’s consolidated statement of operations from the acquisition
date to June 30, 2010 includes revenue of $44,794 and after tax net income of $1,204.
PEMCO Technology Services, Inc.
On October 29, 2009, the Company acquired all of the issued and outstanding shares of PTSI, a leading provider
of payment processing solutions primarily for the credit union industry, for $61,841 paid in cash. The cash used for
this acquisition was funded using borrowings against available lines of credit.
The acquisition of PTSI is expected to broaden the Company’s product offerings within its electronic payments
52 • 2010 annual report
business as well as expand the Company’s presence in the credit union market beyond its core client base.
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of
October 29, 2009 are set forth below:
Current assets (inclusive of cash acquired of $2,275)
Long-term assets
Identifiable intangible assets
Total liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
9,448
1,222
34,912
(3,572)
42,010
19,831
61,841
$
The goodwill of $19,831 arising from this acquisition consists largely of the synergies and economies of scale
expected from combining the operations of the Company with those of PTSI, along with the value of PTSI’s
assembled workforce. All of the goodwill from this acquisition was assigned to the Credit Union Systems and
Services segment. The Company and the former shareholder of PTSI jointly made an Internal Revenue Code
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 goodwill for tax purposes.
The fair value of current assets acquired includes accounts receivable of $4,686, all of which is deemed collectible.
During fiscal 2010, the Company incurred $249 in costs related to the acquisition of PTSI. These costs included
fees for legal, accounting, valuation and other professional fees. These costs have been included within general
and administrative expenses.
The results of PTSI’s operations included in the Company’s consolidated statement of operations from the acquisition
date to June 30, 2010 includes revenue of $33,738 and after tax net income of $3,289.
iPay Technologies Holding Company, LLC
On June 4, 2010, the Company acquired all of the equity interests of iPay, a leading provider of online bill payment
solutions for both banks and credit unions, for $301,143 paid in cash. The cash used for this acquisition was
funded primarily through borrowings on available lines of credit and certain term notes issued concurrent with the
acquisition.
The acquisition of iPay is expected to expand the Company’s presence in the growing electronic payments industry,
strengthen the Company’s electronic payments offering, and increase recurring revenue.
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of
June 4, 2010 are set forth below:
Current assets (inclusive of cash acquired of $354)
Long-term assets
Identifiable intangible assets
Total liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
3,692
6,362
116,286
(17,542)
108,798
192,345
301,143
$
The amounts shown above may change in the near term as management continues to assess the fair value of
acquired assets and liabilities and evaluate the income tax implications of this business combination.
The goodwill of $192,345 arising from this acquisition consists largely of the growth potential, synergies and
economies of scale expected from combining the operations of the Company with those of iPay, along with the
value of iPay’s assembled workforce. Goodwill from this acquisition has been preliminarily allocated between our
Banking Systems and Services and our Credit Union Systems and Services segments based upon the extent to
each segment is expected to benefit from the synergies of the combination; however, management has not fully
completed its assessment of this allocation as of the date of these financial statements. Approximately 80% of the
goodwill is expected to be deductible for income tax purposes.
The fair value of current assets acquired includes accounts receivable of $1,403, all of which is deemed to be
collectible.
During fiscal year 2010, the Company incurred $2,280 in costs related to the acquisition of iPay. These costs
included fees for legal, accounting, valuation and other professional fees. These costs have been included within
jackhenry.com • 53
general and administrative expenses.
The results of iPay’s operations included in the Company’s consolidated statement of operations from the acquisition
date to June 30, 2010 include revenue of $3,526 and after-tax net income of $38.
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.
The accompanying consolidated statements of income for the fiscal years ended June 30, 2010, 2009 and 2008
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.
Pro Forma (unaudited)
Revenue
Gross profit
Year Ended
June 30,
2009
906,078
$
2008
883,730
$
2010
910,218
$
$
387,160
$
370,474
$
370,655
Income from continuing operations
$
124,955
$
113,464
$
108,448
Earnings per share - continuing operations
$
1.46
$
1.34
$
1.21
Diluted shares
85,381
84,830
89,702
Earnings per share - continuing operations
$
1.48
$
1.35
$
1.23
Basic shares
84,558
84,118
88,270
54 • 2010 annual report
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, 2010
Bank
Credit Union
Total
$
38,117
585,470
48,695
672,282
$
14,108
135,034
15,162
164,304
$
52,225
720,504
63,857
836,586
4,732
348,489
35,961
389,182
1,095
89,987
11,202
102,284
5,827
438,476
47,163
491,466
GROSS PROFIT
$
283,100
$
62,020
$
345,120
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
jackhenry.com • 55
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
For the Year Ended June 30,
2010
2009
2008
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
Capita l expenditures
Bank systems and services
Credit Unions systems and services
Total
Property and equipment, net
Bank systems and services
Credit Unions systems and services
Total
Intangible assets, net
Bank systems and services
Credit Unions systems and services
Total
$
$
34,497
2,092
36,589
$
$
27,675
7,244
34,919
$
$
51,392
3,117
54,509
$
$
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
For the Year Ended June 30,
2010
2009
$
$
241,596
33,074
274,670
$
$
613,217
246,679
859,896
$
$
208,488
29,290
237,778
$
$
389,252
45,276
434,528
The Company has not disclosed any additional asset information by segment, as the information is not produced
internally and its preparation is impracticable.
