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 March 31, 2001
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
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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 April 30, 2001: 7,045,798
shares
NATIONAL RESEARCH CORPORATION
FORM 10-Q INDEX
For the Quarter Ended March 31, 2001
Page
No.
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 7-9
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 9
Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
PART I - Financial Information
ITEM 1 Financial Statements
NATIONAL RESEARCH CORPORATION
CONDENSED BALANCE SHEETS
March 31, December 31,
2001 2000
----------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,672,591 $ 3,218,805
Investments in marketable debt securities 7,717,524 6,577,112
Trade accounts receivable, less allowance
for doubtful Accounts of $82,276 and
$77,276 in 2001 and 2000, respectively 1,721,649 1,713,621
Unbilled revenues 1,225,893 1,247,296
Prepaid expenses and other 344,477 213,075
Income taxes recoverable --- 62,833
Deferred income taxes 216,170 217,205
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Total current assets 13,898,304 13,249,947
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Net property and equipment 12,940,557 13,218,340
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Deferred income taxes 49,807 85,600
Goodwill and other intangible assets, net
of accumulated amortization 4,983,598 5,057,761
Other 23,692 25,825
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Total assets $31,895,958 $31,637,473
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion - notes payable $ 134,518 $ 134,518
Accounts payable 1,388,361 1,771,498
Accrued wages, bonuses and profit sharing 566,957 513,254
Accrued expenses 536,267 679,869
Income taxes payable 70,501 --
Billings in excess of revenues earned 1,911,035 1,809,090
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Total current liabilities 4,607,639 4,908,229
Notes payable, net of current portion 5,263,243 5,295,814
Bonuses, profit sharing accruals and
other accrued expenses 50,999 50,999
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Total liabilities 9,921,881 10,255,042
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Shareholders' equity:
Preferred stock, $.01 per value;
authorized 2,000,000 shares, no shares
issued and outstanding --- ---
Common stock, $.001 par value; authorized
20,000,000 shares, issued 7,347,498 in
2001 and 7,332,413 in 2000, outstanding
7,045,798 in 2001 and 7,030,713 in 2000 7,347 7,332
Additional paid-in capital 17,027,781 16,964,720
Retained earnings 6,430,152 5,927,019
Accumulated other comprehensive income (loss) 11,866 (13,571)
Treasury stock, at cost; 301,700 shares in
2001 and 2000 (1,503,069) (1,503,069)
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Total shareholders' equity 21,974,077 21,382,431
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Total liabilities and
shareholders' equity $31,895,958 $31,637,473
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See accompanying notes to condensed financial statements.
3
NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three months ended
March 31,
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2001 2000
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Revenues $ 4,090,543 $ 4,454,823
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Operating expenses:
Direct expenses 1,989,461 2,517,838
Selling, general and administrative 953,198 1,100,626
Depreciation and amortization 403,131 263,734
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Total operating expenses 3,345,790 3,882,198
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Operating income 744,753 572,625
Other income (expense):
Interest income 138,979 168,154
Interest expense (116,861) (1,567)
Other, net (4,547) (15,517)
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Total other income 17,571 151,070
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Income before income taxes 762,324 723,695
Provision for income taxes 259,191 229,933
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Net income $ 503,133 $ 493,762
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Net income per share--basic and diluted $ 0.07 $ 0.07
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Weighted average shares and share
equivalents outstanding--basic 7,039,269 7,006,317
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Weighted average shares and share
equivalents outstanding--diluted 7,058,365 7,036,575
=========== ===========
See accompanying notes to condensed financial statements.
4
NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
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2001 2000
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Cash flows from operating activities:
Net income $ 503,133 $ 493,762
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 403,131 263,734
Deferred income taxes 24,900 33,533
(Gain) loss on sale of property and equipment (300) 23,417
Loss on sale of other investments -- 59
Net changes in assets and liabilities:
Trade accounts receivable (8,028) 1,043,714
Unbilled revenues 21,403 (251,217)
Prepaid expenses and other (124,060) (284,545)
Accounts payable 105,509 38,056
Accrued expenses, wages, bonuses and
profit sharing (89,899) (279,209)
Income taxes payable 133,334 (108,500)
Billings in excess of revenues earned 101,945 (163,874)
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Net cash provided by operating activities 1,071,068 808,930
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Cash flows from investing activities:
Purchases of property and equipment (545,040) (1,215,876)
Proceeds from sale of property and equipment 300 6,500
Purchases of securities available-for-sale (4,879,058) (8,247,504)
Proceeds from the maturities of securities
available-for-sale 3,776,011 7,370,667
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Net cash used in investing activities (1,647,787) (2,086,213)
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Cash flows from financing activities:
Borrowings under line of credit -- 460,000
Payments on notes payable (32,571) (8,148)
Proceeds from exercise of stock options 63,076 6,248
Net cash provided by financing activities 30,505 458,100
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Net decrease in cash and cash equivalents (546,214) (819,183)
Cash and cash equivalents at beginning of period 3,218,805 1,149,587
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Cash and cash equivalents at end of period $ 2,672,591 $ 330,404
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Supplemental disclosure of cash paid for:
Interest, including capitalized interest
of $71,911 in 2000 $ 116,861 $ 73,478
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Income taxes $ 100,958 $ 304,900
=========== ===========
Accounts payable included $68,636 in 2001 and $833,380 in 2000 for purchases of
property and equipment.
See accompanying notes to condensed financial statements.
5
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, 2000 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
accounting principles generally accepted in the United States of America.
Information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America 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, 2000, filed with the Securities and Exchange Commission
in March 2001.
