1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: NOVEMBER 14, 2000
CHECKFREE 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)
----------
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF THE TRANSPOINT ENTITIES.
The following is a list of the TransPoint audited financial statements
filed with this report:
Independent Auditors' Report...........................................................F-1
Combined Consolidated Balance Sheets as of June 30, 2000 and July 2, 1999..............F-2
Combined Consolidated Statements of Operations for the Years Ended
June 30, 2000, July 2, 1999, and to July 3, 1998.....................................F-3
Combined Consolidated Statements of Members' Capital Deficiency at June 27,
1997, for the Years Ended July 3, 1998, July 2, 1999, and June 30, 2000.............F-4
Combined Consolidated Statements of Cash Flows for the Years Ended June 30,
2000, July 2, 1999, and July 3, 1998................................................F-5
Notes to Consolidated Financial Statements ............................................F-6
(c) EXHIBITS.
Exhibit No. Description
23 Consent of Deloitte & Touche LLP.
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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: November 14, 2000 /s/ David E. Mangum
-------------------------------
David E. Mangum, Executive Vice
President and Chief Financial
Officer
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INDEPENDENT AUDITORS' REPORT
MSFDC, L.L.C.
Redmond, Washington
We have audited the accompanying combined consolidated balance sheets of MSFDC,
L.L.C. and related companies (the Company) as of June 30, 2000, and July 2,
1999, and the related combined consolidated statements of operations, members'
capital deficiency, and cash flows for each of the three years in the period
ended June 30, 2000. The combined financial statements include the consolidated
accounts of MSFDC, L.L.C. and subsidiaries and MSFDC International L.P. These
companies are under common ownership and common management. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of June 30,
2000, and July 2, 1999, and the related combined consolidated statements of
operations, members' capital deficiency, and cash flows for each of the three
years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
November 13, 2000
F-1
5
MSFDC, L.L.C. AND RELATED COMPANIES
COMBINED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, July 2,
ASSETS 2000 1999
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 21,669,568 $51,113,749
Accounts receivable 13,402 --
Prepaid royalties 500,000 --
------------ -----------
Total current assets 22,182,970 51,113,749
PROPERTY AND EQUIPMENT:
Equipment 4,814,120 3,924,418
Capitalized software 10,901,340
Accumulated depreciation (6,066,911) (2,213,876)
------------ -----------
Total property and equipment 9,648,549 1,710,542
------------ -----------
TOTAL $ 31,831,519 $52,824,291
============ ===========
LIABILITIES AND MEMBERS' CAPITAL DEFICIENCY
- -------------------------------------------
LIABILITIES:
Accounts payable $ 8,145,378 $16,289,271
Accrued liabilities 7,684,446 592,192
Unearned revenue 4,500,000 --
------------ -----------
Total liabilities 20,329,824 16,881,463
MINORITY INTEREST 37,964,943 45,936,458
MEMBERS' CAPITAL DEFICIENCY:
Membership interest - MS member (13,231,624) (4,996,815)
Membership interest - FDC member (13,231,624) (4,996,815)
------------ -----------
Total members' capital deficiency (26,463,248) (9,993,630)
------------ -----------
TOTAL $ 31,831,519 $52,824,291
============ ===========
See notes to combined consolidated financial statements.
F-2
6
MSFDC, L.L.C. AND RELATED COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year ended Year ended Year ended
June 30, 2000 July 2, 1999 July 3, 1998
------------- ------------ ------------
REVENUES $ 18,186 $ -- $ --
OPERATING EXPENSES:
Product development 11,190,795 26,559,520 10,032,522
Selling, general, and administrative 43,160,451 18,637,762 5,839,118
------------ ------------ ------------
Total operating expenses 54,351,246 45,197,282 15,871,640
INTEREST INCOME (1,170,677) (463,632) (18,118)
------------ ------------ ------------
Loss before minority interest (53,162,383) (44,733,650) (15,853,522)
MINORITY INTEREST 7,971,515 2,063,542 --
------------ ------------ ------------
NET LOSS $(45,190,868) $(42,670,108) $(15,853,522)
============ ============ ============
See notes to combined consolidated financial statements.
F-3
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MSFDC, L.L.C. AND RELATED COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL DEFICIENCY
- --------------------------------------------------------------------------------
MS member FDC member Total
--------- ---------- -----
BALANCE, June 27, 1997 $ -- $ -- $ --
Capital contributions 5,500,067 5,500,000 11,000,067
Net loss (7,926,761) (7,926,761) (15,853,522)
------------ ------------ ------------
BALANCE, July 3, 1998 (2,426,694) (2,426,761) (4,853,455)
Capital contributions 18,764,933 18,765,000 37,529,933
Net loss (21,335,054) (21,335,054) (42,670,108)
------------ ------------ ------------
BALANCE, July 2, 1999 (4,996,815) (4,996,815) (9,993,630)
Capital contributions 14,360,625 14,360,625 28,721,250
Net loss (22,595,434) (22,595,434) (45,190,868)
------------ ------------ ------------
BALANCE, June 30, 2000 $(13,231,624) $(13,231,624) $(26,463,248)
============ ============ ============
See notes to combined consolidated financial statements.
