Jack Henry & Associates, Inc.
HENRY JACK & ASSOCIATES INC (Form: 10-K/A, Received: 06/25/2015 14:56:54)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
Amendment No. 1

ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the fiscal year ended June 30, 2014
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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock ($0.01 par value)
 
NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ X ]  No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes [  ]  No [ X ]

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 [ ]  No [ X ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 [ X ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. [X]

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
[ ]

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

As of August 20, 2014 , the Registrant had 82,481,908 shares of Common Stock outstanding ($0.01 par value). On December 31, 2013 , the aggregate market value of the Common Stock held by persons other than those who may be deemed affiliates of Registrant was $4,998,746,579 (based on the average of the reported high and low sales prices on NASDAQ on December 31, 2013 ).



DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Notice of  Annual Meeting of Stockholders and Proxy Statement for its 2014 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part II, Item 5 and into Part III of this Report.  




TABLE OF CONTENTS
 
 
Page Reference
 
 
 
 
EXPLANATORY NOTE
 
 
 
PART I
 
 
 
 
 
ITEM 1A.
RISK FACTORS
 
 
 
PART II
 
 
 
 
 
ITEM 6.
SELECTED FINANCIAL DATA
 
 
 
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
 
ITEM 9A.
CONTROLS AND PROCEDURES
 
 
 
PART IV
 
 
 
 
 
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





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Explanatory Note
Restatement of Consolidated Financial Statements
On May 6, 2015, Jack Henry & Associates, Inc. (the "Company") announced that it had identified historical accounting errors relating to its accounting for certain software license and maintenance agreements.
The Company has corrected these errors in the accompanying restated consolidated financial statements, as well as in the quarterly financial information (unaudited).
See Note 15 - Restatement of Consolidated Financial Statements which is included in "Financial Statements and Supplementary Data" in Item 8 of this 2014 Amended Annual Report on Form 10-K/A.
Internal Control over Financial Reporting
Management reassessed its evaluation of the effectiveness of its internal control over financial reporting as of June 30, 2014 based on the framework established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). As a result of that reassessment, management confirmed the existence of a material weakness and, accordingly, has concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2014. For a description of the material weakness in internal control over financial reporting and actions taken and to be taken to remediate the material weakness, see "Part II - Item 9A - Controls and Procedures."
This 2014 Amended Annual Report on Form 10-K/A does not reflect events occurring after the Original Filing on August 27, 2014 or modify or update those disclosures affected by subsequent events, except for the effects of the restatement. Disclosures not affected by the restatement are unchanged and reflect the disclosures made at the time of Original Filing.
The following items in the Original Filing have been amended:
Part I, Item 1A Risk Factors
Part II, Item 6 Selected Financial Data
Part II, Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
Part II, Item 8. Financial Statements and Supplementary Data
Part II, Item 9A. Controls and Procedures
Part IV, Item 15. Exhibits and Financial Statement Schedules
The Company's Chief Executive Officer and Chief Financial Officer are providing currently dated certifications in connection with this 2014 Amended Annual Report on Form 10-K/A; the certifications are filed as Exhibits 31.1, 31.2 and 32.1.
The Company is concurrently filing an amended Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 2014 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 2014 and March 31, 2015 to reflect the effects of the restatement therein.

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In this report, all references to “JHA”, the “Company”, “we”, “us”, and “our”, refer to Jack Henry & Associates, Inc., and its wholly owned subsidiaries.

FORWARD LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Part I, Item 1A of this Form 10-K/A). We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
 

PART I
ITEM 1A.  RISK FACTORS
The Company's business and the results of its operations are affected by numerous factors and uncertainties, some of which are beyond our control. The following is a description of some of the important risks and uncertainties that may cause the actual results of the Company's operations in future periods to differ from those expected or desired.

We have restated our prior consolidated financial statements, which may lead to additional risks and uncertainties, including loss of investor confidence and negative impacts on our stock price. As discussed in Note 15 to our consolidated financial statements included in Item 8 of this Form 10-K/A, we have restated our consolidated financial statements as of and for the years ended June 30, 2014, 2013 and 2012 and for the quarterly periods within the fiscal years ended June 30, 2014 and 2013 (the "Restated Periods"). The determination to restate the financial statements for the Restated Periods was made by our Audit Committee upon management’s recommendation following the identification of errors related to our method of accounting for revenue from certain bundled software multi-element agreements. Due to the errors, our management concluded that the Company's previously issued financial statements for the Restated Periods should no longer be relied upon. Our Annual Report on Form 10-K for the year ended June 30, 2014 has been amended by this Amendment No. 1 on Form 10-K/A to, among other things, reflect the restatement of our financial statements for the Restated Periods, as discussed in Note 15 to our consolidated financial statements included in Item 8 of this Amendment No. 1 to Form 10-K.
As a result of these events, we have become subject to a number of additional costs and risks, including unanticipated costs for accounting and legal fees in connection with or related to the restatement and the risk of potential stockholder litigation. If lawsuits are filed, we may incur additional substantial defense costs regardless of the outcome of such litigation. Likewise, such events might cause a diversion of our management’s time and attention. If we do not prevail in any such litigation, we could be required to pay substantial damages or settlement costs. In addition, the restatement may lead to a loss of investor confidence and have negative impacts on the trading price of our common stock.
We have identified a material weakness in our internal control over financial reporting which could, if not remediated, result in additional material misstatements in our financial statements. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. As disclosed in Item 9A of this Form 10-K/A, management identified a material weakness in our internal control over financial reporting based upon our identification of certain errors related to our method of accounting for revenue from certain bundled software multi-element agreements. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of this material weakness, our management concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2014. Our Annual Report on Form 10-K for the year ended June 30, 2014 has been amended by this Amendment No. 1 on Form 10-K/A to, among other things, reflect the change in management's conclusion regarding the

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effectiveness of our disclosure controls and procedures and internal control over financial reporting as of June 30, 2014, as discussed in Item 8 and Item 9A of this Form 10-K/A.
We are actively engaged in developing a remediation plan designed to address this material weakness. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affect the Company's business and results of operations or financial condition, restrict its ability to access the capital markets, require the Company to expend significant resources to correct the weaknesses or deficiencies, subject it to fines, penalties or judgments, harm its reputation or otherwise cause a decline in investor confidence.
Operational failure in our outsourcing facilities could expose us to damage claims, increase regulatory scrutiny and cause us to lose customers. Damage or destruction that interrupts our outsourcing operations could cause delays and failures in customer processing which could hurt our relationship with customers, expose us to damage claims, and cause us to incur substantial additional expense to relocate operations and repair or replace damaged equipment. Our back-up systems and procedures may not prevent disruption, such as a prolonged interruption of our transaction processing services. In the event that an interruption extends for more than several hours, we may experience data loss or a reduction in revenues by reason of such interruption. In 2012, we experienced a disruption to our operations at our Lyndhurst, NJ processing center as a result of Super Storm Sandy. Any significant interruption of service could reduce revenue, have a negative impact on our reputation, result in damage claims, lead our present and potential customers to choose other service providers, and lead to increased regulatory scrutiny of the critical services we provide to financial institutions, with resulting increases in compliance burdens and costs.
Failures associated with payment transactions could result in financial loss. The volume and dollar amount of payment transactions that we process is very large and continues to grow. We settle funds on behalf of financial institutions, other businesses and consumers and receive funds from clients, card issuers, payment networks and consumers on a daily basis for a variety of transaction types. Transactions facilitated by us include debit card, credit card, electronic bill payment transactions, Automated Clearing House ( ACH ) payments and check clearing that supports consumers, financial institutions and other businesses. If the continuity of operations, integrity of processing, or ability to detect or prevent fraudulent payments were compromised in connection with payments transactions, this could result in financial as well as reputational loss to us. In addition, we rely on various financial institutions to provide ACH services in support of funds settlement for certain of our products. If we are unable to obtain such ACH services in the future, that could have a material adverse effect on our business, financial position and results of operations. In addition, we may issue credit to consumers, financial institutions or other businesses as part of the funds settlement. A default on this credit by a counterparty could result in a financial loss to us.
Security problems could damage our reputation and business. We rely on industry-standard encryption, network and Internet security systems, most of which we license from third parties, to provide the security and authentication necessary to effect secure transmission of data. Our services and infrastructure are increasingly reliant on the Internet. Computer networks and the Internet are vulnerable to unauthorized access, computer viruses and other disruptive problems such as denial of service attacks and other forms of cyber-terrorism. Individual personal computers can be stolen, and customer data media can be lost in shipment. Under state and proposed federal laws requiring consumer notification of security breaches, the costs to remediate security breaches can be substantial. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may render our security measures inadequate. Security risks may result in liability to our customers, damage to our reputation, and may deter financial institutions from purchasing our products. We will continue to expend significant capital and other resources protecting against the threat of security breaches, and we may need to expend resources alleviating problems caused by breaches. Eliminating computer viruses and addressing other security problems may result in interruptions, delays or cessation of service to users, any of which could harm our business.
Our business may be adversely impacted by U.S. and global market and economic conditions. We derive most of our revenue from products and services we provide to the financial services industry. If the economic environment worsens, we could face a reduction in demand from current and potential clients for our products and services, which could have a material adverse effect on our business, results of operations and financial condition. In addition, a growing portion of our revenue is derived from transaction processing fees, which depend heavily on levels of consumer and business spending. Deterioration in general economic conditions could reduce transaction volumes and the Company's related revenues.
Changes in the banking and credit union industry could reduce demand for our products . Cyclical fluctuations in economic conditions affect profitability and revenue growth at commercial banks and credit unions. Unfavorable economic conditions negatively affect the spending of banks and credit unions, including spending on computer software

