UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-29466
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National Research Corporation
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(Exact name of Registrant as specified in its charter)
Wisconsin 47-0634000
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1245 "Q" Street, Lincoln Nebraska 68508-1430
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(Address of principal executive offices) (Zip Code)
(402) 475-2525
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value, outstanding as of October 31, 2000: 7,031,971
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shares
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NATIONAL RESEARCH CORPORATION
FORM 10-Q INDEX
For the Quarter Ended September 30, 2000
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets 3
Condensed Statements of Income 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of 7-10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 10
Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
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PART I - Financial Information
ITEM 1 Financial Statements
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NATIONAL RESEARCH CORPORATION
CONDENSED BALANCE SHEETS
September 30, December 31,
2000 1999
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(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,912,438 $ 1,149,587
Investments in marketable debt securities 5,989,854 10,876,608
Trade accounts receivable, less allowance for doubtful
Accounts of $77,737 in 2000 and $63,098 in 1999 1,655,700 2,918,124
Unbilled revenues 1,299,026 622,610
Prepaid expenses and other 40,413 53,727
Deferred income taxes 213,763 215,018
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Total current assets 14,111,194 15,835,674
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Net property and equipment 12,677,470 7,525,943
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Deferred income taxes 413,305 438,136
Goodwill and other intangibles, net of accumulated amortization 5,109,901 5,440,252
Other 11,515 15,592
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Total assets $ 32,323,385 $ 29,255,597
================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Construction financing line of credit $ 260,000 $ 3,544,000
Current portion - long-term debt 132,284 54,332
Accounts payable 2,434,284 1,680,385
Accrued wages, bonuses and profit sharing 562,668 669,900
Accrued expenses 688,025 1,132,934
Income taxes payable 141,259 234,533
Billings in excess of revenues earned 2,052,421 3,273,577
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Total current liabilities 6,270,941 10,589,661
Long-term debt, net of current portion 5,331,432 20,324
Bonuses, profit sharing accruals and other accrued expenses 79,245 79,245
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Total liabilities 11,681,618 10,689,230
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Shareholders' equity:
Preferred stock, $.01 par value; authorized 2,000,000
shares, no shares issued and outstanding - -
Common stock, $.001 par value; authorized 20,000,000
Shares, issued 7,328,896 in 2000 and 7,305,000 in 1999 7,329 7,305
Outstanding 7,030,196 in 2000 and 7,006,300 in 1999
Additional paid-in capital 16,939,891 16,839,839
Retained earnings 5,185,616 3,210,292
Treasury stock, at cost; 298,700 shares in 2000 and 1999 (1,491,069) (1,491,069)
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Total shareholders' equity 20,641,767 18,566,367
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Total liabilities and shareholders' equity $ 32,323,385 $ 29,255,597
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See accompanying notes to condensed financial statements.
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NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
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Revenues $ 5,017,115 $ 5,597,544 $ 14,110,273 $ 13,565,808
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Operating expenses:
Direct expenses 2,707,689 3,468,505 7,740,633 9,051,445
Selling, general and administrative 952,811 1,061,063 3,091,427 3,011,485
Depreciation and amortization 342,784 202,611 953,352 550,833
-------------- -------------- -------------- --------------
Total operating expenses 4,003,284 4,732,179 11,785,412 12,613,763
-------------- -------------- -------------- --------------
Operating income 1,013,831 865,365 2,324,861 952,045
Other income:
Net interest income 183,789 127,148 535,803 406,770
Other, net (10,221) (31,880) (33,059) (22,020)
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Total other income 173,568 95,268 502,744 384,750
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Income before income taxes 1,187,399 960,633 2,827,605 1,336,795
Income tax provision 356,219 334,226 852,281 486,739
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Net income 831,180 626,407 1,975,324 850,056
============== ============== ============== ==============
Net income per share--basic and diluted $ .12 $ 0.09 $ .28 $ 0.12
============== ============== ============== ==============
Weighted average shares and share equivalents
outstanding--basic 7,024,892 7,050,000 7,014,778 7,060,861
============== ============== ============== ==============
Weighted average shares and share equivalents
outstanding--diluted 7,069,392 7,051,389 7,059,278 7,062,250
============== ============== ============== ==============
See accompanying notes to condensed financial statements.
