##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|                                                 |  |                                                                                         
|------------------------------------------------ |  | ----------------------------------------------------------------------------------------
|(Mark One)                                      
|[x]                                              |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended December 31, 2003
|                                                 |  | OR                                                                                      
|[   ]                                            |  | 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

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or Other Jurisdiction of
Incorporation or Organization) |  | 58-2360335
(I.R.S. Employer
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES  [X]  NO  [  ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: 89,959,388 shares of
Common Stock, $.01 par value, were outstanding at February 9, 2004.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                                        |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | Unaudited Consolidated Balance Sheets                                 
|                              |                                                                                               | Unaudited Condensed Consolidated Statements of Operations             
|                              |                                                                                               | Unaudited Consolidated Statements of Cash Flows                       
|                              |                                                                                               | Notes to Interim Unaudited Condensed Consolidated Financial Statements
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|Part II. Other Information   
|                              | Item 2. Changes in Securities and Use of Proceeds                                            
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                   
|EXHIBIT INDEX                
|Exhibit 2                    
|Exhibit 31(A)                
|Exhibit 31(B)                
|Exhibit 32(A)                
|Exhibit 32(B)                



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##### Table of Contents



FORM 10-Q

CHECKFREE CORPORATION

Table of Contents

|                              |  |                                                                                                |                                                                                                                                      |  |          |   | 
|----------------------------- |  | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ |  | -------- | - | 
|                              |  |                                                                                                |                                                                                                                                      |  | Page No.
|                              |  |                                                                                                |                                                                                                                                      |  |         
|PART I. FINANCIAL INFORMATION |  |                                                                                                |                                                                                                                                      | 
|                              |  | Item 1. Financial Statements.                                                                  |                                                                                                                                      |  |          |  
|                              |  |                                                                                                | Unaudited Consolidated Balance Sheets
at December 31, 2003 and June 30, 2003                                                         |  |          | 3 | 
|                              |  |                                                                                                | Unaudited Condensed Consolidated Statements of Operations
For the Three and Six Months Ended
December 31, 2003 and 2002              |  |          | 4 | 
|                              |  |                                                                                                | Unaudited Consolidated Statements of Cash Flows
For the Six Months Ended
December 31, 2003 and 2002                                  |  |          | 5 | 
|                              |  |                                                                                                | Notes to Interim Unaudited Condensed Consolidated
Financial Statements For the Three and Six Months Ended
December 31, 2003 and 2002 |  |          | 6 | 
|                              |  | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations. |                                                                                                                                      |  | 13       |  
|                              |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk.                            |                                                                                                                                      |  | 25       |  
|                              |  | Item 4. Controls and Procedures.                                                               |                                                                                                                                      |  | 26       |  
|PART II. OTHER INFORMATION    |  |                                                                                                |                                                                                                                                      | 
|                              |  | Item 2. Changes in Securities and Use of Proceeds.                                             |                                                                                                                                      |  | 27       |  
|                              |  | Item 4. Submission of Matters to a Vote of Security Holders.                                   |                                                                                                                                      |  | 27       |  
|                              |  | Item 6. Exhibits and Reports on Form 8-K.                                                      |                                                                                                                                      |  | 28       |  
|                              |  | Signatures.                                                                                    |                                                                                                                                      |  | 30       |  

2



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##### Table of Contents






Part I. Financial Information




Item 1. Financial Statements

CHECKFREE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets




|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |           |           | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------------------------------------------ | ---------- | --------------------------------- | --------- | -------- | ---------- | --------- | --------- | 
|                                             |                                                                                                                                      |                            |                                            |            | December 31,                      |           | June 30,
|                                             |                                                                                                                                      |                            |                                            |            | 2003                              |           | 2003    
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |         
|                                             |                                                                                                                                      |                            |                                            |            | (In thousands, except share data)
|ASSETS                                       |                                                                                                                                      |                            |                                            |            |                                   |           |          |           
|CURRENT ASSETS:                              |                                                                                                                                      |                            |                                            |            |                                   |           |          |           
|                                             | Cash and cash equivalents                                                                                                            |                            | $                                          | 106,630    |                                   |           | $        | 209,358    |          
|                                             | Investments                                                                                                                          |                            |                                            | 81,264     |                                   |           |          | 69,674     |          
|                                             | Restricted investments                                                                                                               |                            |                                            |           |                                   |           |          | 3,000      |          
|                                             | Accounts receivable, net                                                                                                             |                            |                                            | 81,202     |                                   |           |          | 75,253     |          
|                                             | Accounts receivable, related parties                                                                                                 |                            |                                            | 8,080      |                                   |           |          | 6,373      |          
|                                             | Prepaid expenses and other assets                                                                                                    |                            |                                            | 9,555      |                                   |           |          | 9,708      |          
|                                             | Deferred income taxes                                                                                                                |                            |                                            | 63,504     |                                   |           |          | 41,202     |          
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          
|                                             |                                                                                                                                      | Total current assets       |                                            |            | 350,235                           |           |          |            | 414,568   |          
|PROPERTY AND EQUIPMENT, NET                  |                                                                                                                                      |                            | 87,075                                     |            |                                   |           | 94,853   |           
|OTHER ASSETS:                                |                                                                                                                                      |                            |                                            |            |                                   |           |          |           
|                                             | Capitalized software, net                                                                                                            |                            |                                            | 14,836     |                                   |           |          | 23,612     |          
|                                             | Goodwill                                                                                                                             |                            |                                            | 536,791    |                                   |           |          | 523,231    |          
|                                             | Strategic agreements, net                                                                                                            |                            |                                            | 333,361    |                                   |           |          | 395,332    |          
|                                             | Other intangible assets, net                                                                                                         |                            |                                            | 3,755      |                                   |           |          | 4,801      |          
|                                             | Investments                                                                                                                          |                            |                                            | 86,489     |                                   |           |          | 121,615    |          
|                                             | Other noncurrent assets                                                                                                              |                            |                                            | 5,799      |                                   |           |          | 9,258      |          
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          
|                                             |                                                                                                                                      | Total other assets         |                                            |            | 981,031                           |           |          |            | 1,077,849 |          
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          
|                                             |                                                                                                                                      |                            | Total assets                               |            | $                                 | 1,418,341 |          |            | $         | 1,587,270 | 
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          
|LIABILITIES AND STOCKHOLDERS EQUITY         |                                                                                                                                      |                            |                                            |            |                                   |           |          |           
|CURRENT LIABILITIES:                         |                                                                                                                                      |                            |                                            |            |                                   |           |          |           
|                                             | Accounts payable                                                                                                                     |                            | $                                          | 10,469     |                                   |           | $        | 9,705      |          
|                                             | Accrued liabilities                                                                                                                  |                            |                                            | 51,419     |                                   |           |          | 59,140     |          
|                                             | Current portion of long-term obligations                                                                                             |                            |                                            | 5,251      |                                   |           |          | 4,894      |          
|                                             | Deferred revenue                                                                                                                     |                            |                                            | 39,748     |                                   |           |          | 36,543     |          
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          
|                                             |                                                                                                                                      | Total current liabilities  |                                            |            | 106,887                           |           |          |            | 110,282   |          
|ACCRUED RENT AND OTHER                       |                                                                                                                                      |                            | 3,361                                      |            |                                   |           | 3,419    |           
|DEFERRED INCOME TAXES                        |                                                                                                                                      |                            | 39,113                                     |            |                                   |           | 28,728   |           
|LONG-TERM OBLIGATIONS  LESS CURRENT PORTION |                                                                                                                                      |                            | 2,660                                      |            |                                   |           | 4,192    |           
|CONVERTIBLE SUBORDINATED NOTES               |                                                                                                                                      |                            |                                           |            |                                   |           | 172,500  |           
|STOCKHOLDERS 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 89,673,321 and 89,266,370 shares, respectively |                            |                                            | 897        |                                   |           |          | 893        |          
|                                             | Additional paid-in-capital                                                                                                           |                            |                                            | 2,456,476  |                                   |           |          | 2,449,374  |          
|                                             | Accumulated other comprehensive income                                                                                               |                            |                                            | 101        |                                   |           |          | 471        |          
|                                             | Accumulated deficit                                                                                                                  |                            |                                            | (1,191,154 | )                                 |           |          | (1,182,589 | )        
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          
|                                             |                                                                                                                                      | Total stockholders equity |                                            |            | 1,266,320                         |           |          |            | 1,268,149 |          
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          
|                                             |                                                                                                                                      |                            | Total liabilities and stockholders equity |            | $                                 | 1,418,341 |          |            | $         | 1,587,270 | 
|                                             |                                                                                                                                      |                            |                                            |            |                                   |           |          |            |          

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##### Table of Contents



CHECKFREE CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations




|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |         |         |         | 
|------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------ | -------------- | ------ | ------------------ | ------- | ---------------- | ------ | ------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                                                    |                                                    |                                |                |        | Three Months Ended |         | Six Months Ended
|                                                                    |                                                    |                                |                |        | December 31,       |         | December 31,    
|                                                                    |                                                    |                                |                |        |                    |         |                 
|                                                                    |                                                    |                                |                |        | 2003               |         | 2002             |        | 2003                                  |         | 2002   
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |        
|                                                                    |                                                    |                                |                |        |                    |         |                  |        | (In thousands, except per share data) |         |         |         |        
|Revenues:                                                           |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|                                                                    | Processing and servicing:                          |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |         |        
|                                                                    |                                                    | Third parties                  |                | $      | 121,897            |         |                  | $      | 108,508                               |         |         | $       | 237,142 |         |         | $       | 216,251 |        
|                                                                    |                                                    | Related parties                |                |        | 9,750              |         |                  |        | 7,500                                 |         |         |         | 18,750  |         |         |         | 14,248  |        
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|                                                                    |                                                    | Total processing and servicing |                |        | 131,647            |         |                  |        | 116,008                               |         |         |         | 255,892 |         |         |         | 230,499 |        
|                                                                   
|                                                                    | License fees                                       |                                |                | 4,716  |                    |         |                  | 6,735  |                                       |         |         | 9,678   |         |         |         | 10,944  |        
|                                                                    | Maintenance fees                                   |                                |                | 7,412  |                    |         |                  | 6,317  |                                       |         |         | 14,113  |         |         |         | 12,503  |        
|                                                                    | Other                                              |                                |                | 6,161  |                    |         |                  | 6,445  |                                       |         |         | 11,517  |         |         |         | 11,794  |        
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |         |         |        
|                                                                    |                                                    |                                | Total revenues |        |                    | 149,936 |                  |        |                                       | 135,505 |         |         |         | 291,200 |         |         |         | 265,740 | 
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|Expenses:                                                           |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|                                                                    | Cost of processing, servicing and support          |                                |                | 60,798 |                    |         |                  | 60,124 |                                       |         |         | 120,086 |         |         |         | 118,891 |        
|                                                                    | Research and development                           |                                |                | 16,102 |                    |         |                  | 13,274 |                                       |         |         | 31,005  |         |         |         | 25,509  |        
|                                                                    | Sales and marketing                                |                                |                | 13,206 |                    |         |                  | 13,745 |                                       |         |         | 25,531  |         |         |         | 26,951  |        
|                                                                    | General and administrative                         |                                |                | 11,672 |                    |         |                  | 8,701  |                                       |         |         | 23,195  |         |         |         | 19,001  |        
|                                                                    | Depreciation and amortization                      |                                |                | 42,384 |                    |         |                  | 57,098 |                                       |         |         | 92,997  |         |         |         | 113,976 |        
|                                                                    | In-process research and development                |                                |                | 324    |                    |         |                  |       |                                       |         |         | 324     |         |         |         |        |        
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|                                                                    |                                                    |                                | Total expenses |        |                    | 144,486 |                  |        |                                       | 152,942 |         |         |         | 293,138 |         |         |         | 304,328 | 
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |         |         |        
|Income (loss) from operations                                       |                                                    |                                | 5,450          |        |                    |         | (17,437          | )      |                                       |         | (1,938  | )       |         |         | (38,588 | )      
|Interest, net                                                       |                                                    |                                | (7,964         | )      |                    |         | (1,250           | )      |                                       |         | (9,588  | )       |         |         | (2,466  | )      
|Loss on investments                                                 |                                                    |                                |               |        |                    |         | (1,931           | )      |                                       |         |        |         |         |         | (1,931  | )      
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |         |         |        
|Loss before income taxes and cumulative effect
of accounting change |                                                    |                                | (2,514         | )      |                    |         | (20,618          | )      |                                       |         | (11,526 | )       |         |         | (42,985 | )      
|Income tax benefit                                                  |                                                    |                                | (618           | )      |                    |         | (9,411           | )      |                                       |         | (2,961  | )       |         |         | (18,496 | )      
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |         |         |        
|Loss before cumulative effect of accounting
change                  |                                                    |                                | (1,896         | )      |                    |         | (11,207          | )      |                                       |         | (8,565  | )       |         |         | (24,489 | )      
|Cumulative effect of accounting change                              |                                                    |                                |               |        |                    |         |                 |        |                                       |         |        |         |         |         | (2,894  | )      
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|Net loss                                                            |                                                    | $                              | (1,896         | )      |                    | $       | (11,207          | )      |                                       | $       | (8,565  | )       |         | $       | (27,383 | )      
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|Basic and diluted loss per share:                                   |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|                                                                    | Loss before cumulative effect of
accounting change |                                | $              | (0.02  | )                  |         | $                | (0.13  | )                                     |         | $       | (0.10   | )       |         | $       | (0.28   | )      
|                                                                    | Cumulative effect of accounting change             |                                |                |       |                    |         |                  |       |                                       |         |         |        |         |         |         | (0.03   | )      
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        
|                                                                    | Net loss                                           |                                | $              | (0.02  | )                  |         | $                | (0.13  | )                                     |         | $       | (0.10   | )       |         | $       | (0.31   | )      
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |         |         |        
|                                                                    | Weighted average number of shares                  |                                |                | 89,624 |                    |         |                  | 88,694 |                                       |         |         | 89,543  |         |         |         | 88,536  |        
|                                                                    |                                                    |                                |                |        |                    |         |                  |        |                                       |         |         |         |         |         |         |        

See Notes to Interim Unaudited Condensed Consolidated Financial Statements.

