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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT: MAY 9, 1996
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CHECKFREE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 0-26802 31-1013521
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(STATE OR OTHER (COMMISSION FILE NO.) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
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8275 North High Street
Columbus, Ohio 43235
(614) 825-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
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Not Applicable
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 21, 1996, Checkfree Corporation, a Delaware corporation
("Checkfree"), ISC Acquisition Corporation, an Ohio corporation and a wholly
owned subsidiary of Checkfree ("ISC Acquisition"), and Security APL, Inc., an
Illinois corporation ("Security"), entered into an Agreement and Plan of
Merger, dated as of March 21, 1996, as amended (the "Merger Agreement"),
whereby ISC Acquisition would be merged with and into Security with Security
being the surviving entity as a wholly owned subsidiary of Checkfree (the
"Acquisition"). Under the terms of the Merger Agreement, Checkfree agreed to
acquire the stock of Security in exchange for common stock, $.01 par value, of
Checkfree (the "Common Stock"). The Acquisition was completed on May 9, 1996.
The total consideration paid by Checkfree was $53,307,815. Pursuant to the
terms of the Merger Agreement, 2,805,652 shares of the Common Stock were
issued, based upon an average stock price of $19.00 per share. Security is a
full service provider of fully integrated, customized portfolio management
software services, including performance measurement, trading and reporting for
over 180 Institutional Money managers, along with brokers, financial planners
and banks. Security handles nearly 300,000 professional portfolios and
hundreds of thousands of trades per day.
Checkfree's Board of Directors approved the issuance of the additional
2,805,652 shares on March 21, 1996. The shares of Common Stock received by the
stockholders of Security are not registered under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder.
The transaction was accomplished through arms-length negotiations
between Checkfree's management and Security's management. Security's
stockholders approved the Acquisition on May 6, 1996. There was no material
relationship between the stockholders of Security and Checkfree or any of
Checkfree's affiliates, any of Checkfree's directors or officers, or any
associate of any such Checkfree director or officer, prior to this transaction.
Checkfree's press release issued May 9, 1996 regarding the
consummation of the Acquisition is attached as an exhibit to this report and is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The financial statements of Security APL, Inc. as audited by its
independent auditors, were previously filed on the original Current Report on
Form 8-K, dated March 9, 1996, filed with the Securities and Exchange
Commission on May 20, 1996, and are deemed to be a part of this Amendment No. 1
thereto.
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(B) PRO FORMA FINANCIAL INFORMATION.
The following are the pro forma financial statements of Checkfree and
Security for the periods provided therein:
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Checkfree's acquisition of Security has been treated as a
pooling-of-interests for accounting purposes. Under the pooling-of-interests
method of accounting, both entities are combined as if they had been operating
as a single entity for all periods presented. Checkfree acquired Servantis
Systems Holdings, Inc. ("Servantis") in February 1996 (the "Servantis
Acquisition"). The Servantis Acquisition was treated as a purchase for
accounting purposes. Under the purchase method of accounting, the assets and
liabilities of the acquired company are recorded at their independently
appraised fair values at the date of the acquisition, and the results of
operations are combined from the effective date of the acquisition, with no
retroactive restatement.
The unaudited pro forma condensed combining statement of operations
combines Checkfree's and Security's results of operations for the fiscal year
ended December 31, 1995, with Servantis' results of operations for the twelve
months ended December 31, 1995, giving effect to the Acquisition and the
Servantis Acquisition as if they had occurred as of January 1, 1995. The
unaudited pro forma condensed combining balance sheet combines Checkfree's and
Security 's balance sheets with Servantis' balance sheet as of December 31,
1995, giving effect to the Acquisition and the Servantis Acquisition as if they
had occurred on that date. The pro forma financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the Acquisition or
the Servantis Acquisition been consummated at the beginning of the period
presented, nor is it necessarily indicative of future operating results or
financial position.
