JKHY FORM 10-Q 2010Q3

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(X)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

OR

(   )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ________________

   
 

Commission file number 0-14112

JACK HENRY & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)

Delaware

43-1128385

(State or Other Jurisdiction of Incorporation)

(I.R.S Employer Identification No.)

663 Highway 60, P.O. Box 807, Monett, MO 65708
(Address of Principle Executive Offices)
(Zip Code)

417-235-6652
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]    No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [   ]    No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [X]

Accelerated filer  [   ]

   

Non-accelerated filer  [   ]   (Do not check if a smaller reporting company)

Smaller reporting company  [   ]

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]    No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of May 4, 2010, Registrant has 85,329,211 shares of common stock outstanding ($0.01 par value)


JACK HENRY & ASSOCIATES, INC.
CONTENTS

PART I

FINANCIAL INFORMATION

Page Reference

ITEM 1

Financial Statements

Condensed Consolidated Balance Sheets

March 31, 2010 and June 30, 2009 (Unaudited)

3

Condensed Consolidated Statements of Income for the Three and Nine Months

Ended March 31, 2010 and 2009 (Unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Nine Months

Ended March 31, 2010 and 2009 (Unaudited)

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

ITEM 2

Management's Discussion and Analysis of Financial Condition and Results of

Operations

13

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

21

ITEM 4

Controls and Procedures

21

PART II

OTHER INFORMATION

ITEM 5

Exhibits

21


PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

(Unaudited)

March 31,
2010

June 30,
2009



ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

35,779

$

118,251

Investments, at amortized cost

1,000

1,000

Receivables

122,457

192,733

Income tax receivable

-

2,692

Prepaid expenses and other

29,142

24,371

Prepaid cost of product

20,878

19,717

Deferred income taxes

882

882



      Total current assets

210,138

359,646

PROPERTY AND EQUIPMENT, net

256,692

237,778

OTHER ASSETS:

Prepaid cost of product

8,447

6,793

Computer software, net of amortization

97,828

82,679

Other non-current assets

15,986

11,955

Customer relationships, net of amortization

108,373

55,450

Trade names

5,853

3,999

Goodwill

344,921

292,400



      Total other assets

581,408

453,276



      Total assets

$

1,048,238

$

1,050,700

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

7,663

$

8,206

Accrued expenses

38,342

34,018

Accrued income taxes

171

1,165

Note payable and current maturities of capital leases

73,791

63,461

Deferred revenues

110,307

237,557



      Total current liabilities

230,274

344,407

LONG TERM LIABILITIES:

Deferred revenues

10,269

7,981

Deferred income taxes

73,547

65,066

Other long-term liabilities, net of current maturities

10,560

6,740



      Total long term liabilities

94,376

79,787



Total liabilities

324,650

424,194

STOCKHOLDERS' EQUITY

Preferred stock - $1 par value; 500,000 shares authorized, none issued

-

-

Common stock - $0.01 par value: 250,000,000 shares authorized;

      Shares issued at 3/31/10 were 99,614,463

      Shares issued at 6/30/09 were 98,020,796

996

980

Additional paid-in capital

329,911

298,378

Retained earnings

702,266

636,733

Less treasury stock at cost

      14,406,635 shares at 3/31/10 and 06/30/09

(309,585)

(309,585)



      Total stockholders' equity

723,588

626,506



      Total liabilities and stockholders' equity

$

1,048,238

$

1,050,700



See notes to condensed consolidated financial statements


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

Three Months Ended

Nine Months Ended

March 31,

March 31,



2010

2009

2010

2009

REVENUE

License

$

16,391

$

12,730

$

39,806

$

40,884

Support and service

182,090

151,839

522,159

458,839

Hardware

17,068

15,839

46,776

53,987





      Total

215,549

180,408

608,741

553,710

COST OF SALES

Cost of license

1,804

1,436

4,015

4,577

Cost of support and service

114,667

96,732

320,503

289,366

Cost of hardware

12,565

12,002

34,239

39,627





      Total

129,036

110,170

358,757

333,570

GROSS PROFIT

86,513

70,238

249,984

220,140

OPERATING EXPENSES

Selling and marketing

16,765

12,873

43,756

40,650

Research and development

14,001

10,694

36,488

32,431

General and administrative

12,088

9,595

36,781

32,779





      Total

42,854

33,162

117,025

105,860

OPERATING INCOME

43,659

37,076

132,959

114,280

INTEREST INCOME (EXPENSE)

Interest income

9

56

54

765

Interest expense

(186)

(241)

(419)

(1,192)





      Total

(177)

(185)

(365)

(427)

INCOME BEFORE INCOME TAXES

43,482

36,891

132,594

113,853

PROVISION FOR INCOME TAXES

11,847

12,089

44,708

38,557





NET INCOME

$

31,635

$

24,802

$

87,886

$

75,296

Diluted net income per share

$

0.37

$

0.30

$

1.03

$

0.89

Diluted weighted average shares outstanding

85,480

83,480

85,176

85,020

Basic net income per share

$

0.37

$

0.30

$

1.04

$

0.89

Basic weighted average shares outstanding

84,694

82,873

84,302

84,310

See notes to condensed consolidated financial statements


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Nine Months Ended

March 31,


2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income

$

87,886

$

75,296

Adjustments to reconcile net income from operations

To cash from operating activities:

