##### 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, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-26802
 CHECKFREE CORPORATION
  Delaware
    
    58-2360335(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 4411 East Jones Bridge Road, Norcross, Georgia 30092
 (678) 375-3000
 Not Applicable
 þ o
  þ o o
 o þ




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##### 



FORM 10-Q
 CHECKFREE CORPORATION
 Table of Contents
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements.Unaudited Consolidated Balance Sheets As of September 30, 2006 and June 30, 2006
    
    
    3Unaudited Consolidated Statements of Operations For the Three Months Ended September 30, 2006 and 2005
    
    
    4Unaudited Consolidated Statements of Cash Flows For the Three Months Ended September 30, 2006 and 2005
    
    
    5Notes to the Interim Unaudited Consolidated Financial Statements For the Three Months Ended September 30, 2006 and 2005
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    31Item 4. Controls and Procedures.
    
    
    31PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    33Item 6. Exhibits.
    
    
    33Signatures.
    
    
    34EX-31.AEX-31.BEX-32.AEX-32.B
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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 30,2006
    
    
    2006(In thousands, exceptshare and per share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    182,609
    
    
    $
    173,083Settlement assets
    
    
    144,996
    
    
    
    107,128Investments
    
    
    69,286
    
    
    
    144,530Accounts receivable, net
    
    
    156,392
    
    
    
    146,605Prepaid expenses and other assets
    
    
    36,807
    
    
    
    39,810Deferred income taxes
    
    
    7,304
    
    
    
    7,311Total current assets
    
    
    597,394
    
    
    
    618,467PROPERTY AND EQUIPMENT, Net
    
    
    113,561
    
    
    
    100,217OTHER ASSETS:Capitalized software, net
    
    
    3,322
    
    
    
    3,755Goodwill
    
    
    734,591
    
    
    
    734,591Strategic agreements, net
    
    
    99,770
    
    
    
    106,005Other intangible assets, net
    
    
    57,740
    
    
    
    62,416Investments
    
    
    79,043
    
    
    
    78,559Other noncurrent assets
    
    
    9,326
    
    
    
    8,372Deferred income taxes
    
    
    45,645
    
    
    
    45,240Investment in joint venture
    
    
    
    
    
    
    407Total other assets
    
    
    1,029,437
    
    
    
    1,039,345Total assets
    
    $
    1,740,392
    
    
    $
    1,758,029LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    17,185
    
    
    $
    16,967Settlement obligations
    
    
    140,526
    
    
    
    103,732Accrued liabilities
    
    
    69,863
    
    
    
    74,366Current portion of long-term obligations
    
    
    2,133
    
    
    
    767Deferred revenue
    
    
    38,702
    
    
    
    40,301Total current liabilities
    
    
    268,409
    
    
    
    236,133ACCRUED RENT AND OTHER
    
    
    3,870
    
    
    
    3,844DEFERRED INCOME TAXES
    
    
    2,389
    
    
    
    2,964DEFERRED REVENUE
    
    
    3,108
    
    
    
    3,021CAPITAL LEASE AND LONG-TERM OBLIGATIONS  Less current portion
    
    
    39,222
    
    
    
    28,432STOCKHOLDERS EQUITY:Preferred stock - 50,000,000 authorized shares, $0.01 par value;
no amounts issued or outstanding
    
    
    
    
    
    
    Common stock - 500,000,000 authorized shares, $0.01 par value;
issued and outstanding 88,482,991 and 90,867,834 shares, respectively
    
    
    885
    
    
    
    909Additional paid-in-capital
    
    
    2,390,097
    
    
    
    2,482,309Accumulated other comprehensive loss
    
    
    (815
    )
    
    
    (1,593
    )Accumulated deficit
    
    
    (966,773
    )
    
    
    (997,990
    )Total stockholders equity
    
    
    1,423,394
    
    
    
    1,483,635Total liabilities and stockholders equity
    
    $
    1,740,392
    
    
    $
    1,758,029
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CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Statements of Operations
 Three Months EndedSeptember 30,2006
    
    
    2005(In thousands, exceptper share data)REVENUES:Processing and servicing:Third parties
    
    $
    195,478
    
    
    $
    175,640Related parties
    
    
    
