-----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, OnjN8SVM24dircfSBoYaaET/DK2KtTFvFPoeISdElWH0pmHDgycpT3UmDWo5hc1o Fz3Tt1Zo7N3DflUA6V7FmA== 0000897069-02-000252.txt : 20020415 0000897069-02-000252.hdr.sgml : 20020415 ACCESSION NUMBER: 0000897069-02-000252 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-29466 FILM NUMBER: 02595600 BUSINESS ADDRESS: STREET 1: 1245 Q STREET CITY: LINCOLN STATE: NE ZIP: 68508 BUSINESS PHONE: 4024752525 MAIL ADDRESS: STREET 1: 1245 Q STREET CITY: LINCOLN STATE: NE ZIP: 68508 10-K 1 pdm291a.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 0-29466 National Research Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Wisconsin 47-0634000 -------------------------------- --------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1245 "Q" Street Lincoln, Nebraska 68508 --------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (402) 475-2525 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- Common Stock, $.001 par value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Aggregate market value of the voting stock held by nonaffiliates of the registrant at March 1, 2002: $15,246,917. Number of shares of the registrant's common stock outstanding at March 1, 2002: 7,099,548 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders are incorporated by reference into Part III. PART 1 ITEM 1. BUSINESS GENERAL National Research Corporation ("NRC" or the "Company") believes it is a leading provider of ongoing survey-based performance measurement, analysis and tracking services to the healthcare industry. The Company believes it has achieved this leadership position based on its over 20 years of industry experience and its relationships with many of the industry's largest payers and providers. The Company addresses the growing need of healthcare providers and payers to measure the care outcomes, specifically satisfaction and health status, of their patients and/or members. NRC has been at the forefront of the industry in developing tools that enable healthcare organizations to obtain service quality information necessary to comply with industry and regulatory standards and to improve their business practices so that they can maximize new member and/or patient attraction, member retention and profitability. Since its founding 21 years ago as a Nebraska corporation (the Company reincorporated in Wisconsin in September 1997), NRC has focused on the information needs of the healthcare industry. The Company's primary types of information services are renewable performance tracking services, custom research and a renewable syndicated service. One of the Company's growth strategies has been to expand its client base by adding new sales associates, direct marketing and by pursuing strategic opportunities to acquire other healthcare performance information providers. In June 1998, the Company acquired Healthcare Research Systems, Ltd., an Ohio-based provider of survey-based performance measurement, analysis and tracking services to the healthcare industry. In May 2001, the Company also acquired the Picker Institute's healthcare survey business. The Picker Institute's family of patient and employee surveys are highly regarded in the field of healthcare quality assessment and improvement. While performance data has always been of interest to healthcare providers and payers, such information has become increasingly important to these entities as a result of regulatory, industry and competitive requirements. In recent years, the healthcare industry has been under significant pressure from consumers, employers and the government to reduce costs. Through the implementation of managed care, which currently covers a majority of all Americans, the rate of growth in healthcare costs has been substantially reduced. However, the same parties that demanded cost reductions are now concerned that healthcare service quality is being compromised under managed care. This concern has created a demand for consistent, objective performance information by which healthcare providers and payers can be measured and compared and on which physicians' compensation can, in part, be based. THE NRC SOLUTION The Company addresses healthcare organizations' growing need to track their performance at the enterprise-wide, departmental and physician/caregiver levels. The Company has been at the forefront of the industry in developing tools that enable its clients to collect, in an unobtrusive manner, a substantial amount of comparative service quality information in order to analyze and improve their practices to maximize new member and/or patient attraction, member retention and profitability. NRC's performance assessments offer the tangible measurement of health service quality currently demanded by consumers, employers, industry accreditation organizations and lawmakers. The Company's innovative solutions respond to managed care's redefined relationships among consumers, employers, payers and providers. While many vendors exclusively use static, mass produced questionnaires, NRC also utilizes its dynamic data collection process to create a personalized questionnaire 2 that evaluates service issues specific to each respondent's specific healthcare experience. The flexibility of the Company's data collection process allows healthcare organizations to add timely, market driven questions relevant to matters such as industry performance mandates, employer performance guarantees and internal quality improvement initiatives. In addition, the Company assesses core service factors relevant to all healthcare respondent groups (patients, members, employers, employees, physicians, etc.) and to all service points of a healthcare system (inpatient, emergency room, outpatient, home health, rehabilitation, long-term care, hospice, dental, etc.). NRC offers renewable performance tracking services, custom research and a renewable syndicated service. The NRC Listening System (the "Listening System") is a renewable performance tracking tool for gathering and analyzing data from survey respondents. The Company has the capacity to measure performance beyond the enterprise-wide level and has the ability and experience to determine key performance indicators at the department and individual physician/caregiver measurement levels, where the Company's services can best guide the efforts of its clients to improve quality and enhance their market position. Additional offerings include functional disease-specific and health status measurement tools. The Company's custom research enables NRC's clients to conduct specific studies in order to identify areas of improvement and measure market issues and opportunities. The syndicated NRC Healthcare Market Guide (the "Market Guide"), a stand-alone market information and competitive intelligence source as well as a comparative performance database, allows the Company's clients to assess their performance relative to the industry, to access best practice examples and to utilize competitive information for marketing purposes. During 2000 and 2001, the Company piloted the new syndicated NRC DoctorGuide, a stand-alone individual report card on primary care physicians, although there were no significant revenues from this product in 2000 or 2001. The DoctorGuide allows health plans and consumers to review service quality measures of individual physicians. Recognizing the increasing applications for self-reported healthcare assessments, NRC works with its clients to integrate satisfaction measurement into various areas of their businesses, including physician compensation. As the Company partners with its clients, it seeks to enhance relationships throughout the healthcare organization and thereby both broaden and deepen the scope of its projects. GROWTH STRATEGY The Company believes that it can continue to grow through: (i) expanding the depth and breadth of its current clients' performance tracking programs, since healthcare organizations are increasingly interested in gathering performance information at deeper levels of their organizations and from more of their constituencies, (ii) increasing the cross-selling of its complementary services, (iii) adding new clients through penetrating the sizeable portion of the healthcare industry that is not yet conducting performance assessments beyond the enterprise-wide level or is not yet outsourcing this function and (iv) pursuing acquisitions of, or investments in, firms providing products, services or technologies that complement those of the Company. INFORMATION SERVICES The Listening System is NRC's state-of-the-art data collection process which provides ongoing, renewable performance tracking. This performance tracking program efficiently coordinates and centralizes an organization's satisfaction monitoring, thereby establishing a uniform methodology and survey instrument needed to obtain valid performance information and improve quality. Using the industry method of mail and/or telephone based data collection, this assessment process monitors satisfaction across healthcare respondent groups (patients, members, employers, employees, physicians, etc.) and service settings (inpatient, emergency room, outpatient, etc.). Rather than be limited to only static, mass produced questionnaires that provide limited flexibility and performance insights, NRC's proprietary software generates individualized questionnaires, which include personalization such as patient name, treating caregiver name, encounter date and, in some cases, the services received. This personalization enhances the response rates and the relevance of performance data. Flexible and responsive to healthcare organizations 3 changing information needs, NRC creates personalized questionnaires that evaluate service issues specific to each respondent's specific healthcare experience and include questions that address core service factors throughout a healthcare organization. Unlike most of its competitors, the Company gathers data through one efficient questionnaire, the contents of which are selected from the Company's library of questions after a client's needs are determined, as opposed to multiple questionnaires that often bombard the same respondents. As a result, the Company's renewable performance tracking programs and data collection process (i) realize higher response rates, obtain data more efficiently, and thereby provide healthcare organizations with more feedback, (ii) eliminate oversurveying (where one respondent receives multiple surveys) and (iii) allow healthcare organizations to adapt questionnaire content to address management objectives and to assess quality improvement programs or other timely marketplace issues. Recognizing that performance programs must do more than just measure satisfaction, NRC has developed a one-page reporting format called the NRC Action Plan that provides a basis on which to make improvements. NRC Action Plans show healthcare organizations which service factors their customer groups value, which have the greatest impact on satisfaction levels and how their performance in relationship to these key indicators changes over time. NRC has also developed on-line access to satisfaction performance results, which the Company believes provides NRC's clients the fastest and easiest way to access measurement results. IDEAS, NRC's exclusive web-based electronic delivery system, provides clients the ability to review results and reports on-line, independently analyze data, query data sets, customize some reports and distribute reports electronically. In order to be a sole source provider to its clients, the Company also conducts custom research that measures and monitors market characteristics or issues specific to individual healthcare organizations. NRC's custom research includes consumer recall of promotional and branding campaigns, consumer response to new service offerings and provider perception of health plans and healthcare organizations. The Company generally utilizes phone interviews to collect relevant data for these custom studies. The Company's renewable nationally syndicated service, the NRC Healthcare Market Guide, serves as a stand-alone market information and competitive intelligence source as well as a comparative performance database. Published by NRC bi-annually from 1988 to 1996 and annually since 1996, this survey, which is the largest of its kind, asks consumers via a pre-recruited third-party panel, members of which are sent Market Guide questionnaires to complete, to evaluate their health plans, health systems, physicians/caregivers and personal health status. Representing the views of one in every 570 households across every county in the continental United States, the Market Guide provides name specific performance data on 365 managed care plans and 2,800 hospitals nationwide and addresses more than 250 data items relevant to healthcare payers, providers and purchasers. Utilizing this proprietary database, the Company is able to produce reports which are customized to meet individual client's specific information needs. Similarly, the service's national name search feature allows a healthcare organization with a national or regional presence to simultaneously compare the performance of all its sites and pinpoint where strengths and weaknesses exist. The service's trending capacity details how the performance of a healthcare organization changes over time. Other data collected in the Market Guide profile health plan market share, consumers' health plan decision making factors, physician/caregiver accessibility, hospital/healthcare system quality and chronic patient populations. The Company gives clients easy access to the customized version of the Market Guide they purchase via NRC's exclusive web-based electronic delivery system. This delivery system allows healthcare professionals to generate reports in numerous formats to support their decision making. The Company piloted its new renewable syndicated service, the NRC DoctorGuide, in 2000 and 2001. The NRC DoctorGuide serves as a stand-alone report card on service quality of individual physicians. The first market was completed in the fall of 2000, with a second market completed in the fall of 2001. The 4 report cards on the individual physicians can be sold to health