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and hardware. Such conditions could reduce both our sales to new customers and upgrade/complementary product sales to existing customers. The Company could also experience the loss of customers due to their acquisition or financial failure.
Competition or general economic conditions may result in decreased demand or require price reductions or other concessions to customers which could result in lower margins and reduce income. We vigorously compete with a variety of software vendors and service providers in all of our major product lines. We compete on the basis of product quality, reliability, performance, ease of use, quality of support and services, integration with other products and pricing. Some of our competitors may have advantages over us due to their size, product lines, greater marketing resources, or exclusive intellectual property rights. If competitors offer more favorable pricing, payment or other contractual terms, warranties, or functionality, or if general economic conditions decline such that customers are less willing or able to pay the cost of our products and services, we may need to lower prices or offer favorable terms in order to successfully compete.
The loss of key employees could adversely affect our business. We depend on the contributions and abilities of our senior management and other key employees. Our Company has grown significantly in recent years and our management remains concentrated in a small number of highly qualified individuals. If we lose one or more of our key employees, we could suffer a loss of sales and delays in new product development, and management resources would have to be diverted from other activities to compensate for this loss. We do not have employment agreements with any of our executive officers.
The services we provide to our customers are subject to government regulation that could hinder the development of our business, increase costs, or impose constraints on the way we conduct our operations. The financial services industry is subject to extensive and complex federal and state regulation. As a supplier of services to financial institutions, portions of our operations are examined by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the National Credit Union Association, among other regulatory agencies. These agencies regulate services we provide and the manner in which we operate, and we are required to comply with a broad range of applicable laws and regulations.
In December 2013 we entered into an agreement with The Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Bank of St. Louis, which together regulate the Company's operations as the Federal Financial Institutions Examination Council ("FFIEC").  In 2012, operations at the Company's Lyndhurst, NJ processing center were temporarily but significantly disrupted by Super Storm Sandy, impacting the financial institutions served by that facility until the Company was able to return to normal operations. The agreement commits the Company to a process of assessing, improving and monitoring its disaster recovery and business continuity plans and the management of related risks across the Company.  The agreement also commits the Company to a process of reporting on corrective actions and to monitoring of its compliance with applicable regulations and guidance from the Regulators and the FFIEC. Regular reports of progress have been made to clients and to the regulators.  The Company has met all of the deadlines stipulated in the agreement and continues to mature the identified processes with the objective of achieving full compliance.  We are unable to predict what effect, if any, this agreement will have on our business.  Failure to comply with the agreement could have a material adverse effect on our business. 
In addition, existing laws, regulations, and policies could be amended or interpreted differently by regulators in a manner that imposes additional costs and has a negative impact on our existing operations or that limits our future growth or expansion. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, significantly changed the regulation of the financial services industry, producing new regulatory agencies and voluminous new regulations, many of which are still being written. These new regulations may require additional programming or other costly changes in our processes or personnel. Our customers are also regulated entities, and actions by regulatory authorities could determine both the decisions they make concerning the purchase of data processing and other services and the timing and implementation of these decisions. Concerns are growing with respect to the use, confidentiality, and security of private customer information. Regulatory agencies, Congress and state legislatures are considering numerous regulatory and statutory proposals to protect the interests of consumers and to require compliance with standards and policies that have not been defined.
The software we provide to our customers is also affected by government regulation. We are generally obligated to our customers to provide software solutions that comply with applicable federal and state regulations. In particular, numerous new regulations have been proposed and are still being written to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Substantial software research and development and other corporate resources have been and will continue to be applied to adapt our software products to this evolving, complex and often unpredictable regulatory environment. Our failure to provide compliant solutions could result in significant fines or consumer liability on our customers, for which we may bear ultimate liability.

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Our failure to comply with regulations or to meet regulatory expectations could adversely affect our business and results of operations. While much of our operations are not directly subject to regulations applicable to financial institutions, as a provider of processing services to such institutions, we are examined on a regular basis by various regulatory authorities. If we fail to comply with applicable regulations or guidelines, we could be subject to regulatory actions or rating changes and suffer harm to our customer relationships and reputation. Such failures could require significant expenditures to correct and could negatively affect our ability to retain customers and obtain new customers.
If we fail to adapt our products and services to changes in technology and the markets we serve, we could lose existing customers and be unable to attract new business. The markets for our software and hardware products and services are characterized by changing customer and regulatory requirements and rapid technological changes. These factors and new product introductions by our existing competitors or by new market entrants could reduce the demand for our existing products and services and we may be required to develop or acquire new products and services. Our future success is dependent on our ability to enhance our existing products and services in a timely manner and to develop or acquire new products and services. If we are unable to develop or acquire new products and services as planned, or if we fail to sell our new or enhanced products and services, we may incur unanticipated expenses or fail to achieve anticipated revenues.
Our growth may be affected if we are unable to find or complete suitable acquisitions. We have augmented the growth of our business with a number of acquisitions and we plan to continue to acquire appropriate businesses, products and services. This strategy depends on our ability to identify, negotiate and finance suitable acquisitions. Substantial recent merger and acquisition activity in our industry has affected the availability and pricing of such acquisitions. If we are unable to acquire suitable acquisition candidates, we may experience slower growth.
If others claim that we have infringed their intellectual property rights, we could be liable for significant damages or could be required to change our processes. We have agreed to indemnify many of our customers against claims that our products and services infringe on the proprietary rights of others. Infringement claims have been and will in the future be asserted with regard to our software solutions and services. Such claims, whether with or without merit, are time-consuming, may result in costly litigation and may not be resolved on terms favorable to us. If our defense of such claims is not successful, we could be forced to pay damages or could be subject to injunctions that would cause us to cease making or selling certain applications or force us to redesign applications.
Consolidation and failures of financial institutions will continue to reduce the number of our customers and potential customers. Our primary market consists of approximately 6,800 commercial and savings banks and 6,800 credit unions. The number of commercial banks and credit unions has decreased because of failures over the last few years and mergers and acquisitions over the last several decades and is expected to continue to decrease as more consolidation occurs.
Acquisitions may be costly and difficult to integrate. We have acquired a number of businesses in the last decade and will continue to explore acquisitions in the future. We may not be able to successfully integrate acquired companies. We may encounter problems with the integration of new businesses including: financial control and computer system compatibility; unanticipated costs; unanticipated quality or customer problems with acquired products or services; differing regulatory   and industry standards; diversion of management's attention; adverse effects on existing business relationships with suppliers and customers; loss of key employees; and significant amortization expenses related to acquired assets. To finance future acquisitions, we may have to increase our borrowing or sell equity or debt securities to the public. If we fail to integrate our acquisitions, our business, financial condition and results of operations could be materially and adversely affected. Failed acquisitions could also produce material and unpredictable impairment charges as we periodically review our acquired assets.
We may not be able to manage growth. We have grown both internally and through acquisitions. Our expansion has and will continue to place significant demands on our administrative, operational, financial and management personnel and systems. We may not be able to enhance and expand our product lines, manage costs, adapt our infrastructure and modify our systems to accommodate future growth.
Expansion of services to non-traditional customers could expose us to new risks. Some of our recent acquisitions include business lines that are marketed outside our traditional, regulated, and litigation-averse base of financial institution customers. These non-regulated customers may entail greater operational, credit and litigation risks than we have faced before and could result in increases in bad debts and litigation costs.
Failure to achieve favorable renewals of service contracts could negatively affect our outsourcing business. Our contracts with our customers for outsourced data processing services generally run for a period of five or more years. Because of the rapid growth of our outsourcing business over the last five years, we will experience greater numbers of these contracts coming up for renewal over the next few years. Renewal time presents our customers with

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the opportunity to consider other providers or to renegotiate their contracts with us. If we are not successful in achieving high renewal rates upon favorable terms, our outsourcing revenues and profit margins will suffer.

PART II
ITEM 6.   SELECTED FINANCIAL DATA
The selected financial information for the fiscal years ended June 30, 2014, 2013, and 2012 and as of June 30, 2014 and 2013, was derived from audited consolidated financial statements included in this amended filing and has been revised for the effects of the restatement more fully described in Note 15 - Restatement of Consolidated Financial Statements which is included in "Financial Statements and Supplementary Data" in Item 8 of this 2014 Amended Annual Report on Form 10-K/A. The selected financial information for the years ended June 30, 2011 and 2010 and as of June 30, 2012, 2011 and 2010 was derived from previously audited consolidated financial statements not included in this filing; however, such financial information has been similarly revised for the effects of the restatement.
The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto, especially as the information pertains to 2012, 2011 and 2010 activity.
Selected Financial Data
(In Thousands, Except Per Share Data)
 
 
YEAR ENDED JUNE 30,
Income Statement Data
 
2014
As Restated
(2)
 
2013
As Restated (2)
 
2012
As Restated (2) (3)
 
2011
As Restated (3)
 
2010
As Restated (3)
Revenue (1)
 
$
1,173,173

 
$
1,107,524

 
$
1,017,667

 
$
946,394

 
$
832,777

Income from continuing operations
 
$
186,715

 
$
167,610

 
$
152,040

 
$
128,394

 
$
116,722

Basic net income per share, continuing operations
 
$
2.20

 
$
1.95

 
$
1.76

 
$
1.49

 
$
1.38

Diluted net income per share, continuing operations
 
$
2.19

 
$
1.94

 
$
1.74

 
$
1.48

 
$
1.37

Dividends declared per share
 
$
0.840

 
$
0.560

 
$
0.440

 
$
0.400

 
$
0.360

Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
Total deferred revenue
 
$
492,868

 
$
439,596

 
$
409,139

 
$
398,800

 
$
358,811

Total assets
 
$
1,680,703

 
$
1,672,386

 
$
1,655,652

 
$
1,537,158

 
$
1,586,168

Long-term debt
 
$
3,729

 
$
7,366

 
$
106,166

 
$
127,939

 
$
272,732

Stockholders’ equity
 
$
967,387

 
$
1,015,816

 
$
935,738

 
$
835,403

 
$
715,076

(1) Revenue includes license sales, support and service revenues, and hardware sales, less returns and allowances.
(2) The effects of the restatement on the Company's consolidated balance sheets as of June 30, 2014 and 2013 and consolidated statements of income for the fiscal years ended June 30, 2014, 2013 and 2012 are described in the “Explanatory Note” immediately preceding Part I, Item 1A and Note 15, “Restatement of Consolidated Financial Statements,” in Notes to Consolidated Financial Statements of this Form 10-K/A.
(3) Selected Financial Data for the fiscal years ended June 30, 2012, 2011 and 2010 has also been restated to reflect adjustments related to the errors described in the “Explanatory Note” immediately preceding Part I, Item 1A of this Form 10-K. The effects of the restatement on the Company's consolidated balance sheets as of June 30, 2012, 2011 and 2010 and consolidated statements of income for the fiscal years ended June 30, 2011 and 2010 are shown below.
 
