##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-26802
 CHECKFREE CORPORATION
  Delaware
    
    58-2360335(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 4411 East Jones Bridge Road, Norcross, Georgia 30092
 (678) 375-3000
 Not Applicable
 þ o
  þ o o
 o þ




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##### 



FORM 10-Q
 CHECKFREE CORPORATION
 Table of Contents
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Consolidated Balance Sheets
as of September 30, 2007 and June 30, 2007
    
    
    3Unaudited Consolidated Statements of Operations
for the Three Months Ended September 30, 2007 and 2006
    
    
    4Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 2007 and 2006
    
    
    5Notes to the Interim Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 6. Exhibits
    
    
    33SignaturesEX-31AEX-31BEX-32AEX-32.B
  2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Balance Sheets
 (In thousands, except per share data)
 September 30,
    
    
    June 30,2007
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    102,374
    
    
    $
    55,974Settlement assets
    
    
    141,182
    
    
    
    127,661Investments
    
    
    66,392
    
    
    
    139,153Accounts receivable, net
    
    
    220,891
    
    
    
    221,320Prepaid expenses and other assets
    
    
    45,972
    
    
    
    42,759Deferred income taxes
    
    
    10,189
    
    
    
    10,189Total current assets
    
    
    587,000
    
    
    
    597,056PROPERTY AND EQUIPMENT, NET
    
    
    143,636
    
    
    
    156,113OTHER ASSETS:Capitalized software, net
    
    
    3,266
    
    
    
    3,668Goodwill
    
    
    1,020,985
    
    
    
    1,027,512Strategic agreements, net
    
    
    74,827
    
    
    
    81,063Other intangible assets, net
    
    
    142,069
    
    
    
    140,804Investments and restricted cash
    
    
    44,750
    
    
    
    47,390Other noncurrent assets
    
    
    12,149
    
    
    
    11,426Deferred income taxes
    
    
    69,596
    
    
    
    66,246Total other assets
    
    
    1,367,642
    
    
    
    1,378,109Total assets
    
    $
    2,098,278
    
    
    $
    2,131,278LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    23,262
    
    
    $
    35,868Settlement obligations
    
    
    137,772
    
    
    
    123,302Accrued liabilities
    
    
    81,968
    
    
    
    100,944Current portion of long-term
obligations
    
    
    123,915
    
    
    
    206,022Deferred revenue
    
    
    78,252
    
    
    
    79,391Total current liabilities
    
    
    445,169
    
    
    
    545,527ACCRUED RENT AND OTHER
    
    
    12,336
    
    
    
    4,663DEFERRED INCOME TAXES
    
    
    2,284
    
    
    
    2,284DEFERRED REVENUE
    
    
    4,277
    
    
    
    3,281LIABILITY FOR UNRECOGNIZED TAX BENEFITS
    
    
    26,476
    
    
    
    CAPITAL LEASE AND LONG-TERM OBLIGATIONS, less current portion
    
    
    75,300
    
    
    
    68,021STOCKHOLDERS EQUITY:Preferred stock - 50,000,000
authorized shares, $0.01 par value; no amounts
issued or outstanding
    
    
    
    
    
    
    Common stock - 500,000,000 authorized shares, $0.01 par value; issued and
outstanding 88,410,735 and 87,974,284 shares, respectively
    
    
    884
    
    
    
    880Additional paid-in-capital
    
    
    2,386,279
    
    
    
    2,376,278Accumulated other comprehensive gain
    
    
    4,958
    
    
    
    3,896Accumulated deficit
    
    
    (859,685
    )
    
    
    (873,552
    )Total stockholders equity
    
    
    1,532,436
    
    
    
    1,507,502Total liabilities and
stockholders equity
    
    $
    2,098,278
    
    
    $
    2,131,278
  3




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##### Table of Contents



CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Unaudited
 (In thousands, except per share data)
 Three Months EndedSeptember 30,2007
    
    
    2006REVENUES:Processing and servicing
    
    $
    218,114
    
    
    $
    195,478License fees
    
    
    15,412
    
    
    
    9,074Maintenance fees
    
    
    21,988
    
    
    
    11,530Professional fees
    
    
    29,150
    
    
    
    12,537Total revenues
    
    
    284,664
    
    
    
    228,619EXPENSES:Cost of processing, servicing and support
    
    
    118,237
    
    
    
    92,849Research and development
    
    
    31,975
    
    
    
    26,738Sales and marketing
    
    
    27,869
    
    
    
    21,275General and administrative
    
    
    30,710
    
    
    
    17,749Depreciation and amortization
    
    
    26,868
    
    
    
    21,805Total expenses
    
    
    235,659
    
    
    
    180,416INCOME FROM OPERATIONS
    
    
    49,005
    
    
    
    48,203OTHER:Equity in net loss of joint venture
    
    
    (423
    )
    
    
    (458
    )Interest income
    
    
    2,121
    
    
    
    3,581Interest expense
    
    
    (2,795
    )
    
    
    (287
    )INCOME BEFORE INCOME TAXES
    
    
    47,908
    
    
    
