Amended Current Report


 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 8-K/A

(Amendment No. 1)

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):   May 29, 2009

 

NIC Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

000-26621

 

52-2077581

(State or other jurisdiction of

 

(Commission

 

(I.R.S. Employer

incorporation)

 

File Number)

 

Identification No.)

 

25501 West Valley Parkway, Suite 300

Olathe, Kansas 66061

(Address of principal executive office)(Zip Code)

 

(877) 234-3468

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨             Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨             Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨             Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨             Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.01                                             Completion of Acquisition or Disposition of Assets.

 

This Amendment No. 1 on Form 8-K/A amends and supplements the Current Report on Form 8-K of NIC Inc., filed with the Securities and Exchange Commission (the “SEC”) on May 29, 2009 (the “Initial Form 8-K”) to include financial statements and pro forma combined financial information permitted pursuant to Item 9.01 of Form 8-K to be excluded from the Initial Form 8-K and filed by amendment to the Initial Form 8-K. As previously reported in the Initial Form 8-K, on May 29, 2009, NIC Inc. through its wholly-owned subsidiary (collectively, the “Company”) completed the acquisition of certain assets from BearingPoint, Inc. (“BearingPoint”). The assets were part of BearingPoint’s North American Public Services Unit which BearingPoint previously agreed to sell to Deloitte LLP (“Deloitte”) pursuant to an Asset Purchase Agreement dated March 23, 2009 (“Asset Purchase Agreement”). Pursuant to the terms of the Asset Purchase Agreement, Deloitte designated the Company as the acquirer of certain designated contracts and assets and the Company acquired the designated contracts and assets directly from BearingPoint.

 

The assets acquired by the Company included all of BearingPoint’s right, title and interest in and to the following: (1) the Texas Electronic Framework Agreement dated May 5, 2000, as amended and renewed, between the Department of Information Resources, an agency of the State of Texas, and the predecessor to BearingPoint (“Framework Agreement”), and related service level agreements with various governmental agencies and entities in the State of Texas (“Service Level Agreements”) (all of which expired on December 31, 2009), (2) the Master Work Order Agreement dated May 17, 2008 (“Master Work Order”), including the underlying Master Work Order Projects attached thereto as exhibits (“Master Work Order Projects”), between the Department of Information Resources, an agency of the State of Texas, and BearingPoint, Inc. (with certain Master Work Order Projects expiring August 31, 2012 and others expiring August 31, 2014), (3) certain contracts with subcontractors and service providers relating to the provision of products and services pursuant to Framework Agreement, the Service Level Agreements and the Master Work Order, and (4) certain equipment, computers, furniture, supplies, fixtures and other tangible personal property primarily used in providing products and services under the contracts assigned to the Company. In addition, the Company is licensing from Deloitte certain intellectual property relating to the acquired contracts.

 

The Company paid Deloitte $1,500,000 in cash in exchange for the designation of the Company as the acquirer of the designated contracts and assets from BearingPoint. In addition, the Company designated an affiliate of Deloitte as the subcontractor on certain of the Master Work Order Projects under the Master Work Order. The terms of the transaction were determined by arm’s-length negotiations between the parties. The Company funded the cash consideration paid to Deloitte from its existing cash resources. The transaction is subject to various post-closing covenants, including but not limited to Deloitte assisting the Company in obtaining from BearingPoint assistance in resolving any objections to the assumption and assignment of the above contracts.

 

Item 9.01                                             Financial Statements and Exhibits.

 

(a)                                   Financial statements of businesses acquired .

 

The audited financial statements of TexasOnline, a division of BearingPoint, as of December 31, 2008 and for the year ended December 31, 2008, and the notes related thereto, are filed as Exhibit 99.2 to this Form 8-K/A and are incorporated herein by reference.  The unaudited financial statements of TexasOnline as of March 31, 2009 and 2008 and for the three months ended March 31, 2009 and 2008, and the notes related thereto, are filed as Exhibit 99.3 to this Form 8-K/A and are incorporated herein by reference.

 

2



 

(b)                                  Pro forma financial information .

 

The unaudited pro forma combined financial information of the Company as of March 31, 2009 and for the three months ended March 31, 2009 and for the year ended December 31, 2008, giving effect to the acquisition of TexasOnline, and the notes thereto, are filed as Exhibit 99.4 to this Form 8-K/A and are incorporated herein by reference.

 

(d)                                  Exhibits .

 

Exhibit No.

 

Description

 

 

 

23.1

 

Consent of PricewaterhouseCoopers, LLP

 

 

 

99.2

 

TexasOnline Financial Statements as of and for the Year Ended December 31, 2008 (with Independent Auditors’ Report thereon)

 

 

 

99.3

 

TexasOnline Unaudited Interim Financial Statements as of and for the three months ended March 31, 2009 and 2008

 

 

 

99.4

 

Unaudited Pro Forma Combined Financial Statements as of March 31, 2009 and for the three months ended March 31, 2009 and for the year ended December 31, 2008

 

3



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

NIC INC.

 

 

 

 

 

By:

/s/ Stephen M. Kovzan

 

 

Stephen M. Kovzan

 

 

Chief Financial Officer

 

 

 

Date:  March 16, 2010

 

 

 

4



 

INDEX TO EXHIBITS

 

Exhibit Number

 

Description

 

 

 

23.1

 

Consent of PricewaterhouseCoopers LLP

 

 

 

99.2

 

TexasOnline Financial Statements as of and for the Year Ended December 31, 2008 (with Independent Auditors’ Report thereon)

 

 

 

99.3

 

TexasOnline Unaudited Interim Financial Statements as of and for the three months ended March 31, 2009 and 2008

 

 

 

99.4

 

Unaudited Pro Forma Combined Financial Statements as of March 31, 2009 and for the three months ended March 31, 2009 and for the year ended December 31, 2008

 

5


Exhibit 23.1

 

CONSENT OF INDEPENDENT ACCOUNTANTS

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-83171, 333-136016, 333-37000 and 333-159548) of NIC Inc. of our report dated March 16, 2010 relating to the financial statements of TexasOnline, which appears in the Current Report on Form 8-K of NIC Inc. dated May 29, 2009.

 

 

/s/ PricewaterhouseCoopers LLP

 

Kansas City, Missouri

March 16, 2010

 


Exhibit 99.2

 

TexasOnline

(A Division of BearingPoint, Inc.)

 

Financial Statements

For The Year Ended

December 31, 2008

 



 

TexasOnline

(A Division of BearingPoint, Inc.)

Index

December 31, 2008

 

 

Page(s)

 

 

Report of Independent Auditors

1

 

 

Financial Statements

 

 

 

Balance Sheet

2

 

 

Statement of Income

3

 

 

Statement of Changes in Net Assets

4

 

 

Statement of Cash Flows

5

 

 

Notes to Financial Statements

6-13

 



 

Report of Independent Auditors

 

To the Board of Directors and Shareholders of NIC Inc.:

 

In our opinion, the accompanying balance sheet and the related statements of income, changes in net assets, and cash flows present fairly, in all material respects, the financial position of TexasOnline (the “Division”) at December 31, 2008, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Division’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

 

 

/s/ PricewaterhouseCoopers LLP

Kansas City, Missouri

March 16, 2010

 

1



 

TexasOnline

(A Division of BearingPoint, Inc.)