plans, employees and physician management groups, with summary reports available to the general public via DoctorGuide.com. CLIENTS The Company's ten largest clients accounted for 50%, 41% and 43% of the Company's total revenues in 2001, 2000 and 1999, respectively. The United States Department of Defense, through a primary contractor, United Healthcare Corporation, accounted for 18.7% of total revenues in 2001. SALES AND MARKETING The Company has generated the majority of its revenues from client renewals, supplemented by its internal marketing efforts and a direct sales force. Sales associates now direct NRC's sales efforts from Nebraska, California, Kansas, and Virginia. The Company is also in the process of searching for an additional sales associate. As compared to the typical industry practice of compensating salespeople with relatively high base pay and a relatively small sales commission, NRC compensates its sales associates with relatively low base pay and a relatively high, per sale commission. The Company believes this compensation structure provides incentives to its sales associates to surpass sales goals and increases the Company's ability to attract top quality sales associates. The average healthcare/market research industry experience of the Company's sales associates was 11 years at year-end. Numerous marketing efforts support the direct sales force's new business generation and project renewal initiatives. NRC conducts an annual direct marketing campaign around scheduled trade shows, including leading industry conferences. NRC uses this lead generation mechanism to track the effectiveness of marketing efforts and add generated leads to its database of current and potential client contacts. Finally, the Company's public relations program includes (i) an ongoing presence in leading industry trade press and in the mainstream press; (ii) public speaking at strategic industry conferences; (iii) fostering relationships with key industry constituencies; and (iv) an annual Quality Leaders award program recognizing top-ranking health systems in approximately 107 markets. The Company's integrated marketing activities facilitate its ongoing receipt of project requests-for-proposals as well as direct sales force initiated prospect contact. The sales process typically spans a 120-day period encompassing the identification of a healthcare organization's information needs, the education of prospects on NRC solutions (via proposals and in-person sales presentations) and the closing of the sale. The Company's sales cycle varies depending on the particular service being marketed and the size of the potential project. COMPETITION The healthcare information and market research industry is highly competitive. The Company has traditionally competed both with healthcare organizations' internal marketing, market research and/or quality improvement departments which create their own performance measurement tools and with relatively small specialty research firms which provide survey-based healthcare market research and/or performance assessment. The Company, to a certain degree, currently competes with, and anticipates that in the future it may increasingly compete with (i) traditional market research firms which are significant providers of survey-based, general market research and (ii) firms which provide services or products that complement healthcare performance assessments, such as healthcare software or information systems. Although only a few of these competitors have to date offered survey-based, healthcare market research that competes directly with the Company's services, many of these competitors have substantially greater financial, information gathering and marketing resources than the Company and could decide to increase their resource commitments to the Company's market. There are relatively few barriers to entry into the Company's market, and the Company expects increased competition in its market, which could adversely affect the 5 Company's operating results through pricing pressure, increased marketing expenditures and market share losses, among other factors. There can be no assurance that the Company will continue to compete successfully against existing or new competitors. The Company believes the primary competitive factors within its market include quality of service, timeliness of delivery, service uniqueness, credibility of provider, industry experience and price. NRC believes that its industry leadership position, exclusive focus on the healthcare industry, dynamic questionnaire, syndicated Market Guide and DoctorGuide, and comparative performance database, and its relationships with leading healthcare payers and providers position the Company to compete in this market. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS The Company's success is in part dependent upon its data collection process, research methods, data analysis techniques and internal systems and procedures that it has developed specifically to serve clients in the healthcare industry. The Company has no patents; consequently, it relies on a combination of copyright, trademark and trade secret laws and employee nondisclosure agreements to protect its systems and procedures. There can be no assurance that the steps taken by the Company to protect its rights will be adequate to prevent misappropriation of such rights or that third parties will not independently develop functionally equivalent or superior systems or procedures. The Company believes that its systems and procedures and other proprietary rights do not infringe upon the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not result in protracted and costly litigation, regardless of the merits of such claims. ASSOCIATES As of December 31, 2001, the Company employed a total of 87 persons on a full-time basis. In addition, as of such date, the Company had 60 part-time associates primarily in its survey operations, representing approximately 33 full-time equivalent associates. None of the Company's associates are represented by a collective bargaining agreement. The Company considers its relationship with its associates to be good. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information, as of March 1, 2002, regarding the executive officers of the Company: Name Age Positions ---- --- --------- Michael D. Hays 47 President, Chief Executive Officer and Director Jona S. Raasch 43 Vice President and Chief Operations Officer Patrick E. Beans 44 Vice President, Treasurer, Chief Financial Officer, Secretary and Director Michael D. Hays has served as President and Chief Executive Officer and as a director since he founded the Company in 1981. Prior thereto, Mr. Hays served for seven years as a Vice President and a director of SRI Research Center, Inc. (n/k/a the Gallup Organization). Jona S. Raasch has served as Vice President and Chief Operations Officer since September 1988. Prior to joining the Company, Ms. Raasch held various positions with A.C. Nielsen. 6 Patrick E. Beans has served as Vice President, Treasurer, Chief Financial Officer and Secretary and as a director since 1997 and as the principal financial officer since he joined the Company in August 1994. From June 1993 until joining the Company, Mr. Beans was the finance director for the Central Interstate Low-Level Radioactive Waste Commission, a five-state compact developing a low-level radioactive waste disposal plan. From 1979 to 1988 and from June 1992 to June 1993, he practiced as a certified public accountant. Executive officers of the Company are elected by, and serve at the discretion of, the Company's Board of Directors. There are no family relationships between any directors or executive officers of NRC. ITEM 2. PROPERTIES The Company's headquarters is located in an owned 47,000 square foot office building in Lincoln, Nebraska. This facility houses all the capabilities necessary for NRC's survey programming, printing and distribution; telephone interviewing; data processing, analysis and report generation; marketing; and corporate administration. ITEM 3. LEGAL PROCEEDINGS In May 2000, Cap Gemini America, Inc., the software developer of the Company's automated software process (a proprietary system that automates the creation and processing of surveys), filed a lawsuit against the Company in the United States District Court for the District of Nebraska seeking approximately $1.1 million the Company owed but withheld under a consulting agreement between Cap Gemini and the Company. The Company subsequently filed a counter suit against Cap Gemini. On February 21, 2002, a jury returned a verdict partly in favor of Cap Gemini and ordered that the Company pay to Cap Gemini approximately $700,000. The Company is also required to pay prejudgment interest of approximately $64,000. The Company had a liability of $800,000 recorded related to the acquisition of software, so the verdict is not expected to have a significant impact on the operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the fourth quarter of the Company's 2001 fiscal year. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock, $.001 par value ("Common Stock"), is traded on the Nasdaq National Market under the symbol "NRCI." The following table sets forth the range of high and low closing sales prices for the Common Stock for the period from January 1, 2000 through December 31, 2001: High Low ---- --- First quarter ended March 31, 2000 $6.38 $3.44 Second quarter ended June 30, 2000 $8.13 $4.53 Third quarter ended September 30, 2000 $6.75 $4.63 Fourth quarter ended December 31, 2000 $5.56 $3.38 First quarter ended March 31, 2001 $5.25 $3.50 Second quarter ended June 30, 2001 $6.25 $3.50 Third quarter ended September 30, 2001 $6.35 $5.37 Fourth quarter ended December 31, 2001 $8.00 $4.95 7 On March 15, 2002, there were approximately 18 shareholders of record and approximately 500 beneficial owners for the Common Stock. The Company does not intend to pay any cash dividends on its Common Stock in the foreseeable future. The Company intends to retain all of its future earnings for use in the expansion and operation of its business. Any future determination to pay cash dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, the Company's results of operations, financial condition, contractual restrictions and such other factors deemed relevant by the Board of Directors. 8 ITEM 6. SELECTED FINANCIAL DATA The selected statement of income data for the years ended December 31, 2001, 2000 and 1999 and the balance sheet data at December 31, 2001 and 2000 are derived from, and are qualified by reference to, the audited financial statements of the Company included elsewhere in this Annual Report on Form 10-K. The selected statement of income data for the years ended December 31, 1998 and 1997 and the balance sheet data at December 31, 1999, 1998 and 1997 are derived from audited financial statements not included herein.
Year Ended December 31, ---------------------------------------------------------------- 2001 2000 1999 1998(1) 1997 ---- ---- ---- ------- ---- (In thousands, except per share data) Statement of Income Data: Revenues........................................... $ 17,674 $ 18,316 $ 18,184 $ 17,665 $ 16,284 Operating expenses: Direct expenses................................. 8,059 9,120 11,133 9,422 7,178 Selling, general and administrative............. 4,985 4,602 4,177 4,843 3,980 Depreciation and amortization................... 1,917 1,269 817 426 159 Acquired-in-process research and development cost........................................... - - - 2,737 - Cost of closing duplicate facilities and severance charges.............................. - - 364 304 - Special compensation charge..................... - - - - 1,740 -------- -------- -------- -------- -------- Total operating expenses.................... 14,961 14,991 16,491 17,732 13,057 -------- -------- -------- -------- -------- Operating income (loss)............................ 2,713 3,325 1,693 (67) 3,227 Other income and expenses, net..................... (89) 531 530 849 367 -------- -------- -------- -------- -------- Income before income taxes......................... 2,624 3,856 2,223 782 3,594 Provision for income taxes......................... 954 1,139 748 321 376 Pro forma income taxes(2).......................... - - - - 804 -------- -------- -------- -------- -------- Pro forma net income(2)............................ $ 1,670 $ 2,717 $ 1,475 $ 461 $ 2,414 ======== ======== ======== ======== ======== Pro forma net income per share - basic and diluted(2)................................... $ 0.24 $ 0.39 $ 0.21 $ 0.06 $ 0.37 ======== ======== ======== ======== ======== Weighted average shares outstanding - basic(3)..... 7,053 7,019 7,054 7,283 6,440 Weighted average shares outstanding - diluted(3)... 7,089 7,025 7,056 7,301 6,440 December 31, ---------------------------------------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (In thousands) Balance Sheet Data: Working capital.................................... $ 7,260 $ 8,342 $ 5,246 $ 8,954 $ 17,681 Total assets....................................... 33,772 31,637 29,256 26,279 22,563 Total debt, including current portion.............. 5,302 5,430 3,619 105 - Total shareholders' equity......................... 23,353 21,382 18,566 17,435 18,121 - --------------------------- (1) On January 1, 1998, the Company adopted the American Institute of Certified Public Accountants Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. (2) From August 1, 1994 through October 13, 1997, the Company was an S Corporation and, accordingly, was not subject to Federal and state income taxes for the year ended December 31, 1996 or from January 1, 1997 to October 13, 1997. Pro forma net income reflects a pro forma tax provision at a combined Federal and state rate of 40% for the periods the Company was an S Corporation as if it had been a C Corporation. (3) Includes 129,812 shares of Common Stock in 1997 and 1996, which, had they been issued (at $13.95 per share, the initial public offering price less the underwriting discount), would have generated cash sufficient to fund the portion of the estimated S Corporation distributions and special (cash) compensation expense that are in excess of the Company's 1996 net income.
