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, 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
National Research Corporation
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Wisconsin 47-0634000
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1033 "O" Street, Lincoln Nebraska 68508
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(402) 475-2525
----------------------------------------------------
(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, 2000: 7,009,985
- --------------------------------------------------------------------------
shares
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<PAGE>
NATIONAL RESEARCH CORPORATION
FORM 10-Q INDEX
For the Quarter Ended March 31, 2000
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 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
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<PAGE>
PART I - Financial Information
ITEM 1 Financial Statements
<TABLE>
NATIONAL RESEARCH CORPORATION
CONDENSED BALANCE SHEETS
<CAPTION>
March 31, December 31,
2000 1999
----------------- -------------------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 330,404 $ 1,149,587
Investments in marketable debt securities 11,753,386 10,876,608
Trade accounts receivable, less allowance for doubtful
accounts of $79,198 and $63,098 in 2000 and 1999, respectively 1,874,410 2,918,124
Unbilled revenues 873,827 622,610
Prepaid expenses and other 347,725 53,727
Deferred income taxes 210,766 215,018
----------------- -------------------
Total current assets 15,390,518 15,835,674
----------------- -------------------
Net property and equipment 9,354,106 7,525,943
----------------- -------------------
Deferred income taxes 408,855 438,136
Goodwill and other intangible assets, net of accumulated amortization 5,358,241 5,440,252
Other 15,592 15,592
----------------- -------------------
Total assets $ 30,527,312 $ 29,255,597
================= ===================
Liabilities and Shareholders' Equity
Current liabilities:
Construction financing line of credit $ 4,004,000 $ 3,544,000
Current portion - notes payable 54,332 54,332
Accounts payable 2,551,821 1,680,385
Accrued wages, bonuses and profit sharing 592,125 669,900
Accrued expenses 931,500 1,132,934
Income taxes payable 126,033 234,533
Billings in excess of revenues earned 3,109,703 3,273,577
----------------- -------------------
Total current liabilities 11,369,514 10,589,661
Notes payable, net of current portion 12,176 20,324
Bonuses, profit sharing accruals and other accrued expenses 79,245 79,245
----------------- -------------------
Total liabilities 11,460,935 10,689,230
----------------- -------------------
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 7,306,492 in 2000 and 7,305,000 in 1999, outstanding 7,007,792 in
2000 and 7,006,300 in 1999 7,306 7,305
Additional paid-in capital 16,846,086 16,839,839
Retained earnings 3,704,054 3,210,292
Treasury stock, at cost; 298,700 shares in 2000 and 1999 (1,491,069) (1,491,069)
----------------- -------------------
Total shareholders' equity 19,066,377 18,566,367
----------------- -------------------
Total liabilities and shareholders' equity $ 30,527,312 $ 29,255,597
================= ===================
See accompanying notes to condensed financial statements.
</TABLE>
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<PAGE>
<TABLE>
NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended
March 31,
------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Revenues $ 4,454,823 $ 3,662,923
--------------- ---------------
Operating expenses:
Direct expenses 2,566,911 2,577,301
Selling, general and administrative 1,051,553 904,494
Depreciation and amortization 263,734 169,111
--------------- ---------------
Total operating expenses 3,882,198 3,650,906
--------------- ---------------
Operating income 572,625 12,017
Other income:
Interest income 168,154 150,694
Other, net (17,084) 5,491
--------------- ---------------
Total other income 151,070 156,185
--------------- ---------------
Income before income taxes 723,695 168,202
Provision for income taxes 229,933 67,280
--------------- ---------------
Net income $ 493,762 $ 100,922
=============== ===============
Net income per share--basic
and diluted $ 0.07 $ 0.01
=============== ===============
Weighted average shares and share equivalents
outstanding--basic 7,006,317 7,077,056
=============== ===============
Weighted average shares and share equivalents
outstanding--diluted 7,036,575 7,084,549
=============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
<TABLE>
NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended
March 31,
----------------------------------------
2000 1999
----------------- -------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 493,762 $ 100,922
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 273,188 169,111
Deferred income taxes 33,533 33,619
Loss on sale of property and equipment 23,417 ---
Loss on sale of other investments 59 144
Changes in assets and liabilities, net of acquisition:
Trade accounts receivable 1,043,714 123,462
Unbilled revenues (251,217) 276,087
Prepaid expenses and other (293,999) (249,650)
Accounts payable 38,056 310,073
Accrued expenses, wages, bonuses and profit sharing (279,209) (267,947)
