-----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, ENpGr6njhMoy5eKCrWnLK0gOKZX2elaP7rzSIh8I1CQBYCWh963tXW3spTDWctma n5iguQKCST/7dZzTNIfWOQ== /in/edgar/work/0000897069-00-000577/0000897069-00-000577.txt : 20001115 0000897069-00-000577.hdr.sgml : 20001115 ACCESSION NUMBER: 0000897069-00-000577 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL RESEARCH CORP CENTRAL INDEX KEY: 0000070487 STANDARD INDUSTRIAL CLASSIFICATION: [8734 ] IRS NUMBER: 470634000 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29466 FILM NUMBER: 766909 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 10-Q 1 0001.txt NATIONAL RESEARCH CORPORATION FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-29466 ------- 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.) 1245 "Q" Street, Lincoln Nebraska 68508-1430 -------------------------------------------------- (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 October 31, 2000: 7,031,971 - ---------------------------------------------------------------------------- shares - ------ NATIONAL RESEARCH CORPORATION FORM 10-Q INDEX For the Quarter Ended September 30, 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 7-10 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 10 Market Risk PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 Exhibit Index 12 -2- PART I - Financial Information ITEM 1 Financial Statements -------------------- NATIONAL RESEARCH CORPORATION CONDENSED BALANCE SHEETS
September 30, December 31, 2000 1999 ------------------ ------------------- (unaudited) Assets Current assets: Cash and cash equivalents $ 4,912,438 $ 1,149,587 Investments in marketable debt securities 5,989,854 10,876,608 Trade accounts receivable, less allowance for doubtful Accounts of $77,737 in 2000 and $63,098 in 1999 1,655,700 2,918,124 Unbilled revenues 1,299,026 622,610 Prepaid expenses and other 40,413 53,727 Deferred income taxes 213,763 215,018 ------------------ ------------------- Total current assets 14,111,194 15,835,674 ------------------ ------------------- Net property and equipment 12,677,470 7,525,943 ------------------ ------------------- Deferred income taxes 413,305 438,136 Goodwill and other intangibles, net of accumulated amortization 5,109,901 5,440,252 Other 11,515 15,592 ------------------ ------------------- Total assets $ 32,323,385 $ 29,255,597 ================== =================== Liabilities and Shareholders' Equity Current liabilities: Construction financing line of credit $ 260,000 $ 3,544,000 Current portion - long-term debt 132,284 54,332 Accounts payable 2,434,284 1,680,385 Accrued wages, bonuses and profit sharing 562,668 669,900 Accrued expenses 688,025 1,132,934 Income taxes payable 141,259 234,533 Billings in excess of revenues earned 2,052,421 3,273,577 ------------------ ------------------- Total current liabilities 6,270,941 10,589,661 Long-term debt, net of current portion 5,331,432 20,324 Bonuses, profit sharing accruals and other accrued expenses 79,245 79,245 ------------------ ------------------- Total liabilities 11,681,618 10,689,230 ------------------ ------------------- Shareholders' equity: Preferred stock, $.01 par value; authorized 2,000,000 shares, no shares issued and outstanding - - Common stock, $.001 par value; authorized 20,000,000 Shares, issued 7,328,896 in 2000 and 7,305,000 in 1999 7,329 7,305 Outstanding 7,030,196 in 2000 and 7,006,300 in 1999 Additional paid-in capital 16,939,891 16,839,839 Retained earnings 5,185,616 3,210,292 Treasury stock, at cost; 298,700 shares in 2000 and 1999 (1,491,069) (1,491,069) ------------------ ------------------- Total shareholders' equity 20,641,767 18,566,367 ------------------ ------------------- Total liabilities and shareholders' equity $ 32,323,385 $ 29,255,597 ================== ===================
See accompanying notes to condensed financial statements. -3- NATIONAL RESEARCH CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited)
Three months ended Nine months ended September 30, September 30, --------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Revenues $ 5,017,115 $ 5,597,544 $ 14,110,273 $ 13,565,808 -------------- -------------- -------------- -------------- Operating expenses: Direct expenses 2,707,689 3,468,505 7,740,633 9,051,445 Selling, general and administrative 952,811 1,061,063 3,091,427 3,011,485 Depreciation and amortization 342,784 202,611 953,352 550,833 -------------- -------------- -------------- -------------- Total operating expenses 4,003,284 4,732,179 11,785,412 12,613,763 -------------- -------------- -------------- -------------- Operating income 1,013,831 865,365 2,324,861 952,045 Other income: Net interest