UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
_______________________
Date of Report
(Date of earliest
event reported): June 11, 1998
National Research Corporation
(Exact name of registrant as specified in its charter)
Wisconsin 0-29466 47-0634000
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
1033"O" Street, Lincoln, Nebraska 68508
(Address of principal executive offices including zip code)
(402) 475-2525
(Registrant's telephone number)
The undersigned registrant hereby amends Item 7 of its Current
Report on Form 8-K dated June 11, 1998 to provide in its entirety as
follows:
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired Healthcare Research
Systems, Ltd.
Independent Auditors' Report
Audited Financial Statements:
Balance Sheet as of December 31, 1997
Statement of Operations for the year ended December 31,
1997
Statement of Members' Equity for the year ended
December 31, 1997
Statement of Cash Flows for the year ended December 31,
1997
Notes to Financial Statements
Unaudited Financial Statements:
Condensed Balance Sheets as of March 31, 1998 and December
31, 1997
Condensed Statements of Operations for the three months
ended March 31, 1998 and 1997
Condensed Statement of Cash Flows for the three months
ended March 31, 1998 and 1997
Notes to Condensed Financial Statements
HEALTHCARE RESEARCH SYSTEMS, LTD.
Financial Statements
December 31, 1997
Independent Auditors' Report
The Board of Directors
Healthcare Research Systems, Ltd.:
We have audited the accompanying balance sheet of Healthcare Research
Systems, Ltd. (the Company) as of December 31, 1997 and the related
statements of operations, members' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Healthcare Research
Systems, Ltd. as of December 31, 1997 and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
May 30, 1998
HEALTHCARE RESEARCH SYSTEMS, LTD.
Balance Sheet
December 31, 1997
Assets (Note 2)
Current assets:
Cash $ 7,009
Trade accounts receivable 1,378,712
Unbilled revenues 287,810
Prepaid expenses and other 8,698
---------
Total current assets 1,682,229
---------
Property and equipment:
Furniture and equipment 439,871
Computer equipment 645,716
Computer software 133,605
---------
1,219,192
Less accumulated depreciation 339,468
---------
Net property and equipment 879,724
---------
Other assets:
Organizational costs, net of accumulated amortization of
$40,397 52,826
Goodwill, net of accumulated amortization of $8,155 48,302
Other assets 117,103
---------
Total other assets 218,231
---------
Total assets $ 2,780,184
=========
Liabilities and Members' Equity
Current liabilities:
Current portion of long-term debt 130,375
Notes payable to bank 661,000
Current portion of capital lease obligations 12,450
Leasehold obligations 76,223
Accounts payable and accrued expenses 381,459
Accrued wages 92,554
Accrued vacation 84,537
Billings in excess of revenues earned 778,459
---------
Total current liabilities 2,217,057
---------
Capital lease obligations, net of current portion 48,581
Long-term debt, net of current portion 176,520
---------
Total liabilities 2,442,158
---------
Members' equity 338,026
Commitments and contingencies
---------
Total liabilities and members' equity $ 2,780,184
=========
See accompanying notes to financial statements.
HEALTHCARE RESEARCH SYSTEMS, LTD.
Statement of Operations
Year ended December 31, 1997
Revenues $ 6,516,162
---------
Operating expenses:
Direct expenses 3,795,928
Selling, general, and administrative 3,173,280
Depreciation and amortization 271,161
---------
Total operating expenses 7,240,369
---------
Operating loss (724,207)
---------
Other income (expense):
Interest income 7,037
Interest expense (63,297)
Other, net 3,726
---------
Total other income (52,534)
---------
Net loss $ (776,741)
=========
See accompanying notes to financial statements.
HEALTHCARE RESEARCH SYSTEMS, LTD.
Statement of Members' Equity
For the year ended December 31, 1997
Balance at December 31, 1996 $ 1,166,940
Net loss (776,741)
Capital contributions 210,000
Distributions to members (262,173)
---------
Balance at December 31, 1997 $ 338,026
=========
See accompanying notes to financial statements.
HEALTHCARE RESEARCH SYSTEMS, LTD.
