~~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.

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. Our management has limited experience dealing with the issues of product and service, systems, personnel and business strategy integration posed by acquisitions, and has 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~~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 a third-party ~~panel~~panels of pre-recruited consumer households to produce Ticker in a timely ~~manner, the Market Guide.~~manner. If we are not able to continue to use ~~this panel,~~these panels, or the time period in which we use ~~this panel~~these panels is altered and we cannot find an alternative ~~panel~~panels on a timely, ~~cost competitive~~cost-competitive basis, we could face an increase in our costs or an inability to effectively produce ~~the Market Guide.~~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 ~~72.7%~~approximately 62% of our outstanding common stock as of ~~March 30, 2009.~~February 20, 2012. As a result, ~~he is able to~~Mr. Hays can 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, ~~2008,~~2011, 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 in,~~

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

Our ability to provide timely and accurate performance ~~tracking~~measurement and ~~other surveys could adversely affect~~improvement services to our ~~business.~~

~~Many healthcare providers, payers~~clients depends on the efficient and other entities 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 a significant impact on such providers’, payers’ or other entities’ businesses, and on any such individual’s compensation. In addition, parties who have not performed well in our surveys 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 our surveys or dissatisfaction with the results thereof.

~~Regulatory developments could adversely affect our revenue and results of operations.~~

~~In the~~uninterrupted operation of our ~~business,~~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 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 ~~access~~taken steps to prevent system failures and have back-up systems and procedures to prevent or ~~gather certain confidential information,~~reduce disruptions, such ~~as medical histories~~steps may not prevent an interruption of services and our ~~respondents. As a result, we~~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 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~~material adverse effect on our ~~revenue.~~business, financial condition, results of operations and reputation.

Security breaches or computer viruses could harm our business.

In ~~addition, several years ago,~~connection with our client services, we receive, process, store and transmit sensitive business information electronically over the ~~Centers for Medicare~~Internet. Computer viruses could spread throughout our systems and ~~Medicaid Services initiated a nationwide effort~~disrupt operations and service delivery. Unauthorized access to ~~collect~~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 ~~publicly report hospital quality~~information will successfully prevent computer viruses, data ~~including the patient experience~~thefts, release of ~~care questionnaire. This questionnaire is called the HCAHPS questionnaire~~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 ~~was developed by the Agency for Healthcare Research~~expose us to regulatory action and ~~Quality. After several years~~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 ~~development~~customers, damage to customer relationships, reduced revenue and ~~consensus building, the HCAHPS survey program began in 2006. This survey program may increase competition~~profits, refunds of customer charges and ~~pricing pressures,~~damage our reputation, which could adversely affect our ~~operating~~business, financial condition, results of operations and ~~net income.~~reputation.

Our growth strategy includes future acquisitions which involve inherent risk.

In order to expand services or technologies to existing clients and 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 results of 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 write-off of goodwill, software development costs, client lists, other intangibles and amortization of expenses. If we fail to successfully complete acquisitions or integrate acquired businesses, we may not achieve projected results and there may be a material adverse effect on our business, financial condition and results of operations.

Item 1B.Unresolved Staff Comments

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

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 office building in Markham, Ontario. The operations of TGI are located in San Diego, California, where the Company leases 6,100 square feet of office space. MIV’s operations are located in Wausau, Wisconsin, and Minnetonka, Minnesota, where the Company leases 8,500 and 1,300 square feet of office space ~~respectively.~~in Markham, Ontario, 5,100 square feet of office space in San Diego, California and 8,100 square feet of office space in Seattle, Washington.

Item 3.Legal Proceedings

The Company is not subject to any material pending litigation.

Item 4.~~Submission~~Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of ~~Matters to a Vote of Security Holders~~Equity Securities

~~No matters were submitted to a vote of the Company’s shareholders during the fourth quarter of the Company’s 2008 fiscal year.~~

~~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, ~~2007,~~2010, through December 31, ~~2008:~~2011:

Dividends
Declared Per
High Low Common Share

2007 Quarter Ended:
March 31 $ 24.24 $ 20.49 $ .12
June 30 $ 27.00 $ 21.24 $ .12
September 30 $ 26.50 $ 24.47 $ .12
December 31 $ 28.00 $ 25.00 $ .12

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

	High		Low		Dividends Declared Per Common Share
2010 Quarter Ended:
March 31	$	25.91	$	19.00	$	.19
June 30	$	27.50	$	21.45	$	.19
September 30	$	26.90	$	22.07	$	.19
December 31	$	35.33	$	25.21	$	.19

2011 Quarter Ended:
March 31	$	34.25	$	29.01	$	.22
June 30	$	36.89	$	33.63	$	.22
September 30	$	44.44	$	30.96	$	.22
December 31	$	38.96	$	28.00	$	.22

On ~~March 30, 2009,~~February 20, 2012, there were approximately 1923 shareholders of record and approximately ~~500~~1,200 beneficial owners of the Common Stock.

In March 2005, the Company announced the commencement of a quarterly cash dividend. Cash dividends of ~~$3.8~~$5.9 million and ~~$3.3~~$5.1 million in the aggregate were declared and paid during the twelve-month periods ended December 31, ~~2008~~2011 and ~~2007,~~2010, 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.

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, 2012, 539,743 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, ~~2008.~~2011.

Total Number
of Shares
Total Purchased as Part Maximum Number of
Number of Average of Publicly Shares that May Yet Be
Shares Price Paid Announced Plans Purchased Under the Plans or
Period Purchased Per Share or Programs⁽¹⁾ Programs
October 1 – October 31, 2008 2,504 $ 27.82 2,504 391,961

November 1 – November 30, 2008 2,010 $ 23.65 2,010 389,951

December 1 – December 31, 2008 97,358 $ 26.36 97,358 292,593


⁽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.~~

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, 2011		--		--		--		256,376
November 1 – November 30, 2011		--		--		--		256,376
December 1 – December 31, 2011		4,947	$	34.65		4,947		251,429

The following graph ~~below~~ compares the ~~Company’s~~ cumulative ~~five-year~~5-year total ~~shareholder~~ return provided shareholders on National Research Corporation's common stock ~~with~~relative to the cumulative total returns of the NASDAQ Composite Index and the Russell 2000 Index. ~~The graph tracks the performance~~An investment of a $100 ~~investment~~(with reinvestment of all dividends) is assumed to have been made in ~~the Company’s~~our common stock and in each of the indexes ~~(with the reinvestment of all dividends) from~~on December 31, ~~2003, to~~2006, and its relative performance is tracked through December 31, ~~2008.~~2011.

The Russell 2000 Index is an index of companies with market capitalizations similar to the Company. The Company has selected this index because, at this time, the Company does not believe it can reasonably identify a peer group for comparison. The Company believes that an index of companies with similar market capitalizations provides a reasonable basis for comparing total shareholder returns.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN DATA

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


*		~~Based on $100 invested on December 31, 2003, in stock of the Company or the index, including reinvestment of all dividends.~~

~~COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN DATA~~


	12/03		12/04		12/05		12/06		12/07		12/08		12/06	12/07	12/08	12/09	12/10	12/11

National Research Corporation		100.00		100.25		109.62		146.39		177.49		194.16	100.00	121.24	132.63	97.43	166.09	193.23

NASDAQ Composite		100.00		110.08		112.88		126.51		138.13		80.47	100.00	110.26	65.65	95.19	112.10	110.81

Russell 2000		100.00		118.33		123.72		146.44		144.15		95.44	100.00	98.43	65.18	82.89	105.14	100.75

Item 6. �� Selected Financial Data

The selected statement of income data for the years ended December 31, ~~2008, 2007~~2011, 2010, and ~~2006,~~2009, and the selected balance sheet data at December 31, ~~2008~~2011 and ~~2007,~~2010, 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, ~~2005~~2008 and ~~2004,~~2007, and the balance sheet data at December 31, ~~2006, 2005~~2009, 2008, and ~~2004,~~2007, 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 ~~adopted SFAS No. 123R~~~~Share-Based Payment~~~~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 87 to the ~~Company’s~~Company's consolidated financial statements.

Year Ended December 31,
2008 2007 2006 2005 2004
(In thousands, except per share data)

Statement of Income Data:

Revenue $ 51,013 $ 48,923 $ 43,771 $ 32,437 $ 29,683
Operating expenses:
Direct expenses 23,611 21,801 19,445 13,642 12,869
Selling, general and administrative 12,728 13,173 12,158 8,617 7,394
Depreciation and amortization 2,685 2,583 2,260 1,762 2,018

Total operating expenses 39,024 37,557 33,863 24,021 22,281
Operating income 11,989 11,366 9,908 8,416 7,402
Other income (expenses) (6 ) (248 ) (402 ) 99 (119 )

Income before income taxes 11,983 11,118 9,506 8,515 7,283
Provision for income taxes 4,538 4,278 3,622 3,279 2,732

Net income $ 7,445 $ 6,840 $ 5,884 $ 5,236 $ 4,551

Net income per share — basic $ 1.11 $ 1.00 $ 0.86 $ 0.74 $ 0.63

Net income per share — diluted $ 1.09 $ 0.98 $ 0.85 $ 0.74 $ 0.63

Dividends per share $ 0.56 $ 0.48 $ 0.40 $ 0.32 $ —

Weighted average shares outstanding — basic 6,685 6,850 6,836 7,038 7,181
Weighted average shares outstanding — diluted 6,831 7,011 6,954 7,118 7,249

December 31,
2008 2007 2006 2005 2004
(In thousands)
Balance Sheet Data:

Working capital $ (10,650 ) $ (2,384 ) $ (1,482 ) $ 8,058 $ 19,434
Total assets 72,145 61,869 61,532 44,675 47,954
Total debt, including current portion 12,954 2,993 11,093 1,471 4,901
Total shareholders’ equity 38,598 42,286 36,751 32,593 35,018

	Year Ended December 31,
	2011			2010			2009			2008			2007
	(In thousands, except per share data)
Statement of Income Data:
Revenue	$	75,767		$	63,398		$	57,692		$	51,013		$	48,923
Operating expenses:
Direct expenses		28,667			24,635			24,148			23,611			21,801
Selling, general and administrative		23,300			20,202			16,016			12,728			13,173
Depreciation and amortization		5,065			4,704			3,831			2,685			2,583
Total operating expenses		57,032			49,541			43,995			39,024			37,557
Operating income		18,735			13,857			13,697			11,989			11,366
Other expense		(575	)		(542	)		(580	)		(6	)		(248	)
Income before income taxes		18,160			13,315			13,117			11,983			11,118
Provision for income taxes		6,596			4,816			4,626			4,538			4,278
Net income	$	11,564		$	8,499		$	8,491		$	7,445		$	6,840

Net income per share - basic	$	1.73		$	1.28		$	1.28		$	1.11		$	1.00
Net income per share - diluted	$	1.69		$	1.26		$	1.26		$	1.09		$	0.98
Dividends per share	$	0.88		$	0.76		$	0.64		$	0.56		$	0.48
Weighted average shares outstanding – basic		6,672			6,637			6,637			6,685			6,850
Weighted average shares outstanding – diluted		6,842			6,735			6,723			6,831			7,011

	December 31,
	2011			2010			2009			2008			2007
	(In thousands)
Balance Sheet Data:
Working capital deficiency	$	(2,262	)	$	(8,809	)	$	(4,432	)	$	(10,650	)	$	(2,384	)
Total assets		100,676			95,770			72,499			72,145			61,869
Total debt and capital lease obligations, including current portion		14,912			16,599			7,719			12,954			2,993
Total shareholders’ equity	$	55,554		$	48,584		$	44,171		$	38,598		$	42,286


~~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 ~~analysis, tracking,~~and improvement services, healthcare analytics and governance education to the healthcare industry in the United States and Canada. ~~Since 1981,~~The Company believes it has achieved this leadership position based on 31 years of industry experience and its relationships with many of the ~~Company has provided these~~industry’s largest organizations. The Company’s portfolio of services using traditional market research methodologies, such as direct mail, telephone-based surveys, focus groups 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. The Company addresses the growing ~~need~~needs of healthcare providers and payers to measure the care outcomes, specifically experience and health status of their patients and/or members, and provides information on governance issues. NRC develops tools that enable healthcare organizations to ~~obtain performance measurement~~measure and improve satisfaction, quality and cost outcomes relative to the services that they provide. Since its founding in 1981 in Lincoln, Nebraska, NRC has focused on meeting the information ~~necessary to comply with industry~~needs of the healthcare industry. The Company’s services, which are comprehensive, include data collection, healthcare analytics, best practice identification and ~~regulatory standards, and~~effective delivery of value-added business intelligence that enables its clients to improve ~~their~~performance across key business ~~practices so that they can maximize new member and/or patient attraction, experience, member retention~~metrics. Through its extensive array of service capabilities 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~~relationships, NRC is positioned to provide healthcare information services ~~are performance tracking services, custom research, subscription-based educational and improvement services, and its Market Guide.~~to organizations across a wide continuum of service delivery segments.

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 not included in these amounts.~~received.

On April 1, 2008, approximately 10 customer contracts were purchased from SQ Strategies for $249,473. The recording of this asset purchase increased customer related intangibles by $260,462 and deferred revenue by $10,989.

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 ~~2008~~2011 include:

	•	●	Revenue recognition;

•		~~Valuation of long-lived assets;~~

•	●	Valuation of goodwill and identifiable intangible assets; and

•

●

Income taxes.

~~As a result~~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 ~~timing of recognition of~~ revenue is probable, and ~~costs associated with Market Guide, the Company’s margins vary throughout the year.~~ determining that fees are fixed and determinable.

The Company’s ~~revenue recognition policy~~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 ~~Market Guide~~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 not ~~sensitive~~considered to ~~significant estimates and judgments.~~

~~Valuation~~be essential to the functionality of ~~Long-Lived Assets~~

~~Under~~ the ~~provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,~~~~Accounting for the Impairment or Disposal 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.~~software license. The Company ~~assesses whether an impairment~~does not achieve vendor-specific objective evidence (“VSOE”) 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.~~ 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.

The ~~assessment~~Company’s revenue arrangements (not involving software elements) may include multiple elements. In assessing the separation of revenue for 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 sufficient evidence of the ~~recoverability of long-lived assets may be adversely impacted if estimated future operating cash flows are not achieved.~~

~~The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying~~fair value of ~~such assets may~~the elements in allocating the fees in the arrangement to each element. Revenue allocated to an element is limited to revenue that is not ~~be recoverable. Among others, management believes~~subject to refund or otherwise represents contingent revenue.

On January 1, 2011, the ~~following circumstances are important indicators~~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 selling price for a deliverable is based on its VSOE if it exists, otherwise third-party evidence of ~~potential impairment~~selling price. If neither exists for a deliverable, the best estimate of ~~such assets~~the selling price is used for that deliverable based on list price, representing a component of management’s market strategy, and ~~as a result, may trigger~~ an ~~impairment review:~~analysis of historical prices for bundled and standalone arrangements.

	•		~~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. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment.

Goodwill ~~represents~~is an asset representing the ~~difference between~~future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually. The goodwill impairment test is a two-step test. Under the ~~purchase price paid in acquisitions, using the purchase method of accounting, and~~first step, the fair value of the ~~net assets acquired.~~

reporting unit is compared with its carrying value (including goodwill). If the 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 ~~Company adopted~~fair value of goodwill is determined by allocating the ~~provisions~~fair value of ~~SFAS No. 142,~~~~Goodwill~~the reporting unit in a manner similar to a purchase price allocation and ~~Other Intangible Assets,~~the residual fair value after this allocation is the fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis and ~~as a result,~~comparable market multiples. If the ~~Company~~fair value of the reporting unit exceeds its carrying value, step two does not ~~amortize goodwill.~~need to be performed.

All of ~~December 31, 2008,~~ the ~~Company had net~~Company’s goodwill ~~of $39.3 million.~~is allocated to its reporting units. As of October 1 of each year (or more frequently as changes in circumstances indicate), the Company ~~evaluates~~tests goodwill for impairment. Under the ~~estimated~~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 develop 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 ~~goodwill. On these evaluation dates, to~~industry. No impairments were recorded during the extent that the carrying value of the net assets of the Company’s reporting units having goodwill is greater than the estimated fair value, impairment charges will be recorded. The Company’s analysis has not resulted in the recognition of an impairment loss on goodwill in 2008, 2007years ended December 31, 2011, 2010 or ~~2006.~~2009.