Balance Sheet

December 31, 2008

 

 

 

December 31, 2008

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash

 

$

1,185,401

 

Trade accounts receivable

 

1,919,574

 

Prepaid expenses & other current assets

 

926,825

 

Deferred income taxes

 

565,321

 

Total current assets

 

4,597,121

 

Capital assets, net

 

5,565,286

 

Services under development

 

7,075,760

 

Deferred contract costs, net

 

4,348,532

 

Total assets

 

$

21,586,699

 

 

 

 

 

LIABILITIES AND NET ASSETS

 

 

 

Current liabilities:

 

 

 

Accounts payable

 

$

3,089,796

 

Accrued expenses

 

3,388,671

 

Deferred revenue

 

1,485,028

 

Total current liabilities

 

7,963,495

 

 

 

 

 

Deferred income taxes

 

4,115,665

 

Other long-term liabilities

 

100,668

 

Total liabilities

 

12,179,828

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Net assets

 

9,406,871

 

Total liabilities and net assets

 

$

21,586,699

 

 

The accompanying notes are an integral part of these financial statements.

 

2



 

TexasOnline

(A Division of BearingPoint, Inc.)

Statement of Income

For the Year Ended December 31, 2008

 

 

 

Year Ended

 

 

 

December 31, 2008

 

 

 

 

 

Portal revenues

 

$

49,432,199

 

 

 

 

 

Operating expenses:

 

 

 

Cost of portal revenues, exclusive of depreciation & amortization

 

30,373,711

 

General & administrative

 

7,278,294

 

Depreciation & amortization

 

4,428,348

 

Total operating expenses

 

42,080,353

 

Income before income taxes

 

7,351,846

 

Income tax provision

 

2,720,051

 

Net income

 

$

4,631,795

 

 

The accompanying notes are an integral part of these financial statements.

 

3



 

TexasOnline

(A Division of BearingPoint, Inc.)

Statement of Changes in Net Assets

For the Year Ended December 31, 2008

 

Balance, January 1, 2008

 

$

6,720,831

 

 

 

 

 

Net income

 

4,631,795

 

Net transfers to BearingPoint

 

(1,945,755

)

 

 

 

 

Balance, December 31, 2008

 

$

9,406,871

 

 

The accompanying notes are an integral part of these financial statements.

 

4



 

TexasOnline

(A Division of BearingPoint, Inc.)

Statement of Cash Flows

For the Year Ended December 31, 2008

 

 

 

Year Ended

 

 

 

December 31, 2008

 

 

 

 

 

Cash flows from operating activities:

 

 

 

Net income

 

$

4,631,795

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation & amortization

 

4,428,348

 

Deferred income taxes

 

1,404,298

 

Changes in operating assets and liabilities

 

 

 

Decrease in trade accounts receivable

 

166,658

 

(Increase) in prepaid expenses & other current assets

 

(407,866

)

(Increase) in deferred contract costs

 

(939,234

)

Increase in accounts payable

 

2,192,405

 

(Decrease) in accrued expenses

 

(104,088

)

(Decrease) in deferred revenue

 

(2,662,194

)

Increase in other long-term liabilities

 

21,878

 

Net cash provided by operating activities

 

8,732,000

 

Cash flows from investing activities:

 

 

 

Purchases of capital assets

 

(6,523,983

)

Net cash used in investing activities

 

(6,523,983

)

Cash flows from financing activities:

 

 

 

Transfers to BearingPoint

 

(1,945,755

)

Net cash used in financing activities

 

(1,945,755

)

Net increase in cash

 

262,262

 

Cash, beginning of year

 

923,139

 

Cash, end of year

 

$

1,185,401

 

 

The accompanying notes are an integral part of these financial statements.

 

5



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

1.               The Division and basis of presentation

 

The Division

TexasOnline, a division of BearingPoint, Inc. (“BearingPoint”), was established to provide operational management for a contractual arrangement between BearingPoint and the state of Texas (the “State”) when BearingPoint was awarded a portal contract to develop, operate and maintain the official Web site for the State. The portal provides businesses and citizens with online services and secure access to electronic information for State agencies and local governments. The development and design of the State’s electronic framework has been the result of a collaborative effort between BearingPoint, the Department of Information Resources (“ DIR”), the contracting agent for the State, and many agencies and organizations across all branches of Texas government and industry.

 

The contract between BearingPoint and DIR, referred to as the Texas Electronic Framework Agreement (the “Agreement”), was executed on May 5, 2000. In connection with the Agreement, BearingPoint entered into related service level agreements with various governmental agencies and entities in the State. Through its TexasOnline division, BearingPoint was responsible for managing and marketing the government portal as well as funding up front investment and ongoing operational costs. The Agreement includes limitations and provisions for the rates BearingPoint can charge and the amount of remuneration to DIR and each government agency.  The Agreement also recognizes that not all governments are able to charge fees for applications. Furthermore, there is flexibility in the Agreement for providing applications that serve the public good or are traditionally offered for free on the portal. Through its TexasOnline division, BearingPoint worked with governments to assess the business case for each individual application and to determine the appropriate funding mechanism. DIR approves all services provided through the portal.

 

The First Renewal Agreement and Second Renewal Agreement were executed on February 9, 2002 and September 1, 2005, respectively. These renewal agreements extended the Agreement to clarify certain provisions of the Agreement and to modify certain terms of the Agreement. The Second Renewal Agreement defined existing projects as of September 1, 2005 as TOL Existing and excluded eFiling as a separate project.  In addition, the Second Renewal Agreement extended the term of the Agreement through December 31, 2009.  Vital Statistics and Motor Vehicle Inspections were new agreements signed September 30, 2005 and June 30, 2006, respectively.  DIR and BearingPoint entered into the Master Work Order Agreement effective January 1, 2008, which consolidated eFiling, Vital Statistics, Motor Vehicle Inspections and any new projects.  In addition, the Master Work Order Agreement extended the Agreement through August 31, 2012 for Master Work Order projects only.  On May 29, 2009, Texas NICUSA, LLC, an indirect wholly-owned subsidiary of NIC Inc., purchased the TexasOnline project and related agreements from BearingPoint.  Refer to Note 7.

 

Basis of presentation

The accompanying financial statements present the financial position, results of operations, and cash flows of TexasOnline (the “Division”) and exclude all other affiliate entities or divisions of BearingPoint.  The Division is not a legal entity.

 

Division net assets represent the Division’s accumulated earnings since inception, net of the Division’s receivable from affiliate. Transfers (to) from affiliates, as reported in the statement of changes in net assets, represent the net change in the receivable from affiliates during the reporting period.

 

6



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

2.               Summary of significant accounting policies

 

Trade accounts receivable

Accounts receivable are charges for services.  Due to the high credit worthiness of the Division’s customers, the Division considers accounts receivable to be fully collectible.  Accordingly, no allowance for doubtful accounts has been recorded.  The Division has not experienced any significant credit losses for the period reported.

 

Capital assets

Capital assets are carried at cost less accumulated depreciation.  Depreciation is computed using the straight-line method over the lesser of (1) the remaining economic life of the contract or (2) the estimated useful lives of five years for hardware, third party software and internal use computer software.  When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in results of operations for the period.  The cost of maintenance and repairs is charged to expense as incurred.  Significant renewals and betterments are capitalized.  Furniture and equipment utilized by the Division were acquired directly by BearingPoint.  Costs associated with such use by the Division are included in the general and administrative expense allocation, as discussed further below.

