<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A NO. 2
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, 2,822,325 shares of the Common Stock were issued, based upon
an average stock price of $18.50 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
2,822,325 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 May 9, 1996, filed with the Securities and Exchange Commission on
May 20, 1996, and are deemed to be a part of this Amendment No. 2 thereto.
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(b) PRO FORMA FINANCIAL INFORMATION.
On July 22, 1996, Checkfree filed the Form 8-K/A. No.1 which provided
the pro forma financials of Checkfree and Security under the pooling of
interests accounting method. Due to the sale of assets by two subsidiaries of
Checkfree to SunGard SSI Inc., Checkfree is required to treat the acquisition of
Security under the purchase method of accounting rather than the pooling of
interest method. Therefore, the following are the pro forma financial statements
of Checkfree and Security, under the purchase method of accounting for the
periods provided therein:
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Checkfree's acquisition of Security has been treated as a purchase for
accounting purposes. Checkfree acquired Servantis Holdings, Inc. ("Servantis")
in February 1996 (the "Servantis Acquisition"). The Servantis Acquisition was
also 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 the operations are included in the consolidated financial
statements from the effective date of the Acquisition.
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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<TABLE>
Unaudited Pro Forma Condensed Combining Balance Sheet
As of December 31,1995
(In thousands)
<CAPTION>
Historical Amounts Historical
-------------------- Pro Forma Amounts Pro Forma
Checkfree Servantis Adjustments Pro Forma Security 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 166 785 972 (2)(6) 1,923 -- -- 1,923
------------------------------------------------------------------------------------------
Total Current Assets 90,467 24,597 (41,528) 73,536 4,568 -- 78,104
------------------------------------------------------------------------------------------
Property and equipment - net 13,559 10,775 4,528 (2) 28,862 3,211 -- 32,073
------------------------------------------------------------------------------------------
Other assets
Investments 7,499 -- -- 7,499 1,198 -- 8,697
Capitalized software, net 286 11,004 20,396 (2) 31,686 409 6,391(8) 38,486
Intangible assets, net -- 12,424 13,864 (2) 26,288 -- 13,069(8) 39,357
Deferred income taxes -- 8,949 (254)(2)(6) 8,695 -- -- 8,695
Other noncurrent assets 3,831 299 -- 4,130 266 -- 4,396
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Total other assets 11,616 32,676 34,006 78,298 1,873 19,460 99,631
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Total $ 115,642 $ 68,048 $ (2,994) $ 180,696 $ 9,652 $ 19,460 $ 209,808
==========================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued and
other liabilities 6,532 5,982 -- 12,514 467 -- 12,981
Current portion of long-term
obligations 1,161 -- -- 1,161 -- -- 1,161
Deferred revenues 982 19,167 (20,701)(2)(7) (552) -- -- (552)
Deferred income taxes -- 4 8,284 (2)(6) 8,288 -- 8,288
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Total Current Liabilities 8,675 25,153 (12,417) 21,411 467 -- 21,878
Stockholders' and bank notes payable 125 41,914 (41,914)(1) 125 -- -- 125
Accrued rent and other 7,157 -- -- 7,157 -- -- 7,157
Deferred lease obligation 51 2,285 (2,285 (2) 51 -- -- 51
Deferred income taxes 309 2,898 12,242 (2)(6) 15,449 -- 4,036(8)(11) 19,485
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Total liabilities 16,317 72,250 (44,374) 44,193 467 4,036 48,696
Stockholders' equity
Preferred stock -- 13,052 (13,052)(3) -- -- -- --
Stockholders' equity 99,325 (17,254) 54,432(1)(2)(3) 136,503 9,185 15,424(8)(9) 161,112
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Total Liabilities and Stockholders'
Equity $ 115,642 $ 68,048 $ (2,994) $ 180,696 $ 9,652 $ 19,460 $ 209,808
==========================================================================================
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
</TABLE>
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<TABLE>
Unaudited Pro Forma Condensed Combining Statement of Operations
For the Twelve Months Ended December 31, 1995
(In thousands)
<CAPTION>
Historical Amounts Historical
---------------------- Pro Forma Amounts Pro Forma
Checkfree Servantis Adjustments Pro Forma Security Adjustments Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
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Total operating revenues, net $ 49,330 66,675 $ (20,701) (7) $ 95,304 $ 15,670 $ - $110,974
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OPERATING EXPENSES:
Cost of processing, servicing,
and support 30,293 24,610 - 54,903 7,041 - 61,944
Research and development 6,892 13,483 - 20,375 1,756 - 22,131
Sales and marketing 7,261 6,879 - 14,140 1,553 - 15,693
General and administrative 4,064 11,537 - 15,601 1,967 - 17,568
Depreciation and amortization 2,485 11,097 3,223 (4) 16,805 1,454 2,574 (10) 20,833
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Total operating expenses 50,995 67,606 3,223 121,824 13,771 2,574 138,169
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INCOME (LOSS) FROM OPERATIONS (1,665) (931) (23,924) (26,520) 1,899 (2,574) (27,195)
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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 TAXES (175) (3,950) (20,434) (24,559) 2,100 (2,574)
INCOME TAX EXPENSE (BENEFIT) 40 (1,236) (7,720)(6) (8,916) 96 120 (11) (8,700)
