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: APRIL 28, 2000
CHECKFREE HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-26802 58-2360335
- -------------------------------- --------------------------- ----------------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NO.) (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) 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)
Not Applicable
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 20, 1999, CheckFree Holdings Corporation, a Delaware
corporation (the "Company"), CheckFree Acquisition Corporation IV, a Delaware
corporation and a wholly owned subsidiary of the Company ("CheckFree
Acquisition"), and BlueGill Technologies, Inc., a Delaware Corporation
("BlueGill") entered into an Agreement and Plan of Merger, dated December 20,
1999, as amended (the "Merger Agreement"), whereby CheckFree Acquisition would
be merged with and into BlueGill with BlueGill being the surviving entity as a
wholly owned subsidiary of the Company (the "Acquisition"). Under the terms of
the Merger Agreement, the Company agreed to acquire the stock of BlueGill in
exchange for common stock, $.01 par value, of the Company (the "Common Stock").
The Acquisition was completed on April 28, 2000. The total consideration paid by
the Company was $250,000,000. Pursuant to the terms of the Merger Agreement,
5,000,000 shares of Common Stock were issued. The shares of Common Stock
received by the stockholders of BlueGill have been registered under the
Securities Act of 1933, as amended. BlueGill is an international software
development company and the leader in electronic billing and payment. BlueGill
software provides a powerful platform for electronic billing and payment by
transforming legacy systems into interactive Web applications for managing
customer relationships. BlueGill software is installed at financial service
institutions, telecommunications companies, utilities, and service bureaus in
North America, South America and Europe.
The Company's Board of Directors approved the issuance of the 5,000,000
shares on December 14, 1999. The shares of Common Stock received by the
stockholders of BlueGill have been registered under the Securities Act of 1933,
as amended.
The transaction was accomplished through arms-length negotiations
between the Company's management and BlueGill's management. BlueGill's
stockholders approved the Acquisition on April 26, 2000. There was no material
relationship between the stockholders of BlueGill and the Company or any of the
Company's affiliates, any of the Company's directors or officers, or any
associate of any such Company director or officer, prior to this transaction.
In addition, on July 7, 2000, the Company entered into an Amended and
Restated Merger Agreement to acquire the business if TransPoint, a joint venture
among Microsoft Corporation, First Data Corporation, Citibank, N.A., and various
subsidiaries of each of these entities. Through a series of mergers, the
entities that own the TransPoint business will become our wholly-owned
subsidiaries. In connection with these transactions, the Company will issue an
aggregate of 17,000,000 shares of its common stock to the owners of the
TransPoint business. A copy of the Merger Agreement has been filed with the
Company's S-4 Registration Statement, filed with the Securities and Exchange
Commission on July 7, 2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The financial statements of BlueGill Technologies, Inc. as
audited by its independent auditors for the periods reflected therein
are found on the Company's Form 8-K/A No.1 dated March 16, 2000, filed
on April 27, 2000, and incorporated herein by reference.
(b) PRO FORMA FINANCIAL INFORMATION.
The following is a list of the pro forma condensed combining
financial information for CheckFree, BlueGill and TransPoint, for
CheckFree and BlueGill, and for CheckFree and the TransPoint Entities
filed with this report:
Unaudited Pro Forma Condensed Combining Balance Sheet
with BlueGill Technologies, Inc. and TransPoint
as of March 31, 2000................................ F-1
Unaudited Pro Forma Condensed Combining Statements
of Operations with BlueGill Technologies, Inc.
and TransPoint for the Year Ended June 30, 1999..... F-2
-2-
3
Unaudited Pro Forma Condensed Combining Statements
of Operations with BlueGill Technologies, Inc.
and TransPoint for the Nine Months Ended
March 31, 2000...................................... F-3
Notes to Unaudited Pro Forma Condensed Combining
Financial Information with BlueGill Technologies,
Inc. and TransPoint................................. F-4
Unaudited Pro Forma Condensed Combining Balance
Sheet with TransPoint as of March 31, 2000.......... F-8
Unaudited Pro Forma Condensed Combining Statement
of Operations with TransPoint for the Year Ended
June 30, 1999....................................... F-9
Unaudited Pro Forma Condensed Combining Statement
of Operations with TransPoint for the Nine Months
Ended March 31, 2000................................ F-10
Notes to Unaudited Pro Forma Condensed Combining
Financial Information with TransPoint............... F-11
Unaudited Pro Forma Condensed Combining Balance
Sheet with BlueGill Technologies, Inc. as of
March 31, 2000...................................... F-15
Unaudited Pro Forma Condensed Combining Statement
of Operations with BlueGill Technologies, Inc.
for the Year Ended June 30, 1999.................... F-16
Unaudited Pro Forma Condensed Combining Statement of
Operations with BlueGill Technologies, Inc. for
the Nine Months Ended March 31, 2000................ F-17
Notes to Unaudited Pro Forma Condensed Combining
Financial Information with BlueGill Technologies,
Inc................................................. F-18
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION
2(a) Agreement and Plan of Merger, dated as of
December 20, 1999, among CheckFree Holdings
Corporation, CheckFree Acquisition
Corporation IV, and BlueGill Technologies,
Inc. (Reference is made to Appendix A to
Registration Statement on Form S-4, as
amended (Registration No. 333-32644), filed
with the Securities Exchange Commission on
March 16, 2000, and incorporated herein by
reference).
2(b) Amendment to Agreement and Plan of Merger,
dated April 27, 2000, among CheckFree
Holdings Corporation, CheckFree Acquisition
Corporation IV, and BlueGill Technologies,
Inc. (Reference is made to Exhibit 2(b) to
Current Report on Form 8-K dated April 28,
2000, filed with the Securities and Exchange
Commission on May 15, 2000, and incorporated
herein by reference).
-3-
4
23 Consent of Arthur Andersen LLP.
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 HOLDINGS CORPORATION
Date: July 7, 2000 By: /s/ David Mangum
------------------------------------------
David Mangum, Executive Vice
President and Chief Financial Officer
-4-
5
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
AS OF MARCH 31, 2000
HISTORICAL AMOUNTS
---------------------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL TRANSPOINT ADJUSTMENTS TOTAL
--------- -------- ---------- ----------- ----------
(IN THOUSANDS)
ASSETS:
Current Assets:
Cash and cash equivalents................... $125,043 $ 15,044 $ 8,019 $ 100,000(1) $ 248,106
Investments................................. 26,292 -- -- -- 26,292
Accounts receivable, net.................... 53,343 1,151 -- -- 54,494
Prepaid expenses and other assets........... 11,716 189 750 -- 12,655
Deferred income taxes....................... 9,444 -- -- -- 9,444
--------- -------- -------- ----------- ----------
Total current assets................. 225,838 16,384 8,769 100,000 350,991
Property and equipment, net................... 84,461 1,453 763 -- 86,677
Capitalized software, net..................... 23,006 -- 9,926 195,673(1) 221,705
(6,900)(2)
Goodwill, net................................. 29,539 -- -- 1,017,985(1) 1,047,524
Other intangible assets, net.................. 12,224 -- -- 577,500(1) 589,724
Investments................................... 52,869 -- -- -- 52,869
Deferred income taxes......................... 34,436 -- -- -- 34,436
Other noncurrent assets....................... 13,760 2 -- -- 13,762
--------- -------- -------- ----------- ----------
Total assets......................... $476,133 $ 17,839 $ 19,458 $ 1,884,258 $2,397,688
========= ======== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable............................ $ 6,573 $ 1,294 $ 11,853 $ -- $ 19,720
Accrued liabilities......................... 41,032 228 4,547 3,925(1) 50,907
1,175(3)
Deferred income taxes....................... -- -- -- 88,410(1) 88,410
Current portion of long-term obligations.... 6,533 159 -- -- 6,692
Deferred revenue............................ 29,638 1,191 4,500 -- 35,329
--------- -------- -------- ----------- ----------
Total current liabilities............ 83,776 2,872 20,900 93,510 201,058
Accrued rent and other........................ 6,653 -- -- -- 6,653
Obligations under capital leases -- less
current portion............................. 820 337 -- -- 1,157
Convertible subordinated notes................ 172,500 -- -- -- 172,500
Minority interest............................. -- -- 40,329 (40,329)(1) --
Deferred income taxes......................... -- -- -- 221,933(1) 221,933
--------- -------- -------- ----------- ----------
Total liabilities.................... 263,749 3,209 61,229 275,114 603,301
Redeemable preferred stock.................... -- 25,963 -- (25,963)(1) --
Stockholders' equity:
Common stock................................ 531 7 -- 210(1) 748
Additional paid-in capital.................. 517,912 1,753 -- 1,588,108(1) 2,106,598
(1,175)(3)
Other....................................... (281) (650) -- 650(1) (281)
Member's capital deficiency................. -- -- (41,771) 41,771(1) --
Accumulated deficit......................... (305,778) (12,443) -- 12,443(1) (312,678)
(6,900)(2)
--------- -------- -------- ----------- ----------
Total stockholders' equity........... 212,384 (11,333) (41,771) 1,635,107 1,794,387
--------- -------- -------- ----------- ----------
Total liabilities and stockholders'
equity............................. $476,133 $ 17,839 $ 19,458 $ 1,884,258 $2,397,688
========= ======== ======== =========== ==========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information.
