<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A No. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to _____________
Commission file number: 0-26802
CHECKFREE HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 58-2360335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4411 EAST JONES BRIDGE ROAD, NORCROSS, GEORGIA 30092
(Address of principal executive offices, including zip code)
(678) 375-3000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 52,486,670 shares of
Common Stock, $.01 par value, were outstanding at February 7, 2000.
<PAGE> 2
FORM 10-Q
CHECKFREE HOLDINGS CORPORATION
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
December 31, 1999 and June 30, 1999 3
Condensed Consolidated Statements of
Operations For the Three and Six Months Ended
December 31, 1999 and 1998 4
Condensed Consolidated Statements of
Cash Flows For the Three and Six Months Ended
December 31, 1999 and 1998 5
Notes to Interim Condensed Consolidated Unaudited
Financial Statements For the Three and Six Months
Ended December 31, 1999 and 1998 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in Securities and Use of Proceeds. 18
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K. 18-19
Signatures. 20
</TABLE>
2
<PAGE> 3
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1999
----------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,446 $ 152,779
Investments............................................... 10,266 17,015
Accounts receivable, net.................................. 45,660 46,780
Prepaid expenses and other assets......................... 7,800 11,863
Deferred income taxes..................................... 6,513 8,324
--------- ---------
Total current assets................................. 82,685 236,761
Property and equipment, net................................. 69,823 80,416
Capitalized software, net................................... 20,059 21,584
Intangible assets, net...................................... 45,875 43,354
Investments................................................. 1,875 31,663
Deferred income taxes....................................... 21,920 31,095
Other noncurrent assets..................................... 10,524 12,855
--------- ---------
Total............................................. $ 252,761 $ 457,728
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,634 $ 8,679
Accrued liabilities....................................... 26,971 37,494
Current portion of long-term obligations.................. 1,640 5,069
Deferred revenue.......................................... 20,195 25,840
--------- ---------
Total current liabilities............................ 58,440 77,082
Accrued rent and other...................................... 3,536 4,862
Convertible subordinated notes.............................. -- 172,500
Obligations under capital leases -- less current portion.... 3,882 906
Commitments and contingencies...............................
Stockholders' equity:
Preferred stock -- 15,000,000 authorized shares, $.01 par
value; no amounts issued or outstanding................ -- --
Common stock -- 150,000,000 authorized shares, $.01 par
value; issued 57,305,659 and 57,971,003 shares,
respectively; outstanding 51,756,278 and 52,420,649
shares, respectively................................... 518 524
Additional paid-in-capital................................ 480,385 504,058
Other..................................................... -- (299)
Accumulated deficit....................................... (294,000) (301,905)
--------- ---------
Total stockholders' equity........................... 186,903 202,378
--------- ---------
Total............................................. $ 252,761 $ 457,728
========= =========
</TABLE>
See notes to interim unaudited condensed consolidated financial statements.
3
<PAGE> 4
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- --------------------
1998 1999 1998 1999
-------- ------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Processing and servicing....................... $ 48,521 $62,627 $ 93,575 $120,931
License fees................................... 3,441 3,201 6,412 6,197
Maintenance fees............................... 4,238 4,518 9,202 8,956
Other.......................................... 3,405 2,623 7,230 5,905
-------- ------- -------- --------
Total revenues......................... 59,605 72,969 116,419 141,989
Expenses:
Cost of processing, servicing and support...... 34,368 43,906 71,457 86,899
Research and development....................... 5,579 8,286 12,157 15,110
Sales and marketing............................ 7,408 9,909 15,232 18,577
General and administrative..................... 7,625 9,363 14,358 19,287
Depreciation and amortization.................. 6,033 7,780 11,999 14,756
-------- ------- -------- --------
Total expenses......................... 61,013 79,244 125,203 154,629
Net gain on dispositions of assets............... -- -- 3,914 --
-------- ------- -------- --------
Loss from operations............................. (1,408) (6,275) (4,870) (12,640)
Interest, net.................................... 426 (102) 1,219 143
-------- ------- -------- --------
Loss before income taxes......................... (982) (6,377) (3,651) (12,497)
Income tax benefit............................... (12,357) (2,408) (13,558) (4,592)
-------- ------- -------- --------
Net income (loss)................................ $ 11,375 $(3,969) $ 9,907 $ (7,905)
======== ======= ======== ========
Basic earnings (loss) per share:
Net income (loss) per common share............. $ 0.22 $ (0.08) $ 0.19 $ (0.15)
======== ======= ======== ========
Equivalent number of shares.................... 51,326 52,200 53,419 52,023
======== ======= ======== ========
Diluted earnings (loss) per share:
Net income (loss) per common share............. $ 0.22 $ (0.08) $ 0.18 $ (0.15)
======== ======= ======== ========
Equivalent number of shares.................... 52,553 52,200 54,664 52,023
======== ======= ======== ========
</TABLE>
See notes to interim unaudited condensed consolidated financial statements.
4
<PAGE> 5
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
---------------------
1998 1999
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 9,907 $ (7,905)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 11,999 14,756
Deferred income tax provision........................... (11,554) (4,592)
Net gain on dispositions of assets...................... (3,914) --
Purchases of investments -- Trading..................... -- (10,563)
Proceeds from maturities and sales of investments,
net -- Trading........................................ 17,609 13,594
Change in certain assets and liabilities (net of
acquisitions and dispositions):
Accounts receivable.................................. 2,916 (1,120)
Prepaid expenses and other........................... 207 (831)
Other noncurrent assets.............................. -- (298)
Accounts payable..................................... (2,422) (955)
Accrued liabilities.................................. (2,321) 5,027
Deferred revenue..................................... (2,549) 5,645
Income tax accounts.................................. (4,541) 2
Accrued rent and other............................... (194) 538
-------- ---------
Net cash provided by operating activities.......... 15,143 13,298
Cash flows from investing activities:
Purchase of property and software......................... (16,750) (19,336)
Proceeds from sale of assets.............................. 11,421 --
Capitalization of software development costs.............. (2,776) (3,195)
Purchase of investments -- held to maturity............... -- (39,568)
Proceeds from maturities and sales of investments -- held
to maturity............................................. 1,006 --
-------- ---------
Net cash used in investing activities.............. (7,099) (62,099)
Cash flows from financing activities:
Principal payments under capital lease obligations........ (621) (312)
Proceeds from sale of stock and exercise of warrants...... -- 19,233
Proceeds from issuance of convertible subordinated
notes................................................... -- 166,921
Proceeds from stock options exercised, including related
tax benefits............................................ 536 1,976
Proceeds from employee stock purchase plan................ 1,070 1,316
Purchase of treasury stock................................ (31,161) --
-------- ---------
Net cash provided by (used in) financing
activities....................................... (30,176) 189,134
-------- ---------
Net increase (decrease) in cash and cash equivalents........ (22,132) 140,333
Cash and cash equivalents:
Beginning of period....................................... 36,535 12,446
-------- ---------
End of period............................................. $ 14,403 $ 152,779
======== =========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 349 $ 58
======== =========
Income taxes paid......................................... $ 2,353 $ 209
======== =========
Capital lease additions and purchase of other long-term
assets.................................................. $ 1,583 $ 1,753
======== =========
Stock funding of 401(k) match............................. $ 963 $ 1,059
======== =========
</TABLE>
See notes to interim unaudited condensed consolidated financial statements.
5
<PAGE> 6
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
1. The accompanying condensed consolidated financial statements and notes
thereto have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for Form 10-Q and include all of the
information and disclosures required by generally accepted accounting principles
for interim financial reporting. The results of operations for the six months
ended December 31, 1998 and 1999 are not necessarily indicative of the results
for the full year.
These financial statements should be read in conjunction with the financial
statements, accounting policies and financial notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. In the opinion of management, the accompanying condensed
consolidated unaudited financial statements reflect all adjustments (consisting
only of normal recurring adjustments) which are necessary for a fair
representation of financial results for the interim periods presented.