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UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31,1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS HISTORICAL
-------------------- PRO FORMA AMOUNT PRO FORMA
CHECKFREE SERVANTIS ADJUSTMENTS PRO FORMA SECURITY APL ADJUSTMENTS TOTAL
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and short term investments $ 84,852 $ 2,511 $(42,500)(1) $ 44,863 $3,050 $ -- $ 47,913
Receivables - trade and other 3,533 20,921 -- 24,454 1,518 -- 25,972
Prepaid expenses and other 1,916 380 -- 2,296 -- -- 2,296
Deferred income taxes 166 785 187 (2)(6) 1,138 -- -- 1,138
----------------------------------------------------------------------------------------
Total Current Assets 90,467 24,597 (42,313) 72,751 4,568 -- 77,319
----------------------------------------------------------------------------------------
Property - net 13,559 10,775 5,000 (2) 29,334 3,211 -- 32,545
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Other assets
Investments 7,499 -- -- 7,499 1,198 -- 8,697
Intangible assets - computer
software, net 286 11,004 20,396 (2) 31,686 409 -- 32,095
Intangible assets - other, net -- 12,424 15,368 (2) 27,792 -- -- 27,792
Deferred income taxes -- 8,949 (949)(2)(6) 8,000 -- -- 8,000
Other noncurrent assets 3,831 299 -- 4,130 266 -- 4,396
----------------------------------------------------------------------------------------
Total other assets 11,616 32,676 34,815 79,107 1,873 -- 80,980
----------------------------------------------------------------------------------------
Total $115,642 $ 68,048 $ (2,498) $181,192 $9,652 $ -- $190,844
========================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable & accrued
liabilities 6,531 5,982 -- 12,513 467 -- 12,980
Current portion of long-term
obligations 1,161 -- -- 1,161 -- -- 1,161
Deferred revenues 982 19,167 (9,214)(2)(7) 10,935 -- -- 10,935
Deferred income taxes -- 4 3,682 (2)(6) 3,686 -- -- 3,686
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Total Current Liabilities 8,674 25,153 (5,532) 28,295 467 -- 28,762
Stockholders' and bank notes payable 125 41,914 (41,914)(1) 125 -- -- 125
Obligations under capital leases 7,157 -- -- 7,157 -- -- 7,157
Deferred lease obligation 51 2,285 -- 2,336 -- -- 2,336
Deferred income taxes 309 2,898 9,344 (2)(6) 12,551 -- -- 12,551
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Total liabilities 16,316 72,250 (38,102) 50,464 467 -- 50,931
Stockholders' equity
Preferred stock -- 13,052 (13,052)(3) -- -- -- --
Stockholders' equity 99,326 (17,254) 48,656 (1)(2)(3) 130,728 9,185 139,913
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Total Liabilities and Stockholders'
Equity $115,642 $ 68,048 $ (2,498) $181,192 $9,652 $ -- $190,844
========================================================================================
</TABLE>
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UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS HISTORICAL
-------------------- PRO FORMA AMOUNT PRO FORMA
CHECKFREE SERVANTIS ADJUSTMENTS PRO FORMA SECURITY APL ADJUSTMENTS TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Total revenues $49,330 $66,675 -- $116,005 $15,670 $ -- $131,675
Amortization of purchased profits -- -- (9,214)(7) (9,214) -- -- (9,214)
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Total operating revenues, net 49,330 66,675 (9,214) 106,791 15,670 -- 122,461
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OPERATING EXPENSES:
Processing, servicing, and support 30,293 24,610 -- 54,903 7,041 -- 61,944
Research and development 6,892 6,879 -- 13,771 1,756 -- 15,527
Sales, marketing and royalties 7,261 13,483 -- 20,744 1,553 -- 22,297
General and administrative 4,064 11,537 -- 15,601 1,967 -- 17,568
Depreciation and amortization 2,485 11,097 3,346(4) 16,928 1,454 -- 18,382
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Total operating expenses 50,995 67,606 3,346 121,947 13,771 -- 135,718
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INCOME (LOSS) FROM OPERATIONS (1,665) (931) (12,560) (15,156) 1,899 -- (13,257)
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OTHER INCOME (EXPENSE):
INVESTMENT INCOME 2,135 471 -- 2,606 201 -- 2,807