 

The Division accounts for the costs associated with the development of internal use computer software in accordance with the provisions of AICPA SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use .  Accordingly, the costs incurred during the preliminary stage of the development of an application, such as the conceptualization and the evaluation of the project, are expensed as incurred, and the costs incurred during the development stage of the application, such as coding, testing and debugging, are capitalized.  Costs incurred in the post-implementation and operation phases of the application, such as training and maintenance, are also expensed as incurred.

 

The Division assesses the carrying value of capital assets at each balance sheet date, or whenever events or changes in circumstances indicate that the carrying value or usability of such assets may no longer be appropriate.  The assets are reviewed in total, since the uses of certain assets are provided free of charge for the benefit of the State and its constituents.  The Division assesses the recoverability of the carrying value of capital assets by estimating the expected future net cash flows on an undiscounted basis.  If the sum of the expected future cash flows on an undiscounted basis were to be less than the carrying value of the capital assets, an impairment loss would be recognized for the amount by which the carrying value of the capital assets exceeds its estimated fair value. There is considerable management judgment necessary to determine future cash flows, and accordingly, actual results could vary significantly from such estimates.  The Division did not record any impairment losses on capital assets during 2008.  Refer to Note 4.

 

Services under development

Costs incurred to purchase hardware, third-party software and capitalized costs associated with the development of internal use computer software are included in services under development until the application is placed in service.  Once an application is placed in service, such costs are transferred to capital assets and begin to be depreciated.  The Division assesses the carrying value of services under development at each balance sheet date, or whenever events or changes in circumstances indicate that the carrying value or usability of such assets may no longer be appropriate.  The Division did not record any impairment losses on services under development during 2008.

 

7



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

Deferred contract costs

Deferred contract costs include certain implementation costs incurred to get an online application ready for its intended use prior to the application being placed in service.  Deferred contract costs also include net capital assets where title has been transferred to DIR but where the assets are still in use and maintained by the Division to support its contractual obligation to provide operational management for the State’s electronic portal.  Amortization is computed using the straight-line method over the lesser of (1) the remaining economic life of the contract or (2) the estimated useful life of five years.  Accumulated amortization associated with deferred contract costs at December 31, 2008 totaled $2,488,846.  For the year ended December 31, 2008, amortization expense associated with deferred contract costs was $1,568,474.

 

Revenue recognition

The Division recognizes revenue from providing outsourced government portal services (primarily transaction-based fees) net of the transaction fees due to the government when the services are provided.  Transaction fees are typically priced at a fixed-dollar, per-transaction amount.  A limited number of transaction fees are based on a percentage of the total transaction.

 

On achieving break-even, net revenue as defined in the First Renewal Agreement shall be split 50 percent to DIR and 50 percent to BearingPoint. As of April 2006, BearingPoint reached break-even for TOL Existing. The State’s total revenue share was $14,566,946 for the year ended December 31, 2008.  The Division recognizes revenue net of the State’s total revenue share.

 

Upon BearingPoint achieving break-even, the title and interest to capital assets of TOL Existing projects, consisting of hardware, third party software and internal use computer software, transferred to DIR. All maintenance agreements and the right to operate all capital assets remain with BearingPoint until the termination of the Agreement. Also, until termination of the Agreement, BearingPoint may retain physical possession of the capital assets of existing projects unless DIR directs BearingPoint to transfer to DIR physical possession of such capital assets. If DIR takes physical possession prior to the end of the Agreement, BearingPoint shall no longer have any obligation under the service level agreements with respect to the transferred assets for upkeep of the assets, but shall be entitled to payment in accordance with the Agreement.  At December 31, 2008, net capital assets of $1,283,960 related to TOL Existing projects were included in deferred contract costs.

 

Deferred revenue

To the extent that the Division has billed customers for the obligation to perform future services, such obligations are recorded as deferred revenue until such services have been performed.  Deferred revenue consists of deferrals of the State’s total revenue share and deferrals for maintenance agreements and other services and is recognized ratably over the term of the related service period.

 

Cost of portal revenues

Cost of portal revenues includes direct costs associated with operating the State’s portal on an outsourced basis including employee compensation (including allocations for employee benefits), telecommunications, data processing, merchant fees required to process credit card and automated clearinghouse transactions, maintenance and other costs associated with the provision of dedicated client service.  BearingPoint a llocated charges for employee benefits to cover such costs as employer-paid health insurance, stock based compensation for certain management-level employees, and social security and Medicare contributions, which were incurred at a corporate level within BearingPoint.  Such allocations were based on a direct attribution of payroll costs.  For the year ended December 31, 2008, the Division recognized approximately $3,822,000 in expense related to allocated employee

 

8



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

benefits, which is included in cost of portal revenues in the statement of income.  Management believes that the assumptions and estimates used to allocate employee benefit costs to the Division were reasonable.

 

General and administrative expenses

The Division received certain general and administrative services from BearingPoint and its affiliates.  Such services were performed on a centralized basis and included executive and operations management, technical consultation, human resource management, information technology, security and legal, accounting support, payroll processing, office rent and similar costs.  BearingPoint allocated general and administrative expenses on a proportional basis in relation to the overall project based on certain direct contracts costs, professional compensation and other costs of service.  For the year ended December 31, 2008, the Division recognized approximately $7,278,000 in expense related to these services, which is included in general and administrative expenses in the statement of income.  Management believes that the assumptions and estimates used to allocate general and administrative expenses to the Division were reasonable.

 

Income taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted laws and statutory tax rates applicable to the periods in which differences are expected to affect taxable income.  The provision for income taxes has been allocated to the Division under the separate return method; however, the Division is not a separate legal entity.

 

The Division accounts for uncertain tax positions in accordance with FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 .  Accordingly, the Division does not recognize a tax benefit for uncertain tax positions unless management’s assessment concludes that it is “more likely than not” that the position is sustainable, based on its technical merits.  If the recognition threshold is met, the Division recognizes a tax benefit based upon the largest amount of the tax benefit that is greater than 50 percent likely to be realized.  The Division recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the statement of income.  Refer to Note 5.

 

Indemnification

Interpretation No. 45 of the Financial Accounting Standards Board, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, sets forth the disclosure requirements for most guarantees and clarifies that companies recognize an initial liability for the fair value of the obligations assumed.  Under BearingPoint’s contract with the State, BearingPoint agreed to fully indemnify the State against third party claims that the Division’s services infringe upon the intellectual property rights of others and against claims arising from the Division’s performance or the performance of the Division’s subcontractors under the contract.  The Division has not experienced such claims.  Accordingly, at December 31, 2008, the Division had not accrued any liability on the aforementioned indemnification obligations.

 

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

9



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

Recent accounting pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “ Fair Value Measurements ,” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.  Except for the portion of SFAS No. 157 that addresses nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, which was deferred for one additional year, the Division adopted this standard effective January 1, 2008.  The partial adoption of SFAS No. 157 did not have a significant impact on the Division’s financial statements. The Division adopted the requirements of SFAS No. 157 that address nonfinancial assets and liabilities effective January 1, 2009.  The adoption of SFAS No. 157 did not have a significant impact on the Division’s financial statements.

