~~Item 1.~~

~~Business~~

Item 1. Business

Special Note Regarding Forward-Looking Statements

Certain matters discussed ~~below~~ in this Annual Report on Form 10-K are “forward-looking statements” ~~intended to qualify for~~within the ~~safe harbors from liability established by~~meaning of Section 21E of the ~~Private~~ Securities ~~Litigation Reform~~Exchange Act of ~~1995.~~1934, as amended. These forward-looking statements can generally be identified as such because the context of the ~~statements include~~statement includes phrases such as National Research Corporation (“NRC,” the ~~Company~~“Company,” “we,” “our,” “us” or similar terms) “believes,” ~~“expects”~~“expects,” or other words of similar import. Similarly, statements that describe the Company’s future plans, objectives or goals are also ~~forwarding-looking~~forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include, without limitation, the ~~factors set forth in “Risk Factors.”~~ following factors:

The possibility of non-renewal of the Company’s client service contracts;

The Company’s ability to compete in its markets, which are highly competitive, and the possibility of increased price pressure and expenses;

The effects of an economic downturn;

The possibility of consolidation in the healthcare industry;

The impact of federal healthcare reform legislation or other regulatory changes;

The Company’s ability to retain its limited number of key clients;

The Company’s ability to attract and retain key managers and other personnel;

The possibility that the Company’s intellectual property and other proprietary information technology could be copied or independently developed by its competitors;

Regulatory developments; and

The factors set forth under the caption “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

Shareholders, potential investors and other readers are urged to consider these and other factors in evaluating the forward-looking statements, and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included are only made as of the date of this Annual Report on Form 10-K and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

General

~~National Research Corporation (“NRC” or the “Company”) believes it~~The Company is a leading provider of ~~ongoing survey-based performance measurement,~~analytics and insights that facilitate revenue growth, patient, employee and customer retention and patient engagement for healthcare providers, payers and other healthcare organizations. The Company’s solutions support the improvement ~~services~~of business and ~~governance education~~clinical outcomes, while facilitating regulatory compliance and the shift to ~~the~~population-based health management for its clients. The Company’s ability to systematically capture, analyze and deliver to its clients self-reported information from patients, families and consumers is critical in today’s healthcare ~~industry~~market. NRC believes that access to and analysis of its extensive consumer-driven information will become even more valuable in the United States and Canada. The Company believes it has achieved this leadership position based on 29 years of industry experience and its relationships with many of the industry’s largest payers and providers. The Company addresses the growing needs offuture as healthcare providers increasingly need to more deeply understand and ~~payers to measure the care outcomes, specifically experience~~engage patients and consumers in an effort towards effective population-based health status, of their patients, residents or members. NRC develops tools that enable healthcare organizations to obtain performance measurement information necessary to comply with industry and regulatory standards, and to improve their business practices so that they can maximize resident and/or patient attraction, experience, retention and profitability.management.

Since its founding 29 years ago in 1981 as a Nebraska corporation (the Company reincorporated in Wisconsin in September 1997), NRC has focused on the information needs of the healthcare industry. The Company’s primary types of information services are renewable performance tracking and improvement services, subscription-based governance information and educational services, and a renewable syndicated service.

While performance data has always been of interest to healthcare providers and payers, such information has become increasingly important to these entities as a result of regulatory, industry and competitive requirements. In recent years, the healthcare industry has been under significant pressure from consumers, employers and the government to reduce costs. However, the same parties that demanded cost reductions are now concerned that healthcare service quality is being compromised under managed care. This concern has created a demand for consistent, objective performance information by which healthcare providers and payers can be measured and compared, and on which physicians’ compensation can, in part, be based.

~~The NRC Solution~~

The ~~Company addresses~~Company’s portfolio of subscription-based solutions provide actionable information and analysis to healthcare ~~organizations’ growing need~~organizations and payers across a range of mission-critical, constituent-related elements, including patient experience and satisfaction, community population health risks, workforce engagement, community perceptions, and physician engagement. NRC partners with clients across the continuum of healthcare services. The Company’s clients range from acute care hospitals and post-acute providers, such as home health, long term care and hospice, to ~~track their performance at the enterprise-wide, departmental and physician/caregiver levels.~~numerous payer organizations. The Company believes this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and interactive healthcare system.

NRC’s expertise includes the efficient capture, interpretation, transmittal and benchmarking of critical data elements from millions of healthcare consumers. Using its portfolio of solutions through internet-based business intelligence tools, the Company’s clients gain insights into best practices to drive improvements across key performance metrics. The Company’s clients are also able to access networking groups, on-line education and an extensive library of performance improvement material that can be tailored to each of their unique needs.

NRC has achieved a market leadership position through its more than 31 years of industry innovation and experience, as well as its long-term, recurring revenue relationships (solutions that are used or required by a client each year) with many of the healthcare industry’s largest organizations. Since its founding in 1981, the Company has focused on meeting the evolving information needs of the healthcare industry through internal product development, as well as select acquisitions. The Company is a Wisconsin corporation headquartered in Lincoln, Nebraska.

Industry and Market Opportunity

According to the Kaiser Foundation, health expenditures in the United States were approximately $2.6 trillion in 2010, over ten times the $256 billion spent in 1980. In total, health spending accounted for 17.9% of the nation’s Gross Domestic Product in 2010. Addressing this growing expenditure burden continues to be a major policy priority at both federal and state levels. In addition, continued high unemployment rates and lower incomes for many Americans coupled with increased co-pays and deductibles in employer-sponsored plans have focused even more consumer attention on health spending and affordability. In the public sector, Medicare provides health coverage for individuals aged 65 and older, while Medicaid provides coverage for low income families and other individuals in need. Both programs are administered by the Centers for Medicare & Medicaid Services (“CMS”). With the aging of the U.S. population, Medicare enrollment has increased significantly. In addition, longer life spans and greater prevalence of chronic illnesses among both the Medicare and Medicaid populations have placed tremendous demands on the health care system.

Driven by escalating costs and a growing recognition of the challenges of chronic care and unnecessary hospitalizations, Medicare reimbursement for healthcare providers is shifting from a volume-based approach (fees paid for each element of service rendered, independent of outcome) to a more value-based model, where reimbursement is based on the value (or quality) of the healthcare service delivered. This shift has been ~~developing~~enabled, in part, by the establishment of standardized quality-focused datasets and the requirement that providers capture and transmit these data to CMS.

An increasing percentage of Medicare reimbursement (and, in all likelihood, reimbursement from commercial payers as well) will be at risk for hospitals, based on factors such as patient readmission rates and provider adherence to certain quality-related protocols. At the same time, many hospitals and other providers are creating new models of care delivery and reimbursement to reduce cost and enable more effective delivery of care. These new models are based on sharing financial risk and managing the health and behaviors of large populations of patients and consumers. Certain of these new models are known as accountable care organizations, or ACOs, and medical homes, in which multiple provider organizations are coordinated in providing care and bearing shared financial risk in serving a defined patient population. This transformation towards population-based health management, value-based purchasing, and an increased engagement of healthcare consumers is resulting in a greater need for providers to deliver more customer-centric healthcare.

NRC believes that its current portfolio of solutions is aligned to address this evolving market opportunity. The Company provides tools ~~designed~~and solutions to capture, interpret and improve the data required by CMS as well as enhanced capabilities that capture insights about patient health risks, behaviors and perspectives. The information and analytics provided through these solutions enable payers and providers to better tailor offerings to the populations they serve. Meanwhile, the Company’s portfolio of engagement solutions helps providers address and impact the types of behaviors that could result in reduced hospital re-admission rates—resulting in a direct and measurable impact on providers’ revenue.

Finally, the Company believes that its ability to offer these insights across the entire care continuum is particularly relevant as new reimbursement models force collaboration amongst different types of providers. Bundled payments, medical home, ACOs and other models of reimbursement for population-based health management all require an understanding of healthcare both within and outside of the traditional acute care setting.

NRC’s Solutions

NRC’s portfolio of solutions address specific market needs around growth, retention, engagement and thought leadership for healthcare providers, payers and other healthcare organizations. While each distinct solution provides discernible value on a stand-alone basis, the Company believes that in combination, its solutions provide a comprehensive view of healthcare consumers both within healthcare settings and outside of those settings—creating a differentiated solution set to address the emerging needs for population-based health management.

Growth Solutions - NRC’s growth solutions are subscription-based services that include measurement of community perception (Market Insights), brand tracking (BrandArc) and advertising testing (Advoice). Market Insights is the largest online U.S. healthcare survey, measuring the opinions and behaviors of 270,000 healthcare consumers in the top 250 metropolitan areas annually. Market Insights is a syndicated survey that provides clients with an independent third-party source of information that is used to understand consumer preferences and optimize marketing strategies. BrandArc is a solution that enables clients to measure brand value and build brand equity in their markets. AdVoice is a solution that helps NRC’s clients evaluate and optimize advertising efficiency and consumer recall. The Company’s growth solutions have historically been marketed under the Healthcare Market Guide and Ticker brands.

Retention Solutions - NRC’s retention solutions include patient and resident experience, physician engagement and employee experience measurement and improvement tools. These solutions enable clients to comply with regulatory requirements and to improve their reimbursement under value-based purchasing models. Additionally, clients use these applications to positively impact patient experience through utilization of the Company’s prescriptive analytics to enable improvement planning and implementation of best practices. Finally, with a growing body of research linking employee and physician satisfaction levels to provider quality and patient experience, NRC’s retention solutions also measure satisfaction from those constituents and integrate that data into prescriptive analytics for improvement.

The Company’s retention solutions are marketed under the NRC Picker, My InnerView (“MIV”), and NRC Picker Canada brands and are provided on a subscription basis via a cross-continuum platform that collects and measures data and then delivers business intelligence that the Company’s clients utilize to improve retention, experience and reimbursement. NRC provides these performance results and prescriptive analytics to its clients via the Company’s Catalyst improvement planning and business intelligence portal. In addition, clients have an option of more immediate feedback via the Company’s real-time mobile data collection platform.

Engagement Solutions - NRC’s engagement solutions include its health risk assessments (Payer Solutions), patient outreach and discharge call program (Illuminate) and post-acute analytics (Outcome Concept Systems, or OCS). These solutions enable the Company’s clients to understand the health risks associated with populations of patients, analyze and address readmission risks and efficiently reach out to patients to impact their behaviors outside of the healthcare provider settings. The Company’s health risk assessment solutions enable its clients to ~~collect, in an unobtrusive manner,~~effectively stratify and manage care for those who are most at-risk, engage individuals, increase preventative care and manage wellness programs to improve patient experience and outcomes. NRC’s patient outreach and discharge call solutions are provided to healthcare organizations on a ~~substantial amount~~subscription basis. These solutions provide real-time, immediate feedback to its clients to enable improvement of ~~comparative~~patient experience and rate of avoidable readmissions. NRC’s post-acute analytics solutions provide business intelligence for home health and hospice providers that enable the improvement of patient experience, operational performance ~~information in order to analyze~~ and improve their practices to maximize resident and/or patient attraction, experience, retention and profitability. NRC’s performance assessments offer a tangible measurement of health service quality of the type currently demanded by consumers, employers, industry accreditation organizations and lawmakers.clinical outcomes.

The ~~Company’s~~key proprietary components of NRC’s engagement solutions ~~are designed to respond to managed care’s redefined relationships among consumers, employers, payers~~include a real-time electronic medical records integration platform; a portfolio of risk assessments for individual patient populations and ~~providers. Instead of relying exclusively~~care settings; and post-acute predictive models and algorithms based on static, mass-produced questionnaires, NRC utilizes a dynamic data collection process to create a personalized questionnaire which evaluates service issues specific to each respondent’s healthcare experience. The flexibility of the Company’s data collection process allows healthcare organizations to add timely, market-driven questions relevant to matters such as industry performance mandates, employer performance guarantees and internal quality improvement initiatives. In addition, the Company assesses core service factors relevant to all healthcare respondent groups (patients, members, employers, employees, physicians, residents, families, etc.) and to all service points of a healthcare system (inpatient, emergency room, outpatient, home health, rehabilitation, behavioral health, long-term care, hospice, assisted living, dental, etc.).proprietary datasets.

Thought Leadership Solutions – NRC’s thought leadership solutions include national conferences, publications and an on-line portal, and are integrated at various levels into NRC’s growth, retention and engagement solutions. NRC also offers ~~renewable performance tracking and improvement services, subscription-based educational services, and~~ a renewable syndicated service. The Company has renewable performance tracking tools, including those produced and delivered under its NRC Picker trade name and My InnerView, Inc. (“MIV”), for gathering and analyzing data from survey respondents on an ongoing basis with comparisons over time. These performance tracking tools may be coupled with the Company’s improvement tools to help clients not only measure performance, but know where to focus with ideas and solutions for making improvements. The Company has the capacity to measure performance beyond the enterprise-wide level. It has the ability and experience to determine key performance indicators at the department and individual physician/caregiver measurement levels, where the Company’s services can best guide the efforts of its clients to improve quality and enhance their market position. The improvement services of NRC Picker provide a way of bridging the gap between measurement and improvement. Additional offerings under the Company’s Payer Solutions division include functional disease-specific and health status measurement tools.

~~Through its division known~~specific thought leadership service branded as The Governance Institute (“TGI”)~~, NRC~~. TGI is a membership organization that offers subscription-based governance information solutions and educational conferences designed to improve the effectiveness of hospital and healthcare systems by continually strengthening their boards, medical leadership and management ~~performance in the United States.~~performance. TGI conducts ~~timely~~ conferences, produces publications, videos, white papers and research studies, and tracks industry trends showcasing ~~the~~emerging healthcare trends and best ~~practices~~practice solutions of healthcare boards across the country.

The syndicated NRC Healthcare Market Guide (“Ticker”), a stand-alone market information and competitive intelligence source, as well as a comparative performance database, allows the Company’s clients to assess their performance relative to the industry, to access best practice examples, and to utilize competitive information for marketing purposes.

~~Growth Strategy~~NRC’s Competitive Strengths

The Company believes that ~~it can continue~~its competitive strengths include the following:

A leading provider of patient experience solutions for healthcare providers, payers and other healthcare organizations. The Company’s history is based capturing the voice of the consumer in healthcare markets. With survey solutions that span the healthcare continuum, in 2012 the Company was recognized by Modern Healthcare as one of the nation’s largest patient experience survey providers. Its solutions build on the “Eight Dimensions of Patient-Centered Care,” a philosophy developed by noted patient advocate Harvey Picker, who believed patients’ experiences are integral to ~~grow through (1) expanding~~quality healthcare. NRC has extended this philosophy to include families, caregivers, employees and other stakeholders.

Premier client portfolio across the ~~depth and breadth of its current clients’ performance tracking services programs, since~~care continuum. NRC’s client portfolio encompasses leading healthcare organizations are increasingly interested in gathering performance information at deeper levels of their organizations and from more of their constituencies, (2) increasing the cross-selling of its complementary services, including subscription-based governance information, (3) adding new clients through penetrating the sizeable portion ofacross the healthcare ~~industry which~~continuum, from acute care hospitals and post-acute providers to healthcare payers. The Company’s client base is ~~not yet conducting performance assessments beyond~~diverse, with its top ten clients representing approximately 22% of total revenue for the ~~enterprise-wide level or is not yet outsourcing this function,~~year ended December 31, 2012 and ~~(4) pursuing acquisitions of, or investments in, firms providing products, services or technologies which complement those of the Company.~~

~~Product Offerings~~

~~NRC’s data collection process provides ongoing, renewable performance tracking and is the platform~~no single client representing more than 5% of the Company’s online tools. This performance tracking program efficiently coordinates and centralizes an organization’s satisfaction monitoring, thereby establishing a uniform methodology and survey instrument needed to obtain valid performance information and improve quality. Using the industry method of mail, telephone, or internet-based data collection, this assessment process monitors the patient’s or stakeholder’s experience across healthcare respondent groups (patients, members, employers, employees, physicians, resident, family, etc.) and service settings (inpatient, emergency room, outpatient, long-term care etc.). Rather than be limited to only static, mass-produced questionnaires which provide limited flexibility and performance insights, NRC’s proprietary software generates individualized questionnaires, including personalization such as patient name, treating caregiver name, encounter date and, in some cases, the services received. To enhance the response rates and the relevance of performance data and to be flexible and responsive to healthcare organizations’ changing information needs, NRC creates personalized questionnaires which evaluate service issues specific to each respondent’s healthcare experience and includes questions which address core service factors throughout a healthcare organization.revenue.

Unlike some of its competitors, which use multiple questionnaires often sent to the same respondents, the Company gathers data through one questionnaire, the contents of which are selected from the Company’s library of questions after a client’s needs are determined. As a result, the Company’s renewable performance tracking programs and data collection processes (1) realize higher response rates, obtain data more efficiently, and thereby provide healthcare organizations with more feedback, (2) eliminate over-surveying (where one respondent receives multiple surveys), and (3) allow healthcare organizations to adapt questionnaire content to address management objectives and to assess quality improvement programs or other timely marketplace issues.

The Company recognizes that performance programs must do more than just measure the experiences; they must measure and facilitate improvement. The Company offers solutions designed to effectively measure and improve the most important aspects of the patient’s or stakeholder’s experience. NRC’s proprietary web-based electronic delivery systems provide clients the ability to review results and reports online, independently analyze data, query data sets, customize a number of reports and distribute reports electronically. The Company has developed online improvement tools, including a one-page report which provides a basis on which improvements can be made, shows healthcare organizations which service factors impact their customer group’s value and which have the greatest impact on satisfaction levels, and how their performance in relationship to these key indicators changes over time.

Ticker serves as a stand-alone market information and competitive intelligence source, as well as a comparative performance database. Ticker is the largest consumer-based assessment of consumers’ perceptions of, and satisfaction with, hospitals and health systems in more than 300 markets across the country, representing the views of more than 267,000 households across nearly every county in the continental United States. Ticker provides comprehensive assessments, including consumer quality perceptions, product-line preferences, service use and visit satisfaction for more than 3,200 hospitals and health systems. More than 200 data items relevant to healthcare payers, providers and purchasers are reported in the Ticker, including hospital quality and image ratings, hospital selection factors, household preventative health behaviors, presence of chronic conditions, and contemporary issues such as healthcare internet utilization. Clients can purchase customized versions specific to their local service areas, with the ability to benchmark performance results to over 300 metro areas, 48 states or nationally. Ticker is delivered to clients via Ticker’s exclusive web-based electronic delivery system, which features easy to use graphs, charts and various report formats for multiple users within the client’s organization. Another feature of the web-based system is a national name search designed to allow a healthcare organization with a national or regional presence to simultaneously compare the performance of all its sites and pinpoint where strengths and weaknesses exist. Clients who have renewed for multiple years of the study may utilize the system’s trending capability which details how the performance of the healthcare organization changes over time. The proprietary Ticker data results are also used to produce reports which are customized to meet the specific information needs of existing clients, as well as new healthcare markets beyond the Company’s traditional client base.