 
YEAR ENDED JUNE 30, 2012
Balance Sheet Data
 
As Reported
 
Effect of Restatement
 
As Restated
Total deferred revenue
 
$
296,000

 
$
113,139

 
$
409,139

Total assets
 
$
1,619,492

 
$
36,160

 
$
1,655,652

Long-term debt
 
$
106,166

 
$

 
$
106,166

Stockholders’ equity
 
$
983,056

 
$
(47,318
)
 
$
935,738


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Table of Contents

 
 
YEAR ENDED JUNE 30, 2011
Income Statement Data
 
As Reported
 
Effect of Restatement
 
As Restated
Revenue (1)
 
$
966,897

 
$
(20,503
)
 
$
946,394

Income from continuing operations
 
$
137,471

 
$
(9,077
)
 
$
128,394

Basic net income per share, continuing operations
 
$
1.60

 
$
(0.11
)
 
$
1.49

Diluted net income per share, continuing operations
 
$
1.59

 
$
(0.10
)
 
$
1.48

Dividends declared per share
 
$
0.400

 
$

 
$
0.400

Balance Sheet Data
 
 
 
 
 
 
Total deferred revenue
 
$
295,104

 
$
103,696

 
$
398,800

Total assets
 
$
1,505,797

 
$
31,361

 
$
1,537,158

Long-term debt
 
$
127,939

 
$

 
$
127,939

Stockholders’ equity
 
$
879,776

 
$
(44,373
)
 
$
835,403

 
 
YEAR ENDED JUNE 30, 2010
Income Statement Data
 
As Reported
 
Effect of Restatement
 
As Restated
Revenue (1)
 
$
836,586

 
$
(3,809
)
 
$
832,777

Income from continuing operations
 
$
117,870

 
$
(1,148
)
 
$
116,722

Basic net income per share, continuing operations
 
$
1.39

 
$
(0.01
)
 
$
1.38

Diluted net income per share, continuing operations
 
$
1.38

 
$
(0.01
)
 
$
1.37

Dividends declared per share
 
$
0.360

 
$

 
$
0.360

Balance Sheet Data
 
 
 
 
 
 
Total deferred revenue
 
$
275,617

 
$
83,194

 
$
358,811

Total assets
 
$
1,560,560

 
$
25,608

 
$
1,586,168

Long-term debt
 
$
272,732

 
$

 
$
272,732

Stockholders’ equity
 
$
750,372

 
$
(35,296
)
 
$
715,076


ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section provides management's view of the financial condition and results of operations and should be read in conjunction with the Selected Financial Data, the audited Consolidated Financial Statements, and related notes included elsewhere in this report.

All of the financial information presented in this Item 7 has been revised to reflect the restatement of our consolidated financial statements more fully described in Note 15 - Restatement of Consolidated Financial Statements which is included in "Financial Statements and Supplementary Data" in Item 8 of this 2014 Amended Annual Report on Form 10-K/A.
OVERVIEW
Jack Henry & Associates, Inc. (JHA) is headquartered in Monett, Missouri, employs approximately 5,600 associates nationwide, and is a leading provider of technology solutions and payment processing services primarily for financial services organizations. Its solutions serve nearly 11,300 customers and are marketed and supported through three primary brands. Jack Henry Banking® supports banks ranging from community to mid-tier, multi-billion dollar institutions with information and transaction processing solutions. Symitar® is a leading provider of information and transaction processing solutions for credit unions of all sizes. ProfitStars® provides specialized products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. JHA's integrated solutions are available for in-house installation and outsourced and hosted delivery.
Each of our brands share the fundamental commitment to provide high quality business solutions, service levels that consistently exceed customer expectations, integration of solutions and practical new technologies. The quality of our

10

Table of Contents

solutions, our high service standards, and the fundamental way we do business typically foster long-term customer relationships, attract prospective customers, and have enabled us to capture substantial market share.
Through internal product development, disciplined acquisitions, and alliances with companies offering niche solutions that complement our proprietary solutions, we regularly introduce new products and services and generate new cross-sales opportunities across our three business brands. We provide compatible computer hardware for our in-house installations and secure processing environments for our outsourced and hosted solutions. We perform data conversions, software implementations, initial and ongoing customer training, and ongoing customer support services.
Our primary competitive advantage is customer service. Our support infrastructure and strict standards provide service levels we believe to be the highest in the markets we serve and generate high levels of customer satisfaction and retention. We consistently measure customer satisfaction using comprehensive annual surveys and random surveys we receive in our everyday business. Dedicated surveys are also used to grade specific aspects of our customer experience, including product implementation, education, and consulting services.
The majority of our revenue is derived from recurring outsourcing fees and transaction processing fees that predominantly have contract terms of five years or greater at inception. Support and service fees also include in-house maintenance fees on primarily annual contract terms. Less predictable software license fees and hardware sales complement our primary revenue sources. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.
During the last five fiscal years, our revenues have grown from $832,777 in fiscal 2010 to $1,173,173 in fiscal 2014 . Income from continuing operations has grown from $116,722 in fiscal 2010 to $186,715 in fiscal 2014 . This growth has resulted primarily from internal expansion.
We have two reportable 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.
We continue to focus on our objective of providing the best integrated solutions, products and customer service to our clients. We are cautiously optimistic regarding ongoing economic improvement and expect our clients to continue investing in our products and services to improve their operating efficiencies and performance. We anticipate that consolidation within the financial services industry will continue. Regulatory conditions and legislation such as the Dodd-Frank Wall Street Reform and Consumer Protection Act will continue to impact the financial services industry and could motivate some financial institutions to postpone discretionary spending.
A detailed discussion of the major components of the results of operations follows. All dollar amounts are in thousands and discussions compare fiscal 2014 to fiscal 2013 and compare fiscal 2013 to fiscal 2012 .

RESULTS OF OPERATIONS
FISCAL 2014 COMPARED TO FISCAL 2013
In fiscal 2014 , revenues increased 6% or $65,649 compared to the prior year due primarily to strong growth in all components of support and service revenues, particularly our electronic payment services and our outsourcing services. The growth in revenue and the Company's continued focus on cost management continued to drive up gross margins, which has resulted in a 7% increase in gross profit.
Operating expenses decreased 2% for the year mainly due to $12,436 of expenses in the prior year related to the impact of Hurricane Sandy flooding on our Lyndhurst, New Jersey item processing center. Provision for income taxes increased over the prior year. The prior year provision for income tax was low due to the tax impact of the Lyndhurst, New Jersey expenses and the release of previously unrecognized tax benefits. Increased revenue and gross margin, coupled with the above changes, resulted in a combined 11% increase in net income for fiscal 2014 .
We move into fiscal 2015 following record revenue achieved in fiscal 2014. Significant portions of our business continue to come from recurring revenue and our healthy sales pipeline is also encouraging. Our customers continue to face regulatory and operational challenges which our products and services address, and in these times they have an even greater need for our solutions that directly address institutional profitability and efficiency. Our strong balance sheet, access to extensive lines of credit, the strength of our existing product line and an unwavering commitment to superior customer service position us well to address current and future opportunities.

REVENUE

11


License Revenue
Year Ended June 30,
 
% Change
 
2014
 
2013
 
 
License
$
2,184

 
$
5,366

 
(59
)%
Percentage of total revenue
<1%
 
<1%
 
 

License revenue represents the sale and delivery of application software systems contracted with us by the customer, that are not part of a bundled arrangement. 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.
Non-bundled license revenue decreased due mainly to a decrease in standalone license sales in our banking segment. Such license fees will fluctuate as non-bundled license sales are sporadic in nature.
Support and Service Revenue
Year Ended June 30,
 
%
Change
 
2014
 
2013
 
 
Support and service
$
1,112,331

 
$
1,042,801

 
7
%
Percentage of total revenue
95
%
 
94
 %
 
 
 
 
 
 
 
 
 
Year over Year
 
 
 
$ Change
 
% Change
 
 
In-House Support & Other Services
$
11,762

 
4
 %
 
 
Electronic Payment Services
37,158

 
9
 %
 
 
Outsourcing Services
21,408

 
10
 %
 
 
Implementation Services
2,792

 
4
 %
 
 
Bundled Products & Services
(3,590
)
 
(6
)%
 
 
Total Increase
$
69,530

 
 
 
 
Support and service revenues are generated from annual support to assist the customer in operating their systems and to enhance and update the software, electronic payment services, outsourced data processing services, implementation services (including conversion, installation, configuration and training) and revenue from our bundled software multi-element agreements.
In-house support and other services revenue increased due to annual maintenance renewal fee increases for both core and complementary products as our customers’ assets grow. The increase compared to the prior year was consistent across all four fiscal quarters.
Electronic payment services continue to experience the largest dollar growth. The revenue increases are attributable to strong performance across debit/credit card transaction processing services, online bill payment services and ACH processing. The increase compared to the prior year was consistent across all four fiscal quarters.
Outsourcing services for banks and credit unions continue to drive revenue growth as customers continue to show a preference for outsourced delivery of our solutions. We expect the trend towards outsourced product delivery to benefit outsourcing services revenue for the foreseeable future. Revenues from outsourcing services are typically earned under multi-year service contracts and therefore provide a long-term stream of recurring revenues.
Implementation services include implementation services for our outsourcing and electronic payment services customers as well as standalone customization services, merger conversion services, image conversion services and network monitoring services. Implementation services revenue increased due mainly to increased implementations of our credit union core products, particularly in the second and third quarters of the fiscal year.
Bundled products and services revenue is combined revenue from the multiple elements in our bundled arrangements, including license, implementation services and maintenance, which cannot be recognized separately due to a lack of vendor-specific objective evidence of fair value. Bundled products and services revenue decreased from last year mainly due to decreased revenues from our core and complementary banking products, particularly image solutions, throughout the fiscal year. Additionally, the decrease was furthered due to a decrease in core credit union products in the fourth quarter compared to the same quarter in the prior year.