    51,039INCOME TAX EXPENSE
    
    
    18,061
    
    
    
    19,822NET INCOME
    
    $
    29,847
    
    
    $
    31,217BASIC EARNINGS PER SHARE:Basic income per share
    
    $
    0.34
    
    
    $
    0.35Weighted average number of shares
    
    
    88,231
    
    
    
    89,962DILUTED EARNINGS PER SHARE:Diluted income per share
    
    $
    0.33
    
    
    $
    0.34Weighted average number of shares
    
    
    89,956
    
    
    
    92,599
  4




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CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Unaudited
 (In thousands)
 Three Months EndedSeptember 30,2007
    
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    29,847
    
    
    $
    31,217Adjustments to reconcile net income to cash provided
by operating activities:Equity in net loss of joint venture
    
    
    423
    
    
    
    458Depreciation and amortization
    
    
    26,868
    
    
    
    21,805Expenses related to data center
    
    
    
    
    
    
    1,021Deferred income tax benefit
    
    
    140
    
    
    
    (860
    )Equity-based compensation
    
    
    3,061
    
    
    
    3,865Net loss on disposition of property and equipment
    
    
    292
    
    
    
    13Changes in certain assets and liabilities (net of acquisitions):Settlement assets and obligations
    
    
    949
    
    
    
    (1,074
    )Accounts receivable
    
    
    219
    
    
    
    (9,692
    )Prepaid expenses and other
    
    
    3,939
    
    
    
    7,484Accounts payable
    
    
    (11,930
    )
    
    
    39Accrued liabilities and other
    
    
    (14,576
    )
    
    
    (5,199
    )Deferred revenue
    
    
    (184
    )
    
    
    (1,513
    )Net cash provided by operating activities
    
    
    39,048
    
    
    
    47,564INVESTING ACTIVITIES:Purchase of property and software
    
    
    (12,728
    )
    
    
    (11,573
    )Capitalization of software development costs
    
    
    
    
    
    
    (236
    )Purchase of property and equipment for data center facility
    
    
    (4,100
    )
    
    
    (526
    )Purchase of investments-Available for sale
    
    
    
    
    
    
    (99,527
    )Proceeds from sales and maturities of investments  Available for sale
    
    
    75,658
    
    
    
    175,574Proceeds from sale of long-lived assets
    
    
    22,157
    
    
    
    Purchase of other investments, net
    
    
    224
    
    
    
    (227
    )Change in other assets
    
    
    (9,823
    )
    
    
    (4,902
    )Net cash provided by investing activities
    
    
    71,388
    
    
    
    58,583FINANCING ACTIVITIES:Proceeds from revolving credit facility
    
    
    6,000
    
    
    
    Principal payments on revolving credit facility
    
    
    (88,000
    )
    
    
    Principal payments under capital lease
and other long-term obligations
    
    
    (634
    )
    
    
    (361
    )Proceeds from exercise of stock options
    
    
    6,567
    
    
    
    620Excess tax benefit from equity-based compensation
    
    
    2,399
    
    
    
    521Purchase of treasury stock
    
    
    
    
    
    
    (100,000
    )Proceeds from associates stock purchase plan
    
    
    1,603
    
    
    
    1,530Proceeds from data center facility credit line
    
    
    7,813
    
    
    
    643Net cash used in financing activities
    
    
    (64,252
    )
    
    
    (97,047
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    216
    
    
    
    426NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    46,400
    
    
    
    9,526CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    55,974
    
    
    
    173,083End of period
    
    $
    102,374
    
    
    $
    182,609
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CHECKFREE CORPORATION
 
 NOTES TO THE INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation and Summary of Significant Accounting Policies
 Unaudited Interim Financial Information
   Recent Accounting Pronouncements
   2. Investments
  September 30,
    
    
    June 30,2007
    
    
    2007Available-for-sale
    
    $
    183,264
    
    
    $
    217,776Other investments
    
    
    4,312
    
    
    
    4,539Restricted cash
    
    
    464
    
    
    
    461Less: amounts classified as cash equivalents
    
    
    (76,898
    )
    
    
    (36,233
    )Total investments
    
    $
    111,142
    
    
    $
    186,543
  6




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3 Goodwill and Other Intangible Assets
  Electronic
    
    
    
    
    
    
    InvestmentCommerce
    
    
    Software
    
    
    Services
    
    
    TotalBalance as of June 30, 2007
    
    $
    847,676
    
    
    $
    140,860
    
    
    $
    38,976
    
    
    $
    1,027,512Purchase price adjustments
    
    
    (3,210
    )
    
    
    1,637
    
    
    
    (5,504
    )
    
    
    (7,077
    )Foreign currency adjustment
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    550Balance as of September 30, 2007
    
    $
    844,466
    
    
    $
    143,047
    
    
    $
    33,472
    
    
    $
    1,020,985
   September 30,
    
    
    June 30,2007
    
    
    2007Capitalized software:Product technology from acquisitions and strategic agreement
    