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CHECKFREE CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows




|                                                     |                                                                                 |  |                               |                                           |   |                  |          |         |   |        |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------- |  | ----------------------------- | ----------------------------------------- | - | ---------------- | -------- | ------- | - | ------ | ------- | -
|                                                     |                                                                                 |  |                               |                                           |   | Six Months Ended
|                                                     |                                                                                 |  |                               |                                           |   | December 31,    
|                                                     |                                                                                 |  |                               |                                           |   |                 
|                                                     |                                                                                 |  |                               |                                           |   | 2003             |          | 2002   
|                                                     |                                                                                 |  |                               |                                           |   |                  |          |        
|                                                     |                                                                                 |  |                               |                                           |   | (In thousands)  
|Operating activities:                                |                                                                                 |  |                               |                                           |   |                  |          |        
|                                                     | Net loss                                                                        |  | $                             | (8,565                                    | ) |                  | $        | (27,383 | )
|                                                     | Adjustments to reconcile net loss to net cash provided by
operating activities: |  |                               |                                           |   |                  |          |         |  
|                                                     | Depreciation and amortization                                                   |  |                               | 92,997                                    |   |                  |          | 113,976 |  
|                                                     | Deferred income tax benefit                                                     |  |                               | (11,083                                   | ) |                  |          | (18,496 | )
|                                                     | Write off of convertible notes issuance costs                                   |  |                               | 2,407                                     |   |                  |          |        |  
|                                                     | Write off of in-process research and development                                |  |                               | 324                                       |   |                  |          |        |  
|                                                     | Cumulative effect of accounting change                                          |  |                               |                                          |   |                  |          | 2,894   |  
|                                                     | Impact of warrants                                                              |  |                               |                                          |   |                  |          | (644    | )
|                                                     | Loss on investments                                                             |  |                               |                                          |   |                  |          | 1,931   |  
|                                                     | Net loss on disposition of property and equipment                               |  |                               | 9                                         |   |                  |          | 333     |  
|                                                     | Change in certain assets and liabilities:                                       |  |                               |                                           |   |                  |          |         |  
|                                                     |                                                                                 |  | Accounts receivable           |                                           |   | (5,624           | )        |         |   | 7,337  |        
|                                                     |                                                                                 |  | Prepaid expenses and other    |                                           |   | 1,486            |          |         |   | (1,114 | )      
|                                                     |                                                                                 |  | Accounts payable              |                                           |   | 601              |          |         |   | (2,120 | )      
|                                                     |                                                                                 |  | Accrued liabilities and other |                                           |   | (6,092           | )        |         |   | (4,662 | )      
|                                                     |                                                                                 |  | Deferred revenue              |                                           |   | 1,916            |          |         |   | (1,001 | )      
|                                                     |                                                                                 |  |                               |                                           |   |                  |          |         |  
|                                                     |                                                                                 |  |                               | Net cash provided by operating activities |   |                  | 68,376   |         |   |        | 71,051  |  
|Investing activities:                                |                                                                                 |  |                               |                                           |   |                  |          |        
|                                                     | Purchase of property and software                                               |  |                               | (9,079                                    | ) |                  |          | (16,377 | )
|                                                     | Proceeds
from sale of assets                                                    |  |                               |                                          |   |                  |          | 555     |  
|                                                     | Capitalization of software development costs                                    |  |                               | (1,625                                    | ) |                  |          | (1,381  | )
|                                                     | Purchase of investments  held to maturity                                      |  |                               | (511                                      | ) |                  |          | (38,031 | )
|                                                     | Proceeds from maturities of investments  held to maturity                      |  |                               | 27,512                                    |   |                  |          | 73,902  |  
|                                                     | Purchase of investments  available for sale                                    |  |                               | (125,415                                  | ) |                  |          | (56,099 | )
|                                                     | Proceeds from investments  available for sale                                  |  |                               | 124,453                                   |   |                  |          | 3,405   |  
|                                                     | Purchase of other investments                                                   |  |                               | (45                                       | ) |                  |          |        |  
|                                                     | Purchase of business, net of cash acquired                                      |  |                               | (15,737                                   | ) |                  |          |        |  
|                                                     |                                                                                 |  |                               |                                           |   |                  |          |        
|                                                     |                                                                                 |  |                               | Net cash used in investing activities     |   |                  | (447     | )       |   |        | (34,026 | )
|Financing activities:                                |                                                                                 |  |                               |                                           |   |                  |          |        
|                                                     | Principal payments under capital lease and other
long-term obligations          |  |                               | (1,769                                    | ) |                  |          | (6,405  | )
|                                                     | Redemption of convertible notes                                                 |  |                               | (172,500                                  | ) |                  |          |        |  
|                                                     | Proceeds from stock options exercised                                           |  |                               | 1,845                                     |   |                  |          | 1,573   |  
|                                                     | Proceeds from employee stock purchase plan                                      |  |                               | 1,767                                     |   |                  |          | 1,570   |  
|                                                     |                                                                                 |  |                               |                                           |   |                  |          |         |  
|                                                     |                                                                                 |  |                               | Net cash used in financing activities     |   |                  | (170,657 | )       |   |        | (3,262  | )
|                                                     |                                                                                 |  |                               |                                           |   |                  |          |        
|Net increase (decrease) in cash and cash equivalents |                                                                                 |  | (102,728                      | )                                         |   |                  | 33,763   |        
|Cash and cash equivalents:                           |                                                                                 |  |                               |                                           |   |                  |          |        
|                                                     | Beginning of period                                                             |  |                               | 209,358                                   |   |                  |          | 115,009 |  
|                                                     |                                                                                 |  |                               |                                           |   |                  |          |         |  
|                                                     | End of period                                                                   |  | $                             | 106,630                                   |   |                  | $        | 148,772 |  
|                                                     |                                                                                 |  |                               |                                           |   |                  |          |        

See Notes to Interim Unaudited Condensed Consolidated Financial Statements.

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##### Table of Contents



CHECKFREE CORPORATION AND SUBSIDIARIES
Notes to Interim Unaudited Condensed Consolidated Financial Statements
for the Three and Six Months Ended December 31, 2003 and 2002




1.     Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited 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
three and six months ended December 31, 2003 and 2002, 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 for the fiscal year ended June 30,
2003, as filed with the Securities and Exchange Commission on September 15,
2003. In the opinion of management, the accompanying unaudited condensed
consolidated 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.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. Accordingly,
compensation expense is not required to be recorded when stock options are
granted to employees as long as the exercise price is not less than the fair
market value of the stock when the option is granted, and in connection with
our Associate Stock Purchase Plan as long as the purchase price is not less
than 85% of the lower of the fair market value at the beginning or end of each
offer period. In October 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) 123,
Accounting for Stock-Based Compensation. SFAS 123 allows the Company to
continue to follow the present APB Opinion 25 guidelines, but requires
pro-forma disclosures of net income and earnings per share as if the Company
had adopted the provisions of the Statement. In December 2002, the FASB
issued SFAS 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123, which provides
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation.
SFAS 148 requires prominent disclosure about the effects on reported net income
of an entitys accounting policy decisions with respect to stock-based employee
compensation and amends APB Opinion 28, Interim Financial Reporting, to
require disclosure about those effects in interim financial information. These
disclosure requirements became effective for the Companys third quarter of
fiscal 2003. The Company has continued to account for stock-based compensation
under the provisions of APB Opinion 25 using the intrinsic value method.

Had compensation cost for the Companys stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans in accordance with the provisions of SFAS 123, the Companys net
loss and net loss per share would have been as follows (in thousands, except
per share data):

|                                              |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |         |         |  
|--------------------------------------------- | ------------------ | - | ------------------ | ------ | ---------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                              |                    |   | Three Months Ended |        | Six Months Ended
|                                              |                    |   | December 31,       |        | December 31,    
|                                              |                    |   |                    |        |                 
|                                              |                    |   | 2003               |        | 2002             |   | 2003    |         | 2002
|                                              |                    |   |                    |        |                  |   |         |         |     
|Net loss, as reported                         |                    | $ | (1,896             | )      |                  | $ | (11,207 | )       |      | $ | (8,565  | )       |   | $ | (27,383 | )      
|Stock-based compensation
included in net loss |                    |   | 553                |        |                  |   | 15      |         |      |   | 1,696   |         |   |   | 30      |        
|Stock-based compensation
under SFAS 123       |                    |   | (4,808             | )      |                  |   | (7,635  | )       |      |   | (10,397 | )       |   |   | (15,324 | )      
|                                              |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |         |        
|                                              | Pro forma net loss |   | $                  | (6,151 | )                |   | $       | (18,827 | )    |   | $       | (17,266 | ) |   | $       | (42,677 | )
|                                              |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |         |        
|Pro forma net loss per share:                 |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |         |        
|                                              | Basic and diluted  |   | $                  | (0.07  | )                |   | $       | (0.21   | )    |   | $       | (0.19   | ) |   | $       | (0.48   | )
|                                              |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |         |        

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2.     Goodwill and Other Intangible Assets

On July 1, 2002, the Company adopted SFAS 142, Goodwill and Other
Intangible Assets. SFAS 142 changes the accounting for goodwill and other
intangible assets. Goodwill is no longer subject to amortization over its
estimated useful life. Rather, goodwill is subject to at least an annual
assessment for impairment by applying a fair-value-based test. The Company
performs its annual impairment test as of April 30.

Upon adoption of SFAS 142, the Company transferred $1,350,000 of
unamortized workforce in place intangible assets, net of the associated
deferred income taxes, into goodwill, discontinued the amortization of goodwill
and was required to perform a transitional impairment test. This impairment
test required the Company to (1) identify its reporting units, (2) determine
the carrying value of each reporting unit by assigning assets and liabilities,
including existing goodwill and intangible assets, to those reporting units,
and (3) determine the fair value of each reporting unit. If the carrying value
of any reporting unit exceeded its fair value, then additional testing was
required to see if the goodwill carried on the balance sheet was impaired.
After completing step one of the transitional impairment test, the Company
determined that goodwill associated with its i-Solutions reporting unit, a unit
within the Companys Software segment, was potentially impaired.

The amount of goodwill impairment was then determined through an analysis
similar to that of a purchase price allocation, where the fair value of the
individual tangible and intangible assets (excluding goodwill) and liabilities
of the i-Solutions reporting unit was compared to the fair value of the
reporting unit, with the residual amount being the fair value assigned to
goodwill. The fair value of the i-Solutions reporting unit was estimated using
a combination of the cost, market, and income approaches. Specifically, the
discounted cash flow and market multiples methodologies were utilized to
determine the fair value of the reporting unit by estimating the present value
of the future cash flows of the reporting unit along with reviewing revenue and
earnings multiples for comparable publicly traded companies and applying these
to the reporting units projected cash flows. Fair value of each of the
assigned assets and liabilities was determined using either a cost, market, or
income approach, as appropriate, for each individual asset or liability. The
resulting impairment charge of $2,894,000 was recorded and is reflected as a
cumulative effect of a change in accounting principle in the unaudited
Condensed Consolidated Statement of Operations for the six months ended
December 31, 2002.

In November 2003, the Company completed its acquisition of HelioGraph,
Ltd. for approximately $18,320,000 in cash. HelioGraph is a part of CheckFree
Financial and Compliance Solutions, a business unit within the Companys
Software Division. In connection with the acquisition of HelioGraph, the
Company recorded a charge of $324,000 for purchased in-process research and
development. The HelioGraph acquisition is not material to the Company.

In December 2003, the Company announced an agreement to acquire American
Payment Systems, Inc., from its parent corporation UIL Holdings, for
approximately $110,000,000 in cash. The transaction is expected to close
before June 30, 2004, subject to the receipt of regulatory approvals and
satisfaction of customary closing conditions.

As of December 31, 2003, the Companys only non-amortizing intangible
asset is goodwill of $536,791,000. The changes in the carrying value of
goodwill by segment from June 30, 2002, to December 31, 2003, were as follows
(in thousands):

|                                          |  |            |         |          |  |          |        |            |  |   |        |  |  |   |         |  
|----------------------------------------- |  | ---------- | ------- | -------- |  | -------- | ------ | ---------- |  | - | ------ |  |  | - | ------- | -
|                                          |  | Electronic |         |          |  |          |        | Investment |  |   |        | 
|                                          |  | Commerce   |         | Software |  | Services |        | Total     
|                                          |  |            |         |          |  |          |        |           
|Balance as of June 30, 2002               |  | $          | 503,255 |          |  | $        | 16,116 |            |  | $ | 11,387 |  |  | $ | 530,758 |  
|Reclassification of workforce, net of tax |  |            | 483     |          |  |          | 867    |            |  |   |       |  |  |   | 1,350   |  
|Impairment loss from adoption of SFAS 142 |  |            |        |          |  |          | (2,894 | )          |  |   |       |  |  |   | (2,894  | )
|Fourth quarter impairment loss            |  |            |        |          |  |          | (5,983 | )          |  |   |       |  |  |   | (5,983  | )
|                                          |  |            |         |          |  |          |        |            |  |   |        |  |  |   |         |  
|Balance as of June 30, 2003               |  |            | 503,738 |          |  |          | 8,106  |            |  |   | 11,387 |  |  |   | 523,231 |  
|Goodwill acquired                         |  |            |        |          |  |          | 13,560 |            |  |   |       |  |  |   | 13,560  |  
|                                          |  |            |         |          |  |          |        |            |  |   |        |  |  |   |         |  
|Balance as of December 31, 2003           |  | $          | 503,738 |          |  | $        | 21,666 |            |  | $ | 11,387 |  |  | $ | 536,791 |  
|                                          |  |            |         |          |  |          |        |            |  |   |        |  |  |   |         |  

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The components of the Companys various amortized intangible assets are as
follows (in thousands):

|                                                                                          |                                                              |                                |                           |         |              |         |          |         |         |         | 
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------ | ------------------------- | ------- | ------------ | ------- | -------- | ------- | ------- | ------- | 
|                                                                                          |                                                              |                                |                           |         | December 31, |         | June 30,
|                                                                                          |                                                              |                                |                           |         | 2003         |         | 2003    
|                                                                                          |                                                              |                                |                           |         |              |         |         
|Capitalized software:                                                                     |                                                              |                                |                           |         |              |         |          |        
|                                                                                          | Product technology from acquisitions and strategic agreement |                                | $                         | 167,458 |              |         | $        | 166,578 |        
|                                                                                          | Internal development costs                                   |                                |                           | 30,795  |              |         |          | 29,170  |        
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|                                                                                          |                                                              | Total                          |                           |         | 198,253      |         |          |         | 195,748 |        
|                                                                                          |                                                              | Less: accumulated amortization |                           |         | 183,417      |         |          |         | 172,136 |        
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|                                                                                          |                                                              | Capitalized software, net      |                           | $       | 14,836       |         |          | $       | 23,612  |        
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|Strategic agreements:                                                                     |                                                              |                                |                           |         |              |         |          |        
|                                                                                          | Strategic agreements (1)                                     |                                | $                         | 744,424 |              |         | $        | 744,424 |        
|                                                                                          | Less: accumulated amortization                               |                                |                           | 411,063 |              |         |          | 349,092 |        
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|                                                                                          |                                                              |                                | Strategic agreements, net |         | $            | 333,361 |          |         | $       | 395,332 | 
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|Other intangible assets:                                                                  |                                                              |                                |                           |         |              |         |          |        
|                                                                                          | Tradenames                                                   |                                | $                         | 48,078  |              |         | $        | 47,968  |        
|                                                                                          | Customer base                                                |                                |                           | 35,278  |              |         |          | 34,758  |        
|                                                                                          | Covenants not to compete                                     |                                |                           | 1,610   |              |         |          | 1,200   |        
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|                                                                                          |                                                              | Total                          |                           |         | 84,966       |         |          |         | 83,926  |        
|                                                                                          | Less: accumulated amortization                               |                                |                           | 81,211  |              |         |          | 79,125  |        
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|                                                                                          |                                                              | Other intangible assets, net   |                           | $       | 3,755        |         |          | $       | 4,801   |        
|                                                                                          |                                                              |                                |                           |         |              |         |          |        
|(1) Strategic agreements primarily include certain entity-level covenants not to compete.

