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8/14/2019 NIC 2007 Annual Report
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governmentiseverywhereyouare
niCic.2007summ
yaulrepot
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governmentis:
eiCient
ProduCtivestreamlineduser-riendlyCollaborativegreen
everywhereeGovernment is NICs passion,and being everywhere is our goal.
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inanCial&oPeratinghighlights
Fiscal Year Ended December 31, 2006 High LowFirst Quarter $6.60 $5.57Second Quarter $7.52 $5.88Third Quarter $7.09 $4.96Fourth Quarter $5.76 $4.44
Fiscal Year Ended December 31, 2007 High Low
First Quarter $5.82 $4.96Second Quarter $6.94 $5.23Third Quarter $7.70 $6.23Fourth Quarter $8.90 $6.70
Market or the CompanysCommon Stock and RelatedShareholder Matters
Our stock trades on the NASDAQGlobal Select Market under the symbolEGOV. The ollowing table shows
the range o high and low sales pricesreported on the NASDAQ Global SelectMarket or the periods indicated.
Dividend Policy:On January 29, 2007, our Board oDirectors declared a special cash dividend o $0.75per share, payable to shareholders o record as oFebruary 12, 2007. The dividend, totaling approximately$46.7 million, was paid on February 20, 2007, out o theCompanys available cash and marketable securities.
On February 4, 2008, our Board o Directorsdeclared a special cash dividend o $0.25 per share,payable to shareholders o record as o February 18,
2008. The dividend, totaling approximately $15.7million, was paid on February 28, 2008, out o theCompanys available cash and marketable securities.
Any uture determination as to the payment odividends will be made at the discretion o our Boardo Directors and will depend on our operating results,nancial condition, capital requirements, generalbusiness conditions, and such other actors as theBoard o Directors deems relevant.
NOTE:The selected consolidated nancial data setorth on page 3 should be read in conjunction with theconsolidated nancial statements and related notes, andManagements Discussion and Analysis o FinancialCondition and Results o Operations, included in theCompanys Form 10-K or the year ended December 31,2007, led with the Securities and Exchange Commissionon March 17, 2008.
2
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3
Year Ended December 31,
Consolidated Statement o Income Data 2007 Change 2006 Change 2005
Portal revenues $82,451,763 18% $70,008,598 21% $57,875,067Sotware & services revenues $3,303,171 142% $1,367,248 0% $1,367,546Total revenues $85,754,934 20% $71,375,846 20% $59,242,613Operating income $16,126,966 0% $16,148,034 58% $10,191,257Net income $11,955,220 11% $10,739,001 69% $6,363,076Net income per sharebasic $0.19 $0.17 $0.11
Net income per sharediluted $0.19 $0.17 $0.10Weighted average shares outstandingbasic 61,836,530 61,408,552 60,078,841Weighted average shares outstandingdiluted 62,525,249 61,763,093 61,093,788
As o December 31,
Consolidated Balance Sheet Data 2007 Change 2006 Change 2005Cash and cash equivalents $38,235,605 4% $36,744,872 0% $36,901,409Marketable securities $17,600,000 (61%) $45,008,431 120% $20,500,000Working capital $49,796,763 (36%) $77,605,515 43% $51,243,917Current ratio 2.1 2.8 2.6Total assets $111,376,147 (21%) $140,134,447 19% $117,845,448Long-term debt Total shareholders equity $66,864,952 (33%) $99,254,185 17% $85,167,604
Debt to equity ratio Book value per share $1.08 (33%) $1.62 14% $1.42
Year Ended December 31,
Supplemental Disclosures 2007 Change 2006 Change 2005Same-state portal revenue growth 15% 10% 17%Recurring portal revenue percentage 93% 95% 96%Portal gross prot percentage 47% 47% 49%Operating income as a percentage o portal revenues 20% 23% 17%Selling & administrative costs as
a percentage o portal revenues 26% 22% 22%Return on shareholders equity 14% 12% 8%
Depreciation & amortizat ion $2,501,615 23% $2,040,398 27% $1,602,879Capital expenditures $4,876,242 89% $2,584,948 11% $2,327,360Net operating loss carryorward $25,109,731 (36%) $39,112,325 (29%) $55,221,642Eective tax rate 35% 42% 42%Portal state population served at end o year 68,064,404 13% 60,415,354 1% $59,727,778Portal revenue per capita $1.25 9% $1.15 7% $1.08Employee count 418 23% 339 11% 305
This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007 Annual Report on Form 10-K led with the Securities andExchange Commission on March 17, 2008.
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v c
c t p fc k p p.
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governmentisinthevermontsugarbush
Maple syrup production is a time-consuming passion or HaroldTorre. With more than 8,100 tapped maple trees on 400 acres, theVermont native divides his time between managing the sugar worksand running his own precision manuacturing business.
Beckys Farm on Sugar Plum Hill is also a amily aair, and manymembers o Harolds amily spend their ree time supporting the
arms expanding operations. Thanks to Vermont.govs growing arrayo eGovernment servicesincluding vehicle registration renewals orcars, ATVs, and watercratthe Torre amily can bypass standing inline at government oces in avor o spending more time creatingthe most delicious maple syrup youve ever tasted.
www.Vermont.gov
since
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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w w aNIC is the nations leading provider o electronicservices or ederal, state, city, and countygovernments. We create value by putting government
services online that help citizens, businesses, andgovernment agencies communicate more eectively.Since 1992, NIC has used technology to streamlineand simpliy the process o interacting with everylevel o government.
w w dNIC is the ocial eGovernment provider or 21states and more than 2,800 government agenciesacross the United States. We oer nearly 3,900online applications that help governments deliver
valuable services and inormation to constituents24 hours a day and seven days a week.
niC b appcWe specialize in oering fexible businessmodels that help governments deliver in-demandeGovernment services to citizens and businesses.
NICs unique sel-unded business model allowsstate government to oer a broad array o onlineservices at no upront cost to taxpayers. We alsooer customized business models that incorporatexed cost, time & materials, and blended undingapproaches to meet the specic needs o ourgovernment partners.