 

3.               Concentration of credit risk and significant customers

 

Financial instruments that potentially subject the Division to significant concentrations of credit risk consist primarily of cash and accounts receivable.  During November 2008, the Federal Deposit Insurance Corporation adopted the Temporary Liquidity Guarantee Program to strengthen investor confidence and encourage liquidity in the banking system by providing full coverage on non-interest bearing deposit transaction accounts, regardless of dollar amount, for participating banks through December 31, 2009. At December 31, 2008, the Division’s cash was held entirely in domestic non-interest bearing commercial checking accounts.  The Division performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable.  Due to the high credit worthiness of the Division’s customers, the Division considers accounts receivable to be fully collectible.  Accordingly, no allowance for doubtful accounts has been recorded.  The Division did not experience any significant credit losses for the period reported.

 

The highest volume, most commercially valuable service the Division offers is access to motor vehicle records (referred to as DMV) through the portal.  This service accounted for approximately 36% of the Division’s revenue in 2008.  In addition, the Division provides services to the Department of Public Safety and safety inspection stations across the State to access safety inspection data for each vehicle inspected (referred to as Motor Vehicle Inspections, or MVI) through the portal.  This service accounted for approximately 32% of the Division’s revenue in 2008.

 

State agencies and local governments accounted for all of the Division’s revenue for 2008 and all of the Division’s accounts receivable balance at December 31, 2008.  The Department of Public Safety accounted for approximately 43% of total revenues in 2008, and represented approximately 2% of its accounts receivable at December 31, 2008, while the Department of State Health Services accounted for approximately 8% of total revenues in 2008, and represented approximately 54% of its accounts receivable at December 31, 2008.

 

10



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

4.               Capital assets, net

 

Capital assets consisted of the following:

 

 

 

December 31, 2008

 

 

 

 

 

Internal use computer software development costs

 

$

26,383,989

 

Purchased hardware and software

 

7,481,263

 

 

 

33,865,252

 

Less accumulated depreciation

 

(28,299,966

)

 

 

$

5,565,286

 

 

For the year ended December 31, 2008, depreciation expense associated with internal use computer software and purchased hardware and software was $1,975,851 and $884,023, respectively.

 

5.               Income taxes

 

The provision for income taxes consisted of the following:

 

 

 

Year Ended

 

 

 

December 31, 2008

 

Current income taxes:

 

 

 

Federal

 

$

1,152,614

 

State

 

163,139

 

Total

 

1,315,753

 

Deferred income taxes:

 

 

 

Federal

 

1,230,181

 

State

 

174,117

 

Total

 

1,404,298

 

Total income tax provision

 

$

2,720,051

 

 

11



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

Significant components of the Division’s deferred tax assets and liabilities were as follows:

 

 

 

December 31, 2008

 

Deferred tax assets:

 

 

 

Deferred revenue

 

$

565,321

 

Total

 

565,321

 

 

 

 

 

Deferred tax liabilities:

 

 

 

Capitalized internal use computer software development costs

 

2,949,044

 

Deferred contract costs

 

1,166,621

 

Total

 

4,115,665

 

Net deferred tax liability

 

$

3,550,344

 

 

 

 

 

 

The following table reconciles the effective income tax rate indicated by the statement of income and the statutory federal income tax rate:

 

 

 

Year Ended

 

 

 

December 31, 2008

 

Effective federal and state income tax

 

37.0

%

State income taxes

 

(3.0

)

Uncertain tax positions

 

(0.3

)

Other

 

1.3

 

Statutory federal income tax rate

 

35.0

%

 

As of January 1, 2008, the Division’s unrecognized tax benefits were $78,790, all of which would affect the Division’s effective tax rate if recognized. This amount increased by $21,878 during 2008, as the Division considered additional information relating to its uncertain tax positions.  It is expected that the amount of unrecognized tax benefits will change in the next 12 months.  However, the Division does not expect the change to have a significant impact on its results of operations or financial condition.  A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits (included in other long-term liabilities in the balance sheet) for the year ended December 31, 2008 is as follows:

 

 

 

Year Ended

 

 

 

December 31, 2008

 

Balance at January 1

 

$

78,790

 

Additions for tax positions of prior years

 

21,878

 

Reductions for tax positions of prior years

 

 

Settlements

 

 

Expiration of the statute of limitations

 

 

Balance at December 31

 

$

100,668

 

 

The Division recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense in the statement of income. At December 31, 2008, accrued interest and penalty amounts were not material.

 

12



 

TexasOnline

(A Division of BearingPoint, Inc.)

Notes to Financial Statements

December 31, 2008

 

State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return.

 

6.               Commitments and contingencies

 

The Division leased certain equipment under a noncancellable operating lease.  At December 31, 2008, future minimum lease payments under the noncancellable operating lease totaled approximately $1,255,000.  The operating lease expired on June 30, 2009.

 

Rent expense for the operating lease for the year ended December 31, 2008 was approximately $2,509,000.

 

BearingPoint maintained an office lease for the office space utilized by the Division.  Rent expense associated with the office lease is a component of the general and administrative expense allocation charged to the Division.  Refer to Note 2.

 

7.               Subsequent events

 

On February 18, 2009, BearingPoint filed for relief under Chapter 11 of the U.S. Bankruptcy Code.  BearingPoint subsequently entered into a definitive Asset Purchase Agreement dated March 23, 2009 (“Asset Purchase Agreement”) to sell its North American Public Services Unit to Deloitte LLP (“Deloitte”).  Pursuant to the terms of the Asset Purchase Agreement, Deloitte designated NIC Inc., through its indirect wholly-owned subsidiary Texas NICUSA, LLC, as the acquirer of certain designated contracts and assets.  The acquisition, which included the Agreement, the related service level agreements and the Master Work Order Agreement (collectively, the “Acquired Texas Contracts”), was completed on May 29, 2009.  The Acquired Texas Contracts expired on December 31, 2009, except that certain Master Work Order projects expire on August 31, 2012 and other Master Work Order projects expire on August 31, 2014.

 

On July 31, 2009, Texas NICUSA, LLC entered into a new seven-year contract with the State to manage the State’s official website (the “New Texas Contract”). The New Texas Contract commenced on January 1, 2010 and runs through August 31, 2016.  Texas NICUSA, LLC did not begin earning revenues under the New Texas Contract until 2010.  The New Texas Contract has terms substantially different than the Acquired Texas Contracts.

 

13


Exhibit 99.3

 

TexasOnline

(A Division of BearingPoint, Inc.)

 

Unaudited Interim Financial Statements

 



 

TexasOnline

(A Division of BearingPoint, Inc.)

Unaudited Balance Sheets

March 31, 2009 and 2008

 

 

 

March 31,

 

 

 

2009

 

2008

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

1,121,745

 

$

896,020

 

Trade accounts receivable

 

2,324,861

 

2,097,711

 

Prepaid expenses & other current assets

 

722,432

 

406,305

 

Deferred income taxes

 

595,381

 

1,290,045

 

Total current assets

 

4,764,419

 

4,690,081

 

Capital assets, net

 

7,711,664

 

5,257,043

 

Services under development

 

5,659,634

 

4,484,451

 

Deferred contract costs, net

 

4,176,597

 

4,721,040

 

Total assets

 

$

22,312,314

 

$

19,152,615

 

 

 

 

 

 

 

LIABILITIES AND NET ASSETS

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

1,202,810

 

$

1,753,995

 

Accrued expenses

 

3,058,530

 

5,263,757

 

Deferred revenue

 

1,574,207

 

3,388,790

 

Total current liabilities

 

5,835,547

 

10,406,542

 

 

 

 

 

 

 

Deferred income taxes

 

4,378,382

 

3,757,141

 

Other long-term liabilities

 

106,138

 

84,260

 

Total liabilities

 

10,320,067

 

14,247,943

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Net assets

 

11,992,247

 

4,904,672

 

Total liabilities and net assets

 

$

22,312,314

 

$

19,152,615

 

 

The accompanying notes to unaudited financial statements are an integral part of these statements.

