<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: SEPTEMBER 1, 2000
CHECKFREE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-26802 58-2360335
------------------------------- --------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NO.) (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4411 East Jones Bridge Road
Norcross, Georgia 30092
(678) 375-3387
(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 July 7, 2000, CheckFree Corporation, a Delaware corporation (the
"Company"), entered into an Amended and Restated Agreement and Plan of Merger
(the "Agreement"), by and among the Company; Microsoft Corporation, a Washington
corporation ("Microsoft"); First Data Corporation, a Delaware corporation
("FDC"); Citibank, N.A., a Delaware corporation ("Citibank", and, together with
Microsoft and FDC, the "Parents"); H&B Finance, Inc., a Washington corporation
and a wholly-owned subsidiary of Microsoft ("H&B"); FDC International Partner
Inc., a Delaware corporation and a wholly-owned subsidiary of FDR Subsidiary
Corp., which is a Delaware corporation and a wholly-owned subsidiary of First
Data Resources, Inc., which is a Delaware corporation and a wholly-owned
subsidiary of FDC ("FDC International"); MSFDC International, Inc., a Delaware
corporation ("International GP"); Citi TransPoint Holdings Inc., a Delaware
corporation and a wholly-owned subsidiary of Citibank ("Citi Holdings" and,
together with H&B and FDC International, the "Holding Subsidiaries"); TransPoint
Acquisition Corporation, a Washington corporation and a wholly-owned direct
subsidiary of the Company ("Merger Sub A"); Tank Acquisition Corporation, a
Delaware corporation and a wholly-owned direct subsidiary of the Company
("Merger Sub B"); Chopper Merger Corporation, a Delaware corporation and a
wholly-owned direct subsidiary of the Company ("Merger Sub C" and, together with
Merger Sub A and Merger Sub B, the "Merger Subsidiaries"); CheckFree
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
Company; Microsoft II, LLC, a Delaware limited liability company all of the
equity interests in which are owned by Microsoft; and First Data, L.L.C., a
Delaware limited liability company all of the equity interests in which are
owned by FDR, which provided, among other things, for:
(1) the merger of Merger Sub A with and into H&B in accordance
with the applicable provisions of the Washington Business
Corporations Act, pursuant to which H&B shall be the surviving
corporation and shall continue its corporate existence under
the laws of the State of Washington as a wholly-owned direct
subsidiary of the Company;
(2) the merger of Merger Sub B with and into FDC International
in accordance with the applicable provisions of the Delaware
General Corporation Law, pursuant to which FDC International
shall be the surviving corporation and shall continue its
corporate existence under the laws of the State of Delaware as
a wholly-owned direct subsidiary of the Company; and
(3) the merger of Merger Sub C with and into Citi Holdings in
accordance with the applicable provisions of the Delaware
General Corporation Law, pursuant to which Citi Holdings shall
be the surviving corporation and shall continue its corporate
existence under the laws of the State of Delaware as a
wholly-owned direct subsidiary of the Company.
Each of the mergers referred to hereinabove, collectively referred to
hereinafter as the Mergers (the "Mergers").
Under the terms of the Agreement, the Company agreed to acquire all of
the stock of the TransPoint entities in exchange for common stock, $.01 par
value, of the Company (the "Common Stock"). The Mergers were completed on
September 1, 2000. Pursuant to the terms of the Agreement, 17,000,000 shares of
Common Stock were issued. The shares of Common Stock received by the
stockholders of the TransPoint entities have been registered under the
Securities Act of 1933, as amended.
The Company's Board of Directors approved the issuance of the
17,000,000 shares pursuant to the original Agreement and Plan of Merger on
February 11, 2000 and pursuant to the Amended and Restated Agreement and Plan of
Merger on May 31, 2000. The Company's shareholders approved the Mergers and the
issuance of the 17,000,000 shares on September 1, 2000.
The transaction was accomplished through arms-length negotiations
between the Company's management and management of the TransPoint entities.
There was no material relationship between the stockholders of the TransPoint
entities and the Company or any of the Company' affiliates, any of the Company's
directors or officers, prior to this transaction.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The financial statements of the TransPoint entities, as
audited by their independent auditors for the periods reflected therein
are found on the Company's Form 8-K, dated as of July 12, 2000, and
filed with the Securities and Exchange Commission on July 12, 2000, and
incorporated herein by reference.