Statement of Cash Flows
Year ended December 31, 1997
Cash flows from operating activities:
Net loss $ (776,741)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 271,161
Changes in assets and liabilities:
Trade accounts receivable (750,767)
Unbilled revenues (65,098)
Prepaid expenses and other (2,019)
Other assets (126,656)
Accounts payable and accrued
expenses 338,459
Accrued wages 12,425
Accrued vacation 44,428
Billings in excess of revenues
earned 208,122
---------
Net cash used in operating activities (846,686)
---------
Cash flows used in investing activities-
Purchases of property and equipment (460,937)
---------
Cash flows from financing activities:
Capital contributions 210,000
Distributions to members (262,173)
Payments on capital lease obligations (10,169)
Payments on leasehold obligations (18,375)
Borrowings under line of credit 2,366,000
Payments on line of credit (1,705,000)
Proceeds from issuance of long-term debt 200,000
Payments on long-term debt (86,226)
----------
Net cash provided by financing activities 694,057
-----------
Net decrease in cash (613,566)
Cash at beginning of period 620,575
-----------
Cash at end of period $ 7,009
-----------
Supplementary disclosures:
Cash paid for interest $ 57,186
-----------
Noncash investing and financing
activities:
In 1997, the Company acquired equipment and leasehold
improvements by incurring capital lease
obligations of $71,200 and leasehold
obligations of $87,115.
See accompanying notes to financial statements.
Notes to Financial Statements
December 31, 1997
(1) Summary of Significant Accounting Policies
(a) Description of Business and Basis of Presentation
Healthcare Research Systems, Ltd. (the Company) is a provider of
survey-based performance measurement, analysis, and tracking services
to the healthcare industry. The Company provides market research
services to hospitals and insurance companies. One client accounted
for 18.3% of total revenues in 1997. This client canceled its primary
contract for survey services in the fourth quarter of 1997. This
contract for services comprised substantially all of the revenues
derived from this customer in 1997.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) Revenue Recognition
The Company derives a substantial majority of its operating revenues
from renewable performance measurement services. Under those
services, the Company provides interim and annual performance tracking
to its clients under client service contracts, although such contracts
are generally cancelable on short or no notice without penalty.
The Company recognizes revenues from its performance measurement
services using the percentage of completion 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 recognized revenue is the percent
of estimated total revenues that incurred costs, number of surveys and
direct labor hours to date, bear to estimated totals after giving
effect to estimates to complete based upon most recent information.
Losses expected to be incurred on jobs in progress are charged to
income as soon as such losses are known. Revenues earned on contracts
in progress in excess of billings are classified as a current asset.
Amounts billed in excess of revenues earned are classified as a
current liability. Client projects are generally completed within a
twelve-month period.
(d) 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.
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 accelerated methods of depreciation and amortization over
estimated useful lives of five to ten years for furniture and
fixtures, five to six years for computer equipment and three to seven
years for computer software.
(e) Intangible Assets
Intangible assets are amortized on a straight-line basis of their
estimated useful life. Estimated useful lives are 5 years for
organizational costs and 15 years for goodwill. The Company monitors
events and circumstances which may require a review of the carrying
value of its intangible assets at each balance sheet date to assess
recoverability based on estimated undiscounted future operating cash
flows. Impairments are recognized when future discounted cash flows
are less than the carrying amount. The assessment of the
recoverability of intangible assets will be impacted if estimated
future operating cash flows are not achieved.
(f) Income Taxes
The Company, with the consent of its members, elected under the
Internal Revenue Code to be a limited liability company (or LLC). In
lieu of corporation income taxes, the members of an LLC are taxed on
their proportionate share of the Company's taxable income as provided
by the operating agreement. Therefore, no provision or liability for
federal income taxes has been included in these financial statements
for 1997 because the liability for income taxes is the responsibility
of the member-owners of the Company.