Through TGI, the Company offers subscription-based membership services. The information and education services are provided for the boards of directors and medical leadership of hospital and healthcare systems. These services are sold and delivered in the form of a twelve-month subscription membership and include accredited leadership conference and educational programs, customized research reports, board advisory services, videos, books, policy guidelines, board self-assessment tools, white papers, newsletters, and fax surveys. The Company’s leadership conferences are available to all prospective members by paying the applicable conference fee. The Company also sells publications, periodicals, reference books, and associated videos through its resource catalog.

The Company’s MIV division is a leading provider of quality and performance improvement solutions to the senior care profession. MIV offers resident, family and employee satisfaction measurement and improvement products to the long-term care, assisted and independent living markets in the United States. MIV works with over 8,000 senior-care providers throughout the United States, housing what the Company believes is the largest dataset of senior-care satisfaction metrics in the nation.

~~Clients~~

The Company’s ten largest clients accounted for 14%, 24%, and 29% of the Company’s total revenue in 2009, 2008 and 2007, respectively. Approximately 8%, 8%, and 9% of the Company’s revenue was derived from foreign customers in 2009, 2008, and 2007, respectively.

~~Sales and Marketing~~

The Company generates the majority of its revenue from client renewals, supplemented by its internal marketing efforts and a direct sales force. Sales associates direct NRC’s sales efforts from Nebraska, Wisconsin and California in the United States, and from Toronto in Canada. As compared to the typical industry practice of compensating sales people with relatively high base pay and a relatively small sales commission, NRC compensates its sales associates with relatively low base pay and a relatively high per-sale commission. The Company believes this compensation structure provides incentives to its sales associates to surpass sales goals and increases the Company’s ability to attract top-quality sales associates.

Marketing efforts support the direct sales force’s new business generation and project renewal initiatives. NRC conducts direct marketing campaigns and public relations programs. NRC uses lead generation mechanisms to add generated leads to its database of current and potential client contacts. Finally, the Company’s public relations program includes (1) an ongoing presence in leading industry trade press and in the mainstream press, (2) public speaking at strategic industry conferences, (3) fostering relationships with key industry constituencies and (4) the annual Consumer Choice Award program recognizing top-ranking hospitals in more than 250 markets.

The Company’s integrated marketing activities facilitate its ongoing receipt of project requests-for-proposals, as well as direct sales force initiated prospect contacts. The sales process typically spans a 120-day period encompassing the identification of a healthcare organization’s information needs, the education of prospects on NRC solutions (via proposals and in-person sales presentations), and the closing of the sale. The Company’s sales cycle varies depending on the particular service being marketed and the size of the potential project. The subscription-based services typically have a shorter sales cycle.

Highly scalable and visible revenue model. The Company’s solutions are offered to healthcare providers, payers and other healthcare organizations primarily through subscription-based service agreements. The solutions NRC provides are also recurring in nature, which enables an ongoing relationship with its clients. This combination of subscription-based revenue, a base of ongoing client renewals and automated platforms creates a highly visible and scalable revenue model for the Company.

Comprehensive portfolio of solutions. Since NRC offers solutions encompassing growth, retention, engagement and thought leadership, its clients can engage with the Company at multiple levels and, over time, increase their commitment and spend.

Exclusive focus on healthcare. The Company focuses exclusively on healthcare and serving the unique needs of healthcare organizations across the continuum, which NRC believe gives it a distinct competitive advantage compared to other survey and analytics software providers. The Company’s platform includes features and capabilities built specifically for healthcare providers, including a library of performance improvement content which can be tailored to the provider based on their specific customer feedback profile.

Experienced senior management team led by NRC’s founder. NRC’s senior management team has extensive industry and leadership experience. Michael D. Hays, the Company’s Chairman and Chief Executive Officer, founded NRC in 1981. Prior to launching the Company, Mike served as Vice President and as a Director of SRI Research Center, Inc. (now known as the Gallup Organization). The Chief Financial Officer, Kevin Karas, CPA, has extensive financial experience having served as CFO at two previous companies, along with healthcare experience at Rehab Designs of America, Inc. and NovaCare, Inc. NRC’s President and Chief Operating Officer, Susan Henricks, has extensive leadership experience in high volume data and analytics businesses, having served as President of Financial Institution Services for First Data Corporation, the largest processor of credit card, debit card, and merchant transactions in the U.S. She also served as President for printing and marketing services organizations, in addition to various other leadership positions.

Competition

The healthcare information and market research services industry is highly competitive. The Company has traditionally competed with healthcare organizations’ internal marketing, market research and/or quality improvement departments which create their own performance measurement tools, and with relatively small specialty research firms which provide survey-based healthcare market research and/or performance assessment. The Company’s ~~main~~primary competitors among such specialty firms ~~are~~include Press Ganey, which NRC believes has ~~revenue that is~~ significantly ~~larger~~higher annual revenue than the ~~Company’s revenue,~~Company, and three or four other ~~companies which~~firms that NRC believes have less annual revenue ~~smaller~~ than the ~~Company’s revenue.~~Company. The Company, to a certain degree, currently competes with, and anticipates that in the future it may increasingly compete with, (1) traditional market research firms which are significant providers of survey-based, general market research and (2) firms which provide services or products that complement healthcare performance assessments such as healthcare software or information systems. Although only a few of these competitors have ~~to-date~~ offered ~~survey-based, healthcare market research~~specific services that ~~competes~~compete directly with the Company’s ~~services,~~solutions, many of these competitors have substantially greater financial, information gathering, and marketing resources than the Company and could decide to increase their resource commitments to the Company’s market. There are relatively few barriers to entry into the Company’s market, and the Company expects increased competition in its market which could adversely affect the Company’s operating results through pricing pressure, increased marketing expenditures, and market share losses, among other factors. There can be no assurance that the Company will continue to compete successfully against existing or new competitors.

The Company believes the primary competitive factors within its market include quality of service, timeliness of delivery, unique service ~~uniqueness,~~capabilities, credibility of provider, industry experience, and price. NRC believes that its industry leadership position, exclusive focus on the healthcare industry, ~~dynamic questionnaire, syndicated products, accredited leadership conferences, educational programs, comparative performance database,~~cross-continuum presence, comprehensive portfolio of solutions and relationships with leading healthcare payers and providers position the Company to compete in this market.

Growth Strategy

NRC believes that the value proposition of its current solutions, combined with the favorable alignment of its solutions with emerging market demand, positions the Company to benefit from multiple growth opportunities. The Company believes that it can accelerate its growth through (1) increasing sales of its existing solutions to its existing clients (or cross-selling), (2) winning additional new clients through market share growth in existing market segments, (3) developing and introducing new solutions to new and existing clients, and (4) pursuing acquisitions of, or investments in, firms providing products, solutions or technologies which complement those of the Company.

Selling additional solutions to existing clients. Less than 20% of the Company’s existing clients purchase more than one of its solutions. NRC’s sales organization actively identifies and pursues these cross-sell opportunities in order to accelerate the growth of the Company.

Adding new clients. NRC believes that there is an opportunity to add new clients in each of the acute care, post-acute care and health plan market segments. For example, in the acute care segment, the Company has client relationships with approximately 50% of the facilities in the U.S., leaving half of the market as an available growth opportunity. The Company’s sales organization is actively identifying and engaging new client prospects in each of the segments noted above, with a focus on featuring its comprehensive cross continuum portfolio of solutions.

Adding new solutions. The need for growth, retention and engagement solutions in the market segments that NRC serves is evolving to align with emerging healthcare regulatory and reimbursement trends. The evolving market creates an opportunity for the Company to introduce new solutions that leverage its existing core competencies. The Company believes that there is an opportunity to drive sales growth with both existing and new clients, across all of the market segments that it serves, through the introduction of new solutions. Two examples of solutions the Company recently developed and introduced are the Care Transition and Point-of-Care offerings that were successfully piloted over the past year.

Pursue Strategic Acquisitions. The Company has historically complemented its organic growth with strategic acquisitions, having completed six such transactions over the past twelve years. These transactions have added new capabilities and access to market segments that are adjacent and complementary to the Company’s existing solutions and market segments. NRC believes that additional strategic acquisition opportunities exist for the Company to complement its organic growth by further expanding its service capabilities, technology offerings and end markets.

Sales and Marketing

The Company generates the majority of its revenue from the renewal of subscription-based client service agreements, supplemented by sales of other solutions to existing clients and the addition of new clients. NRC sales activities are carried out by a direct sales organization staffed with professional, trained sales associates. As compared to the typical industry practice of compensating sales associates with relatively high base pay and a relatively small sales commission, NRC compensates its sales staff with relatively low base pay and a relatively high commission component. The Company believes this compensation structure provides incentives to its sales associates to surpass sales goals and increases the Company’s ability to attract top-quality sales associates.

In addition to prospect leads generated by direct sales associates, the Company’s integrated marketing activities facilitate its ongoing receipt of prospect request-for-proposals. NRC uses lead generation mechanisms to add generated leads to its database of current and potential client contacts. The Company also maintains an active public relations program which includes (1) an ongoing presence in leading industry trade press and in the mainstream press, (2) public speaking at strategic industry conferences, (3) fostering relationships with key industry constituencies, and (4) the annual Consumer Choice Award program recognizing top-ranking healthcare organizations.

Clients

NRC’s clients include many of the nation’s largest healthcare systems. The Company serves over 2,500 acute care facilities, including over 75% of the Thomson “Top 100 Hospitals.” It also provides solutions to over 100 payer organizations and 9,500 post-acute facilities. These clients utilize NRC’s reporting platforms that capture, self-reported customer data from over 15 million unique healthcare episodes annually.

The Company’s ten largest clients accounted for 22%, 20%, and 19% of the Company’s total revenue in 2012, 2011 and 2010, respectively. Approximately 8% of the Company’s revenue was derived from foreign customers in 2012, 2011, and 2010.

For financial information by geographic area, see Note 12 to the Company’s consolidated financial statements.

Intellectual Property and Other Proprietary Rights

The Company’s success depends in part upon its data collection processes, research methods, data analysis techniques and internal systems, and procedures that it has developed specifically to serve clients in the healthcare industry. The Company has no patents. Consequently, it relies on a combination of copyright and trade secret laws and associate nondisclosure agreements to protect its systems, survey instruments and procedures. There can be no assurance that the steps taken by the Company to protect its rights will be adequate to prevent misappropriation of such rights or that third parties will not independently develop functionally equivalent or superior systems or procedures. The Company believes that its systems and procedures and other proprietary rights do not infringe upon the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not result in protracted and costly litigation, regardless of the merits of such claims or whether the Company is ultimately successful in defending against such claims.

Associates

As of December 31, ~~2009,~~2012, the Company employed a total of ~~260~~348 persons on a full-time basis. In addition, as of such date, the Company had 4235 part-time associates primarily in its survey operations, representing approximately 2018 full-time equivalent associates. None of the Company’s associates are represented by a collective bargaining unit. The Company considers its relationship with its associates to be good.

Executive Officers of the ~~Registrant~~Company

The following table sets forth certain information as of ~~March~~February 1, ~~2010,~~2013, regarding the executive officers of the Company:

Name		Age	Position

Michael D. Hays	58	55	~~President,~~ Chief Executive Officer ~~and Director~~

Susan L. Henricks	62	President and Chief Operating Officer

~~Patrick E. Beans~~Kevin R. Karas	55	52	Senior Vice President ~~Treasurer,~~Finance, Chief Financial Officer, ~~Secretary~~Treasurer and ~~Director~~Secretary

Michael D. Hays has served as Chief Executive Officer and a director since he founded the Company in 1981. He ~~was appointed to the additional role of~~also served as President of the Company ~~in July 2008, a position in which he also served~~ from 1981 to ~~2004.~~2004 and from July 2008 to July 2011. Prior to founding the Company, Mr. Hays served for seven years as a Vice President and a director of SRI Research Center, Inc. (n/k/a the Gallup Organization).

~~Patrick E. Beans~~Susan L. Henricks has served as ~~Vice~~ President ~~Treasurer,~~and Chief Operating Officer of the Company since she joined the Company in July 2011. From 2008 until joining the Company, she served as Managing Partner and Co-Founder of Arbor Capital, LLC, a private equity firm focused primarily on companies in the marketing and information services, payments technology and business process outsourcing sectors. Prior to starting Arbor Capital, Ms. Henricks served as President of the Financial Institution Services business of First Data Corporation, the largest processor of credit card, debit card and merchant transactions in the U.S., from 2006 to 2008, President of RRD Direct and then the directories business of RR Donnelley, a global leader in printing and print services, from 2000 to 2006, President of Donnelley Marketing, a direct marketing services company, from 1999 to 2000, and President of First Data Enterprises, the credit card issuing business of First Data Corporation, from 1997 to 1999. Ms. Henricks also held various leadership positions with Metromail Corporation, a direct marketing services company, from 1985 to 1997, including President and CEO from 1993 to 1997.

Kevin R. Karas has served as Chief Financial Officer, Treasurer and Secretary of the Company since September 2011, and ~~a director since 1997. He has served~~ as ~~the principal financial officer~~Senior Vice President Finance since he joined the Company in ~~August 1994.~~December 2010. From ~~June~~2005 to 2010, he served as Vice President of Finance for Lifetouch Portrait Studios, Inc., a national retail photography company. Mr. Karas also previously served as Chief Financial Officer at CARSTAR, Inc., an automobile collision repair franchise business, from 2000 to 2005, Chief Financial Officer at Rehab Designs of America, Inc., a provider of orthotic and prosthetic services, from 1993 until joining the Company, Mr. Beans was the finance director for the Central Interstate Low-Level Radioactive Waste Commission, a five-state compact developing a low-level radioactive waste disposal plan. From 1979 to ~~1988~~2000, and ~~from June 1992 to June 1993, he practiced~~ as a ~~certified public accountant.~~regional Vice President of Finance and Vice President of Operations at Novacare, Inc., a provider of physical rehabilitation services, from 1988 to 1993. He began his career as a Certified Public Accountant at Ernst & Young.

Executive officers of the Company are elected by and serve at the discretion of the Company’s Board of Directors. There are no family relationships between any directors or executive officers of NRC.

Available Information

More information regarding NRC is available on the Company's website at www.nationalresearch.com. NRC is not including the information contained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K. The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are made available to the public at no charge through a link appearing on the Company's website. NRC provides access to such materials through its website as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the Securities and Exchange Commission. Reports and amendments posted on the Company’s website do not include access to exhibits and supplemental schedules electronically filed with the reports or amendments.

~~Item 1A.~~

~~Risk Factors~~

Item 1A. Risk Factors

You should carefully consider each of the risks described below, together with all of the other information contained in this Annual Report on Form 10-K, before making an investment decision with respect to our securities. If any of the following risks develop into actual events, our business, financial condition or results of operations could be materially and adversely affected and you may lose all or part of your investment.

We depend on ~~performance tracking~~ contract renewals for a large share of our revenue and our operating results could be adversely affected.

We expect that a substantial portion of our revenue for the foreseeable future will continue to be derived from renewable ~~performance tracking services.~~service contracts. Substantially all contracts ~~for such services~~ are renewable annually at the option of our clients, although a client generally has no minimum purchase commitment under a contract and the contracts are generally cancelable on short or no notice without penalty. To the extent that clients fail to renew or defer their renewals, ~~from the quarter~~ we anticipate our ~~quarterly~~ results may be materially adversely affected. Our ability to secure renewals depends on, among other things, our ability to gather and analyze performance data in a consistent, high-quality, and timely fashion. In addition, the ~~performance tracking and market research activities~~service needs of our clients are affected by accreditation requirements, enrollment in managed care plans, the level of use of satisfaction measures in healthcare organizations’ overall management and compensation programs, the size of operating budgets, clients’ operating performance, industry and economic conditions, and changes in management or ownership. As these factors are beyond our control, we cannot ~~assure you~~ensure that we will be able to maintain our renewal rates. Any material decline in renewal rates from existing levels would have an adverse effect on our revenue and a corresponding effect on our operating and net income.

Our operating results may fluctuate ~~on a quarterly basis~~ and this may cause our stock price to decline.

Our operating results have fluctuated from period to period in the past and will likely fluctuate significantly in the future due to various factors. There has historically been fluctuation in our financial results related to Ticker, a stand-alone market information intelligence source and comparative performance database. In the future, we expect such fluctuations will continue, but to a lesser degree. Until May 2008, Ticker was deliverable on an annual basis, and historically we recognized revenue when it was delivered to the principal customers pursuant to their contracts, typically in the third quarter of the year. Substantially all of the related costs were deferred and subsequently charged to direct expenses contemporaneously with the recognition of the revenue. Starting in May 2008, the Company began providing Ticker subscription-based services to clients on a monthly basis generally over a twelve-month period. Accordingly, we now recognize much of the Ticker revenue ratably over a twelve-month period and, since October of 2008, all of the related costs are expensed in the month they are incurred. We will continue to have some annual sales which could increase fluctuation of operating results in the third quarter. A delay in completing and delivering Ticker, the timing of which is dependent upon our ability to access a third-party’s respondent panel on a timely basis, could delay recognition of such revenue and expenses which could materially affect operating results for the affected periods. We generate additional revenue from incidental customers subsequent to the completion of each monthly edition. Revenue and costs for these subsequent services are recognized as the services are performed and completed.

~~In addition, our~~ overall operating results may fluctuate as a result of a variety of ~~other~~ factors, including the size and timing of orders from clients, client demand for our services (which, in turn, is affected by factors such as accreditation requirements, enrollment in managed care plans, operating budgets and clients’ operating performance), the hiring and training of additional staff, ~~postal rate changes,~~expense increases, and industry and general economic conditions. Because a significant portion of our overhead is fixed in the short-term, particularly some costs associated with owning and occupying our building and full-time personnel expenses, ~~is fixed in the short-term,~~ our results of operations may be materially adversely affected in any particular ~~quarter~~period if revenue falls below our expectations. These factors, among others, make it possible that in some future ~~quarter~~period our operating results may be below the expectations of securities analysts and investors which would have a material adverse effect on the market price of our common stock.

We operate in a highly competitive market and could experience increased price pressure and expenses as a result.

