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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Year Ended June 30, 1999
Commission File Number: 0-26802
CHECKFREE HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 58-2360335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4411 EAST JONES BRIDGE ROAD
NORCROSS, GEORGIA 30092
(Address of principal executive offices,
including zip code)
(678) 375-3387
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of our Common Stock held by our
non-affiliates was approximately $1,483,923,000 on September 20, 1999.
There were 51,954,360 shares of our Common Stock outstanding on
September 20, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Annual Report to Stockholders for the fiscal year ended
June 30, 1999 are incorporated by reference in Part II.
Portions of our Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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TABLE OF CONTENTS
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Page
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PART I
Item 1. Business 3
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 25
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
Signatures 33
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PART I
ITEM 1. BUSINESS.
All references to "we," "us," "our," "CheckFree" or the "Company" in
this Annual Report on Form 10-K mean CheckFree Holdings Corporation and all
entities owned or controlled by CheckFree Holdings Corporation, except where it
is made clear that the term only means the parent company.
OVERVIEW
We are the leading provider of electronic billing and payment services.
Our Electronic Commerce business provides services that allow consumers to:
- Receive electronic bills through the Internet;
- Pay any bill -- electronic or paper -- to anyone; and
- Perform customary banking transactions, including balance
inquiries, transfers between accounts and on-line statement
reconciliations.
We currently provide services for nearly 3 million consumers through
over 350 financial institutions, Internet financial sites like Quicken.com and
personal financial management software like Quicken, Microsoft Money and
Managing Your Money. As part of our strategy to broaden availability of our
electronic billing and payment services on the Internet, we recently entered
into a distribution contract with Yahoo! Additionally, we recently extended a
processing agreement with Bank One Corporation to provide services, including
electronic billing and payment, to WingspanBank.com. We are currently in
discussions with other Internet portals, including Excite@Home to whom we expect
to begin providing our billing and payment services by December 31, 1999. We
plan to undertake significant marketing initiatives with Yahoo!,
WingspanBank.com and other Internet portals to dramatically accelerate the
adoption of our services by consumers. We have developed relationships with over
1,100 merchants nationwide that enable us to remit more than 50% of all of our
bill payments electronically. During the three-month period ended June 30, 1999,
we processed an average of more than 12 million transactions per month and, for
the year ended June 30, 1999, we processed more than 125 million transactions.
In March 1997, we introduced electronic billing - "E-Bill" - which
enables merchants to deliver billing as well as marketing materials
interactively to their customers over the Internet. We have signed contracts for
E-Bill services with 64 of the country's largest billers, who together deliver
more than 500 million bills each month. During the month of June 1999, we
presented more than 13,000 electronic bills through more than 25 financial
institutions and Internet portals, which is a more than 30% increase since March
1999 and more than double the number of bills presented through E-Bill services
in February 1999.
We also are a leading provider of institutional portfolio management
and information services and financial application software. Our Investment
Services business offers portfolio management and information services for
fee-based money managers and financial planners within investment advisory
firms, brokerage firms, banks and insurance companies. Our fee-based money
manager clients are typically sponsors or managers of wrap money management
products or traditional money managers, managing investments of institutions and
high net worth individuals. Our Software businesses provide electronic commerce
and financial applications software and services for business and financial
institutions. We design, market, license and support software products for
automated clearinghouse, or ACH, processing, reconciliation and regulatory
compliance.
During the fiscal year ended June 30, 1999, Electronic Commerce
accounted for 68% of our revenues and Software and Investment Services each
accounted for 16% of our revenues.
ELECTRONIC COMMERCE INDUSTRY BACKGROUND
The vast majority of today's financial transactions are completed using
traditional paper-based methods. Many traditional financial transactions,
however, can now be completed electronically due to the emergence of new
communications, computing and security technologies. Many financial institutions
and businesses have invested in these technologies and are creating the
infrastructure for recording, reporting and executing electronic transactions.
We believe the broad impact of the Internet will increase the use of electronic
methods to execute financial transactions.
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Persistence of Traditional Financial Transaction Processes
Many traditional methods of completing financial transactions still
persist, including:
- Paper Checks. It is estimated that 67 billion checks were
written in the U.S. in 1997. The use of checks imposes
significant costs on financial institutions, businesses and
their customers. These costs include the writing, mailing,
recording and manual processing of checks.
- Paper Billing. It is estimated that over 18 billion paper
bills are produced each year, with the cost of submitting a
paper bill, including printing, postage and billing inserts,
as high as $3.00 per bill.
- Conventional Banking. Many financial transactions are
conducted in person at banks. Banks incur substantial expenses
in providing personnel and physical locations, while bank
customers incur transportation costs and personal
inconvenience when traveling to a bank facility. Over 90% of
the 80 million banking households in the U.S. are still
conducting most of their financial transactions using
conventional banking methods.
- Business to Business Payments. While consumers bear costs and
inconvenience receiving and paying paper bills, businesses
experience an even higher level of cost and inefficiency when
receiving and paying paper bills. For businesses, issues like
discounts for prompt payment, returns, allowances, disputed
charges and other adjustments, as well as reconciliation to
the business' own records, increase the costs of payment.
The Internet's Role in Driving Electronic Commerce
We believe the broad impact of the Internet is driving financial
institutions, businesses and consumers to adopt practices of electronic billing
and payment, banking and business to business payments. We expect that the
growth in these electronic commerce activities will increase the need for
services that support secure, reliable and cost-effective financial transactions
between and among these market participants. We believe the combination of the
following trends is driving adoption of electronic commerce:
- Expanding PC Ownership. Declining prices for PCs and rapid
growth in the number of computer-literate consumers are
driving increased penetration of PCs in U.S. homes. The Yankee
Group estimates that by 1998 the percentage of U.S. consumer
households owning a PC grew to 44% and expects this number to
increase to 54% by the year 2001.
- Increasing Internet Accessibility. Reduced communications
costs, improved web browsers and faster connection speeds have
made the Internet increasingly accessible to consumers and to
businesses offering products and services on-line.
International Data Corporation, or IDC, estimates that there
were 52 million Internet users in the U.S. at the end of 1998
and that this figure will grow to 136 million by the end of
2002.
- Increasing Acceptance of Electronic Commerce. Consumers have
grown increasingly comfortable with the security of electronic
commerce and are willing to conduct large transactions
on-line. IDC estimates that the total value of goods and
services purchased over the Internet in the U.S. will increase
from approximately $26 billion in 1998 to over $269 billion in
2002.
- Emergence of New Industry Participants. New businesses have
emerged which use the broad adoption of the Internet to
compete with traditional businesses. Traditional financial
institutions now compete with Internet-based banks, brokerages
and other financial services companies. These companies do not
offer consumers the possibility of traditional, manual
financial transactions and are driving further adoption of
electronic commerce.
THE ELECTRONIC SOLUTION
We believe that consumers will move their financial transactions from
traditional paper-based to electronic transactions if they have an
easy-to-access, easy-to-use, compelling, secure and cost-effective solution for
receiving and paying their bills electronically. We believe that these solutions
should allow consumers at their access point of choice to:
- Receive electronic bills through the Internet;
- Pay any bill -- electronic or paper -- to anyone; and
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- Perform customary banking transactions, including balance
inquiries, transfers between accounts and on-line statement
reconciliations.
We also believe that these functionalities must be delivered on a
platform that:
- Is fully supported by end-to-end customer care;
- Is available 24 hours a day, 7 days a week; and
- Provides the highest level of security, availability and
privacy.
Over the past fifteen years, we have developed market leading expertise
and technological capability to provide electronic commerce solutions with these
functionalities.
THE CHECKFREE ADVANTAGE
Our experience as a leading provider of electronic billing and payment
and banking services has facilitated the building of a state of the art
infrastructure. We have leveraged this infrastructure by developing a full suite
of electronic commerce services, all of which we offer in an integrated fashion
through multiple distribution channels.
Infrastructure
Our infrastructure allows consumers to receive and pay both
conventional and electronically presented bills and handle traditional banking
transactions electronically. The key components of our infrastructure are:
- Connectivity with Merchants. We have established electronic
connectivity to over 1,100 merchants which allows us to remit
over 50% of all of our bill payments electronically.
Electronic remittance may be accomplished at a lower cost than
remittances using the traditional paper-based method. In
addition, electronic remittance significantly reduces payment
exceptions and related costs associated with customer care.
- Scalable Genesis Platform. Our Genesis Platform, completed in
1998, is a fully integrated data processing system that was
designed by our in-house engineers. The Genesis Platform was
designed to be scaled to handle more than 30 million
consumers. We have made significant investments in processes
and technologies around our Genesis Platform to ensure that
transactions are executed with the highest level of security,
reliability and efficiency.
- Connectivity to Billers. We believe that our ability to
provide consumers with access to electronic bills will
substantially spur adoption of the electronic solution. By
targeting the largest billers in key industries and in
selected population centers, we believe we can quickly provide
a significant number of bills to most consumers at their
access point of choice. We have contracts with 64 billers,
which represent the opportunity to deliver over 500 million
bills per month, representing over 70% of the telecom bills,
24% of the utility bills, 22% of the mortgage bills and 28% of
the credit card bills in the U.S. Our goal is to distribute
bills from over 90 billers by the end of fiscal 2000. To
encourage billers to utilize our services, we anticipate
funding a portion of some billers' set-up costs.
- Experienced Customer Care Staff. We have over 600 trained,
experienced customer care and merchant services staff who
offer seamless end-to-end customer care. We believe that
customer care that provides answers to all the questions that
consumers may have about their transactions is a critical
component of providing a compelling, easy-to-use solution that
consumers will ultimately adopt.
Distribution
We believe that consumers are most attracted to an electronic solution
that enables them to receive and pay all of their bills at a single site. For
many consumers, the site they choose will be their financial institution's web
site, while others will prefer Internet portals or sites operated by individual
merchants. Through relationships with over 350 banks, brokerage houses, credit
unions, Internet portals and financial services sites, we are able to distribute
our services to whichever access and aggregation site the consumer prefers.
Significant among these relationships are our agreements with:
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- 23 of the 25 largest U.S. banks;
- 8 of the top 10 U.S. brokerage firms;
- Quicken.com;
- Yahoo!; and
- WingspanBank.com.
OUR BUSINESS STRATEGY
Our business strategy is to provide an expanding range of convenient,
secure and cost-effective electronic commerce services and related products to
financial institutions, businesses and their customers. We have designed our
services and products to take advantage of opportunities we perceive in light of
current trends and our fundamental strategy. The key elements of our business
strategy are to:
- Drive increased adoption of electronic commerce services by
consumers. We believe that consumers will move their financial
transactions from traditional paper-based methods to
electronic transactions if they have an easy-to-access,
easy-to-use, secure, compelling and cost-effective method for
receiving and paying their bills electronically. We intend to
use the broad adoption of the Internet by consumers to
encourage the use of our web-based electronic commerce
services by our financial institution customers. To further
drive demand, we are also providing our services through
Internet portals. This strategy should provide consumers with
ready access to easy-to-use, cost-effective applications for
receiving and paying their bills electronically. Part of our
strategy to drive consumer adoption is partnering with
Internet portals to offer our services to consumers on a
free-trial basis. Initially, this strategy will result in
foregone revenues, but we anticipate converting a majority of
these new customers to fee-based services at the end of the
trial period. As consumers continue to adopt electronic
commerce services, financial institutions and billers will see
greater efficiencies from providing electronic billing and
payment services to their customers. Additionally, we believe
that financial institutions and Internet portals that offer
electronic banking will experience increased customer
retention, have a superior marketing channel, and be able to
offer enhanced customer service.
- Continue to distribute electronic commerce services through
multiple channels. We maintain alliances with market-leading
companies to achieve deeper market penetration and have begun
an initiative to offer our electronic commerce services
through Internet portals. To better reach smaller financial
institutions, we have entered into distribution agreements
with some independent firms that we believe can more
efficiently address the needs of this industry segment.