12


Hardware Revenue
Year Ended June 30,
 
%
Change
 
2014
 
2013
 
 
Hardware
$
58,658

 
$
59,357

 
(1
)%
Percentage of total revenue
5
%
 
5
%
 
 
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 slightly. Although there will be continuing quarterly fluctuations, we expect there to be an overall decreasing trend in hardware sales due to the change in sales mix towards outsourcing contracts, which typically do not include hardware, and the general deflationary trend of computer prices.
COST OF SALES AND GROSS PROFIT
Cost of license represented the cost of software from third party vendors through remarketing agreements associated with non-bundled application software licenses. These costs were recognized when license revenue was recognized. Cost of support and service represented 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, electronic payment services and direct operating costs. These costs were recognized as they were incurred or, for direct costs associated with obtaining and implementing our bundled arrangements, deferred and recognized ratably as the related revenues for these arrangements are recognized, which typically begins when PCS is the only remaining undelivered element, and ends at the end of the initial bundled PCS term. Cost of hardware consisted of the direct and indirect costs of purchasing the equipment from the manufacturers and delivery to our customers. These costs were recognized at the same time as the related hardware revenue was recognized. Ongoing operating costs to provide support to our customers were recognized as they were incurred.
 
Year Ended June 30,
 
%
Change
 
2014
 
2013
 
 
Cost of License
$
908

 
$
860

 
6
 %
Percentage of total revenue
<1%

 
<1%

 
 
License Gross Profit
$
1,276

 
$
4,506

 
(72
)%
Gross Profit Margin

58
%
 
84
%
 
 
Cost of support and service
$
634,756

 
$
601,620

 
6
 %
Percentage of total revenue
54
%
 
54
%
 
 
Support and Service Gross Profit
$
477,575

 
$
441,181

 
8
 %
Gross Profit Margin

43
%
 
42
%
 
 
Cost of hardware
$
43,708

 
$
43,650

 
 %
Percentage of total revenue
5
%
 
5
%
 
 
Hardware Gross Profit
$
14,950

 
$
15,707

 
(5
)%
Gross Profit Margin

25
%
 
26
%
 
 
TOTAL COST OF SALES
$
679,372

 
$
646,130

 
5
 %
Percentage of total revenue
58
%
 
58
%
 
 
TOTAL GROSS PROFIT
$
493,801

 
$
461,394

 
7
 %
Gross Profit Margin
42
%
 
42
%
 
 
Cost of license consists of the direct costs of third party software. Sales of third party software products increased compared to last year, causing a decrease in gross profit margins.
Gross profit margins in support and service increased due to economies of scale realized from increased revenues, particularly in electronic payment services. Although margins fluctuated slightly throughout the quarters of the current fiscal year due to sales mix, the trend in electronic payment services was consistent through all four quarters.

13


In general, changes in cost of hardware trend consistently with hardware revenue. For the fiscal year, margins are slightly lower due to decreased sales of higher margin hardware upgrade products.

OPERATING EXPENSES
Selling and Marketing
Year Ended June 30,
 
%
Change
 
2014
 
2013
 
 
Selling and marketing
$
85,443

 
$
80,811

 
6
%
Percentage of total revenue
7
%
 
7
%
 
 
Dedicated sales forces, inside sales teams, technical sales support teams and channel partners conduct our sales efforts for our two reportable 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.
Selling and marketing expenses for the year increased mainly due to higher commission expenses and a general increase in sales headcount and related salaries. This is in line with increased sales volume of long term service contracts on which commissions are paid as a percentage of total revenue, and was consistent across all quarters of the fiscal year.
Research and Development
Year Ended June 30,
 
%
Change
 
2014
 
2013
 
 
Research and development
$
66,748

 
$
63,202

 
6
%
Percentage of total revenue
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 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 primarily due to increased headcount and related salaries, with all quarters in the fiscal year being driven by a 6% increase in headcount in the first quarter.
General and Administrative
Year Ended June 30,
 
%
Change
 
2014
 
2013
 
 
General and administrative
$
53,312

 
$
66,624

 
(20
)%
Percentage of total revenue
5
%
 
6
%
 
 
General and administrative costs include all expenses related to finance, legal, human resources, plus all administrative costs.
General and administrative expenses in the current year includes $2,900 in the second quarter for insurance recoveries of costs related to the impact of Hurricane Sandy flooding on our Lyndhurst, New Jersey item processing center, whereas the prior year (mostly the second quarter) includes $12,436 of expenses related to the same event. General and administrative expenses, excluding the Lyndhurst expenses and subsequent insurance recoveries, increased slightly year-over-year due to additional headcount and related salaries.
INTEREST INCOME AND EXPENSE
Year Ended June 30,
 
%
Change
 
2014
 
2013
 
 
Interest Income
$
377

 
$
640

 
(41
)%
Interest Expense
$
(1,105
)
 
$
(6,337
)
 
(83
)%
Interest income fluctuated due to changes in invested balances and yields on invested balances. Interest expense decreased due to full repayment of our term loan in the fourth quarter of fiscal 2013.

14


PROVISION FOR INCOME TAXES
The provision for income taxes was $100,855 or 35.1% of income before income taxes in fiscal 2014 compared with $77,450 or 31.6% of income before income taxes in fiscal 2013 . The increase in the effective tax rate was primarily due to the recognition of previously unrecognized tax benefits during the prior year following the close of an Internal Revenue Service audit of fiscal years 2010 and 2011, as well as the retroactive extension of the research and experimentation credit during the prior year.
NET INCOME
Net income increased from $167,610 , or $1.94 per diluted share, in fiscal 2013 to $186,715 , or $2.19 per diluted share, in fiscal 2014 .

FISCAL 2013 COMPARED TO FISCAL 2012
In fiscal 2013, revenues increased 9% or $89,857 compared to the prior year due primarily to strong growth in all components of support and service revenues, particularly our electronic payment services and our outsourcing services. The growth in revenue and the Company's continued focus on cost management continued to drive up gross margins, which resulted in a 10% increase in gross profit.
Operating expenses increased 13% for the year mainly due to expenses related to the impact of widespread flooding caused by Hurricane Sandy on our Lyndhurst, New Jersey item processing center. Expenses related to this event totaled $12,475 for fiscal 2013, net of $2,390 insurance recoveries received in the year.
Increased revenue and gross margins, partially offset by increased operating expenses, resulted in a combined 10% increase in net income for fiscal 2013.
REVENUE
License Revenue
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
License
$
5,366

 
$
5,652

 
(5
)%
Percentage of total revenue
<1%

 
1
%
 
 
License revenue represents the sale and delivery of application software systems contracted with us by the customer, that are not part of a bundled arrangement. 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.
Non-bundled license revenue decreased due mainly to a small decrease in standalone license sales in our credit union segment. Such license fees will fluctuate as non-bundled license sales are sporadic in nature.
Support and Service Revenue
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
Support and service
$
1,042,801

 
$
948,893

 
10
%
Percentage of total revenue
94
%
 
93
%
 
 
 
Year over Year Change
 
 
 
$ Change
 
% Change
 
 
In-House Support & Other Services
$
9,710

 
3
 %
 
 
Electronic Payment Services
58,052

 
17
 %
 
 
Outsourcing Services
23,017

 
12
 %
 
 
Implementation Services
12,796

 
25
 %
 
 
Bundled Products & Services
(9,667
)
 
(13
)%
 
 
Total Increase
$
93,908

 
 
 
 
Support and service revenues are generated from annual support to assist the customer in operating their systems and to enhance and update the software, electronic payment services, outsourced data processing services, implementation services (including conversion, installation, configuration and training) and revenue from our bundled

15


software multi-element agreements. There was growth in most components of support and service revenue in fiscal 2013.
In-house support and other services revenue increased due to annual maintenance fee increases as our customers’ assets grew. Revenue from our complementary products also grew as the total number of supported in-house products grew.
Electronic payment services continued to experience the largest growth. The revenue increases were attributable to strong performance across debit/credit card processing services, online bill payment services and ACH processing.
Outsourcing services for banks and credit unions continued to drive revenue growth as customers continue to show a preference for outsourced delivery of our solutions. Revenues from outsourcing services are typically earned under multi-year service contracts and therefore provide a long-term stream of recurring revenues.
Implementation services include implementation services for our outsourcing and electronic payment services customers as well as standalone customization services, merger conversion services, image conversion services and network monitoring services. Implementation services revenue increased due mainly to increased implementations of our core Banking and Credit Union platform products and related complementary products, coupled with higher merger conversion revenues from our core banking platform and outsourcing products.
Bundled products and services revenue is combined revenue from the multiple elements in our bundled arrangements, including license, implementation services and maintenance, which cannot be recognized separately due to a lack of vendor-specific objective evidence of fair value. Bundled products and services decreased from last year mainly due to decreased revenues from our core and complementary banking products (consistent across all quarters of the fiscal year) and decreased revenues from our suite of remote deposit capture, particularly in the third and fourth quarters compared to the prior fiscal year.
Hardware Revenue
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
Hardware
$
59,357

 
$
63,122

 
(6
)%
Percentage of total revenue
7
%
 
8
%
 
 
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 due to a decrease in the number of third party hardware systems and components delivered.
COST OF SALES AND GROSS PROFIT
Cost of license represented the cost of software from third party vendors through remarketing agreements associated with non-bundled application software licenses. These costs were recognized when license revenue was recognized. Cost of support and service represented 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, electronic payment services and direct operating costs. These costs were recognized as they were incurred or, for direct costs associated with obtaining and implementing our bundled arrangements, deferred and recognized ratably as the related revenues for these arrangements are recognized, which typically begins when PCS is the only remaining undelivered element, and ends at the end of the initial bundled PCS term. Cost of hardware consisted of the direct and indirect costs of purchasing the equipment from the manufacturers and delivery to our customers. These costs were recognized at the same time as the related hardware revenue was recognized. Ongoing operating costs to provide support to our customers were recognized as they were incurred.

