##### 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 March 31, 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 StatementsUnaudited Consolidated Balance Sheets
As of March 31, 2006 and June 30, 2005
    
    
    3Unaudited Consolidated Statements of Operations
For the Three and Nine Months Ended March 31, 2006 and 2005
    
    
    4Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2006 and 2005
    
    
    5Notes to the Interim Unaudited Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2006 and 2005
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    39PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 6. Exhibits
    
    
    41Signatures
    
    
    42EX-10.(A)EX-31.(A)EX-31.(B)EX-32.(A)EX-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
 March 31,
    
    
    June 30,2006
    
    
    2005(In thousands, exceptshare and per share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    204,073
    
    
    $
    101,272Settlement assets
    
    
    107,881
    
    
    
    73,675Investments
    
    
    109,731
    
    
    
    196,805Accounts receivable, net
    
    
    131,675
    
    
    
    122,158Accounts receivable, related parties
    
    
    
    
    
    
    5,775Prepaid expenses and other assets
    
    
    29,095
    
    
    
    26,258Deferred income taxes
    
    
    11,599
    
    
    
    10,407Total current assets
    
    
    594,054
    
    
    
    536,350PROPERTY AND EQUIPMENT, NET
    
    
    96,904
    
    
    
    89,273OTHER ASSETS:Capitalized software, net
    
    
    4,077
    
    
    
    6,175Goodwill
    
    
    734,055
    
    
    
    656,174Strategic agreements, net
    
    
    112,241
    
    
    
    147,448Other intangible assets, net
    
    
    67,117
    
    
    
    30,935Investments
    
    
    78,032
    
    
    
    62,996Other noncurrent assets
    
    
    5,627
    
    
    
    4,600Deferred income taxes
    
    
    45,153
    
    
    
    35,648Investment in joint venture
    
    
    1,003
    
    
    
    317Total other assets
    
    
    1,047,305
    
    
    
    944,293Total assets
    
    $
    1,738,263
    
    
    $
    1,569,916LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    12,877
    
    
    $
    11,444Settlement obligations
    
    
    105,721
    
    
    
    73,919Accrued liabilities
    
    
    70,722
    
    
    
    72,189Current portion of long-term obligations
    
    
    735
    
    
    
    476Deferred revenue
    
    
    43,075
    
    
    
    40,793Total current liabilities
    
    
    233,130
    
    
    
    198,821ACCRUED RENT AND OTHER
    
    
    3,631
    
    
    
    4,324DEFERRED INCOME TAXES
    
    
    2,909
    
    
    
    4,967CAPITAL LEASE AND LONG-TERM OBLIGATIONS  LESS CURRENT PORTION
    
    
    25,376
    
    
    
    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 91,308,153 and 90,257,704 shares, respectively
    
    
    913
    
    
    
    903Additional paid-in-capital
    
    
    2,502,176
    
    
    
    2,469,184Unearned compensation
    
    
    
    
    
    
    (6,168
    )Accumulated other comprehensive loss
    
    
    (2,397
    )
    
    
    (2,251
    )Accumulated deficit
    
    
    (1,027,475
    )
    
    
    (1,125,253
    )Total stockholders equity
    
    
    1,473,217
    
    
    
    1,336,415Total liabilities and stockholders equity
    
    $
    1,738,263
    
    
    $
    1,569,916
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CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share data)REVENUES:Processing and servicing:Third parties
    
    $
    192,550
    
    
    $
    158,645
    
    
    $
    544,907
    
    
    $
    462,787Related parties
    
    
    236
    
    
    
    9,000
    
    
    
    18,236
    
    
    
    24,000Total processing and servicing
    
    
    192,786
    
    
    
    167,645
    
    
    
    563,143
    
    
    
    486,787License fees
    
    
    9,479
    
    
    
    5,458
    
    
    
    24,859
    
    
    
    18,987Maintenance fees
    
    
    11,078
    
    
    
    7,959
    
    
    
    30,707
    
    
    
    22,751Professional fees
    
    
    13,584
    
    
    
    8,138
    
    
    
    35,755
    
    
    
    20,303Total revenues
    
    
    226,927
    
    
    
    189,200
    
    
    
    654,464
    
    
    
    548,828EXPENSES:Cost of processing, servicing and support
    
    
    91,351
    
    
    
    72,660
    
    
    
    253,026
    
    
    
    220,539Research and development
    
    
    26,038
    
    
    
    20,139
    
    
    
    72,865
    
    
    
    58,448Sales and marketing
    
    
    22,107
    
    
    
    16,590
    
    
    
    61,272
    
    
    
    46,615General and administrative
    
    
    16,219
    
    
    
    15,016
    
    
    
    48,777
    
    
    
    42,573Depreciation and amortization
    
    
    22,349
    
    
    
    43,377
    
    
    
    77,749
    
    
    
    130,589Total expenses
    
    
    178,064
    
    
    
    167,782
    
    
    
    513,689
    
    
    
    498,764INCOME FROM CONTINUING OPERATIONS BEFORE
OTHER INCOME AND EXPENSES
    
    
    48,863
    
    
    
    21,418
    
    
    
    140,775
    
    
    
    50,064OTHER:Equity in net loss of joint venture
    
    
    (973
    )
    
    
    (823
    )
    
    
    (2,447
    )
    
    
    (2,170
    )Interest income
    
    
    3,238
    
    
    
    2,427
    
    
    
    9,085
    
    
    
    6,143Interest expense
    
    
    (227
    )
    
    
    (284
    )
    
    
    (702
    )
    
    
    (815
    )Gain on investments
    
    
    
    
    
    
    592
    
    
    
    
    