(2) Long-term Debt
The Company's long-term debt at December 31, 1997, consists of the
following:
Note payable to bank, at 8.74%, payable in monthly
installments of $3,168 including interest,
with final payment of principal and interest
due November 1, 1999; secured by the assets
of the Company $ 66,985
Note payable to bank, at 8.69%, payable in monthly
installments of $3,166 including interest,
with final payment of principal and
interest due November 15, 1999; secured
by the assets of the Company 67,440
Note payable to bank, at 9.15%, payable in monthly
installments of $3,171 including interest,
with final payment of principal and
interest due September 1, 2000; secured
by the assets of the Company 80,107
Note payable to bank, at 8.682%, payable in monthly
installments of $3,193 including interest,
with final payment of principal and
interest due April 15, 2000; secured by
the assets of the Company 92,363
--------
Total long-term debt 306,895
Less current portion 130,375
--------
Long-term debt, net of current portion $ 176,520
========
On April 9, 1997 the Company entered into an agreement with the bank
that permits the Company to borrow up to $750,000, at the bank's
discretion, at the bank's prime rate of interest (8.5% at December 31,
1997). The outstanding borrowings of $661,000 are payable upon notice
from the bank.
On February 4, 1998, the Company entered into a new note payable with
a bank. The balance of the note is $100,000, payable in monthly
installments of $3,163, including interest and principal, with
interest at 8.55%. The final maturity of the note is April 1, 2001.
Through May 30, 1998, the Company reduced outstanding borrowings on
its line of credit by $451,000. The repayments on the line of credit
were funded primarily by additional subsequent net capital
contributions of approximately $377,360 (net of subsequent
distributions of $72,640) by the Company's member-owners.
The aggregate maturities of long-term debt at December 31, 1997 are
$130,375 for 1998; $137,046 for 1999; and $39,474 for 2000.
(3) Lease
The Company leases office space under operating leases in which the
Company is charged a monthly base rental payment. The last of these
leases expire on October 7, 2000, and provides an option to extend the
lease term an additional three years. The Company is also obligated
to repay leasehold obligations of $72,669 and $3,554 to a lessor,
payable in monthly installments of $1,808 and $370, respectively. The
leasehold obligation originated because the lessor provided the
financing for leasehold improvements made by the Company. On March
13, 1998, the Company exercised an option to extend the lease through
October 2000 and has options to renew this lease through October 2003.
The net remaining leasehold obligation that will be due and payable
October 2000, if the Company does not further extend the related
operating lease, is approximately $25,600. Rental expense was
approximately $265,000 during 1997 under these operating leases, and
is included in selling, general, and administrative expenses in the
statement of operations.
Following is a summary of approximate future minimum lease payments
under capitalized leases and under operating leases:
Capitalized Operating
leases leases
1998 $ 17,160 281,000
1999 17,160 295,000
2000 17,160 74,000
2001 17,160
2002 4,290 -
------- -------
Total minimum lease payment 72,930 650,000
=======
Imputed interest (11,899)
-------
Present value of minimum
capitalized lease payments 61,031
Current portion (12,450)
-------
Capitalized lease obligations,
net of current portion $ 48,581
=======
On January 28, 1998, the Company entered into an operating lease for
other office space. This lease, which expires January 31, 2001,
commits the Company to minimum annual payments of approximately
$11,000 in 1998; $26,000 in 1999; $33,000 in 2000; $40,000 in 2001;
and $46,000 thereafter. The Company has options to renew this lease
for an additional three years and an option to terminate the lease
early on May 31, 2000 in exchange for a termination fee equal to three
months base rent if 120 days advance notice is provided.
(4) Employee Retirement Plans
The Company sponsors a defined contribution 401(k) savings plan
covering substantially all employees meeting certain minimum
eligibility requirements. The Company is permitted to make
discretionary contributions on behalf of eligible participants
although the Company has not chosen to make such contributions.
(5) Capital Commitment
Under an operating agreement dated November 9, 1995, the members of
the Company agreed to provide initial capital in the amount of
$800,000 (in the aggregate) and have committed to provide additional
capital contributions of $250,000 (in the aggregate), if required. As
of December 31, 1997, $1,000,000 of these capital contributions have
been made.