F-1
6
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
FOR THE YEAR ENDED JUNE 30, 1999
HISTORICAL AMOUNTS
---------------------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL TRANSPOINT ADJUSTMENTS TOTAL
--------- -------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Processing and servicing................ $201,059 $ -- $ -- $ -- $ 201,059
License fees............................ 15,975 2,517 -- -- 18,492
Maintenance fees........................ 17,746 48 -- -- 17,794
Other................................... 15,351 925 -- -- 16,276
-------- ------- -------- --------- ---------
Total revenues.................. 250,131 3,490 -- -- 253,621
Expenses:
Cost of processing, servicing and
support.............................. 146,704 969 3,062 -- 150,735
Research and development................ 21,085 1,457 26,560 -- 49,102
Sales and marketing..................... 32,354 2,318 11,302 -- 45,974
General and administrative.............. 31,466 2,045 2,404 424,622(4) 460,537
Depreciation and amortization........... 24,630 106 1,870 26,606
In-process research and development..... 2,201 -- -- -- 2,201
-------- ------- -------- --------- ---------
Total expenses.................. 258,440 6,895 45,198 424,622 735,155
Net gain on dispositions of assets...... 4,576 -- -- -- 4,576
-------- ------- -------- --------- ---------
Loss from operations...................... (3,733) (3,405) (45,198) (424,622) (476,958)
Other:
Minority interest....................... -- -- 2,064 (2,064)(5) --
Interest, net........................... 2,181 194 464 -- 2,839
-------- ------- -------- --------- ---------
Loss before income taxes.................. (1,552) (3,211) (42,670) (426,686) (474,119)
Income tax benefit........................ (12,009) -- -- (88,410)(4) (100,419)
-------- ------- -------- --------- ---------
Net income (loss)......................... $ 10,457 $(3,211) $(42,670) $(338,276) $(373,700)
======== ======= ======== ========= =========
Basic earnings (loss) per share:
Net income (loss) per common share...... $ 0.20 $ (5.04)
======== =========
Equivalent number of shares............. 52,444 21,714(1) 74,158
======== ========= =========
Diluted earnings (loss) per share:
Net income (loss) per common share...... $ 0.18 $ (5.04)
======== =========
Equivalent number of shares............. 56,529 17,629(6) 74,158
======== ========= =========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information.
F-2
7
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
FOR THE NINE MONTHS ENDED MARCH 31, 2000
HISTORICAL AMOUNTS
---------------------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL TRANSPOINT ADJUSTMENTS TOTAL
--------- -------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Processing and servicing.......... $189,430 $ -- $ -- $ -- $ 189,430
License fees...................... 10,295 4,578 -- -- 14,873
Maintenance fees.................. 13,571 349 -- -- 13,920
Other............................. 8,399 1,180 7 -- 9,586
-------- ------- -------- ---------- ---------
Total revenues............ 221,695 6,107 7 -- 227,809
Expenses:
Cost of processing, servicing and
support........................ 133,684 1,496 13,856 -- 149,036
Research and development.......... 24,276 2,142 5,997 -- 32,415
Sales and marketing............... 29,522 5,602 13,980 -- 49,104
General and administrative........ 28,837 4,463 1,858 -- 35,158
Depreciation and amortization..... 23,789 272 2,755 284,492(4) 311,308
In-process research and
development.................... -- -- -- -- --
-------- ------- -------- ---------- ---------
Total expenses............ 240,108 13,975 38,446 284,492 577,021
Net gain on dispositions of
assets......................... -- -- -- -- --
-------- ------- -------- ---------- ---------
Loss from operations................ (18,413) (7,868) (38,439) (284,492) (349,212)
Other:
Minority interest................. -- -- 5,608 (5,608)(5) --
Interest, net..................... (83) 619 1,054 -- 1,590
-------- ------- -------- ---------- ---------
Loss before income taxes............ (18,496) (7,249) (31,777) (290,100) (347,622)
Income tax benefit.................. (6,718) -- -- (52,718)(4) (59,436)
-------- ------- -------- ---------- ---------
Net income (loss)................... $(11,778) $(7,249) $(31,777) $ (237,382) $(288,186)
======== ======= ======== ========== =========
Basic earnings (loss) per share:
Net income (loss) per common
share.......................... $ (0.23) $ (3.90)
======== =========
Equivalent number of shares....... 52,246 21,714(1) 73,960
======== ========== =========
Diluted earnings (loss) per share:
Net income (loss) per common
share.......................... $ (0.23) $ (3.90)
======== =========
Equivalent number of shares....... 52,246 21,714(1) 73,960
======== ========== =========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-3
8
CHECKFREE HOLDINGS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
1. Adjustment to reflect the issuance of CheckFree Holdings common stock,
options and related direct acquisition expenses as the total purchase price for
the net assets of BlueGill and the TransPoint business, and the elimination of
BlueGill's redeemable preferred stock and stockholders' equity and revaluation
of TransPoint's capitalized software costs and the elimination of TransPoint's
minority interest and member's capital deficiency. The fair market values of
intangible assets are preliminary estimates based on independent appraisals and
current facts and circumstances.
(IN THOUSANDS)
--------------
Cash........................................................ $ 100,000
Capitalized software, net................................... 195,673
Goodwill, net............................................... 1,017,985
Other intangible assets, net................................ 577,500
BlueGill redeemable preferred stock......................... 25,963
BlueGill common stock....................................... 7
BlueGill additional paid in capital......................... 1,753
TransPoint minority interest................................ 40,329
CheckFree Holdings common stock........................... $ 217
CheckFree Holdings additional paid in capital............. 1,589,861
BlueGill accumulated deficit.............................. 12,443
BlueGill other equity..................................... 650
TransPoint member's capital deficiency.................... 41,771
Current deferred income tax liability..................... 88,410
Long-term deferred income tax liability................... 221,933
Accrued acquisition expenses.............................. 3,925
---------- ----------
Totals............................................ $1,959,210 $1,959,210
========== ==========
The following chart indicates the components of the estimated purchase
prices of the acquisitions inherent in the adjusting entry:
BLUEGILL TRANSPOINT COMBINED
ACQUISITION ACQUISITION TOTAL
----------- ----------- ----------
(IN THOUSANDS)
CheckFree Holdings common stock................. $221,449 $1,350,083 $1,571,532
Issuance of CheckFree Holdings options.......... 18,546 -- 18,546
TransPoint cash infusion........................ -- (100,000) (100,000)
Estimated direct acquisition costs.............. 600 3,325 3,925
-------- ---------- ----------
Total estimated purchase price........ $240,595 $1,253,408 $1,474,003
======== ========== ==========
The combined estimated purchase price will be issued in exchange for the
net assets of BlueGill and TransPoint on their respective closing dates.
