Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 2006
CHECKFREE CORPORATION
(Exact Name of Registrant as specified in its charter)
| Delaware | 0-26802 | 58-2360335 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File No.) |
(IRS Employer Identification Number) |
4411 East Jones Bridge Road
Norcross, Georgia 30092
(678) 375-3000
(Address, including zip code, and telephone number
including area code of Registrant’s
principal executive offices)
Norcross, Georgia 30092
(678) 375-3000
(Address, including zip code, and telephone number
including area code of Registrant’s
principal executive offices)
Not Applicable
(Former name or former address, if changed since last report)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
TABLE OF CONTENTS
| Item 2.02. Results of Operations and Financial Condition | ||||||||
| Item 9.01. Financial Statements and Exhibits | ||||||||
| SIGNATURES | ||||||||
| EXHIBIT INDEX | ||||||||
| EX-99.1 | ||||||||
Table of Contents
Explanatory Note:
This
Form 8-K/A amends and restates the Form 8-K (the “Original Form 8-K”) filed by CheckFree Corporation on August 1, 2006, announcing its financial results for the fourth quarter and fiscal year ended June 30, 2006. This Form 8-K/A is being filed to amend the Original Form 8-K to attach a corrected version of the press release which reflects corrected e-Bill
delivery metrics in Attachment D for the first through fourth quarters of fiscal 2005.
Item 2.02. Results of Operations and Financial Condition.
On August 1, 2006, CheckFree Corporation (“CheckFree”) issued a press release announcing its
financial results for the fourth quarter and fiscal year ended June 30, 2006, and its expectations
for the first quarter ended September 30, 2006 and fiscal 2007 (the “Press Release”). Pursuant to
General Instruction F of Current Report on Form 8-K, a copy of the Press Release is furnished as
Exhibit 99.1 to this Current Report on Form 8-K (the “Form 8-K”) and is incorporated herein by
reference. The information in this Form 8-K, including Exhibit 99.1, shall not be treated as
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it
be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
CheckFree will broadcast its fourth quarter conference call at 5:00 p.m. (ET) on August 1,
2006, to review its financial results for the fourth quarter and fiscal year ended June 30, 2006,
and its expectations for the first quarter ended September 30, 2006 and fiscal 2007. To phone into
the conference call, dial 1-877-232-1067 anytime after 4:45 p.m. (ET) and ask for the CheckFree
conference call. The live conference call will be accessible through the Investor Center section
of the CheckFree corporate Web site at http://www.checkfreecorp.com. A digital replay of
the call will be available on the same Web site after 7:00 p.m. (ET) on August 1, 2006.
Certain of CheckFree’s statements contained or incorporated by reference in this Form 8-K are
not purely historical, and as such are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. These include statements regarding management’s
intentions, plans, beliefs, expectations or projections of the future, and include statements
regarding forecasts and expectations of ability to extend market share in each business category,
revenue for the first quarter of fiscal 2007, earnings per share for the first quarter of fiscal
2007 and fiscal 2007 as a whole, free cash flow for fiscal 2007, and sequential transaction growth
and the general performance of the Company’s divisions in the first quarter of fiscal 2007
(paragraphs 3, 9, 10, 11 and 12 of the Press Release). Forward-looking statements involve
risks and uncertainties, including, without limitation, the various risks inherent in CheckFree’s
business, and other risks and uncertainties detailed from time to time in CheckFree’s periodic
reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K
for the year ended June 30, 2005 (filed September 2, 2005), Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005 (filed November 8, 2005), Quarterly Report on Form 10-Q for the
quarter ended December 31, 2005 (filed February 8, 2006), and Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006 (filed May 9, 2006). One or more of these factors have affected, and
could in the future affect, CheckFree’s business and financial results in future periods, and could
cause actual results to differ materially from plans and projections. There can be no assurance
that the forward-looking statements contained or incorporated by reference in this Form 8-K will
prove to be accurate, and issuance of such forward-looking statements should not be regarded as a
representation by CheckFree, or any other person, that the objectives and plans of CheckFree will
be achieved. All forward-looking statements contained or incorporated by reference in this Form 8-K
are based on information presently available to management, and CheckFree assumes no obligation to
update any forward-looking statements.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
| Exhibit No. | Description | |
99.1*
|
CheckFree Corporation’s Corrected Press Release dated August 1, 2006. |
| * | Such press release is being “furnished” (not filed) under Item 2.02 of this Current Report on Form 8-K. |
2
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this amended report to be signed on its behalf by the undersigned hereunto duly authorized.
| CheckFree Corporation |
||||
| Date: August 2, 2006 | By: | /s/ David E. Mangum | ||
| David E. Mangum, Executive Vice | ||||
| President and Chief Financial Officer | ||||
3
Table of Contents
EXHIBIT INDEX
| Exhibit No. | Description | |
99.1*
|
CheckFree Corporation’s Corrected Press Release dated August 1, 2006. |
| * | The Press Release is being “furnished” (not filed) under Item 2.02 of this Current Report on Form 8-K. |
Exhibit 99.1
This
version reflects corrected e-Bill delivery metrics in
Attachment D for the
first through fourth quarters of fiscal year 2005.
first through fourth quarters of fiscal year 2005.
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
ATLANTA (August 1, 2006) — CheckFree Corporation (Nasdaq: CKFR) today announced fourth
quarter revenue of $224.9 million, representing a 12 percent increase over the same period last
year. The Company’s GAAP (Generally Accepted Accounting Principles) net income for the quarter was
$29.4 million, or $0.31 per share, and underlying net income was $36.5 million, or $0.39 per share.
