-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITOeAsD+1Kz3fDBD/bl52bL1KNRYhdHArkHu03uK1OxsS3BgS3MbTuhpyPk+b8r2 wu0G1l9/M64xWBFDVPvE3g== 0000897069-98-000409.txt : 19980814 0000897069-98-000409.hdr.sgml : 19980814 ACCESSION NUMBER: 0000897069-98-000409 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980611 ITEM INFORMATION: FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL RESEARCH CORP CENTRAL INDEX KEY: 0000070487 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 470634000 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-29466 FILM NUMBER: 98685665 BUSINESS ADDRESS: STREET 1: 1033 O ST CITY: LINCOLN STATE: NE ZIP: 68508 BUSINESS PHONE: 4024752525 MAIL ADDRESS: STREET 1: 1033 O ST CITY: LINCOLN STATE: NE ZIP: 68508 8-K/A 1 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. EX-23 2 Exhibit (23) ACCOUNTANTS' CONSENT The Board of Directors National Research Corporation: We consent to the inclusion of our report dated May 30, 1998, with respect to the balance sheets of Healthcare Research Systems, Ltd. as of December 31, 1997, and the related statements of operations, members' equity and cash flows for the year then ended. /s/ KPMG Peat Marwick LLP Lincoln, Nebraska August 12, 1998 -----END PRIVACY-ENHANCED MESSAGE-----