 

2



 

TexasOnline

(A Division of BearingPoint, Inc.)

Unaudited Statements of Income

For the Three Months Ended March 31, 2009 and 2008

 

 

 

Three Months Ended March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Portal revenues

 

$

12,609,815

 

$

12,462,784

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Cost of portal revenues, exclusive of depreciation & amortization

 

7,991,228

 

6,751,815

 

General & administrative

 

2,058,498

 

2,013,897

 

Depreciation & amortization

 

1,828,274

 

1,179,105

 

Total operating expenses

 

11,878,000

 

9,944,817

 

Income before income taxes

 

731,815

 

2,517,967

 

Income tax provision

 

264,304

 

848,113

 

Net income

 

$

467,511

 

$

1,669,854

 

 

The accompanying notes to unaudited financial statements are an integral part of these statements.

 

3



 

TexasOnline

(A Division of BearingPoint, Inc.)

Unaudited Statement of Cash Flows

For the Three Months Ended March 31, 2009 and 2008

 

 

 

Three Months Ended March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

467,511

 

$

1,669,854

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation & amortization

 

1,828,274

 

1,179,105

 

Deferred income taxes

 

232,657

 

321,050

 

Changes in operating assets and liabilities

 

 

 

 

 

(Increase) in trade accounts receivable

 

(405,288

)

(11,479

)

Decrease in prepaid expenses & other current assets

 

204,393

 

112,654

 

(Increase) decrease in deferred contract costs

 

(36,793

)

48,003

 

Increase (decrease) in accounts payable

 

(1,886,986

)

856,603

 

Increase (decrease) in accrued expenses

 

(330,141

)

1,770,998

 

Increase (decrease) in deferred revenue

 

89,179

 

(758,432

)

Increase in other long-term liabilities

 

5,470

 

5,470

 

Net cash provided by operating activities

 

168,276

 

5,193,826

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of capital assets

 

(2,349,799

)

(1,734,933

)

Net cash used in investing activities

 

(2,349,799

)

(1,734,933

)

Cash flows from financing activities:

 

 

 

 

 

Transfers (to) from BearingPoint

 

2,117,867

 

(3,486,012

)

Net cash provided by (used in) financing activities

 

2,117,867

 

(3,486,012

)

Net decrease in cash

 

(63,656

)

(27,119

)

Cash, beginning of period

 

1,185,401

 

923,139

 

Cash, end of period

 

$

1,121,745

 

$

896,020

 

 

The accompanying notes to unaudited financial statements are an integral part of these statements.

 

4



 

TexasOnline

(A Division of BearingPoint)

Notes to Unaudited Financial Statements

March 31, 2009 and 2008

 

1.               The Division and basis of presentation

 

TexasOnline, a division of BearingPoint, Inc. (“BearingPoint”), was established to provide operational management for a contractual arrangement between BearingPoint and the state of Texas (the “State”) when BearingPoint was awarded a portal contract to develop, operate and maintain the official Web site for the State. The portal provides businesses and citizens with online services and secure access to electronic information for State agencies and local governments. The development and design of the State’s electronic framework has been the result of a collaborative effort between BearingPoint, the Department of Information Resources (“ DIR”), the contracting agent for the State, and many agencies and organizations across all branches of Texas government and industry.

 

The contract between BearingPoint and DIR, referred to as the Texas Electronic Framework Agreement (the “Agreement”), was executed on May 5, 2000. In connection with the Agreement, BearingPoint entered into related service level agreements with various governmental agencies and entities in the State. Through its TexasOnline division, BearingPoint was responsible for managing and marketing the government portal as well as funding up front investment and ongoing operational costs. The Agreement includes limitations and provisions for the rates BearingPoint can charge and the amount of remuneration to DIR and each government agency.  The Agreement also recognizes that not all governments are able to charge fees for applications. Furthermore, there is flexibility in the Agreement for providing applications that serve the public good or are traditionally offered for free on the portal. Through its TexasOnline division, BearingPoint worked with governments to assess the business case for each individual application and to determine the appropriate funding mechanism. DIR approves all services provided through the portal.

 

The First Renewal Agreement and Second Renewal Agreement were executed on February 9, 2002 and September 1, 2005, respectively. These renewal agreements extended the Agreement to clarify certain provisions of the Agreement and to modify certain terms of the Agreement. The Second Renewal Agreement defined existing projects as of September 1, 2005 as TOL Existing and excluded eFiling as a separate project.  In addition, the Second Renewal Agreement extended the term of the Agreement through December 31, 2009.  Vital Statistics and Motor Vehicle Inspections were new agreements signed September 30, 2005 and June 30, 2006, respectively.  DIR and BearingPoint entered into the Master Work Order Agreement effective January 1, 2008, which consolidated eFiling, Vital Statistics, Motor Vehicle Inspections and any new projects.  In addition, the Master Work Order Agreement extended the Agreement through August 31, 2012 for Master Work Order projects only.

 

On February 18, 2009, BearingPoint filed for relief under Chapter 11 of the U.S. Bankruptcy Code.  BearingPoint subsequently entered into a definitive Asset Purchase Agreement dated March 23, 2009 (“Asset Purchase Agreement”) to sell its North American Public Services Unit to Deloitte LLP (“Deloitte”).  Pursuant to the terms of the Asset Purchase Agreement, Deloitte designated NIC Inc., through its indirect wholly-owned subsidiary Texas NICUSA, LLC, as the acquirer of certain designated contracts and assets.  The acquisition, which included the Agreement, the related service level agreements and the Master Work Order Agreement (collectively, the “Acquired Texas Contracts”), was completed on May 29, 2009.  The Acquired Texas Contracts expired on December 31, 2009, except that certain Master Work Order projects expire on August 31, 2012 and other Master Work Order projects expire on August 31, 2014.

 

On July 31, 2009, Texas NICUSA, LLC entered into a new seven-year contract with the State to manage the State’s official website (the “New Texas Contract”). The New Texas Contract commenced on January 1, 2010 and runs through August 31, 2016.  Texas NICUSA, LLC did not

 

5



 

TexasOnline

Notes to Unaudited Financial Statements

March 31, 2009 and 2008

 

begin earning revenues under the New Texas Contract until 2010.  The New Texas Contract has terms substantially different than the Acquired Texas Contracts.

 

Basis of presentation

The accompanying financial statements present the financial position, results of operations, and cash flows of TexasOnline (the “Division”) and exclude all other affiliate entities or divisions of BearingPoint.  The Division is not a legal entity.

 

Division net assets represent the Division’s accumulated earnings since inception, net of the Division’s receivable from affiliate. Transfers (to) from affiliates represent the net change in the receivable from affiliates during the reporting period.

 

The accompanying financial statements should be read in conjunction with the audited financial statements of the Division for the year ended December 31, 2008, including the notes thereto. Certain footnote disclosure which is included in the notes to the audited financial statements has been omitted from these notes.

