NIC (EGOV)

Share-Based Payments

In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP-EITF 03-6-1).  Under FSP-EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.  The two-class method is an earnings allocation formula that treats a participating security as having rights to undistributed earnings that would otherwise have been available to common shareholders.  The Company’s service-based restricted stock awards contain non-forfeitable rights to dividends and are considered participating securities. Upon adoption of this standard in the first quarter of 2009, the service-based restricted stock awards were included in the calculation of earnings per share using the two-class method for the three-month periods ended March 31, 2009 and 2008, respectively.  Unvested service-based restricted shares totaled 1.0 million and 0.8 million at March 31, 2009 and 2008, respectively. Basic earnings per share is calculated by first allocating earnings between common shareholders and participating securities.  The earnings attributable to the common shareholders is divided by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is calculated by giving effect to the dilutive potential common shares outstanding during the period.  The dilutive effect of the stock options and the employee stock purchase plan is determined based on the treasury stock method.  The dilutive effect of the service-based restricted stock awards is based on the more dilutive of the treasury stock method or the two-class method assuming a reallocation of undistributed earnings to common shareholders after considering the dilutive effect of potential common shares other than the participating unvested restricted awards. The adoption of this standard did not have a significant impact on our basic or diluted earnings per share at March 31, 2009 and 2008.  For additional information on our adoption of FSP-EITF 03-6-1 in the first quarter of 2009, refer to Note 1 in the Notes to the Unaudited Consolidated Financial Statements included in this Form 10-Q.

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