The healthcare information and market research services industry is highly competitive. We ~~compete~~have traditionally competed with healthcare organizations’ internal marketing, market research and/or quality improvement departments that create their own performance measurement tools, and with relatively small specialty research firms that provide survey-based healthcare market research and/or performance assessment. ~~Our main~~The Company’s primary competitors among such specialty firms ~~are~~include Press Ganey, which we believe has significantly higher annual revenue ~~that is significantly larger~~ than ~~our revenue,~~us, and three or four other ~~companies~~firms that we believe have lower annual revenue ~~that is smaller~~ than ~~our revenue. We, to~~us. To a certain degree, we currently compete with, and we anticipate that in the future we may increasingly compete with, (1) traditional market research firms ~~that~~which are significant providers of survey-based, general market research, and (2) firms ~~that~~which provide services or products that complement healthcare performance assessments, such as healthcare software or information systems. Although only a few of these competitors have ~~to-date~~ offered ~~survey-based, healthcare market research~~specific services that ~~competes~~compete directly with our services, many of these competitors have substantially greater financial, information gathering, and marketing resources than ~~we do,~~the Company and could decide to increase their resource commitments to our market. There are relatively few barriers to entry into ~~our~~the Company’s market, and we expect increased competition in our market which could adversely affect our operating results through pricing pressure, increased ~~client service and~~ marketing expenditures, and market share losses, among other factors. ~~We cannot assure you~~There can be no assurance that wethe Company will continue to compete successfully against existing or new ~~competitors, and our revenue and operating net income could be adversely affected as a result.~~competitors.

Because our clients are concentrated in the healthcare industry, our revenue and operating results may be adversely affected by changes in regulations, a business downturn or consolidation with respect to the healthcare industry.

Substantially all of our revenue is derived from clients in the healthcare industry. As a result, our business, financial condition and results of operations are influenced by conditions affecting this industry, including changing political, economic, competitive and regulatory influences that may affect the procurement practices and operation of healthcare providers and payers. ~~Recently, Congressional leaders enacted a~~The 2010 Federal comprehensive healthcare reform plan, ~~including~~which includes provisions to control healthcare costs, improve healthcare quality and expand access to affordable health ~~insurance. These programs~~insurance, could result in lower reimbursement rates and otherwise change the environment in which providers and payers operate. In addition, large private purchasers of healthcare services are placing increasing cost pressure on providers. Healthcare providers may react to these cost pressures and other uncertainties by curtailing or deferring purchases, including purchases of our services. Moreover, there has been consolidation of companies in the healthcare industry, a trend which we believe will continue to grow. Consolidation in this industry, including the potential acquisition of certain of our clients, could adversely affect aggregate client budgets for our services or could result in the termination of a client’s relationship with us. The impact of these developments on the healthcare industry is difficult to predict and could have an adverse effect on our revenue and a corresponding effect on our operating and net income.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The legislation makes extensive changes to the current system of healthcare insurance and benefits that will include changes in Medicare and Medicaid payment policies and other healthcare delivery reforms aimed at improving quality and decreasing costs, comparative effectiveness research, and independent payment advisory boards, among other provisions. These provisions could negatively impact our health care clients and could impact the services we provide our clients, the demand for the services we provide and the Company’s business. At this time, it is difficult to estimate the impact of this legislation on the Company but there can be no assurances that health care reform will not adversely impact either our operating results or the manner in which we operate our business.

We rely on a limited number of key clients and a loss of one or more of these key clients will adversely affect our operating results.

We rely on a limited number of key clients for a substantial portion of our revenue. The Company’s ten largest clients accounted for ~~14%~~22%, ~~24%~~20%, and ~~29%~~19% of the Company’s total revenue in ~~2009, 2008,~~2012, 2011, and ~~2007,~~2010, respectively.

We cannot assure you that we will maintain our existing client base, maintain or increase the level of revenue or profits generated by our existing clients, or be able to attract new clients. Furthermore, the healthcare industry continues to undergo consolidation and we cannot assure you that such consolidation will not cause us to lose clients. The loss of one or more of our large clients or a significant reduction in business from such clients, regardless of the reason, ~~will~~may have a negative effect on our revenue and a corresponding effect on our operating and net income. See “Risk Factors -— Because our clients are concentrated in the healthcare industry, our revenue and operating results may be adversely affected by changes in regulations, a business downturn or consolidation with respect to the healthcare industry.”

~~Our future success depends on our ability to manage our growth, including identifying acquisition candidates and effectively integrating acquired companies.~~

Since our inception, our growth has placed significant demands on our management, administrative, operational and financial resources. In order to manage our growth, we will need to continue to implement and improve our operational, financial and management information systems, and continue to expand, motivate and effectively manage an evolving workforce. If our management is unable to effectively manage under such circumstances, the quality of our services, our ability to retain key personnel, and our results of operations could be materially adversely affected. Furthermore, we cannot assure you that our business will continue to expand. Reductions in clients’ spending on performance tracking and market research, increased competition, pricing pressures, and other general economic and industry trends could adversely affect our growth.

810

We may achieve a portion of our future revenue growth, if any, through acquisitions of complimentary businesses, products, services or technologies, although we currently have no commitments or agreements with respect to any such acquisitions. We have encountered minor problems with integrating people and processes in connection with past acquisitions. We cannot assure you that the integration of any possible future acquisitions will be managed without incurring higher than expected costs and expenses. In addition, we cannot assure you that, as a result of such unexpected costs and expenses, any possible future acquisition will not negatively affect our operating and net income.

We face several risks relating to our ability to collect the data on which our business relies.

Our ability to provide timely and accurate performance ~~tracking~~measurement and ~~market research~~improvement services to our clients depends on our ability to collect large quantities of high-quality data through surveys and interviews. If receptivity to our survey and interview methods by respondents declines, or, for some other reason, their willingness to complete and return surveys declines, or if we, for any reason, cannot rely on the integrity of the data we receive, then our revenue could be adversely affected with a corresponding effect on our operating and net income. In addition, we currently rely primarily on mail and telephone surveys for gathering information. If one or more of our competitors were to develop an online survey process that more effectively and efficiently gathers information, then we would be at a competitive disadvantage and our revenue could be adversely affected, with a corresponding effect on our operating and net income.

We also rely on third-party panels of pre-recruited consumer households to produce Ticker in a timely manner. If we are not able to continue to use these panels, or the time period in which we use these panels is altered and we cannot find alternative panels on a timely, cost-competitive basis, we could face an increase in our costs or an inability to effectively produce Ticker. In either case, our operating and net income ~~would~~could be negatively affected.

Our principal shareholder effectively controls our company.

Michael D. Hays, our ~~President and~~ Chief Executive Officer, beneficially owned ~~26.7%~~approximately 58% of our outstanding common stock as of March 30, 2010. In addition, Mr. Hays and his wife have created certain grantor retained annuity trusts and have transferred to such trusts shares representing, in the aggregate, approximately 45.1% of our outstanding common stock as of March 30, 2010, all or a portion of which will be returned to Mr. Hays or his wife over the next two years.February 20, 2013. As a result, Mr. Hays can ~~or will be able to,~~ control matters requiring shareholder approval, including the election of directors and the approval of significant corporate matters such as change of control transactions. The effects of such influence could be to delay or prevent a change of control of our company unless the terms are approved by Mr. Hays.

Our business and operating results could be adversely affected if we are unable to attract or retain key managers and other personnel.

Our future performance ~~will~~may depend, to a significant extent, upon the efforts and ability of our key personnel who have expertise in gathering, interpreting and marketing survey-based performance information for healthcare markets. Although client relationships are managed at many levels within our company, the loss of the services of Michael D. Hays, our ~~President and~~ Chief Executive Officer, or one or more of our other senior managers, could have a material adverse effect, at least in the short to medium term, on most significant aspects of our business, including strategic planning, product development, and sales and customer relations. As of December 31, ~~2009,~~2012, we maintained $500,000 of key officer life insurance on Mr. Hays. Our success will also depend on our ability to hire, train and retain skilled personnel in all areas of our business. Currently, we do not have employment agreements with our officers or our other key personnel. Competition for qualified personnel in our industry is intense, and many of the companies that compete with us for qualified personnel have substantially greater financial and other resources than us. Furthermore, we expect competition for qualified personnel to become more intense as competition in our industry increases. We cannot assure you that we will be able to recruit, retain and motivate a sufficient number of qualified personnel to compete successfully.

If intellectual property and other proprietary information technology were copied or independently developed by our competitors, our operating results could be negatively affected.

Our success depends in part upon our data collection process, research methods, data analysis techniques, and internal systems and procedures that we have developed specifically to serve clients in the healthcare industry. We have no patents. Consequently, we rely on a combination of copyright, trade secret laws and associate nondisclosure agreements to protect our systems, survey instruments and procedures. We cannot assure you that the steps we have taken to protect our rights will be adequate to prevent misappropriation of such rights, or that third parties will not independently develop functionally equivalent or superior systems or procedures. We believe that our systems and procedures and other proprietary rights do not infringe upon the proprietary rights of third parties. We cannot assure you, however, that third parties will not assert infringement claims against us in the future, or that any such claims will not result in protracted and costly litigation, regardless of the merits of such claims, or whether we are ultimately successful in defending against such claims.

~~Errors~~

Our business and operating results could be adversely affected if we experience business interruptions or failure of our information technology and communication systems.

Our ability to provide timely and accurate performance measurement and improvement services to our clients depends on the efficient and uninterrupted operation of our information technology and communication systems, and those of our external service providers. Our systems and those of our external service providers, could be exposed to damage or interruption from fire, natural disasters, energy loss, telecommunication failure, security breach and computer viruses. An operational failure or outage in our information technology and communication systems or ~~dissatisfaction~~those of our external service providers, could result in loss of customers, damage to customer relationships, reduced revenue and profits, refunds of customer charges and damage our reputation and may result in additional expense to repair or replace damaged equipment and recover data loss resulting from the interruption. Although we have taken steps to prevent system failures and have back-up systems and procedures to prevent or reduce disruptions, such steps may not prevent an interruption of services and our disaster recovery planning may not account for all contingencies. Additionally, our insurance may not adequately compensate us for all losses or failures that may occur. Any one of the above situations could have a material adverse effect on our business, financial condition, results of operations and reputation.

Security breaches or computer viruses could harm our business.

In connection with ~~performance tracking~~our client services, we receive, process, store and ~~other surveys~~transmit sensitive business information electronically over the Internet. Computer viruses could spread throughout our systems and disrupt operations and service delivery. Unauthorized access to our computer systems or databases could result in the theft or publication of confidential information or the deletion or modification of records or could otherwise cause interruption in our operations. We cannot be certain that the technology protecting our networks and information will successfully prevent computer viruses, data thefts, release of confidential information or security breaches. A compromise in our data security systems that results in inappropriate disclosure of our associates', customers' or vendors' confidential information, could harm our reputation and expose us to regulatory action and claims. Changes in privacy and information security laws and standards may require we incur significant expense to ensure compliance due to increased technology investment and operational procedures. An inability to prevent security breaches or computer viruses or failure to comply with privacy and information security laws could result in litigation and regulatory risk, loss of customers, damage to customer relationships, reduced revenue and profits, refunds of customer charges and damage our reputation, which could adversely affect our ~~business.~~business, financial condition, results of operations and reputation.

~~Many healthcare providers, payers~~Our growth strategy includes future acquisitions which involve inherent risk.

In order to expand services or technologies to existing clients and ~~other entities~~increase our client base, we may make strategic business acquisitions that we believe complement our business. Acquisitions have inherent risks which may have a material adverse effect on our business, financial condition, or individuals use our renewable performance tracking and other healthcare surveys in promoting and/or operating their businesses, and as a factor in determining physician or employee compensation. Consequently, any errors in the data received or in the final surveys, as well as the actual results of ~~such surveys, can have~~operations, including, among other things: (1) failure to successfully integrate the purchased operations, technologies, products or services and maintain uniform standard controls, policies and procedures; (2) substantial unanticipated integration costs; (3) loss of key associates including those of the acquired business; (4) diversion of management’s attention from other operations; (5) failure to retain the customers of the acquired business; (6) failure to achieve any projected synergies and performance targets; (7) additional debt and/or assumption of known or unknown liabilities; (8) dilutive issuances of equity securities; and (9) a ~~significant impact on such providers’, payers’~~write-off of goodwill, software development costs, client lists, other intangibles and amortization of expenses. If we fail to successfully complete acquisitions or ~~other entities’~~integrate acquired businesses, we may not achieve projected results and ~~on any such individual’s compensation. In addition, parties who have not performed well in our surveys~~there may be dissatisfied with the results of the surveys or the manner in which the results may be used by competitors or others. Although any such errors or dissatisfaction with the results of the surveys, or the manner in which the surveys have been used, has not resulted in litigation against us, we cannot assure you that we will not face future litigation, which may be costly, as a ~~result of a healthcare provider’s, payer’s, other entity’s or individual’s allegation of errors in~~material adverse effect on our ~~surveys or dissatisfaction with the results thereof.~~

~~Regulatory developments could adversely affect our revenue~~business, financial condition and results of operations.

In the operation of our business, we have access to, or gather certain confidential information, such as medical histories of our respondents. As a result, we could be subject to potential liability for any inappropriate disclosure or use of such information. Even if we do not improperly disclose confidential information, privacy laws, including the U.S. Health Insurance Portability and Accountability Act of 1996, the U.S. Patriot Act and Canadian legislation relating to personal health information, have had, and could in the future have, the effect of increasing our costs and restricting our ability to gather and disseminate information which could ultimately have a negative effect on our revenue.

Several years ago, the Centers for Medicare and Medicaid Services initiated a nationwide effort to collect and publicly report hospital quality data, including the patient experience of care questionnaire. This questionnaire is called the HCAHPS questionnaire and was developed by the Agency for Healthcare Research and Quality. After several years of development and consensus building, the HCAHPS survey program began in 2006. This survey program may increase competition and pricing pressures, which could adversely affect our operating and net income.

The enactment of the new comprehensive healthcare reform plan will include changes in Medicare and Medicaid payment policies and other healthcare delivery reforms that could potentially impact our business.

1012

~~Item 1B.~~

~~Unresolved Staff Comments~~

Item 1B. Unresolved Staff Comments

The Company has no unresolved staff comments to report pursuant to this item.

~~Item 2.~~

~~Properties~~

Item 2. Properties

The Company’s headquarters is located in an owned office building in Lincoln, Nebraska, of which 62,000 square feet are used for the Company’s operations. This facility houses all the capabilities necessary for NRC’s survey programming, printing and distribution, data processing, analysis and report generation, marketing, and corporate administration. The Company’s ~~Canadian office~~term notes are secured by this property, among other things.

The Company is ~~located in a rented~~leasing 2,600 square ~~foot~~feet of office ~~building~~space in Markham, ~~Ontario. The operations~~Ontario, 5,100 square feet of ~~TGI are located~~office space in San Diego, California ~~where the Company leases 6,100~~and 8,100 square feet of office ~~space. MIV’s operations are located~~space in ~~Wausau, Wisconsin, where the Company leases 8,500 square feet of office space.~~Seattle, Washington.

~~Item 3.~~

~~Legal Proceedings~~

Item 3. Legal Proceedings

The Company is not subject to any material pending litigation.

Item 4. Mine Safety Disclosures

Not applicable.

1113

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s Common Stock, ~~$.001~~$0.001 par value (“Common Stock”), is traded on the NASDAQ Global Market under the symbol “NRCI.” The following table sets forth the range of high and low sales prices for, and dividends declared on, the Common Stock for the period from January 1, ~~2008,~~2011, through

December 31, ~~2009:~~

High Low
Dividends
Declared Per
Common Share

2008 Quarter Ended:
March 31 $ 27.94 $ 24.75 $ .14
June 30 $ 32.06 $ 25.14 $ .14
September 30 $ 35.58 $ 23.01 $ .14
December 31 $ 34.93 $ 19.00 $ .14

2009 Quarter Ended:
March 31 $ 29.01 $ 19.48 $ .16
June 30 $ 28.10 $ 23.10 $ .16
September 30 $ 26.74 $ 23.55 $ .16
December 31 $ 25.30 $ 20.32 $ .16
2012:

~~On March 30, 2010, there were approximately 19 shareholders of record, and approximately 500 beneficial owners of the Common Stock.~~

	High		Low		Dividends Declared Per Common Share
2011 Quarter Ended:
March 31	$	34.25	$	29.01	$	0.22
June 30	$	36.89	$	33.63	$	0.22
September 30	$	44.44	$	30.96	$	0.22
December 31	$	38.96	$	28.00	$	0.22

2012 Quarter Ended:
March 31	$	43.98	$	36.58	$	0.26
June 30	$	53.00	$	41.00	$	0.26
September 30	$	52.71	$	46.19	$	0.26
December 31	$	58.23	$	49.51	$	1.76

~~In March 2005, the Company announced the commencement of a quarterly cash dividend.~~ Cash dividends of ~~$4.3~~$17.4 million and ~~$3.8~~$5.9 million in the aggregate were declared and paid during the twelve-month periods ended December 31, ~~2009~~2012 and ~~2008,~~2011, respectively. The payment and amount of future dividends is at the discretion of the Company’s Board of Directors and will depend on the Company’s future earnings, financial condition, general business conditions and other factors.

On February 20, 2013, there were approximately 17 shareholders of record and approximately 1,200 beneficial owners of the Common Stock.

In February 2006, the Board of Directors of the Company authorized the repurchase of 750,000 shares of common stock in the open market or in privately negotiated transactions. As of February 20, 2013, 610,417 shares have been purchased under this authorization.

The table below summarizes ~~the Company’s~~stock repurchases ~~of its common stock~~ during the three-month period ended December 31, ~~2009.~~2012.

Period
Total Number
of Shares
Purchased

Average
Price Paid
Per Share

Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs(1)

Maximum Number of
Shares That May Yet Be
Purchased Under
the Plans or Programs

October 1 - October 31, 2009 — — — 289,275

November 1 - November 30, 2009 — — — 289,275

December 1 - December 31, 2009 210 $ 21.69 210 289,065

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

October 1 – October 31, 2012		28,194	$	50.32		28,194		162,668
November 1 – November 30, 2012		--		--		--		162,668
December 1 – December 31, 2012		19,270	$	53.88		19,270		143,398

~~(1)~~

~~In February 2006, the Company’s Board of Directors authorized a stock repurchase plan providing for the repurchase of an additional 750,000 shares. The plan has no expiration date.~~

1214

The following graph compares the cumulative 5-year total return provided shareholders on National Research Corporation's common stock relative to the cumulative total returns of the NASDAQ Composite Index and the Russell 2000 Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on December 31, ~~2004,~~2007, and its relative performance is tracked through December 31, ~~2009.~~2012.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN DATA

12/04 12/05 12/06 12/07 12/08 12/09

National Research Corporation 100.00 109.35 146.03 177.05 193.68 142.27

NASDAQ Composite 100.00 101.33 114.01 123.71 73.11 105.61

Russell 2000 100.00 104.55 123.76 121.82 80.66 102.58

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

	12/07	12/08	12/09	12/10	12/11	12/12


National Research Corporation	100.00	109.39	80.36	136.99	159.37	234.23
NASDAQ Composite	100.00	59.03	82.25	97.32	98.63	110.78
Russell 2000	100.00	66.21	84.20	106.82	102.36	119.09

1315

~~Item 6.~~

~~Selected Financial Data~~

Item 6. Selected Financial Data

The selected statement of income data for the years ended December 31, ~~2009, 2008,~~2012, 2011, and ~~2007,~~2010, and the selected balance sheet data at December 31, ~~2009~~2012, and ~~2008,~~2011, are derived from, and are qualified by reference to, the audited consolidated financial statements of the Company included elsewhere in this Annual Report on Form 10-K. The selected statement of income data for the years ended December 31, ~~2006~~2009, and ~~2005,~~2008, and the balance sheet data at December 31, ~~2007, 2006,~~2010, 2009, and ~~2005,~~2008, are derived from audited consolidated financial statements not included herein. The Company ~~has made acquisitions~~acquired OCS on August 3, 2010, MIV on December 19, 2009, and ~~began recognizing share-based compensation expense during the five years covered by the selected statement financial data.~~customer contracts of SQ Strategies on April 1, 2008. See Note 2 ~~and Note 7~~ to the Company's consolidated financial statements.