2. The following table reconciles the differences in income and shares
outstanding between basic and dilutive for the periods indicated (in thousands
except per share data):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
---------------------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------------------------ ------------------------------------
PER- PER-
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) DENOMINATOR AMOUNT (NUMERATOR) DENOMINATOR AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS...................... $ 9,907 53,419 $0.19 $(7,905) 52,023 $(0.15)
===== ======
Effect of dilutive securities:
Options and warrants........... -- 1,245 -- --
------- ------- ------- ------
Diluted EPS.................... $ 9,907 54,664 $0.18 $(7,905) 52,023 $(0.15)
======= ======= ===== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------------------------ ------------------------------------
PER- PER-
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) DENOMINATOR AMOUNT (NUMERATOR) DENOMINATOR AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS...................... $11,375 51,326 $0.22 $(3,969) 52,200 $(0.08)
===== ======
Effect of dilutive securities:
Options and warrants........... -- 1,227 -- --
------- ------- ------- ------
Diluted EPS.................... $11,375 52,553 $0.22 $(3,969) 52,200 $(0.08)
======= ======= ===== ======= ====== ======
</TABLE>
Basic earnings (loss) per common share amounts were computed by dividing
income (loss) available to shareholders by the weighted average number of shares
outstanding. Diluted per-common-share amounts assume the issuance of common
stock for all potentially dilutive equivalent shares outstanding except in loss
periods when such an adjustment would be anti-dilutive. During the quarter ended
December 31, 1999, the Company issued convertible subordinated notes. Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share",
requires that interest charges applicable to the convertible debt be added back
to income in computing diluted earnings per share, except in loss periods when
such an adjustment would be anti-dilutive. The impact of anti-dilutive interest
charges and equivalent shares excluded from the per share calculations were as
follows (in thousands):
6
<PAGE> 7
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
--------------------------- ---------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) DENOMINATOR (NUMERATOR) DENOMINATOR
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Six Month Period Ended........................ $-- 4,198 $687 5,108
=== ====== ==== ======
Three Month Period Ended...................... $-- 3,751 $687 6,381
=== ====== ==== ======
</TABLE>
3. In the quarter ended September 30, 1999, the Company adopted Statement
of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The Statement distinguishes accounting
for costs of computer software developed or obtained for internal use from
guidance under SFAS No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." The adoption of SOP 98-1 did not result in
a material impact on reported results.
4. In the quarter ended September 30, 1999, the Company issued 36,226
shares of common stock to fund its 401(k) match, the cost of which was accrued
during the year ended June 30, 1999.
5. In the quarter ended September 30, 1999, the Company issued 46,819
shares of common stock in conjunction with the employee stock purchase plan,
which was funded through employee payroll deductions accumulated in the
immediately preceding six-month period.
6. In the quarter ended September 30, 1999, the Company issued 13,000
shares of restricted stock to certain key employees. Shares issued were recorded
at their fair market value on the date of the grant with a corresponding charge
to stockholders' equity. The unearned portion is being amortized as compensation
expense on a straight-line basis over the related vesting periods. Sale of these
shares is restricted prior to the date of vesting.
7. In October 1999, the Company announced a new agreement with one of its
customers. Under the terms of the agreement, the customer purchased 250,000
shares of the Company's stock was granted unvested warrants on one million
shares and has the ability to earn warrants on up to two million additional
shares. All warrants are exercisable on September 15, 2002 contingent upon
achievement of various annual revenue targets and maintaining the continued
existence of the agreement through that date. Upon vesting of the warrants, the
Company will record a charge for the fair value of the warrants, based on a
Black-Scholes valuation which will take into consideration the market value of
our stock, the $39.25 strike price of the warrants, the volatility of our stock
and the applicable risk-free interest rate at that time.
8. On October 25, 1999, the Company executed an amendment to its working
capital line-of-credit agreement. The amendment extended the term of the line
through December 31, 1999, and changed certain financial covenants contained in
the agreement. In January 2000, the Company completed a new line-of-credit
agreement, which matures on December 30, 2002. The new agreement enables the
Company to borrow up to $30 million and contains certain financial and operating
covenants.
9. On November 29, 1999, the Company issued $172.5 million of 6.5%
convertible subordinated notes that are due on December 1, 2006. The Company
will pay interest on the notes on June 1 and December 1, of each year,
commencing June 1, 2000. The notes may be converted, at the holder's option,
into 13.6612 shares of common stock per note and the Company may redeem the
notes at any time on or after December 1, 2002. On January 14, 2000, the Company
filed a shelf registration statement to register the underlying shares. The
Company is using its reasonable best efforts to cause the shelf registration
statement to be declared effective by March 28, 2000.
10. On December 20, 1999, the Company entered into a definitive agreement
to purchase BlueGill Technologies, Inc. in exchange for approximately 3.5
million shares of the Company's common stock. The acquisition, which is expected
to close during the quarter ending June 30, 2000, will be accounted for under
7
<PAGE> 8
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS -- (CONTINUED)
the purchase method of accounting and is expected to include a charge for
in-process research and development which is currently estimated at
approximately $11.9 million. BlueGill provides software that facilitates Web
based electronic billing and bill payment.
11. During the quarter ended December 31, 1999, the Company received
notification and payment for the exercise of warrants for 300,000 shares of the
Company's common stock at an exercise price of $20.9375. Of the 300,000 total
shares, 150,000 shares were not issued until February 2000, therefore, the
amount received is included in accrued liabilities in the Company's December 31,
1999 Condensed Consolidated Balance Sheets. The exercise of these warrants
resulted in an increase in deferred tax benefit and additional paid-in capital
as a result of the differences in the book versus tax accounting treatment of
these transactions.
GUARANTOR FINANCIAL INFORMATION
12. CheckFree Management Corporation is a guarantor of the Company's
$172,500,000 convertible subordinated notes that were issued November 29, 1999.
CheckFree Management Corporation was formed as a medical claims management
subsidiary in order to appropriately minimize, control, and manage the medical
claims liabilities of the Company and its subsidiaries. As of December 31, 1999,
the Company and its subsidiaries own approximately 89% of CheckFree Management
Corporation. Separate financial statements of the other guarantor subsidiaries
have not been separately presented because (1) CheckFree Holdings Corporation,
the parent Company, has no operations or assets other than its investment in its
subsidiaries, (2) all of the subsidiaries have guaranteed the securities on a
full, unconditional, and joint and several basis and (3) all of the subsidiaries
other than CheckFree Management Corporation are wholly owned by the Company. The
following table sets forth condensed consolidating financial information of the
Company, CheckFree Management Corporation, and other wholly owned guarantor
subsidiaries as of and for the six months ended December 31, 1999:
<TABLE>
<CAPTION>
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
Combined CheckFree
CheckFree CheckFree Wholly-owned Holdings
Holdings Management Guarantor Corporation
Corporation Corporation Subsidiaries Eliminations Consolidated
------------- ---------------- ---------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents...... $ 61 $ 3 $ 152,715 $ - $ 152,779
Investments.................... - - 17,015 17,015
Accounts receivable, net....... - 2,740 46,780 (2,740) (1) 46,780
Prepaid expenses and other
assets..................... - - 14,603 (2,740) (2) 11,863
Deferred income taxes.......... - - 8,324 - 8,324
--------- ----------- ---------- ----------- -----------
Total current assets....... 61 2,743 239,437 (5,480) 236,761
Property and equipment, net....... - - 80,416 - 80,416
Capitalized software, net......... - - 21,584 - 21,584
Intangible assets, net............ - - 43,354 - 43,354
Investment in subsidiaries........ 370,009 - - (370,009) (3) -
Other investments................. - - 31,663 - 31,663
Deferred income taxes............. - - 31,095 - 31,095
(26,139) (1)
(25,202) (2)
Other noncurrent assets........... 5,404 26,139 33,040 (387) (4) 12,855
--------- ----------- ---------- ----------- -----------
$ 375,474 $ 28,882 $ 480,589 $ (427,217) $ 457,728
========= =========== ========== =========== ============
Current Liabilities:
Accounts payable............... $ - $ 59 $ 8,679 (59) $ 8,679
(2,740) (1)
137 (3)
Accrued liabilities............ 596 527 39,464 (490) (4) 37,494
Current portion of long-term
obligations................ - 2,740 5,069 (2,740) (2) 5,069
Deferred revenue............... - - 25,840 - 25,840
--------- ----------- ---------- ----------- -----------
Total current liabilities... 596 3,326 79,052 (5,892) 77,082
(26,139) (1)
(25,202) (2)
Accrued rent and other............ - 25,202 30,839 162 (4) 4,862
Convertible subordinated notes.... 172,500 - - - 172,500
Obligations under capital leases -
less current portion.......... - - 906 - 906
Redeemable Preferred Stock........ - 119 - (119) (3) -
Stockholders' equity.............. 202,378 235 369,792 (370,027) (3) 202,378
--------- ---------- ---------- ----------- -----------
$ 375,474 $ 28,882 $ 480,589 $ (427,217) $ 457,728
========= ========== ========== =========== ===========
</TABLE>
1. Elimination of note receivable between CheckFree Corporation, a wholly
owned subsidiary of CheckFree Holdings, and CheckFree Management
Corporation.
2. Elimination of claims liability deposit between CheckFree Corporation, a
wholly owned subsidiary of CheckFree Holdings, and CheckFree Management
Corporation.
3. Elimination of CheckFree Holdings investment in subsidiaries, including the
minority interest of CheckFree Management Corporation.