Amortization of intangible assets totaled $33,466,000, $47,881,000,
$75,338,000 and $95,744,000 for the three and six months ended December 31,
2003 and 2002, respectively. Amortization expense for the year ended June 30,
2004 and the next four fiscal years is estimated to be as follows (in
thousands):

|                            |  |   |         | 
|--------------------------- |  | - | ------- | 
|Fiscal Year Ending June 30, |  |  
|2004                        |  | $ | 136,421 | 
|2005                        |  |   | 126,313 | 
|2006                        |  |   | 42,989  | 
|2007                        |  |   | 25,783  | 
|2008                        |  |   | 25,565  | 

3.     Convertible Subordinated Notes

In December 2003, the Company redeemed its 6.5% Convertible Subordinated
Notes that were due on December 1, 2006. The $172,500,000 principal amount,
along with a call premium of $4,813,000, was paid in cash. In addition, the
Company incurred a non-cash charge of $2,407,000 due to the write off of the
remaining unamortized bond issuance costs. These amounts are included in
interest expense.

4.     Common Stock

In the three months ended September 30, 2003, the Company issued stock for
various employee benefit programs. The Company issued 149,844 shares to fund
its 401(k) match, the cost of which was accrued in the year ended June 30,
2003, and 98,741 shares of common stock in conjunction with its employee stock
purchase plan, which was funded through employee payroll deductions in the
immediately preceding six-month period.

In June 2003, the Company made an offer (the Tender Offer) to certain
employees to exchange options with exercise prices greater than or equal to
$44.00 per share currently outstanding under the Companys 1983 Incentive Stock
Option Plan, 1983 Non-Statutory Stock Option Plan, 1993 Stock Option Plan,
Third Amended and

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Restated 1995 Stock Option Plan, BlueGill Technologies, Inc. 1997 Stock
Option Plan, BlueGill Technologies, Inc. 1998 Incentive and Non-Qualified Stock
Option Plan, and 2002 Stock Incentive Plan, for restricted stock units of the
Companys common stock, and in certain cases, cash payments. Restricted stock
units issued under the Tender Offer will vest ratably over a three-year period.
The offer period closed on July 17, 2003, and employees holding 1,163,668
options participated in the Tender Offer. The Company made cash payments
totaling $586,000 in July 2003 representing the cash consideration portion of
the Tender Offer and will issue up to 252,000 shares of stock under the 2002
Stock Incentive Plan over the next three years as the restricted stock units
vest. The Company recorded an expense of $553,000 and $1,696,000 for the three
and six months ended December 31, 2003, respectively, for cash payments
incurred and restricted stock units.

5.     Stock-Related Transactions with Third Parties

In October 1999, the Company entered into an agreement with one of its
customers. Under the terms of the agreement, the customer purchased 250,000
shares of the Companys stock, was issued warrants for up to one million
shares, and had the ability to earn warrants for up to an additional two
million shares. All warrants contain a strike price of $39.25 and were
exercisable beginning on September 15, 2002, contingent upon achievement of
various annual revenue targets and maintaining the continued existence of the
agreement through that date. During the quarter ended June 30, 2002, vesting of
the warrants for one million shares became probable. As such, the Company
recorded a non-cash charge of $2,748,000 for the fair value of the portion of
the warrants earned through June 30, 2002. In the quarter ended September 30,
2002, the warrants vested. On the date of vesting, however, the fair value of
our common stock was lower than at June 30, 2002, when we calculated the
initial charge. As a result, a true-up of the value of the warrants resulted
in an addition to revenue of $644,000 in the quarter ended September 30, 2002.
Fair value was determined based on a Black-Scholes option pricing model. Under
the provisions of Emerging Issues Task Force (EITF) 01-9, Accounting for
Consideration by a Vendor to a Customer (Including a Reseller of the Vendors
Products), the non-cash charge of $2,748,000 was recorded as a reduction of
revenue, and the non-cash increase of $644,000 was recorded as an increase to
revenue.

6.     Earnings Per Share

The following table reconciles the differences in income and shares
outstanding between basic and diluted for the periods indicated (in thousands
except per share data):

|                               |                      |   |                            |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |   | 
|------------------------------ | -------------------- | - | -------------------------- | - | ----------------- |  | ------ | - | ----------- | - | ------------- | - | ------ | - | ------- | - |  |  | ------ | - | ---- | - | ----- | - | 
|                               |                      |   | For the Three Months Ended
|                               |                      |   |                           
|                               |                      |   | December 31, 2003          |   | December 31, 2002
|                               |                      |   |                            |   |                  
|                               |                      |   |                            |   |                   |  |        |   |             |   | Per-          |   |        |   |         |   |  |  |        |   | Per-
|                               |                      |   | Loss                       |   | Shares            |  | Share  |   | Loss        |   | Shares        |   | Share 
|                               |                      |   | (Numerator)                |   | (Denominator)     |  | Amount |   | (Numerator) |   | (Denominator) |   | Amount
|                               |                      |   |                            |   |                   |  |        |   |             |   |               |   |       
|Basic EPS                      |                      | $ | (1,896                     | ) |                   |  | 89,624 |   |             | $ | (0.02         | ) |        | $ | (11,207 | ) |  |  | 88,694 |   |      | $ | (0.13 | )
|                               |                      |   |                            |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  
|Effect of dilutive
securities: |                      |   |                            |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  
|                               | Options and warrants |   |                            |  |                   |  |        |  |             |   |               |   |        |   |         |  |  |  |        |  |      |   |       |   | 
|                               |                      |   |                            |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  
|Diluted EPS                    |                      | $ | (1,896                     | ) |                   |  | 89,624 |   |             | $ | (0.02         | ) |        | $ | (11,207 | ) |  |  | 88,694 |   |      | $ | (0.13 | )
|                               |                      |   |                            |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  

|                               |                      |   |                          |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |   | 
|------------------------------ | -------------------- | - | ------------------------ | - | ----------------- |  | ------ | - | ----------- | - | ------------- | - | ------ | - | ------- | - |  |  | ------ | - | ---- | - | ----- | - | 
|                               |                      |   | For the Six Months Ended
|                               |                      |   |                         
|                               |                      |   | December 31, 2003        |   | December 31, 2002
|                               |                      |   |                          |   |                  
|                               |                      |   |                          |   |                   |  |        |   |             |   | Per-          |   |        |   |         |   |  |  |        |   | Per-
|                               |                      |   | Loss                     |   | Shares            |  | Share  |   | Loss        |   | Shares        |   | Share 
|                               |                      |   | (Numerator)              |   | (Denominator)     |  | Amount |   | (Numerator) |   | (Denominator) |   | Amount
|                               |                      |   |                          |   |                   |  |        |   |             |   |               |   |       
|Basic EPS                      |                      | $ | (8,565                   | ) |                   |  | 89,543 |   |             | $ | (0.10         | ) |        | $ | (27,383 | ) |  |  | 88,536 |   |      | $ | (0.31 | )
|                               |                      |   |                          |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  
|Effect of dilutive
securities: |                      |   |                          |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  
|                               | Options and warrants |   |                          |  |                   |  |        |  |             |   |               |   |        |   |         |  |  |  |        |  |      |   |       |   | 
|                               |                      |   |                          |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  
|Diluted EPS                    |                      | $ | (8,565                   | ) |                   |  | 89,543 |   |             | $ | (0.10         | ) |        | $ | (27,383 | ) |  |  | 88,536 |   |      | $ | (0.31 | )
|                               |                      |   |                          |   |                   |  |        |   |             |   |               |   |        |   |         |   |  |  |        |   |      |   |       |  

Anti-dilution provisions of SFAS 128, Earnings Per Share, require
consistency between diluted per-common-share amounts and basic per-common-share
amounts in loss periods. Had the Company recognized net income for the periods
presented, an additional 5,410,000, 5,275,000, 1,848,000 and 1,142,000 of
in-the-money options and warrants would have been included in the diluted
earnings per share calculation for the three and six months ended December 31,
2003 and 2002, respectively. Using the treasury stock purchase method
prescribed by

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SFAS 128, this would have increased diluted shares outstanding by
2,001,000, 1,962,000, 195,000 and 306,000 for the three and six months ended
December 31, 2003 and 2002, respectively.

The weighted average diluted common shares outstanding for the three and
six months ended December 31, 2003 and 2002, also exclude the effect of
approximately 3,187,000, 3,417,000, 8,643,000 and 8,968,000 of out-of-the-money
options and warrants, respectively. In addition, the weighted average diluted
common shares outstanding for all periods exclude the 2,357,000 share effect
for the assumed conversion of the convertible subordinated notes, as their
effect would be anti-dilutive. The after-tax effect of interest expense on the
convertible subordinated notes for all periods has not been added back to the
numerator, as its effect would be anti-dilutive. The convertible subordinated
notes were redeemed in December 2003.

7.     Reorganization Charges

During the year ended June 30, 2002, the Company announced it would
streamline operations in its Electronic Commerce division, refine its strategy
for the i-Solutions business unit of its Software division, and discontinue
certain product lines associated with its Investment Services division. As a
result of these actions, the Company closed or consolidated operations in
several locations and eliminated certain other positions in the Company. The
consolidation of three legacy transaction processing platforms into the Genesis
platform in the Electronic Commerce division resulted in the closing of its San
Francisco, California location on April 30, 2002; its Houston, Texas location
on June 30, 2002; and its Austin, Texas location on September 30, 2002. The
refinement in strategy for the i-Solutions business resulted in the closing of
its Ann Arbor, Michigan and Singapore locations on March 19, 2002.

As a result of these actions, during the year ended June 30, 2002, the
Company recorded $16,365,000 of reorganization charges for the year ended June
30, 2002, which included $1,640,000 of non-cash impairment charges, $10,962,000
of severance and related benefits costs for the termination of 707 employees,
and $3,763,000 of other exit costs, including lease termination fees and other
closure, employee and professional costs. For the year ended June 30, 2003,
the Company reviewed its estimated remaining liabilities under this
reorganization plan and recorded an additional charge of $1,405,000, which
included $165,000 of severance and related benefits and $1,240,000 of other
exit costs, including lease termination fees and other closure, employee and
professional costs. The Company expects the reorganization to be completed by
October 2005 and anticipates no additional charges. A summary of activity
related to the reorganization reserve is as follows (in thousands):

|                                                  |  |           |        |            |  |            |        |       |  |   |     |   |  |   |        |  
|------------------------------------------------- |  | --------- | ------ | ---------- |  | ---------- | ------ | ----- |  | - | --- | - |  | - | ------ | -
|                                                  |  |           |        |            |  | Office     |        |       |  |   |     |   |  |  
|                                                  |  | Severance |        | Closure    |  |            |        |       |  |   |     |  
|                                                  |  | and Other |        | and        |  |            |        |       |  |   |     |  
|                                                  |  | Employee  |        | Business   |  | Other Exit |        |       |  |  
|                                                  |  | Costs     |        | Exit Costs |  | Costs      |        | Total
|                                                  |  |           |        |            |  |            |        |      
|Initial reorganization charge                     |  | $         | 10,962 |            |  | $          | 3,677  |       |  | $ | 86  |   |  | $ | 14,725 |  
|Cash payments, year ended June 30, 2002           |  |           | (6,261 | )          |  |            | (649   | )     |  |   | (15 | ) |  |   | (6,925 | )
|                                                  |  |           |        |            |  |            |        |       |  |   |     |   |  |   |        |  
|Reorganization reserve at June 30, 2002           |  |           | 4,701  |            |  |            | 3,028  |       |  |   | 71  |   |  |   | 7,800  |  
|Additional reorganization charge                  |  |           | 165    |            |  |            | 1,248  |       |  |   | (8  | ) |  |   | 1,405  |  
|Cash payments, year ended June 30, 2003           |  |           | (4,866 | )          |  |            | (2,739 | )     |  |   | (63 | ) |  |   | (7,668 | )
|                                                  |  |           |        |            |  |            |        |       |  |   |     |   |  |   |        |  
|Balance as of June 30, 2003                       |  |           |       |            |  |            | 1,537  |       |  |   |    |   |  |   | 1,537  |  
|Cash payments, six months ended
December 31, 2003 |  |           |       |            |  |            | (402   | )     |  |   |    |   |  |   | (402   | )
|                                                  |  |           |        |            |  |            |        |       |  |   |     |   |  |   |        |  
|Balance as of December 31, 2003                   |  | $         |       |            |  | $          | 1,135  |       |  | $ |    |   |  | $ | 1,135  |  
|                                                  |  |           |        |            |  |            |        |       |  |   |     |   |  |   |        |  

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8.     Supplemental Disclosure of Cash Flow Information (in thousands)

|                                                                        |                                                   |   |                  |       |      |   |       |        | 
|----------------------------------------------------------------------- | ------------------------------------------------- | - | ---------------- | ----- | ---- | - | ----- | ------ | 
|                                                                        |                                                   |   | Six Months Ended
|                                                                        |                                                   |   | December 31,    
|                                                                        |                                                   |   |                 
|                                                                        |                                                   |   | 2003             |       | 2002
|                                                                        |                                                   |   |                  |       |     
|Interest paid                                                           |                                                   | $ | 5,837            |       |      | $ | 6,022 |       
|                                                                        |                                                   |   |                  |       |      |   |       |       
|Call premium paid for redemption of convertible notes                   |                                                   | $ | 4,813            |       |      | $ |      |       
|                                                                        |                                                   |   |                  |       |      |   |       |       
|Income taxes paid                                                       |                                                   | $ | 5,651            |       |      | $ | 1,323 |       
|                                                                        |                                                   |   |                  |       |      |   |       |       
|Supplemental disclosure of non-cash investing and
financing activities: |                                                   |   |                  |       |      |   |       |       
|                                                                        | Capital lease and other long-term asset additions |   | $                | 600   |      |   | $     | 13,017 | 
|                                                                        |                                                   |   |                  |       |      |   |       |       
|                                                                        | Stock funding of 401(k) match                     |   | $                | 3,144 |      |   | $     | 3,229  | 
|                                                                        |                                                   |   |                  |       |      |   |       |       
|                                                                        | Stock funding of Associate Stock Purchase Plan    |   | $                | 1,447 |      |   | $     | 1,707  | 
|                                                                        |                                                   |   |                  |       |      |   |       |       

9.     Related Parties

On September 1, 2000, the Company acquired MSFDC, L.L.C. (TransPoint)
from Microsoft Corporation (Microsoft), First Data Corporation (First
Data), and Citibank, N.A. in exchange for 17 million shares of common stock.
As part of the TransPoint acquisition, Microsoft received 8,567,250 shares of
common stock and Microsoft continues to own those shares as of December 31,
2003. Pursuant to the terms of the TransPoint acquisition, Microsoft is
entitled to nominate one director to the Companys board for such time as they
own at least 6,425,438 shares of common stock. Therefore, Microsoft is
considered a related party.