    
    
    592INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    50,901
    
    
    
    23,330
    
    
    
    146,711
    
    
    
    53,814INCOME TAX EXPENSE ON CONTINUING OPERATIONS
    
    
    18,720
    
    
    
    7,976
    
    
    
    55,180
    
    
    
    19,660INCOME FROM CONTINUING OPERATIONS
    
    
    32,181
    
    
    
    15,354
    
    
    
    91,531
    
    
    
    34,154Earnings from discontinued operations before income taxes
(including gain on disposal of $12,821 in 2006)
    
    
    13,056
    
    
    
    388
    
    
    
    14,311
    
    
    
    1,097Income tax expense on discontinued operations
    
    
    7,581
    
    
    
    136
    
    
    
    8,064
    
    
    
    395INCOME FROM DISCONTINUED OPERATIONS
    
    
    5,475
    
    
    
    252
    
    
    
    6,247
    
    
    
    702NET INCOME
    
    $
    37,656
    
    
    $
    15,606
    
    
    $
    97,778
    
    
    $
    34,856BASIC INCOME PER SHARE:Income per share from continuing operations
    
    $
    0.35
    
    
    $
    0.17
    
    
    $
    1.01
    
    
    $
    0.37Income per share from discontinued operations
    
    
    0.06
    
    
    
    
    
    
    
    0.07
    
    
    
    0.01Total basic income per share
    
    $
    0.41
    
    
    $
    0.17
    
    
    $
    1.08
    
    
    $
    0.38Weighted-average number of shares
    
    
    91,257
    
    
    
    90,864
    
    
    
    90,883
    
    
    
    90,614DILUTED INCOME PER SHARE:Income per share from continuing operations
    
    $
    0.34
    
    
    $
    0.17
    
    
    $
    0.98
    
    
    $
    0.37Income per share from discontinued operations
    
    
    0.06
    
    
    
    
    
    
    
    0.07
    
    
    
    0.01Total diluted income per share
    
    $
    0.40
    
    
    $
    0.17
    
    
    $
    1.05
    
    
    $
    0.38Weighted-average number of shares
    
    
    94,199
    
    
    
    93,052
    
    
    
    93,533
    
    
    
    92,374
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CHECKFREE CORPORATION AND SUBSIDIARIES
 
 Unaudited Consolidated Statements of Cash Flows
 Nine Months EndedMarch 31,2006
    
    
    2005(In thousands)OPERATING ACTIVITIES:Net income
    
    $
    97,778
    
    
    $
    34,856Adjustments to reconcile net income to net cash provided by operating activities:Equity in net loss of joint venture
    
    
    2,447
    
    
    
    2,170Depreciation and amortization
    
    
    78,238
    
    
    
    131,253Deferred income tax provision (benefit)
    
    
    (12,316
    )
    
    
    2,337Equity-based compensation
    
    
    12,794
    
    
    
    5,404Gain on investments
    
    
    
    
    
    
    (592
    )Gain from discontinued operations
    
    
    (12,821
    )
    
    
    Net loss on disposition of property and equipment
    
    
    310
    
    
    
    Change in certain assets and liabilities (net of acquisitions and disposition):Settlement assets and obligations
    
    
    (2,194
    )
    
    
    70Accounts receivable
    
    
    (2,543
    )
    
    
    (6,327
    )Prepaid expenses and other
    
    
    (3,927
    )
    
    
    (12,194
    )Accounts payable
    
    
    (347
    )
    
    
    (1,824
    )Accrued liabilities and other
    
    
    9,781
    
    
    
    839Deferred revenue
    
    
    5,601
    
    
    
    3,107Net cash provided by operating activities
    
    
    172,801
    
    
    
    159,099INVESTING ACTIVITIES:Purchase of property and software
    
    
    (33,817
    )
    
    
    (24,331
    )Capitalization of software development costs
    
    
    (449
    )
    
    
    (1,437
    )Purchase of businesses, net of cash acquired
    
    
    (136,025
    )
    
    
    (3,054
    )Proceeds from sale of business
    
    
    18,593
    
    
    
    Purchase of
investments  Available-for-sale
    
    
    (265,097
    )
    
    
    (290,577
    )Proceeds
from sales and maturities of investments  Available-for-sale
    
    
    336,618
    
    
    
    128,505Purchase of other investments
    
    
    (444
    )
    
    
    (100
    )Proceeds from other investments
    
    
    162
    
    
    
    26Increase in restricted cash
    
    
    (451
    )
    
    
    Investment in joint venture
    
    
    (3,190
    )
    
    
    (1,872
    )Change in other assets
    
    
    (3,387
    )
    
    
    Net cash used in investing activities
    
    
    (87,487
    )
    
    
    (192,840
    )FINANCING ACTIVITIES:Principal payments under capital lease and other long-term obligations
    
    
    (2,226
    )
    
    
    (2,457
    )Proceeds from stock options exercised
    
    
    20,762
    
    
    
    8,646Proceeds from associate stock purchase plan
    
    
    3,220
    
    
    
    3,408Repurchase of common shares
    
    
    (7,170
    )
    
    
    Excess tax benefit from equity-based compensation
    
    
    3,005
    
    
    
    Net cash provided by financing activities
    
    
    17,591
    
    
    
    9,597Effect of exchange rate changes on cash and cash equivalents
    
    
    (104
    )
    
    
    859NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    102,801
    
    
    
    (23,285
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    101,272
    
    
    
    134,832End of period
    
    $
    204,073
    
    
    $
    111,547
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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 PoliciesUnaudited Interim Financial Information
   Reclassifications
  2.
    