16


 
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
 
 
 
 
 
 
Cost of License
$
860

 
$
2,291

 
(62
)%
Percentage of total revenue
<1%

 
<1%

 
 
License Gross Profit
$
4,506

 
$
3,361

 
34
 %
Gross Profit Margin
84
%
 
59
%
 
 
Cost of support and service
$
601,620

 
$
550,570

 
9
 %
Percentage of total revenue
54
%
 
54
%
 
 
Support and Service Gross Profit
$
441,181

 
$
398,323

 
11
 %
Gross Profit Margin
42
%
 
42
%
 
 
Cost of hardware
$
43,650

 
$
45,983

 
(5
)%
Percentage of total revenue
4
%
 
5
%
 
 
Hardware Gross Profit
$
15,707

 
$
17,139

 
(8
)%
Gross Profit Margin
26
%
 
27
%
 
 
TOTAL COST OF SALES
$
646,130

 
$
598,844

 
8
 %
Percentage of total revenue
58
%
 
59
%
 
 
TOTAL GROSS PROFIT
$
461,394

 
$
418,823

 
10
 %
Gross Profit Margin
42
%
 
41
%
 
 
Cost of license consisted of the direct costs of third party software. Sales of third party software products decreased compared to the prior year, leading to lower related costs and increased gross profit margins.
Gross profit margins in support and service remained consistent with the prior year.
In general, changes in cost of hardware trended consistently with hardware revenue. For the fiscal year, margins decreased slightly, impacted by reduced sales of higher margin products related to hardware upgrades.
OPERATING EXPENSES
Selling and Marketing
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
Selling and marketing
$
80,811

 
$
76,236

 
6
%
Percentage of total revenue
7
%
 
7
%
 
 
Dedicated sales forces, inside sales teams, technical sales support teams and channel partners conducted our sales efforts for our two reportable segments, and were overseen by regional sales managers. Our sales executives were responsible for pursuing lead generation activities for new core customers. Our account executives nurtured long-term relationships with our client base and cross sold our many complementary products and services.
Selling and marketing expenses for the year increased mainly due to higher commission expenses. This is in line with increased sales volume of long term service contracts on which commissions were paid as a percentage of total revenue.
Research and Development
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
Research and development
$
63,202

 
$
60,876

 
4
%
Percentage of total revenue
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 our various core and complementary software applications once

17


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 primarily due to increased salary costs.
General and Administrative
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
General and administrative
$
66,624

 
$
50,119

 
33
%
Percentage of total revenue
6
%
 
5
%
 
 
General and administrative costs included all expenses related to finance, legal, human resources, plus all administrative costs. General and administrative expenses increased compared to the prior year due mainly to $12,475 of expenses (mostly incurred in the second quarter), net of $2,390 insurance recoveries received, related to the impact of widespread flooding caused by Hurricane Sandy on our Lyndhurst, New Jersey item processing center.
INTEREST INCOME AND EXPENSE
Year Ended
 
%
 
June 30,
 
Change
 
2013
 
2012
 
 
Interest Income
$
640

 
$
1,176

 
(46
)%
Interest Expense
$
(6,337
)
 
$
(5,743
)
 
10
 %
Interest income was unusually high in the prior year, mainly from contractual interest income on previously uncollected deconversion revenues. Interest expense increased from the prior year due to costs related to the early payment of the term loan during fiscal 2013.
PROVISION FOR INCOME TAXES
The provision for income taxes was $77,450 or 31.6% of income before income taxes in fiscal 2013 compared with $74,985 or 33.0% of income before income taxes in fiscal 2012. The decrease in the effective tax rate was primarily due to the completion of the Internal Revenue Service audit of the tax returns for the fiscal years June 30, 2010 and 2011 which resulted in the recognition of previously-unrecognized tax benefits, and the retroactive extension of the Research and Experimentation Tax Credit through December 31, 2013.
NET INCOME
Net income increased from $152,040 , or $1.74 per diluted share in fiscal 2012 to $167,610 or $1.94 per diluted share in fiscal 2013.

REPORTABLE SEGMENT DISCUSSION
The Company is a provider of integrated computer systems that perform data processing (available for in-house installations or outsourced services) for banks and credit unions. The Company’s operations are classified into two reportable 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
 
 
 
 
 
 
 
 
 
2014
 
% Change
 
2013
 
% Change
 
2012
Revenue
$
897,671

 
7
%
 
$
840,380

 
8
%
 
$
779,814

Gross profit
$
372,473

 
7
%
 
$
348,309

 
8
%
 
$
323,081

Gross profit margin
41
%
 
 

 
41
%
 
 
 
41
%
In fiscal 2014, revenue increased 7% overall in the Bank systems and services reportable segment compared to the prior year. The increase was due mainly to increased support and service revenue. Within support and service revenue, the increase was driven by 12% year-over-year growth in electronic payment services revenues from transaction processing and a 10% increase in outsourcing services revenue. Gross profit margins remain consistent year-over-year.

18


In fiscal 2013, revenue increased 8% overall in the Bank systems and services reportable segment compared to the prior year. The increase was due mainly to 17% growth in electronic transaction processing services and an 11% increase in outsourcing services. Gross profit margins remained consistent year-over-year.
Credit Union Systems and Services
 
 
 
 
 
 
 
 
 
2014
 
% Change
 
2013
 
% Change
 
2012
Revenue
$
275,502

 
3
%
 
$
267,144

 
12
%
 
$
237,853

Gross profit
$
121,328

 
7
%
 
$
113,085

 
18
%
 
$
95,742

Gross profit margin
44
%
 
 
 
42
%
 
 
 
40
%
In fiscal 2014, revenue in the Credit Union segment increased 3% over the prior year, driven by support & service revenue. In particular, electronic payment services increased due to the continuing growth of our transaction processing and debit/credit card processing services and in-house maintenance renewal revenues also increased. Gross profit margins for the Credit Union segment increased mainly due to economies of scale realized from growing transaction volume in our payment processing services.
In fiscal 2013, revenue in the Credit Union systems and services reportable segment increased due to increases in support & service revenue. Support & service revenues grew 13% through increases in all components, particularly electronic payment services due to the continuing growth of our transaction processing and debit/credit card processing services and outsourcing services. Gross profit margins for the Credit Union segment increased mainly due to increased support and service margins due to economies of scale realized.

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 decreased to $70,377 at June 30, 2014 from $127,905 at June 30, 2013 . The decrease from  June 30, 2013  is primarily due to the Banno acquisition and ongoing purchases of treasury stock.
The following table summarizes net cash from operating activities in the statement of cash flows:
 
Year Ended
 
June 30,
 
2014
 
2013
Net income
$
186,715

 
$
167,610

Non-cash expenses
126,424

 
127,579

Change in receivables
7,498

 
(12,739
)
Change in deferred revenue
51,952

 
30,459

Change in other assets and liabilities
(30,930
)
 
(3,735
)
Net cash provided by operating activities
$
341,659

 
$
309,174

Cash provided by operating activities increased 11% compared to last year. Cash from operations is primarily used to repay debt, pay dividends, repurchase stock and other capital expenditures.
Cash used in investing activities for the fiscal year ended June 30, 2014 totaled $131,780 and included capital expenditures on facilities and equipment of $33,185 , which mainly included the purchase of aircraft and computer equipment. Other uses of cash included $27,894 of payments for the acquisition of Banno, $62,194 for the development of software and $16,288 for the purchase and development of internal use software. These expenditures have been partially offset by $7,781 proceeds received primarily from sale of aircraft. Cash used in investing activities for the fiscal year ended June 30, 2013 totaled $97,244 and included capital expenditures on facilities and equipment totaled $46,256, which included spending on our online bill payment data center migration and an aircraft purchase. Other uses of cash included $51,332 for the development of software and $186 for the acquisition of customer contracts. These expenditures were partially offset by $530 proceeds from sale of assets.
Financing activities used cash of $267,407 during the fiscal year ended June 30, 2014. Cash used was mainly dividends paid to stockholders of $71,251 , $175,699 for the purchase of treasury shares, and repayments of capital leases of $22,158. Cash used was partially offset by $1,701 net proceeds from the issuance of stock and tax related to stock-based compensation. During the fourth quarter, the Company also borrowed $25,000 against its revolving line of credit