In addition, the Company entered into a commercial alliance agreement with
Microsoft as part of the TransPoint acquisition. Under the terms of the
commercial alliance agreement, Microsoft, among other things, agreed to use the
Company for pay anyone and bill presentment services offered by Microsoft. The
commercial alliance agreement also provided for a minimum fee and revenue
guarantee to the Company of $120 million over the five year term of the
agreement.

Pursuant to the terms of the TransPoint acquisition, First Data is
entitled to nominate one director to the Companys board for such time as they
own at least 4,925,438 shares of common stock. Although First Data owned less
than 4,925,438 shares of common stock as of December 31, 2003, First Data owned
in excess of 4,925,438 shares of common stock at the time of the directors
most recent re-election to the Board. The directors term expires at the 2005
Annual Meeting of Stockholders, and First Data is considered a related party
until such time.

In addition, the Company entered into a marketing agreement with First
Data as part of the TransPoint acquisition. Under the terms of the marketing
agreement, the Company agreed to use certain First Data payment processing
services if, in each case using reasonable judgment, substantially similar
services are not then obtainable from a third party at an overall economic cost
to the Company that is less than the overall economic cost of First Datas
services. The marketing agreement also provided for a minimum fee and revenue
guarantee to the Company of $60 million over the five-year term of the
agreement. On January 10, 2002, the Company entered into an agreement for
check processing services with Integrated Payment Systems Inc., a subsidiary of
First Data.

Microsoft and First Data operate substantially below their minimum monthly
commitments, and the Company does not expect these customers to increase their
activity such that they would operate above the minimum commitments in the next
twelve months.

10.     Comprehensive Loss

Available-for-sale securities are recorded at fair value and changes in
fair value are recorded as unrealized gains or losses and accumulated in other
comprehensive income. As a result, the Company is required to report the
components of comprehensive loss, which are as follows (in thousands):

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|                                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                             |  | Three Months Ended |        | Six Months Ended
|                                                                             |  | December 31,       |        | December 31,    
|                                                                             |  |                    |        |                 
|                                                                             |  | 2003               |        | 2002             |  | 2003 |         | 2002
|                                                                             |  |                    |        |                  |  |      |         |     
|Net loss                                                                     |  | $                  | (1,896 | )                |  | $    | (11,207 | )    |  | $ | (8,565 | ) |  | $ | (27,383 | )
|Unrealized holding gains
(losses) on investments, net
of
tax                 |  |                    | (236   | )                |  |      | 232     |      |  |   | (463   | ) |  |   | 313     |  
|Less: reclassification
adjustments for gains
(losses) realized in net
income |  |                    | 93     |                  |  |      |        |      |  |   | 93     |   |  |   |        |  
|                                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Net unrealized gains (losses)                                                |  |                    | (143   | )                |  |      | 232     |      |  |   | (370   | ) |  |   | 313     |  
|                                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Comprehensive loss                                                           |  | $                  | (2,039 | )                |  | $    | (10,975 | )    |  | $ | (8,935 | ) |  | $ | (27,070 | )
|                                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  

11.     Business Segments

The
Company operates in three business segments - Electronic Commerce,
Software and Investment Services along with a Corporate services segment.
These reportable segments are strategic business units that offer different
products and services. The Company evaluates performance based on revenues and
operating income (loss) of the respective segments. Segment operating income
(loss) excludes acquisition related intangible asset amortization and
significant one-time charges. There are no inter-segment sales.

The following sets forth certain financial information attributable to the
Companys business segments for the three and six months ended December 31,
2003 and 2002 (in thousands):

|                                                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |         |   |         |  
|------------------------------------------------------ | ------------------- |  | ------------------------------------------------------------------------- | ------- | ------------------ | ------- | ---------------- | ------ | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | -
|                                                       |                     |  |                                                                           |         | Three Months Ended |         | Six Months Ended
|                                                       |                     |  |                                                                           |         | December 31,       |         | December 31,    
|                                                       |                     |  |                                                                           |         |                    |         |                 
|                                                       |                     |  |                                                                           |         | 2003               |         | 2002             |        | 2003 |         | 2002   
|                                                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |        
|Revenues:                                              |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |        
|                                                       | Electronic Commerce |  | $                                                                         | 112,488 |                    |         | $                | 98,173 |      |         | $       | 219,043 |   |         | $       | 194,816 |  
|                                                       | Investment Services |  |                                                                           | 21,465  |                    |         |                  | 19,945 |      |         |         | 41,758  |   |         |         | 40,468  |  
|                                                       | Software            |  |                                                                           | 15,983  |                    |         |                  | 17,387 |      |         |         | 30,399  |   |         |         | 30,456  |  
|                                                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |        
|                                                       |                     |  | Total                                                                     |         | $                  | 149,936 |                  |        | $    | 135,505 |         |         | $ | 291,200 |         |         | $ | 265,740 |  
|                                                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |        
|Segment operating income (loss):                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |        
|                                                       | Electronic Commerce |  | $                                                                         | 38,961  |                    |         | $                | 25,086 |      |         | $       | 72,883  |   |         | $       | 51,538  |  
|                                                       | Investment Services |  |                                                                           | 4,608   |                    |         |                  | 5,783  |      |         |         | 9,526   |   |         |         | 10,627  |  
|                                                       | Software            |  |                                                                           | 3,565   |                    |         |                  | 5,934  |      |         |         | 5,793   |   |         |         | 7,023   |  
|                                                       | Corporate           |  |                                                                           | (9,261  | )                  |         |                  | (8,083 | )    |         |         | (17,223 | ) |         |         | (16,106 | )
|                                                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |        
|                                                       |                     |  | Total                                                                     |         |                    | 37,873  |                  |        |      | 28,720  |         |         |   | 70,979  |         |         |   | 53,082  |  
|Amortization of acquired intangible assets             |                     |  | (32,099                                                                   | )       |                    |         | (46,157          | )      |      |         | (72,593 | )       |   |         | (92,314 | )      
|Write off of in-process research and development costs |                     |  | (324                                                                      | )       |                    |         |                 |        |      |         | (324    | )       |   |         |        |        
|Impact of warrants                                     |                     |  |                                                                          |         |                    |         |                 |        |      |         |        |         |   |         | 644     |        
|Loss on investments                                    |                     |  |                                                                          |         |                    |         | (1,931           | )      |      |         |        |         |   |         | (1,931  | )      
|Interest, net                                          |                     |  | (7,964                                                                    | )       |                    |         | (1,250           | )      |      |         | (9,588  | )       |   |         | (2,466  | )      
|                                                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |        
|                                                       |                     |  | Total loss before income taxes and
cumulative effect of accounting change |         | $                  | (2,514  | )                |        | $    | (20,618 | )       |         | $ | (11,526 | )       |         | $ | (42,985 | )
|                                                       |                     |  |                                                                           |         |                    |         |                  |        |      |         |         |         |   |         |         |         |  

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

Overview

CheckFree was founded in 1981 as an electronic payment processing company
and has become a leading provider of financial electronic commerce products and
services. Our current business was developed through the expansion of our core
electronic payments business and the acquisition of companies operating in
similar or complementary businesses.

We operate our business through three independent but inter-related
divisions:



| |  |  | Electronic Commerce;    
| | - |  | ------------------------
|
| |  |  | Investment Services; and
|
| |  |  | Software.               

Through our Electronic Commerce division, we enable consumers to receive
and pay bills electronically. For the year ended June 30, 2003, we processed
approximately 434 million electronic transactions and delivered approximately
32 million electronic bills. For the quarter ended December 31, 2003, we
processed over 139 million electronic payments and delivered approximately 18.5
million electronic bills. In the quarter ended December 31, 2003, there were
about 12 million consumers initiating payments via CheckFree supported
technology. The number of transactions we process each year continues to grow.
Growth in the number of transactions processed exceeded 37% for the year ended
June 30, 2003 and 33% for the quarter ended December 31, 2003 against the same
periods in the prior year. The Electronic Commerce division accounted for
approximately 75% of our revenue in the quarter ended December 31, 2003.

Our Electronic Commerce divisions products allow consumers to:



| |  |  | receive electronic bills through the Internet;                                                                                        
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | pay any bill  whether it arrives over the Internet or through traditional mail  to anyone;                                          
|
| |  |  | make payments not related to bills  to anyone; and                                                                                   
|
| |  |  | perform customary banking transactions, including balance
inquiries, transfers between accounts and on-line statement
reconciliations.

Through our Investment Services division, we provide a range of outsourced
portfolio management services to financial institutions, including broker
dealers, money managers and investment advisors. As of December 31, 2003, our
clients used the CheckFree APL Portfolio Accounting System to manage
approximately 1.4 million portfolios totaling more than $900 billion in assets.
The Investment Services division accounted for approximately 14% of our
revenue in the quarter ended December 31, 2003.

Our institutional client base includes investment advisors, brokerage
firms, banks and insurance companies. Our fee-based money manager clients are
typically sponsors or managers of wrap or separately managed accounts, money
management products, or traditional money managers, managing investments of
institutions and high net worth individuals. We also support a growing number
of third party vendors providing quick-to-market turnkey solutions.

Our portfolio management systems are marketed under the product name
CheckFree APL and provide the following functions:



| |  |  | account open and trading capabilities;
| | - |  | --------------------------------------
|
| |  |  | graphical client reporting;           
|
| |  |  | performance measurement;              
|
| |  |  | decision support tools;               
|
| |  |  | account analytics;                    
|
| |  |  | tax lot accounting;                   
|
| |  |  | multiple strategy portfolios;         
|
| |  |  | straight through processing;          

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| |  |  | Depository Trust Corporation interfacing;
| | - |  | -----------------------------------------
|
| |  |  | billing functions; and                   
|
| |  |  | system and data security.                

In addition to our APL portfolio management products, our Investment
Services division also offers proposal generation, investment performance, and
reporting products and services. Marketed under M-Pact, M-Search and M-Watch,
these products are a result of our acquisition of Mobius Group, Inc. in March
1999.

Through our Software division, we deliver software, maintenance, support
and professional services to large financial service providers and other
companies across a range of industries. The Software division is comprised of
three units, each with its own distinct set of software products. The ACH
Solutions unit provides software and services that are used to process more
than two-thirds of the nations nine billion annual Automated Clearing House
(ACH) payments. The CheckFree Financial and Compliance Solutions (CFACS) unit
enables organizations to handle their reconciliation and compliance
requirements. On November 1, 2003, we acquired HelioGraph, Ltd., a UK based
company that brings a financial transactions management solution with straight
through processing expertise to our CFACS suite of products, in addition to
international presence. The i-Solutions unit provides software and services
that enable end-to-end e-billing and e-statement creation, delivery and
payment. The Software division accounted for approximately 11% of our revenue
in the quarter ended December 31, 2003.

Results of Operations

The following table sets forth comparative revenues, by type, for the
three- and six-month periods ended December 31, 2003 and 2002, respectively.

|          |                          |                |   |                   |         |                  |   |                |         |      |   |         |         |  |   |         |         | 
|--------- | ------------------------ | -------------- | - | ----------------- | ------- | ---------------- | - | -------------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|          |                          |                |   | Thee Months Ended |         | Six Months Ended
|          |                          |                |   | December 31,      |         | December 31,    
|          |                          |                |   |                   |         |                 
|          |                          |                |   | 2003              |         | 2002             |   | 2003           |         | 2002
|          |                          |                |   |                   |         |                  |   |                |         |     
|          |                          |                |   |                   |         |                  |   | (in thousands) |         |      |   |        
|Revenues: |                          |                |   |                   |         |                  |   |                |         |      |   |         |         |  |   |        
|          | Processing and servicing |                | $ | 131,647           |         |                  | $ | 116,008        |         |      | $ | 255,892 |         |  | $ | 230,499 |        
|          | License                  |                |   | 4,716             |         |                  |   | 6,735          |         |      |   | 9,678   |         |  |   | 10,944  |        
|          | Maintenance              |                |   | 7,412             |         |                  |   | 6,317          |         |      |   | 14,113  |         |  |   | 12,503  |        
|          | Other                    |                |   | 6,161             |         |                  |   | 6,445          |         |      |   | 11,517  |         |  |   | 11,794  |        
|          |                          |                |   |                   |         |                  |   |                |         |      |   |         |         |  |   |        
|          |                          | Total revenues |   | $                 | 149,936 |                  |   | $              | 135,505 |      |   | $       | 291,200 |  |   | $       | 265,740 | 
|          |                          |                |   |                   |         |                  |   |                |         |      |   |         |         |  |   |        

Total revenues increased by $14.4 million, or 11%, from $135.5 million for
the three months ended December 31, 2002, to $149.9 million for the three
months ended December 31, 2003, and by $25.5 million, or 10%, from $265.7
million for the six months ended December 31, 2002, to $291.2 million for the
six months ended December 31, 2003. Quarter over quarter revenue growth was
driven by 15% growth in our Electronic Commerce business, eight percent growth
in our Investment Services business, and a decrease of eight percent in our
Software business. Year over year revenue growth was driven by 12% growth in
our Electronic Commerce business, three percent growth in our Investment
Services business, with our Software business essentially unchanged. The
growth in our Electronic Commerce revenue was driven primarily by an increase
in transactions processed from 105.0 million for the three months ended
December 31, 2002, to 139.2 million for the three months ended December 31,
2003, and from 201.7 million for the six months ended December 31, 2002, to
265.9 million for the six months ended December 31, 2003. Additionally,
minimum revenue guarantees from Microsoft and First Data Corporation have
increased by $2.3 million on a quarter over quarter basis, and by $4.5 million
on a year over year basis. Late in the quarter ended December 31, 2003, we
announced that we amended the contractual terms with our largest customer, Bank
of America. Bank of America also reduced its rights from 10 million
performance based warrants for our common stock that were granted as part of
the original alliance agreement in April 2000 to five million warrants. Three
million of these warrants vest in one million share increments upon achievement
by Bank of America of five million, 7.5 million and 10 million active
subscribers, respectively. The remaining two million vest in one million share
increments each when the levels of electronic bills to such subscribers on a
monthly basis reach five million and 10 million, respectively. Primarily as a
result of the amended pricing terms, we expect flat to

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modest growth in
Electronic Commerce revenue in the quarter ending March 31, 2004, and then
expect revenue growth to return beginning in the quarter ending June 30, 2004.