The purchase price of BlueGill reflects the issuance of 4,713,736 shares of
CheckFree Holdings common stock at $46.98 per share which is the average closing
price of CheckFree Holdings common stock for the three trading days preceding
and the three trading days following the closing of the acquisition. Under the
terms of the BlueGill merger agreement, CheckFree Holdings has also issued
634,145 CheckFree Holdings options to replace BlueGill options, 286,264 of which
are already vested. The value of the assumed CheckFree Holdings option grant is
based on a Black-Scholes valuation model assuming a $46.98 stock price, an
average strike price of $2.18, an average life of 2.9 years, a risk-free
interest rate of 6.47% and volatility of 83.4%.
F-4
9
The purchase price of TransPoint and the entering into the related
commercial agreements reflects the assumed issuance of 17,000,000 shares of
CheckFree Holdings common stock at $79.42 per share, which is the average end of
day price of CheckFree Holdings common stock for the three trading days
preceding and the three days following the announcement of the acquisition.
Under the terms of the merger agreement, the TransPoint business is to have $100
million in cash immediately prior to the closing of the Transfers.
The following table provides the preliminary allocation of the purchase
price inherent in the adjusting entry:
BLUEGILL TRANSPOINT
ACQUISITION ACQUISITION COMBINED
----------- ----------- ----------
(IN THOUSANDS)
In process research and development............. $ 6,900 $ -- $ 6,900
Current technologies and products............... 13,700 185,000 198,700
-------- ---------- ----------
Sub-total capitalized software, net........ 20,600 185,000 205,600
Goodwill, net................................... 193,007 824,978 1,017,985
Other intangible assets:
Workforce in place............................ 2,600 -- 2,600
Customer list................................. 10,600 25,000 35,600
Tradename..................................... 15,100 29,000 44,100
Strategic agreements.......................... -- 494,000 494,000
Covenants not to compete...................... 1,200 -- 1,200
-------- ---------- ----------
Sub-total other intangible assets.......... 29,500 548,000 577,500
Deferred income taxes........................... (17,142) (293,200) (310,342)
Net assets of respective company:
Cash and cash equivalents..................... 15,044 8,019 23,063
Property and equipment........................ 1,452 763 2,215
Other, net.................................... (1,866) (20,152) (22,018)
-------- ---------- ----------
Sub-total net assets....................... 14,630 (11,370) 3,260
-------- ---------- ----------
Total purchase price............................ $240,595 $1,253,408 $1,494,003
======== ========== ==========
Details of specific technologies and the related useful lives of all
intangible assets are described in the Notes to Unaudited Pro Forma Condensed
Combining Financial Information for CheckFree Holdings and TransPoint on page
F-12 and CheckFree Holdings and BlueGill on page F-19.
2. Adjustment to write off the balance of in-process research and
development. As the amounts are non-deductible for federal and state tax
purposes, there is no related income tax benefit resulting from the charge.
Refer to Note B in the Notes to Unaudited Pro Forma Condensed Combining
Financial Information for CheckFree Holdings and TransPoint on page F-14 and
CheckFree Holdings and BlueGill on page F-21 for a detailed description of
in-process research and development for the respective acquisition. The amount
of in-process research and development is $6.9 million for BlueGill and $0 for
TransPoint.
x
(IN THOUSANDS)
Accumulated deficit................................ $6,900
Capitalized software, net........................ $6,900
3. Adjustment to accrue the cost of registering CheckFree Holdings shares
to be issued for BlueGill of $500,000 and registering CheckFree Corporation
shares to be issued for TransPoint of $675,000.
(IN THOUSANDS)
Additional paid-in capital......................... $1,175
Accrued liabilities.............................. $1,175
F-5
10
4. Adjustment to reflect additional amortization expense and the related
income tax benefit associated with the intangible assets acquired.
BLUEGILL TRANSPOINT COMBINED ADJUSTMENT
-------- ---------- --------------------
(IN THOUSANDS)
YEAR ENDED JUNE 30, 1999
Depreciation and amortization............ $61,826 $362,796 $424,622
Current deferred income tax liability.... 9,290 79,120 88,410
Capitalized software, net.............. 3,938 61,667 $ 65,605
Goodwill, net.......................... 38,601 164,996 203,597
Other intangible assets, net........... 19,287 136,133 155,420
Income tax benefit..................... 9,290 79,120 88,410
-------- --------
Total............................... $513,032 $513,032
======== ========
NINE MONTHS ENDED MARCH 31, 2000
Depreciation and amortization............ $34,145 $250,347 $284,492
Current deferred income tax liability.... 2,078 50,640 52,718
Capitalized software, net.............. 2,954 46,250 $ 49,204
Goodwill, net.......................... 28,951 123,747 152,698
Other intangible assets, net........... 2,240 80,350 82,590
Income tax benefit..................... 2,078 50,640 52,718
-------- --------
Total............................... $337,210 $337,210
======== ========
Goodwill amortization is non-deductible for federal and state income tax
purposes. A blended effective income tax rate of 40% was applied to the
deductible amortization to determine the related income tax benefit in the
entries above.
5. Adjustment to reflect the elimination of minority interest recorded in
the period due to the acquisition of all of the ownership interest in TransPoint
by CheckFree Holdings.
6. When combined with BlueGill's historical loss, TransPoint's historical
loss and the combined pro forma adjustments, the historical CheckFree Holdings
net income for the year ended June 30, 1999 resulted in a combined net loss. As
a result, due to the anti-dilutive effect on earnings per share, the equivalent
number of shares for purposes of determining diluted earnings per share, was
reduced to agree with the equivalent number of shares for basic earnings per
share. The following chart identifies by type of potentially dilutive security,
the number of additional shares that could potentially dilute basic earnings per
share in the future and the number of shares issued for both BlueGill and
TransPoint.
(IN THOUSANDS)
CheckFree Holdings common shares issued for:
TransPoint............................................ 13,000
BlueGill.............................................. 4,714
Potentially dilutive securities:
Options and warrants.................................. (4,085)
------
Net adjustment to dilutive shares outstanding........... 17,629
======
F-6
11
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Note A: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statement of Operations provide a reasonable basis for
presenting the significant effects of the acquisitions of BlueGill and
TransPoint; that the pro forma adjustments give appropriate effect to those
assumptions; and that the pro forma adjustments are properly applied in the
Unaudited Pro Forma Condensed Combining Balance Sheet and Statement of
Operations.
Note B: The Unaudited Pro Forma Condensed Combining Balance Sheet of
CheckFree Holdings, BlueGill and TransPoint has been prepared as if the
acquisitions were completed as of March 31, 2000 and were accounted for as
purchases.
CheckFree Holdings issued 4,713,736 shares of CheckFree Holdings common
stock in the BlueGill merger with a fair market value of $46.98 per share.
CheckFree Holdings also issued 634,145 CheckFree Holdings options to replace
BlueGill options, 286,264 of which are already vested. The excess of fair value
over the strike price of options issued per the merger agreement carry a value
of $18,546,000. CheckFree Holdings incurred $600,000 of direct acquisition
costs. The total purchase price of $240,595,000 was allocated to the assets
acquired and liabilities assumed based on BlueGill's March 31, 2000 balance
sheet.
CheckFree Holdings will issue 17,000,000 shares of its common stock at an
assumed value of $79.42 for the net assets of TransPoint and the entering into
of the related commercial agreements. Under the merger agreement, TransPoint is
to have $100 million of cash immediately prior to the closing of the mergers.
CheckFree Holdings expects to incur approximately $3,325,000 of direct
acquisition costs. The total purchase price of $1,253,408,000 was allocated to
assets acquired and liabilities assumed based on TransPoint's March 31, 2000
balance sheet.
