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OFFON

JACK HENRY & ASSOCIATES, INC.

(JKHY)
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Jack Henry & Associates : HENRY JACK & ASSOCIATES INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

08/25/2021 | 02:28pm EST

The following section provides management's view of the Company's financial condition and results of operations and should be read in conjunction with the audited consolidated financial statements, and related notes included elsewhere in this report. All dollar and share amounts, except per share amounts, are in thousands and discussions compare fiscal 2021 to fiscal 2020. Discussions of fiscal 2019 items and comparisons between fiscal 2019 and fiscal 2020 that are not included in this Form 10-K can be found in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

OVERVIEW

Jack Henry & Associates, Inc. is headquartered in Monett, Missouri, employs
approximately 6,800 full-time and part-time associates nationwide, and is a
leading provider of technology solutions and payment processing services
primarily for financial services organizations. Its solutions serve nearly 8,400
customers and are marketed and supported through three primary brands. Jack
Henry Banking® is a leading provider of integrated data processing systems
solutions to U.S. banks ranging from de novo to multi-billion-dollar
institutions with assets up to $50 billion. Symitar® is a leading provider of
core data processing solutions for credit unions of all sizes. ProfitStars®
provides highly specialized core agnostic 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. JKHY's integrated
solutions are available for on-premise installation and delivery in our private
cloud.
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 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 primary marketed brands. We provide
compatible computer hardware for our on-premise installations and secure
processing environments for our outsourced solutions in our private cloud. We
perform data conversions, software implementations, initial and ongoing customer
training, and ongoing customer support services.
We believe 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 randomly generated daily 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.
Our two primary revenue streams are "services and support" and "processing."
Services and support includes: "private and public cloud" fees (formerly known
as "outsourcing and cloud" fees - see Note 2 to the consolidated financial
statements) that predominantly have contract terms of seven years or longer at
inception; "product delivery and services" revenue, which includes revenue from
the sales of licenses, implementation services, deconversion fees, consulting,
and hardware; and "on-premise support" revenue (formerly known as "in-house
support" revenue - see Note 2 to the consolidated financial statements),
composed of maintenance fees which primarily contain annual contract terms.
Processing revenue includes: "remittance" revenue from payment processing,
remote capture, and ACH transactions; "card" fees, including card transaction
processing and monthly fees; and "transaction and digital" revenue, which
includes transaction and mobile processing fees. We continually seek
opportunities to increase revenue while at the same time containing costs to
expand margins.
We have four reportable segments: Core, Payments, Complementary, and Corporate
and Other. The respective segments include all related revenues along with the
related cost of sales.
COVID-19 Impact and Response
Since its outbreak in early 2020, COVID-19 has rapidly spread and continues to
represent a public health concern. The health, safety, and well-being of our
employees and customers is of paramount importance to us. In March
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2020, we established an internal task force composed of executive officers and
other members of management to frequently assess updates to the COVID-19
situation and recommend Company actions. We offered remote working as a
recommended option to employees whose job duties allowed them to work off-site
and we suspended all non-essential business travel. This company-wide
recommendation extended until July 1, 2021, at which point we began transition
to a return to our facilities and normalization of travel activities. Individual
decisions on returning to the office were manager-coordinated and based on
conversations with specific teams and departments. A large number of our
employees requested to remain fully remote or participate in a hybrid approach
where they would split their time between remote and in-person working. We have
not required employees who return to our facilities to receive vaccinations, but
we have provided information on vaccine providers, as well as hosted on-site
COVID-19 vaccination clinics at several of our facilities for our employees and