    
    
    
    9,000Total processing and servicing
    
    
    195,478
    
    
    
    184,640License fees
    
    
    9,074
    
    
    
    7,558Maintenance fees
    
    
    11,530
    
    
    
    9,663Professional fees
    
    
    12,537
    
    
    
    11,832Total revenues
    
    
    228,619
    
    
    
    213,693EXPENSES:Cost of processing, servicing and support
    
    
    92,849
    
    
    
    80,168Research and development
    
    
    26,738
    
    
    
    23,057Sales and marketing
    
    
    21,275
    
    
    
    18,422General and administrative
    
    
    17,749
    
    
    
    16,267Depreciation and amortization
    
    
    21,805
    
    
    
    35,472Total expenses
    
    
    180,416
    
    
    
    173,386INCOME FROM CONTINUING OPERATIONS BEFORE OTHER INCOME
AND EXPENSE
    
    
    48,203
    
    
    
    40,307OTHER:Equity in net loss of joint venture
    
    
    (458
    )
    
    
    (667
    )Interest income
    
    
    3,581
    
    
    
    2,691Interest expense
    
    
    (287
    )
    
    
    (235
    )INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    51,039
    
    
    
    42,096INCOME TAX EXPENSE
    
    
    19,822
    
    
    
    16,115INCOME FROM CONTINUING OPERATIONS
    
    
    31,217
    
    
    
    25,981Earnings from discontinued operations before income taxes
    
    
    
    
    
    
    608Income tax expense on discontinued operations
    
    
    
    
    
    
    232Income from discontinued operations
    
    
    
    
    
    
    376Net income
    
    $
    31,217
    
    
    $
    26,357BASIC INCOME PER SHARE:Income per share from continuing operations
    
    $
    0.35
    
    
    $
    0.29Income per share from discontinued operations
    
    
    
    
    
    
    Total basic income per share
    
    $
    0.35
    
    
    $
    0.29Weighted average number of shares
    
    
    89,962
    
    
    
    90,578DILUTED INCOME PER SHARE:Income per share from continuing operations
    
    $
    0.34
    
    
    $
    0.28Income per share from discontinued operations
    
    
    
    
    
    
    Total diluted income per share
    
    $
    0.34
    
    
    $
    0.28Weighted average number of shares
    
    
    92,599
    
    
    
    92,818
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CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Statements of Cash Flows
 Three Months EndedSeptember 30,2006
    
    
    2005(In thousands)OPERATING ACTIVITIES:Net income
    
    $
    31,217
    
    
    $
    26,357Adjustments to reconcile net income to
net cash provided by operating activities:Equity in net loss of joint venture
    
    
    458
    
    
    
    667Depreciation and amortization
    
    
    21,805
    
    
    
    35,680Expenses related to data center facility
    
    
    1,021
    
    
    
    Deferred income tax benefit
    
    
    (860
    )
    
    
    (6,084
    )Net loss on disposition of property and equipment
    
    
    13
    
    
    
    127Equity-based compensation
    
    
    3,865
    
    
    
    4,250Change in certain assets and liabilities (net of acquisitions):Settlement assets and obligations
    
    
    (1,074
    )
    
    
    (4,908
    )Accounts receivable
    
    
    (9,692
    )
    
    
    (12,889
    )Prepaid expenses and other
    
    
    7,484
    
    
    
    (2,673
    )Accounts payable
    
    
    39
    
    
    
    2,765Accrued liabilities and other
    
    
    (5,199
    )
    
    
    674Deferred revenue
    
    
    (1,513
    )
    
    
    (491
    )Net cash provided by operating activities
    
    
    47,564
    
    
    
    43,475INVESTING ACTIVITIES:Purchase of property and software
    
    
    (11,573
    )
    
    
    (7,166
    )Purchase of property and equipment for data center facility
    
    
    (526
    )
    
    
    Capitalization of software development costs
    
    
    (236
    )
    
    
    (77
    )Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (18,027
    )Purchases of investments  Available-for-sale
    
    
    (99,527
    )
    
    
    (99,934
    )Proceeds from sales and maturities of investments  Available-for-sale
    
    
    175,574
    
    
    