Depreciation

27,470

29,547

Amortization

24,559

18,712

Deferred income taxes

9,524

2,495

Expense for stock-based compensation

2,408

1,569

Loss on disposal of property and equipment

453

890

Other, net

(1)

(8)

Changes in operating assets and liabilities, net of acquisitions:

Receivables

87,281

109,423

Prepaid expenses, prepaid cost of product, and other

(3,472)

124

Accounts payable

(4,933)

(1,566)

Accrued expenses

(4,902)

(9,123)

Income taxes

2,960

(13,403)

Deferred revenues

(137,402)

(122,763)



      Net cash from operating activities

91,831

91,193

CASH FLOWS FROM INVESTING ACTIVITIES:

Payment for acquisitions, net of cash acquired

(125,864)

(3,027)

Capital expenditures

(36,499)

(20,573)

Computer software developed

(19,155)

(18,923)

Proceeds from investments

3,000

2,000

Purchase of investments

(2,999)

(1,996)

Proceeds from sale of property and equipment

96

29



      Net cash from investing activities

(181,421)

(42,490)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under lines of credit

72,197

64,960

Repayments under lines of credit

(68,187)

(77,144)

Purchase of treasury stock

-

(58,405)

Dividends paid

(22,352)

(19,827)

Excess tax benefits from stock-based compensation

484

300

Proceeds from issuance of common stock upon exercise of

      stock options

27,730

1,531

Minimum tax withholding payments related to option exercises

(4,152)

(680)

Proceeds from sale of common stock, net

1,398

1,412



      Net cash from financing activities

7,118

(87,853)



NET CHANGE IN CASH AND CASH EQUIVALENTS

$

(82,472)

$

(39,150)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

$

118,251

$

65,565



CASH AND CASH EQUIVALENTS, END OF PERIOD

$

35,779

$

26,415

Net cash paid for income taxes was $32,158 and $50,047 for the nine months ended March 31, 2010 and 2009, respectively. The Company paid interest of $400 and $1,407 for the nine months ended March 31, 2010 and 2009, respectively. Capital expenditures exclude property and equipment additions totaling $5,868 and $7,030 acquired via capital lease or that were in accrued liabilities during the nine months ended March 31, 2010 and 2009, respectively.

See notes to condensed consolidated financial statements


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
(Unaudited)

NOTE 1.     NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE COMPANY

Jack Henry & Associates, Inc. and Subsidiaries ("JHA" or the "Company") is a leading provider of integrated computer systems and services that has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide together with computer equipment (hardware) and by providing the conversion and software implementation services for financial institutions to utilize JHA software systems, and by providing other related services. JHA also 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values for held-to-maturity securities are based on quoted market prices. For all other financial instruments, including amounts receivable or payable and short-term and long-term borrowings, fair values approximate carrying value, based on the short-term nature of the assets and liabilities and the variability of the interest rates on the borrowings.

STOCK-BASED COMPENSATION

For the three months ended March 31, 2010 and 2009, there was $911 and $587, respectively, in compensation expense from equity-based awards. For the first nine months of fiscal 2010 and 2009 compensation expense from equity-based awards was $2,408 and $1,569, respectively.

Changes in stock options outstanding and exercisable are as follows:

Number of
Shares
(in thousands)

Weighted
Average
Exercise Price


Aggregate
Intrinsic Value




Outstanding July 1, 2009

3,760

$17.75

Granted

50

23.65

Forfeited or expired

(10)

26.73

Exercised

(1,640)

16.54




Outstanding March 31, 2010

2,160

$18.76

$13,197

Exercisable March 31, 2010

2,099

$18.62

$13,143

For the nine-months ended March 31, 2010 and 2009, the weighted average fair value of options granted was $8.90 and $7.87, respectively, using the Black-Scholes option pricing model. In both years, all options were granted during the Company's second fiscal quarter.

The assumptions used in this model to estimate fair value and resulting values are as follows:

Nine Months Ended

March 31,


2010

2009



Weighted Average Assumptions:

   Expected life (years)

6.67

3.72

   Volatility

33%

30%

   Risk free interest rate

3.0%

1.4%

   Dividend yield

1.52%

1.72%

As of March 31, 2010, there was $158 of total unrecognized compensation cost related to outstanding options that is expected to be recognized over a weighted-average period of 0.28 years. The weighted-average remaining contractual term on options currently exercisable as of March 31, 2010 was 2.61 years.

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 following table summarizes non-vested share awards as of March 31, 2010, as well as activity for the nine months then ended:




Shares

Weighted
Average
Grant Date
Fair Value



Non-vested shares at July 1, 2009

267

$

21.66

Granted

139

22.59

Vested

(19)

22.36

Forfeited

-

-



Non-vested shares at March 31, 2010

387

$

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 on the grant date, less the present value of the expected future dividends to be declared during the restriction period.

At March 31, 2010, there was $4,971 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 2.34 years.