19


and the full amount of the borrowing was repaid in the same period. Financing activities used cash of $241,338 during fiscal 2013. There were cash outflows to repay long and short term borrowings on our credit facilities of $145,180, dividends paid to stockholders of $48,202 and repurchases of treasury shares of $58,126. Cash used was partially offset by $10,170 net proceeds from the issuance of stock and tax related to stock-based compensation.
At June 30, 2014, the Company had negative working capital of $56,303 ; however, the largest component of current liabilities was deferred revenue of $337,493 , which primarily relates to our annual in-house maintenance agreements and deferred bundled product and service arrangements. 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 $150,000 and continue to generate substantial cash inflows from operations. Therefore, we do not anticipate any liquidity problems arising from this condition.
The Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures in the fiscal year were made primarily for additional equipment and the improvement of existing facilities. These additions were funded from cash generated by operations. At June 30, 2014, the Company had $24,223 of purchase commitments related to property and equipment. We anticipate that these commitments will be funded by cash generated by operations.
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 facilities. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At June 30, 2014 , there were 19,795 shares in treasury stock and the Company had the remaining authority to repurchase up to 5,196 additional shares. The total cost of treasury shares at June 30, 2014 is $577,781 . During fiscal 2014 , the Company repurchased 3,041 treasury shares for $175,699 . At June 30, 2013 , there were 16,754 shares in treasury stock and the Company had authority to repurchase up to 8,237 additional shares.
On  August 22, 2014 , the Company's Board of Directors declared a cash dividend of  $0.22  per share on its common stock, payable on  September 26, 2014  to shareholders of record on  September 5, 2014 . 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.
Capital leases
The Company has entered into various capital lease obligations for the use of certain computer equipment. Long term capital lease obligations were entered into of which $7,757 remains outstanding at June 30, 2014 and $4,028 will be maturing within the next twelve months. The Company also has short term capital lease obligations totaling $1,379 at June 30, 2014 . Included in property and equipment are assets under capital leases totaling $37,316 , which have accumulated depreciation totaling $7,994 .
Other lines of credit
The long term revolving credit facility allows for borrowings of up to $150,000 , which may be increased by the Company at any time until maturity to $250,000 . The credit facility bears 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 credit facility is secured by pledges of capital stock of certain subsidiaries of the Company and 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, 2014 , the Company was in compliance with all such covenants. The revolving loan terminates June 4, 2015 and at June 30, 2014 , there was no outstanding revolving loan balance.
The Company renewed an unsecured bank credit line on March 3, 2014 which provides for funding of up to $5,000 and bears interest at the prime rate less 1% . The credit line was renewed through April 30, 2017 . At June 30, 2014 , no amount was outstanding.

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
At June 30, 2014 , the Company’s total off balance sheet contractual obligations were $55,370 . This balance consists of $31,147 of long-term operating leases for various facilities and equipment which expire from 2015 to 2021 and $24,223 of purchase commitments related to property and equipment. The contractual obligations table below excludes $8,620 of liabilities for uncertain tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement.

20


Contractual obligations by period as of June 30, 2014
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
 
TOTAL

Operating lease obligations
 
$
7,851

 
$
14,024

 
$
7,469

 
$
1,803

 
$
31,147

Capital lease obligations
 
5,407

 
3,729

 

 

 
9,136

Purchase obligations
 
24,223

 

 

 

 
24,223

Total
 
$
37,481

 
$
17,753

 
$
7,469

 
$
1,803

 
$
64,506


RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers in May 2014. The new standard will supersede much of the existing authoritative literature for revenue recognition. The standard and related amendments will be effective for the Company for its annual reporting period beginning July 1, 2017, including interim periods within that reporting period. Early application is not permitted. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. The Company is currently evaluating the newly issued guidance, including which transition approach will be applied and the estimated impact it will have on our consolidated 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 and services 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 deferred revenue reflected in the financial statements.
License Arrangements:   For software license agreements, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of the product or service has occurred, the fee is fixed and determinable and collection is probable. For arrangements where the fee is not fixed or determinable, revenue is deferred until payments become due. The Company’s software license agreements generally include multiple products and services or “elements.”  Generally, none of these elements are deemed to be essential to the functionality of the other elements.
For multiple element arrangements, which contain software elements and non-software elements, we allocate revenue to the software deliverables and the non-software deliverables as a group based on the relative selling prices of all of the deliverables in the arrangement. For our non-software deliverables, we allocate the arrangement consideration based on the relative selling price of the deliverables using estimated selling price ("ESP"). For our software elements, we use VSOE for this allocation when it can be established and ESP when VSOE cannot be established.
The selling price for each element is based upon the following selling price hierarchy: VSOE if available, third party evidence ("TPE") if VSOE is not available, or ESP if neither VSOE or TPE are available. Generally, we are not able to determine TPE because our go-to-market strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality cannot be obtained. ESP is determined after considering both market conditions (such as the sale of similar products in the market place) and entity-specific factors (such as pricing practices and the specifics of each transaction).

21


For our non-software deliverables, a delivered item is accounted for as a separate unit of accounting if the delivered item has standalone value and if the customer has a general right of return relative to the delivered item, delivery or performance of the undelivered item is probable and substantially within the vendor’s control.
For our software licenses and related services, including the software elements of multiple-element software and non-software arrangements, U.S. GAAP generally require revenue earned on software arrangements involving multiple elements to be allocated to each element based on VSOE of fair value. VSOE of fair value is determined for implementation services based on a rate per hour for stand-alone professional services and the estimated hours for the bundled implementation, if the hours can be reasonably estimated. VSOE of fair value is determined for post-contract support ("PCS") based upon the price charged when sold separately. For a majority of the elements within our software arrangements, we have determined that VSOE cannot be established; therefore, revenue on our software arrangements is generally deferred until the only remaining element is PCS. At that point, the entire arrangement fee is recognized ratably over the remaining PCS period, assuming that all other criteria for revenue recognition have been met. The amounts deferred are included in the balance sheet as deferred revenue and recognized to Bundled Products & Services revenue within Support & Service revenue in the income statement.
For arrangements that include specified upgrades, such upgrades are accounted for as a separate element of the arrangement. For those specified upgrades for which VSOE of fair value cannot be determined, revenue related to the software elements within the arrangement is deferred until such specified upgrades have been delivered.
Support and Service Fee Revenue (Non-software): Maintenance support revenue contracted for outside of a license arrangement is recognized pro-rata over the contract period, typically one year.
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. The Company also remarkets maintenance contracts on hardware to our customers. Hardware maintenance revenue is recognized ratably over the agreement period.
Revenue-based taxes collected from customers and remitted to governmental authorities are presented on a net basis (i.e. excluded from revenues).
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. Significant estimates and assumptions include: establishing when technological feasibility has been met and costs should be capitalized, 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. 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

22


individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect our financial results.
Assumptions related to purchase accounting and goodwill
We account for our acquisitions using the purchase method of accounting. This method requires estimates to determine the fair values of assets and liabilities acquired, including judgments to determine any acquired intangible assets such as customer-related intangibles, as well as assessments of the fair value of existing assets such as property and equipment. Liabilities acquired can include balances for litigation and other contingency reserves established prior to or at the time of acquisition, and require judgment in ascertaining a reasonable value. Third party valuation firms may be used to assist in the appraisal of certain assets and liabilities, but even those determinations would be based on significant estimates provided by us, such as forecast 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. The Company's most recent assessment indicates that no reporting units are currently at risk of impairment; however, significant changes in the estimates and assumptions used in purchase accounting and goodwill impairment testing could have a material effect on the consolidated financial statements.


23


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements
 
 
 
 
 
 
 
Years Ended June 30, 2014 (Restated), 2013 (Restated), and 2012 (Restated)
 
 
 
 
 
 
June 30, 2014 (Restated) and 2013 (Restated)
 
 
 
 
 
 
Years Ended June 30, 2014 (Restated), 2013 (Restated), and 2012 (Restated)
 
 
 
 
 
 
Years Ended June 30, 2014 (Restated), 2013 (Restated), and 2012 (Restated)
 
 
 
 

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.


24

Table of Contents

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, 2014 and 2013, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2014. 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 as of June 30, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2014, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 15 to the consolidated financial statements, the accompanying 2014, 2013 and 2012 consolidated financial statements have been restated to correct an error.
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, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 26, 2014 ( June 25, 2015 as to the effects of the material weakness described in Management’s Annual Report on Internal Control over Financial Reporting (Revised)) expressed an adverse opinion on the Company’s internal control over financial reporting because of a material weakness.



/s/ DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 26, 2014 ( June 25, 2015 as to the effects of the restatement discussed in Note 15)

25


MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING (Revised)

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.

In connection with the Original Filing on August 27, 2014, 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 (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO Framework"). Based on this assessment, management had determined the Company's internal control over financial reporting as of June 30, 2014 was effective.

In connection with the restatement discussed elsewhere in this 2014 Amended Annual Report on Form 10-K/A, management reevaluated the effectiveness of the Company's internal control over financial reporting as of June 30, 2014. As a result of the reevaluation and based on the criteria in the COSO Framework, management concluded, based upon the identification of a material weakness (the description of which is set forth below), that the Company did not maintain effective internal control over financial reporting as of June 30, 2014.

There are a number of deficiencies in the design and operating effectiveness of internal control over financial reporting that, in the aggregate, constitute a material weakness. The identified deficiencies noted below stem from a failure in the Company’s risk assessment process wherein the risk assessment process did not identify or evaluate the inherent risks and complexities associated with accounting for revenue arrangements with software elements.