NIC combines world-class technology andmarketing programs to make renewing a driverslicense, obtaining a building permit, or ling ocialdocuments as easy as checking e-mail.
niC c p pc c .
h w gNIC is committed to delivering sustainable and protable growth by: Winning new state contracts Increasing the usage of current eGovernment services by developing targeted marketing programs Introducing innovative new services in new and existing markets
ComPany
overview
6
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our
values
niC f cc p p, p, c . w :
Focusing on results
Maintaining scal responsibility
Providing secure solutions that saeguard sensitive inormationand protect the public trust
Welcoming diering ideas and opinions
Maintaining a balanced corporate culture that attracts andretains industry-leading talent
Encouraging innovative and entrepreneurial business practicesBehaving in an honest, air, and ethical manner
Respecting and preserving the environment
7
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t p c ,
C p c cp 6.3 c .
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governmentisonColoradoshighways
www.Colorado.gov
since
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Driving saely in Colorado can sometimes be a challenge, especially
when navigating the states high country roads. However, a keyaspect o sae driving in the Rocky Mountain Statekeepinguninsured drivers o the roadis now much easier. Last year,the state and NIC joined orces to build a service that tracks theinsurance status o Colorados nearly 6.3 million registered vehicles.
Colorados motorist insurance inormation database compiles
vehicle coverage inormation rom more than 280 insurancecompanies. This multiaceted service gives Colorado State Patrolocers the ability to veriy motorist insurance on a real-time basisand is also cross-reerenced when each vehicles annual registrationis renewed.
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astaCtsFounded: 1992Headquarters: Olathe, Kansas
Initial Public Oering: July 1999Ticker Symbol: EGOVExchange: NASDAQ Global Select MarketCore Business: Outsourced state government
Web sites and servicesExecutive Team: 36 years o eGovernment leadership
Harry Herington: Chie Executive OcerSteve Kovzan: Chie Financial Ocer
Brad Bradley: Chie Operating Ocer & General Counsel
Employees: 418
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letterto
shareholdersWhen eGovernment was in its inancy almost two
decades ago, a small group o visionaries in the
state o Kansas set out to transorm the relationship
between government and those it serves by nding
new ways to deliver inormation.
In those early days, the e in eGovernment stood
or electronic government, and NIC was ocused
on using technologyincluding dial-up telephoneconnections and text-only computer commandsto
deliver services to end users.
eGovernment expanded rapidly in the 1990s
with the introduction o the graphics-driven Mosaic
browser. As a result, the e in eGovernment changed
to ecient government, which refected the dramatic
increase in processing power that government
leaders could leverage to deliver services aster and
more cost-eectively than through traditional ofine
methods.
Today, NIC manages nearly 3,900 dierent
eGovernment services in 21 states. You may be
surprised to learn that the solutions you provide
touch many aspects o your lie. From the maple
syrup on your breakast table to the trucks youpass each day on the reeway, NICs online services
accelerate the process o acilitating the delivery o
goods, services, and inormation across the country.
We are now in the era o invisible government, in
which government services are oered 24/7/365 via
the Internet, mobile phones, voice-activated telephone
response systems, and point-o-purchase retail
locations. iGovernmentis the next step in the
evolution o online government and demonstrates
NICs ability to oer seamless services through non-
governmental delivery channels.
In past annual reports, we have showcased many
iGovernmentsolutions that integrate government
services into broader oerings. For example, Utahs
On the Spotservice allows merchants like JiyLube to renew vehicle registrations in real-time
and citizens can now drive away with a new license
plate tag as part o a vehicle inspection. While
this years annual report themeeGovernment is
Everywhereaccurately depicts the broad reach o
our solutions, it by no means implies that electronic
government is now ubiquitous. NICs organic growth
t :
h h | Chie Executive Oicer
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across our portal states is impressive, yet we are
still just scratching the surace o the eGovernment
opportunity and look orward to continuing to expand
across the country in 2008 and beyond.
2007 c hNICs leadership in the eGovernment space
continues to deliver consistent results. In 2007, NIC
earned $12.0 million, or 19 cents per share, on total
revenues o $85.8 milliona 20 percent increase
over 2006. Operating income was $16.1 million with
operating cash fow o $24.6 million.
At the heart o our companys success are the
portals we operate on behal o ederal, state, and
local government partners across the country.
Portal revenues or 2007 rose 18 percent over the
previous year to $82.5 million, which is yet another
growth record or a business that consistently
delivers strong results year ater year. Portal gross
margins were 47 percent, which were in line
with expectations and a refection o NICs long-
term commitment to striking a balance between
investing in the uture success o our operations and
delivering returns that our shareholders expect.
c gNIC is proud to have built the largest network o
eGovernment installations in the world. Our long-
term portal management relationships in 21 states
are routinely cited as best practices in successul
collaboration between government and the
private sector. It is an honor to help government
more eectively serve citizens and businesses by
leveraging current and emerging technologies.
At the end o 2006, NIC announced a plan to
urther enhance our ability to serve government
and generate higher levels o growth. The two
major components o this plan were to increase our
investment in sales and marketing to secure more
long-term contracts and to spend appropriately in
NICs existing operations to more eectively launch
high potential services across our partner base.
The rationale or reinvesting in our business was
straightorwardNIC has long been viewed as the
gold standard in the eGovernment space, yet we
had relatively lean sales, marketing, and operationsteams to help sell new business and guide the
uture growth o our portals. In response, we have
strategically added key personnel and invested in
specic marketing programs designed to attract
new business and increase usage or our existing
services. In 2007, our incremental investment was
approximately $3$4 million.
d y o
Im pleased to report that our growth investment
is delivering results. In 2007, NIC signed long-
term portal management contracts with two
statesArizona and West Virginia. These are exciting
engagements or several reasons. Arizona is run by
some o the nations most progressive leaders. Last
year, we displaced Arizonas previous outsourced
portal provider, which is one o the worlds largest IT
iGovernment x p niC c - c.
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companies. Our team in Phoenix has hit the ground
running and we are already working with Governor
Janet Napolitano and her team on an ambitious
eGovernment portal expansion plan.West Virginia is also a terric addition to the
NIC amily. We are ortunate to be working with an
energized team in Charleston that is led by Governor
Joe Manchin and his sta. Governor Manchin
sees eGovernment expansion as a vital economic
development resource or the state, and our portal
sta is moving aggressively to add new services and
eatures to the West Virginia state portal. We are
honored to be part o the team in both Arizona and
West Virginia and look orward to long and mutually
prosperous partnerships in both states.