INCOME TAXES

At March 31, 2010, the Company had $6,609 of gross unrecognized tax benefits, $4,910 of which, if recognized would affect the Company's effective tax rate. The Company's policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2010, the Company had accrued interest and penalties of $830 related to uncertain tax positions.

During the fiscal year ended June 30, 2008, the Internal Revenue Service concluded its examination of the Company's U.S. federal income tax returns for fiscal years ended June 2005 through 2006. However, the U.S. federal and state income tax returns for the year ended June 30, 2006 and all subsequent years still remain open to examination as of March 31, 2010 under statute of limitations rules. The Internal Revenue Service is currently auditing the Company's June 30, 2008 federal income tax return. The Company anticipates potential changes of up to $1,022 could reduce the unrecognized tax benefits balance within twelve months of March 31, 2010.

COMPREHENSIVE INCOME

Comprehensive income for the three and nine-month periods ended March 31, 2010 and 2009 equals the Company's net income.

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 or 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 March 31, 2010, there are 14,407 shares in treasury stock and the Company has the remaining authority to repurchase up to 5,584 additional shares. The total cost of treasury shares at March 31, 2010 is $309,585. No shares were purchased for the treasury during the nine months ended March 31, 2010.

INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America applicable to interim condensed consolidated financial statements, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K ("Form 10-K") for the year ended June 30, 2009. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Form 10-K for the year ended June 30, 2009.

In the opinion of management of the Company, the accompanying condensed consolidated financial statements reflect all adjustments necessary (consisting solely of normal recurring adjustments) to present fairly the financial position of the Company as of March 31, 2010, and the results of its operations for the three and nine-month periods ended March 31, 2010 and 2009 and its cash flows for the nine-month periods ended March 31, 2010 and 2009.

The results of operations for the three and nine-month periods ended March 31, 2010 are not necessarily indicative of the results to be expected for the entire year.

NOTE 2.     ADDITIONAL INTERIM FOOTNOTE INFORMATION

The following additional information is provided to update the notes to the Company's annual consolidated financial statements for the developments during the three and nine months ended March 31, 2010.

ACQUISITIONS

Goldleaf Financial Solutions, Inc.

On October 1, 2009, the Company acquired all of the issued and outstanding shares of Goldleaf Financial Solutions, Inc. ("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 allowing the combined organization to realize significant cost synergies. 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)

$

12,952

Long-term assets

6,410

Identifiable intangible assets

40,511

Total liabilities assumed

(25,405)


Total identifiable net assets

34,468

Goodwill

33,149


Net assets acquired

$

67,617

The amounts shown above may change in the near term as management continues to assess the income tax implications of this acquisition and to finalize the assessment of the fair value of the acquired intangible assets and deferred revenue.

The goodwill of $33,149 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 the nine-months ended March 31, 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 March 31, 2010 includes revenue of $31,359 and after tax net income of $1,163.

PEMCO Technology Services, Inc.

On October 29, 2009, the Company acquired all of the issued and outstanding shares of PEMCO Technology Services, Inc. ("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 business as well as expand our presence in the credit union market beyond our 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)

$

9,448

Long-term assets

1,222

Identifiable intangible assets

34,912

Total liabilities assumed

(3,572)


Total identifiable net assets

42,010

Goodwill

19,831


Net assets acquired

$

61,841

The amounts shown above may change in the near term as management continues to assess the value of acquired intangible assets.

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 the nine-months ended March 31, 2010, the Company incurred $153 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 March 31, 2010 includes revenue of $20,659 and after tax net income of $1,880.

The accompanying consolidated statements of income for the three and nine-month periods ended March 31, 2010 and 2009 do not include any revenues or 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)

Three Months Ended

Nine Months Ended

March 31,

March 31,



2010

2009

2010

2009

(Actual)

(Pro Forma)

(Pro Forma)

(Pro Forma)

Revenue

$

215,549

$

210,607

$

638,560

$

646,688

Gross profit

86,513

81,277

264,027

254,718

Net Income

$

31,635

$

25,365

$

87,281

$

78,986

Earnings per share - diluted

$

0.37

$

0.30

$

1.02

$

0.93

Diluted Shares

85,480

83,480

85,176

85,020

Earnings per share - basic

$

0.37

$

0.31

$

1.04

$

0.94

Basic Shares

84,694

82,873

84,302

84,310

DEBT

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 March 31, 2010).  The credit line expires March 7, 2011 and is secured by $1,000 of investments. At March 31, 2010, no amount was outstanding.

The Company obtained an unsecured bank credit line on April 28, 2008 which provides for funding of up to $5,000 and bears interest at the prime rate less 1% (2.25% at March 31, 2010). The credit line matures on April 29, 2010. At March 31, 2010, $575 was outstanding.

An unsecured revolving bank credit facility allows short-term borrowings of up to $150,000 which may be increased by the Company at any time prior to maturity to $225,000. The unsecured revolving bank credit facility bears interest at a rate equal to (a) LIBOR or (b) an alternate base rate (the greater of (a) the Federal Funds Rate plus 0.5% or (b) the Prime Rate), plus an applicable percentage in each case determined by the Company's leverage ratio. The unsecured revolving credit line terminates May 31, 2012. At June 30, 2009, the revolving bank credit facility balance was $60,000. At March 31, 2010, the revolving bank credit facility balance was $70,000. This outstanding balance bears interest at a weighted-average rate of 0.66%. This credit line is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the agreement. As of March 31, 2010, the Company was in compliance with all such covenants.