    InvestmentsOur investments consist of the following (in thousands):
 March 31,
    
    
    June 30,2006
    
    
    2005Available-for-sale
    
    $
    365,770
    
    
    $
    347,895Other investments
    
    
    1,200
    
    
    
    918Restricted cash
    
    
    451
    
    
    
    Less: amounts classified as cash equivalents
    
    
    179,658
    
    
    
    89,012Total investments
    
    $
    187,763
    
    
    $
    259,801
   6




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##### Table of Contents



3 Goodwill and Other Intangible Assets
   Intangible
    
    UsefulAsset
    
    LifeCustomer base
    
    $
    25,000
    
    
    5 yrsCurrent technology
    
    
    4,400
    
    
    5 yrsTradenames
    
    
    1,700
    
    
    3 yrs
   Intangible
    
    UsefulAsset
    
    LifeCustomer base
    
    $
    5,400
    
    
    5 yrsCurrent technology
    
    
    1,300
    
    
    5 yrsTradenames
    
    
    600
    
    
    3 yrsCovenants not to compete
    
    
    330
    
    
    2 yrs
  7




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##### Table of Contents



Intangible
    
    UsefulAsset
    
    LifeCustomer base
    
    $
    7,000
    
    
    6 yrsTradenames
    
    
    1,831
    
    
    3 yrsCurrent technology
    
    
    500
    
    
    3 yrs
      Electronic
    
    
    
    
    
    
    InvestmentCommerce
    
    
    Software
    
    
    Services
    
    
    TotalBalance as of June 30, 2004
    
    $
    578,695
    
    
    $
    22,889
    
    
    $
    11,387
    
    
    $
    612,971Goodwill acquired and adjustments
    
    
    2,544
    
    
    
    40,659
    
    
    
    
    
    
    
    43,203Balance as of June 30, 2005
    
    
    581,239
    
    
    
    63,548
    
    
    
    11,387
    
    
    
    656,174Goodwill acquired and adjustments
    
    
    77,842
    
    
    
    (725
    )
    
    
    8,014
    
    
    
    85,131Disposition of M-Solutions (See Note 4)
    
    
    
    
    
    
    
    
    
    
    (7,250
    )
    
    
    (7,250
    )Balance as of March 31, 2006
    
    $
    659,081
    
    
    $
    62,823
    
    
    $
    12,151
    
    
    $
    734,055
 8




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##### Table of Contents



March 31,
    
    
    June 30,2006
    
    
    2005Capitalized software:Product technology from acquisitions and strategic agreement
    
    $
    167,458
    
    
    $
    167,458Internal development costs
    
    
    33,675
    
    
    
    33,226Total
    
    
    201,133
    
    
    
    200,684Less: accumulated amortization
    
    
    197,056
    
    
    
    194,509Capitalized software, net
    
    $
    4,077
    
    
    $
    6,175Strategic agreements:Strategic agreements (1)
    
    $
    744,423
    
    
    $
    744,423Less: accumulated amortization
    
    
    632,182
    
    
    
    596,975Strategic agreements, net
    
    $
    112,241
    
    
    $
    147,448Other intangible assets:Tradenames
    
    $
    53,176
    
    
    $
    52,754Customer base
    
    
    90,039
    
    
    
    57,068Current technology
    
    
    10,290
    
    
    
    4,090Money transfer license
    
    
    1,700
    
    
    
    1,700Covenants not to compete
    
    
    5,680
    
    
    
    5,350Total
    
    
    160,885
    
    
    
    120,962Less: accumulated amortization
    
    
    93,768
    
    
    
    90,027Other intangible assets, net
    
    $
    67,117
    
    
    $
    30,935
 
 (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
 9




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##### Table of Contents



5.
    
    Reorganization Charges
    OfficeSeverance
    
    
    Closureand Other
    
    
    andEmployee
    
    
    BusinessCosts
    
    
    Exit Costs
    
    
    TotalBalance as of June 30, 2004
    
    $
    
    
    
    $
    732
    
    
    $
    732Reorganization charge
    
    
    5,585
    
    
    
    
    
    
    
    5,585Cash
payments  year ended June 30, 2005
    
    
    (385
    )
    
    
    (576
    )
    
    
    (961
    )Balance as of June 30, 2005
    
    
    5,200
    
    
    
    156
    
    
    
    5,356Cash
payments  nine months ended March 31, 2006
    
    
    (5,154
    )
    
    
    (156
    )
    
    
    (5,310
    )Balance as of March 31, 2006
    
    $
    46
    
    
    $
    
    
    
    $
    46
  6.
    
    Common Stock
    10




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##### Table of Contents



(c)
    
    (d)(a)
    
    (b)
    
    Total Number of Shares
    
    Approximate DollarTotal Number
    
    Average Price
    
    Purchased as Part of
    
    Value of Shares that Mayof Shares
    
    Paid per
    
    Publicly Announced Plans
    
    Yet Be Purchased UnderPeriod
    
    Purchased
    
    Share
    
    or
Programs
    
    the Plans or
ProgramsJanuary 1, 2006 to January 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    60,000,000February 1, 2006 to February 28, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    60,000,000March 1, 2006 to March 31, 2006
    
    
    151,537
    
    
    $
    47.31
    
    
    
    151,537
    
    
    $
    52,800,000
 7.
    