F-4
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MSFDC, L.L.C. AND RELATED COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year ended Year ended Year ended
June 30, 2000 July 2, 1999 July 3, 1998
------------- ------------ ------------
OPERATING ACTIVITIES:
Net loss $(45,190,868) $(42,670,108) $(15,853,522)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 3,853,035 1,870,467 343,409
Minority interest share of loss (7,971,515) (2,063,542) --
Cash provided (used) by changes in
operating assets and liabilities:
Accounts receivable (13,402) -- --
Prepaid royalties (500,000) -- --
Checks drawn in excess of
bank balance -- (57,830) 57,830
Accounts payable and accrued
liabilities (1,051,639) 10,424,986 6,456,477
Unearned revenue 4,500,000 -- --
------------ ------------ ------------
Net cash used by operating activities (46,374,389) (32,496,027) (8,995,806)
INVESTING ACTIVITIES:
Acquisition of equipment (889,702) (1,920,157) (2,004,261)
Capitalized software (10,901,340) -- --
------------ ------------ ------------
Net cash used by investing activities (11,791,042) (1,920,157) (2,004,261)
FINANCING ACTIVITIES:
Member capital contributions 28,721,250 37,529,933 11,000,067
Capital contribution from minority interest -- 48,000,000 --
------------ ------------ ------------
Net cash provided by financing activities 28,721,250 85,529,933 11,000,067
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (29,444,181) 51,113,749 --
CASH AND CASH EQUIVALENTS:
Beginning of period 51,113,749 -- --
------------ ------------ ------------
End of period $ 21,669,568 $ 51,113,749 $ --
============ ============ ============
See notes to combined consolidated financial statements.
F-5
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MSFDC, L.L.C. AND RELATED COMPANIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS: The purpose of the business is to provide
electronic statement presentment and electronic remittance services to
consumers and businesses using the Internet.
ORGANIZATION: MSFDC, L.L.C. is a Delaware limited liability company and was
formed pursuant to the Limited Liability Company Agreement of MSFDC, L.L.C.
dated as of June 18, 1997 (inception) (the LLC Agreement). The members of
MSFDC, L.L.C. are MS II, L.L.C., a Delaware limited liability company (the
MS member), and First Data L.L.C., a Delaware limited liability company
(the FDC member). The MS member is a wholly owned subsidiary of Microsoft
Corporation (MS). The FDC member is a wholly owned subsidiary of First Data
Corporation (FDC).
In September 1998, MSFDC, L.L.C. entered into an arrangement whereby the
electronic bill presentment and payment service business in the United
States previously under development by MSFDC, L.L.C. was contributed to a
newly formed entity, Newco L.L.C. (TransPoint). The members of TransPoint
are MSFDC, L.L.C. and Citicorp Electronic Commerce Inc. (the Citicorp
member). The Citicorp member of TransPoint is a wholly owned subsidiary of
Citicorp. In connection with this new arrangement, two additional entities
were formed: New MSFDC, L.L.C. (TransPoint Technologies and Services) and
Jointco L.L.C. (TransPoint Accounting). The Citicorp member interest in
TransPoint Technologies and Services and TransPoint is 25% and 5%,
respectively, with MSFDC, L.L.C. holding the remaining interests.
TransPoint Technologies and Services and TransPoint each hold 50% capital
interests in TransPoint Accounting. These three new entities are
collectively referred to as the TransPoint limited liability companies.
The TransPoint limited liability companies collectively have rights to all
future domestic revenues generated by the electronic bill presentment and
payment service previously under development by MSFDC, L.L.C. The MS and
FDC members have established a limited partnership, MSFDC International
L.P., to account for international revenues and related costs.
CONTRIBUTIONS: Upon formation of MSFDC, L.L.C. in 1997, the MS member
contributed $50,000 in cash. First Data Resources, Inc. contributed $40,000
in cash, and Integrated Payment Systems, Inc. contributed $10,000 as
initial capital contributions. Immediately following the initial capital
contribution, Integrated Payment Systems, Inc. transferred its membership
interest to First Data Resources, Inc. These interests were then
transferred to First Data L.L.C.
In connection with the formation of the new TransPoint limited liability
companies, Citicorp contributed $48,000,000 in cash as its initial
contribution and MSFDC, L.L.C. contributed $37,529,933. MSFDC, L.L.C. and
the Citicorp member also made nonmonetary contributions to the TransPoint
limited liability companies with a stated value of $446,250,000 and
$30,750,000, respectively. The MSFDC, L.L.C. nonmonetary contribution was
in the form of software development, goodwill, and tangible and intangible
assets. The Citicorp member nonmonetary
F-6
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MSFDC, L.L.C. AND RELATED COMPANIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
contribution represented an option to obtain a license of software and
intangible assets and no value has been ascribed to this contribution in
the accompanying consolidated financial statements.
LOSS AND CASH FLOW ALLOCATIONS: The allocation of profit and loss and cash
flow of MSFDC, L.L.C. and the TransPoint limited liability companies is
defined in the respective limited liability company agreements. These
agreements generally result in a sharing of ongoing capital contribution
requirements and profit and loss based on initial membership interests.