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. 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 Percentage
Year Ended December 31, Increase
2008 2007
over over
2008 2007 2006 2007 2006

Revenue 100.0 % 100.0 % 100.0 % 4.3 % 11.8 %
Operating expenses:
Direct expenses 46.3 44.6 44.4 8.3 12.1
Selling, general and administrative 25.0 26.9 27.8 (3.4 ) 8.4
Depreciation and amortization 5.3 5.3 5.2 4.0 14.3

Total operating expenses 76.5 76.8 77.4 3.9 10.9

Operating income 23.5 % 23.2 % 22.6 % 5.5 % 14.7 %

Percentage of Total Revenue
Year Ended December 31,

Percentage
Increase (Decrease)

2011 2010 2009
2011 over
2010

2010 over
2009

Revenue 100.0 % 100.0 % 100.0 % 19.5 % 9.9 %
Operating expenses:
Direct expenses 37.8 38.8 41.9 16.4 2.0
Selling, general and administrative 30.8 31.9 27.8 15.3 26.1
Depreciation and amortization 6.7 7.4 6.6 7.7 22.8
Total operating expenses 75.3 78.1 76.3 15.1 12.6
Operating income 24.7 % 21.9 % 23.7 % 35.2 % 1.2 %

Year Ended December 31, ~~2008,~~2011, Compared to Year Ended December 31, ~~2007~~2010

Revenue. Revenue increased ~~4.3%~~19.5% in ~~2008~~2011 to ~~$51.0~~$75.8 million from ~~$48.9~~$63.4 million in ~~2007.~~2010. This increase was ~~primarily~~ due to ~~increases in the scope of work from existing clients and~~ the addition of ~~new clients.~~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. The Company expects revenue to continue to grow in 2012 by 15% to 20%.

Direct expenses. Direct expenses increased ~~8.3%~~16.4% to ~~$23.6~~$28.7 million in ~~2008~~2011 from ~~$21.8~~$24.6 million in ~~2007.~~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 ~~change~~primary reason for the increase in direct expenses was ~~primarily~~ due to an increase in ~~salaries, benefits~~variable expenses of $2.4 million, including postage of $1.1 million and ~~travel~~contracted survey related costs of ~~$1.2~~$1.1 million to service the ~~result~~higher volume of ~~the change~~business, and an increase in ~~the business model~~fixed expenses of $675,000 from additional staffing and ~~the allocation~~related expenses in information technology development and client service functions. The addition of ~~responsibilities related to sales~~OCS also increased variable expenses by $106,000 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 directfixed expenses ~~rather than selling, general and administrative expenses.~~by $809,000. Direct expenses ~~increased~~decreased as a percentage of ~~total~~ revenue to ~~46.3%~~37.8% in ~~2008~~2011 from ~~44.6%~~38.8% during 2010, mainly due to leveraging revenue growth and expanded use of more cost-efficient survey methodologies. The Company increased direct expense in ~~2007.~~the fourth quarter of 2011 and will continue to increase direct expenses as a percentage of revenue in the short term, as we increased staffing to support new clients added in late 2011.

Selling, general and administrative expenses. Selling, general and administrative expenses ~~decreased 3.4%~~increased $3.1 million or 15.3% to ~~$12.7~~$23.3 million in ~~2008~~2011 from ~~$13.2~~$20.2 million in ~~2007. The change~~2010. Of the increase, $2.0 million was ~~largely~~primarily due to the ~~2008 change in~~expansion of the ~~business model~~sales force, increased sales commissions, and the ~~allocation~~addition of ~~responsibilities related to sales and servicing clients.~~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 ~~total~~ revenue to ~~25.0%~~30.8% for 2011 from 31.9% for 2010, primarily due to 2011 sales and revenue growth from the sales expansion in ~~2008 from 26.9%~~2010, decreases in ~~2007.~~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. The Company expects selling, general and administrative expenses as a percentage of revenue to continue to decline as we continue to leverage revenue growth in 2012 against selling, general and adminstrative expenses.

Depreciation and amortization. Depreciation and amortization expenses increased ~~4.0%~~7.7% to ~~$2.7~~$5.1 million in ~~2008~~2011 from ~~$2.6~~$4.7 million in ~~2007.~~2010, primarily due to the addition of OCS in 2010. Depreciation and amortization expenses as a percentage of revenue ~~remained~~decreased to 6.7% in 2011 from 7.4% in 2010. The Company expects depreciation expense in 2012 to continue at ~~5.3% in 2008 and 2007 respectively.~~a comparable rate as a percentage of revenue.

Provision for income taxes. The provision for income taxes totaled ~~$4.5~~$6.6 million ~~(37.9%~~(36.3% effective tax rate) for ~~2008~~2011 compared to ~~$4.3~~$4.8 million ~~(38.5%~~(36.2% effective tax rate) for ~~2007.~~2010. The increase in the effective tax rate was ~~lower in 2008~~ due to ~~decreases~~higher state taxes, partially offset by increased research and development credits and a decrease in ~~provincial income~~unrecognized tax ~~rates.~~benefits.

Year Ended December 31, ~~2007,~~2010, Compared to Year Ended December 31, ~~2006~~2009

Revenue. Revenue increased ~~11.8%~~9.9% in ~~2007~~2010 to ~~$48.9~~$63.4 million from ~~$43.8~~$57.7 million in ~~2006. This was primarily~~2009. The acquisition of OCS accounted for $3.0 million of the increase with the remainder due to ~~increases in the scope of work from existing clients,~~ the addition of new clients and ~~the acquisition of TGI in May 2006, which generated $4.1 million more of revenue in 2007 compared to 2006.~~expanded sales from existing clients.

Direct expenses. Direct expenses increased ~~12.1%~~2% to ~~$21.8~~$24.6 million in ~~2007~~2010 from ~~$19.4~~$24.1 million in ~~2006 primarily~~2009. The primary reason for the increase in direct expenses was due to ~~increases~~the acquisition of OCS, which added approximately $1.4 million, and investment in ~~conference costs~~a new business unit, Illuminate, offset by increased use of ~~$990,000, postage of $421,000, fieldwork of $291,000, and printing of $241,000 to support the increased revenue from TGI, and new clients and growth in the scope of work from existing clients.~~more cost-efficient survey methodology, as well as staffing reductions. Direct expenses ~~increased~~decreased as a percentage of ~~total~~ revenue to ~~44.6%~~38.8% in ~~2007~~2010 from ~~44.4% in 2006.~~41.9% during 2009.

Selling, general and administrative expenses. Selling, general and administrative expenses increased ~~8.4%~~26.1% to ~~$13.2~~$20.2 million in ~~2007~~2010 from ~~$12.2~~$16.0 million in 2006. The change was primarily due to increases in salary and benefits and contracted services of $1,071,000. The salary increases were primarily attributed to the acquisition of TGI. Selling, general and administrative expenses decreased as a percentage of total revenue to 26.9% in 2007 from 27.8% in 2006.

~~Depreciation and amortization~~~~. Depreciation and amortization expenses increased 14.3% to $2.6 million in 2007 from $2.3 million in 2006.~~2009. The increase was primarily due to the ~~amortization~~addition of ~~intangible assets~~OCS (adding $1.0 million), $312,000 in acquisition and transition costs associated with the acquisition of ~~TGI. Depreciation~~OCS, investment in a new product development, expansion of the sales force, and ~~amortization~~the addition of several executives in various leadership roles. Selling, general and administrative expenses increased as a percentage of revenue to 31.9% in 2010 from 27.8% in 2009, mainly due to sales expansion efforts in 2010 throughout the Company, acquisition and transition costs associated with OCS and investment in a new product development.

Depreciation and amortization. Depreciation and amortization expenses increased ~~slightly~~22.8% to ~~5.3%~~$4.7 million in ~~2007~~2010 from ~~5.2%~~$3.8 million in ~~2006.~~2009. Depreciation and amortization increased as a percentage of revenue to 7.4% in 2010 from 6.6% in 2009. Approximately $351,000 of the increase was related to the acquisition of OCS, with the remainder primarily due to a large software project that was placed into service at the end of 2009.

Provision for income taxes. The provision for income taxes totaled ~~$4.3~~$4.8 million ~~(38.5%~~(36.2% effective tax rate) for ~~2007~~2010 compared to ~~$3.6~~$4.6 million ~~(38.1%~~(35.3% effective tax rate) for ~~2006.~~2009. The effective tax rate was ~~lower~~higher in ~~2006~~2010 due to ~~differences~~an adjustment to deferred tax balances based on higher projected federal taxable rates and a decrease in ~~state~~research and development tax credits.

Inflation and Changing Prices

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

Liquidity and Capital Resources

As of December 31, 2011, our principal sources of liquidity included $8.1 million of cash and cash equivalents and up to $6.5 million of unused borrowings under our revolving credit note. 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 ~~$10.7~~$2.3 million on December 31, ~~2008, as~~2011, compared to a ~~$2.4~~$8.8 million working capital deficiency on December 31, ~~2007.~~2010. The ~~increase in the~~ working capital deficiency ~~was~~balance is primarily due to ~~billings in excess~~a deferred revenue balance of ~~revenue earned increasing by $3.0~~$16.5 million ~~unbilled revenue decreasing by $600,000~~ and ~~increased debt of $3.5 million to fund the MIV acquisition in December 2008. Cash and cash equivalents also decreased by $2.2~~$17.7 million as ~~a result~~ of ~~funding 2008 share repurchases~~December 31, 2011 and ~~paying off in 2008 the remainder of the term note~~2010, respectively.

The deferred revenue balance ~~from 2007.~~

~~Billings in excess of revenue earned increased~~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. ~~With the change in Market Guide, billings in excess of revenue earned increased $1.5 million as of December 31, 2008.~~ 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,
	2011			2010			2009
	(In thousands)
Provided by operating activities	$	18,481		$	14,603		$	13,666
Used in investing activities		(6,927	)		(16,980	)		(3,002	)
(Used in) provided by financing activities		(6,886	)		3,254			(9,548	)
Effect of exchange rate changes on cash		(105	)		130			287
Net increase in cash and cash equivalents		4,563			1,007			1,403
Cash and cash equivalents at end of period	$	8,082		$	3,519		$	2,512

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 $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.

Net cash provided by operating activities was $13.7 million for the year ended December 31, 2009, 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 $6.2 million. Changes in working capital reduced 2009 cash flows from operating activities by $1.0 million.

Cash Flows from Investing Activities

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.

Net cash of $3.0 million was used for investing activities in the year ended December 31, 2009. Earn-out payments related to the MIV acquisition approximated $93,000 and purchases of property and equipment totaled $2.9 million.

Cash Flows from Financing Activities

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.

Net cash used in financing activities was $9.5 million in the year ended December 31, 2009. Cash was generated from borrowings under the term note and revolving credit note totaling $4.9 million. Cash was used to pay dividends of $4.3 million and repay borrowings under the term note and revolving credit note totaling $10.1 million.

The effect of changes in foreign exchange rates increased (decreased) cash and cash equivalents by ($105,000), $130,000, and $287,000 in the years ended December 31, 2011, 2010 and 2009, respectively.

Capital Expenditures

Capital expenditures for the year ended December 31, ~~2008~~2011, were $2.8 million. These expenditures consisted mainly of computer software, computer hardware, furniture and other equipment. The Company expects similar capital expenditure purchases in 2012 consisting primarily of computer software and ~~building improvements,~~hardware and ~~the addition of $846,000 with the acquisition of MIV.~~

~~The Company has budgeted approximately $2.0 million for capital expenditures in 2009~~other equipment, to be funded through cash generated from operations. ~~The Company expects that these expenditures will be primarily for computer hardware and software, and equipment.~~

Debt and Equity

On May 26, 2006, 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. The term note was refinanced on February 25, 2008, for the remaining balance of the term note of $1,602,675. The refinanced term note required payments of principal and interest in 17 monthly installments of $92,821, beginning March 31, 2008, and ending August 31, 2009. Borrowings under the refinanced term note bore interest at an annual rate of 5.14%. The Company made additional payments and paid off the term note in October 2008.

The maximum aggregate amount available under the revolving credit note was originally $3.5 million, but an addendum to the revolving credit note dated March 26, 2008, changed the revolving credit note amount to $6.5 million. The revolving credit note was renewed in July 2008 to extend the term to July 31, 2009. The Company may borrow, repay and re-borrow amounts under the revolving credit note from time to time until its maturity on July 31, 2009. 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. The Company expects to extend the term of the revolving credit note for at least one year beyond the maturity date. As of December 31, 2008, the balance of the revolving credit note was $3.9 million.

On December 19, 2008, the Company borrowed $9.0 million under a term note to partially finance the acquisition of MIV. In July 2010, the Company refinanced the existing term loan with a $6.9 million fixed rate term loan. The new term ~~note~~loan is payable in 35 ~~equal~~monthly installments of ~~$96,829,~~$80,104 with ~~the balance of principal and interest payable in~~ a balloon payment for the remaining principal balance and interest due on ~~December~~July 31, ~~2011.~~2013. Borrowings under the term note bear interest at aan annual rate of ~~5.2% per year.~~3.79%. The outstanding balance of the term note at December 31, 2011, was $6.0 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 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, 2010, was $8.5 million.

The term ~~note is~~notes are secured by certain of the Company’s assets, including the Company’s land, building, accounts receivable and ~~intangibles.~~intangible assets. The term ~~note contains~~notes 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, ~~2008,~~2011, the Company was in compliance with these restrictions and covenants.

~~Debt~~

The Company entered into a revolving credit note in 2006. The maximum aggregate amount available under the revolving credit note, following an addendum to the note in March 2008, is $6.5 million. The revolving credit note was renewed in June 2011 to extend the term to June 30, 2012. The Company may borrow, repay and re-borrow amounts under the revolving credit note from time to time until its maturity on June 30, 2012. 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.

The maximum aggregate amount available under the revolving credit note of $6.5 million is subject to a borrowing base equal to 75% of the Company’s eligible accounts receivable. Borrowings under the renewed revolving credit note bear interest at a variable annual rate, with three rate options at the discretion of management as follows: (1) 2.5% plus the daily reset one-month 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, 2011 was 2.79%. As of December 31, 2011, the revolving credit note did not have a balance. According to borrowing base requirements, the Company had the capacity to borrow $6.5 million as of December 31, 2011.

The agreement under which the Company acquired ~~through~~MIV provided for contingent earn-out payments over three years based on growth in revenue and earnings. The 2010 and 2009 earn-out payments paid in February 2011 and 2010, were $1.6 million and $172,000 respectively, net of closing valuation adjustments, and were recorded as additions to goodwill. In April 2011, the Company reached an agreement which limited the final earn-out payment associated with the MIV acquisition ~~included $89,741~~at $2.6 million. Of this amount, $2.5 million was paid during April 2011 and a final payment of $117,000 was paid in ~~capital leases.~~September 2011. 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.payments have been recorded as additions to goodwill.

Contractual Obligations

The Company had contractual obligations to make ~~cash~~ payments in the following amounts in the future as of December 31, ~~2008:~~2011:

Total Less than One to Three to After
Contractual Obligations Payments One Year Three Years Five Years Five Years

Operating leases $ 2,197,826 $ 626,201 $ 1,400,867 $ 170,758 $ —
Revolving credit note 3,850,000 3,850,000 — — —
Other debt 14,148 14,148 — — —
Capital leases 101,871 37,044 64,827 — —
Long-term debt 10,274,496 1,161,946 9,112,550 — —

Total $ 16,438,341 $ 5,689,339 $ 10,578,244 $ 170,758 $ —

The balance of the Company’s revolving credit note as of December 31, 2008, is shown in the contractual obligations table as a cash payment obligation during the year in which the note’s term expires. Interest related to the revolving credit note is dependent on the level of borrowing and variable interest rates as more fully described in Note 7 to the Company’s consolidated financial statements, and is not shown in this table.

Contractual Obligations	Total Payments		Less than One Year		One to Three Years		Three to Five Years		After Five Years
(In thousands)
Operating leases	$	2,058	$	676	$	1,155	$	227	$	--
Capital leases		519		147		365		7		--
Uncertain tax positions(1)		266		--		--		--		--
Long-term debt		15,319		2,617		12,702		--		--
Total	$	18,162	$	3,440	$	14,222	$	234	$	--

(1) We have $266,000 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.

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 ~~decreased $3.7~~increased $7.0 million to ~~$38.6~~$55.6 million in ~~2008~~2011 from ~~$42.3~~$48.6 million in ~~2007.~~2010. The ~~decrease~~increase was primarily due to ~~the purchase~~net income of ~~treasury stock, including stock used to pay the exercise price of options exercised, of $10.1~~$11.6 million and ~~payment of cash dividends of $3.8 million. This was~~$2.1 million related share-based compensation, partially offset by ~~an increase in net income and the exercise~~dividends paid of ~~stock options.~~$5.9 million.

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, ~~2008,~~2011, the remaining number of shares that ~~can~~could be purchased ~~are 292,593.~~under this authorization was 251,429.

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

~~Effective~~

On January 1, ~~2008,~~2011, the Company prospectively adopted ASU 2009-13. This guidance eliminates the ~~provisions~~residual method under the current guidance and replaces it with the “relative selling price” method when allocating revenue in a multiple deliverable arrangement. Additionally, it requires that revenue be allocated to each deliverable based on estimated selling price, even though such deliverables are not sold separately either by the Company or other vendors. The selling price for each deliverable is determined using vendor-specific objective evidence of ~~SFAS No. 157,~~~~Fair Value Measurements~~~~(“SFAS 157”),~~selling price, if it exists, otherwise third-party evidence of selling price. If neither exists for a deliverable, the best estimate of the selling price is used for that deliverable. As a result, the new guidance allows some revenue to be recognized earlier and in different amounts than previous requirements. The adoption of this guidance did not have a material impact on the Company’s consolidated financial ~~assets~~statements during the year ended December 31, 2011, and ~~financial liabilities.~~ is not expected to materially impact subsequent periods.