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NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
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2000 1999
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Cash flows from operating activities:
Net income $ 1,975,324 $ 850,056
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 981,713 568,565
Deferred income taxes 26,086 34,437
Loss on sale of property and equipment 23,417 22,106
Loss on sale of other investments 43 144
Changes in assets and liabilities:
Trade accounts receivable 1,262,424 830,361
Unbilled revenues (676,416) 529,125
Prepaid expenses and other 17,391 104,771
Accounts payable (117,341) 1,103,985
Accrued expenses, wages, bonuses, and profit sharing (500,140) (409,278)
Income taxes payable (93,274) 459,431
Billings in excess of revenues earned (1,221,156) (213,624)
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Net cash provided by operating activities 1,678,071 3,880,079
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Cash flows from investing activities:
Purchases of property and equipment (5,045,885) (4,111,801)
Proceeds from sale of property and equipment 6,500 -
Purchases of securities available-for-sale (11,336,996) (12,604,997)
Proceeds from the maturities of securities available-for-sale 16,223,708 9,947,000
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Net cash used in investing activities (152,673) (6,769,798)
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Cash flows from financing activities:
Borrowings under line of credit 2,156,000 1,940,000
Payments on notes payable (18,623) (22,829)
Acquisition, net of cash acquired - (2,636,936)
Proceeds from exercise of stock options 100,076 -
Payment of purchase price payable - -
Purchase of treasury stock - (162,000)
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Net cash provided (used) in financing activities 2,237,453 (881,765)
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Net increase (decrease) in cash and cash equivalents 3,762,851 (3,771,484)
Cash and cash equivalents at beginning of period 1,149,587 4,887,712
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Cash and cash equivalents at end of period $ 4,912,438 $ 1,116,228
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Supplemental disclosure of cash paid for:
Interest, including capitalized interest of $300,392 in 2000 $ 303,383 $ 6,317
================== ===================
Taxes $ 517,138 $ (10,019)
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See accompanying notes to condensed financial statements.
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NATIONAL RESEARCH CORPORATION
Notes to Condensed Financial Statements
1. INTERIM FINANCIAL REPORTING
The condensed balance sheet of National Research Corporation (the "Company") at
December 31, 1999 was derived from the Company's audited balance sheet as of
that date. All other financial statements contained herein are unaudited and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) the Company considers necessary for a fair presentation
of financial position, results of operations and cash flows in accordance with
generally accepted accounting principles.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto that are
included in the Company's Form 10-K for the fiscal year ended December 31, 1999,
filed with the Securities and Exchange Commission in March 2000.
Other than its net income, the Company's only other source of comprehensive
income is unrealized gains or losses on marketable debt securities. However,
other comprehensive income from marketable debt securities is not significant
for the nine-month periods ended September 30, 2000 and 1999, respectively.
2. PROPERTY AND EQUIPMENT AND LONG-TERM DEBT
Since December 31, 1999, the Company has capitalized costs of $4.1 million
related to the acquisition and renovation of a building for a new corporate
headquarters. The building was placed in service subsequent to September 30,
2000 and will be depreciated under the straight line method over 40 years.
On November 10, 2000, the Company refinanced $5.4 million of its construction
line of credit to a long-term note payable. The new long-term debt is secured by
a first mortgage on the Company's new corporate headquarters and bears interest
at 8.25%. At September 30, 2000, the refinanced portion of the line of credit
has been reclassified as long-term debt.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, selected financial
information derived from the Company's condensed financial statements, expressed
as a percentage of total revenues. 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 condensed financial statements.
Percentage of Total Revenues
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Three months ended Nine months Ended
September 30, September 30,
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2000 1999 2000 1999
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Revenues: 100.0% 100.0% 100.0% 100.0%
=================================== ====================================
Operating expenses:
Direct expenses 54.0 62.0 54.9 66.7
Selling, general and administrative 19.0 19.0 21.9 22.2
Depreciation and amortization 6.8 3.6 6.7 4.1
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Total operating expenses: 79.8 84.6 83.5 93.0
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Operating income 20.2% 15.4% 16.5% 7.0%
=================================== ====================================
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Total revenues. Total revenues decreased 10.4% in the three month period ended
September 30, 2000 to $5.0 million from $5.6 million in the three month period
ended September 30, 1999. The decrease was primarily due to the large backlog of
work completed in the third and fourth quarters of 1999, which was created by
the failure of the software conversion in the first two quarters of 1999.