	Year Ended December 31,
	2012			2011			2010			2009			2008
	(In thousands, except per share data)
Statement of Income Data:
Revenue	$	86,421		$	75,767		$	63,398		$	57,692		$	51,013
Operating expenses:
Direct		35,461			28,667			24,635			24,148			23,611
Selling, general and administrative		23,542			23,300			20,202			16,016			12,728
Depreciation and amortization		4,699			5,065			4,704			3,831			2,685
Total operating expenses		63,702			57,032			49,541			43,995			39,024
Operating income		22,719			18,735			13,857			13,697			11,989
Other expense		(512	)		(575	)		(542	)		(580	)		(6	)
Income before income taxes		22,207			18,160			13,315			13,117			11,983
Provision for income taxes		7,139			6,596			4,816			4,626			4,538
Net income	$	15,068		$	11,564		$	8,499		$	8,491		$	7,445

Net income per share - basic	$	2.22		$	1.73		$	1.28		$	1.28		$	1.11
Net income per share - diluted	$	2.17		$	1.69		$	1.26		$	1.26		$	1.09
Dividends per share	$	2.54		$	0.88		$	0.76		$	0.64		$	0.56
Weighted average shares outstanding – basic		6,775			6,672			6,637			6,637			6,685
Weighted average shares outstanding – diluted		6,951			6,842			6,735			6,723			6,831

	December 31,
	2012			2011			2010			2009			2008
	(In thousands)
Balance Sheet Data:
Working capital deficiency	$	(11,483	)	$	(2,262	)	$	(8,809	)	$	(4,432	)	$	(10,650	)
Total assets		100,046			100,676			95,770			72,499			72,145
Total debt and capital lease obligations, including current portion		12,763			14,912			16,599			7,719			12,954
Total shareholders’ equity	$	56,742		$	55,554		$	48,584		$	44,171		$	38,598

Year Ended December 31,
2009 2008 2007 2006 2005
(In thousands, except per share data)

Statement of Income Data:
Revenue $ 57,692 $ 51,013 $ 48,923 $ 43,771 $ 32,437
Operating expenses:
Direct expenses 24,574 23,611 21,801 19,445 13,642
Selling, general and administrative 15,590 12,728 13,173 12,158 8,617
Depreciation and amortization 3,831 2,685 2,583 2,260 1,762
Total operating expenses 43,995 39,024 37,557 33,863 24,021
Operating income 13,697 11,989 11,366 9,908 8,416
Other income (expenses) (580 ) (6 ) (248 ) (402 ) 99
Income before income taxes 13,117 11,983 11,118 9,506 8,515
Provision for income taxes 4,626 4,538 4,278 3,622 3,279
Net income $ 8,491 $ 7,445 $ 6,840 $ 5,884 $ 5,236

Net income per share - basic $ 1.28 $ 1.11 $ 1.00 $ 0.86 $ 0.74
Net income per share - diluted $ 1.26 $ 1.09 $ 0.98 $ 0.85 $ 0.74
Dividends per share $ 0.64 $ 0.56 $ 0.48 $ 0.40 $ 0.32
Weighted average shares outstanding – basic 6,637 6,685 6,850 6,836 7,038
Weighted average shares outstanding – diluted 6,723 6,831 7,011 6,954 7,118

December 31,
2009 2008 2007 2006 2005
(In thousands)
Balance Sheet Data:
Working capital (deficit) $ (4,432 ) $ (10,650 ) $ (2,384 ) $ (1,482 ) $ 8,058
Total assets 72,499 72,145 61,869 61,532 44,675
Total debt, including current portion 7,719 12,954 2,993 11,093 1,471
Total shareholders’ equity $ 44,171 $ 38,598 $ 42,286 $ 36,751 $ 32,593

1416

~~Item 7.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company ~~believes it~~ is a leading provider of ~~ongoing survey-based performance measurement,~~analytics and insights that facilitate revenue growth, patient, employee and customer retention and patient engagement for healthcare providers, payers and other healthcare organizations. The Company’s solutions support the improvement of business and clinical outcomes, while facilitating regulatory compliance and the shift to population-based health management for its clients. The Company’s ability to systematically capture, analyze and deliver to its clients self-reported information from patients, families and consumers is critical in today’s healthcare market. NRC believes that access to and analysis ~~tracking, improvement services and governance education to the healthcare industry~~of its extensive consumer-driven information will become even more valuable in the ~~United States~~future as healthcare providers increasingly need to more deeply understand and ~~Canada. Since 1981,~~engage patients and consumers in an effort towards effective population-based health management.

The Company’s portfolio of subscription-based solutions provide actionable information and analysis to healthcare organizations and payers across a range of mission-critical, constituent-related elements, including patient experience and satisfaction, community population health risks, workforce engagement, community perceptions, and physician engagement. NRC partners with clients across the ~~Company has provided these services using traditional market research methodologies~~continuum of healthcare services. The Company’s clients range from acute care hospitals and post-acute providers, such as ~~direct mail, telephone, internet-based surveys, focus groups~~home health, long-term care and ~~in-person interviews. Since 2002, the current primary data collection methodology used is direct mail, but the Company still uses other methodologies for certain types of studies.~~hospice, to numerous payer organizations. The Company ~~addresses the growing need of~~believes this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers ~~to measure the care outcomes, specifically experience~~towards a more collaborative and ~~health status of their patients and/or members, and provides information on governance issues. NRC develops tools that enable~~interactive healthcare organizations to obtain performance measurement information necessary to comply with industry and regulatory standards, and to improve their business practices so that they can maximize resident and/or patient attraction, experience, retention and profitability. The Company believes that a driver of its growth and the growth of its industry will be the increase in demand for performance measurement, improvement and educational services as a result of more public reporting programs. The Company’s primary types of information services are performance tracking services, subscription-based educational and improvement services, and Ticker.system.

Acquisitions

On ~~December 19, 2008,~~August 3, 2010, the Company acquired ~~My InnerView, Inc. (“MIV”),~~all of the issued and outstanding shares of stock and stock rights of OCS, a ~~leading~~ provider of ~~quality~~clinical, financial and ~~performance improvement solutions~~operational benchmarks and analytics to home care and hospice providers. The acquisition provides the Company with an entry in the home health and hospice markets through OCS’s customer relationships with home healthcare and hospice providers and expands the Company's service offerings across the continuum of care. Goodwill related to the ~~senior care profession. MIV offers resident, family~~acquisition of OCS primarily relates to intangible assets that do not qualify for separate recognition, including the depth and employee satisfaction measurement and improvement products to the long-term care, assisted and independent living markets in the United States. MIV works with over 8,000 senior care providers throughout the United States housing what the Company believes is the largest datasetknowledge of ~~senior care satisfaction metrics in the nation.~~management. The all-cash consideration paid at closing ~~for MIV included payment~~was $15.3 million, net of ~~$11,500,000 in~~$1.0 million cash and $440,000 of direct expenses capitalized as purchase price. The merger agreement under which the Company acquired MIV provided for contingent earn-out payments of which $581,000 of the 2009 earn-out was included in this amount.

On April 1, 2008, approximately 10 customer contracts were purchased from SQ Strategies for $249,000. The recording of this asset purchase increased customer related intangibles by $260,000 and deferred revenue by $11,000.received.

Critical Accounting Policies and Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The most significant of these areas involving difficult or complex judgments made by management with respect to the preparation of the Company’s consolidated financial statements for fiscal year ~~2009~~2012 include:

·●

Revenue recognition;

~~Valuation of long-lived assets;~~

·●

Valuation of goodwill and identifiable intangible assets; and

·●

Income taxes.

1517

Revenue Recognition

The Company derives a majority of its operating revenue from its annually renewable services, which include performance ~~tracking~~measurement and improvement services, ~~subscription-based educational services~~healthcare analytics and ~~Ticker.~~governance education services. The Company provides ~~interim and annual performance tracking~~these services to its clients under annual client service contracts, although such contracts are generally cancelable on short or no notice without penalty. The Company provides subscription-based educational services to clients generally under annual service contracts over a twelve-month period and publishes healthcare market information for its clients through its Ticker. Starting in May 2008, the Company began providing Ticker subscription-based services to clients on a monthly basis generally over a twelve-month period, however, some Ticker subscriptions will continue to be sold and delivered on an annual basis. The Company also derives some revenue from its custom and other research projects.

~~The Company’s performance tracking services are performance tracking and improvement tools for gathering and analyzing data from survey respondents. Such services~~Services are provided ~~pursuant to contracts which~~under subscription-based service agreements. The Company recognizes subscription-based service revenue over the period of time the service is provided. Generally, the subscription periods are ~~generally renewable annually,~~for twelve months and ~~that provide for a customer-specific study which~~revenue is ~~conducted via a series of surveys and delivered via a series of updates or reports,~~recognized equally over the timing and frequency of which vary by contract (such as monthly or weekly). These contracts are generally cancelable on short or no notice without penalty and, since progress on these contracts can be tracked and regular updates and reports are made, clients are entitled to any work-in-process, but are obligated to pay for all services performed through cancellation. Typically, thesesubscription period.

Certain contracts are fixed-fee arrangements with a portion of the project fee billed in advance and the remainder billed periodically over the duration of the project. Revenue and direct expenses for ~~the Company’s performance tracking~~ services provided under these contracts are recognized under the proportional performance method.

Under the proportional performance method, the Company recognizes revenue based on output measures or key milestones such as survey set-up, survey mailings, survey returns and reporting. The Company measures its progress based on the level of completion of these output measures and recognizes revenue accordingly. Management judgments and estimates must be made and used in connection with revenue recognized using the proportional performance method. If management made different judgments and estimates, then the amount and timing of revenue for any period could differ materially from the reported revenue.

The Company ~~recognizes subscription-based educational~~also derives revenue from hosting arrangements where our propriety software is offered as a service to our customers through our data processing facilities. The Company’s revenue ~~over the period of time the service is provided. Generally, the subscription periods are~~also includes software-related revenue for ~~twelve months~~software license revenue, installation services, post-contract support (maintenance) and training. Software-related revenue is recognized ~~equally over~~in accordance with the ~~subscription period.~~provisions of Accounting Standards Codification (“ASC”) 985-605, Software-Revenue Recognition.

~~Ticker was published by NRC solely on an annual basis from 1996~~Hosting arrangements to ~~September 2008. The Company recognizes revenue on Ticker contracts upon delivery~~provide customers with access to the ~~principal customers. Revenue~~Company’s propriety software are marketed under ~~some annual contracts which do~~long-term arrangements, generally over periods of one to three years. Under these arrangements, the customer is not ~~include monthly updates is fully recognized upon delivery, typically in~~provided the ~~third quarter~~contractual right to take possession of the ~~year. Starting in May 2008,~~licensed software at any time during the ~~Company added subscription-based services,~~hosting period without significant penalty, and the ~~revenue from which~~customer is generally recognized on a monthly basis over a twelve-month period. Until September 2008, the Company would defer costs of preparing the survey data for Ticker and expense these at the time the annual contract revenue was recognized. Starting in October 2008, these costs were expensed monthly. The Company generates additional revenue from incidental customers subsequent to the completion of each monthly edition. Revenue and costs for these subsequent services are recognized as the services are performed and completed. Ticker is generallynot provided pursuant to contracts that provide for the receipt of survey results that are customized to meet an individual client’s specific information needs. Typically, these contracts are not cancelable by clients, clients receive no rights in the comprehensive healthcare database which results from this survey, other than the right to ~~use~~run the ~~customized reports purchased pursuant thereto,~~software on their own hardware or contract with another party unrelated to us to host the software. Upfront fees for set-up services are typically billed for our hosting arrangements. However, these arrangements do not qualify for separation from the ongoing hosting services due to the absence of standalone value for the set-up services. Therefore, we account for these arrangements as service contracts and ~~amounts due~~recognize revenue ratably over the hosting service period when all other conditions to revenue are met. Other conditions that must be met before the commencement of revenue recognition include achieving evidence of an arrangement, determining that the collection of the revenue is probable, and determining that fees are fixed and determinable.

The Company’s software arrangements typically involve the sale of a time-based license bundled with installation services, post-contract support (“PCS”) and training. License terms range from one year to three years and require an annual fee for ~~Ticker~~bundled elements of the arrangement. PCS is also contractually provided for a period that is co-terminus with the term of the time-based license. The Company’s installation services are ~~billed prior~~not considered to ~~or at delivery.~~be essential to the functionality of the software license. The Company does not achieve vendor-specific objective evidence (“VSOE”) of the fair value of the undelivered elements of its software arrangements (primarily PCS) and, therefore, these arrangements are accounted for as a single unit of accounting with revenue recognized ratably over the minimum bundled PCS period.

1618

~~As a result of the timing of recognition of revenue and costs associated with Ticker, the Company’s margins vary throughout the year.~~

The Company’s revenue ~~recognition policy~~arrangements (not involving software elements) may include multiple elements. In assessing the separation of revenue for ~~Ticker~~elements of such arrangements, we first determine whether each delivered element has standalone value based on whether we or other vendors sell the services separately. We also consider whether there is ~~not sensitive to significant estimates and judgments.~~

~~Valuation~~sufficient evidence of ~~Long-Lived Assets~~

The Company monitors events and changes in circumstances that may require the Company to review the carrying value of its long-lived assets. The Company assesses whether an impairment of assets held and used may have occurred using undiscounted future operating cash flows. Impairments, if they occur, are measured using the fair value of the ~~assets.~~elements in allocating the fees in the arrangement to each element. Revenue allocated to an element is limited to revenue that is not subject to refund or otherwise represents contingent revenue.

On January 1, 2011, the Company prospectively adopted Accounting Standard Update (“ASU”) 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (ASU 2009-13). For arrangements entered into or materially modified beginning January 1, 2011, we allocated revenue to arrangements with multiple elements based on relative selling price using a selling price hierarchy. The ~~assessment~~selling price for a deliverable is based on its VSOE if it exists, otherwise third-party evidence of selling price. If neither exists for a deliverable, the best estimate of the ~~recoverability~~selling price is used for that deliverable based on list price, representing a component of ~~long-lived assets may be adversely impacted if estimated future operating cash flows are not achieved.~~management’s market strategy, and an analysis of historical prices for bundled and standalone arrangements.

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Among others, management believes the following circumstances are important indicators of potential impairment of such assets and, as a result, may trigger an impairment review:

~~Significant underperformance in comparison to historical or projected operating results;~~

~~Significant changes in the manner or use of acquired assets or the Company’s overall strategy;~~

~~Significant negative trends in the Company’s industry or the overall economy;~~

~~A significant decline in the market price for the Company’s common stock for a sustained period; and~~

~~The Company’s market capitalization falling below the book value of the Company’s net assets.~~

Valuation of Goodwill and Identifiable Intangible Assets

Intangible assets include customer relationships, trade ~~name~~names, non-compete agreements and goodwill. ~~Goodwill represents~~Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the ~~difference between~~carrying amount of the ~~purchase price paid~~assets may not be recoverable. The Company reviews intangible assets with indefinite lives for impairment annually as of October 1 and whenever events or changes in ~~acquisitions using~~circumstances indicate that the ~~purchase method~~carrying value of ~~accounting, and~~an asset may not be recoverable.

When performing the impairment assessment, the Company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of our intangible assets with indefinite lives. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of the ~~net assets acquired. Goodwill and~~ indefinite-lived intangibles ~~are assessed annually for impairment and are~~is less than their carrying amount, the Company calculates the fair value using a market approach. If the carrying value of an intangible asset with an indefinite life exceeds its fair value, then the intangible asset is written-down to their fair values. The Company did not ~~amortized.~~recognize any impairments related to our long-lived assets during 2012, 2011, or 2010.

AsGoodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. All of ~~December 31, 2009,~~ the ~~Company had~~Company’s goodwill ~~of $39.9 million. As~~is allocated to its reporting units, which are the same as its operating segments. Goodwill is reviewed for impairment at least annually as of October 1 ~~of each year (or more frequently as~~and whenever events or changes in circumstances ~~indicate), the Company evaluates the estimated fair value of the Company’s goodwill. On these evaluation dates, to the extent~~indicate that the carrying value of ~~the net assets~~goodwill may not be recoverable.

The Company reviews for goodwill impairment by first assessing qualitative factors to determine whether any impairment may exist. If we believe, as a result of the ~~Company’s reporting units having goodwill~~qualitative assessment that it is ~~greater~~more likely than not that the ~~estimated~~ fair value ~~impairment charges will be recorded. The Company’s analysis has resulted in~~of a reporting unit is less than its carrying amount, a quantitative two-step test is required; otherwise, no further testing is required. Under the first step of the quantitative test, the fair value ~~substantially exceeding~~of the reporting unit is compared with its carrying value ~~in four~~(including goodwill). If the fair value of the ~~five business units having goodwill. For~~reporting unit exceeds its carrying value, step two does not need to be performed. If the ~~newest business unit, MIV, the estimated~~ fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the fair value of that goodwill. The fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the fair value of the reporting unit goodwill.

In instances when a step two is required, the fair value of the reporting unit is determined using an income approach and comparable market multiples. Under the income approach, there are a number of inputs used to calculate the fair value using a discounted cash flow model, including operating results, business plans, projected cash flows and a discount rate. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital, which considers market and industry data. Operational management develops growth rates and cash flow projections for each reporting unit considering industry and Company-specific historical and projected information. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant weighted average cost of capital and low long-term growth rates. Under the market approach, the Company considers its market capitalization, comparisons to other public companies’ data, and recent transactions of similar businesses within the Company’s industry.

