<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
--------------
DATE OF REPORT: JANUARY 27, 1997
--------------
CHECKFREE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
Delaware 0-26802 31-1013521
- ------------------- -------------------- -------------------
(STATE OR OTHER (COMMISSION FILE NO.) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
--------------
4411 East Jones Bridge Road
Norcross, Georgia 30092
(770) 441-3387
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
--------------
Not Applicable
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
--------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 15, 1996, Checkfree Corporation, a Delaware corporation
("Checkfree"), Checkfree Acquisition Corporation II, a Delaware corporation and
a wholly owned subsidiary of Checkfree ("Checkfree Acquisition"), Intuit Inc.,
a Delaware corporation ("Intuit"), and Intuit Services Corporation, a Delaware
corporation ("ISC"), entered into an Agreement and Plan of Merger, dated as of
January 15, 1996, as amended (the "Merger Agreement"), whereby Checkfree
Acquisition would be merged with and into ISC with ISC 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 ISC in
exchange for 12,600,000 shares of Checkfree common stock, $.01 par value. The
Acquisition was completed on January 27, 1997. ISC's principal business is to
provide on-line electronic banking and bill payment processing services
(including Intuit's on-line banking and online bill payment services) to
approximately 40 financial institutions (including six of the ten largest
domestic banks and American Express), their customers, and a variety of
merchants. ISC also supports BankNow, an Intuit home banking service that is
available on America Online, and banking, bill payment and stock quote services
accessible through Microsoft Money. ISC's current operations include data
processing and storage, maintenance and development of multiple on-line
connections to other entities (including companies other than Intuit), and
telephone support for both customer service and technical support. However, to
date, ISC's services have been marketed to and designed primarily for users of
Intuit's Quicken personal finance software program. The Company accounted for
the Acquisition using the purchase method of accounting.
Checkfree's Board of Directors approved the issuance of the additional
12,600,000 shares on September 15, 1996. Checkfree's stockholders approved the
issuance of the additional 12,600,000 shares at a Special Meeting of
Stockholders held on January 27, 1997. The shares of Common Stock received by
Intuit, as the sole stockholder of ISC, 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 ISC's management. ISC's sole stockholder
approved the Acquisition on January 27, 1997. There was no material relationship
between ISC's sole stockholder 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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The financial statements of ISC as audited by its independent
auditors for the periods reflected therein are set forth in this report
beginning on page F-1.
-2-
<PAGE> 3
(b) PRO FORMA FINANCIAL INFORMATION.
The required pro forma financial statements for Checkfree and
ISC are hereby incorporated by reference to the Unaudited Pro Forma Condensed
Combining Financial Information contained in the Company's definitive Proxy
Statement for the Special Meeting of Stockholders held on January 27, 1997,
filed with the Securities and Exchange Commission on December 23, 1996.
(c) EXHIBITS.
Exhibit No. Description
2(a) Agreement and Plan of Merger, dated as of
September 15, 1996, among Checkfree Corporation,
Checkfree Acquisition Corporation II, Intuit
Inc., and Intuit Services Corporation. (Reference
is made to Exhibit 2 to the Current Report on
Form 8-K, dated September 15, 1996, filed with
the Securities and Exchange Commission on
September 26, 1996, and incorporated herein by
reference.)
2(b) Amendment No. 1 to Agreement and Plan of Merger,
dated as of September 15, 1996, among the
Registrant, Checkfree Acquisition Corporation II,
Intuit Inc., and Intuit Services Corporation
(Reference is made to Appendix A to the Proxy
Statement for the Special Meeting of Stockholders
held on January 27, 1997, filed with the
Securities and Exchange Commission on December
23, 1996, and incorporated herein by reference.)
23(a) Consent of Ernst & Young LLP.