their families. On August 3, 2021, we reimplemented our company-wide
recommendation for remote work and are encouraging a cautious approach to
business travel based on the spread of the Delta variant and increased infection
rates. For those employees who are at our facilities, we have introduced
enhanced sanitation procedures and we require face masks for both vaccinated and
unvaccinated employees. As of August 13, 2021, the majority of our employees
were continuing to work remotely either full time or in a hybrid capacity.
Customers
We work closely with our customers who are scheduled for on-site visits to
ensure their needs are met while taking necessary safety precautions when our
employees are required to be at a customer site. Delays of customer system
installations due to COVID-19 have been limited, and we have developed processes
to handle remote installations when available. We expect these processes to
provide flexibility and value both during and after the COVID-19 pandemic. Even
though a substantial portion of our workforce has worked remotely during the
outbreak and business travel has been curtailed, we have not yet experienced
significant disruption to our operations. We believe our technological
capabilities are well positioned to allow our employees to work remotely without
materially impacting our business.
Financial impact
Despite the changes and restrictions caused by COVID-19, the overall financial
and operational impact on our business has been limited and our liquidity,
balance sheet, and business trends remain strong. We experienced positive
operating cash flows during fiscal 2021, and we do not expect that to change in
the near term. However, we are unable to accurately predict the future impact of
COVID-19 due to a number of uncertainties, including further government actions;
the duration, severity and recurrence of the outbreak, including the onset of
variants of the virus; the speed and effectiveness of vaccine and treatment
developments; the speed of economic recovery; the potential impact to our
customers, vendors, and employees; and how the potential impact might affect
future customer services, processing and installation-related revenue, and
processes and efficiencies within the Company directly or indirectly impacting
financial results. We will continue to monitor COVID-19 and its possible impact
on the Company and to take steps necessary to protect the health and safety of
our employees and customers. For a further discussion of the uncertainties and
risks associated with COVID-19, see Part II, Item 1A "Risk Factors" in this
Annual Report on Form 10-K.
A detailed discussion of the major components of the results of operations
follows.
RESULTS OF OPERATIONS
FISCAL 2021 COMPARED TO FISCAL 2020
In fiscal 2021, total revenue increased 4% or $61,158, compared to fiscal 2020.
Reducing total revenue for the effects of deconversion fees of $20,635 for the
current fiscal year and $53,914 for the prior fiscal year, and for revenue from
acquisitions and divestitures in fiscal 2021 of $9 and in fiscal 2020 of $3,574,
results in a 6% increase, or $98,002. This increase was primarily driven by
growth in card processing, data processing and hosting fee, Jack Henry digital
and remittance fee, and software usage fee revenues, partially offset by lower
hardware revenues and decreased pass-through billable travel and user group
expenses year over year due to COVID-19 travel limitations (see "COVID-19 Impact
and Response" above).
Operating expenses increased 3% in fiscal 2021 compared to fiscal 2020,
primarily due to higher costs related to our card payment processing platform
associated with corresponding increases in revenue, higher personnel costs, and
increased operating licenses and fees, partially offset by more capitalized
costs related to research and development, travel expense savings as a result of
COVID-19 travel limitations (see "COVID-19 Impact and Response" above), the gain
on sale of assets this fiscal year compared to the loss last fiscal year, and
lower hardware costs associated with a corresponding decrease in revenues.
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We move into fiscal 2022 following strong performance in fiscal 2021.
Significant portions of our business continue to provide recurring revenue and
our 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, efficiency, and security. We
believe 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.
A detailed discussion of the major components of the results of operations for
the fiscal year ended June 30, 2021 follows.
REVENUE
Services and Support Revenue           Year Ended June 30,            % Change
                                      2021              2020
Services and support             $ 1,048,206       $ 1,051,451             -  %
Percentage of total revenue               60  %             62  %

