##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period
from _______ to ______
 Commission file number: 0-26802
 CHECKFREE CORPORATION
  Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
    
    58-2360335
(I.R.S. Employer
Identification No.)
 4411 East Jones Bridge Road, Norcross, Georgia 30092
 (678) 375-3000
 Not Applicable
 þ o
 þ o
 o þ




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FORM 10-Q
 CHECKFREE CORPORATION
 Table of Contents
  
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Consolidated Balance Sheets As of September 30, 2005 and June 30, 2005
    
    
    3Unaudited Consolidated Statements of Operations
For the Three Months Ended September 30, 2005 and 2004
    
    
    4Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2005 and 2004
    
    
    5Notes to the Interim Unaudited Consolidated Financial Statements
For the Three Months Ended September 30, 2005 and 2004
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 6. Exhibits
    
    
    35Signatures
    
    
    36EX-31(A)EX-31(B)EX-32(A)EX-32(B)
  2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Balance Sheets
 September 30,
    
    
    June 30,2005
    
    
    2005(In thousands, exceptshare and per share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    151,238
    
    
    $
    101,272Settlement assets
    
    
    110,129
    
    
    
    73,675Investments
    
    
    174,145
    
    
    
    196,805Accounts receivable, net
    
    
    132,820
    
    
    
    122,158Accounts receivable, related parties
    
    
    8,534
    
    
    
    5,775Prepaid expenses and other assets
    
    
    24,636
    
    
    
    26,258Deferred income taxes
    
    
    8,115
    
    
    
    10,407Total current assets
    
    
    609,617
    
    
    
    536,350PROPERTY AND EQUIPMENT, Net
    
    
    88,909
    
    
    
    89,273OTHER ASSETS:Capitalized software, net
    
    
    5,338
    
    
    
    6,175Goodwill
    
    
    664,255
    
    
    
    656,174Strategic agreements, net
    
    
    124,712
    
    
    
    147,448Other intangible assets, net
    
    
    37,708
    
    
    
    30,935Investments
    
    
    57,101
    
    
    
    62,996Other noncurrent assets
    
    
    5,424
    
    
    
    4,600Deferred income taxes
    
    
    43,587
    
    
    
    35,648Investment in joint venture
    
    
    717
    
    
    
    317Total other assets
    
    
    938,842
    
    
    
    944,293Total assets
    
    $
    1,637,368
    
    
    $
    1,569,916LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    14,396
    
    
    $
    11,444Settlement obligations
    
    
    105,465
    
    
    
    73,919Accrued liabilities
    
    
    67,610
    
    
    
    72,189Current portion of long-term obligations
    
    
    441
    
    
    
    476Deferred revenue
    
    
    41,120
    
    
    
    40,793Total current liabilities
    
    
    229,032
    
    
    
    198,821ACCRUED RENT AND OTHER
    
    
    3,550
    
    
    
    4,324DEFERRED INCOME TAXES
    
    
    4,530
    
    
    
    4,967CAPITAL LEASE AND LONG-TERM OBLIGATIONS  Less current portion
    
    
    25,685
    
    
    
    25,389STOCKHOLDERS 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 90,670,459 and 90,257,704 shares, respectively
    
    
    906
    
    
    
    903Additional paid-in-capital
    
    
    2,475,317
    
    
    
    2,469,184Unearned compensation
    
    
    
    
    
    
    (6,168
    )Accumulated other comprehensive loss
    
    
    (2,756
    )
    
    
    (2,251
    )Accumulated deficit
    
    
    (1,098,896
    )
    
    
    (1,125,253
    )Total stockholders equity
    
    
    1,374,571
    
    
    
    1,336,415Total liabilities and stockholders equity
    
    $
    1,637,368
    
    
    $
    1,569,916
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CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Statements of Operations
 Three Months EndedSeptember 30,2005
    
    
    2004(In thousands, exceptper share data)REVENUES:Processing and servicing:Third parties
    