No impairments were recorded during the years ended December 31, 2012, 2011 or 2010. The most recent quantitative analysis was performed as of October 1, 2011. That analysis indicated that the fair value of our reporting units, including goodwill, was significantly in excess of their carrying values. The Company performed a qualitative analysis as of October 1, 2012, which did not ~~substantially exceed its carrying value. This~~indicate that it was ~~due, in part, to the 2009 MIV revenues and operating margins being below original projections, but management believes~~more likely than not that the ~~performance is improving during~~carrying values of the first part of 2010. No impairment loss has been recorded on goodwill in 2009, 2008 or 2007. The Company will continue to evaluate for impairment as unforeseen future events may impact the goodwill valuation.reporting units exceeded fair value.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under that method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Management judgment is required to determine the provision for income taxes and to determine whether deferred income taxes will be realized in full or in part. Such judgments include, but are not limited to, the likelihood we would realize the benefits of net operating loss carryforwards, the adequacy of valuation allowances, the election to capitalize or expense costs incurred, and the probability of outcomes of uncertain tax positions. It is possible that the various taxing authorities could challenge those judgments or positions and reach conclusions that would cause us to incur tax liabilities in excess of, or realize benefits less than, those currently recorded. In addition, changes in the geographical mix or estimated amount of annual pretax income could impact our overall effective tax rate.

Results of Operations

The following table sets forth, for the periods indicated, selected financial information derived from the Company’s consolidated financial statements, expressed as a percentage of total revenue and the percentage change in such items versus the prior comparable ~~period.~~period (please note that all columns may not add up to 100% due to rounding). The trends illustrated in the following table may not necessarily be indicative of future results. The discussion that follows the table should be read in conjunction with the Company’s consolidated financial statements.

	Percentage of Total Revenue Year Ended December 31,									Percentage Increase (Decrease)						Percentage of Total Revenue Year Ended December 31,									Percentage Increase (Decrease)
	2009			2008			2007			2009 over 2008			2008 over 2007			2012			2011			2010			2012 over 2011			2011 over 2010

Revenue		100.0	%		100.0	%		100.0	%		13.1	%		4.3	%		100.0	%		100.0	%		100.0	%		14.1	%		19.5	%
Operating expenses:
Direct expenses		42.6			46.3			44.6			4.1			8.3
Direct																	41.0			37.8			38.8			23.7			16.4
Selling, general and administrative		27.0			25.0			26.9			22.5			(3.4	)		27.2			30.8			31.9			1.0			15.3
Depreciation and amortization		6.6			5.3			5.3			42.7			4.0			5.4			6.7			7.4			(7.2	)		7.7
Total operating expenses		76.3			76.5			76.8			12.7			3.9			73.7			75.3			78.1			11.7			15.1
Operating income		23.7	%		23.5	%		23.2	%		14.2	%		5.5	%		26.3	%		24.7	%		21.9	%		21.3	%		35.2	%

Year Ended December 31, ~~2009,~~2012, Compared to Year Ended December 31, ~~2008~~2011

Revenue. Revenue increased ~~13.1%~~14.1% in ~~2009~~2012 to ~~$57.7~~$86.4 million from ~~$51.0~~$75.8 million in ~~2008. This~~2011. The increase was ~~primarily~~ due to market share growth and vertical growth in the ~~acquisition~~existing client base. Revenue from subscription-based agreements comprised 76.0% of ~~MIV in~~the total revenue for the year ended December ~~2008.~~31, 2012 compared to 63.0% of the total revenue for the year ended December 31, 2011.

Direct expenses. Direct expenses increased ~~4.1%~~23.7% to ~~$24.6~~$35.5 million in ~~2009~~2012 from ~~$23.6~~$28.7 million in ~~2008.~~2011. Direct variable expenses are costs that vary with volumes and consist mainly of printing, postage, hourly labor, and contracted survey work. Direct fixed expenses consist mainly of salaries and benefits, and contracted services for client service, analytical, research, and information technology development functions. The ~~change~~increase in variable expenses of $4.1 million included increased postage, labor costs, contracted survey-related costs to service the higher volume of business and conference-related expenses. The increase in fixed expenses of $2.7 million was ~~mainly~~ due to ~~increased costs of servicing the~~ additional ~~revenue from the MIV business, partially offset by the reductions~~staffing and related expenses in costs of servicing decreased revenue in other areas of the Company. Direct expenses decreased as a percentage of revenue to 42.6% in 2009 from 46.3% in 2008, primarily due to MIV’s current business model with direct expenses as a percentage of revenue lower than the other operating business units of the Companyinformation technology development and ~~growth in margin in the Ticker division.~~

~~Selling, general and administrative expenses~~. Selling, general and administrative expenses increased 22.5% to $15.6 million in 2009 from $12.7 million in 2008. The change was primarily due to increases in expenses related to the MIV acquisition and expansions in the sales force. Selling, general and administrative expenses increased as a percentage of revenue to 27.0% in 2009 from 25.0% in 2008, mainly due to sales expansion efforts in the latter portion of 2009 throughout the Company.

~~Depreciation and amortization~~. Depreciation and amortization expenses increased 42.7% to $3.8 million in 2009 from $2.7 million in 2008. Depreciation and amortization increased as a percentage of revenue to 6.6% in 2009 from 5.3% in 2008. The increase was primarily due to the depreciation of the fixed assets and amortization of intangible assets associated with the acquisition of MIV.

~~Provision for income taxes~~. The provision for income taxes totaled $4.6 million (35.3% effective tax rate) for 2009 compared to $4.5 million (37.9% effective tax rate) for 2008. The effective tax rate was lower in 2009 due to increases in research and development tax credits and state investment and growth act credits, and decreases in Canadian statutory income tax rates.

~~Year Ended December 31, 2008, Compared to Year Ended December 31, 2007~~

~~Revenue. Revenue increased 4.3% in 2008 to $51.0 million from $48.9 million in 2007. This was primarily due to increases in the scope of work from existing clients and the addition of new clients.~~

~~Direct expenses~~. Direct expenses increased 8.3% to $23.6 million in 2008 from $21.8 million in 2007. The change was primarily due to an increase in salaries, benefits and travel of $1.2 million, the result of the change in the business model, and the allocation of responsibilities related to sales and servicing clients. In 2008, the Company divided its sales force into two groups, one focused only on bringing in prospective new clients and the second focused exclusively on servicing current clients. As a result, salaries, benefits and travel attributable to the group focused on current clients are now classified as direct expenses rather than selling, general and administrative expenses.client service functions. Direct expenses increased as a percentage of revenue to ~~46.3%~~41.0% in ~~2008~~the year ended December 31, 2012, from ~~44.6%~~37.8% during the same period of 2011. Variable expenses as percentage of revenue were 2.2% of the change due to higher survey volumes for the subscription-based products, and fixed expenses were 1.0% of the change due to investments in ~~2007.~~technology, research and service resources. The Company expects this percentage to continue at a similar rate for 2013.

Selling, general and administrative expenses. Selling, general and administrative expenses ~~decreased 3.4%~~increased 1.0% to ~~$12.7~~$23.5 million in ~~2008~~2012 from ~~$13.2~~$23.3 million in ~~2007. The change was largely due to the 2008 change in the business model and the allocation of responsibilities related to sales and servicing clients.~~2011. Selling, general, and administrative expenses decreased as a percentage of revenue to ~~25.0%~~27.2% for the year ended December 31, 2012, from 30.8% for the same period in ~~2008 from 26.9%~~2011 due to the leveraging of selling, general and administrative expenses against increased revenue. This percentage is projected to continue at a similar rate in ~~2007.~~2013.

Depreciation and amortization. Depreciation and amortization expenses ~~increased 4.0%~~decreased 7.2% to ~~$2.7~~$4.7 million in ~~2008~~2012 from ~~$2.6~~$5.1 million in ~~2007.~~ 2011. This decrease was attributed to declining intangible asset amortization expenses. Depreciation and amortization expenses as a percentage of revenue ~~remained at 5.3%~~decreased to 5.4% in ~~2008 and 2007 respectively.~~2012 from 6.7% in 2011. The Company projects depreciation expense in 2013 to approximate 4.0% of revenue.

Provision for income taxes. The provision for income taxes totaled ~~$4.5~~$7.1 million ~~(37.9%~~(32.1% effective tax rate) for ~~2008~~2012, compared to ~~$4.3~~$6.6 million ~~(38.5%~~(36.3% effective tax rate) for ~~2007.~~2011. The effective tax rate ~~was~~for the year ended December 31, 2012, is lower than the rate in ~~2008~~the same period of 2011 primarily due to an adjustment to income taxes of $661,000 for decreases in ~~provincial income~~deferred state tax ~~rates.~~rates resulting from legislative changes. The Company also recorded federal tax credits of $198,000, and recognized an additional $73,000 in tax benefits over the same period in 2011 due to the expiration of the U.S. federal statute of limitations associated with certain tax positions.

Year Ended December 31, 2011, Compared to Year Ended December 31, 2010

Revenue. Revenue increased 19.5% in 2011 to $75.8 million from $63.4 million in 2010. This increase was due to the addition of OCS (increasing revenue by $4.5 million), market share growth, increased pricing from enhanced offerings, and vertical growth in the existing client base from successful cross-selling activities.

Direct expenses. Direct expenses increased 16.4% to $28.7 million in 2011 from $24.6 million in 2010. Direct variable expenses are costs that vary with volumes and consist mainly of printing, postage, hourly labor, and contracted survey work. Direct fixed expenses consist mainly of salaries and benefits and contracted services for client service, analytical, research, and information technology development functions. The primary reason for the increase in direct expenses was due to an increase in variable expenses of $2.4 million, including postage of $1.1 million and contracted survey related costs of $1.1 million to service the higher volume of business, and an increase in fixed expenses of $675,000 from additional staffing and related expenses in information technology development and client service functions. The addition of OCS also increased variable expenses by $106,000 and fixed expenses by $809,000. Direct expenses decreased as a percentage of revenue to 37.8% in 2011 from 38.8% during 2010, mainly due to leveraging revenue growth and expanded use of more cost-efficient survey methodologies.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $3.1 million or 15.3%, to $23.3 million in 2011 from $20.2 million in 2010. Of the increase, $2.0 million was primarily due to the expansion of the sales force, increased sales commissions, and the addition of several executives in various leadership roles. The addition of OCS accounted for the remaining $1.1 million of the increase. Selling, general, and administrative expenses decreased as a percentage of revenue to 30.8% for 2011 from 31.9% for 2010, primarily due to 2011 sales and revenue growth from the sales expansion in 2010, decreases in acquisition and transition-related expenses for OCS and the consolidation of MIV sales and operations activities into the Lincoln location incurred in 2010 compared to 2011.

Depreciation and amortization. Depreciation and amortization expenses increased 7.7% to $5.1 million in 2011 from $4.7 million in 2010, primarily due to the addition of OCS in 2010. Depreciation and amortization expenses as a percentage of revenue decreased to 6.7% in 2011 from 7.4% in 2010.

Provision for income taxes. The provision for income taxes totaled $6.6 million (36.3% effective tax rate) for 2011 compared to $4.8 million (36.2% effective tax rate) for 2010. The increase in the effective tax rate was due to higher state taxes, partially offset by increased research and development credits and a decrease in unrecognized tax benefits.

Inflation and Changing Prices

Inflation and changing prices have not had a material impact on ~~revenues~~revenue or net income ~~from continuing operations~~ in the last three years.

Liquidity and Capital Resources

As of December 31, 2012, our principal sources of liquidity included $8.3 million of cash and cash equivalents and up to $6.5 million of unused borrowings under our revolving credit note. Of this cash, $5.6 million was held in Canada. All of the amounts held in Canada are intended to be indefinitely reinvested in foreign operations. The amounts held outside of the U.S. are eligible for repatriation, but under current law, would be subject to U.S. federal income taxes less applicable foreign tax credits. The Company estimated at December 31, 2012, that an additional tax liability of $732,000 would become due if repatriation of undistributed earnings would occur. The amount of unused borrowings actually available under the revolving credit note varies in accordance with the terms of the agreement. The Company believes ~~it has adequate capital resources~~that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flow will be sufficient to meet its projected capital and debt maturity needs and dividend policy for the foreseeable future. ~~Requirements for working capital, capital expenditures, and debt maturities will continue to be funded by operations and the Company’s borrowing arrangements.~~

Working Capital

The Company had a working capital deficiency of ~~$4.4~~$11.5 million on December 31, ~~2009, as~~2012, compared to a ~~$10.7~~$2.3 million working capital deficiency on December 31, ~~2008.~~2011. The ~~decrease~~change in the working capital ~~deficiency~~balance was primarily due to ~~paying off~~an increase in the ~~line~~current portion of ~~credit~~notes payable of $10.6 million. The increase in ~~2009 that had a balance~~the current portion of ~~$3.9 million~~notes payable is due to the balloon payments on the term notes due in July 2013. The Company’s working capital is also significantly impacted by its large deferred revenue balances. The deferred revenue balances as of December 31, ~~2008. The working capital deficiency balance is primarily due to a deferred revenue balance of $11.9~~2012 and December 31, 2011, were $15.8 million and ~~$12.9~~$16.5 million, ~~as of December 31, 2009 and 2008,~~ respectively.

The deferred revenue balance is primarily due to timing of initial billings on new and renewal contracts. The Company typically invoices clients for performance tracking services and custom research projects before they have been completed. Billed amounts are recorded as billings in excess of revenue earned, or deferred revenue, on the Company’s consolidated financial statements, and are recognized as income when earned. In addition, when work is performed in advance of billing, the Company records this work as revenue earned in excess of billings, or unbilled revenue. Substantially all deferred revenue and all unbilled revenue will be earned and billed respectively, within 12 months of the respective period ends.

Cash Flow Analysis

A summary of operating, investing, and financing activities are shown in the following table:

	For the Year Ended December 31,
	2012			2011			2010
	(In thousands)
Provided by operating activities	$	19,132		$	18,481		$	14,603

Used in investing activities		(2,348	)		(6,927	)		(16,980	)

(Used in) provided by financing activities		(16,687	)		(6,886	)		3,254

Effect of exchange rate changes on cash		107			(105	)		130

Net increase in cash and cash equivalents		204			4,563			1,007

Cash and cash equivalents at end of period	$	8,286		$	8,082		$	3,519

Cash Flows from Operating Activities

Cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization, deferred taxes, and the effect of working capital changes.

Net cash provided by operating activities was $19.1 million for the year ended December 31, 2012, which included net income of $15.1 million, plus non-cash charges (benefits) for deferred tax expense, depreciation and amortization, tax benefit from exercise of stock options, and non-cash stock compensation totaling $5.3 million. Changes in working capital decreased 2012 cash flows from operating activities by $1.2 million, primarily due to timing of initial billings on new or renewal contracts decreasing cash flows provided from trade accounts receivable and deferred revenue and timing of payments on accounts payable and prepaid expenses, partially offset by increases and timing in payments of accrued expenses, wages, and bonus and profit sharing.

Net cash provided by operating activities was $18.5 million for the year ended December 31, 2011, which included net income of $11.6 million, plus non-cash charges (benefits) for deferred tax expense, depreciation and amortization, tax benefit from exercise of stock options and non-cash stock compensation totaling $7.2 million. Changes in working capital decreased 2011 cash flows from operating activities by $273,000, primarily due to timing of initial billings on new or renewal contracts decreasing cash flows provided from trade accounts receivable and deferred revenue, partially offset by timing of payments on accrued expenses and income taxes.

Net cash provided by operating activities was $14.6 million for the year ended December 31, 2010, which included net income of $8.5 million, plus non cash charges (benefits) for deferred tax expense, depreciation and amortization and non-cash stock compensation totaling $6.1 million.

Cash Flows from Investing Activities

Net cash of $2.3 million was used for investing activities in the year ended December 31, 2012. Purchases of property and equipment totaled the $2.3 million.

Net cash of $6.9 million was used for investing activities in the year ended December 31, 2011. Earn-out payments related to the MIV acquisition approximated $4.1 million, and purchases of property and equipment totaled $2.8 million.

Net cash of $17.0 million was used for investing activities in the year ended December 31, 2010. Cash of $15.3 million was used for the acquisition of OCS and $172,000 was paid under the earn-out related to the MIV acquisition. Cash of $1.5 million was used for the purchase of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $16.7 million in the year ended December 31, 2012. Proceeds from the exercise of stock options and the excess tax benefit of share-based compensation provided cash of $1.3 million and $2.1 million, respectively, partially offset by repurchases of shares for payroll tax withholdings related to share-based compensation of $527,000. Cash was used to pay dividends of $17.4 million, including a special dividend of $10.3 million in the fourth quarter of 2012. Cash was also used to repay borrowings under the term note totaling $2.1 million and capital lease obligations of $109,000.

Net cash used in financing activities was $6.9 million in the year ended December 31, 2011. Cash was generated from borrowings under the Company’s term note and revolving credit note totaling $4.5 million. Proceeds from the exercise of stock options and the excess tax benefit of share-based compensation provided cash of $568,000 and $407,000, respectively, partially offset by repurchases of shares for payroll tax withholdings related to share-based compensation of $146,000. Cash was used to pay dividends of $5.9 million, repay borrowings under the term note and revolving credit note totaling $6.2 million, and repay capital lease obligations of $130,000.

Net cash provided by financing activities was $3.3 million in the year ended December 31, 2010. Cash was generated from borrowings under the term note and revolving credit note totaling $11.3 million. Proceeds from the exercise of stock options provided cash of $274,000. Cash was used to pay dividends of $5.1 million, repay borrowings under the term note and revolving credit note totaling $2.8 million, and repurchases of the Company’s common stock for $399,000.

The effect of changes in foreign exchange rates increased (decreased) cash and cash equivalents by $107,000, ($105,000), and $130,000 in the years ended December 31, 2012, 2011, and 2010, respectively.

Capital Expenditures

Capital expenditures for the year ended December 31, ~~2009,~~2012, were ~~$2.9~~$2.3 million. These expenditures consisted mainly of computer software, computer hardware, ~~and~~ furniture and other equipment. The Company expects similar capital expenditure purchases in ~~2010,~~2013 consisting primarily of computer software and hardware and other equipment, to be funded through cash generated from operations.

Debt and Equity

On ~~May 26, 2006,~~December 19, 2008, the Company ~~entered into a credit facility pursuant to which it~~ borrowed $9.0 million under a term note ~~and $3.5 million under a revolving credit note in order~~ to partially finance the acquisition of ~~TGI.~~MIV. In July 2010, the Company refinanced the existing term loan with a $6.9 million fixed-rate term loan. The new term ~~note was refinanced on February 25, 2008,~~loan is payable in 35 monthly installments of $80,104, with a balloon payment for the remaining principal balance ofand interest due on July 31, 2013. Borrowings under the term note of $1.6 million. The refinanced term note required payments of principal and interest in 17 monthly installments of $93,000, beginning March 31, 2008, and ending August 31, 2009. Borrowings under the refinanced term note borebear interest at an annual rate of ~~5.14%~~3.79%. The ~~Company paid off~~outstanding balance of the term note at December 31, 2012, was $5.1 million.

On July 31, 2010, the Company borrowed $10.0 million under a fixed-rate term note to partially finance the acquisition of OCS. The term loan is payable in ~~October 2008.~~35 monthly installments of $121,190 with a balloon payment for the remaining principal balance and interest due on July 31, 2013. Borrowings under the term note bear interest at an annual rate of 3.79%. The outstanding balance of the term note at December 31, 2012, was $7.3 million.