Recent Accounting Pronouncements

In ~~accordance with~~June and December 2011, the Financial Accounting Standards Board ~~Staff Position No. 157-2,~~~~Effective Date of FASB Statement No. 157~~, the Company delayed application of SFAS 157 for non-financial assets and non-financial liabilities, until January 1, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The adoption of SFAS 157 for financial assets and financial liabilities has not had a material effect on the consolidated financial statements.

Certain non-financial assets and non-financial liabilities measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. As stated above, SFAS 157 will be applicable to these fair value measurements beginning January 1, 2009. Management believes that adoption of SFAS 157-2 for non-financial assets and non-financial liabilities will not have a material effect on the consolidated financial statements.

~~In February 2007, the FASB~~(“FASB”) issued ~~SFAS No. 159,~~~~The Fair Value Option for Financial Assets and Financial Liabilities~~, including an amendment of FASB Statement No. 115 (“No. 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS No. 159 were effective as of January 1, 2008. The adoption of SFAS No. 159 has not had a material effect on the consolidated financial statements.

~~In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) in EITF Issue No. 07-3,~~~~Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities~~~~(“EITF 07-3”),~~guidance which requires ~~that nonrefundable advance payments for goods~~comprehensive income be presented either in a single continuous statement of comprehensive income or ~~services that will be used or rendered for future research and development activities be deferred and amortized over~~in two separate but consecutive statements. The option to present the ~~period that the goods are delivered or the related services are performed, subject to an assessment~~components of ~~recoverability. EITF 07-3 is effective~~other comprehensive income as part of the ~~beginning~~statement of ~~a company’s first fiscal year that begins after December 15, 2007. The adoption of EITF 07-3 has had no impact on the consolidated financial statements.~~

~~In May 2008, the FASB issued SFAS No. 162,~~~~The Hierarchy of Generally Accepted Accounting Principles~~~~(“SFAS 162”). This statement identifies the sources of, and framework for, selecting the accounting principles to be used~~changes in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (“GAAP hierarchy”). Because the current GAAP hierarchy is set forth in the American Institute of Certified Public Accountants Statement on Auditing Standards No. 69, it is directed to the auditor rather than to the entity responsible for selecting accounting principles for financial statements presented in conformity with GAAP. Accordingly, the FASB concluded the GAAP hierarchy should reside in the accounting literature established by the FASB and issued this statement to achieve that result. The provisions of SFAS 162 are effective November 15, 2008,stockholders’ equity, which is ~~60 days following~~ the ~~SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,~~~~The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles~~~~. The adoption of SFAS 162 has not had a material effect on the consolidated financial statements~~

~~Recent Accounting Pronouncements~~

~~In December 2007, the FASB issued SFAS No. 141 (revised 2007),~~~~Business Combinations~~~~(“SFAS 141(R)”), which replaces SFAS 141,~~~~Business Combinations~~. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R)Company’s current presentation, will no longer be allowed. This guidance is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008. Management will assess the impact of SFAS 141(R) if, and when, a future acquisition occurs.

~~In December 2007, the FASB issued SFAS No. 160,~~~~Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51~~(“SFAS 160”). This statement amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS No. 160 are effective for fiscal years and interim periods ~~within those~~beginning after December 15, 2011. The guidance will change the Company’s financial statement presentation but is not expected to have a material effect on its financial condition or results of operations.

In September 2011, the FASB issued guidance that simplified how entities test for goodwill impairment. This guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning ~~on or~~ after December 15, ~~2008. Management believes that the adoption of SFAS 160 will~~2011. The guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Item 7A.Quantitative and Qualitative Disclosure About Market Risk

The ~~impact of financial~~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 (losses) were ($201,000), $339,000, and $775,000 in 2011, 2010, and 2009, respectively. Gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which the Company ~~is not significant. The Company’s primary financial market risk exposure consisted~~operates and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income.

We are exposed to interest rate risk ~~related to~~with both our fixed-rate term debt and variable rate revolving line of credit facility. At December 31, 2011, our fixed rate term debt totaled $14.5 million. We estimate that a one percent change in market interest expense from the Company’s revolving credit note with a variable interest rate. See Note 7 to the Company’s consolidated financial statements. The balance on the revolving credit note was $3,850,000rates as of December 31, ~~2008, with an interest rate~~2011 would change the fair value of 2.75%. If the balance on the revolving credit note remains the same and interest rates increase .5%, interest expense for the year would increase $19,000. The Company plans on paying off the revolving credit note in one year.

The Company also had limited interest rate risk related to interest income from the Company’s investments in United States government securities with maturities of three years or less. The Company exited its investments in such securities during 2008 and, as a result, did not have investments in such securitiesour fixed-rate debt outstanding as of December 31, 2008. See Note 3 to the Company’s consolidated financial statements. Generally, if the overall average return on such securities would have decreased .5% from the average return during the years ended December 31, 2008 and 2007, then the Company’s interest income and pre-tax income would have decreased2011, by approximately ~~$3,000 and $10,000, respectively. These amounts were determined by considering the impact of~~$12,000. We performed a sensitivity analysis assuming a hypothetical ~~change~~100 basis point movement in interest rates applied to the average daily borrowings of the revolving line of credit facility. The analysis indicated that such a movement would change interest expense on ~~the Company’s interest income.~~an annual basis by approximately $3,000.

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, ~~2008.~~2011. 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, Sept 30, June 30, Mar. 31, Dec. 31, Sept 30, June 30, Mar. 31,
2008 2008 2008 2008 2007 2007 2007 2007

Revenue $ 12,189 $ 13,469 $ 11,901 $ 13,454 $ 10,821 $ 13,952 $ 11,945 $ 12,205
Direct expenses 5,766 6,598 5,320 5,927 5,057 5,930 5,366 5,448
Selling, general and administrative 2,768 3,053 3,348 3,559 3,283 3,240 3,250 3,400
Depreciation and amortization 682 661 676 666 661 672 623 627

Operating income 2,973 3,157 2,557 3,302 1,820 4,110 2,706 2,730
Other income (expense) 70 14 (58 ) (32 ) (25 ) (57 ) (30 ) (137 )
Provision for income taxes 1,148 1,205 918 1,267 686 1,558 1,035 999

Net income $ 1,895 $ 1,966 $ 1,581 $ 2,003 $ 1,109 $ 2,495 $ 1,641 $ 1,594

Net income per share — basic $ 0.29 $ 0.30 $ 0.24 $ 0.29 $ 0.16 $ 0.36 $ 0.24 $ 0.23
Net income per share — diluted $ 0.28 $ 0.29 $ 0.23 $ 0.29 $ 0.16 $ 0.36 $ 0.23 $ 0.23
Weighted average shares outstanding — basic 6,642 6,644 6,637 6,818 6,861 6,851 6,845 6,842
Weighted average shares outstanding — diluted 6,782 6,803 6,793 6,970 7,034 7,013 7,002 6,964

	(In thousands, except per share data)
	Quarter Ended
	Dec. 31, 2011			Sept 30, 2011			June 30, 2011			Mar. 31, 2011			Dec. 31, 2010			Sept 30, 2010			June 30, 2010			Mar. 31, 2010

Revenue	$	19,111		$	18,549		$	18.316		$	19,791		$	15,883		$	16,006		$	14,139		$	17,370
Direct expenses		7,178			7,471			7,260			6,758			6,264			6,038			5,877			6,456
Selling, general and administrative		5,648			5,572			5,990			6,090			5,938			5,250			4,545			4,469
Depreciation and amortization		1,275			1,312			1,235			1,243			1,322			1,225			1,059			1,098
Operating income		5,010			4,194			3,831			5,700			2,359			3,493			2,658			5,347
Other expense		(158	)		(77	)		(144	)		(196	)		(200	)		(160	)		(42	)		(140	)
Provision for income taxes		1,720			1,470			1,358			2,048			590			1,191			956			2,079
Net income	$	3,132		$	2,647		$	2,329		$	3,456		$	1,569		$	2,142		$	1,660		$	3,128
Net income per share – basic	$	0.47		$	0.40		$	0.35		$	0.52		$	0.24		$	0.32		$	0.25		$	0.47
Net income per share – diluted	$	0.46		$	0.39		$	0.34		$	0.51		$	0.23		$	0.32		$	0.25		$	0.47
Weighted average shares outstanding – basic		6,691			6,679			6,665			6,654			6,644			6,632			6,634			6,640
Weighted average shares outstanding – diluted		6,847			6,850			6,855			6,809			6,780			6,727			6,732			6,711

~~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 ~~subsidiaries (the Company)~~subsidiary as of December 31, ~~2008~~2011 and ~~2007,~~2010, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, ~~2008.~~2011. 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 ~~subsidiaries~~subsidiary as of December 31, ~~2008~~2011 and ~~2007,~~2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2008,~~2011, 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 fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Lincoln, Nebraska

March ~~31, 2009~~1, 2012

NATIONAL RESEARCH CORPORATION AND ~~SUBSIDIARIES~~SUBSIDIARY

CONSOLIDATED BALANCE SHEETS ~~AS OF~~
~~DECEMBER 31, 2008 AND 2007~~

2008 2007
Assets

Current assets:
Cash and cash equivalents $ 1,108,853 $ 3,355,141
Investments in marketable debt securities — 99,497
Trade accounts receivable, less allowance for doubtful accounts of $240,653 and $70,212 in 2008 and 2007, respectively 6,531,125 6,378,914
Unbilled revenue 809,596 1,377,427
Prepaid expenses and other 1,299,975 1,068,446
Recoverable income taxes 573,676 272,219
Deferred income taxes 115,421 48,657

Total current assets 10,438,646 12,600,301

Net property and equipment 13,746,787 11,974,029
Intangible assets, net 8,056,367 5,615,910
Goodwill 39,275,939 31,051,202
Deferred income taxes — 590,034
Other 626,871 37,317

Total assets $ 72,144,610 $ 61,868,793

Liabilities and Shareholders’ Equity

Current liabilities:
Current portion of note payable $ 4,580,719 $ 1,092,754
Accounts payable 863,273 1,106,317
Accrued wages, bonus and profit sharing 1,374,744 1,477,021
Accrued expenses 1,344,032 1,386,133
Billings in excess of revenue earned 12,926,119 9,921,763

Total current liabilities 21,088,887 14,983,988

Note payable, net of current portion 8,373,170 1,900,598
Deferred income taxes 4,084,241 2,697,774

Total liabilities 33,546,298 19,582,360

Shareholders’ equity:
Common stock, $.001 par value; authorized 20,000,000 shares, issued 8,019,922 in 2008 and 7,883,289 in 2007, outstanding 6,667,517 in 2008 and 6,926,442 in 2007 8,020 7,883
Additional paid-in capital 27,216,769 23,508,717
Retained earnings 33,677,381 30,003,606
Accumulated other comprehensive income (loss), net of taxes (6,010 ) 931,655
Treasury stock, at cost; 1,352,405 shares in 2008 and 956,847 shares in 2007 (22,297,848 ) (12,165,428 )

Total shareholders’ equity 38,598,312 42,286,433

Total liabilities and shareholders’ equity $ 72,144,610 $ 61,868,793

(In thousands, except share amounts)

Assets	2011			2010
Current assets:
Cash and cash equivalents	$	8,082		$	3,519
Trade accounts receivable, less allowance for doubtful accounts of $289 and $337, respectively		11,187			9,172
Unbilled revenue		913			1,115
Prepaid expenses and other		1,166			1,347
Recoverable income taxes		-			1,277
Deferred income taxes		789			911
Total current assets		22,137			17,341

Net property and equipment		13,613			14,482
Intangible assets, net		7,073			8,638
Goodwill		57,730			55,133
Other		123			176

Total assets	$	100,676		$	95,770

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable	$	1,861		$	1,827
Accounts payable		783			956
Accrued wages, bonus and profit sharing		3,591			4,315
Accrued expenses		1,519			1,351
Income taxes payable		145			-
Deferred revenue		16,500			17,701
Total current liabilities		24,399			26,150

Notes payable, net of current portion		12,625			14,333
Deferred income taxes		7,588			6,193
Deferred revenue		185			184
Capital lease obligations, net of current portion		325			326
Total liabilities		45,122			47,186

Shareholders’ equity:
Common stock, $0.001 par value; authorized 20,000,000 shares, issued 8,117,849 in 2011 and 8,044,855 in 2010, outstanding 6,724,280 in 2011 and 6,668,574 in 2010		8			8
Additional paid-in capital		31,080			28,970
Retained earnings		46,995			41,343
Accumulated other comprehensive income		907			1,108
Treasury stock, at cost; 1,393,569 shares in 2011 and 1,376,281 shares in 2010		(23,436	)		(22,845	)
Total shareholders’ equity		55,554			48,584

Total liabilities and shareholders’ equity	$	100,676		$	95,770

See accompanying notes to consolidated financial statements.

NATIONAL RESEARCH CORPORATION AND ~~SUBSIDIARIES~~SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME ~~FOR THE~~
~~THREE YEARS ENDED DECEMBER 31, 2008~~

2008 2007 2006

Revenue $ 51,013,417 $ 48,922,884 $ 43,771,455

Operating expenses:
Direct expenses 23,610,922 21,801,039 19,445,925
Selling, general and administrative 12,728,081 13,173,431 12,158,004
Depreciation and amortization 2,685,641 2,582,866 2,259,669

Total operating expenses 39,024,644 37,557,336 33,863,598

Operating income 11,988,773 11,365,548 9,907,857

Other income (expense):
Interest income 41,841 138,702 171,273
Interest expense (138,901 ) (483,135 ) (517,482 )
Other, net 90,852 96,269 (55,893 )

Total other expense (6,208 ) (248,164 ) (402,102 )

Income before income taxes 11,982,565 11,117,384 9,505,755

Provision for income taxes 4,537,704 4,278,372 3,621,687

Net income $ 7,444,861 $ 6,839,012 $ 5,884,068

Net income per share — basic $ 1.11 $ 1.00 $ 0.86

Net income per share — diluted $ 1.09 $ 0.98 $ 0.85

(In thousands, except for per share amounts)

	2011			2010			2009

Revenue	$	75,767		$	63,398		$	57,692

Operating expenses:
Direct expenses		28,667			24,635			24,148
Selling, general and administrative		23,300			20,202			16,016
Depreciation and amortization		5,065			4,704			3,831
Total operating expenses		57,032			49,541			43,995

Operating income		18,735			13,857			13,697

Other income (expense):
Interest income		13			6			2
Interest expense		(629	)		(491	)		(405	)
Other, net		41			(57	)		(177	)

Total other expense		(575	)		(542	)		(580	)

Income before income taxes		18,160			13,315			13,117

Provision for income taxes		6,596			4,816			4,626

Net income	$	11,564		$	8,499		$	8,491

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

Weighted average shares and shares equivalent outstanding - basic		6,672			6,637			6,637
Weighted average shares and shares equivalent outstanding - diluted		6,842			6,736			6,723

See accompanying notes to consolidated financial statements.

NATIONAL RESEARCH CORPORATION AND ~~SUBSIDIARIES~~SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME ~~AS OF AND FOR THE~~
~~THREE YEARS ENDED DECEMBER 31, 2008~~

Accumulated
Additional Other
Common Paid-in Retained Unearned Comprehensive Treasury
Stock Capital Earnings Compensation Income Stock Total
Balances at December 31, 2005 7,741 20,046,027 23,360,297 (432,631 ) 300,369 (10,688,312 ) 32,593,491

Purchase of 52,217 shares of treasury stock — — — — — (1,236,055 ) (1,236,055 )
Issuance of 89,307 common shares for the exercise of stock options 89 926,102 — — — — 926,191
Tax benefit from the exercise of options and vested restricted stock — 404,535 — — — — 404,535
Issuance of 13,218 restricted common shares, net of 5,250 cancelled 8 (8 ) — — — — —
Non-cash stock compensation expense — 875,684 — — — — 875,684
Reclassify unearned compensation — (432,631 ) — 432,631 — — —
Dividends declared of $0.40 per common share — — (2,756,057 ) — — — (2,756,057 )
Comprehensive income
Change in unrealized gain/(loss) on marketable securities, net of tax — — — — 67,436 — 67,436
Change in cumulative translation adjustment — — — — (8,780 ) — (8,780 )
Net income — — 5,884,068 — — — 5,884,068

Total comprehensive income 5,942,724

Balances at December 31, 2006 7,838 21,819,709 26,488,308 — 359,025 (11,924,367 ) 36,750,513

Purchase of 61,849 shares of treasury stock — — — — — (241,061 ) (241,061 )
Issuance of 22,829 common shares for the exercise of stock options 22 337,764 — — — — 337,786
Tax benefit from the exercise of options and vested restricted stock — 111,551 — — — — 111,551
Issuance of 32,115 restricted common shares, net of 9,109 cancelled 23 (23 ) — — — — —
Non-cash stock compensation expense — 1,239,716 — — — — 1,239,716
Dividends declared of $0.48 per common share — — (3,323,714 ) — — — (3,323,714 )
Comprehensive income
Change in unrealized gain/(loss) on marketable securities, net of tax — — — — 4,085 — 4,085
Change in cumulative translation adjustment — — — — 568,545 — 568,545
Net income — — 6,839,012 — — — 6,839,012

Total comprehensive income 7,411,642

Balances at December 31, 2007 $ 7,883 $ 23,508,717 $ 30,003,606 $ — $ 931,655 $ (12,165,428 ) $ 42,286,433

Purchase of 395,558 shares of treasury stock — — — — — (10,132,420 ) (10,132,420 )
Issuance of 144,614 common shares for the exercise of stock options 145 1,856,160 — — — — 1,856,305
Tax benefit from the exercise of options and vested restricted stock — 835,682 — — — — 835,682
Cancellation of 7,981 restricted common shares (8 ) 8 — — — — —
Non-cash stock compensation expense — 1,016,202 — — — — 1,016,202
Dividends declared of $0.56 per common share — — (3,771,086 ) — — — (3,771,086 )
Comprehensive income
Change in unrealized gain/(loss) on marketable securities, net of tax — — — — 133 — 133
Change in cumulative translation adjustment — — — — (937,798 ) — (937,798 )
Total comprehensive income 6,507,196

Net income — — 7,444,861 — — — 7,444,861

Balances at December 31, 2008 $ 8,020 $ 27,216,769 $ 33,677,381 $ — $ (6,010 ) $ (22,297,848 ) $ 38,598,312

(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, 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
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	)
Comprehensive income
Change in cumulative translation adjustment		--		--		--			339			--			339
Net income		--		--		8,499			--			--			8,499
Total comprehensive income		--		--		--			--			--			8,838
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	)
Comprehensive income
Change in cumulative translation adjustment		--		--		--			(201	)		--			(201	)
Net income		--		--		11,564			--			--			11,564
Total comprehensive income		--		--		--			--			--			11,363
Balances at December 31, 2011	$	8	$	31,080	$	46,995		$	907		$	(23,436	)	$	55,554

See accompanying notes to consolidated financial statements.