4. Elimination of other intercompany balances
<TABLE>
<CAPTION>
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
Combined CheckFree
CheckFree CheckFree Wholly-owned Holdings
Holdings Management Guarantor Corporation
Corporation Corporation Subsidiaries Eliminations Consolidated
------------- ---------------- ---------------- --------------- -----------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Processing and servicing....... $ - $ - $ 120,931 $ - $ 120,931
License Fees................... - - 6,197 - 6,197
Maintenance fees............... - - 8,956 - 8,956
Other.......................... 117 - 5,905 (117) (1) 5,905
----------- ---------------- --------------- ------------- --------------------
Total revenues............. 117 - 141,989 (117) 141,989
Expenses:
Cost of processing, servicing
and support................ - - 86,899 - 86,899
Research and development....... - - 15,110 - 15,110
Sales and marketing............ - - 18,577 - 18,577
(117) (1)
General and administrative..... - 117 19,285 2 (2) 19,287
Depreciation and amortization.. - - 14,756 - 14,756
----------- ---------------- --------------- ------------- --------------------
Total expenses............. - 117 154,627 (115) 154,629
----------- ---------------- --------------- ------------- --------------------
Income (loss) from operations..... 117 (117) (12,638) (2) (12,640)
(1,261) (3)
Interest income................... - 1,261 2,573 (1,136) (4) 1,437
1,261 (3)
Interest expense.................. (1,081) (1,136) (1,474) 1,136 (4) (1,294)
----------- ---------------- --------------- ------------- --------------------
Income (loss) before income
taxes........................... (964) 8 (11,539) (2) (12,497)
Income tax benefit................ (410) - (4,182) - (4,592)
Income (loss) before equity in ----------- ---------------- --------------- ------------- --------------------
earnings of subsidiaries...... (554) 8 (7,357) (2) (7,905)
Equity in earnings of (7,351) - - 7,351 (2) -
subsidiaries.................... ----------- ---------------- --------------- ------------- --------------------
Net income (loss)................. $ (7,905) $ 8 $ (7,357) $ 7,349 $ (7,905)
=========== ================ =============== ============= ====================
</TABLE>
1. Elimination of administrative fee between CheckFree Holdings Corporation
and CheckFree Management Corporation.
2. Elimination of CheckFree Holdings investment in subsidiaries, including the
minority interest of CheckFree Management Corporation.
3. Elimination of the interest income/expense from the note receivable between
CheckFree Corporation, a wholly owned subsidiary of CheckFree Holdings, and
CheckFree Management Corporation.
4. Elimination of the interest income/expense from the claims liability
deposit between CheckFree Corporation, a wholly owned subsidiary of
CheckFree Holdings, and CheckFree Management Corporation.
<TABLE>
<CAPTION>
CHECKFREE HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
Combined CheckFree
CheckFree CheckFree Wholly-owned Holdings
Holdings Management Guarantor Corporation
Corporation Corporation Subsidiaries Eliminations Consolidated
-------------- --------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income............................ $ (7,905) $ 8 $ (7,357) 7,349 (1) $ (7,905)
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Equity in earnings of
subsidiaries..................... 7,351 - - (7,351) (1) -
Net inter-subsidiary cash (20,310) 20,310 - -
transfers.........
Depreciation and amortization..... - - 14,756 - 14,756
Deferred income tax provision..... (410) - (4,182) - (4,592)
Purchases of investments-Trading.. - - (10,563) - (10,563)
Proceeds from sales and
maturities of investments-
Trading....................... - - 13,594 - 13,594
Change in certain assets and
liabilities (net of
acquisitions and
dispositions):
Accounts receivable........ - - (1,120) - (1,120)
Prepaid expenses and
other...................... - - (831) - (831)
Other noncurrent
assets..................... - - (298) (298)
Accounts payable........... - - (955) - (955)
Accrued liabilities........ - - 5,025 2 5,027
Deferred revenues.......... - - 5,645 - 5,645
Income tax accounts........ 410 - (408) - 2
Accrued rent and other..... - - 538 - 538
Net cash provided by (used in)
operating activities................ -------------- --------------- ----------------- -------------- ---------------
(20,864) 8 34,154 - 13,298
Investing activities:
Purchase of property and
software........................ - - (19,336) - (19,336)
Capitalization of software
development costs................ - - (3,195) - (3,195)
Principal payments on related
party loan...................... - 892 (892) - -
Purchase of investments- Held
to Maturity..................... - - (39,568) - (39,568)
Net cash provided by (used in)
investing activities................ -------------- --------------- ----------------- -------------- ---------------
- 892 (62,991) - (62,099)
Financing Activities:
Principal payments on capital lease
obligations...................... - - (312) - (312)
Proceeds from sale of stock and
exercise of warrants............. 19,233 - - - 19,233
Proceeds from issuance of convertible
subordinated notes............... 166,921 - - - 166,921
Proceeds from stock options
exercised, including related
tax benefits..................... 1,976 - - - 1,976
Proceeds from employee stock
purchase plan.................... - - 1,316 - 1,316
Payments on health plan liabilities.. - (1,548) 1,548 - -
Capital contribution to subsidiary... (167,325) - 167,325 - -
Loan from related party............. - 360 (360) - -
Net cash provided by (used in) -------------- --------------- ----------------- -------------- ---------------
financing activities................ 20,805 (1,188) 169,517 - 189,134
Net increase (decrease) in cash and -------------- --------------- ----------------- -------------- ---------------
cash equivalents.................... (59) (288) 140,680 - 140,333
Cash and cash equivalents:
Beginning of period................. 120 291 12,035 - 12,446
-------------- --------------- ----------------- -------------- ---------------
End of period....................... $ 61 $ 3 $ 152,715 $ - $ 152,779
============== =============== ================= ============== ===============
</TABLE>
(1) Elimination of CheckFree Holdings investment in subsidiaries, including the
minority interest of CheckFree Management Corporation.
The following table represents the equity structure of CheckFree Management
Corporation as of December 31, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
REDEEMABLE PREFERRED STOCK:
Class C, 350 authorized shares, $100 par value;
350 shares issued and outstanding...................................... $ 37,800
Class D, 750 authorized shares, $100 par value;
750 shares issued and outstanding...................................... 81,000
--------
Total redeemable preferred stock........................... $118,800
========
STOCKHOLDERS' EQUITY:
Preferred stock- Class B, 600 authorized shares, $100 par value;
600 shares issued, no amounts outstanding.............................. -
Common stock- Class A, 1,900 authorized shares, $100 par value;
1,900 shares issued and outstanding.................................... $190,000
Retained earnings......................................................... 45,253
--------
Total stockholders' equity................................. $235,253
========
</TABLE>
Redeemable Preferred Stock - The holders are entitled to receive dividends
before any dividend is declared or paid on shares of Class A Common Stock. Such
dividends are cumulative and are payable at times determined by the CheckFree
Management Corporation's Board of Directors. The holders are entitled to one
vote per share and each class has certain rights with respect to election of the
Company's Board of Directors. On or after January 1, 2004, the Company may, at
its option, redeem the shares of Class C and Class D preferred stock for cash,
the amount of which is determined by the "Formula Value", plus any accrued but
unpaid dividends. The "Formula Value" provides for the price to be par value
plus a percentage of the increase in the Company valuation from the inception
date, not to exceed a per share price of $500. On or after January 1, 2005, the
holders of Class C and Class D preferred stock may require the Company to redeem
their shares for cash, the amount of which is determined by the Formula Value
defined above, plus any accrued but unpaid dividends. At December 31, 1999 the
redemption value of the preferred stock is approximately equal to its carrying
value. In the event of liquidation, dissolution or winding up of the Company,
holders of Class C and Class D preferred stock are entitled to receive, prior to
and in preference to any distributions to the holders of Class B preferred stock
or Class A common stock, an amount determined by the Formula Value, plus any
accrued but unpaid dividends.
Capital Stock - Holders of class A Common Stock are entitled to one vote per
share and have certain rights with respect to election of the Company's Board of
Directors. The holders of Class B, Preferred Stock have certain additional
rights, privileges and preferences. The holders are entitled to one vote per
share and each class has certain rights with respect to election of the
Company's Board of Directors. The holders are entitled to receive dividends
before any dividend is declared or paid on shares of Class A Common Stock. Such
dividends are cumulative and are payable at times determined by the Board of
Directors. In the event of liquidation, dissolution or winding up of the
Company, subject to the redeemable preferred stock preferences, holders of Class
B preferred stock are entitled to receive an amount equal to the par value plus
any accrued but unpaid dividends.
In December 1998, the Company entered into a Stockholders' Agreement with each
holder of common and preferred stock. The agreement restricts the sale or
transfer of any shares of stock without express written consent of all
stockholders. In addition, the agreement provides that the holder of the Class A
Common Stock, CheckFree Holdings, is subject to capital calls when and if the
Board of Directors determines that the Company will have a cash shortfall for
any quarter. Through December 31,1999, no additional capital contributions were
required.