The Company expects to refinance the term notes prior to July 31, 2013. If, however, the notes cannot be extended, the Company believes it has adequate cash flows from operations to meet its debt and capital needs.

The Company entered into a revolving credit note in 2006. The maximum aggregate amount available under the revolving credit note ~~was originally $3.5 million, but~~following an addendum to the ~~revolving credit~~ note ~~dated~~in March ~~26,~~ 2008, ~~changed the revolving credit note amount to~~is $6.5 million. The revolving credit note was renewed in ~~July 2009~~June 2012 to extend the term to ~~July 31, 2010.~~June 30, 2013. The Company may borrow, repay and re-borrow amounts under the revolving credit note from time to time until its maturity on July 31, 2010. The maximum aggregate amount available under the revolving credit note is $6.5 million, subject to a borrowing base equal to 75% of the Company’s eligible accounts receivable. Borrowings under the revolving credit note bear interest at a variable rate equal to (1) prime (as defined in the credit facility) less 0.50% or (2) one-, two-, three-, six- or twelve-month LIBOR.June 30, 2013. The Company expects to extend the term of the revolving credit note for at least one year beyond the maturity date. If, however, the note cannot be extended, the Company believes it has adequate cash flows from operations to meet its debt and capital needs. ~~As of December 31, 2009, the revolving credit note did not have a balance. According to borrowing base requirements, the Company had the capacity to borrow $4.2 million as of December 31, 2009.~~

On December 19, 2008, the Company borrowed $9.0 million under a term note to partially finance the acquisition of MIV. The term note is payable in 35 equal installments of $97,000, with the balance of principal and interest payable in a balloon payment due on December 31, 2011. Borrowings under the term note bear interest at a rate of 5.2% per year. In 2009, the Company made principal payments, in addition to the monthly installments, on the term loan totaling $650,000.

The term ~~note is~~notes and revolving line of credit are secured by certain of the Company’s assets, including the Company’s land, building, accounts receivable and ~~intangibles.~~intangible assets. The term notes and the revolving credit note ~~contains~~contain various restrictions and covenants applicable to the Company, including requirements that the Company maintain certain financial ratios at prescribed levels and restrictions on the ability of the Company to consolidate or merge, create liens, incur additional indebtedness or dispose of assets. As of December 31, ~~2009,~~2012, the Company was in compliance with these restrictions and covenants.

The ~~merger agreement~~maximum aggregate amount available under ~~which~~ the ~~Company acquired MIV provided for contingent earn-out payments over~~revolving credit note of $6.5 million is subject to a borrowing base equal to 75.0% of the Company’s eligible accounts receivable. Borrowings under the renewed revolving credit note bear interest at a variable annual rate, with three ~~years based on growth in revenue and earnings.~~rate options at the discretion of management as follows: (1) 2.5% plus the daily reset one-month London Interbank Offered Rate (“LIBOR”) rate, or (2) 2.2% plus the one-, two-, three-, six- or twelve-month LIBOR rate, or (3) the bank’s Money Market Loan Rate. The rate at December 31, 2012, was 2.71%. As of December 31, ~~2009,~~2012, the revolving credit note did not have a ~~contingent earn-out payment~~balance. According to borrowing base requirements, the Company had the capacity to borrow $6.5 million as of $795,000 was accrued, which was then paid in February 2010. The Company currently projects that the earn-out for 2010 and 2011 could be $3.0 million and $1.0 million, respectfully to be funded through cash flow from operations.December 31, 2012.

2025

Debt assumed through the MIV acquisition included $90,000 in capital leases. The capital leases are for production and mailing equipment meeting capitalization requirements where the lease term exceeds more than 75% of the estimated useful life. The equipment is being depreciated over the lease term of 4.25 years ending in 2011.

Contractual Obligations

The Company had contractual obligations to make payments in the following amounts in the future as of December 31, ~~2009:~~2012:

Contractual Obligations(1)	Total Payments		Less than One Year		One to Three Years		Three to Five Years		After Five Years
(In thousands)
Operating leases	$	2,554	$	687	$	1,176	$	573	$	118
Capital leases		380		135		237		8		--
Uncertain tax positions(2)		224		--		--		--		--
Long-term debt		12,703		12,703		--		--		--
Total	$	15,861	$	13,525	$	1,413	$	581	$	118

(1)

Amounts are inclusive of interest payments, where applicable

(2)

We have $224,000 in liabilities associated with uncertain tax positions. We are unable to reasonably estimate the expected cash settlement dates of these uncertain tax positions with the taxing authorities.

Contractual Obligations
Total
Payments

Less than
One Year

One to
Three Years

Three to
Five Years

After
Five Years

(In thousands)
Operating leases $ 1,600 $ 524 $ 1,066 $ 10 $ —
Capital leases(1)
65 37 28 — —
Uncertain tax positions(2)
78 — — — —
Long-term debt(1)
8,376 1,162 7,214 — —
Total $ 10,119 $ 1,723 $ 8,386 $ 10 $ —

~~(1)~~ ~~Includes interest~~

~~(2)~~ ~~It is uncertain when the tax benefits will be settled.~~

The Company generally does not make unconditional, non-cancelable purchase commitments. The Company enters into purchase orders in the normal course of business, but these purchase obligations do not exceed one ~~year.~~year.

Shareholders’ equity increased ~~$5.6~~$1.2 million to ~~$44.2~~$56.7 million in ~~2009~~2012, from ~~$38.6~~$55.6 million in ~~2008.~~2011. The increase was primarily due to net income of ~~$8.5~~$15.1 million ~~non-cash stock~~and $8.2 million of related share-based compensation, ~~expense of $619,000, and change in cumulative translation adjustment of $775,000,~~partially offset by dividends paid of ~~$4.3~~$17.4 million and stock re-purchases of $5.2 million. Dividends paid in 2012 include $10.3 million for a special dividend paid in the fourth quarter of 2012.

Stock Repurchase Program

In February 2006, the Board of Directors of the Company authorized the repurchase of ~~an additional~~ 750,000 shares of common stock in the open market or in privately negotiated transactions. As of December 31, ~~2009,~~2012, the remaining number of shares that ~~can~~could be purchased ~~are 289,065.~~under this authorization was 143,398.

Off-Balance Sheet Obligations

The Company has no significant off-balance sheet obligations other than the operating lease commitments disclosed in “Liquidity and Capital Resources.”

Adoption of New Accounting Pronouncements

In June ~~2009,~~2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which amends ASC 220, Comprehensive Income, by requiring all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance was effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2011. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards ~~Codification™ (“Codification”) as~~Update No. 2011-05, which defers certain portions of ASU No. 2011-05 indefinitely and will be further deliberated by the ~~source~~FASB at a future date. The Company adopted the requirements of ~~authoritative U.S. generally accepted accounting principles (“GAAP”) recognized~~ASU 2011-05 and ASU 2011-12 by ~~FASB to be applied by nongovernmental entities. The Codification supersedes all then-existing non-SEC accounting and reporting standards. In accordance with~~presenting a Consolidated Statement of Comprehensive Income immediately following the Codification, references to accounting literature in this report are presented in plain English. The Codification did not change GAAP, but reorganizes the literature. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoptionConsolidated Statement of ~~the Codification has not had an~~Income. There was no other impact on the Company’s consolidated financial statements.

2126

~~Recent Accounting Pronouncements~~

In September ~~2009,~~2011, the FASB issued ~~new guidance for revenue recognition with multiple deliverables, which~~ASU No. 2011-08, Intangibles — Goodwill and Other. ASU No. 2011-08 allows entities to first assess qualitatively whether it is ~~effective for revenue arrangements entered into or materially modified~~necessary to perform the two-step goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. An entity has the unconditional option to bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test. The Company adopted the requirements of ASU 2011-08 and performed a qualitative assessment when performing the annual goodwill assessment in ~~fiscal years beginning on or after June 15, 2010, although early~~the fourth quarter of 2012. The adoption is permitted. This guidance eliminates the residual method under the current guidance and replaces it with the “relative selling price” method when allocating revenue in a multiple deliverable arrangement. The selling price for each deliverable shall be determined using vendor-specific objective evidence of selling price, if it exists, otherwise third-party evidence of selling price. If neither exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable. After adoption, this guidance will also require expanded qualitative and quantitative disclosures. Management continues to assess the impact of this ~~authoritative guidance.~~standard did not have a material effect on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. Similar to the guidance in ASU 2011-08 for goodwill, ASU No. 2012-02 allows entities to first perform a qualitative assessment of its indefinite-lived intangible assets. The Company is not required to perform further analysis, unless, based on the qualitative assessment, the Company concludes that it is more likely than not that the indefinite-lived intangible assets are impaired. The Company has the option to bypass the qualitative assessment and perform the quantitative assessment. The Company adopted the requirements of ASU No. 2012-02 and performed a qualitative assessment when performing its annual assessment of indefinite-lived intangible assets in the fourth quarter of 2012. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

~~Item 7A.~~

~~Quantitative and Qualitative Disclosure About Market Risk~~

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

The Company’s primary market risk exposure is changes in foreign currency exchange rates and interest rates.

The Company’s Canadian subsidiary uses as its functional currency the local currency of the country in which it operates. It translates its assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate during the period. The Company includes translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’ equity. Foreign currency translation gains or (losses) were ~~$775,000,~~$217,000, ($~~937,000)~~201,000), and ~~$568,000~~$339,000 in ~~2009, 2008,~~2012, 2011, and ~~2007,~~2010, respectively. Gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which the Company operates and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income.

~~The Company’s primary~~We are exposed to interest rate risk ~~is related to~~with both our fixed-rate term debt and variable rate revolving line of credit facility. Interest rate changes for borrowings under our fixed-rate term debt would impact the fair value of such debt, but do not impact earnings or cash flow. At December 31, 2012, our fixed-rate term debt totaled $12.4 million. Based on a sensitivity analysis, a one percent change in market interest ~~expense from the Company’s revolving credit note with a variable interest rate. However, the revolving credit note had no balance~~rates as of December 31, ~~2009.~~2012, would not have a material effect on the estimated fair value of our fixed-rate debt outstanding at December 31, 2012.

~~The Company has limited interest rate risk related to interest income from the Company’s investments in United States government notes with maturities~~Borrowings under our revolving line of ~~90 days or less at the purchase date for the security. The Company has classified these as cash equivalents. The discounted notes~~credit bear interest at ~~.041%~~a variable annual rate, with three rate options at the discretion of management. Borrowings under the revolving line of credit may not exceed the lesser of a calculated borrowing base or $6.5 million. There were no borrowings outstanding under our revolving credit facility at December 31, 2012, or at any time during 2012. A sensitivity analysis assuming a hypothetical 100 basis point movement in interest rates applied to the average daily borrowings and ~~.091% annually. One~~the maximum borrowings available under the revolving line of ~~the notes matured~~credit facility indicated that such a movement would not have a material impact on ~~February 3, 2010, and payment was received for the full principal amount.~~our consolidated financial position, results of operations or cash flows.

2227

~~Item 8.~~

~~Financial Statements and Supplementary Data~~

Item 8. Financial Statements and Supplementary Data

Quarterly Financial Data (Unaudited)

The following table sets forth selected financial information for each of the eight quarters in the two-year period ended December 31, ~~2009.~~2012. This unaudited information has been prepared by the Company on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to present fairly this information when read in conjunction with the Company’s audited consolidated financial statements and the notes thereto.

	(In thousands, except per share data)
	Quarter Ended
	Dec. 31, 2012			Sept 30, 2012			June 30, 2012			Mar. 31, 2012			Dec. 31, 2011			Sept 30, 2011			June 30, 2011			Mar. 31, 2011

Revenue	$	21,996		$	21,386		$	20,632		$	22,407		$	19,111		$	18,549		$	18,316		$	19,791
Direct expenses		9,128			8,769			8,633			8,931			7,178			7,471			7,260			6,758
Selling, general and administrative expenses		6,001			5,821			5,569			6,151			5,648			5,572			5,990			6,090
Depreciation and amortization		1,093			1,149			1,214			1,243			1,275			1,312			1,235			1,243
Operating income		5,774			5,647			5,216			6,082			5,010			4,194			3,831			5,700
Other expense		(100	)		(155	)		(105	)		(152	)		(158	)		(77	)		(144	)		(196	)
Provision for income taxes		1,971			1,915			1,172			2,081			1,720			1,470			1,358			2,048
Net income	$	3,703		$	3,577		$	3,939		$	3,849		$	3,132		$	2,647		$	2,329		$	3,456
Net income per share – basic	$	0.54		$	0.53		$	0.58		$	0.57		$	0.47		$	0.40		$	0.35		$	0.52
Net income per share – diluted	$	0.53		$	0.51		$	0.57		$	0.56		$	0.46		$	0.39		$	0.34		$	0.51
Weighted average shares outstanding – basic		6,838			6,791			6,751			6,719			6,691			6,679			6,665			6,654
Weighted average shares outstanding – diluted		6,986			6,961			6,943			6,907			6,847			6,850			6,855			6,809

(In thousands, except per share data)

Quarter Ended

Dec. 31,
2009

Sept 30,
2009

June 30,
2009

Mar. 31,
2009

Dec. 31,
2008

Sept 30,
2008

June 30,
2008

Mar. 31,
2008

Revenue $ 13,841 $ 13,517 $ 13,594 $ 16,740 $ 12,189 $ 13,469 $ 11,901 $ 13,454
Direct expenses 5,548 5,446 6,304 7,276 5,766 6,598 5,320 5,927
Selling, general and administrative 4,042 3,872 3,697 3,979 2,768 3,053 3,348 3,559
Depreciation and amortization 929 901 891 1,110 682 661 676 666
Operating income 3,322 3,298 2,702 4,375 2,973 3,157 2,557 3,302
Other income (expense) (134 ) (166 ) (183 ) (97 ) 70 14 (58 ) (32 )
Provision for income taxes 951 1,138 910 1,627 1,148 1,205 918 1,267
Net income $ 2,237 $ 1,994 $ 1,609 $ 2,651 $ 1,895 $ 1,966 $ 1,581 $ 2,003
Net income per share – basic $ 0.34 $ 0.30 $ 0.24 $ 0.40 $ 0.29 $ 0.30 $ 0.24 $ 0.29
Net income per share – diluted $ 0.33 $ 0.30 $ 0.24 $ 0.39 $ 0.28 $ 0.29 $ 0.23 $ 0.29
Weighted average shares outstanding – basic 6,639 6,637 6,637 6,633 6,642 6,644 6,637 6,818
Weighted average shares outstanding – diluted 6,725 6,735 6,734 6,713 6,782 6,803 6,793 6,970

2328

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Shareholders and~~

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

National Research Corporation:

We have audited the accompanying consolidated balance sheets of National Research Corporation and subsidiary (the Company) as of December 31, ~~2009~~2012 and ~~2008,~~2011, and the related consolidated statements of income, comprehensive income, shareholders’ equity, ~~and comprehensive income,~~ and cash flows for each of the years in the three-year period ended December 31, ~~2009.~~2012. In connection with our audits of the consolidated financial statements, we also have ~~also~~ audited the financial statement schedule listed in Item ~~15(a)(2)~~15(2) of this Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Research Corporation and subsidiary as of December 31, ~~2009~~2012 and ~~2008,~~2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2009,~~2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, ~~presents~~present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Lincoln, Nebraska

March ~~31, 2010~~1, 2013

2429

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	2009			2008
Assets							2012			2011
Current assets:
Cash and cash equivalents	$	2,512		$	1,109		$	8,286		$	8,082
Trade accounts receivable, less allowance for doubtful accounts of $279 and $241 in 2009 and 2008, respectively		5,214			6,531
Trade accounts receivable, less allowance for doubtful accounts of $244 and $289, respectively								12,119			11,187
Unbilled revenue		1,173			810			932			913
Prepaid expenses and other		1,864			1,300
Recoverable income taxes		803			574
Prepaid expenses								1,269			768
Income taxes receivable								158			-
Deferred income taxes		98			115			547			789
Other current assets								504			398
Total current assets		11,664			10,439			23,815			22,137

Net property and equipment		13,975			13,747			12,493			13,613
Intangible assets, net		6,883			8,056			5,794			7,073
Goodwill		39,924			39,276			57,799			57,730
Other		53			627			145			123

Total assets	$	72,499		$	72,145		$	100,046		$	100,676

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of note payable	$	816		$	4,581
Current portion of notes payable							$	12,436		$	1,861
Accounts payable		598			863			291			783
Accrued wages, bonus and profit sharing		1,926			1,375			4,392			3,591
Accrued expenses		848			1,344			2,265			1,418
Income taxes payable								-			145
Current portion of capital lease obligations								102			101
Deferred revenue		11,907			12,926			15,812			16,500
Total current liabilities		16,095			21,089			35,298			24,399

Note payable, net of current portion		6,903			8,374
Notes payable, net of current portion								-			12,625
Deferred income taxes		5,126			4,084			7,527			7,588
Deferred revenue		204			—			254			185
Capital lease obligations, net of current portion								225			325
Total liabilities		28,328			33,547			43,304			45,122

Shareholders’ equity:
Common stock, $.001 par value; authorized 20,000,000 shares, issued 8,018,044 in 2009 and 8,019,922 in 2008, outstanding 6,662,111 in 2009 and 6,667,517 in 2008		8			8
Common stock, $0.001 par value; authorized 20,000,000 shares, issued 8,376,592 in 2012 and 8,117,849 in 2011, outstanding 6,874,992 in 2012 and 6,724,280 in 2011								8			8
Additional paid-in capital		27,871			27,217			39,514			31,080
Retained earnings		37,905			33,677			44,700			46,995
Accumulated other comprehensive income (loss), net of taxes		769			(6	)
Treasury stock, at cost; 1,355,933 shares in 2009 and 1,352,405 shares in 2008		(22,382	)		(22,298	)
Accumulated other comprehensive income, foreign currency translation adjustment								1,124			907
Treasury stock, at cost; 1,501,600 shares in 2012 and 1,393,569 shares in 2011								(28,604	)		(23,436	)
Total shareholders’ equity		44,171			38,598			56,742			55,554

Total liabilities and shareholders’ equity	$	72,499		$	72,145		$	100,046		$	100,676

See accompanying notes to consolidated financial statements.