The allocation of the BlueGill and TransPoint purchase prices among their
related identifiable tangible and intangible assets and purchased in-process
research and development is based on preliminary estimates of the fair market
value of those assets. Final determination of the allocation of the purchase
prices will be based on independent appraisals that CheckFree Holdings expects
to have completed shortly after the respective acquisitions are consummated. For
a detailed description of in-process research and development charges, see Note
B for TransPoint on page F-14 and Note B for BlueGill on page F-21.
Note C: CheckFree Holdings' statement of operations for the year ended June
30, 1999, has been combined with the BlueGill statement of operations and the
TransPoint statement of operations for the twelve months ended June 30, 1999.
CheckFree Holdings' statement of operations for the nine month period ended
March 31, 2000 has been combined with the BlueGill statement of operations and
the TransPoint statement of operations for the nine months ended March 31, 2000.
Actual statements of operations of CheckFree Holdings and BlueGill, and
CheckFree Holdings and TransPoint will be combined from the effective date of
the respective acquisitions, with no retroactive restatement.
Note D: The unaudited pro forma condensed combining statement of operations
for CheckFree Holdings, BlueGill and TransPoint have been prepared as if the
merger was completed as of July 1, 1998, the beginning of the earliest period
presented. The unaudited pro forma combined net income (loss) per share is based
on the weighted average number of shares of CheckFree Holdings common stock
outstanding during the periods, adjusted to give effect to shares assumed to be
issued had the acquisitions taken place as of July 1, 1998.
Note E: The unaudited pro forma condensed combining statement of operations
do not include a charge for the value of the estimated $6.9 million (no income
tax effect) of purchased research and development arising from the merger with
BlueGill, which will be expensed at acquisition, as this expense will have no
continuing impact.
F-7
12
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
WITH TRANSPOINT
AS OF MARCH 31, 2000
HISTORICAL AMOUNTS
----------------------
CHECKFREE PRO FORMA
HOLDINGS TRANSPOINT ADJUSTMENTS TOTAL
--------- ---------- ----------- ----------
(IN THOUSANDS)
ASSETS:
Current assets:
Cash and cash equivalents.................. $ 125,043 $ 8,019 $ 100,000(1) $ 233,062
Investments................................ 26,292 -- -- 26,292
Accounts receivable, net................... 53,343 -- -- 53,343
Prepaid expenses and other assets.......... 11,716 750 -- 12,466
Deferred income taxes...................... 9,444 -- -- 9,444
--------- -------- ---------- ----------
Total current assets............... 225,838 8,769 100,000 334,607
Property and equipment, net.................. 84,461 763 -- 85,224
Capitalized software, net.................... 23,006 9,926 175,073(1) 208,005
Goodwill, net................................ 29,539 -- 824,978(1) 854,517
Other intangible assets, net................. 12,224 -- 548,000(1) 560,224
Investments.................................. 52,869 -- -- 52,869
Deferred income taxes........................ 34,436 -- -- 34,436
Other noncurrent assets...................... 13,760 -- -- 13,760
--------- -------- ---------- ----------
Total assets....................... $ 476,133 $ 19,458 $1,648,051 $2,143,642
========= ======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable........................... $ 6,573 $ 11,853 $ -- $ 18,426
Accrued liabilities........................ 41,032 4,547 3,325(1) 49,579
675(2)
Deferred income taxes...................... -- -- 79,120(1) 79,120
Current portion of long-term obligations... 6,533 -- -- 6,533
Deferred revenue........................... 29,638 4,500 -- 34,138
--------- -------- ---------- ----------
Total current liabilities.......... 83,776 20,900 83,120 187,796
Accrued rent and other....................... 6,653 -- -- 6,653
Obligations under capital leases -- less
current portion............................ 820 -- -- 820
Convertible subordinated notes............... 172,500 -- -- 172,500
Minority interest............................ -- 40,329 (40,329)(1) --
Deferred income taxes........................ -- -- 214,081(1) 214,081
--------- -------- ---------- ----------
Total liabilities.................. 263,749 61,229 256,872 581,850
Stockholders' equity:
Common stock............................... 531 170(1) 701
Additional paid-in capital................. 517,912 -- 1,349,913(1) 1,867,150
(675)(2)
Members' capital deficiency................ -- (41,771) 41,771(1) --
Other...................................... (281) -- -- (281)
Accumulated deficit........................ (305,778) -- -- (305,778)
--------- -------- ---------- ----------
Total stockholder's equity......... 212,384 (41,771) 1,391,179 1,561,792
--------- -------- ---------- ----------
Total liabilities and stockholders'
equity........................... $ 476,133 $ 19,458 $1,648,051 $2,143,642
========= ======== ========== ==========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-8
13
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH TRANSPOINT
FOR THE YEAR ENDED JUNE 30, 1999
HISTORICAL AMOUNTS
-----------------------
CHECKFREE PRO FORMA
HOLDINGS TRANSPOINT ADJUSTMENTS TOTAL
--------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Processing and servicing.................... $201,059 $ -- $ -- $ 201,059
License fees................................ 15,975 -- -- 15,975
Maintenance fees............................ 17,746 -- -- 17,746
Other....................................... 15,351 -- -- 15,351
-------- -------- --------- ---------
Total revenues...................... 250,131 -- -- 250,131
Expenses:
Cost of processing, servicing and support... 146,704 3,062 -- 149,766
Research and development.................... 21,085 26,560 -- 47,645
Sales and marketing......................... 32,354 11,302 -- 43,656
General and administrative.................. 31,466 2,403 -- 33,869
Depreciation and amortization............... 24,630 1,870 362,796(3) 389,296
In-process research and development......... 2,201 -- -- 2,201
-------- -------- --------- ---------
Total expenses...................... 258,440 45,197 362,796 666,433
Net gain on dispositions of assets.......... 4,576 -- -- 4,576
-------- -------- --------- ---------
Loss from operations.......................... (3,733) (45,197) (362,796) (411,726)
Other:
Minority interest........................... -- 2,063 (2,063)(4) --
Interest, net............................... 2,181 464 2,645
-------- -------- --------- ---------
Loss before income taxes...................... (1,552) (42,670) (364,859) (409,081)
Income tax benefit............................ (12,009) -- (79,120)(3) (91,129)
-------- -------- --------- ---------
Net income (loss)............................. $ 10,457 $(42,670) $(285,739) $(317,952)
======== ======== ========= =========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ 0.20 $ (4.58)
======== =========
Equivalent number of shares................. 52,444 17,000(1) 69,444
======== ========= =========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ 0.18 $ (4.58)
======== =========
Equivalent number of shares................. 56,529 12,915(5) 69,444
======== ========= =========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-9
14
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH TRANSPOINT
FOR THE NINE MONTHS ENDED MARCH 31, 2000
HISTORICAL AMOUNTS
-----------------------
CHECKFREE PRO FORMA
HOLDINGS TRANSPOINT ADJUSTMENTS TOTAL
--------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Processing and servicing.................... $189,430 $ -- $ -- $ 189,430
License fees................................ 10,295 -- -- 10,295
Maintenance fees............................ 13,571 -- -- 13,571
Other....................................... 8,399 7 -- 8,406
-------- -------- --------- ---------
Total revenues...................... 221,695 7 -- 221,702
Expenses:
Cost of processing, servicing and support... 133,684 13,856 -- 147,540
Research and development.................... 24,276 5,997 -- 30,273
Sales and marketing......................... 29,522 13,980 -- 43,502
General and administrative.................. 28,837 1,858 -- 30,695
Depreciation and amortization............... 23,789 2,755 250,347(3) 276,891
In-process research and development......... -- -- -- --
-------- -------- --------- ---------
Total expenses...................... 240,108 38,446 250,347 528,901
Net gain on dispositions of assets.......... -- -- -- --
-------- -------- --------- ---------
Loss from operations.......................... (18,413) (38,439) (250,347) (307,199)
Other:
Minority interest........................... -- 5,608 (5,608)(4) --
Interest, net............................... (83) 1,054 -- 971
-------- -------- --------- ---------
Loss before income taxes...................... (18,496) (31,777) (255,955) (306,228)
Income tax benefit............................ (6,718) -- (50,640)(3) (57,358)
-------- -------- --------- ---------
Net income (loss)............................. $(11,778) $(31,777) $(205,315) $(248,870)
======== ======== ========= =========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (3.59)
======== =========
Equivalent number of shares................. 52,246 17,000(1) 69,246
======== ========= =========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (3.59)
======== =========
Equivalent number of shares................. 52,246 17,000(1) 69,246
======== ========= =========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-10
15
CHECKFREE HOLDINGS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
WITH TRANSPOINT
1. Adjustment to reflect the issuance of CheckFree Holdings common stock
and related acquisition expenses as the total purchase price for the net assets
of TransPoint, and the revaluation of TransPoint's capitalized software costs
and the elimination of TransPoint's minority interest and member's capital
deficiency, net of a contractual infusion of $100 million of cash by TransPoint.