CheckFree reported GAAP consolidated revenue for fiscal 2006 of $879.4 million, reflecting 17
percent growth over fiscal 2005, and underlying revenue of $884.4 million for fiscal 2006, also
reflecting 17 percent growth over the previous fiscal year.
For the year, the Company’s GAAP net income was $127.2 million, or $1.36 per share, and underlying
net income was $160.8 million, or $1.72 per share. Free cash flow was $29.0 million for the fourth
quarter, and $170.2 million for the year as outlined in Attachment A.
“We are pleased with our fiscal 2006 results,” said Pete Kight, CheckFree Chairman and Chief
Executive Officer. “Year-over-year growth met our targets. In the fourth quarter, our Software and
Investment Services Divisions reported solid performance. The consumer transaction growth in our
Electronic Commerce Division was soft for the quarter, resulting in quarterly growth below our
expectations. The long-term growth drivers of the consumer business were all strong, including
retained customers, new financial institution contracts and new biller signings. We are entering
fiscal 2007 with strong fundamentals and increasing opportunity to extend our market share in each
of our business categories.”
GAAP Results: Net income for the fourth quarter was $29.4 million, compared to net income of $11.9
million for the same quarter last year. Earnings per share were $0.31 for the fourth quarter of
fiscal 2006, compared to earnings per share of $0.13 for the fourth quarter of last year. For
fiscal 2006, net income was $127.2 million, or $1.36 per share, compared to net income of $46.8
million, or $0.50 per share for fiscal 2005. Net cash provided by operating activities was $40.0
million for the fourth quarter of fiscal 2006, compared to $47.0 million for the same period last
year. Net cash provided by operating activities was $212.8 million for fiscal 2006, compared to
$206.1 million for fiscal 2005.
Underlying Results: Underlying net income for the fourth quarter was $36.5 million, unchanged from
$36.5 million for the same quarter of last year. Underlying earnings per share were $0.39 for the
fourth quarter of fiscal 2006, unchanged from $0.39 for the fourth quarter of last year. For fiscal
2006, underlying net income was $160.8 million, or $1.72 per share, compared to underlying net
income of $133.0 million, or $1.43 per share, for fiscal 2005.
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CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
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Underlying net income and earnings per share for the fourth quarter and full year of fiscal 2006
exclude the amortization of acquisition-related intangible assets; the SFAS 123(R) impact of
options issued prior to July 1, 2004; and for the full year of fiscal 2006 include the historical
effect of discontinued operations on revenue and expense, resulting from a divestiture in the third
quarter of fiscal 2006; and the combined tax benefits from each of the foregoing. Underlying net
income and earnings per share for the fourth quarter and full year of fiscal 2005 exclude the
amortization of acquisition-related intangible assets; a reorganization charge; a gain on
investments; and include the historical effect of discontinued operations on revenue and expense,
resulting from a divestiture in the third quarter of fiscal 2006; and the combined tax benefits
from each of the foregoing. A reconciliation of CheckFree’s quarterly and annual underlying results
to its GAAP results is included in Attachment A.
Fourth Quarter and Fiscal Year 2006 Highlights
For the fourth quarter of fiscal 2006, the Company reported that the Electronic Commerce Division processed 302.2 million transactions, a 3 percent sequential increase over the third quarter of fiscal 2006. For fiscal 2006, 1.13 billion transactions were processed, compared to 904.5 million transactions processed in the previous fiscal year, representing 25 percent annual growth. The Company delivered 50.0 million electronic bills during the fourth quarter, which reflects a 7 percent sequential quarterly increase. For fiscal 2006, CheckFree reported 184.6 million electronic bills, a 32 percent year-over-year increase.
For the fourth quarter of fiscal 2006, the Company reported that the Electronic Commerce Division processed 302.2 million transactions, a 3 percent sequential increase over the third quarter of fiscal 2006. For fiscal 2006, 1.13 billion transactions were processed, compared to 904.5 million transactions processed in the previous fiscal year, representing 25 percent annual growth. The Company delivered 50.0 million electronic bills during the fourth quarter, which reflects a 7 percent sequential quarterly increase. For fiscal 2006, CheckFree reported 184.6 million electronic bills, a 32 percent year-over-year increase.
CheckFree Investment Services reported nearly 2.3 million portfolios under management, compared to
1.9 million at the end of fiscal 2005, representing a 20 percent increase over the previous fiscal
year. Total revenue for our Software business increased by 35 percent over the prior fiscal year.
Refer to Attachment B for details on the financial performance of CheckFree’s divisions in the
fourth quarter of fiscal 2006, and Attachments C and D for electronic billing and payment metrics.
Financial Outlook for Fiscal 2007 and the First Quarter of Fiscal 2007
“For fiscal 2007, we expect earnings per share of $1.58 to $1.62 on a GAAP basis and $1.90 to $1.94 on an underlying basis, representing 10 to 13 percent growth over fiscal 2006. As a reminder, we divested M-Solutions in February. Excluding that divestiture, this represents 12 to 14 percent growth,” said David Mangum, CheckFree Chief Financial Officer. “We expect free cash flow in the range of $190 million to $195 million for fiscal 2007. In addition, we expect to maintain CheckFree’s operating margin in our targeted mid-to-upper-20-percent range.
