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): January 28, 2002
___________________
DIGITAL INSIGHT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-27459 77-0493142
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
26025 Mureau Road, Calabasas, California 91302
(Address of principal executive offices, including zip code)
(818) 871-0000
(Registrant's telephone number, including area code)
_______________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
The financial statements of Virtual Financial Services, Inc., acquired
by the Registrant on January 28, 2002, are included with this Current Report on
Form 8-K/A as pages F-1 through F-12.
(b) Pro Forma Financial Information.
Pro forma financial information is included with this Current Report on
Form 8-K/A as pages F-13 through F-17.
(c) Exhibits.
2.1 Agreement and Plan of Merger, dated as of January 3, 2002, by
and among Digital Insight Corporation, ViFi LLC and Virtual
Financial Services, Inc. (incorporated herein by reference to
the Registrant's Current Report on Form 8-K filed with the SEC
on February 5, 2002).
23.1 Consent of Deloitte & Touche LLP.
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.
Date: February 25, 2002 DIGITAL INSIGHT CORPORATION
By: /s/ Dale R. Walker
----------------------
President and Chief
Operating Officer
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Virtual Financial Services, Inc.
Indianapolis, Indiana
We have audited the accompanying balance sheet of Virtual Financial
Services, Inc. (VIFI) as of December 31, 2001 and the related statements of
operations, shareholders' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of VIFI's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of VIFI as of December 31, 2001 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.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 1, 2002
F-1
VIRTUAL FINANCIAL SERVICES, INC.
BALANCE SHEET
AS OF DECEMBER 31, 2001
ASSETS
------
Current assets:
Cash and cash equivalents...................................................................... $ 145,674
Accounts receivable............................................................................ 1,264,111
Accounts receivable - related party............................................................ 451,548
Refundable income taxes........................................................................ 71,800
Other current assets........................................................................... 137,457
-----------
Total current assets................................................................... 2,070,590
Property and equipment, net of accumulated depreciation of $2,284,303 ........................... 2,396,047
Deferred tax asset............................................................................... 543,950
-----------
Total assets........................................................................... $ 5,010,587
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable............................................................................... $ 1,794,410
Accrued expenses............................................................................... 566,583
Customer deposits.............................................................................. 388,325
Deferred revenue, net of deferred costs of $154,958............................................ 640,910
Current portion of long-term debt.............................................................. 414,512
Current portion of capital lease obligations................................................... 115,023
-----------
Total current liabilities.............................................................. 3,919,763
-----------
Long-term liabilities:
Long-term debt................................................................................. 32,427
Long-term capital lease obligations............................................................ 391,708
Deferred revenue, net of deferred costs of $193,566............................................ 734,823
Other liabilities.............................................................................. 148,000
-----------
Total long-term liabilities............................................................ 1,306,958
-----------
Shareholders' deficit:
Preferred stock, no par value, 50,000,000 shares authorized,
none issued and outstanding
Common stock, no par value, 450,000,000 shares authorized, 900,013.5 shares
issued and outstanding....................................................................... 1,000
Paid-in capital................................................................................ 1,548,603
Accumulated deficit............................................................................ (1,765,737)
-----------
Total shareholders' deficit............................................................ (216,134)
-----------
Total liabilities and shareholders' deficit...................................................... $ 5,010,587
===========
See notes to financial statements.
F-2
VIRTUAL FINANCIAL SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
Revenues:
Network access and connectivity fees........................................................ $ 12,778,524
Project and installation fees............................................................... 1,734,189
Set-up fees................................................................................. 968,959
-------------
Total revenues..................................................................... 15,481,672
Cost of revenues.............................................................................. 8,246,322
-------------
Gross margin.................................................................................. 7,235,350
-------------
Operating expenses:
Research and development.................................................................... 1,570,803
Sales and marketing ........................................................................ 1,656,653
General and administrative.................................................................. 3,091,175
-------------
Total operating expenses........................................................... 6,318,631
-------------
Other income (expense):
Interest income............................................................................. 4,082
Interest expense............................................................................ (127,934)
-------------
Total other expense, net........................................................... (123,852)
-------------
Income before provision for income taxes...................................................... 792,867
Provision for income taxes ................................................................... 203,512
-------------
Net income ................................................................................... $ 589,355
=============
Per share data:
Basic and diluted earnings per share.......................................................... $ 0.65
=============
See notes to financial statements.