On the operations side, we have seen great
success in deploying new services across our portal
base. Our new go-to-market approach leverages
NICs portal subject matter experts, success stories,
and national awards to help our partners better
understand the benets o our services that can be
customized instead o rebuilt rom the ground up.
As a result o these eorts, we launched a record
368 new revenue-generating services in 2007, a 35
percent increase over the previous year and equal tointroducing more than one new solution each day.
While we are pleased with 2007s results, I am
the rst to acknowledge that we have ambitious
targets to hit in just three years. At the end o 2007,
NIC served 69 million people across our portal
states and generated approximately $28 million in
non-driver record (non-DMV) revenue. By 2010, our
goals are to increase our population served to 120
million and nearly triple the revenue we receive rom
non-DMV services to $75 million as a result o our
growth investment program.
scc l-t PpNIC is a successul company because we oster
relationships with governments that are standing the
test o time. In an industry that is sometimes dened
by antagonistic government-vendor relationships, NIC
is seen as a trusted partner that delivers consistent
value to government agencies and those they serve.
I am proud to say that or each o our 16 years o
operation, NIC has never had a government partnerail to exercise a contract renewal. Our relationships
with governments are our lieblood, and we never
take our partners or granted. To that end, I want to
thank the states that extended their engagements
with us in 2007Alabama, Idaho, Kansas, Nebraska,
Oklahoma, and South Carolina.
Mandatory contract rebids ater a certain
period o time are part o the state procurement
landscape, which means some o NICs contracts will
automatically be put out to competitive bid each year.
We have won every rebid and compete aggressively
to keep each valued government partner in the NIC
amily. In 2007, we signed a new long-term contract
in Rhode Island ollowing a rebid and thank the
states leaders or continuing to put their trust in NIC.
niC p c c .
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i 2007, pc $4 c fc c
--- p .
x s e s
No other provider can match NICs enterprise portal
oering. We build and manage the largest portolio
o eGovernment solutions in the world, and theperormance metrics highlighted throughout this
report underscore our expertise. In 2007, NICs portals
supported more than 12.7 billion site accesses and
processed 145 million online transactions, up 18
percent over 2006. At the heart o our success is
the ability to securely manage nancial transactions.
To that end, we processed more than $4 billion in
government payments through our state-o-the-art
payment system.
Being an eGovernment specialist gives us a leg
up in an industry lled with companies that have
little or no experience in delivering customized
government services. While it is tempting or
competitors to dramatically simpliy our business into
a turnkey build it, launch it, and walk away solution,
government decision-makers understand that a
successul eGovernment program encompasses a
broad range o disciplines. Ongoing customer service,
security, marketing, payment processing, unding,
policy considerations, public relations, advocacy, and
technology are among the dimensions that must bemastered to deliver rst-rate eGovernment solutions.
NICs eGovernment specialization places us in a
unique and envied leadership position in the industry.
Funding technology improvements is a constant
challenge or any government ocial. What NIC
brings to the table is the ability to deliver a robust
platorm through a variety o customized nancing
approaches. Our sel-unded solution is the most
widespread and oers customizable and fexible
nancing or government leaders who want to pursue
an eGovernment strategy without spending limited
taxpayer dollars on building, managing, and enhancing
inrastructure or online services. This model has been
popular in every economic environment during the
past 16 years, and we are condent that our sel-
unded solution will continue to be requested by a
large percentage o the marketplace.
NIC also operates time & materials and blended
unding contracts with state and local governments
across the country. Providing a variety o fexible
unding solutions is a key component o ourcomprehensive eGovernment portal solution. Quite
simply, no other provider can match NICs enterprise
portal oering or has the experience to deliver the
range o fexible unding solutions that we do.
i e dTechnology is not a static medium, so NIC is always
looking or new ways to deliver solutions. We
approach innovation as a collaborative challenge.
Our employees work very closely with government
partners and the citizens and businesses that use
eGovernment services. We listen to their eedback.
We ask questions. We challenge each other with
questions that start with, What i? or Have we
ever tried?
Then we take what we have learned and use it to
create new solutions that improve and enhance how
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$40.2
2003
$48.5
2004
$57.9
2005
$70
2006
$82.5
2007
P r ( )
government delivers services. We take successul
solutions in one state and encourage our other
partners to customize these services to meet their
specic needs. Its a straightorward approach. Itworks. It is a source o pride or our employees across
the country. And it is helping NIC to better perorm in
our role as a trusted partner to government.
Innovation has driven the development o
hundreds o unique services, many o which have
been eatured in the pages o NICs past annual
reports. This year is no exception. For example,
Rhode Island recently replaced an onerous manual
process by launching an online service that allows
spirits manuacturers to register every package
and label they sell in the state. This rst-o-its-kind
solution has attracted national interest or good
reason. In Arkansas, a new online service allows
transportation companies to search a database o
positive drug and alcohol test results or commercial
drivers. This solution is helping to keep our roads
sae, which is a great source o pride or NIC.
g w 2.0
Nearly every media source is discussing the
explosive growth o Web 2.0 technologies such as
blogs, wikis, Web video, podcasting, Really SimpleSyndication (RSS) eeds, and emerging social
networking platorms like Facebook and MySpace.
The goal o Web 2.0 is to encourage creativity,
collaboration, and two-way communication between
Web sites and Internet users. We are excited about
the potential o Web 2.0 to take eGovernment in new
directions, and several o our government partners
are already testing some o these new technologies.
In Virginia, the Department o Emergency
Management is posting emergency preparedness
how-to videos on YouTube. Governors, elected
ocials, and agency leaders across the nation are
using blogs and wikis as another way to deliver
inormation to citizens. In addition, many o our state
portals use RSS eeds that allow users to customize
the types o inormation they want delivered directly
to their desktop.
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16
NIC has been delivering on the promise o Web
2.0 long beore it became a brand name. For years,
we have been supporting our partners by oering
live online chats with governors, streaming video ogovernment meetings, and other unique solutions.