Direct expenses. Direct expenses decreased 21.9% to $2.7 million in the
three-month period ended September 30, 2000 from $3.5 million in the same period
during 1999. The decrease in direct expenses in the 2000 period was primarily
due to the investment in technology which resulted in decreases in labor and
payroll expenses of $509,000 and software conversion expenses of $251,000, as
well as a decrease in fieldwork and fees of $29,000 due to the timing of work in
1999. This decrease was partially offset by an increase in printing and postage
of $5,000. Direct expenses decreased as a percentage of total revenues to 54.0%
in the three month period ended September 30, 2000 from 62.0% during the same
period of 1999. Direct expenses as a percentage of total revenues for the
balance of 2000 are expected to rise some but remain at levels lower than 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 10.2% to $953,000 for the three-month period
ended September 30, 2000 from $1.1 million for the same period in 1999. This
decrease was primarily due to decreases in rent and repair expenses of $48,000,
travel and meal expenses of $26,000, legal and accounting expenses of $17,000
and contract services of $46,000. This decrease was partially offset by an
increase in marketing expense of $47,000. Selling, general, and administrative
expenses remained the same as a percentage of total revenues at 19.0% for the
three month period ended September 30, 2000 and the same period in 1999.
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Depreciation and amortization. Depreciation and amortization expenses increased
69.2% to $343,000 in the three-month period ended September 30, 2000 from
$203,000 in the same period of 1999. The increase is primarily due to the
additional amortization of software and computer equipment. Depreciation and
amortization expenses as a percentage of total revenues increased to 6.8% in the
three-month period ended September 30, 2000, from 3.6% in the same period of
1999.
Provision for income taxes. The provision for income taxes totaled $356,000
(30.0% effective tax rate) for the three-month period ended September 30, 2000
as compared to $334,000 tax provision (34.8% effective tax rate) for the same
period in 1999. The increase in expense is due to the higher profit for the 2000
period. The effective tax rate was lower in 2000 due to certain federal income
tax credits.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Total revenues. Total revenues increased 4.0% in the nine month period ended
September 30, 2000 to $14.1 million from $13.6 million in the nine month period
ended September 30, 1999. The increase was primarily due to the addition of new
clients and to a lesser extent, an increase in scope of work from existing
clients.
Direct expenses. Direct expenses decreased 14.5% to $7.7 million in the nine
month period ended September 30, 2000 from $9.1 million in the same period
during 1999. The decrease was primarily due to the investment in technology
which resulted in decreases in labor and payroll expenses of $712,000, printing
and postage expenses of $163,000, software conversion expenses of $356,000,
fieldwork and fees of $85,000 and telephone expenses of $14,000. Direct expenses
decreased as a percentage of total revenues to 54.9% in the nine month period
ended September 30, 2000 from 66.7% during the same period of 1999. Direct
expenses as a percentage of total revenues for the balance of 2000 are expected
to rise some but remain at levels lower than in 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 2.7% to $3.1 million for the nine month period
ended September 30, 2000 from $3.0 million for the same period in 1999. This
increase was primarily due to an increase in salaries and benefits expense of
$234,000, legal and accounting expenses of $22,000, computer support, license
and equipment expenses of $24,000, marketing expenses of $17,000 and recruitment
and relocation expenses of $22,000. These increases were partially offset by
decreases in rent and repairs of $140,000 and contract services of $112,000.
Selling, general, and administrative expenses decreased as a percentage of total
revenues to 21.9% for the nine month period ended September 30, 2000 from 22.2%
for the same period in 1999 due to the increase in revenue without a related
increase in selling, general and administrative expenses.
Depreciation and amortization. Depreciation and amortization expenses increased
73.1% to $953,000 in the nine month period ended September 30, 2000 from
$551,000 in the same period of 1999. Depreciation and amortization expenses as a
percentage of total revenues increased to 6.7% in the nine month period ended
September 30, 2000, from 4.1% in the same period of 1999. The increase is
primarily due to the additional amortization of software and computer equipment.
Provision for income taxes. The provision for income taxes totaled $852,000
(30.1% effective tax rate) for the nine month period ended September 30, 2000 as
compared to $487,000 tax provision (36.4% effective tax rate) for the same
period in 1999. The increase in expense is due to the higher profit for the 2000
period. The effective tax rate was lower in 2000 due to certain federal income
tax credits.
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Liquidity and Capital Resources
The Company's principal source of funds historically has been cash flow from its
operations. The Company's cash flow has been sufficient to provide funds for
working capital and capital expenditures, with the exception of the renovation
of the new office building.