As part of the leasing business acquired with the GFSI acquisition, the Company assumed various non-recourse notes payable. These non-recourse notes payable were used to acquire the equipment leased to customers under direct financing leases. In the event of a lease default, the Company is not obligated to continue to pay the balance associated with that particular lease. At March 31, 2010, the balance of these non-recourse notes totaled $2,561, $886 of which was included in current maturities. These obligations bear interest at rates ranging from 5% to 11%.

COMMITMENTS AND CONTINGENCIES

For fiscal 2010, the Board of Directors approved bonus plans for its executive officers and general managers. Under the plan, bonuses will be paid following the end of the current fiscal year based upon achievement of operating income targets and upon attainment of a superior return on average assets in comparison with a group of peer companies selected by the Compensation Committee. For general managers, one half of each manager's bonus is contingent upon meeting individualized business unit objectives established by the executive officer to whom the general manager reports.

The Company has also entered into agreements that provide its executive officers with compensation totaling two years' base salary and target bonus in the event the Company terminates the executive without cause within the period from 90 days before to two years after a change in control of the Company. The Company has also entered into agreements that provide its general managers with compensation totaling one year of base salary and target bonus under circumstances identical to those contained in the executive officer agreements.

NOTE 3.     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 liabi lities 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 th e 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.

NOTE 4.      EARNINGS PER SHARE

Three Months Ended

Nine Months Ended

March 31,

March 31,



2010

2009

2010

2009

Net Income

$

31,635

$

24,802

$

87,886

$

75,296

Common share information:

   Weighted average shares outstanding for basic EPS

84,694

82,873

84,302

84,310

   Dilutive effect of stock options and restricted stock

786

607

874

710





Shares for diluted EPS

85,480

83,480

85,176

85,020

Basic Earnings per Share

$

0.37

$

0.30

$

1.04

$

0.89

Diluted Earnings per Share

$

0.37

$

0.30

$

1.03

$

0.89

Per share information is based on the weighted average number of common shares outstanding for the periods ended March 31, 2010 and 2009. Stock options have been included in the calculation of income per share to the extent they are dilutive. Anti-dilutive stock options to purchase approximately 671 and 1,425 shares and 649 and 1,229 shares for the three and nine-month periods ended March 31, 2010 and 2009, respectively, were not included in the computation of diluted income per common share.

NOTE 5.     BUSINESS SEGMENT INFORMATION

The Company is a leading provider of integrated computer systems that perform data processing (both in-house and outsourced) for banks and credit unions. The Company's operations are classified into two business segments: bank systems and services and credit union systems and services. 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.

Three Months Ended

Three Months Ended

March 31, 2010

March 31, 2009




Bank

Credit
Union


Total


Bank

Credit
Union


Total

REVENUE

  License

$

12,097

$

4,294

$

16,391

$

9,939

$

2,791

$

12,730

  Support and service

146,010

36,080

182,090

127,663

24,176

151,839

  Hardware

12,711

4,357

17,068

12,630

3,209

15,839







      Total

170,818

44,731

215,549

150,232

30,176

180,408







COST OF SALES

  Cost of license

1,416

388

1,804

1,224

212

1,436

  Cost of support and service

89,765

24,902

114,667

80,849

15,883

96,732

  Cost of hardware

9,375

3,190

12,565

9,672

2,330

12,002







      Total

100,556

28,480

129,036

91,745

18,425

110,170







GROSS PROFIT

$

70,262

$

16,251

$

86,513

$

58,487

$

11,751

$

70,238

Nine Months Ended

Nine Months Ended

March 31, 2010

March 31, 2009




Bank

Credit
Union


Total


Bank

Credit
Union


Total

REVENUE

  License

$

29,476

$

10,330

$

39,806

$

30,168

$

10,716

$

40,884

  Support and service

427,426

94,733

522,159

383,587

75,252

458,839

  Hardware

35,359

11,417

46,776

42,417

11,570

53,987







      Total

492,261

116,480

608,741

456,172

97,538

553,710







COST OF SALES

  Cost of license

3,204

811

4,015

3,937

640

4,577

  Cost of support and service

257,066

63,437

320,503

240,770

48,596

289,366

  Cost of hardware

25,795

8,444

34,239

31,047

8,580

39,627







      Total

286,065

72,692

358,757

275,754

57,816

333,570







GROSS PROFIT

$

206,196

$

43,788

$

249,984

$

180,418

$

39,722

$

220,140

March 31,

June 30,



2010

2009

Property and equipment, net

Bank systems and services

$

227,165

$

208,488

Credit Union systems and services

29,527

29,290



Total

$

256,692

$

237,778

Intangible assets, net

Bank systems and services

$

449,408

$

389,252

Credit Union systems and services

107,567

45,276



Total

$

556,975

$

434,528

NOTE 6.     SUBSEQUENT EVENTS

In accordance with generally accepted accounting principles, 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 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 May 7, 2010, the Company announced that it had entered into a definitive agreement to acquire iPay Technologies Holding Company, LLC ("iPay"), a provider of online bill payment solutions, for $300,000 to be paid in cash subject to certain closing and post closing adjustments. The purchase price is expected to be funded using new debt facilities previously committed. The acquisition is expected to close in June 2010, subject to regulatory approvals and customary closing conditions.