The goal o eGovernment is to provide value by
enhancing communication between government
and citizens. I Web 2.0 technologies can continue
to be eectively implemented to support the
delivery o inormation, they are worth pursuing.
At the same time, we must resist the temptation
to be dazzled by the bright, shiny objects o Web
2.0. We do not pursue fashy solutions or the sake
o ollowing a trend, and we are working closely
with our government partners to careully analyze
and understand the ongoing impacts o these
technologies.
It is also important to underscore NICs
commitment to Web 1.0, which is the oundation o
well-designed Web sites and easy-to-use interactive
services that have allowed citizens and businesses
to interact more eciently with government or the
last 16 years. As I mentioned earlier, we are still at
the beginning o the eGovernment growth curve and
look orward to using Web 1.0, Web 2.0, and uturegenerations o Web technologies to deliver value-
added online services.
g g
Global climate change is another issue that is high
on the radar screen o government leaders across
the country. Protecting the environment is not an
issue that is owned by any political party or special
interest. What we hear each day rom partners,
prospects, and the people who use our services is
that global climate change is a growing concern.
The good news is that eGovernment has been
part o the solution or 16 years. We like to say that
we were on the Internet when the Internet wasnt
cooland the same can be said or being green.
eGovernment reduces vehicle trac because citizens
and business users are not driving to government
oces to conduct ocial business. Our services
have also reduced the paper fow in thousands o
government agencies. In Maine, or example, not
printing one tax orm eliminated more than 40,000sheets o paper each year rom the states process
fow. Thats equal to saving our trees annually as a
result o a single online service in just one state.
In 2008, we launched a new initiative to
more eectively track and measure the positive
environmental impacts o eGovernment across our
partner states. The data aggregated rom 21 states
and nearly 3,900 online services will show the true
scale o eGovernments environmental benets.
We are condent the results will showcase the
leadership o NIC and our government partners on
this high priority issue.
C niC scc P
As the ounder o a startup company many years
ago, Je Fraser took a courageous risk in believing
that eGovernment could become a viable and
niC , , p kc , p k .
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17
$18.6
2003
$23.7
2004
$28.4
2005
$32.8
2006
$38.8
2007
P g Pf ( )
successul business. Quite simply, NIC would not
exist i it were not or Jes vision, perseverance,
and commitment to nding a more eective way
or government to serve its citizens and businesses.Je announced his retirement as Chie Executive
Ocer this February, and I want to personally thank
Je or everything he has done to build NIC into
the industry-leading company it is today.
I have worked closely with Je and the NIC
Board o Directors or the last 13 years to shape
and evolve our eGovernment strategy. It is an honor
to serve as CEO and continue orward with our
outstanding management team as we execute
on our ambitious plan to accelerate NICs growth
trajectory.
I also want to thank our employees or their
ongoing commitment to excellence. NIC has the
most talented, intelligent, and passionate workorce
in the industry, and it is a pleasure to work with this
outstanding team.
Each year, we rearm our commitment to being
the best partner government has ever worked
with as well as the best place our employees have
ever worked. By doing so, we strive to be the best
investment our investors have ever made. NICstrives to meet these commitments every day by
building the worlds most ecient, eective, and
user-riendly eGovernment portals and services.
Thank you again or your support in 2007, and
we look orward to 2008.
Harry Herington
Chie Executive Ocer
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18
ec , 10,000 p
c K..
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19
governmentisinthedoCtorsoiCeHealth care proessionals are required to keep their credentials
current, and Kansas.gov oers a wide range o online licenserenewal services to simpliy the process. Since 2001, nearly75,000 nursing licenses have been renewed over the Internetthrough the ocial state portal.
Debbie Schwartz is a registered nurse who uses the onlineservice to renew her proessional license. It was very easy, very
straightorward, and took about ve minutes to complete. Theonline nursing license renewal service creates one less hassle orme to deal with. Reducing Debbies administrative workload allowsher to ocus more on patient care, including a regular checkup witha cheerul Miss Zoe.
www.Kansas.gov
since
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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20
satisiedgovernmentusersareeverywhere
a p, I know how wonderul it is to haveemployees whom you know will perorm their jobs withnothing but perection. Congratulations to mt.gov orhaving such an outstanding customer service sta.
tk or building Kentucky.govs no pass/nodrive online service. I have been impressed by yourteams level o proessionalism, extremely strong workethic, and dedication to providing quality Web portal
solutions or governmental agencies.
t p . I regularly accessmany government and public service Web sites orinormation and eHawaii.gov was, by ar, the most user-riendly site I have ever experienced. Well done!
m k to OK.gov or its excellent work on theOklahoma Ethics Commissions campaign reportingsystem. The service has reduced the amount o workor the agency and we truly value the training theportal sta provided to our employees and volunteers.
v. is the best source or timely electionresults. I checked other sites out o habit and did notnd inormation about the race I wanted. I visited the
Virginia portal and the results were exactly whereI expected to locate them. Thanks or all you do toshare important and timely news.
i p p,x kc, c
p wp .
20
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21
v vehicle tag renewal service is amazing.It took less time to register online than it wouldve towrite and mail a check. Thank you or oering thispain-ree service on the Internet.
m k to the Nebraska.gov team or yourdiligent work in developing and bringing our agencysnew Web site online.
t health licensing renewal service isworthy o praise. Ive gone through the online renewalprocess in another state and it was a mess. Yourinstructions and links are clear and easy to use.Thanks or making this an easy process.
m PayTixx service is so very easy to use.Although I take no great pleasure in paying my sonsspeeding tickets, this is an excellent service just thesame.
r i beverage alcohol label renewalsystem excels in the areas o eCommerceadvancement, communications, transparency, andregulatory reorm. This service refects a blue
sky concept warranting a blue ribbon or itsaccomplishments. It takes a uturistic approach tomeeting decades-old requirements.
m Ptxxc . ai k p p
pck, xc c j .
21
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22
2007highlights
JanuarymarChaPril
may
22
Alabama Interactive is awarded a portal management contract extension by the state o Alabama. NIC declares a $0.75 per share special cash dividend or shareholders o record on February12, 2007.
Idaho Inormation Consortium is awarded a portal management contract extension by the state o Idaho.
Oklahoma Interactive is awarded a portal management contract extension by the state o Oklahoma.