(B) PRO FORMA FINANCIAL INFORMATION.
The following is a list of the pro forma condensed combining
financial information for CheckFree and TransPoint filed with this
report:
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combining Balance Sheet as of June 30, 2000..................... F-1
Unaudited Pro Forma Condensed Combining Statements of Operations for the Year Ended June
30, 2000.................................................................................... F-2
Notes to Unaudited Pro Forma Condensed Combining Financial Information with the
TransPoint entities......................................................................... F-3
Notes to Unaudited Pro Forma Condensed Combining Financial Information........................ F-4
</TABLE>
(C) EXHIBITS.
Exhibit No. Description
2(a) Amended and Restated Agreement and Plan of
Merger (the "Agreement"), by and among the
CheckFree Corporation; Microsoft Corporation;
First Data Corporation; Citibank, N.A.; H&B
Finance, Inc.; FDC International Partner Inc.;
MSFDC International, Inc.; Citi TransPoint
Holdings Inc.; TransPoint Acquisition
Corporation; Tank Acquisition Corporation;
Chopper Merger Corporation; Microsoft II, LLC;
and First Data, L.L.C. (Reference is made to
Appendix A to the Registration Statement on Form
S-4, as amended (Registration No. 333-41098),
filed with the Securities and Exchange
Commission on July 10, 2000, and incorporated
herein by reference).
23 Consent of Deloitte & Touche LLP. (Reference is
made to Exhibit 23 previously filed with this
Form 8-K, filed with the Securities and Exchange
Commission on September 12, 2000 and
incorporated herein by reference).
99 Press release, dated September 5, 2000, entitled
"CheckFree and TransPoint Complete Merger."
(Reference is made to Form 8-K, filed with the
Securities and Exchange Commission on September
5, 2000, and incorporated herein by reference).
<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: November 8, 2000 /s/ David E. Mangum
------------------------------------
By: David E. Mangum, Executive Vice
President and Chief Financial
Officer
<PAGE> 5
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF JUNE 30, 2000
(IN THOUSANDS)
<CAPTION>
Historical Amounts
------------------------
CheckFree Pro Forma
Corporation TransPoint Adjustments Total
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 128,074 $ 7,670 $ 89,530 (1) $ 225,274
Investments 56,548 -- -- 56,548
Accounts receivable, net 58,308 13 (13)(1) 58,308
Prepaid expenses and other assets 12,813 500 (500)(1) 12,813
Deferred income taxes 9,733 -- -- 9,733
--------- -------- ---------- ----------
Total current assets 265,476 8,183 89,017 362,676
Property and equipment, net 93,214 630 -- 93,844
Capitalized software, net 37,189 9,019 218,881 (1) 246,489
(18,600)(2)
Goodwill, net 213,305 -- 782,518 (1) 995,823
Intangible assets, net 37,395 -- 552,300 (1) 589,695
Investments 23,003 -- -- 23,003
Deferred income taxes 29,248 -- -- 29,248
Other noncurrent assets 13,704 -- -- 13,704
--------- -------- ---------- ----------
Total assets $ 713,114 $ 17,832 $1,624,116 $2,355,062
========= ======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable $ 10,158 $ 8,145 $ (8,145)(1) $ 10,158
Accrued liabilities 43,958 7,685 (6,359)(1) 45,959
675 (3)
Current portion of long-term obligations 5,955 -- -- 5,955
Deferred revenue 26,644 4,500 -- 31,144
--------- -------- ---------- ----------
Total current liabilities 86,715 20,330 (13,829) 93,216
Accrued rent and other 7,269 -- -- 7,269
Obligations under capital leases - less
current portion 736 -- -- 736
Convertible subordinated notes 172,500 -- -- 172,500
Minority interest -- 37,965 (37,965)(1) --
Deferred income taxes -- -- 304,640 (1) 304,600
--------- -------- ---------- ----------
Total liabilities 267,220 58,295 252,846 578,361
Stockholders' equity:
Common stock 584 -- 170 (1) 754
Additional paid-in capital 771,892 -- 1,349,912 (1) 2,121,129
(675)(3)
Members' capital deficiency -- (40,463) 40,463 (1) --
Other (262) -- (262)
Accumulated deficit (326,320) (18,600)(2) (344,920)
--------- -------- ---------- ----------
Total stockholder's equity 445,894 (40,463) 1,371,270 1,776,701
--------- -------- ---------- ----------
Total liabilities and
stockholders' equity $ 713,114 $ 17,832 $1,624,116 $2,355,062
========= ======== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-1
<PAGE> 6
<TABLE>
CHECKFREE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL AMOUNTS
-------------------------
CHECKFREE PRO FORMA
CORPORATION TRANSPOINT ADJUSTMENTS TOTAL
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Processing and servicing $261,621 $ 18 $ -- $ 261,639