    $
    177,624
    
    
    $
    151,342Related parties
    
    
    9,000
    
    
    
    7,500Total processing and servicing
    
    
    186,624
    
    
    
    158,842License fees
    
    
    7,558
    
    
    
    5,874Maintenance fees
    
    
    9,670
    
    
    
    7,355Other
    
    
    11,905
    
    
    
    5,762Total revenues
    
    
    215,757
    
    
    
    177,833EXPENSES:Cost of processing, servicing and support
    
    
    80,257
    
    
    
    75,362Research and development
    
    
    23,614
    
    
    
    20,223Sales and marketing
    
    
    18,605
    
    
    
    14,226General and administrative
    
    
    16,686
    
    
    
    15,035Depreciation and amortization
    
    
    35,680
    
    
    
    44,017Total expenses
    
    
    174,842
    
    
    
    168,863INCOME FROM OPERATIONS
    
    
    40,915
    
    
    
    8,970OTHER:Equity in net loss of joint venture
    
    
    (667
    )
    
    
    (647
    )Interest income
    
    
    2,691
    
    
    
    1,907Interest expense
    
    
    (235
    )
    
    
    (211
    )INCOME BEFORE INCOME TAXES
    
    
    42,704
    
    
    
    10,019INCOME TAX EXPENSE
    
    
    16,347
    
    
    
    3,812NET INCOME
    
    $
    26,357
    
    
    $
    6,207BASIC INCOME PER SHARE:Net income per share
    
    $
    0.29
    
    
    $
    0.07Weighted average number of shares
    
    
    90,578
    
    
    
    90,315DILUTED INCOME PER SHARE:Net income per share
    
    $
    0.28
    
    
    $
    0.07Weighted average number of shares
    
    
    92,818
    
    
    
    92,212
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CHECKFREE
CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Statements of Cash Flows
 Three Months EndedSeptember 30,2005
    
    
    2004(In thousands)OPERATING ACTIVITIES:Net income
    
    $
    26,357
    
    
    $
    6,207Adjustments to reconcile net income to
net cash provided by operating activities:Equity in net loss of joint venture
    
    
    667
    
    
    
    647Depreciation and amortization
    
    
    35,680
    
    
    
    44,017Deferred income tax benefit
    
    
    (6,084
    )
    
    
    (1,582
    )Net loss on disposition of property and equipment
    
    
    127
    
    
    
    Equity-based compensation
    
    
    4,250
    
    
    
    855Change in certain assets and liabilities (net of acquisitions):Settlement assets and obligations
    
    
    (4,908
    )
    
    
    (1,491
    )Accounts receivable
    
    
    (12,889
    )
    
    
    5,099Prepaid expenses and other
    
    
    (2,673
    )
    
    
    (2,968
    )Accounts payable
    
    
    2,765
    
    
    
    (2,133
    )Accrued liabilities and other
    
    
    674
    
    
    
    (18,172
    )Deferred revenue
    
    
    (491
    )
    
    
    1,195Net cash provided by operating activities
    
    
    43,475
    
    
    
    31,674INVESTING ACTIVITIES:Purchase of property and software
    
    
    (7,166
    )
    
    
    (4,879
    )Capitalization of software development costs
    
    
    (77
    )
    
    
    (387
    )Purchase of businesses, net of cash acquired
    
    
    (18,027
    )
    
    
    (3,277
    )Purchases of investments  Available-for-sale
    
    
    (99,934
    )
    
    
    (76,283
    )Proceeds from sales and maturities of investments  Available-for-sale
    
    
    127,738
    
    
    
    54,533Purchase of other investments
    
    
    (13
    )
    
    
    (12
    )Proceeds from other investments
    
    
    162
    
    
    
    Investment in joint venture
    
    
    (1,067
    )
    
    
    (972
    )Change in other assets
    
    
    (374
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    1,242
    
    
    