Income taxes payable (108,500) 7,494
Billings in excess of revenues earned (163,874) 815,526
----------------- -------------------
Net cash provided by operating activities 808,930 1,318,841
----------------- -------------------
Cash flows from investing activities:
Purchases of property and equipment (1,215,876) (2,097,776)
Proceeds from sale of property and equipment 6,500 ---
Purchases of securities available-for-sale (8,247,504) (4,967,115)
Proceeds from the maturities of securities available-for-sale 7,370,667 4,319,000
----------------- -------------------
Net cash used in investing activities (2,086,213) (2,745,891)
----------------- -------------------
Cash flows from financing activities:
Borrowings under line of credit 460,000 ---
Payments on notes payable (8,148) (7,458)
Proceeds from exercise of stock options 6,248 ---
Payment of purchase price payable --- (1,150,000)
Purchase of treasury stock --- (138,250)
----------------- -------------------
Net cash provided by (used in) financing activities 458,100 (1,295,708)
----------------- -------------------
Net decrease in cash and cash equivalents (819,183) (2,722,758)
Cash and cash equivalents at beginning of period 1,149,587 4,887,712
----------------- -------------------
Cash and cash equivalents at end of period $ 330,404 $ 2,164,954
================= ===================
Supplemental disclosure of cash paid for:
Interest, including capitalized interest of $71,911 in 2000 $ 73,478 $ 2,258
================= ===================
Taxes $ 304,900 $ 23,277
================= ===================
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
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 three-month periods ended March 31, 2000 and 1999, respectively.
-6-
<PAGE>
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
------------------------------
Three months ended
March 31,
------------------------------
2000 1999
------------------------------
Revenues: 100.0% 100.0%
==============================
Operating expenses:
Direct expenses 57.6 70.4
Selling, general and administrative 23.6 24.7
Depreciation and amortization 5.9 4.6
------------------------------
Total operating expenses: 87.1 99.7
------------------------------
Operating income 12.9% 0.3%
==============================
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Total revenues. Total revenues increased 21.6% in the three-month period ended
March 31, 2000 to $4.5 million from $3.7 million in the three month period ended
March 31, 1999. The increase was primarily due to an increase in scope of work
from existing clients and to a lesser extent, the addition of new clients.
Direct expenses. Direct expenses decreased 0.4% to $2,567,000 in the three-month
period ended March 31, 2000 from $2,577,000 in the same period during 1999. The
decrease in direct expenses in the 2000 period was due to decreases in software
conversion costs of $105,000, labor and payroll expenses of $54,000, printing of
$42,000 and telephone expense of $19,000; which were offset by an increase in
fieldwork and fees of $210,000. Direct expenses decreased as a percentage of
total revenues to 57.6% in the three month period ended March 31, 2000 from
70.4% 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 increased 16.3% to $1.1 million for the three-month
period ended March 31, 2000 from $904,000 for the same period in 1999. This
increase was primarily due to an increase in salaries and benefits expense of
$103,000, legal and accounting expenses of $40,000, recruiting expenses of
$39,000, computer support, license and equipment expenses of $36,000, and travel
and meal expenses of $16,000. These increases were offset by decreases of
$35,000 in contract services, telephone costs of $20,000, marketing costs of
$20,000, and rent and repair expenses of $18,000. Selling, general, and
administrative expenses decreased as a percentage of total revenues to 23.6% for
the three month period ended March 31, 2000 from 24.7% for the same period in
1999 due to the increase in revenue without a related increase in selling,
general and administrative expenses.
-7-
<PAGE>
Depreciation and amortization. Depreciation and amortization expenses increased
56.0% to $264,000 in the three-month period ended March 31, 2000 from $169,000
in the same period of 1999. The increase in is primarily due to the amortization
of the internal development of software and the purchase of computer equipment.
Depreciation and amortization expenses as a percentage of total revenues
increased to 5.9% in the three-month period ended March 31, 2000, from 4.6% in
the same period of 1999.
Provision for income taxes. The provision for income taxes totaled $230,000
(31.7% effective tax rate) for the three-month period ended March 31, 2000 as
compared to $67,000 (40.0% effective tax rate) for the same period in 1999. The
increase in expense is due to the higher profit for the period. The effective
tax rate was lower in 2000 due to certain federal income tax credits. The
effective tax rate for 2000 is expected to remain at a similar level due to
anticipated federal tax credits.
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 March 31, 2000, the Company had cash and cash equivalents of $330,000 and
working capital of $4.0 million.