    $
    168,022
    
    
    $
    167,458Internal development costs
    
    
    34,774
    
    
    
    34,773Total
    
    
    202,796
    
    
    
    202,231Less: accumulated amortization
    
    
    199,530
    
    
    
    198,563Capitalized software, net
    
    $
    3,266
    
    
    $
    3,668Strategic agreements:Strategic agreements (1)
    
    $
    744,423
    
    
    $
    744,423Less: accumulated amortization
    
    
    669,596
    
    
    
    663,360Strategic agreements, net
    
    $
    74,827
    
    
    $
    81,063Other intangible assets:Tradenames
    
    $
    54,611
    
    
    $
    54,937Customer base
    
    
    154,650
    
    
    
    151,868Current technology
    
    
    45,895
    
    
    
    43,662Money transfer licenses
    
    
    1,700
    
    
    
    1,700Convenants not to compete
    
    
    5,888
    
    
    
    5,828Total
    
    
    262,744
    
    
    
    257,995Less: accumulated amortization
    
    
    120,675
    
    
    
    117,191Other intangible assets, net
    
    $
    142,069
    
    
    $
    140,804
 
 (1)
    
    Strategic agreements primarily include certain entity-level covenants not to compete. 7




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4. Reorganization Charges
   Severanceand OtherEmployeeCostsBalance as of June 30, 2007
    
    $
    6,918Reorganization charges, fiscal year 2008
    
    
    1,440Cash payments, fiscal year 2008
    
    
    (4,262
    )Balance as of September 30, 2007
    
    $
    4,096
 5. Sale-Leaseback
   Fiscal
    
    Minimum
    
    Deferred Gain
    
    Net RentalYear
    
    Lease Payments
    
    Amortization
    
    Expense2008
    
    $
    1,493
    
    
    $
    (523
    )
    
    $
    9702009
    
    $
    1,792
    
    
    $
    (628
    )
    
    $
    1,1642010
    
    $
    1,792
    
    
    $
    (628
    )
    
    $
    1,1642011
    
    $
    1,792
    
    
    $
    (628
    )
    
    $
    1,1642012
    
    $
    1,792
    
    
    $
    (628
    )
    
    $
    1,164Thereafter
    
    $
    12,840
    
    
    $
    (4,500
    )
    
    $
    8,340
 6. Common Stock
  7. Equity-Based Compensation
  8




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##### Table of Contents



Stock Options
  Weighted Average
    
    
    
    
    
    AggregateNumber of
    
    Remaining
    
    Weighted Average
    
    IntrinsicOptions
    
    Contractual Term
    
    Exercise Price
    
    ValueOutstanding - Beginning of year
    
    
    2,937,117
    
    
    
    
    
    
    $
    31.78Granted
    
    
    
    
    
    
    
    
    
    $
    Exercised
    
    
    (240,386
    )
    
    
    
    
    
    $
    27.06
    
    
    $
    2,219,000Cancelled
    
    
    (12,974
    )
    
    
    
    
    
    $
    41.15Outstanding - End of period
    
    
    2,683,757
    
    
    4.3 years
    
    $
    32.26
    
    
    $
    38,595,000Options exercisable at end of period
    
    
    2,478,268
    
    
    4.3 years
    
    $
    31.93
    
    
    $
    36,215,000Options vested and expected to vest
at end of period
    
    
    2,665,882
    
    
    4.3 years
    
    $
    32.06
    
    
    $
    28,462,000
   9




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Restricted Stock
  Number of
    
    WeightedRestricted
    
    Average GrantStock
    
    Date Fair ValueOutstanding - Beginning of year
    
    
    797,383
    
    
    $
    34.84Granted
    
    
    331,017
    
    
    $
    45.11Vested
    
    
    (231,856
    )
    
    $
    25.53Cancelled
    
    
    (5,653
    )
    
    $
    38.57Outstanding - End of period
    
    
    890,891
    
    
    $
    41.06
  8. Earnings Per Share
  Three Months EndedSeptember 30, 2007
    
    
    September 30, 2006Weighted Average
    
    
    Earnings
    
    
    
    
    
    
    Weighted Average
    
    
    EarningsNet Income
    
    
    Shares
    
    
    Per
    
    
    Net Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    ShareBasic EPS
    
    $
    29,847
    
    
    
    88,231
    
    
    $
    0.34
    
    
    $
    31,217
    
    
    
    89,962
    
    
    $
    0.35Effect of dilutive securities:Options and warrants
    
    
    
    
    
    
    1,725
    
    
    
    
    
    
    
    
    
    
    
    2,637Diluted EPS
    
    $
    29,847
    
    
    
    89,956
    
    
    $
    0.33
    
    
    $
    31,217
    
    
    
    92,599
    
    
    $
    0.34
  9. Comprehensive Income
  Three Months EndedSeptember 30,2007
    
    
    2006Net income
    
    $
    29,847
    
    
    $
    31,217Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    580
    
    
    
    (1
    )Unrealized holding gains on investments, net of tax
    
    
    482
    
    
    