2530

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share amounts)

2009 2008 2007

Revenue $ 57,692 $ 51,013 $ 48,923

Operating expenses:
Direct expenses 24,574 23,611 21,801
Selling, general and administrative 15,590 12,728 13,174
Depreciation and amortization 3,831 2,685 2,583
Total operating expenses 43,995 39,024 37,558

Operating income 13,697 11,989 11,365

Other income (expense):
Interest income 2 42 139
Interest expense (405 ) (139 ) (483 )
Other, net (177 ) 91 96

Total other expense (580 ) (6 ) (248 )

Income before income taxes 13,117 11,983 11,117

Provision for income taxes 4,626 4,538 4,278

Net income $ 8,491 $ 7,445 $ 6,839

Net income per share - basic $ 1.28 $ 1.11 $ 1.00
Net income per share - diluted $ 1.26 $ 1.09 $ 0.98

Weighted average shares and shares equivalent outstanding - basic 6,637 6,685 6,850
Weighted average shares and shares equivalent outstanding - diluted 6,723 6,831 7,011

~~See accompanying notes to consolidated financial statements.~~

~~NATIONAL RESEARCH CORPORATION AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

~~AND COMPREHENSIVE INCOME~~

~~(In thousands except share and per share amounts)~~

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Treasury
Stock

Total

Balances at December 31, 2006 8 21,820 26,488 359 (11,924 ) 36,751
Purchase of 61,849 shares of treasury stock — — — — (241 ) (241 )
Issuance of 22,829 common shares for the exercise of stock options — 338 — — — 338
Tax benefit from the exercise of options and vested restricted stock — 111 — — — 111
Issuance of 32,115 restricted common shares, net of 9,109 cancelled — — — — — —
Non-cash stock compensation expense — 1,240 — — — 1,240
Dividends declared of $0.48 per common share — — (3,324 ) — — (3,324 )
Comprehensive income
Change in unrealized gain/(loss) on marketable securities, net of tax — — — 4 — 4
Change in cumulative translation adjustment — — — 568 — 568
Net income — — 6,839 — — 6,839
Total comprehensive income 7,411
Balances at December 31, 2007 $ 8 $ 23,509 $ 30,003 $ 931 $ (12,165 ) $ 42,286,
Purchase of 395,558 shares of treasury stock — — — — (10,133 ) (10,133 )
Issuance of 144,614 common shares for the exercise of stock options — 1,856 — — — 1,856
Tax benefit from the exercise of options and vested restricted stock — 836 — — — 836
Cancellation of 7,981 restricted common shares — — — — — —
Non-cash stock compensation expense — 1,016 — — — 1,016
Dividends declared of $0.56 per common share — — (3,771 ) — — (3,771 )
Comprehensive income
Change in cumulative translation adjustment — — — (937 ) — (937 )
Net Income 7,445 7,445
Total comprehensive income — — — — — 6,508
Balances at December 31, 2008 $ 8 $ 27,217 $ 33,677 $ (6 ) $ (22,298 ) $ 38,598
Purchase of 3,528 shares of treasury stock — — — — (84 ) (84 )
Issuance of 2,023 common shares for the exercise of stock options — 18 — — — 18
Tax benefit from the exercise of options and vested restricted stock — 17 — — — 17
Cancellation of 3,901 restricted common shares — — — — — —
Non-cash stock compensation expense — 619 — — — 619
Dividends declared of $0.64 per common share — — (4,263 ) — — (4,263 )
Comprehensive income
Change in cumulative translation adjustment — — — 775 — 775
Net income 8,491 8,491
Total comprehensive income — — — — — 9,266
Balances at December 31, 2009 $ 8 $ 27,871 $ 37,905 $ 769 $ (22,382 ) $ 44,171

	2012			2011			2010

Revenue	$	86,421		$	75,767		$	63,398

Operating expenses:
Direct		35,461			28,667			24,635
Selling, general and administrative		23,542			23,300			20,202
Depreciation and amortization		4,699			5,065			4,704
Total operating expenses		63,702			57,032			49,541

Operating income		22,719			18,735			13,857

Other income (expense):
Interest income		32			13			6
Interest expense		(541	)		(629	)		(491	)
Other, net		(3	)		41			(57	)

Total other expense		(512	)		(575	)		(542	)

Income before income taxes		22,207			18,160			13,315

Provision for income taxes		7,139			6,596			4,816

Net income	$	15,068		$	11,564		$	8,499

Net income per share - basic	$	2.22		$	1.73		$	1.28
Net income per share - diluted	$	2.17		$	1.69		$	1.26

Weighted average shares and shares equivalent outstanding - basic		6,775			6,672			6,637
Weighted average shares and shares equivalent outstanding - diluted		6,951			6,842			6,736

See accompanying notes to consolidated financial statements.

2731

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	2012		2011			2010

Net Income	$	15,068	$	11,564		$	8,499

Other comprehensive income (loss):
Cumulative translation adjustment	$	217	$	(201	)	$	339
Other comprehensive income (loss)	$	217	$	(201	)	$	339
Comprehensive Income	$	15,285	$	11,363		$	8,838

See accompanying notes to consolidated financial statements.

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands except share and per share amounts)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total
Balances at December 31, 2009	$	8	$	27,871	$	37,905		$	769		$	(22,382	)	$	44,171
Purchase of 20,349 shares of treasury stock		--		--		--			--			(463	)		(463	)
Issuance of 17,573 common shares for the exercise of stock options		--		274		--			--			--			274
Tax benefit from the exercise of options and vested restricted stock		--		46		--			--			--			46
Issuance of 9,238 restricted common shares		--		--		--			--			--			--
Non-cash stock compensation expense		--		779		--			--			--			779
Dividends declared of $0.76 per common share		--		--		(5,061	)		--			--			(5,061	)
Other comprehensive income (loss), foreign currency translation adjustment		--		--		--			339			--			339
Net income		--		--		8,499			--			--			8,499
Balances at December 31, 2010	$	8	$	28,970	$	41,343		$	1,108		$	(22,845	)	$	48,584
Purchase of 17,288 shares of treasury stock		--		--		--			--			(591	)		(591	)
Issuance of 58,671 common shares for the exercise of stock options		--		940		--			--			--			940
Tax benefit from the exercise of options and vested restricted stock		--		407		--			--			--			407
Issuance of 14,323 restricted common shares, net of forfeitures		--		--		--			--			--			--
Non-cash stock compensation expense		--		763		--			--			--			763
Dividends declared of $0.88 per common share		--		--		(5,912	)		--			--			(5,912	)
Other comprehensive income (loss), foreign currency translation adjustment		--		--		--			(201	)		--			(201	)
Net income		--		--		11,564			--			--			11,564
Balances at December 31, 2011	$	8	$	31,080	$	46,995		$	907		$	(23,436	)	$	55,554
Purchase of 108,031 shares of treasury stock		--		--		--			--			(5,168	)		(5,168	)
Issuance of 262,101 common shares for the exercise of stock options		--		5,968		--			--			--			5,968
Tax benefit from the exercise of options and vested restricted stock		--		2,078		--			--			--			2,078
Issuance of restricted common shares, net of forfeitures (3,358)		--		--		--			--			--			--
Non-cash stock compensation expense		--		388		--			--			--			388
Dividends declared of $2.54 per common share		--		--		(17,363	)		--			--			(17,363	)
Other comprehensive income (loss), foreign currency translation adjustment		--		--		--			217			--			217
Net income		--		--		15,068			--			--			15,068
Balances at December 31, 2012	$	8	$	39,514	$	44,700		$	1,124		$	(28,604	)	$	56,742

See accompanying notes to consolidated financial statements.

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	2009			2008			2007			2012			2011			2010
Cash flows from operating activities:
Net income	$	8,491		$	7,445		$	6,839		$	15,068		$	11,564		$	8,499
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,831			2,686			2,583			4,699			5,065			4,704
Deferred income taxes		1,733			430			117			(421	)		1,297			614
Loss (gain) on sale of property and equipment		1			—			(3	)
(Gain) Loss on sale of property and equipment											4			(1	)		1
Tax benefit from exercise of stock options		—			156			31			601			66			33
Non-cash stock compensation expense		619			1,016			1,093			388			763			779
Change in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable		1,396			637			616			(879	)		(2,064	)		(2,489	)
Unbilled revenue		(315	)		603			900			(11	)		194			91
Prepaid expenses and other		(516	)		(155	)		30
Prepaid expenses											(357	)		253			1425
Other current assets											(106	)		(121	)		429
Accounts payable		(278	)		(408	)		(73	)		(516	)		52			(1,391	)
Accrued expenses, wages, bonus and profit sharing		(73	)		6			330			1,602			1,176			113
Income taxes payable and recoverable		(326	)		(249	)		563			(303	)		1,420			(442	)
Deferred revenue		(897	)		3,008			1,540			(637	)		(1,183	)		2,237
Net cash provided by operating activities		13,666			15,175			14,566			19,132			18,481			14,603

Cash flows from investing activities:
Purchases of property and equipment		(2,909	)		(2,812	)		(1,956	)		(2,348	)		(2,812	)		(1,539	)
Acquisition, net of cash acquired and earn-out on acquisition		(93	)		(12,551	)		—
Purchases of securities available-for-sale		—			—			(2,990	)
Proceeds from the maturities of securities available-for-sale		—			99			4,007
Acquisitions, net of cash acquired and earn-out on acquisitions											--			(4,115	)		(15,441	)
Net cash used in investing activities		(3,002	)		(15,264	)		(939	)		(2,348	)		(6,927	)		(16,980	)

Cash flows from financing activities:
Proceeds from notes payable		4,916			18,564			375			--			4,545			11,300
Payments on notes payable		(10,152	)		(8,952	)		(8,474	)		(2,050	)		(6,218	)		(2,799	)
Payments on capital lease obligations											(108	)		(130	)		(43	)
Proceeds from exercise of stock options		18			731			338			1,283			568			274
Tax benefit on exercise of stock options and vested restricted stock		17			680			80
Excess tax benefit from share-based compensation											2,078			407			46
Purchase of treasury stock		(84	)		(9,007	)		(241	)		--			--			(399	)
Repurchase of shares for payroll tax withholdings related to share-based compensation											(527	)		(146	)		(64	)
Payment of dividends on common stock		(4,263	)		(3,771	)		(3,324	)		(17,363	)		(5,912	)		(5,061	)
Net cash used in financing activities		(9,548	)		(1,755	)		(11,246	)
Net cash (used in) provided by financing activities											(16,687	)		(6,886	)		3,254

Effect of exchange rate changes on cash		287			(402	)		98			107			(105	)		130

Net increase (decrease) in cash and cash equivalents		1,403			(2,246	)		2,479
Net increase in cash and cash equivalents											204			4,563			1,007

Cash and cash equivalents at beginning of period		1,109			3,355			876			8,082			3,519			2,512

Cash and cash equivalents at end of period	$	2,512		$	1,109		$	3,355		$	8,286		$	8,082		$	3,519

Supplemental disclosure of cash paid for:
Interest expense	$	498		$	122		$	483
Interest expense, net of capitalized amounts										$	554		$	542		$	497
Income taxes	$	2,999		$	3,502		$	3,457		$	5,108		$	3,383		$	4,549

~~Item 9A.~~

~~Controls and Procedures~~

Item 9A. Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, ~~2009.~~2012. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, ~~2009.~~2012.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies of procedures may deteriorate.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting using the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, ~~2009.~~2012.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2012, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, a copy of which is included in this Annual Report on Form 10-K.

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, ~~2009,~~2012, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

~~Item 9B.~~

~~Other Information~~

Item 9B. Other Information

The Company has no other information to report pursuant to this item.

4555

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

National Research Corporation:

We have audited the internal control over financial reporting of National Research Corporation and subsidiary (the Company) as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, National Research Corporation and subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated March 1, 2013 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Lincoln, Nebraska

March 1, 2013

PART III

~~Item 10.~~

~~Directors, Executive Officers and Corporate Governance~~

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item with respect to directors and Section 16 compliance is included under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” respectively, in the Company’s definitive Proxy Statement for its ~~2010~~2013 Annual Meeting of Shareholders (“Proxy Statement”) and is hereby incorporated herein by reference. Information with respect to the executive officers of the Company appears in Item 1 of this Annual Report on Form 10-K. The information required by this Item with respect to audit committees and audit committee financial experts is included under the caption “Corporate Governance” in the Proxy Statement and is incorporated herein by reference.

The Company has adopted a Code of Business Conduct and Ethics that applies to all of the Company’s associates, including the Company’s Chief Executive Officer, Chief Financial Officer, ~~Controller~~Vice President of Finance and other persons performing similar functions. The Company has posted a copy of the Code of Business Conduct and Ethics on its website at ~~www.nationalresearch.com~~.www.nationalresearch.com. The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, the Code of Business Conduct and Ethics by posting such information on its website at ~~www.nationalresearch.com~~.www.nationalresearch.com. The Company is not including the information contained on its website as part of, or incorporating it by reference into, this report.

~~Item 11.~~

~~Executive Compensation~~

Item 11. Executive Compensation

The information required by this Item is included under the captions “Compensation Discussion and Analysis,” ~~“2009~~“2012 Summary Compensation Table,” “Grants of Plan-Based Awards in ~~2009,~~2012,” “Outstanding Equity Awards at December 31, ~~2009,~~2012,” ~~“2009~~“2012 Director ~~Compensation” and~~Compensation,” “Compensation Committee Report” and “Corporate Governance-Transactions with Related Persons” in the Proxy Statement and is hereby incorporated herein by reference.

~~Item 12.~~

~~Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters~~

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this Item with respect to security ownership of certain beneficial owners and management is included under the caption “Principal Shareholders” in the Proxy Statement and is hereby incorporated by reference.

The following table sets forth information with respect to compensation plans under which equity securities of the Company are authorized for issuance as of December 31, ~~2009.~~

2012.

Plan Category	Number of securities to be issued upon the exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)			Number of securities to be issued upon the exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)

Equity compensation plans approved by security holders (1)		554,822	$	21.80		505,474	(2)		455,918	$	30.34		545,830	(2)

Equity compensation plans not approved by security holders		23,000		27.23		277,000	(3)		--		--		--

Total		577,822	$	22.06		782,474			455,918	$	30.34		545,830

(1)

Includes the Company’s 2006 Equity Incentive Plan, 2004 Director Plan, and the 2001 Equity Incentive Plan.

(2)

As of December 31, ~~2009,~~2012, the Company had authority to award up to 161,854 additional shares of restricted Common Stock to participants under the 2001 Equity Incentive Plan, provided that the total of such shares awarded may not exceed the total number of shares remaining available for issuance under the 2001 Equity Incentive Plan, which totaled ~~78,417~~38,897 as of December 31, ~~2009.~~2012. Under the 2006 Equity Incentive Plan, the Company had authority to award up to ~~167,885~~147,682 additional shares of restricted Common Stock to participants under the 2006 Equity Incentive Plan, provided that the total of such shares awarded may not exceed the total number of shares remaining available for issuance under the 2006 Equity Incentive Plan, which totaled ~~427,057~~373,933 as of December 31, ~~2009.~~2012.

~~(3)~~

As of December 31, 2009, the Company had authority to award up to 277,000 additional shares of Common Stock to participants under the 2004 Directors Plan, subject to approval by the Company’s shareholders at the 2010 annual meeting of shareholders of the amendment to the plan adopted, on May 7, 2009 by the Board of Directors to increase the number of shares of common stock authorized for issuance under the plan from 250,000 to 550,000 shares. The Board of Directors conditioned the amendment, on the approval of the Company’s shareholders at the 2010 annual meeting of shareholders. The grants of options to directors on the date of the 2009 annual meeting of shareholders were also made subject to approval of the Company’s shareholders at the 2010 annual meeting of shareholders.

~~Item 13.~~

~~Certain Relationships and Related Transactions, and Director Independence~~

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is included under the caption “Corporate ~~Governance—”~~Governance” in the Proxy Statement and is hereby incorporated by reference.

~~Item 14.~~

~~Principal Accountant Fees and Services~~

Item 14. Principal Accountant Fees and Services

The information required by this Item is included under the caption ~~“Miscellaneous—~~“Miscellaneous — Independent Registered Public Accounting Firm” in the Proxy Statement and is hereby incorporated by reference.

4758

PART IV

Item 15. Exhibits, Financial Statement Schedules

~~Item 15.~~		~~Exhibits, Financial Statement Schedules~~

~~(a)~~	1.	Consolidated financial ~~statements -~~statements. The consolidated financial statements listed in the accompanying index to the consolidated financial statements and financial statement schedule are filed as part of this Annual Report on Form 10-K.


	2.	Financial statement ~~schedule -~~schedule. The financial statement schedule listed in the accompanying index to the consolidated financial statements and financial statement schedule is filed as part of this Annual Report on Form 10-K.


	3.	~~Exhibits -~~Exhibits. The exhibits listed in the accompanying exhibit index are filed as part of this Annual Report on Form 10-K.

4859

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Balance at
Beginning
of Year

MIV
Acquisition

Bad Debt
Expense

Write-offs
Net of
Recoveries

Balance
at End
of Year

(In thousands)
Allowance for doubtful accounts:
Year Ended December 31, 2007 $ 44 $ — $ 29 $ 3 $ 70
Year Ended December 31, 2008 $ 70 $ 69 $ 168 $ 66 $ 241
Year Ended December 31, 2009 $ 241 $ 75 $ 138 $ 175 $ 279

	Balance at Beginning of Year		Acquisition		Bad Debt Expense		Write-offs Net of Recoveries		Balance at End of Year

Allowance for doubtful accounts:
Year Ended December 31, 2010		279		42		39		23		337
Year Ended December 31, 2011		337		0		80		128		289
Year Ended December 31, 2012		289		0		173		218		244

See accompanying report of independent registered public accounting firm.

4960

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

			Page in this
		Form 10-K

Report of Independent Registered Public Accounting Firm	29	24

Consolidated Balance Sheets as of December 31, ~~2009~~2012 and ~~2008~~2011	30		25

Consolidated Statements of Income for the Three Years Ended December 31, ~~2009~~2012	31
		26
Consolidated Statements of Comprehensive Income for the Three Years Ended December 31, 2012	32

Consolidated Statements of Shareholders’ Equity ~~and Comprehensive Income as of and~~ for the Three Years Ended December 31, ~~2009~~2012	33		27

Consolidated Statements of Cash Flows for the Three Years Ended December 31, ~~2009~~2012	34		28

Notes to Consolidated Financial Statements	35	29

Schedule II — Valuation and Qualifying Accounts	60	49

All other financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.

5061

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this ~~31st~~1st day of March ~~2010.~~2013.