“For fiscal 2007, we expect earnings per share of $1.58 to $1.62 on a GAAP basis and $1.90 to $1.94 on an underlying basis, representing 10 to 13 percent growth over fiscal 2006. As a reminder, we divested M-Solutions in February. Excluding that divestiture, this represents 12 to 14 percent growth,” said David Mangum, CheckFree Chief Financial Officer. “We expect free cash flow in the range of $190 million to $195 million for fiscal 2007. In addition, we expect to maintain CheckFree’s operating margin in our targeted mid-to-upper-20-percent range.
“For the first quarter of the fiscal year, we estimate revenue between $226 million and $231
million with GAAP earnings per share in the range of $0.29 to $0.31,” said Mangum. “This equates to
underlying earnings per share in the range of $0.37 to $0.39.
“We project sequential transaction growth of 4 to 7 percent in the first quarter of 2007 in our
Electronic Commerce Division,” he continued. “We expect solid portfolio growth in the
— more —
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
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Page 3 of 12
Investment Services business, while we expect our Software division to deliver a seasonally light
first quarter for license sales,” Mangum concluded.
The difference between GAAP and underlying earnings expectations for fiscal 2007 and the first
quarter of fiscal 2007 is due to expected acquisition-related intangible amortization expenses, the
SFAS 123(R) impact of options issued prior to July 1, 2004, and the combined tax benefits from each
of the foregoing.
The Company also announced that it repurchased more than 550,000 shares of its common stock for
approximately $26 million during the fourth quarter. The Company’s board of directors recently
approved a new, separate stock repurchase program under which CheckFree may repurchase up to $100
million in shares of its common stock through July 31, 2007.
Conference Call on the Internet
CheckFree will broadcast its fourth quarter conference call at 5 p.m. (ET) today to review its financial results for the fourth quarter and fiscal year ended June 30, 2006 and its expectations for the first quarter of fiscal 2007 and for fiscal 2007. To phone into the conference call, dial 1-877-232-1067 any time after 4:45 p.m. (ET) and ask for the CheckFree conference call. Participants can also access the conference call at http://www.checkfreecorp.com. The live conference call will be accessible through the Investor Center section of the CheckFree corporate website at http://www.checkfreecorp.com. A digital replay of the call will be available on the same website after 7 p.m. (ET).
CheckFree will broadcast its fourth quarter conference call at 5 p.m. (ET) today to review its financial results for the fourth quarter and fiscal year ended June 30, 2006 and its expectations for the first quarter of fiscal 2007 and for fiscal 2007. To phone into the conference call, dial 1-877-232-1067 any time after 4:45 p.m. (ET) and ask for the CheckFree conference call. Participants can also access the conference call at http://www.checkfreecorp.com. The live conference call will be accessible through the Investor Center section of the CheckFree corporate website at http://www.checkfreecorp.com. A digital replay of the call will be available on the same website after 7 p.m. (ET).
About CheckFree ( www.checkfreecorp.com )
Founded in 1981, CheckFree Corporation (Nasdaq: CKFR) provides financial electronic commerce services and products to organizations around the world. CheckFree Electronic Commerce solutions enable thousands of financial services providers and billers to offer their customers the convenience of receiving and paying their household bills online or in person through retail outlets. CheckFree Investment Services provides a broad range of investment management solutions and outsourced services to thousands of financial services organizations, which manage about $1.4 trillion in assets. CheckFree Software develops, markets and supports software applications that are used by financial institutions to process more than two-thirds of the nearly 14 billion Automated Clearing House transactions in the United States. The division also provides operational risk management, financial messaging, corporate actions, and regulatory compliance software to more than 1,500 organizations across the globe.
Founded in 1981, CheckFree Corporation (Nasdaq: CKFR) provides financial electronic commerce services and products to organizations around the world. CheckFree Electronic Commerce solutions enable thousands of financial services providers and billers to offer their customers the convenience of receiving and paying their household bills online or in person through retail outlets. CheckFree Investment Services provides a broad range of investment management solutions and outsourced services to thousands of financial services organizations, which manage about $1.4 trillion in assets. CheckFree Software develops, markets and supports software applications that are used by financial institutions to process more than two-thirds of the nearly 14 billion Automated Clearing House transactions in the United States. The division also provides operational risk management, financial messaging, corporate actions, and regulatory compliance software to more than 1,500 organizations across the globe.
Certain of the Company’s statements in this press release are not purely historical, and as
such are “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These include statements regarding management’s intentions, plans, beliefs,
expectations or projections of the future, and include statements regarding forecasts and
expectations of ability to extend market share in each business category, revenue for the first
quarter of fiscal 2007, earnings per share for the first quarter of fiscal 2007 and fiscal 2007 as
a whole, free cash flow for fiscal 2007, and sequential transaction growth and the general
performance of the Company’s divisions in the first quarter of fiscal 2007 (paragraphs 3, 9, 10, 11
and 12). Forward-looking statements involve risks and uncertainties, including without
— more —
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
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Page 4 of 12
limitation, the various risks inherent in the Company’s business, and other risks and
uncertainties detailed
from time to time in the Company’s periodic reports filed with the Securities and Exchange
Commission, including the Company’s Annual Report on Form 10-K for the year ended June 30, 2005
(filed September 2, 2005), Form 10-Q for the quarter ended September 30, 2005 (filed
November 8, 2005), Form 10-Q for the quarter ended December 31, 2005 (filed February 8, 2006), and
Form 10-Q for the quarter ended March 31, 2006 (filed May 9, 2006). One or more of these factors
have affected, and could in the future affect the Company’s business and financial results in
future periods, and could cause actual results to
differ materially from plans and projections. There can be no assurance that the forward-looking
statements made in this press release will prove to be accurate, and issuance of such
forward-looking statements should not be regarded as a representation by the Company, or any other
person, that the objectives and plans of the Company will be achieved. All forward-looking
statements made in this press release are based on information presently available to management,
and the Company assumes no obligation to update any forward-looking statements.