(6) Commitments and Contingencies
Substantially all of the assets of the Company were acquired from The
Ohio State University (the University) under an acquisition agreement
dated November 13, 1995. Although the University holds no direct
equity interest in the Company, the University is entitled to 10% of
the sales proceeds if the Company is sold or if there is a change in
control, as defined in the acquisition agreement. The acquisition
agreement also restricts increases in salary and incentive
compensation paid to employees and the controlling member-employee,
and restricts distributions to members to a return of 16% on their
capital. Members are also permitted to take distributions equal to
50% of the taxable income of the Company to pay their personal income
tax liabilities.
In September 1997, the Company adopted the Healthcare Research
Systems, Ltd. Equity Compensation Plan (the Equity Plan).
Participants include those employees meeting certain minimum
eligibility requirements. Under the Equity Plan, a participant is
granted units of participation deemed to be the equivalent of
"phantom" shares in the Company. Concurrent with the adoption of the
Equity Plan, the Company granted units of participation representing
equivalent phantom interests of 4.37% of members' equity, as defined.
Units of participation granted in 1997 were immediately vested. The
value of the units of participation is a function of the amount, if
any, by which the fair value of the members' equity exceeds or
increases the sales value of the Company less adjustments defined in
the plan agreement. The value of the units of participation are
payable in cash in the event that the Company is sold or merged. The
Company has reported compensation expense of $200,000 in 1997 based
upon the estimated value of those units, with such expense classified
as a component of selling, general and administrative expenses.
(7) Subsequent Event
In May 1998, the owner-members of the Company agreed to sell the
business of the Company to National Research Corporation through the
sale of substantially all of the Company's assets for fixed cash
consideration of approximately $5.1 million and contingent
consideration of $3.0 million in cash. The contingent consideration
is payable in 1999 and dependent upon future revenues attained by the
business. In connection with the transaction, the Company is liable
to the University for 10% of the sales proceeds as discussed in note
6.
HEALTHCARE RESEARCH SYSTEMS, LTD.
Condensed Financial Statements
March 31, 1998
HEALTHCARE RESEARCH SYSTEMS, LTD.
Condensed Balance Sheets
March 31, 1998 and December 31, 1997
March 31, December 31,
Assets 1998 1997
(unaudited)
Current assets:
Cash $ 141,283 7,009
Trade accounts receivable 1,113,194 1,378,712
Unbilled revenues 556,480 287,810
Prepaid expenses and other 40,591 8,698
--------- ---------
Total current assets 1,851,548 1,682,229
--------- ---------
Net property and equipment 971,212 879,724
--------- ---------
Other assets:
Organizational costs, net 48,165 52,826
Goodwill, net 47,361 48,302
Other assets 108,064 117,103
-------- --------
Total other assets 203,590 218,231
-------- --------
Total assets $ 3,026,350 2,780,184
========= =========
Liabilities and Members' Equity
Current liabilities:
Current portion of long-term debt and
capital lease obligations 155,593 142,825
Notes payable to bank - 661,000
Leasehold obligations 71,095 76,223
Accounts payable and accrued expenses 742,458 381,459
Accrued wages 164,106 92,554
Accrued vacation 94,588 84,537
Billings in excess of revenues earned 825,948 778,459
--------- ---------
Total current liabilities 2,053,788 2,217,057
Capital lease obligations and long-term
debt, net of current portion 172,545 225,101
--------- ---------
Total liabilities 2,226,333 2,442,158
--------- ---------
Members' equity 800,017 338,026
Commitments and contingencies
--------- ---------
Total liabilities and members' equity 3,026,350 2,780,184
========= =========
See accompanying notes to condensed financial statements.
HEALTHCARE RESEARCH SYSTEMS, LTD.
Condensed Statements of Operations
Three months ended March 31, 1998 and 1997
1998 1997
(unaudited)
Revenues $ 2,088,394 1,424,589
--------- ---------
Operating expenses:
Direct expenses 1,162,222 851,813
Selling, general and administrative 773,004 615,888
Depreciation and amortization 85,572 24,438
--------- ---------
Total operating expenses 2,020,798 1,492,139
--------- ---------
Operating income (loss) 67,596 (67,550)
--------- ---------
Other income (expense):
Interest income 5,047
Interest expense (12,021) (3,427)
Other, net
--------- ---------
Total other expense (12,021) 1,620
--------- --------
Net income (loss) $ 55,575 (65,930)
========= ========
See accompanying notes to condensed financial statements.