NATIONAL RESEARCH CORPORATION AND ~~SUBSIDIARIES~~SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
~~FOR THE THREE YEARS ENDED DECEMBER 31, 2008~~

2008 2007 2006
Cash flows from operating activities:
Net income $ 7,444,861 $ 6,839,012 $ 5,884,068
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,685,641 2,582,866 2,259,669
Deferred income taxes 430,359 117,046 99,135
Gain on sale of property and equipment — (3,587 ) (50 )
Gain on sale of other investments — — 47,616
Tax benefit from exercise of stock options 155,808 31,245 63,005
Non-cash stock compensation expense 1,016,202 1,092,776 1,022,624
Change in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable 636,344 616,423 (884,575 )
Unbilled revenue 603,196 900,397 (1,089,431 )
Prepaid expenses and other (154,580 ) 30,190 256,809
Accounts payable (407,716 ) (73,154 ) 22,006
Accrued expenses, wages, bonus and profit sharing 6,237 329,845 (58,680 )
Income taxes payable and recoverable (249,135 ) 562,797 (714,293 )
Billings in excess of revenue earned 3,008,164 1,540,258 (95,723 )

Net cash provided by operating activities 15,175,381 14,566,114 6,812,180

Cash flows from investing activities:
Purchases of property and equipment (2,812,350 ) (1,956,204 ) (1,453,128 )
Proceeds from sale of property and equipment — 200 50
Acquisition, net of cash acquired and earn-out on acquisition (12,551,194 ) — (20,620,521 )
Purchases of securities available-for-sale — (2,990,012 ) (1,378,523 )
Proceeds from the maturities of securities available-for-sale 99,477 4,007,262 9,784,215

Net cash used in investing activities (15,264,067 ) (938,754 ) (13,667,907 )

Cash flows from financing activities:
Proceeds from notes payable 18,564,148 375,000 14,795,000
Payments on notes payable (8,951,785 ) (8,474,621 ) (5,173,310 )
Proceeds from exercise of stock options 731,319 337,786 926,191
Tax benefit on exercise of stock options and vested restricted stock 679,874 80,306 341,530
Purchase of treasury stock (9,007,434 ) (241,061 ) (1,236,055 )
Payment of dividends on common stock (3,771,086 ) (3,323,714 ) (2,756,057 )

Net cash provided by (used in) financing activities (1,754,964 ) (11,246,304 ) 6,897,299

Effect of exchange rate changes on cash (402,638 ) 97,726 (9,171 )

Net increase (decrease) in cash and cash equivalents (2,246,288 ) 2,478,782 32,401

Cash and cash equivalents at beginning of period 3,355,141 876,360 843,959

Cash and cash equivalents at end of period $ 1,108,853 $ 3,355,142 $ 876,360

Supplemental disclosure of cash paid for:
Interest expense $ 122,468 $ 483,135 $ 600,719
Income taxes $ 3,501,958 $ 3,457,478 $ 3,839,192
(In thousands)

	2011			2010			2009
Cash flows from operating activities:
Net income	$	11,564		$	8,499		$	8,491
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,065			4,704			3,831
Deferred income taxes		1,297			614			1,733
(Gain) Loss on sale of property and equipment		(1	)		1			1
Tax benefit from exercise of stock options		66			33			--
Non-cash stock compensation expense		763			779			619
Change in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable		(2,064	)		(2,489	)		1,396
Unbilled revenue		194			91			(315	)
Prepaid expenses and other		132			1,854			(516	)
Accounts payable		52			(1,391	)		(278	)
Accrued expenses, wages, bonus and profit sharing		1,176			113			(73	)
Income taxes payable and recoverable		1,420			(442	)		(326	)
Deferred revenue		(1,183	)		2,237			(897	)
Net cash provided by operating activities		18,481			14,603			13,666

Cash flows from investing activities:
Purchases of property and equipment		(2,812	)		(1,539	)		(2,909	)
Acquisitions, net of cash acquired and earn-out on acquisitions		(4,115	)		(15,441	)		(93	)
Net cash used in investing activities		(6,927	)		(16,980	)		(3,002	)

Cash flows from financing activities:
Proceeds from notes payable		4,545			11,300			4,916
Payments on notes payable		(6,218	)		(2,799	)		(10,108	)
Payments on capital lease obligations		(130	)		(43	)		(44	)
Proceeds from exercise of stock options		568			274			18
Excess tax benefit from share-based compensation		407			46			17
Purchase of treasury stock		--			(399	)		(84	)
Repurchase of shares for payroll tax withholdings related to share-based compensation		(146	)		(64	)		--
Payment of dividends on common stock		(5,912	)		(5,061	)		(4,263	)
Net cash (used in) provided by financing activities		(6,886	)		3,254			(9,548	)

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

Net increase in cash and cash equivalents		4,563			1,007			1,403

Cash and cash equivalents at beginning of period		3,519			2,512			1,109

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

Supplemental disclosure of cash paid for:
Interest expense, net of capitalized amounts	$	542		$	497		$	498
Income taxes	$	3,383		$	4,549		$	2,999

Supplemental disclosures of non-cash investing activities:

Capital lease obligations for property and equipment originating during the years ended December 31, 2011, 2010 and 2009 was $115,000, $389,000 and $0, respectively.

In connection with the Company’s ~~Equity Incentive~~equity incentive plans, certain optionees tendered to the Company previously owned shares to pay for the option strike price. The total non-cash stock options exercised was ~~$1,124,986~~$445,000, $-0- and $-0- for the ~~year~~years ended December 31, ~~2008.~~2011, 2010 and 2009, respectively.

See accompanying notes to consolidated financial statements.

NATIONAL RESEARCH CORPORATION AND ~~SUBSIDIARIES~~SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

National Research Corporation ~~(the~~(“NRC” or the “Company”) believes it is a leading provider of ~~ongoing survey-based~~ performance measurement ~~analysis, tracking,~~and improvement services, healthcare analytics and governance education to the healthcare industry in the United States and Canada. The ~~Company provides market research services to hospitals and insurance companies on an unsecured credit basis. The~~ Company’s ten largest clients accounted for ~~24%~~20%, ~~29%~~19%, and ~~32%~~19% of the Company’s total revenue in ~~2008, 2007~~2011, 2010, and ~~2006, respectively. One client accounted for 7%, 8% and 8% of total revenue in 2008, 2007 and 2006,~~2009, respectively.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its ~~subsidiaries.~~subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Translation of Foreign Currencies

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. 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.

Revenue Recognition

The Company derives a majority of its operating revenue from its annually renewable services, which include ~~the~~ performance ~~tracking~~measurement and improvement services, ~~subscription-based educational services~~healthcare analytics and ~~subscription-based and annual contracts of the Market Guide.~~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 Market Guide on an annual or monthly basis. The Company also derives some revenue from its custom and other research projects. ~~Sales taxes collected from customers~~

Certain contracts are fixed-fee arrangements with a portion of the project fee billed in advance and ~~remitted to governmental authorities~~the remainder billed periodically over the duration of the project. Revenue and direct expenses for services provided under these contracts are ~~accounted for on a net basis and, therefore, are excluded from revenue in~~recognized under the ~~consolidated statements of income.~~

~~The Company recognizes revenue from its~~proportional performance ~~tracking services and its custom and other research projects using~~method. Under the proportional performance method, ~~of accounting. These services typically include a series of surveys and deliverable reports in which~~ the ~~timing and frequency vary by contract.~~

~~Progress on a contract can be tracked reliably, and customers are obligated to pay as services are performed. The~~ Company recognizes revenue based on output measures or key milestones such as survey ~~set up,~~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 revenue related to output measures. Losses expected to be incurred, if any, on jobs in progress are charged to income as soon as such losses are known. Revenue earned on contracts in progress in excess of billings is classified as a current asset. Amounts billed in excessproportional performance method. If management made different judgments and estimates, then the amount and timing of revenue ~~earned~~for any period could differ materially from the reported revenue.

Services are ~~classified as a current liability. Client projects are generally completed within a twelve-month period.~~

also provided under subscription-based service agreements. The Company recognizes subscription-based ~~educational~~ service revenue over the period of time the service is provided. Generally, the subscription periods are for twelve months and revenue is recognized equally over the subscription period.

The Company ~~recognizes~~also derives revenue ~~on Market Guide contracts upon delivery~~from hosting arrangements where our propriety software is offered as a service to our customers through our data processing facilities. The Company’s revenue also includes software-related revenue for software license revenue, installation services, post-contract support (maintenance) and training. Software-related revenue is recognized in accordance with the provisions of Accounting Standards Codification (“ASC”) 985-605, Software-Revenue Recognition.

Hosting arrangements to provide customers with access to the ~~principal customers. Revenue~~Company’s propriety software are marketed under ~~some annual contracts which~~long-term arrangements generally over periods of one to three years. Under these arrangements, the customer is not provided the contractual right to take possession of the licensed software at any time during the hosting period without significant penalty, and the customer is not provided the right to run the 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 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 ~~monthly updates~~achieving evidence of an arrangement, determining that the collection of the revenue is ~~fully~~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 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 not considered to 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 ~~upon delivery, typically~~ratably over the minimum bundled PCS period.

The Company’s revenue arrangements (not involving software elements) may include multiple elements. In assessing the separation of revenue for 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 sufficient evidence of the fair value of the elements in allocating the fees in the ~~third quarter~~arrangement to each element. Revenue allocated to an element is limited to revenue that is not subject to refund or otherwise represent 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 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 ~~year. Starting in May 2008, the Company added subscription-based services, the revenue from which~~selling price is ~~generally recognized~~used for that deliverable based on list price, representing a ~~monthly basis over a twelve-month period. Until September 2008, the Company deferred costs~~component of ~~preparing the survey data~~management’s market strategy, and an analysis of historical prices for ~~Market Guide~~bundled and expensed these at the time the annual contract revenue was recognized. These costs are primarily incremental external direct costs solely related to fulfilling the Company’s obligations under Market Guide contracts. Beginning in October 2008, these cost are expensed monthly as incurred. 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.standalone arrangements.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on specific account analysis and on the Company’s historical write-off experience. The Company reviews the allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability and provisions are made for accounts not specifically reviewed. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Property and Equipment

Property and equipment is stated at cost. Major expenditures to purchase property or to substantially increase useful lives of property are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income.

For costs of software developed for internal use, the Company expenses computer software costs as incurred in the preliminary project stage, which involves the conceptual formulation, evaluation and selection of technology alternatives. Costs incurred related to the design, coding, installation and testing of software during the application project stage are capitalized. Costs for training and application maintenance are expensed as incurred. The Company has capitalized approximately ~~$493,000, $511,000~~$840,000, $900,000 and ~~$803,000,~~$450,000, of internal and external costs incurred for the development of ~~internal use~~internal-use software for the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, respectively, with such costs classified as property and equipment.

The Company provides for depreciation and amortization of property and equipment using annual rates which are sufficient to amortize the cost of depreciable assets over their estimated useful lives. The Company uses the straight-line method of depreciation and amortization over estimated useful lives of ~~five~~three to ten years for furniture and equipment, three to five years for computer equipment, three to five years for capitalized software, and ten to forty years for the Company’s office building and related improvements.

Leases are categorized as operating or capital at the inception of the lease. Assets under capital lease obligations are reported at the lower of fair value or the present value of the aggregate future minimum lease payments at the beginning of the lease term. The Company depreciates capital lease assets without transfer-of-ownership or bargain-purchase-options using the straight-line method over the lease terms, excluding any lease renewals, unless the lease renewals are reasonably assured. Capital lease assets with transfer-of-ownership or bargain-purchase-options are depreciated using the straight-line method over the assets’ estimated useful lives.

Impairment of Long-Lived Assets

~~In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,~~~~Accounting~~

Long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for ~~the Impairment or Disposal 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. The assessment of the recoverability of long-lived assets may be adversely impacted if estimated future operating cash flows are not achieved.

~~The Company assesses the impairment of long-lived assets~~ whenever events or changes in circumstances indicate that the carrying ~~value~~amount of ~~such assets~~an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairments were recorded during the years ended December 31, 2011, 2010 or 2009.

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 underperformance in comparison to historical or projected operating results;

~~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~~

●

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

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

● 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.

Goodwill and Intangible Assets

Intangible assets include customer relationships, trade ~~name~~names, non-compete agreements and goodwill. Customer relationships are being amortized over periods of five to fifteen years. The trade name is being amortized over a period of ten years. Goodwill represents the difference between the purchase price paid in acquisitions, using the purchase method of accounting, and the fair value of the net assets acquired.

Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of SFAS No. 142,~~Goodwill and Other Intangible Assets.~~ Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment.

Goodwill 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. Goodwill is reviewed for impairment at least annually. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the 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 ~~accordance with SFAS No. 144.~~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. Fair value of the reporting unit is determined using a discounted cash flow analysis and comparable market multiples. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

All of the Company’s goodwill is allocated to ~~five~~its reporting units. ~~As of December 31, 2008, the Company has net goodwill of $39.3 million.~~ As of October 1 of each year (or more frequently as changes in circumstances indicate), the Company ~~evaluates~~tests goodwill for impairment. Under the ~~estimated~~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 ~~Company’s goodwill. On these evaluation dates, to the extent that the carrying~~present value of perpetual cash flow estimates beyond the ~~net assets~~last projected period assuming a constant weighted average cost of ~~the Company’s reporting units having goodwill is greater than the estimated fair value, impairment charges will be determined~~capital and measured based on the estimated fair value of goodwill as compared to its carrying value. The Company’s analysis has not resulted in the recognition of an impairment loss on goodwill in 2008, 2007 or 2006.

~~Investments in Marketable Debt Securities~~

All marketable debt securities held by the Company at December 31, 2007, were classified as available-for-sale and recorded at fair market value. No marketable debt securities were held as of December 31, 2008. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are reported as other comprehensive income or loss. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis. Fair values are estimated based on quoted market prices. Interest income is recognized when earned.

~~A decline in~~low long-term growth rates. Under the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary,approach, the Company considers ~~whether it has~~its market capitalization, comparisons to other public companies’ data and recent transactions of similar businesses within the ~~ability and intent to hold~~Company’s industry. No impairments were recorded during the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end, and forecasted performance of the investee. The Company’s analysis has not resulted in the recognition of an impairment loss on investments in 2008, 2007years ended December 31, 2011, 2010 or ~~2006.~~2009.

Income Taxes

~~Beginning with the adoption of FASB Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes~~~~(“FIN 48”), as of January 1, 2007, the~~

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. ~~Prior to~~

The Company had an unrecognized tax benefit at December 31, 2011 and 2010 of $266,000 and $269,000, respectively excluding interest of $43,000 and $31,000, respectively and no penalties. Of this amount, $266,000 and $269,000 at December 31, 2011 and 2010, respectively represents the ~~adoption of FIN 48,~~net unrecognized tax benefits that, if recognized, would favorably impact the ~~Company recognized the effect of~~effective income tax ~~positions only if such positions were probable of being sustained.~~

~~At December 31, 2008, the Company has no unrecognized tax benefits.~~rate. The Company ~~classifies~~accrues interest and penalties ~~arising from the underpayment of income taxes~~related to uncertain tax position in the statements of income as ~~selling, general and administrative expenses. As of December 31, 2008, the~~income tax expense. The Company ~~has no accrued interest or penalties related~~is not subject to ~~uncertain~~ tax ~~positions. The tax~~examinations for years ~~2006~~prior to 2008 ~~federal returns remain open to examination,~~in the U.S. and ~~the tax years 2004 to 2008 remain open to examination by other taxing jurisdictions to which we are subject.~~2007 in Canada.