License Fees 16,818 -- -- 16,818
Maintenance Fees 18,752 -- -- 18,752
Other 13,004 -- -- 13,004
-------- -------- --------- ---------
Total revenues 310,195 18 -- 310,213
Expenses:
Cost of processing, servicing and support 182,540 20,349 -- 202,889
Research and development 35,631 11,191 -- 46,822
Sales and marketing 44,782 18,609 -- 63,391
General and administrative 40,931 2,232 -- 43,163
Depreciation and amortization 42,830 1,970 360,045 (4) 404,845
In-process research and development 6,900 -- -- 6,900
-------- -------- --------- ---------
Total expenses 353,614 54,351 360,045 768,010
-------- -------- --------- ---------
Loss from operations (43,419) (54,333) (360,045) (457,797)
Other:
Minority interest -- 7,972 (7,972)(5) --
Interest, net (338) 1,170 -- 832
-------- -------- --------- ---------
Loss before income taxes (43,757) (45,191) (368,017) (456,965)
Income tax benefit (11,437) -- (80,187)(4) (91,624)
-------- -------- --------- ---------
Net loss $(32,320) $(45,191) $(287,830) $(365,341)
======== ======== ========= =========
Basic loss per share:
Net loss per common share $ (0.61) $ (5.19)
======== =========
Equivalent number of shares 53,367 17,000 70,367
======== ========= =========
Diluted loss per share:
Net loss per common share $ (0.61) $ (5.19)
======== =========
Equivalent number of shares 53,367 17,000 70,367
======== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-2
<PAGE> 7
CHECKFREE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
WITH TRANSPOINT
1. Adjustment to reflect the issuance of CheckFree Corporation common stock and
related acquisition expenses as the total purchase price for the net assets of
TransPoint, and the revaluation of TransPoint's capitalized software costs and
the elimination of TransPoint's minority interest and members' capital
deficiency, net of an agreed to working capital adjustment whereby all current
assets and liabilities will be retained by the seller and the final TransPoint
balance sheet will include $97.2 million of cash. The fair values of intangible
assets are based on an independent appraisal as of the closing of the
transaction. The final value of intangible assets will change with any change in
TransPoint's balance sheet from June 30, 2000 to the closing date of September
1, 2000.
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
Cash ..................................................................... $ 89,530
Accounts payable ......................................................... 8,145
Accrued liabilities ...................................................... 7,684
Capitalized software, net ................................................ 218,881
Goodwill, net ............................................................ 782,518
Other intangible assets, net ............................................. 552,300
Minority interest ........................................................ 37,965
CheckFree Corporation common stock .................................. $ 170
CheckFree Corporation additional paid-in capital .................... 1,349,912
TransPoint members' capital deficiency .............................. 40,463
Long term deferred income tax liability ............................. 304,640
Accrued acquisition expenses ........................................ 1,325
Accounts receivable ................................................. 13
Prepaid expenses .................................................... 500
---------- ----------
Totals .................................................... $1,697,023 $1,697,023
========== ==========
</TABLE>
The following chart indicates the components of the estimated purchase price
inherent in the adjusting entry:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
CheckFree Corporation common stock $1,350,083
Estimated working capital adjustment (104,847)
Estimated direct acquisition expenses 1,325
----------
Total estimated purchase price $1,246,561
==========
</TABLE>
The estimated purchase price will be issued in exchange for the net
assets of TransPoint on the closing date.
The purchase price reflects the assumed issuance of 17,000,000 shares
of CheckFree Corporation common stock at $79.42 per share, which is the average
end of day price of CheckFree Corporation common stock for the three trading
days preceding and the three days following the announcement of the acquisition
of TransPoint. Under the terms of the merger and contribution agreement,
TransPoint will have $97,200 in cash and no other current assets or liabilities
in their balance sheet at the effective time of the closing of the mergers.