income 183,789 127,148 535,803 406,770 Other, net (10,221) (31,880) (33,059) (22,020) -------------- -------------- -------------- -------------- Total other income 173,568 95,268 502,744 384,750 -------------- -------------- -------------- -------------- Income before income taxes 1,187,399 960,633 2,827,605 1,336,795 Income tax provision 356,219 334,226 852,281 486,739 -------------- -------------- -------------- -------------- Net income 831,180 626,407 1,975,324 850,056 ============== ============== ============== ============== Net income per share--basic and diluted $ .12 $ 0.09 $ .28 $ 0.12 ============== ============== ============== ============== Weighted average shares and share equivalents outstanding--basic 7,024,892 7,050,000 7,014,778 7,060,861 ============== ============== ============== ============== Weighted average shares and share equivalents outstanding--diluted 7,069,392 7,051,389 7,059,278 7,062,250 ============== ============== ============== ==============
See accompanying notes to condensed financial statements. -4- NATIONAL RESEARCH CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, ------------------------------------------ 2000 1999 ------------------ ------------------- Cash flows from operating activities: Net income $ 1,975,324 $ 850,056 Adjustments to reconcile net income to net cash Provided by operating activities: Depreciation and amortization 981,713 568,565 Deferred income taxes 26,086 34,437 Loss on sale of property and equipment 23,417 22,106 Loss on sale of other investments 43 144 Changes in assets and liabilities: Trade accounts receivable 1,262,424 830,361 Unbilled revenues (676,416) 529,125 Prepaid expenses and other 17,391 104,771 Accounts payable (117,341) 1,103,985 Accrued expenses, wages, bonuses, and profit sharing (500,140) (409,278) Income taxes payable (93,274) 459,431 Billings in excess of revenues earned (1,221,156) (213,624) ------------------ ------------------- Net cash provided by operating activities 1,678,071 3,880,079 ------------------ ------------------- Cash flows from investing activities: Purchases of property and equipment (5,045,885) (4,111,801) Proceeds from sale of property and equipment 6,500 - Purchases of securities available-for-sale (11,336,996) (12,604,997) Proceeds from the maturities of securities available-for-sale 16,223,708 9,947,000 ------------------ ------------------- Net cash used in investing activities (152,673) (6,769,798) ------------------ ------------------- Cash flows from financing activities: Borrowings under line of credit 2,156,000 1,940,000 Payments on notes payable (18,623) (22,829) Acquisition, net of cash acquired - (2,636,936) Proceeds from exercise of stock options 100,076 - Payment of purchase price payable - - Purchase of treasury stock - (162,000) ------------------ ------------------- Net cash provided (used) in financing activities 2,237,453 (881,765) ------------------ ------------------- Net increase (decrease) in cash and cash equivalents 3,762,851 (3,771,484) Cash and cash equivalents at beginning of period 1,149,587 4,887,712 ------------------ ------------------- Cash and cash equivalents at end of period $ 4,912,438 $ 1,116,228 ================== =================== Supplemental disclosure of cash paid for: Interest, including capitalized interest of $300,392 in 2000 $ 303,383 $ 6,317 ================== =================== Taxes $ 517,138 $ (10,019) ================== ===================
See accompanying notes to condensed financial statements. -5- NATIONAL RESEARCH CORPORATION Notes to Condensed Financial Statements 1. INTERIM FINANCIAL REPORTING The condensed balance sheet of National Research Corporation (the "Company") at December 31, 1999 was derived from the Company's audited balance sheet as of that date. All other financial statements contained herein are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) the Company considers necessary for a fair presentation of financial position, results of operations and cash flows in accordance with generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto that are included in the Company's Form 10-K for the fiscal year ended December 31, 1999, filed with the Securities and Exchange Commission in March 2000. Other than its net income, the Company's only other source of comprehensive income is unrealized gains or losses on marketable debt securities. However, other comprehensive income from marketable debt securities is not significant for the nine-month periods ended September 30, 2000 and 1999, respectively. 