HEALTHCARE RESEARCH SYSTEMS, LTD.
Condensed Statement of Cash Flows
Three months ended March 31, 1998 and 1997
1998 1997
(unaudited)
Cash flows from operating activities:
Net income $ 55,575 (65,390)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 87,601 27,437
Changes in assets and liabilities:
Trade accounts receivable 265,518 (373,897)
Other assets (3,189) 1,911
Accounts payable and accrued expenses 400,624 178,987
Billings in excess of revenues earned (556,480) 208,636
Other liabilities 321,344 -
-------- ---------
Net cash provided by (used in) operating
activities 570,993 (22,316)
-------- ---------
Cash flows from investing activities:
Purchases of plant, property and equipment (162,933) (141,359)
Other (1,515) -
-------- ---------
Net cash used in investing activities (164,448) (141,359)
--------- ---------
Cash flows from financing activities:
Proceeds from contributions of capital by 406,416 -
Payments of distributions to members - (25,121)
Payments under line of credit (661,000) (12,406)
Repayments on long-term debt and capital (31,642) -
-------- --------
Net cash provided by financing activities (286,226) (37,527)
-------- ---------
Net increase (decrease) in cash 120,319 (201,202)
Cash at balance at beginning of period 20,964 620,575
-------- --------
Cash balance at end of period $ 141,283 419,373
======== ========
Supplemental disclosures of noncash investing
Cash paid for interest $ - 57,186
======== =========
See accompanying notes to condensed financial statements.
HEALTHCARE RESEARCH SYSTEMS, LTD.
Notes to Condensed Financial Statements
March 31, 1998
(1) Basis of Presentation
The condensed balance sheet of Healthcare Research Systems, Ltd. (the
Company) at December 31, 1997 was obtained 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,
contain all adjustments necessary for a fair presentation of the
financial position, operating results, and cash flows for the periods
presented. Such adjustments consist only of normal recurring items.
The condensed financial statements should be read in conjunction with
the financial statements and notes thereto, contained elsewhere in
this document.
(b) Pro Forma Financial Information.
NATIONAL RESEARCH CORPORATION
Pro Forma Condensed Consolidated Financial Statements
Basis of Presentation
(Unaudited)
The following unaudited pro forma condensed consolidated financial
statements give effect to National Research Corporation's acquisition of
Healthcare Research Systems, Ltd. (HRS) using the purchase method of
accounting. The acquisition of the business of HRS occurred through a
purchase of substantially all of the assets of the business, with such
acquisition effective June 1, 1998.
The unaudited pro forma condensed consolidated balance sheet gives effect
to the acquisition of HRS as if the transaction had occurred on March 31,
1998.
The unaudited pro forma condensed consolidated statements of operations
give effect to HRS' results of operations for the (pre-acquisition) year
ending December 31, 1997, and for the three months ending March 31, 1998,
as if the transaction had occurred as of January 1, 1997.
The unaudited pro forma condensed consolidated financial statements are
based upon the historical financial statements of the National Research
Corporation (the Company) and HRS, and should be read in conjunction with
those financial statements and notes thereto appearing in the Company's
1997 Form 10-K , the Company's Form 10-Q for the quarter ended March 31,
1998 and elsewhere in this document.
The unaudited pro forma condensed consolidated financial statements do not
necessarily indicate the results that would have actually occurred if the
acquisition had been in effect on the date indicated or that may occur in
the future.