    127,738Purchase of other investments
    
    
    (227
    )
    
    
    (13
    )Proceeds from other investments
    
    
    
    
    
    
    162Investment in joint venture
    
    
    
    
    
    
    (1,067
    )Change in other assets
    
    
    (4,902
    )
    
    
    (374
    )Net cash provided by investing activities
    
    
    58,583
    
    
    
    1,242FINANCING ACTIVITIES:Principal payments under capital lease and other long-term obligations
    
    
    (361
    )
    
    
    (917
    )Proceeds from stock options exercised
    
    
    620
    
    
    
    4,014Excess tax benefit from equity-based compensation
    
    
    521
    
    
    
    846Purchase of treasury stock
    
    
    (100,000
    )
    
    
    Proceeds from associate stock purchase plan
    
    
    1,530
    
    
    
    1,247Proceeds from data center facility
    
    
    643
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (97,047
    )
    
    
    5,190Effect of exchange rate changes on cash and cash equivalents
    
    
    426
    
    
    
    59NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    9,526
    
    
    
    49,966CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    173,083
    
    
    
    101,272End of period
    
    $
    182,609
    
    
    $
    151,238
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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
   Reclassifications
  Recent Accounting Pronouncements
    6




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2. Investments
  September 30,
    
    
    June 30,2006
    
    
    2006Available-for-sale
    
    $
    312,344
    
    
    $
    378,678Other investments
    
    
    1,554
    
    
    
    1,329Restricted Cash
    
    
    455
    
    
    
    453Less: amounts classified as cash equivalents
    
    
    166,024
    
    
    
    157,371Total investments
    
    $
    148,329
    
    
    $
    223,089
   3 Goodwill and Other Intangible Assets
  Electronic
    
    
    
    
    
    
    InvestmentCommerce
    
    
    Software
    
    
    Services
    
    
    TotalBalance as of June 30, 2005
    
    $
    581,239
    
    
    $
    63,548
    
    
    $
    11,387
    
    
    $
    656,174Goodwill acquired
    
    
    78,466
    
    
    
    
    
    
    
    8,019
    
    
    
    86,485Purchase price adjustments
    
    
    
    
    
    
    (818
    )
    
    
    
    
    
    
    (818
    )Disposition of business
    
    
    
    
    
    
    
    
    
    
    (7,250
    )
    
    
    (7,250
    )Balance as of June 30, 2006
    
    
    659,705
    
    
    
    62,730
    
    
    
    12,156
    
    
    
    734,591Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of September 30, 2006
    
    $
    659,705
    
    
    $
    62,730
    
    
    $
    12,156
    
    
    $
    734,591
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##### Table of Contents



September 30,
    
    
    June 30,2006
    
    
    2006Capitalized software:Product technology from acquisitions and strategic agreement
    
    $
    167,108
    
    
    $
    167,108Internal development costs
    
    
    33,206
    
    
    
    32,970Total
    
    
    200,314
    
    
    
    200,078Less: accumulated amortization
    
    
    196,992
    
    
    
    196,323Capitalized software, net
    
    $
    3,322
    
    
    $
    3,755Strategic agreements:Strategic agreements (1)
    
    $
    744,423
    
    
    $
    744,423Less: accumulated amortization
    
    
    644,653
    
    
    
    638,418Strategic agreements, net
    
    $
    99,770
    
    
    $
    106,005Other intangible assets:Tradenames
    
    $
    52,226
    
    
    $
    53,176Customer base
    
    
    89,639
    
    
    
    89,639Current technology
    
    
    10,290
    
    
    
    10,290Money transfer licenses
    
    
    1,700
    
    
    
    1,700Covenants not to compete
    
    
    5,670
    
    
    
    5,670Total
    
    
    159,525
    
    
    
    160,475Less: accumulated amortization
    
    
    101,785
    
    
    
    98,059Other intangible assets, net
    
    $
    57,740
    
    
    $
    62,416
 
 (1)
    
    Strategic agreements primarily include certain
entity-level covenants not to compete.  4. Discontinued Operations
  Total current assets
    