13. In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which will
require that all derivative financial instruments be recognized as either assets
or liabilities in the balance sheet. SFAS 133 will be effective for the
Company's first quarter of fiscal 2001. The Company is in the process of
evaluating the effects of this new statement.
14. On February 15, 2000, the Company entered into a definitive agreement
to purchase MSFDC L.L.C. (TransPoint) in exchange for 17 million shares of the
Company's common stock. TransPoint is a joint venture between Microsoft, First
Data Corporation and Citibank. The acquisition, which is expected to close
within four to six months, will be accounted for under the purchase method of
accounting and is expected to include a charge for in-process research and
development. As part of the agreement, the selling parties will fund the joint
venture with $100 million of cash immediately prior to closing. Additionally, a
related commercial agreement with Microsoft provides for a revenue guarantee of
$120 million over the next five years and a related marketing agreement with
First Data Corporation provides for a revenue and/or expense savings guarantee
of $60 million over the next five years. TransPoint provides electronic billing
and payment processing services.
15. Certain amounts in the prior years' financial statements have been
reclassified to conform to current year presentation.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are the leading provider of electronic billing and payment
services. We operate our business through three independent but inter-related
divisions:
- Electronic Commerce;
- Investment Services; and
- Software.
Our Electronic Commerce business provides services that allow
consumers to:
- receive electronic bills through the Internet;
- pay any bill - electronic or paper - to anyone; and
- perform customary banking transactions, including balance
inquiries, transfers between accounts and on-line statement
reconciliations.
We currently provide electronic billing and payment services for
approximately 3 million consumers. Our services are available through over 350
sources, including:
- 23 of the 25 largest banks in the United States;
- 8 of the top 10 brokerage firms in the United States;
- Internet portals;
- Internet-based banks;
- Internet financial sites such as Quicken.com; and
- personal financial management software such as Quicken and
Microsoft Money.
We have developed contracts with over 1,100 merchants nationwide that
enable us to remit in excess of 50% of all of our bill payments electronically.
During the three-month period ended December 31, 1999, we processed an average
of nearly 14 million transactions per month, and for the year ended June 30,
1999, we processed more than 125 million transactions.
In March 1997, we introduced electronic billing - "E-Bill" - which
enables merchants to deliver billing as well as marketing materials
interactively to their customers over the Internet. As of December 31, 1999, we
have signed contracts for E-Bill services with 89 of the country's largest
billers. In December 1999, we presented more than 38,000 electronic bills, which
is nearly double the number of bills presented through E-bill Services in
September 1999. Additionally, over 100 CheckFree distribution points are live
with Internet billing and payment.
For example, when a customer instructs us to pay a bill, we have the
ability to process the payment either by electronic funds transfer, by paper
check, or by draft drawn on the customer's account. Our patented bill payment
processing system in Norcross, Georgia determines the preferred method of
payment based on a credit analysis of the customer, assessing the customer's
payment history, the amount of the bill to be paid and other relevant factors.
If the results of the credit analysis are favorable, we will assume the
risk of collection of the funds from the customer's account, and if we have an
electronic connection to the merchant, the remittance will be sent
electronically. Otherwise, the remittance will be sent to the merchant by a
paper check or draft drawn directly on the customer's checking account. In an
electronic remittance, the funds are transmitted electronically to the merchant
with the customer's account number included as an addenda record. For a paper
draft, the customer's name, address, and account number is printed on the face
of the check. In addition, our processing system provides the ability to
aggregate multiple electronic and paper remittances due to merchants. Thus, if
multiple payments are going to the same merchant on the same day, we may send
one check for the sum of these payments and include a remittance statement that
provides the customers' names, addresses, account numbers, and payment amounts.
Our strategy is to drive operational efficiency and improve profitability by
increasing the percentage of transactions we process electronically.
We are also a leading provider of institutional portfolio management
and information services and financial application software. Our Investment
Services business offers portfolio accounting and performance measurement
services to investment advisors, brokerage firms, banks and insurance companies
and financial planning application software to financial planners.
Our portfolio management system solution includes:
- data conversion;
- personnel training;
- trading system;
- graphical client reporting;
- performance measurement;
- technical network support and interface setup; and
- Depository Trust Corporation processing.
Our financial planning software applications include:
- retirement and estate planning modules;
- cash flow, tax and education planning modules;
- asset allocation module; and
- investment manager performance database system.
Our fee-based money manager clients are typically sponsors or managers
of wrap money management products or traditional money managers, managing
investments of institutions and high net worth individuals.
Our Software businesses provide electronic commerce and financial
applications software and services for businesses and financial institutions.
We design, market, license and support the following software applications,
among others:
- Electronic Funds Transfer.
Through our Paperless Entry Processing System Plus software,
we offer an online, real-time system providing an
operational interface for originating and receiving payments
through the automated clearinghouse. The automated
clearinghouse is a nationwide electronic clearing and
settlement system that processes electronically originated
credit and debt transfers among participating depository
institutions. These electronic transactions are substitutes
for paper checks and are typically used for recurring
payments like direct deposit payroll payments and corporate
payments to contractors and vendors, debit transfers that
consumers make to pay insurance premiums, mortgages, loans
and other bills, and business to business payments. You may
obtain additional information on the automated clearinghouse
at the Federal Reserve Commission's website at
http://www.federalreserve.gov. We do not maintain a direct
connection with the automated clearinghouse, but rather,
clear our electronic transactions through KeyBank, N.A.,
under the terms of an automated clearinghouse agreement.
- Reconciliation.
Through our RECON-PLUS software, we provide United States
banks, international banks and corporate treasury operations
with automated check and non-check reconciliations in high
volume, multi-location environments. Some of the services
provided by ReconPlus are automated deposit verification,
consolidated bank account reconciliation and cash
mobilization, immediate and accurate funds availability data
and improved cash control.
- Other
We also provide software solutions such as regulatory
compliance solutions for Form 1099 processing, safe box
accounting and other applications.
During the fiscal year ended June 30, 1999, Electronic Commerce
accounted for 68% of our revenues and Investment Services and Software each
accounted for 16% of our revenues.
Our current business was developed through expansion of our core
Electronic Commerce business and the acquisition of companies operating in
similar or complementary businesses. Our major acquisitions include Servantis
Systems Holdings, Inc. in February 1996, Security APL, Inc. in May 1996, Intuit
Services Corporation in January 1997 and Mobius Group, Inc. in March 1999. On
December 21, 1999 we announced the planned acquisition of BlueGill Technologies,
Inc. and expect this transaction to close in the quarter ended June 30, 2000.
During fiscal 2000, we announced a new pricing structure to our
financial institution customers. The new pricing program includes a fee based
on the number of transactions processed, a small per subscriber fee and a fixed
monthly fee to cover our infrastructure costs. Our traditional financial
institution pricing structure was based primarily on subscriber fees, which
grew roughly proportionally to the number of subscribers added, regardless of
activity. Both programs provide for monthly minimum fees. Until we see
significant increases in the number of electronic billing and payment customers
enrolling through financial institutions, we do not anticipate that this
pricing change will have a significant impact on our revenues. Once the
subscriber growth rates begin to accelerate and financial institutions adopt
the new pricing program, revenue growth will become more dependent upon
consumer usage of our services. As of December 31, 1999, only one financial
institution had adopted the new pricing program. From an efficiency
perspective, electronic payment of bills is significantly less expensive than
traditional paper based payments. Since June 1998, we have increased our
electronic payments ratio from 32% of total payments processed to over 52% by
December 1999. Improvement in this important metric drives down our variable
costs and results in increased gross profits in our electronic payment business.
In March 1997, we introduced electronic billing -- "E-Bill" -- which
enables merchants to deliver billing information as well as marketing materials
to their customers electronically over the Internet. Through December 1999, we
have placed 62 billers into production and are now delivering in excess of
38,000 electronic bills monthly through E-Bill. We derive revenue from our
billers on a per bill presented basis.
During fiscal 1998, we made the decision to sell some of our software
businesses that did not directly promote our strategic direction. These
divestitures included the sale of our recovery management business in August
1997, our item processing business in March 1998, our wire and electronic
banking businesses in April 1998, our leasing business in July 1998, our
mortgage business in September 1998 and our imaging business in
9
<PAGE> 10
October 1998. While we have no pending agreements to dispose of our remaining
software businesses, we do receive offers for them from time to time.