    (31,277
    )FINANCING ACTIVITIES:Principal payments under capital lease and other long-term obligations
    
    
    (917
    )
    
    
    (1,205
    )Proceeds from stock options exercised
    
    
    4,014
    
    
    
    579Excess tax benefit from equity-based compensation
    
    
    846
    
    
    
    Proceeds from associate stock purchase plan
    
    
    1,247
    
    
    
    1,412Net cash provided by financing activities
    
    
    5,190
    
    
    
    786Effect of exchange rate changes on cash and cash equivalents
    
    
    59
    
    
    
    488NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    49,966
    
    
    
    1,671CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    101,272
    
    
    
    134,832End of period
    
    $
    151,238
    
    
    $
    136,503
  5




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CHECKFREE CORPORATION AND SUBSIDIARIES
 
 NOTES TO THE INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation and Summary of Significant Accounting Policies
 Unaudited Interim Financial Information
   Recent Accounting Pronouncements
  2. Investments
  September 30,
    
    
    June 30,2005
    
    
    2005Available-for-sale
    
    $
    366,328
    
    
    $
    347,895Other investments
    
    
    770
    
    
    
    918Less: amounts classified as cash equivalents
    
    
    135,852
    
    
    
    89,012Total investments
    
    $
    231,246
    
    
    $
    259,801
  6




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3 Goodwill and Other Intangible Assets
   Intangible
    
    UsefulAsset
    
    LifeCustomer base
    
    $
    7,000
    
    
    6 yrsCurrent technology
    
    
    500
    
    
    3 yrsTradenames
    
    
    1,831
    
    
    3 yrs
     7




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##### Table of Contents



Electronic
    
    
    
    
    
    
    InvestmentCommerce
    
    
    Software
    
    
    Services
    
    
    TotalBalance as of June 30, 2004
    
    $
    578,695
    
    
    $
    22,889
    
    
    $
    11,387
    
    
    $
    612,971Goodwill acquired
    
    
    2,544
    
    
    
    40,659
    
    
    
    
    
    
    
    43,203Balance as of June 30, 2005
    
    
    581,239
    
    
    
    63,548
    
    
    
    11,387
    
    
    
    656,174Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    8,081
    
    
    
    8,081Balance as of September 30, 2005
    
    $
    581,239
    
    
    $
    63,548
    
    
    $
    19,468
    
    
    $
    664,255
  September 30,
    
    
    June 30,2005
    
    
    2005Capitalized software:Product technology from acquisitions and strategic agreement
    
    $
    167,458
    
    
    $
    167,458Internal development costs
    
    
    33,303
    
    
    
    33,226Total
    
    
    200,761
    
    
    
    200,684Less: accumulated amortization
    
    
    195,423
    
    
    
    194,509Capitalized software, net
    
    $
    5,338
    
    
    $
    6,175Strategic agreements:Strategic agreements(1)
    
    $
    744,423
    
    
    $
    744,423Less: accumulated amortization
    
    
    619,711
    
    
    
    596,975Strategic agreements, net
    
    $
    124,712
    
    
    $
    147,448Other intangible assets:Tradenames
    
    $
    54,585
    
    
    $
    52,754Customer base
    
    
    64,068
    
    
    
    57,068Current technology
    
    
    4,590
    
    
    
    4,090Money transfer licenses
    
    
    1,700
    
    
    
    1,700Covenants not to compete
    
    
    5,350
    
    
    
    5,350Total
    
    
    130,293
    
    
    
    120,962Less: accumulated amortization
    
    
    92,585
    
    
    
    90,027Other intangible assets, net
    
    $
    37,708
    
    
    $
    30,935
 
 (1)
    
    Strategic agreements primarily include certain
entity-level covenants not to compete.  8




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4. Reorganization Charges
     OfficeSeverance
    
    
    Closureand Other
    
    
    andEmployee
    
    
    BusinessCosts
    
    
    Exit Costs
    
    
    TotalBalance as of June 30, 2004
    
    $
    
    
    