Services and support includes: "private and public cloud" fees that predominantly have contract terms of seven years or greater at inception; "product delivery and services" revenue, which includes revenue from the sales of licenses, implementation services, deconversion fees, consulting, and hardware; and "on-premise support" revenue, which is composed primarily of maintenance fees with annual contract terms. In the fiscal year ended June 30, 2021, services and support revenue remained consistent compared to the prior fiscal year. Reducing total services and support revenue by the effects of deconversion fees for each year, which totaled $20,635 in fiscal 2021 and $53,914 in fiscal 2020, and for revenue from acquisitions and divestitures in fiscal 2020 of $3,572, revenue grew 3%. This increase was primarily driven by higher private and public cloud revenue resulting from organic growth in data processing and hosting fee revenue reflecting a continuing shift of customers to our term license model. Growth in software usage revenue also contributed to the increase. Decreased pass-through expenses due to COVID-19 travel limitations (see "COVID-19 Impact and Response" above) and lower hardware revenues partially offset revenue increases. Processing Revenue

                                               %
                                  Year Ended June 30,          Change
                                  2021            2020
Processing                    $ 710,019       $ 645,616          10  %
Percentage of total revenue          40  %           38  %


Processing revenue includes: "remittance" revenue from payment processing, remote capture, and automated clearinghouse ("ACH") transactions; "card" fees, including card transaction processing and monthly fees; and "transaction and digital" revenue, which includes transaction and mobile processing fees. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins. Processing revenue increased 10% for the fiscal year ended June 30, 2021 compared to the fiscal year ended June 30, 2020, with strong organic growth in the card, transaction and digital, and remittance revenue components primarily due to expanding volumes.

OPERATING EXPENSES
Cost of Revenue                                                      %
                                    Year Ended June 30,            Change
                                   2021              2020
Cost of revenue               $ 1,063,399       $ 1,008,464           5  %
Percentage of total revenue            60  %             59  %


Cost of revenue for fiscal 2021 increased 5% compared to fiscal 2020. Reducing total cost of revenue for the effects of deconversion fees from each year, which totaled $1,425 in fiscal 2021 and $4,055 in fiscal 2020, and for the effects of acquisitions, divestitures, and gain/loss of $123 in the current fiscal year and $2,151 in the prior fiscal year, cost of revenue increased 6%. This increase was driven by higher direct costs associated with our card processing platform in correlation with related revenue increases; higher personnel costs and operating licenses and fees, partially offset by savings realized from travel limitations due to COVID-19 (see "COVID-19 Impact and

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Response" above) and lower hardware costs corresponding with decreased hardware
revenue. Cost of revenue increased 1% as a percentage of total revenue for
fiscal 2021 compared to fiscal 2020.
Research and Development                                         %
                                  Year Ended June 30,          Change
                                  2021            2020

Research and development $ 109,047 $ 109,988 (1) % 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. 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 for fiscal 2021 decreased 1% compared to
fiscal 2020. The decrease was primarily due to higher capitalized research and
development costs partially offset by an increase in personnel costs. The
consistency of this expense category for the fiscal years presented reflected
our continuing commitment to the development of strategic products. Research and
development expense remained consistent as a percentage of total revenue for
fiscal 2021 and fiscal 2020.
Selling, General, and Administrative                                      %
                                           Year Ended June 30,          Change
                                           2021            2020

Selling, general, and administrative $ 187,060 $ 197,988 (6) % Percentage of total revenue

                   11  %           12  %


Selling, general, and administrative costs included all expenses related to
sales efforts, commissions, finance, legal, and human resources, plus all
administrative costs.
Selling, general, and administrative expenses for fiscal 2021 decreased 6%
compared to fiscal 2020. Reducing total selling, general, and administrative
expense for the effects of deconversion fees from each year, which totaled $489
in fiscal 2021 and $973 in fiscal 2020, and for the effects of acquisitions,
divestitures, and gain/loss of $(1,950) for the current fiscal year and of
$4,893 for the prior fiscal year, selling, general, and administrative expense
decreased 2% compared to fiscal 2020. This decrease was primarily due to travel
expense and other savings as a result of COVID-19 travel limitations partially
offset by increased personnel costs. COVID-19 related savings included our
national sales meeting, Jack Henry Annual Conference, and Symitar Education
Conference being held virtually during the current fiscal year (see "COVID-19
Impact and Response" above). Selling, general, and administrative expense
decreased 1% as a percentage of total revenue for fiscal 2021 compared to fiscal
2020.
INTEREST INCOME AND EXPENSE                                        %
                                   Year Ended June 30,           Change
                                    2021             2020
Interest income               $       150          $ 1,137        (87) %
Interest expense              $    (1,144)         $  (688)        66  %