    779Comprehensive income
    
    $
    30,909
    
    
    $
    31,995
 10




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10. Supplemental Disclosure of Cash Flow Information (in thousands)
 Three Months EndedSeptember 30,2007
    
    
    2006Interest paid
    
    $
    969
    
    
    $
    51Income taxes paid
    
    $
    15,094
    
    
    $
    727Supplemental disclosure of non-cash investing and financing activities:Capital lease and other long-term asset additions
    
    $
    
    
    
    $
    4,671Additions under data center facility
    
    $
    7,813
    
    
    $
    7,203Stock funding of 401(k) match
    
    $
    
    
    
    $
    4,054Stock funding of Associate Stock Purchase Plan
    
    $
    2,070
    
    
    $
    2,236
 11. Business Segments
   Three Months EndedSeptember 30,2007
    
    
    2006Revenues:Electronic Commerce, gross
    
    $
    214,216
    
    
    $
    171,029Impact of purchase accounting on deferred revenue
    
    
    (7,425
    )
    
    
    Electronic Commerce, net
    
    
    206,791
    
    
    
    171,029Software, gross
    
    
    47,567
    
    
    
    27,968Impact of purchase accounting on deferred revenue
    
    
    (4,361
    )
    
    
    Software, net
    
    
    43,206
    
    
    
    27,968Investment Services
    
    
    34,667
    
    
    
    29,622Total
    
    $
    284,664
    
    
    $
    228,619Segment income from operations:Electronic Commerce
    
    $
    74,053
    
    
    $
    59,680Software
    
    
    5,988
    
    
    
    6,354Investment Services
    
    
    9,930
    
    
    
    5,528Corporate
    
    
    (9,973
    )
    
    
    (11,688
    )Purchase accounting amortization
    
    
    (13,727
    )
    
    
    (10,967
    )Impact of purchase accounting on deferred revenue
    
    
    (11,786
    )
    
    
    Impact of SFAS 123(R)
    
    
    (137
    )
    
    
    (704
    )Costs associated with mergers and acquisitions
    
    
    (5,343
    )
    
    
    Income from operations
    
    $
    49,005
    
    
    $
    48,203
 11




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12 Income Taxes
     13. Pending Acquisition
  12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   
    
    Electronic Commerce;
    
    Investment Services; and
    
    Software.
  
    
    review bank accounts,
    
    receive and pay bills over the Internet, and
    
    pay billers directly through biller-direct sites, by telephone or through our walk-in
retail agent network.
   SM
 Executive Summary
  13




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##### Table of Contents




    
    Our acquisition of Corillian Corporation (Corillian) for $245 million in cash in May
2007;
    
    Our acquisition of Carreker Corporation (Carreker) for $206 million in cash in April
2007; and
    
    Our acquisition of substantially all of the assets of Upstream Technologies LLC
(Upstream) for $28 million in cash in May 2007;
      14




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Three Months EndedSeptember 30,2007
    
    2006Total revenues
    
    
    100.0
    %
    
    
    100.0
    %Expenses:Cost of processing, servicing and support
    
    
    41.5
    
    
    
    40.6Research and development
    
    
    11.2
    
    
    
    11.7Sales and marketing
    
    
    9.8
    
    
    
    9.3General and administrative
    
    
    10.8
    
    
    
    7.8Depreciation and amortization
    
    
    9.5
    
    
    
    9.5Total expenses
    
    
    82.8
    
    
    
    78.9Income from operations
    
    
    17.2
    
    
    
    21.1Equity in net loss of joint venture
    
    
    (0.2
    )
    
    
    (0.2
    )Interest income (expense), net
    
    
    (0.2
    )
    
    
    1.4Income before income taxes
    
    
    16.8
    
    
    
    22.3Income tax expense
    
    
    6.3
    
    
    
    8.7Net income
    
    
    10.5
    %
    
    
    13.6
    %
 Results of Operations
  Total Revenues (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    284,664
    
    
    $
    228,619
    
    
    $
    56,045
    
    
    
    24.5
    %
    15




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Processing and Servicing Revenue (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    218,114
    
    
    $
    195,478
    
    
    $
    22,636
    
    
    
    11.6
    %
  License Fee Revenue (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    15,412
    
    
    $
    9,074
    
    
    $
    6,338
    
    
    
    69.8
    %
  16




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Maintenance Fee Revenue (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    21,988
    
    
    $
    11,530
    
    
    $
    10,458
    
    
    
    90.7
    %
  Professional Fee Revenue (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    29,150
    
    
    $
    12,537
    
    
    $
    16,613
    
    
    
    132.5
    %
  Cost of Processing, Servicing and Support (000s)
 September 30,2007
    
    2006%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    118,237
    
    
    
    41.5
    %
    
    $
    92,849
    
    
    
    40.6
    %
  17




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##### Table of Contents



Research and Development (000s)
 September 30,2007
    
    2006%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    31,975
    
    
    
    11.2
    %
    
    $
    26,738
    
    
    