-3-
<PAGE> 4
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: January 27, 1997 By: /s/ John M. Stanton
------------------------------------
John M. Stanton, Vice President and
Treasurer
-4-
<PAGE> 5
Intuit Services Corporation
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of ISC
Report of Ernst & Young LLP, Independent Auditors......................F-2
Balance Sheets.........................................................F-3
Statements of Operations...............................................F-4
Statement of Stockholder's Equity (Net Capital Deficiency).............F-5
Statements of Cash Flows...............................................F-6
Notes to Financial Statements..........................................F-7
</TABLE>
F-1
<PAGE> 6
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholder
Intuit Services Corporation
We have audited the accompanying balance sheets of Intuit Services Corporation
(a wholly owned subsidiary of Intuit Inc.) as of July 31, 1995 and 1996, and
the related statements of operations, stockholder's equity (net capital
deficiency), and cash flows for the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intuit Services Corporation at
July 31, 1995 and 1996, and the results of its operations and its cash flows
for the two years then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
Palo Alto, California
January 21, 1996
F-2
<PAGE> 7
Intuit Services Corporation
Balance Sheets
<TABLE>
<CAPTION>
JULY 31,
--------------------------------------------- OCTOBER 31,
1995 1996 1996
-------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 134,825 $ 600,523 $ 958,000
Accounts receivable, net of allowance for doubtful
accounts of $107,328, $548,904 and $548,904 at July
31, 1995 and 1996 and October 31, 1996, respectively 389,158 2,837,798 2,712,000
Other current assets 59,395 136,321 137,321
-------------------------------------------------------------------
Total current assets 583,378 3,574,642 3,807,321
Property and equipment, net 1,885,038 15,918,603 15,557,777
Intangible assets, net 3,398,238 903,238 647,238
Goodwill, net 1,227,695 411,695 207,695
-------------------------------------------------------------------
Total assets $ 7,094,349 $ 20,808,178 $ 20,220,031
===================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable $ 280,564 $ 2,484,620 $ 836,000
Payable to parent 5,572,614 29,939,069 35,173,575
Accrued compensation 75,038 623,775 428,000
Other accrued liabilities 158,780 283,258 402,000
-------------------------------------------------------------------
Total current liabilities 6,086,996 33,330,722 36,839,575
Commitments
Stockholder's equity (net capital deficiency):
Common stock, $1.00 par value; 1,000,000 shares
authorized; 100 shares issued and outstanding 100 100 100
Additional paid-in capital 7,684,900 7,684,900 7,684,900
Accumulated deficit (6,677,647) (20,207,544) (24,304,544)
-------------------------------------------------------------------
Total stockholder's equity (net capital deficiency) 1,007,353 (12,522,544) (16,619,544)
-------------------------------------------------------------------
$ 7,094,349 $ 20,808,178 $ 20,220,031
===================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 8
Intuit Services Corporation
Statements of Operations
<TABLE>
<CAPTION>
PREDECESSOR
ENTITY
-----------
AUGUST 1, JULY 15,
1993 1994 THREE MONTHS ENDED
THROUGH THROUGH YEAR ENDED JULY 31, OCTOBER 31,
JULY 14, JULY 31, ---------------------------------------------------------------
1994 1994 1995 1996 1995 1996
----------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net revenue $1,450,170 - $ 3,194,442 14,331,308 $ 1,404,910 $ 7,116,000
Cost of sales 551,881 - 1,556,639 7,795,287 842,201 2,025,000
Amortization of purchased software - - 1,529,000 1,471,000 367,000 -
----------------------------------------------------------------------------------------------
Gross profit 898,289 - 108,803 5,065,021 195,709 5,091,000
Costs and expenses:
Customer service and
technical support 214,620 - 498,657 5,048,985 608,443 2,027,000
Selling and marketing 183,960 - 1,479,000 4,190,819 688,750 3,017,000
Research and development 383,251 - 1,649,904 2,638,264 939,056 1,872,000
General and administrative 199,290 - 1,931,108 4,876,850 900,192 1,812,000
Charge for purchased
research and development - 1,388,476 - - - -
Amortization of
goodwill and intangibles - - 1,917,000 1,840,000 460,000 460,000
----------------------------------------------------------------------------------------------
Total costs and expenses 981,121 1,388,476 7,475,669 18,594,918 3,596,441 9,188,000