Interest income fluctuated due to changes in invested balances and yields on invested balances. Interest expense increased in fiscal 2021 mainly due to the timing and amounts of borrowed balances. PROVISION/ (BENEFIT) FOR INCOME TAXES

                                       %
                                              Year Ended June 30,         Change
                                              2021           2020
Provision/ (Benefit) for income taxes     $  86,256       $ 84,408           2  %
Effective rate                                 21.7  %        22.1  %


The decrease in the Company's effective tax rate in fiscal 2021 compared to fiscal 2020 was primarily due to a greater benefit in the current fiscal year related to stock-based compensation.

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NET INCOME                                                      %
                                  Year Ended June 30,         Change
                                  2021           2020
Net income                    $  311,469      $ 296,668          5  %
Diluted earnings per share    $     4.12      $    3.86          7  %

Net income grew 5% to $311,469, or $4.12 per diluted share, in fiscal 2021 from $296,668, or $3.86 per diluted share, in fiscal 2020. The diluted earnings per share increase year over year was 7%. Growth in net income and earnings per share was primarily due to the organic growth in our lines of revenue in fiscal 2021 compared to fiscal 2020 and expense savings from COVID-19 related impacts in the current fiscal year (see "COVID-19 Impact and Response" above).


REPORTABLE SEGMENT DISCUSSION
The Company is a leading provider of technology solutions and payment processing
services primarily for financial services organizations.
The Company's operations are classified into four reportable segments: Core,
Payments, Complementary, and Corporate and Other. The Core segment provides core
information processing platforms to banks and credit unions, which consist of
integrated applications required to process deposit, loan, and general ledger
transactions, and maintain centralized customer/member information. The Payments
segment provides secure payment processing tools and services, including ATM,
debit, and credit card processing services; online and mobile bill pay
solutions; ACH origination and remote deposit capture processing; and risk
management products and services. The Complementary segment provides additional
software, hosted processing platforms, and services, including call center
support, and network security management, consulting, and monitoring, that can
be integrated with our core solutions and many can be used independently. The
Corporate and Other segment includes revenue and costs from hardware and other
products not attributed to any of the other three segments, as well as operating
costs not directly attributable to the other three segments.
During the second quarter of fiscal 2021, Jack Henry's call center was
consolidated into the Complementary segment. As a result of this consolidation,
immaterial adjustments were made during fiscal 2021 to reclassify related
revenue and costs recognized during the fiscal years ended June 30, 2020 and
2019 from the Core to the Complementary segment. The total related revenue
reclassified was $20,797 for fiscal 2020 and $13,515 for fiscal 2019. The total
related cost of revenue reclassified was $12,386 for fiscal 2020 and $8,513 for
fiscal 2019.
Core
                      2021         % Change        2020
Revenue            $ 564,096            -  %    $ 561,369
Cost of Revenue    $ 247,285            3  %    $ 240,492

In fiscal 2021, revenue in the Core segment remained consistent compared to fiscal 2020. Reducing total Core revenue by the effects of deconversion fees from both years, which totaled $7,458 in fiscal 2021 and $25,536 in fiscal 2020, and for revenue from acquisitions and divestitures in fiscal 2020 of $3,574, Core segment revenue increased 5%. This increase was primarily driven by organic increases in our private and public cloud revenue. Cost of revenue in the Core segment increased 3% for fiscal 2021 compared to fiscal 2020 primarily due to increased costs associated with the organic growth in cloud revenue. Cost of revenue increased 1% as a percentage of revenue for fiscal 2021 compared to fiscal 2020. Payments

                     2021         % Change        2020
Revenue           $ 642,308            7  %    $ 597,693
Cost of Revenue   $ 353,581           11  %    $ 319,739