The fair market values of intangible assets are preliminary estimates based on
an independent appraisal, and current facts and circumstances. The final value
of intangible assets will change with any change in the final purchase price and
any resulting change could be material.
(IN THOUSANDS)
Cash........................................................ $ 100,000
Capitalized software, net................................... 175,073
Goodwill, net............................................... 824,978
Other intangible assets, net................................ 548,000
TransPoint minority interest................................ 40,329
CheckFree Holdings common stock........................... $ 170
CheckFree Holdings additional paid-in capital............. 1,349,913
TransPoint member's capital deficiency.................... 41,771
Current deferred income tax liability..................... 79,120
Long term deferred income tax liability................... 214,081
Accrued acquisition expenses.............................. 3,325
---------- ----------
Totals............................................ $1,688,380 $1,688,380
========== ==========
The following chart indicates the components of the estimated purchase
price inherent in the adjusting entry:
(IN THOUSANDS)
CheckFree Holdings common stock......................... $1,350,083
TransPoint cash infusion................................ (100,000)
Estimated direct acquisition costs...................... 3,325
----------
Total estimated purchase price................ $1,253,408
==========
The estimated purchase price will be issued in exchange for the net assets
of TransPoint on the closing date.
The purchase price reflects the assumed issuance of 17,000,000 shares of
CheckFree Holdings common stock at $79.42 per share, which is the average end of
day price of CheckFree Holdings common stock for the three trading days
preceding and the three days following the announcement of the acquisition of
TransPoint. Under the terms of the merger and contribution agreement, TransPoint
will have $100 million in cash at the effective time of the closing of the
mergers.
F-11
16
The following table provides the allocation of the purchase price inherent
in the adjusting entry:
(IN THOUSANDS)
In-process research and development (Note B)................................... $ 0
Current technology and products:
BIS/communications (estimated life of 3 years)....... 26,000
Service center (estimated life of 3 years)....... 85,000
Delivery applications (estimated life of 3 years)....... 50,000
Payments/interface (estimated life of 3 years)....... 24,000
----------
Sub-total IPRD and current technology and products........................ 185,000
Goodwill (estimated life of 5 years)........................................... 824,978
Other intangible assets:
Customer list (estimated life of 3 years)....... 25,000
Tradename (estimated life of 1 year )....... 29,000
Strategic agreements (estimated life of 5 years)....... 494,000
----------
Sub-total other intangible assets.................................... 548,000
Deferred income taxes.......................................................... (293,200)
Net assets of TransPoint:
Cash and cash equivalents.................................................... 8,019
Property and equipment....................................................... 763
Liabilities assumed.......................................................... (20,901)
Other, net................................................................... 749
----------
Sub-total net assets................................................. (11,370)
----------
Total Purchase Price................................................. $1,253,408
==========
The useful lives of the various intangible assets identified are based on
management's preliminary estimates. Under the caption of current technology and
products, lives are based on assumptions regarding the time expected for the
indicated technology or product to become obsolete, which are driven primarily
by planed future development work designed to replace the existing technology or
product. The useful life assigned to goodwill is based upon currently acceptable
lives for these assets. The useful life CheckFree Holdings assigned to the
customer list is based on the estimate of the future revenue base from the
existing customers. The useful life CheckFree Holdings assigned to tradename is
based on the estimated time that will pass before CheckFree Holdings
discontinues the use of the related name. CheckFree Holdings assigned a
five-year life to the strategic agreements to coincide with the contractual life
of the related agreements. CheckFree Holdings will amortize these intangible
assets on a straight-line basis over their estimated useful lives.
2. Adjustment to accrue the cost of registering CheckFree Holdings shares
of its common stock to be issued for TransPoint.
(IN THOUSANDS)
Additional paid-in capital............................ $675
Accrued liabilities................................. $675
F-12
17
3. Adjustment to reflect additional amortization expense and the related
income tax benefit associated with the intangible assets acquired from
TransPoint.
(IN THOUSANDS)
YEAR ENDED JUNE 30, 1999
Depreciation and amortization............................... $362,796
Current deferred income tax liability....................... 79,120
Capitalized software, net................................. $ 61,667
Goodwill, net............................................. 164,996
Other intangible assets, net.............................. 136,133
Income tax benefit........................................ 79,120
-------- --------
Total.................................................. $441,916 $441,916
======== ========
NINE MONTHS ENDED MARCH 31, 2000
Depreciation and amortization............................... $250,347
Current deferred income tax liability....................... 50,640
Capitalized software, net................................. $ 46,250
Goodwill, net............................................. 123,747
Other intangible assets, net.............................. 80,350
Income tax benefit........................................ 50,640
-------- --------
Total.................................................. $300,987 $300,987
======== ========
Goodwill amortization is non-deductible for federal and state income tax
purposes. A blended effective income tax rate of 40% was applied to the
deductible amortization to determine the related income tax benefit in the
entries above.
4. Adjustment to reflect the elimination of minority interest recorded in
the period due to the acquisition of all of the ownership interest in TransPoint
by CheckFree Corporation.
5. When combined with TransPoint's historical loss and the pro forma
adjustments, the historical CheckFree Holdings' net income for the year ended
June 30, 1999 resulted in a combined net loss. As a result, due to the
anti-dilutive effect on earnings per share, the equivalent number of shares for
purposes of determining diluted earnings per share, was reduced to agree with
the equivalent number of shares for basic earnings per share. The following
chart identifies by type of potentially dilutive security, the number of
additional shares that could potentially dilute basic earnings per share in the
future and the number of shares issued for TransPoint.
(IN THOUSANDS)
CheckFree Corporation common shares issued for
TransPoint.......................................... 17,000
Potentially dilutive securities:
Options and warrants................................ (4,085)
------
Net adjustment to dilutive shares outstanding......... 12,915
======
F-13
18
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Note A: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statement of Operations provide a reasonable basis for
presenting the significant effects of the acquisition of TransPoint; that the
pro forma adjustments give appropriate effect to those assumptions; and that the
pro forma adjustments are properly applied in the Unaudited Pro Forma Condensed
Combining Balance Sheet and Statement of Operations.
Note B: The Unaudited Pro Forma Condensed Combining Balance Sheet of
CheckFree Holdings and TransPoint has been prepared as if the mergers were
completed as of March 31, 2000, and was accounted for as a purchase. CheckFree
Holdings will issue 17,000,000 shares of CheckFree Holdings common stock valued
at $79.42 for the net assets of TransPoint. Under the terms of the merger
agreement, TransPoint will have $100 million of cash immediately prior to the
closing of the mergers. CheckFree Holdings expects to incur approximately $3.3
million of direct acquisition costs. The total purchase price of $1,253,408,000
was allocated to assets acquired and liabilities assumed based on TransPoint's
March 31, 2000 balance sheet.