----------------------------------------------------------------------------------------------
Net loss before tax benefit (82,832) (1,388,476) (7,366,866) (13,529,897) (3,400,732) (4,097,000)
Tax benefit - - 2,077,695 - - -
----------------------------------------------------------------------------------------------
Net loss $ (82,832) $(1,388,476) $(5,289,171) $(13,529,897) $(3,400,732) $(4,097,000)
==============================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 9
Intuit Services Corporation
Statement of Stockholder's Equity (Net Capital Deficiency)
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDER'S
COMMON STOCK ADDITIONAL EQUITY
------------------------ PAID-IN ACCUMULATED (NET CAPITAL
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993
(predecessor entity) (unaudited) 410,033 $ 106,351 - 288,397 394,748
Net loss through July 14, 1994
(predecessor entity) (unaudited) - - - (82,832) (82,832)
------------------------------------------------------------------------------
Balance at July 14, 1994
(predecessor entity) (unaudited) 410,033 106,351 - 205,565 311,916
Effects of merger with Intuit Inc. (unaudited) (409,933) (106,251) 7,684,900 (205,565) 7,373,084
Net loss from July 15, 1994
to July 31, 1994 (unaudited) - - - (1,388,476) (1,388,476)
------------------------------------------------------------------------------
Balance at July 31, 1994 (unaudited) 100 100 7,684,900 (1,388,476) 6,296,524
Net loss - - - (5,289,171) (5,289,171)
------------------------------------------------------------------------------
Balance at July 31, 1995 100 100 7,684,900 (6,677,647) 1,007,353
Net loss - - - (13,529,897) (13,529,897)
------------------------------------------------------------------------------
Balance at July 31, 1996 100 100 7,684,900 (20,207,544) (12,522,544)
Net loss (unaudited) - - - (4,097,000) (4,097,000)
------------------------------------------------------------------------------
Balance at October 31, 1996 (unaudited) 100 $ 100 $7,684,900 $(24,304,544) $(16,619,544)
==============================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 10
Intuit Services Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
PREDECESSOR
ENTITY
-----------
AUGUST 1, JULY 15,
1993 1994 THREE MONTHS ENDED
THROUGH THROUGH YEAR ENDED JULY 31, OCTOBER 31,
JULY 14, JULY 31, -----------------------------------------------------------
1994 1994 1995 1996 1995 1996
-------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (82,832) $(1,388,476) $(5,289,171) $(13,529,897) $(3,380,732) $(4,097,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Charge for purchased
research and development - 1,388,476 - - - -
Amortization of purchased
software - - 1,529,000 1,471,000 367,000 -
Amortization of goodwill
and intangibles - - 1,917,000 1,840,000 460,000 460,000
Depreciation and amortization 42,731 - 177,019 4,024,134 212,420 1,427,086
------------------------------------------------------------------------------------------
Net loss before charges
for purchased research
and development, amortization
and depreciation (40,101) - (1,666,152) (6,194,763) (2,341,312) (2,209,914)
Net changes:
Accounts receivable (129,357) - (190,997) (2,448,640) 10,158 125,798
Other current assets 1,620 - (49,106) (76,926) 14,395 (1,000)
Accounts payable 18,070 - 246,222 2,204,056 677,436 (1,648,620)
Accrued compensation - - 75,038 548,737 227,962 (195,775)
Deferred income taxes (3,049) - (2,087,325) - - -
Other accrued liabilities - - 158,780 124,478 (118,780) 118,742
------------------------------------------------------------------------------------------
Net cash used in operating activities (152,817) - (3,513,540) (5,843,058) (1,530,141) (3,810,769)
------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase (disposals) of
property and equipment 49,342 - (1,993,706) (18,057,699) (4,104,804) (1,066,260)
CASH FLOWS FROM FINANCING ACTIVITIES
Payable to parent - - 5,572,614 24,366,455 6,035,120 5,234,506
------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (103,475) - 65,368 465,698 400,175 357,477
Cash and cash equivalents
at beginning of period 172,932 69,457 69,457 134,825 134,825 600,523
------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 69,457 $ 69,457 $ 134,825 $ 600,523 $ 535,000 $ 958,000
==========================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 11
Intuit Services Corporation
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND BASIS OF PRESENTATION
Intuit Services Corporation (the "Company") is a wholly owned subsidiary of
Intuit Inc. ("Intuit"). The Company provides electronic banking and bill
payment services.