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain matters discussed below in this Annual Report on Form 10-K are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company "believes," "expects" or other words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forwarding-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include, without limitation, the Company's reliance on a limited number of key clients for a substantial portion of its revenues, the Company's dependence on performance tracking contract renewals, fluctuations in the Company's operating results related to the Market Guide, increased competition, changes in conditions affecting the healthcare industry, the Company's ability to manage its growth and to successfully integrate the Picker Institute business and any possible future acquisitions and the Company's ability to provide timely and accurate performance tracking and market research to its clients. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included are only made as of the date of this Annual Report on Form 10-K and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. OVERVIEW AND CRITICAL ACCOUNTING POLICIES The Company believes it is a leading provider of ongoing survey-based performance measurement, analysis and tracking services to the healthcare industry. The Company's primary types of information services are renewable performance tracking services, custom research and a renewable syndicated service. The Company believes its critical accounting policies are: o Revenue recognition and o Valuation of long-lived assets, identifiable intangible assets and goodwill. Revenue Recognition The Company's renewable performance tracking service, the Listening System, is a performance tracking tool for gathering and analyzing data from survey respondents. Such services are provided pursuant to contracts which are generally renewable annually and that provide for a customer specific study which is conducted via a series of surveys and delivered via a series of updates or reports, the timing and frequency of which vary by contract (such as monthly or weekly). These contracts are generally cancelable on short or no notice without penalty and, since progress on these contracts can be tracked and regular updates and reports are made, clients are entitled to any work-in-process but are obligated to pay for all services performed through cancellation. Typically, these contracts are fixed fee arrangements and a portion of the project fee is billed in advance, and the remainder is billed periodically over the duration of the project. The Company conducts custom research which measures and monitors market issues specific to individual healthcare organizations. The majority of the Company's custom research is performed under contracts which provide for advance billing of 65% of the total project fee with the remainder due upon delivery. Revenues and direct expenses for the Company's renewable performance tracking services and custom research are recognized on a percentage of completion basis. 10 Significant management judgments and estimates must be made and used in connection with revenue recognized using the percentage of completion accounting method. If management made different judgements and estimates, then the amount and timing of revenue for any period could differ materially from the reported revenue. The underlying assumptions and judgments that are the most critical to this policy include the estimated progress to date and the estimated costs required to complete the work required under individual customer contracts. The Company uses cost-to-cost methodology in applying the percentage of completion method of accounting. Consequently, the accuracy of estimates may be most sensitive to the Company's ability to efficiently utilize its human resources and the availability and cost of human resources. The Company's estimates are also sensitive, to a lesser degree, to the costs of postage, telephone and related communications and information technology. The Company's renewable nationally syndicated service, the Market Guide, serves as a stand-alone market information and competitive intelligence source as well as a comparative performance database. Published by NRC bi-annually from 1988 to 1996 and annually since 1996, this survey is a comprehensive consumer-based healthcare assessment. Market Guide services are generally provided pursuant to contracts which have durations of four to six months and that provide for the receipt of survey results that are customized to meet an individual client's specific information needs. Typically, these contracts are not cancelable by clients, clients receive no rights in the comprehensive healthcare database which results from this survey, other than the right to use the customized reports purchased pursuant thereto, and amounts due for the Market Guide are billed prior to or at delivery. The Company recognizes revenue when the Market Guides are delivered to customers pursuant to their contracts, typically in the third quarter of the year. Substantially all of the related costs are deferred and subsequently charged to direct expenses contemporaneously with the recognition of the revenue. The Company generally has some incidental sales of the Market Guide subsequent to completion of each edition. Revenues and marginal expenses related to such incidental sales are recognized upon delivery. The profit margin earned on such revenues is generally higher than that earned on revenues realized from customers under contract at the time of delivery. As a result, the Company's margins vary throughout the year. The Company's revenue recognition policy for the Market Guide is not sensitive to significant estimates and judgments. The Company piloted its new renewable syndicated service, the NRC DoctorGuide, in 2000 and 2001. The NRC DoctorGuide serves as a stand-alone report card on service quality of individual physicians. The first market was completed in the fall of 2000, and the second market was completed in the fall of 2001. The report cards on the individual physicians can be sold to health plans, employees, and physician management groups, with summary reports available to the general public via DoctorGuide.com. There were no significant revenues recognized by the Company in connection with this product during 2001 or 2000. Valuation of Long-Lived Assets, Identifiable Intangible Assets and Goodwill The Company assesses the impairment of long-lived assets, identifiable intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Management believes the following circumstances are important indicators of potential impairment of such assets and as a result they may trigger an impairment review: o Significant underperformance in comparison to historical or projected operating results; o Significant changes in the manner or use of acquired assets or the Company's overall strategy; o Significant negative trends in the Company's industry or the overall economy; o A significant decline in the market price for the Company's common stock for a sustained period; and 11 o The Company's market capitalization falling below the book value of the Company's net assets. When the Company determines the carrying value of intangibles and goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment and future estimated (undiscounted) cash flows are not sufficient to recover the carrying value of those assets, the Company recognizes an impairment loss equal to the difference between the carrying value of the assets less their estimated fair value. In 2002, Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, became effective, and as a result the Company will cease the amortization of $9.5 million of goodwill. The Company recorded $543,000 of amortization expense on these assets during 2001. This goodwill was amortized using estimated lives of 10 to 20 years. In lieu of amortizing goodwill, the Company is required to perform an initial impairment review of its goodwill in 2002 and an annual impairment review thereafter. The Company expects that it will complete its initial review during the first six months of 2002. The Company does not expect to recognize an impairment loss upon the completion of its initial impairment review. However, there can be no assurance that at the time the review is completed a material impairment loss will not be recognized. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected financial information derived from the Company's financial statements, expressed as a percentage of total revenues and the percentage change in such items versus the prior comparable period. 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 Company's financial statements.
Percentage of Total Revenues Percentage Increase Year Ended December 31, (Decrease) ----------------------------- ------------------- 2001 over 2000 over 2001 2000 1999 2000 1999 Revenues 100.0% 100.0% 100.0% (3.5)% 0.7% Operating expenses: Direct expenses 45.6 49.8 61.2 (11.6) (18.1) Selling, general and administrative 28.2 25.1 23.0 8.3 10.2 Depreciation and amortization 10.8 6.9 4.5 50.1 55.3 Cost of closing duplicate facilities and severance charges - - 2.0 - (100.0) ------ ------ ------ ------ ------ Total operating expenses 84.6 81.8 90.7 (0.02) (9.1) ------ ------ ------ ------ ------ Operating income 15.4% 18.2% 9.3% N/A N/A ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Total revenues. Total revenues decreased 3.5% in 2001 to $17.7 million from $18.3 million in 2000. The decrease was primarily due to $2.1 million of revenue on lower margin contracts performed for certain customers during 2000 that did not reoccur during 2001. The decrease was partially offset by additional revenues from the Picker acquisition of approximately $1.0 million, the addition of new clients and, to a lesser extent, an increase in scope of work from existing clients. Direct expenses. Direct expenses decreased 11.6% to $8.1 million in 2001 from $9.1 million in 2000. The decrease in direct expenses in 2001 was due primarily to decreases in labor and payroll expenses 12 of $1.1 million, telephone expenses of $132,000, rent and maintenance costs of $130,000, and computer equipment expenses of $119,000. These decreases were partially offset by increases in printing and postage expense of $244,000 and fieldwork expenses of $38,000. Direct expenses decreased as a percentage of total revenues to 45.6% in 2001 from 49.8% during 2000 primarily due to the use of the new software for creating and processing surveys. Direct expenses as a percentage of total revenues are expected to increase by about 1% in 2002. Selling, general and administrative expenses. Selling, general and administrative expenses increased 8.3% to $5 million in 2001 from $4.6 million in 2000. This increase was primarily due to increases in legal and consulting fees of $1 million (incurred primarily in connection with the legal proceeding discussed in Item 3 of this Annual Report on Form 10-K), taxes of $127,000 and contract services of $117,000. These increases were partially offset by decreases in salary and benefit expenses of $308,000 and product development expenses of $135,000. Selling, general and administrative expenses increased as a percentage of total revenues to 28.2% in 2001 from 25.1% in 2000 mainly due to legal fees. Excluding legal and consulting fees, selling, general and administrative expenses were 22.7% of revenues in 2001 and 24.9% of revenues in 2000. Selling, general and administrative expenses as a percentage of total revenues are expected to decrease in 2002 to around 22%. Depreciation and amortization. Depreciation and amortization expenses increased 50.1% to $1.9 million in 2001 from $1.3 million in 2000. The increase is primarily due to the internal development of software and the May 2001 acquisition of the Picker Institute's healthcare survey business. Depreciation and amortization expenses increased as a percentage of total revenues to 10.8% in 2001 from 6.9% in 2000. Depreciation and amortization expenses as a percent of total revenues are expected to decrease in 2002 back to the 2000 levels, mainly due to the new accounting rules for amortization of goodwill. Provision for income taxes. The provision for income taxes totaled $1.0 million (36.4% effective tax rate) for 2001 compared to $1.1 million (29.5% effective tax rate) for 2000. The effective tax rate was lower in 2000 due to certain nonrecurring federal income tax credits. The effective tax rate for 2002 is expected to increase to 38%. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Total revenues. Total revenues increased 0.7% in 2000 to $18.3 million from $18.2 million in 1999 primarily due to the addition of new clients. Direct expenses. Direct expenses decreased 18.1% to $9.1 million in 2000 from $11.1 million in 1999. The decrease in direct expenses in 2000 was due primarily to decreases in labor and payroll expenses of $853,000, software conversion costs of $356,000, printing and postage expenses of $216,000, contract service expenses of $216,000, fieldwork expenses of $112,000, and, to a lesser extent, decreases in travel expenses of $54,000, product development expenses of $48,000, and telephone costs of $47,000. Direct expenses decreased as a percentage of total revenues to 49.8% in 2000 from 61.2% during 1999 primarily due to the use of the new software for creating and processing surveys. Selling, general and administrative expenses. Selling, general and administrative expenses increased 10.2% to $4.6 million in 2000 from $4.2 million in 1999. This increase was primarily due to increases in salary and benefit expenses of $306,000, product development expenses of $231,000, marketing costs of $105,000, legal and accounting expenses of $68,000, bad debt expenses of $44,000, and human resources recruitment expenses of $20,000. These increases were partially offset by decreases in rent, utilities and repair costs of $218,000 and contract service expenses of $131,000. Selling, general and administrative expenses increased as a percentage of total revenues to 25.1% in 2000 from 23.0% in 1999 mainly due to product development charges. 13 Depreciation and amortization. Depreciation and amortization expenses increased 55.3% to $1.3 million in 2000 from $817,000 in 1999. The increase is primarily due to the internal development of software and the completion of the new facilities. Depreciation and amortization expenses increased as a percentage of total revenues to 6.9% in 2000 from 4.5% in 1999. Provision for income taxes. The provision for income taxes totaled $1.1 million (29.5% effective tax rate) for 2000 compared to $748,000 (33.6% effective tax rate) for 1999. The effective tax rate was lower in 2000 due to certain federal income tax credits. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of funds has been cash flow from its operations. The Company's cash flow has been sufficient to provide funds for working capital and capital expenditures, other than expenditures related to the Company's building, which were paid, in part, from the proceeds of borrowings or the sales of securities available-for-sale. As of December 31, 2001, the Company had cash and cash equivalents of $1.1 million and working capital of $7.3 million. During 2001, the Company generated $3.1 million of net cash from operating activities as compared to $2.0 million and $3.5 million of net cash generated during 2000 and 1999, respectively. The increase in operating cash flow was due, in part, to an increase in billings in excess of revenues earned, net of increases in trade accounts receivables and unbilled revenues. The increase in cash flows was partially offset by a decrease in accounts payable and accrued expenses, wages and profit sharing, largely due to timing. Net cash used in investing activities was $5.4 million for 2001, $1.9 million for 2000, and $7.8 million for 1999. The 2001 increase in cash used was primarily due to the $3.8 million acquisition of the Picker Institute's healthcare survey business and an investment of $1.5 million for the renovation of the Company's new building and the purchase of furniture, computer equipment and software. The 2000 use of cash was primarily a result of an investment of $6.2 million in the renovation of the Company's new building and the purchase of furniture, computer equipment and software. These uses of cash were partially offset by a decrease in investments available-for-sale of $6.9 million. The 1999 use of cash was primarily a result of the purchase and renovation of an office building for $3.6 million and the purchase of securities available for sale for $2.9 million. These uses of cash were partially offset by a decrease in cash used for investment in furniture, computer equipment and software of $600,000. The Company's investments available-for-sale consist principally of United States government securities with maturities of two years or less. Net cash provided by financing activities was $133,000 for 2001, compared to $1.9 million in 2000 and $533,000 in 1999. The 2001 cash provided was primarily from the $261,000 of proceeds from issuance of common stock through the exercise of stock options. The 2000 cash provided was primarily from additional borrowings of $1.8 million for the financing to renovate the Company's new office building and the $113,000 proceeds from issuance of common stock through the exercise of stock options. The 1999 cash provided was primarily from the $3.5 million construction financing for the renovation of the Company's new office building and was partially offset by the Company's payment of the $2,637,000 purchase price for such office building and the Company's repurchase of 85,700 shares of stock during 1999 at a cost of $343,000. The Company has budgeted approximately $700,000 for expenditures in 2002 to be funded through cash generated from operations. The Company expects that capital expenditures during 2002 will be primarily for computer hardware and software, production equipment and furniture. 14 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 December 31, 2001, 2000 and 1999, the Company had $2.7 million, $1.8 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 December 31, 2001, 2000 and 1999, the Company had $1.7 million, $1.2 million and $600,000 of unbilled revenues, respectively. Substantially all deferred and unbilled revenues will be earned and billed, respectively, within 12 months of the respective period ends. The Company has obligations to make cash payments in the following amounts in the future:
Payments Due During Total ------------------------------------------------- Contractual Obligations Payments 2002 2003-2004 2005-2006 After 2006 ----------------------- -------- ---- --------- --------- ---------- Long Term Debt $5,302,069 $132,312 $290,030 $341,866 $4,537,861 Operating Leases 866,851 233,178 410,364 223,309 -- --------- ------- ------- ------- ---------- Total Contractual Cash Obligations $6,168,920 $365,490 $700,394 $565,175 $4,537,861 ========== ======== ======== ======== ==========
STOCK REPURCHASE PROGRAM 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 December 31, 2001, 56,700 shares have been repurchased under the new authorization. ACCOUNTING PRONOUNCEMENTS In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 138, Accounting for Certain Derivative Investments and Certain Hedging Activities. The standard amends certain provisions of SFAS No. 133, Accounting for Derivative Investments and Hedging Activities, which was issued in June 1998 to establish accounting standards for derivative instrument and for hedging activities. The Company adopted these accounting pronouncements effective January 1, 2001. The adoption of these standards did not impact the Company's financial statements. The Company had no derivative financial instruments subject to the requirements of these standards at December 31, 2001. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, which requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. In June 2001, the Financial Accounting Standards Board also issued SFAS No. 142, Goodwill and Other Intangible Assets. This statement: o replaces the requirement to amortize goodwill and certain other intangible assets with an annual impairment test, and o requires an evaluation of the useful lives of intangible assets and an impairment test for goodwill upon adoption. The provisions of this statement are effective for fiscal years beginning after December 15, 2001, so the Company must adopt the provisions of SFAS No. 142 for the quarter ended March 31, 2002. 15 In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The provisions of this statement are effective for fiscal years beginning after December 15, 2001, so the Company must adopt the provisions of SFAS No. 144 for the quarter ended March 31, 2002. The Company does not expect the adoption of this statement to significantly effect its financial reporting. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The impact of financial market risk exposure to the Company is not significant. The Company's primary financial market risk exposure consists of interest rate risk related to interest income from the Company's investments in United States government securities with maturities of two years or less. The Company has invested and expects to continue to invest a substantial portion of its excess cash in such securities. See Note 3 to the Company's financial statements. Generally, if the overall average return on such securities decreased .5% from the average return during the year ended December 31, 2001 and 2000, then the Company's interest income would have decreased, and pre-tax income would have decreased approximately $34,000 and $50,000, respectively. These amounts were determined by considering the impact of a hypothetical change in interest rates on the Company's interest income. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA QUARTERLY FINANCIAL DATA (UNAUDITED) Selected unaudited quarterly financial information for the fiscal years ended December 31, 2001 and 2000 is as follows (in thousands, except per share data):
Quarter Ended ------------------------------------------------------------------------------------ Dec. 31, Sept.30, June 30, Mar.31, Dec. 31, Sept. 30, June 30, Mar.31, 2001 2001 2001 2001 2000 2000 2000 2000 Revenues................................. $ 4,111 $ 6,105 $ 3,368 $ 4,090 $ 4,206 $ 5,017 $ 4,638 $ 4,455 Direct expenses.......................... 1,736 2,689 1,658 1,976 1,822 2,449 2,331 2,518 Selling, general and administrative...... 1,468 1,384 1,167 966 1,068 1,212 1,222 1,100 Depreciation and amortization............ 540 509 465 403 316 342 347 264 ------- ------- ------- ------- ------- ------- ------- ------- Operating income......................... 367 1,523 78 745 1,000 1,014 738 573 Other income and expenses, net........... (53) (41) (12) 17 29 173 178 151 Provision for income taxes............... 122 550 23 259 287 356 266 230 ------- ------- ------- ------- ------- ------- ------- ------- Net income............................... $ 192 $ 932 $ 43 $ 503 $ 742 $ 831 $ 650 $ 494 ======= ======= ======= ======= ======= ======= ======= ======= Net income per share-basic and diluted... $ 0.03 $ 0.13 $ 0.01 $ 0.07 $ 0.11 $ 0.12 $ 0.09 $ 0.07 Weighted average shares outstanding -basic.................................. 7,070 7,057 7,046 7,039 7,032 7,025 7,013 7,006 Weighted average shares outstanding -diluted................................ 7,102 7,099 7,056 7,058 7,038 7,069 7,062 7,037
16 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors National Research Corporation: We have audited the accompanying balance sheets of National Research Corporation as of December 31, 2001 and 2000 and the related statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2001. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide 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 National Research Corporation as of December 31, 2001 and 2000 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Lincoln, Nebraska February 12, 2002, except as to Note 13, which is as of February 21, 2002 17 NATIONAL RESEARCH CORPORATION BALANCE SHEETS DECEMBER 31, 2001 AND 2000
Assets 2001 2000 ------ ---- ---- Current assets: Cash and cash equivalents..................................................... $ 1,080,053 $ 3,218,805 Investments in marketable debt securities..................................... 6,636,543 6,577,112 Trade accounts receivable, less allowance for doubtful accounts of $101,674 and $77,276 in 2001 and 2000, respectively................................... 2,141,104 1,713,621 Unbilled revenues............................................................. 1,671,079 1,247,296 Prepaid expenses and other.................................................... 286,653 213,075 Income taxes recoverable...................................................... 266,034 62,833 Deferred income taxes......................................................... 210,452 217,205 ----------- ----------- Total current assets..................................................... 12,291,918 13,249,947 Net property and equipment.................................................... 12,907,197 13,218,340 Deferred income taxes......................................................... --- 85,600 Goodwill and other intangible assets, net of accumulated amortization......... 8,539,178 5,057,761 Other......................................................................... 34,099 25,825 ----------- ----------- Total assets............................................................. $33,772,392 $31,637,473 =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Current portion of notes payable.............................................. $ 132,312 $ 134,518 Accounts payable.............................................................. 1,391,043 1,771,498 Accrued wages, bonus and profit sharing....................................... 494,446 513,254 Accrued expenses.............................................................. 364,642 679,869 Billings in excess of revenues earned......................................... 2,649,370 1,809,090 ----------- ----------- Total current liabilities................................................ 5,031,813 4,908,229 Notes payable, net of current portion......................................... 5,169,757 5,295,814 Deferred income taxes......................................................... 217,424 --- Bonuses, profit sharing accruals and other accrued expenses................... --- 50,999 ----------- ----------- Total liabilities........................................................ 10,418,994 10,255,042 ----------- ----------- 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 7,395,593 in 2001 and 7,332,413 in 2000, outstanding 7,093,893 in 2001 and 7,030,713 in 2000........................................................ 7,395 7,332 Additional paid-in capital.................................................... 17,255,917 16,964,720 Retained earnings............................................................. 7,597,340 5,927,019 Accumulated other comprehensive loss.......................................... (4,185) (13,571) Treasury stock, at cost; 301,700 shares in 2001 and 301,700 shares in 2000.... (1,503,069) (1,503,069) ----------- ----------- Total shareholders' equity............................................... 23,353,398 21,382,431 ----------- ----------- Total liabilities and shareholders' equity............................... $33,772,392 $31,637,473 =========== ===========