56 • 2010 annual report
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 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 July 8, 2010, the Company paid in full its bullet term loan of $100,000, which was due on December 4, 2010.
On August 23, 2010, the Company’s Board of Directors declared a quarterly cash dividend of $0.095 per share of
common stock, payable on September 22, 2010 to shareholders of record on September 7, 2010.
QUARTERLY FINANCIAL INFORMATION (unaudited)
QUARTERLY FINANCIAL INFORMATION (unaudited)
Quarter 1
For the Year Ended June 30, 2010
Quarter 3
Quarter 2
Quarter 4
Total
REVENUE
License
Support and service
Hardware
Total
COST OF SALES
Cost of license
Cost of support and service
Cost of hardware
Total
$
11,402
155,926
15,003
182,331
$
12,013
184,143
14,705
210,861
$
16,391
182,090
17,068
215,549
$
12,419
198,345
17,081
227,845
$
52,225
720,504
63,857
836,586
1,120
95,810
11,010
107,940
1,091
110,026
10,664
121,781
1,804
114,667
12,565
129,036
1,812
117,973
12,924
132,709
5,827
438,476
47,163
491,466
GROSS PROFIT
74,391
89,080
86,513
95,136
345,120
OPERATING EXPENSES
Selling and marketing
Research and development
General and administrative
Total
OPERATING INCOME
INTEREST INCOME (EXPENSE)
Interest income
Interest expense
Total
12,125
10,148
10,181
32,454
41,937
41
(90)
(49)
14,866
12,339
14,512
41,717
47,363
4
(143)
(139)
16,765
14,001
12,088
42,854
43,659
17,119
14,332
14,391
45,842
60,875
50,820
51,172
162,867
49,294
182,253
9
(186)
(177)
107
(1,199)
(1,092)
161
(1,618)
(1,457)
INCOME BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
41,888
15,614
47,224
17,247
43,482
11,847
48,202
180,796
18,218
62,926
NET INCOME
$
26,274
$
29,977
$
31,635
$
29,984
$
117,870
Diluted net income per share
Diluted weighted average shares
outstanding
Basic net income per share
Basic weighted average shares
outstanding
$
0.31
$
0.35
$
0.37
$
0.35
$
1.38
84,823
85,224
85,480
85,998
85,381
$
0.31
$
0.36
$
0.37
$
0.35
$
1.39
83,870
84,341
84,694
85,325
84,558
.
jackhenry.com • 57
QUARTERLY FINANCIAL INFORMATION (unaudited)
For the Year Ended June 30, 2009
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total
REVENUE
License
Support and service
QUARTERLY FINANCIAL INFORMATION (unaudited)
Hardware
Total
$
13,294
151,947
17,857
183,098
COST OF SALES
Cost of license
REVENUE
Cost of support and service
License
Cost of hardware
Support and service
Total
Hardware
GROSS PROFIT
Total
OPERATING EXPENSES
COST OF SALES
Selling and marketing
Cost of license
Cost of support and service
Research and development
Cost of hardware
General and administrative
Total
Total
GROSS PROFIT
OPERATING INCOME
OPERATING EXPENSES
INTEREST INCOME (EXPENSE)
Selling and marketing
Interest income
Research and development
Interest expense
General and administrative
Total
Total
INCOME FROM CONTINUING OPERATIONS
OPERATING INCOME
BEFORE INCOME TAXES
INTEREST INCOME (EXPENSE)
PROVISION FOR INCOME TAXES
Interest income
INCOME FROM CONTINUING OPERATIONS
Interest expense
DISCONTINUED OPERATIONS
Total
INCOME FROM CONTINUING OPERATIONS
Loss from operations of discontinued operations
BEFORE INCOME TAXES
Income tax benefit
Loss on discontinued operations
PROVISION FOR INCOME TAXES
$
Quarter 1
1,089
96,132
13,294
13,348
151,947
110,569
17,857
72,529
183,098
13,932
1,089
96,132
11,546
13,348
11,459
110,569
36,937
72,529
35,592