Additionally, by making services available to users of PFM
software, like Quicken, Microsoft Money and Managing Your
Money and of business management software, like QuickBooks, we
expand public access to, and awareness of, our services.
- Focus on customer care and technical support. We believe that
providing superior quality and accessible and reliable
customer care is essential to establishing and maintaining
successful relationships with our customers. We support and
service customers through numerous activities, including
technical and non-technical support, through help desk, e-mail
and facsimile, as well as through service implementation and
training. We are enhancing our support of our services through
advanced Internet-based communications technologies that
enable us to efficiently respond to billing and payment
inquiries made by financial institutions, billers and their
customers. In anticipation of greater adoption of our
electronic commerce services, we are increasing the number of
our customer care personnel and focusing on our efficiency in
handling customer care inquiries. Additionally, we have
finalized plans to establish a third operational center to
house customer care and check printing and distribution
functions.
- Continue to improve operational efficiency and effectiveness.
We believe that as our business grows and the number of
transactions we process increases, we will be able to take
advantage of operating efficiencies associated with increased
volumes, thereby reducing our unit costs. Additionally, we
expect to derive further operational efficiency and
effectiveness by increasing our electronic links with billers,
enabling a larger percentage of our consumer transactions to
be processed electronically.
- Drive new forms of electronic commerce services. Our
electronic commerce services are currently applied to banking,
billing and payment and brokerage transactions. We believe
that new applications will be developed as a result of the
growth in electronic commerce generally, and
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Internet-based commerce specifically. We intend to leverage
our infrastructure and distribution to address the
requirements of consumers and businesses in these new
applications. For example, we plan to leverage our core
payment and processing network to accomplish person-to-person
and small business payments.
PRODUCTS AND SERVICES
Electronic Commerce
Our electronic commerce services are primarily targeted to consumers
through financial institutions and Internet portals. We believe that our
services offer significant benefits to financial institutions and Internet
portals, including an enhanced electronic relationship with their consumers
under which they can market other products and services and, for financial
institutions, a lower cost of providing traditional banking and bill payment
services. We are continually developing new electronic commerce services and
enhancing our existing services for each of our target markets.
We have arrangements with more than 350 financial institutions through
which electronic payment services are provided to their customers. Some of the
financial institutions we serve include:
- Bank of America; - KeyCorp;
- Bank One; - Merrill Lynch & Co.;
- Charles Schwab & Co.; - NationsBank;
- Chase Manhattan Bank; - Wells Fargo;
- First Union; - U.S. Bancorp;
Bill Payment and Banking. Our bill payment services enable financial
institution customers and direct consumer subscribers to pay bills
electronically using a variety of devices such as PCs and touch-tone telephones.
Bills paid by consumers using our bill payment services typically include credit
card, monthly mortgage and utility bills, but a cornerstone of our services is
that we can facilitate electronic payment by consumers to anyone, regardless of
whether payment is ultimately made through an electronic or traditional paper
method. Consumers can use our services to electronically make any payment from
any checking account at any financial institution in the U.S. Recurring bills
such as mortgages can be paid automatically and scheduled in advance, as
specified by the consumer. As of June 30, 1999, we had nearly 3 million
consumers using our bill payment and home banking services.
We support home electronic banking services for financial institutions
and their customers. Among these are balance inquiries, fund transfers, customer
service, customer billing and marketing. Our service facilitates on-line
reconciliation to PC and web-based account registers, matching cleared items
with previously entered transactions.
Revenues are generated through contracts with individual financial
institutions. We typically negotiate with the financial institution an
implementation fee, a base monthly fee per customer account on the service
provided, and in some cases, a variable per transaction fee which may decrease
based on the volume of transactions. Contracts typically have three to five year
terms and generally provide for minimum fees if transaction volumes are not met.
We utilize direct sales and distribution alliances to market to financial
institutions and have the ability to customize services for each institution.
Billing and Payment. Our electronic billing and payment service permits
billers to deliver full-color electronic bills to their customers, together with
detailed information and electronic promotional inserts. We also offer the
opportunity to market interactively, and to use one-to-one marketing techniques.
The recipients can use the service to electronically make the payment. We are
marketing the service to be incorporated into our electronic banking and bill
payment services. We have entered into a variety of arrangements with financial
institutions, Internet portals and billers to provide such services and, in some
cases, will share revenue derived from billers with the financial institutions
and the Internet portals. In the near term, we will offer free trial periods for
our electronic billing and payment services to accelerate the rate of adoption
of our services. We believe that billers could eventually achieve substantial
savings by utilizing our billing and payment service, but we believe that an
even stronger incentive for billers to present bills electronically is the
opportunity our system offers for more effective marketing to customers.
Business Payments. We facilitate electronic payments for businesses
through our offerings of business bill payment and banking and electronic
accounts receivable processing services. As we do for consumers, we enable
businesses to make payments to anyone. We employ a direct sales force to market
the service through banks and others. Our electronic accounts receivable
collections for businesses are provided to health and fitness and various other
industries, enabling these businesses to collect monthly fees through electronic
funds transfer or credit cards. Services are typically provided under contracts
for three years with automatic renewals. For providing collection services,
businesses pay us implementation fees, transaction fees and credit card discount
fees.
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Investment Services
We offer portfolio management and information services for fee-based
money managers and financial planners within investment advisory firms,
brokerage firms, banks and insurance companies. Our fee-based money manager
clients are typically sponsors or managers of wrap money management products or
traditional money managers, who manage investments of institutions and high net
worth individuals.
Our full range of portfolio management services provides our clients
with portfolio management tools, tax lot reporting, trade modeling, performance
measurement and reconciliation. Our information services and software allow
traditional money managers and consultants to allocate client assets, select and
benchmark performance of money managers and report on manager performance. Each
of these features allows our clients to avoid spending time on these functions
and focus on their key business.
Revenues in our portfolio management services are generated through
multiple year agreements which provide for monthly revenue on a volume basis.
Revenue from our information services and software is typically generated
through annual agreements.
Our integrated outsourced solution utilizes a Unix platform. The system
is highly scalable, making us the system of choice for firms managing a large
number of portfolios.
Software
We are a leading provider of electronic commerce and financial
applications software and services for businesses and financial institutions. We
design, market, license and support software products for ACH processing,
reconciliation and regulatory compliance. In addition, we offer software
consulting and training services.
Our financial application software revenues are derived primarily from
the sale of software licenses and software maintenance fees. Our software is
sold under perpetual licenses, and maintenance fees are received through
renewable agreements.
In April 1998, we announced our intention to divest ourselves of many
of our software products and businesses. By September 1998, we sold our item
processing, wire transfer and cash management, leasing, mortgage, and imaging
software products and businesses.
Our retained software products provide systems that range from back
office operations to front-end interface with the clients of our customers.
Applications include ACH origination and processing reconciliation, regulatory
compliance and safe deposit box accounting. While we have no pending agreements
to dispose of our remaining software businesses, we do receive offers for them
from time to time.
ACH. The ACH network was developed in the 1970s to permit the
electronic transfer of funds, curtailing the growth in the number of paper
checks in circulation. The ACH network acts as the clearing facility for routing
electronic funds transfer entries between financial institutions. All ACH
transfers are handled in a standard format established through the National
Automated Clearing House Association. More than 15,000 financial institutions
participate in the ACH system. There are 31 Automated Clearinghouses, which
geographically coincide with the twelve Federal Reserve Banks, their branches
and processing centers. Our electronic funds transfer products are interrelated
and may be used by either businesses or financial institutions depending on the
services they offer their customers and employees.
We developed the Paperless Entry Processing System Plus, or PEP+, the
most widely used, comprehensive ACH processing system in the United States. PEP+
is an on-line, real-time system providing an operational interface for
originating and receiving electronic payments through the ACH.
Reconciliation. Our reconciliation products provide U.S. banks,
international banks and corporate treasury operations with automated check and
non-check reconciliations in high volume, multi-location environments. These
systems are often tailored so that banks and multi-bank holding companies may
deliver reconciliation services meeting the specific needs of corporate
customers. Those reconciliation products are also designed for non-banking
corporations that perform account reconciliation in-house as well as companies
with many branch locations. Services provided by our reconciliation products
include:
- Automated deposit verification;
- Consolidated bank account reconciliations and cash mobilization;
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- Immediate and accurate funds availability data; and
- Improved cash control.
In 1995, we introduced RECON-PLUS for Windows, a client/server based
reconciliation system. RECON-PLUS for Windows is most frequently used for
internal reconciliation by large businesses, financial service firms, and
utilities, including the reconciliation of debit and credit card transactions,
checks, ATM transactions, ACH transfers and securities transactions.
Our Account Reconciliation Package, or ARP, is one of the most widely
used account reconciliation systems in the U.S. banking industry. The
ARP/Service Management System, or ARP/SMS, developed in 1995 to replace and
augment the existing ARP package, is a fully integrated on-line and real time
system that enables banks to immediately process their customer transactions to
produce accurate, timely reconciliations while streamlining back-office
processes. ARP/SMS also groups accounts across banks within bank holding
companies and allows banks to streamline their operations by reconciling their
intra-bank transactions.
Other Software Products. We also offer software products and services
dealing with safe box accounting and compliance with government regulations.
Licenses. We generally grant non-exclusive, non-transferable perpetual
licenses to use our application software at a single site. Our standard license
agreements contain provisions designed to prevent disclosure and unauthorized
use of our software. License fees vary according to a number of factors,
including the types and levels of services we provide. Multiple site licenses
are available for an additional fee. In our license agreements, we generally
warrant that our products will function in accordance with the specifications
set forth in our product documentation. A significant portion of the license fee
payable under our standard license agreement is due upon the delivery of the
product documentation and software to the customer, with the balance of the
license fee due upon installation. The standard license fee for most products
covers the installation of our software and maintenance for the first three to
twelve months.
Maintenance and Support. Maintenance includes enhancements to our
software. Customers who obtain maintenance generally retain maintenance service
from year to year. To complement customer support, we frequently participate in
user groups with our customers. These groups exchange ideas and techniques for
using our products and provide a forum for customers to make suggestions for
product acquisition, development and enhancement.
COMPETITION
Electronic Commerce
Portions of the electronic commerce market are becoming increasingly
competitive. We face significant competition in all of our customer markets. A
number of banks have developed, and others may in the future develop, home
banking services in-house. For example, Chase Manhattan Corporation, First Union
Corporation and Wells Fargo & Co. recently announced the formation of a new
venture called Spectrum that will allow individuals and businesses to receive
and pay bills electronically. A number of relatively small companies, such as
Travelers Express, recently acquired by Marshall & Ilsley Bank Inc., compete
with us in electronic bill payment. Additionally, TransPoint LLC, a joint
venture among Microsoft Corporation, First Data Corporation and Citibank N.A.,
competes aggressively with us in the area of electronic billing and payment.
TransPoint has announced its own agreements with financial institutions to offer
on-line home banking and electronic billing and payment to consumers. We also
compete for business bill payment customers with ACI and Deluxe Data, which
provide ACH processing. We believe that our competitors, however, are a long way
from being able to offer electronic commerce services comparable to the services
we currently offer to our customers through multiple distribution channels.
Because the electronic commerce industry is expected to grow
substantially in the coming years, we anticipate continued strong competition,
but we believe that the increased attention and credibility such competition
will bring to the industry may broaden the market and increase the percentage of
financial transactions which are effected by electronic means.
Investment Services
Competition for portfolio services includes two main segments. We
compete with providers of portfolio accounting software, including Advent
Software, and PORTIA (a division of Thomson Financial). We also compete with
service bureau providers such as Shaw Data (a SunGard Company) and FMC Service
Bureau.
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Software
The computer application software industry is highly competitive. In
the financial applications software market, we compete directly or indirectly
with a number of firms, including large diversified computer software service
companies and independent suppliers of software products. We believe there is at
least one direct competitor for most of our software products, but no competitor
competes with us in all of our software product areas.