Share-Based Compensation

~~Effective January 1, 2006, the~~

The Company ~~adopted SFAS No. 123R~~~~Share-Based Payment~~~~(“SFAS No. 123R”) under the modified version of the prospective transition method. Under the modified prospective transition method,~~measures and recognizes compensation ~~cost~~expense for all share-based payments. The compensation expense is recognized ~~on or after the required effective date for the portion of the outstanding awards for which the requisite service has not yet been rendered,~~ based on the ~~grant date~~grant-date fair value of those ~~awards calculated under SFAS No. 123R for either recognition or pro forma disclosures.~~awards. All of the Company’s existing stock option awards and non-vested stock awards have been determined to be ~~equity awards in accordance with SFAS No. 123R.~~equity-classified awards.

The Company currently intends that shares of common stock issued upon the exercise of options will be newly-issued shares. No share-based compensation costs were capitalized for the twelve-month periods ended December 31, 2008 and 2007.

Amounts recognized in the financial statements with respect to these ~~plans under SFAS No. 123R are as follows:~~plans:

2008 2007 2006
(in thousands) (in thousands) (in thousands)

Amounts charged against income, before income tax benefit $ 1,016 $ 1,093 $ 1,023
Amount of related income tax benefit 391 421 399

Total net income impact $ 625 $ 672 $ 624

2011 2010 2009
(In thousands)
Amounts charged against income, before income tax benefit $ 763 $ 779 $ 619
Amount of related income tax benefit 302 309 238
Total net income impact $ 461 $ 470 $ 381

Cash and Cash Equivalents

~~For purposes of the statements of cash flows, the~~

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. AsCash equivalents were $7.9 million and $2.8 million as of December 31, ~~2008, cash equivalents were $378,994~~2011 and 2010, respectively, consisting primarily of money market ~~funds.~~accounts and funds invested in commercial paper. At certain times, cash equivalent balances may exceed federally insured limits.

~~Fair Value of Financial Instruments~~

~~Statement of Financial Accounting Standards SFAS No. 157,~~
34

Fair Value Measurements~~(“SFAS 157”) establishes a fair value hierarchy that requires companies to maximize the use of~~

The Company’s valuation techniques are based on maximizing observable inputs and ~~minimize~~minimizing the use of unobservable inputs when measuring fair value. ~~SFAS 157’s valuation techniques are based on observable and unobservable inputs.~~ Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s market assumptions. ~~SFAS 157 classifies these~~The inputs are then classified into the following hierarchy: (1) Level 1 Inputs—quoted prices in active markets for identical assets and ~~liabilities,~~liabilities; (2) Level 2 Inputs—observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; (3) Level 3 Inputs—unobservable inputs.

The following details the Company’s financial assets and liabilities ~~and (3) Level 3 Inputs — unobservable inputs.~~

~~As of~~within the fair value hierarchy at December 31, ~~2008, those assets~~2011 and ~~liabilities that~~2010:

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of December 31, 2011
Money Market Funds	$	3,243	$	--	$	--	$	3,243
Commercial Paper	$	4,659	$	--	$	--	$	4,659
Total	$	7,902	$	--	$	--	$	7,902
As of December 31, 2010
Money Market Funds	$	1,246	$	--	$	--	$	1,246
Commercial Paper	$	1,544	$	--	$	--	$	1,544
Total	$	2,790	$	--	$	--	$	2,790

The Company's long-term debt is recorded at historical cost. The following are ~~measured at~~the carrying amount and estimated fair ~~value~~values, based primarily on ~~a recurring basis consisted~~estimated current rates available for debt of the ~~Company’s money market funds. They totaled $378,994~~same remaining duration and ~~are considered Level 1 inputs.~~ adjusted for nonperformance and credit risk:

	December 31, 2011		December 31, 2010
	(In thousands)
Total carrying amount of long-term debt	$	14,486	$	16,160
Estimated fair value of long-term debt	$	14,498	$	16,305

The Company believes that the carrying amounts of ~~its other financial instruments, including cash,~~accounts receivable, accounts payable, and accrued expenses approximate their fair value. All non-financial assets that are not recognized or disclosed at fair value ~~due~~in the financial statements on a recurring basis, which includes goodwill and non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). As of December 31, 2011 and 2010, there was no impairment related to property and equipment, goodwill and other intangible assets.

Contingencies

From time to time, the ~~short-term maturities~~Company is involved in certain claims and litigation arising in the normal course of ~~these instruments.~~business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. At December 31, 2011, the Company was not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material effect on the Company.

Earnings Per Share

Net income per share has been calculated and presented for “basic” and “diluted” per share data. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted income per share is computed by dividing net income by the weighted average number of common shares adjusted for the dilutive effects of options and restricted stock. At December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, the Company had ~~-0-, 48,000~~119,569, 384,652 and ~~-0-~~247,603 options, respectively, which have been excluded from the diluted net income per share computation because their exercise price exceeds the fair market value.

The weighted average shares outstanding were calculated as follows:


	2008		2007		2006		2011		2010		2009
							(In thousands)
Common stock		6,684,641		6,849,717		6,836,456		6,672		6,637		6,637
Dilutive effect of options		130,567		131,036		91,885		158		87		74
Dilutive effect of restricted stock		15,531		30,518		25,623		12		12		12

Weighted average shares used for dilutive per share information		6,830,739		7,011,271		6,953,964		6,842		6,736		6,723

There are no reconciling items between the Company’s reported net income and net income used in the computation of basic and diluted income per share.

~~Accumulated~~

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other ~~Comprehensive Income (Loss)~~

~~The components~~comprehensive income (loss) refers to revenue, expenses, gains and losses that are not included in net income, but rather are recorded directly in accumulated other comprehensive income. As of December 31, 2011 and 2010, accumulated other comprehensive income ~~were as follows:~~(loss) was $907,000 and $1.1 million, respectively, consisting solely of changes in the cumulative translation adjustment.

2008 2007 2006
(in thousands)
Net income, as reported $ 7,445 $ 6,839 $ 5,884

Other comprehensive income (loss):
Unrealized gain (loss) from investments:
Unrealized gains — 7 112
Related tax expense — (3 ) (44 )

Net — 4 68
Foreign currency translation (938 ) 569 (9 )

Total other comprehensive income (loss) (938 ) 573 59

Comprehensive income $ 6,507 $ 7,412 $ 5,943

Segment Information

The Company has ~~six~~seven operating segments that are aggregated into one reporting segment because they have similar economic characteristics and meet the other aggregation criteria ~~of SFAS No. 131,~~~~Disclosure about Segments of an Enterprise and Related Information~~.from the Financial Accounting Standards Board (“FASB”) guidance on segment disclosure. The ~~six~~seven operating segments are as follows: NRC Picker U.S. and NRC Picker Canada, which each offer renewable performance tracking and improvement services, custom research, subscription-based educational services and a renewable syndicated service; ~~Health Care Market Guide (HCMG)~~Ticker, which offers stand-alone market information as well as a comparative performance database to allow 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; Payer Solutions, which offers functional disease-specific and health status measurement tools; The Governance Institute ~~(TGI)~~(“TGI”), which offers subscription-based governance information and educational conferences designed to improve the effectiveness of hospital and ~~health care~~healthcare systems by continually strengthening their healthcare boards, medical leadership and management performance in the United States; ~~and~~ My InnerView ~~(MIV)~~(“MIV”), which provides quality and performance improvement solutions to the senior care ~~profession.~~industry; and Illuminate, a new patient outreach and discharge program designed to facilitate service and clinical recovery within the critical hours after a patient is discharged from a healthcare setting within the acute care, skilled nursing, physician and home health environments. On August 3, 2010, the Company acquired Outcome Concept Systems, Inc. (“OCS”), a provider of clinical, financial and operational benchmarks and analytics to home care and hospice providers, that has been merged into the MIV operating segment.

Adoption of New Accounting Pronouncements

~~Effective~~

On January 1, ~~2008,~~2011, the Company prospectively adopted ASU 2009-13. This guidance eliminates the ~~provisions of SFAS 157,~~~~Fair Value Measurements,~~ ~~for financial assets~~residual method under the current guidance and ~~financial liabilities. In accordance~~replaces it with ~~Financial Accounting Standards Board Staff Position No. 157-2,~~~~Effective Date of FASB Statement No. 157~~,the “relative selling price” method when allocating revenue in a multiple deliverable arrangement. Additionally, it requires that revenue be allocated to each deliverable based on estimated selling price, even though such deliverables are not sold separately either by the Company ~~delayed application~~or other vendors. The selling price for each deliverable is determined using vendor-specific objective evidence of ~~SFAS 157~~selling price, if it exists, otherwise third-party evidence of selling price. If neither exists for ~~non-financial assets~~a deliverable, the best estimate of the selling price is used for that deliverable. As a result, the new guidance allows some revenue to be recognized earlier and ~~non-financial liabilities until January 1, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value~~ in ~~generally accepted accounting principles and expands disclosures about fair value measurements.~~different amounts than previous requirements. The adoption of ~~SFAS 157 for financial assets and financial liabilities has not had a material effect on the consolidated financial statements.~~

Certain non-financial assets and non-financial liabilities measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. As stated above, SFAS 157 will be applicable to these fair value measurements beginning January 1, 2009. Management believes that adoption of SFAS 157-2 for non-financial assets and non-financial liabilities willthis guidance did not have a material ~~effect~~impact on the Company’s consolidated financial ~~statements.~~statements during the year ended December 31, 2011, and is not expected to materially impact subsequent periods based on the current business model.

Recent Accounting Pronouncements

In ~~February 2007,~~June and December 2011, the FASB issued ~~SFAS No. 159,~~~~The Fair Value Option for Financial Assets and Financial Liabilities~~. including an amendment of FASB Statement No. 115 (“No. 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS No. 159 were effective January 1, 2008. The adoption of SFAS No. 159 has not had a material effect on the consolidated financial statements.

~~In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) in EITF Issue No. 07-3,~~~~Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities~~~~(“EITF 07-3”),~~guidance which requires ~~that nonrefundable advance payments for goods~~comprehensive income be presented either in a single continuous statement of comprehensive income or ~~services that will be used or rendered for future research and development activities be deferred and amortized over~~in two separate but consecutive statements. The option to present the ~~period that~~components of other comprehensive income as part of the ~~goods are delivered or the related services are performed, subject to an assessment~~statement of ~~recoverability. EITF 07-3 was effective as of January 1, 2008. The adoption of EITF 07-3 has had no impact on the consolidated financial statements.~~

~~In May 2008, the FASB issued SFAS No. 162,~~~~The Hierarchy of Generally Accepted Accounting Principles~~~~(“SFAS 162”). This statement identifies the sources of and framework for selecting the accounting principles to be used~~changes in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (“GAAP hierarchy”). Because the current GAAP hierarchy is set forth in the American Institute of Certified Public Accountants Statement on Auditing Standards No. 69, it is directed to the auditor rather than to the entity responsible for selecting accounting principles for financial statements presented in conformity with GAAP. Accordingly, the FASB concluded the GAAP hierarchy should reside in the accounting literature established by the FASB and issued this statement to achieve that result. The provisions of SFAS 162 are effective November 15, 2008,stockholders’ equity, which is ~~60 days following~~ the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The adoption of SFAS 162 has not had a material effect on the consolidated financial statements.

~~Recent Accounting Pronouncements~~

~~In December 2007, the FASB issued SFAS No. 141 (revised 2007),~~~~Business Combinations~~(“SFAS 141(R)”), which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R)Company’s current presentation, will no longer be allowed. This guidance is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008. Management will assess the impact of SFAS 141(R) if, and when, a future acquisition occurs.

~~In December 2007, the FASB issued SFAS No. 160,~~~~Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51~~(“SFAS 160”). This statement amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the noncontrolling interest in subsidiaries and for the deconsolidation of subsidiaries. The provisions of SFAS No. 160 are effective for fiscal years and interim periods ~~within those~~beginning after December 15, 2011. The guidance will change the Company’s financial statement presentation but is not expected to have a material effect on its financial condition or results of operations.

(2) 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. The acquisition was completed in order to pursue the Company’s strategy of expanding additional service offerings to the healthcare industry in the United States and Canada. This acquisition gives the Company a foundation upon which to expand in the senior care profession. Themanagement. Cash consideration paid at closing ~~for MIV included a payment~~was $15.3 million, net of ~~$11,500,000 in~~$1.0 million cash and $440,183 of direct expenses capitalized as purchase price. The merger agreement under which NRC acquired MIV provided for contingent earn-out payments over the next three years based on revenue and operating income increases, which are not included in the discussion ofreceived. Of the purchase price, ~~below.~~

$1.6 million was deposited into an escrow for indemnification, working capital adjustments and certain other potential claims or expenses following closing, which was released in varying amounts through February 2012. The ~~Company has preliminarily allocated~~following table summarizes the purchase ~~price as follows, based on the estimated~~allocation of fair value of the assets acquired and liabilities assumed at the ~~date~~acquisition date.

Amount of Identified Assets Acquired and Liabilities Assumed
(In thousands)
	Weighted-Average Life
Current Assets		$	3,615
Property and equipment			1,632
Customer relationships	10 years		2,330
Trade name	5 years		330
Non-compete Agreements	3 years		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

The identifiable intangible assets are being amortized over their estimated useful lives and have a total weighted average amortization period of ~~acquisition:~~

Fair Value
Current Assets $ 1,290,446
Property and equipment 846,000
Customer relationships 3,003,000
Goodwill 8,833,477
Other Long Term Assets 580,756

Total acquired assets 14,553,679
Less total liabilities 2,613,496

Net assets acquired $ 11,940,183

8.5 years. The excess of purchase price over the fair value of net assets acquired resulted in the Company recording ~~$8,833,477~~$13.6 million of goodwill. The ~~customer relationships acquired~~goodwill and identifiable intangible ~~asset is being amortized over a useful life of 13 years. The amortization of customer relationships and goodwill is expected to be~~assets are non-deductible for tax purposes. ~~Pending allocations~~No residual value was estimated for intangible assets.

The consolidated financial statements as of December 31, 2011 and 2010, and for the years then ended, include ~~deferred~~amounts acquired from, as well as the results of operations of, OCS from August 3, 2010, forward. Results of operations for the year ended December 31, 2010, include revenue of $3.0 million and operating income ~~taxes, intangible asset values~~of $221,000 attributable to OCS since its acquisition. Acquisition-related costs included in selling, general and ~~allowances.~~

administrative expenses for the year ended December 31, 2010, approximated $312,000. The following unaudited pro forma information for the Company has been prepared as if the acquisition of ~~MIV~~OCS had occurred on January 1, ~~2007.~~2009. The information is based on the historical results of the separate companies and may not necessarily be indicative of the results that could have been achieved or of results that may occur in the future. The pro forma adjustments include the impact of depreciation and amortization of property and equipment and intangible assets acquired, interest expense on the acquisition debt and income tax benefits for tax effects of the foregoing adjustments to depreciation, amortization and interest expense.

2008 2007
(In thousands, except (In thousands, except
per share amounts) per share amounts)
�� (Unaudited ) (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

On May 30, 2006, the Company acquired substantially all of the assets of TGI Group, LLC, operating as The Governance Institute (“TGI”). TGI provides board members, executive management and physician leaders of hospitals and health systems with knowledge and solutions to successfully confront a wide array of strategic issues. TGI operations have been included in the Company’s consolidated financial statements since the date of acquisition. The purchase price for TGI was $19.8 million in cash, plus the assumption of certain liabilities. The Company paid $17.8 million in cash to the seller at closing and $1.95 million into an escrow account. The escrow account was released twelve months from the acquisition date. The Company incurred direct acquisition costs of $305,000.

	Year Ended December 31,
	2010		2009
	(in thousands)
Revenue	$	67,341	$	63,457
Net income	$	7,664	$	7,198

Net income per share – basic	$	1.15	$	1.08
Net income per share – diluted	$	1.14	$	1.07

~~The Company has allocated the purchase price as follows, based on the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:~~

Fair Value
Current assets $ 730,804
Property and equipment 67,573
Customer relationships 2,694,000
Trade name 1,572,000
Goodwill 18,221,635

Total acquired assets 23,286,012
Less total liabilities assumed 3,201,691

Net assets acquired $ 20,084,321

Of the $22,487,635 of acquired intangible assets, $2,694,000 was assigned to customer relationships and $1,572,000 was assigned to a trade name. The customer relationships and trade name acquired intangible assets are being amortized over useful lives of 6 and 10 years, respectively. The excess of purchase price over the fair value of net assets acquired resulted in the Company recording $18,221,635 of goodwill. The amortization of customer relationships, the trade name and goodwill is deductible for tax purposes.