 

2.               Summary of significant accounting policies

 

Revenue recognition

The Division recognizes revenue from providing outsourced government portal services (primarily transaction-based fees) net of the transaction fees due to the government when the services are provided.  Transaction fees are typically priced at a fixed-dollar, per-transaction amount.  A limited number of transaction fees are based on a percentage of the total transaction.

 

On achieving break-even for existing projects, net revenue as defined in the First Renewal Agreement shall be split 50 percent to DIR and 50 percent to BearingPoint. As of April 2006, BearingPoint reached break-even for TOL Existing. The State’s total revenue share was $4,127,047 and $4,061,800 for the three months ended March 31, 2009 and 2008, respectively, which is offset against portal revenues in the statements of income.

 

Cost of portal revenues

Cost of portal revenues includes direct costs associated with operating the State’s portal on an outsourced basis including employee compensation (including allocations for employee benefits), telecommunications, data processing, merchant fees required to process credit card and automated clearinghouse transactions, maintenance and other costs associated with the provision of dedicated client service.  BearingPoint a llocated charges for employee benefits to cover such costs as employer-paid health insurance, stock based compensation for certain management-level employees, and social security and Medicare contributions, which were incurred at a corporate level within BearingPoint.  Such allocations were based on a direct attribution of payroll costs.  For the three months ended March 31, 2009 and 2008, the Division recognized approximately $1,076,000 and $777,000, respectively, in expense related to allocated employee benefits, which is included in cost of portal revenues in the statements of income.  Management believes that the assumptions and estimates used to allocate employee benefit costs to the Division were reasonable.

 

General and administrative expenses

The Division received certain general and administrative services from BearingPoint and its affiliates.  Such services were performed on a centralized basis and included executive and operations management, technical consultation, human resource management, information technology, security and legal, accounting support, payroll processing, office rent and similar costs.  BearingPoint allocated general and administrative expenses on a proportional basis in relation to the overall project

 

6



 

TexasOnline

Notes to Unaudited Financial Statements

March 31, 2009 and 2008

 

based on certain direct contracts costs, professional compensation and other costs of service.  For the three months ended March 31, 2009 and 2008, the Division recognized approximately $2,058,000 and $2,014,000, respectively, in expense related to these services, which is included in general and administrative expenses in the statements of income.  Management believes that the assumptions and estimates used to allocate general and administrative expenses to the Division were reasonable.

 

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Recent accounting pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements , which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.  Except for the portion of SFAS No. 157 that addresses nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, which was deferred for one year, the Division adopted the provisions of SFAS No. 157 on January 1, 2008.  The partial adoption of SFAS No. 157 on January 1, 2008 did not have a significant impact on the unaudited financial statements of the Division.  The Division adopted the requirements of SFAS No. 157 that address nonfinancial assets and liabilities effective January 1, 2009.  The adoption of the remaining portion of SFAS No. 157 on January 1, 2009 did not have a significant impact on the unaudited financial statements of the Division.

 

7


Exhibit 99.4

 

Unaudited Pro Forma Combined Financial Statements of NIC Inc. and TexasOnline, a division of BearingPoint, Inc.

 

The accompanying unaudited pro forma combined financial statements have been prepared by NIC Inc. (the “Company”) to reflect its completed acquisition of certain assets from BearingPoint, Inc. (“BearingPoint”), including the TexasOnline project and related agreements, as described in Item 2.01 of the Current Report on Form 8-K filed on May 29, 2009.

 

The unaudited pro forma combined balance sheet as of March 31, 2009, combines the historical consolidated balance sheet of the Company as of March 31, 2009, as filed with the Securities and Exchange Commission (“SEC”) in its quarterly report on Form 10-Q for the quarterly period ended March 31, 2009, with the historical balance sheet of TexasOnline, a division of BearingPoint, giving effect to the acquisition as if it had occurred on March 31, 2009.

 

The unaudited pro forma combined statements of income for the year ended December 31, 2008, and the three months ended March 31, 2009, respectively, combine the historical consolidated statements of income of the Company for the year ended December 31, 2008, as filed with the SEC in its annual report on Form 10-K for the year ended December 31, 2008, and for the three months ended March 31, 2009, as filed with the SEC in its quarterly report on Form 10-Q for the quarterly period ended March 31, 2009, with the historical statements of income of TexasOnline, a division of BearingPoint, for the year ended December 31, 2008 and for the three months ended March 31, 2009, giving effect to the acquisition as if the acquisition had occurred on January 1, 2008.

 

The unaudited pro forma combined financial statements have been prepared based on available information, using assumptions that the Company’s management believes are reasonable. The unaudited pro forma combined financial statements are provided for illustrative purposes only and are not necessarily indicative of the results of operations or financial position that would have been achieved had the transaction been consummated as of January 1, 2008 for the purposes of the unaudited pro forma combined statements of income, and as of March 31, 2009 for the unaudited pro forma combined balance sheet, nor are they necessarily indicative of future results.  As discussed in Note 2 of the notes herein, the Framework Agreement and Service Level Agreements acquired from BearingPoint expired on December 31, 2009. During the third quarter of 2009, the Company entered into a new seven-year contract commencing January 1, 2010 with the state of Texas to manage the state’s official government portal, which contract has terms substantially different than the terms of the contracts acquired by the Company from BearingPoint.  The unaudited pro forma combined financial statements do not reflect any operating efficiencies and associated cost savings that the Company may achieve with respect to the combined companies.

 

The assumptions used and adjustments made in preparing the unaudited pro forma combined financial statements are described in the notes herein, and should be read in conjunction with the historical consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K for the year ended December 31, 2008, and in its quarterly report on Form 10-Q for the three months ended March 31, 2009, as well as the historical financial statements and accompanying notes of TexasOnline, a division of BearingPoint, for the year ended December 31, 2008, and the three months ended March 31, 2009, which are included as Exhibit 99.2 and 99.3, respectively, and other information pertaining to the Company and TexasOnline, a division of BearingPoint, contained in this Form 8-K/A.

 

1



 

NIC Inc.

Unaudited Pro Forma Combined Balance Sheet

March 31, 2009

(in thousands)

 

 

 

 

 

TexasOnline

 

 

 

 

 

 

 

 

 

Net Assets

 

Pro Forma

 

 

 

 

 

 

 

Acquired

 

Adjustments

 

Pro Forma

 

 

 

NIC Inc.