# # #
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 5 of 12
Page 5 of 12
CHECKFREE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Year Ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | ||||||||||||||||
Revenues: |
|||||||||||||||||||
Processing and servicing |
$ | 190,934 | $ | 173,754 | $ | 754,077 | $ | 660,541 | |||||||||||
License fees |
10,337 | 9,471 | 35,196 | 28,458 | |||||||||||||||
Maintenance fees |
11,511 | 8,479 | 42,218 | 31,230 | |||||||||||||||
Professional fees |
12,157 | 9,315 | 47,912 | 29,618 | |||||||||||||||
Total revenues |
224,939 | 201,019 | 879,403 | 749,847 | |||||||||||||||
Expenses: |
|||||||||||||||||||
Cost of processing, servicing and support |
89,509 | 76,372 | 342,535 | 296,911 | |||||||||||||||
Research and development |
28,989 | 21,590 | 101,854 | 80,038 | |||||||||||||||
Sales and marketing |
26,147 | 22,491 | 87,419 | 69,106 | |||||||||||||||
General and administrative |
13,170 | 14,915 | 61,947 | 57,488 | |||||||||||||||
Depreciation and amortization |
21,899 | 45,133 | 99,648 | 175,722 | |||||||||||||||
Reorganization charge |
— | 5,585 | — | 5,585 | |||||||||||||||
Total expenses |
179,714 | 186,086 | 693,403 | 684,850 | |||||||||||||||
Income from continuing operations before other income and expenses |
45,225 | 14,933 | 186,000 | 64,997 | |||||||||||||||
Equity in net loss of joint venture |
(653 | ) | (814 | ) | (3,100 | ) | (2,984 | ) | |||||||||||
Interest, net |
4,071 | 2,388 | 12,454 | 7,716 | |||||||||||||||
Gain on investments |
— | — | — | 592 | |||||||||||||||
Income from continuing operations before income taxes |
48,643 | 16,507 | 195,354 | 70,321 | |||||||||||||||
Income tax expense |
19,230 | 4,850 | 74,410 | 24,510 | |||||||||||||||
Income from continuing operations |
29,413 | 11,657 | 120,944 | 45,811 | |||||||||||||||
Earnings from discontinued operations before income taxes
(including gain on disposal of $12,821 in FY’2006) |
— | 421 | 14,311 | 1,518 | |||||||||||||||
Income tax expense on discontinued operations |
— | 133 | 8,064 | 528 | |||||||||||||||
Income from discontinued operations |
— | 288 | 6,247 | 990 | |||||||||||||||
Net income |
$ | 29,413 | $ | 11,945 | $ | 127,191 | $ | 46,801 | |||||||||||
Basic income per share: |
|||||||||||||||||||
Continuing operations |
$ | 0.32 | $ | 0.13 | $ | 1.33 | $ | 0.51 | |||||||||||
Discontinued operations |
0.00 | 0.00 | 0.07 | 0.01 | |||||||||||||||
Total basic income per share |
$ | 0.32 | $ | 0.13 | $ | 1.40 | $ | 0.52 | |||||||||||
Weighted average number of shares |
91,287 | 90,962 | 90,984 | 90,767 | |||||||||||||||
Diluted income per share: |
|||||||||||||||||||
Continuing operations |
$ | 0.31 | $ | 0.13 | $ | 1.29 | $ | 0.49 | |||||||||||
Discontinued operations |
0.00 | 0.00 | 0.07 | 0.01 | |||||||||||||||
Total diluted income per share |
$ | 0.31 | $ | 0.13 | $ | 1.36 | $ | 0.50 | |||||||||||
Weighted average number of shares |
94,232 | 93,054 | 93,708 | 92,915 | |||||||||||||||
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 6 of 12
CHECKFREE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
(In thousands)
Consolidated Condensed Balance Sheets
(Unaudited)
(In thousands)
| June 30, | June 30, | |||||||
| 2006 | 2005 | |||||||
Current assets: |
||||||||
Cash, cash equivalents and investments |
$ | 317,972 | $ | 298,077 | ||||
Settlement assets |
107,128 | 73,675 | ||||||
Accounts receivable, net |
146,246 | 127,933 | ||||||
Prepaid expenses and other assets |
39,855 | 26,258 | ||||||
Deferred income taxes |
7,270 | 10,407 | ||||||
Total current assets |
618,471 | 536,350 | ||||||
Property and equipment, net |
100,217 | 89,273 | ||||||
Intangible assets, net |
906,650 | 840,732 | ||||||
Investments and restricted cash |
78,559 | 62,996 | ||||||
Other noncurrent assets |
8,372 | 4,600 | ||||||
Deferred income taxes |
44,618 | 35,648 | ||||||
Investment in joint venture |
407 | 317 | ||||||
Total assets |
$ | 1,757,294 | $ | 1,569,916 | ||||
Current liabilities: |
||||||||
Accounts payable, accrued liabilities and other |
$ | 92,112 | $ | 84,109 | ||||
Settlement obligations |
103,732 | 73,919 | ||||||
Deferred revenue |
43,322 | 40,793 | ||||||
Total current liabilities |
239,166 | 198,821 | ||||||
Accrued rent and other |
3,844 | 4,324 | ||||||
Deferred income taxes |
2,289 | 4,967 | ||||||
Capital lease and long-term obligations, less current portion |
28,432 | 25,389 | ||||||
Total stockholders’ equity |
1,483,563 | 1,336,415 | ||||||