Our product lines also have numerous competitors. The RECON-PLUS
product competes with Chesapeake, Driscoll and Geac.
We believe that the major factors affecting customer decisions in our
market, in addition to price, are product availability, flexibility, the
comprehensiveness of offered products, and the availability and quality of
product maintenance, customer support and training. Our ability to compete
successfully also requires that we continue to develop and maintain software
products and respond to regulatory change and technological advances. We believe
that we currently compete favorably in the marketplace with respect to these
criteria. See "Business -- Business Risks (Competitive pressures we face may
have a material adverse effect on us)."
SALES, MARKETING AND DISTRIBUTION
Our sales, marketing and distribution efforts are designed to maximize
access to potential customers. We market and support our services both directly
and indirectly through a direct sales and technical sales support force of over
100 employees and, to achieve deeper market penetration, through select
distribution alliances with companies which are involved in our target customer
markets. In order to foster a better understanding of the needs of our larger
bank customers, and to help us respond to identified needs, we employ a number
of account managers assigned to specific banks. We solicit billers for our
electronic billing and payment services through a regionally assigned sales
force.
In the electronic commerce segment, we offer our services and related
products to the nation's largest financial institutions directly through our
sales force, and market to smaller institutions through strategic alliances with
companies such as EDS, Fiserv, Alltel and Equifax. We currently offer
substantially all of our services and related products only to the domestic
marketplace.
Recently, we announced our initiative to offer our electronic commerce
services through Internet portals. We believe that these Internet portals will
enhance and speed up the rate of adoption of electronic commerce services by
consumers. Part of this strategy contemplates partnering with Internet portals
to offer our services to consumers on a free-trial basis. Initially, this
strategy will result in foregone revenue, but we anticipate converting a
majority of these new customers to fee-based services at the end of the trial
period. Additionally, the distribution of electronic home banking and electronic
consumer and business billing and payment services is widened though inclusion
or access through front-end personal financial management software, such as
Quicken, Microsoft Money and Managing Your Money.
We market investment services through our direct sales force. We
generate new customers through direct solicitation, user groups and
advertisements. We also participate in trade shows and sponsor industry seminars
for distribution alliances.
We market financial application software products through our direct
sales force and through indirect sales through Alltel banking services.
Salespersons have specific product responsibility and receive support from
technical personnel as needed. We generate new customers through direct
solicitations, user groups, advertisements, direct mail campaigns and strategic
alliances. We also participate in trade shows and sponsor industry technology
seminars for prospective customers. Existing customers are often candidates for
sales of additional products or for enhancements to products they have already
purchased.
An element of our strategy is the creation and maintenance of
distribution alliances that maximize access to potential customers for our
electronic commerce services and related products. We believe that these
partnerships enable us to offer services and related products to a larger
customer base than can be reached through stand-alone marketing efforts. We seek
distribution alliance partners who have maximum penetration and leading
reputations for quality with our target customers. To date, we have entered into
or are negotiating distribution alliances with several companies, including
AT&T, Alltel, EDS, Fiserv, Five Paces, and Home Financial Network. We also have
arrangements with MicroBank for RECON-PLUS for Windows. On October 29, 1997, we
entered into a 10-year processing partnership with Integrion Financial Network,
L.L.C. to provide financial institutions with a fully integrated, end-to-end,
cost effective electronic billing and payment processing service employing
Integrion's Gold Message Standard for Electronic Commerce, its Interactive
Financial Services platform and our processing infrastructure. For more detailed
information concerning the Integrion partnership, please refer to our Form 8-K
filed on November 12, 1997.
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One of the ramifications of this strategy is that we do not, for the
most part, have a direct relationship with the end-users of our products. See
"Business -- Business Risks (We rely on third parties to distribute our
electronic commerce services, which may not result in widespread adoption)."
CUSTOMER CARE AND TECHNICAL SUPPORT
The provision of high quality customer care, technical support and
operations is an integral component of our strategy in each business segment. To
meet customers' needs most efficiently, our customer care staff is organized
into vertical teams that support each of our business segments. These teams,
however, share common resources, training and orientation to ensure cost
efficiency and consistency of quality standards and measures. From an
accessibility standpoint, all customer care teams provide service by phone,
e-mail and facsimile. Through advanced communications technology, we have a
virtual call center enabling incoming calls to be transparently routed to
various physical support sites as volume demands dictate. An important driver of
our profit margins is the percentage of transactions we complete electronically.
Experience has shown that the demand on customer care resources reduces
substantially as the percentage of electronic remittances grows. We have long
been a leader in electronic remittance, and our merchant systems group
continually establishes and maintains electronic links directly to the internal
systems of payees.
The level and types of services we provide vary by customer market. The
customer care group, consisting of more than 600 employees, supports payment
inquiry, customer service and technical support and interfaces with the merchant
systems group to improve posting efficiencies. Representatives in our business
customer care group are individually assigned to business customers in order to
provide high level customer service and technical support. Our consumer care
group provides various levels of support that depend upon the customer's
requirements. This includes providing direct customer care on a private label
basis as well as research and support.
In order to maintain the ability to provide quality customer service as
our subscriber base increases, we have finalized plans to establish a third
operational center to house customer care, check printing and distribution
functions. This center will be based in Phoenix, Arizona, and, when fully
staffed, will house up to 800 associates focused on customer care services.
To maintain our customer care standards, we employ extensive internal
monitoring systems and conduct ongoing customer surveys. The feedback from these
sources is used to identify areas of strength and opportunities for improvement
in customer care and to aid in adjusting resources to a level commensurate with
efficient response.
REMITTANCES
Payment Systems. Across our various electronic commerce service
offerings, we utilize the Federal Reserve's ACH for electronic funds transfers,
and the conventional paper check clearing systems for settlement of payments by
check or draft. Like other users of these payment clearance systems, we access
these systems through contractual arrangements with processing banks. For access
to conventional paper check clearing systems, we do not need a special
contractual relationship, except for contractual relationships with the
processing bank and its customers. Such users are subject to applicable federal
and state laws and regulations, Federal Reserve Bank operating letters, and the
National Automated Clearing House Association Operating Rules. There are risks
typically faced by companies utilizing each of these payment clearance systems,
and we have our own set of operating procedures and proprietary risk management
systems and practices to mitigate credit-related risks. See "Business --
Business Risks (The transactions we process expose us to credit risks)" and
"Business -- Business Risks (Our business could become subject to increased
government regulation, which could make our business more expensive to
operate)."
ACH. The ACH is used by banks, corporations and governmental entities
for electronic settlement of transactions, direct deposits of payroll and
government benefits and payment of bills like mortgages, utility payments and
loans. We use the ACH to execute some of our customers' payment instructions.
Like other users of the ACH, we bear credit risk resulting from returned
transactions caused by insufficient funds, stop payment orders, closed accounts,
frozen accounts, unauthorized use, disputes, theft or fraud. See "Business --
Business Risks (The transactions we process expose us to credit risks)" and
"Business -- Business Risks (Our business could become subject to increased
government regulation, which could make our business more expensive to
operate)."
Paper Drafts. We use conventional check clearance methods for paper
drafts to execute some customers' payment instructions. We bear no credit risk
with paper drafts written on a customer's checking account returned for
insufficient funds, stop payment orders, closed accounts or frozen accounts.
Nonetheless, we may bear other risks for theft or fraud associated with paper
drafts due to unauthorized use of our services. When a customer instructs us to
pay a bill, we have the ability to process the payment either by electronic
funds transfer or by paper draft, drawn on the customer's checking account, on
which the customer's pre-authorized signature is laser imprinted. We manage the
risk we assume by adjusting the mix of electronic and paper draft transactions
in individual cases and overall. Regardless
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of whether we use paper drafts or electronic funds transfers, we retain all
risks associated with transmission errors when we are unable to have erroneously
transmitted funds returned by an unintended recipient.
Other Clearance Systems. While we presently utilize the two principal
payment clearance systems, we intend to use other clearance systems such as ATM
networks to provide balance inquiry and fund transfers functions, and other
clearance systems that may develop in the future.
Risk Mitigation. Our patented bill payment processing system (U.S.
Letters Patent No. 5,383,113, issued on January 17, 1995) determines the
preferred method of payment to balance processing costs, operational
efficiencies and risk of loss. We manage our risks associated with the use of
the various payment clearance systems through risk management systems, internal
controls and system security. We also maintain a reserve for such risks, which
reserve was $0.6 million at June 30, 1999, and we have not incurred losses in
excess of 0.76% of our revenues in any of the past five years. As further
protection against losses due to transmission errors, we maintain errors and
omissions insurance. See "Business -- Business Risks (The transactions we
process expose us to credit risks)" and "Business --Business Risks (We may be
unable to protect our proprietary technology, permitting competitors to
duplicate our products and services)."
TECHNOLOGY
Our historical approach to technology has been to utilize a combination
of hardware, networks, proprietary software and databases to solve our customer
needs and to meet the varying requirements of the electronic commerce market.
Electronic Commerce. Our core technology capabilities were developed to
handle settlement services, merchant database services and on-line inquiry
services on a traditional mainframe system with direct bi-synchronous
communications to businesses.
We have implemented a logical, nationwide client-server system.
Consumer, business and financial institution customers all act as clients
communicating across dial-up telephone lines, private leased lines, a private
X.25 network, a frame relay network or the Internet to our computing complex in
Norcross, Georgia. Within this complex, there is a wide variety of application
servers which capture transactions and route them to our back-end banking,
billing and payment applications for processing. The back-end applications are
run on either IBM mainframes, Tandems or Unix servers.
We have developed proprietary databases within our client-server
system, including a financial institution file that allows accurate editing and
origination of ACH and paper transactions to financial institutions. We have
also developed a merchant information file consisting of over one million
companies that allows accurate editing and initiation of payments to billers.
These databases have been constructed over the past 15 years as a result of our
transaction processing experience.
Platform Integration: The Genesis Project. In 1998, we integrated the
existing legacy data processing sites and platforms operated in Columbus, Ohio,
Aurora, Illinois, and Austin, Texas, into our central processing site at our
headquarters in Norcross, Georgia. We recently completed the planned migrations
of our customers to the new Genesis Platform from our Aurora, Illinois and
Columbus, Ohio platforms. We have designated this integration the Genesis
Project. The integration has required the acquisition of, and investment in,
extensive hardware and in operating and system software, as well as extensive
communications links and systems. The Genesis Project requires substantial
engineering and development of proprietary software. Redundancy, anomaly
monitoring, and off-site backup and recovery systems are planned as a part of
the project. See "Business -- Business Risks (We may experience breakdowns in
our payment processing system that could damage customer relations and expose us
to liability)."
The Austin platform was designated to host subscribers using a
particular personal financial management product that is not expected to be
supported indefinitely. We expect that these financial institutions will migrate
such subscribers to different software, which will prompt further migrations to
Genesis.
Significant numbers of high-level employees have been and will be hired
to facilitate the accomplishment of the Genesis Project, and to manage the
integrated site. We intend to operate the legacy platforms without substantial
disruption until all of our customers have been migrated to the Genesis
Platform. To date, over 2 million of our nearly 3 million customers have been
migrated to the Genesis Platform.
Redundancy and Back-up Systems. We believe that we have implemented
appropriate back-up and recovery procedures to ensure against any loss of data
on any platform. To maximize availability, we have redundant computer systems to
ensure that financial transaction requests can always be honored. Archival
storage is kept on site as well as off site in fireproof facilities. Diesel
generators provide power to the computing facilities in the event of a power
disruption.
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Our operations are dependent on our ability to protect our computer
equipment against damage from fire, earthquake, power loss, telecommunications
failure or similar event. Although we have contracted for the emergency
provision of an alternate site to aid in disaster recovery, this measure will
not eliminate the significant risk to our operations from a natural disaster or
system failure. Any damage or failure that causes interruptions in our
operations could have a material adverse effect on our business, operating
results and financial condition. Our property and business interruption
insurance may not be adequate to compensate us for all losses that may occur.