In fiscal 2021, revenue in the Payments segment increased 7% compared to fiscal 2020. Reducing total Payments revenue by the effects of deconversion fees from both years, which totaled $6,285 in fiscal 2021 and $15,411 in fiscal 2020, Payments segment revenue increased 9%. This increase was primarily driven by organic growth within card processing and remittance fee revenues. Cost of revenue in the Payments segment increased 11% for fiscal 2021 compared to fiscal 2020 primarily due to increased costs associated with our card processing platform and

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other costs related to the organic growth in card processing and remittance
fees. Cost of revenue increased 1.5% as a percentage of revenue for fiscal 2021
compared to fiscal 2020.
Complementary
                     2021         % Change        2020
Revenue           $ 505,928            4  %    $ 484,146
Cost of Revenue   $ 212,627            4  %    $ 203,963

Revenue in the Complementary segment increased 4% for fiscal 2021 compared to fiscal 2020. Reducing total Complementary revenue by the effects of deconversion fees from both years, which totaled $6,778 in fiscal 2021 and $12,536 in fiscal 2020, and for revenue from acquisitions and divestitures of $9 from fiscal 2021, Complementary segment revenue increased 6%. This increase was driven by organic increases in our private and public cloud revenue, Jack Henry digital, and on-premise support revenues. Cost of revenue in the Complementary segment increased 4% for fiscal 2021 compared to fiscal 2020, primarily due to increased personnel costs and amortization expense mainly related to capitalized software. Cost of revenue remained consistent as a percentage of revenue for fiscal 2021 compared to fiscal 2020. Corporate and Other

                           2021         % Change        2020
Revenue                 $  45,893          (15) %    $  53,859
Cost of Revenue         $ 249,906            2  %    $ 244,270

Revenue in the Corporate and Other segment decreased 15% for fiscal 2021 compared to fiscal 2020. The decrease was mainly due to decreased hardware revenue and lower pass-through user group revenue due to COVID-19 limitations (see "COVID-19 Impact and Response" above). Cost of revenue for the Corporate and Other segment includes operating costs not directly attributable to any of the other three segments and increased 2% for fiscal 2021 compared to fiscal 2020. The increased cost of revenue was primarily related to increased licenses and fees and personnel costs, partially offset by lower hardware costs associated with the decrease in hardware revenue.


LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $50,992 at June 30, 2021
from $213,345 at June 30, 2020. Cash was lower at the end of fiscal 2021
compared to the end of fiscal 2020 primarily due to the increase in net cash
used in financing activities, including an increase in the purchase of treasury
stock of approximately $360,000 and the decrease in cash provided by operating
activities, including lower deconversion fees collected of approximately $22,000
or about 61% year over year. Decreases in cash were partially offset by an
increase in credit facility borrowings and a decrease in cash used in investing
activities, including a 57% decrease in capital expenditures and a decrease in
cash used for acquisitions year over year.
The following table summarizes net cash from operating activities in the
statement of cash flows:
                                                    Year Ended
                                                     June 30,
                                               2021           2020
Net income                                  $ 311,469      $ 296,668
Non-cash expenses                             211,266        218,004
Change in receivables                          (6,112)        10,540
Change in deferred revenue                      6,541         (4,871)

Change in other assets and liabilities (61,035) (9,809) Net cash provided by operating activities $ 462,129 $ 510,532

Cash provided by operating activities for fiscal 2021 decreased 9% compared to fiscal 2020. Cash from operations is primarily used to repay debt, pay dividends and repurchase stock, and for capital expenditures. Cash used in investing activities for fiscal 2021 totaled $162,250 and included: $128,343 for the ongoing enhancements and development of existing and new product and service offerings; capital expenditures on facilities and equipment of $22,988, mainly for the purchase of computer equipment; $2,300 for asset acquisitions; $6,506