    $
    732
    
    
    $
    732Reorganization charge
    
    
    5,585
    
    
    
    
    
    
    
    5,585Cash payments  Fiscal year 2005
    
    
    (385
    )
    
    
    (576
    )
    
    
    (961
    )Balance as of June 30, 2005
    
    
    5,200
    
    
    
    156
    
    
    
    5,356Cash
payments  1st Quarter 2006
    
    
    (3,341
    )
    
    
    (116
    )
    
    
    (3,457
    )Balance as of September 30, 2005
    
    $
    1,859
    
    
    $
    40
    
    
    $
    1,899
 5. Common Stock
   9




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6. Equity-Based Compensation
    10




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Income from operations, as reported
    
    $
    40,915Effect of adopting SFAS 123(R) on income from operations
    
    
    1,643Income from operations
    
    $
    42,558Income before income taxes, as reported
    
    $
    42,704Effect of adopting SFAS 123(R) on income before income taxes
    
    
    1,643Income before income taxes
    
    $
    44,347Net income, as reported
    
    $
    26,357Effect of adopting SFAS 123(R) on net income
    
    
    1,280Net income
    
    $
    27,637Net cash provided by operating activities, as reported
    
    $
    43,475Effect of adopting SFAS 123(R) on net cash provided by operating activities
    
    
    846Net cash provided by operating activities
    
    $
    44,321Net cash provided by financing activities, as reported
    
    $
    5,190Effect of adopting SFAS 123(R) on net cash provided by financing activities
    
    
    (846
    )Net cash provided by financing activities
    
    $
    4,344Net income per share, as reported:Basic
    
    $
    0.29Diluted
    
    $
    0.28Effect of adopting SFAS 123(R) on net income per share, basic and diluted
    
    $
    0.01Net income per share:Basic
    
    $
    0.30Diluted
    
    $
    0.29
  11




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Net income, as reported
    
    $
    6,207Equity-based compensation included in net income, as reported
    
    
    930Equity-based compensation under SFAS 123
    
    
    (2,932
    )Pro forma net income
    
    $
    4,205Reported net income per share:Basic and diluted
    
    $
    0.07Pro forma net income per share:Basic and diluted
    
    $
    0.05
   Stock Options
  Weighted AverageNumber of
    
    
    Remaining
    
    
    Weighted Average
    
    
    Aggregate IntrinsicOptions
    
    
    Contractual Term
    
    
    Exercise Price
    
    
    ValueOutstanding  Beginning of year
    
    
    4,682,592
    
    
    
    
    
    
    $
    27.57Granted
    
    
    124,988
    
    
    
    
    
    
    
    40.25Exercised
    
    
    (210,479
    )
    
    
    
    
    
    
    18.74
    
    
    $
    3,846,000Cancelled
    
    
    (2,856
    )
    
    
    
    
    
    
    19.05Outstanding  End of period
    
    
    4,594,245
    
    
    5.1 years
    
    $
    28.33
    
    
    $
    43,605,000Options exercisable at end of period
    
    
    3,692,677
    
    
    5.5 years
    
    $
    29.27
    
    
    $
    31,595,000Weighted average per-share fair value of
options granted during the period
    
    $
    22.74
 12




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Restricted Stock
  Number of
    
    
    WeightedRestricted
    
    
    Average Grant
    
    
    Aggregate IntrinsicStock
    
    
    Date Fair Value
    
    
    ValueOutstanding  Beginning of year
    
    
    459,656
    
    
    $
    22.25Granted
    
    
    241,338
    
    
    
    40.14Vested
    
    
    (82,112
    )
    
    
    26.35
    
    
    $
    2,719,000Cancelled
    
    
    (3,232
    )
    
    
    25.69Outstanding  End of period
    
    
    615,650
    
    
    $
    28.70
  13




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7. Earnings Per Share
  Three Months EndedSeptember 30, 2005
    