F-3
VIRTUAL FINANCIAL SERVICES, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 2001
Common Common Paid-in Accumulated
Shares Stock Capital Deficit Total
------ ----- ------- ------- -----
Balance at December 31, 2000............ 900,000.0 $ 1,000 $ 1,548,063 $ (2,355,092) $ (806,029)
Stock options exercised............... 13.5 - 540 - 540
Net income............................ - - 589,355 589,355
--------- -------- ------------ ------------- -----------
Balance at December 31, 2001............ 900,013.5 $ 1,000 $ 1,548,603 $ (1,765,737) $ (216,134)
========= ======== ============ ============= ===========
See notes to financial statements.
F-4
VIRTUAL FINANCIAL SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
Cash flows from operating activities:
Net income.......................................................................... $ 589,355
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.................................................................... 887,087
Deferred income taxes........................................................... 173,717
Changes in assets and liabilities:
Accounts receivable........................................................... 72,063
Accounts receivable-related party............................................. (289,976)
Refundable income taxes....................................................... 143,605
Other assets.................................................................. 59,481
Accounts payable ............................................................. 301,017
Accrued expenses and other long-term liabilities.............................. 448,224
Customer deposits and deferred revenue........................................ (246,130)
-----------
Net cash provided by operating activities................................. 2,138,443
-----------
Cash flows from investing activities:
Capital expenditures................................................................ (807,393)
Proceeds from sale of property and equipment........................................ 41,776
-----------
Net cash used in investing activities..................................... (765,617)
-----------
Cash flows from financing activities:
Net borrowings under revolving line of credit ...................................... (200,106)
Payments on long-term debt.......................................................... (955,595)
Payments on capital lease obligations............................................... (85,387)
Stock options exercised............................................................. 540
-----------
Net cash used in financing activities..................................... (1,240,548)
-----------
Net increase in cash and cash equivalents............................................. 132,278
Cash and cash equivalents, beginning of year.......................................... 13,396
-----------
Cash and cash equivalents, end of year................................................ $ 145,674
===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.............................................. $ 128,000
Cash paid during the year for income taxes.......................................... $ 50,000
Property acquired under capital lease obligations................................... $ 317,000
See notes to financial statements.
F-5
1. BUSINESS DESCRIPTION
Virtual Financial Services, Inc. ("VIFI or the Company") is an
internet banking financial services provider for various financial
institutions throughout the United States.
Prior to January 28, 2002, VIFI was a closely-held corporation
located in Indianapolis, Indiana. On January 28, 2002, VIFI was acquired
by Digital Insight Corporation, an internet banking service provider
headquartered in Calabasas, California (see Note 11).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - The Company recognizes network access and
connectivity fees as services are provided. These recurring revenues are
based primarily on the number of end users or end user transactions, and
fixed monthly amounts for hosting and maintaining web sites. The Company
performs separate projects and installations outside the scope of the
original services agreement for existing customers and recognizes revenue
as time and expenses are incurred.
The Company defers recognition of set-up fees, and the related
direct incremental costs associated with those fees, and recognizes both
income and expense over the life of the service agreement, generally
three to five years.
Cash Equivalents - Cash and cash equivalents include deposits
with an original maturity of three months or less.
Accounts Receivable - An allowance for uncollectible accounts
receivable was not established at December 31, 2001 as management
believes that it is not considered necessary.
Research and Development - All costs associated with the
continued maintenance, development and support of all service
applications are expensed as incurred.
Property and Equipment - Property and equipment are stated at
cost less accumulated depreciation and consists primarily of office and
computer equipment. Depreciation is computed by the straight-line method
over the estimated useful life of the assets. Depreciation expense was
$887,087 for the year ended December 31, 2001.
Income Taxes - The Company records income tax expense based on
the amount of taxes due on its tax returns plus deferred taxes computed
based on the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities,
using enacted tax rates. A valuation allowance is recorded, if necessary,
to reduce deferred tax assets to the amount considered more likely than
not to be realized.
Use of Estimates in the Preparation of Financial Statements -The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
F-6
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the reporting period.
Actual results could differ from those estimates.
Long-Lived Assets - The Company identifies and records
impairment losses on long-lived assets whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability of these assets is determined by comparing
the forecasted undiscounted cash flows attributable to such assets to
their carrying value. If the carrying value of the asset exceeds the
forecasted undiscounted cash flows, then the assets are written down to
their fair value. Fair value is determined based on discounted cash flows
or appraised values, depending upon the nature of the assets. To date,
there have been no such impairments.
Segment Information - The Company has determined that it has a
single reportable segment which is providing services to financial
institutions including the following service offerings: internet banking,
credit and credit card transaction processing, and web site hosting.
These services are provided to various financial institution customers.
Concentration of Credit Risk - As of and for the year ended
December 31, 2001 one financial institution accounted for approximately
16% of total accounts receivable and 18% of the total revenues,
respectively. VIFI performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary, but generally does not require collateral. VIFI believes that
any risk of loss is significantly reduced due to the number of its
customers and diverse geographic areas.
Earnings Per Share - Earnings per share of common stock is
based on the weighted average number of common shares outstanding during
the year. The following table presents a reconciliation of VIFI's basic
and weighted average common shares:
Basic earnings per share:
Weighted average common shares....................................... 900,011
Diluted earnings per share:
Weighted average common shares....................................... 900,011
Dilutive effect of stock options..................................... 1,196
-------------
Weighted average common and
incremental shares................................................... 901,207
=============
Fair Value of Financial Instruments - VIFI's financial
instruments included cash and cash equivalents, receivables, accounts
payable, accrued expenses and other liabilities. The carrying value of
these financial instruments approximates fair value due to their short-
term nature. The carrying value of VIFI's capital lease obligations,
revolving line of credit, and long-term debt approximates their fair
values given their market rates of interest and maturity schedules.
New Accounting Standards - Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities" requires companies to record derivatives on their
balance sheets as assets or liabilities, measured at fair value. Under
SFAS No. 133, gains or losses resulting from changes in the fair values
of derivatives are to be reported in the statement of operations or as a
deferred item, depending on the use of the derivatives and whether they
qualify for hedge accounting.
F-7
The Company adopted SFAS No. 133 on January 1, 2001. To date, the Company
has not engaged in any hedging activity. Application of SFAS No. 133 did
not have any impact on the Company's financial reporting.
In July 2001, SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets" were issued. SFAS No. 141
establishes new standards for accounting and reporting requirements for
business combinations initiated after June 30, 2001 and prohibits the use
of the pooling-of-interests method for combinations initiated after June
30, 2001. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment only approach. Upon adoption of SFAS
No. 142, goodwill will be tested at the reporting unit annually and
whenever events or circumstances occur indicating that goodwill might be
impaired. Amortization of goodwill, including goodwill from past business
combinations will cease. The adoption date for SFAS No. 141 and 142 will
be January 1, 2002. The Company anticipates that SFAS No. 141 and 142
will not have any impact on the results of its operations and financial
position.
In August 2001, SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived
assets to be disposed of was issued. SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of", and also supersedes the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions", for segments of a business to be disposed of, and also
amends ARB No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a temporarily controlled subsidiary. The
adoption date for SFAS No. 144 is January 1, 2002.
3. REVOLVING LINE OF CREDIT
VIFI maintains a $2,500,000 revolving line of credit facility
with a bank due July 5, 2002. Interest is payable monthly at the bank's
prime rate (4.75% at December 31, 2001). A related company owned by the
majority shareholder is a co-borrower under this revolving line of credit
facility. At December 31, 2001, outstanding borrowings were $1,673,106,
and are payable by the co-borrower for which VIFI is contingently liable.
Borrowings are secured by virtually all operating assets of VIFI and the
co-borrower, and are personally guaranteed by the majority shareholder.
On January 28, 2002, VIFI terminated this revolving line of
credit facility and paid all outstanding amounts due thereunder (see Note
11).
4. LONG-TERM DEBT
Long-term debt at December 31, 2001 consists of the following:
Note payable to bank in monthly installments of $22,980
through July 2002 including interest at LIBOR plus 2.5%
(4.525% at December 31, 2001). The note payable to bank is
secured by virtually all operating assets and is personally
guaranteed by the majority shareholder......................................... $ 152,258
Note payable to bank in monthly installments of $22,513
through February 2003 including interest at LIBOR plus 2.5%
(4.625% at December 31, 2001). The note payable to bank
is secured by virtually all operating assets and is personally
guaranteed by the majority shareholder.......................................... 294,681
-------------
446,939
Current portion (due in 2002)................................................... (414,512)
-------------
F-8
Long-term debt (due in 2003)................................................... $ 32,427
===========
On January 28, 2002, notes payable to bank were paid in full (see
Note 11).
5. CAPITAL LEASE OBLIGATIONS
VIFI leases certain equipment under capital leases and includes
this equipment in property and equipment at December 31, 2001 as follows:
Equipment .............................................................. $ 596,183
Accumulated depreciation................................................ (74,630)
-----------
Equipment under capitalized leases, net................................. $ 521,553
===========
The following is a schedule of future minimum lease payments
under capital leases together with the present value of the minimum lease
payments at December 31, 2001:
Year Ending December 31,
2002................................................ $ 165,818
2003................................................ 165,818
2004................................................ 165,818
2005................................................ 153,852
2006................................................ 18,593
-----------
Total minimum lease payments.......................................... 669,899
Amounts representing interest......................................... (163,168)
-----------
Present value of minimum lease payments............................... 506,731
Current portion of capital lease obligations.......................... (115,023)
-----------
Long-term portion of capital lease obligations........................ $ 391,708
===========
6 LEASE COMMITMENTS AND RENTAL EXPENSE
VIFI is a co-signer with a related company owned by the majority
shareholder to lease an office building. There is no agreement between VIFI
and the related company to allocate the monthly rental payments. VIFI did
not allocate any rental payments to the related company during 2001. The
commencement date of the lease was January 1, 2001 and expires January 1,
2011. Future minimum lease payments for this operating lease are as
follows:
Year Ending December 31,
2002................................................ $ 1,412,000
2003................................................ 1,544,000
2004................................................ 1,544,000
2005................................................ 1,544,000
2006................................................ 1,712,000
Thereafter.......................................... 6,878,000
-----------
Total...................................... $14,634,000
===========
F-9
Rental expense for the year ended December 31, 2001 was $1,198,000.
7. INCOME TAXES
Income tax expense is as follows at December 31:
Current expense ....................................................... $ 29,795
Deferred expense ...................................................... 173,717
-----------
$ 203,512
===========
Income tax expense for the year ended December 31, 2001 differs from the
income tax expense that would result from applying statutory rates due
primarily to the effect of certain research and development tax credits.
Items that gave rise to significant elements of deferred tax assets
(liabilities) at December 31, 2001 are as follows:
Deferred revenue, net of deferred costs................................ $ 544,790
Property and equipment................................................. (89,148)
Other.................................................................. 88,308
-----------
Deferred tax asset, net................................................ $ 543,950
===========
A reconciliation of the federal statutory rate to VIFI's effective tax
rate is as follows:
Federal statutory rate................................................. 34.0%
State and local tax rate, net of federal benefit....................... 5.6
Research, development and other tax credits............................ (17.0)
Other permanent differences............................................ 3.1
------
Total.......................................................... 25.7%
======
8. RELATED PARTY TRANSACTIONS
Revenues, accounts receivable, cost of revenues and accounts payable
result from transactions with two related companies in the ordinary course
of business, one of which is owned by the majority shareholder and the
other with which the majority shareholder serves as the Chairman of the
Board. Related party account balances and transactions as of and for the
year ended December 31, 2001 are as follows:
Revenues............................................................... $ 1,008,000
Common expenses paid by affiliate and
reimbursed by VIFI.................................................... 541,000
Accounts receivable at December 31..................................... 452,000
Costs of revenues...................................................... 42,000
Interest expense, net.................................................. 1,000
Proceeds from sale of property and equipment........................... 42,000
9. 401(k) PLAN
VIFI maintains a defined contribution 401(k) plan which covers all
eligible employees, as defined, with 1,000 hours of continuous service who
are at least 21 years of age. The plan provides for
F-10
discretionary employer contributions determined by the Board of Directors.
VIFI contributed $52,000 to the plan for the year ended December 31, 2001.
10. STOCK OPTIONS
The Company has an incentive stock option plan for employees of the
Company (the Stock Option Plan) and has reserved 100,000 shares of common
stock for issuance under the Stock Option Plan. The stock options become
exercisable in four successive annual installments from the date of the
grant: 10%, 15%, 25%, and 50%. The option grant expires within ten years of
the grant date. The options are nontransferable and are forfeited upon
termination of employment. Stock option activity for the year ended
December 31, 2001 is as follows:
Weighted
Average
Exercise
Price
Shares Per Share
------ ---------
Outstanding at December 31, 2000............................................ 52,570.9 $ 45.80
Granted in 2001........................................................... 2,500.0 20.00
Exercised in 2001......................................................... (13.5) 40.00
Forfeited in 2001......................................................... (2,066.5) 43.87
----------
Outstanding at December 31, 2001............................................ 52,990.9 44.66
==========
At December 31, 2001, there were 5,049.1 options exercisable at a
weighted average price of $45.88, and options outstanding have a weighted
average remaining contractual life of 8.1 years. Options were granted at
fair market value on the grant date based upon independent stock price
valuations.
The Company has elected to account for stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Had compensation cost for the plan been determined based on the
fair value at the grant dates for awards under the plan consistent with the
fair value method of Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation", the Company's
proforma net income per share would have been the following for the year
ended December 31, 2001:
Net income:
As reported................................................... $ 589,355
Proforma...................................................... $ 457,873
Basic and diluted earnings per share:
As reported................................................... $ 0.65
Proforma...................................................... $ 0.51
Pro forma compensation costs were determined using the minimum value
method (no volatility) with the following assumptions:
Dividend yield.................................................. 0 %
Risk-free interest rate......................................... 6.7 %
Expected life................................................... 7 years
F-11
The pro forma amounts are for disclosure purposes and are not
representative of the effects on reported net income for future years.
11. SUBSEQUENT EVENT
On January 28, 2002, VIFI was acquired and became a wholly-owned
subsidiary of Digital Insight Corporation ("Digital Insight"), an internet
banking service provider headquartered in Calabasas, California pursuant to
an Agreement and Plan of Merger, dated as of January 3, 2002. As a result
of the merger, all of the outstanding shares of VIFI were converted into an
aggregate of $3,750,000 in cash, $3,750,000 in promissory notes, and
1,901,907 shares of Digital Insight's common stock. In addition, Digital
Insight assumed options to acquire VIFI stock that, as a result of the
merger, converted into options to purchase an aggregate of 111,978 shares
of Digital Insight's stock.
* * * * * *
F-12
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
On January 28, 2002, Digital Insight Corporation (the "Company") completed
its acquisition of Virtual Financial Services, Inc. ("ViFi"). ViFi was a
privately-owned company based in Indianapolis, Indiana that provided retail and
commercial Internet banking, electronic bill payment, cash management services,
credit and debit card processing, online brokerage, document management, web
site design, target marketing and aggregation services via PC-based or wireless
access. All the outstanding shares of ViFi were acquired in exchange for
approximately $3.8 million in cash, $3.8 million in promissory notes, and the
issuance of 1,901,907 shares of the Company's common stock, with an estimated
fair value of approximately $41.1 million. The fair value of the common stock
issued was based on the average trading price of the Company's common stock for
four days before, four days after and including the public announcement date. In
addition, the Company assumed fully vested common stock options which were
converted into options to purchase an aggregate of 111,978 shares of the
Company's common stock with an estimated fair value of $ 1.3 million. The
Company did not acquire certain of the ViFi fixed assets and the credit card
processing product line which remained with the selling shareholder of ViFi.
The acquisition is to be accounted for using the purchase method of
accounting. The purchase price will be allocated to the estimated fair value of
the assets acquired and liabilities assumed. The estimated fair value of the
tangible assets acquired and liabilities assumed approximated the historical
cost basis and the preliminary purchase price allocation indicates estimated
goodwill of approximately $47.3 million, which in accordance with Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets",
will no longer be amortized but rather will be periodically evaluated for
impairment on at least an annual basis. Identifiable intangible assets are
estimated to be $10.0 million and will be amortized on a straight-line basis
over the estimated aggregate lives of six years.
The following unaudited pro forma condensed consolidated balance sheet
assumes that the acquisition of ViFi was consummated as of December 31, 2001.
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 2001 give effect to the acquisition as if it had
occurred on January 1, 2001. Unaudited pro forma condensed consolidated
financial information is based on a preliminary purchase price allocation which
is subject to change pending the completion of the final purchase price
allocation. The impact of these changes could be material. The following items
could affect the final purchase price allocation: (i) the final ViFi balance
sheet; (ii) the finalization of the valuation and estimated useful lives of
acquired technology, customer relationships and covenant not to compete; and
(iii) actual fair values of assets acquired based on information at the
acquisition date and integration plans.
The unaudited pro forma condensed consolidated financial information is for
illustrative purposes only and is not necessarily indicative of the results that
would have occurred if the acquisition had occurred as of the beginning of the
periods presented and should not be construed as being representative of future
consolidated operating results or financial position. The unaudited pro forma
condensed consolidated financial information should be read in conjunction with
the Company's consolidated financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 2001
and ViFi financial statements and notes thereto, included elsewhere in this
current Report on Form 8-K/A.
F-13
DIGITAL INSIGHT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2001
(in thousands)
Digital Virtual
Insight Financial Pro Forma Pro Forma
Corporation Services Adjustments Consolidated
------------- ---------- ------------- --------------
ASSETS
------
Current assets:
Cash and cash equivalents.......................... $ 15,334 $ 146 $ (3,918) (1) $ 11,562
Short-term investments............................. 38,300 --- --- 38,300
Accounts receivable, net........................... 19,133 1,264 --- 20,397
Accounts receivable - related party................ --- 452 (452) (1) ---
Accumulated implementation costs................... 4,973 --- --- 4,973
Other current assets............................... 2,893 209 --- 3,102
------------- ---------- ------------- --------------
Total current assets............................. 80,633 2,071 (4,370) 78,334
Property and equipment, net........................... 37,784 2,396 (2,396) (2) 37,784
Goodwill and intangible assets, net................... 98,382 --- 57,244 (3) 155,626
Accumulated implementation costs...................... 5,941 --- --- 5,941
Long-term investments................................. 13,334 --- --- 13,334
Deferred tax asset.................................... --- 544 (544) (4) ---
Other assets ......................................... 554 --- --- 554
------------- ---------- ------------- --------------
Total assets..................................... $ 236,628 $ 5,011 $ 49,934 $ 291,573
============= ========== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................... $ 3,142 $ 1,794 $ --- $ 4,936
Accrued compensation and related benefits.......... 3,465 567 --- 4,032
Customer deposits and deferred revenue............. 7,434 1,029 --- 8,463
Other accrued liabilities.......................... 7,465 --- 4,700 (5) 12,165
Promissory notes................................... --- --- 3,750 (6) 3,750
Current portion of capital lease obligations....... 1,202 115 (115) (7) 1,202
Current portion of long-term debt.................. 3,529 415 (415) (7) 3,529
------------- ---------- ------------- --------------
Total current liabilities........................ 26,237 3,920 7,920 38,077
Capital lease obligations............................. 411 392 (392) (7) 411
Long-term debt........................................ 5,882 32 (32) (7) 5,882
Customer deposits and deferred revenue................ 7,207 735 --- 7,942
Other liabilities.................................... --- 148 (148) (8) ---
------------- ---------- ------------- --------------
Total liabilities................................ 39,737 5,227 7,348 52,312
------------- ---------- ------------- --------------
Stockholders' equity:
Common stock and additional paid-in capital........ 337,491 1,550 (1,550) (9) 379,861
42,370 (10)
Stockholders' notes receivable..................... (124) --- --- (124)
Deferred stock-based compensation.................. (1,409) --- --- (1,409)
Accumulated deficit................................ (139,067) (1,766) 1,766 (9) (139,067)
------------- ---------- ------------- --------------
Total stockholders' equity....................... 196,891 (216) 42,586 239,261
------------- ---------- ------------- --------------
Total liabilities and stockholders' equity....... $ 236,628 $ 5,011 $ 49,934 $ 291,573
============= ========== ============= ==============
See accompanying notes to the unaudited pro forma condensed consolidated
financial information.
F-14
DIGITAL INSIGHT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001
(in thousands, except per share data)
Digital Virtual
Insight Financial Pro Forma Pro Forma
Corporation Services Adjustments Consolidated
------------- ----------- ------------ --------------
Revenues............................................... $ 94,635 $ 15,482 $ (2,264) (11) $ 107,853
Cost of revenues....................................... 55,377 8,247 (402) (11) 62,465
(757) (12)
------------- ----------- ------------ --------------
Gross profit......................................... 39,258 7,235 (1,105) 45,388
------------- ----------- ------------ --------------
Operating expenses:
Sales, general and administrative.................... 30,780 4,748 (27) (12) 35,501
Research and development ............................ 23,420 1,571 (104) (12) 24,887
Amortization of goodwill and intangible assets....... 35,729 --- 1,700 (13) 37,429
Restructuring charge................................. 3,276 --- --- 3,276
------------- ----------- ------------ --------------
Total operating expenses........................... 93,205 6,319 (1,569) 101,093
------------- ----------- ------------ --------------
Loss from operations................................... (53,947) 916 (2,674) (55,705)
Interest and other income, net......................... 1,999 (124) (225) (14) 1,767
117 (15)
Net loss before provision for income tax............... (51,948) 792 (2,782) (53,938)
Provision for income tax............................... --- 203 (203) (16) ---
------------- ----------- ------------ --------------
Net loss............................................... $ (51,948) $ 589 $ (2,579) $ (53,938)
============= =========== ============ ==============
Basic and diluted net loss per share................... $ (1.77)
=============
Shares used to compute basic and diluted net loss per
share................................................ 29,301
=============
Pro forma basic and diluted net loss per share......... $ (1.73) (17)
==============
Shares used to compute pro forma basic and diluted net
loss per share....................................... 31,203
==============
See accompanying notes to the unaudited pro forma condensed consolidated
financial information.
F-15
DIGITAL INSIGHT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(Dollars in thousands)
The pro forma balance sheet adjustments give effect to the acquisition of ViFi
as if the transactions were consummated on December 31, 2001. The pro forma
statement of operations adjustments give effect to the acquisition of ViFi as
if the acquisition occurred on January 1, 2001. The estimated fair value per
share of the Company's stock issued to effect the acquisition was approximately
$21.60 per share. The fair value was based on the average trading price for the
public announcement date and the four days prior to and after that date. The
estimated fair value of the vested common stock options issued was based on the
Black-Scholes pricing model using the following assumptions: two year expected
life; 90 % volatility; and 4.39% risk free interest rate. The pro forma balance
sheet adjustments are as follows:
1. To reflect the cash consideration paid net of monies received as a result
of the acquisition as follows:
Cash consideration paid........................................... $ (3,750)
Cash proceeds from sale of assets back to selling shareholder 334
Assumed cash collected in satisfaction of intercompany
accounts receivable from selling shareholder.................... 452
Assumed cash used to retire capital lease obligations and
long-term debt.................................................. (954)
------------
Net cash consideration paid................................... $ (3,918)
============
2. To adjust for the fixed assets retained by the selling shareholder of
ViFi.
3. To reflect goodwill and intangible assets created as a result of the
acquisition, as follows:
Estimated fair value of issuance of 1,901,907
shares of the Company's stock in consideration for the
acquisition..................................................... $ 41,080
Estimated fair value of the assumption of 111,978 vested common
stock options................................................... 1,290
Additional cash consideration..................................... 3,750
Additional consideration in the form of promissory notes.......... 3,750
Direct transaction costs.......................................... 4,700
Negative net assets acquired after adjustments.................... 2,674
------------
Estimated goodwill and intangible assets created................ $ 57,244
============
4. To reflect elimination of ViFi deferred tax assets due to net operating
loss position on a consolidated basis.
5. To reflect the accrual of the estimated direct transaction costs
including investment banking fees, legal fees, accounting fees and other
direct costs of the acquisition.
6. To reflect the promissory notes payable as consideration for the
acquisition of ViFi.
7. To reflect the retirement of the capital lease obligation and long-term
debt acquired from ViFi.
8. To eliminate deferred rent on a ViFi lease not being assumed by the
Company.
9. To eliminate the historical stockholder's equity of ViFi.
10. To reflect issuance of the Company's common stock and vested stock
options with an estimated fair value of $42,370.
DIGITAL INSIGHT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION - (Continued)
(Dollars in thousands)
11. To reflect the elimination of revenues and direct cost of revenues
relating to the ViFi card services product line, which was not acquired
by the Company and remained with the selling shareholder.
12. To eliminate historical depreciation expense on ViFi fixed assets that
were purchased and sold back to the selling shareholder of ViFi.
13. To reflect amortization of intangible assets created as a result of the
acquisition based on the preliminary purchase price allocation as
follows:
Aggregate Annual
Amount Lives Amortization
------ ----- ------------
Goodwill $47,244 - $ -
Identifiable intangibles 10,000 6 years 1,700
------- ------
$57,244 $1,700
======= ======
In accordance with SFAS No. 142 "Goodwill and Other Intangibles",
goodwill created in the ViFi acquisition will not be amortized.
14. To reflect interest expense at an assumed interest rate of 6% on the
$3,750 of promissory notes issued as part of the acquisition
consideration.
15. To eliminate historical interest expense on capital lease and other long-
term debt of ViFi which was retired as a result of the acquisition.
16. To reflect the elimination of the ViFi provision for income taxes as a
result of the consolidated operating losses.
17. To reflect the pro forma basic and diluted net loss per common share
assuming the issuance of 1,901,907 shares of common stock to effect the
acquisition. Vested stock options issued were excluded from the
computation as they have an antidilutive effect.
F-17
INDEX TO EXHIBITS
-----------------
Exhibit Number Description
-------------- -----------
2.1 Agreement and Plan of Merger, dated as of January 3, 2002,
by and among Digital Insight Corporation, ViFi LLC and
Virtual Financial Services, Inc. (incorporated herein by
reference to the Registrant's Current Report on Form 8-K
filed with the SEC on February 5, 2002)
23.1 Consent of Deloitte & Touche LLP.