    $
    1,174Property and equipment, net
    
    
    369Goodwill
    
    
    7,250Other intangible assets, net
    
    
    1,305Total other assets
    
    
    8,555Total assets
    
    
    10,098Total liabilities
    
    $
    4,326
 8




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##### Table of Contents



5. Reorganization Charges
    OfficeSeverance
    
    
    Closureand Other
    
    
    andEmployee
    
    
    BusinessCosts
    
    
    Exit Costs
    
    
    TotalBalance as of June 30, 2005
    
    $
    5,200
    
    
    $
    156
    
    
    $
    5,356Cash payments  Fiscal Year 2006
    
    
    (5,200
    )
    
    
    (156
    )
    
    
    (5,356
    )Balance as
of June 30, 2006
    
    
    
    
    
    
    
    
    
    
    Balance as of September 30, 2006
    
    $
    
    
    
    $
    
    
    
    $
    
 6. Common Stock
    9




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##### Table of Contents



(d)(c)
    
    Approximate DollarTotal Number of
    
    Value of Shares that(a)
    
    (b)
    
    Shares Purchased
    
    May Yet BeTotal Number
    
    Average
    
    as Part of Publicly
    
    Purchased Underof Shares
    
    Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Purchased
    
    per Share
    
    Programs
    
    ProgramsJuly 1, 2006 to July 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1, 2006 to August 31, 2006
    
    
    2,176,158
    
    
    $
    37.22
    
    
    
    2,176,158
    
    
    $
    18,996,000September 1, 2006 to September
30, 2006 (1)
    
    
    461,589
    
    
    $
    41.15
    
    
    
    461,589
    
    
    $
    Total
    
    
    2,637,747
    
    
    $
    37.91
    
    
    
    2,637,747
    
    
    $
    
 
 (1)
    
    Last repurchase date was September 15, 2006 7. Equity-Based Compensation
  10




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Stock Options
  Weighted Average
    
    
    
    
    
    
    AggregateNumber of
    
    
    Remaining
    
    
    Weighted Average
    
    
    IntrinsicOptions
    
    
    Contractual Term
    
    
    Exercise Price
    
    
    ValueOutstanding  Beginning of year
    
    
    3,604,750
    
    
    
    
    
    
    $
    28.84Granted
    
    
    126,584
    
    
    
    
    
    
    
    37.27Exercised
    
    
    (53,139
    )
    
    
    
    
    
    
    14.75
    
    
    $
    1,400,000Cancelled
    
    
    (21,206
    )
    
    
    
    
    
    
    27.38Outstanding  End of period
    
    
    3,656,989
    
    
    4.7 years
    
    $
    29.34
    
    
    $
    43,900,000Options exercisable at end of period
    
    
    3,133,245
    
    
    4.7 years
    
    $
    29.24
    
    
    $
    38,100,000Weighted average per-share fair value of
options granted during the period
    
    $
    20.56
  11




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##### Table of Contents



Restricted Stock
  Number of
    
    WeightedRestricted
    
    Average Grant
    
    AggregateStock
    
    Date Fair Value
    
    Intrinsic ValueOutstanding  Beginning of year
    
    
    603,881
    
    
    $
    31.49Granted
    
    
    311,927
    
    
    
    36.95Vested
    
    
    (71,618
    )
    
    
    27.96
    
    
    $
    3,150,000Cancelled
    
    
    (13,813
    )
    
    
    32.61Outstanding  End of period
    
    
    830,377
    
    
    $
    33.82
  8. Earnings Per Share
  Three Months EndedSeptember 30, 2006
    
    
    September 30, 2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNet Income
    
    
    Average Shares
    
    
    Earnings
    
    
    Net Income
    
    
    Average Shares
    
    
    Earnings(Numerator)
    
    
    (Denominator)
    
    
    Per Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Per ShareBasic EPS
    
    $
    31,217
    
    
    
    89,962
    
    
    $
    0.35
    
    
    $
    26,357
    
    
    
    90,578
    
    
    $
    0.29Effect of dilutive
securities:Options and warrants
    
    
    
    
    
    
    2,637
    
    
    
    
    
    
    
    
    
    
    
    2,240Diluted EPS
    
    $
    31,217
    
    
    
    92,599
    
    
    $
    0.34
    
    
    $
    26,357
    
    
    