    11.7
    %
 SM
 Sales and Marketing (000s)
 September 30,2007
    
    2006%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    27,869
    
    
    
    9.8
    %
    
    $
    21,275
    
    
    
    9.3
    %
  General and Administrative (000s)
 September 30,2007
    
    2006%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    30,710
    
    
    
    10.8
    %
    
    $
    17,749
    
    
    
    7.8
    %
  18




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##### Table of Contents



Depreciation and Amortization (000s)
 September 30,2007
    
    2006%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    26,868
    
    
    
    9.5
    %
    
    $
    21,805
    
    
    
    9.5
    %
  Equity in Net Loss of Joint Venture (000s)
 September 30,2007
    
    2006%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    (423
    )
    
    
    -0.2
    %
    
    $
    (458
    )
    
    
    -0.2
    %
  Net Interest Income (Expense) (000s)
 September 30,2007
    
    
    2006%
    
    
    
    
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    RevenueQuarter ended:Interest income
    
    $
    2,121
    
    
    
    
    
    
    $
    3,581Interest expense
    
    
    (2,795
    )
    
    
    
    
    
    
    (287
    )Net interest income (expense)
    
    $
    (674
    )
    
    
    -0.2
    %
    
    $
    3,294
    
    
    
    1.4
    %
 19




---



##### Table of Contents



Income Tax Expense (000s)
 September 30,2007
    
    2006Effective
    
    
    
    
    
    Effective$
    
    Rate
    
    $
    
    RateQuarter ended
    
    $
    18,061
    
    
    
    37.7
    %
    
    $
    19,822
    
    
    
    38.8
    %
   Segment Information
   20




---



##### Table of Contents



Three Months EndedSeptember 30,2007
    
    
    2006Revenues:Electronic Commerce, gross
    
    $
    214,216
    
    
    $
    171,029Impact of purchase accounting on deferred revenue
    
    
    (7,425
    )
    
    
    Electronic Commerce, net
    
    
    206,791
    
    
    
    171,029Software, gross
    
    
    47,567
    
    
    
    27,968Impact of purchase accounting on deferred revenue
    
    
    (4,361
    )
    
    
    Software, net
    
    
    43,206
    
    
    
    27,968Investment Services
    
    
    34,667
    
    
    
    29,622Total Revenue
    
    $
    284,664
    
    
    $
    228,619Income from operations before other income and expenses:Segment operating income (loss):Electronic Commerce
    
    $
    74,053
    
    
    $
    59,680Software
    
    
    5,988
    
    
    
    6,354Investment Services
    
    
    9,930
    
    
    
    5,528Corporate
    
    
    (9,973
    )
    
    
    (11,688
    )Purchase accounting amortization
    
    
    (13,727
    )
    
    
    (10,967
    )Impact of purchase accounting on deferred revenue
    
    
    (11,786
    )
    
    
    SFAS 123 (R)  Stock options issued before July 1, 2004 (1)
    
    
    (137
    )
    
    
    (704
    )Costs associated with mergers and acquisitions
    
    
    (5,343
    )
    
    
    Income from operations before other income and expenses
    
    $
    49,005
    
    
    $
    48,203
 
 (1)
    
    At the beginning of our fiscal year 2005, we implemented a new long-term incentive
compensation philosophy, which significantly reduced overall participation and focused on
restricted stock with limited stock options. As a result, we recorded the cost of restricted stock
throughout our fiscal year 2005. In fiscal year 2006, we adopted SFAS 123(R), and are consequently
recording all long-term incentive grants, both restricted stock and stock options, as an expense in
our consolidated statement of operations. The adjustment for SFAS 123(R) represents the charge
associated with the current vesting of options that were unvested as of July 1, 2004 under our
previous compensation philosophy, which were originally accounted for utilizing APB 25. Electronic Commerce Revenues  Gross (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    214,216
    
    
    $
    171,029
    
    
    $
    43,187
    
    
    
    25.3
    %
   21




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##### Table of Contents



Three Months Ended9/30/07
    
    6/30/07
    
    3/31/07
    
    12/31/06
    
    9/30/06(in millions, except revenue per transaction and revenueper e-bill delivered)TransactionsCSP:Revenue (1)
    
    $
    125.3
    
    
    $
    123.8
    
    
    $
    122.5
    
    
    $
    116.8
    
    
    $
    114.2Revenue per transaction
    
    $
    0.44
    
    
    $
    0.45
    
    
    $
    0.45
    
    
    $
    0.46
    
    
    $
    0.48Transactions processed
    
    
    282.4
    
    
    
    275.3
    
    
    
    269.6
    
    
    
    251.5
    
    
    
    235.7Non CSP:Revenue
    
    $
    38.6
    
    
    $
    38.6
    
    
    $
    39.6
    
    
    $
    38.3
    
    
    $
    36.2Revenue per transaction
    
    $
    0.56
    
    
    $
    0.57
    
    
    $
    0.56
    
    
    $
    0.54
    
    
    $
    0.48Transactions processed
    
    
    69.2
    
    
    
    68.3
    
    
    
    71.2
    
    
    