See "Business -- Business Risks (We may experience breakdowns in our payment
processing system that could damage customer relations and expose us to
liability)."
Financial Application Software. Our financial application suite of
software products offers a wide range of software addressing both end user
access and back room operational systems located in the customer data centers.
Every effort is taken to insure that each system is targeted for the appropriate
platform to optimize the characteristics of available technology with the
business requirements of each application and its market.
Investment Services. Investment Services employs advanced technology
for its portfolio management services and utilizes IBM RS/6000's to process the
portfolio management software. Services are provided primarily as a service
bureau offering with the data center residing at our Chicago office. This data
center functions seven days a week, twenty-four hours a day. Clients can obtain
access from their PCs either through a dedicated circuit or through dial-up
applications. The Chicago data center is the communication center for more than
70 dedicated links together with four concentration hub sites located in New
Jersey, New York, Boston and San Diego. Each of these hub sites supports the
concentration of local dedicated links plus dial-up access. In addition to the
dedicated private network, clients use frame relay services from several
companies to access services.
RESEARCH AND DEVELOPMENT
We maintain a research and development group with a long-term
perspective of planning and developing new services and related products for the
electronic commerce, financial application software and investment services
markets. We have established the following guidelines for pursuing the
development of new services:
- Distinctive benefits to customers;
- Ability to establish a leadership position in the market served;
- Sustainable technological advantages; and
- First to market.
We believe that in the emerging electronic commerce market it will be
critical to rapidly develop, test and offer new services and enhancements. To
that end, our goal for the time period from conceptualization to commercial
availability of new services is less than one year. As of June 30, 1999, our
research and development group consisted of approximately 250 employees.
Additionally, we use independent third party software development contractors as
needed. We spent 19.4% of revenues during the six-month transition period ended
June 30, 1996, 18.6% of revenues during the fiscal year ended June 30, 1997,
15.5% of revenues during the fiscal year ended June 30, 1998, and 8.4% of
revenues during the fiscal year ended June 30, 1999 on research and development.
These research and development expenses have been reduced for capitalized
software development costs of $1.3 million in the six-month transition period
ended June 30, 1996, none in the fiscal year ended June 30, 1997, $0.7 million
in the fiscal year ended June 30, 1998 and $7.4 million in the fiscal year ended
June 30, 1999. We anticipate that we will continue to commit substantial
resources to research and development activities for the foreseeable future.
GOVERNMENT REGULATION
We believe that we are not required to be licensed by the OCC, the
Federal Reserve Board, or other federal or state agencies that regulate or
monitor banks or other types of providers of electronic commerce services. The
OCC, however, periodically audits us, since we are a supplier of products and
services to financial institutions. There can be no assurance that a federal or
state agency will not attempt to regulate us, which could impede our ability to
do business in the regulator's jurisdiction. A number of states have legislation
regulating or licensing check sellers, money transmitters or service providers
to banks, and we have registered under such legislation in specific instances.
We do not believe that any state or federal legislation of this type materially
affects us. In addition, through our processing agreements, we agree to comply
with the data, recordkeeping, processing, and other requirements of applicable
federal and state laws and regulations, Federal Reserve Bank operating letters,
and the National Automated Clearing House Association Operating Rules imposed on
our processing banks. We may be subject to audit or examination under any of
these requirements. Violations of these requirements could limit or further
restrict our access to the payment clearance systems or our ability to obtain
access to such systems from banks. Further, the Federal Reserve rules
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provide that we can only access the Federal Reserve's ACH through a bank. If the
Federal Reserve rules were to change to further restrict our access to the ACH
or limit our ability to provide ACH transaction processing services, our
business could be materially adversely affected.
In conducting various aspects of our business, we are subject to laws
and regulations relating to commercial transactions generally, such as the
Uniform Commercial Code, and are also subject to the electronic funds transfer
rules embodied in Regulation E, promulgated by the Federal Reserve Board. The
Federal Reserve's Regulation E implements the Electronic Fund Transfer Act,
which was enacted in 1978. Regulation E protects consumers engaging in
electronic transfers, and sets forth basic rights, liabilities, and
responsibilities of consumers who use electronic money transfer services and of
financial institutions that offer these services. For us, Regulation E sets
forth disclosure and investigative procedures. For consumers, Regulation E
establishes procedures and time periods for reporting unauthorized use of
electronic money transfer services and limitations on the consumer's liability
if the notification procedures are followed within prescribed periods. Such
limitations on the consumer's liability may result in liability to us.
Given the expansion of the electronic commerce market, it is possible
that the Federal Reserve might revise Regulation E or adopt new rules for
electronic funds transfer affecting users other than consumers. Congress has
held hearings on whether to regulate providers of services and transactions in
the electronic commerce market, and it is possible that Congress or individual
states could enact laws regulating the electronic commerce market. If enacted,
such laws, rules, and regulations could be imposed on our business and industry
and could have a material adverse effect on our business, operating results and
financial condition.
PROPRIETARY RIGHTS
We own the following federally registered trademarks and service marks:
- CHECKFREE(R); - MWATCH(R);
- CHECKFREE and Design(R); - MOBILEPAY(R);
- CHECKFREE (Stylized Letters)(R); - MOBIUS GROUP and Design(R);
- CHECKFREE EASY(R); - MOE(R);
- CHECKFREE EXTRA(R); - MPREPS(R);
- CHECKFREE MANAGER(R); - M-SEARCH(R);
- CHECKFREE WALLET(R); - MSEARCH(R);
- CHECKFREE-BILL and Design(R); - OMNI(R);
- CHECKFREE FREES YOU FROM - ORBS(R);
CHECKS(R); - PAWWS(R);
- CLAS(R); - PAWTRACKS(R);
- CLRS(R); - PEP+(R);
- CLUB HOOCH(R); - PEP PAPERLESS ENTRY
- CPIM(R); PROCESSING(R);
- CSSII(R); - PODIUM(R);
- DASH(R); - PTT(R);
- DECISION MANAGER(R); - QUICKILL(R);
- DISC and Design(R); - SBA(R);
- DISC CHECKBOOK-PLUS(R); - SERVANTIS SYSTEMS(R);
- DISC WORLD$NET(R); - SERVANTIS WORLD$NET(R);
- ECP(R); - SUPRRB(R);
- EPOCH(R); - TCM THE CONTROL MACHINE(R);
- FASTOCK PC(R); - THE SECONDARY MARKETER(R);
- FMS(R); - THE WAY MONEY MOVES and
- INTEGRATED DECISION Design(R);
MANAGER(R); - TRS(R);
- MAX(R); - TST(R); and
- M-WATCH(R); - VAULT(R).
Additionally, we have applied to federally register the following service
marks:
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- CEC CENTER FOR ELECTRONIC - MPLAN(SM);
COMMERCE and Design(SM); - M-PREPS(TM);
- CHECKFREE CHARITY NET(TM); - M-VEST(TM);
- CHECKFREE(SM); - MY-BILLS.COM(SM);
- CHECKFREE CONNECT(SM); - RCM 2001...THE NEXT
- CHECKFREE E-BILL(SM); GENERATION(TM);.
- CHECKFREE ELECTRIC MONEY(SM); - RECOVERY MANAGEMENT
- CHECKFREE RECON SELECT(TM); SYSTEM(TM);
- CHECKFREE YES/PC(TM); - SSI(TM);
- DEFAULT NAVIGATOR(TM); - SSI and Design(TM); and
- ECX(SM); - STYLE ANALYIS PLUS(TM).
- M-PLAN(TM);
We are awaiting further information to file applications for the
following marks:
- CHECKFREE and Design(SM); - CHECKFREE RRS(TM);
- CHECKFREE APECS; - CHECKFREE RECON(TM);
- CHECKFREE A.R.M.(TM); - CHECKFREE RECON-PLUS(TM);
- CHECKFREE ARP; - CHECKFREE TRADE RECON(TM);
- CHECKFREE ARP/SMS; - CHECKFREE RPS(TM);
- CHECKFREE DIRECTCOLLECT; - CHECKFREE WEB RECON(TM); and
- CHECKFREE IRS(TM); - REVOLUTIONIZING THE WAY
- CHECKFREE IRS/SRS(TM); MONEY MOVES(SM).
- CHECKFREE LCR(TM);
We are also the owner of a multitude of domain name registrations,
including:
- billdelivery.com; - ficare.com;
- billercare.com; - getbills.com;
- billme.com; - mybills.com;
- check-free.com; - paybills.org;
- checkfree.com; - paymybills.org;
- checkfree-ecx.com; - paythebill.com;
- checkfreeva.com; - rcm2001.com;
- custcare.com; - stockcontrol.com; and
- ebills.com; - cfree.com.
We regard our financial transaction services and related products such
as our software as proprietary and rely on a combination of patent, copyright,
trademark and trade secret laws, employee and third party nondisclosure
agreements, and other intellectual property protection methods to protect our
services and related products. Although we believe our consumer financial
software to be proprietary, we do not depend on our software to compete, but
rather on our services to which the software provides access.
We also copyright certain of our programs and software documentation
and trademarks certain product names. Our management believes that these actions
provide appropriate legal protection for our intellectual property rights in our
software products. Furthermore, our management believes that the competitive
position for some of our products depends primarily on the technical competence
and creative ability of our personnel and that our business is not materially
dependent on copyright protection or trademarks. See "Business -- Business Risks
(We may be unable to protect our proprietary technology, permitting competitors
to duplicate our products and services)."
Our United States Letters Patent No. 5,383,113, issued on January 17,
1995, relates to our system and method for electronically providing services
including payment of bills and financial analysis. Incorporating the system
described in the patent, we can pay any bill from any checking account at any
financial institution in the United States on the consumer's behalf by selecting
a preferred means of payment from various options described above. See "Business
- -- Payment Clearance Systems." Our patent expires on January 17, 2012. See
"Business -- Competition," "Business -- Business Risks (Competitive pressures we
face may have a material adverse effect on us)" and "Business -- Business Risks
(We may be unable to protect our proprietary technology, permitting competitors
to duplicate our products and services)."
Existing intellectual property laws afford only limited protection,
and it may be possible for unauthorized third parties to copy our services and
related products or to reverse engineer or obtain and use information we regard
as proprietary. There can be no assurance that our competitors will not
independently develop services and related
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products that are substantially equivalent or superior to ours. As the
technology we use evolves, however, our dependence upon the patented technology
continues to decrease.
EMPLOYEES
As of August 31, 1999, we employed approximately 1,850 full-time
employees, including approximately 450 in systems and development (including
software development), over 600 in customer care, and approximately 125 in
administration, financial control, corporate services, and human resources. We
are not a party to any collective bargaining agreement and are not aware of any
efforts to unionize our employees. We believe that our relations with our
employees are good. We believe our future success and growth will depend in
large measure upon our ability to attract and retain qualified technical,
management, marketing, business development and sales personnel.
BUSINESS RISKS
We desire to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Many of the following
important factors discussed below have been discussed in our prior filings with
the Securities and Exchange Commission. In addition to the other information in
this report, readers should carefully consider that the following important
factors, among others, in some cases have affected, and in the future could
affect, our actual results and could cause our actual consolidated results of
operations for the fiscal year ended June 30, 1999, and beyond, to differ
materially from those expressed in any forward-looking statements made by us, or
on our behalf.
THE MARKET FOR OUR ELECTRONIC COMMERCE SERVICES IS EVOLVING AND MAY NOT CONTINUE
TO DEVELOP OR GROW RAPIDLY ENOUGH FOR US TO REMAIN CONSISTENTLY PROFITABLE.