RESULTS OF OPERATIONS
The following table sets forth as percentages of total operating
revenues, certain consolidated statements of operations data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total Revenues: 100.0% 100.0% 100.0% 100.0%
Expenses:
Cost of processing, servicing and support 57.7% 60.2% 61.4% 61.2%
Research and development 9.4% 11.3% 10.4% 10.6%
Sales and marketing 12.4% 13.6% 13.1% 13.1%
General and administrative 12.8% 12.8% 12.3% 13.6%
Depreciation and amortization 10.1% 10.7% 10.4% 10.4%
----- ----- ----- -----
Total expenses 102.4% 108.6% 107.6% 108.9%
Net gain on dispositions of assets 0.0% 0.0% 3.4% 0.0%
----- ----- ----- -----
Loss from operations -2.4% -8.6% -4.2% -8.9%
Interest, net 0.7% -0.1% 1.0% 0.1%
----- ----- ----- -----
Loss before income taxes -1.6% -8.7% -3.1% -8.8%
Income tax benefit -20.7% -3.3% -11.6% -3.2%
----- ----- ----- -----
Net income (loss) 19.1% -5.4% 8.5% -5.6%
===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
Revenues. Reported revenue increased 22%, from $59.6 million for the three
months ended December 31, 1998 to $73.0 million for the three months ended
December 31, 1999 and by 22%, from $116.4 million for the six months ended
December 31, 1998 to $142.0 million for the six months ended December 31, 1999.
On a pro forma basis, net of the divestitures of our mortgage business in
September 1998 and our imaging business in October 1998 and adjusting for the
acquisition of Mobius Group in March 1999, revenue increased 19% from $61.3
million for the three months ended December 31, 1998 to $73.0 million for the
three months ended December 31, 1999 and by 20%, from $118.0 million for the six
months ended December 31, 1998 to $142.0 million for the six months ended
December 31, 1999. The increase in quarterly pro forma revenue of 19% was driven
by increases of 23% in our Electronic Commerce segment and 26% in our Investment
Services segment, offset slightly by a decline of 5% in our Software segment.
The increase in year to date pro forma revenue of 20% was driven by increases of
24% in our Electronic Commerce segment, 23% in our Investment Services segment
and less than 1% in our Software segment. Quarterly and year to date growth in
Electronic Commerce revenue is driven primarily by an increase in subscribers
from approximately 2.6 million at December 31, 1998 to approximately 3.0 million
at December 31, 1999. Pro forma quarterly and year to date growth in Investment
Services revenue is driven primarily by an increase in portfolios managed from
approximately 573,000 at December 31, 1998 to approximately 820,000 at December
31, 1999. In the Software segment, the decline in pro forma quarterly revenue
and the minimal growth in pro forma year to date revenue were due primarily to
anticipated purchasing moratoriums by customers due to Year 2000 concerns.
Reported processing and servicing revenue increased by 29%, from $48.5
million for the three months ended December 31, 1998 to $62.6 million for the
three months ended December 31, 1999, and by 29%, from $93.6 million for the six
months ended December 31, 1998 to $120.9 million for the six months ended
December 31, 1999. On a pro forma basis, adjusting for the acquisition of Mobius
Group in March 1999, processing and servicing revenue increased by 25%, from
$50.1 million for the three months ended December 31, 1998 to $62.6 million for
the three months ended December 31, 1999, and by 25%, from $96.7 million for the
six months ended December 31, 1998 to $120.9 million for the six months ended
December 31, 1999. Quarter over quarter and year over year pro forma growth in
processing and servicing revenue is primarily the result of the previously
mentioned growth in subscribers in our Electronic Commerce segment and
portfolios managed in our Investment Services segment. Our processing agreement
with Yahoo! allows for a free three month trial period for subscribers who
enroll through Yahoo! Because these subscribers are not generating revenue
during this free period, we do not count them in our active subscriber base.
Additionally, we now have 62 billers in production that presented approximately
38,000 electronic bills in the month ended December 31, 1999. The number of
bills we presented electronically has nearly doubled since the month ended
September 30, 1999 and we expect growth in this area to continue. When combined
with a recently announced transaction based pricing model for our largest
customers, it will become more difficult to correlate revenue solely to the
number of subscribers, with transactions processed becoming an additional
indicator.
10
<PAGE> 11
Reported license fee revenue decreased by 6%, from $3.4 million for the
three months ended December 31, 1998 to $3.2 million for the three months ended
December 31, 1999 and by 3% from $6.4 million for the six months ended December
31, 1998 to $6.2 million for the six months ended December 31, 1999. On a pro
forma basis, adjusting for the impact of divested software businesses, license
revenue decreased by 6%, from $3.4 million for the three months ended December
31, 1998 to $3.2 million for the three months ended December 31, 1999 and
increased by 2% from $6.1 million for the six months ended December 31, 1998 to
$6.2 million for the six months ended December 31, 1999. The pro forma decline
in license revenue on a quarter over quarter basis and the relatively flat pro
forma performance on a year over year basis was due primarily to expected
purchasing moratoriums from customers with Year 2000 concerns.
Reported maintenance fee revenue increased by 7%, from $4.2 million for the
three months ended December 31, 1998 to $4.5 million for the three months ended
December 31, 1999 and decreased by 2% from $9.2 million for the six months ended
December 31, 1998 to $9.0 million for the six months ended December 31, 1999. On
a pro forma basis, adjusting for the impact of divested software businesses,
maintenance revenue increased by 7%, from $4.2 million for the three months
ended December 31, 1998 to $4.5 million for the three months ended December 31,
1999 and by 8%, from $8.3 million for the six months ended December 31, 1998 to
$9.0 million for the six months ended December 31, 1999. This increase is due to
new maintenance paying customers added during fiscal 1999 and moderate price
increases, offset slightly by retention rates in the upper 80% range for the
core maintenance base in the Software business.
Reported other revenue, consisting mostly of consulting fees, decreased by
23%, from $3.4 million for the three months ended December 31, 1998 to $2.6
million for the three months ended December 31, 1999 and by 18%, from $7.2
million for the six months ended December 31, 1998 to $5.9 million for the six
months ended December 31, 1999. On a pro forma basis, adjusting for the impact
of divested software businesses and the acquisition of Mobius Group, other
revenue decreased by 23%, from $3.4 million for the three months ended December
31, 1998 to $2.6 million for the three months ended December 31, 1999 and by
13%, from $6.8 million for the six months ended December 31, 1998 to $5.9
million for the six months ended December 31, 1999. The decrease in pro forma
other revenue is due primarily to the decline in software implementations due to
customer's software implementation freezes in the quarter in preparation for
Year 2000.
Cost of Processing and Support. Our cost of processing, servicing and
support was $34.3 million or 57.7% of total revenue for the three months ended
December 31, 1998 and $43.9 million or 60.2% of total revenue for the three
months ended December 31, 1999. Cost of processing, servicing and support was
$71.5 million or 61.4% of total revenue for the six months ended December 31,
1998 and $86.9 million or 61.2% of total revenue for the six months ended
December 31, 1999. Cost of processing, servicing and support as a percentage of
servicing only revenue (all revenue except license) was 61.2% for the three
months ended December 31, 1998 and 62.9% for the three months ended December 31,
1999 and was 64.9% for the six months ended December 31, 1998 and 64.0% for the
six months ended December 31, 1999. We have seen improvements in this ratio in
two areas. First, we have seen an increase in the percentage of electronic
payments from approximately 42% at December 31, 1998 to approximately 52% at
December 31, 1999, whereby electronic payments carry a significantly lower
variable cost per unit than paper based payments. Additionally, we have seen
improvements from the leverage inherent in converting two thirds of our
subscribers from two legacy systems to our new Genesis processing system. These
improvements, however, are offset by E-Bill implementation costs as we continue
to move an increasing number of billers into live production and by transaction
costs generated by subscribers enrolled by Yahoo!, currently within their free
three-month trial period.
Research and Development. Our research and development costs were $5.6
million or 9.4% of total revenue for the three months ended December 31, 1998
and $8.3 million or 11.3% of total revenue for the three months ended December
31, 1999. Research and development costs were $12.2 million or 10.4% of total
revenue for the six months ended December 31, 1998 and $15.1 million or 10.6% of
total revenue for the six months ended December 31, 1999. Adjusted for
capitalized development costs of $1.6 million for the three months ended
December 31, 1998, of $1.3 million for the three months ended December 31, 1999,
of $2.8 million for the six months ended December 31, 1998 and of $3.2 million
for the six months ended December 31, 1999, our gross research and development
costs were $7.2 million or 12.1% of total revenue for the three months ended
December 31, 1998 and $9.6 million or 13.2% of total revenue for the three
months ended December 31, 1999 and were $15.0 million or 12.9% of total revenue
for the six months ended December 31, 1998 and $18.3 million or 12.8% of total
revenue for the six months ended December 31, 1999. We continue to invest a
significant portion of our revenue into research and development activities in
all business segments in anticipation and support of revenue growth, quality
improvement and efficiency enhancement opportunities.