During the three months ended March 31, 2000, the Company generated $809,000 of
net cash from operating activities as compared to $1.3 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 receivables and the
timing of costs incurred in advance of billings on certain projects.
For the three months ended March 31, 2000, net cash used in investing activities
was $2.1 million as compared to $2.7 million during the same period in the prior
year. The 2000 decrease in cash used was primarily due to the purchase of
property and equipment of $1.2 million (primarily related to the new office
building) and the net of purchase of securities available-for-sale over the
proceeds from the maturities of securities of $877,000. The Company plans to
spend an additional $1.8 million during the remainder of 2000 to renovate its
new building. Following renovation, the Company intends to move its headquarters
to such building in July 2000. The Company expects to secure long-term financing
on the building for approximately $5.8 million. The 1999 net cash used was
primarily due to the purchase of the new building for $1,475,000 and an
investment of $627,000 in furniture, computer equipment, software and production
equipment to meet the expansion of the Company's business. This was partially
offset by the proceeds of maturities of securities available-for-sale of $4.3
million.
Net cash provided by financing activities was $458,000 for the three months
ended March 31, 2000, as compared to $1.3 million used for the three months
ended March 31, 1999. The increase in cash provided by financing activities
during 2000 was due to the construction financing and the net purchase price
payable related to the acquisition of Healthcare Research Systems paid in 1999.
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 March 31, 2000 and as of December 31, 1999, the
Company had $3.1 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 March 31, 2000 and
December 31, 1999, the Company had $874,000 and $623,000 of unbilled revenues,
respectively.
-8-
<PAGE>
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 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, 2000, 53,700 shares have been
repurchased under the new authorization.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 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 designated 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.
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, 1999.
-9-
<PAGE>
PART II - Other Information
ITEM 2 Changes in Securities and Use of Proceeds
-----------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) The Company's Registration Statement on Form S-1 (Registration No.
333-33273) (the "Registration Statement") relating to the offer and sale (the
"Offering") of an aggregate of 2,415,000 shares of Common Stock was declared
effective by the Securities and Exchange Commission on October 9, 1997. Of the
2,415,000 shares of Common Stock registered under the Registration Statement,
1,250,000 shares were sold by the Company and 1,165,000 shares (including
315,000 shares sold pursuant to the exercise of an over-allotment option granted
to the underwriters) were sold by a certain shareholder of the Company, Michael
D. Hays (the "Selling Shareholder").
During the fourth quarter of 1997, all of the shares of Common Stock
registered were sold in the Offering at a price of $15.00 per share, for an
aggregate price of $18,750,000 and $17,475,000 for the shares of Common Stock
sold by the Company and the Selling Shareholder, respectively. After deducting
the underwriting discount of $1.05 per share, the Selling Shareholder received
net proceeds equal to $16,251,750 and the Company received net proceeds equal to
$17,437,500 less expenses of $596,411 incurred in connection with the Offering.
The net proceeds to the Company are reasonably estimated to be applied as
follows:
1. Temporary investments of United States government
securities with maturities of two years or less $920,145
2. Acquisition of HRS and related acquisition costs 8,549,588
3. The acquisition of a new headquarters building 5,880,287
4. The repurchase of treasury stock 1,491,069
---------
Total proceeds to the Company $16,841,089
===========
ITEM 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit Number Description
-------------- -----------
(27) Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the quarter ended March
31, 2000.
-10-
<PAGE>
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 12, 2000 By: /s/ Michael D. Hays
----------------------------------------
Michael D. Hays
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ Patrick E. Beans
----------------------------------------
Patrick E. Beans
Vice President, Treasurer, Secretary and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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<PAGE>
NATIONAL RESEARCH CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period ended March 31, 2000
Exhibit
-------
(27) Financial Data Schedule (EDGAR version only)
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
NATIONAL RESEARCH CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 330
<SECURITIES> 11,753
<RECEIVABLES> 1,954
<ALLOWANCES> 79
<INVENTORY> 0
<CURRENT-ASSETS> 15,391
<PP&E> 10,746
<DEPRECIATION> 1,392
<TOTAL-ASSETS> 30,527
<CURRENT-LIABILITIES> 11,370
<BONDS> 4,071
0
0
<COMMON> 7
<OTHER-SE> 19,059
<TOTAL-LIABILITY-AND-EQUITY> 30,527
<SALES> 0
<TOTAL-REVENUES> 4,455
<CGS> 0
<TOTAL-COSTS> 2,567
<OTHER-EXPENSES> 1,315
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 724
<INCOME-TAX> 230
<INCOME-CONTINUING> 494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 494
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