    
    September 30, 2004Weighted


    
    
    
    
    
    

    
    

    
    
    WeightedNet Income
    
    
    Average Shares
    
    
    Earnings
    
    
    Net Income
    
    
    Average Shares
    
    
    Earnings(Numerator)
    
    
    (Denominator)
    
    
    Per Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Per ShareBasic EPS
    
    $
    26,357
    
    
    
    90,578
    
    
    $
    0.29
    
    
    $
    6,207
    
    
    
    90,315
    
    
    $
    0.07Effect of dilutive
securities:Options and warrants
    
    
    
    
    
    
    2,240
    
    
    
    
    
    
    
    
    
    
    
    1,897Diluted EPS
    
    $
    26,357
    
    
    
    92,818
    
    
    $
    0.28
    
    
    $
    6,207
    
    
    
    92,212
    
    
    $
    0.07
  8. Comprehensive Income
  Three Months EndedSeptember 30,2005
    
    
    2004Net income
    
    $
    26,357
    
    
    $
    6,207Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    206
    
    
    
    105Unrealized holding gains (losses) on investments, net of tax
    
    
    (711
    )
    
    
    606Comprehensive income
    
    $
    25,852
    
    
    $
    6,918
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9. Related Parties
      10. Supplemental Disclosure of Cash Flow Information (in thousands)
 Three Months EndedSeptember 30,2005
    
    
    2004Interest paid
    
    $
    115
    
    
    $
    195Income taxes paid
    
    $
    9,047
    
    
    $
    10,284Supplemental disclosure of non-cash investing and financing activities:Capital lease and other long-term asset additions
    
    $
    915
    
    
    $
    Stock funding of 401(k) match
    
    $
    2,994
    
    
    $
    3,100Stock funding of Associate Stock Purchase Plan
    
    $
    1,946
    
    
    $
    1,694
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11. Business Segments
   Three Months EndedSeptember 30,2005
    
    
    2004Revenues:Electronic Commerce
    
    $
    163,451
    
    
    $
    138,207Investment Services
    
    
    26,421
    
    
    
    22,843Software
    
    
    25,885
    
    
    
    16,783Total
    
    $
    215,757
    
    
    $
    177,833Segment operating income (loss):Electronic Commerce
    
    $
    68,473
    
    
    $
    46,951Investment Services
    
    
    4,398
    
    
    
    2,560Software
    
    
    5,165
    
    
    
    633Corporate
    
    
    (10,223
    )
    
    
    (7,959
    )Total
    
    
    67,813
    
    
    
    42,185Purchase accounting amortization
    
    
    (25,542
    )
    
    
    (33,215
    )SFAS 123(R)  Stock options issued before July 1, 2004 (1)
    
    
    (1,356
    )
    
    
    Equity in net loss of joint venture
    
    
    (667
    )
    
    
    (647
    )Interest, net
    
    
    2,456
    
    
    
    1,696Total income before income taxes
    
    $
    42,704
    
    
    $
    10,019
 
 (1)
    
    At the beginning of our fiscal year 2005, we implemented a new long-term
incentive compensation philosophy, which significantly reduced overall participation
and focused on restricted stock with limited stock options. As a result, we recorded
the cost of restricted stock throughout our fiscal year 2005. In fiscal year 2006, we
adopted SFAS 123(R), and are consequently recording all long-term incentive grants,
both restricted stock and stock options, as an expense in our consolidated statement of
operations. The adjustment for SFAS 123(R) represents the charge associated with the
current vesting of options that were unvested as of July 1, 2004 under our previous
compensation philosophy, which were originally accounted for utilizing APB 25. 12. Subsequent Event
  16




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   
    
    Electronic Commerce;
    
    Investment Services; and
    
    Software.
   