Sales and Marketing. Sales and marketing costs were $7.4 million or 12.4%
of total revenue for the three months ended December 31, 1998 and $9.9 million
or 13.6% of total revenue for the three months ended December 31, 1999. Sales,
marketing and royalty costs were $15.2 million or 13.1% of total revenue for the
six months ended December 31, 1998 and $18.6 million or 13.1% of total revenue
for the six months ended December 31, 1999. We have increased our sales staff to
sign additional billers in support of our electronic billing product offerings
and have increased program management staff in support of new non-subscriber
based products designed to leverage our existing electronic payment
infrastructure. We expect to incur increased promotional expenses in support of
electronic billing and payment offerings through financial institutions and
Internet portals like Yahoo! and other customers like WingspanBank.com in an
effort to accelerate the growth of subscribers in our Electronic Commerce
segment.
11
<PAGE> 12
General and Administrative. General and administrative expenses were $7.6
million or 12.8% of total revenue for the three months ended December 31, 1998
and $9.4 million or 12.8% of total revenue for the three months ended December
31, 1999. General and administrative expenses were $14.4 million or 12.3% of
total revenue for the six months ended December 31, 1998 and $19.3 million or
13.6% of total revenue for the six months ended December 31, 1999. The increase
in general and administrative expenses is due principally to an increase in
facilities costs resulting from new facilities in Dublin, Ohio, Jersey City, New
Jersey and Phoenix, Arizona; an increase in administrative staff required to
manage growth in all areas of the company; and an increase in our reserve for
estimated doubtful accounts consistent with realized revenue growth.
Depreciation and Amortization. Depreciation and amortization costs
increased from $6.0 million for the three months ended December 31, 1998 to $7.8
million for the three months ended December 31, 1999 and from $12.0 million for
the six months ended December 31, 1998 to $14.8 million for the six months ended
December 31, 1999. Reductions in depreciation and amortization expense resulting
from the divestiture of previously mentioned software businesses have been
offset by amortization of intangible assets resulting from the acquisition of
Mobius Group and increased depreciation expense resulting from capital spending
in support of growth and quality improvement initiatives.
Net Gain on Dispositions of Assets. The net gain on dispositions of assets
of $3.9 million in the six months ended December 31, 1998 is the net result of
the gain on the sale of our mortgage business of approximately $6.3 million
offset by the loss on the sale of the imaging business of approximately $2.4
million.
Interest. Net interest declined from net interest income of $0.4 million
for the three months ended December 31, 1998 to net interest expense of $0.1
million for the three months ended December 31, 1999. Net interest declined from
net interest income of $1.2 million for the six months ended December 31, 1998
to net interest income of $0.1 million for the six months ended December 31,
1999. The varied net interest amounts are the net result of the timing of
significant transactions in each of the periods identified. At September 30,
1998, we had approximately $56.2 million of cash, cash equivalents and
investments on hand, primarily resulting from proceeds from the divestitures of
various software businesses. We spent approximately $31.0 million in cash from
September 1998 through October 1998 to buy back approximately 4.7 million of
common shares when the market price of our stock was relatively low. Investment
yields on our average cash, cash equivalents and invested assets exceeded
interest expense on outstanding capital lease obligations, resulting in net
interest income of $0.4 million for the three months ended December 31, 1998 and
$1.2 million for the six months ended December 31, 1998. On November 29, 1999,
we received net proceeds of approximately $166.9 million from the issuance of
$172.5 million of 6 1/2% subordinated convertible notes. Additionally, in
October 1999, we received approximately $9.8 million from the direct purchase of
250,000 shares of our common stock, at market value, by Bank One and, in
December 1999, we received approximately $6.2 million from the exercise of
outstanding common stock warrants. Direct interest expense and amortization of
issuance costs resulting from the convertible debt combined with interest
expense from capital leases exceeded the interest income earned on cash, cash
equivalents and invested assets for the quarter resulting in net interest
expense of $0.1 million for the three months ended December 31, 1999. For the
six months ended December 31, 1999, our interest income exceeded interest
expense by $0.1 million.
Income Taxes. We recorded an income tax benefit of $12.4 million for the
three months ended December 31, 1998 (effective rate not meaningful) and an
income tax benefit of $2.4 million or an effective tax rate of 37.8% for the
three months ended December 31, 1999. We recorded an income tax benefit of $13.6
million for the six months ended December 31, 1998 (effective rate not
meaningful) and an income tax benefit of $4.6 million or an effective tax rate
of 36.8% for the six months ended December 31, 1999. In the quarter ended
December 31, 1998, we recorded a one-time tax benefit of approximately $12.2
million arising out of our medical benefits management subsidiary. Net of this
one-time benefit, the reported effective rates differ from the blended statutory
rate of 40% in all periods due to goodwill and other non-deductible expenses,
jobs credits and tax exempt interest income.
12
<PAGE> 13
SEGMENT INFORMATION
The following table sets forth operating revenue and operating income
by industry segment for the periods noted (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenue:
Electronic Commerce $41,298 $50,703 $ 79,385 $ 98,484
Software 9,535 9,076 19,730 18,060
Investment Services 8,772 13,190 17,304 25,445
------- ------- -------- --------
Total Operating Revenue $59,605 $72,969 $116,419 $141,989
======= ======= ======== ========
Operating Income (Loss):
Electronic Commerce $ (778) $(5,060) $ (5,388) $(10,810)
Software 3,720 2,283 4,935 4,766
Investment Services 895 3,080 2,690 5,445
Corporate (5,245) (6,578) (11,021) (12,041)
Net Gain on Disposition of Assets -- -- 3,914 --
------- ------- -------- --------
Total Operating Income (Loss) $(1,408) $(6,275) $ (4,870) $(12,640)
======= ======= ======== ========
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
Revenue in our Electronic Commerce business unit increased by 23%, from
$41.3 million for the three months ended December 31, 1998 to $50.7 million for
the three months ended December 31, 1999 and increased by 24%, from $79.4
million for the six months ended December 31, 1998 to $98.5 million for the six
months ended December 31, 1999. The increase in revenue is due primarily to an
increase in subscribers from approximately 2.6 million at December 31, 1998 to
approximately 3.0 million at December 31, 1999. While underlying growth in total
subscribers approximated 7% and, within that figure underlying Internet-based
subscribers grew in excess of 20%, the total subscriber based remained
consistent from last quarter at approximately 3.0 million. As expected in our
discussion last quarter, we had approximately 200,000 subscribers deleted during
the quarter ended December 31, 1999 as our financial institution customers
removed subscribers using personal financial management software that was not
Year 2000 compliant. We have assisted our customers in actively soliciting these
subscribers to upgrade to Year 2000 compliant software and to remove
non-compliant subscribers from our systems through December 1999. We do not
expect these deletions to have a material impact on our expected earnings for
the remainder of the year.
Our processing agreement with Yahoo! allows for a free three-month trial
period for subscribers who enroll through Yahoo! Because these subscribers are
not generating revenue during this free period, we do not count them in our
active subscriber base. Early on in the program with Yahoo! we provided bill
payment services only and, in December 1999, we added electronic billing
capability that now allows for a fully electronic round trip billing and payment
experience through the Yahoo! offering. Now that the services are complete, we
expect an increase in the nature and extent of advertising promotions through
the various Yahoo! properties like Yahoo.com, Yahoo! Calendar and Yahoo! Wallet.
Additionally, we now have 62 billers in production that presented
approximately 38,000 electronic bills in the month ended December 31, 1999. The
number of bills we presented electronically has nearly doubled since the month
of September 1999 and we expect growth in this area to continue. Our recently
announced acquisition of BlueGill Technologies, expected to close in the quarter
ended March 31, 2000, will facilitate our efforts to provide quality billing
content and by simplifying and accelerating the process of taking bills from
paper to electronic, BlueGill will help us speed adoption of electronic billing
services available today. When combined with a recently announced transaction
based pricing model for our largest customers, it will become more difficult to
correlate revenue solely to the number of subscribers, with transactions
processed becoming an additional indicator. We exited the quarter ended December
31, 1999 processing approximately 14 million transactions per month, an increase
of 1 million per month over that which we processed in September 1999.
Operating losses in our Electronic Commerce segment increased from $0.8
million for the three months ended December 31, 1998 to $5.1 million for the
three months ended December 31, 1999 and from $5.4 million for the six months
ended December 31, 1998 to $10.8 million for the six months ended December 31,
1999. As we have explained in previous quarters, we are investing heavily in the
following four areas:
- marketing and price incentives to spur industry growth;
- compressing the time from E-Bill contract execution to live
billing;
- improved infrastructure and programs that improve quality
and performance; and
- extension of payment offerings through leverage of our
existing infrastructure.
13
<PAGE> 14
Additionally, as subscribers sign up for electronic billing and payment
offerings through portals and other sponsors that offer free trial periods, we
will incur the variable costs associated with processing transactions from these
customers with no revenue to offset the costs. These combined factors will
continue to place downward pressure on operating margins in this segment for the
remainder of the fiscal year.