Growth in our Investment Services revenue was driven primarily by growth
in the number of portfolios managed, from approximately 1.2 million as of
December 31, 2002, to approximately 1.4 million as of December 31, 2003.
Economic conditions throughout our fiscal year ending June 30, 2003 resulted in
portfolios managed remaining essentially flat at about 1.2 million. As the
stock market rebound progressed into our 2004 fiscal year, our portfolios
managed increased to approximately 1.3 million by September 30, 2003, and to
approximately 1.4 million as of December 31, 2003. In some cases, new
portfolios are being added to our APL system at a lower price point as a result
of price concessions we offered in the past fiscal year. We view these
concessions as a trade off of near term revenue for long-term strategic
advantage. As investors continue to move back into equity investments, we
expect growth rates of portfolios and revenue to improve.

Economic conditions continue to impact our Software business. A
substantial percentage of our software revenue is represented by license sales.
Although software revenues are flat year over year, our quarter over quarter
performance declined. While our sales pipelines remain strong, customers
continue to take longer to evaluate discretionary software purchases. We
believe that the quarter over quarter decline is not part of a negative trend,
but more timing in nature. We believe we will generate sequential quarterly
software revenue growth in the coming quarters based on current sales activity
and our acquisition of HelioGraph in the quarter ended December 31, 2003.

Our processing and servicing revenue increased by $15.6 million, or 13%,
from $116.0 million for the three months ended December 31, 2002, to $131.6
million for the three months ended December 31, 2003, and by $25.4 million, or
11%, from $230.5 million for the six months ended December 31, 2002, to $255.9
million for the six months ended December 31, 2003. We earn processing and
servicing revenue in both our Electronic Commerce and our Investment Services
businesses. As previously mentioned, portfolios managed in our Investment
Services business have grown from approximately 1.2 million as of December 31,
2002 to approximately 1.4 million as of December 31, 2003. However, growth in
processing and servicing revenue has come primarily from the aforementioned
growth in transactions processed in our Electronic Commerce business. As
expected, during the fiscal year ended June 30, 2003, and into fiscal 2004, we
have seen four large bank customers implement in-house bill payment solutions.
While transaction volume diverted to these in-house solutions from CheckFree
has dampened our growth during the transition, growth in the remainder of our
Electronic Commerce business, including the addition of two large bank
customers, has outpaced diverted transactions. We delivered approximately 33.2
million electronic bills in the six months ended December 31, 2003, with a
price point of approximately $0.20 per e-bill, representing an increase of
almost 200% over the 11.2 million bills delivered during the six months ended
December 31, 2002. Our commercial agreements with Microsoft and First Data
Corporation, resulting from our acquisition of TransPoint in September 2000,
include monthly minimum revenue guarantees similar to those of our other
customers. The minimums for Microsoft and First Data Corporation increase
annually over the five-year term of the agreements. We continue to operate
under the minimum revenue levels with both companies, and as a result of the
increased minimum revenue guarantee levels, revenue from Microsoft and First
Data Corporation grew by approximately $2.3 million from the quarter ended
December 31, 2002 to December 31, 2003, and by $4.5 million from the six months
ended December 31, 2002, to the six months ended December 31, 2003. This
growth was somewhat offset by a reduction in market demand for our account
balance transfer products. Also, one of our larger Health and Fitness customers
has migrated to an in-house solution over the past six months. We expect the
effect of losing this customer combined with the revisions to our Bank of
America contract late in the quarter ended December 31, 2003, will cause a one
quarter dampening of processing and servicing revenue growth in the quarter
ending March 31, 2004, but we expect revenue to return to recent growth rates
in subsequent periods.

We offer two general levels of electronic billing and payment services to
our Electronic Commerce customers  a Full Service offering and a Payment
Services offering. Customers that use our Full Service offering generally
outsource their electronic billing and payment process to us. A Full Service
customer may or may not use a CheckFree-hosted user interface, but still use a
broad array of services, including payment processing, payment warehouse,
claims processing, e-bill, online proof of payment, customer care, and other
aspects of our service. Also, while a Full Service customer may build its own
payment warehouse, we maintain a customer record and payment history within our
payment warehouse to support the Full Service customers servicing needs.
Customers in the Full Service category may contract to pay us either on a
per-subscriber basis, a per-transaction basis, or a blend of both. Customers
that utilize our Payment Services offering receive a limited subset of our
electronic billing and payment services, primarily remittance processing.
Additionally, within Payment Services, we

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provide services to billers for
electronic bill delivery and hosting, as well as other payment services, such
as account balance transfer. The distinction between Full Service and Payment
Services is based solely on the types of service the customer receives, not on our pricing methodology. A third category
of processing revenue we simply refer to as Other Electronic Commerce, which
includes our Health and Fitness business. We have included a table of
comparative transaction statistics in the Segment Informationsection of this
report.

Our license fee revenue decreased by $2.0 million, or 30%, from $6.7
million for the three months ended December 31, 2002, to $4.7 million for the
three months ended December 31, 2003, and decreased by $1.3 million, or 12%,
from $10.9 million for the six months ended December 31, 2002, to $9.7 million
for the six months ended December 31, 2003. We believe the declines to be
timing related and not part of a developing negative trend, and we expect to
generate sequential license revenue growth beginning with the quarter ending
March 31, 2004. With the acquisition of HelioGraph, and new ACH software,
marketed as REACH, designed to take advantage of recent check conversion
trends, we have additional products for future sales opportunities.

Our maintenance fee revenue increased by $1.1 million, or 17%, from $6.3
million for the three months ended December 31, 2002, to $7.4 million for the
three months ended December 31, 2003, and by $1.6 million, or 13%, from $12.5
million for the six months ended December 31, 2002, to $14.1 million for the
six months ended December 31, 2003. Maintenance revenue, which represents
annually renewable product support for our software customers, is isolated to
our Software business, and tends to grow with incremental license sales from
previous periods. Despite dampened license sales, we have succeeded in growing
our maintenance base as a result of customer retention rates exceeding 80%
across all business units, the acquisition of HelioGraph, and moderate price
increases on a year over year basis. Although we defer revenue recognition on
maintenance billings until cash is collected, which can cause
quarter-to-quarter fluctuations, we expect modest growth in maintenance fee
revenue until license sales regain historical growth rates.

Our other revenue decreased by $0.2 million, or 3%, from $6.4 million for
the three months ended December 31, 2002, to $6.2 million for the period ended
December 31, 2003, and by $0.3 million, or 2%, from $11.8 million for the six
months ended December 31, 2002, to $11.5 million for the six months ended
December 31, 2003. Other revenue consists mostly of consulting and
implementation fees across all three of our businesses. In the six months
ended December 31, 2002, we had a custom software implementation project that
generated a significant amount of consulting revenue in that period that has
not recurred in the current year. Additionally, with a slowdown in revenue in
our Software business and modest growth in our Investment Services business, we
have seen a dampening effect on other related revenue as well.

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The following table sets forth as percentages of total operating revenues,
certain consolidated statements of operations data:

|                                                                    |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |      |       |  
|------------------------------------------------------------------- | ----------------------------------------- | -------------- | ----- | ------------------ | ---- | ---------------- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | - | ----- | ---- | ----- | -
|                                                                    |                                           |                |       | Three Months Ended |      | Six Months Ended
|                                                                    |                                           |                |       | December 31,       |      | December 31,    
|                                                                    |                                           |                |       |                    |      |                 
|                                                                    |                                           |                |       | 2003               |      | 2002             |       | 2003 |       | 2002
|                                                                    |                                           |                |       |                    |      |                  |       |      |       |     
|                                                                   
|Total Revenues:                                                     |                                           |                | 100.0 | %                  |      |                  | 100.0 | %    |       |      | 100.0 | %    |       |   | 100.0 | %   
|                                                                   
|Expenses:                                                           |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |     
|                                                                    | Cost of processing, servicing and support |                |       | 40.6               | %    |                  |       | 44.4 | %     |      |       | 41.2 | %     |   |       | 44.7 | %    
|                                                                    | Research and development                  |                |       | 10.7               | %    |                  |       | 9.8  | %     |      |       | 10.7 | %     |   |       | 9.6  | %    
|                                                                    | Sales and marketing                       |                |       | 8.8                | %    |                  |       | 10.1 | %     |      |       | 8.8  | %     |   |       | 10.1 | %    
|                                                                    | General and administrative                |                |       | 7.8                | %    |                  |       | 6.4  | %     |      |       | 8.0  | %     |   |       | 7.2  | %    
|                                                                    | Depreciation and amortization             |                |       | 28.3               | %    |                  |       | 42.1 | %     |      |       | 31.9 | %     |   |       | 42.9 | %    
|                                                                    | In-process research and development       |                |       | 0.2                | %    |                  |       |     |       |      |       | 0.1  | %     |   |       |     |      
|                                                                    |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |     
|                                                                    |                                           | Total expenses |       |                    | 96.4 | %                |       |      | 112.9 | %    |       |      | 100.7 | % |       |      | 114.5 | %
|                                                                    |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |     
|Income/(loss) from operations                                       |                                           |                | 3.6   | %                  |      |                  | -12.9 | %    |       |      | -0.7  | %    |       |   | -14.5 | %   
|Interest, net                                                       |                                           |                | -5.3  | %                  |      |                  | -0.9  | %    |       |      | -3.3  | %    |       |   | -0.9  | %   
|Loss on investments                                                 |                                           |                |      |                    |      |                  | -1.4  | %    |       |      |      |      |       |   | -0.7  | %   
|                                                                    |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |     
|Loss before income taxes and cumulative
effect of accounting change |                                           |                | -1.7  | %                  |      |                  | -15.2 | %    |       |      | -4.0  | %    |       |   | -16.2 | %   
|Income tax benefit                                                  |                                           |                | 0.4   | %                  |      |                  | 6.9   | %    |       |      | 1.0   | %    |       |   | 7.0   | %   
|                                                                    |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |     
|Loss before cumulative effect of accounting
change                  |                                           |                | -1.3  | %                  |      |                  | -8.3  | %    |       |      | -2.9  | %    |       |   | -9.2  | %   
|Cumulative effect of accounting change                              |                                           |                |      |                    |      |                  |      |      |       |      |      |      |       |   | -1.1  | %   
|                                                                    |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |     
|Net loss                                                            |                                           |                | -1.3  | %                  |      |                  | -8.3  | %    |       |      | -2.9  | %    |       |   | -10.3 | %   
|                                                                    |                                           |                |       |                    |      |                  |       |      |       |      |       |      |       |   |       |     

Cost of Processing, Servicing and Support.Our cost of processing,
servicing and support was $60.1 million, or 44.4% of total revenue for the
three months ended December 31, 2002, and was $60.8 million, or 40.6% of total
revenue for the three months ended December 31, 2003. Cost of processing,
servicing and support was $118.9 million, or 44.7% of total revenue for the six
months ended December 31, 2002, and was $120.1 million, or 41.2% of total
revenue for the six months ended December 31, 2003. Cost of processing,
servicing and support as a percentage of processing, servicing and support
revenue (total revenue less license fees) was 46.7% for the three months ended
December 31, 2002, versus 41.9% for the three months ended December 31, 2003,
and was 46.7% for the six months ended December 31, 2002, versus 42.7% for the
six months ended December 31, 2003. Our electronic payment rate has increased
from 73% as of December 31, 2002, to 78% as of December 31, 2003. Electronic
payments carry a significantly lower variable cost per unit than do paper-based
payments and are far less likely to result in a costly customer care claim. In
addition to leveraging a significant fixed cost processing infrastructure, we
continue to focus investment on additional efficiency and quality improvements
within our customer care processes and our information technology
infrastructure to drive improvements in our cost per transaction.

Research and Development.Our research and development costs were $13.3
million, or 9.8% of total revenue, for the three months ended December 31,
2002, and $16.1 million, or 10.7% of total revenue, for the three months ended
December 31, 2003. Research and development costs were $25.5 million, or 9.6%
of total revenue, for the six months ended December 31, 2002, and $31.0
million, or 10.7% of total revenue, for the six months ended December 31, 2003.
Including our capitalized development costs of $0.9 million for the three
months ended December 31, 2002, and $0.7 million for the three months ended
December 31, 2003, our gross expenditures for research and development were
$14.2 million, or 10.5% of total revenue, for the three months ended December
31, 2002, and $16.8 million, or 11.2% of total revenue, for the three months
ended December 31, 2003. Including our capitalized development costs of $1.4
million for the six months ended December 31, 2002, and $1.6 million for the
six months ended December 31, 2003, our gross expenditures for research and
development were $26.9 million, or 10.1% of total revenue, for the six months
ended December 31, 2002, and $32.6 million, or 11.2% of total revenue for the
six months ended December 31, 2003. We continue to invest heavily in product
enhancement and

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productivity improvement initiatives in all of our business segments, and we
added moderate levels of research and development spending with the acquisition
of HelioGraph during the quarter. While we have seen growth both in absolute
dollars and as a percentage of revenue, quarter over quarter, we expect the
level of quarterly spending to remain about the same in absolute dollars for
the remainder of the fiscal year.