    70.5
    
    
    
    76.0Total TransactionsRevenue
    
    $
    163.9
    
    
    $
    162.4
    
    
    $
    162.1
    
    
    $
    155.1
    
    
    $
    150.4Transactions processed
    
    
    351.6
    
    
    
    343.6
    
    
    
    340.9
    
    
    
    322.0
    
    
    
    311.7e-bill DeliveryRevenue
    
    $
    10.8
    
    
    $
    10.4
    
    
    $
    9.8
    
    
    $
    8.7
    
    
    $
    8.5Revenue per e-bill delivered
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.16
    
    
    $
    0.16e-bills delivered
    
    
    63.9
    
    
    
    60.5
    
    
    
    58.7
    
    
    
    54.9
    
    
    
    51.8Other Electronic Commerce(2)Revenue
    
    $
    39.5
    
    
    $
    31.8
    
    
    $
    12.8
    
    
    $
    12.6
    
    
    $
    12.1
 
 (1)
    
    CSP Revenue excludes the impact of warrants issued to a customer(2)
    
    Other Electronic Commerce includes our Health & Fitness products and ancillary revenue
sources such as implementation and consulting services. Beginning in the quarter ended June
30, 2007, it also includes all electronic banking revenue resulting from our acquisition of
Corillian on May 15, 2007 and the revenue enhancement consulting services (RevE) from our
acquisition of Carreker in April 2007.    22




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##### Table of Contents



Electronic Commerce Operating Income (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    74,053
    
    
    $
    59,680
    
    
    $
    14,373
    
    
    
    24.1
    %
  Software Revenues  Gross (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    47,567
    
    
    $
    27,968
    
    
    $
    19,599
    
    
    
    70.1
    %
  Software Operating Income (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    5,988
    
    
    $
    6,354
    
    
    $
    (366
    )
    
    
    -5.8
    %
  Investment Services Revenues  Gross (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    34,667
    
    
    $
    29,622
    
    
    $
    5,045
    
    
    
    17.0
    %
  23




---



##### Table of Contents



Investment Services Operating Income (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    9,930
    
    
    $
    5,528
    
    
    $
    4,402
    
    
    
    79.6
    %
  Corporate Operating Loss (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    (9,973
    )
    
    $
    (11,688
    )
    
    $
    1,715
    
    
    
    -14.7
    %
  Purchase Accounting Amortization (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    13,727
    
    
    $
    10,967
    
    
    $
    2,760
    
    
    
    25.2
    %
  Segment Level Purchase Accounting Amortization (000s)
 September 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Electronic Commerce
    
    $
    10,608
    
    
    $
    9,627
    
    
    $
    981Software
    
    
    2,419
    
    
    
    484
    
    
    
    1,935Investment Services
    
    
    700
    
    
    
    856
    
    
    
    (156
    )Total
    
    $
    13,727
    
    
    $
    10,967
    
    
    $
    2,760
    
    
    
    25.2
    %
  24




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##### Table of Contents



Impact of Purchase Accounting on Deferred Revenue (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    11,786
    
    
    $
    
    
    
    $
    11,786
    
    
    
    
  Segment Level Impact of Purchase Accounting on Deferred Revenue (000s)
 September 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Electronic Commerce
    
    $
    7,425
    
    
    $
    
    
    
    $
    7,425Software
    
    
    4,361
    
    
    
    
    
    
    
    4,361Total
    
    $
    11,786
    
    
    $
    
    
    
    $
    11,786
    
    
    
    
  SFAS 123(R)  Options Issued Before July 1, 2004 (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    137
    
    
    $
    704
    
    
    $
    (567
    )
    
    
    -80.5
    %
  25




---



##### Table of Contents



Segment Level Impact of SFAS 123(R)- Options Issued Before July 1, 2004 (000s)
 September 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Electronic Commerce
    
    $
    100
    
    
    $
    512
    
    
    $
    (412
    )Software
    
    
    6
    
    
    
    31
    
    
    
    (25
    )Investment Services
    
    
    14
    
    
    
    72
    
    
    
    (58
    )Corporate
    
    
    17
    
    
    
    89
    
    
    
    (72
    )Total
    
    $
    137
    
    
    $
    704
    
    
    $
    (567
    )
    
    
    -80.5
    %
 Acquisition and Integration Costs (000s)
 September 30,
    
    Change2007
    
    2006
    
    $
    
    %Quarter ended
    
    $
    5,343
    
    
    $
    
    
    
    $
    5,343
    
    
    
    
  Cyclicality and Seasonality
   Inflation
  26




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##### Table of Contents



Liquidity and Capital Resources
  Three Months EndedSeptember 30,2007
    
    
    2006(In thousands)Net cash provided by operating activities
    
    $
    39,048
    
    
    $
    47,564Net cash provided by investing activities
    
    
    71,388
    
    
    
    58,583Net cash (used in) financing activities
    
    
    (64,252
    )
    
    
    (97,047
    )Effect of exchange rate changes
    
    
    216
    
    
    