    
    receive e-Bills through the Internet;
    
    pay any bill  whether it arrives over the Internet or through traditional mail  to anyone; and
    
    make payments not related to bills  to anyone.
 SM
  17




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Executive Summary
     18




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Fiscal Year Ended June 30,
    
    Microsoft
    
    
    FDC
    
    
    Total2001
    
    $
    6,000
    
    
    $
    5,000
    
    
    $
    11,0002002
    
    
    15,000
    
    
    
    8,500
    
    
    
    23,5002003
    
    
    21,000
    
    
    
    11,500
    
    
    
    32,5002004
    
    
    27,000
    
    
    
    14,500
    
    
    
    41,5002005
    
    
    33,000
    
    
    
    17,500
    
    
    
    50,5002006
    
    
    18,000
    
    
    
    3,000
    
    
    
    21,000Total
    
    $
    120,000
    
    
    $
    60,000
    
    
    $
    180,000
     19




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##### Table of Contents



Three Months EndedSeptember 30,2005
    
    
    2004Total revenues
    
    
    100.0
    %
    
    
    100.0
    %Expenses:Cost of processing, servicing and support
    
    
    37.2
    
    
    
    42.4Research and development
    
    
    10.9
    
    
    
    11.4Sales and marketing
    
    
    8.6
    
    
    
    8.0General and administrative
    
    
    7.8
    
    
    
    8.4Depreciation and amortization
    
    
    16.5
    
    
    
    24.8Total expenses
    
    
    81.0
    
    
    
    95.0Income from operations
    
    
    19.0
    
    
    
    5.0Equity in net loss of joint venture
    
    
    (0.3
    )
    
    
    (0.4
    )Interest, net
    
    
    1.1
    
    
    
    1.0Income before income taxes
    
    
    19.8
    
    
    
    5.6Income tax expense
    
    
    7.6
    
    
    
    2.1Net income
    
    
    12.2
    %
    
    
    3.5
    %
 Results of Operations
  Total Revenues (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    215,757
    
    
    $
    177,833
    
    
    $
    37,924
    
    
    
    21.3
    %
    20




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##### Table of Contents



Processing and Servicing (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    186,624
    
    
    $
    158,842
    
    
    $
    27,782
    
    
    
    17.5
    %
  License
Fees (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    7,558
    
    
    $
    5,874
    
    
    $
    1,684
    
    
    
    28.7
    %
  Maintenance
Fees (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    9,670
    
    
    $
    7,355
    
    
    $
    2,315
    
    
    
    31.5
    %
  Other
Revenues (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    11,905
    
    
    $
    5,762
    
    
    $
    6,143
    
    
    
    106.6
    %
  21




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##### Table of Contents



Cost of Processing, Servicing and Support (000s)
 September 30,2005
    
    2004%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    80,257
    
    
    
    37.2
    %
    
    $
    75,362
    
    
    
    42.4
    %
  Research and Development (000s)
 September 30,2005
    
    2004%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    23,614
    
    
    
    10.9
    %
    
    $
    20,223
    
    
    
    11.4
    %
  Sales and Marketing (000s)
 September 30,2005
    
    2004%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    18,605
    
    
    
    8.6
    %
    
    $
    14,226
    
    
    
    8.0
    %
  General
and Administrative (000s)
 September 30,2005
    
    2004%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    16,686
    
    
    
    7.8
    %
    
    $
    15,035
    
    
    
    8.4
    %
  22




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##### Table of Contents



Depreciation and Amortization (000s)
 September 30,2005
    
    2004%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    35,680
    
    
    
    16.5
    %
    
    $
    44,017
    
    
    
    24.8
    %
  Equity in Net Loss of Joint Venture (000s)
 September 30,2005
    
    2004%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    (667
    )
    
    
    (0.3
    )%
    
    $
    (647
    )
    
    
    (0.4
    )%
  Net
Interest (000s)
 September 30,2005
    
    
    2004%
    
    
    
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    RevenueQuarter ended:Interest income
    
    $
    2,691
    
    
    