The electronic commerce market is still evolving and currently growing
at a rapid rate. We believe future growth in the electronic commerce market will
be driven by the cost, ease-of-use and quality of products and services offered
to consumers and businesses. In order to consistently increase and maintain our
profitability, consumers and businesses must continue to adopt our services. If
the number of electronic commerce transactions does not continue to grow or if
consumers or businesses do not continue to adopt our services, it could have a
material adverse effect on our business, financial condition and results of
operations.
OUR FUTURE PROFITABILITY IS DEPENDENT UPON OUR ABILITY TO SUCCESSFULLY IMPLEMENT
OUR STRATEGY TO INCREASE ADOPTION OF ELECTRONIC BILLING AND PAYMENT METHODS.
Our future profitability will depend, in part, on our ability to
successfully implement our strategy to increase adoption of electronic billing
and payment methods. Our strategy includes substantial investments in programs
designed to:
- Drive consumer awareness of electronic billing and payment;
- Encourage consumers to enroll for electronic billing and
payment with our distribution partners;
- Build our infrastructure to handle seamless processing of
transactions;
- Continue to develop state of the art, easy-to-use technology;
and
- Increase the number of billers whose bills we can present and
pay electronically.
Our investment in these programs will have a negative impact on our
short-term profitability. Additionally, our failure to successfully implement
these programs or to substantially increase adoption of electronic commerce
billing and payment methods by consumers who pay for the services could have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY BE UNABLE TO REMAIN CONSISTENTLY PROFITABLE.
We have not consistently operated profitably to date. We incurred a
loss from operations of $7.2 million and a net loss of $3.7 million in the
fiscal year ended June 30, 1998, and had a loss from operations of $3.7 million
and net income of $10.5 million for the fiscal year ended June 30, 1999. We
intend to continue to make significant investments in our research and
development, sales and marketing and customer care operations. As a result, we
anticipate having a net loss from operations in fiscal 2000 and may experience
net losses and may not be able to sustain or increase our profitability in the
future.
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SECURITY AND PRIVACY BREACHES IN OUR ELECTRONIC TRANSACTIONS MAY DAMAGE CUSTOMER
RELATIONS AND INHIBIT OUR GROWTH.
If we are unable to protect the security and privacy of our electronic
transactions, our growth and the growth of the electronic commerce market in
general could be materially adversely affected. A security or privacy breach
may:
- Cause our customers to lose confidence in our services;
- Deter consumers from using our services;
- Harm our reputation;
- Expose us to liability;
- Increase our expenses from potential remediation costs; and
- Decrease market acceptance of electronic commerce
transactions.
While we believe that we utilize proven applications designed for
premium data security and integrity to process electronic transactions, there
can be no assurance that our use of these applications will be sufficient to
address changing market conditions or the security and privacy concerns of
existing and potential subscribers. Any failures in our security and privacy
measures could have a material adverse effect on our business, financial
condition and results of operations.
WE RELY ON THIRD PARTIES TO DISTRIBUTE OUR ELECTRONIC COMMERCE SERVICES, WHICH
MAY NOT RESULT IN WIDESPREAD ADOPTION.
We rely on our relationships with financial institutions, businesses,
billers, Internet portals and other third parties like Intuit Inc. to provide
branding for our electronic commerce services and to market our services to
their customers. These relationships are an important source of the growth in
demand for our electronic commerce services. If any of these parties abandons,
curtails or insufficiently increases its marketing efforts, it could have a
material adverse effect on our business, financial condition and results of
operations.
CONSOLIDATION IN THE BANKING INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO SELL
OUR ELECTRONIC COMMERCE SERVICES, INVESTMENT SERVICES AND SOFTWARE.
Mergers, acquisitions and personnel changes at key financial
institutions have the potential to adversely affect our business, financial
condition and results of operations. Currently, the banking industry is
undergoing large-scale consolidation, causing the number of financial
institutions to decline. This consolidation could cause us to lose:
- Current and potential customers;
- Market share if the combined financial institution determines
that it is more efficient to develop in-house home banking
services similar to ours or offer our competitors' products or
services; and
- Revenue if the combined financial institution is able to
negotiate a greater volume discount for, or discontinues the
use of, our products and services.
WE ARE DEPENDENT UPON A SMALL NUMBER OF FINANCIAL INSTITUTION CUSTOMERS FOR A
SIGNIFICANT PERCENTAGE OF OUR SUBSCRIBERS.
We rely on our relationships with three key financial institutions for
a substantial portion of our subscriber base and the volume of electronic
transactions that we process. As of June 30, 1999, these three financial
institutions accounted for approximately 1.4 million subscribers, or
approximately 50% of our total subscriber base. However, no single customer
accounts for more than 10% of our revenues. The loss of the relationship with
any of these key financial institutions or a significant decline in the number
of transactions processed through them could have a material adverse effect on
our business, financial condition and results of operations.
IF WE DO NOT SUCCESSFULLY RENEW OR RENEGOTIATE OUR AGREEMENTS WITH OUR
CUSTOMERS, OUR BUSINESS MAY SUFFER.
Our agreements for electronic commerce services with financial
institutions generally provide for terms of three to five years. These
agreements are renegotiated from time to time when financial institutions
migrate from our PC-based platform to our web-based platform. If we are not able
to renew or renegotiate these agreements on favorable terms, it could have a
material adverse effect on our business, financial condition and results of
operations.
The profitability of our Software business depends, to a substantial
degree, upon our software customers electing to periodically renew their
maintenance agreements. In the event that a substantial number of our software
customers declined to renew these agreements, our revenues and profits in this
business segment would be materially adversely affected.
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COMPETITIVE PRESSURES WE FACE MAY HAVE A MATERIAL ADVERSE EFFECT ON US.
The electronic commerce market is new and evolving rapidly, resulting
in a dynamic competitive environment. We face significant competition in all of
our customer markets. Increased competition or other competitive pressures may
result in price reductions, reduced margins or loss of market share, any of
which could have a material adverse effect on our business, financial condition
and results of operations. Further, we expect competition to persist, intensify
and increase in the future. A number of financial institutions have developed,
and others in the future may develop, in-house home banking services similar to
ours. For example, Chase Manhattan Corporation, First Union Corporation and
Wells Fargo & Co. recently announced the formation of a new venture called
Spectrum that will allow individuals and businesses to receive and pay bills
electronically. Additionally, TransPoint LLC, a joint venture among Microsoft
Corporation, First Data Corporation and Citibank N.A., has announced its own
agreements with financial institutions to offer on-line home banking and
electronic billing and payment services to consumers. We cannot assure you that
we will be able to compete effectively against financial institutions, Spectrum,
TransPoint or other current and future electronic commerce competitors.
The markets for our investment services and software products are also
highly competitive. In Investment Services, our competition comes from service
bureaus and providers of portfolio accounting software. In Software, our
competition comes from several different market segments, including large
diversified computer software and service companies and independent suppliers of
software products. Because there are relatively low barriers to entry, we expect
competition in the software market to increase significantly in the future. We
cannot assure you that we will be able to compete effectively against current
and future competitors in these markets.
Across all of our market segments, many of our current and potential
competitors have longer operating histories, significantly greater financial,
technical, marketing, customer service and other resources, greater name
recognition and a larger installed base of customers than we do. As a result,
these competitors may be able to respond to new or emerging technologies and
changes in customer requirements faster and more effectively than we can, or to
devote greater resources to the development, promotion and sale of products than
we can. If these competitors were to acquire significant market share, it could
have a material adverse effect on our business, financial condition and results
of operations.
OUR FUTURE PROFITABILITY IS DEPENDENT UPON AN INCREASE IN THE PROPORTION OF
TRANSACTIONS WE PROCESS ELECTRONICALLY.
Our future profitability will depend, in part, on our ability to
increase the percentage of transactions we process electronically. Compared with
conventional paper-based transactions, electronic transactions:
- Cost much less to complete;
- Give rise to far fewer errors, which are costly to resolve;
and
- Generate far fewer subscriber inquiries and, therefore,
consume far fewer customer care resources.
Accordingly, if we are unable to increase the percentage of transactions
that we process electronically, our margins could decrease, which could have a
material adverse effect on our business, financial condition and results of
operations.
THE TRANSACTIONS WE PROCESS EXPOSE US TO CREDIT RISKS.
The electronic and conventional paper-based transactions we process
expose us to credit risks. These credits risks include risks arising from
returned transactions caused by:
- Insufficient funds;
- Unauthorized use;
- Stop payment orders;
- Payment disputes;
- Closed accounts;
- Theft;
- Frozen accounts; and
- Fraud.
We are also exposed to credit risk from merchant fraud and erroneous
transmissions. We attempt to manage all of these risks through our sophisticated
risk management systems, which include our patented billing and payment
processing system and agreements with some customers to guarantee our losses or
to grant us reversal rights. There can be no assurance, however, that these
efforts will be successful. Any losses resulting from returned transactions,
merchant fraud or erroneous transmissions could result in liability to financial
institutions,
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merchants or subscribers, which could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY EXPERIENCE BREAKDOWNS IN OUR PAYMENT PROCESSING SYSTEM THAT COULD DAMAGE
CUSTOMER RELATIONS AND EXPOSE US TO LIABILITY.
A system outage or data loss could have a material adverse effect on
our business, financial condition and results of operations. To successfully
operate our business, we must be able to protect our payment processing and
other systems from interruption by events that are beyond our control. Events
that could cause system interruptions include:
- Fire;
- Natural disaster;
- Power loss;
- Telecommunications failure;
- Unauthorized entry; and
- Computer viruses.
We are currently migrating subscribers from our pre-existing data
processing platforms to a new system which we call the Genesis Platform. Our
main processing facility is located in Norcross, Georgia, and we have other
processing facilities located in Ohio, Illinois and Texas. During the transition
from the pre-existing platforms to the Genesis Platform, we may be exposed to
loss of data or unavailability of systems due to inadequate back-ups, reduced or
eliminated redundancy, or both. Although we regularly back-up data from our
operations and take other measures to protect against data loss and system
failures, there is still some risk that we may lose critical data or experience
system failures. As a precautionary measure, we have entered into disaster
recovery agreements for the processing systems at all our sites, and we conduct
business resumption tests on a scheduled basis. Our property and business
interruption insurance may not be adequate to compensate us for all losses or
failures that may occur.
WE MAY EXPERIENCE SOFTWARE DEFECTS AND DEVELOPMENT DELAYS, DAMAGING CUSTOMER
RELATIONS, DECREASING UR POTENTIAL PROFITABILITY AND EXPOSING US TO LIABILITY.
Our electronic commerce services and our software products are based on
sophisticated software and computing systems which often encounter development
delays, and the underlying software may contain undetected errors or defects.
Defects in our software products and errors or delays in our processing of
electronic transactions could result in:
- Additional development costs;
- Diversion of technical and other resources from our other
development efforts;
- Loss of credibility with current or potential customers;
- Harm to our reputation; or
- Exposure to liability claims.
In addition, we rely on technologies supplied to us by third parties that may
also contain undetected errors or defects which could have a material adverse
effect on our business, financial condition and results of operations. Although
we attempt to limit our potential liability for warranty claims through
disclaimers in our software documentation and limitation-of-liability provisions
in our license and customer agreements, there can be no assurance that these
measures will be successful in limiting our liability.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND MAY NOT ACCURATELY PREDICT OUR
FUTURE PERFORMANCE.
Our quarterly results of operations have varied significantly and
probably will continue to do so in the future as a result of a variety of
factors, many of which are outside our control. These factors include:
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- Changes in our pricing policies or those of our competitors;
- Relative rates of acquisition of new customers;
- Seasonal patterns;
- Delays in the introduction of new or enhanced
services, software and related products by us or
our competitors or market acceptance of these products and
services; and
- Other changes in operating expenses, personnel and general
economic conditions.
As a result, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful, and you should not rely on them as an
indication of our future performance. In addition, our operating results in a
future quarter or quarters may fall below expectations of securities analysts or
investors and, as a result, the price of our common stock may fluctuate.
WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR NET SALES CAUSING OUR OPERATING
RESULTS TO FLUCTUATE.
We have historically experienced and expect to continue to experience
seasonal fluctuations in our net sales. If our net sales are below the
expectations of securities analysts and investors due to seasonal fluctuations,
our stock price could decrease unexpectedly. Our growth in new electronic
commerce subscribers is affected by seasonal factors such as holiday-based
personal computer sales. These seasonal factors may impact our operating results
by concentrating subscriber acquisition and set-up costs, which may not be
immediately offset by revenue increases primarily due to introductory service
price discounts. Additionally, on-line interactive service subscribers generally
tend to be less active users during the summer months, resulting in lower
revenue during this period.
Our software sales also have historically displayed seasonal
variability, with sales and earnings generally stronger in the quarters ended
December 31 and June 30 of each year and generally weaker in the quarters ended
September 30 and March 31 of each year. The seasonality in software sales is
due, in part, to calendar year-end buying patterns of financial institution
customers and our software sales compensation structure, which measures sales
performance at our June 30 fiscal year end.
THE YEAR 2000 ISSUE MAY ADVERSELY AFFECT OUR INFORMATION TECHNOLOGY SYSTEMS OR
CAUSE OUR CURRENT OR POTENTIAL CUSTOMERS TO DELAY IMPLEMENTING OUR PRODUCTS AND
SERVICES.
If our efforts, or the efforts of our customers and suppliers, fail to
adequately address the Year 2000 issue, we would likely incur a substantial loss
of revenue and suffer irreparable harm to our reputation. We use computer
software, operating systems and embedded micro-processors containing
date-related programs in the development and delivery of our products and
services and in our own internal information technology systems. In order to
accurately process transactions, we also rely on technologies provided by our
customers and suppliers. Transaction processing relies on transmissions of data
from PCs, through financial institutions and business web servers and the
Internet, over third-party data and voice communication lines and through the
Federal Funds System. The software we use in our products and in the delivery of
our services contains, in addition to code written by our programmers, some
software that we license from third parties.
We are in the process of testing our internal management information
and other critical business systems to identify any Year 2000 issues. We also
have inquired of our resellers, vendors and key suppliers about their Year 2000
readiness. To date, we are not aware of any significant resellers, vendors or
key suppliers with Year 2000 issues that would materially adversely affect us.
We cannot guarantee, however, that our information technology systems or those
of other companies on which we rely will successfully address the Year 2000
issue. Any failure by us or other third parties on which we rely to address the
Year 2000 issue could have a material adverse effect on our business, financial
condition and results of operations.
We believe that the adoption of our products and services by existing
and potential customers and subscribers may be adversely affected by the Year
2000 issue. As companies expend significant resources to correct or upgrade
their current software systems for Year 2000 compliance, they may delay or
cancel decisions to adopt our products and services. If this occurs, it could
have a material adverse effect on our business, financial condition and results
of operations.
A significant number of subscribers to our electronic bill payment
service use personal financial management software which is not, or may not be,
suitable for further use due to the Year 2000 issue. Although steps are being
taken by the software publisher, and by our customers, to encourage upgrading to
a Year 2000 compliant version of the software, in some cases, the subscriber
will not upgrade and will instead have his account deleted. These circumstances
will result in some loss of subscriber count and of revenue to us, and may also
subject us to claims by subscribers whose access to the service is interrupted.
We estimate that many of our subscribers are currently using software that was
not originally Year 2000 compliant, and that about 200,000 of our subscribers
may not upgrade their software and would subsequently be deleted as accounts. If
these deleted subscriber accounts do
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not reapply for service, we would lose their associated revenue, which could
have a material adverse effect on our business, financial condition and results
of operations.
OUR INABILITY TO MANAGE GROWTH COULD ADVERSELY AFFECT OUR BUSINESS.
We have experienced rapid growth in our revenues, from $76.8 million in
the twelve months ended June 30, 1996 to $250.1 million in the fiscal year ended
June 30, 1999, and we intend to continue to grow our business significantly. To
support our growth plans, we will have to significantly expand our existing
management, operational, financial and human resources and management
information systems and controls. If we are not able to manage our growth
successfully, we will not grow as planned which could have a material adverse
effect on our business, financial condition and results of operations.
IF WE ARE UNABLE TO RECRUIT AND RETAIN ADDITIONAL SKILLED PERSONNEL, OUR
BUSINESS COULD BE ADVERSELY AFFECTED.
Our future success depends upon our ability to attract, train,
assimilate and retain additional skilled personnel. Competition for qualified
employees in all of our business segments is intense. A significant increase in
our customer base would necessitate the hiring of a significant number of
additional customer care and technical support personnel, as well as software
developers and technicians, qualified candidates for which are currently in
short supply. We cannot assure you that we will be able to retain our key
employees or that we can attract, train, assimilate or retain other skilled
personnel in the future.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGE OR CHANGES IN INDUSTRY
STANDARDS, OUR SERVICES COULD BECOME OBSOLETE AND WE COULD LOSE OUR CUSTOMERS.
The electronic commerce industry is changing rapidly. To remain
competitive, we must continue to enhance and improve the functionality and
features of our products, services and technologies. For example, we are
currently migrating our products and services from a PC-based platform to a
web-based platform. If competitors introduce new products and services embodying
new technologies, or if new industry standards and practices emerge, our
existing product and service offerings, proprietary technology and systems may
become obsolete. Further, if we fail to adopt or develop new technologies or to
adapt our products and services to emerging industry standards, we may lose
current and future customers, which could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, PERMITTING COMPETITORS
TO DUPLICATE OUR PRODUCTS AND SERVICES.
Our success and ability to compete in our markets are dependent, in
part, upon our proprietary technology. We rely primarily on patent, copyright,
trade secret and trademark laws to protect our technology. In addition, we have
been granted a patent for some features of our electronic billing and payment
processing system, which we believe provides some measure of security for our
technologies. If challenged, we cannot assure you that our patent will prove to
be valid or provide the protection that we need. Further, the source code for
our proprietary software is protected both as a trade secret and as a
copyrighted work. We generally enter into confidentiality and assignment
agreements with our employees, consultants and vendors, and generally control
access to and distribution of our software, documentation and other proprietary
information.
Because our means of protecting our proprietary rights may not be
adequate, it may be possible for a third party to copy or otherwise obtain and
use our technology without authorization. In addition, the laws of some
countries in which we sell our products do not protect software and intellectual
property rights to the same extent as the laws of the U.S. Unauthorized copying,
use or reverse engineering of our products could have a material adverse effect
on our business, financial condition and results of operations.
A third party could also claim that our technology infringes its
proprietary rights. As the number of software products in our target markets
increases and the functionality of these products overlap, we believe that
software developers may increasingly face infringement claims. These claims,
even if without merit, can be time-consuming and expensive to defend. A third
party asserting infringement claims against us in the future may require us to
enter into costly royalty arrangements or litigation.
OUR COMMON STOCK PRICE IS VOLATILE.
The market price of our common stock has been volatile in the past and
may change rapidly in the future. The following factors, among others, may cause
significant volatility in our stock price:
- Actual or anticipated fluctuations in our operating results;
- Announcements by us, our competitors or our customers;
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- Announcements of the introduction of new or enhanced products
and services by us or our competitors;
- Announcements of joint development efforts or corporate
partnerships in the electronic commerce market;
- Market conditions in the banking, telecommunications,
technology and other emerging growth sectors;
- Rumors relating to our competitors or us; and
- General market or economic conditions.
In addition, the stock market has experienced significant price and
volume fluctuations, which have particularly affected the trading prices of
equity securities of many technology companies. These price and volume
fluctuations often have been unrelated to the operating performance of the
affected companies. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against that company. This type of litigation, regardless of the
outcome, could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on our
business, financial condition and results of operations.
AVAILABILITY OF SIGNIFICANT AMOUNTS OF COMMON STOCK FOR SALE IN THE FUTURE COULD
ADVERSELY AFFECT OUR STOCK PRICE.
The availability for future sale of a substantial number of shares of
our common stock in the public market, or issuance of common stock upon the
exercise of stock options, warrants or otherwise could adversely affect the
market price for our common stock. As of September 1, 1999, we had outstanding
51,885,635 shares of common stock, of which 33,995,495 shares of our issued and
outstanding common stock were held by nonaffiliates and the holders of the
remaining 17,890,140 shares were entitled to resell them only pursuant to a
registration statement under the Securities Act of 1933 or an applicable
exemption from registration thereunder such as an exemption provided by Rule
144, Rule 145 or Rule 701 under the Securities Act of 1933. As of September 1,
1999, we had outstanding options to purchase 5,175,794 shares of our common
stock, of which options for 1,400,465 shares were fully vested and exercisable
at an average weighted exercise price of approximately $9.00 per share. As of
September 1, 1999, we had issued warrants to purchase 10,700,000 shares of our
common stock, of which warrants for 3,025,000 shares were fully vested and
exercisable at a weighted exercise price of approximately $20.87 per share. In
addition, our employees are entitled to purchase up to 745,945 shares under our
Associate Stock Purchase Plan and receive up to 810,537 shares under our 401(k)
Plan. Any shares purchased thereunder will be eligible for future sale following
the expiration of applicable holding periods.
Intuit Inc., which holds 10,175,000 shares of our common stock, and
Integrion Financial Network, L.L.C., its members and former members, which
collectively hold warrants to purchase up to 10,000,000 shares of our common
stock, of which warrants for 3,000,000 shares are fully vested and exercisable,
are entitled to "piggy-back" and demand registration rights subject to specified
conditions and restrictions. If Intuit or Integrion, by exercising their
registration rights, cause a large number of shares to be registered and sold in
the public market, such sales may have an adverse effect on the market price of
our common stock.
THE LOSS OF KEY EXECUTIVES COULD ADVERSELY AFFECT OUR BUSINESS.
Our success depends to a significant degree upon the continued
contributions of our key management, including:
- Peter J. Kight, our founder, Chairman and Chief Executive
Officer;
- Mark A. Johnson, our Vice Chairman, Corporate Development;
- Peter F. Sinisgalli, our President; and
- Ravi Ganesan, our Executive Vice President and Chief
Technology Officer.
If for any reason any of these officers ceased to be active in our
management, it could have a material adverse effect on our business, financial
condition and results of operations.
WE MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS AND, EVEN IF WE ARE, RISKS
ARISING FROM THOSE ACQUISITIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
We have expanded, and plan to continue to expand, our operations
through the acquisition of additional businesses that complement our core skills
and have the potential to increase our overall value. We may not be able to
identify and acquire compatible businesses. Acquisitions involve many risks,
which could have a material adverse effect on our business, financial condition
and results of operations, including:
- Acquired businesses may not achieve anticipated revenues,
earnings or cash flow;
- Integration of acquired businesses and technologies may not
be successful and we may not realize
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anticipated economic, operational and other benefits in a
timely manner, particularly if we acquire a business in a
market in which we have limited or no current expertise or
with a corporate culture different from our own;
- Financing of future acquisitions may require issuing common
stock or debt for some or all of the purchase price, which
could result in dilution of the ownership interests of our
stockholders or recognizing amortization expense related to
goodwill and other intangible assets;
- Competing with other companies, many of which have greater
financial and other resources, to acquire attractive
companies makes it more difficult to acquire suitable
companies on acceptable terms; and
- Disruption of our existing business, distraction of
management and other resources and difficulty in maintaining
our current business standards, controls and procedures.
WE ARE SUBJECT TO SIGNIFICANT INFLUENCE BY SOME STOCKHOLDERS THAT MAY HAVE THE
EFFECT OF DELAYING OR PREVENTING A CHANGE IN CONTROL.
At September 1, 1999, our directors, executive officers and principal
stockholders and their affiliates collectively owned approximately 34% of the
outstanding shares of our common stock. As a result, these stockholders are able
to exercise significant influence over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying or
preventing a change in control.
