1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 8-K/A NO. 1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------ DATE OF REPORT: MAY 9, 1996 ------------------ CHECKFREE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------ DELAWARE 0-26802 31-1013521 - ---------------- -------------------- ---------------------- (STATE OR OTHER (COMMISSION FILE NO.) (IRS EMPLOYER JURISDICTION OF IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) ------------------ 8275 North High Street Columbus, Ohio 43235 (614) 825-3000 (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) ------------------ 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On March 21, 1996, Checkfree Corporation, a Delaware corporation ("Checkfree"), ISC Acquisition Corporation, an Ohio corporation and a wholly owned subsidiary of Checkfree ("ISC Acquisition"), and Security APL, Inc., an Illinois corporation ("Security"), entered into an Agreement and Plan of Merger, dated as of March 21, 1996, as amended (the "Merger Agreement"), whereby ISC Acquisition would be merged with and into Security with Security being the surviving entity as a wholly owned subsidiary of Checkfree (the "Acquisition"). Under the terms of the Merger Agreement, Checkfree agreed to acquire the stock of Security in exchange for common stock, $.01 par value, of Checkfree (the "Common Stock"). The Acquisition was completed on May 9, 1996. The total consideration paid by Checkfree was $53,307,815. Pursuant to the terms of the Merger Agreement, 2,805,652 shares of the Common Stock were issued, based upon an average stock price of $19.00 per share. Security is a full service provider of fully integrated, customized portfolio management software services, including performance measurement, trading and reporting for over 180 Institutional Money managers, along with brokers, financial planners and banks. Security handles nearly 300,000 professional portfolios and hundreds of thousands of trades per day. Checkfree's Board of Directors approved the issuance of the additional 2,805,652 shares on March 21, 1996. The shares of Common Stock received by the stockholders of Security are not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder. The transaction was accomplished through arms-length negotiations between Checkfree's management and Security's management. Security's stockholders approved the Acquisition on May 6, 1996. There was no material relationship between the stockholders of Security and Checkfree or any of Checkfree's affiliates, any of Checkfree's directors or officers, or any associate of any such Checkfree director or officer, prior to this transaction. Checkfree's press release issued May 9, 1996 regarding the consummation of the Acquisition is attached as an exhibit to this report and is incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The financial statements of Security APL, Inc. as audited by its independent auditors, were previously filed on the original Current Report on Form 8-K, dated March 9, 1996, filed with the Securities and Exchange Commission on May 20, 1996, and are deemed to be a part of this Amendment No. 1 thereto. -2- 3 (B) PRO FORMA FINANCIAL INFORMATION. The following are the pro forma financial statements of Checkfree and Security for the periods provided therein: UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION Checkfree's acquisition of Security has been treated as a pooling-of-interests for accounting purposes. Under the pooling-of-interests method of accounting, both entities are combined as if they had been operating as a single entity for all periods presented. Checkfree acquired Servantis Systems Holdings, Inc. ("Servantis") in February 1996 (the "Servantis Acquisition"). The Servantis Acquisition was treated as a purchase for accounting purposes. Under the purchase method of accounting, the assets and liabilities of the acquired company are recorded at their independently appraised fair values at the date of the acquisition, and the results of operations are combined from the effective date of the acquisition, with no retroactive restatement. The unaudited pro forma condensed combining statement of operations combines Checkfree's and Security's results of operations for the fiscal year ended December 31, 1995, with Servantis' results of operations for the twelve months ended December 31, 1995, giving effect to the Acquisition and the Servantis Acquisition as if they had occurred as of January 1, 1995. The unaudited pro forma condensed combining balance sheet combines Checkfree's and Security 's balance sheets with Servantis' balance sheet as of December 31, 1995, giving effect to the Acquisition and the Servantis Acquisition as if they had occurred on that date. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred had the Acquisition or the Servantis Acquisition been consummated at the beginning of the period presented, nor is it necessarily indicative of future operating results or financial position. -3- 4 UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET AS OF DECEMBER 31,1995 (IN THOUSANDS) -4-