2. COMPREHENSIVE INCOME
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 three-month periods ended March 31, 2001 and 2000, respectively.
3. FINANCIAL INSTRUMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 138, Accounting for Certain Derivative
Investments and Certain Hedging Activities. The standard amends certain
provisions of SFAS No. 133, Accounting for Derivative Investments and Hedging
Activities, which was issued in June 1998 to establish accounting standards for
derivative instruments and for hedging activities. The Company adopted these
accounting pronouncements effective January 1, 2001. The adoption of these
standards did not impact the Company's financial statements.
4. SUBSEQUENT EVENTS
On May 7, 2001 the Company purchased the healthcare survey business of The
Picker Institute for $3.5 million in cash. The acquisition will be accounted for
using the purchase method. The Company has not yet completed the allocation of
the purchase price or determined the useful life of intangible assets.
6
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
March 31,
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2001 2000
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Revenues: 100.0% 100.0%
==============================
Operating expenses:
Direct expenses 48.6 56.5
Selling, general and administrative 23.3 24.7
Depreciation and amortization 9.9 5.9
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Total operating expenses: 81.8 87.1
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Operating income 18.2% 12.9%
==============================
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Total revenues. Total revenues decreased 8.2% in the three-month period ended
March 31, 2001 to $4,100,000 from $4,500,000 in the three month period ended
March 31, 2000. The decrease was primarily due to higher than normal revenues in
the first quarter 2000 because a backlog of orders from 1999.
Direct expenses. Direct expenses decreased 21% to $1,989,000 in the three-month
period ended March 31, 2001 from $2,518,000 in the same period during 2000. The
decrease in direct expenses in the 2001 period was due to decreases in labor and
payroll expenses of $299,000, fieldwork and fees of $167,000 and telephone
expense of $41,000; which were offset by an increase in printing and postage
expenses of $49,000. Direct expenses decreased as a percentage of total revenues
to 48.6% in the three month period ended March 31, 2001 from 56.5% during the
same period of 2000 due to the use of the new software for creating and
processing surveys. Direct expenses as a percentage of total revenues for the
balance of 2001 are expected to remain at levels lower than 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 13.4% to $953,000 for the three-month period
ended March 31, 2001 from $1,100,000
7
for the same period in 2000. This decrease was primarily due to a decrease in
product development expense of $57,000, salaries and benefits expenses of
$47,000, rent and utilities expenses of $46,000, and contract services expense
of $42,000. These decreases were offset by an increase of $115,000 in legal and
accounting expenses. Selling, general, and administrative expenses decreased as
a percentage of total revenues to 23.3% for the three month period ended March
31, 2001 from 24.7% for the same period in 2000 due in part to moving all
operations into the new facility in late 2000.
Depreciation and amortization. Depreciation and amortization expenses increased
52.9% to $403,000 in the three-month period ended March 31, 2001 from $264,000
in the same period of 2000. The increase is primarily due to the amortization of
internally-developed software and the completion of the new building during
2000. Depreciation and amortization expenses as a percentage of total revenues
increased to 9.9% in the three-month period ended March 31, 2001, from 5.9% in
the same period of 2000. The depreciation as a percentage of revenue should
remain at levels similar to the first quarter of 2001.
Provision for income taxes. The provision for income taxes totaled $259,000
(34.0% effective tax rate) for the three-month period ended March 31, 2001 as
compared to $230,000 (31.7% effective tax rate) for the same period in 2000. The
increase in expense is primarily because in 2000 the Company utilized certain
federal income tax credits. The effective tax rate for 2001 is expected to
remain at a level similar to its first quarter 2001 level.
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.
As of March 31, 2001, the Company had cash and cash equivalents of $2,673,000
and working capital of $9,290,000.
During the three months ended March 31, 2001, the Company generated $1,071,000
of net cash from operating activities as compared to $809,000 of net cash
generated during the same period in the prior year. The increase in cash flow
was mainly due to the timing of collections of account receivables and the
timing of costs incurred in advance of billings on certain projects and a lower
beginning accrued expense.
For the three months ended March 31, 2001, net cash used in investing activities
was $1,648,000 as compared to $2,086,000 during the same period in the prior
year. The 2001 decrease in cash used was primarily due to the reduction of
purchases of property and equipment by $671,000 primarily related to the new
office building and was partially offset by an increase of the net of purchase
of securities available-for-sale over the proceeds from the maturities of
securities of $226,000.
Net cash provided by financing activities was $31,000 for the three months ended
March 31, 2001, as compared to $458,000 for the three months ended March 31,
2000. The decrease in cash
8
provided by financing activities during 2001 was due to advances under the
construction line of credit of $460,000 taken by the company in 2000.
The Company typically bills clients for projects before they have been
completed. Billed amounts are recorded as unbilled revenue or billings in excess
of revenues earned on the Company's financial statements and are recognized as
income when earned. As of March 31, 2001 and as of December 31, 2000, the
Company had $1,911,000 and $1,809,000 of billings in excess of revenues earned,
respectively. In addition, when work is performed in advance of billing, the
Company records this work as unbilled revenue. At March 31, 2001 and December
31, 2000, the Company had $1,226,000 and $1,247,000 of unbilled revenue,
respectively. Substantially all billings in excess of revenues earned 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 transitions. 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 May 12, 2001, 56,700 shares have been
repurchased under the new authorization.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
The Company has not experienced any material changes in its market risk
exposures since December 31, 2000.
9
PART II - Other Information
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits
There were no exhibits.
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 2001.
10
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
Date: May 14, 2001 By: /s/ Michael D. Hays
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Michael D. Hays
President and Chief Executive Officer
Date: May 14, 2001 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)
11