    92,818
    
    
    $
    0.28
 12




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9. Comprehensive Income
  Three Months EndedSeptember 30,2006
    
    
    2005Net income
    
    $
    31,217
    
    
    $
    26,357Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    (1
    )
    
    
    206Unrealized holding gains (losses) on investments, net of tax
    
    
    779
    
    
    
    (711
    )Comprehensive income
    
    $
    31,995
    
    
    $
    25,852
 10. Supplemental Disclosure of Cash Flow Information (in thousands)
 Three Months EndedSeptember 30,2006
    
    
    2005Interest paid
    
    $
    51
    
    
    $
    115Income taxes paid
    
    $
    727
    
    
    $
    9,047Supplemental disclosure of non-cash investing and financing activities:Capital lease and other long-term asset additions
    
    $
    4,671
    
    
    $
    915Stock funding of 401(k) match
    
    $
    4,054
    
    
    $
    2,994Stock funding of Associate Stock Purchase Plan
    
    $
    2,236
    
    
    $
    1,946Data center facility advances
    
    $
    7,203
    
    
    $
    
 11. Business Segments
  13




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Three Months EndedSeptember 30,2006
    
    
    2005Revenues:Electronic Commerce
    
    $
    171,029
    
    
    $
    163,451Investment Services
    
    
    29,622
    
    
    
    26,421Software
    
    
    27,968
    
    
    
    25,885Impact of discontinued operations
    
    
    
    
    
    
    (2,064
    )Total
    
    $
    228,619
    
    
    $
    213,693Segment operating income (loss):Electronic Commerce
    
    $
    59,680
    
    
    $
    68,473Investment Services
    
    
    5,528
    
    
    
    4,398Software
    
    
    6,354
    
    
    
    5,165Corporate
    
    
    (11,688
    )
    
    
    (10,223
    )Impact of discontinued operations
    
    
    
    
    
    
    (608
    )Total
    
    
    59,874
    
    
    
    67,205Purchase accounting amortization
    
    
    (10,967
    )
    
    
    (25,542
    )SFAS 123(R)  Stock options issued before July 1, 2004
    
    
    (704
    )
    
    
    (1,356
    )Equity in net loss of joint venture
    
    
    (458
    )
    
    
    (667
    )Interest, net
    
    
    3,294
    
    
    
    2,456Total net income before taxes
    
    $
    51,039
    
    
    $
    42,096
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##### Table of Contents



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
  Executive Summary
  
    
    The expiration of our agreements with First Data Corporation (FDC) in August 2005
and Microsoft Corporation (Microsoft) in December 2005 and the related cessation of
amortization of intangible assets in September 2005 resulting from our September 2000
acquisition of MSFDC, L.L.C. (TransPoint);
    
    The negative impact on interest-based revenue from our largest bank customer
migrating from a processing model that guarantees funds to our standard risk-based
processing model during the quarter ended March 31, 2006;
    
    Our acquisition of PhoneCharge, Inc. (PhoneCharge) for $100 million in cash in
January 2006;
 15




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##### Table of Contents




    
    Our purchase of substantially all of the assets of Integrated Decision Systems, Inc.
(IDS) for $18.0 million in cash in September 2005;
    
    Our purchase of substantially all of the assets of Aphelion, Inc. (Aphelion) for
$18.1 million in cash in October 2005;
    
    The divestiture of our M-Solutions business unit for $18.6 million in February 2006; and
    
    Slower than expected transaction growth in the quarters ended June 30, 2006 and September 30, 2006.
   Quarter Ended
    
    Microsoft
    
    
    FDC
    
    
    TotalSeptember 30, 2005
    
    $
    9,000
    
    
    $
    3,000
    
    
    $
    12,000December 31, 2005
    
    
    9,000
    
    
    
    
    
    
    
    9,000Total
    
    $
    18,000
    
    
    $
    3,000
    
    
    $
    21,000
    16




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##### Table of Contents



17




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##### Table of Contents



Three Months EndedSeptember 30,2006
    
    2005Total revenues
    
    
    100.0
    %
    
    
    100.0
    %Expenses:Cost of processing, servicing and support
    
    
    40.6
    
    
    