    Equity-Based Compensation
    11




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##### Table of Contents



Three
    
    
    NineMonths Ended
    
    
    Months EndedMarch 31, 2006
    
    
    March 31, 2006Income from continuing operations before other income and expenses, as reported
    
    $
    48,863
    
    
    $
    140,775Effect of adopting SFAS 123(R)
    
    
    1,333
    
    
    
    4,670Income from continuing operations before other income and expenses
    
    $
    50,196
    
    
    $
    145,445Income from continuing operations before income taxes, as reported
    
    $
    50,901
    
    
    $
    146,711Effect of adopting SFAS 123(R)
    
    
    1,333
    
    
    
    4,670Income from continuing operations before income taxes
    
    $
    52,234
    
    
    $
    151,381Net income, as reported
    
    $
    37,656
    
    
    $
    97,778Effect of adopting SFAS 123(R)
    
    
    843
    
    
    
    2,914Net income
    
    $
    38,499
    
    
    $
    100,692Net cash provided by operating activities, as reported
    
    $
    72,539
    
    
    $
    172,801Effect of adopting SFAS 123(R)
    
    
    1,519
    
    
    
    3,005Net cash provided by operating activities
    
    $
    74,058
    
    
    $
    175,806Net cash provided by financing activities, as reported
    
    $
    4,277
    
    
    $
    17,591Effect of adopting SFAS 123(R)
    
    
    (1,519
    )
    
    
    (3,005
    )Net cash provided by financing activities
    
    $
    2,758
    
    
    $
    14,586Net income per share, as reported:Basic
    
    $
    0.41
    
    
    $
    1.08Diluted
    
    $
    0.40
    
    
    $
    1.05Effect of adopting SFAS 123(R) on net income per share:Basic and diluted
    
    $
    0.01
    
    
    $
    0.03Net income per share:Basic
    
    $
    0.42
    
    
    $
    1.11Diluted
    
    $
    0.41
    
    
    $
    1.08
  12




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    Ended2006
    
    
    2006Net income, as reported
    
    $
    15,606
    
    
    $
    34,856Equity-based compensation included in net income, as reported
    
    
    913
    
    
    
    2,793Equity-based compensation under SFAS 123
    
    
    (2,067
    )
    
    
    (7,234
    )Pro forma net income
    
    $
    14,452
    
    
    $
    30,415Reported net income per share:Basic and diluted
    
    $
    0.17
    
    
    $
    0.38Pro forma net income per share:Basic
    
    $
    0.16
    
    
    $
    0.34Diluted
    
    $
    0.16
    
    
    $
    0.33
   Stock Options
  Weighted AverageNumber of
    
    
    Remaining
    
    
    Weighted Average
    
    
    Aggregate IntrinsicOptions
    
    
    Contractual Term
    
    
    Exercise Price
    
    
    ValueOutstanding  Beginning of period
    
    
    4,123,502
    
    
    
    
    
    
    $
    28.03Granted
    
    
    10,000
    
    
    
    
    
    
    
    50.68Exercised
    
    
    (420,289
    )
    
    
    
    
    
    
    22.29
    
    
    $
    12,100,000Cancelled
    
    
    (4,203
    )
    
    
    
    
    
    
    40.27Outstanding  End of period
    
    
    3,709,010
    
    
    5.0 years
    
    $
    28.73
    
    
    $
    80,700,000Options exercisable at end of period
    
    
    3,143,533
    
    
    5.0 years
    
    $
    28.90
    
    
    $
    68,800,000Weighted average per-share fair value of
options granted during the period
    
    $
    28.09
 13




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Weighted AverageNumber of
    
    
    Remaining
    
    
    Weighted Average
    
    
    Aggregate IntrinsicOptions
    
    
    Contractual Term
    
    
    Exercise Price
    
    
    ValueOutstanding  Beginning of year
    
    
    4,682,592
    
    
    
    
    
    
    $
    27.57Granted
    
    
    134,988
    
    
    
    
    
    
    
    41.02Exercised
    
    
    (944,706
    )
    
    
    
    
    
    
    21.84
    
    
    $
    22,800,000Cancelled
    
    
    (163,864
    )
    
    
    
    
    
    
    45.20Outstanding  End of period
    
    
    3,709,010
    
    
    5.0 years
    
    $
    28.73
    
    
    $
    80,700,000Weighted average per-share fair value of
options granted during the period
    
    $
    23.14
    Restricted Stock
  Number of
    
    WeightedRestricted
    
    Average Grant
    
    Aggregate IntrinsicStock
    
    Date Fair Value
    
    ValueOutstanding  Beginning of period
    
    
    602,598
    
    
    $
    31.83Granted
    
    
    5,949
    
    
    
    50.99Vested
    
    
    (722
    )
    
    
    33.44
    
    
    $
    36,000Cancelled
    
    
    (7,683
    )
    
    
    35.40Outstanding  End of period
    
    
    600,142
    
    
    $
    31.97
  14




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##### Table of Contents



Number of
    
    
    Weighted
    
    
    AggregateRestricted
    
    
    Average Grant
    
    
    IntrinsicStock
    
    
    Date Fair Value
    
    
    ValueOutstanding  Beginning of year
    
    
    459,656
    
    
    $
    22.25Granted
    
    
    253,287
    
    
    
    40.42Vested
    
    
    (83,603
    )
    
    
    26.49
    
    
    $
    2,900,000Cancelled
    
    
    (29,198
    )
    
    
    30.03Outstanding  End of period
    
    
    600,142
    
    
    $
    31.97
   8.
    