Total liabilities and stockholders’ equity |
$ | 1,757,294 | $ | 1,569,916 | ||||
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 7 of 12
Page 7 of 12
Attachment A
Calculation of Free Cash Flow
(Unaudited)
(In thousands)
(Unaudited)
(In thousands)
| Three Months Ended | Year Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
Net cash provided by operating activities |
$ | 40,036 | $ | 46,996 | $ | 212,837 | $ | 206,095 | ||||||||
Excluding: Net change in settlement accounts |
1,236 | (83 | ) | 3,430 | (153 | ) | ||||||||||
Less: Capital expenditures |
(14,279 | ) | (9,562 | ) | (48,096 | ) | (33,893 | ) | ||||||||
Plus: Data Center Reimbursements |
2,046 | — | 2,046 | — | ||||||||||||
Free cash flow |
$ | 29,039 | $ | 37,351 | $ | 170,217 | $ | 172,049 | ||||||||
Additional Information: |
||||||||||||||||
Net cash used in investing activities |
$ | (50,429 | ) | $ | (23,015 | ) | $ | (138,076 | ) | $ | (215,855 | ) | ||||
Net cash (used in) provided by financing activities |
$ | (20,438 | ) | $ | (33,710 | ) | $ | (2,847 | ) | $ | (24,113 | ) | ||||
Use of Non-GAAP Financial Information
The Company supplements its reporting of cash flow information determined in accordance with
GAAP by using “free cash flow” in this earnings release as a measure to evaluate its liquidity. The
Company defines free cash flow as GAAP net cash provided by operating activities, exclusive of the
net change in settlement accounts, less capital expenditures, plus data center reimbursements. The
Company believes free cash flow provides useful information to management and investors in
understanding its financial results and assessing its prospects for future performance. CheckFree
also uses free cash flow as a factor in determining long-term incentive compensation for senior
management.
The Company excludes the net change in settlement accounts from free cash flow because it
believes this facilitates management’s and investors’ ability to analyze operating cash flow
trends. In connection with its walk-in payment business, the Company’s balance sheet reflects
settlement assets and settlement obligations. The settlement assets represent payment receipts in
transit to the Company from agents, and the settlement obligations represent scheduled but unpaid
payments due to billers. Balances in settlement accounts fluctuate daily based on deposit timing
and payment transaction volume. These timing differences are not reflective of the Company’s
liquidity, and thus, CheckFree excludes the net change in settlement accounts from free cash flow.
As a technology company, CheckFree makes significant capital expenditures in order to update
its technology and to remain competitive. The Company’s free cash flow reflects the amount of cash
it generated that remains, after it has met those operational needs, for the evaluation and
execution of strategic initiatives such as acquisitions, stock and/or debt repurchases and other
investing and financing activities, including servicing additional debt obligations. During the
fourth quarter of fiscal 2006, the Company entered into a credit facility to finance the
construction of data centers. Amounts expended by the Company to construct these data centers are
included in the Company’s capital expenditures, but will be fully reimbursed by the credit
facility. The reimbursements from the credit facility are added to our free cash flow measure
because these expenditures do not impact the Company’s overall liquidity.
Free cash flow does not solely represent residual cash flow available for discretionary
expenditures, as certain of CheckFree’s non-discretionary obligations are also funded out of free
cash flow. These consist primarily of payments on capital leases and other long-term commitments,
if any, as reflected in the table entitled “Contractual Obligations” in the “Liquidity and Capital
Resources” section of “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contained in CheckFree’s Annual Report on Form 10-K for the fiscal year ended June 30,
2005, which was filed with the Securities and Exchange Commission on September 2, 2005.
The Company’s free cash flow should be considered in addition to, and not as a substitute for,
net cash provided by operating activities or any other amount determined in accordance with GAAP.
Further, CheckFree’s measure of free cash flow may not be comparable to similarly titled measures
reported by other companies.