    426Net increase in cash and cash equivalents
    
    $
    46,400
    
    
    $
    9,526
       27




---



##### Table of Contents



Use of Non-GAAP Financial Information
      28




---



##### Table of Contents



Three Months EndedSeptember 30,2007
    
    
    2006(In thousands)Cash provided by operating activities
    
    $
    39,048
    
    
    $
    47,564Excluding: Net change in settlement accounts
    
    
    (949
    )
    
    
    1,074Less: Capital expenditures
    
    
    (16,828
    )
    
    
    (12,099
    )Plus: Data center reimbursements
    
    
    7,813
    
    
    
    526Impact of operating account conversion
    
    
    4,816
    
    
    
    Free cash flow
    
    $
    33,900
    
    
    $
    37,065
   Recent Accounting Pronouncements
   Application of Critical Accounting Policies
 
 29




---



##### Table of Contents



Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
      30




---



##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures.
   Internal Controls.
 31




---



##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
 Skubella v. CheckFree Corporation, et al. Gattelaro v. CheckFree Corporation, et al.
 Borroni v. Peter Kight, et al.
 Tawil v. CheckFree Corporation, et al. Weil v. CheckFree
Corporation, et al. In re CheckFree Corporation Shareholders Litigation
  32




---



##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Exhibit Description2(a)
    
    Agreement and Plan of Merger, dated August 2, 2007, among
CheckFree Corporation, Fiserv, Inc. and Braves Acquisition
Corp., as amended by Amendment No. 1 dated as of September
19, 2007 (Reference is made to Annex A to the Companys
Proxy Statement for the Special Meeting of Stockholders
held on October 23, 2007, filed with the Securities and
Exchange Commission on September 20, 2007, and incorporated
herein by reference.)4(a)
    
    Amendment No. 4 to the Rights Agreement, dated as of August
2, 2007, between CheckFree Corporation and Wells Fargo
Bank, National Association, as Rights Agent. (Reference is
made to Exhibit 4.1 to the Companys Current Report on Form
8-K dated August 2, 2007, filed with the Securities and
Exchange Commission on August 7, 2007, and incorporated
herein by reference.)10(a)
    
    CheckFree Corporation Amended and Restated 2002 Stock
Incentive Plan. (Reference is made to Exhibit 4(a) to the
Companys Registration Statement on Form S-8, as amended
(Registration No. 333-101280), filed with the Securities
and Exchange Commission on August 24, 2007 and incorporated
herein by reference.)10(b)
    
    Form of Performance Accelerated Restricted Stock Award
Agreement under the Amended and Restated 2002 Stock
Incentive Plan. (Reference is made to Exhibit 10.3 to the
Companys Current Report on Form 8-K dated July 25, 2007,
filed with the Securities and Exchange Commission on July
31, 2007, and incorporated herein by reference.)10(c)
    
    CheckFree Corporation Amended and Restated Nonqualified
Deferred Compensation Plan, dated July 26, 2007. (Reference
is made to Exhibit 10(k) to the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2007, filed
with the Securities and Exchange Commission on August 24,
2007, and incorporated herein by reference.)10(d)
    
    CheckFree Corporation 2008 Incentive Compensation Plan.
(Reference is made to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated July 25, 2007, filed with the
Securities Exchange Commission on July 31, 2007, and
incorporated herein by reference.)10(e)
    
    Description of Compensation Arrangements Approved by the
Compensation Committee of the Board of Directors for the
Companys Named Executive Officers in Fiscal Year 2008 and
for the Companys Non-Management Directors in Fiscal Year
2008 (Reference is made to Item 5.02 of the Companys
Current Report on Form 8-K dated July 25, 2007, filed with
the Securities and Exchange Commission on July 31, 2007,
and incorporated herein by reference.)10(f)
    
    Form of Retention Agreement dated as of July 27, 2007
between CheckFree Corporation and each of its executive
officers. (Reference is made to Exhibit 10.2 to the
Companys Current Report on Form 8-K dated July 25, 2007,
filed with the Securities and Exchange Commission on July
31, 2007, and incorporated herein by reference.)10(g)
    
    Form of Amendment to Retention Agreement dated as of August
2, 2007 between CheckFree Corporation and each of Peter J.
Kight, David E. Mangum, Stephen E. Olsen, Alex Hart, Jardon
Bouska, Michael P. Gianoni and Randal A. McCoy. (Reference
is made to Exhibit 10.1 to the Companys Current Report on
Form 8-K dated August 2, 2007, filed with the Securities
and Exchange Commission on August 7, 2007, and incorporated
herein by reference.)10(h)
    
    Individual Separation Agreement and General Release, dated
as of August 14, 2007, by and among CheckFree Corporation,
CheckFree Services Corporation and Randal A. McCoy.
(Reference is made to Exhibit 10(a) to the Companys
Current Report on Form 8-K dated August 14, 2007, filed
with the Securities and Exchange Commission on August 20,
2007, and incorporated herein by reference.)31(a)
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a) of the Chief Executive Officer.*
 33