	NATIONAL RESEARCH CORPORATION

	By	/s/ Michael D. Hays
		Michael D. Hays
	~~President and~~	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Michael D. Hays	~~President,~~ Chief Executive Officer and Director (Principal	March ~~31, 2010~~1, 2013
Michael D. Hays	~~(Principal~~ Executive Officer)

/s/ ~~Patrick E. Beans~~Kevin R. Karas	Senior Vice President ~~Treasurer, Secretary,~~Finance, Chief Financial	March ~~31, 2010~~1, 2013
~~Patrick E. Beans~~Kevin R. Karas	~~Financial~~ Officer, Treasurer and ~~Director~~Secretary (Principal Financial and Accounting Officer)

/s/ JoAnn M. Martin	Director	March ~~31, 2010~~1, 2013
JoAnn M. Martin

/s/ John N. Nunnelly	Director	March ~~31, 2010~~1, 2013
John N. Nunnelly

/s/ Paul C. Schorr III	Director	March ~~31, 2010~~1, 2013
Paul C. Schorr III

/s/ Gail L. Warden	Director	March ~~31, 2010~~1, 2013
Gail L. Warden

5162

EXHIBIT INDEX

Exhibit Number		Exhibit Description

~~(3.1)~~		Articles of Incorporation of National Research Corporation, as amended to date [Incorporated by reference to Exhibit (3.1) to National Research Corporation’s Registration Statement on Form S-1 (Registration No. 333-33273)]

~~(3.2)~~		By-Laws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit (3.2) to National Research Corporation’s Current Report on Form 8-K dated May 8, 2009 (File No. 0-29466)]

~~(4.1)~~		Installment or Single Payment Note, dated as of December 19, 2008, from National Research Corporation to U.S. Bank National Association [Incorporated by reference to Exhibit (4.1) to National Research Corporation’s Current Report on Form 8-K dated December 19, 2008 (File No. 0-294660)]

(10.1)*		National Research Corporation 2001 Equity Incentive Plan [Incorporated by reference to National Research Corporation’s Proxy Statement for the 2002 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on April 3, 2002 (File No. 0-29466)]

(10.2)*		National Research Corporation 2006 Equity Incentive Plan [Incorporated by reference to National Research Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on April 3, 2006 (File No. 0-29466)]

(10.3)*		National Research Corporation Director Stock Plan, as amended to date [Incorporated by reference to Exhibit (10.2) to National Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 0-29466)]

(10.4)*		National Research Corporation 2004 Director Stock Plan [Incorporated by reference to National Research Corporation’s Proxy Statement for the 2005 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on April 4, 2005 (File No. 0-29466)]

~~(10.5)+~~		Contract, dated January 23, 2002, between National Research Corporation and the Department of Veterans Affairs [Incorporated by reference to Exhibit (10.4) to National Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-29466)]

(10.6)*		Form of Nonqualified Stock Option Agreement (for new associates) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.4 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

(10.7)*		Form of Nonqualified Stock Option Agreement (for officers) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.5 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

(10.8)*		Form of Restricted Stock Agreement for executive officers used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 10.2 to National Research Corporation’s Current Report on Form 8-K dated March 19, 2005 (File No. 0-29466)]

(10.9)*		Form of Restricted Stock Agreement (one year vesting) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.6 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

~~Exhibit~~ ~~Number~~		~~Exhibit Description~~

(10.10)*		Form of Restricted Stock Agreement (five year vesting) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.7 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

(10.11)*		Restricted Stock Incentive Plan for Joseph W. Carmichael, as amended and restated, under the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 10.2 to National Research Corporation’s Current Report on Form 8-K dated March 3, 2006 (File No. 0-29466)]

(10.12)*		~~Director’s Compensation Summary [Incorporated by reference to Exhibit (10.1) to National Research Corporation’s Annual Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 0-29466)]~~

(10.13)*		Form of Nonqualified Stock Option Agreement used in connection with the 2006 Equity Incentive Plan [Incorporated by reference to Exhibit (10.14) to National Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 0-29466)]

(10.14)*		Form of Restricted Stock Agreement used in connection with the 2006 Equity Incentive Plan [Incorporated by reference to Exhibit (10.15) to National Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 0-29466)]

~~(10.15)~~	(2.1)#	Merger Agreement, dated as of November 26, 2008, by and among National Research Corporation, NRC Acquisition, Inc., My Innerview, Inc., Neil L. Gulsvig and Janice L. Gulsvig [Incorporated by reference to Exhibit (2.1) to National Research Corporation’s Current Report on Form 8-K dated November 26, 2008 (File No. 0-29466)]

(2.2)#	Stock Purchase Agreement, dated as of August 3, 2010, by and among National Research Corporation, Outcome Concept Systems, Inc. and the holders of Outcome Concept Systems’ shares of common stock and warrants to purchase such shares [Incorporated by reference to Exhibit (2.1) to National Research Corporation’s Current Report on Form 8-K dated ugust 3, 2010 (File No. 0-29466)]

~~(23.1)~~(3.1)	Articles of Incorporation of National Research Corporation, as amended to date [Incorporated by reference to Exhibit (3.1) to National Research Corporation’s Registration Statement on Form S-1 (Registration No. 333-33273)]

(3.2)	By-Laws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit (3.2) to National Research Corporation’s Current Report on Form 8-K dated May 8, 2009 (File No. 0-29466)]

(4.1)	Installment or Single Payment Note, dated as of December 19, 2008, from National Research Corporation to U.S. Bank National Association [Incorporated by reference to Exhibit (4.1) to National Research Corporation’s Current Report on Form 8-K dated December 19, 2008 (File No. 0-294660)]

(4.2)	Installment or Single Payment Note, dated as of July 30, 2010, from National Research Corporation to U.S. Bank N.A. to refinance the prior December 19, 2008, note of National Research Corporation [Incorporated by reference to Exhibit (4.2) to National Research Corporation’s Current Report on Form 8-K dated August 3, 2010 (File No. 0-29466)]

(4.3)	Installment or Single Payment Note, dated as of July 30, 2010, from National Research Corporation to U.S. Bank N.A. to fund a portion of the acquisition of Outcome Concept Systems, Inc. [Incorporated by reference to Exhibit (4.1) to National Research Corporation’s Current Report on Form 8-K dated August 3, 2010 (File No. 0-29466)]

(10.1)*	National Research Corporation 2001 Equity Incentive Plan [Incorporated by reference to National Research Corporation’s Proxy Statement for the 2002 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on April 3, 2002 (File No. 0-29466)]

(10.2)*	National Research Corporation 2006 Equity Incentive Plan [Incorporated by reference to National Research Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on April 3, 2006 (File No. 0-29466)]

(10.3)*	National Research Corporation Director Stock Plan, as amended to date [Incorporated by reference to Exhibit (10.2) to National Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 0-29466)]

Exhibit Number	Exhibit Description

(10.4)*	National Research Corporation 2004 Non-Employee Director Stock Plan [Incorporated by reference to Exhibit (10) to National Research Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 0-29466)]

(10.5)*	Form of Nonqualified Stock Option Agreement (for new associates) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.4 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

(10.6)*	Form of Nonqualified Stock Option Agreement (for officers) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.5 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

(10.7)*	Form of Restricted Stock Agreement for executive officers used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 10.2 to National Research Corporation’s Current Report on Form 8-K dated March 19, 2005 (File No. 0-29466)]

(10.8)*	Form of Restricted Stock Agreement (one year vesting) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.6 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

(10.9)*	Form of Restricted Stock Agreement (five year vesting) used in connection with the 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.7 to National Research Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530)]

(10.10)*	Form of Nonqualified Stock Option Agreement used in connection with the 2006 Equity Incentive Plan [Incorporated by reference to Exhibit (10.14) to National Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 0-29466)]

(10.11)*	Form of Restricted Stock Agreement used in connection with the 2006 Equity Incentive Plan [Incorporated by reference to Exhibit (10.15) to National Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 0-29466)]

(21)	Subsidiary of National Research Corporation

(23)	Consent of Independent Registered Public Accounting Firm

(31.1)		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(31.2)		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~(32.1)~~	(32)	Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit Number	Exhibit Description

~~(99.1)~~(99)		Proxy Statement for the ~~2010~~2013 Annual Meeting of Shareholders ~~to be filed within 120 days of December 31, 2009~~ [To be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after December 31, ~~2009;~~2012; except to the extent specifically incorporated by reference, the Proxy Statement for the ~~2010~~2013 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K]

(101)**	Financial statements from the Annual Report on Form 10-K of National Research Corporation for the year ended December 31, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi) the Notes to the Consolidated Financial Statements, and (vii) document and entity information.

*	A management contract or compensatory plan or arrangement.

#	The schedules to this agreement are not being filed herewith. The registrant agrees to furnish supplementally a copy of any such schedule to the Securities and Exchange Commission upon request.

Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted material was filed separately with the Securities and Exchange Commission.

In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1034, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

	Wisconsin		47-0634000
	(State or other jurisdiction		(I.R.S. Employer
	of incorporation or organization)		Identification No.)

	1245 Q Street
	Lincoln, Nebraska		68508
	(Address of principal executive offices)		(Zip code)

Title of Class		Name of Each Exchange on Which Registered
Common Stock, $.001 par value		The NASDAQ ~~Global~~Stock Market

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of December 31, 2012
Money Market Funds	$	5,245	$	--	$	--	$	5,245
Commercial Paper	$	2,242	$	--	$	--	$	2,242
Total	$	7,487	$	--	$	--	$	7,487
As of December 31, 2011
Money Market Funds	$	3,243	$	--	$	--	$	3,243
Commercial Paper	$	4,659	$	--	$	--	$	4,659
Total	$	7,902	$	--	$	--	$	7,902

	Level 1		Level 2		Level 3
	(In thousands)
Money Market Funds	$	930	$	—	$	—
U.S. government notes		—		1,560		—
Total	$	930	$	1,560	$	—

	December 31, 2012		December 31, 2011
	(In thousands)
Total carrying amount of long-term debt	$	12,436	$	14,486
Estimated fair value of long-term debt	$	12,490	$	14,498

	National Research Corporation
	(Exact name of registrant as specified in its charter)

		Page
	PART I

Item 1.	Business	1
Item 1A.	Risk Factors	68
Item 1B.	Unresolved Staff Comments	1113
Item 2.	Properties	1113
Item 3.	Legal Proceedings	1113
Item 4.	Mine Safety Disclosures	13

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1214
Item 6.	Selected Financial Data	1416
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	2227
Item 8.	Financial Statements and Supplementary Data	2328
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	4455
Item 9A.	Controls and Procedures	4455
Item 9B.	Other Information	4555

	PART III

Item 10.	Directors and Executive Officers of the Registrant	4657
Item 11.	Executive Compensation	4657
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	4657
Item 13.	Certain Relationships and Related Transactions	4758
Item 14.	Principal Accountant Fees and Services	4758

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	4859
Signatures	51	62

	High		Low		Dividends Declared Per Common Share

2008 Quarter Ended:
March 31	$	27.94	$	24.75	$	.14
June 30	$	32.06	$	25.14	$	.14
September 30	$	35.58	$	23.01	$	.14
December 31	$	34.93	$	19.00	$	.14

2009 Quarter Ended:
March 31	$	29.01	$	19.48	$	.16
June 30	$	28.10	$	23.10	$	.16
September 30	$	26.74	$	23.55	$	.16
December 31	$	25.30	$	20.32	$	.16

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs

October 1 - October 31, 2009		—		—		—		289,275

November 1 - November 30, 2009		—		—		—		289,275

December 1 - December 31, 2009		210	$	21.69		210		289,065

	12/04	12/05	12/06	12/07	12/08	12/09

National Research Corporation	100.00	109.35	146.03	177.05	193.68	142.27

NASDAQ Composite	100.00	101.33	114.01	123.71	73.11	105.61

Russell 2000	100.00	104.55	123.76	121.82	80.66	102.58

	(In thousands, except per share data)
	Quarter Ended
	Dec. 31, 2009			Sept 30, 2009			June 30, 2009			Mar. 31, 2009			Dec. 31, 2008		Sept 30, 2008		June 30, 2008			Mar. 31, 2008

Revenue	$	13,841		$	13,517		$	13,594		$	16,740		$	12,189	$	13,469	$	11,901		$	13,454
Direct expenses		5,548			5,446			6,304			7,276			5,766		6,598		5,320			5,927
Selling, general and administrative		4,042			3,872			3,697			3,979			2,768		3,053		3,348			3,559
Depreciation and amortization		929			901			891			1,110			682		661		676			666
Operating income		3,322			3,298			2,702			4,375			2,973		3,157		2,557			3,302
Other income (expense)		(134	)		(166	)		(183	)		(97	)		70		14		(58	)		(32	)
Provision for income taxes		951			1,138			910			1,627			1,148		1,205		918			1,267
Net income	$	2,237		$	1,994		$	1,609		$	2,651		$	1,895	$	1,966	$	1,581		$	2,003
Net income per share – basic	$	0.34		$	0.30		$	0.24		$	0.40		$	0.29	$	0.30	$	0.24		$	0.29
Net income per share – diluted	$	0.33		$	0.30		$	0.24		$	0.39		$	0.28	$	0.29	$	0.23		$	0.29
Weighted average shares outstanding – basic		6,639			6,637			6,637			6,633			6,642		6,644		6,637			6,818
Weighted average shares outstanding – diluted		6,725			6,735			6,734			6,713			6,782		6,803		6,793			6,970

	Fair Value
	(In thousands)
Current Assets	$	1,290
Property and equipment		846
Customer relationships		3,003
Goodwill		8,833
Other Long Term Assets		581
Total acquired assets		14,553
Less total liabilities		2,613
Net assets acquired	$	11,940

	Weighted-Average Life (years)
Current Assets			$	3,615
Property and equipment				1,632
Customer relationships		10		2,330
Trade name		5		330
Non-compete Agreements		3		430
Goodwill				13,502
Total acquired assets				21,839

Current liabilities				6,310
Long-term liabilities				260
Total liabilities assumed				6,570

Net assets acquired			$	15,269

	December 31, 2010
	(in thousands)
Revenue	$	67,341

Net income	$	7,664

Net income per share – basic	$	1.15

Net income per share – diluted	$	1.14

	2008		2007
	(In thousands, except per share amounts) (Unaudited)
Revenue	$	58,008	$	54,904
Net income	$	7,457	$	6,586
Earnings per share - basic	$	1.12	$	0.96
Earnings per share - diluted	$	1.09	$	0.94

	Useful Life			Gross		Accumulated Amortization		Net
	(In years)					(In thousands)
Goodwill				$	57,799			$	57,799
Non-amortizing intangible assets:
Indefinite trade name					1,191				1,191
Amortizing intangible assets:
Customer related	5	-	15		10,521		6,709		3,812
Non-competes		3			430		346		84
Trade names	5	-	10		1,902		1,195		707
Total amortizing intangibles					12,853		8,250		4,603
Total intangible assets other than goodwill				$	14,044	$	8,250	$	5,794

	(In thousands)
Balance as of December 31, 2006	$	30,014
Smaller World additional payment for contingent consideration		652
Foreign currency translation		385
Balance as of December 31, 2007	$	31,051
MIV acquisition		8,833
Foreign currency translation		(608	)
Balance as of December 31, 2008	$	39,276
Foreign currency translation		408
MIV deferred tax adjustments		(630	)
MIV allowance for doubtful accounts		75
MIV contingent consideration earned		795
Balance as of December 31, 2009	$	39,924

Balance as of December 31, 2010	$	55,133
MIV contingent consideration earned		2,550
OCS correcting entries		106
Foreign currency translation		(59	)
Balance as of December 31, 2011	$	57,730
Foreign currency translation		69
Balance as of December 31, 2012	$	57,799

	Current			Deferred			Total
2009:
Federal	$	2,433		$	1,109		$	3,542
Foreign		532			3			535
State		(21	)		570			549
Total	$	2,944		$	1,682		$	4,626
2008:
Federal	$	2,963		$	350		$	3,313
Foreign		549			(5	)		544
State		596			85			681
Total	$	4,108		$	430		$	4,538
2007:
Federal	$	2,971		$	65		$	3,036
Foreign		588			(21	)		567
State		603			72			675
Total	$	4,162		$	116		$	4,278

	(In thousands)
Balance of unrecognized tax benefits at December 31, 2010	$	269
Reductions due to lapse of applicable statue of limitations		(38	)
Additions based on tax positions of prior years		3
Additions based on tax positions related to the current year		32
Balance of unrecognized tax benefits at December 31, 2011	$	266

Reductions due to lapse of applicable statue of limitations		(117	)
Additions based on tax positions of prior years		84
Reductions based on tax positions of prior years		(9	)
Additions based on tax positions related to the current year		--
Balance of unrecognized tax benefits at December 31, 2012	$	224

	(In thousands)
Balance of unrecognized tax benefits at December 31, 2008	$	—
Increases for tax positions established during prior years		509
Increases for tax positions established for the current period		32
Balance of unrecognized tax benefits at December 31, 2009	$	541

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)		Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at beginning of period		492,431		$	20.77		—		—		769,401		$	25.73
Granted		102,739		$	27.91		—		—		79,630		$	45.28
Exercised		(2,023	)	$	8.69		—		—		(262,101	)	$	22.77
Canceled/expired		(15,325	)	$	21.73		—		—
Forfeited											(131,012	)	$	27.47
Outstanding at end of period		577,822		$	22.06		6.74	$	1,221		455,918		$	30.34		6.38	$	10,877
Exercisable at end of period		265,959		$	20.26		5.78	$	855		208,423		$	24.19		4.74	$	6,254

	Shares Outstanding			Weighted Average Grant Date Fair Value Per Share		Shares Outstanding			Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period		36,502		$	21.62		30,002		$	30.57
Granted		—			—		7,823		$	38.35
Forfeitures							(11,181	)	$	32.31
Vested		(10,645	)	$	23.49		(6,441	)	$	24.22
Forfeited		(3,901	)	$	16.15
Outstanding at end of period		21,956		$	21.68		20,203		$	34.65

	2010 Restructuring Plan One-time Termination Benefits			2010 Restructuring Plan Contract Terminations			OCS One-time Termination Benefits			Total
	(In thousands)
Balance, Restructuring liability at December 31, 2009	$	--		$	--		$	--		$	--
Severance assumed in OCS acquisition		--			--			333			333
Accrual for severance and employee related costs		143			--			14			157
Payments		(106	)		--			(333	)		(439	)
Balance, Restructuring liability at December 31, 2010	$	37		$	--		$	14			$ 51_
Accrual for Contract Terminations		--			280			--			280
Payments		(37	)		(280	)		(14	)		(331	)
Balance, Restructuring liability at December 31, 2011 and 2012	$	--		$	--		$	--		$	--_

Minimum lease payments	Total Payments		2010		2011		2012		2013		2014
(In thousands)
Operating leases	$	1,600	$	524	$	459	$	432	$	175	$	10
Capital leases		65		37		28		—		—		—
Total	$	1,665	$	561	$	487	$	432	$	175	$	10

As of December 31,	Capital Leases		Operating Leases
	(In thousands)
2013	$	135	$	687
2014		135		591
2015		102		584
2016		8		341
2017		--		233
Total minimum lease payments		380
Less: Amount representing interest		53
Present value of minimum lease payments		327
Less: Current maturities		102
Capital lease obligations, net of current portion	$	225

	Balance at Beginning of Year		MIV Acquisition		Bad Debt Expense		Write-offs Net of Recoveries		Balance at End of Year
(In thousands)
Allowance for doubtful accounts:
Year Ended December 31, 2007	$	44	$	—	$	29	$	3	$	70
Year Ended December 31, 2008	$	70	$	69	$	168	$	66	$	241
Year Ended December 31, 2009	$	241	$	75	$	138	$	175	$	279