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 8 of 12
Page 8 of 12
Attachment A (continued)
Reconciliation of GAAP Net Income to Underlying Net Income and Earnings Per Share
(Unaudited)
(In thousands, except per share data)
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Year Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
Total revenues per GAAP |
$ | 224,939 | $ | 201,019 | $ | 879,403 | $ | 749,847 | ||||||||
Impact of discontinued operations(1) |
— | 2,004 | 4,957 | 7,985 | ||||||||||||
Underlying total revenues |
$ | 224,939 | $ | 203,023 | $ | 884,360 | $ | 757,832 | ||||||||
Net income per GAAP |
$ | 29,413 | $ | 11,945 | $ | 127,191 | $ | 46,801 | ||||||||
Gain from discontinued operations, net of taxes |
— | — | (5,597 | ) | — | |||||||||||
Impact of discontinued operations(1) |
— | 424 | 1,487 | 1,520 | ||||||||||||
Amortization of acquisition-related intangible assets |
10,586 | 33,889 | 57,037 | 133,446 | ||||||||||||
SFAS 123(R) — Stock options issued before July 1, 2004 |
758 | — | 4,136 | — | ||||||||||||
Gain on investments |
— | (592 | ) | — | (592 | ) | ||||||||||
Reorganization charge |
— | 5,585 | — | 5,585 | ||||||||||||
Tax benefit of underlying adjustments (excluding discontinued operations) |
(4,251 | ) | (14,774 | ) | (23,446 | ) | (53,756 | ) | ||||||||
Underlying net income |
$ | 36,506 | $ | 36,477 | $ | 160,808 | $ | 133,004 | ||||||||
GAAP and underlying basic weighted average shares outstanding |
91,287 | 90,962 | 90,984 | 90,767 | ||||||||||||
GAAP and underlying impact of dilutive options and warrants |
2,945 | 2,092 | 2,724 | 2,148 | ||||||||||||
GAAP and underlying diluted weighted average shares outstanding |
94,232 | 93,054 | 93,708 | 92,915 | ||||||||||||
GAAP total basic earnings per share |
$ | 0.32 | $ | 0.13 | $ | 1.40 | $ | 0.52 | ||||||||
GAAP total diluted earnings per share |
$ | 0.31 | $ | 0.13 | $ | 1.36 | $ | 0.50 | ||||||||
Underlying total basic earnings per share |
$ | 0.40 | $ | 0.40 | $ | 1.77 | $ | 1.47 | ||||||||
Underlying total diluted earnings per share |
$ | 0.39 | $ | 0.39 | $ | 1.72 | $ | 1.43 | ||||||||
(1) See page 10, note (2)
Use of Non-GAAP Financial Information
CheckFree supplements its reporting of total revenues, income (loss) from operations, net
income (loss) and earnings (loss) per share information determined in accordance with GAAP by using
“underlying revenue,” “underlying income (loss) from operations,” “underlying net income (loss)”
and “underlying earnings (loss) per share” in this earnings release. Management believes that
certain non-cash adjustments to revenues or expenses enhance the Company’s evaluation of its
performance, and are not pertinent to day to day operational decision making in the business.
Therefore, CheckFree excludes these items from GAAP revenue, income (loss) from operations, net
income (loss) and earnings (loss) per share in calculating underlying revenue, underlying income
(loss) from operations, underlying net income (loss) and underlying earnings (loss) per share.
Examples of such non-cash adjustments may include, but not be limited to, intangible asset
amortization expense and in-process research and development costs associated with acquisitions,
charges associated with the impairment of intangible assets, charges resulting from warrants issued
to third parties, and charges associated with reorganization activities, all offset by the
cumulative tax impact of these charges. CheckFree excludes these items in order to more clearly
focus on the factors it believes are pertinent to the daily management of the Company’s operations,
and management uses underlying results to evaluate the impact of operational business decisions.
CheckFree regularly reports underlying results to its Chairman and Chief Executive Officer, the
Company’s chief operating decision maker, who uses this information in allocating resources to
CheckFree’s various business units. Additionally, as CheckFree rewards its management for their
decisions that increase revenues and decrease controllable costs, the Company uses underlying
revenues and underlying income (loss) from operations as factors in determining short-term
incentive compensation for management, and uses underlying revenues, underlying net income (loss)
and underlying earnings (loss) per share as factors in determining long-term incentive compensation
for management.
Because CheckFree utilizes underlying financial results in the management of its business and
to determine incentive compensation for management, the Company believes this supplemental
information is useful to investors for their independent evaluation and understanding of the
performance of the Company’s management and its core business performance.
CheckFree’s underlying revenues, underlying income (loss) from operations, underlying net
income (loss) and underlying earnings (loss) per share should be considered in addition to, and not
as a substitute for, revenues, income (loss) from operations, net income (loss) or earnings (loss)
per share or any other amount determined in accordance with GAAP. CheckFree’s measures of
underlying revenues, underlying income (loss) from operations, underlying net income (loss) and
underlying earnings (loss) per share reflect management’s judgment of particular items, and may not