    
    
    
    $
    1,907Interest expense
    
    
    (235
    )
    
    
    
    
    
    
    (211
    )Net interest
    
    $
    2,456
    
    
    
    1.1
    %
    
    $
    1,696
    
    
    
    1.0
    %
   23




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##### Table of Contents



Income
Tax Expense (000s)
 September 30,2005
    
    2004Effective
    
    
    
    
    
    Effective$
    
    Rate
    
    $
    
    RateQuarter ended
    
    $
    16,347
    
    
    
    38.3
    %
    
    $
    3,812
    
    
    
    38.0
    %
  Segment Information
   Three Months EndedSeptember 30,2005
    
    
    2004(in thousands)Revenues:Electronic Commerce
    
    $
    163,451
    
    
    $
    138,207Investment Services
    
    
    26,421
    
    
    
    22,843Software
    
    
    25,885
    
    
    
    16,783Total revenues
    
    $
    215,757
    
    
    $
    177,833Segment operating income (loss):Electronic Commerce
    
    $
    68,473
    
    
    $
    46,951Investment Services
    
    
    4,398
    
    
    
    2,560Software
    
    
    5,165
    
    
    
    633Corporate
    
    
    (10,223
    )
    
    
    (7,959
    )Purchase accounting amortization:Electronic Commerce
    
    
    (23,575
    )
    
    
    (32,563
    )Investment Services
    
    
    (313
    )
    
    
    (151
    )Software
    
    
    (1,654
    )
    
    
    (501
    )SFAS 123(R)  Stock options issued before July 1, 2004(1):Electronic Commerce
    
    
    (985
    )
    
    
    Investment Services
    
    
    (139
    )
    
    
    Software
    
    
    (60
    )
    
    
    Corporate
    
    
    (172
    )
    
    
    Income from operations
    
    $
    40,915
    
    
    $
    8,970
 
 (1)
    
    At the beginning of our fiscal year 2005, we implemented a new long-term incentive
compensation philosophy, which significantly reduced overall participation and focused on
restricted stock with limited stock options. As a result, we recorded the cost of restricted stock
throughout our fiscal year 2005. In fiscal year 2006, we adopted SFAS 123(R), and are consequently
recording all long-term incentive grants, both restricted stock and stock options, as an expense in
our consolidated statement of operations. The adjustment for SFAS 123(R) represents the charge
associated with the current vesting of options that were unvested as of July 1, 2004 under our
previous compensation philosophy, which were originally accounted for utilizing APB 25. 24




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##### Table of Contents



Electronic Commerce Segment Information:
 Electronic Commerce Revenue (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    163,451
    
    
    $
    138,207
    
    
    $
    25,244
    
    
    
    18.3
    %
    Three Months Ended9/30/05
    
    
    6/30/05
    
    
    3/31/05
    
    
    12/31/04
    
    
    9/30/04(in millions)Full ServiceRevenue
    
    $
    118.5
    
    
    $
    110.1
    
    
    $
    106.4
    
    
    $
    102.4
    
    
    $
    99.1Active subscribers(1)
    
    
    8.8
    
    
    
    7.8
    
    
    
    7.4
    
    
    
    6.9
    
    
    
    6.4Transactions processed
    
    
    180.1
    
    
    
    161.9
    
    
    
    153.6
    
    
    
    142.9
    
    
    
    133.5Payment ServicesRevenue
    
    $
    35.4
    
    
    $
    33.8
    
    
    $
    32.4
    
    
    $
    31.3
    
    
    $
    30.5Transactions processed
    
    
    85.9
    
    
    
    83.0
    
    
    
    80.8
    
    
    
    76.5
    
    
    
    72.3Other Electronic CommerceRevenue
    
    $
    9.6
    
    
    $
    8.9
    
    
    $
    8.8
    
    
    $
    8.4
    
    
    $
    8.6TotalsElectronic Commerce revenue
    
    $
    163.5
    
    
    $
    152.8
    
    
    $
    147.6
    
    
    $
    142.1
    
    
    $
    138.2Transactions processed
    
    
    266.0
    
    
    