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

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 of 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 11 item-processing centers located throughout the United States.

The US financial crisis is a top 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 acquis itions of GFSI and PTSI during the nine months ended March 31, 2010. These are the two largest acquisitions in our Company's history and present us with opportunities to extend our customer base and produce returns for our stockholders.

A detailed discussion of the major components of the results of operations for the three and nine-month periods ended March 31, 2010 follows. All amounts are in thousands and discussions compare the current three and nine-month periods ended, March 31, 2010, to the prior year three and nine-month periods ended March 31, 2009.

REVENUE

License Revenue

Three Months Ended

%

Nine Months Ended

%

March 31,

Change

March 31,

Change





2010

2009

2010

2009

License

$

16,391

$

12,730

29%

$

39,806

$

40,884

-3%

Percentage of total revenue

8%

7%

7%

7%

License revenue represents the 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.

The current quarter increase in license revenue is largely a result of the Goldleaf Financial Solutions, Inc. ("GFSI") acquisition. The GFSI acquisition added $3,021 in license revenue in the current quarter and $4,719 year-to-date. In addition, core software license revenue increased $633 or 15% over the prior quarter and $2,031 year-to-date. Complementary product license revenues were flat for the current quarter compared to a year ago and have decreased year-to-date compared to a year ago. The decreases in complementary product license revenues are a result of 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 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.

Support and Service Revenue

Three Months Ended

%

Nine Months Ended

%

March 31,

Change

March 31,

Change





2010

2009

2010

2009

Support and service

$

182,090

$

151,839

20%

$

522,159

$

458,839

14%

Percentage of total revenue

84%

84%

86%

83%

Qtr over Qtr Change

Year over Year Change



$ Change

% Change

$ Change

% Change





In-house support & other services

$

5,939

+9%

$

11,003

+5%

EFT support

20,220

+53%

41,283

+37%

Outsourcing services

3,363

+10%

9,473

+9%

Implementation services

729

+6%

1,561

+4%



Total Increase

$

30,251

$

63,320

Support and service fees 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 Electronic Funds Transfer ("EFT") Support services.

There was growth in all support and service revenue components for the third quarter and the first nine months of fiscal 2010.

In-house support and other services increased mostly as a result of the acquisition of GFSI, which added revenue of $5,221 in the current quarter and $10,436 year-to-date.

EFT support, including ATM and debit card transaction processing, online bill payment services, remote deposit capture and Check 21 transaction processing services, experienced the largest percentage growth. Most of the revenue growth in EFT is attributable to the acquisition of GFSI and PTSI. Combined, the acquisitions added $17,952 to this line during the current quarter and $32,611 year-to-date. However, organic revenue growth within EFT support continued with increases of 6% for the current quarter and 8% year-to-date over the same periods a year ago.

Outsourcing services for banks and credit unions continue to drive revenue growth as customers 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 $1,497 in implementation revenue for the quarter just ended and $2,873 year-to-date.

Hardware Revenue

Three Months Ended

%

Nine Months Ended

%

March 31,

Change

March 31,

Change





2010

2009

2010

2009

Hardware

$

17,068

$

15,839

8%

$

46,776

$

53,987

-13%

Percentage of total revenue

8%

9%

8%

10%

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 has been generally commensurate with the trends in license revenue; however, while hardware revenue has increased due to the acquisition of GFSI, it has not grown as fast as license revenue.

BACKLOG

Our backlog increased 17% at March 31, 2010 to $325,000 ($78,000 in-house and $247,000 outsourcing) from $277,000 ($55,000 in-house and $222,000 outsourcing) at March 31, 2009. The acquisition of GFSI contributed $10,167 to this increase. The current quarter backlog increased 3% compared to December 31, 2009, when backlog was $316,300 ($76,600 in-house and $239,700 outsourcing).

These backlog figures underscore the ongoing shift in our customers' preference towards our outsourced delivery solutions.