The allocation of the TransPoint purchase price among the identifiable
tangible and intangible assets is based on preliminary estimates of the fair
market value of those assets. Final determination of the allocation of the
purchase price will be based on independent appraisals that CheckFree Holdings
expects to have completed shortly after the mergers are consummated.
TransPoint released the latest version of their electronic billing and
payment processing system just one week prior to the announcement of the merger
and contribution agreement. As a result, at this time, the value of in-process
research and development is nominal and therefore not reflected. However,
CheckFree Holdings will reassess the fair market value of the assets and
liabilities assumed from TransPoint at the time of closing and CheckFree
Holdings expects a portion of the purchase price to be allocated to in-process
research and development at that time. Due to uncertainties regarding the
specific products or technology enhancements that will be included in the next
release and the specific date of the closing, CheckFree Holdings cannot
currently provide a reasonable estimate of the expected value of in-process
research and development.
Note C: CheckFree Holdings' statement of operations for the year ended June
30, 1999, has been combined with the TransPoint statement of operations for the
twelve months ended June 30, 1999. CheckFree Holdings' statement of operations
for the nine month period ended March 31, 2000 has been combined with the
TransPoint statement of operations for the nine months ended March 31, 2000.
Actual income statements of CheckFree Holdings and TransPoint will be combined
from the effective date of the mergers, with no retroactive restatement.
Note D: The unaudited pro forma condensed combining statements of
operations for CheckFree Holdings and TransPoint have been prepared as if the
mergers were completed as of July 1, 1998, the beginning of the earliest period
presented. The unaudited pro forma combined net income (loss) per share is based
on the weighted average number of shares of CheckFree Holdings common stock
outstanding during the periods, adjusted to give effect to shares assumed to be
issued had the mergers taken place as of July 1, 1998.
F-14
19
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
WITH BLUEGILL TECHNOLOGIES, INC.
AS OF MARCH 31, 2000
HISTORICAL AMOUNTS
---------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL ADJUSTMENTS TOTAL
--------- -------- ----------- --------
(IN THOUSANDS)
ASSETS:
Current Assets:
Cash and cash equivalents.................... $125,043 $15,044 $ -- $140,087
Investments.................................. 26,292 -- -- 26,292
Accounts receivable, net..................... 53,343 1,151 -- 54,494
Prepaid expenses and other assets............ 11,716 189 -- 11,905
Deferred income taxes........................ 9,444 -- -- 9,444
-------- ------- -------- --------
Total current assets................. 225,838 16,384 -- 242,222
Property and equipment, net.................... 84,461 1,453 -- 85,914
Capitalized software, net...................... 23,006 -- 20,600(1) 36,706
(6,900)(2)
Goodwill, net.................................. 29,539 -- 193,007(1) 222,546
Other intangible assets, net................... 12,224 -- 29,500(1) 41,724
Investments.................................... 52,869 -- -- 52,869
Deferred income taxes.......................... 34,436 -- -- 34,436
Other noncurrent assets........................ 13,760 2 -- 13,762
-------- ------- -------- --------
Total assets......................... $476,133 $17,839 $236,207 $730,179
======== ======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable............................. $ 6,573 $ 1,294 $ -- $ 7,867
Accrued liabilities.......................... 41,032 228 600(1) 42,360
500(3)
Deferred income taxes........................ -- -- 9,290(1) 9,290
Current portion of long-term obligations..... 6,533 159 -- 6,692
Deferred revenue............................. 29,638 1,191 -- 30,829
-------- ------- -------- --------
Total current liabilities............ 83,776 2,872 10,390 97,038
Accrued rent and other......................... 6,653 -- -- 6,653
Obligations under capital leases -- less
current portion.............................. 820 337 -- 1,157
Convertible subordinated notes................. 172,500 -- -- 172,500
Deferred income taxes.......................... -- -- 7,852(1) 7,852
-------- ------- -------- --------
Total liabilities.................... 263,749 3,209 18,242 285,200
Redeemable preferred stock..................... -- 25,963 (25,963)(1) --
Stockholders' equity:
Common stock................................. 531 7 40(1) 578
Additional paid-in capital................... 517,912 1,753 238,195(1) 757,360
(500)(3)
Other........................................ (281) (650) 650(1) (281)
Accumulated deficit.......................... (305,778) (12,443) 12,443(1) (312,678)
(6,900)(2)
-------- ------- -------- --------
Total stockholder's equity........... 212,384 (11,333) 243,928 444,979
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $476,133 $17,839 $236,207 $730,179
======== ======= ======== ========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-15
20
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC.
FOR THE YEAR ENDED JUNE 30, 1999
HISTORICAL AMOUNTS
---------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL ADJUSTMENTS TOTAL
--------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Processing and servicing.................... $201,059 $ -- $ -- $201,059
License fees................................ 15,975 2,517 -- 18,492
Maintenance fees............................ 17,746 48 -- 17,794
Other....................................... 15,351 925 -- 16,276
-------- ------- -------- --------
Total revenues...................... 250,131 3,490 -- 253,621
Expenses:
Cost of processing, servicing and support... 146,704 969 -- 147,673
Research and development.................... 21,085 1,457 -- 22,542
Sales and marketing......................... 32,354 2,318 -- 34,672
General and administrative.................. 31,466 2,045 -- 33,511
Depreciation and amortization............... 24,630 106 61,826(4) 86,562
In-process research and development......... 2,201 -- -- 2,201
-------- ------- -------- --------
Total expenses...................... 258,440 6,895 61,826 327,161
Net gain on dispositions of assets.......... 4,576 -- -- 4,576
-------- ------- -------- --------
Loss from operations.......................... (3,733) (3,405) (61,826) (68,964)
Other:
Interest, net............................... 2,181 194 -- 2,375
-------- ------- -------- --------
Loss before income taxes...................... (1,552) (3,211) (61,826) (66,589)
Income tax benefit............................ (12,009) -- (9,290)(4) (21,299)
-------- ------- -------- --------
Net income (loss)............................. $ 10,457 $(3,211) $(52,536) $(45,290)
======== ======= ======== ========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ 0.20 $ (0.79)
======== ========
Equivalent number of shares................. 52,444 4,714(1) 57,158
======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ 0.18 $ (0.79)
======== ========
Equivalent number of shares................. 56,529 629(5) 57,158
======== ======== ========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-16
21
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC.
FOR THE NINE MONTHS ENDED MARCH 31, 2000
HISTORICAL AMOUNTS
---------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL ADJUSTMENTS TOTAL
--------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES:
Processing and servicing.................... $189,430 $ -- $ -- $189,430
License fees................................ 10,295 4,578 -- 14,873
Maintenance fees............................ 13,571 349 -- 13,920
Other....................................... 8,399 1,180 -- 9,579
-------- ------- -------- --------
Total revenues...................... 221,695 6,107 -- 227,802
Expenses:
Cost of processing, servicing and support... 133,684 1,496 -- 135,180
Research and development.................... 24,276 2,142 -- 26,418
Sales and marketing......................... 29,522 5,602 -- 35,124
General and administrative.................. 28,837 4,463 -- 33,300
Depreciation and amortization............... 23,789 272 34,145(4) 58,206
In-process research and development......... -- -- -- --
-------- ------- -------- --------
Total expenses...................... 240,108 13,975 34,145 288,228
Net gain on dispositions of assets.......... -- -- -- --
-------- ------- -------- --------
Loss from operations.......................... (18,413) (7,868) (34,145) (60,426)
Other:
Interest, net............................... (83) 619 -- 536
-------- ------- -------- --------
Loss before income taxes...................... (18,496) (7,249) (34,145) (59,890)
Income tax benefit............................ (6,718) -- (2,078)(4) (8,796)
-------- ------- -------- --------
Net income (loss)............................. $(11,778) $(7,249) $(32,067) $(51,094)
======== ======= ======== ========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (0.90)
======== ========
Equivalent number of shares................. 52,246 4,714(1) 56,960
======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (0.90)
======== ========
Equivalent number of shares................. 52,246 4,714(1) 56,960
======== ======== ========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
F-17
22
CHECKFREE HOLDINGS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
WITH BLUEGILL TECHNOLOGIES, INC.