HISTORICAL AMOUNTS HISTORICAL -------------------- PRO FORMA AMOUNT PRO FORMA CHECKFREE SERVANTIS ADJUSTMENTS PRO FORMA SECURITY APL ADJUSTMENTS TOTAL ----------------------------------------------------------------------------------------- Assets Current assets Cash and short term investments $ 84,852 $ 2,511 $(42,500)(1) $ 44,863 $3,050 $ -- $ 47,913 Receivables - trade and other 3,533 20,921 -- 24,454 1,518 -- 25,972 Prepaid expenses and other 1,916 380 -- 2,296 -- -- 2,296 Deferred income taxes 166 785 187 (2)(6) 1,138 -- -- 1,138 ---------------------------------------------------------------------------------------- Total Current Assets 90,467 24,597 (42,313) 72,751 4,568 -- 77,319 ---------------------------------------------------------------------------------------- Property - net 13,559 10,775 5,000 (2) 29,334 3,211 -- 32,545 ---------------------------------------------------------------------------------------- Other assets Investments 7,499 -- -- 7,499 1,198 -- 8,697 Intangible assets - computer software, net 286 11,004 20,396 (2) 31,686 409 -- 32,095 Intangible assets - other, net -- 12,424 15,368 (2) 27,792 -- -- 27,792 Deferred income taxes -- 8,949 (949)(2)(6) 8,000 -- -- 8,000 Other noncurrent assets 3,831 299 -- 4,130 266 -- 4,396 ---------------------------------------------------------------------------------------- Total other assets 11,616 32,676 34,815 79,107 1,873 -- 80,980 ---------------------------------------------------------------------------------------- Total $115,642 $ 68,048 $ (2,498) $181,192 $9,652 $ -- $190,844 ======================================================================================== Liabilities and Stockholders' Equity Current liabilities Accounts payable & accrued liabilities 6,531 5,982 -- 12,513 467 -- 12,980 Current portion of long-term obligations 1,161 -- -- 1,161 -- -- 1,161 Deferred revenues 982 19,167 (9,214)(2)(7) 10,935 -- -- 10,935 Deferred income taxes -- 4 3,682 (2)(6) 3,686 -- -- 3,686 ---------------------------------------------------------------------------------------- Total Current Liabilities 8,674 25,153 (5,532) 28,295 467 -- 28,762 Stockholders' and bank notes payable 125 41,914 (41,914)(1) 125 -- -- 125 Obligations under capital leases 7,157 -- -- 7,157 -- -- 7,157 Deferred lease obligation 51 2,285 -- 2,336 -- -- 2,336 Deferred income taxes 309 2,898 9,344 (2)(6) 12,551 -- -- 12,551 ---------------------------------------------------------------------------------------- Total liabilities 16,316 72,250 (38,102) 50,464 467 -- 50,931 Stockholders' equity Preferred stock -- 13,052 (13,052)(3) -- -- -- -- Stockholders' equity 99,326 (17,254) 48,656 (1)(2)(3) 130,728 9,185 139,913 ---------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $115,642 $ 68,048 $ (2,498) $181,192 $9,652 $ -- $190,844 ======================================================================================== 5 UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS) -5-
HISTORICAL AMOUNTS HISTORICAL -------------------- PRO FORMA AMOUNT PRO FORMA CHECKFREE SERVANTIS ADJUSTMENTS PRO FORMA SECURITY APL ADJUSTMENTS TOTAL ---------------------------------------------------------------------------------- OPERATING REVENUES: Total revenues $49,330 $66,675 -- $116,005 $15,670 $ -- $131,675 Amortization of purchased profits -- -- (9,214)(7) (9,214) -- -- (9,214) -------------------------------------------------------------------------------- Total operating revenues, net 49,330 66,675 (9,214) 106,791 15,670 -- 122,461 -------------------------------------------------------------------------------- OPERATING EXPENSES: Processing, servicing, and support 30,293 24,610 -- 54,903 7,041 -- 61,944 Research and development 6,892 6,879 -- 13,771 1,756 -- 15,527 Sales, marketing and royalties 7,261 13,483 -- 20,744 1,553 -- 22,297 General and administrative 4,064 11,537 -- 15,601 1,967 -- 17,568 Depreciation and amortization 2,485 11,097 3,346(4) 16,928 1,454 -- 18,382 -------------------------------------------------------------------------------- Total