be comparable to similarly titled measures reported by other companies.
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 9 of 12
Page 9 of 12
Attachment A (continued)
CHECKFREE CORPORATION AND SUBSIDIARIES
Supplemental Underlying Consolidated Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
Supplemental Underlying Consolidated Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Year Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues: |
||||||||||||||||
Processing and servicing |
$ | 190,934 | $ | 175,722 | $ | 758,797 | $ | 668,353 | ||||||||
License fees |
10,337 | 9,471 | 35,196 | 28,458 | ||||||||||||
Maintenance fees |
11,511 | 8,487 | 42,244 | 31,265 | ||||||||||||
Professional fees |
12,157 | 9,343 | 48,123 | 29,756 | ||||||||||||
Total revenues |
224,939 | 203,023 | 884,360 | 757,832 | ||||||||||||
Expenses: |
||||||||||||||||
Cost of processing, servicing and support |
89,325 | 76,461 | 341,713 | 297,256 | ||||||||||||
Research and development |
28,766 | 22,229 | 102,002 | 82,550 | ||||||||||||
Sales and marketing |
26,016 | 22,708 | 87,177 | 70,054 | ||||||||||||
General and administrative |
12,950 | 15,338 | 61,708 | 59,272 | ||||||||||||
Depreciation and amortization |
11,313 | 10,417 | 43,100 | 42,113 | ||||||||||||
Total expenses |
168,370 | 147,153 | 635,700 | 551,245 | ||||||||||||
Income from operations |
56,569 | 55,870 | 248,660 | 206,587 | ||||||||||||
Equity in net loss of joint venture |
(653 | ) | (814 | ) | (3,100 | ) | (2,984 | ) | ||||||||
Interest, net |
4,071 | 2,387 | 12,454 | 7,716 | ||||||||||||
Income before income taxes |
59,987 | 57,443 | 258,014 | 211,319 | ||||||||||||
Income tax expense |
23,481 | 20,966 | 97,206 | 78,315 | ||||||||||||
Net income |
$ | 36,506 | $ | 36,477 | $ | 160,808 | $ | 133,004 | ||||||||
Basic income per share: |
||||||||||||||||
Net income |
$ | 0.40 | $ | 0.40 | $ | 1.77 | $ | 1.47 | ||||||||
Weighted average number of shares |
91,287 | 90,962 | 90,984 | 90,767 | ||||||||||||
Diluted income per share: |
||||||||||||||||
Net income |
$ | 0.39 | $ | 0.39 | $ | 1.72 | $ | 1.43 | ||||||||
Weighted average number of shares |
94,232 | 93,054 | 93,708 | 92,915 | ||||||||||||
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 10 of 12
Page 10 of 12
Attachment B
Reconciliation of GAAP Results to Underlying Results by Segment
(Unaudited)
(In thousands)
(Unaudited)
(In thousands)
| Three Months Ended | Year Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
Electronic Commerce: |
||||||||||||||||
Total revenues — GAAP and underlying |
$ | 166,541 | $ | 152,800 | $ | 662,728 | $ | 580,696 | ||||||||
Income from continuing operations — GAAP |
$ | 45,934 | $ | 20,230 | $ | 195,730 | $ | 74,413 | ||||||||
Amortization of acquisition-related intangible assets |
9,035 | 32,494 | 49,072 | 130,175 | ||||||||||||
Reorganization charge |
— | 3,208 | — | 3,208 | ||||||||||||
SFAS 123(R) — Stock options issued before July 1, 2004(1) |
550 | — | 2,999 | — | ||||||||||||
Underlying income from continuing operations |
$ | 55,519 | $ | 55,932 | $ | 247,801 | $ | 207,796 | ||||||||
Investment Services: |
||||||||||||||||
Total revenues — GAAP |
$ | 28,747 | $ | 23,202 | $ | 107,289 | $ | 88,079 | ||||||||
Impact of discontinued operations(2) |
— | 2,004 | 4,957 | 7,985 | ||||||||||||
Total revenues — Underlying |
$ | 28,747 | $ | 25,206 | $ | 112,246 | $ | 96,064 | ||||||||
Income from continuing operations — GAAP |
$ | 3,650 | $ | 4,729 | $ | 13,940 | $ | 16,201 | ||||||||
Amortization of acquisition-related intangible assets |
484 | 151 | 1,992 | 604 | ||||||||||||
Reorganization charge |
— | 313 | — | 313 | ||||||||||||
Impact of discontinued operations(2) |
— | 424 | 1,487 | 1,520 | ||||||||||||
SFAS 123(R) — Stock options issued before July 1, 2004(1) |
78 | — | 427 | — | ||||||||||||
Underlying income from continuing operations |
$ | 4,212 | $ | 5,617 | $ | 17,846 | $ | 18,638 | ||||||||
Software: |
||||||||||||||||
Total revenues — GAAP and underlying |
$ | 29,651 | $ | 25,017 | $ | 109,386 | $ | 81,072 | ||||||||
Income from continuing operations — GAAP |
$ | 3,727 | $ | 220 | $ | 14,640 | $ | 12,166 | ||||||||
Amortization of acquisition-related intangible assets |
1,067 | 1,244 | 5,973 | 2,667 | ||||||||||||
Reorganization charge |
— | 1,876 | — | 1,876 | ||||||||||||
Write off of capitalized software |
— | 1,039 | — | 1,039 | ||||||||||||
SFAS 123(R) — Stock options issued before July 1, 2004(1) |
34 | — | 185 | — | ||||||||||||
Underlying income from continuing operations |
$ | 4,828 | $ | 4,379 | $ | 20,798 | $ | 17,748 | ||||||||
Corporate: |
||||||||||||||||
Loss from continuing operations — GAAP |
$ | (8,086 | ) | $ | (10,246 | ) | $ | (38,310 | ) | $ | (37,783 | ) | ||||
SFAS 123(R) — Stock options issued before July 1, 2004(1) |
96 | 188 | 525 | 188 | ||||||||||||
Underlying loss from continuing operations |
$ | (7,990 | ) | $ | (10,058 | ) | $ | (37,785 | ) | $ | (37,595 | ) | ||||