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for the purchase and development of internal use software; and $13,300 for
purchase of investments. This was partially offset by $6,187 of proceeds from
asset sales and $5,000 of proceeds from investment maturities.
Cash used in investing activities for fiscal 2020 totaled $197,906 and included:
$117,262 for the ongoing enhancements and development of existing and new
product and service offerings; capital expenditures on facilities and equipment
of $53,538, mainly for the purchase of computer equipment; $30,376, net of cash
acquired, for the purchases of Geezeo; $6,710 for the purchase and development
of internal use software; and $1,150 for the purchase of investments. These
expenditures were partially offset by $11,130 of proceeds from the sale of
assets.
Financing activities used cash of $462,232 for fiscal 2021 and included $431,529
for the purchase of treasury shares and $133,800 for dividends paid to
stockholders. These expenditures were partially offset by $3,211 of net cash
inflow related to stock-based compensation and borrowings and repayments on our
revolving credit facility which netted to a borrowing of $100,000.
Financing activities used cash in fiscal 2020 of $192,909 and included $127,421
for dividends paid to stockholders and $71,549 for the purchase of treasury
shares. These expenditures were partially offset by $6,094 of net cash inflow
related to stock-based compensation. Borrowings and repayments on our revolving
credit facility netted to zero at June 30, 2020.
Capital Requirements and Resources
The Company generally uses existing resources and funds generated from
operations to meet its capital requirements. Capital expenditures totaling
$22,988 and $53,538 for fiscal years ended June 30, 2021 and June 30, 2020,
respectively, were made primarily for additional equipment and the improvement
of existing facilities. These additions were funded from cash generated by
operations. At June 30, 2021, the Company had no significant outstanding
purchase commitments related to property and equipment. The COVID-19 pandemic
has created significant uncertainty as to general global economic and market
conditions for the beginning of our fiscal 2022 and beyond. We believe we have
adequate capital resources and sufficient access to external financing sources
to satisfy our current and reasonably anticipated requirements for funds to
conduct our operations and meet other needs in the ordinary course of our
business. However, as the impact of the COVID-19 pandemic on the economy and our
operations evolves, we will continue to assess our liquidity needs.
At June 30, 2021, the Company had contractual obligations of $1,179,284,
including operating lease obligations and $1,112,731 related to off-balance
sheet purchase obligations. Included in off-balance sheet purchase obligations
were open purchase orders of $84,736 and a strategic services agreement entered
into by JKHY in fiscal 2017 with First Data® and PSCU® to provide full-service
debit and credit card processing on a single platform to all existing core bank
and credit union customers, as well as to expand our card processing platform to
financial institutions outside our core customer base. This agreement and
subsequent amendments include a total purchase commitment at June 30, 2021 of
$1,027,995 over the remaining term of the contract, which currently extends
until January 2036, subject to certain renewal terms. Contractual obligations
exclude $9,942 of liabilities for uncertain tax positions as we are unable to
reasonably estimate the ultimate amount or timing of settlement.
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, 2021, there were 29,793 shares in treasury stock and the Company had
the remaining authority to repurchase up to 5,198 additional shares. The total
cost of treasury shares at June 30, 2021 was $1,613,202. During fiscal 2021, the
Company repurchased 2,800 treasury shares for $431,529. At June 30, 2020, there
were 26,993 shares in treasury stock and the Company had authority to repurchase
up to 2,998 additional shares.
Revolving credit facility
On February 10, 2020, the Company entered into a five-year senior, unsecured
revolving credit facility. The credit facility allows for borrowings of up to
$300,000, which may be increased by the Company at any time until maturity to
$700,000. The credit facility bears interest at a variable rate equal to (a) a
rate based on a eurocurrency rate or (b) an alternate base rate (the highest of
(i) 0%, (ii) the U.S. Bank prime rate for such day, (iii) the sum of the Federal
Funds Effective Rate for such day plus 0.50% and (iv) the eurocurrency rate for
a one-month interest period on such day for dollars plus 1.0%), plus an
applicable percentage in each case determined by the Company's leverage ratio.
The credit facility is guaranteed by certain subsidiaries of the Company and is
subject to various financial covenants that require the Company to maintain
certain financial ratios as defined in the credit facility agreement. As of
June 30, 2021, the Company was in compliance with all such covenants. The
revolving credit facility terminates February 10, 2025. There was a $100,000
outstanding balance under the credit facility at June 30, 2021 and no
outstanding balance under this credit facility at June 30, 2020.
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The Company also terminated its prior unsecured credit agreement on February 10,
2020.
Other lines of credit
The Company has an unsecured bank credit line which provides for funding of up
to $5,000 and bears interest at the prime rate less 1%. The credit line was
renewed in May 2019 and modified in March 2021 to extend the expiration to
April 30, 2023. There was no balance outstanding at June 30, 2021 or June 30,
2020.

RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Guidance
In January 2017, the FASB issued Accounting Standard Update ("ASU") No.
2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, which eliminates Step 2 of the goodwill impairment test
that had required a hypothetical purchase price allocation. Rather, entities
should apply the same impairment assessment to all reporting units and recognize
an impairment loss for the amount by which a reporting unit's carrying amount
exceeds its fair value, without exceeding the total amount of goodwill allocated
to that reporting unit. Entities will continue to have the option to perform a
qualitative assessment for a reporting unit to determine if the quantitative
impairment test is necessary. The Company adopted ASU No. 2017-04 on July 1,
2020 and the adoption did not have a material impact on its consolidated
financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit
Losses (Topic 326), or CECL, which prescribes an impairment model for most
financial instruments based on expected losses rather than incurred losses.
Under this model, an estimate of expected credit losses over the contractual
life of the instrument is to be recorded as of the end of a reporting period as
an allowance to offset the amortized cost basis, resulting in a net presentation
of the amount expected to be collected on the financial instrument. For most
instruments, entities must apply the standard using a cumulative-effect
adjustment to beginning retained earnings as of the beginning of the fiscal year
of adoption.
The Company adopted CECL effective July 1, 2020 using the required modified
retrospective approach, which resulted in a cumulative-effect decrease to
beginning retained earnings of $493. Financial assets and liabilities held by
the Company subject to the "expected credit loss" model prescribed by CECL
include trade and other receivables as well as contract assets (see Note 1 to
the consolidated financial statements).
Not Adopted at Fiscal Year End
In December of 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes, which removes certain exceptions
and simplifies other requirements of Topic 740 guidance. The ASU is effective
for the Company on July 1, 2021. The Company adopted ASU 2019-12 effective July
1, 2021 and the adoption did not have a material impact on its consolidated
financial statements.