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 processing 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

Three Months Ended

%

Nine Months Ended

%

March 31,

Change

March 31,

Change





2010

2009

2010

2009

Cost of License

$

1,804

$

1,436

26%

$

4,015

$

4,577

-12%

Percentage of total revenue

1%

1%

1%

1%

     License Gross Profit

$

14,587

$

11,294

29%

$

35,791

$

36,307

-1%

     Gross Profit Margin

89%

89%

90%

89%

Cost of support and service

$

114,667

$

96,732

19%

$

320,503

$

289,366

11%

Percentage of total revenue

53%

54%

53%

52%

     Support and Service Gross Profit

$

67,423

$

55,107

22%

$

201,656

$

169,473

19%

     Gross Profit Margin

37%

36%

39%

37%

Cost of hardware

$

12,565

$

12,002

5%

$

34,239

$

39,627

-14%

Percentage of total revenue

6%

7%

6%

7%

     Hardware Gross Profit

$

4,503

$

3,837

17%

$

12,537

$

14,360

-13%

     Gross Profit Margin

26%

24%

27%

27%

TOTAL COST OF SALES

$

129,036

$

110,170

17%

$

358,757

$

333,570

8%

Percentage of total revenue

60%

61%

59%

60%

     TOTAL GROSS PROFIT

$

86,513

$

70,238

23%

$

249,984

$

220,140

14%

     Gross Profit Margin

40%

39%

41%

40%

Cost of license increased for the current quarter and decreased during the first nine months of fiscal 2010 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.

Cost of support and service increased for the quarter and year to date in fiscal 2010 commensurate with an increase in support and service revenue. Support and service gross profit margin has increased for both the quarter and year-to-date due to cost control measures undertaken by the Company during the year.

Cost of hardware has fluctuated in line with hardware revenue for both the current quarter and year-to-date. Hardware gross profit margin has remained consistent during the current year-to-date period compared to the prior year.

OPERATING EXPENSES

Selling and Marketing

Three Months Ended

%

Nine Months Ended

%

March 31,

Change

March 31,

Change





2010

2009

2010

2009

Selling and marketing

$

16,765

$

12,873

30%

$

43,756

$

40,650

8%

Percentage of total revenue

8%

7%

7%

7%

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 three and nine months ended March 31, 2010, selling and marketing expenses increased due to the acquisition of GFSI and PTSI, which added $3,858 to the current quarter and $6,811 year-to-date. During the nine months ended March 31, 2010, the increases related to acquisitions were partially offset by decreases in commissions, benefits and marketing expenses due to cost control measures undertaken throughout the rest of the Company.

Research and Development

Three Months Ended

%

Nine Months Ended

%

March 31,

Change

March 31,

Change





2010

2009

2010

2009

Research and development

$

14,001

$

10,694

31%

$

36,488

$

32,431

13%

Percentage of total revenue

6%

6%

6%

6%

We devote significant effort and expense to develop new software, service products and continually upgrade and enhance our existing offerings. Typically, we upgrade all of our 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 quarter and year-to-date period primarily due to the acquisition of GFSI and PTSI, although they remained flat as a percentage of total revenue. These increases were partially offset by an overall decrease in the use of consultants and independent contractors for development projects compared to the same period a year ago.

General and Administrative

Three Months Ended

%

Nine Months Ended

%

March 31,

Change

March 31,

Change





2010

2009

2010

2009

General and administrative

$

12,088

$

9,595

26%

$

36,781

$

32,779

12%

Percentage of total revenue

6%

5%

6%

6%

General and administrative costs include all expenses related to finance, legal, human resources, plus all administrative costs. General and administrative expenses increased for the third quarter and the first nine months of fiscal 2010 due to the acquisitions of GFSI and PTSI, including costs directly related to the acquisition transaction. The acquired companies added total general and administrative expenses of $1,263 for the quarter and $4,089 year-to-date. In addition, the quarterly general and administrative expenses were higher since the annual user group meeting occurred in the third quarter of the current fiscal year, while it occurred in the fourth quarter of the prior fiscal year.

INTEREST INCOME (EXPENSE) - Interest income decreased $47 and interest expense decreased $55. Interest income decreased $711 during this year's nine month period to $54, from $765 in the prior year. Interest expense decreased $773 to $419, compared to $1,192 for the first nine months of fiscal 2009. For both periods, the changes in net interest income are due to fluctuations in the average outstanding balance and in interest rates on the revolving credit facility.

PROVISION FOR INCOME TAXES - The provision for income taxes was $11,847 and $44,708 for the three and nine-month periods ended March 31, 2010 compared with $12,089 and $38,557 for the same periods last year. For the current quarter, the rate of income taxes was 27.2% of income before income taxes compared to 32.8% as reported for the same period in fiscal 2009. The decrease in the effective tax rate is primarily attributable to benefits recognized relating to the Company's Domestic Production Activities deduction (IRC Section 199). During the quarter ended March 31, 2010, the Company completed a comprehensive analysis of its benefits under these provisions. As a result, the Company recognized an additional $3,251 of tax benefit related to prior tax years. These additional benefits were identified through a comprehensive analysis of tax authority relevant to the software industry, much of which was released subsequent to the initial enactment of Section 199.

NET INCOME - Net income increased 28% for the three months ended March 31, 2010. Net income for the third quarter of fiscal 2010 was $31,635 or $0.37 per diluted share compared to $24,802, which was $0.30 per diluted share, in the same period last year. Net income increased 17% for the nine-month period ended March 31, 2010 to $87,886 or $1.03 per diluted share compared to $75,296, which was $0.89 per diluted share for the same nine month period last year.

BUSINESS SEGMENT DISCUSSION

The Company is a leading provider of integrated computer systems that perform data processing (available for in-house or outsourced installations) for banks and credit unions. The Company'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.