The lack of training and continuing education related to multiple element software arrangements led to a lack of knowledge of the individuals tasked with understanding various technical accounting matters associated with the Company's multiple element arrangement revenue recognition policies.
Appropriate accounting and reporting policies and procedures related to bundled multiple element arrangements were not designed and implemented.
Appropriate internal controls over financial reporting for bundled multiple element arrangements were not designed and implemented.
Monitoring, including use of internal audit, was not appropriately designed to identify errors in accounting for revenue recognition for multiple element software arrangements.

These deficiencies in internal controls over financial reporting resulted in accounting errors in revenue recognition and delayed regulatory filings. See Note 15 - Restatement of Consolidated Financial Statements which is included in "Financial Statements and Supplementary Data" in Item 8 of this 2014 Amended Annual Report on Form 10-K/A for additional information.

The Company’s internal control over financial reporting as of June 30, 2014 has been audited by the Company’s independent registered public accounting firm, as stated in their report appearing on the next page.

26


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, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting (Revised). 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 report dated August 26, 2014, we expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. As described in the following paragraph, a material weakness was subsequently identified as a result of the restatement of the previously issued financial statements. Accordingly, management has revised its assessment about the effectiveness of the Company’s internal control over financial reporting and our present opinion on the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014, as expressed herein, is different from that expressed in our previous report.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment:
There are a number of deficiencies in the design and operating effectiveness of internal control over financial reporting that, in aggregate, constitute a material weakness. The identified deficiencies stem from a failure in the Company’s risk assessment process wherein the risk assessment process did not identify or evaluate the inherent risks and complexities associated with accounting for revenue arrangements with software elements. As a result of this failure, the following deficiencies were identified:

27


The lack of training and continuing education related to multiple element software arrangements led to a lack of competence with individuals tasked with understanding various technical accounting matters associated with the Company's multiple element arrangement revenue recognition policies.
Appropriate accounting and reporting policies and procedures related to bundled multiple element arrangements were not designed and implemented.
Appropriate internal control over financial reporting for bundled multiple element arrangements was not designed and implemented.
Monitoring, including use of internal audit, was not appropriately designed to identify errors in accounting for revenue recognition for multiple element software arrangements.
These deficiencies in internal control over financial reporting resulted in accounting errors in revenue recognition and delayed regulatory filings.
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended June 30, 2014, of the Company and this report does not affect our report on such financial statements.
In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of June 30, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of 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, 2014 of the Company, and our report dated August 26, 2014 ( June 25, 2015 as to the effects of the restatement discussed in Note 15 to the consolidated financial statements) expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the restatement of the consolidated financial statements.

/s/ DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 26, 2014 ( June 25, 2015 as to the effects of the material weakness described in Management’s Annual Report on Internal Control over Financial Reporting (Revised))


28


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
 
 
Year Ended
 
June 30,
 
2014 As Restated, See Note 15
 
2013 As Restated, See Note 15
 
2012 As Restated, See Note 15
REVENUE
 
 
 
 
 
License
$
2,184

 
$
5,366

 
$
5,652

Support and service
1,112,331

 
1,042,801

 
948,893

Hardware
58,658

 
59,357

 
63,122

Total revenue
1,173,173

 
1,107,524

 
1,017,667

 
 
 
 
 
 
COST OF SALES
 
 
 
 
 
Cost of license
908

 
860

 
2,291

Cost of support and service
634,756

 
601,620

 
550,570

Cost of hardware
43,708

 
43,650

 
45,983

Total cost of sales
679,372

 
646,130

 
598,844

 
 
 
 
 
 
GROSS PROFIT
493,801

 
461,394

 
418,823

 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
Selling and marketing
85,443

 
80,811

 
76,236

Research and development
66,748

 
63,202

 
60,876

General and administrative
53,312

 
66,624

 
50,119

Total operating expenses
205,503

 
210,637

 
187,231

 
 
 
 
 
 
OPERATING INCOME
288,298

 
250,757

 
231,592

 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
Interest income
377

 
640

 
1,176

Interest expense
(1,105
)
 
(6,337
)
 
(5,743
)
Total interest income (expense)
(728
)
 
(5,697
)
 
(4,567
)
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
287,570

 
245,060

 
227,025

 
 
 
 
 
 
PROVISION FOR INCOME TAXES
100,855

 
77,450

 
74,985

 
 
 
 
 
 
NET INCOME
$
186,715

 
$
167,610

 
$
152,040

 
 
 
 
 
 
Diluted earnings per share
$
2.19

 
$
1.94

 
$
1.74

Diluted weighted average shares outstanding
85,396

 
86,619

 
87,287

 
 
 
 
 
 
Basic earnings per share
$
2.20

 
$
1.95

 
$
1.76

Basic weighted average shares outstanding
84,866

 
86,040

 
86,599


See notes to consolidated financial statements

29

Table of Contents

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
 
 
2014 As Restated, See Note 15
 
2013 As Restated, See Note 15
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
70,377

 
$
127,905

Receivables, net
224,041

 
231,263

Income tax receivable
7,937

 
6,107

Prepaid expenses and other
61,074

 
60,843

Deferred costs
27,077

 
30,001

Total current assets
390,506

 
456,119

PROPERTY AND EQUIPMENT, net
291,675

 
300,511

OTHER ASSETS:
 
 
 
Non-current deferred costs
78,458

 
57,836

Computer software, net of amortization
160,391

 
132,612

Other non-current assets
44,657

 
35,470

Customer relationships, net of amortization
136,602

 
147,167

Other intangible assets, net of amortization
25,653

 
9,380

Goodwill
552,761

 
533,291

Total other assets
998,522

 
915,756

Total assets
$
1,680,703

 
$
1,672,386

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
10,516

 
$
11,701

Accrued expenses
63,299

 
68,528

Deferred income tax liability
30,094

 
22,366

Notes payable and current maturities of long term debt
5,407

 
7,929

Deferred revenues
337,493

 
323,678

Total current liabilities
446,809

 
434,202

LONG TERM LIABILITIES:
 
 
 
Non-current deferred revenues
155,375

 
115,918

Non-current deferred income tax liability
97,720

 
93,498

Debt, net of current maturities
3,729

 
7,366

Other long-term liabilities
9,683

 
5,586

Total long term liabilities
266,507

 
222,368

Total liabilities
713,316

 
656,570

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

 

Common stock - $0.01 par value; 250,000,000 shares authorized;
102,429,926 shares issued at June 30, 2014;
101,993,808 shares issued at June 30, 2013
1,024

 
1,020

Additional paid-in capital
412,512

 
400,710

Retained earnings
1,131,632

 
1,016,168

Less treasury stock at cost
19,794,559 shares at June 30, 2014;
16,753,889 shares at June 30, 2013
(577,781
)
 
(402,082
)
Total stockholders' equity
967,387

 
1,015,816

Total liabilities and equity
$
1,680,703

 
$
1,672,386

See notes to consolidated financial statements

30

Table of Contents

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
 
 
 
Year Ended June 30,
 
2014 As Restated, See Note 15
 
2013 As Restated, See Note 15
 
2012 As Restated, See Note 15
 
 
 
 
 
 
PREFERRED SHARES:

 

 

 
 
 
 
 
 
COMMON SHARES:
 
 
 
 
 
Shares, beginning of year
101,993,808

 
101,482,461

 
100,766,173

Shares issued for equity-based payment arrangements
344,372

 
405,270

 
594,428

Shares issued for Employee Stock Purchase Plan
91,746

 
106,077

 
121,860

Shares, end of year
102,429,926

 
101,993,808

 
101,482,461

 
 
 
 
 
 
COMMON STOCK - PAR VALUE  $0.01 PER SHARE:
 
 
 
 
 
Balance, beginning of year
$
1,020

 
$
1,015

 
$
1,008

Shares issued for equity-based payment arrangements
3

 
4

 
6

Shares issued for Employee Stock Purchase Plan
1

 
1

 
1

Balance, end of year
$
1,024

 
$
1,020

 
$
1,015

 
 
 
 
 
 
ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
Balance, beginning of year
$
400,710

 
$
381,919

 
$
361,131

Shares issued upon exercise of stock options
606

 
6,771

 
10,998

Tax withholding related to share based compensation
(6,598
)
 
(3,926
)
 
(4,112
)
Shares issued for Employee Stock Purchase Plan
4,283

 
3,699

 
3,321

Tax benefits from share-based compensation
3,420

 
3,632

 
3,631

Stock-based compensation expense
10,091

 
8,615

 
6,950

Balance, end of year
$
412,512

 
$
400,710

 
$
381,919

 
 
 
 
 
 
RETAINED EARNINGS:
 
 
 
 
 
Balance, beginning of year
$
1,016,168

 
$
896,760

 
$
782,848

Net income
186,715

 
167,610

 
152,040

Dividends
(71,251
)
 
(48,202
)
 
(38,128
)
Balance, end of year
$
1,131,632

 
$
1,016,168

 
$
896,760

 
 
 
 
 
 
TREASURY STOCK:
 
 
 
 
 
Balance, beginning of year
$
(402,082
)
 
$
(343,956
)
 
$
(309,585
)
Purchase of treasury shares
(175,699
)
 
(58,126
)
 
(34,371
)
Balance, end of year
$
(577,781
)
 
$
(402,082
)
 
$
(343,956
)
 
 
 
 
 
 
TOTAL STOCKHOLDERS' EQUITY
$
967,387

 
$
1,015,816

 
$
935,738

See notes to consolidated financial statements.