ANTI-TAKEOVER PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAKE
ANY CHANGE IN CONTROL MORE DIFFICULT.
Our certificate of incorporation and by-laws contain provisions that
may have the effect of delaying or preventing a change in control, may
discourage bids at a premium over the market price of our common stock and may
adversely affect the market price of our common stock and the voting and other
rights of the holders of our common stock. These provisions include:
- Division of our board of directors into three classes serving
staggered three-year terms;
- Removal of our directors by the stockholders only for cause
upon 80% stockholder approval;
- Prohibiting our stockholders from calling a special meeting
of stockholders;
- Ability to issue additional shares of our common stock or
preferred stock without stockholder approval;
- Prohibiting our stockholders from unilaterally amending our
certificate of incorporation or by-laws except with 80%
stockholder approval; and
- Advance notice requirements for raising business or making
nominations at stockholders' meetings.
We have also adopted a stockholder rights plan that allows us to issue
preferred stock with rights senior to those of our common stock without any
further vote or action by our stockholders. The issuance of our preferred stock
under the stockholder rights plan could decrease the amount of earnings and
assets available for distribution to the holders of our common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of our common stock. In some circumstances, the issuance of preferred stock
could have the effect of decreasing the market price of our common stock.
We are also subject to provisions of the Delaware corporation law that,
in general, prohibit any business combination with a beneficial owner of 15% or
more of our common stock for five years unless the holder's acquisition of our
stock was approved in advance by our board of directors.
OUR BUSINESS COULD BECOME SUBJECT TO INCREASED GOVERNMENT REGULATION, WHICH
COULD MAKE OUR BUSINESS MORE EXPENSIVE TO OPERATE.
We believe that we are not required to be licensed by the Office of the
Comptroller of the Currency, or OCC, the Federal Reserve Board or other federal
agencies that regulate or monitor banks or other types of providers of
electronic commerce services. A number of states have legislation regulating or
licensing check sellers, money transmitters or service providers to banks, and
we have registered under this legislation in specific instances. Because
electronic commerce in general, and most of our products and services in
particular, are so new, the application of many of these laws and regulations is
uncertain and difficult to interpret. The entities responsible for interpreting
and enforcing these laws and regulations could amend those laws or regulations
or issue new interpretations of existing laws or regulations. Any of these
changes could lead to increased operating costs and reduce the convenience and
functionality of our products or services, possibly resulting in reduced market
acceptance. It is also possible that new laws and regulations may be enacted
with respect to the Internet. The adoption of any of these laws or regulations
may decrease the growth of the Internet, which could in turn decrease
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the demand for our products or services, increase our cost of doing business or
could otherwise have a material adverse effect on our business, financial
condition and results of operations.
The Federal Reserve rules provide that we can only access the Federal
Reserve's ACH through a bank. If the Federal Reserve rules were to change to
further restrict our access to the ACH or limit our ability to provide ACH
transaction processing services, it could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO IMPLEMENT OUR GROWTH
STRATEGY.
Successful implementation of our growth strategy will likely require
continued access to capital. If we do not generate sufficient cash from
operations, our growth could be limited unless we are able to obtain capital
through additional debt or equity financings. We cannot assure you that debt or
equity financings will be available as required for acquisitions or other needs.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our then current stockholders may be reduced. In
addition, we may issue equity securities that have rights, preferences or
privileges senior to those of the holders of our common stock. Even if financing
is available, it may not be on terms that are favorable to us or sufficient for
our needs. If we are unable to obtain sufficient financing, we may be unable to
fully implement our growth strategy.
ITEM 2. PROPERTIES.
We lease the following office facilities:
- Approximately 229,000 square feet in Norcross, Georgia;
- Approximately 100,000 square feet in Phoenix, Arizona;
- Approximately 51,000 square feet in Aurora, Illinois;
- Approximately 30,000 square feet in Owings Mills, Maryland;
- Approximately 32,000 square feet in Austin, Texas;
- Approximately 17,000 square feet in Jersey City, New Jersey;
- Approximately 14,000 square feet in Downers' Grove, Illinois;
- Approximately 10,000 square feet in Chicago, Illinois;
- Approximately 3,000 square feet in San Diego, California;
- Approximately 3,000 square feet in Ashburn, Virginia;
- Approximately 2,000 square feet in Boston, Massachusetts; and
- Approximately 1,000 square feet in Houston, Texas.
We own a 51,000 square foot conference center in Norcross, Georgia that includes
lodging, training, and fitness facilities for our customers and employees.
Although we own the building, it is on land that is leased through June 30,
2021. We believe that our facilities are adequate for current and near-term
growth and that additional space is available to provide for anticipated growth.
Additionally, on May 8, 1998, we purchased an office building in
Dublin, Ohio comprising 149,961 square feet, for a price of $14,288,600. We
completed the relocation of our Columbus, Ohio personnel and equipment from our
space located in Worthington, Ohio to the Dublin, Ohio facility at the end of
1998. In June 1999, we sold our Worthington, Ohio property and escrowed funds to
pay off the State of Ohio of State Economic Development Revenue Bonds associated
with that property
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against us.
On May 24, 1999, we announced that we had reached an amicable
resolution to the issues that led to Intuit Inc.'s lawsuit filed in March 1999
and the subsequent arbitration proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock is traded on the Nasdaq National Market under the
symbol "CKFR." The following table sets forth the high and low sales prices of
our common stock for the periods indicated as reported by the Nasdaq National
Market.
COMMON STOCK
PRICE
-----
FISCAL PERIOD HIGH LOW
- ------------- ---- ---
FISCAL 1998
First Quarter....................................................................... $23.13 $16.50
Second Quarter...................................................................... $31.44 $20.25
Third Quarter....................................................................... $28.50 $20.00
Fourth Quarter...................................................................... $30.63 $20.44
FISCAL 1999
First Quarter....................................................................... $31.50 $ 8.25
Second Quarter...................................................................... $23.44 $ 5.75
Third Quarter....................................................................... $46.00 $20.63
Fourth Quarter...................................................................... $69.13 $24.50
FISCAL 2000
First Quarter (through September 20, 1999).......................................... $44.25 $29.00
On September 20, 1999, the last reported bid price for our common stock
on the Nasdaq National Market was $43.56 per share. As of September 20, 1999,
there were approximately 548 holders of record of our common stock.
We currently anticipate that all of our future earnings will be
retained for the development of our business and do not anticipate paying cash
dividends on our common stock for the foreseeable future. In addition, our line
of credit restricts the payment of dividends on our common stock. Our board of
directors will determine future dividend policy based on our results of
operations, financial condition, capital requirements and other circumstances.
During the last ten years, we have not paid cash dividends.
During the past fiscal year, we have issued the following unregistered
securities and repurchased the following shares of our common stock:
- ---------------- ------------ -------------- -------------------- ------------- ---------
TYPE OF NUMBER OF UNDERWRITER / EXEMPTION
DATE SECURITIES SHARES PURCHASER CONSIDERATION CLAIMED
- ---------------- ------------ -------------- -------------------- ------------- ---------
September 22, 1998 Common Stock 25,000 CheckFree 263,438 Section 4(1)
September 23, 1998 Common Stock 25,000 CheckFree 274,375 Section 4(1)
September 24, 1998 Common Stock 100,000 CheckFree 1,029,380 Section 4(1)
September 25, 1998 Common Stock 50,000 CheckFree 498,750 Section 4(1)
September 28, 1998 Common Stock 60,000 CheckFree 611,250 Section 4(1)
September 29, 1998 Common Stock 100,000 CheckFree 1,021,215 Section 4(1)
September 30, 1998 Common Stock 215,000 CheckFree 2,123,125 Section 4(1)
October 1, 1998 Common Stock 220,000 CheckFree 2,099,372 Section 4(1)
October 2, 1998 Common Stock 145,000 CheckFree 1,373,745 Section 4(1)
October 3, 1998 Common Stock 60,000 CheckFree 560,628 Section 4(1)
October 8, 1998 Common Stock 3,706,341 CheckFree 21,305,711 Section 4(1)
March 8, 1999 Common Stock 537,314 Former stockholders All outstanding Section 3(a)(10)
of Mobius Group, Inc. shares of Mobius
Group, Inc.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included under the caption
"SELECTED FINANCIAL DATA" in our Annual Report and is incorporated herein by
reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is included under the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION" in our Annual Report and is incorporated herein by reference.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in our Annual Report on Form 10-K include certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 which are intended to be
covered by the safe harbors created thereby. Those statements include, but may
not be limited to, all statements regarding our and management's intent, belief
and expectations, such as statements concerning our future profitability ,our
operating and growth strategy, and Year 2000 issues. Investors are cautioned
that all forward-looking statements involve risks and uncertainties including,
without limitation, the factors set forth under the caption "Business --
Business Risks" included elsewhere in this Annual Report on Form 10-K and other
factors detailed from time to time in our filings with the Securities and
Exchange Commission. One or more of these factors have affected, and in the
future could affect, our businesses and financial results in the future and
could cause actual results to differ materially from plans and projections.
Although we believe that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate. Therefore, there can be no assurance that the forward-looking
statements included in this Annual Report on Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved. All forward-looking statements made in
this Annual Report on Form 10-K are based on information presently available to
our management. We assume no obligation to update any forward-looking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated balance sheets as of June 30, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 1999, 1998 and 1997 and the notes to the
financial statements, together with the independent auditors' report thereon
appear in our Annual Report and are incorporated herein by reference.
Our Financial Statement Schedule and Independent Auditors' Report on
Financial Statement Schedule are included in response to Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included under the captions
"ELECTION OF DIRECTORS," "EXECUTIVE OFFICERS" and "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE" in our Proxy relating to our 1999 Annual Meeting
of Stockholders to be held on November 4, 1999, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions
"INFORMATION CONCERNING THE BOARD OF DIRECTORS" and "EXECUTIVE COMPENSATION" in
our Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under the captions
"OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS" and "OWNERSHIP
OF COMMON STOCK BY PRINCIPAL STOCKHOLDERS" in our Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under the captions
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and "COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION" in our Proxy Statement and is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) The following financial statements appearing in our Annual
Report are incorporated herein by reference:
Independent Auditors' Report.
Consolidated Balance Sheets as of June 30, 1999 and 1998.
Consolidated Statements of Operations for each of the three
years in the period ended June 30, 1999.
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended June 30, 1999.
Consolidated Statements of Cash Flows for each of the three
years in the period ended June 30, 1999.
Notes to the Consolidated Financial Statements.
(2) The following financial statement schedule is included in
this Annual Report on Form 10-K and should be read in conjunction with the
Consolidated Financial Statements contained in the Annual Report.
Schedule II -- Valuation and Qualifying Accounts.
Independent Auditors' Report on Financial Statement Schedule.
Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
(3) Exhibits:
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------ -----------
2(a) Agreement and Plan of Merger, dated as of December
22, 1997, among the Company, CheckFree Corporation,
and CheckFree Merger Corporation. (Reference is made
to Exhibit 2 to the Current Report on Form 8-K, dated
December 22, 1997, filed with the Securities and
Exchange Commission on December 30, 1997, and
incorporated herein by reference.)
3(a) Restated Certificate of Incorporation of the Company.
(Reference is made to Exhibit 3(a) to the Current
Report on Form 8-K, dated December 22, 1997, filed
with the Securities and Exchange Commission on
December 30, 1997, and incorporated herein by
reference.)
3(b) By-Laws of the Company. (Reference is made to Exhibit
3(b) to the Current Report on Form 8-K, dated
December 22, 1997, filed with the Securities and
Exchange Commission on December 30, 1997, and
incorporated herein by reference.)
3(c) Form of Specimen Stock Certificate. (Reference is
made to Exhibit 3(c) to the Current Report on Form
8-K, dated December 22, 1997, filed with the
Securities and Exchange Commission on December 30,
1997, and incorporated herein by reference.)