 

(Notes 2 and 3)

 

(Note 3)

 

Combined

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,690

 

$

 

$

(1,500

) (a)

$

45,190

 

Trade accounts receivable

 

34,935

 

 

 

34,935

 

Unbilled revenues

 

428

 

 

 

428

 

Deferred income taxes, net

 

3,923

 

 

 

3,923

 

Prepaid expenses & other current assets

 

2,330

 

111

(c)

 

2,441

 

Total current assets

 

88,306

 

111

 

(1,500

)

86,917

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

6,330

 

 

 

6,330

 

Intangible assets

 

 

 

4,990

 (d)

4,990

 

Deferred income taxes, net

 

5,479

 

 

(1,174

) (b)

4,305

 

Other assets

 

1,277

 

 

 

1,277

 

Total assets

 

$

101,392

 

$

111

 

$

2,316

 

$

103,819

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

40,567

 

$

 

$

 

$

40,567

 

Accrued expenses

 

6,974

 

119

(e)

 

7,093

 

Application development contracts

 

165

 

 

 

165

 

Other current liabilities

 

1,115

 

124

(f)

 

1,239

 

Total current liabilities

 

48,821

 

243

 

 

49,064

 

 

 

 

 

 

 

 

 

 

 

Other long-term liabilities

 

769

 

 

 

769

 

Total liabilities

 

49,590

 

243

 

 

49,833

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock, $0.0001 par, 200,000 shares authorized, 62,920 shares issued and outstanding

 

6

 

 

 

6

 

Additional paid-in capital

 

135,999

 

 

 

135,999

 

Retained earnings (accumulated deficit)

 

(84,203

)

 

2,184

(g)

(82,019

)

Total shareholders’ equity

 

51,802

 

 

2,184

 

53,986

 

Total liabilities and shareholders’ equity

 

$

101,392

 

$

243

 

$

2,184

 

$

103,819

 

 

The accompanying notes to the unaudited pro forma combined financial statement are an integral part of these statements.

 

2



 

NIC Inc.

Unaudited Pro Forma Combined Statement of Income

Year Ended December 31, 2008

(in thousands)

 

 

 

 

 

 

 

Pro Forma

 

 

 

 

 

 

 

 

 

Adjustments

 

Pro Forma

 

 

 

NIC Inc.

 

TexasOnline

 

(Note 3)

 

Combined

 

Revenues:

 

 

 

 

 

 

 

 

 

Portal revenues

 

$

96,795

 

$

49,432

 

$

(16,494

) (h)

$

129,733

 

Software & services revenues

 

3,780

 

 

 

3,780

 

Total revenues

 

100,575

 

49,432

 

(16,494

)

133,513

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of portal revenues, exclusive of depreciation & amortization

 

53,492

 

30,374

 

(10,224

) (h)

73,642

 

Cost of software & services revenues, exclusive of depreciation & amortization

 

2,323

 

 

 

2,323

 

Selling & administrative

 

22,518

 

7,278

 

(2,131

) (h)

27,665

 

Depreciation & amortization

 

3,633

 

4,428

 

(149

) (h),(i),(j),(k)

7,912

 

Total operating expenses

 

81,966

 

42,080

 

(12,504

)

111,542

 

Operating income

 

18,609

 

7,352

 

(3,990

)

21,971

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

695

 

 

 

695

 

Other expense, net

 

(49

)

 

 

(49

)

Total other income

 

646

 

 

 

646

 

Income before income taxes

 

19,255

 

7,352

 

(3,990

)

22,617

 

Income tax provision

 

7,334

 

2,720

 

(1,508

) (n)

8,546

 

Net income

 

$

11,921

 

$

4,632

 

$

(2,482

)

$

14,071

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.19

 

 

 

 

 

$

0.23

 

Diluted net income per share

 

$

0.19

 

 

 

 

 

$

0.22

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

62,531

(o)

 

 

 

 

62,531

(o)

Diluted

 

62,710

(o)

 

 

 

 

62,710

(o)

 

The accompanying notes to the unaudited pro forma combined financial statement are an integral part of these statements.

 

3



 

NIC Inc.

Unaudited Pro Forma Combined Statement of Income

Three Months Ended March 31, 2009

(in thousands)

 

 

 

 

 

 

 

Pro Forma

 

 

 

 

 

 

 

 

 

Adjustments

 

Pro Forma

 

 

 

NIC Inc.

 

TexasOnline

 

(Note 3)

 

Combined

 

Revenues:

 

 

 

 

 

 

 

 

 

Portal revenues

 

$

26,404

 

$

12,610

 

$

(3,750

) (h)

$

35,264

 

Software & services revenues

 

1,006

 

 

 

 

1,006

 

Total revenues

 

27,410

 

12,610

 

(3,750

)

36,270

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of portal revenues, exclusive of depreciation & amortization

 

14,892

 

7,991

 

(2,900

) (h)

19,983

 

Cost of software & services revenues, exclusive of depreciation & amortization

 

616

 

 

 

616

 

Selling & administrative

 

6,271

 

2,059

 

(585

) (h)

7,745

 

Depreciation & amortization

 

936

 

1,828

 

(1,601

) (h),(l),(m)

1,163

 

Total operating expenses

 

22,715

 

11,878

 

(5,086

)

29,507

 

Operating income

 

4,695

 

732

 

1,336

 

6,763

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

41

 

 

 

41

 

Other expense, net

 

(1

)

 

 

(1

)

Total other income

 

40

 

 

 

40

 

Income before income taxes

 

4,735

 

732

 

1,336

 

6,803

 

Income tax provision

 

1,957

 

264

 

505

(n)

2,726

 

Net income

 

$

2,778

 

$

468

 

$

831

 

$

4,077

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.04

 

 

 

 

 

$

0.06

 

Diluted net income per share

 

$

0.04

 

 

 

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

62,796

(o)

 

 

 

 

62,796

(o)

Diluted

 

62,845

(o)

 

 

 

 

62,845

(o)

 

The accompanying notes to the unaudited pro forma combined financial statement are an integral part of these statements.

 

4



 

NIC INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

1.               BASIS OF PRESENTATION

 

The unaudited pro forma combined financial information included herein gives effect to the Company’s acquisition of certain assets from BearingPoint.  The unaudited pro forma combined balance sheet as of March 31, 2009, combines the historical consolidated balance sheet of the Company as of March 31, 2009, as filed with the SEC in its quarterly report on Form 10-Q for the quarterly period ended March 31, 2009, with the historical balance sheet of TexasOnline, a division of BearingPoint, giving effect to the acquisition as if it had occurred on March 31, 2009.

 

The unaudited pro forma combined statements of income for the for the year ended December 31, 2008, and the three months ended March 31, 2009, respectively, combines the historical consolidated statements of income of the Company for the year ended December 31, 2008, as filed with the SEC in its annual report on Form 10-K for the year ended December 31, 2008, and for the three months ended March 31, 2009, as filed with the SEC in its quarterly report on Form 10-Q for the quarterly period ended March 31, 2009, with the historical statements of income of TexasOnline, a division of BearingPoint, for the year ended December 31, 2008 and for the three months ended March 31, 2009, as if the acquisition had occurred on January 1, 2008.

 

The TexasOnline financial statements include allocations of certain indirect corporate expenses incurred by BearingPoint. Allocations for employee benefits include such costs as employer-paid health insurance, stock-based compensation for certain management-level employees, and social security and Medicare contributions, which are incurred at a corporate level within BearingPoint.  Allocations are based on a direct attribution of payroll costs.  These costs are included in the accompanying combined statements of income as cost of portal revenues and were approximately $3.8 million and $1.1 million, respectively, for the year ended December 31, 2008 and the three months ended March 31, 2009.  Management believes that the assumptions and estimates used to allocate employee benefit costs to the Division were reasonable.

 

Allocations for general and administrative expenses include expenses such as executive and operations management, technical consultation, human resource management, information technology, security and legal, accounting support, payroll processing, office rent and similar costs.  Allocations for general and administrative expenses are proportional in relation to the overall project based on certain direct contracts costs, professional compensation and other costs of service.  These costs are included in the accompanying combined statements of income as general and administrative expenses and were $7.3 million and $2.1 million, respectively, for the year ended December 31, 2008 and the three months ended March 31, 2009. Management believes that the assumptions and estimates used to allocate general and administrative expenses to the Division were reasonable.