See accompanying notes to financial statements. 18 NATIONAL RESEARCH CORPORATION STATEMENTS OF INCOME THREE YEARS ENDED DECEMBER 31, 2001
2001 2000 1999 ---- ---- ---- Revenues $ 17,673,988 $ 18,316,116 $ 18,184,007 ------------ ------------ ------------ Operating expenses: Direct expenses..................................... 8,059,397 9,119,750 11,133,090 Selling, general and administrative................. 4,985,328 4,602,223 4,177,185 Depreciation and amortization....................... 1,916,740 1,269,535 816,740 Cost of closing duplicate facilities and severance charges................................... --- --- 363,965 ------------ ------------ ------------ Total operating expenses...................... 14,961,465 14,991,508 16,490,980 ------------ ------------ ------------ Operating income.............................. 2,712,523 3,324,608 1,693,027 ------------ ------------ ------------ Other income (expense): Interest income..................................... 385,949 661,675 573,460 Interest expense.................................... (454,166) (91,709) (7,706) Other, net.......................................... (20,351) (38,423) (35,778) ------------ ------------ ------------ Total other income (expense).................. (88,568) 531,543 529,976 ------------ ------------ ------------ Income before income taxes.................... 2,623,955 3,856,151 2,223,003 Provision for income taxes............................. 953,634 1,139,424 747,691 ------------ ------------ ------------ Net income.................................... $ 1,670,321 $ 2,716,727 $ 1,475,312 ============ ============ ============ Net income per share - basic and diluted............... $ 0.24 $ 0.39 $ 0.21 ============ ============ ============
See accompanying notes to financial statements. 19 NATIONAL RESEARCH CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME THREE YEARS ENDED DECEMBER 31, 2001
Accumulated Additional Other Preferred Common Paid-in Retained Comprehensive Treasury Stock Stock Capital Earnings Income Stock Total Balances at December 31, 1998...... $ --- $ 7,305 $ 16,839,839 $ 1,734,980 $ --- $ (1,147,594) $ 17,434,530 Comprehensive income............... Net income/total comprehensive income......................... --- --- --- 1,475,312 --- --- 1,475,312 --------- -------- ------------ ----------- ---------- ------------ ------------ Purchase of 85,700 shares of treasury stock.................... --- --- --- --- --- (343,475) (343,475) --------- -------- ------------ ----------- ---------- ------------ ------------ Balances at December 31, 1999...... --- 7,305 16,839,839 3,210,292 --- (1,491,069) 18,566,367 Issuance of 27,413 common shares for the exercise of stock options. --- 27 113,053 --- --- --- 113,080 Tax benefit from the exercise of options........................... --- --- 11,828 --- --- --- 11,828 Comprehensive income Other comprehensive loss, net of income taxes of $5,816...... --- --- --- --- (13,571) --- (13,571) Net income...................... --- --- --- 2,716,727 --- --- 2,716,727 --------- -------- ------------ ----------- ---------- ------------ ------------ Total comprehensive income......... --- --- --- 2,716,727 (13,571) --- 2,703,156 --------- -------- ------------ ----------- ---------- ------------ ------------ Purchase of 3,000 shares of treasury stock.................... --- --- --- --- --- (12,000) (12,000) --------- -------- ------------ ----------- ---------- ------------ ------------ Balances at December 31, 2000...... $ --- $ 7,332 $ 16,964,720 $ 5,927,019 $ (13,571) $ (1,503,069) $ 21,382,431 Issuance of 63,180 common shares for the exercise of stock options. --- 63 260,998 --- --- --- 261,061 Tax benefit from the exercise of options........................... --- --- 30,199 --- --- --- 30,199 Comprehensive income Other comprehensive loss, net of income taxes of $3,660...... --- --- --- --- 9,386 --- 9,386 Net income...................... --- --- --- 1,670,321 --- --- 1,670,321 --------- -------- ------------ ----------- ---------- ------------ ------------ Total comprehensive income......... --- --- --- 1,670,321 9,386 --- 1,679,707 --------- -------- ------------ ----------- ---------- ------------ ------------ Balances at December 31, 2001...... $ --- $ 7,395 $ 17,255,917 $ 7,597,340 $ (4,185) $ (1,503,069) $ 23,353,398 ========= ======== ============ =========== ========== ============ ============
See accompanying notes to financial statements. 20 NATIONAL RESEARCH CORPORATION STATEMENTS OF CASH FLOWS THREE YEARS ENDED DECEMBER 31, 2001
2001 2000 1999 ---- ---- ---- Cash flows from operating activities: Net income $ 1,670,321 $ 2,716,727 $ 1,475,312 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,916,740 1,269,535 816,740 Impairment losses --- --- 230,813 Deferred income taxes 306,117 356,165 117,852 Loss on sale of property and equipment (587) 25,682 22,106 Loss on sale of other investments --- 43 788 Tax benefit of stock options 30,199 11,828 --- Other non-cash charges 23,313 32,581 25,920 Change in assets and liabilities: Trade accounts receivable (427,483) 1,204,504 22,232 Unbilled revenues (423,783) (624,686) 407,741 Prepaid expenses and other (85,384) (145,272) 122,300 Accounts payable 103,857 (464,158) 135,326 Accrued expenses, wages and profit sharing (385,035) (585,956) (101,491) Income taxes payable and recoverable (203,201) (297,366) 234,533 Billings in excess of revenues earned 554,578 (1,464,487) (9,885) ----------- ----------- ----------- Net cash provided by operating activities 3,079,652 2,035,140 3,500,287 ----------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (1,543,286) (6,194,318) (4,904,156) Acquisition, net of cash acquired (3,762,229) --- --- Purchases of securities available-for-sale (13,396,039) (12,947,873) (13,028,838) Proceeds from the maturities of securities available-for-sale 13,349,654 17,227,940 10,160,785 Proceeds from sale of property and equipment 698 27,978 1,000 ----------- ----------- ----------- Net cash used in investing activities (5,351,202) (1,886,273) (7,771,209) ----------- ----------- ----------- Cash flows from financing activities: Borrowings (payments) under line of credit, net --- (3,544,000) 3,544,000 Proceeds from issuance of debt --- 5,440,000 --- Payments on notes payable (128,263) (76,729) (30,792) Payment of purchase price payable --- --- (2,636,936) Proceeds from issuance of common stock 261,061 113,080 --- Purchase of treasury stock --- (12,000) (343,475) ----------- ----------- ----------- Net cash provided by financing activities 132,798 1,920,351 532,797 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (2,138,752) 2,069,218 (3,738,125) Cash and cash equivalents at beginning of period 3,218,805 1,149,587 4,887,712 ----------- ----------- ----------- Cash and cash equivalents at end of period $ 1,080,053 $ 3,218,805 $ 1,149,587 =========== =========== ===========
See accompanying notes to financial statements. 21 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION National Research Corporation (the "Company") is a provider of ongoing survey-based performance measurement, analysis and tracking services to the healthcare industry. The Company provides market research services to hospitals and insurance companies on an unsecured credit basis. The Company's ten largest clients accounted for 50%, 41% and 43% of the Company's total revenues in 2001, 2000 and 1999, respectively. One client accounted for 18.7%, 14.6%, and 15.7% of total revenues in 2001, 2000 and 1999, respectively. A second client accounted for 11.0%, 12.9% and 10.2% of total revenues in 2001, 2000 and 1999, respectively. The Company operates in a single industry segment. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. REVENUE RECOGNITION The Company derives a substantial majority of its operating revenues from its annually renewable services, which include the NRC Listening System ("Performance Tracking Services") and the NRC Healthcare Market Guide ("Renewable Syndicated Service"). Under the NRC Listening System, the Company provides interim and annual performance tracking to its clients under annual client service contracts, although such contracts are generally cancelable on short or no notice without penalty. Through its syndicated NRC Healthcare Market Guide, the Company publishes healthcare market information to its clients generally on an annual basis. The Company also derives revenues from custom and other research projects. The Company recognizes revenues from its Performance Tracking Services and its custom and other research projects 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 to date bear to estimated total costs after giving effect to estimates of costs to complete based upon most recent information. Losses expected to be incurred on jobs (if any) 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. The Company recognizes revenue on a completed contract basis for its Renewable Syndicated Service contracts with its principal customers. Characteristics of these contracts include durations of four to six months, progress to completion cannot be reasonably defined, and various intermediate steps in the process overlap in stages of progress for different contracts. The Company defers direct costs of preparing the survey data for the Renewable Syndicated Service. The Company recognizes revenues and related direct costs for its Renewable Syndicated Service upon delivery to its principal customers. Customers have no obligation to pay for these services until the services are delivered. The Company generates additional revenues from incidental customers subsequent to the completion of each edition. Revenues and costs for these services are recognized as the customization services are performed and completed. 22 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. For costs of software developed for internal use, the Company expenses as incurred computer software costs incurred in the preliminary project stage, which involves the conceptual formulation, evaluation and selection of technology alternatives. Costs incurred related to the design, coding installation and testing of software during the application project stage are capitalized. Costs incurred for training and application maintenance are expensed as incurred. The Company has capitalized approximately $913,000, $596,000 and $1,491,000 of costs incurred for the development of internal use software for the years ended December 31, 2001, 2000 and 1999, respectively, with such costs classified as property and equipment. Prior to January 1, 1999, the Company's accounting policy was to expense as incurred all costs of software developed for internal use. 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 both straight-line and accelerated methods of depreciation and amortization over estimated useful lives of five to ten years for furniture and fixtures, three to five years for computer equipment, three to four years for capitalized software and forty years for the Company's new office building. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets, which represent the excess of purchase price over fair value of net assets acquired, are amortized on a straight-line basis over the expected periods to be benefited, ten to twenty years. The Company assesses the recoverability of these intangible assets by determining whether the amortization of the intangible asset balances over their remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. Assets to be disposed of or abandoned are assessed for recoverability by determining whether the carrying value of the asset is less than estimated net realizable value. In June 2001, the Financial Accounting Standards Board also issued SFAS No. 142, Goodwill and Other Intangible Assets. This statement: o replaces the requirements to amortize goodwill and certain other intangible assets with an annual impairment test, and o requires an evaluation of the useful lives of intangible assets and an impairment test for goodwill upon adoption. The provisions of this statement are effective for fiscal years beginning after December 15, 2001, so the Company must adopt the provisions of SFAS No. 142 for the quarter ended March 31, 2002. In 2002, the Company will cease amortization of $9.5 million of goodwill. Total goodwill amortization expense in 2001 was approximately $543,000. No goodwill amortization expense will be recorded in 2002. In lieu of amortizing goodwill, the Company is required to perform an initial impairment review of goodwill in 2002 and an annual impairment review thereafter. The company expects to complete its initial review during the first six months of 2002. The Company does not expect to recognize an impairment loss on completion of its initial impairment review, however, there can be no assurance that at the time the review is completed a material impairment loss will not be recognized. 23 MARKETABLE SECURITIES All marketable securities held by the Company at December 31, 2001 and 2000 were classified as available-for-sale and recorded at fair market value. Unrealized holding gains and losses (if any), net of the related tax effect, on available-for-sale securities are reported as other comprehensive income or loss. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis. Fair values are estimated based on quoted market prices. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under that method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. STOCK OPTION PLANS The Company recognizes stock-based compensation expense for its stock option plans using the intrinsic value method. Under that method, no compensation expense is recorded if the exercise price of the employee stock options equals or exceeds the market price of the underlying stock on the date of grant. For disclosure purposes, pro forma net income and income per share are provided as if the fair value method had been applied. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. EARNINGS PER SHARE Net income per share has been calculated and presented for "basic" and "diluted" per share data. Net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted income per share is computed by dividing net income by the weighted average number of common shares adjusted for the dilutive effects of options and common equivalent shares outstanding. At December 31, 2001, 2000 and 1999, 72,591, 77,519 and 378,456 options, respectively, have been excluded from the diluted net income per share computation because their exercise price exceeds the fair market value. The weighted average shares outstanding is calculated as follows: 2001 2000 1999 ---- ---- ---- Common stock............................. 7,053,245 7,019,097 7,054,487 Dilutive effect of options............... 35,289 5,409 1,936 ---------- ---------- ---------- Weighted average shares used for dilutive per share.................... 7,088,534 7,024,506 7,056,423 ========== ========== ========== There are no reconciling items between the Company's reported net income and net income used in the computation of basic and diluted income per share. 24 COMPREHENSIVE INCOME The Company's only source of other comprehensive income is unrealized gains or losses on marketable debt securities. Other comprehensive income from marketable debt securities was not significant for the year ended December 31, 1999. (2) ACQUISITIONS On May 7, 2001, the Company acquired the healthcare survey business of The Picker Institute. The aggregate purchase price for the acquisition was $4.1 million, consisting of cash of $3.2 million, assumed liabilities for uncompleted customer contracts of $0.3 million and direct costs of acquisition of $0.6 million. The results of the acquired business have been included in the Company's operating results since the acquisition. The Company allocated the excess of purchase price over net assets acquired entirely to goodwill until the valuation is completed and the purchase price is allocated in accordance therewith. The goodwill was amortized using an estimated useful life of 10 years for financial reporting purposes during 2001, and is fully deductible over 15 years for income tax purposes. The following unaudited pro forma information presents the combined results of operations of the Company as if the acquisition occurred on January 1, 2000. These results included certain adjustments, including amortization of goodwill and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations if the acquisitions had been in effect at the beginning of each period or which may be attained in the future. Pro Forma Years Ended December 31, --------------------------------------- 2001 2000 ---- ---- (Dollars in thousands) (unaudited) Revenues 18,760 21,574 Net income 1,743 2,161 Earnings per share 0.25 0.31 During 1999, the Company paid $2.6 million of remaining purchase price payable related to the 1998 acquisition of Healthcare Research Systems, Ltd. (3) INVESTMENTS IN MARKETABLE DEBT SECURITIES The amortized cost, gross realized holding gains and losses and fair value of securities by major security type and class of security at December 31, 2001, were as follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Cost Gains Losses Fair Value Debt securities: ----------- ---------- --------- ----------- Obligations of U.S. government agencies $ 6,641,938 $ --- $ (6,341) $ 6,635,597 Other 946 --- --- 946 ----------- ---------- --------- ----------- Total $ 6,642,884 $ --- $ (6,341) $ 6,636,543 =========== ========== ========= ===========
25 The amortized cost, gross unrealized holding gains and losses and fair value by major security type and class of security at December 31, 2000 were as follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Cost Gains Losses Fair Value Debt securities: ----------- ---------- --------- ----------- Obligations of U.S. government agencies $ 6,595,541 $ --- $ (19,387) $ 6,576,154 Other 958 --- --- 958 ----------- ---------- --------- ----------- Total $ 6,596,499 $ --- $ (19,387) $ 6,577,112 =========== ========== ========= ===========
There were no sales of marketable securities in advance of scheduled maturities of available-for-sale marketable debt securities during 2001, 2000 or 1999. The fair value and amortized cost of debt securities at December 31, 2001, by contractual maturity, are shown below. Expected maturities will differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2001 --------------------------- Fair Amortized Value Cost ----- ---- Due after three months through one year... $3,197,330 $3,186,170 Due after one year through five years..... 3,438,267 3,455,768 ---------- ---------- $6,635,597 $6,641,938 ========== ========== (4) PROPERTY AND EQUIPMENT At December 31, 2001 and 2000 property and equipment consisted of the following: 2001 2000 ---- ---- Furniture and equipment.........................$ 1,429,032 $1,415,522 Computer equipment and software................. 6,390,505 5,407,782 Building........................................ 7,888,355 7,862,117 Land............................................ 425,000 425,000 ---------- ---------- 16,132,892 15,110,421 Less accumulated depreciation and amortization.. 3,225,695 1,892,081 ----------- ---------- Net property and equipment......................$12,907,197 $13,218,340 =========== =========== (5) GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets consist of the following at December 31, 2001 and 2000: 2001 2000 ---- ---- Customer lists......................... $ 359,048 $ 359,048 Goodwill............................... 9,465,703 5,417,771 ----------- ----------- 9,824,751 5,776,819 Less accumulated amortization.......... 1,285,573 719,058 ----------- ----------- Net goodwill and intangible assets..... $ 8,539,178 $ 5,057,761 =========== =========== 26 (6) INCOME TAXES Income tax expense (benefit) consisted of the following components: Current Deferred Total 2001: Federal................ $ 573,511 $ 267,808 $ 841,319 State.................. 74,006 38,309 112,315 ----------- ----------- ------------ Total............... $ 647,517 $ 306,117 $ 953,634 =========== =========== ============ 2000: Federal................ $ 608,400 $ 310,500 $ 918,900 State.................. 174,859 45,665 220,524 ----------- ----------- ------------ Total............... $ 783,259 $ 356,165 $ 1,139,424 =========== =========== ============ 1999: Federal................ $ 523,658 $ 102,767 $ 626,425 State.................. 106,181 15,085 121,266 ----------- ----------- ------------ Total............... $ 629,839 $ 117,852 $ 747,691 =========== =========== ============ The difference between the Company's income tax expense as reported in the accompanying financial statements and that which would be calculated applying the U.S. Federal income tax rate of 34% on pretax income is as follows:
2001 2000 1999 ---- ---- ---- Expected federal income taxes $ 892,100 $ 1,311,100 $ 755,800 State income taxes, net of federal benefit 74,100 153,600 80,100 Tax credits and incentives (2,600) (386,100) (66,000) Other (9,966) 60,824 (22,209) --------- ----------- ---------- Total $ 953,634 $ 1,139,424 $ 747,691 ========= =========== ==========
Deferred tax assets and liability at December 31, 2001 and 2000, were comprised of the following: 2001 2000 ---- ---- Deferred tax assets: Allowance for doubtful accounts.............. $ 39,649 $ 30,100 Accrued expenses............................. 170,800 157,800 Bonus and profit sharing accruals............ --- 34,000 Intangible assets............................ 418,800 461,000 Investments available-for-sale............... 2,156 5,816 ---------- ---------- Gross deferred tax assets.................. 631,405 688,716 Deferred tax liability:...................... Basis in property and equipment.............. 638,377 385,911 ---------- ---------- Net deferred tax assets (liability)........ $ (6,972) $ 302,805 =========== ========== The Company did not record a valuation allowance for its deferred tax assets because management believes that it is more likely than not that the Company will generate sufficient taxable income to fully realize these deferred tax benefits. 27 (7) NOTES PAYABLE Notes payable consist of the following: 2001 2000 ---- ---- Note payable to US Bank, at 8.25%, payable in monthly installments of $46,690 including interest, with final payment of principal and interest due October 31, 2010, secured by land and building $5,297,839 $5,410,050 Note payable to National Computer Systems, at 8.50%, payable in monthly installments of $1,430 including interest, with final payment of principal and interest due March 1, 2002, secured by an asset of the Company 4,230 20,282 ---------- --------- Total notes payable 5,302,069 5,430,332 Less current portion 132,312 134,518 ---------- ---------- Notes payable, net of current portion $5,169,757 $5,295,814 ========== ========== The aggregate maturities of notes payable for each of the five years subsequent to December 31, 2001 are: 2002 - $132,312; 2003 - $139,057; 2004 - $150,973; 2005 - $163,910; and 2006 - $177,956. (8) STOCK OPTION PLANS In August 1997, the Board of Directors adopted and the Company's shareholders approved the National Research Corporation 1997 Equity Incentive Plan (the " 1997 Equity Incentive Plan"). The 1997 Equity Incentive Plan provides for the granting of options, stock appreciation rights, restricted stock and/or performance shares with respect to up to an aggregate of 730,000 shares of the Company's common stock through the date of the Company's annual meeting of shareholders in the year 2001. Options granted may be either nonqualified or incentive stock options. Vesting terms vary with each grant, and option terms are generally five years. At December 31, 2001, there were no remaining shares available for issuance under the 1997 Equity Incentive Plan. In October 1997, the Board of Directors adopted and the Company's shareholders approved the National Research Corporation Director Stock Plan (the "Director Plan"). As amended in December 1997, the Director Plan provides for formula grants of nonqualified options to each director of the Company who is not an employee of the Company. On the date of each annual meeting of shareholders of the Company, each such director, if reelected or retained as a director at such meeting, is granted an option to purchase 1,000 shares of the Company's common