    244.9
    
    
    
    234.4
    
    
    
    219.4
    
    
    
    205.8
 
 (1)
    
    Active refers to subscribers who have viewed or paid a bill in the last 90
days at a Consumer Service Provider that outsources essentially all of its electronic billing
and payment (EBP) functions to CheckFree.
 25




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##### Table of Contents



Electronic Commerce Operating Income (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    68,473
    
    
    $
    46,951
    
    
    $
    21,522
    
    
    
    45.8
    %
  Investment Services Segment Information:
 Investment Services Revenue (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    26,421
    
    
    $
    22,843
    
    
    $
    3,578
    
    
    
    15.7
    %
  26




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##### Table of Contents



Investment Services Operating Income (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    4,398
    
    
    $
    2,560
    
    
    $
    1,838
    
    
    
    71.8
    %
 TM
 Software Segment Information:
 Software Revenue (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    25,885
    
    
    $
    16,783
    
    
    $
    9,102
    
    
    
    54.2
    %
  Software Operating Income (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    5,165
    
    
    $
    633
    
    
    $
    4,532
    
    
    
    716.0
    %
  Corporate Segment Information:
 Corporate Operating Loss (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    (10,223
    )
    
    $
    (7,959
    )
    
    $
    (2,264
    )
    
    
    28.4
    %
  27




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##### Table of Contents



Purchase Accounting Amortization:
 Purchase Accounting Amortization (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    25,542
    
    
    $
    33,215
    
    
    $
    (7,673
    )
    
    
    (23.1
    )%
  SFAS 123(R)  Stock Options Issued Before July 1, 2004:
 SFAS
123(R)   Stock Options Issued Before July 1, 2004 (000s)
 September 30,
    
    Change2005
    
    2004
    
    $
    
    %Quarter ended
    
    $
    1,356
    
    
    $
    
    
    
    $
    1,356
    
    
    
    
  Inflation
  28




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##### Table of Contents



Liquidity and Capital Resources
  Three Months EndedSeptember 30,2005
    
    
    2004Net cash provided by operating activities
    
    $
    43,475
    
    
    $
    31,674Net cash provided by (used in) investing activities
    
    
    1,242
    
    
    
    (31,277
    )Net cash provided by financing activities
    
    
    5,190
    
    
    
    786Effect of exchange rate changes
    
    
    59
    
    
    
    488Net increase in cash and cash equivalents
    
    $
    49,966
    
    
    $
    1,671
      29




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##### Table of Contents



Use of Non-GAAP Financial Information
      Three Months EndedSeptember 30,2005
    
    
    2004Net cash provided by operating activities
    
    $
    43,475
    
    
    $
    31,674Excluding: Net change in settlement accounts
    
    
    4,908
    
    
    
    1,491Less:          Capital expenditures
    
    
    (7,166
    )
    
    
    (4,879
    )Free cash flow
    
    $
    41,217
    
    
    $
    28,286
   30




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##### Table of Contents



Recent Accounting Pronouncements
  Recent Development
 Acquisition of Aphelion Inc .
 Application of Critical Accounting Policies
  31




---



##### Table of Contents



Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
  32




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
       33




---



##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures.
   Internal Controls.
 34




---



##### Table of Contents



Part II. Other Information
 
 Item 6.
Exhibits
 Exhibit
    
    ExhibitNumber
    
    Description31(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. 35




---



##### Table of Contents

\

Signatures
  CHECKFREE CORPORATIONDate: November 8, 2005
    
    By:
    
    /s/ David E. MangumDavid E. Mangum, Executive VicePresident and Chief Financial Officer*(Principal Financial Officer)Date: November 8, 2005
    
    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. 36




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    ExhibitNumber
    
    Description31(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.