NATIONAL RESEARCH CORPORATION
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1998 (Unaudited)
Pro Forma
National Healthcare Pro Forma National
Research Research Adjust- Note Research
Assets Corporation Systems, Ltd. ments Ref. Corporation
Current assets:
Cash and cash equivalents $ 3,893,360 141,283 - 4,034,643
Investments in marketable
securities 15,651,125 - (4,627,638) 2(a) 11,023,487
Trade accounts receivable, net 1,331,743 1,113,194 - 2,444,937
Unbilled revenues 633,872 556,480 - 1,190,352
Prepaid expenses and other 576,697 40,591 - 617,288
Deferred income taxes 112,255 - - 112,255
---------- --------- --------- ----------
Total current assets 22,199,052 1,851,548 (4,627,638) 19,422,962
---------- --------- --------- ----------
Property and equipment, net 725,306 971,212 (821,212) 2(b) 875,306
Deferred income taxes 136,745 - - 136,745
Intangible assets - 95,526 2,307,813 2(c) 2,403,339
Other assets 42,538 108,064 (108,064) 2(d) 42,538
---------- ---------- ---------- ----------
Total assets $ 23,103,641 3,026,350 (3,249,101) 22,880,890
========== ========== ========== ==========
Liabilities and Shareholders'
Equity
Current liabilities:
Current portion of long-term
debt and capital lease 12,450
obligations - 155,593 (143,143) 2(e)
71,095
Leasehold obligations - 71,095 -
Accounts payable and accrued
expenses 902,387 742,458 - 1,644,845
Accrued liabilities, including
wages, bonuses and Profit
sharing 710,025 258,694 283,023 2(f) 1,251,742
Income taxes payable 363,229 - - 363,229
Billings in excess of revenues
earned 2,155,697 825,948 - 2,981,645
---------- ---------- ---------- ----------
Total current liabilities 4,131,338 2,053,788 139,880 6,325,006
---------- ---------- ---------- ----------
Capital lease obligations and
long-term debt, net of current
portion - 172,545 (126,979) 2(e) 45,566
Accrued liabilities 289,701 - 512,339 2(f) 802,040
---------- ---------- ---------- ----------
Total liabilities 4,421,039 2,226,333 525,240 7,172,612
---------- ---------- ---------- ----------
Shareholders' equity:
Common stock 7,305 - - 7,305
Additional paid-in capital 16,839,839 - - 16,839,839
Retained earnings (accumulated
deficit) 1,835,458 800,017 (3,774,341) 2(g), 2(c) (1,138,866)
---------- ---------- ---------- ----------
Total shareholders' equity 18,682,602 800,017 (3,774,341) 15,708,278
Total liabilities and
shareholders' equity $ 23,103,641 3,026,350 (3,249,101) 22,880,890
========== ========== ========== ==========
See accompanying notes to pro forma condensed consolidated
financial statements.
NATIONAL RESEARCH CORPORATION
Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 1997 (Unaudited)
Pro Forma
National Healthcare Pro Forma National
Research Research Adjust- Note Research
Corporation Systems,Ltd. ments Ref. Corporation
Revenues $ 16,284,133 6,516,162 - 22,800,295
---------- ---------- --------- ----------
Operating expenses:
Direct expenses 7,178,408 3,795,928 - 10,974,336
Selling, general and
administrative 3,980,316 3,173,280 - 7,153,596
Depreciation and
amortization 159,013 271,161 139,795 3 569,969
Special compensation
charge 1,740,000 - - 1,740,000
In-process research and
development - - 2,974,324 4 2,974,324
---------- ---------- ---------- ----------
Total operating expenses 13,057,737 7,240,369 3,114,119 23,412,225
---------- ---------- ---------- ----------
Operating income (loss) 3,226,396 (724,207) (3,114,119) (611,930)
Other income (expense),
net 367,033 (52,534) - 314,499
---------- ---------- ---------- -----------
Income (loss) before
income taxes 3,593,429 (776,741) (3,114,119) (297,431)
Income tax expense 376,000 - - 376,000
---------- ---------- ---------- ----------
Net income (loss) 3,217,429 (776,741) (3,114,119) (673,431)
Pro forma income tax
expense (benefit) 803,463 - (1,556,344) 5 (752,881)
---------- --------- ---------- ----------
Pro forma net income
(loss) $ 2,413,966 (776,741) (1,557,775) 79,450
========== ========= ========== ==========
Pro forma net income per
share--basic and
diluted $ 0.37 0.01
====== =======
Weighted common shares
and common share
equivalents --
Basic 6,439,540 6,439,540
Diluted 6,440,234 6,440,234
See accompanying notes to pro forma condensed consolidated
financial statements.