---



##### Table of Contents



ExhibitNumber
    
    Exhibit Description31(b)
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a) of the Chief Financial Officer.*32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of the Chief Executive Officer.+32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of the Chief Financial Officer.+
 
 *
    
    Filed with this report.+
    
    Furnished with this report. 34




---



##### Table of Contents



Signatures
  CHECKFREE CORPORATIONDate: November 7, 2007
    
    By:
    
    /s/ David E. Mangum

David E. Mangum, Executive
Vice President and Chief
Financial Officer* (Principal
Financial Officer)Date: November 7, 2007
    
    By:
    
    /s/ Samuel R. SchwartzSamuel R. Schwartz, Senior
Vice President and Chief
Accounting Officer*
(Principal Accounting Officer)
 
 *
    
    In their capacities as Executive Vice President and Chief Financial
Officer, and as Senior Vice President and Chief Accounting Officer, Mr.
Mangum and Mr. Schwartz are each duly authorized to sign this report on
behalf of the Registrant.




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Description2(a)
    
    Agreement and Plan of Merger, dated August 2, 2007, among
CheckFree Corporation, Fiserv, Inc. and Braves Acquisition
Corp., as amended by Amendment No. 1 dated as of September
19, 2007 (Reference is made to Annex A to the Companys
Proxy Statement for the Special Meeting of Stockholders
held on October 23, 2007, filed with the Securities and
Exchange Commission on September 20, 2007, and incorporated
herein by reference.)4(a)
    
    Amendment No. 4 to the Rights Agreement, dated as of August
2, 2007, between CheckFree Corporation and Wells Fargo
Bank, National Association, as Rights Agent. (Reference is
made to Exhibit 4.1 to the Companys Current Report on Form
8-K dated August 2, 2007, filed with the Securities and
Exchange Commission on August 7, 2007, and incorporated
herein by reference.)10(a)
    
    CheckFree Corporation Amended and Restated 2002 Stock
Incentive Plan. (Reference is made to Exhibit 4(a) to the
Companys Registration Statement on Form S-8, as amended
(Registration No. 333-101280), filed with the Securities
and Exchange Commission on August 24, 2007 and incorporated
herein by reference.)10(b)
    
    Form of Performance Accelerated Restricted Stock Award
Agreement under the Amended and Restated 2002 Stock
Incentive Plan. (Reference is made to Exhibit 10.3 to the
Companys Current Report on Form 8-K dated July 25, 2007,
filed with the Securities and Exchange Commission on July
31, 2007, and incorporated herein by reference.)10(c)
    
    CheckFree Corporation Amended and Restated Nonqualified
Deferred Compensation Plan, dated July 26, 2007. (Reference
is made to Exhibit 10(k) to the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2007, filed
with the Securities and Exchange Commission on August 24,
2007, and incorporated herein by reference.)10(d)
    
    CheckFree Corporation 2008 Incentive Compensation Plan.
(Reference is made to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated July 25, 2007, filed with the
Securities Exchange Commission on July 31, 2007, and
incorporated herein by reference.)10(e)
    
    Description of Compensation Arrangements Approved by the
Compensation Committee of the Board of Directors for the
Companys Named Executive Officers in Fiscal Year 2008 and
for the Companys Non-Management Directors in Fiscal Year
2008 (Reference is made to Item 5.02 of the Companys
Current Report on Form 8-K dated July 25, 2007, filed with
the Securities and Exchange Commission on July 31, 2007,
and incorporated herein by reference.)10(f)
    
    Form of Retention Agreement dated as of July 27, 2007
between CheckFree Corporation and each of its executive
officers. (Reference is made to Exhibit 10.2 to the
Companys Current Report on Form 8-K dated July 25, 2007,
filed with the Securities and Exchange Commission on July
31, 2007, and incorporated herein by reference.)10(g)
    
    Form of Amendment to Retention Agreement dated as of August
2, 2007 between CheckFree Corporation and each of Peter J.
Kight, David E. Mangum, Stephen E. Olsen, Alex Hart, Jardon
Bouska, Michael P. Gianoni and Randal A. McCoy. (Reference
is made to Exhibit 10.1 to the Companys Current Report on
Form 8-K dated August 2, 2007, filed with the Securities
and Exchange Commission on August 7, 2007, and incorporated
herein by reference.)10(h)
    
    Individual Separation Agreement and General Release, dated
as of August 14, 2007, by and among CheckFree Corporation,
CheckFree Services Corporation and Randal A. McCoy.
(Reference is made to Exhibit 10(a) to the Companys
Current Report on Form 8-K dated August 14, 2007, filed
with the Securities and Exchange Commission on August 20,
2007, and incorporated herein by reference.)31(a)
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a) of the Chief Executive Officer.*




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##### Table of Contents



ExhibitNumber
    
    Exhibit Description31(b)
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a) of the Chief Financial Officer.*32(a)
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of the Chief Executive Officer.+32(b)
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of the Chief Financial Officer.+
 
 *
    
    Filed with this report.+
    
    Furnished with this report.