Retail therapy

September 6, 2005

Has someone at CheckFree (CKFR) been feeling a little down? It sure looks as though the Company has been engaging in some serious retail therapy. According to the 10-K filed over the weekend, the biggest asset on the Company’s books is goodwill, and looking at Note 2 to the K, it’s not hard to see why. The Company has completed three major acquisitions over the past two years — and of the $184,751,000 it spent to acquire these companies, approximately $132,943,000 (72%) was allocated to goodwill. In addition, CheckFree announced another acquisition (the Company is buying Integrated Decision Systems) on September 2, the same day it filed its 10-K, yet there’s no mention of the transaction in the 10-K, not even as a subsequent event.

Perhaps these will turn out to be great strategic buys, but judging by prior write-downs:

As a direct result of our acquisition of Accurate, we recorded a charge in the amount of $1,039,000 to write down the value of previously capitalized software due to technology redundancy.

We recorded a charge of $2,894,000 for impairment of goodwill associated with our acquisition of BlueGill Technologies, Inc. (currently referred to as CheckFree i-Solutions) upon our adoption of SFAS 142. During the fourth quarter of the fiscal year ended June 30, 2003, we performed our annual impairment review for goodwill and other intangible assets. The conditions which gave rise to indications of impairment during the year ended June 30, 2002, continued to be present during the year ended June 30, 2003. As a result of our assessment, we recorded a charge of $10,228,000, which represents a SFAS 142 goodwill impairment of $5,983,000 and a SFAS 144 impairment of other intangible assets of $4,245,000 both related to our CheckFree i-Solutions reporting unit.

As a CheckFree investor, I’d be a little bit skeptical about future acquisitions, especially since impairment review is typically only done annually and won’t be disclosed again until next year’s 10-K. Maybe it’s time to put down the checkbook and back away, slowly.

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