Cash distributions are to be made annually in an amount equal to the
assumed tax liability of the entities, or if greater, excess cash flow. For
financial reporting purposes, losses from the TransPoint limited liability
companies have been allocated to MSFDC, L.L.C. and the Citicorp member
based on their respective capital account interests of 85% and 15%,
respectively. Citicorp loss allocations commenced upon the date of their
capital contribution in April 1999.
ACQUISITION AGREEMENT: On February 15, 2000, the members agreed to sell the
Company to CheckFree Corporation (CheckFree) in exchange for 17,000,000
shares of CheckFree common stock. On September 1, 2000, the acquisition of
the Company by CheckFree was completed.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES: The financial statements and accompanying notes are
prepared in accordance with accounting principles generally accepted in the
United States of America.
CONSOLIDATION: The financial statements include all majority and wholly
owned subsidiaries (collectively, the Company). The combined financial
statements include the accounts of MSFDC International L.P. since MS and
FDC members each own 50% of this entity. Intercompany balances and
transactions have been eliminated in consolidation.
FISCAL YEAR: The Company's fiscal year ends on the Friday closest to June
30. References to a fiscal year, such as fiscal 2000, are to the twelve
months ended June 30 of that year.
MINORITY INTEREST: Citicorp's capital contributions and share of losses in
the TransPoint limited liability companies has been recorded as a minority
interest.
USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts and related disclosures. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS: The Company considers all liquid
interest-earning investments with a maturity of three months or less at the
date of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT: Property and equipment is carried at cost, less
accumulated depreciation, and consists primarily of computers and related
technical equipment. Depreciation is provided utilizing the straight-line
method over the estimated useful lives of the assets, which range from one
year to three years. As required by Statement of Position (SOP) 98-1,
Accounting for Costs of Computer Software Developed or Obtained for
Internal Use, the Company began capitalizing certain computer software
developed or obtained for internal use in fiscal year 2000. Capitalized
computer software is depreciated using the straight-line method over the
shorter of the estimated life of the software or three years.
The adoption of SOP 98-1 resulted in the capitalization of approximately
$10.9 million in costs. Capitalized costs included payroll and
payroll-related costs for software developed by the Company and the costs
of software purchased by third parties. Upon adoption the Company began
amortizing its capitalized software costs using the straight-line method
over 36 months, as the software is ready for its intended use.
Subsequently, the Company licensed software to third-parties. As of June
30, 2000 the Company had received $4.5 million in proceeds from the
licensing of software. Such amount has been classified as unearned revenue
and will be applied against the capitalized software costs as the proceeds
are earned.
The carrying value of property and equipment is reviewed periodically for
impairment. If the carrying amount of the asset is not recoverable, the
asset is considered to be impaired and the value is adjusted to the
estimated fair value.
F-7
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MSFDC, L.L.C. AND RELATED COMPANIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
INCOME TAXES: As a limited liability company, the Company is treated as a
partnership for federal and state income tax purposes, and its income or
loss is taxable directly to its members. Accordingly, the accompanying
financial statements do not include any income tax provisions.
PRODUCT DEVELOPMENT: Product development costs that do not meet the
criteria for capitalization under SOP 98-1 are expensed as incurred.
Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to be Sold, Licensed or Otherwise Marketed,
does not materially affect the Company.
ADVERTISING: The Company expenses advertising costs in the period incurred.
Advertising expense amounted to $4,247,000, $2,773,000 and $85,000 for the
years ended June 30, 2000, July 2, 1999, July 3, 1998, respectively.
COMMITMENTS: On September 24, 1999, the Company entered into a three year
sales and marketing agreement with a third party whereby the Company
guaranteed that the third party would realize minimum revenues of $12
million over the term of the agreement. In the event of a revenue
shortfall, the Company is obligated to pay the difference to the third
party. The Company terminated this agreement on September 1, 2000 and made
a $14 million termination payment to the third party on that date.
NOTE 3: RELATED PARTY TRANSACTIONS AND COMMITMENTS
OPERATING EXPENSES: The MS member and the FDC member provide certain
operational services, which are reimbursed by the Company. These expenses
are classified as product development or selling, general and
administrative expenses according to the nature of the services provided.
Reimbursements paid to the MS member for the years ended June 30, 2000,
July 2, 1999 and July 3, 1998 were $39,715,000, $19,110,000 and
$15,880,000, respectively. Reimbursements paid to the FDC member for the
years ended June 30, 2000, July 2, 1999 and July 3, 1998 were $3,794,000,
$13,840,000 and $10,195,000, respectively.
ACCOUNTS PAYABLE: Accounts payable includes $7,764,522 and $352,829 to the
MS member and the FDC member, respectively, as of June 30, 2000, and
$11,722,000 and $4,407,000 to the MS member and the FDC member,
respectively, as of July 2, 1999.
F-8
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EXHIBIT INDEX
Exhibit No. Description
23 Consent of Deloitte & Touche LLP.