Kansas Inormation Consortium is awarded a portal management contract extension by the state o Kansas.
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23
JulyaugustsePtember
novemberdeCember
23
Arizona selects NIC to build and manage its ocial government portal. South Carolina Interactive is awarded a portal management contract extension by the state o South Carolina.
Following a competitive rebid, Rhode Island signs a new long-term portal management contract with Rhode Island Interactive. NIC is named the best state & local government IT services provider in the Center or Digital Governments Best Fit Integrator awards.
Four NIC state partners place in the top 10 in Brown Universitys eighth annual survey o eGovernment perormance.
Nine NIC eGovernment partners are honored by the Center or Digital Governments Best o the Webawards or portal and Web site excellence, and eight o NICs state partners nish in the top 10.
West Virginia selects NIC to build and manage its ocial government portal.
Financial services executive Alexander M. Kemper is elected as an independentmember to the NIC Board o Directors.
Nebraska Interactive is awarded a portal management contract extension by the state o Nebraska.
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t cc c c pcp cc c p c .
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governmentisdeliveringreight
www.Arkansas.gov
since
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
For one o the largest transportation logistics companies in North
America, vehicle saety is a top priority. J.B. Hunt TransportationServices, Inc., employs approximately 12,000 drivers to deliverreight across the country. Drivers are the most important people atour company and we must ensure they are sae vehicle operators,said David Whiteside, J.B. Hunts Senior Director o Compliance.
J.B. Hunt lobbied the state o Arkansas to pass legislation that
set a high standard or commercial driver saety. The Arkansas.govcommercial driver alcohol and drug testing database allowstransportation companies to post and search online substanceabuse test results or its drivers, which increases saety or everyoneon the road.
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niCbythenumbers
2,863
45$4 b$1.25
21
36835%12.7 b
Number o ederal, state, and local government agenciesserved by NIC
Number o times NICs government partners were recognized in
competitions and independent surveys in 2007Value o nancial transactions processedthrough NICs secure payment system in 2007
Portal revenue per capita in 2007
Number o states that outsource their ocialeGovernment portals to NIC
Number o new revenue-generating services launched byNIC portals in 2007
Increase in the number o new revenue-generating serviceslaunched by NIC portals in 2007 vs. 2006
Number o site accesses at NIC-supportedgovernment Web sites in 2007
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145 m
18%79,97180%
1,2,3,5
18%3,896$0.75
Number o eGovernment transactions processed byNIC portals in 2007
Increase in the number o eGovernment transactions
processed by NIC portals in 2007 vs. 2006Number o high-volume subscribers to NICseGovernment services
Percentage o the ten 2007 Best o the Web state naliststhat are NIC partners
Respective rankings o Utah, Maine, Virginia, andKentucky in the 2007 Best o the Web competition
Year-over-year increase in NICs portal revenues
Number o interactive services built and managed by NIC
Some gures cited have been adjusted or rounding
and are the latest available as o March 2008. All
numbers are rom NIC internal sources.
Per share special cash dividend distributed to shareholdersin February 2007
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ri.
c --c p .
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ourgovernmentPartnershiPsa www.Alabama.gov
az www.AZ.gov
ak www.Arkansas.govC www.Colorado.gov
ec C www.FEC.gov
h www.eHawaii.gov
i www.Idaho.gov
i www.IN.gov
ip & m C, in www.IndyGov.biz
i www.Iowa.gov
i lc g www.IowaTaxandTags.gov
K www.Kansas.gov
Kck www.Kentucky.gov
m www.Maine.gov
mc sc s www.Michigan.gov/sos
m www.mt.govok www.OK.gov
nk www.Nebraska.gov
r i www.RI.gov
s C www.SC.gov
t www.Tennessee.gov
u www.Utah.gov
v www.Vermont.gov
v www.Virginia.gov
w v www.WV.gov
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s P & scDevelopment and management oocial state government Web sites
lc g P& scDevelopment and management oocial local government Web sites
vc g PDevelopment and management o ocialmulti-jurisdictional government Web sitesand services
g s & sc
Document management systems,electronic ling services, ethicscompliance portals, and eGovernmentapplication development
P--Pcg sDevelopment and management o ocialeGovernment services that are oered atthird party locations, including businessesand public terminals
maP Key
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inanCialinormationThe ollowing nancial statements have beencondensed to make them more readable. A
detailed nancial evaluation may require moreinormation than is included in this summaryannual report. More comprehensive nancialinormation is provided in NICs 2007 AnnualReport on Form 10-K, led with the Securitiesand Exchange Commission on March 17, 2008.Copies can also be requested by contactingNICs Investor Relations Department.(See Corporate inormation on page 40.)
32
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rp mThe management o NIC Inc., has prepared theaccompanying condensed consolidated nancialstatements as o December 31, 2007 and 2006,
and or the years ended December 31, 2007, 2006,and 2005, and is responsible or their integrityand objectivity. Management maintains a systemo internal control over nancial reporting that isdesigned to provide reasonable assurance that,among other things, transactions are properlyexecuted and nancial records and reports arereliable. Through its Audit Committee, the NICBoard o Directors reviews the Companys nancialand accounting policies, practices, and reports.Managements Report on Internal Control OverFinancial Reporting appears in NICs 2007 Annual
Report on Form 10-K.
Harry H. Herington Stephen M. KovzanChie Executive Ocer Chie Financial Ocer
rp ip rPc acc To the Board o Directors and Shareholders o NIC Inc.: We have audited, in accordance with the standards
o the Public Company Accounting Oversight Board(United States), the consolidated nancial statementso NIC Inc. and its subsidiaries as o December 31,2007 and 2006, and or each o the three yearsin the period ended December 31, 2007, and inour report dated March 17, 2008, we expressed anunqualied opinion with a consistency reerence onthose consolidated nancial statements relating to themanner in which the Company accounts or uncertaintax positions eective January 1, 2007 and share-based compensation eective January 1, 2006.
The consolidated nancial statements (not presentedherein) appear in Item 8 o N IC Inc.s Annual Report on
Form 10-K or the year ended December 31, 2007. In our opinion, the inormation set orth in theaccompanying condensed consolidated nancialstatements is airly stated, in all material respects, inrelation to the consolidated nancial statements romwhich it has been derived.