Bank Systems and Services

Three Months Ended

Percent

Nine Months Ended

Percent

March 31,

Change

March 31,

Change





2010

2009

2010

2009

Revenue

$

170,818

$

150,232

14%

$

492,262

$

456,172

8%

Gross Profit

$

70,262

$

58,487

20%

$

206,197

$

180,418

14%

Gross Profit Margin

41%

39%

42%

40%

The increase in revenue for the bank systems and services segment is primarily due to the acquisition of GFSI, which added $16,450 of revenue in the current quarter and $31,358 year-to-date. Gross profit margin increased from the prior year primarily due to cost control measures, particularly related to personnel costs, undertaken by management during the current fiscal year.

Credit Union Systems and Services

Three Months Ended

Percent

Nine Months Ended

Percent

March 31,

Change

March 31,

Change





2010

2009

2010

2009

Revenue

$

44,731

$

30,176

48%

$

116,480

$

97,538

19%

Gross Profit

$

16,251

$

11,751

38%

$

43,788

$

39,722

10%

Gross Profit Margin

36%

39%

38%

41%

The increase in revenue for the credit union systems and services segment is primarily due to the acquisition of PTSI, which added $12,212 to the current quarter and $20,659 year-to-date. The acquisition related increases were augmented in the current quarter by license revenue growth of $1,504; however, license revenues are still down slightly year-to-date from a year ago. 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.

FINANCIAL CONDITION

Liquidity

The Company's cash and cash equivalents decreased to $35,779 at March 31, 2010, from $118,251 at June 30, 2009, but increased from $26,415 at March 31, 2009. The decrease in the cash balance from June 30, 2009 is primarily due to the acquisitions of GFSI and PTSI.

The following table summarizes net cash from operating activities in the statement of cash flows:

Nine months ended
March 31,


2010

2009

Net income

$

87,886

$

75,296

Non-cash expenses

64,413

53,205

Change in receivables

87,281

109,423

Change in deferred revenue

(137,402)

(122,763)

Change in other assets and liabilities

(10,347)

(23,968)



Net cash provided by operating activities

$

91,831

$

91,193

Cash provided by operating activities remained fairly level for the first nine months of fiscal 2010 compared to the prior year. Net collections on accounts receivable were lower than during the prior fiscal year and largely offset the increase in net income.

Net cash used in investing activities for the current year is $181,421 and included the net cash outlay for GFSI of $66,297 and for PTSI of $59,567, capital expenditures were $36,499, and capitalized software development was $19,155. Cash used for investing activities in the first nine months of fiscal 2010 was offset by $97 net proceeds from the sale of property and equipment and from the sale of investments. During the first nine months of fiscal 2009, net cash used in investing activities was $42,490 and included acquisition-related payments of $3,027, capital expenditures of $20,573, and capitalized software development of $18,923. Cash used for investing activities in the first nine months of fiscal 2009 was offset by $33 net proceeds from the sale of property and equipment and from sale of investments.

Net cash provided by financing activities for the current year is $7,118 and includes $4,010 net borrowings on our revolving debt facilities, $24,976 from the exercise of stock options and the sale of common stock, and $484 from the excess tax benefits from stock option exercises. Cash provided by financing activities was partially offset by $22,352 in dividend payments to shareholders. For the first nine months of fiscal 2009, cash used in financing activities was $87,853 and included the repurchase of 3,106 shares of our common stock for $58,405, $12,184 net repayment on our revolving debt facilities, and the payment of dividends of $19,827. Cash used in financing activities was partially offset by proceeds of $2,263 from the exercise of stock options and the sale of common stock plus $300 from the excess tax benefits from stock option exercises.

At March 31, 2010, the Company had negative working capital of $20,136; however, the largest component of current liabilities was deferred revenue of $110,307, 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. 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.

Capital Requirements and Resources

The Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $36,499 and $20,573 for the nine-month periods ended March 31, 2010 and 2009, respectively, were made for additional equipment, the on-going construction of a new facility in Springfield, Missouri and the improvement of other existing facilities. These additions were primarily funded from cash generated by operations. Total consolidated capital expenditures, not including acquisitions, for the Company are not expected to exceed $65,000 for fiscal year 2010.

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 March 31, 2010).  The credit line expires March 7, 2011 and is secured by $1,000 of investments. At March 31, 2010, no amount was outstanding.

The Company obtained an unsecured bank credit line on April 28, 2008 which provides for funding of up to $5,000 and bears interest at the prime rate less 1% (2.25% at March 31, 2010). The credit line matured on April 29, 2010, on which date it was renewed through April 29, 2012. At March 31, 2010, $575 was outstanding.

An unsecured revolving bank credit facility allows short-term borrowings of up to $150,000 which may be increased by the Company at any time prior to maturity to $225,000. The unsecured revolving bank credit facility bears interest at a rate equal to (a) LIBOR or (b) an alternate base rate (the greater of (a) the Federal Funds Rate plus 0.5% or (b) the Prime Rate), plus an applicable percentage in each case determined by the Company's leverage ratio. The unsecured revolving credit line terminates May 31, 2012. At June 30, 2009, the revolving bank credit facility balance was $60,000. At March 31, 2010, the revolving bank credit facility balance was $70,000. This outstanding balance bears interest at a weighted-average rate of 0.66%. This credit line is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the agreement. As of March 31, 2010, the Company was in compliance with all such covenants.