INTEREST EXPENSE (645) (3,490) 3,490 (5) (645) -- (645)
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1,490 (3,019) 3,490 1,961 201 -- 2,162
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INCOME (LOSS) BEFORE INCOME TAX (175) (3,950) (9,070) (13,195) 2,100 -- (11,095)
INCOME TAX EXPENSE (BENEFIT) 40 (1,236) (3,084)(6) (4,280) 96 618 (6) (3,566)
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NET INCOME (LOSS) $ (215) $ (2,714) $ (5,986) $ (8,915) $ 2,004 $ (618) $ (7,529)
PREFERRED STOCK DIVIDENDS -- (797) $ 797 (5) -- -- $ -- $ --
--------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ (215) $ (3,511) $ (5,189) $ (8,915) $ 2,004 $ (618) $(7,529)
================================================================================
NET INCOME (LOSS) PER COMMON SHARE $ (0.26) $ 0.71 $ (0.21)
==================== =======
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 33,891 2,806 36,697
==================== =======
</TABLE>
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
FINANCIAL INFORMATION
1. Adjustment to reflect payment of $42,500,000 cash portion
pursuant to the Servantis Merger Agreement.
2. Adjustments to reflect the change in net assets for the
Servantis Acquisition based upon preliminary estimates of
fair market value at December 31, 1995 as follows:
(In thousands)
<TABLE>
<S> <C>
TOTAL PURCHASE PRICE $165,137
========
ALLOCATION OF PURCHASE PRICE
Net assets acquired at fair market value $ 15,464
ADJUSTMENTS TO REFLECT FAIR VALUE OF ASSETS ACQUIRED
In-process R&D 90,600
Capitalized software (3 to 10-year lives) 31,400
Other intangibles (10 to 30-year lives) 27,673
--------
149,673
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Total $165,137
========
</TABLE>
3. Adjustment to reflect the issuance of 5,671,726 shares of
Checkfree Common Stock at $20.00 per share in exchange for
all shares of Servantis' common and preferred stock and the
elimination of Servantis' stockholders' equity.
4. Adjustment to eliminate Servantis' historical intangible
asset amortization expense and to reflect the amortization
from the capitalized software and other intangibles.
5. Adjustment to eliminate Servantis' interest expense to
reflect the pay-off of long-term debt, and elimination of
Servantis' preferred stock dividends.
6. Adjustment to reflect income tax effects of pre-tax pro
forma adjustments at the statutory rate.
7. Adjusted to reflect the reduction in operating and deferred
revenues for purchased profits.
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Notes to Unaudited Pro Forma Condensed Combining Financial Statements
Note A: The unaudited pro forma condensed combining balance sheet of
Checkfree, Security, and Servantis has been prepared as if the Acquisition,
which is being accounted for as a pooling of interests, and the Servantis
Acquisition, which is being accounted for as a purchase, were completed as of
December 31, 1995. The total purchase price of $165.1 million was allocated to
Servantis' December 31, 1995 balance sheet. Actual balance sheets of Checkfree
and Servantis were combined as of February 21, 1996, the effective date of the
Servantis Acquisition.
The allocation of the Servantis purchase price among the identifiable
tangible and intangible assets included herein is based on an independent
appraisal of the fair market value of those assets. Purchased research and
development was identified and valued through interviews and analysis of data
concerning each Servantis developmental project. Expected future cash flows of
each developmental project were discounted to present value taking into account
risks associated with the inherent difficulties and uncertainties in completing
the project, and thereby achieving technological feasibility, and risks related
to the viability of and potential changes in future target markets. The above
analysis and valuation resulted in a value of $90.6 million for purchased
research and development, which has not yet reached technological feasibility
and does not have alternative future uses. Therefore, in accordance with
generally accepted accounting principles, this amount was written off in the
quarter ended March 31, 1996.