NATIONAL RESEARCH CORPORATION
Pro Forma Condensed Consolidated Statement of Operations
Three Months Ended March 31, 1998 (Unaudited)
Pro Forma
National Healthcare Pro Forma National
Research Research Adjust- Note Research
Corporation Systems,Ltd. ments Ref. Corporation
Revenues $ 3,406,100 2,088,394 - 5,494,494
----------- --------- ---------- ---------
Operating expenses:
Direct expenses 1,508,961 1,162,222 - 2,671,183
Selling, general and
administrative 1,188,588 773,004 - 1,961,592
Depreciation and
amortization 51,993 85,572 34,949 3 172,514
---------- ---------- --------- ----------
Total operating expenses 2,749,542 2,020,798 34,949 4,805,289
---------- ---------- --------- ----------
Operating income 656,558 67,596 (34,949) 689,205
Other income (expense),
net 262,200 (12,021) - 250,179
---------- ---------- ---------- ----------
Income before income
taxes 918,758 55,575 (34,949) 939,384
Income tax expense 357,000 - - 357,000
---------- ---------- ---------- ----------
Net income 561,758 55,575 (34,949) 582,384
Pro forma income tax expense - - 8,250 4 8,250
---------- ---------- ---------- ----------
Pro forma net income $ 561,758 55,575 (43,199) 574,134
========== ========== ========== ==========
Pro forma net income per
share--basic
and diluted $ 0.08 0.08
====== ======
Weighted common shares
and common share
equivalents --
Basic 7,305,000 7,305,000
Diluted 7,305,000 7,305,000
See accompanying notes to pro forma condensed consolidated
financial statements.
NATIONAL RESEARCH CORPORATION
Notes to Pro Forma Consolidated Financial Statements
March 31, 1998 (Unaudited)
(1) Acquisition of Healthcare Research Systems, Inc.
Effective June 1, 1998, National Research Corporation (the Company)
acquired the business of Healthcare Research Systems, Inc. (HRS)
through an acquisition of assets. Consideration paid by the Company
at closing included a fixed payment of $5,100,000 less a reimbursement
for net working capital deficit assumed. The Company also incurred
liabilities of $795,362 in connection with management's plans to exit
certain activities of HRS and related direct costs of acquiring HRS.
The Company acquired substantially all of the assets and liabilities
of HRS, except certain long-term debt of $270,122 which was paid by
the seller from the proceeds of the transaction.
The Company is also committed to pay additional contingent
consideration of $1.5 million in January 1999 and $1.5 million in June
1999 if HRS is able to achieve revenue levels specified in the
acquisition agreement. The Company records contingent consideration
when the contingency is resolved and the consideration is payable.
The amortization of additional values that may be assigned to goodwill
will be amortized over its remaining estimated useful life of 20
years. Consequently, additional charges to the statement of
operations may result as additional contingent consideration is
incurred by the Company over the remaining earn-out period.
(2) Allocation of Purchase Price
The allocation of purchase price is based upon management's best
estimate of the fair values of identifiable assets and liabilities of
HRS at the date of acquisition. Adjustments to the pro forma
condensed consolidated balance sheet resulting from the net
consideration of $4,627,638 issued in the acquisition of HRS is as
follows:
(a) Cash and Investments in Marketable Debt Securities
An adjustment of $4,627,638 has been made to record the net
consideration issued in the acquisition, through the Company's
liquidation of investments in marketable debt securities. Net
consideration of $4,627,638 consists of the fixed payment of
$5,100,000, less an adjustment of $202,240 for working capital deficit
assumed and less debt of $270,122 repaid from gross cash proceeds.
(b) Property and Equipment
An adjustment of $821,212 has been made to record fixed assets
acquired from HRS at their estimated fair value of $150,000.