    Earnings Per Share
  Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Weighted -Weighteds-Average
    
    
    Earnings
    
    
    
    
    
    
    Average
    
    
    EarningsNet Income
    
    
    Shares
    
    
    Per
    
    
    Net Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    ShareBasic EPS
    
    $
    37,656
    
    
    
    91,257
    
    
    $
    0.41
    
    
    $
    15,606
    
    
    
    90,864
    
    
    $
    0.17Effect of dilutive
securities:Options and warrants
    
    
    
    
    
    
    2,942
    
    
    
    
    
    
    
    
    
    
    
    2,188Diluted EPS
    
    $
    37,656
    
    
    
    94,199
    
    
    $
    0.40
    
    
    $
    15,606
    
    
    
    93,052
    
    
    $
    0.17
 Nine Months EndedMarch 31, 2006
    
    
    March 31, 2005Weighted -Average
    
    
    Earnings
    
    
    
    
    
    
    Weighted-Average
    
    
    EarningsNet Income
    
    
    Shares
    
    
    Per
    
    
    Net Income
    
    
    Shares
    
    
    Per-(Numerator)
    
    
    (Denominator)
    
    
    Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    ShareBasic EPS
    
    $
    97,778
    
    
    
    90,883
    
    
    $
    1.08
    
    
    $
    34,856
    
    
    
    90,614
    
    
    $
    0.38Effect of dilutive
securities:Options and warrants
    
    
    
    
    
    
    2,650
    
    
    
    
    
    
    
    
    
    
    
    1,760Diluted EPS
    
    $
    97,778
    
    
    
    93,533
    
    
    $
    1.05
    
    
    $
    34,856
    
    
    
    92,374
    
    
    $
    0.38
  15




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9.
    
    Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    37,656
    
    
    $
    15,606
    
    
    $
    97,778
    
    
    $
    34,856Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    140
    
    
    
    (177
    )
    
    
    3
    
    
    
    283Unrealized holding gains (losses) on investments, net of tax
    
    
    78
    
    
    
    (1,095
    )
    
    
    (149
    )
    
    
    (1,186
    )Comprehensive income
    
    $
    37,874
    
    
    $
    14,334
    
    
    $
    97,632
    
    
    $
    33,953
 10.
    
    Related Parties
     16




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11.
    
    Supplemental Disclosure of Cash Flow Information (in thousands)
 Nine Months EndedMarch 31,2006
    
    
    2005Interest paid
    
    $
    63
    
    
    $
    544Income taxes paid
    
    $
    59,971
    
    
    $
    24,245Supplemental disclosure of non-cash investing and financing activities:Capital lease and other long-term asset additions
    
    $
    1,821
    
    
    $
    625Stock funding of 401(k) match
    
    $
    2,994
    
    
    $
    3,100Stock funding of Associate Stock Purchase Plan
    
    $
    4,068
    
    
    $
    3,997
 12.
    
    Business Segments
  17




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Electronic Commerce
    
    $
    169,438
    
    
    $
    147,581
    
    
    $
    496,187
    
    
    $
    427,896Investment Services
    
    
    27,833
    
    
    
    22,023
    
    
    
    78,542
    
    
    
    64,877Software
    
    
    29,656
    
    
    
    19,596
    
    
    
    79,735
    
    
    
    56,055Total
    
    $
    226,927
    
    
    $
    189,200
    
    
    $
    654,464
    
    
    $
    548,828Segment income (loss):Electronic Commerce
    
    $
    59,739
    
    
    $
    54,034
    
    
    $
    192,282
    
    
    $
    151,864Investment Services
    
    
    4,185
    
    
    
    4,837
    
    
    
    13,635
    
    
    
    13,022Software
    
    
    7,496
    
    
    
    6,067
    
    
    
    15,969
    
    
    
    13,369Corporate
    
    
    (10,291
    )
    
    
    (10,001
    )
    
    
    (29,795
    )
    
    
    (27,537
    )Total
    
    
    61,129
    
    
    
    54,937
    
    
    
    192,091
    
    
    
    150,718Acquisition-related intangible asset amortization
    
    
    (11,254
    )
    
    
    (33,131
    )
    
    
    (46,451
    )
    
    
    (99,557
    )SFAS 123(R)  Stock options issued before July 1, 2004 (1)
    
    
    (777
    )
    
    
    
    
    
    
    (3,375
    )
    
    
    Equity in net loss of joint venture
    
    
    (973
    )
    
    
    (823
    )
    
    
    (2,447
    )
    
    
    (2,170
    )Impact of discontinued operations
    
    
    (235
    )
    
    
    (388
    )
    
    
    (1,490
    )
    
    
    (1,097
    )Gain on investments
    
    
    
    
    
    
    592
    
    
    
    
    
    
    
    592Interest, net
    
    
    3,011
    
    
    
    2,143
    
    
    
    8,383
    
    
    
    5,328Total income from continuing operations before income taxes
    
    $
    50,901
    
    
    $
    23,330
    
    
    $
    146,711
    
    
    $
    53,814
 
 (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. 13.
    
    Subsequent Events
    18




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19




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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
  20




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Executive Summary
   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
   21




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22




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Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Expenses:Cost of processing, servicing and support
    
    
    40.3
    
    
    
    38.4
    
    
    
    38.7
    
    
    
    40.2Research and development
    
    
    11.5
    
    
    
    10.6
    
    
    
    11.1
    
    
    
    10.6Sales and marketing
    
    
    9.7
    
    
    
    8.9
    
    
    
    9.4
    
    
    
    8.5General and administrative
    
    
    7.1
    
    
    
    7.9
    
    
    
    7.4
    
    
    
    7.8Depreciation and amortization
    
    
    9.8
    
    
    
    22.9
    
    
    
    11.9
    
    
    
    23.8Total expenses
    
    
    78.5
    
    
    
    88.7
    
    
    
    78.5
    
    
    
    90.9Income from continuing operations before other income and expenses
    
    
    21.5
    
    
    
    11.3
    
    
    
    21.5
    
    
    
    9.1Equity in net loss of joint venture
    
    
    (0.4
    )
    