2. PROPERTY AND EQUIPMENT AND LONG-TERM DEBT Since December 31, 1999, the Company has capitalized costs of $4.1 million related to the acquisition and renovation of a building for a new corporate headquarters. The building was placed in service subsequent to September 30, 2000 and will be depreciated under the straight line method over 40 years. On November 10, 2000, the Company refinanced $5.4 million of its construction line of credit to a long-term note payable. The new long-term debt is secured by a first mortgage on the Company's new corporate headquarters and bears interest at 8.25%. At September 30, 2000, the refinanced portion of the line of credit has been reclassified as long-term debt. -6- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth, for the periods indicated, selected financial information derived from the Company's condensed financial statements, expressed as a percentage of total revenues. The trends illustrated in the following table may not necessarily be indicative of future results. The discussion that follows the table should be read in conjunction with the condensed financial statements.
Percentage of Total Revenues --------------------------------------------------------------------------- Three months ended Nine months Ended September 30, September 30, ----------------------------------- ------------------------------------ 2000 1999 2000 1999 ----------------------------------- ------------------------------------ Revenues: 100.0% 100.0% 100.0% 100.0% =================================== ==================================== Operating expenses: Direct expenses 54.0 62.0 54.9 66.7 Selling, general and administrative 19.0 19.0 21.9 22.2 Depreciation and amortization 6.8 3.6 6.7 4.1 ----------------------------------- ------------------------------------ Total operating expenses: 79.8 84.6 83.5 93.0 ----------------------------------- ------------------------------------ Operating income 20.2% 15.4% 16.5% 7.0% =================================== ====================================
Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Total revenues. Total revenues decreased 10.4% in the three month period ended September 30, 2000 to $5.0 million from $5.6 million in the three month period ended September 30, 1999. The decrease was primarily due to the large backlog of work completed in the third and fourth quarters of 1999, which was created by the failure of the software conversion in the first two quarters of 1999. Direct expenses. Direct expenses decreased 21.9% to $2.7 million in the three-month period ended September 30, 2000 from $3.5 million in the same period during 1999. The decrease in direct expenses in the 2000 period was primarily due to the investment in technology which resulted in decreases in labor and payroll expenses of $509,000 and software conversion expenses of $251,000, as well as a decrease in fieldwork and fees of $29,000 due to the timing of work in 1999. This decrease was partially offset by an increase in printing and postage of $5,000. Direct expenses decreased as a percentage of total revenues to 54.0% in the three month period ended September 30, 2000 from 62.0% during the same period of 1999. Direct expenses as a percentage of total revenues for the balance of 2000 are expected to rise some but remain at levels lower than 1999. Selling, general and administrative expenses. Selling, general and administrative expenses decreased 10.2% to $953,000 for the three-month period ended September 30, 2000 from $1.1 million for the same period in 1999. This decrease was primarily due to decreases in rent and repair expenses of $48,000, travel and meal expenses of $26,000, legal and accounting expenses of $17,000 and contract services of $46,000. This decrease was partially offset by an increase in marketing expense of $47,000. Selling, general, and administrative expenses remained the same as a percentage of total revenues at 19.0% for the three month period ended September 30, 2000 and the same period in 1999. -7- Depreciation and amortization. Depreciation and amortization expenses increased 69.2% to $343,000 in the three-month period ended September 30, 2000 from $203,000 in the same period of 1999. The increase is primarily due to the additional amortization of software and computer equipment. Depreciation and amortization expenses as a percentage of total revenues increased to 6.8% in the three-month period ended September 30, 2000, from 3.6% in the same period of 1999. Provision for income taxes. The provision for income taxes totaled $356,000 (30.0% effective tax rate) for the three-month period ended September 30, 2000 as compared to $334,000 tax provision (34.8% effective tax rate) for the same period in 1999. The increase in expense is due to the higher profit for the 2000 period. The effective tax rate was lower in 2000 due to certain federal income tax credits. Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999 Total revenues. Total revenues increased 4.0% in the nine month period ended September 30, 2000 to $14.1 million from $13.6 million in the nine month period ended September 30, 1999. The increase was primarily due to the addition of new clients and to a lesser extent, an increase in scope of work from existing clients. Direct expenses. Direct expenses decreased 14.5% to $7.7 million in the nine month period ended September 30, 2000 from $9.1 million in the same period during 1999. The decrease was primarily due to the investment in technology which resulted in decreases in labor and payroll expenses of $712,000, printing and postage expenses of $163,000, software conversion expenses of $356,000, fieldwork and fees of $85,000 and telephone expenses of $14,000. Direct expenses decreased as a percentage of total revenues to 54.9% in the nine month period ended September 30, 2000 from 66.7% during the same period of 1999. Direct expenses as a percentage of total revenues for the balance of 2000 are expected to rise some but remain at levels lower than in 1999. Selling, general and administrative expenses. Selling, general and administrative expenses increased 2.7% to $3.1 million for the nine month period ended September 30, 2000 from $3.0 million for the same period in 1999. This increase was primarily due to an increase in salaries and benefits expense of $234,000, legal and accounting expenses of $22,000, computer support, license and equipment expenses of $24,000, marketing expenses of $17,000 and recruitment and relocation expenses of $22,000. These increases were partially offset by decreases in rent and repairs of $140,000 and contract services of $112,000. Selling, general, and administrative expenses decreased as a percentage of total revenues to 21.9% for the nine month period ended September 30, 2000 from 22.2% for the same period in 1999 due to the increase in revenue without a related increase in selling, general and administrative expenses. Depreciation and amortization. Depreciation and amortization expenses increased 73.1% to $953,000 in the nine month period ended September 30, 2000 from $551,000 in the same period of 1999. Depreciation and amortization expenses as a percentage of total revenues increased to 6.7% in the nine month period ended September 30, 2000, from 4.1% in the same period of 1999. The increase is primarily due to the additional amortization of software and computer equipment. Provision for income taxes. The provision for income taxes totaled $852,000 (30.1% effective tax rate) for the nine month period ended September 30, 2000 as compared to $487,000 tax provision (36.4% effective tax rate) for the same period in 1999. The increase in expense is due to the higher profit for the 2000 period. The effective tax rate was lower in 2000 due to certain federal income tax credits. -8- Liquidity and Capital Resources The Company's principal source of funds historically has been cash flow from its operations. The Company's cash flow has been sufficient to provide funds for working capital and capital expenditures, with the exception of the renovation of the new office building. As of September 30, 2000, the Company had cash and cash equivalents of $4.9 million and working capital of $7.8 million. During the nine months ended September 30, 2000, the Company generated $1.7 million of net cash from operating activities as compared to $3.9 million of net cash generated during the same period in the prior year. The decrease in cash flow was mainly due to the timing of collections of accounts receivable and the timing of costs incurred in advance of billings on certain projects. For the nine months ended September 30, 2000, net cash used in investing activities was $153,000 as compared to $6.8 million during the same period in the prior year. The 2000 decrease in cash used was primarily due to the net of proceeds from the maturities of securities available-for-sale over the purchase of securities available-for-sale of $4.9 million, which was offset by the purchase of property and equipment of $5.0 million (primarily related to the new office building). The Company plans to spend an additional $400,000 during the remainder of 2000 to renovate the new building. The Company moved to its new headquarters in October 2000. The Company has secured long-term financing on the building for $5.4 million. The 1999 net cash used in investing activities was primarily due to the purchase and renovation of a new building for $1.7 million, and investment of $1.2 in furniture, computer equipment, software and production equipment to meet the expansion of the Company's business and by the proceeds of maturities of securities available-for-sale of $2.6 million. Net cash generated in financing activities was $2.2 million compared to the $882,000 of net cash used for the nine months ended September 30, 2000 and 1999, respectively. The increase in cash provided by financing activities during 2000 was due to the receipt of construction financing and the 1999 payment of $2.6 million in purchase price payable related to the acquisition of Healthcare Research Systems. The Company typically bills clients for projects before they have been completed. Billed amounts are recorded as billings in excess of costs or deferred revenue on the Company's financial statements and are recognized as income when earned. As of September 30, 2000 and as of December 31, 1999, the Company had $2.1 million and $3.3 million of deferred revenues, respectively. In addition, when work is performed in advance of billing, the Company records this work as a cost in excess of billings or unbilled revenue. At September 30, 2000 and December 31, 1999, the Company had $1.3 million and $623,000 of unbilled revenues, respectively. Substantially all deferred and unbilled revenues will be earned and billed, respectively, within 12 months of the respective period ends. In October 1998, the Company announced plans to repurchase up to 245,000 shares of common stock in the open market or in privately negotiated transactions. The Company repurchased 245,000 shares between October 1998 and March 1999. In April 1999, the Board of Directors of the Company authorized the repurchase of an additional 150,000 shares. As of Ocotber 31, 2000, 53,700 shares under the new authorization had been repurchased. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 -9- requires that all derivatives be recognized as either assets or liabilities in the balance sheet and measured at their fair value. If certain conditions are met, a derivative may be specifically designed as (i) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (ii) a hedge of the exposure to variable cash flows of a forecasted transaction or (iii) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign currency denominated forecasted transaction. SFAS 133, as amended by Statement of Financial Accounting Standards No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect the effect of SFAS 133 to be significant to its financial reporting. On December 3, 1999, the Securities and Exchange Commission ("SEC") Staff issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. SAB No. 101 summarizes certain of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB No. 101 covers a broad range of topics, some of which include revenue recognition for "bill and hold" arrangements, accounting for refundable and nonrefundable up-front fees, accounting for multiple element arrangements, contingent rentals and gross and net reporting of revenues from internet sales. As amended by SAB 101A and SAB 101B, the effective date for calendar year-end companies is no later than the quarter beginning October 1, 2000. The adoption of SAB No. 101 will not have any effect on the Company's financial reporting. ITEM 3 Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company has not experienced any material changes in its market risk exposures since December 31, 1999. PART II - Other Information ITEM 6 Exhibits and Reports on Form 8-K -------------------------------- (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 September 30, 2000. -10- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL RESEARCH CORPORATION ----------------------------- Date: November 10, 2000 By: /s/ Michael D. Hays ----------------------------------------- Michael D. Hays President and Chief Executive Officer Date: November 10, 2000 By: /s/ Patrick E. Beans ----------------------------------------- Patrick E. Beans Vice President, Treasurer, Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) -11- NATIONAL RESEARCH CORPORATION EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q For the Quarterly Period ended September 30, 2000 Exhibit ------- (27) Financial Data Schedule (EDGAR version only) -12- EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 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. 1000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 4,912 5,990 1,734 78 0 14,111 14,613 1,936 32,323 6,271 5,331 0 0 7 20,635 32,323 0 14,110 0 7,741 4,044 59 (3) 2,827 852 1,975 0 0 0 1,975 .28 .28
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