F-3
<PAGE> 8
The following table provides the allocation of the purchase price inherent in
the adjusting entry:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
In-process research and development (Note B) $ 18,600
Current technology and products:
BIS / communications (estimated life of 3 years).................. 28,200
Service center (estimated life of 3 years).................. 95,300
Delivery applications (estimated life of 3 years).................. 58,800
Payments / interface (estimated life of 3 years).................. 27,000
----------
Sub-total IPR&D and current technology and products 227,900
Goodwill (estimated life of 5 years).................. 782,518
Other intangible assets:
Strategic agreements (estimated life of 5 years).................. 495,000
Customer list (estimated life of 3 years).................. 29,000
Tradename (estimated life of 1 year ).................. 28,300
----------
Sub-total other intangible assets....................................... 552,300
Deferred income taxes........................................................... (304,640)
Net assets of TransPoint:
Cash and cash equivalents.................................................... 7,670
Property and equipment....................................................... 630
Liabilities assumed.......................................................... (20,330)
Other, net................................................................... 513
----------
Sub-total net assets.................................................... (11,517)
----------
Total purchase price............................................................ $1,246,561
==========
</TABLE>
The useful lives of the various intangible assets identified are based
on management's preliminary estimates. Under the caption of current technology
and products, lives are based on assumptions regarding the time expected for the
indicated technology or product to become obsolete, which are driven primarily
by planned future development work designed to replace the existing technology
or product. The useful life assigned to goodwill is based upon currently
acceptable lives for these assets. The useful life of five years that CheckFree
assigned to strategic agreements is base on the contractual life of the related
agreements. The useful life CheckFree assigned to the customer list is based on
the estimate of future revenue base from the existing customers. The useful life
CheckFree assigned to tradename is based on the estimated time that will pass
before CheckFree discontinues the use of the related name. CheckFree will
amortize these intangible assets on a straight-line basis over their estimated
useful lives.
2. Adjustment to write off the balance of the balance of in-process research and
development costs. As the amount is not deductible for federal or state income
tax purposes, there is no related income tax benefit resulting from the charge.
Refer to Note B for an explanation of in-process research and development.
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
Accumulated deficit $18,600
Capitalized software, net $18,600
</TABLE>
3. Adjustment to accrue the cost of registering shares of CheckFree Corporation
common stock issued for TransPoint.
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
Additional paid-in capital $675
Accrued liabilities $675
</TABLE>
F-4
<PAGE> 9
4. Adjustment to reflect additional amortization expense and the related income
tax benefit associated with the intangible assets acquired from TransPoint.
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED JUNE 30, 2000
<S> <C> <C>
Depreciation and amortization $360,045
Long term deferred income tax liability 80,187
Capitalized software, net $ 63,500
Goodwill, net 159,578
Other intangible assets, net 136,967
Income tax benefit 80,187
-------- --------
Total $440,232 $440,232
======== ========
</TABLE>
Goodwill amortization is non-deductible for federal and state income
tax purposes. A blended effective income tax rate of 40% was applied to the
deductible amortization to determine the related income tax benefit in the entry
above.
5. Adjustment to reflect the elimination of minority interest recorded in the
period, due to the acquisition of all of the ownership interest in TransPoint by
CheckFree Corporation.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Note A: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statement of Operations provide a reasonable basis for
presenting the significant effects of the acquisition of TransPoint; that the
pro forma adjustments give appropriate effect to those assumptions; and that the
pro forma adjustments are properly applied in the Unaudited Pro Forma Condensed
Combining Balance Sheet and Statement of Operations.
Note B: The Unaudited Pro Forma Condensed Combining Balance Sheet of
CheckFree Corporation and TransPoint has been prepared as if the mergers were
completed as of June 30, 2000, and was accounted for as a purchase. CheckFree
Corporation will issue 17,000,000 shares of its common stock valued at $79.42
for the net assets of TransPoint. Under the terms of the merger agreement,
TransPoint will clear its balance sheet of all current assets and liabilities
and fund the balance sheet to $97.2 millon of cash immediately prior to the
closing of the mergers. CheckFree Corporation expects to incur approximately
$1.3 million of direct acquisition costs. The total purchase price of
$1,246,561,000 was allocated to assets acquired and liabilities assumed based on
TransPoint's June 30, 2000 balance sheet.
The allocation of the TransPoint purchase price among the identifiable
tangible and intangible assets is based on estimates of the fair market value of
those assets. Final determination of the allocation of the purchase price will
be based on independent appraisals that CheckFree Corporation expects to have
completed shortly after the mergers are consummated.