(c) Intangible Assets
An adjustment of $2,307,813 has been made to record intangible assets
consisting of the following items and an adjustment of $2,974,324 has
been made to write-off in-process research and development acquired.
A summary of the intangible assets acquired is shown the following
page.
Estimated
Fair useful
value life
Workforce in place $ 272,882 10 years
Customer lists 359,048 15 years
Goodwill 1,771,409 20 years
---------
Total intangible assets 2,403,339
In-process research and development 2,974,324 0 years
---------
Total $5,377,663
=========
(d) Other Assets
An adjustment of $108,064 has been made to record other assets
acquired from HRS at their estimated fair value of zero.
(e) Long-Term Debt
Adjustments of $143,143 for the current portion and $126,979 for the
noncurrent portion of HRS' debt that was repaid by the sellers of the
business from the proceeds of the transaction.
(f) Accrued Liabilities
An adjustment of $795,362 has been made to record additional accrued
liabilities incurred in connection with management's plans to exit
certain activities of HRS and to record direct costs incurred to
complete the acquisition. Accrued exit costs include commitments on
abandoned premises under operating leases ($605,362) and moving
expenses ($20,000). Direct costs of acquisition ($170,000) include
out-of-pocket costs for legal, accounting and travel expenses incurred
in completing the acquisition. The adjustment has been classified as
current liabilities of $283,023 and noncurrent liabilities of
$512,330.
In the second quarter of 1998, the Company also expects to incur pre-
tax restructuring charges of approximately $304,000 related to
severance incurred from the involuntary termination of its employees.
The workforce reduction is expected as part of the Company's costs of
integrating certain aspects of its business with the business of HRS.
No adjustments have been made to the accompanying pro forma condensed
consolidated financial statements for the expected impact of these
costs.
(g) Shareholders' Equity
An adjustment of $800,017 has been made to eliminate the net assets of
HRS in consolidation.
(3) Depreciation and Amortization
For purposes of the pro forma condensed consolidated statements of
operations for the year ended December 31, 1997, and for the three-
months ended March 31, 1998, adjustments have been made to give effect
to the amortization of intangible assets acquired, allocated as shown
on the following page.
Year ended Three months
December 31, ended March 31,
1997 1998
Workforce in place $27,288 $6,822
Customer lists 23,937 5,984
Goodwill 88,570 22,143
------- -------
Total adjustments to amortization
and depreciation expense $139,795 34,949
------- -------
(4) In-Process Research and Development
For purposes of the pro forma condensed consolidated statement of
operations for the year ended December 31, 1997, an adjustment of
$2,974,324 has been recorded to write-off in-process research and
development acquired.
(5) Pro Forma Income Tax Expense (Benefit)
For purposes of the pro forma condensed consolidated statements of
operation for the year ended December 31, 1997 and for the three
months ended March 31, 1998, adjustments of $(1,572,344) and $4,250,
respectively, have been made to give effect to recording income tax
expense (benefit) on the income (loss) of HRS and the tax effect of
the foregoing adjustments to depreciation and amortization and in-
process research and development at an effective tax rate of 40%.
(c) Exhibits.
The exhibits listed in the accompanying Exhibit Index are filed as
part of this Current Report on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to the report to be
signed on its behalf by the undersigned hereunto duly authorized.
NATIONAL RESEARCH CORPORATION
Date: August 13, 1998 By: /s/ Patrick E. Beans
Patrick E. Beans
Vice President, Treasurer,
Secretary and Chief Financial
Officer
NATIONAL RESEARCH CORPORATION
EXHIBIT INDEX TO FORM 8-K
Report Dated June 11, 1998
Exhibit
No. Description
(2) Asset Purchase Agreement, dated as of June 11, 1998, by and among
National Research Corporation, Healthcare Research Systems, Ltd.,
and the members of Healthcare Research Systems, Ltd.*
[Previously filed with this Current Report on Form 8-K]
(23) Consent of KPMG Peat Marwick LLP
__________________________
*The schedules and exhibits to this document are not being filed herewith.
The registrant agrees to furnish supplementally a copy of any such
schedule or exhibit to the Securities and Exchange Commission upon
request.