As part of the leasing business acquired with the GFSI acquisition, the Company assumed various non-recourse notes payable. These non-recourse notes payable were used to acquire the equipment leased to customers under direct financing leases. In the event of a lease default, the Company is not obligated to continue to pay the balance associated with that particular lease. At March 31, 2010, the balance of these non-recourse notes totaled $2,561, $886 of which was included in current maturities. These obligations bear interest at rates ranging from 5% to 11%.

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 or 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 March 31, 2010, there are 14,407 shares in treasury stock and the Company has the remaining authority to repurchase up to 5,584 additional shares. The total cost of treasury shares at March 31, 2010 is $309,585. No shares were purchased for the treasury during the nine months ended March 31, 2010.

Critical Accounting Policies

The Company regularly reviews its selection and application of significant accounting policies and related financial disclosures. The application of these accounting policies requires that management make estimates and judgments. The estimates that affect the application of our most critical accounting policies and require our most significant judgments are outlined in Management's Discussion and Analysis of Financial Condition and Results of Operations - "Critical Accounting Policies" - contained in our annual report on Form 10-K for the year ended June 30, 2009.

Forward Looking Statements

The Management's Discussion and Analysis of Results of Operations and Financial Condition and other portions of this report contain forward-looking statements within the meaning of federal securities laws. Actual results are subject to risks and uncertainties, including both those specific to the Company and those specific to the industry, which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to, the matters detailed at Risk Factors in its Annual Report on Form 10-K for the fiscal year ended June 30, 2009. 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.

CONCLUSION

Even in this current challenging market, the Company's results of operations and its financial position continue to be solid. We continue to be cautiously optimistic as we see the increases in our recurring revenue and the increases in our backlog of contracts for products and services yet to be delivered. Our overall results reflect a tough economic environment, but also the continuing attitude of cooperation and commitment by each employee, management's ongoing cost control efforts and our commitment to continue delivering top quality products and superior services to all of our customers in the markets we serve. We believe we are well positioned to address current challenges and opportunities as well as those which will arise when the economy strengthens.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, volatilities, correlations or other market factors such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. We are currently exposed to credit risk on credit extended to customers and interest risk on investments in U.S. government securities. We actively monitor these risks through a variety of controlled procedures involving senior management. We do not currently use any derivative financial instruments. Based on the controls in place, credit worthiness of the customer base and the relative size of these financial instruments, we believe the risk associated with these exposures will not have a material adverse effect on our consolidated financial position or results of operations.

ITEM 4.    CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including our Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. For this purpose, disclosure controls and procedures include controls and procedures designed to ensure that information that is required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

PART II.    OTHER INFORMATION

ITEM 5.    EXHIBITS

31.1

Certification of the Chief Executive Officer dated May 7, 2010.

   

31.2

Certification of the Chief Financial Officer dated May 7, 2010.

   

32.1

Written Statement of the Chief Executive Officer dated May 7, 2010.

   

32.2

Written Statement of the Chief Financial Officer dated May 7, 2010.


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

     

JACK HENRY & ASSOCIATES, INC.

       
 

Date: May 7, 2010

 

/s/ John F. Prim

     

John F. Prim

     

Chief Executive Officer and Director

       
       
 

Date: May 7, 2010

 

/s/ Kevin D. Williams

     

Kevin D. Williams

     

Chief Financial Officer and Treasurer

       
JKHY CERTIFICATION

EXHIBIT 31.1

CERTIFICATION

I, John F. Prim, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Jack Henry & Associates, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter, (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information ; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: May 7, 2010

   

/s/ John F. Prim

   

------------------------------

   

John F. Prim

   

Chief Executive Officer

JKHY CERTIFICATION

EXHIBIT 31.2

CERTIFICATION

I, Kevin D. Williams, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Jack Henry & Associates, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter, (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information ; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: May 7, 2010

   

/s/ Kevin D. Williams

   

------------------------------

   

Kevin D. Williams

   

Chief Financial Officer

JKHY Written Statement of the Chief Executive Officer

EXHIBIT 32.1

Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chief Executive Officer of Jack Henry & Associates, Inc. (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the three and nine months ended March 31, 2010 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 7, 2010

   

*/s/ John F. Prim

   

------------------------------

   

John F. Prim

   

Chief Executive Officer

 

*A signed original of this written statement required by Section 906 has been provided to Jack Henry & Associates, Inc. and will be retained by Jack Henry & Associates, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

JKHY Written Statement of the Chief Financial Officer

EXHIBIT 32.2

Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chief Financial Officer of Jack Henry & Associates, Inc. (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the three and nine months ended March 31, 2010 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 7, 2010

   

*/s/ Kevin D. Williams

   

------------------------------

   

Kevin D. Williams

   

Chief Financial Officer

 

*A signed original of this written statement required by Section 906 has been provided to Jack Henry & Associates, Inc. and will be retained by Jack Henry & Associates, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.