13,932
563
11,546
(427)
11,459
136
36,937
35,592
35,728
13,219
563
22,509
(427)
136
-
35,728
-
13,219
-
$
$
$
17,550
155,403
18,930
191,883
12,730
151,839
15,839
180,408
14,860
155,053
20,291
190,204
For the Year Ended June 30, 2009
Quarter 3
1,436
96,732
12,730
12,002
151,839
110,170
15,839
70,238
180,408
Quarter 2
2,052
96,502
14,860
14,277
155,053
112,831
20,291
77,373
190,204
Quarter 4
2,308
96,471
17,550
13,845
155,403
112,624
18,930
79,259
191,883
$
$
$
13,845
2,052
96,502
10,191
14,277
11,725
112,831
35,761
77,373
41,612
13,845
146
10,191
(524)
11,725
(378)
35,761
41,612
41,234
13,249
146
27,985
(524)
(378)
-
41,234
-
13,249
-
12,873
1,436
96,732
10,694
12,002
9,595
110,170
33,162
70,238
37,076
12,873
56
10,694
(241)
9,595
(185)
33,162
37,076
36,891
12,089
56
24,802
(241)
(185)
-
36,891
-
12,089
-
14,281
2,308
96,471
10,470
13,845
10,902
112,624
35,653
79,259
43,606
14,281
16
10,470
(165)
10,902
(149)
35,653
43,606
43,457
15,651
16
27,806
(165)
(149)
-
43,457
-
15,651
-
$
58,434
614,242
72,917
745,593
Total
$
6,885
385,837
58,434
53,472
614,242
446,194
72,917
299,399
745,593
54,931
6,885
385,837
42,901
53,472
43,681
446,194
141,513
299,399
157,886
54,931
781
42,901
(1,357)
43,681
(576)
141,513
157,886
157,310
54,208
781
103,102
(1,357)
(576)
157,310
-
-
54,208
-
NET INCOME
INCOME FROM CONTINUING OPERATIONS
$
22,509
22,509
$
27,985
27,985
$
24,802
24,802
$
27,806
27,806
$
103,102
103,102
DISCONTINUED OPERATIONS
Continuing operations
Discontinued operations
Loss from operations of discontinued operations
Diluted net income per share
Income tax benefit
Diluted weighted average shares
Loss on discontinued operations
outstanding
NET INCOME
Continuing operations
Continuing operations
Discontinued operations
Discontinued operations
Basic net income per share
Diluted net income per share
Basic weighted average shares
Diluted weighted average shares
outstanding
outstanding
* Amounts may not add due to rounding
Continuing operations
Discontinued operations
Basic net income per share
Basic weighted average shares
$
$
$
$
$
0.33
-
-
0.33
-
0.30
-
-
0.30
-
0.33
-
-
0.33
-
1.22
-
-
1.22
-
$
$
$
$
$
0.26
-
-
0.26
-
-
86,622
22,509
0.26
0.26
-
-
0.26
0.26
$
$
$
$
$
-
84,958
27,985
0.33
0.33
-
-
0.33
0.33
$
$
$
$
$
-
83,480
24,802
0.30
0.30
-
-
0.30
0.30
$
$
$
$
$
-
84,261
27,806
0.33
0.33
-
-
0.33
0.33
$
$
$
$
$
$
$
$
-
84,830
103,102
1.23
1.22
-
-
1.23
1.22
$
$
85,744
86,622
84,314
84,958
82,873
83,480
83,541
84,261
84,118
84,830
$
$
$
$
$
0.33
-
0.33
0.30
-
0.30
0.33
-
0.33
1.23
-
1.23
$
$
$
$
$
0.26
-
0.26
outstanding
85,744
84,314
82,873
83,541
84,118
* Amounts may not add due to rounding
58 • 2010 annual report
Board of Directors
MICHAEL E. HENRY
Chairman
Jack Henry & Associates
Monett, Missouri
JOHN F. “JACK” PRIM
Chief Executive Officer
Jack Henry & Associates
Monett, Missouri
JERRY D. HALL
Vice Chairman and 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
Vice Chairman and 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 9, 2010 at Jack Henry & Associates’ Corporate
Headquarters, Monett, Missouri.
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 Website at www.jackhenry.com.
TRANSFER AGENT AND REGISTRAR
Computershare
114 W. 11th Street
Suite 150
Kansas City, MO 64105
816-442-8030
663 Highway 60 | P.O. Box 807
Monett, MO 65708
Phone | 417-235-6652
Fax | 417-235-4281
www.jackhenry.com