operating expenses 50,995 67,606 3,346 121,947 13,771 -- 135,718 -------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS (1,665) (931) (12,560) (15,156) 1,899 -- (13,257) -------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): INVESTMENT INCOME 2,135 471 -- 2,606 201 -- 2,807 INTEREST EXPENSE (645) (3,490) 3,490 (5) (645) -- (645) -------------------------------------------------------------------------------- 1,490 (3,019) 3,490 1,961 201 -- 2,162 -------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAX (175) (3,950) (9,070) (13,195) 2,100 -- (11,095) INCOME TAX EXPENSE (BENEFIT) 40 (1,236) (3,084)(6) (4,280) 96 618 (6) (3,566) -------------------------------------------------------------------------------- NET INCOME (LOSS) $ (215) $ (2,714) $ (5,986) $ (8,915) $ 2,004 $ (618) $ (7,529) PREFERRED STOCK DIVIDENDS -- (797) $ 797 (5) -- -- $ -- $ -- -------------------------------------------------------------------------------- NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (215) $ (3,511) $ (5,189) $ (8,915) $ 2,004 $ (618) $(7,529) ================================================================================ NET INCOME (LOSS) PER COMMON SHARE $ (0.26) $ 0.71 $ (0.21) ==================== ======= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 33,891 2,806 36,697 ==================== ======= 6 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION 1. Adjustment to reflect payment of $42,500,000 cash portion pursuant to the Servantis Merger Agreement. 2. Adjustments to reflect the change in net assets for the Servantis Acquisition based upon preliminary estimates of fair market value at December 31, 1995 as follows: (In thousands) 3. Adjustment to reflect the issuance of 5,671,726 shares of Checkfree Common Stock at $20.00 per share in exchange for all shares of Servantis' common and preferred stock and the elimination of Servantis' stockholders' equity. 4. Adjustment to eliminate Servantis' historical intangible asset amortization expense and to reflect the amortization from the capitalized software and other intangibles. 5. Adjustment to eliminate Servantis' interest expense to reflect the pay-off of long-term debt, and elimination of Servantis' preferred stock dividends. 6. Adjustment to reflect income tax effects of pre-tax pro forma adjustments at the statutory rate. 7. Adjusted to reflect the reduction in operating and deferred revenues for purchased profits. -6-
TOTAL PURCHASE PRICE $165,137 ======== ALLOCATION OF PURCHASE PRICE Net assets acquired at fair market value $ 15,464 ADJUSTMENTS TO REFLECT FAIR VALUE OF ASSETS ACQUIRED In-process R&D 90,600 Capitalized software (3 to 10-year lives) 31,400 Other intangibles (10 to 30-year lives) 27,673 -------- 149,673 -------- Total $165,137 ======== 7 Notes to Unaudited Pro Forma Condensed Combining Financial Statements Note A: The unaudited pro forma condensed combining balance sheet of Checkfree, Security, and Servantis has been prepared as if the Acquisition, which is being accounted for as a pooling of interests, and the Servantis Acquisition, which is being accounted for as a purchase, were completed as of December 31, 1995. The total purchase price of $165.1 million was allocated to Servantis' December 31, 1995 balance sheet. Actual balance sheets of Checkfree and Servantis were combined as of February 21, 1996, the effective date of the Servantis Acquisition. The allocation of the Servantis purchase price among the identifiable tangible and intangible assets included herein is based on an independent appraisal of the fair market value of those assets. Purchased research and development was identified and valued through interviews and analysis of data concerning each Servantis developmental project. Expected future cash flows of each developmental project were discounted to present value taking into account risks associated with the inherent difficulties and uncertainties in completing the project, and thereby achieving technological feasibility, and risks related to the viability of and potential changes in future target markets. The above analysis and valuation resulted in a value of $90.6 million for purchased research and development, which has not yet reached technological feasibility and does not have alternative future uses. Therefore, in accordance with generally accepted accounting principles, this amount was written off in the quarter ended March 31, 1996. Using the same methodology, purchased software was identified and valued. Expected future cash flows associated with purchased