CRITICAL ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in accordance with 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 generate revenue from data processing, transaction processing, software
licensing and related services, professional services, and hardware sales.
Significant Judgments in Application of the Guidance
Identification of Performance Obligations
We enter into contracts with customers that may include multiple types of goods
and services. At contract inception, we assess the solutions and services
promised in our contracts with customers and identify a performance
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obligation for each promise to transfer to the customer a solution or service
(or bundle of solutions or services) that is distinct - that is, if the solution
or service is separately identifiable from other items in the arrangement and if
the customer can benefit from the solution or service on its own or together
with other resources that are readily available. Significant judgment is used in
the identification and accounting for all performance obligations. We recognize
revenue when or as we satisfy each performance obligation by transferring
control of a solution or service to the customer.
Determination of Transaction Price
The amount of revenue recognized is based on the consideration we expect to
receive in exchange for transferring goods and services to the customer. Our
contracts with our customers frequently contain some component of variable
consideration. We estimate variable consideration in our contracts primarily
using the expected value method, based on both historical and current
information. Where appropriate, we may constrain the estimated variable
consideration included in the transaction price in the event of a high degree of
uncertainty as to the final consideration amount. Significant judgment is used
in the estimate of variable consideration of customer contracts that are
long-term and include uncertain transactional volumes.
Technology or service components from third parties are frequently included in
or combined with our applications or service offerings. Whether we recognize
revenue based on the gross amount billed to the customer or the net amount
retained involves judgment in determining whether we control the good or service
before it is transferred to the customer. This assessment is made at the
performance obligation level.
Allocation of Transaction Price
The transaction price, once determined, is allocated between the various
performance obligations in the contract based upon their relative standalone
selling prices. The standalone selling prices are determined based on the prices
at which we separately sell each good or service. For items that are not sold
separately, we estimate the standalone selling prices using all information that
is reasonably available, including reference to historical pricing data.
Contract Costs
We incur incremental costs to obtain a contract as well as costs to fulfill
contracts with customers that are expected to be recovered. These costs consist
primarily of sales commissions, which are incurred only if a contract is
obtained, and customer conversion or implementation-related costs.
Capitalized costs are amortized based on the transfer of goods or services to
which the asset relates, in line with the percentage of revenue recognized for
each performance obligation to which the costs are allocated.
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 our future consolidated operating results.
For long-lived assets, we consider whether any impairment indicators are
present. If impairment indicators are identified, we test the recoverability of
the long-lived assets. If this recoverability test is failed, we determine the
fair value of the long-lived assets and recognize an impairment loss if the fair
value is less than its carrying value.
Capitalization of software development costs
We capitalize certain costs incurred to develop commercial software products.
For software that is to be sold, significant areas of judgment 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. Costs incurred prior
to establishing technological feasibility are expensed as incurred. Amortization
begins on the date of general release and 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.
For internal use software, capitalization begins at the beginning of application
development. Costs incurred prior to this are expensed as incurred. Significant
estimates and assumptions include determining the appropriate
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amortization period based on the estimated useful life and assessing the
unamortized cost balances for impairment. Amortization begins on the date the
software is placed in service and the amortization period is based on estimated
useful life.
A significant change in an estimate related to one or more software products
could result in a material change to our results of operations.
Estimates used to determine current and deferred income taxes
We make certain estimates and judgments in determining income tax expense for
financial statement purposes. These estimates and judgments occur in the
calculation of certain tax assets and liabilities, which arise from differences
in the timing of recognition of revenue and expense for tax and financial
statement purposes. We also must determine the likelihood of recoverability of
deferred tax assets and adjust any valuation allowances accordingly.
Considerations include the period of expiration of the tax asset, planned use of
the tax asset, and historical and projected taxable income as well as tax
liabilities for the tax jurisdiction to which the tax asset relates. Valuation
allowances are evaluated periodically and will be subject to change in each
future reporting period as a result of changes in one or more of these factors.
Also, liabilities for uncertain tax positions require significant judgment in
determining what constitutes an individual tax position as well as assessing the
outcome of each tax position. Changes in judgment as to recognition or
measurement of tax positions can materially affect the estimate of the effective
tax rate and consequently, affect our financial results.
Assumptions related to purchase accounting and goodwill
We account for our acquisitions using the purchase method of accounting. This
method requires estimates to determine the fair values of assets and liabilities
acquired, including judgments to determine any acquired intangible assets such
as customer-related intangibles, as well as assessments of the fair value of
existing assets such as property and equipment. Liabilities acquired can include
balances for litigation and other contingency reserves established prior to or
at the time of acquisition and require judgment in ascertaining a reasonable
value. Third-party valuation firms may be used to assist in the appraisal of
certain assets and liabilities, but even those determinations 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 include a qualitative assessment of
factors that may indicate a potential for impairment, such as: macroeconomic
conditions, industry and market changes, our overall financial performance,
changes in share price, and an assessment of other events or changes in
circumstances that could negatively impact us.  If that qualitative assessment
indicates a potential for impairment, a quantitative assessment is then
required, including 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. Our most recent assessment indicates that no reporting
units are currently at risk of impairment as the fair value of each reporting
unit is significantly in excess of the carrying value. 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.

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