    37.5Research and development
    
    
    11.7
    
    
    
    10.8Sales and marketing
    
    
    9.3
    
    
    
    8.6General and administrative
    
    
    7.8
    
    
    
    7.6Depreciation and amortization
    
    
    9.5
    
    
    
    16.6Total expenses
    
    
    78.9
    
    
    
    81.1Income from continuing operations
    
    
    21.1
    
    
    
    18.9Equity in net loss of joint venture
    
    
    (0.2
    )
    
    
    (0.3
    )Interest, net
    
    
    1.4
    
    
    
    1.1Income from continuing operations before income taxes
    
    
    22.3
    
    
    
    19.7Income tax expense
    
    
    8.7
    
    
    
    7.5Income from continuing operations
    
    
    13.6
    
    
    
    12.1Earnings from discontinued operations before income taxes
    
    
    
    
    
    
    0.3Income tax expense on discontinued operations
    
    
    
    
    
    
    (0.1
    )Income from discontinued operations
    
    
    
    
    
    
    0.2Net income
    
    
    13.6
    %
    
    
    12.3
    %
 Results of Operations
  Total Revenues (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    228,619
    
    
    $
    213,693
    
    
    $
    14,926
    
    
    
    7.0
    %
   18




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##### Table of Contents



Processing and Servicing (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    195,478
    
    
    $
    184,640
    
    
    $
    10,838
    
    
    
    5.9
    %
  License Fees (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    9,074
    
    
    $
    7,558
    
    
    $
    1,516
    
    
    
    20.1
    %
  Maintenance Fees (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    11,530
    
    
    $
    9,663
    
    
    $
    1,867
    
    
    
    19.3
    %
  Professional Fees (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    12,537
    
    
    $
    11,832
    
    
    $
    705
    
    
    
    6.0
    %
 19




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##### Table of Contents



Cost of Processing, Servicing and Support (000s)
 September 30,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    92,849
    
    
    
    40.6
    %
    
    $
    80,168
    
    
    
    37.5
    %
  Research and Development (000s)
 September 30,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    26,738
    
    
    
    11.7
    %
    
    $
    23,057
    
    
    
    10.8
    %
  Sales and Marketing (000s)
 September 30,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    21,275
    
    
    
    9.3
    %
    
    $
    18,422
    
    
    
    8.6
    %
  20




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##### Table of Contents



General and Administrative (000s)
 September 30,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    17,749
    
    
    
    7.8
    %
    
    $
    16,267
    
    
    
    7.6
    %
  Depreciation and Amortization (000s)
 September 30,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    21,805
    
    
    
    9.5
    %
    
    $
    35,472
    
    
    
    16.6
    %
   Equity in Net Loss of Joint Venture (000s)
 September 30,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended
    
    $
    (458
    )
    
    
    (0.2
    )%
    
    $
    (667
    )
    
    
    (0.3
    )%
  21




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##### Table of Contents



Net Interest (000s)
 September 30,2006
    
    
    2005%
    
    
    
    
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    RevenueQuarter ended:Interest income
    
    $
    3,581
    
    
    
    
    
    
    $
    2,691Interest expense
    
    
    (287
    )
    
    
    
    
    
    
    (235
    )Net interest
    
    $
    3,294
    
    
    
    1.4
    %
    
    $
    2,456
    
    
    
    1.1
    %
   Income Tax Expense (000s)
 September 30,2006
    
    2005Effective
    
    
    
    
    
    Effective$
    
    Rate
    
    $
    
    RateQuarter ended
    
    $
    19,822
    
    
    
    38.8
    %
    
    $
    16,115
    
    
    
    38.3
    %
  Earnings from Discontinued Operations (000s)
 September 30,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueQuarter ended:
    
    
    
    
    
    
    
    
    
    $
    608
    
    
    
    0.3
    %
  Income Tax Expense on Discontinued Operations (000s)
 September 30,2006
    
    2005Effective
    
    
    
    
    
    Effective$
    
    Rate
    
    $
    
    RateQuarter ended:
    
    
    
    
    
    
    
    
    
    $
    232
    
    
    