1. Adjustment to reflect the issuance of CheckFree Holdings common stock,
CheckFree Holdings options and related acquisition expenses as the total
purchase price for the net assets of BlueGill, and the elimination of BlueGill's
redeemable preferred stock and shareholders' equity. The fair market values of
intangible assets are preliminary estimates based on an independent appraisal,
and current facts and circumstances. The final value of intangible assets will
change with any change in the final purchase price and any resulting change
could be material.
(IN THOUSANDS)
Capitalized software, net.............................. $ 20,600
Goodwill, net.......................................... 193,007
Other intangible assets, net........................... 29,500
BlueGill redeemable preferred stock.................... 25,963
BlueGill common stock.................................. 7
BlueGill additional paid-in capital.................... 1,753
CheckFree Holdings common stock...................... $ 47
CheckFree Holdings additional paid-in capital........ 239,948
BlueGill accumulated deficit......................... 12,443
BlueGill other equity................................ 650
Current deferred income tax liability................ 9,290
Long term deferred income tax liability.............. 7,852
Accrued acquisition expenses......................... 600
-------- --------
Totals............................................ $270,830 $270,830
======== ========
The following chart indicates the components of the purchase price inherent
in the adjusting entry:
(IN THOUSANDS)
CheckFree Holdings common stock......................... $221,449
Issuance of CheckFree Holdings options.................. 18,546
Direct acquisition costs................................ 600
--------
Total estimated purchase price................ $240,595
========
The purchase price reflects the issuance of 4,713,736 shares of CheckFree
Holdings common stock at $46.98 per share which is the average end of day price
of CheckFree Holdings stock for the three trading days preceding and the three
days following the closing of the acquisition of BlueGill. Under the terms of
the merger agreement, CheckFree Holdings also issued 634,145 CheckFree Holdings
options to replace BlueGill options, of which 286,264 are already vested. The
value of the CheckFree Holdings option grant is based on a Black-Scholes
valuation model assuming a $46.98 stock price, an average strike price of $2.18,
an average life of 2.9 years, a risk-free interest rate of 6.47% and volatility
of 83.4%.
F-18
23
The following table provides the allocation of the purchase price inherent
in the adjusting entry:
(IN THOUSANDS)
In-process research and development (Note B).................................. $ 6,900
Current technology and products:
Print/extraction (estimated life of 3 years)....... 4,600
Data management engine (estimated life of 4 years)....... 5,700
API or application protocol interfaces (estimated life of 2 years)....... 1,000
Web applications (estimated life of 5 years)....... 2,400
--------
Sub-total IPR&D and current technology and products...................... 20,600
Goodwill (estimated life of 5 years)....... 193,007
Other intangible assets:
Workforce in place (estimated life of 3 years)....... 2,600
Customer list (estimated life of 5 years)....... 10,600
Tradename (estimated life of 1 year)........ 15,100
Covenants not to compete (estimated life of 1 year)........ 1,200
--------
Sub-total other intangible assets........................................ 29,500
Deferred income taxes......................................................... (17,142)
Net assets of BlueGill:
Cash and cash equivalents................................................... 15,044
Property and equipment...................................................... 1,452
Other, net.................................................................. (1,866)
--------
Sub-total net assets..................................................... 14,630
--------
Total Purchase Price..................................................... $240,595
========
The useful lives of the various intangible assets identified are based on
management's estimates. Under the caption of current technology and products,
lives are based on assumptions regarding the time expected for the indicated
technology or product to become obsolete, which are driven primarily by planned
future development work designed to replace the existing technology or product.
The useful life assigned to goodwill is based upon currently acceptable lives
for these assets. The useful life on workforce in place is based on CheckFree
Holdings' estimate of the average tenure expected from the BlueGill employee
base. The useful life CheckFree Holdings assigned to the customer base is based
on CheckFree Holdings' estimate of the future revenue base from the existing
customers. Although the BlueGill tradename is widely known at this time,
CheckFree Holdings currently has no plans to continue to utilize the name once
the technologies of BlueGill and CheckFree Holdings are consolidated in to a
single product offering, which CheckFree Holdings expects to take place within
one year of the merger. CheckFree Holdings assigned a one-year life to the
covenants not to compete to coincide with the contractual life of the related
agreements. CheckFree Holdings will amortize these intangible assets on a
straight-line basis over their estimated useful lives.
2. Adjustment to write off the balance of in-process research and
development. As the amount is not deductible for federal or state income tax
purposes, there is no related income tax benefit resulting from the charge.
Refer to Note B for an explanation of in process research and development.
(IN THOUSANDS)
Accumulated deficit................................ $6,900
Capitalized software, net........................ $6,900
3. Adjustment to accrue the cost of registering CheckFree Holdings shares
to be issued for BlueGill.
(IN THOUSANDS)
Additional paid-in capital............................ $500
Accrued liabilities................................. $500
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4. Adjustment to reflect additional amortization expense and the related
income tax benefit associated with the intangible assets acquired from BlueGill.
(IN THOUSANDS)
YEAR ENDED JUNE 30, 1999
Depreciation and amortization............................... $61,826
Current deferred income tax liability....................... 9,290
Capitalized software, net................................. $ 3,938
Goodwill, net............................................. 38,601
Other intangible assets, net.............................. 19,287
Income tax benefit........................................ 9,290
------- -------
Total.................................................. $71,116 $71,116
======= =======
NINE MONTHS ENDED MARCH 31, 2000
Depreciation and amortization............................... $34,145
Current deferred income tax liability....................... 2,078
Capitalized software, net................................. $ 2,954
Goodwill, net............................................. 28,951
Other intangible assets, net.............................. 2,240
Income tax benefit........................................ 2,078
------- -------
Total.................................................. $36,223 $36,223
======= =======
Goodwill amortization is non-deductible for federal and state income tax
purposes. A blended effective income tax rate of 40% was applied to the
deductible amortization to determine the related income tax benefit in the
entries above.
5. When combined with BlueGill's historical loss and the pro forma
adjustments, the historical CheckFree Holdings' net income for the year ended
June 30, 1999 resulted in a combined net loss. As a result, due to the
anti-dilutive effect on earnings per share, the equivalent number of shares for
purposes of determining diluted earnings per share, was reduced to agree with
the equivalent number of shares for basic earnings per share. The following
chart identifies by type of potentially dilutive security, the number of
additional shares that could potentially dilute basic earnings per share in the
future and the number of shares issued for BlueGill.
CheckFree Holdings common shares issued for BlueGill........ 4,714
Potentially dilutive securities:
Options and warrants...................................... (4,085)
Other..................................................... --
------
Total potentially dilutive securities.................. (4,085)
------
Net adjustment to dilutive shares outstanding............... 629
======
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Note A: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statement of Operations provide a reasonable basis for
presenting the significant effects of the acquisition of BlueGill; that the pro
forma adjustments give appropriate effect to those assumptions; and that the pro
forma adjustments are properly applied in the Unaudited Pro Forma Condensed
Combining Balance Sheet and Statement of Operations.
Note B: The unaudited pro forma condensed balance sheet of CheckFree
Holdings and BlueGill has been prepared as if the merger was completed as of
March 31, 2000, and was accounted for as a purchase. CheckFree Holdings issued
4,713,736 shares of its common stock with a fair market value of $46.98 per
share and 634,145 options, 286,264 of which are already vested. The total
purchase price of $240,595,000 was allocated to assets acquired and liabilities
assumed based on BlueGill's March 31, 2000 balance sheet.
The allocation of the BlueGill purchase price among the identifiable
tangible and intangible assets and purchased in process research and development
is based on preliminary estimates of the fair market value of those assets.
Final determination of the allocation of the purchase price will be based on
independent appraisals that CheckFree Holdings expects to have completed shortly
after the merger is consummated.