As of September 30, 2000, the Company had cash and cash equivalents of $4.9
million and working capital of $7.8 million.
During the nine months ended September 30, 2000, the Company generated $1.7
million of net cash from operating activities as compared to $3.9 million of net
cash generated during the same period in the prior year. The decrease in cash
flow was mainly due to the timing of collections of accounts receivable and the
timing of costs incurred in advance of billings on certain projects.
For the nine months ended September 30, 2000, net cash used in investing
activities was $153,000 as compared to $6.8 million during the same period in
the prior year. The 2000 decrease in cash used was primarily due to the net of
proceeds from the maturities of securities available-for-sale over the purchase
of securities available-for-sale of $4.9 million, which was offset by the
purchase of property and equipment of $5.0 million (primarily related to the new
office building). The Company plans to spend an additional $400,000 during the
remainder of 2000 to renovate the new building. The Company moved to its new
headquarters in October 2000. The Company has secured long-term financing on the
building for $5.4 million. The 1999 net cash used in investing activities was
primarily due to the purchase and renovation of a new building for $1.7 million,
and investment of $1.2 in furniture, computer equipment, software and production
equipment to meet the expansion of the Company's business and by the proceeds of
maturities of securities available-for-sale of $2.6 million.
Net cash generated in financing activities was $2.2 million compared to the
$882,000 of net cash used for the nine months ended September 30, 2000 and 1999,
respectively. The increase in cash provided by financing activities during 2000
was due to the receipt of construction financing and the 1999 payment of $2.6
million in purchase price payable related to the acquisition of Healthcare
Research Systems.
The Company typically bills clients for projects before they have been
completed. Billed amounts are recorded as billings in excess of costs or
deferred revenue on the Company's financial statements and are recognized as
income when earned. As of September 30, 2000 and as of December 31, 1999, the
Company had $2.1 million and $3.3 million of deferred revenues, respectively. In
addition, when work is performed in advance of billing, the Company records this
work as a cost in excess of billings or unbilled revenue. At September 30, 2000
and December 31, 1999, the Company had $1.3 million and $623,000 of unbilled
revenues, respectively. Substantially all deferred and unbilled revenues will be
earned and billed, respectively, within 12 months of the respective period ends.
In October 1998, the Company announced plans to repurchase up to 245,000 shares
of common stock in the open market or in privately negotiated transactions. The
Company repurchased 245,000 shares between October 1998 and March 1999. In April
1999, the Board of Directors of the Company authorized the repurchase of an
additional 150,000 shares. As of Ocotber 31, 2000, 53,700 shares under the new
authorization had been repurchased.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133
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requires that all derivatives be recognized as either assets or liabilities in
the balance sheet and measured at their fair value. If certain conditions are
met, a derivative may be specifically designed as (i) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (ii) a hedge of the exposure to variable cash flows of a
forecasted transaction or (iii) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign currency denominated forecasted
transaction. SFAS 133, as amended by Statement of Financial Accounting Standards
No. 137, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company does not expect the effect of SFAS 133 to be
significant to its financial reporting.
On December 3, 1999, the Securities and Exchange Commission ("SEC") Staff issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 summarizes certain of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB No. 101 covers a broad range of topics, some of which include
revenue recognition for "bill and hold" arrangements, accounting for refundable
and nonrefundable up-front fees, accounting for multiple element arrangements,
contingent rentals and gross and net reporting of revenues from internet sales.
As amended by SAB 101A and SAB 101B, the effective date for calendar year-end
companies is no later than the quarter beginning October 1, 2000. The adoption
of SAB No. 101 will not have any effect on the Company's financial reporting.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
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The Company has not experienced any material changes in its market risk
exposures since December 31, 1999.
PART II - Other Information
ITEM 6 Exhibits and Reports on Form 8-K
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(a) Exhibit Number Description
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(27) Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
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There were no reports on Form 8-K filed during the quarter ended
September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL RESEARCH CORPORATION
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Date: November 10, 2000 By: /s/ Michael D. Hays
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Michael D. Hays
President and Chief Executive Officer
Date: November 10, 2000 By: /s/ Patrick E. Beans
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Patrick E. Beans
Vice President, Treasurer, Secretary and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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NATIONAL RESEARCH CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period ended September 30, 2000
Exhibit
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(27) Financial Data Schedule (EDGAR version only)
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