    
    (0.4
    )
    
    
    (0.4
    )
    
    
    (0.4
    )Interest, net
    
    
    1.3
    
    
    
    1.1
    
    
    
    1.3
    
    
    
    1.0Gain on investments
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    0.1Income from continuing operations before income taxes
    
    
    22.4
    
    
    
    12.3
    
    
    
    22.4
    
    
    
    9.8Income tax expense on continuing operations
    
    
    8.2
    
    
    
    4.2
    
    
    
    8.4
    
    
    
    3.5Income from
continuing operations
    
    
    14.2
    
    
    
    8.1
    
    
    
    14.0
    
    
    
    6.3Earnings from discontinued operations before income taxes
    
    
    5.7
    
    
    
    0.2
    
    
    
    2.2
    
    
    
    0.2Income tax expense on discontinued operations
    
    
    3.3
    
    
    
    0.1
    
    
    
    1.3
    
    
    
    0.1Income from discontinued operations
    
    
    2.4
    
    
    
    0.1
    
    
    
    0.9
    
    
    
    0.1Net income
    
    
    16.6
    %
    
    
    8.2
    %
    
    
    14.9
    %
    
    
    6.4
    %
 Results of Operations
  Total
Revenues (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    226,927
    
    
    $
    189,200
    
    
    $
    37,727
    
    
    
    19.9
    %Nine months ended
    
    $
    654,464
    
    
    $
    548,828
    
    
    $
    105,636
    
    
    
    19.2
    %
   23




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Processing
and Servicing (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    192,786
    
    
    $
    167,645
    
    
    $
    25,141
    
    
    
    15.0
    %Nine months ended
    
    $
    563,143
    
    
    $
    486,787
    
    
    $
    76,356
    
    
    
    15.7
    %
   24




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License Fees (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    9,479
    
    
    $
    5,458
    
    
    $
    4,021
    
    
    
    73.7
    %Nine months ended
    
    $
    24,859
    
    
    $
    18,987
    
    
    $
    5,872
    
    
    
    30.9
    %
  Maintenance Fees (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    11,078
    
    
    $
    7,959
    
    
    $
    3,119
    
    
    
    39.2
    %Nine months ended
    
    $
    30,707
    
    
    $
    22,751
    
    
    $
    7,956
    
    
    
    35.0
    %
  Professional Fees (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    13,584
    
    
    $
    8,138
    
    
    $
    5,446
    
    
    
    66.9
    %Nine months ended
    
    $
    35,755
    
    
    $
    20,303
    
    
    $
    15,452
    
    
    
    76.1
    %
  Cost of Processing, Servicing and Support (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    91,351
    
    
    
    40.3
    %
    
    $
    72,660
    
    
    
    38.4
    %Nine months ended
    
    $
    253,026
    
    
    
    38.7
    %
    
    $
    220,539
    
    
    
    40.2
    %
  25




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Research and Development (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    26,038
    
    
    
    11.5
    %
    
    $
    20,139
    
    
    
    10.6
    %Nine months ended
    
    $
    72,865
    
    
    
    11.1
    %
    
    $
    58,448
    
    
    
    10.6
    %
  Sales and Marketing (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    22,107
    
    
    
    9.7
    %
    
    $
    16,590
    
    
    
    8.8
    %Nine months ended
    
    $
    61,272
    
    
    
    9.4
    %
    
    $
    46,615
    
    
    
    8.5
    %
  General and Administrative (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    16,219
    
    
    
    7.1
    %
    
    $
    15,016
    
    
    
    7.9
    %Nine months ended
    
    $
    48,777
    
    
    
    7.4
    %
    
    $
    42,573
    
    
    
    7.8
    %
  26




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Depreciation and Amortization (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    22,349
    
    
    
    9.8
    %
    
    $
    43,377
    
    
    
    22.9
    %Nine months ended
    
    $
    77,749
    
    
    
    11.9
    %
    
    $
    130,589
    
    
    
    23.8
    %
   Equity in Net Loss of Joint Venture (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    (973
    )
    
    
    (0.4
    )%
    
    $
    (823
    )
    
    
    (0.4
    )%Nine months ended
    
    $
    (2,447
    )
    
    
    (0.4
    )%
    
    $
    (2,170
    )
    
    
    (0.4
    )%
  27




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Net Interest (000s)
 March 31,2006
    
    
    2005%
    
    
    
    
    
    
    %$
    
    
    Revenue
    
    
    $
    
    
    RevenueThree months ended:Interest income
    
    $
    3,238
    
    
    
    
    
    
    $
    2,427Interest expense
    
    
    (227
    )
    
    
    
    
    
    
    (284
    )Net interest
    
    $
    3,011
    
    
    
    1.3
    %
    
    $
    2,143
    
    
    
    1.1
    %Nine months ended:Interest income
    
    $
    9,085
    
    
    
    
    
    
    $
    6,143Interest expense
    
    
    (702
    )
    
    
    
    
    
    
    (815
    )Net interest
    
    $
    8,383
    
    
    
    1.3
    %
    
    $
    5,328
    
    
    
    1.0
    %
   Gain on Investments (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    
    
    
    
    
    
    
    $
    592
    
    
    
    0.3
    %Nine months ended
    
    $
    
    
    
    
    
    
    
    $
    592
    
    
    
    0.1
    %
  Income Tax Expense
on Continuing
Operations (000s)
 March 31,2006
    
    2005Effective
    
    
    
    
    
    Effective$
    
    Rate
    
    $
    
    RateThree months ended
    
    $
    18,720
    
    
    
    36.8
    %
    
    $
    7,976
    
    
    