Kansas City, MissouriMarch 17, 2008
33
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CondensedConsolidated
statementsoinCome
Year Ended December 31, 2007 2006 2005
Revenues:
Portal revenues $82,451,763 $70,008,598 $57,875,067
Sotware & services revenues 3,303,171 1,367,248 1,367,546
Total revenues 85,754,934 71,375,846 59,242,613
Operating expenses:
Cost o portal revenues, exclusiveo depreciation & amortization 43,648,482 37,249,358 29,448,091
Cost o sotware & services revenues,
exclusive o depreciation & amortizat ion 1,883,478 596,279 5,348,438
Selling & administrative 21,594,393 15,341,777 12,651,948
Depreciation & amortizat ion 2,501,615 2,040,398 1,602,879
Total operating expenses 69,627,968 55,227,812 49,051,356
Operating income 16,126,966 16,148,034 10,191,257
Other income (expense):
Interest income 1,741,107 2,401,504 704,614Gain (loss) on aliate investments 508,209 (96,954)
Other expenses, net (16,010) (35,187) (2,971)
Total other income 2,233,306 2,269,363 701,643
Income beore income taxes 18,360,272 18,417,397 10,892,900
Income tax provision 6,405,052 7,678,396 4,529,824
Net income $11,955,220 $10,739,001 $6,363,076
Basic net income per share $0.19 $0.17 $0.11
Diluted net income per share $0.19 $0.17 $0.10
Weighted average shares outstanding
Basic 61,836,530 61,408,552 60,078,841
Diluted 62,525,249 61,763,093 61,093,788
This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007 Annual
Report on Form 10-K led with the Securities and Exchange Commission on March 17, 2008.
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Condensed
ConsolidatedbalanCesheets
35
December 31, 2007 2006
Assets
Current assets:
Cash and cash equivalents $38,235,605 $36,744,872
Marketable securities 17,600,000 45,008,431
Trade accounts receivable 28,149,698 28,729,038
Unbilled revenues 720,131 1,068,940
Deerred income taxes 6,746,355 5,289,680Prepaid expenses & other current assets 2,142,673 1,644,816
Total current assets 93,594,462 118,485,777
Property and equipment, net 6,110,075 3,790,490
Deerred income taxes 10,808,941 17,434,583
Other assets 862,669 423,597
Total assets $111,376,147 $140,134,447
Liabilities and shareholders equity
Current liabilities:
Accounts payable $36,497,922 $34,201,937
Accrued expenses 6,847,523 5,911,197
Application development contracts 352,969 512,618Other current liabilities 99,285 254,510
Total current liabilities 43,797,699 40,880,262
Other long-term liabilities 713,496
Total liabilities 44,511,195 40,880,262
Commitments and contingencies
Shareholders equity:
Common stock, no par, 200,000,000 shares authorized
62,031,312 and 61,573,900 shares issued and outstanding
Additional paid-in capital 165,934,316 210,210,393
Accumulated decit (98,901,689) (110,788,533)67,032,627 99,421,860
Less treasury stock (167,675) (167,675)
Total shareholders equity 66,864,952 99,254,185
Total liabilities and shareholders equity $111,376,147 $140,134,447
This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007 Annual
Report on Form 10-K led with the Securities and Exchange Commission on March 17, 2008.
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Condensed
ConsolidatedstatementsoCashlows
Year Ended December 31, 2007 2006 2005
Cash ows rom operating activities:
Net income $11,955,220 $10,739,001 $6,363,076
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & amortizat ion 2,501,615 2,040,398 1,602,879
Stock-based compensation expense 1,676,890 1,331,603
Accretion o discount on marketable securities (8,431)
Application development contracts (159,649) (748,013) 1,260,631
Deerred income taxes 6,220,176 7,179,104 4,150,803
Gain (loss) on aliate investments (508,209) 96,954
Impairment loss on property and equipment 164,075 Loss on disposal o property and equipment 16,258 35,187
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable 579,340 (6,486,896) (4,659,030)
Decrease in unbilled revenues 348,809 2,523,859 2,211,223
(Increase) decrease in prepaid expenses
& other current assets (497,857) 46,588 (320,014)
(Increase) decrease in other assets (10,089) 19,117 50,473
Increase in accounts payable 2,295,985 9,744,035 10,064,135
Increase (decrease) in accrued expenses 593,141 (731,384) 376,804
Increase (decrease) in other current liabilities (155,706) (62,220) 165,426
Increase in other long-term liabilities (405,608)
Net cash provided by operating activities 24,614,391 25,718,902 21,266,406
This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007 Annual
Report on Form 10-K led with the Securities and Exchange Commission on March 17, 2008.
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Year Ended December 31, 2007 2006 2005
Cash ows rom investing activities:
Purchases o property and equipment (4,876,242) (2,584,948) (2,327,360)
Proceeds rom sale o property and equipment 13,672
Capital ized internal use sotware development costs (567,946) (239,492) (68,994)
Purchases o marketable securities (18,000,000) (24,500,000) (35,500,000)
Sales and maturities o marketable securities 45,408,431 15,000,000
Cash and cash equivalentsrestricted 3,000,000
Proceeds rom sale o aliate 508,209
Net cash provided by (used in) investing activities 22,486,124 (27,324,440) (19,896,354)
Cash ows rom fnancing activities:Cash dividends on common stock (46,729,871)
Proceeds rom sale o treasury stock 64,965
Proceeds rom employee common stock purchases 239,746 157,398 121,761
Proceeds rom exercise o employee stock options 880,343 1,226,638 4,640,928
Net cash provided by (used in) nancing activities (45,609,782) 1,449,001 4,762,689
Net increase (decrease) in cash and cash equivalents 1,490,733 (156,537) 6,132,741
Cash and cash equivalents, beginning o year 36,744,872 36,901,409 30,768,668
Cash and cash equivalents, end o year $38,235,605 $36,744,872 $36,901,409
Other cash fow inormation:
Income taxes paid $776,717 $373,793 $450,745
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CondensedConsolidated
statementsoChangesinshareholdersequity
Balance, January 1, 2005 59,301,375 $
Net income
Retirement o treasury stock
Stock options exercised 1,742,099
Issuance o common stock under employee stock purchase plan 30,031
Tax deductions relating to stock options
Balance, December 31, 2005 61,073,505
Cumulative eect o SAB No. 108
Net income
Sale o treasury stock 11,154
Stock options exercised 448,898
Stock-based compensation
Issuance o common stock under employee stock purchase plan 40,343
Balance, December 31, 2006 61,573,900
Cumulative eect o FIN 48
Net income
Cash dividends on common stock
Shares surrendered to pay exercise price o stock options (33,446)
Shares surrendered to upon exercise o
stock options and vesting o restricted
stock to satisy tax withholdings (50,204)
Stock options exercises and restricted stock vestings 488,440 Stock-based compensation
Issuance o common stock under employee stock purchase plan 52,622
Balance, December 31, 2007 62,031,312 $
This nancial inormation should be read in conjunction with the nancial statements and related notes in NICs 2007
Annual Report on Form 10-K led with the Securities and Exchange Commission on March 17, 2008.