(3) ~~Investments in Marketable Debt Securities~~

The Company’s investments in marketable securities were in marketable debt securities classified as obligations of U.S. government agencies. The Company held no investments in marketable debt securities as of December 31, 2008. The amortized cost, gross unrealized holding gains and losses and fair value of the Company’s investment in the obligations of U.S. government agencies as of December 31, 2007, were as follows:

2007

Amortized cost $ 99,714
Gross unrealized holding gains —
Gross unrealized holding losses (217 )

Fair value $ 99,497

There were no sales of marketable securities in advance of scheduled maturities of available-for-sale marketable securities during 2008 or 2007. There were no unrealized losses on investment securities at December 31, 2008.

~~(4)~~Property and Equipment

At December 31, ~~2008~~2011 and ~~2007,~~2010, property and equipment consisted of the following:

2008 2007

Furniture and equipment $ 2,535,601 $ 2,350,644
Computer equipment and software 14,466,506 12,788,061
Building 9,108,247 9,108,247
Land 425,000 425,000

26,535,354 24,671,952
Less accumulated depreciation and amortization 12,788,567 12,697,923

Net property and equipment $ 13,746,787 $ 11,974,029

~~(5)~~ 2011 2010
(In thousands)
Furniture and equipment $ 3,667 $ 3,165
Computer equipment and software 15,866 15,721
Building 9,271 9,367
Land 425 425
29,229 28,678
Less accumulated depreciation and amortization 15,616 14,196
Net property and equipment $ 13,613 $ 14,482

Depreciation and amortization expense related to property and equipment, including assets under capital lease, for the years ended December 31, 2011, 2010 and 2009 was $3.5 million, $3.4 million, and $2.7 million, respectively.

Property and equipment included the following amounts under capital lease:

2011 2010
(In thousands)
Furniture and equipment $ 527 $ 411
Computer equipment and software 47 47
574 458
Less accumulated amortization 117 38
Net assets under capital lease $ 457 $ 420

(4) Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following at December 31, ~~2008~~2011:

	Useful Life		Gross		Accumulated Amortization		Net
	(years)
			(In thousands)
Goodwill			$	57,730			$	57,730
Non-amortizing other intangible assets:
Indefinite trade name				1,191				1,191
Amortizing other intangible assets:
Customer related		5 - 15		10,513		5,789		4,724
Non-competes		3		430		203		227
Trade names		5 - 10		1,902		971		931
Total amortizing intangibles				12,845		6,963		5,882
Total other intangible assets			$	14,036	$	6,963	$	7,073

Goodwill and ~~2007:~~intangible assets consisted of the following at December 31, 2010:

2008 2007

Goodwill $ 39,275,939 $ 31,051,202

Non-amortizing other intangible assets:
Trade name 1,190,559 1,190,559
Amortizing other intangible assets:
Customer related intangibles 8,150,322 4,922,275
Trade name 1,572,000 1,572,000

Total other intangible assets, 10,912,881 7,684,834
Less accumulated amortization 2,856,514 2,068,924

Other intangible assets, net $ 8,056,367 $ 5,615,910

	Useful Life		Gross		Accumulated Amortization		Net
	(years)
			(In thousands)
Goodwill			$	55,133			$	55,133
Non-amortizing other intangible assets:
Indefinite Trade name				1,191				1,191
Amortizing other intangible assets:
Customer related		5 - 15		10,520		4,597		5,923
Non-competes		3		430		60		370
Trade names		5 – 10		1,902		748		1,154
Total amortizing intangibles				12,852		5,405		7,447
Total other intangible assets			$	14,043	$	5,405	$	8,638

The following represents a summary of changes in the Company’s carrying amount of goodwill for the years ended December 31, ~~2008, 2007~~2011 and ~~2006:~~2010 (in thousands):

Balance as of January 1, 2006 $ 11,483,401
GHS purchase price adjustment related to deferred taxes 257,001
TGI acquisition 18,221,635
Smaller World additional payment for contingent consideration 52,068
Foreign currency translation 232

Balance as of December 31, 2006 $ 30,014,337
Smaller World additional payment for contingent consideration 651,725
Foreign currency translation 385,140

Balance as of December 31, 2007 $ 31,051,202

MIV acquisition 8,833,477
Foreign currency translation (608,740 )

Balance as of December 31, 2008 $ 39,275,939

Balance as of December 31, 2009	$	39,924
MIV contingent consideration earned		1,565
OCS acquisition		13,502
Foreign currency translation		142
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

Correcting entries related to the OCS acquisition were made in 2011 for adjustments needed in the purchase price allocation. Those entries decreased accrued expenses by $49,000, increased the valuation allowance for deferred tax asset by $155,000 and increased goodwill by $106,000. The effects of these errors were not material to any previously reported periods.

The ~~change~~agreement under which the Company acquired MIV in 2008 provided for contingent earn-out payments over three years based on growth in revenue and earnings. The 2010 and 2009 earn-out payments, paid in February 2011 and 2010, respectively were $1.6 million and $172,000, respectively, net of closing valuation adjustments and were recorded as additions to goodwill. In April 2011, the ~~carrying amount of goodwill and customer related intangibles for~~Company reached an agreement which limited the ~~year ended December 31, 2008, included~~final earn-out payment associated with the ~~impact of the foreign currency translation,~~ MIV acquisition at approximately $2.6 million. Of this amount, $2.4 million was paid during April 2011 and ~~purchase~~a final payment of ~~customer contracts from SQ Strategies. During 2007 and 2006, additional payments~~$117,000 was paid in September 2011, which were ~~made~~recorded as additions to Smaller World Communications for contingent consideration in accordance with the purchase agreement. The purchase agreement included two scheduled payments of additional purchase price in 2006 and 2008 of $536,200 and $713,580 respectively, as a result of meeting certain revenue goals.goodwill.

Trade names and customer related intangibles, consisting of customer relationships and surveys, are being amortized over their estimated useful lives of five to fifteen years. On April 1, 2008, approximately 10 customer contracts were purchased from SQ Strategies for $249,473. The recording of this purchase increased customer related intangibles by $260,462 and deferred revenues by $10,989.

Aggregate amortization expense for customer related intangibles, ~~and~~ trade names and non-competes for the ~~year~~years ended December 31, ~~2008,~~2011, 2010 and 2009 was ~~$851,000.~~$1.6 million, $1.3 million, and $1.2 million, respectively. Estimated amortization expense for the next five years is: ~~2009—$1,084,000; 2010—$1,026,000; 2011—$997,000;~~ 2012—$~~711,000;~~1.3 million; 2013—$~~484,000;~~954,000; 2014—$842,000; 2015—$789,000; 2016—$597,000; thereafter ~~$2,564,000.~~$1.4 million.

~~(6)~~

(5) Income Taxes

For the years ended December 31, ~~2008, 2007,~~2011, 2010, and ~~2006,~~2009, income before income taxes consists of the following:

2008 2007 2006

U.S. Operations $ 10,405,347 $ 9,664,081 $ 8,958,547
Foreign Operations 1,577,218 1,453,303 547,208

$ 11,982,565 $ 11,117,384 $ 9,505,755

	2011		2010		2009

U.S. Operations	$	16,017	$	11,353	$	11,497
Foreign Operations		2,143		1,962		1,620
	$	18,160	$	13,315	$	13,117

Income tax expense consisted of the following components:

Current Deferred Total
2008:
Federal $ 2,962,861 $ 350,161 $ 3,313,022
Foreign 548,780 (4,640 ) 544,140
State 595,704 84,838 680,542

Total $ 4,107,345 $ 430,359 $ 4,537,704

2007:
Federal $ 2,971,325 $ 65,159 $ 3,036,484
Foreign 587,658 (20,870 ) 566,788
State 602,751 72,349 675,100

Total $ 4,161,734 $ 116,638 $ 4,278,372

2006:
Federal $ 2,683,441 $ 109,575 $ 2,793,016
Foreign 234,340 (20,929 ) 213,411
State 604,718 10,542 615,260

Total $ 3,522,499 $ 99,188 $ 3,621,687

	2011			2010		2009
Federal:
Current	$	4,018		$	3,450	$	2,433
Deferred		1,170			458		1,109
Total	$	5,188		$	3,908	$	3,542
Foreign:
Current	$	606		$	477	$	532
Deferred		(1	)		28		3
Total	$	605		$	505	$	535
State:
Current	$	609		$	275	$	(21	)
Deferred		194			128		570
Total	$	803		$	403	$	549

Total	$	6,596		$	4,816	$	4,626

The difference between the Company’s income tax expense as reported in the accompanying consolidated financial statements and the income tax expense that ~~which~~ would be calculated applying the U.S. federal income tax rate of 35% for 2011 and 34% for 2010 and 2009 on pretax income was as follows:


	2008			2007			2006			2011			2010			2009

Expected federal income taxes	$	4,074,072		$	3,779,911		$	3,231,957		$	6,356		$	4,527		$	4,460
Foreign tax rate differential		(7,925	)		30,966			23,492			(145	)		(59	)		(16	)
State income taxes, net of federal benefit		449,158			445,567			406,072
Tax credits and incentives		(51,488	)		(51,488	)		(36,938	)
US tax graduated rates											(99	)
State income taxes, net of federal benefit and state tax credits											522			257			362
Federal tax credits											(132	)		(110	)		(183	)
Uncertain tax positions											9			72			27
Deferred tax adjustment due to projected rates											--			138			--
Valuation allowance											--			2			18
Other		73,887			73,416			(2,896	)		85			(11	)		(42	)

Total	$	4,537,704		$	4,278,372		$	3,621,687		$	6,596		$	4,816		$	4,626

Deferred tax assets and liabilities at December 31, ~~2008~~2011 and ~~2007,~~2010, were comprised of the following:

2008 2007
Deferred tax assets:
Allowance for doubtful accounts $ 92,651 $ 27,383
Accrued expenses 231,262 204,280
Stock based compensation 892,371 827,523
Other 82,677 —

Gross deferred tax assets 1,298,961 1,059,186

Deferred tax liabilities:
Prepaid expenses 243,260 164,652
Basis in property and equipment 1,263,080 985,066
Intangible assets 3,761,441 1,958,647
Other — 9,904

Gross deferred tax liabilities 5,267,781 3,118,269

Net deferred tax liabilities $ (3,968,820 ) $ (2,059,083 )

	2011			2010
Deferred tax assets:
Allowance for doubtful accounts	$	108		$	129
Accrued expenses		345			298
Share based compensation		1,449			1,261
Capital loss carryforward		1,268			1,287
Net operating loss		719			1,376
Other		--			215
Gross deferred tax assets		3,889			4,566
Less Valuation Allowance		(1,352	)		(1,287	)
Deferred tax assets		2,537			3,279

Deferred tax liabilities:
Prepaid expenses		142			281
Property and equipment		2,505			2,169
Intangible assets		6,506			6,111
Other		184			--
Deferred tax liabilities		9,337			8,561
Net deferred tax liabilities	$	(6,800	)	$	(5,282	)

~~The Company did not record a valuation allowance for its~~In assessing the realizablility of deferred tax assets, ~~because management believes that~~the Company considers whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income, carry-back opportunities and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, the Company believes it is more likely than not that it will ~~generate sufficient taxable~~realize the benefits of these deductible differences, net of the valuation allowance recorded. The net impact on income tax expense related to ~~fully realize these deferred~~changes in the valuation allowance for 2011, 2010 and 2009, were -0-, $2,000 and $18,000, respectively. The current year change related to increases to the valuation allowance for capital loss carryforwards that was recorded through goodwill.

The Company has domestic capital loss carryforwards of $3.2 million of which $47,000 expired in 2011. A total of $3.2 million of the capital loss carryforwards relate to the pre-acquisition periods of acquired companies. The remainder of the capital loss carryforwards are due to expire in 2012 and 2014 for $76,000 and $3.1 million, respectively. The Company has provided a $1.3 million valuation allowance against the tax ~~benefits.~~benefit associated with the capital loss carryforwards. An additional $84,000 valuation allowance relates to OCS state NOL carryforwards.

The undistributed foreign earnings of the Company’s foreign subsidiary of approximately ~~$2.8~~$7.1 million are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes ~~have~~has been provided for such undistributed earnings. It is impractical to determine the additional income tax liability, if any, associated with the repatriation of undistributed earnings.

~~(7)~~

The unrecognized tax benefit at December 31, 2011, was $266,000, excluding interest of $43,000 and no penalties. The full unrecognized tax benefits, if recognized, would favorably impact the effective income tax rate. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could continue to decrease during the next 12 months due to the expiration of the U.S. federal statute of limitations associated with certain other tax positions. The Company accrues interest and penalties related to uncertain tax position in the statements of income as income tax expense.

The change in the unrecognized tax benefits for 2011 and 2010 is as follows:

(In thousands)
Balance of unrecognized tax benefits at December 31, 2009 $ 541
Additions based on tax positions of prior years 139
Additions based on tax positions related to the current year 23
Reductions for tax positions of prior tax years (434 )
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

The Company files a U.S. federal income tax return, various state jurisdictions and a Canada federal and provincial income tax return. The 2008 to 2011 U.S. federal and state returns remain open to examination. The 2007 to 2011 Canada federal and provincial income tax returns remain open to examination.

(6) Notes Payable

Notes payable consisted of the following:

2008 2007
Note payable to US Bank, interest 7.21% fixed rate, scheduled principal payment ranging from $88,000 - $94,000, final payment of interest and principal due May 31, 2013, secured by land, building, accounts receivable and intangible assets. Refinanced in February 2008 at 5.14% fixed rate with 17 monthly installments of $92,821. — 2,993,352
Note payable to US Bank, interest 5.2% fixed rate, 35 scheduled principal and interest payments of $96,829, final balloon payment of interest and principal due December 31, 2011, secured by land, building, accounts receivable and intangible assets. 9,000,000 —
Revolving credit note with US Bank, subject to borrowing base of 75% of eligible accounts receivable, matures July 31, 2009, maximum available $6.5 million 3,850,000 —
Capital leases 89,741 —
Other debt 14,148 —

Total notes payable 12,953,889 2,993,352
Less current portion 4,580,719 1,092,754

Note payable, net of current portion $ 8,373,170 $ 1,900,598

	2011		2010
	(In thousands)
Revolving credit note with US Bank, subject to borrowing base, matures June 30, 2012, maximum available $6.5 million	$	--	$	--
Note payable to US Bank refinanced as of July 2010 for $6.9 million, interest at a 3.79% fixed rate, 35 monthly principal and interest payments of $80,104, final balloon payment of interest and principal due July 31, 2013		5,951		6,610
Note payable to US bank for $10 million, interest at a fixed rate of 3.79%, 35 monthly principal and interest payments of $121,190, final balloon payment of interest and principal due July 31, 2013		8,535		9,550
Total notes payable		14,486		16,160
Less current portion		1,861		1,827
Note payable, net of current portion	$	12,625	$	14,333

On December 19, 2008, the Company borrowed $9.0 million under a term note to partially finance the acquisition of MIV. In July 2010, the Company refinanced the existing term loan with a $6.9 million fixed rate term loan. The new term ~~note~~loan is payable in 35 ~~equal~~monthly installments of ~~$96,829,~~$80,104 with ~~the balance of principal and interest payable in~~ a balloon payment of $4.8 million for the remaining principal balance and interest due on ~~December~~July 31, ~~2011.~~2013. Borrowings under the term note bear interest at aan annual rate of ~~5.2% per year.~~3.79%.

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 35 monthly installments of $121,190 with a balloon payment of $6.7 million 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 term ~~note is~~notes are secured by certain of the Company’s assets, including the Company’s land, building, accounts receivable and intangible assets. The term ~~note contains~~notes 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, ~~2008,~~2011, the Company was in compliance with these restrictions and covenants.

~~Debt acquired through~~

The Company entered into a revolving credit note in 2006. The maximum aggregate amount available under the ~~MIV acquisition included $89,741~~revolving credit note was originally $3.5 million, but an addendum to the note in ~~capital leases.~~March 2008, changed the amount to $6.5 million. The ~~capital leases are for production~~revolving credit note was renewed in June 2011 to extend the term to June 30, 2012. The Company may borrow, repay and ~~mailing equipment meeting capitalization requirements where~~re-borrow amounts under the ~~lease term exceeds more than~~revolving credit note from time to time until its maturity on June 30, 2012.

The maximum aggregate amount available under the revolving credit note of $6.5 million is subject to a borrowing base equal to 75% of the ~~estimated useful life.~~Company’s eligible accounts receivable. Borrowings under the renewed revolving credit note bear interest at a variable annual rate, with three rate options at the discretion of management as follows: (1) 2.5% plus the daily reset one-month 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 ~~equipment is being depreciated over~~rate at December 31, 2011 was 2.79%. As of December 31, 2011, the ~~lease term~~revolving credit note did not have a balance. According to borrowing base requirements, the Company had the capacity to borrow $6.5 million as of ~~4.25 years ending in~~December 31, 2011.

The aggregate maturities of the note payable ~~and revolving credit notes~~ for each of the five years subsequent to December 31, ~~2008, are: 2009—$4,580,719; 2010—$775,034; 2011—$7,598,136; 2012—$0;~~2011, are (in thousands):

	Total Payments		2012		2013		2014		2015		2016

Notes payable	$	14,486	$	1,861	$	12,625	$	--	$	--	$	--

(7) Share-Based Compensation

The Company measures and ~~2013—$0.~~recognizes compensation expense for all share-based payments based on the grant-date fair value of those awards. All of the Company’s existing stock option awards and non-vested stock awards have been determined to be equity-classified awards.