    34.2
    %Nine months ended
    
    $
    55,180
    
    
    
    37.6
    %
    
    $
    19,660
    
    
    
    36.5
    %
  28




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##### Table of Contents



Earnings from Discontinued Operations (000s)
 March 31,2006
    
    2005%
    
    
    
    
    
    %$
    
    Revenue
    
    $
    
    RevenueThree months ended
    
    $
    13,056
    
    
    
    5.8
    %
    
    $
    388
    
    
    
    0.2
    %Nine months ended
    
    $
    14,311
    
    
    
    2.2
    %
    
    $
    1,097
    
    
    
    0.2
    %
  Income Tax Expense on Discontinued Operations (000s)
 March 31,2006
    
    2005Effective
    
    
    
    
    
    Effective$
    
    Rate
    
    $
    
    RateThree months ended
    
    $
    7,581
    
    
    
    58.1
    %
    
    $
    136
    
    
    
    35.1
    %Nine months ended
    
    $
    8,064
    
    
    
    56.3
    %
    
    $
    395
    
    
    
    36.0
    %
  29




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##### Table of Contents



Segment Information
   Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Revenues:Electronic Commerce
    
    $
    169,438
    
    
    $
    147,581
    
    
    $
    496,187
    
    
    $
    427,896Investment Services
    
    
    27,833
    
    
    
    22,023
    
    
    
    78,542
    
    
    
    64,877Software
    
    
    29,656
    
    
    
    19,596
    
    
    
    79,735
    
    
    
    56,055Total revenues
    
    $
    226,927
    
    
    $
    189,200
    
    
    $
    654,464
    
    
    $
    548,828Segment income (loss):Electronic Commerce
    
    $
    59,739
    
    
    $
    54,034
    
    
    $
    192,282
    
    
    $
    151,864Investment Services
    
    
    4,185
    
    
    
    4,837
    
    
    
    13,635
    
    
    
    13,022Software
    
    
    7,496
    
    
    
    6,067
    
    
    
    15,969
    
    
    
    13,369Corporate
    
    
    (10,291
    )
    
    
    (10,001
    )
    
    
    (29,795
    )
    
    
    (27,537
    )Acquisition-related amortization:Electronic Commerce
    
    
    (9,110
    )
    
    
    (32,559
    )
    
    
    (40,037
    )
    
    
    (97,681
    )Investment Services
    
    
    (547
    )
    
    
    (151
    )
    
    
    (1,508
    )
    
    
    (453
    )Software
    
    
    (1,597
    )
    
    
    (421
    )
    
    
    (4,906
    )
    
    
    (1,423
    )Impact of discontinued operations:Investment Services
    
    
    (235
    )
    
    
    (388
    )
    
    
    (1,490
    )
    
    
    (1,097
    )SFAS 123(R)
 Options issued before July 1, 2004 (1):Electronic Commerce
    
    
    (563
    )
    
    
    
    
    
    
    (2,449
    )
    
    
    Investment Services
    
    
    (80
    )
    
    
    
    
    
    
    (347
    )
    
    
    Software
    
    
    (35
    )
    
    
    
    
    
    
    (150
    )
    
    
    Corporate
    
    
    (99
    )
    
    
    
    
    
    
    (429
    )
    
    
    Total income from continuing operations
    
    $
    48,863
    
    
    $
    21,418
    
    
    $
    140,775
    
    
    $
    50,064
 
 (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. 30




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##### Table of Contents



Electronic Commerce Segment Information:
 Electronic Commerce Revenues (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    169,438
    
    
    $
    147,581
    
    
    $
    21,857
    
    
    
    14.8
    %Nine months ended
    
    $
    496,187
    
    
    $
    427,896
    
    
    $
    68,291
    
    
    
    16.0
    %
    31




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##### Table of Contents



Three Months Ended3/31/06
    
    12/31/05
    
    9/30/05
    
    3/31/05
    
    12/31/04
    
    9/30/04(In millions)Full ServiceRevenue
    
    $
    109.4
    
    
    $
    116.0
    
    
    $
    118.5
    
    
    $
    106.4
    
    
    $
    102.4
    
    
    $
    99.1Active subscribers (1)
    
    
    9.7
    
    
    
    9.0
    
    
    
    8.8
    
    
    
    7.4
    
    
    
    6.9
    
    
    
    6.4Transactions processed
    
    
    206.7
    
    
    
    189.7
    
    
    
    180.1
    
    
    
    153.6
    
    
    
    142.9
    
    
    
    133.5Payment ServicesRevenue
    
    $
    47.8
    
    
    $
    36.1
    
    
    $
    35.4
    
    
    $
    32.4
    
    
    $
    31.3
    
    
    $
    30.5Transactions processed
    
    
    86.6
    
    
    
    81.0
    
    
    
    85.9
    
    
    
    80.8
    
    
    
    76.5
    
    
    
    72.3Other Electronic CommerceRevenue
    
    $
    12.2
    
    
    $
    11.2
    
    
    $
    9.6
    
    
    $
    8.8
    
    
    $
    8.4
    
    
    $
    8.6TotalsElectronic Commerce revenue
    
    $
    169.4
    
    
    $
    163.3
    
    
    $
    163.5
    
    
    $
    147.6
    
    
    $
    142.1
    
    
    $
    138.2Transactions processed
    
    
    293.3
    
    
    
    270.7
    
    
    
    266.0
    
    
    
    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.    Electronic Commerce
Operating Income
(000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    59,739
    
    
    $
    54,034
    
    
    $
    5,705
    
    
    
    10.6
    %Nine months ended
    
    $
    192,282
    
    
    $
    151,864
    
    
    $
    40,418
    
    
    