| (1) | At the beginning of fiscal 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 fiscal 2005 in both underlying and GAAP results. In fiscal 2006, we have adopted SFAS 123(R), and are consequently recording all long-term incentive grants, both restricted stock and options, as an expense to both underlying and GAAP results. The adjustment from GAAP to underlying operating results in the table above reflects the SFAS 123(R) charge associated with options granted prior to July 1, 2004 under our previous compensation philosophy, which were originally accounted for utilizing APB 25. | |
| (2) | In the third quarter ended March 31, 2006, the divestiture of our M-Solutions business, a component of our Investment Services segment, created a unique situation for our presentation of underlying results versus GAAP results. SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires us to report the results of operations from the disposed business, including any gain or loss on the sale, as an income statement item separately captioned “earnings from discontinued operations” on our GAAP basis unaudited condensed Statements of Operations. This treatment is required for all periods presented, not just the period in which the sale took place. In contrast, for purposes of our underlying results, we have excluded the gain on disposition in the current periods, and included the results of the M-Solutions business for the periods of time that we owned the business during the current quarter and for all of the prior periods presented. |
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 11 of 12
Page 11 of 12
Attachment C
Electronic Billing and Payment Metrics
(In millions, except revenue/transaction and percentages)
(In millions, except revenue/transaction and percentages)
| Quarter Ended | ||||||||||||||||||||
| 6/30/2006 | 3/31/2006 | 12/31/2005 | 9/30/2005 | 6/30/2005 | ||||||||||||||||
Transactions |
||||||||||||||||||||
Full Service |
||||||||||||||||||||
Revenue |
$ | 107.6 | $ | 109.4 | $ | 116.0 | $ | 118.5 | $ | 110.1 | ||||||||||
Active Subscribers(1) |
10.3 | 9.7 | 9.0 | 8.8 | 7.8 | |||||||||||||||
Transactions |
217.2 | 206.7 | 189.7 | 180.1 | 161.9 | |||||||||||||||
Revenue/Transaction |
$ | 0.50 | $ | 0.53 | $ | 0.61 | $ | 0.66 | $ | 0.68 | ||||||||||
Payment Services |
||||||||||||||||||||
Revenue |
$ | 46.6 | $ | 47.8 | $ | 36.1 | $ | 35.4 | $ | 33.8 | ||||||||||
Transactions |
85.0 | 86.6 | 81.0 | 85.9 | 83.0 | |||||||||||||||
Revenue/Transaction |
$ | 0.55 | $ | 0.55 | $ | 0.45 | $ | 0.41 | $ | 0.41 | ||||||||||
Total |
302.2 | 293.3 | 270.7 | 266.0 | 244.9 | |||||||||||||||
Sequential Quarterly Growth |
3 | % | 8 | % | 2 | % | 9 | % | 4 | % | ||||||||||
Other Revenue(2) |
$ | 12.3 | $ | 12.2 | $ | 11.2 | $ | 9.7 | $ | 8.9 | ||||||||||
e-Bill Delivery |
||||||||||||||||||||
Electronic bills distributed |
50.0 | 46.7 | 45.2 | 42.7 | 41.0 | |||||||||||||||
Quarterly sequential growth |
7 | % | 3 | % | 6 | % | 4 | % | 11 | % | ||||||||||
Electronic Rate |
||||||||||||||||||||
Electronic payment rate |
84 | % | 84 | % | 83 | % | 83 | % | 84 | % | ||||||||||
| (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) | Other revenue includes Health and Fitness, Professional Services and Stored Value Products. |
CheckFree Announces Fourth Quarter and Year-End Fiscal 2006 Results
Page 12 of 12
Page 12 of 12
Attachment D
Electronic Billing and Payment Metrics
(In millions, except revenue / transaction and percentages)
(In millions, except revenue / transaction and percentages)
| Quarter Ended | ||||||||||||||||
| 6/30/2006 | 3/31/2006 | 12/31/2005 | 9/30/2005 | |||||||||||||
Total Payment Transactions |
||||||||||||||||
Revenue |
$ | 146.2 | $ | 149.8 | $ | 144.9 | $ | 146.9 | ||||||||
Revenue / Transaction |
$ | 0.48 | $ | 0.51 | $ | 0.54 | $ | 0.55 | ||||||||
Transactions |
302.2 | 293.3 | 270.7 | 266.0 | ||||||||||||
Sequential Quarterly Growth |
3 | % | 8 | % | 2 | % | 9 | % | ||||||||
e-Bill Delivery |
||||||||||||||||
Revenue |
$ | 8.0 | $ | 7.4 | $ | 7.2 | $ | 6.8 | ||||||||
Revenue / e-Bill |
$ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 | ||||||||
e-Bills Delivered |
50.0 | 46.7 | 45.2 | 42.7 | ||||||||||||
Sequential Quarterly Growth |
7 | % | 3 | % | 6 | % | 4 | % | ||||||||
Other EC Revenue(1) |
$ | 12.3 | $ | 12.2 | $ | 11.2 | $ | 9.7 | ||||||||
Other Performance Metrics |
||||||||||||||||
Active Full Service Subscribers(2) |
10.3 | 9.7 | 9.0 | 8.8 | ||||||||||||
| Quarter Ended | ||||||||||||||||
| 6/30/2005 | 3/31/2005 | 12/31/2004 | 9/30/2004 | |||||||||||||
Total Payment Transactions |
||||||||||||||||
Revenue |
$ | 137.1 | $ | 132.8 | $ | 128.4 | $ | 124.8 | ||||||||
Revenue / Transactions |
$ | 0.56 | $ | 0.57 | $ | 0.59 | $ | 0.61 | ||||||||
Transactions |
244.9 | 234.4 | 219.4 | 205.8 | ||||||||||||
Sequential Quarterly Growth |
4 | % | 7 | % | 7 | % | 25 | % | ||||||||
e-Bill Delivery |
||||||||||||||||
Revenue |
$ | 6.7 | $ | 5.9 | $ | 5.3 | $ | 4.8 | ||||||||
Revenue / e-Bill |
$ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 | ||||||||
e-Bills
Delivered |
41.0 | 36.8 | 32.8 | 29.6 | ||||||||||||
Sequential Quarterly Growth |
11 | % | 12 | % | 11 | % | 14 | % | ||||||||
Other EC Revenue(1) |
$ | 8.9 | $ | 8.9 | $ | 8.4 | $ | 8.6 | ||||||||
Other Performance Metrics |
||||||||||||||||
Active Full Service Subscribers(2) |
7.8 | 7.4 | 6.9 | 6.4 | ||||||||||||
| (1) | Other EC revenue includes Health and Fitness, Professional Services and Stored Value Products. | |
| (2) | “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. |