software product were discounted to present value taking into account risks related to the characteristics and applications of each associated product, existing and future markets, and assessments of the life cycle stage of each product. This analysis resulted in an additional $31.4 million of purchased software, which had reached technological feasibility and therefore was capitalized. The amount of purchase price allocated to purchased software was smaller than that allocated to purchased research and development due to the shorter life and lower cash flows remaining for the purchased software as compared to the projects currently under development. Note B: In the pro forma condensed combining statement of operations, the Checkfree and Security statements of operations for the fiscal year ended December 31, 1995 have been combined with the Servantis statement of operations for the twelve months ended December 31, 1995. Actual statements of operations of Checkfree and Servantis were combined from February 21, 1996, the effective date of the Acquisition, with no retroactive restatement. Note C: The unaudited pro forma combined net loss per share is based on the weighted average number of shares of Checkfree Common Stock outstanding during the period, adjusted to give effect to shares assumed to be issued had the Acquisition and the Servantis Acquisition taken place as of January 1, 1995. -7- 8 Note D: The unaudited pro forma condensed combining statement of operations does not include the value of the $90.6 million write-off of purchased research and development arising from the Servantis Acquisition, as it is a material nonrecurring charge. In addition, as part of the allocation of the purchase price, the Company reduced the deferred revenues on the balance sheet of Servantis at the date of the Servantis Acquisition due to the fact that anticipated profits included in deferred revenues are reflected in the purchase price of the Servantis Acquisition. As a result, the Company will not recognize revenues or profits with respect to such reduction in deferred revenues. Such reduction increased substantially from the $9.2 million reflected in the Unaudited Pro Forma Condensed Combining Balance Sheet to approximately $20.7 million, due to the increase in Servantis' deferred revenues from December 31, 1995 to February 21, 1996, the effective date of the Servantis Acquisition. The write-off of in-process research and development costs and the nonrecognition of such revenues or profits on certain of Servantis' deferred revenues will have a material adverse impact on the Company's financial results in 1996. -8- 9 (C) EXHIBITS. -9-
Exhibit No. Description 2(a) Agreement and Plan of Merger, dated as of March 21, 1996, among Checkfree Corporation, ISC Acquisition Corporation, and Security APL, Inc. (Reference is made to Exhibit 2 to the Current Report on Form 8-K, dated March 21, 1996, filed with the Securities and Exchange Commission on March 29, 1996, and incorporated herein by reference.) 2(b) Amendment to Agreement and Plan of merger, dated as of April 30, 1996, among Checkfree Corporation, ISC Acquisition Corporation, and Security APL, Inc. (Reference is made to Exhibit 2(c) to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference.) 99 Press Release (Reference is made to Exhibit 99 to the Current Report on Form 8-K, dated May 9, 1996, and filed with the Securities and Exchange Commission on May 20, 1996, and incorporated herein by reference). 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CHECKFREE CORPORATION Date: July 22, 1996 By: /s/ JOHN M. STANTON --------------------------------------------- John M. Stanton, Vice President and Treasurer -10- 11 EXHIBIT INDEX -11-
Exhibit No. Description Page 2(a) Agreement and Plan of Merger, dated as of March 21, 1996, among Checkfree Corporation, ISC Acquisition Corporation, and Security APL, Inc. (Reference is made to Exhibit 2 to the Current Report on Form 8-K, dated March 21, 1996, filed with the Securities and Exchange Commission on March 29, 1996, and incorporated herein by reference.) 2(b) Amendment to Agreement and Plan of merger, dated as of April 30, 1996, among Checkfree Corporation, ISC Acquisition Corporation, and Security APL, Inc. (Reference is made to Exhibit 2(c) to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference.) 99 Press Release. (Reference is made to Exhibit 99 to the Current Report on Form 8-K, dated May 9, 1996, and filed with the Securities and Exchange Commission on May 20, 1996, and incorporated herein by reference.)