    26.6
    %
  32




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##### Table of Contents



Investment Services Segment Information:
 Investment Services Revenues (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    27,833
    
    
    $
    22,023
    
    
    $
    5,810
    
    
    
    26.4
    %Nine months ended
    
    $
    78,542
    
    
    $
    64,877
    
    
    $
    13,665
    
    
    
    21.1
    %
  Investment Services Operating Income (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    4,185
    
    
    $
    4,837
    
    
    $
    (652
    )
    
    
    (13.5
    )%Nine months ended
    
    $
    13,635
    
    
    $
    13,022
    
    
    $
    613
    
    
    
    4.7
    %
 TM
 Software Segment Information:
 Software Revenues (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    29,656
    
    
    $
    19,596
    
    
    $
    10,060
    
    
    
    51.3
    %Nine months ended
    
    $
    79,735
    
    
    $
    56,055
    
    
    $
    23,680
    
    
    
    42.2
    %
  Software Operating Income (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    7,496
    
    
    $
    6,067
    
    
    $
    1,429
    
    
    
    23.6
    %Nine months ended
    
    $
    15,969
    
    
    $
    13,369
    
    
    $
    2,600
    
    
    
    19.4
    %
 
 33




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##### Table of Contents



Corporate Segment Information:
 Corporate Operating Loss (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    (10,291
    )
    
    $
    (10,001
    )
    
    $
    (290
    )
    
    
    (2.9
    )%Nine months ended
    
    $
    (29,795
    )
    
    $
    (27,537
    )
    
    $
    (2,258
    )
    
    
    (8.2
    )%
  Acquisition-Related Amortization:
 Acquisition-Related Amortization Expense (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    11,254
    
    
    $
    33,131
    
    
    $
    (21,877
    )
    
    
    (66.0
    )%Nine months ended
    
    $
    46,451
    
    
    $
    99,557
    
    
    $
    (53,106
    )
    
    
    (53.3
    )%
  Impact of Discontinued Operations:
 Impact of Discontinued Operations (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    235
    
    
    $
    388
    
    
    $
    (153
    )
    
    
    (39.4
    )%Nine months ended
    
    $
    1,490
    
    
    $
    1,097
    
    
    $
    393
    
    
    
    35.8
    %
  34




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##### Table of Contents



SFAS 123(R)  Options Issued Before July 1, 2004:
 SFAS
123(R)  Options Issued Before July 1, 2004 (000s)
 March 31,
    
    Change2006
    
    2005
    
    $
    
    %Three months ended
    
    $
    777
    
    
    $
    
    
    
    $
    777
    
    
    
    Nine months ended
    
    $
    3,375
    
    
    $
    
    
    
    $
    3,375
    
    
    
    
  Inflation
  Liquidity and Capital Resources
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedMarch 31, 2006(in thousands)Net cash provided by operating activities
    
    $
    72,539
    
    
    $
    172,801Net cash used in investing activities
    
    
    (79,422
    )
    
    
    (87,487
    )Net cash provided by financing activities
    
    
    4,277
    
    
    
    17,591Effect of exchange rate changes
    
    
    54
    
    
    
    (104
    )Net increase (decrease) in cash and cash equivalents
    
    $
    (2,552
    )
    
    $
    102,801
   35




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##### Table of Contents



Use of Non-GAAP Financial Information
     36




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net cash provided by operating activities
    
    $
    72,539
    
    
    $
    61,564
    
    
    $
    172,801
    
    
    $
    159,099Excluding: Net change in settlement accounts
    
    
    (68
    )
    
    
    (1,498
    )
    
    
    2,194
    
    
    
    (70
    )Less: Capital expenditures
    
    
    (10,175
    )
    
    
    (10,214
    )
    
    
    (33,817
    )
    
    
    (24,331
    )Free cash flow
    
    $
    62,296
    
    
    $
    49,852
    
    
    $
    141,178
    
    
    $
    134,698
   Recent Developments
      37




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##### Table of Contents



Application of Critical Accounting Policies
  Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
  38




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
       
 Item 4.
    
    Controls and Procedures
 Disclosure Controls and Procedures.
  39




---



##### Table of Contents



Internal Controls.
 40




---



##### Table of Contents



Part II. Other Information
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  (c)
    
    (d)(a)
    
    (b)
    
    Total Number of Shares
    
    Approximate DollarTotal Number
    
    Average Price
    
    Purchased as Part of
    
    Value of Shares that Mayof Shares
    
    Paid per
    
    Publicly Announced Plans
    
    Yet Be Purchased UnderPeriod
    
    Purchased
    
    Share
    
    or Programs(1)
    
    the Plans or Programs(1)January 1, 2006 to January 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    60,000,000February 1, 2006 to February 28, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    60,000,000March 1, 2006 to March 31, 2006
    
    
    151,537
    
    
    $
    47.31
    
    
    
    151,537
    
    
    $
    52,800,000
 
 (1)
    
    Information is as of the end of the period. 
 Item 6.  Exhibits
 Exhibit
    
    ExhibitNumber
    
    Description10(a)*
    
    Adoption Agreement for the CheckFree Services Corporation 401(k) Plan.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. 41




---



##### Table of Contents



Signatures
  CHECKFREE CORPORATIONDate: May 9, 2006
    
    By:
    
    /s/ David E. Mangum

David E. Mangum, Executive Vice
President and Chief Financial Officer*
(Principal Financial Officer)Date: May 9, 2006
    
    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. 42




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    ExhibitNumber
    
    Description10(a)*
    
    Adoption Agreement for the CheckFree Services Corporation 401(k) Plan.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.