UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-26802

CHECKFREE CORPORATION

     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 þ NO o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES þ NO o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 91,050,750 shares of Common Stock, $.01 par value, were outstanding at May 4, 2005.

FORM 10-Q

CHECKFREE CORPORATION

Table of Contents

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Part I. Financial Information

Item 1. Financial Statements

CHECKFREE CORPORATION AND SUBSIDIARIES

See Notes to Interim Unaudited Condensed Consolidated Financial Statements

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CHECKFREE CORPORATION AND SUBSIDIARIES

See Notes to Interim Unaudited Condensed Consolidated Financial Statements

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CHECKFREE CORPORATION AND SUBSIDIARIES

See Notes to Interim Unaudited Condensed Consolidated Financial Statements

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CHECKFREE CORPORATION AND SUBSIDIARIES

1. Basis of Presentation and Summary of Significant Accounting Policies

          Unaudited Interim Financial Information

          Our unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”), are prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and include all of the information and disclosures required by generally accepted accounting principles in the United States of America for interim financial reporting. Our results of operations for the three and nine months ended March 31, 2005 and 2004, are not necessarily indicative of our projected results for the full year.

          Please read our condensed consolidated financial statements in this Form 10-Q in conjunction with our consolidated financial statements, our significant accounting policies and our notes to the consolidated financial statements included in our Annual Report on Form 10-K for our fiscal year ended June 30, 2004, which we filed with the SEC on September 3, 2004. In our opinion, our accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of our financial results for the presented interim periods.

          Stock-Based Compensation

          We account for stock-based compensation under the provisions and related interpretations of Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees.” Accordingly, we are not required to record compensation expense when stock options are granted to our employees as long as the exercise price is not less than the fair market value of the stock when the option is granted. Also, we are not required to record compensation expense when stock options are granted under our Associate Stock Purchase Plan as long as the purchase price is not less than 85% of the lower of the fair market value at the beginning or end of each offer period. In October 1995, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 123, “Accounting for Stock-Based Compensation.” SFAS 123 allows us to continue to follow the present APB Opinion 25 guidelines, but requires pro-forma disclosures of net income and earnings per share as if we had adopted the provisions of the Statement. In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123,” which provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. We continue to account for stock-based compensation under the provisions of APB Opinion 25 using the intrinsic value method.

          Had compensation cost for our stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans in accordance with the provisions of SFAS 123, our net income (loss) and net income (loss) per share would have been as follows (in thousands, except per share data):

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          Recent Accounting Pronouncements

          In December 2004, the FASB issued a revision to SFAS 123. FASB Statement No. 123 (R), “Share-Based Payment” (“SFAS 123 (R)”), supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123 (R) requires all share-based payments to employees, including grants of employee stock options and shares purchased under an employee stock purchase plan (if certain parameters are not met), to be recognized in the financial statements based on their fair values. Under our Associate Stock Purchase Plan as currently defined, the shares purchased by our employees on June 30 and December 31 of each year would be required to be recorded at fair value within our financial statements under the guidance of SFAS 123 (R) as our Plan currently offers a look-back feature as well as a discount in excess of 5%.

          On April 14, 2005, the SEC announced the adoption of a new rule that amended the compliance date of SFAS 123(R). The new rule allows companies to implement SFAS 123(R) at the beginning of the next fiscal year, instead of the next reporting period, beginning after June 15, 2005. For us, the amended effective date did not delay our adoption date. As a result, we will adopt this Statement in the first quarter of our 2006 fiscal year (quarter ending September 30, 2005) using the modified prospective method and are currently evaluating the impact that the adoption of SFAS 123 (R) will have on our financial statements.

          Reclassifications

          Certain amounts in the prior years’ financial statements have been reclassified to conform to the fiscal year 2005 presentation.

2. Investments

          Our investments consist of the following (in thousands):

          We base the fair value of available-for-sale securities on quoted market values. In the three and nine months ended March 31, 2005, we sold available-for-sale investments in the amount of approximately $1,600,000,000 and $3,000,000,000, respectively. In the three and nine months ended March 31, 2004, we sold available-for-sale investments in the amount of $432,900,000 and $2,100,000,000, respectively. We recognized gross gains of $0 and $3,000 as well as gross losses of $0 and $5,000 on these sales during the three months ended March 31, 2005 and 2004, respectively. We recognized gross gains of $4,000 and $246,000 as well as gross losses of $40,000 and $479,000 on these sales during the nine months ended March 31, 2005, and 2004, respectively.

          In the quarter ended March 31, 2005, we recorded a $592,000 gain on the sale of stock. While we do not typically invest in equity securities, we received shares of stock from an insurance vendor that demutualized. We sold the shares shortly after we received them, and recorded the proceeds as a gain on investments.