4(a) Articles FOURTH, FIFTH, SEVENTH, EIGHTH, TENTH AND
ELEVENTH of the Company's Restated Certificate of
Incorporation (contained in the Company's Restated
Certificate of Incorporation filed as Exhibit 3(a)
hereto) and Articles II, III, IV, VI and VIII of the
Company's By-Laws (contained in the Company's By-Laws
filed as Exhibit 3(b) hereto).
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4(b) Rights Agreement, dated as of December 16, 1997, by
and between the Company and The Fifth Third Bank, as
Rights Agent. (Reference is made to Exhibit 4.1 to
Amendment No. 1 to Registration Statement on Form
8-A, filed with the Securities and Exchange
Commission on May 12, 1999, and incorporated herein
by reference.)
10(a) CheckFree Holdings Corporation Amended and Restated
Associate Stock Purchase Plan. (Reference is made to
Exhibit 4(a) to Post-Effective Amendment No. 1 to
Form S-8, as amended (Registration No. 333-21795),
filed with the Securities and Exchange Commission on
January 14, 1998, and incorporated herein by
reference.)
10(b) CheckFree Holdings Corporation Amended and Restated
1995 Stock Option Plan. (Reference is made to Exhibit
4(a) to Post-Effective Amendment No. 1 to Form S-8,
as amended (Registration No. 33-98446), filed with
the Securities and Exchange Commission on January 9,
1998, and incorporated herein by reference.)
10(c) CheckFree Holdings Corporation Amended and Restated
1993 Stock Option Plan. (Reference is made to Exhibit
4(a) to Post-Effective Amendment No. 1 to Form S-8,
as amended (Registration No. 33-98442), filed with
the Securities and Exchange Commission on January 9,
1998, and incorporated herein by reference.)
10(d) CheckFree Holdings Corporation Amended and Restated
1983 Non-Statutory Stock Option Plan. (Reference is
made to Exhibit 4(a) to Post-Effective Amendment No.
1 to Form S-8, as amended (Registration No.
33-98440), filed with the Securities and Exchange
Commission on January 9, 1998, and incorporated
herein by reference.)
10(e) CheckFree Holdings Corporation Second Amended and
Restated 1983 Incentive Stock Option Plan. (Reference
is made to Exhibit 4(a) to Post-Effective Amendment
No. 1 to Form S-8, as amended (Registration No.
33-98444), filed with the Securities and Exchange
Commission on January 9, 1998, and incorporated
herein by reference.)
10(f) Form of Indemnification Agreement. (Reference is made
to Exhibit 10(a) to Registration Statement on Form
S-1, as amended (Registration No. 33-95738), filed
with the Securities and Exchange Commission on August
14, 1995, and incorporated herein by reference.)
10(g) Schedule identifying material details of
Indemnification Agreements substantially identical to
Exhibit 10(f). (Reference is made to Exhibit 10(g) to
the Company's Form 10-K for the year ended June 30,
1997, filed with the Securities and Exchange
Commission on September 26, 1997, and incorporated
herein by reference.)
10(h) Noncompete, Nondisclosure, and Assignment Agreement,
dated February 1, 1990, between Peter J. Kight and
the Company. (Reference is made to Exhibit 10(i) to
Registration Statement on Form S-1, as amended
(Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14,
1995, and incorporated herein by reference.)
10(i) Noncompete, Nondisclosure, and Assignment Agreement,
dated February 1, 1990, between Mark A. Johnson and
the Company. (Reference is made to Exhibit 10(j) to
Registration Statement on Form S-1, as amended
(Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14,
1995, and incorporated herein by reference.)
10(j) Electronic Bill Payment Services Agreement, dated
March 10, 1995, between the Company and FiTech, Inc.
(Reference is made to Exhibit 10(gg) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated
herein by reference.)**
10(k) Amendment to Bill Payment and Remote Banking Services
Agreement, dated July 1, 1995, between the Company
and FiTech, Inc. (Reference is made to Exhibit 10(hh)
to Registration Statement on Form S-1, as amended
(Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14,
1995, and incorporated herein by reference.)**
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10(l) ACH Operations Agreement, dated April 1, 1994,
between the Company and Society National Bank.
(Reference is made to Exhibit 10(ii) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated
herein by reference.)
10(m) Merchant Processing Agreement, dated March 13, 1995,
between the Company and Society National Bank.
(Reference is made to Exhibit 10(jj) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated
herein by reference.)
10(n) Lease, dated August 1, 1993, between the Company and
the Director of Development of the State of Ohio.
(Reference is made to Exhibit 10(rr) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated
herein by reference.)
10(o) Guaranty Agreement, dated August 1, 1993, between the
Company and The Provident Bank. (Reference is made to
Exhibit 10(ss) to Registration Statement on Form S-1,
as amended (Registration No. 33-95738), filed with
the Securities and Exchange Commission on August 14,
1995, and incorporated herein by reference.)
10(p) Demand Mortgage Note, dated August 25, 1993, of the
Company. (Reference is made to Exhibit 10(tt) to
Registration Statement on Form S-1, as amended
(Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14,
1995, and incorporated herein by reference.)
10(q) Irrevocable Letter of Credit from Society National
Bank for the Company, dated August 25, 1993
(including second renewal thereof). (Reference is
made to Exhibit 10(uu) to Registration Statement on
Form S-1, as amended (Registration No. 33-95738),
filed with the Securities and Exchange Commission on
August 14, 1995, and incorporated herein by
reference.)
10(r) Open-End Mortgage, Assignment of Rents and Security
Agreement, dated August 25, 1993, with the Company as
mortgagor and Society National Bank as mortgagee.
(Reference is made to Exhibit 10(vv) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated
herein by reference.)
10(s) Loan and Security Agreement, dated August 25, 1993,
between the Company and Society National Bank.
(Reference is made to Exhibit 10(ww) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated
herein by reference.)
10(t) Commercial Note Variable Rate, dated January 3, 1995,
of the Company. (Reference is made to Exhibit 10(xx)
to Registration Statement on Form S-1, as amended
(Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14,
1995, and incorporated herein by reference.)
10(u) Reimbursement Agreement, dated August 25, 1993,
between the Company and Peter J. Kight. (Reference is
made to Exhibit 10(yy) to Registration Statement on
Form S-1, as amended (Registration No. 33-95738),
filed with the Securities and Exchange Commission on
August 14, 1995, and incorporated herein by
reference.)
10(v) License Agreement, dated October 27, 1995, between
the Company and Block Financial Corporation.
(Reference is made to Exhibit 10(ddd) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1995, filed with the Securities
and Exchange Commission, and incorporated herein by
reference.)**
10(w) Joint Marketing and Trademark License Agreement,
dated December 28, 1995, between the Company and
Electronic Data Systems Corporation. (Reference is
made to Exhibit 10(eee) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, filed with the Securities and Exchange
Commission, and incorporated herein by reference.)**
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10(x) Joint Marketing Agreement, dated November 3, 1995,
between the Company and Fiserv, Inc. (Reference is
made to Exhibit 10(fff) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, filed with the Securities and Exchange
Commission, and incorporated herein by reference.)**
10(y) Payment Services, Software Development and Marketing
Agreement, dated as of February 27, 1996, between the
Company and CyberCash. (Reference is made to Exhibit
10(a) to the Form 10-Q for the quarter ended March
31, 1996, filed with the Securities and Exchange
Commission, and incorporated herein by reference.) **
10(z) Executive Employment Agreement between the Company
and Peter J. Kight. (Reference is made to Exhibit
10(z) to the Company's Form 10-K for the year ended
June 30, 1997, filed with the Securities and Exchange
Commission on September 26, 1997, and incorporated
herein by reference.)
10(aa) Executive Employment Agreement between the Company
and Lynn D. Busing. (Reference is made to Exhibit
10(f) to the Form 10-Q for the quarter ended March
31, 1996, filed with the Securities and Exchange
Commission, and incorporated herein by reference.)
10(bb) Agreement for ACH Services between the Company and
The Chase Manhattan Bank, N.A., dated as of July 1,
1996. (Reference is made to Exhibit 10(qqq) to the
Form 10-K for the transition period ended June 30,
1996, filed with the Securities and Exchange
Commission, and incorporated herein by reference.)
10(cc) Loan and Security Agreement, dated as of May 13,
1997, among KeyBank National Association, the
Company, CheckFree Software Solutions, Inc.,
CheckFree Services Corporation, Security APL, Inc.,
Servantis Systems, Inc., and Servantis Services, Inc.
(Reference is made to Exhibit 10(ee) to the Company's
Form 10-K for the year ended June 30, 1997, filed
with the Securities and Exchange Commission on
September 26, 1997, and incorporated herein by
reference.)
10(dd) First Amendment to Loan and Security Agreement by and
between KeyBank National Association, as Lender, and
CheckFree Corporation, as Borrower, dated as of
December 9, 1998. (Reference is made to Exhibit 10.1
to the Company's Form 10-Q for the quarter ended
March 31, 1999, filed with the Securities and
Exchange Commission on May 17, 1999, and incorporated
herein by reference.)
10(ee) CheckFree Corporation Incentive Compensation Plan.
(Reference is made to Exhibit 10(ff) to the Company's
Form 10-K for the year ended June 30, 1997, filed
with the Securities and Exchange Commission on
September 26, 1997, and incorporated herein by
reference.)
13 * Portions of the Annual Report to Stockholders for the
year ended June 30, 1999.
21 * Subsidiaries of the Company.
23 * Consent of Deloitte & Touche LLP.
24 * Power of Attorney.
27 * Financial Data Schedule.
99 * Financial Statement Schedule and Independent
Auditors' Report.
- ----------------
* Filed with this report.
** Portions of this Exhibit have been given confidential treatment by the
Securities and Exchange Commission.
(b) REPORTS ON FORM 8-K.
We filed the following Current Reports on Form 8-K since March
31, 1999:
(i) Current Report on Form 8-K, dated May 24, 1999, filed
with the Securities and Exchange Commission on May
24, 1999 (Items 5 and 7).
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(ii) Current Report on Form 8-K, dated June 15, 1999,
filed with the Securities and Exchange Commission on
June 15, 1999 (Items 5 and 7).
(iii) Current Report on Form 8-K, dated June 24, 1999,
filed with the Securities and Exchange Commission on
June 24, 1999 (Items 5 and 7).
(c) EXHIBITS.
The exhibits to this report follow the Signature Page.
(d) FINANCIAL STATEMENT SCHEDULES.
The financial statement schedule and the independent auditors'
report thereon are included in Exhibit 99 to this Annual Report on Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHECKFREE HOLDINGS CORPORATION
Date: September 24, 1999 By: /s/Allen L. Shulman
-------------------------------------------
Allen L. Shulman, Executive Vice President,
Chief Financial Officer and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on our behalf and in
the capacities indicated on the 24th day of September, 1999.
Signature Title
*Peter J. Kight Chairman of the Board and Chief Executive Officer
- ------------------------------------------ (Principal Executive Officer)
Peter J. Kight
*Mark A. Johnson Vice Chairman - Corporate Development and Marketing and
- ------------------------------------------ Director
Mark A. Johnson
*Allen L. Shulman Executive Vice President, Chief Financial Officer
- ------------------------------------------ and General Counsel
Allen L. Shulman (Principal Financial Officer)
*Gary A. Luoma, Jr. Vice President and Chief Accounting Officer
- ------------------------------------------ (Principal Accounting Officer)
Gary A. Luoma, Jr.
*William P. Boardman Director
- ------------------------------------------
William P. Boardman
*George R. Manser Director
- ------------------------------------------
George R. Manser
*Eugene F. Quinn Director
- ------------------------------------------
Eugene F. Quinn
*Jeffrey M. Wilkins Director
- ------------------------------------------
Jeffrey M. Wilkins
*By: /s/Curtis A. Loveland
--------------------------------------
Curtis A. Loveland,
Attorney-in-Fact
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