On July 14, 1994, Intuit acquired all the common stock of National Payment
Clearinghouse, Inc. (the "Predecessor"). The acquisition was accomplished
through a merger between the Predecessor and Intuit Acquisition Corp., a wholly
owned subsidiary of Intuit (which then changed its name to Intuit Services
Corporation). The merger was treated as a tax-free reorganization for income
tax purposes.
The accompanying financial statements present the results of operations, cash
flows, and changes in stockholder's equity (net capital deficiency) for the
Predecessor through July 14, 1994 and of Intuit Services Corporation
thereafter. For practical purposes, the actual cutoff date was July 31, 1994;
however, with the exception of the charge for purchased research and
development, the operating activity between July 15, 1994 and July 31, 1994,
which is included in the Predecessor, was not significant.
In accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 54, and as a result of Intuit's acquisition of the Predecessor, the Company
has utilized the "push-down" basis of accounting and has reflected in its
financial statements the excess of cost over the book value of the net assets
acquired, determined in accordance with the purchase method of accounting.
Accordingly, the purchase price paid by Intuit was allocated to the
identifiable assets and liabilities, including purchased research and
development, which was charged to the Company's operations at the time of the
acquisition. This new basis of accounting resulted in costs in excess of net
assets acquired of approximately $9.5 million, of which $1.4 million was
written off as purchased research and development in the period ended July 31,
1994. The remaining $8.1 million of identified intangibles and goodwill are
being amortized over periods of between one and five years.
F-7
<PAGE> 12
Intuit Services Corporation
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
THE COMPANY AND BASIS OF PRESENTATION (CONTINUED)
Subsequent to the acquisition, Intuit began performing certain services for the
Company (see Note 2), including general management, accounting, cash
management, and other administrative services. The amounts charged to the
Company for such services have been determined based on proportional cost
allocations in accordance with Staff Accounting Bulletin No. 55, and have been
agreed to by the management of the Company and Intuit. In the opinion of the
Company management, the allocation methods used are reasonable. Such
allocations, however, are not necessarily indicative of costs that would have
been incurred had the Company continued to operate independent of Intuit. No
formal agreement currently exists which specifies the nature of services to be
provided by Intuit to the Company, or the charges for such services. Therefore,
the amounts are not necessarily indicative of the future charges to be incurred
by the Company.
The Company's parent, Intuit Inc., develops, markets and supports personal
finance, small business accounting and tax preparation software products and
electronic services to enable individuals, professionals and small businesses
to automate commonly performed financial tasks.
UNAUDITED INFORMATION
Information for the predecessor entity for the period from August 1, 1993
through July 14, 1994, and for the Company from July 15, 1994 to July 31, 1994
are unaudited. The financial statements at October 31, 1996 and for the three
months ended October 31, 1995 and 1996 are unaudited. Such information includes
all adjustments that the Company considers necessary for a fair presentation of
its financial position at such dates and its operating results and cash flows
for those periods. Results for interim periods are not necessarily indicative
of results for the entire year.
F-8
<PAGE> 13
Intuit Services Corporation
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Significant estimates are used in determining the collectibility of
accounts receivable and assessing the carrying value of remaining purchased
intangible balances. Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development costs incurred to establish the technological
feasibility of computer software products are charged to operations as
incurred.