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NET INCOME (LOSS) $ (215) $ (2,714) $(12,714) $(15,643) $ 2,004 $ (2,694) $(16,333)
PREFERRED STOCK DIVIDENDS - (797) 797 (5) - - $ - $ -
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NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ (215) $ (3,511) $(11,917) $(15,643) $ 2,004 $ (2,694) $(16,333)
===========================================================================================
NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ (0.46) $ (0.44)
========== ========= ========
wtd avg. shares outstanding 28,219 5,672 33,891 2,822 36,713
========== ========= ========= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
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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 the fair market values at February 21, 1996 as
follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Total purchase price $165,137
Allocation of purchase price ========
Tangible net assets acquired at fair market value $16,849
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) 26,288
---------
148,288
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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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8. Adjustments to reflect the change in net assets for the Acquisition
based upon preliminary estimates of fair market value at December 31,
1995 as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Total purchase price $53,016
Allocation of purchase price =======
Tangible net assets acquired at fair market value $ 4,347
Adjustments to reflect fair value of assets acquired
In-process R&D 28,800
Capitalized Software (6 year life) 6,800
Other intangibles (6 to 8-year lives) 13,069
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48,669
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Total $53,016
=======
</TABLE>
9. Adjustment to reflect the issuance of 2,822,325 shares of Checkfree
Common Stock at $18.50 per share in exchange for all shares of
Security's common stock and the elimination of Security 's
stockholders' equity.
10. Adjustment to eliminate Security's historical intangible asset
amortization expense and to reflect the amortization from the
capitalized software and other intangibles.
11. Adjustment to reflect income tax effects of pre-tax pro forma
adjustments at the statutory rate and the impact of Federal taxes on
Security's historical amounts. Prior to the Acquisition Security was
an S corporation.
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 and
the Servantis Acquisition were completed as of December 31, 1995 and both were
accounted for as purchases. The total purchase price of $165.1 million was
allocated to Servantis' December 31, 1995 balance sheet; and the total purchase
price of $53.0 million was allocated to Security's December 31, 1995 balance
sheet. Actual balance sheets of Checkfree, Security, and Servantis will be
combined as of the effective dates of the Acquisition and the Servantis
Acquisition.
The allocation of the Servantis and Security purchase prices 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 and Security developmental project.
Expected future cash flows of each developmental project were discounted to
present value taking into account risks
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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 for Servantis and $28.8 million purchased research and
development for Security, which have not yet reached technological feasibility
and do not have alternative future uses. Therefore, in accordance with generally
accepted accounting principles, these amounts were written off in the quarter
ended March 31, 1996 for Servantis and the quarter ended June 30, 1996 for
Security.
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 for Servantis and
$6.8 million of purchased software for Security, 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.
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.
Note D: The unaudited pro forma condensed combining statement of
operations does not include the value of the $28.8 million and $90.6 million
write-offs (no income tax effect) of purchased research and development arising
from the Acquisition and the Servantis Acquisition, respectively, as they are
material nonrecurring charges. Likewise, an extraordinary loss of $365,000 (net
of income tax benefit of $205,000) arising from the extinguishment of certain
Servantis debt as part of the Servantis Acquisition has not been reflected in
the unaudited pro forma condensed combining statement of operations.
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(c) EXHIBITS.
Exhibit No. Description
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.)
23 Consent of Ernst & Young, LLP (Reference is made
to Exhibit 23 to the Current Report on Form 8-K,
dated May 9, 1996, filed with the Securities and
Exchange Commission on May 20, 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.)
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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: October 10, 1996 By: /s/ John M. Stanton
-------------------------------
John M. Stanton, Vice President
and Treasurer
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EXHIBIT INDEX
Exhibit No. Description Page
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.)
23 Consent of Ernst & Young, LLP (Reference is
made to Exhibit 23 to the Current Report on Form
8-K, dated May 9, 1996, filed with the Securities
and Exchange Commission on May 20, 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.)
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