Jack Henry & AssociatesRadityo Ardi NugrahaJohn Sun

RCMP Position

Purchase Date: Nov 11, 1999# Shares purchased: 200Stock splits date: Mar 3, 2000 and

Mar 5, 2001Currently owned shares:

# shares: 800Base Price: $9.00

Constitutes 5% of all current holdings

Stocks Facts

Current Shares Price: $22.20

Market Cap: $2.01B

52wk Range: $17.40 - $23.77

P/E (ttm): 22.59

Div & Yield: 0.22 (1.00%)

Company History In 1976, Jack Henry and Jerry Hall found Jack

Henry & Associates in Monet, Missouri

In 1985, Jack Henry & Associates became public, traded at NASDAQ

In 1992 had a mission to expand its customer base and breadth of offerings through strategic development and acquisition of additional technology solutions

By 1995 Jack Henry offered ATM and imaging solutions, and outsourced data processing solutions.

Company History (cont.) Started in 1992, in order to grow, Jack Henry began to

acquire companies that provided complementary products and services to its own core customer base and companies that offered products and services to a broader range of client types and sizes.

In fiscal year 2005, Jack Henry acquired 8 companies, which are: Tangent Analytics, LLC ($4M), RPM Intelligence, LLC ($6.2M), SERSynergy ($34.5M), TWS Systems, Inc. ($10.9M), Optinfo, Inc. ($15.1M), Verinex Technologies, Inc. ($35m), Select Payment Processing, Inc. ($12M), and Banc Insurance Services, Inc.($6.7M)

In fiscal year 2006, Jack Henry acquired Profitstar Inc ($19.3M).

Jack Henry counts over 8,700 financial institutions as customers

Company Business Provides data processing solutions to small

banks and credit unions (assets under $30 billion).

Customers either install systems in-house or outsource their operations to Jack Henry.

3 sources of revenue: Software licensing Support and Service Hardware

Business Description

Core Systems Can be used in-house or outsourced. Provide core processing functionality: deposits, loans, etc. 5 core systems:

Silverlake System: for banks with $500 million to $30 billion in assets

CIF 20/20: for banks with less than $1 billion in assets Core Director: for banks with less than $1 billion in

assets (Windows-based) Episys: for credit unions with greater than $50 million

in assets Cruise: for credit unions with less than $50 million in

assets

Business Description (cont.)

Complementary Products Allow the company to offer custom-

tailored, integrated suites of software solutions.

Expose the company to high-growth areas, like security, risk management, online bill pay, and electronic funds transfer.

Product offering expanded through acquisitions.

Business Description (cont.)

Examples of complementary products Synapsis: Relationship management (customer

profiling, referral tracking, etc.) NetTeller: Online home banking system with

real-time account information and transaction capabilities.

Remote Deposit Capture: Peforms image capture, storage, and processing for paper checks.

PassPort: Drives and monitors ATM networks. Biodentify: Biometric fingerprint security. Centurion Disaster Recovery: Disaster recovery

protection

Major Competitors

Fidelity national Information Services (FIS) with $6.7B Mkt. Cap

Fiserv Inc. (FISV) with $7.6B Mkt. Cap

Macro Economic Overview GICS Sector: Information Technology

Sub-industry: Application Software Stable industry outlook. Spending expected to accelerate

slow growth (around 5%) Commoditization of software industry. Competition from

international (Indian, Eastern European) developers.

Peer Group: Accounting and Financial Software Consolidation: Number of commercial banks has declined

by 4% annually over past five years. Credit unions have consolidated at the same rate.

Sarbanes-Oxley compliance a major information technology hurdle and source of IT spending.

Stock Market Performance

Share Price History

01020304050607080

11/1

1/19

99

5/11

/200

0

11/1

1/20

00

5/11

/200

1

11/1

1/20

01

5/11

/200

2

11/1

1/20

02

5/11

/200

3

11/1

1/20

03

5/11

/200

4

11/1

1/20

04

5/11

/200

5

11/1

1/20

05

5/11

/200

6

Year

Pri

ce

Stock Market Performance (cont.)

Revenue by Segment

Hardware – comprises a smaller percentage of total revenues due to low margins and stiff competition from other players

License – Grows as a slowing rate as trends in bank consolidation limits new customers

Support – Grows to be a majority of Revenue due to higher margins and cross-selling potential / higher growth ceiling.

Revenue by Segment

Revenue by Segment

$0.00

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

$1,400,000.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Year

Rev

enue

s Hardware

Support and service

License

Profit by Segment

Gross Profit by Segment

$0.00

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

$700,000.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Year

Gro

ss P

rofit Gross Profit hardware

Gross Profit services

Gross Profit license

Modeling and Forecasting

2-tier modeling approachFull model from 2007-2011Reduced Model from 2011-2015 (8%)Terminal Growth = 4%3 Scenarios – Upside, Base case,

Downside

Modeling and Forecasting

Upside:No setback, steady revenue growth

matching highest historical rateOverhead costs as % of revenue declines

at historical rate to a resonable terminal rate

Associated acquisitions and business costs grow at a slower rate

Modeling and Forecast

Base Case:Semi-steady revenue growth – some

setbacks/periods of economic declineOverhead costs remain constant as % of

revenuesAcquisitions and business costs grow at

slowing historical rate to a reasonable terminal rate

Modeling and Forecasting

Downside:2007, 2008 general economic slow down,

marked by a period of revenue decline and much lower margins

Recovers by 2009Growth rates slow at a faster rate as

revenues increase YoY.

Sensitivity Analysis

Revenue Projections

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Year

% G

row

th Downside

Basecase

Upside

DCF Valuation

Final Year (2006) Free Cash Flow = $126,682Caused by dramatic decline in working

capitalNot likely to continue as a trend

DCF Valuation

Upside - $23-24Base Case - $16-18Downside - $13+“Fair Value” - $15-21

Recommendation

JKHY currently trades at 22.27Above high end of DCF “fair value”

projectionsSell 400 shares at market to recover

our investment. Remain long 400 shares as company

is still a well-managed, but fully valued opportunity.