Sales and Marketing. Our sales and marketing costs were $13.7 million, or
10.1% of total revenue, for the three months ended December 31, 2002, and $13.2
million, or 8.8% of total revenue, for the three months ended December 31,
2003. Sales and marketing costs were $27.0 million, or 10.1% of total revenue,
for the six months ended December 31, 2002, and $25.5 million, or 8.8% of total
revenue, for the six months ended December 31, 2003. The decrease in sales and
marketing costs, as a percentage of revenue, is due primarily to the fact that
the predominance of our revenue growth has taken place in our Electronic
Commerce business, which has less associated variable sales commissions,
combined with a decline in our software revenue which has comparably high
variable sales commissions. On an absolute dollar basis, we have incurred less
general awareness marketing program expense in the first half of fiscal 2004
than we had in the first half of the previous year. However, these expenses
have historically fluctuated due to the nature and timing of various programs.
As license revenues are expected to pick up from the first half of 2004, and we
resume general awareness marketing programs, we expect the level of spending in
sales and marketing to approach historical levels.

General and Administrative.Our general and administrative expenses were
$8.7 million, or 6.4% of total revenue for the three months ended December 31,
2002, and were $11.7 million, or 7.8% of total revenue for the three months
ended December 31, 2003. General and administrative expenses were $19.0
million, or 7.2% of total revenue for the six months ended December 31, 2002,
and were $23.2 million, or 8.0% of total revenue for the six months ended
December 31, 2003. Internal control certification requirements under the
Sarbanes-Oxley Act of 2002 resulted in increased expenses of approximately $0.5
million in the quarter ended December 31, 2003, to document and test our
internal controls, and we expect these added costs to continue. The
acquisition of HelioGraph added approximately $0.5 million of new general and
administrative costs in the quarter ended December 31, 2003.

Depreciation and Amortization.Our depreciation and amortization costs
decreased from $57.1 million for the three months ended December 31, 2002, to
$42.4 million for the three months ended December 31, 2003, and from $114.0
million for the six months ended December 31, 2002, to $93.0 million for the
six months ended December 31, 2003. Depreciation and amortization expense from
operating fixed assets and internally capitalized product costs has decreased
from $10.9 million for the three months ended December 31, 2002, to $10.3
million for the three months ended December 31, 2003, and from $21.7 million
for the six months ended December 31, 2002, to $20.4 million for the six months
ended December 31, 2003. The remainder of our depreciation and amortization
costs represents acquisition related amortization. The decrease in
non-acquisition related depreciation and amortization is the result of
investments in replacement assets that carry lower costs than the assets they
are replacing. The remaining reduction in depreciation and amortization is the
result of lower acquisition related intangible amortization from intangible
assets that have fully amortized since last year, or lower non-goodwill
intangible assets balances resulting from impairment charges in the prior year.

In-Process Research and Development.We recorded immaterial in-process
research and development costs of $0.3 million associated with our acquisition
of HelioGraph.

Interest.Our interest income decreased from $2.1 million for the three
months ended December 31, 2002, to $1.7 million for the three months ended
December 31, 2003, and from $4.1 million for the six months ended December 31,
2002, to $3.3 million for the six months ended December 31, 2003. Despite an
increase in average cash and invested assets on a year over year basis,
interest income has declined as a result of significantly lower average yields.

Our interest expense increased significantly, from $3.3 million for the
three months ended December 31, 2002, to $9.7 million for the three months
ended December 31, 2003, and, from $6.5 million for the six months ended
December 31, 2002, to $12.9 million for the six months ended December 31, 2003.
We continued to carry our 6.5% Convertible Subordinated Notes due 2006 at a
balance of $172.5 million throughout the six-month period ending December 31,
2002. We redeemed the notes in full on December 12, 2003. Therefore, interest
expense related to the notes was approximately $0.7 million lower in the six
months ended December 31, 2003, than for the same period in the previous year.
However, as a result of our redemption of the notes before the scheduled
maturity date, we incurred a cash charge of $4.8 million for a 2.79% call
premium to redeem the notes prior to their

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scheduled maturity date, and we incurred a non-cash charge of $2.4 million to
write off the remaining unamortized note issuance costs.

Loss on Investments.Due to a decline in the market value of our
investment in Payment Data Systems, Inc. (formerly Billserv Inc.), which had
been below our book basis for over six months, we determined the decline in the
investment to be other than temporary and, accordingly, in the quarter ended
December 31, 2002, we recorded a charge of $1.9 million to reflect the loss.
As of December 31, 2003, although our carrying value for this asset is $0, its
current market value is approximately $0.1 million.

Income Taxes.We recorded an income tax benefit of $9.4 million with an
effective rate of 45.6% for the three months ended December 31, 2002, and an
income tax benefit of $0.6 million with an effective rate of 24.6% for the
three months ended December 31, 2003. We recorded an income tax benefit of
$18.5 million with an effective rate of 43.0% for the six months ended December
31, 2002, and an income tax benefit of $3.0 million with an effective rate of
25.7% for the six months ended December 31, 2003. Although we incurred a
pre-tax loss for the first half of fiscal 2004, we expect to achieve positive
pre-tax earnings on a full year basis for the fiscal year ending June 30, 2004,
and we expect the effective tax rate for the full year to be about 26%. The
research and experimental tax credits we are earning will reduce our effective
rate for the current fiscal year.

Cumulative Effect of Accounting Change.On July 1, 2002, we adopted SFAS
142, Goodwill and Other Intangible Assets. SFAS 142 changes the accounting
for goodwill and other intangible assets. Goodwill is no longer subject to
amortization over its estimated useful life. Rather, goodwill is subject to at
least an annual assessment for impairment by applying a fair-value-based test.
Upon adoption, we recorded a $2.9 million impairment charge.

Segment Information

We evaluate the performance of our segments based on revenues and
operating income (loss) of the respective segments. Segment operating income
(loss) excludes acquisition related intangible asset amortization and
significant one-time charges. The following table sets forth revenue and
operating income by segment, for the periods noted:

|                         |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |         |         |  
|------------------------ | ----------------------------------------------------------------- | ----------------------------------- | - | ------------------ | ------- | ---------------- | - | -------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                         |                                                                   |                                     |   | Three Months Ended |         | Six Months Ended
|                         |                                                                   |                                     |   | December 31,       |         | December 31,    
|                         |                                                                   |                                     |   |                    |         |                 
|                         |                                                                   |                                     |   | 2003               |         | 2002             |   | 2003           |         | 2002
|                         |                                                                   |                                     |   |                    |         |                  |   |                |         |     
|                         |                                                                   |                                     |   |                    |         |                  |   | (In thousands) |         |      |   |        
|Revenue:                 |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |        
|                         | Electronic Commerce                                               |                                     | $ | 112,488            |         |                  | $ | 98,173         |         |      | $ | 219,043 |         |   | $ | 194,816 |        
|                         | Investment Services                                               |                                     |   | 21,465             |         |                  |   | 19,945         |         |      |   | 41,758  |         |   |   | 40,468  |        
|                         | Software                                                          |                                     |   | 15,983             |         |                  |   | 17,387         |         |      |   | 30,399  |         |   |   | 30,456  |        
|                         |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |        
|                         |                                                                   | Total revenue                       |   | $                  | 149,936 |                  |   | $              | 135,505 |      |   | $       | 291,200 |   |   | $       | 265,740 |  
|                         |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |        
|Operating income (loss): |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |        
|                         | Electronic Commerce                                               |                                     | $ | 38,961             |         |                  | $ | 25,086         |         |      | $ | 72,883  |         |   | $ | 51,538  |        
|                         | Investment Services                                               |                                     |   | 4,608              |         |                  |   | 5,783          |         |      |   | 9,526   |         |   |   | 10,627  |        
|                         | Software                                                          |                                     |   | 3,565              |         |                  |   | 5,934          |         |      |   | 5,793   |         |   |   | 7,023   |        
|                         | Corporate                                                         |                                     |   | (9,261             | )       |                  |   | (8,083         | )       |      |   | (17,223 | )       |   |   | (16,106 | )      
|                         |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |        
|                         |                                                                   | Sub-Total                           |   |                    | 37,873  |                  |   |                | 28,720  |      |   |         | 70,979  |   |   |         | 53,082  |  
|                         | Amortization of acquired intangible assets:                       |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |         |        
|                         |                                                                   | Electronic Commerce                 |   |                    | (31,049 | )                |   |                | (43,757 | )    |   |         | (70,570 | ) |   |         | (87,514 | )
|                         |                                                                   | Investment Services                 |   |                    | (231    | )                |   |                | (745    | )    |   |         | (463    | ) |   |         | (1,490  | )
|                         |                                                                   | Software                            |   |                    | (819    | )                |   |                | (1,655  | )    |   |         | (1,560  | ) |   |         | (3,310  | )
|                         | Write off of in-process research and
development costs - Software |                                     |   | (324               | )       |                  |   |               |         |      |   | (324    | )       |   |   |        |        
|                         | Warrants issued to third party  Electronic
Commerce              |                                     |   |                   |         |                  |   |               |         |      |   |        |         |   |   | 644     |        
|                         |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |        
|                         |                                                                   | Total income (loss) from operations |   | $                  | 5,450   |                  |   | $              | (17,437 | )    |   | $       | (1,938  | ) |   | $       | (38,588 | )
|                         |                                                                   |                                     |   |                    |         |                  |   |                |         |      |   |         |         |   |   |        

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Electronic Commerce.Revenue in our Electronic Commerce business
increased by $14.3 million, or 14.6%, from $98.2 million for the three months
ended December 31, 2002, to $112.5 million for the three months ended December
31, 2003. Revenue increased by $24.2 million, or 12.4%, from $194.8 million
for the six months ended December 31, 2002, to $219.0 million for the six
months ended December 31, 2003. Revenue growth is primarily the result of an
increase in transactions processed, the addition of two large bank customers,
an increase in electronic bills distributed, and tiered TransPoint related
revenue minimums, offset by four bank customers transferring transaction volume
to in-house systems, dampened demand in our account balance transfer product
offering, and the loss of a large customer in our Health and Fitness business.

We offer two basic levels of electronic billing and payment services to
our Electronic Commerce customers  a Full Service offering and a Payment
Services offering. Customers that use our Full Service offering generally
outsource their electronic billing and payment process to us. A Full Service
customer may or may not use a CheckFree-hosted user interface, but still uses a
broad array of services, including payment processing, payment warehouse,
claims processing, e-bill, online proof of payment, customer care, and other
aspects of our service. Also, while a Full Service customer may build its own
payment warehouse, we maintain a customer record and payment history within our
payment warehouse to support the Full Service customers servicing needs.
Customers in the Full Service category may contract to pay us either on a
per-subscriber basis, a per-transaction basis, or a blend of both. The
distinction between Full Service and Payment Services is based solely on the
types of service the customer receives, not on our pricing methodology.
Customers that utilize our Payment Services offering receive a limited subset
of our electronic billing and payment services, primarily remittance
processing. Additionally, within Payment Services, we provide services to
billers for electronic bill delivery and hosting, as well as other payment
services, such as account balance transfer. A third category of revenue we
simply refer to as Other Electronic Commerce, which includes our Health and
Fitness business and other ancillary revenue sources, such as CSP and biller
implementation and consulting services.

The following table provides a trend of our core electronic billing and
payment metrics:

|                               |                                    |  |                    |      |          |  |         |       |         |  |               |       |          |  |   |       |  |  |   |       |  |  |   |       | 
|------------------------------ | ---------------------------------- |  | ------------------ | ---- | -------- |  | ------- | ----- | ------- |  | ------------- | ----- | -------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                               |                                    |  | Three Months Ended
|                               |                                    |  |                   
|                               |                                    |  | 9/30/02            |      | 12/31/02 |  | 3/31/03 |       | 6/30/03 |  | 9/30/03       |       | 12/31/03
|                               |                                    |  |                    |      |          |  |         |       |         |  |               |       |         
|                               |                                    |  |                    |      |          |  |         |       |         |  | (In millions) |       |          |  |   |       |  |  |  
|Full Service Relationships     |                                    |  |                    |      |          |  |         |       |         |  |               |       |          |  |   |       |  |  |   |       |  |  |   |      
|                               | Revenue                            |  | $                  | 71.6 |          |  | $       | 75.1  |         |  | $             | 81.5  |          |  | $ | 82.6  |  |  | $ | 85.5  |  |  | $ | 91.8  | 
|                               | Active Subscribers                 |  |                    | 3.2  |          |  |         | 3.5   |         |  |               | 3.9   |          |  |   | 4.2   |  |  |   | 4.6   |  |  |   | 5.0   | 
|                               | Transactions processed             |  |                    | 67.2 |          |  |         | 74.9  |         |  |               | 80.3  |          |  |   | 87.5  |  |  |   | 94.3  |  |  |   | 106.1 | 
|                              
|Payment Services
Relationships |                                    |  |                    |      |          |  |         |       |         |  |               |       |          |  |   |       |  |  |   |       |  |  |   |      
|                               | Revenue                            |  | $                  | 14.7 |          |  | $       | 13.9  |         |  | $             | 12.8  |          |  | $ | 12.3  |  |  | $ | 11.9  |  |  | $ | 12.0  | 
|                               | Transactions processed             |  |                    | 29.5 |          |  |         | 30.1  |         |  |               | 31.6  |          |  |   | 32.7  |  |  |   | 32.4  |  |  |   | 33.1  | 
|                              
|Other Electronic Commerce      |                                    |  |                    |      |          |  |         |       |         |  |               |       |          |  |   |       |  |  |   |       |  |  |   |      
|                               | Revenue                            |  | $                  | 9.7  |          |  | $       | 9.2   |         |  | $             | 10.3  |          |  | $ | 11.2  |  |  | $ | 9.2   |  |  | $ | 8.7   | 
|                               | Non-cash warrant impact on
revenue |  | $                  | 0.6  |          |  |         |      |         |  |               |      |          |  |   |      |  |  |   |      |  |  |   |      | 
|                              
|Totals                         |                                    |  |                    |      |          |  |         |       |         |  |               |       |          |  |   |       |  |  |   |       |  |  |   |      
|                               | Electronic Commerce revenue        |  | $                  | 96.6 |          |  | $       | 98.2  |         |  | $             | 104.6 |          |  | $ | 106.1 |  |  | $ | 106.6 |  |  | $ | 112.5 | 
|                               | Transactions processed             |  |                    | 96.7 |          |  |         | 105.0 |         |  |               | 111.9 |          |  |   | 120.2 |  |  |   | 126.7 |  |  |   | 139.2 | 

In the Full Service portion of our Electronic Commerce business, revenue
has increased by $16.7 million, or 22%, from $75.1 million for the three months
ended December 31, 2002, to $91.8 million for the three months ended December
31, 2003. Revenue has increased by $30.6 million, or 21%, from $146.7 million
for the six months ended December 31, 2002, to $177.3 million for the six
months ended December 31, 2003. The primary drivers of the increased revenue
were growth in Full Service transactions processed of 41%, from 142.1 million
for the six months ended December 31, 2002, to 200.4 million for the six months
ended December 31, 2003, a $4.5 million increase in TransPoint revenue minimums
on a year over year basis, and the addition of two large bank customers since
June 30, 2003. Growth from the aforementioned sources has been offset by
several factors. Since the quarter ended September 30, 2002, we have seen two
large customers move Full Service transaction volume to in-house systems. The
first bank started moving volume late in the quarter ended December 31, 2002,
and gradually completed that move, on a state-by-state basis, by the quarter
ended September 30, 2003. The second bank

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completed their move between March 31, 2003, and September 30, 2003. In
spite of lost transaction volume, and related revenue from these two banks, we
have experienced significant transaction growth across our entire Full Service
customer base. Due in part to two pricing tier discounts earned by our largest
customer, Bank of America, during the last twelve months, we have seen revenue
per transaction decline in this category from $1.07 for the quarter ended
September 30, 2002, to $0.87 for the quarter ended December 31, 2003. We
amended our contract with Bank of America late in the quarter ended December
31, 2003, with pricing effective January 1, 2004, which we expect to cause a
one-quarter dampening of processing and servicing revenue growth, and a related
drop in revenue per transaction. By the quarter ending June 30, 2004, we
expect revenue growth to resume.