    38.2
    %
  22




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##### Table of Contents



Segment Information
   Three Months EndedSeptember 30,2006
    
    
    2005(in thousands)Revenues:Electronic Commerce
    
    $
    171,029
    
    
    $
    163,451Investment Services
    
    
    29,622
    
    
    
    26,421Software
    
    
    27,968
    
    
    
    25,885Impact of discontinued operations
    
    
    
    
    
    
    (2,064
    )Total revenues
    
    $
    228,619
    
    
    $
    213,693Segment operating income (loss):Electronic Commerce
    
    $
    59,680
    
    
    $
    68,473Investment Services
    
    
    5,528
    
    
    
    4,398Software
    
    
    6,354
    
    
    
    5,165Corporate
    
    
    (11,688
    )
    
    
    (10,223
    )Impact of discontinued operations
    
    
    
    
    
    
    (608
    )Purchase accounting amortization:Electronic Commerce
    
    
    (9,627
    )
    
    
    (23,575
    )Investment Services
    
    
    (484
    )
    
    
    (313
    )Software
    
    
    (856
    )
    
    
    (1,654
    )SFAS 123(R)  Stock options issued before July 1, 2004:Electronic Commerce
    
    
    (512
    )
    
    
    (985
    )Investment Services
    
    
    (72
    )
    
    
    (139
    )Software
    
    
    (31
    )
    
    
    (60
    )Corporate
    
    
    (89
    )
    
    
    (172
    )Income from operations
    
    $
    48,203
    
    
    $
    40,307
 Electronic Commerce Segment Information:
 Electronic Commerce Revenue (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    171,029
    
    
    $
    163,451
    
    
    $
    7,578
    
    
    
    4.6
    %
   23




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##### Table of Contents



Three Months Ended9/30/06
    
    6/30/06
    
    3/31/06
    
    12/31/05
    
    9/30/05(in millions, except revenue per transaction and revenueper e-bill delivered)TransactionsCSP:Revenue
    
    $
    114.2
    
    
    $
    111.8
    
    
    $
    113.8
    
    
    $
    120.5
    
    
    $
    122.7Revenue per transaction
    
    $
    0.48
    
    
    $
    0.49
    
    
    $
    0.52
    
    
    $
    0.60
    
    
    $
    0.64Transactions processed
    
    
    235.7
    
    
    
    227.5
    
    
    
    217.3
    
    
    
    199.9
    
    
    
    190.3Non CSP:Revenue
    
    $
    36.2
    
    
    $
    34.4
    
    
    $
    36.0
    
    
    $
    24.4
    
    
    $
    24.3Revenue per transaction
    
    $
    0.48
    
    
    $
    0.46
    
    
    $
    0.47
    
    
    $
    0.34
    
    
    $
    0.32Transactions processed
    
    
    76.0
    
    
    
    74.7
    
    
    
    76.0
    
    
    
    70.8
    
    
    
    75.7Total Transactions:Revenue
    
    $
    150.4
    
    
    $
    146.2
    
    
    $
    149.8
    
    
    $
    144.9
    
    
    $
    147.0Transactions processed
    
    
    311.7
    
    
    
    302.2
    
    
    
    293.3
    
    
    
    270.7
    
    
    
    266.0e-bill DeliveryRevenue
    
    $
    8.5
    
    
    $
    8.0
    
    
    $
    7.4
    
    
    $
    7.2
    
    
    $
    6.8Revenue per e-bill delivered
    
    $
    0.16
    
    
    $
    0.16
    
    
    $
    0.16
    
    
    $
    0.16
    
    
    $
    0.16e-bills delivered
    
    
    51.8
    
    
    
    50.0
    
    
    
    46.7
    
    
    
    45.2
    
    
    
    42.7Other Electronic CommerceRevenue
    
    $
    12.1
    
    
    $
    12.3
    
    
    $
    12.2
    
    
    $
    11.2
    
    
    $
    9.7Other Performance MetricsActive subscribers(1)
    
    
    10.5
    
    
    
    10.0
    (2)
    
    
    9.7
    
    
    
    9.0
    
    
    
    8.8
 
 (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.(2)
    
    Adjusted to correct previously reported number of 10.3.  24




---



##### Table of Contents



Electronic Commerce Operating Income (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    59,680
    