~~(8)~~~~Stock Option Plans~~

In August 2001, the Board of Directors adopted, and on May 1, 2002, the Company’s shareholders approved, the National Research Corporation 2001 Equity Incentive Plan (“2001 Equity Incentive Plan”). The 2001 Equity Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 600,000 shares of the Company’s common stock. Options granted may be either nonqualified or incentive stock options. Options vest over one to five years following the date of grant and option terms are generally five to ten years following the date of grant. At December 31, ~~2008,~~2011, there were ~~71,082~~3,770 shares available for issuance pursuant to future grants under the 2001 Equity Incentive Plan. The Company has accounted for grants of ~~528,918~~596,230 options and restricted stock under the 2001 Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.

~~In May 2004, the Board of Directors adopted, and on May 5, 2005, the Company’s shareholders approved the~~

The National Research Corporation 2004 Non-Employee Director Stock Plan (the “2004 Director Plan”)~~. The 2004 Director Plan~~ is a nonqualified plan that provides for the granting of options with respect to ~~250,000~~550,000 shares of the Company’s common stock. The 2004 Director Plan provides for grants of nonqualified options to each director of the Company who is not employed by the Company. ~~In May 2004,~~On the date of each ~~such director was granted an option~~annual meeting of shareholders of the Company, options to purchase ~~11,000~~12,000 shares of the Company’s common ~~stock. On the date of each subsequent Annual Meeting of Shareholders of the Company, each such director, if~~stock are granted to directors that are re-elected or retained as a director at such ~~meeting, is granted an option to purchase 12,000 shares of the Company’s common stock.~~meeting. Options vest one year following the date of grant and option terms are generally ten years following the date of grant, or three years in the case of termination of the outside ~~director.~~director’s service. At December 31, ~~2008,~~2011, there were ~~25,000~~181,000 shares available for issuance pursuant to future grants under the 2004 Director Plan. The Company has accounted for grants of ~~225,000~~369,000 options under the 2004 Director Plan using the date of grant as the measurement date for financial accounting purposes.

In February 2006, the Board of Directors adopted, and on May 4, 2006, the Company’s shareholders approved the National Research Corporation 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”). The 2006 Equity Incentive Plan provides for the granting of options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 600,000 shares of the Company’s common stock. Options granted may be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant, and option terms are generally five to ten years. Options vest over one to five years following the date of grant and options terms are generally five to ten years following the date of grant. At December 31, ~~2008,~~2011, there were ~~472,388~~306,320 shares available for issuance pursuant to future grants under the 2006 Equity Incentive Plan. The Company has accounted for grants of ~~127,612~~293,680 options and restricted stock under the 2006 Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.

The Company granted options to purchase ~~118,475, 131,382~~166,008, 273,812 and ~~128,862~~102,739 shares of the Company’s common stock during the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, respectively. Options to purchase shares of common stock ~~were~~are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. The Company does in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following assumptions:


	2008			2007			2006			2011	2010	2009

Expected dividend yield at date of grant		1.87-2.11	%		1.76-1.92	%		1.77-1.86	%	2.00 to 2.55%	2.86 to 3.09%	1.93-2.35%
Expected stock price volatility		21.1-24.2	%		22.7-29.9	%		25.0-39.0	%	28.70 to 32.00%	28.40 to 31.20%	24.2 to 30.2%
Risk-free interest rate		3.18	%		4.54-4.59	%		4.41-4.90	%	1.70 to 2.14%	1.55 to 2.56%	1.55 to 2.15%
Expected life of options (in years)		4.00 to 6.00			4.00 to 6.00			4.00 to 6.00		4 to 6	4 to 6	4 to 6

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of the Company’s stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years the Company estimates that options will be outstanding. The Company considers groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes stock option activity under the Company’s 2001 and 2006 Equity Incentive Plans and the 2004 Director Plan for the year ended December 31, ~~2008:~~2011:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Terms (Years)		Value		Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at beginning of period		539,660		$	17.04		—		—		834,061		$	23.49
Granted		118,475		$	27.87		—		—		166,008		$	35.88
Exercised		(144,614	)	$	12.81		—		—		(58,671	)	$	16.03
Canceled/expired		(21,090	)	$	19.74		—		—

Cancelled											(171,997	)	$	28.00
Outstanding at end of period		492,431		$	20.77		7.22	$	3,716,132		769,401		$	25.73		6.37	$	10,225

Exercisable at end of period		156,091		$	18.85		6.68	$	1,451,111		368,587		$	22.03		4.97	$	6,186

The weighted average grant date fair value of stock options granted during the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, was ~~$5.67, $6.39~~$7.43, $4.48 and ~~$6.02,~~$5.72, respectively. The total intrinsic value of stock options exercised during the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, was ~~$2.3~~$1.0 million, ~~$239,000~~$192,000 and ~~$1 million,~~$28,000, respectively. As of December 31, ~~2008,~~2011, the total unrecognized compensation cost related to non-vested stock option awards was approximately ~~$1.0~~$1.2 million, which was expected to be recognized over a weighted average period of ~~2.83~~3.22 years.

Cash received from stock options exercised for the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, was ~~$1,856,000, $338,000,~~$568,000, $274,000, and ~~$926,000,~~$18,000, respectively. The actual tax benefit realized for the tax deduction from stock options exercised was ~~$743,000, $92,000~~$350,000, $43,000 and ~~$405,000,~~$11,000, for the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, respectively.

During ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, the Company granted ~~-0-, 32,115~~39,501, 9,238 and ~~13,218~~-0- non-vested shares of common stock under the ~~2001~~2006 Equity Incentive Plan. As of December 31, ~~2008,~~2011, the Company had ~~36,502~~30,002 non-vested shares of common stock outstanding under the ~~plan.~~Plan. These shares vest over one to five years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the date of grant. The Company recognized ~~$220,124, $436,820~~$143,000, $108,000 and ~~$168,466~~$178,000 of non-cash compensation for the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, respectively, related to this non-vested stock.

The following table summarizes information regarding non-vested stock granted to associates under the 2001 and 2006 Equity Incentive ~~Plan~~Plans for the year ended December 31, ~~2008.~~2011:

Weighted Average
Shares Grant Date Fair
Outstanding Value Per Share($)
Outstanding at beginning of period 66,183 $ 19.75
Granted — —
Vested (21,700 ) $ 17.94
Forfeited (7,981 ) $ 16.15

Outstanding at end of period 36,502 $ 21.62

~~The total intrinsic value of non-vested stock awards vested during the years ended December 31, 2008, 2007 and 2006, was $614,000, $167,000 and $147,000, respectively.~~

	Shares Outstanding			Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period		22,636		$	21.03
Granted		39,501		$	32.31
Forfeitures		(25,178	)	$	28.40
Vested		(6,957	)	$	17.25
Outstanding at end of period		30,002		$	30.57

As of December 31, ~~2008,~~2011, the total unrecognized compensation cost related to non-vested stock awards was approximately ~~$346,000~~$616,000 and is expected to be recognized over a weighted average period of ~~1.80~~3.96 years.

(8) Restructuring and Severance Costs

The Company records restructuring liabilities that represent charges incurred in connection with consolidations, including operations from acquisitions. These charges consist primarily of severance costs. Severance charges are based on various factors including the employee’s length of service, contract provisions, and salary levels. Expense for one-time termination benefits are accrued over each individual’s service period. The Company records the expense using its best estimate based upon detailed analysis. Although significant changes are not expected, actual costs may differ from these estimates.

As part of the Company’s ongoing plans to improve the efficiency and effectiveness of its operations, the Company announced plans to centralize MIV/OCS functions in Lincoln and Seattle and eliminate certain costs of the Wausau operation (the “2010 Restructuring Plan”). The Company incurred aggregate costs of $143,000 for one-time termination benefits related to 14 associates, which were included in selling, general and administrative expenses in the year ended December 31, 2010. The Company paid $106,000 in 2010 and the remaining $37,000 was paid in 2011.

In 2011, the Company vacated its office in Wausau, Wisconsin, and reached agreements to terminate the operating lease for its Wausau office and other services. As a result, the Company made lump-sum payments totaling $280,000, which were included in selling, general and administrative expenses in 2011.

In connection with the acquisition of OCS, the Company reduced headcount from acquisition date levels. OCS had pre-existing arrangements for severance with its associates at the date of acquisition. Total severance related to 26 OCS associates approximated $347,000, including $333,000 of severance accruals included in the liabilities assumed at acquisition. The Company recorded additional severance costs of $14,000 in 2010. The Company paid $333,000 in 2010 and the remaining $14,000 was paid in 2011.

The following table reconciles the beginning and ending restructuring costs included in accrued wages, bonus and profit-sharing:

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 $ -- $ -- $ -- $ --_

(9)Leases

The Company leases printing equipment ~~and services~~ in the United States, and office space in Canada, ~~Wisconsin, Minnesota~~California and ~~California.~~Washington. The Company ~~has~~also leased office space in Wisconsin through February 2011. The Company recorded rent expense ~~of $607,000, $475,000 and $386,000~~ in ~~2008, 2007 and 2006, respectively. Minimum lease payments under noncancelable~~connection with its operating leases ~~for each~~ of ~~the five years subsequent to December 31, 2008 are: 2009—$626,000; 2010—$519,000; 2011—$454,000; 2012—$427,000; 2013—$171,000.~~

$986,000, $691,000 and $626,000 in 2011, 2010 and 2009, respectively. The Company also has capital leases ~~are~~ for production, mailing and ~~mailing~~computer equipment. The minimum lease payments for each of the five years subsequent to December 31, 2008 are: 2009—$37,044; 2010—$37,044; 2011—$27,783; 2012—$ 0; 2013—$0. Total minimum lease payments remaining are $101,871, with $12,130 representing interest as of December 31, 2008. The present value of the future minimum lease payments are $89,741 less current maturities of $28,500. Long-term obligations

Payments under non-cancelable operating leases and capital leases ~~total $61,241 as of December 31, 2008.~~are:

As of December 31,	Capital Leases		Operating Leases
	(In thousands)
2012	$	147	$	676
2013		133		437
2014		133		362
2015		100		356
2016		7		227
Total minimum lease payments		520
Less: Amount representing interest		94
Present value of minimum lease payments		426
Less: Current maturities included in accrued expenses		101
Capital lease obligations, net of current portion included in other long term liabilities	$	325

(10)Related Party

A Board member of the Company also serves as a director of the Picker Institute. The Company advanced $300,000 in each of 2004 and 2003 to the Picker Institute to fund designated research projects and $171,000, $175,000 and $254,000 was expensed on research work during 2008, 2007 and 2006, respectively. In addition, the Company is a party to a support services agreement with the Picker Institute under which the Company conducts the annual NRC Picker Symposium. Under the support services agreement, the Picker Institute receives a portion of the gross receipts of each Symposium, which amounted to approximately $11,000 in 2008, $15,000 in 2007 and $12,000 in 2006.

A Board member of the Company also serves as an officer of Ameritas Life Insurance Corp. In connection with the Company’s regular assessment of its insurance-based associate benefits and the costs associated therewith, ~~which is conducted by an independent insurance broker,~~ in 2007 the Company began purchasing dental insurance for certain of its associates from Ameritas Life Insurance Corp. and, in 2009, the Company also began purchasing vision insurance for certain of its associates from Ameritas Life Insurance Corp. The total value of these purchases was ~~$79,000, $65,000~~$166,000, $146,000 and ~~$6,100~~$108,000 in ~~2008, 2007~~2011, 2010 and ~~2006~~2009 respectively.

The Company leased office space for OCS from EPIC Property Management LLC from August 2010 through June 2011. A former owner of OCS and an associate of the Company during the lease term was a co-owner of EPIC Property Management LLC. The total of the rental and utility payments under the lease for the year ended December 31, 2011, was $103,000 and for the year ended December 31, 2010, was $84,000.

(11)Associate Benefits

The Company sponsors a qualified 401(k) plan covering substantially all associates with no eligibility service requirement. Under the 401(k) plan, the Company matches 25% of the first 6% of compensation contributed by each associate. Employer contributions, which are discretionary, vest to participants at a rate of 20% per year. The Company contributed ~~$144,000, $127,000~~$182,000, $168,000 and ~~$124,000~~$151,000 in ~~2008, 2007~~2011, 2010 and ~~2006,~~2009, respectively, as a matching percentage of associate 401(k) contributions.


~~Item 9.~~	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~

(12) Segment Information

The Company has seven operating segments that are aggregated into one reporting segment because they have similar economic characteristics and meet the other aggregation criteria. Included in the table below is certain entity-wide information regarding the Company’s revenue and assets by geographic area:

	2011		2010		2009
	(In thousands)
Revenue:
United States	$	70,074	$	58,598	$	52,961
Canada		5,693		4,800		4,731
Total	$	75,767	$	63,398	$	57,692
Long-lived assets:
United States	$	75,355	$	75,238
Canada		3,184		3,191
Total	$	78,539	$	78,429
Total assets:
United States	$	90,253	$	87,256
Canada		10,423		8,514
Total	$	100,676	$	95,770

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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, ~~2008.~~2011. 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, ~~2008.~~2011.

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 inInternal Control —– Integrated Frameworkissued 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, ~~2008.~~2011.

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, ~~2008,~~2011, 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~~require 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~~since the Company is not deemed to ~~provide only management’s report in this annual report.~~be an “accelerated filer” or “large accelerated filer.”

Item 9B.Other Information

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

PART III

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 ~~2009~~2012 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. 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. 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

The information required by this Item is included under the captions “Compensation Discussion and Analysis,” ~~“Summary~~“2011 Summary Compensation Table,” “Grants of Plan-Based Awards in 2011,” “Outstanding Equity Awards at December 31, ~~2008,~~2011,” ~~“Option Exercises and Stock Vested,~~“2011 Director Compensation,” ~~“Director Compensation” and~~ “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, ~~2008.~~2011.


	Number of securities to be				Number of securities remaining
	issued upon the exercise of		Weighted-average exercise		available for future issuance
	outstanding options,		price of outstanding		under equity compensation
	warrants and		options,		plans (excluding securities
Plan Category	rights		warrants and rights		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⁾		492,431	$	20.77		568,470	⁽²⁾		769,401	$	25.73		491,090	(2)

Equity compensation plans not approved by security holders		—		—		—			--		--		--


Total		492,431	$	20.77		568,470			769,401	$	25.73		491,090


⁽¹⁾		Includes the Company’s 2006 Equity Incentive Plan, 2004 Director Plan, and the 2001 Equity Incentive Plan.


⁽²⁾		As of December 31, ~~2008,~~2011, the Company had authority to award up to ~~160,436~~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 ~~71,082~~3,770 as of December 31, ~~2008.~~2011. Under the ~~2004 Director Plan and~~ 2006 Equity Incentive Plan, the Company had authority to award up to ~~25,000 and 472,388~~144,324 additional shares of restricted Common Stock ~~respectively.~~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 306,320 as of December 31, 2011.

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

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

Item 14.Principal Accountant Fees and Services

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

PART IV

Item 15.Exhibits, Financial Statement Schedules

~~(a)~~1.

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.

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.

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

NATIONAL RESEARCH CORPORATION AND ~~SUBSIDIARIES~~SUBSIDIARY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

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

Allowance for doubtful accounts:
Year Ended December 31, 2006 $ 103,183 $ — $ (58,881 ) $ — $ 44,302
Year Ended December 31, 2007 $ 44,302 $ — $ 28,510 $ 2,600 $ 70,212
Year Ended December 31, 2008 $ 70,212 $ 69,255 $ 167,449 $ 66,263 $ 240,653

(In thousands)

	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, 2009	$	241	$	75	$	138	$	175	$	279
Year Ended December 31, 2010		279		42		39		23		337
Year Ended December 31, 2011		337		0		80		128		289

See accompanying report of independent registered public accounting firm.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

	Page in this Form 10-K

		~~Page in this~~
		~~Form 10-K~~

Report of Independent Registered Public Accounting Firm			24	25

Consolidated Balance Sheets as of December 31, ~~2008~~2011 and ~~2007~~ 2010			25	26

Consolidated Statements of Income for the Three Years Ended December 31, ~~2008~~ 2011			26	27

Consolidated Statements of Shareholders’ Equity and Comprehensive Income as of and for the Three Years Ended December 31, ~~2008~~ 2011			27	28

Consolidated Statements of Cash Flows for the Three Years Ended December 31, ~~2008~~ 2011			28	29

Notes to Consolidated Financial Statements	30

~~Notes to Consolidated Financial Statements~~			29

Schedule II — Valuation and Qualifying Accounts			50	54

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.

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 ~~2009.~~2012.