In the Payment Services area, revenue has decreased by $1.9 million, or
14%, from $13.9 million for the three months ended December 31, 2002, to $12.0
million for the three months ended December 31, 2003. Revenue has declined
$4.7 million, or 16%, from $28.6 million for the six months ended December 31,
2002, to $23.9 million for the six months ended December 31, 2003. The primary
driver of the revenue decline has been the movement of transactions to in-house
solutions by two large bank customers since the quarter ended September 30,
2002. The first began moving volume off of our processing system early last
fiscal year and completed their move by December 31, 2002. The second bank
started moving volume in the quarter ended March 31, 2003, and completed its
migration in the quarter ended December 31, 2003. We continued to see
transaction growth in our ancillary payment products on a year over year basis.
However, we expect less demand for balance transfers in the near future as a
result of flat interest rates. Revenue from electronic bill distribution
continues to increase with the growth in the number of bills presented. Now
that the two large banks have completed their migration off of our system, we
would expect transaction growth in the Payment Services area to be more
predictable in the near future.

Other Electronic Commerce revenue has declined by $0.5 million, or 5%,
from $9.2 million for the three months ended December 31, 2002, to $8.7 million
for the three months ended December 31, 2003. Other Electronic Commerce
revenue declined by $1.0 million, or 5%, from $18.9 million for the six months
ended December 31, 2002, to $17.9 million for the six months ended December 31,
2003. The decline is due to the loss of a large Health and Fitness customer
and less implementation revenue since December 31, 2002. Additionally, we
recorded a non-cash addition to revenue of $0.6 million in the quarter ended
September 30, 2002 related to a true-up of a previously recorded charge from
warrants issued to a third party.

Operating income in our Electronic Commerce business has improved from
$25.1 million for the three months ended December 31, 2002, to $39.0 million
for the three months ended December 31, 2003, and has improved from $51.5
million for the six months ended December 31, 2002, to $72.9 million for the
six months ended December 31, 2003. Our ratio of electronic payments to total
payments has improved from 73% as of September 30, 2002, to 78% as of December
31, 2003. Electronic payments carry a significantly lower variable cost per
unit than paper payments and are far less likely to result in a costly customer
care inquiry or claim. When combined with continued efforts toward improved
quality and efficiency throughout Electronic Commerce and the leverage we are
experiencing in the fixed cost base that is already in place, we are managing
to a significant reduction in cost per transaction in advance of expected
pressure on our revenue per transaction. This has resulted in an increase in
operating income. Our focus in the Electronic Commerce business into fiscal
2004 continues to be geared toward improved profitability through programs
designed to:



| |  |  | drive increased consumer adoption and activation among our partners;
| | - |  | --------------------------------------------------------------------
|
| |  |  | improve product design and usability;                               
|
| |  |  | improve overall customer satisfaction; and                          
|
| |  |  | reduce variable costs per transaction.                              

Investment Services.Revenue in our Investment Services business
increased by $1.5 million, or 8%, from $19.9 million for the three months ended
December 31, 2002, to $21.5 million for the three months ended December 31,
2003. Revenue has increased by $1.3 million, or 3%, from $40.5 million for the
six months ended December 31, 2002, to $41.8 million for the six months ended
December 31, 2003. Revenue derived from the volume of portfolios managed has
begun to improve again, after several quarters of relatively flat results. The
total amount of accounts managed has increased from 1.2 million at September
30, 2002 to approximately 1.4 million at December 31, 2003. As the stock
market has improved recently, we have seen growth in the number of portfolios
managed. We have provided incentives for new customers to sign multi-year
contracts with discounted implementation fees, which we expect to result in a
modest reduction to our revenue per average portfolio managed on a going
forward basis.

21



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##### Table of Contents



Operating income in our Investment Services business decreased from $5.8
million for the three months ended December 31, 2002, to $4.6 million for the
three months ended December 31, 2003. Operating income has declined from $10.6
million for the six months ended December 31, 2002, to $9.5 million for the six
months ended December 31, 2003. The reduction in operating income is due
primarily to added investment in research and development programs to further
improve our product offering in the market and efforts to improve our
operational quality standards. Throughout fiscal 2004, the key initiatives in
the Investment Services division include:



| |  |  | new product offerings (e.g.,next generation Multiple
Strategy Portfolios and New Account Workflow) with a shortened time
to market;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | additional web-based products with increased functionality and ease of use;                                                        
|
| |  |  | continued improvement and strategic alignment of our technology platform; and                                                      
|
| |  |  | initiation of a Sigma program to improve quality.                                                                                  

Software.Revenue in our Software business declined by $1.4 million, or
8%, from $17.4 million for the three months ended December 31, 2002, to $16.0
million for the three months ended December 31, 2003. Revenue declined
slightly, from $30.5 million for the six months ended December 31, 2002, to
$30.4 million for the six months ended December 31, 2003. Software sales have
lagged due to customers continuing to extend evaluation periods on
discretionary software purchases. We saw several software license sales slip
from the quarter ended December 31, 2003 into the March 31, 2004 quarter. With
the acquisition of HelioGraph in November 2003, our efforts in Europe with an
enterprise reconciliation solution, and new ACH software, marketed as REACH,
designed to take advantage of recent check conversion trends, we believe we
have the opportunity to grow Software revenue in the near term.

Operating income in our Software business has declined from $5.9 million
for the three months ended December 31, 2002 to $3.6 million for the three
months ended December 31, 2003, and has declined from $7.0 million for the six
months ended December 31, 2002, to $5.8 million for the six months ended
December 31, 2003. The decrease in operating income is due primarily to the
decline in revenue and a loss in the quarter ended December 31, 2003, from the
HelioGraph acquisition. As we integrate HelioGraph into our Software business,
we expect near term improvement in operating income.

Corporate.Our Corporate results represent costs for legal, human
resources, finance and various other unallocated overhead expenses. Our
Corporate segment incurred operating expenses of $8.1 million, or 6% of total
revenue, for the three months ended December 31, 2002, and of $9.3 million, or
6% of total revenue, for the three months ended December 31, 2003. Corporate
expenses were $16.1 million, or 6% of total revenue, for the six months ended
December 31, 2002, and were $17.2 million, or 6%, of total revenue for the six
months ended December 31, 2003. In spite of previously mentioned new costs
associated with the requirements of the Sarbanes-Oxley Act, we have been able
to leverage our infrastructure costs such that corporate expenses have not
grown as a percentage of revenue.

Amortization of Acquired Intangible Assets.The amortization of acquired
intangible assets is inclusive of all of our various acquisitions from 1996
forward. The total amount of this amortization has decreased from $46.2
million for the three months ended December 31, 2002, to $32.1 million for the
three months ended December 31, 2003, and has decreased from $92.3 million for
the six months ended December 31, 2002, to $72.6 million for the six months
ended December 31, 2003. The reduction in amortization is the result of
intangible assets that have fully amortized since last year and lower
non-goodwill intangible asset balances resulting from impairment charges we
incurred in the prior year.

In-Process Research and Development Costs.We recorded immaterial
in-process research and development costs of $0.3 million associated with our
acquisition of HelioGraph.

Warrants Issued to a Third Party.During the quarter ended June 30, 2002,
we recorded a non-cash charge of $2.7 million against revenue resulting from
the probable vesting of warrants issued to a third party. In the quarter ended
September 30, 2002, the warrants actually vested. On the date of vesting,
however, the fair value of our stock was lower than at June 30, 2002, when we
calculated the initial charge. As a result, a true-up of the value of the
warrants resulted in a credit to revenue of $0.6 million in the quarter ended
September 30, 2002. The charge, and the true-up credit, were based on a
Black-Scholes valuation of the warrants and were accounted for as a net charge
to

22



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##### Table of Contents



revenue in accordance with Emerging Issues Task Force (EITF) 01-09, Accounting
for Consideration Given by a Vendor to a Customer.

Liquidity and Capital Resources

The following chart summarizes our Consolidated Statement of Cash Flows
for the three months ended September 30, 2003, and December 31, 2003, as well
as for the six months ended December 31, 2003:

|                                          |                      |   |                    |         |              |   |                |          |   |   |          |          |  
|----------------------------------------- | -------------------- | - | ------------------ | ------- | ------------ | - | -------------- | -------- | - | - | -------- | -------- | -
|                                          |                      |   | Three Months Ended |         | Six Months  
|                                          |                      |   |                    |         | Ended       
|                                          |                      |   | September 30,      |         | December 31, |   | December 31,  
|                                          |                      |   | 2003               |         | 2003         |   | 2003          
|                                          |                      |   |                    |         |              |   |               
|                                          |                      |   |                    |         |              |   | (in thousands) |          |   |   |         
|Net cash provided by (used in):           |                      |   |                    |         |              |   |                |          |   |   |          |         
|                                          | Operating activities |   | $                  | 27,002  |              |   | $              | 41,374   |   |   | $        | 68,376   |  
|                                          | Investing activities |   |                    | (49,237 | )            |   |                | 48,790   |   |   |          | (447     | )
|                                          | Financing activities |   |                    | 413     |              |   |                | (171,070 | ) |   |          | (170,657 | )
|                                          |                      |   |                    |         |              |   |                |          |   |   |          |         
|Net decrease in cash and cash equivalents |                      | $ | (21,822            | )       |              | $ | (80,906        | )        |   | $ | (102,728 | )       
|                                          |                      |   |                    |         |              |   |                |          |   |   |          |         

As of December 31, 2003, we have $187.9 million of cash, cash equivalents
and short-term investments on hand and an additional $86.5 million in long-term
investments. Our balance sheet reflects a current ratio of 3.3 and related
working capital of $243.3 million. On December 17, 2003, we announced our
intention to purchase American Payment Systems, Inc. (APS) from its parent
corporation, UIL Holdings, for approximately $110.0 million in cash. This
transaction is expected to close by the end of fiscal 2004, subject to the
receipt of regulatory approvals and satisfaction of customary closing
conditions, and we plan to pay for it out of existing cash and investment
balances. Due primarily to processing efficiency improvement initiatives, we
have experienced a significant increase in operating cash flow over the past
several years. We expect cash flow from operations approaching $170 million
for our fiscal year ending June 30, 2004. Due to state and federal operating
loss and credit carryforwards, we do not expect to pay other than alternative
minimum taxes for eight to fourteen months. However, the acquisition of APS
may further extend this timeframe. Our board of directors has approved up to
$40 million for the purpose of repurchasing shares of our common stock through
August 2004. As of December 31, 2003, no such purchases have taken place.

Through the six months ended December 31, 2003, we have generated $68.4
million of cash from operating activities. During our first quarter, we
typically use a significant amount of cash to pay annual incentive compensation
and commissions related to seasonally high sales from the previous quarter,
which is why cash flow from operations in the quarter ended September 30, 2003
was only 65% of the amount we generated in the quarter ended December 31, 2003.
Also, in the quarter ended December 31, 2003, we used $4.8 million of cash
from operations to fund the call premium associated with the redemption of our
6.5% Convertible Subordinated Notes. While timing of cash payments and
collections can cause fluctuations from quarter to quarter, we expect to
generate positive cash from operations for the full year ended June 30, 2004.
As a result of efforts to improve our operating efficiency, we have been able
to generate an increasing amount of cash from operating activities over the
past several quarters and expect this trend to continue for the foreseeable
future.

From an investing perspective, we used $49.2 million of cash for the three
months ended September 30, 2003, and generated cash of $48.8 million in the
quarter ended December 31, 2003. In the quarter ended September 30, 2003, we
used $5.4 million of cash for the purchase of property and software, $0.9
million in capitalized software development costs, and $42.9 million in the net
purchases and maturities of securities. In the quarter ended December 31,
2003, $68.9 million of cash generated from the net sales and purchases of
securities was offset by $15.7 million of cash used in the acquisition of
HelioGraph, $3.7 million in the purchase of property and software, and $0.7
million in the capitalization of software development costs. As noted above,
the expected closing of the acquisition of APS between now and June 30, 2004,
will result in a future use of cash of approximately $110.0 million. We expect
our full year purchases of property and software for our existing operations
not to exceed $25 million, but based on the timing of the closing of the APS
acquisition, this expectation could change depending on the capital needs of
that business.

23



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##### Table of Contents



From a financing perspective, for the three months ended September 30,
2003, we generated $0.4 million of cash flow and for the three months ended
December 31, 2003, we used $171.1 million of cash. In the quarter ended
September 30, 2003, we received $0.6 million from option exercises and $1.1
million from payroll deductions set aside for our employee stock purchase plan,
and we used $1.3 million of cash for principal payments under capital lease and
other long-term obligations. In the quarter ended December 31, 2003, we used
$172.5 million of cash to redeem the entire outstanding balance of our 6.5%
Convertible Subordinated Notes and $0.5 million for principal payments under
capital lease and other long-term obligations, offset by the generation of $1.2
million of cash from option exercises and $0.7 million from payroll deductions
set aside for our employee stock purchase plan.