TransPoint currently has four general technologies under development
that meet the specific requirements of SFAS No. 2 for qualification as
in-process research and development, or IPRD. Critical elements of SFAS No. 2's
definition of IPRD are that:
o The product has not yet demonstrated its technological
feasibility; and
o The product does not have an alternative future use.
These in-process technologies include Biller Integration System /
Communications, the Service Center, Delivery Applications, and Payment /
Interface technologies. Their descriptions are found below.
F-5
<PAGE> 10
BIS / Communications technology. The Biller Integration System ("BIS")
is provided to the biller to run on-site and supplies the web-hosting for the
biller. The BIS help implement the templates and develop the look and feel for
marketing components. The BIS also includes automation interfaces, EI
interfaces, and the console. The following features of the BIS / Communications
technology are under development:
o Remote access or the Remote BIS Console, which will allow
Biller operators and administrators to perform selected
gateway operations from remote machines using a Web-based
interface to the BIS.
o International "Fixes", which are fixes to the BIS system to
correct incompatibilities with international currency and date
settings.
o Platform Updates that will support installation of the BIS
gateway on the Windows 2000 Server platform.
Service Center technology. The Service Center connects the TransPoint
servers to the BIS on the biller site, the automated clearinghouse, other
third-party servers, and the individual consumer. The Service Center includes
the database and operational functions as well. The following features of the
Service Center are under development:
o Email notification currently uses an internal Microsoft
server. The system is being modified to incorporate the
industry standard allowing the use of any server environment
to send data over the Internet. In addition, service-generated
e-mail messages will be in HTML format (rather than plain
text) for a richer customer experience.
o SysAdmiral upgrade, in which the installation scripts for the
service center are being upgraded to support the latest
version of SysAdmiral.
Delivery Applications. The Delivery Applications generate the actual
web pages through its user interface. This technology creates not only the
TrahsPoint consumer site, but also the operations, corporate, and support sites.
The following features of the Delivery Applications are under development:
o Passport Integration / Authorization, in which the security
and authentication systems of the TransPoint service will be
modified to use Microsoft Passport as the only method for user
authentication. In addition, the user interface will be
modified to allow migration of existing user accounts to
Microsoft Passport.
o User Registration Improvement, in which consumer registration
is being modified significantly, with the goal of retaining
new consumers. Changes include sending consumers to the
Microsoft Passport Web site to obtain a Passport account, and
condensing the number of screens in registration. In addition,
new consumers are permitted greater access to the system and
features as they await identity and payment account
verification.
o Recurring Payments, whereby consumers will now be able to set
up automatic "pay anyone" payments and automatic rules-based
handling of electronic bills by payee.
o Batch Enabling, whereby biller operators and administrators
will now be able to enable statement batches directly from the
TransPoint Operations site. A new "Enable Batch" button will
be added to the Preview Statements screen on the TransPoint
Operations site.
o Reporting Upgrades, in which a variety of user-interface
upgrades are underway to improve performance of the reporting
subsystem, improve the reporting content available to billers,
and increase the overall reliability of the TransPoint system.
F-6
<PAGE> 11
o Payment Center User Interface Improvements, which includes a
variety of user interface improvements to fix minor UI issues,
enhance accessibility options, and improve overall site
usability.
Payment / Interface. Tbe Payment Interface technology connects the
Service Center to the ACH, ODFI, and other third-party servers as well
as processing all payment and settlement information. The following
features of the Payment / Interface technology are under development:
o Microsoft Money Download, in which this feature is being
rearchitected and reimplemented in its entirety to correct
incompatibilities between the existing Microsoft Money
download feature and the newest version of Money.
o Credit Card Payments, which provides code that allows the
TransPoint system to support the use of credit cards for
payment settlement.
There are risks and uncertainties associated with the completion of
these in-process technologies. These risks include:
o Not Technologically Feasible.
The acquired IPRD had not demonstrated technological or
commercial feasibility as of the transaction date for TransPoint. Significant
risks exist because TransPoint is unsure of the obstacles it will encounter in
the form of market acceptance, time and cost necessary to produce a
technologically feasible product. SFAS No. 2 does not specifically require an
analysis of the development effort expended relative to an acquisition date. It
is reasonable to assume, however, that an IPRD project would require a
significant amount of time and cost in order to modify for CheckFree
Corporation's use in the marketplace. Should the proposed technology fail to
become viable, it is unlikely that CheckFree Corporation would realize any value
from the sale of the technology to another party.
o No Alternative Future Use.