          Starting with the current period, we are classifying all auction rate preferred and debt instruments as available-for-sale securities. Previously, such securities were classified as cash equivalents if the auction reset periods were three months or less. We did not have any auction rate securities as of June 30, 2004.

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3. Goodwill and Other Intangible Assets

          On July 1, 2002, we adopted SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 changes the accounting for goodwill and other intangible assets. Goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Our annual impairment test is performed on April 30^th of each year.

          In November 2003, we completed our acquisition of HelioGraph, Ltd. (“HelioGraph”) for approximately $18,756,000 in cash. Our acquisition added a financial transactions management solution with straight through processing and financial messaging expertise to our reconciliation suite of products, in addition to expanding our international presence. HelioGraph is part of our International Operations business unit within our Software division. During the six-month period ended December 31, 2004, we received a refund of an escrow deposit in the amount of $223,000.

          In June 2004, we completed our acquisition of American Payment Systems, Inc. (“APS”) from its parent corporation UIL Holdings Corporation, for approximately $109,013,000 in cash, subject to certain post-closing adjustments. We completed the acquisition in order to penetrate a part of the electronic billing and payment market in which we had not significantly previously participated. APS is part of our Electronic Commerce division and a leading provider of walk-in bill payments. We treated our acquisition of APS as a purchase for accounting purposes, and, accordingly, recorded purchased assets and liabilities based on their fair market values at the date of acquisition. Based on the preliminary purchase price allocation, we recorded goodwill of approximately $75,000,000. During the six-month period ended December 31, 2004, we made a final purchase price adjustment of $3,277,000. We recorded $733,000 of deferred tax assets related to our final purchase price adjustments.

          As of March 31, 2005, our only non-amortizing intangible asset is goodwill. The changes in the carrying value of goodwill by segment from June 30, 2003 to March 31, 2005, were as follows (in thousands):

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          The components of our various amortized intangible assets are as follows (in thousands):

          Amortization of intangible assets totaled $34,213,000 and $33,431,000 for the three months ended March 31, 2005 and 2004, respectively. Amortization of intangible assets totaled $103,274,000 and $108,768,000 for the nine months ended March 31, 2005 and 2004, respectively.

4. Common Stock

          In the nine months ended March 31, 2005, we issued stock for various employee benefit programs. We issued 108,484 shares of common stock to fund our 401(k) match, the cost of which we accrued during the year ended June 30, 2004, and 165,098 shares of common stock in conjunction with our Associate Stock Purchase Plan, which were funded through employee payroll deductions. We also issued 341,837 shares of restricted stock related to a Long-Term Incentive Compensation (“LTIC”) program under our 2002 Stock Incentive Plan and recorded unearned compensation of $8,721,000 within stockholders’ equity during the nine-month period ended March 31, 2005. The shares of restricted stock granted under the LTIC program have a five-year vesting period with an accelerated vesting provision of three years based on achievement of specific goals and objectives. We recorded an expense of approximately $2,063,000 for the nine months ended March 31, 2005 related to the LTIC program.

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          In June 2003, we made an offer (the “Tender Offer”) to certain of our employees to exchange options with exercise prices greater than or equal to $44.00 per share that were then outstanding under our 1983 Incentive Stock Option Plan, 1983 Non-Statutory Stock Option Plan, 1993 Stock Option Plan, Third Amended and Restated 1995 Stock Option Plan, BlueGill Technologies, Inc. 1997 Stock Option Plan, BlueGill Technologies, Inc. 1998 Incentive and Non-Qualified Stock Option Plan, and 2002 Stock Incentive Plan, for restricted stock units of our common stock, and in certain cases, cash payments. Restricted stock units that we issued under the Tender Offer vest ratably over a three-year period. The offer period closed on July 17, 2003, and employees holding 1,165,035 options participated in the Tender Offer. We made cash payments totaling $586,000 in July 2003, representing the cash consideration portion of the Tender Offer. We issued 51,143 shares in the nine-month period ended March 31, 2005. Approximately 154,000 shares of restricted stock units are scheduled to vest under the 2002 Stock Incentive Plan over the next year and six months. We recorded an expense of approximately $1,533,000 for the nine-month period ended March 31, 2005 related to the vesting of restricted stock units and recorded an expense of $1,143,000 for the three months ended September 30, 2003, for cash payments incurred and the vesting of restricted stock units under the Tender Offer.

5. Earnings (Loss) Per Share

          The following table reconciles the differences in our income (loss) and shares outstanding between basic and diluted for the periods indicated (in thousands, except per share data):