    
    $
    68,473
    
    
    $
    (8,793
    )
    
    
    (12.8
    )%
  Investment Services Segment Information:
 Investment Services Revenue (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    29,622
    
    
    $
    26,421
    
    
    $
    3,201
    
    
    
    12.1
    %
  25




---



##### Table of Contents



Investment Services Operating Income (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    5,528
    
    
    $
    4,398
    
    
    $
    1,130
    
    
    
    25.7
    %
 SM SM
 Software Segment Information:
 Software Revenue (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    27,968
    
    
    $
    25,885
    
    
    $
    2,083
    
    
    
    8.0
    %
  Software Operating Income (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    6,354
    
    
    $
    5,165
    
    
    $
    1,189
    
    
    
    23.0
    %
  Corporate Segment Information (000s):
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    (11,688
    )
    
    $
    (10,223
    )
    
    $
    (1,465
    )
    
    
    (14.3
    )%
  Purchase Accounting Amortization (000s):
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    10,967
    
    
    $
    25,542
    
    
    $
    (14,575
    )
    
    
    (57.1
    )%
  SFAS 123(R)  Stock Options Issued Before July 1, 2004 (000s):
 26




---



##### Table of Contents



September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    704
    
    
    $
    1,356
    
    
    $
    (652
    )
    
    
    (48.1
    )%
  Impact of Discontinued Operations:
 M-Solutions Operating Income (000s)
 September 30,
    
    Change2006
    
    2005
    
    $
    
    %Quarter ended
    
    $
    
    
    
    $
    (608
    )
    
    $
    (608
    )
    
    
    100.0
    %
  Cyclicality and Seasonality
    Inflation
  27




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##### Table of Contents



Liquidity and Capital Resources
  Three Months EndedSeptember 30,2006
    
    
    2005Net cash provided by operating activities
    
    $
    47,564
    
    
    $
    43,475Net cash provided by investing activities
    
    
    58,583
    
    
    
    1,242Net cash provided by (used in) financing activities
    
    
    (97,047
    )
    
    
    5,190Effect of exchange rate changes
    
    
    426
    
    
    
    59Net increase in cash and cash equivalents
    
    $
    9,526
    
    
    $
    49,966
      Use of Non-GAAP Financial Information
  28




---



##### Table of Contents



Three Months EndedSeptember 30,2006
    
    
    2005Net cash provided by operating activities
    
    $
    47,564
    
    
    $
    43,475Excluding: Net change in settlement accounts
    
    
    1,074
    
    
    
    4,908Less: Capital expenditures
    
    
    (12,099
    )
    
    
    (7,166
    )Plus: Data center reimbursements
    
    
    526
    
    
    
    Free cash flow
    
    $
    37,065
    
    
    $
    41,217
   Recent Accounting Pronouncements
  29




---



##### Table of Contents



Application of Critical Accounting Policies
  Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
  30




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures.
  31




---



##### Table of Contents



Internal Controls.
 32




---



##### Table of Contents



Part II. Other Information
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   (d)(c)
    
    Approximate DollarTotal Number of
    
    Value of Shares that(a)
    
    (b)
    
    Shares Purchased
    
    May Yet BeTotal Number
    
    Average
    
    as Part of Publicly
    
    Purchased Underof Shares
    
    Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Purchased
    
    per Share
    
    Programs
    
    ProgramsJuly 1, 2006 to July 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0August 1, 2006 to August 31, 2006
    
    
    2,176,158
    
    
    $
    37.22
    
    
    
    2,176,158
    
    
    $
    18,996,057September 1, 2006 to September 30, 2006(1)
    
    
    461,589
    
    
    $
    41.15
    
    
    
    461,589
    
    
    $
    127Total
    
    
    2,637,747
    
    
    $
    37.91
    
    
    
    2,637,747
    
    
    $
    127
 
 (1)
    
    Last repurchase date was September 15, 2006 
 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. 33




---



##### Table of Contents



Signatures
  CHECKFREE CORPORATION
 Date:  November 8, 2006
    By:
    /s/ David E. MangumDavid E. Mangum, Executive VicePresident and Chief Financial Officer*
(Principal Financial 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. 34




---



##### 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.