BlueGill currently has five general technologies and application suites
under development that meet the specific requirements of SFAS No. 2 for
qualification as in-process research and development or IPRD. Critical elements
of SFAS No. 2's definition of IPRD are that:
- the product has not yet demonstrated its technological feasibility; and
- the product does not have an alternative future use.
These in-process technologies and applications include print and extraction
technology, the Data Management Engine technology, API technology, web
applications and OFX payment technology. Their descriptions are found below.
Print and extraction technology. Print and extraction technology allows for
the extraction and print parsing of a biller's legacy billing information
through to BlueGill's products. The following features of the print/extraction
technology are under development:
- SmartXpress 3.0.0 that comprises updates to accommodate core changes to
BlueGill's DME 2.2.0;
- Record Data Loader, which is an input module that allows for Record Data
Type management by converting flat file data into XML-s for storage in
the DME; and
- Internationalization Language, which allows for the management of Asian
languages (e.g. Japan, China, Korea, Hong Kong, and Taiwan) through
Double Byte Character Set (DBCS) and Unicode development.
Data Management Engine technology. The DME technology allows for archiving
of transactions and linkage of data to the necessary environment within the
BlueGill network. The DME is the main translator of input data to output data.
The following features are under development:
- Xerox Metacode Support, which is Xerox print support on the AIX, Solaris
and HP-UX platforms;
- AFP to PDF performance, which provides three times improvement in
throughput of data through the DME; and
- MVS Port (OS/390), which ports the source code to the MVS platform.
APIs. The API technology encompasses knowledge engineering procedures and
expert system analysis, design and development. The API technology works in
between the print/extraction and parsing modules and
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the web applications or templates. The API "surrounds" the DME as its interface
to these other technologies. The following features are under development:
- BlueGill Engine 3.0.0. -- Pure JAVA Front End Interface, which provides a
pure JAVA version of the public API set;
- BlueGill Engine 4.0.0 -- Pure JAVA Back End Interface, which provides a
pure JAVA version of the data base engine; and
- CheckFree Holdings E-Bill 3.1 Format Support, which provides batch mode
support for the CheckFree Holdings E-Bill 3.1 format.
Web Applications. The web application technologies help in the design of
industry specific templates for electronic billing and statement presentation.
The following features are under development:
- i-Insurance Template for the insurance industry billing statement
templates; and
- Market Direct 2.0, which provides one-to-one marketing capabilities with
end users.
Payments or OFX. The payments or OFX technology will allow for bill
publishing services to be integrated with the i-Series products and bill
consolidators. The following features are under development:
- OFX Bill Publisher Server, which is the core OFX engine integrated with
the i-Series engine support and Bill Publisher component to link to
consolidators;
- Payment Infrastructure, which is the underpinnings for interfacing with
various payment solutions (e.g. ACH, PaymenTech, Cybercash); and
- International CSP Model, which is an international version of the
domestic CSP model.
There are risks and uncertainties associated with the completion of these
in-process technologies. These risks include:
- Not Technologically Feasible.
The acquired IPRD had not demonstrated technological or commercial
feasibility as of the transaction date for BlueGill. Significant risks
exist because BlueGill is unsure of the obstacles it will encounter in the
form of market acceptance, time and cost necessary to produce a
technologically feasible product. SFAS No. 2 does not specifically require
an analysis of the development effort expended relative to an acquisition
date. It is reasonable to assume, however, that an IPRD project would
require a significant amount of time and cost in order to modify for
CheckFree Holdings' use in the marketplace. Should the proposed technology
fail to become viable, it is unlikely that CheckFree Holdings would be able
to realize any value from the sale of the technology to another party.
- No Alternative Future Use.
The acquired IPRD consists of BlueGill's work to date on its products.
The products are very specific to the tasks and markets for which it is
intended. As is typically the case with software, there are no alternative
uses for the in-process work in the event that the product does not become
feasible for CheckFree Holdings. The development effort for the acquired
IPRD does not possess an alternative future use for CheckFree Holdings
under the terms of SFAS No. 2.
- If the BlueGill project underway fails, there will be a very limited life
to the existing product because the continuing pace of technological
developments in the marketplace will have rendered them non-competitive.
In the event of a failure, the technology acquired, as embodied in either
current or in-process products, will have no alternative use and would be
written off as a loss by CheckFree Holdings.
- As of the valuation date, all of the IPRD technologies were subject to
numerous technological, timing, cost and market risks. In addition to
these risks already mentioned, another major risk associated with the
technologies pertains to the language it's written in. According to
BlueGill's management, all of
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the base code may go to the JAVA computer language, causing large
sections of the codes to be re-written.
The following table represents information regarding the status of the
various in-process research and development projects acquired:
ESTIMATED EXPECTED
STAGE OF ESTIMATED COST TO
COMPLETION COMPLETION DATE COMPLETE VALUATION
---------- ----------------- -------- ---------
(IN THOUSANDS)
Print/Extraction................... 38% December 2000 $ 748 $1,900
Data Management Engine............. 19% November 2000 110 1,300
APIs............................... 46% November 2000 703 2,300
Web Applications................... 50% July 2000 183 1,400
Payments/OFX....................... 10% December 2000 333 0
------ ------
Total.................... $2,077 $6,900
====== ======
The method used to allocate the purchase consideration to IPRD was the
modified income approach. Under the income approach, fair value reflects the
present value of the projected free cash flows that will be generated by the
IPRD projects and that is attributable to the acquired technology, if
successfully completed. The modified income approach takes the income approach,
modified to include the following factors:
- analysis of the stage of completion of each project;
- exclusion of value related to research and development yet-to-be
completed as part of the on-going IPRD projects; and
- the contribution of existing technologies and applications.
The projected revenue used in the income approach are based upon the
incremental revenues associated with a portion of the project related to
BlueGill's technology likely to be generated upon completion of the project and
the beginning of commercial sales, as estimated by management. The projections
assume that the projects will be successful and the project's development and
commercialization are as set forth by management. The discount rate used in this
analysis is an after tax rate of 25%.
Note C: CheckFree Holdings' statement of operations for the year ended June
30, 1999, has been combined with the BlueGill statement of operations for the
twelve months ended June 30, 1999. CheckFree Holdings' statement of operations
for the nine-month period ended March 31, 2000 has been combined with the
BlueGill statement of operations for the nine-month period ended March 31, 2000.
Actual income statements of CheckFree Holdings and BlueGill will be combined
from the effective date of the merger, with no retroactive restatement.
Note D: The unaudited pro forma condensed combining statement of operations
for CheckFree Holdings and BlueGill have been prepared as if the merger was
completed as of July 1, 1998, the beginning of the earliest period presented.
The unaudited pro forma combined net income (loss) per share is based on the
weighted average number of shares of CheckFree Holdings common stock outstanding
during the periods, adjusted to give effect to shares assumed to be issued had
the merger taken place as of July 1, 1998.
Note E: The unaudited pro forma condensed combining statement of operations
do not include a charge for the value of the estimated $6.9 million (no income
tax effect) of purchased research and development arising from the merger, which
will be expensed at acquisition, as this expense will not have a continuing
impact.
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EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
2(a) Agreement and Plan of Merger, dated as of December 20, 1999,
among CheckFree Holdings Corporation, CheckFree Acquisition
Corporation IV, and BlueGill Technologies, Inc. (Reference is
made to Appendix A to Registration Statement on Form S-4, as
amended (Registration No. 333-32644), filed with the
Securities Exchange Commission on March 16, 2000, and
incorporated herein by reference).
2(b) Amendment to Agreement and Plan of Merger, dated April 27,
2000, among CheckFree Holdings Corporation, CheckFree
Acquisition Corporation IV, and BlueGill Technologies, Inc.
(Reference is made to Exhibit 2(b) to Current Report on Form
8-K dated April 28, 2000, filed with the Securities and
Exchange Commission on May 15, 2000, and incorporated herein
by reference).
23 Consent of Arthur Andersen LLP.