 

All significant intercompany accounts and transactions have been eliminated.

 

5



 

NIC INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

2.               ACQUISITION OF BUSINESS

 

On May 29, 2009, the Company, through its indirect wholly-owned subsidiary TXNICUSA, LLC, completed the acquisition of certain assets from BearingPoint, including the TexasOnline project and related agreements.  The acquired assets were part of BearingPoint’s North American Public Services Unit which BearingPoint previously agreed to sell to Deloitte LLP (“Deloitte”) pursuant to an Asset Purchase Agreement dated March 23, 2009 (“Asset Purchase Agreement”).  BearingPoint had previously filed for relief under Chapter 11 of the U.S. Bankruptcy Code in February 2009.  Pursuant to the terms of the Asset Purchase Agreement, Deloitte designated the Company as the acquirer of certain designated contracts and assets, and the Company acquired the rights to the designated contracts and the assets directly from BearingPoint.

 

The assets acquired by the Company included all of BearingPoint’s right, title and interest in and to the following:

 

(1)   the Texas Electronic Framework Agreement dated May 5, 2000, as amended and renewed, between the Department of Information Resources, an agency of the state of Texas (“DIR”), and the predecessor to BearingPoint (“Framework Agreement”), and related service level agreements with various governmental agencies and entities in the State of Texas (“Service Level Agreements”) (all of which expired on December 31, 2009);

 

(2)   the Master Work Order Agreement dated May 17, 2008 (“Master Work Order”), including the underlying Master Work Order Projects attached thereto as exhibits (“Master Work Order Projects”), between the DIR and BearingPoint (with certain Master Work Order Projects expiring August 31, 2012 and others expiring August 31, 2014); and

 

(3)   certain contracts with subcontractors and service providers relating to the provision of products and services pursuant to the Framework Agreement, the Service Level Agreements and the Master Work Order. In addition, the Company is licensing from Deloitte certain intellectual property relating to the acquired contracts.

 

The Company paid Deloitte $1.5 million in cash in exchange for the designation of the Company as the acquirer of the designated contracts and assets from BearingPoint.  The Company funded the purchase price from its existing cash resources.  In addition, the Company has designated an affiliate of Deloitte as the subcontractor on certain of the Master Work Order Projects under the Master Work Order, and entered into a Subcontract Agreement (“Subcontract”) with the affiliate of Deloitte.

 

The acquisition was accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations .  Accordingly, net assets were recorded at their estimated fair values.  The fair value of the identifiable assets acquired and liabilities assumed exceeded the fair value of the consideration paid, resulting in a bargain purchase.

 

The TexasOnline historical balance sheet includes only the net assets acquired as of March 31, 2009.  TexasOnline assets acquired by the Company included (a) intangible assets related to the rights to the Framework Agreement and the rights to the Master Work Order and (b) certain prepaid assets.  Liabilities assumed were for accrued expenses and deferred revenue.

 

6



 

NIC INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

The following table summarizes the purchase price allocation of net tangible and intangible assets acquired (in thousands).  The change in the value of net assets acquired between March 31, 2009 and May 29, 2009 is not material.

 

 

 

May 29, 2009

 

 

 

 

 

Intangible assets subject to amortization:

 

 

 

Rights to the Framework Agreement

 

$

3,940

 

Rights to the Master Work Order

 

1,050

 

Total intangible assets

 

4,990

 

Prepaid expenses & other current assets

 

111

 

Accrued expenses

 

(119

)

Other current liabilities

 

(124

)

Deferred tax liability on nonrecurring gain on acquisition of business

 

(1,174

)

Net assets acquired

 

3,684

 

Purchase price

 

1,500

 

Nonrecurring gain on acquisition of business (net of tax)

 

$

2,184

 

 

Upon acquisition, the Company recorded a deferred tax liability of approximately $1.2 million related to the excess of the book value of net assets acquired over the tax basis.

 

Identifiable intangible assets acquired that are subject to amortization include the rights to the Framework Agreement and the rights to the Master Work Order.  The Company used the discounted cash flow method to estimate the fair value of these intangible assets.  Intangible assets are amortized over their estimated useful lives, which approximates the underlying contractual terms of the assets.

 

The following presents the estimated useful lives of identifiable intangible assets acquired for the purposes of these pro forma financial statements:

 

 

 

Useful life

 

Rights to the Framework Agreement

 

7 months

 

Rights to the Master Work Order

 

39 months

 

 

The Company recognized approximately $0.8 million of acquisition-related costs, including legal, accounting, and valuation services, in 2009.  Such amounts are not reflected in the accompanying unaudited pro forma combined financial statements.

 

3.               PRO FORMA FINANCIAL STATEMENT ADJUSTMENTS

 

The following is a summary of pro forma adjustments reflected in the unaudited pro forma combined financial statements:

 

Pro Forma Combined Balance Sheet Adjustments

 

(a)

 

Represents the total cash consideration paid by the Company for the acquired assets from BearingPoint.

 

 

 

 

 

(b)

 

Represents deferred tax liability offset against nonrecurring gain on acquisition related to the excess

 

 

7



 

NIC INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

 

 

of the book value of net assets acquired over the tax basis.

 

 

 

 

 

(c)

 

Represents estimated fair value of prepaid assets acquired.

 

 

 

 

 

(d)

 

Represents estimated fair value of identifiable intangible assets acquired.

 

 

 

 

 

(e)

 

Represents estimated fair value of liability assumed for accrued expenses.

 

 

 

 

 

(f)

 

Represents estimated fair value of liability assumed for deferred revenue.

 

 

 

 

 

(g)

 

Represents nonrecurring gain on acquisition (net of deferred tax liability) due to bargain purchase.

 

 

Pro Forma Combined Statements of Income Adjustments

 

(h)

 

Adjustments to reflect activity with Deloitte and its affiliates as outlined through provisions in the Master Work Order and Subcontract.

 

 

 

(i)

 

Represents incremental intangible asset amortization expense totaling approximately $3.9 million for the year ended December 31, 2008 related to the acquisition of the rights to the Framework Agreement.

 

 

 

(j)

 

Represents incremental intangible asset amortization expense totaling approximately $0.3 million for the year ended December 31, 2008 related to the acquisition of the rights to the Master Work Order.

 

 

 

(k)

 

Represents elimination of depreciation expense totaling approximately $2.8 million for the year ended December 31, 2008, as all capital assets had been transferred to either the state of Texas or Deloitte as of the acquisition date.

 

 

 

(l)

 

Represents incremental intangible asset amortization expense totaling approximately $0.1 million for the three months ended March 31, 2009 related to the acquisition of the rights to the Master Work Order.

 

 

 

(m)

 

Represents elimination of depreciation expense totaling approximately $1.2 million for the three months ended March 31, 2009, as all capital assets had been transferred to either the state of Texas or Deloitte as of the acquisition date.

 

 

 

(n)

 

To record the income tax expense associated with TexasOnline operating results and the pro forma adjustments at a statutory rate of approximately 37.8 percent.

 

 

 

(o)

 

Pro forma combined basic and diluted earnings per common share are based on the Company’s historical weighted average shares outstanding during the year ended December 31, 2008 and the three months ended March 31, 2009.

 

8