Software development costs have been expensed in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). Under SFAS 86,
capitalization of software development costs begins upon the establishment of
technological feasibility and ends when a product is available for general
release to customers. Such costs have been immaterial to date.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Customer service and technical support costs include customer inquiries and
telephone assistance. The costs of post-contract customer support are
included in customer service and technical support expenses and are not
included in cost of goods sold.
CASH
The Company maintains its cash accounts at one large banking institution.
Balances at July 31, 1995 and 1996 and October 31, 1996 consisted of bank
checking and payroll accounts.
F-9
<PAGE> 14
Intuit Services Corporation
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets which range
from three to five years. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives or remaining
lease terms.
Property and equipment consist of:
<TABLE>
<CAPTION>
JULY 31,
1995 1996
---------------------------------------------
<S> <C> <C>
Machinery and equipment $1,813,876 $16,392,950
Furniture and fixtures 265,879 2,344,289
Leasehold improvements 103,074 1,503,289
---------------------------------------------
2,182,829 20,240,528
Less accumulated depreciation
and amortization (297,791) (4,321,925)
---------------------------------------------
$1,885,038 $15,918,603
=============================================
</TABLE>
GOODWILL AND INTANGIBLE ASSETS
The excess cost over the fair value of net assets acquired (goodwill) and the
cost of identified intangibles are being amortized on a straight-line basis
over the following periods:
<TABLE>
<CAPTION>
NET BALANCE AT
------------------------------------------------------
JULY 31,
------------------------------------ OCTOBER 31,
LIFE IN YEARS 1995 1996 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill 3 $1,227,695 $411,695 $207,695
Customer lists 3 $1,294,238 $430,238 $214,238
Covenant not to complete 5 $ 633,000 $473,000 $433,000
Purchased technology 2 $1,471,000 $ - $ -
</TABLE>
The intangible asset balances presented above are net of total accumulated
amortization of $3,446,000 $6,757,000 and $7,217,000 at July 31, 1995 and 1996,
and October 31, 1996, respectively.
F-10
<PAGE> 15
Intuit Services Corporation
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of"
("SFAS No. 121"), which requires the review for impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In certain situations, an impairment loss
would be recognized. The Company has adopted SFAS No. 121 in Fiscal 1997. The
adoption of SFAS No 121 has had no impact upon the Company's financial
condition or operating results.
The carrying value of goodwill and intangible assets is reviewed on a regular
basis for the existence of facts or circumstances both internally and
externally that may suggest impairment. To date, no such impairment has been
indicated. Should there be an impairment in the future, the Company will
measure the amount of the impairment based on undiscounted expected future cash
flows from the impaired assets. The cash flow estimates that will be used will
contain management's best estimates, using appropriate and customary
assumptions and projections at the time.
CONCENTRATION OF CREDIT RISK
The Company generates all its revenue from the sale of on-line banking and bill
payment services provided to banking institutions as these services are
performed. Revenue is recognized, net of discounts, when service is provided.
Financial investments that potentially subject the Company to concentration of
credit risk consist principally of trade accounts receivable. The credit risk
in the Company's accounts receivable is mitigated by the fact that the Company
performs ongoing credit evaluations of its customers' financial condition,
accounts receivable are primarily derived from customers in North America and
the customers are large, recognized banking institutions. Generally, no
collateral is required. The Company maintains reserves for estimated credit
losses and such losses have historically been within management's expectations.
F-11
<PAGE> 16
Intuit Services Corporation
Notes to Financial Statements (continued)
2. RELATED PARTY TRANSACTIONS
Beginning in fiscal 1995, certain Intuit corporate expenses, primarily related
to executive management time, accounting, cash management, and other
administrative services, have been allocated to the Company. Total expenses
allocated were $1,395,000, $1,840,000 and $1,217,000 for the years ended July
31, 1995 and 1996 and the three months ended October 31, 1996, respectively.