Common Stock
Shares Amount
38
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Treasury Stock
Accumulated
Defcit Total
Additional
Paid-in Capital
$200,921,146 $(128,456,174) $(204,497) $72,260,475
6,363,076 6,363,076
(20,449) 20,449
4,640,928 4,640,928
121,761 121,761
1,781,364 1,781,364
207,444,750 (122,093,098) (184,048) 85,167,604
565,564 565,564
10,739,001 10,739,001
50,004 16,373 66,377
1,226,638 1,226,638
1,331,603 1,331,603
157,398 157,398
210,210,393 (110,788,533) (167,675) 99,254,185
(68,376) (68,376)
11,955,220 11,955,220
(46,729,871) (46,729,871)
(246,998) (246,998)
(343,185) (343,185)
1,127,341 1,127,3411,676,890 1,676,890
239,746 239,746
$165,934,316 $(98,901,689) $(167,675) $66,864,952
39
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CorPorateinormation
board o direCtors
J s. ChairmanMr. Fraser, 48, is Chairman o the NICBoard o Directors. He co-oundedNICs initial subsidiary 16 years agoand became an NIC Director in 1998.
a n. bc
Lead DirectorMr. Burtscher, 57, is Chairmano McCarthy Group Advisors, aninvestment advisory rm. He is alsoa Director o NovaStar Financial andGreat Western Bancorporation. Mr.Burtscher became an NIC Director in2004 and was named Lead Directorin 2008.
J l. bc, J.Mr. Bunce, 48, is Senior Advisor toprivate equity investment rm Hellman
& Friedman, LLC, and ManagingDirector o Greyhawk CapitalManagement, LCC. He is also a Directoro Arch Capital Group and severalprivately-held companies. Mr. Buncebecame an NIC Director in 1998.
d J. eGovernor Evans, 83, is Chairman oDaniel J. Evans Associates, a publicpolicy consulting rm, and previouslyserved as Governor and U.S. Senatoror the state o Washington. He isalso a Director o Costco WholesaleCorporation and ArchimedesTechnology Group. He became an NICDirector in 1998.
r C. hMr. Hartley, 60, is a co-ounder o NICand ormer President o The HartleyInsurance Group. He is also a Directoro the Empire District E lectric Company.He became an NIC Director in 1998.
h h. hMr. Herington, 48, is Chie ExecutiveOcer o NIC and previously servedas the Companys President, ChieOperating Ocer, and Executive Vice
President o Portal Operations. Hebecame an NIC Director in 2006.
ax C. KpMr. Kemper, 42, is Chairman o TheCollectors Fund, a private equityund, and ormer Chairman and ChieExecutive Ocer o Perect Commerceand UMB Financial Corporation.He is a Director o UMB FinancialCorporation and several privately-heldcompanies. He became an NIC Directorin 2007.
P wGovernor Wilson, 74, is a Principal atBingham Consulting Group, a businessconsulting rm. He previously servedas Governor and U.S. Senator or thestate o Caliornia and Mayor o SanDiego. He is also a Director o TheIrvine Company and U.S . TelepacicCorporation. He also serves on theboard o advisors or Thomas WeiselPartners. Governor Wilson became anNIC Director in 1999.
a CArt N. BurtscherChairJohn L. Bunce, Jr.Daniel J. EvansAlexander C. Kemper
Pete Wilson
Cp CArt. N. BurtscherChairJohn L. Bunce, Jr.Daniel J. EvansAlexander C. KemperPete Wilson
Cp gc &n CArt N. BurtscherChairJohn L. Bunce, Jr.Daniel J. Evans
Alexander C. KemperPete Wilson
Cc b dcSigned, condential, and anonymouscommunications to NICs Board oDirectors should be sent via e-mail [email protected] or in writing to:
Board o DirectorsNIC Inc.25501 West Valley ParkwaySuite 300Olathe, Kansas 66061
The Boards committee charters, theCompanys Code o Business Conducto Ethics, and governance guidelinesmay be ound on the Companys Website at www.nicusa.com/investorandmay be obtained in print by contactingthe Investor Relations Department [email protected] or (877) 234-EGOV.
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shareholderinormation
a mThe Annual Meeting o NIC Inc. willbe held on May 6, 2008, at 10:00a.m., CDT, at the Sheraton OverlandPark Hotel at the Convention Center,6100 College Boulevard, OverlandPark, Kansas.
A ormal notice, together with theproxy statement and proxy orm, willbe mailed in advance o the meetingto all shareholders o record entitledto vote. Shareholders are encouragedto attend the meeting, but thoseunable to do so are asked to signand return the proxy orm.
sck lNIC Inc.s common stock is tradedon the NASDAQ Global Select
Market under the symbol EGOV.As o March 10, 2008, there were63,232,755 shares outstanding.
r t aComputershare250 Royall StreetCanton, MA 02021(800) 884-4225www.computershare.com
i rSecurities analysts and investors areencouraged to contact the Companywith questions or requests orinormation. Copies o NICs AnnualReport on Form 10-K, QuarterlyReports on Form 10-Q, and otherpublications are available withoutcharge upon written request. Inquiresshould be directed to:
Nancy BeatonDirector o Communications &Investor Relations25501 West Valley ParkwaySuite 300Olathe, Kansas 66061(913) 754-7054(877) [email protected]
These documents can also be viewedonline at www.nicusa.com/investor.
oiCers
h h. hChie Executive OcerAge 48
sp m. KzChie Financial OcerAge 39
w . b, J.