Using the same methodology, purchased software was identified and
valued. Expected future cash flows associated with purchased software product
were discounted to present value taking into account risks related to the
characteristics and applications of each associated product, existing and
future markets, and assessments of the life cycle stage of each product. This
analysis resulted in an additional $31.4 million of purchased software, which
had reached technological feasibility and therefore was capitalized. The amount
of purchase price allocated to purchased software was smaller than that
allocated to purchased research and development due to the shorter life and
lower cash flows remaining for the purchased software as compared to the
projects currently under development.
Note B: In the pro forma condensed combining statement of operations,
the Checkfree and Security statements of operations for the fiscal year ended
December 31, 1995 have been combined with the Servantis statement of operations
for the twelve months ended December 31, 1995. Actual statements of operations
of Checkfree and Servantis were combined from February 21, 1996, the effective
date of the Acquisition, with no retroactive restatement.
Note C: The unaudited pro forma combined net loss per share is based
on the weighted average number of shares of Checkfree Common Stock outstanding
during the period, adjusted to give effect to shares assumed to be issued had
the Acquisition and the Servantis Acquisition taken place as of January 1,
1995.
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Note D: The unaudited pro forma condensed combining statement of
operations does not include the value of the $90.6 million write-off of
purchased research and development arising from the Servantis Acquisition, as
it is a material nonrecurring charge. In addition, as part of the allocation of
the purchase price, the Company reduced the deferred revenues on the balance
sheet of Servantis at the date of the Servantis Acquisition due to the fact
that anticipated profits included in deferred revenues are reflected in the
purchase price of the Servantis Acquisition. As a result, the Company will not
recognize revenues or profits with respect to such reduction in deferred
revenues. Such reduction increased substantially from the $9.2 million
reflected in the Unaudited Pro Forma Condensed Combining Balance Sheet to
approximately $20.7 million, due to the increase in Servantis' deferred
revenues from December 31, 1995 to February 21, 1996, the effective date of the
Servantis Acquisition. The write-off of in-process research and development
costs and the nonrecognition of such revenues or profits on certain of
Servantis' deferred revenues will have a material adverse impact on the
Company's financial results in 1996.
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(C) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2(a) Agreement and Plan of Merger, dated as of March
21, 1996, among Checkfree Corporation, ISC
Acquisition Corporation, and Security APL, Inc.
(Reference is made to Exhibit 2 to the Current
Report on Form 8-K, dated March 21, 1996, filed
with the Securities and Exchange Commission on
March 29, 1996, and incorporated herein by
reference.)
2(b) Amendment to Agreement and Plan of merger, dated
as of April 30, 1996, among Checkfree
Corporation, ISC Acquisition Corporation, and
Security APL, Inc. (Reference is made to Exhibit
2(c) to the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated
herein by reference.)
99 Press Release (Reference is made to Exhibit 99 to
the Current Report on Form 8-K, dated May 9,
1996, and filed with the Securities and Exchange
Commission on May 20, 1996, and incorporated
herein by reference).
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHECKFREE CORPORATION
Date: July 22, 1996 By: /s/ JOHN M. STANTON
---------------------------------------------
John M. Stanton, Vice President and Treasurer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C>
2(a) Agreement and Plan of Merger, dated as of March
21, 1996, among Checkfree Corporation, ISC
Acquisition Corporation, and Security APL, Inc.
(Reference is made to Exhibit 2 to the Current
Report on Form 8-K, dated March 21, 1996, filed
with the Securities and Exchange Commission on
March 29, 1996, and incorporated herein by
reference.)
2(b) Amendment to Agreement and Plan of merger,
dated as of April 30, 1996, among Checkfree
Corporation, ISC Acquisition Corporation, and
Security APL, Inc. (Reference is made to Exhibit
2(c) to the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated
herein by reference.)
99 Press Release. (Reference is made to Exhibit 99
to the Current Report on Form 8-K, dated May 9,
1996, and filed with the Securities and Exchange
Commission on May 20, 1996, and incorporated
herein by reference.)
</TABLE>
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