Our agreement to use a bank routing number to process payments contains
certain financial covenants related to tangible net worth, cash flow coverage,
debt service coverage and maximum levels of debt to cash flow, as defined. We
are in compliance with all covenants as of December 31, 2003, and do not
anticipate any change in the foreseeable future.

The following chart summarizes our contractual obligations (in thousands):

|                                   |  |                     |         |             |  |      |        |         |  |            |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ------------------- | ------- | ----------- |  | ---- | ------ | ------- |  | ---------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |  | Payments Due       
|                                   |  | Year Ended June 30,
|                                   |  |                    
|                                   |  |                     |         |             |  | 2004 |        | 2005 to |  | 2007 to    |        |  |  |  
|Contractual Obligations            |  | Total               |         | (Remaining) |  | 2006 |        | 2008    |  | Thereafter
|                                   |  |                     |         |             |  |      |        |         |  |           
|Operating leases                   |  | $                   | 99,742  |             |  | $    | 8,977  |         |  | $          | 23,292 |  |  | $ | 19,594 |  |  | $ | 47,879 | 
|Capital lease obligations          |  |                     | 2,346   |             |  |      | 805    |         |  |            | 1,541  |  |  |   |       |  |  |   |       | 
|Other long-term obligations        |  |                     | 6,492   |             |  |      | 3,012  |         |  |            | 3,480  |  |  |   |       |  |  |   |       | 
|                                   |  |                     |         |             |  |      |        |         |  |            |        |  |  |   |        |  |  |   |        | 
|Total contractual cash obligations |  | $                   | 108,580 |             |  | $    | 12,794 |         |  | $          | 28,313 |  |  | $ | 19,594 |  |  | $ | 47,879 | 
|                                   |  |                     |         |             |  |      |        |         |  |            |        |  |  |   |        |  |  |   |        | 

When we combine existing cash and investment balances with expectations of
positive cash flow from operations in the near future, we believe we will have
sufficient cash to fund the acquisition of APS and meet our presently
anticipated operating and capital requirements and contractual obligations for
the foreseeable future.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements beyond those we
reported in our Annual Report on Form 10-K for the fiscal year ended June 30,
2003, as filed with the Securities and Exchange Commission on September 15,
2003.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Critical accounting policies are those policies
that are both important to the portrayal of our financial condition and results
of operations, and they require our most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. In our Annual Report on Form 10-K for
the fiscal year ended June 30, 2003, as filed with the Securities and Exchange
Commission on September 15, 2003, we described the policies and estimates
relating to intangible assets, equity instruments issued to customers and
deferred income taxes as our critical accounting policies, and since then, we
have made no changes to our reported critical accounting policies.

Inflation

We believe the effects of inflation have not had a significant impact on
our results of operations.

24



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##### Table of Contents



Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q 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 managements
intent, belief and expectations, such as statements concerning our future
profitability, and our operating and growth strategy. Words such as believe,
anticipate, expect, will, may, should, intend, plan, estimate,
predict, potential, continue, likely and similar expressions are
intended to identify forward-looking statements. Investors are cautioned that
all forward-looking statements contained in this Quarterly Report or in other
statements we make involve risks and uncertainties including, without
limitation, the factors set forth under the caption Business  Business Risks
in our Annual Report on Form 10-K for the year ended June 30, 2003, 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 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.
Therefore, there can be no assurance that the forward-looking statements
included in this Quarterly Report 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
representations by us or any other person that our objectives and plans will be
achieved. All forward-looking statements made in this Quarterly Report are
based on information presently available to our management. We assume no
obligation to update any forward-looking statements contained herein.

Recent Developments

Agreement to Acquire American Payment Systems.On December 17, 2003, we
announced our intent to purchase APS from its parent, UIL Holdings Corporation,
for approximately $110 million. Pending the clearance of regulatory
requirements and the satisfaction of customary closing conditions, we expect
the acquisition to be completed by June 30, 2004, the end of our current fiscal
year. Upon completion of the transaction, we expect APS to become a part of
our Electronic Commerce business.




Item 3. Quantitative and Qualitative Disclosures About Market Risk.

With the acquisition of BlueGill in April 2000, we obtained operations in
Canada, and with the acquisition of HelioGraph in November 2003, we now
maintain several offices in the United Kingdom. As a result, we have assets
and liabilities outside the United States that are subject to fluctuations in
foreign currency exchange rates. Consequently, we began to utilize pounds
sterling as the functional currency for the United Kingdom in the quarter ended
December 31, 2003, and will begin using the Canadian dollar as the functional
currency for Canada in the quarter ending March 31, 2004. Due to the
relatively immaterial nature of the amounts involved, our economic exposure
from fluctuations in foreign exchange rates is not significant enough at this
time to engage in forward foreign exchange and other similar instruments.

While our international sales represented less than two percent of our
revenue for the three months ended December 31, 2003, we market, sell and
license our products throughout the world. As a result, our future revenue
could be somewhat affected by weak economic conditions in foreign markets that
could reduce demand for our products.

Our exposure to interest rate risk is limited to the yield we earn on
invested cash, cash equivalents and investments and interest based revenue
earned on products such as our account balance transfer business. Our
outstanding lease obligations carry a fixed interest rate. Our Investment
Policy was changed effective October 30, 2003, to allow for the use of
derivatives for hedging purposes in the future, however as of
December 31, 2003, we have not entered into any such derivative instruments.

25



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##### Table of Contents






Item 4. Controls and Procedures.

Disclosure Controls and Procedures.Disclosure controls and procedures
are controls and other procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded,
processed, summarized and reported, within the time periods specified in the
SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information we are
required to disclose in the reports that we file under the Exchange Act is
accumulated and communicated to our management as appropriate to allow timely
decisions regarding required disclosure.

As of end of the period covered by this report, our management, with the
participation of our chief executive officer and chief financial officer,
carried out an evaluation of the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 promulgated under the Exchange Act. Based
upon this evaluation, our chief executive officer and our chief financial
officer concluded that our disclosure controls and procedures were (1) designed
to ensure that material information relating to our company is accumulated and
made known to our management, including our chief executive officer and chief
financial officer, in a timely manner, particularly during the period in which
this report was being prepared and (2) effective, in that they provide
reasonable assurance that information we are required to disclose in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules
and forms.

Management believes, however, that a controls system, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.

Internal Controls.There has been no change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act) during our fiscal quarter ended December 31, 2003, that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

26



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##### Table of Contents






Part II. Other Information




Item 2. Changes in Securities and Use of Proceeds.

On December 12, 2003, the Company redeemed the entire outstanding
aggregate principal amount of $172,500,000 of its 6.5% Convertible Subordinated
Notes due 2006. Pursuant to the terms of the Indenture governing the notes,
the Company optionally redeemed the notes at a redemption price of 102.79% of
the principal amount thereof plus accrued but unpaid interest to, but not
including the date of redemption of the notes.




Item 4. Submission of Matters to a Vote of Security Holders.

The 2003 Annual Meeting of Stockholders of the Company was held on
Wednesday, October 29, 2003, for the following purposes:



| | (1) |  | To elect two Class II Directors each to serve for a
three-year term expiring at the 2006 Annual Meeting of Stockholders
or until their respective successors have been elected or appointed;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | To approve and adopt the CheckFree Corporation 2003 Incentive
Compensation Plan; and                                                                                                        
|
| | (3) |  | To consider a stockholder proposal presented by Calvert Asset
Management Company, Inc.                                                                                                      

Proposal 1:The Board of Directors proposal to elect the following two
nominees as Class II Directors of the Company, to serve until the 2006 Annual
Meeting of Stockholders or until his successor is elected and qualified was
approved, with the following vote:

|                |  |                        |            |           |  |          |           |  |  |  |            | 
|--------------- |  | ---------------------- | ---------- | --------- |  | -------- | --------- |  |  |  | ---------- | 
|                |  | Number of Shares Voted
|                |  |                       
|Director        |  |                        |            |           |  | Withhold |           |  |  | 
|Nominees        |  | For                    |            | Authority |  | Total   
|                |  |                        |            |           |  |         
|Mark A. Johnson |  |                        | 79,855,146 |           |  |          | 2,539,314 |  |  |  | 82,394,460 | 
|Eugene F. Quinn |  |                        | 77,077,639 |           |  |          | 5,316,821 |  |  |  | 82,394,460 | 

The following are our directors whose terms of office continued after the
Annual Meeting: Peter J. Kight (term expires in 2004), Lewis C. Levin (term
expires in 2004), Jeffrey M. Wilkins (term expires in 2004), William P.
Boardman (term expires in 2005), James D. Dixon (term expires in 2005) and
Henry C. Duques (term expires in 2005).

Proposal 2:The Board of Directors proposal to approve and adopt the
CheckFree Corporation 2003 Incentive Compensation Plan was approved, with the
following vote:

|                       |  |         |           |         |  |       |        |  |  |  |            | 
|---------------------- |  | ------- | --------- | ------- |  | ----- | ------ |  |  |  | ---------- | 
|Number of Shares Voted
|                      
|For                    |  | Against |           | Abstain |  | Total
|                       |  |         |           |         |  |      
|80,570,108             |  |         | 1,791,088 |         |  |       | 33,264 |  |  |  | 82,394,460 | 

27



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##### Table of Contents



Proposal 3:Calvert Asset Management Company, Inc., a stockholder of the
Company, presented the following proposal:

That the Board of Directors, or its Nominating Committee, in its search for
suitable board candidates, makes a greater effort to search for qualified women
and minority candidates for nomination to the Board of Directors. To that end,
we request that the company provide to shareholders, at reasonable expense,
four months from the date of the 2004 annual meeting, a report including a
description of: (1) the companys efforts to encourage diversified
representation on the board; (2) a description of the criteria for selecting
board members; (3) a description of the process used to select board nominees;
and (4) a description of the process used to select the boards nominating
committee members.

The proposal was not approved, with the following vote:

|                       |  |         |            |          |  |       |            |  |  |  |            | 
|---------------------- |  | ------- | ---------- | -------- |  | ----- | ---------- |  |  |  | ---------- | 
|Number of Shares Voted
|                      
|For                    |  | Against |            | Abstain* |  | Total
|                       |  |         |            |          |  |      
|13,182,651             |  |         | 50,013,890 |          |  |       | 19,197,919 |  |  |  | 82,394,460 | 

*Includes 13,330,188 broker non-votes.




Item 6. Exhibits and Reports on Form 8-K.



| | (a) |  | Exhibits.
| | --- |  | ---------

| |  |         |  |                                                                                                                                                                                                                                                                                                    
| |  | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |  | Exhibit                                                                                                                                                                                                                                                                                            
| |  | Number  |  | Description                                                                                                                                                                                                                                                                                        
| |  |         |  |                                                                                                                                                                                                                                                                                                    
| |  | 2*      |  | Stock Purchase Agreement by and among UIL Holdings Corporation,
United Resources, Inc. and CheckFree Corporation, dated December 16,
2003. (The Company agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the Securities and Exchange
Commission upon request).
| |  |         |  |                                                                                                                                                                                                                                                                                                    
| |  | 31(a)*  |  | Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
of the Chief Executive Officer.                                                                                                                                                                                               
| |  |         |  |                                                                                                                                                                                                                                                                                                    
| |  | 31(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.

28



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##### Table of Contents





| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------

We filed and/or furnished with the Securities and Exchange Commission the
following Current Reports on Form 8-K during the quarter ended December 31,
2003:

| |       |                                                                                                                                                                                                                                                                                                     |  |  |  | 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
| | (i)   | On October 21, 2003, we furnished a Current
Report on Form 8-K (Form 8-K) (Item 12) in connection with
our issuance of earnings for our first quarter ended September
30, 2003;                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                    
| | (ii)  | On November 11, 2003, we filed a Form 8-K (Item
5) to announce that we had called for redemption all of our
6.5% Convertible Subordinated Notes due 2006;                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                    
| | (iii) | On December 4, 2003, we filed (Item 5) and
furnished (Item 9) a Form 8-K to announce that we had amended
our alliance agreement with Bank of America (Item 5) and that
we had made no changes to our previously announced financial
expectations for the quarter ending December 31, 2003 (Item
9);
| |       |                                                                                                                                                                                                                                                                                                    
| | (iv)  | On December 12, 2003, we filed a Form 8-K (Item
5) to announce that we had closed the redemption of our 6.5%
Convertible Subordinated Notes due 2006; and                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                    
| | (v)   | On December 17, 2003, we filed a Form 8-K (Item
5) to announce that we had entered into an agreement with UIL
Holdings Corporation to acquire American Payment Systems, Inc.                                                                                                                       

29



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##### Table of Contents






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 thereunto duly authorized.

|                        |  |                       |  |                                         
|----------------------- |  | --------------------- |  | ----------------------------------------
|                        |  | CHECKFREE CORPORATION
|                        |  |                       |  |                                         
|Date: February 12, 2004 |  | By:                   |  | /s/ David E. Mangum                     
|                        |  |                       |  |                                         
|                        |  |                       |  | David E. Mangum, Executive Vice         
|                        |  |                       |  | President and Chief Financial Officer*  
|                        |  |                       |  | (Principal Financial Officer)           
|                        |  |                       |  |                                         
|Date: February 12, 2004 |  | By:                   |  | /s/ John J. Browne, Jr.                 
|                        |  |                       |  |                                         
|                        |  |                       |  | John J. Browne, Jr., Vice President,    
|                        |  |                       |  | Controller, and Chief Accounting Officer
|                        |  |                       |  | (Principal Accounting Officer)          



|* |  | In his capacity as Executive Vice President and Chief Financial Officer,
Mr. Mangum is duly authorized to sign this report on behalf of the
Registrant.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

30



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Exhibit                                                                                                                                                                                                                                                                                           
|Number  |  | Description                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                   
|2*      |  | Stock Purchase Agreement by and among UIL Holdings Corporation,
United Resources, Inc. and CheckFree Corporation, dated December 16,
2003 (the Company agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the Securities and Exchange
Commission upon request).
|        |  |                                                                                                                                                                                                                                                                                                   
|31(a)*  |  | Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
of the Chief Executive Officer.                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                   
|31(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.