Jack Henry and Associates Inc (JKHY)

1. Jack Henry and Associates Inc (JKHY) RECOMMENDATION: BUY

2. Background Founded in 1976 by John W. Henry (currently vice chairman) and headed since 1994 by his son Michael JKHY is a computer software company that develops banking software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide along with the computer equipment (hardware) and by providing the conversion and software customization services necessary for a financial institution to install a JKHY software system. JKHY also provides continuing support and maintenance services to customers using the system.

3. Background The company’s primary systems are CIF 20/20 (designed for community banks,savings banks and thrifts with up to 300M in assets and runs on IBM computers), and Silverlake (for larger banks with assets of 100M to 10B). JKHY licenses its systems to the customer with a nontransferable right to use the software for 25 yrs on 1 computer at 1 location. JKHY also provides outsourcing solutions including data and item processing, ATM software, etc.

4. Background

5. Background

6. Balance Sheet • Health B/S with no LT debt • Increasing BV per share

7. Proforma Income Statement 1/2

8. Proforma Income Statement 2/2

9. DuPont Analysis • No significant problems apparent

10. Cash Flow • Consistant increase in operating flows • 1999 decrease in cash position due to acquisition of BancTec • Firm has sufficient cash for operations

11. Firm Ratios and Comparisons • The industry being Computer Networks • Price to X ratios indicate a relatively cheaper stock price • Growth is not as strong as the industry’s, however the firm has significantly better percentage returns • Must increase purchase credit period and reduce collection period

12. Dividend Discount Model A.G. Edwards has placed a price objective of $46 “Jack Henry is extremely cheap these days”' George K. Baum said (Feb’99 when stock was trading at 34 3/4) Firms covering stock: A.G. Edwards, Prudential, Pauli Johnson, George K. BaumRecommended STRONG BUY by all 4.

13. Risk factors affecting Firm’s business and prospects • Technological ChangeSuccess depends on ability to enhance current products. (SS: JKHY track record has shown its ability to keep up with change) • Aggressive CompetitionSome competitors have strong financial, marketing, manufacturing and technological resources, broad product lines and larger installed customer bases than does the Company (SS: However, JKHY has been making steps such as its IBM relationship which provide it with many of the required resources) • Dependence on IBM RelationshipThe Company’s products incorporate and use computer hardware and equipment developed by IBM. There can be no assurance that IBM will continue to manufacture hardware that supports the Company s product lines or that IBM s products will be available to the Company on a timely basis. (SS: JKHY with its recent acquisition of BancTec has given it the ability to enter the UNIX and NT markets)

14. Risk factors affecting Firm’s business and prospects • Changes in the Banking and Financial Services IndustriesThe Company’ s primary market for its products consists of approximately 8,800 commercial banks in the United States. The number of commercial banks in the United States has decreased, and will continue to decrease due to the increasing consolidation of banks around the country • Y2K ComplianceY2K compliance is dependent on many factors, some of which are not completely within JHA's control. Should the systems of one or more significant vendors or suppliers fail to achieve Y2K compliance, the Company s business and financial condition could be adversely affected (SS: JKHY supports that the firm and all its systems are Y2K compliant)

15. Acquisitions / Prospects • BankVision subsidiary sale: “The sale of this small international venture allows us to focus our efforts on sustaining the strong momentum we've built in our domestic operations,” stated Michael E. Henry, CEO • Peerless acquired: Will give JKHY the ability to furthur penetrate the credit union market • Purchase of BancTec's Community Banking and Data Center OperationsBancTec’s products operate primarily on a UNIX platform, while Jack Henry's core products and services operate primarily on the IBM A/S 400 platform. "In addition, the majority of the customers acquired have assets under $250 million, which is a segment of the market that in the past few years has generated strong demand for our ancillary products such as Internet banking, ATM switch processing and check imaging. We have already begun transitioning these services to the UNIX and NT platforms and will be offering them to these new customers in the near future.” (UNIX holds between 20-30% of the market) • “This acquisition expands our customer base by almost 50%”

16. Acquisitions / Prospects • JKHY and Universal Pensions expand partnership to integrate UPI’s IRA service center into JKHY’s NetTeller internet banking solutions. NetTeller is the #1 installed online banking product within the industry with over 200 bank customers. With <10% of banks offering internet banking there appears a lot of growth potential Why the huge drop in stock price in early 1999? • Slowly and steadily, shares of Jack Henry & Associates Inc. have tumbled 37 % from a high in November. Analyst Robert Meeder at George K. Baum & Co. said strong earnings had been Jack Henry's undoing. ``This company is actually being punished for having extra success this year,'' Meeder said. The stock market has trimmed Jack Henry's stock price, Meeder said, because the company won't be able to increase its earnings next year as much as it has this year. Investors don't seem to care that its lower future earnings growth still is expected to be twice that of the companies in the Standard & Poor's 500 index, he said. Meeder remains bullish on Jack Henry's shares and said the drop in share prices marked an opportunity for patient investors.

19. Summary • Leader in its industry • Undervalued (punished for exceptional growth) • Price to X ratios at a discount to industry • According to AG Edwards and DDM the stock is trading at an 18% discount • Excellent margins • Good prospects for the future • Highly recommendedby all brokers covering • Increase in EPS the last 8 years RECOMMENDATION: BUY