Reported revenue in our Software segment declined by 4%, from $9.5 million
for the three months ended December 31, 1998 to $9.1 million for the three
months ended December 31, 1999 and by 8% from $19.7 million for the six months
ended December 31, 1998 to $18.1 million for the six months ended December 31,
1999. The decline in the periods mentioned is partially due to the divestiture
of our mortgage and imaging businesses in the prior year. On a pro forma basis,
net of the divestitures, revenue declined by 4%, from $9.5 million for the three
months ended December 31, 1998 to $9.1 million for the three months ended
December 31, 1999 and increased by 1% from $17.9 million for the six months
ended December 31, 1998 to $18.1 million for the six months ended December 31,
1999. The revenue results were as expected due to purchasing moratoriums by
customers concerned with Year 2000 issues.
Reported operating income in our Software segment decreased from $3.7
million for the three months ended December 31, 1998 to $2.3 million for the
three months ended December 31, 1999 and decreased slightly from $4.9 million
for the six months ended December 31, 1998 to $4.8 million for the six months
ended December 31, 1999. On a pro forma basis, net of divestitures, operating
income decreased from $3.7 million for the three months ended December 31, 1998
to $2.3 million for the three months ended December 31, 1999 and decreased from
$6.6 million for the six months ended December 31, 1998 to $4.8 million for the
six months ended December 31, 1999. The decrease in operating margins reflects
investments in new initiatives like the recent launch of missingmoney.com, a
state-sponsored Internet site we developed with the National Association of
Unclaimed Property to enable customers to find and claim money owed to them from
non-refunded deposits, unclaimed securities, and other accounts held by states.
Additional resources have also been assigned to our new automated clearinghouse
alliance services program that carries a profit margin that is inherently lower
than that of our traditional product offerings in this area.
Reported revenue in our Investment Services segment increased by 50%, from
$8.8 million for the three months ended December 31, 1998 to $13.2 million for
the three months ended December 31, 1999 and by 47%, from $17.3 million for the
six months ended December 31, 1998 to $25.4 million for the six months ended
December 31, 1999. This increase is partially due to our acquisition of Mobius
Group in March of 1999. On a pro forma basis, adjusting for the impact of the
Mobius Group acquisition, revenue increased 27% from $10.4 million for the three
months ended December 31, 1998 to $13.2 million for the three months ended
December 31, 1999 and by 23%, from $20.7 million for the six months ended
December 31, 1998 to $25.4 million for the six months ended December 31, 1999.
Growth in pro forma revenue is driven primarily by an increase in portfolios
managed from approximately 573,000 at December 31, 1998 to approximately 820,000
at December 31, 1999. A major portion of portfolio growth over the past year has
occurred in retail versus institutional accounts that carry a lower unit price.
In October 1999, we launched our new M-Plan product from Mobius. Consultants,
plan sponsors, investment managers and financial planners use Mobius M-Plan for
integrating retirement, capital needs, tax, education and real estate planning
needs for their customers.
Operating income in our Investment Services segment increased from $0.9
million for the three months ended December 31, 1998 to $3.1 million for the
three months ended December 31, 1999 and from $2.7 million for the six months
ended December 31, 1998 to $5.4 million for the six months ended December 31,
1999. On a pro forma basis, adjusting for the acquisition of Mobius Group,
operating income increased from $0.9 million for the three months ended December
31, 1998 to $3.1 million for the three months ended December 31, 1999 and from
$2.9 million for the six months ended December 31, 1998, to $5.4 million for the
six months ended December 31, 1999. In the quarter ended December 31, 1998, we
incurred one time charges of $0.6 million related to real estate transactions in
this business unit. Additionally, increases in operating income are due to the
marginal profit inherent in the increase in portfolios managed and synergies
realized in the integration of Mobius Group into the operations of the business
segment.
The Corporate segment represents charges for legal, human resources,
accounting and finance and various other of our unallocated overhead charges.
Our Corporate segment incurred an operating loss of $5.2 million, or 9% of total
revenue for the three months ended December 31, 1998 versus an operating loss of
$6.6 million, or 9% of total revenue for the three months ended December 31,
1999. Our Corporate segment incurred an operating loss of $11.0 million, or 9%
of total revenue for the six months ended December 31, 1998 versus an operating
loss of $12.0 million, or 8% for the six months ended December 31, 1999. The
unallocated portions of our expenses have remained fairly consistent as a
percentage of revenue. As subscriber price promotions allowing for free trial
periods begin to expire and related customers begin paying for various related
electronic billing and bill payment services, we believe our corporate costs
will begin to decline as a percentage of revenue as we regain the leverage
inherent in our normalized business model.
The net gain on dispositions of assets of $3.9 million in the six months
ended December 31, 1998 is the net result of the gain on the sale of our
mortgage business of approximately $6.3 million, offset by the loss on the sale
of our imaging business of approximately $2.4 million.
14
<PAGE> 15
YEAR 2000 READINESS
We had a staff of approximately 100 technical associates on site to review
and test our internal and third party systems through the evening of December
31, 1999 and into January 1, 2000. We had no significant internal systems issues
arise as a result of crossing into the Year 2000, and interfaces with customers
and suppliers have caused no adverse impact. While we continue to monitor our
systems for any related issues that may arise, additional costs in this regard
are anticipated only to the extent necessary to complete final documentation of
the testing activities that we performed and for activities necessary to wind
down our project team assigned to Year 2000.
Although the development of Genesis has taken into account relevant Year
2000 issues, the planned conversion was not accelerated due to year 2000 issues
and Year 2000 related costs in the development of the Genesis platform are
therefore not included in our costs below. The following chart reflects our Year
2000 specific costs. The fiscal year 1999 and prior costs were attributed to
remediation of legacy systems and applications. The year to date fiscal year
2000 costs include minor remediation and testing and verification activities.
The cost to complete include the direct costs of the 100 associates that were on
site on January 1, 2000 and through the weekend to perform final testing as we
crossed into the Year 2000, as well as anticipated remaining project
documentation and wind down costs.
<TABLE>
<CAPTION>
YTD
FISCAL FISCAL FISCAL FISCAL COST TO
BUSINESS SEGMENT 1997 1998 1999 2000 COMPLETE TOTAL
---------------------------- -------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Electronic commerce $ 0 $ 100 $ 1,360 $ 800 $ 20 $ 2,280
Software - 500 525 171 10 1,206
Investment services - 375 937 110 25 1,447
Corporate - - 270 81 - 351
-------- ---------- ----------- ----------- ------------- -----------
Total $ 0 $ 975 $ 3,092 $ 1,162 $ 55 $ 5,284
======== ========== =========== =========== ============= ===========
</TABLE>
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had cash, cash equivalents and investments
(short and long term) on hand totaling $201.5 million. Our balance sheet
reflects working capital of $159.7 million and our current ratio stands at 3.1.
There have been a number of significant transactions that have taken
place during the quarter ended December 31, 1999 to improve our liquidity and
capital resources. The following chart, which summarized our Consolidated
Statement of Cash Flows for the six months ended December 31, 1999, highlights
these changes.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 1999
------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities ............. $ 2,651 $ 10,647 $ 13,298
Investing activities ............. (10,528) (51,571) (62,099)
Financing activities ............. 1,870 187,264 189,134
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents ................ $ (6,007) $146,340 $140,333
======== ======== ========
</TABLE>
Net cash provided by financing activities reflects the most significant
positive impact on cash flow in the quarter ended December 31, 1999. On November
29, 1999, we issued $172.5 million of 6 1/2% convertible subordinated notes that
provided $166.9 million of proceeds, net of underwriting and other direct
issuance costs. During the quarter, we also received $19.2 million from the
direct sale of 250,000 shares of stock to Bank One and the issuance of 300,000
shares upon exercise of vested warrants from Integrion members. This amount of
$19.2 million included an overpayment of $3.2 million due to a duplicate
submission of cash proceeds by one of our customers on the last day of the
quarter that was returned on the first day of the subsequent quarter.
Additionally, we received $1.3 million from the exercise of employee stock
options and from our employee stock purchase plan and we spent $0.2 million on
principal payments for capital leases.
We invested approximately $39.6 million of the proceeds above in the
purchase of investments designated as held to maturity, $10.7 in capital
expenditures and $1.3 million in the capitalization of software development
costs, resulting in net cash used in investing activities of $51.6 million.
Net cash provided by operation of $10.6 million reflects a significant
improvement over the $2.7 million provided by operations in the previous
quarter. This improvement is driven by an improvement of $11.1 million in
accounts receivable, which was primarily the result of timing of payments by our
customers from quarter to quarter.