The acquired IPRD consists of TransPoint's work to date on its
products. The products are very specific to the tasks and markets for
which it is intended. As is typically the case with software, there are
no alternative use for the in-process work in the event that the
product does not become feasible for CheckFree Corporation. The
development effort for the acquired IPRD does not possess an
alternative future use for CheckFree Corporation under the terms of
SFAS No. 2.
If the TransPoint project underway fails, there will be very
limited life to the existing product because the continuing pace of
technological developments in the marketplace will have rendered them
non-competitive. In the event of a failure, the technology acquired, as
embodied in either current or in-process products, will have no
alternative use and would be written off as a loss by CheckFree
Corporation.
The following table represents information regarding the status of the
various in-process research and development projects acquired:
<TABLE>
<CAPTION>
Estimated Estimated Expected
Stage of Completion Cost to
Completion Date Complete Valuation
---------- ---- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
BIS / Communications 80% October 2000 $100 $ 1,200
Service Center 80% October 2000 121 5,900
Delivery Applications 80% October 2000 396 9,500
Payment / Interface 80% October 2000 100 2,000
---- -------
Total $717 $18,600
==== =======
</TABLE>
F-7
<PAGE> 12
The method used to allocate the purchase consideration to IPRD was the
modified income approach. Under the income approach, fair value reflects the
present value of the projected free cash flows that will be generated by the
IPRD projects and that is attributable to the acquired technology, if
successfully completed. The modified income approach takes the income approach,
modified to include the following factors:
o analysis of the stage of completion of each project;
o exclusion of value related to research and development
yet-to-be completed as part of the on-going IPRD projects; and
o the contribution of existing technologies and applications.
The projected revenues used in the income approach are based upon the
incremental revenues associated with a portion of the project related to
TransPoint's technology likely to be generated upon completion of the project
and the beginning of commercial sales, as estimated by management. The
projections assume that the projects will be successful and the projects'
development and commercialization are as set forth by management. The discount
rate used in this analysis is an after tax rate of 24%.
Note C: CheckFree Corporation' statement of operations for the year
ended June 30, 2000, has been combined with the TransPoint statement of
operations for the year ended June 30, 2000. Actual income statements of
CheckFree Corporation and TransPoint will be combined from the effective date of
the merger, with no retroactive restatement.
Note D: The unaudited pro forma condensed combining statement of
operation for CheckFree Corporation and TransPoint have been prepared as if the
merger was completed on July 1, 1999, the beginning of the earliest period
presented. The unaudited pro forma combined net loss per share is based on the
weighted average number of shares of CheckFree Corporation common stock
outstanding during the period, adjusted to give effect to shares assumed to be
issued had the merger taken place as of July 1, 1999.
Note E: The unaudited pro forma condensed combining statement of
operations does not include a charge for the value of the estimated $18.6
million (no income tax effect) of purchased research and development arising
from the merger, which will be expensed at acquisition, as this expense will not
have a continuing impact.
F-8
<PAGE> 13
EXHIBIT INDEX
Exhibit No. Description
2(a) Amended and Restated Agreement and Plan of Merger (the
"Agreement"), by and among the CheckFree Corporation;
Microsoft Corporation; First Data Corporation; Citibank,
N.A.; H&B Finance, Inc.; FDC International Partner Inc.;
MSFDC International, Inc.; Citi TransPoint Holdings Inc.;
TransPoint Acquisition Corporation; Tank Acquisition
Corporation; Chopper Merger Corporation; Microsoft II,
LLC; and First Data, L.L.C. (Reference is made to Appendix
A to the Registration Statement on Form S-4, as amended
(Registration No. 333-41098), filed with the Securities
and Exchange Commission on July 10, 2000, and incorporated
herein by reference).
23 Consent of Deloitte & Touche LLP. (Reference is made to
Exhibit 23 previously filed with this Form 8-K, filed with
the Securities and Exchange Commission on September 12,
2000 and incorporated herein by reference).
99 Press release, dated September 5, 2000, entitled
"CheckFree and TransPoint Complete Merger." (Reference is
made to Form 8-K, filed with the Securities and Exchange
Commission on September 5, 2000, and incorporated herein
by reference).