31

Table of Contents

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
 
 
 
Year Ended
 
June 30,
 
2014 As Restated, See Note 15
 
2013 As Restated, See Note 15
 
2012 As Restated, See Note 15
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net Income
$
186,715

 
$
167,610

 
$
152,040

Adjustments to reconcile net income from operations
     to net cash from operating activities:
 
 
 
 
 
Depreciation
52,935

 
51,967

 
45,322

Amortization
54,836

 
48,374

 
49,297

Change in deferred income taxes
12,752

 
18,336

 
20,911

Excess tax benefits from stock-based compensation
(3,406
)
 
(3,621
)
 
(3,465
)
Expense for stock-based compensation
10,091

 
8,615

 
6,950

(Gain)/loss on disposal of assets
(784
)
 
3,908

 
1,198

Changes in operating assets and liabilities:
 
 
 
 
 
Change in receivables  
7,498

 
(12,739
)
 
(10,795
)
Change in prepaid expenses, deferred costs and other
(28,565
)
 
(11,502
)
 
(27,761
)
Change in accounts payable
(1,252
)
 
(4,582
)
 
3,488

Change in accrued expenses
(6,364
)
 
7,774

 
7,770

Change in income taxes
5,251

 
4,575

 
9,257

Change in deferred revenues
51,952

 
30,459

 
10,338

Net cash from operating activities
341,659

 
309,174

 
264,550

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Payment for acquisitions, net of cash acquired
(27,894
)
 

 

Capital expenditures
(33,185
)
 
(46,256
)
 
(41,441
)
Proceeds from sale of assets
7,781

 
530

 
2,772

Customer contracts acquired

 
(186
)
 
(720
)
Internal use software
(16,288
)
 

 

Computer software developed
(62,194
)
 
(51,332
)
 
(37,873
)
Proceeds from investments

 

 
3,000

Purchase of investments

 

 
(2,000
)
Net cash from investing activities
(131,780
)
 
(97,244
)
 
(76,262
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
Borrowings on credit facilities
25,000

 

 

Repayments on credit facilities
(47,158
)
 
(145,180
)
 
(35,280
)
Purchase of treasury stock
(175,699
)
 
(58,126
)
 
(34,371
)
Dividends paid
(71,251
)
 
(48,202
)
 
(38,128
)
Excess tax benefits from stock-based compensation
3,406

 
3,621

 
3,465

Proceeds from issuance of common stock upon exercise of stock options
609

 
6,775

 
11,004

Minimum tax withholding payments related to share based compensation
(6,598
)
 
(3,926
)
 
(4,112
)
Proceeds from sale of common stock, net
4,284

 
3,700

 
3,322

Net cash from financing activities
(267,407
)
 
(241,338
)
 
(94,100
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
(57,528
)
 
$
(29,408
)
 
$
94,188

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
127,905

 
$
157,313

 
$
63,125

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
70,377

 
$
127,905

 
$
157,313



32

Table of Contents

See notes to consolidated financial statements

33

Table of Contents

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 (Restated)
DESCRIPTION OF THE COMPANY
Jack Henry & Associates, Inc. and subsidiaries (“JHA” or the “Company”) is a 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), 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 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 arrangements, support and service fees (non-software) and hardware sales. There are no rights of return, condition of acceptance or price protection in the Company’s sales contracts.
License Arrangements:   For software license agreements, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of the product or service has occurred, the fee is fixed and determinable and collection is probable. For arrangements where the fee is not fixed or determinable, revenue is deferred until payments become due. The Company’s software license agreements generally include multiple products and services or “elements.”  Generally, none of these elements are deemed to be essential to the functionality of the other elements.
For multiple element arrangements, which contain software elements and non-software elements, we allocate revenue to the software deliverables and the non-software deliverables as a group based on the relative selling prices of all of the deliverables in the arrangement. For our non-software deliverables, we allocate the arrangement consideration based on the relative selling price of the deliverables using estimated selling price ("ESP"). For our software elements, we use VSOE for this allocation when it can be established and ESP when VSOE cannot be established.
The selling price for each element is based upon the following selling price hierarchy: VSOE if available, third party evidence ("TPE") if VSOE is not available, or ESP if neither VSOE or TPE are available. Generally, we are not able to determine TPE because our go-to-market strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality cannot be obtained. ESP is determined after considering both market conditions (such as the sale of similar products in the market place) and entity-specific factors (such as pricing practices and the specifics of each transaction).
For our non-software deliverables, a delivered item is accounted for as a separate unit of accounting if the delivered item has standalone value and if the customer has a general right of return relative to the delivered item, delivery or performance of the undelivered item is probable and substantially within the vendor’s control.
For our software licenses and related services, including the software elements of multiple-element software and non-software arrangements, 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. VSOE of fair value is determined for implementation services based on a rate per hour for stand-alone professional services and the estimated hours for the bundled implementation, if the hours can be reasonably estimated. VSOE of fair value is determined for post-contract support ("PCS") based upon the price charged when sold separately. For a majority of the elements within our software arrangements, we have determined that VSOE cannot be established; therefore, revenue on our software arrangements is generally deferred until the only remaining element is post-contract support ("PCS"). At that point, the entire arrangement fee is recognized ratably over the remaining PCS period, assuming that

34


all other criteria for revenue recognition have been met. The amounts deferred are included in the balance sheet as deferred revenue and recognized to Bundled Products & Services revenue within Support & Service revenue in the income statement.
For arrangements that include specified upgrades, such upgrades are accounted for as a separate element of the arrangement. For those specified upgrades for which VSOE of fair value cannot be determined, revenue related to the software elements within the arrangement is deferred until such specified upgrades have been delivered.
Total revenue recognized ratably related to our Bundled Products & Services was $60,685 , $64,275 and $73,942 for the years ended June 30, 2014 , 2013 , and 2012 , respectively.
Support and Service Fee Revenue (Non-software): Maintenance support revenue contracted for outside of a license arrangement is recognized pro-rata over the contract period, typically one year.
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. The Company also remarkets maintenance contracts on hardware to our customers. Hardware maintenance revenue is recognized ratably over the agreement period.
Revenue-based taxes collected from customers and remitted to governmental authorities are presented on a net basis (i.e. excluded from revenues).
DEFERRED COSTS
Costs for certain software and hardware maintenance contracts with third parties, which are prepaid, are recognized ratably over the life of the maintenance contract, generally one to five years, with the related revenue amortized from deferred revenues.
Direct and incremental costs associated with arrangements subject to Accounting Standards Codification ("ASC") 985-605 (for which VSOE of fair value cannot be established) are deferred until the only remaining element in the revenue arrangement is PCS at which point the costs are recognized ratably over the remaining PCS period with the related revenue. Direct and incremental costs associated with arrangements not subject to ASC 985-605 consist primarily of certain up-front costs incurred in connection with our software hosting arrangements and are recognized ratably over the contract period which typically ranges from 5-7 years. These costs include commissions, costs of third-party licenses and the direct costs of our implementation services, consisting of payroll and other fringe benefits.
DEFERRED REVENUES
Deferred revenues consist primarily of prepaid annual software support fees, deferred bundled software arrangements revenue, and prepaid hardware maintenance fees. Deferred bundled software arrangements revenue and hardware maintenance contracts may be recognized over multiple years; therefore, the related 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.
The vast majority of our maintenance (PCS) renews annually and runs from July 1 to June 30. Renewal billings are submitted to customers each June and the Company has the right to bill at that date; therefore we include those billings as gross in deferred revenue and as a receivable on our balance sheet at the end of each fiscal year.
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. 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. All of this amortization expense is included within Cost of support and service.
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.

35


PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment is stated at cost and depreciated 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.
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 other indefinite-lived intangible assets 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, 2014 , 2013 , and 2012 equals the Company’s net income.
REPORTABLE SEGMENT INFORMATION
In accordance with U.S. GAAP, the Company's operations are classified as two reportable segments: bank systems and services and credit union systems and services (see Note 13). Revenue by type of product and service is presented on the face of the consolidated statements of income. Substantially all the Company’s revenues are derived from operations and assets located within the United States of America.
COMMON STOCK
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 facilities. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At June 30, 2014 , there were 19,795 shares in treasury stock and the Company had the remaining authority to repurchase up to 5,196 additional shares. The total cost of treasury shares at June 30, 2014 is $577,781 . During fiscal 2014 , the Company repurchased 3,041 treasury shares for $175,699 . At June 30, 2013 , there were 16,754 shares in treasury stock and the Company had authority to repurchase up to 8,237 additional shares.
Dividends declared per share were $0.84 , $0.56 , and $0.44 for the years ended June 30, 2014 , 2013 , and 2012 , respectively.
EARNINGS 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
The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers in May 2014. The new standard will supersede much of the existing authoritative literature for revenue recognition. The standard and related amendments will be effective for the Company for its annual reporting period beginning July 1, 2017, including interim periods within that reporting period. Early application is not permitted. Entities are allowed to transition to the new standard by either recasting prior periods or

36


recognizing the cumulative effect. The Company is currently evaluating the newly issued guidance, including which transition approach will be applied and the estimated impact it will have on our consolidated financial statements.

NOTE 2.    FAIR VALUE OF FINANCIAL INSTRUMENTS
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 and liabilities. The fair value of long term debt also approximates carrying value as estimated using discounted cash flows based on the Company’s current incremental borrowing rates or quoted prices in active markets.
The Company's estimates of the fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows:
Level 1: inputs to the valuation are quoted prices in an active market for identical assets
Level 2: inputs to the valuation include quoted prices for similar assets in active markets that are observable either directly or indirectly
Level 3: valuation is based on significant inputs that are unobservable in the market and the Company's own estimates of assumptions that we believe market participants would use in pricing the asset
Fair value of financial assets, included in cash and cash equivalents, is as follows:
 
 
Estimated Fair Value Measurements
 
Total Fair
 
 
Level 1
 
Level 2
 
Level 3
 
Value
June 30, 2014
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
28,877

 
$

 
$

 
$
28,877

June 30, 2013
 
 

 
 
 
 
 
 

Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
101,576

 
$

 
$

 
$
101,576


NOTE 3.    PROPERTY AND EQUIPMENT
The classification of property and equipment, together with their estimated useful lives is as follows: