Room 4561
September 23, 2005
via U.S. mail
Charles K. Narang
Chairman and Chief Executive Officer
NCI, Inc.
11730 Plaza America Drive
Reston, Virginia 20190
Re: NCI, Inc.
Amendment No. 1 to Registration Statement on Form S-1
Filed September 6, 2005
File No. 333-127006
Dear Mr. Narang:
We have reviewed your amendment to your registration
statement
and have the following additional comments regarding your
financial
statements and related matters. We continue to evaluate the
balance
of your responses and related disclosure and will promptly
transmit
you additional comments to the extent necessary.
General
MD&A: Critical Accounting Policies - Stock-Based Compensation,
page
37
1. We do not believe that you completely responded to our prior
comments no. 27 and 43. You indicate that the valuation to
determine
the fair value of your common stock was performed in-house. We
would
expect that since you have not obtained the valuation from an
unrelated valuation specialist, the following should be disclosed
in
your MD&A:
* Disclose the intrinsic value of outstanding vested and unvested
options based on the estimated IPO price and the options
outstanding
as of the most recent balance sheet date.
* We note your disclosures on page 37 where you indicate that the
factors contributing to the increase in the fair market value are
the
anticipated marketability of the stock and our increased organic
growth in the first six months of 2005." These disclosures are
somewhat vague. Revise to enhance your discussion of each
significant factor contributing to the difference between the fair
value as of the date of each grant and the estimated IPO price.
Your
discussion should clarify the reasons for any difference between
the
fair value at each option grant date and the estimated IPO price
range. Also, based on this statement, explain why the fair value
of
common stock on June 15, 2005 was $8.93 vs. $9.14 on April 1,
2005.
We would expect your fair value of common stock to increase in
June
15, 2005.
Refer to paragraphs 180 and 182 of the AICPA`s Audit and
Accounting
Practice Aid.
2. Tell us why you believe the market approach was the appropriate
valuation method to use and tell us how you considered the
Company`s
stage of development in selecting this approach. Also, describe
for
us the selected comparable enterprises and the process followed in
determining your selection.
3. Your valuation calculation in Annex III indicates the use of
30%
discount rate on your enterprise value for options granted during
2004 and 2005. Explain to us how you determined that 30% discount
rate demonstrates an objective determination of your fair value.
Tell us why your discount rate does not change quarterly as your
marketability improves with expected initial public offering.
Also,
tell us how you considered the factors as outlined in paragraph 58
of
the AICPA`s Audit and Accounting Practice Aid in determining the
amount of your discount.
Note 2: Summary of Significant Accounting Policies - Revenue
Recognition, page F-8
4. We note your response to our prior comment no. 39 where you
indicate that fixed price completion contracts are agreements to
perform all acts required in the statement of work under a
contract
regardless of the actual costs incurred in performance. This
statement implies that the costs incurred bear no direct
relationship
to the performance specified in the contract. Therefore, we are
still unclear as to how you determined that the use of the input
measure of performance is the appropriate measure to use on your
fixed-price completion contracts. Explain the relationship
between
cost and performance of services specified in the fixed-price
completion contracts and tell us why use of input measure is
appropriate.
Note 6 - Stockholder`s Equity and Related Items, Stock Options,
page
F-17
5. We note your revised table in Note 6 that shows the options
granted during the twelve month period ended, June 30, 2005.
Revise
to include the fair value of common stock for each month of grant.
Also, include in the financial statement footnotes disclosures
indicating that the valuation was contemporaneous and was
performed
by management.
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
You may contact Kari Jin at (202) 551-3481 or Kathleen
Collins,
Branch Chief - Accounting, at (202) 551-3499 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Perry Hindin at (202) 551-3444 or Anne Nguyen,
Special
Counsel, at (202) 551- 3611 with any other questions. If you
require
further assistance, you may contact me at (202) 551-3462.
Sincerely,
Mark P. Shuman
Branch Chief - Legal
Office of Computers and Online Services
cc: via facsimile
David Charles, Esq.
Pillsbury Winthrop Shaw Pittman LLP
(F) (703) 770-7901
Charles K. Narang
NCI, Inc.
September 23, 2005
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