Convertible Subordinated Notes. On November 29, 1999, we issued $172.5
million of 6 1/2% convertible subordinated notes that are due on December 1,
2006. We will pay interest on the notes on June 1 and December 1, of each year,
commencing on June 1, 2000. The notes may be converted, at the holder's option,
into 13.6612 shares of common stock per note and we may redeem the notes at any
time on or after December 1, 2002. On January 14, 2000, we filed a shelf
registration statement to register the underlying shares. Under the terms of the
offering, should we fail to obtain a declaration of effectiveness of the shelf
registration statement from the Securities and Exchange Commission by March 28,
2000, we will incur penalty interest in the amount of 0.5%. The penalty interest
would stop accruing at the time we obtain the appropriate declaration of
effectiveness. We expect to use the net proceeds from this offering for working
capital and general corporate purposes, including expansion of our services to a
broader market and potential acquisitions.
Credit Facility. On October 31, 1999, our $20 million working capital line
of credit with Key Bank was set to expire. We extended the line until December
31, 1999 while we negotiated a new agreement. In December 1999, we entered into
a three-year, $30 million working capital line of credit with Key Bank that
carries an interest rate of either LIBOR plus 200 basis points or Prime, at our
discretion. These are the same terms that were in place on the original line as
well. As of January 3, 2000, the LIBOR rates were 5.8825% for one month, 6.0%
for three months, 6.13125% for six months and 6.5% for one year and the Prime
rate was 8.5%. In this instance, it would be more beneficial to us to choose the
LIBOR option for any capital needs for less than one year and the Prime rate
option for needs exceeding one year. As of December 31, 1999, there was no
balance outstanding on this line and we had no plans or expectations to draw
from the line through June 30, 2000. Although we have significant working
capital in place at December 31, 1999, we feel it prudent to have access to a
credit facility given our plans for growth.
Because of our successful efforts in completing the convertible
subordinated note offering and in executing the new working capital line of
credit, we discontinued negotiations with various vendors in establishing an
additional lease line of credit.
The net result of the activities in the quarter ended December 31, 1999 is
a significant improvement in our liquidity and capital resources. We believe
that existing cash, cash equivalents, investments and available financing
alternatives will be sufficient to meet our presently anticipated working
capital and capital investment requirements through June 30, 2000. In the longer
term, our working capital and capital investment requirements will be somewhat
dependent upon the timing of significant customer adoption of our electronic
billing and payment services and the result of acquisitions, and, therefore, we
are not in a position to make longer-term predictions at this time.
16
<PAGE> 17
INFLATION
We believe the effects of inflation have not had a significant impact
on our results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in our Form 10-Q/A No. 1 include certain forward-looking statements
within the meaning of Section 27A of the Securities Act, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Those statements include, but may
not be limited to, all statements regarding our and management's intent, belief
and expectations, such as statements concerning our future profitability, our
operating and growth strategy, and Year 2000 issues. Investors are cautioned
that all forward-looking statements involve risks and uncertainties including,
without limitation, the factors set forth under the caption "Business - Business
Risks" in the Annual Report on Form 10-K for the year ended June 30, 1999, as
may be amended from time to time, and other factors detailed from time to time
in our filings with the Securities and Exchange Commission. One or more of these
factors have affected, and in the future could affect, our businesses and
financial results in the future and could cause actual results to differ
materially from plans and projections. Although we believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate. Accordingly, there can be no assurance
that the forward-looking statements included in this Form 10-Q/A No. 1 will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved. All forward-looking statements made in
this Form 10-Q/A No. 1 are based on information presently available to our
management.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On November 29, 1999, we issued $172.5 million of 6.5% convertible
subordinated notes due on December 1, 2006 in a private placement to Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and
Hambrecht & Quist LLC (as the initial purchasers) and were subsequently sold by
the initial purchasers in private transactions exempt from the registration
requirements of the Securities Act to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act). We will pay interest on the
notes on June 1 and December 1, of each year, commencing June 1, 2000. The notes
may be converted, at the holder's option, into 13.6612 shares of our common
stock per note and we may redeem the notes at any time on or after December 1,
2002. On January 14, 2000, we filed a shelf registration statement to register
the underlying shares, which we subsequently amended on January 26, 2000 and on
April 10, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on Thursday,
November 4, 1999 for the following purposes:
(1) To elect two Class I Directors of the Company to serve for a
three-year term expiring at the 2002 Annual Meeting of
Stockholders.
Management's proposal as presented in the proxy statement was approved
with the following vote:
Proposal 1: The election of two Class I Directors of the Company,
to serve until the 2002 Annual Meeting of
Stockholders or until his successor is elected and
qualified:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
------------------------------------------------------------
WITHHOLD
FOR AUTHORITY TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
William P. Boardman 43,023,146 3,076,626 49,099,772
George R. Manser 43,018,854 3,080,918 49,099,772
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
4(a) Form of Guarantee (Reference is made to Exhibit 4(c)
to the Registration Statement on Form S-3, as amended
(Registration No. 333-94757), and incorporated herein
by reference.)
4(b) Indenture, by and between the Company and Fifth Third
Bank as Trustee, for the 6.5% Convertible
Subordinated Notes due 2006, dated as of November 29,
1999, including the form of the 6.5% Note (Reference
is made to Exhibit 4(d) to the Registration Statement
on Form S-3, as amended (Registration No. 333-94757),
and incorporated herein by reference.)
4(c) First Supplemental Indenture by and between the
Company and Fifth Third Bank as Trustee, for the 6.5%
Convertible Subordinated Notes due 2006, dated as of
November 29, 1999 (Reference is made to Exhibit 4(f)
to the Registration Statement on Form S-3, as amended
(Registration No. 333-94757), and incorporated herein
by reference.)
18
<PAGE> 19
4(e) Form of the Global Note (Reference is made to Exhibit
4(g) to the Registration Statement on Form S-3, as
amended (Registration No. 333-94757), and
incorporated herein by reference.)
4(f) Registration Rights Agreement, dated as of November
29, 1999, among the Company, CheckFree Corporation,
CheckFree Investment Corporation, CheckFree
Management Corporation, CheckFree Investment
Services, Inc., Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Deutsche Bank
Securities Inc., and Hambrecht & Quist LLC (Reference
is made to Exhibit 4(h) to the Registration Statement
on Form S-3, as amended (Registration No. 333-94757),
and incorporated herein by reference.)
27* Financial Data Schedule.
99 CheckFree Management Corporation Interim Unaudited
Condensed Financial Statements and Notes.
----------
* Previously filed with this report.
(b) REPORTS ON FORM 8-K.
We filed the following Current Reports on Form 8-K with the Securities
and Exchange Commission during the quarter ended December 31, 1999:
(1) A current report on Form 8-K, dated November 29, 1999, was
filed with the Securities and Exchange Commission on December 2, 1999
(Item 5).
(2) A current report on Form 8-K, dated December 20, 1999,
was filed with the Securities and Exchange Commission on December 23,
1999 (Items 5 and 7).
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
CHECKFREE HOLDINGS CORPORATION
Date: July 7, 2000 By: /s/ David Mangum
-------------------------------------------
David Mangum, Executive Vice President and
Chief Financial Officer*
(Principal Financial Officer)
Date: July 7, 2000 By: /s/ Gary A. Luoma, Jr.
-------------------------------------------
Gary A. Luoma, Jr., Vice President, Chief
Accounting Officer, and Assistant Secretary
(Principal Accounting Officer)
* In his capacity as Executive Vice President and Chief Financial
Officer, Mr. Mangum is duly authorized to sign this amended report on
behalf of the Registrant.
20
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4(a) Form of Guarantee (Reference is made to Exhibit 4(c) to the
Registration Statement on Form S-3, as amended (Registration
No. 333-94757), and incorporated herein by reference.)
4(b) Indenture, by and between the Company and Fifth Third Bank as
Trustee, for the 6.5% Convertible Subordinated Notes due 2006,
dated as of November 29, 1999, including the form of the 6.5%
Note (Reference is made to Exhibit 4(d) to the Registration
Statement on Form S-3, as amended (Registration No.
333-94757), and incorporated herein by reference.)
4(c) First Supplemental Indenture by and between the Company and
Fifth Third Bank as Trustee, for the 6.5% Convertible
Subordinated Notes due 2006, dated as of November 29, 1999
(Reference is made to Exhibit 4(f) to the Registration
Statement on Form S-3, as amended (Registration No.
333-94757), and incorporated herein by reference.)
4(e) Form of the Global Note (Reference is made to Exhibit 4(g) to
the Registration Statement on Form S-3, as amended
(Registration No. 333-94757), and incorporated herein by
reference.)
4(f) Registration Rights Agreement, dated as of November 29, 1999,
among the Company, CheckFree Corporation, CheckFree Investment
Corporation, CheckFree Management Corporation, CheckFree
Investment Services, Inc., Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities
Inc., and Hambrecht & Quist LLC (Reference is made to Exhibit
4(h) to the Registration Statement on Form S-3, as amended
(Registration No. 333-94757), and incorporated herein by
reference.)
27* Financial Data Schedule.
99 CheckFree Management Corporation Interim Unaudited Condensed
Financial Statements and Notes.
----------
* Previously filed with this report.