Chie Operating Ocer and GeneralCounselAge 53
indePendentregistered PubliCaCCountants
PricewaterhouseCoopers LLP1055 Broadway, 10th FloorKansas City, Missouri 64105(816) 472-7921www.PwC.com
outside Counsel
Stinson Morrison Hecker LLP1201 Walnut Street, Suite 2900Kansas City, Missouri 64106-2150(816) 842-8600www.stinson.com
Credits
w pc:
Chris NeVice President o Marketing
d:modern8Salt Lake City, Utahwww.modern8.com
Pp:Amy MurowPark City, Utah
P:
Paragon PressSalt Lake City, Utahwww.paragonpress.com
trademarKs ®isteredserviCe marKs
NIC Inc. is a registered service marko NIC Inc. The NIC logo and ThePeople Behind eGovernment areregistered trademarks o NIC Inc.Certain other names and logosprotected by trademark appear
in this report. Rather than list thenames and entities that own thesetrademarks or insert a trademarksymbol with each mention o thetrademark, NIC Inc. states that it isusing the names only or editorialpurposes and to the benet o thetrademark owner with no intention oinringing upon that trademark.
2008 NIC Inc. NIC is an equalopportunity employer. Printed in the
U.S.A.
41
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appc A service that allows a user
to interact electronically with government.
b A business model
that allows governments to pay or
eGovernment services with more than one
unding approach.
b A Web site that provides
commentary or news on a particular subject
and oten combines text, images, and links
to other blogs and Web sites. Many blogs
also eature an interactive ormat that allows
readers to leave comments.
C m s (Cms)
A system that allows users to build and
manage Web sites without requiring
technical knowledge or complex sotware
programs.
C Citizens, businesses, and
government employees who use NICs
online services.
C-b i Also
called one stop shops, these eGovernment
services allow constituents to interact
seamlessly with more than one government
entity. Example: Court records rom 185
county and circuit courts in Nebraska can
be accessed online through the states
integrated JUSTICE system.
dmv (dp m vc)r Revenues generated through
the purchase o driver histories by the
insurance industry.
g A platorm or delivering
government services via the Internet,
telephone, personal digital assistant, and
point-o-purchase locations.
g b A government-
appointed entity that provides oversight or
eGovernment portal operations. A typical
governing board has both public and private
sector representation and develops the
policies, establishes the ee structure, and
sets all priorities or the portal.
g g The practice o
using technology and business process
improvement to reduce governments
impact on the environment.
i acc The
development and categorization o Web site
content so it can be easily accessed by users.
n-dmv r Revenues
generated through all eGovernment services
other than driver histories.
o--C P When
government oces use card-swipe
technology to accept credit card payments
that are processed through NICs secure
payment management system.
P A ederal, state, county, or city
government that works in cooperation with
NIC to deliver services electronically.
P m s NICs
comprehensive payment processing,
reconciliation, and accounting solution.
P d a (Pda)
Web-accessible technologies, including
mobile phones, digital calendars, and
handheld organizers.
The ollowing terms are used regularly in the eGovernment industryand many are reerenced in this annual report.
governmentglossary
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43
Pc Custom digital audio programs
that are distributed over the Internet or
playback on portable music players and
personal computers.
P--Pc An online service
accessible rom a sales terminal that allows
retail employees to oer eGovernment
applications directly to in-store customers.
Example: Outdoor enthusiasts in six
states can obtain hunting and fshing
licenses directly rom retailers through
NICs point-o-purchase solution.
P A central Web site through which
a wide range o government services can be
accessed.
r P Cp A measurement
o the revenue generated per citizen across
the total state population NIC serves.
r sp sc (rss)
A amily o Web eed ormats used to
publish requently updated content
(including blog entries, news headlines, and
podcasts) to allow users to keep up with
Web sites in an automated manner.
s- This business model allows
governments to oer eGovernment services
without using upront taxpayer unds. NIC
collects a nominal transaction ee or a
limited number o high-volume applications
to cover the costs o building and managing
online services on behal o state and local
governments across the country.
sc nk Web sites in whichInternet users can create proles and build
personal networks to connect to other users.
scp A eature that allows high-
volume users o eGovernment services to
access value-added portal applications with
a secure login and password.
tc An end-to-end process
in which inormation is transerred
electronically between government and a
constituent.
tc A nominal ee applied
to certain eGovernment services to cover
the cost o building and maintaining online
services.
uCC (u Cc C)
Required registered debt lings that are
typically processed by a states secretary o
state oce.
u The combination o content,
technology unctionality, navigation, andinormation architecture that allows users to
quickly and easily accomplish what they are
trying to do on a Web site.
vc P (v) An
eGovernment portal through which users
can interact with multiple government
agencies through a single site.
Example: Maines Rapid Renewal portal
allows constituents in 128 municipalities
to both process vehicle registration
renewals and pay local excise taxes
through a single Web site.
w 2.0 An emerging trend in Web
development that encourages creativity,
collaboration, and two-way communication
between Internet users by eectively
implementing wikis, blogs, Web video,
podcasts, RSS eeds, and other social
networking technologies.
w v Digital video clips that can
be posted, downloaded, and linked to on the
Internet.
wk Collaborative Web sites that allow
users to create, edit, and link content
together to oer robust online inormation
sources.
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g c aZ..
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governmentisCreatinganewdayinariZona
www.AZ.gov
since
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
The state o Arizona is run by some o the nations most progressivegovernment leaders. eGovernment is an important delivery channelor the state to enhance customer service, eliminate waste, andreduce Arizonas impact on the environment by cutting unnecessaryvehicle travel and paper fow between citizens and government
oces.In 2007, the state displaced the incumbent private sector providerand awarded its government portal contract to NIC. We are alreadyexecuting a plan to urther enhance AZ.gov and look orward to along and mutually benecial partnership with the state o Arizona.
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25501 w v Pks 300o, K 66061
Phone: (877) 234-egovaX: (913) 498-3472web: .c.cnasdaq: egov