	NATIONAL RESEARCH CORPORATION

	~~NATIONAL RESEARCH CORPORATION~~ By	/s/ Michael D. Hays
	~~By /s/~~	Michael D. Hays
	~~Michael D. Hays~~	Chief Executive Officer
	~~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 Michael D. Hays	~~President,~~ Chief Executive Officer and Director ~~(Principal~~ (Principal Executive Officer)	March ~~31, 2009~~1, 2012

/s/ ~~Patrick E. Beans~~Kevin R. Karas ~~Patrick E. Beans~~Kevin R. Karas	Senior Vice President ~~Treasurer, Secretary,~~ Finance, Chief Financial Officer, Treasurer and ~~Director~~ ~~(Principal~~Secretary (Principal Financial and Accounting Officer)	March ~~31, 2009~~1, 2012

/s/ JoAnn M. Martin JoAnn M. Martin	Director	March ~~31, 2009~~1, 2012

/s/ John N. Nunnelly John N. Nunnelly	Director	March ~~31, 2009~~1, 2012

/s/ Paul C. Schorr III Paul C. Schorr III	Director	March ~~31, 2009~~1, 2012

/s/ Gail L. Warden Gail L. Warden	Director	March ~~31, 2009~~1, 2012

EXHIBIT INDEX

Exhibit Number	Exhibit Description

~~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 October 10, 2007 (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)]


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

(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)]

(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 August 3, 2010 (File No. 0-29466)]

~~(21.1)~~(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)]

~~Subsidiaries~~(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

~~(23.1)~~	(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 ~~2009~~2012 Annual Meeting of Shareholders ~~to be filed within 120 days of December 31, 2008~~ [To be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after December 31, ~~2008;~~2011; except to the extent specifically incorporated by reference, the Proxy Statement for the ~~2009~~2012 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, 2011, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Shareholders’ Equity and Comprehensive Income (iv) the Consolidated Statements of Cash Flows, (v) the Notes to the Consolidated Financial Statements, and (vi) 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 of incorporation or organization)		47-0634000 (I.R.S. Employer Identification No.)

1245 Q Street Lincoln, Nebraska		~~68508~~

(Address of principal executive offices)		68508 (Zip code)

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


~~Large accelerated filer~~oLarge accelerated filer £ Accelerated filer £ Non-accelerated filer x Smaller reporting company £		~~Accelerated filer~~o		~~Non-accelerated filer~~þ		~~Smaller reporting company~~o


þ	[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		Page
PART I

Item 1.	Business	~~Page~~	1
~~PART I~~ Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	10
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Mine Safety Disclosures	10

~~Item 1. Business~~					1	PART II

~~Item 1A. Risk Factors~~			6

~~Item 1B. Unresolved Staff Comments~~			11

~~Item 2. Properties~~			11

~~Item 3. Legal Proceedings~~			11

~~Item 4. Submission of Matters to a Vote of Security Holders~~			11

~~PART II~~

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			12	11

Item 6.	Selected Financial Data			14	13

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			15	14

Item 7A.	Quantitative and Qualitative Disclosure About Market Risk			23

Item 8.	Financial Statements and Supplementary Data			23	24

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	50
Item 9A.	Controls and Procedures	4550
Item 9B.	Other Information	50

~~Item 9A. Controls and Procedures~~					45	PART III

~~Item 9B. Other Information~~			46

~~PART III~~

Item 10.	Directors and Executive Officers of the Registrant			47	51
Item 11.	Executive Compensation			51
~~Item 11. Executive Compensation~~			47

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
Item 13.	Certain Relationships and Related Transactions	4852
Item 14.	Principal Accountant Fees and Services	52

~~Item 13. Certain Relationships and Related Transactions~~					48	PART IV

~~Item 14. Principal Accountant Fees and Services~~			48

~~PART IV~~

Item 15.	Exhibits and Financial Statement Schedules	53
Signatures			49

~~Signatures~~			52

~~Exhibit 21.1~~
~~Exhibit 23.1~~
~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~56


Name		Age			Position

Michael D. Hays	57	Chief Executive Officer
Susan L. Henricks	61	President and Chief Operating Officer
Kevin R. Karas	54			~~President, Chief Executive Officer and Director~~

~~Patrick E. Beans~~			51		Senior Vice President ~~Treasurer,~~Finance, Chief Financial Officer, ~~Secretary~~Treasurer and ~~Director~~

~~Jona S. Raasch~~			50		~~President of The Governance Institute, a division of National Research Corporation~~Secretary


					Dividends
					Declared Per
	High		Low		Common Share

2007 Quarter Ended:
March 31	$	24.24	$	20.49	$	.12
June 30	$	27.00	$	21.24	$	.12
September 30	$	26.50	$	24.47	$	.12
December 31	$	28.00	$	25.00	$	.12

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


					Total Number
					of Shares
	Total				Purchased as Part		Maximum Number of
	Number of		Average		of Publicly		Shares that May Yet Be
	Shares		Price Paid		Announced Plans		Purchased Under the Plans or
Period	Purchased		Per Share		or Programs⁽¹⁾		Programs
October 1 – October 31, 2008		2,504	$	27.82		2,504		391,961

November 1 – November 30, 2008		2,010	$	23.65		2,010		389,951

December 1 – December 31, 2008		97,358	$	26.36		97,358		292,593


	Percentage of Total Revenue									Percentage
	Year Ended December 31,									Increase
										2008			2007
										over			over
	2008			2007			2006			2007			2006

Revenue		100.0	%		100.0	%		100.0	%		4.3	%		11.8	%
Operating expenses:
Direct expenses		46.3			44.6			44.4			8.3			12.1
Selling, general and administrative		25.0			26.9			27.8			(3.4	)		8.4
Depreciation and amortization		5.3			5.3			5.2			4.0			14.3

Total operating expenses		76.5			76.8			77.4			3.9			10.9

Operating income		23.5	%		23.2	%		22.6	%		5.5	%		14.7	%

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

Revenue		100.0	%		100.0	%		100.0	%		19.5	%		9.9	%
Operating expenses:
Direct expenses		37.8			38.8			41.9			16.4			2.0
Selling, general and administrative		30.8			31.9			27.8			15.3			26.1
Depreciation and amortization		6.7			7.4			6.6			7.7			22.8
Total operating expenses		75.3			78.1			76.3			15.1			12.6
Operating income		24.7	%		21.9	%		23.7	%		35.2	%		1.2	%


	Total		Less than		One to		Three to		After
Contractual Obligations	Payments		One Year		Three Years		Five Years		Five Years

Operating leases	$	2,197,826	$	626,201	$	1,400,867	$	170,758	$	—
Revolving credit note		3,850,000		3,850,000		—		—		—
Other debt		14,148		14,148		—		—		—
Capital leases		101,871		37,044		64,827		—		—
Long-term debt		10,274,496		1,161,946		9,112,550		—		—

Total	$	16,438,341	$	5,689,339	$	10,578,244	$	170,758	$	—


	(In thousands, except per share data)
	Quarter Ended
	Dec. 31,		Sept 30,		June 30,			Mar. 31,			Dec. 31,			Sept 30,			June 30,			Mar. 31,
	2008		2008		2008			2008			2007			2007			2007			2007

Revenue	$	12,189	$	13,469	$	11,901		$	13,454		$	10,821		$	13,952		$	11,945		$	12,205
Direct expenses		5,766		6,598		5,320			5,927			5,057			5,930			5,366			5,448
Selling, general and administrative		2,768		3,053		3,348			3,559			3,283			3,240			3,250			3,400
Depreciation and amortization		682		661		676			666			661			672			623			627

Operating income		2,973		3,157		2,557			3,302			1,820			4,110			2,706			2,730
Other income (expense)		70		14		(58	)		(32	)		(25	)		(57	)		(30	)		(137	)
Provision for income taxes		1,148		1,205		918			1,267			686			1,558			1,035			999

Net income	$	1,895	$	1,966	$	1,581		$	2,003		$	1,109		$	2,495		$	1,641		$	1,594

Net income per share — basic	$	0.29	$	0.30	$	0.24		$	0.29		$	0.16		$	0.36		$	0.24		$	0.23
Net income per share — diluted	$	0.28	$	0.29	$	0.23		$	0.29		$	0.16		$	0.36		$	0.23		$	0.23
Weighted average shares outstanding — basic		6,642		6,644		6,637			6,818			6,861			6,851			6,845			6,842
Weighted average shares outstanding — diluted		6,782		6,803		6,793			6,970			7,034			7,013			7,002			6,964


	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	1,108,853		$	3,355,141
Investments in marketable debt securities		—			99,497
Trade accounts receivable, less allowance for doubtful accounts of $240,653 and $70,212 in 2008 and 2007, respectively		6,531,125			6,378,914
Unbilled revenue		809,596			1,377,427
Prepaid expenses and other		1,299,975			1,068,446
Recoverable income taxes		573,676			272,219
Deferred income taxes		115,421			48,657

Total current assets		10,438,646			12,600,301

Net property and equipment		13,746,787			11,974,029
Intangible assets, net		8,056,367			5,615,910
Goodwill		39,275,939			31,051,202
Deferred income taxes		—			590,034
Other		626,871			37,317


Total assets	$	72,144,610		$	61,868,793


Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of note payable	$	4,580,719		$	1,092,754
Accounts payable		863,273			1,106,317
Accrued wages, bonus and profit sharing		1,374,744			1,477,021
Accrued expenses		1,344,032			1,386,133
Billings in excess of revenue earned		12,926,119			9,921,763

Total current liabilities		21,088,887			14,983,988

Note payable, net of current portion		8,373,170			1,900,598
Deferred income taxes		4,084,241			2,697,774

Total liabilities		33,546,298			19,582,360

Shareholders’ equity:
Common stock, $.001 par value; authorized 20,000,000 shares, issued 8,019,922 in 2008 and 7,883,289 in 2007, outstanding 6,667,517 in 2008 and 6,926,442 in 2007		8,020			7,883
Additional paid-in capital		27,216,769			23,508,717
Retained earnings		33,677,381			30,003,606
Accumulated other comprehensive income (loss), net of taxes		(6,010	)		931,655
Treasury stock, at cost; 1,352,405 shares in 2008 and 956,847 shares in 2007		(22,297,848	)		(12,165,428	)

Total shareholders’ equity		38,598,312			42,286,433


Total liabilities and shareholders’ equity	$	72,144,610		$	61,868,793


													Accumulated
				Additional									Other
	Common			Paid-in			Retained			Unearned			Comprehensive			Treasury
	Stock			Capital			Earnings			Compensation			Income			Stock			Total
Balances at December 31, 2005		7,741			20,046,027			23,360,297			(432,631	)		300,369			(10,688,312	)		32,593,491

Purchase of 52,217 shares of treasury stock		—			—			—			—			—			(1,236,055	)		(1,236,055	)
Issuance of 89,307 common shares for the exercise of stock options		89			926,102			—			—			—			—			926,191
Tax benefit from the exercise of options and vested restricted stock		—			404,535			—			—			—			—			404,535
Issuance of 13,218 restricted common shares, net of 5,250 cancelled		8			(8	)		—			—			—			—			—
Non-cash stock compensation expense		—			875,684			—			—			—			—			875,684
Reclassify unearned compensation		—			(432,631	)		—			432,631			—			—			—
Dividends declared of $0.40 per common share		—			—			(2,756,057	)		—			—			—			(2,756,057	)
Comprehensive income
Change in unrealized gain/(loss) on marketable securities, net of tax		—			—			—			—			67,436			—			67,436
Change in cumulative translation adjustment		—			—			—			—			(8,780	)		—			(8,780	)
Net income		—			—			5,884,068			—			—			—			5,884,068

Total comprehensive income																				5,942,724

Balances at December 31, 2006		7,838			21,819,709			26,488,308			—			359,025			(11,924,367	)		36,750,513

Purchase of 61,849 shares of treasury stock		—			—			—			—			—			(241,061	)		(241,061	)
Issuance of 22,829 common shares for the exercise of stock options		22			337,764			—			—			—			—			337,786
Tax benefit from the exercise of options and vested restricted stock		—			111,551			—			—			—			—			111,551
Issuance of 32,115 restricted common shares, net of 9,109 cancelled		23			(23	)		—			—			—			—			—
Non-cash stock compensation expense		—			1,239,716			—			—			—			—			1,239,716
Dividends declared of $0.48 per common share		—			—			(3,323,714	)		—			—			—			(3,323,714	)
Comprehensive income
Change in unrealized gain/(loss) on marketable securities, net of tax		—			—			—			—			4,085			—			4,085
Change in cumulative translation adjustment		—			—			—			—			568,545			—			568,545
Net income		—			—			6,839,012			—			—			—			6,839,012

Total comprehensive income																				7,411,642

Balances at December 31, 2007	$	7,883		$	23,508,717		$	30,003,606		$	—		$	931,655		$	(12,165,428	)	$	42,286,433

Purchase of 395,558 shares of treasury stock		—			—			—			—			—			(10,132,420	)		(10,132,420	)
Issuance of 144,614 common shares for the exercise of stock options		145			1,856,160			—			—			—			—			1,856,305
Tax benefit from the exercise of options and vested restricted stock		—			835,682			—			—			—			—			835,682
Cancellation of 7,981 restricted common shares		(8	)		8			—			—			—			—			—
Non-cash stock compensation expense		—			1,016,202			—			—			—			—			1,016,202
Dividends declared of $0.56 per common share		—			—			(3,771,086	)		—			—			—			(3,771,086	)
Comprehensive income
Change in unrealized gain/(loss) on marketable securities, net of tax		—			—			—			—			133			—			133
Change in cumulative translation adjustment		—			—			—			—			(937,798	)		—			(937,798	)
Total comprehensive income																				6,507,196

Net income		—			—			7,444,861			—			—			—			7,444,861

Balances at December 31, 2008	$	8,020		$	27,216,769		$	33,677,381		$	—		$	(6,010	)	$	(22,297,848	)	$	38,598,312


	Fair Value
Current Assets	$	1,290,446
Property and equipment		846,000
Customer relationships		3,003,000
Goodwill		8,833,477
Other Long Term Assets		580,756

Total acquired assets		14,553,679
Less total liabilities		2,613,496

Net assets acquired	$	11,940,183


	2008		2007
	(In thousands, except		(In thousands, except
	per share amounts)		per share amounts)
��	(Unaudited )		(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


	Fair Value
Current assets	$	730,804
Property and equipment		67,573
Customer relationships		2,694,000
Trade name		1,572,000
Goodwill		18,221,635

Total acquired assets		23,286,012
Less total liabilities assumed		3,201,691

Net assets acquired	$	20,084,321


	2007

Amortized cost	$	99,714
Gross unrealized holding gains		—
Gross unrealized holding losses		(217	)

Fair value	$	99,497


	2008		2007

Furniture and equipment	$	2,535,601	$	2,350,644
Computer equipment and software		14,466,506		12,788,061
Building		9,108,247		9,108,247
Land		425,000		425,000

		26,535,354		24,671,952
Less accumulated depreciation and amortization		12,788,567		12,697,923

Net property and equipment	$	13,746,787	$	11,974,029


Balance as of January 1, 2006	$	11,483,401
GHS purchase price adjustment related to deferred taxes		257,001
TGI acquisition		18,221,635
Smaller World additional payment for contingent consideration		52,068
Foreign currency translation		232

Balance as of December 31, 2006	$	30,014,337
Smaller World additional payment for contingent consideration		651,725
Foreign currency translation		385,140

Balance as of December 31, 2007	$	31,051,202

MIV acquisition		8,833,477
Foreign currency translation		(608,740	)

Balance as of December 31, 2008	$	39,275,939

	(In thousands)
Balance of unrecognized tax benefits at December 31, 2009	$	541
Additions based on tax positions of prior years		139
Additions based on tax positions related to the current year		23
Reductions for tax positions of prior tax years		(434	)
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


	2008		2007
Note payable to US Bank, interest 7.21% fixed rate, scheduled principal payment ranging from $88,000 - $94,000, final payment of interest and principal due May 31, 2013, secured by land, building, accounts receivable and intangible assets. Refinanced in February 2008 at 5.14% fixed rate with 17 monthly installments of $92,821.		—		2,993,352
Note payable to US Bank, interest 5.2% fixed rate, 35 scheduled principal and interest payments of $96,829, final balloon payment of interest and principal due December 31, 2011, secured by land, building, accounts receivable and intangible assets.		9,000,000		—
Revolving credit note with US Bank, subject to borrowing base of 75% of eligible accounts receivable, matures July 31, 2009, maximum available $6.5 million		3,850,000		—
Capital leases		89,741		—
Other debt		14,148		—

Total notes payable		12,953,889		2,993,352
Less current portion		4,580,719		1,092,754

Note payable, net of current portion	$	8,373,170	$	1,900,598


				Weighted Average
	Shares			Grant Date Fair
	Outstanding			Value Per Share($)
Outstanding at beginning of period		66,183		$	19.75
Granted		—			—
Vested		(21,700	)	$	17.94
Forfeited		(7,981	)	$	16.15

Outstanding at end of period		36,502		$	21.62

	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	$	--		$	--		$	--		$ --_


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

Allowance for doubtful accounts:
Year Ended December 31, 2006	$	103,183	$	—	$	(58,881	)	$	—	$	44,302
Year Ended December 31, 2007	$	44,302	$	—	$	28,510		$	2,600	$	70,212
Year Ended December 31, 2008	$	70,212	$	69,255	$	167,449		$	66,263	$	240,653