Additionally, Intuit has advanced the Company funds for operating requirements
and for purchases of property and equipment. These expense allocations and the
funds advanced have been recorded as a payable to parent in the accompanying
financial statements. The average balances outstanding during the years ended
July 31, 1995 and 1996 and the three months ended October 31, 1996 totaled
$2,786,000, $17,756,000 and $32,556,000, respectively. No interest expense has
been charged on the payable due to Intuit.
3. COMMITMENTS
OPERATING LEASES
The Company leases its office facilities under an operating lease
agreement. The lease requires monthly rental payments in varying amounts
through September 2001. This lease also requires the Company to pay all
property taxes, normal maintenance, and insurance on the leased facilities.
Future minimum lease payments under the noncancelable operating lease as of
July 31, 1996 is as follows:
<TABLE>
<S> <C>
1997 $ 363,000
1998 372,000
1999 380,000
2000 345,000
2001 56,000
--------------
$1,516,000
==============
</TABLE>
Total rental expense under this lease was approximately $69,000, $73,000 and
$419,000, for the period from August 1, 1993 to July 14, 1994 and the years
ended July 31, 1995 and 1996, respectively.
F-12
<PAGE> 17
4. STOCK OPTIONS
Upon acquisition by Intuit, stock options outstanding from the Predecessor
entity were assumed by Intuit. No stock options have been issued by the
Company. Certain ISC employees have been awarded options under Intuit's 1993
Equity Incentive Plan.
5. INCOME TAXES
The tax position in the financial statements presents the Company on a
stand-alone basis. The losses of the Company were benefitted by Intuit on a
consolidated basis. Had the Company benefitted the losses, the Company would
have had deferred tax assets of approximately $400,000 and $5,000,000 as of
July 31, 1995 and 1996. These deferred tax assets would relate primarily to net
operating loss carryforwards, and would have been fully offset by a valuation
allowance in both years.
6. SIGNIFICANT CUSTOMER INFORMATION
Two customers accounted for 20% and 17% of net revenue in fiscal 1996 and 14%
and 26% for the three months ended October 31, 1996, respectively. No customer
represented more than 10% of net revenue in any other period presented.
7. SUBSEQUENT EVENT
On September 16, 1996, Intuit Inc. announced plans to sell the Company to
Checkfree Corporation ("Checkfree") in exchange for 12.6 million shares of
Checkfree common stock. Subject to regulatory and Checkfree stockholder
approval, the transaction is expected to be finalized by early calendar year
1997. Upon completion of the transaction, the balance of the payable to Intuit
will be forgiven by Intuit.
F-13
<PAGE> 18
EXHIBIT INDEX
Exhibit No. Description Page
2(a) Agreement and Plan of Merger, dated as of
September 15, 1996, among Checkfree
Corporation, Checkfree Acquisition Corporation
II, Intuit Inc., and Intuit Services Corporation.
(Reference is made to Exhibit 2 to the Current
Report on Form 8-K, dated September 15, 1996,
filed with the Securities and Exchange
Commission on September 26, 1996, and
incorporated herein by reference.)
2(b) Amendment No. 1 to Agreement and Plan of
Merger, dated as of September 15, 1996, among
the Registrant, Checkfree Acquisition Corporation
II, Intuit Inc., and Intuit Services Corporation
(Reference is made to Appendix A to the Proxy
Statement for the Special Meeting of Stockholders
held on January 27, 1997, filed with the Securities
and Exchange Commission on December 23,
1996, and incorporated herein by reference.)
23(a) Consent of Ernst & Young LLP.
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Exhibit 23(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated January 21, 1997, with respect to the
financial statements of Intuit Services Corporation included in the Current
Report (Form 8-K) of Checkfree Corporation.
ERNST & YOUNG LLP
Palo Alto, California
January 24, 1997