stock. Option exercise prices equal the fair market value of the Company's common stock on the date of grant. Options vest one year following the date of grant and may be exercisable for a period of up to 10 years following the date of grant. Options to purchase 2,000 shares of the Company's common stock were granted in each of 2001, 2000 and 1999. At December 31, 2001, there were 22,000 shares available for issuance pursuant to future grants under the Director Plan. In August 2001, the Board of Directors adopted, subject to the approval of the Company's shareholders in May 2002, the National Research Corporation 2001 Equity Incentive Plan (the "2001 Equity Incentive Plan"). The 2001 Equity Incentive Plan provides for the granting of options, stock appreciation rights, restricted stock and/or performance shares with respect to up to an aggregate of 600,000 shares of the Company's common stock. Options granted may be either nonqualified or incentive stock options. Vesting terms vary with each grant, and option terms are generally five years. At December 31, 2001, there were 28 546,363 shares available for issuance pursuant to future grants under the 2001 Equity Incentive Plan. The Company has accounted for grants of 81, 962 options under the Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes. Although grants of options under the plan are subject to shareholder approval in 2002, shareholder approval is essentially a formality because management and members of the board control a sufficient number of votes to approve the plan and management and members of the board intend to vote to approve the plan in 2002. Options to purchase shares of common stock have been granted in 2001, 2000 and 1999 with exercise prices equal to the fair value of the common stock on the date of grant. Accordingly, no compensation expense was recorded for these grants. Had compensation cost for the stock option grants been determined using the fair value method, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
2001 2000 1999 ---- ---- ---- (in thousands, except per share amounts) Pro forma: Net income, as reported................................... $1,670 $2,717 $1,475 Net income, adjusted for the fair value method............ 1,607 2,687 1,324 Income per share, as reported (1)......................... $0.24 $0.39 $0.21 Income per share, adjusted for the fair value method (1).. 0.23 0.39 0.19
(1) Amounts are the same for both basic and diluted income per share. As of December 31, 2001, no stock appreciation rights, restricted stock or performance shares have been granted under the 1997 Equity Incentive Plan or the 2001 Equity Incentive Plan. The weighted average fair value of options granted in 2001, 2000 and 1999 was $1.97, $2.14 and $1.52, respectively. Pro forma net income reflects the allocation of compensation cost for stock option grants using the fair value method. Compensation cost is allocated between periods based upon the vesting period of the options. Therefore, the full impact of calculating compensation cost using the fair value method is not reflected in pro forma net income amounts presented above because compensation cost is amortized to expense over the vesting period, and additional options may be granted in future years. The fair value for these options for 2001, 2000 and 1999 was estimated at the date of grant using the Black-Scholes model with the following assumptions:
2001 2000 1999 ---- ---- ---- Expected dividend yield at date of grant..... 0 0 0 Expected stock price volatility.............. 45.0% 45.0% 45.0% Risk-free interest rate...................... 4.0% 6.0% 6.0% Expected life of options (in years).......... 3.75 to 5.00 3.75 to 5.00 3.75 to 5.00
29 The following information relates to options to purchase common stock: Number of Weighted Average Shares Exercise Price Balance at December 31, 1998........... 402,630 $6.33 Granted............................ 135,930 3.71 Canceled........................... (89,341) 5.51 --------- Balance at December 31, 1999........... 449,219 5.70 Granted............................ 38,218 4.99 Exercised.......................... (27,413) 4.13 Number of Weighted Average Shares Exercise Price Canceled........................... (118,332) 5.26 -------- Balance at December 31, 2000........... 341,692 5.90 Granted............................ 80,197 5.09 Exercised.......................... (63,180) 4.13 Canceled........................... (51,467) 6.51 --------- Balance at December 31, 2001........... 307,242 5.95 ======== Exercisable at December 31, 2001....... 226,304 6.27 ======== At December 31, 2001, the range of exercise prices for outstanding stock options was $2.188 to $15.00 and the weighted average remaining contractual life of outstanding stock options was 2.58 years, of which 197,774 shares are between $3.71 and $5.09. (9) LEASES The Company leased office space for a monthly base rental payment plus maintenance and utilities. Rental expense was $11,067, $276,359 and $401,105 during 2001, 2000 and 1999, respectively, and is included in selling, general and administrative expenses in the statements of income. During 2000 the Company moved out of the leased office space and into its own building. The Company also leases printing equipment and services. The future minimum lease payments under noncancelable operating leases for each of the five years subsequent to December 31, 2001 are: 2002 - $233,178; 2003 - $205,182; 2004 - $205,182: 2005 - 205,182: and 2006 - $18,127. (10) EMPLOYEE BENEFITS The Company sponsors a qualified defined contribution profit sharing plan covering substantially all employees with a minimum service of 1,000 hours and one year of service except for highly compensated employees covered by other nonqualified profit sharing plans. Employer contributions, which are discretionary, vest to participants at a rate of 20% per year. No contributions were made by the Company in 2001, 2000 and 1999. The Company also sponsors nonqualified profit sharing bonus and incentive plans for employees and members of executive management of the Company. Certain bonuses under the executive management incentive plan are paid over a five-year period. Expense recorded under these plans was $119,279, $273,793 and $162,458 in 2001, 2000 and 1999, respectively. 30 (11) RESTRUCTURING EXPENSES AND IMPAIRMENT OF ASSETS During 1999, the Company recorded provisions related to restructuring expenses and impairments of long-lived assets. The Company's restructuring activities included the elimination of substantially all of the Company's Columbus, Ohio work force and the abandonment of duplicative facilities. The Company's restructuring plan commitments, which were fully completed in 1999, included the following: o Severance costs of $104,437 were accrued related to the termination of fourteen employees at the Company's Columbus, Ohio location. These employees represent substantially all of the Company's full-time work force in Columbus, Ohio. These severance benefits were paid in full during 2000. o Impairment losses of $230,813 were recorded in 1999 for the Company's intangible asset, workforce in place, which was acquired in connection with the Company's 1998 acquisition of Healthcare Research Systems, Ltd.. The abandonment of this intangible asset occurred concurrent with management's plans to eliminate substantially all of its full-time Columbus, Ohio workforce. o Impairment losses of $17,428 were recognized in 1999 in connection with property and equipment abandoned with the Columbus, Ohio facilities. o Lease costs of $11,287 were accrued for contractual commitments on abandoned facilities. After income taxes, these actions reduced 1999 net income by approximately $235,000, or $.03 per share. Management terminated its remaining call center work force in Columbus, Ohio during 2000. The cost of terminating this remaining workforce was not significant. (12) SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31, 2001, 2000 and 1999, the Company paid interest of $454,250, $417,567 and $62,685, respectively, including capitalized interest of $0, $325,963 and $54,617, respectively. For the years ended December 31, 2001, 2000 and 1999, the Company paid income taxes of $820,519, $1,068,798 and $397,540, respectively. Accounts payable at December 31, 2001, 2000 and 1999, included $70,958, $555,270 and $863,216, respectively, for purchases of property and equipment. In connection with the Company's acquisition of a business during 2001, the Company assumed unearned revenues of $285,702 for uncompleted customer contracts. (13) LEGAL PROCEEDINGS In May 2000, Cap Gemini America, Inc., the software developer of the Company's automated software process (a proprietary system that automates the creation and processing of surveys), filed a lawsuit against the Company in the United States District Court for the District of Nebraska seeking approximately $1.1 million the Company owed but withheld under a consulting agreement between Cap Gemini and the Company. The Company subsequently filed a counter suit against Cap Gemini. On February 21, 2002, a jury returned a verdict partly in favor of Cap Gemini and ordered that the Company pay to Cap Gemini approximately $700,000. The Company is also required to pay prejudgment interest of approximately $64,000. The Company had a liability of $800,000 recorded related to the acquisition of software. An expense will be recorded by the Company in 2002 related to the prejudgment interest awarded to the plaintiff. 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item with respect to directors and Section 16 compliance is included under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders ("Proxy Statement") and is hereby incorporated herein by reference. Information with respect to the executive officers of the Company appears in Part I, page 7 of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is included under the captions "Board of Directors-Director Compensation" and "Executive Compensation" in the Proxy Statement and is hereby incorporated herein by reference; provided, however, that the subsection entitled "Executive Compensation-Report on Executive Compensation" shall not be deemed to be incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is included under the caption "Principal Shareholders" in the Proxy Statement and is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial statements - The financial statements listed in the accompanying index to financial statements and financial statement schedules are filed as part of this Annual Report on Form 10-K. 2. Financial statement schedules - The financial statement schedules listed in the accompanying index to financial statements and financial statement schedules are filed as part of this Annual Report on Form 10-K. 3. Exhibits - The exhibits listed in the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K None. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on this 29th day of March, 2001. NATIONAL RESEARCH CORPORATION By /s/ Michael D. Hays ------------------------------------- Michael D. Hays President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Michael D. Hays President, Chief Executive Officer March 29, 2002 - ------------------------- and Director (Principal Executive Michael D. Hays Officer) /s/ Patrick E. Beans Vice President, Treasurer, Secretary, March 29, 2002 - ------------------------- Chief Financial Officer and Director Patrick E. Beans (Principal Financial and Accounting Officer) /s/ John N. Nunnelly Director March 29, 2002 - ------------------------- John N. Nunnelly /s/ Paul C. Schorr, III Director March 29, 2002 - ------------------------- Paul C. Schorr, III /s/ JoAnn M. Martin Director March 29, 2002 - ------------------------- JoAnn M. Martin 33 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page in this Form 10-K ---------------------- Independent Auditors' Report 17 Balance Sheets as of December 31, 2001 and 2000 18 Statements of Income for each of the years in the three-year period ended December 31, 2001 19 Statements of Shareholders' Equity and Comprehensive 20 Income for each of the years in the three-year period ended December 31, 2001 Statements of Cash Flows for each of the three years 21 in the period ended December 31, 2001 Notes to Financial Statements 22-31 Independent Auditors' Report on Financial Statement Schedule 35 Financial Statement Schedule: 36 II - Valuation and Qualifying Accounts All other financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto. 34 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Board of Directors National Research Corporation: Under date of February 12, 2002, except as to Note 13, which is as of February 21, 2002, we reported on the balance sheets of National Research Corporation as of December 31, 2001 and 2000, and the related statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2001, which are included in the Company's Annual Report on Form 10-K. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Lincoln, Nebraska February 12, 2002 35 NATIONAL RESEARCH CORPORATION Schedule II -- VALUATION AND QUALIFYING ACCOUNTS Balance at Write-offs, Balance Beginning Bad Debt Net of at End of Year Expense Recoveries of Year Allowance for doubtful accounts: Year Ended December 31, 1999..... $61,891 45,000 43,793 63,098 Year Ended December 31, 2000..... $63,098 89,000 74,822 77,276 Year Ended December 31, 2001..... $77,276 65,000 40,602 101,674 See accompanying independent auditors' report. 36 EXHIBIT INDEX Exhibit Number Exhibit Description (3.1) Articles of Incorporation of National Research Corporation, as amended to date [Incorporated by reference to Exhibit (3.1) to National Research Corporation's Form S-1 Registration Statement (Registration No. 333-33273)] (3.2) By-Laws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit (3.2) to National Research Corporation's Form S-1 Registration Statement (Registration No. 333-33273)] (10.1)* National Research Corporation 1997 Equity Incentive Plan [Incorporated by reference to Exhibit (10.2) to National Research Corporation's Form S-1 Registration Statement (Registration No. 333-33273)] (10.2)* National Research Corporation 2001 Equity Incentive Plan [Incorporated by reference to National Research Corporation's Proxy Statement for the 2002 Annual Meeting of Shareholders] (10.3)* National Research Corporation Director Stock Plan, as amended to date [Incorporated by reference to Exhibit (10.2) to National Research Corporation's Form 10-K for the year ended December 31, 1997 (File No. 0-29466)] (10.4)+ Contract, dated January 23, 2002, between National Research Corporation and the Department of Veterans Affairs (23) Consent of KPMG LLP (99) Proxy Statement for the 2002 Annual Meeting of Shareholders, to be filed within 120 days of December 31, 2002 [To be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after December 31, 2001; except to the extent specifically incorporated by reference, the Proxy Statement for the 2002 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K] - -------------------- * A management contract or compensatory plan or arrangement. + Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted material was filed separately with the Securities and Exchange Commission. 37 EX-10.4 3 pdm291d.txt CONTRACT DEPARTMENT OF VETERANS AFFAIRS Medical Center 508 Fulton Street Durham NC 27705 January 23, 2002 In Reply Refer To: 558/90C National Research Corporation Attn: Patrick E. Beans 1245 Q. Street Lincoln, NE 68508 Dear Mr. Bean: Acceptance is made of your offer submitted in response to our RFQ 558-Q4l-02 to furnish Veteran Satisfaction Surveys for the Performance Analysis Center for Excellence (PACE), located at 615 Davis Drive, Suite 800, Morrisville, NC, under the MOBIS Contract No. GS-1OF-0332L. The period of the contract is established for January 23, 2002 through September 30, 2002 in the estimated annual amount of $4,665,882.00. Purchase Order Number 558-HT1002 has been assigned and must appear on all invoices and future correspondence. An executed copy of the contract is enclosed for your files. In accordance with VAAR Clause 852.270-1, PACE Staff members have been delegated Contracting Officer's Technical Representatives on this contract. All work performed under this contract must be coordinated through the representatives. A copy of the memo of delegation is enclosed. Payment will be made monthly in arrears upon submission of your properly prepared invoice to the Resource Support Service (04), VA Medical Center (558), 1970 Roanoke Blvd., Salem, VA 24153. The contract number must be reflected on your invoice. If there are any questions, please feel free to contact the undersigned at (919) 286-6915. Sincerely, BERMA K. NORRIS Contracting Officer Enclosures: Purchase Order No. 558-HT1002 Delegation of COTR 1
==================================================================================================================================== SOLICITATION/CONTRACT/ORDER FOR COMMERCIAL ITEMS 1. REQUISITION NUMBER PAGE 1 OF 36 OFFEROR TO COMPLETE BLOCKS 12, 17, 23, 24 & 30 558-02-2-8888-0944 - ------------------------------------------------------------------------------------------------------------------------------------ 2. CONTRACT NO. 3. AWARD/EFFECTIVE 4. ORDER NUMBER 5. SOLICITATION NUMBER 6. SOLICITATION ISSUE DATE GS-10F-0332L DATE 1/23/02 558-HT1002 558-Q41-02 10/9/2001 - ------------------------------------------------------------------------------------------------------------------------------------ 7. FOR SOLICITATION a. NAME b. TELEPHONE NUMBER (No 8. OFFER DUE DATE/ INFORMATION CALL: Berma Norris Collect Calls) 10/24/01; 4:30 pm LOCAL 919/286-6915 - ------------------------------------------------------------------------------------------------------------------------------------ 9. ISSUED BY CODE 558/90C 10. THIS ACQUISITION IS 11. DELIVERY FOR FOB 12. DISCOUNT TERMS DESTINATION UNLESS |X| UNRESTRICTED BLOCK IS MARKED |_| SET ASIDE % FOR |_| SEE SCHEDULE Department of Veterans Affairs |_| SMALL BUSINESS VA Medical Center |_| SMALL DISADV. BUSINESS Acquisition Materiel Management (90C) |_| 8(A) 508 Fulton Street Durham, NC 27705 NAICS Attn: Berma Norris SIC. 541613 SIZE STANDARD: $5.0 MILLION - ------------------------------------------------------------------------------------------------------------------------------------ |_|13A. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 700) N/A - ------------------------------------------------------------------------------------------------------------------------------------ 13B. RATING N/A - ------------------------------------------------------------------------------------------------------------------------------------ 14. METHOD OF SOLICITATION |X| RFQ |_| IFB |_| RFP - ------------------------------------------------------------------------------------------------------------------------------------ 15. DELIVER TO CODE 16. ADMINISTERED BY CODE Same as Block 9 Same as Block 9 - ------------------------------------------------------------------------------------------------------------------------------------ CODE 1TFT6 FACILITY 18A. PAYMENT WILL BE MADE BY CODE CODE National Research Corporation RESOURCES SUPPORT SERVICE (04) 1245 Q. Street VA Medical Center (558) Lincoln, NE 68508 1970 Roanoke Blvd. Salem, VA 24153 Duns No. 05-085-7788 Telephone No. 800-388-4264 fax 402-475-9061 - ------------------------------------------------------------------------------------------------------------------------------------ |_| 18B.SUBMIT INVOICES TO ADDRESS SHOWN IN BLOCK 18A UNLESS BLOCK BELOW IS CHECKED 17B.CHECK IF REMITTANCE IS DIFFERENT AND PUT SUCH |_| SEE ADDENDUM ADDRESS IN OFFER - ------------------------------------------------------------------------------------------------------------------------------------ 19 20 21 22 23 24 ITEM NO. SCHEDULE OF SUPPLIES/SERVICE QUANTITY UNIT UNIT PRICE AMOUNT - ------------------------------------------------------------------------------------------------------------------------------------ 1. Furnish Veteran Satisfaction Surveys in accordance Attached with the attached scope of work for the Performance Analysis Center for Excellence (PACE) located at 615 Davis Drive, Suite 800, Morrisville, NC, in accordance with MOBIS - Schedule 874-3 Survey Services. AS DESCRIBED HEREIN: (ATTACH ADDITIONAL SHEETS AS NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------------ 25. ACCOUNTING AND APPROPRIATION DATA 26. TOTAL AMOUNT AWARD (FOR GOVT. USE ONLY) 36X4537B3 BOC 2529 Cost Center 615300 HT1002 Est. $4,665,882.00 - ------------------------------------------------------------------------------------------------------------------------------------ |X| 27A.SOLICITATION INCORPORATES BY REFERENCE FAR 52.212-1, 52.212-4. FAR 52.212-3 ADDENDA |X| ARE |_| ARE NOT ATTACHED. AND FAR 52.212-5 ARE ATTACHED. |_| 27B.CONTRACT/PURCHASE ORDER INCORPORATES BY REFERENCE FAR 52.212-4. ADDENDA |_| ARE |_| ARE NOT ATTACHED. FAR 52.212-5 IS ATTACHED. - ------------------------------------------------------------------------------------------------------------------------------------ 28. CONTRACTOR IS REQUIRED TO SIGN THIS DOCUMENT AND RETURN ___0____ COPIES 29. AWARD OF CONTRACT: REFERENCE __your__ OFFER TO ISSUING OFFICE. CONTRACTOR AGREES TO FURNISH AND DELIVER ALL ITEMS SET |X| YOUR OFFER ON SOLICITATION (BLOCK 5), |X| FORTH OR OTHERWISE IDENTIFIED ABOVE AND ON ANY ADDITIONAL SHEETS SUBJECT TO INCLUDING ANY ADDITIONS OR CHANGES WHICH ARE SET THE TERMS AND CONDITIONS SPECIFIED HEREIN. FORTH HEREIN, IS ACCEPTED AS TO ITEMS: MARKED "A" DATED 10/23/01 - ------------------------------------------------------------------------------------------------------------------------------------ 30A. SIGNATURE OF OFFEROR/CONTRACTOR 31A. UNITED STATES OF AMERICA (SIGNATURE OF CONTRACTING OFFICER) - ------------------------------------------------------------------------------------------------------------------------------------ 30B. NAME AND TITLE OF SIGNER (TYPE OR PRINT) 30C DATE SIGNED 31B. NAME OF CONTRACTING OFFICER (TYPE OR PRINT) 31C. DATE SIGNED Patrick E. Beans, CFO 10/23/01 BERMA K. NORRIS - ------------------------------------------------------------------------------------------------------------------------------------ 32A. QUANTITY IN COLUMN 21 HAS BEEN 33. SHIP NUMBER 34. VOUCHER NUMBER 35. AMOUNT VERIFIED CORRECT FOR |_| RECEIVED |_| INSPECTED |_| ACCEPTED AS CONFORMS TO THE ----------------- CONTRACT, EXCEPT AS NOTED PARTIAL FINAL - ------------------------------------------------------------------------------------------------------------------------------------ 32B. SIGNATURE OF AUTHORIZED GOVT. REPRESENTATIVE 32C. DATE 36. PAYMENT 37. CHECK NUMBER __ COMPLETE __ PARTIAL __ FINAL - ------------------------------------------------------------------------------------------------------------------------------------ 41A. I CERTIFY THIS ACCOUNT IS CORRECT AND PROPER FOR PAYMENT 38. S/R ACCOUNT NUMBER 39. S/R VOUCHER NUMBER 40. PAID BY - ------------------------------------------------------------------------------------------------------------------------------------ 42A. RECEIVED BY (PRINT) - ------------------------------------------------------------------------------------------------------------------------------------ 41B. SIGNATURE AND TITLE OF CERTIFYING OFFICER 41C. DATE 42B. RECEIVED AT (LOCATION) - ------------------------------------------------------------------------------------------------------------------------------------ 42C. DATE REC'D 42D. TOTAL CONTAINERS (YY/MM/DD) - ------------------------------------------------------------------------------------------------------------------------------------
2 RFQ 558-Q41-02 CONTINUATION BLOCK 2.1 CONTRACT ADMINISTRATION DATA (continuation from Standard Form 1449, block 18A.) 1. Contract Administration: All contract administration matters will be handled by the following individuals: a. CONTRACTOR: National Research Corporation 1245 Q. Street Lincoln, NE 68508 b. GOVERNMENT: Contracting Officer (90C) Berma Norris Dept. of Veterans Affairs Medical Center 508 Fulton Street Durham NC 27705-3875 2. CONTRACTOR REMITTANCE ADDRESS: All payments by the Government to the contractor will be made in accordance with: [X] 52.232-34, Payment by Electronic Funds Transfer - Other than Central Contractor Registration, or mailed to the following address: ------------------------------------------------ --------------------------------------------- --------------------------------------------- 3. INVOICES: Invoices shall be submitted in arrears: a. Quarterly [ ] b. Semi-Annually [ ] c. Other [X] (please specify) Monthly ------- 4. GOVERNMENT INVOICE ADDRESS: All invoices from the contractor shall be mailed to the following address: Fiscal Officer (04) Department of Veterans Affairs Medical Center 508 Fulton Street Durham, NC 27705 OFFERORS MUST COMPLETE AND RETURN ALL INFORMATION DESIGNATED IN 52.212-1, INSTRUCTIONS TO OFFERORS - COMMERCIAL ITEMS, PARAGRAPH b, PRIOR TO THE TIME SPECIFIED IN BLOCK 8 OF SF 1449 IN ORDER TO BE CONSIDERED FOR AWARD. ACKNOWLEDGMENT OF AMENDMENTS: The offeror acknowledges receipt of amendments to the Solicitation numbered and dated as follows: 3 Price/Cost Proposal - VHA RFQ NRC Alternate Approach 4 Price/Cost Proposal - VHA RFQ NRC Alternate Approach Base Year - September 2002 - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 1. Recently Discharged Inpatient Survey Semi-Annually (* estimated patients) 2 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 2. Ambulatory Care Survey General Primary Care Visits (Quarterly) (* estimated patients) 4 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 3. Ambulatory Care Survey Persian Gulf Era Survey (Deployed and Non-Deployed) Annually 1 Surveys * * (* estimated patients) 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 5 - -------------------------------------------------------------------------------- 4. Ambulatory Care Spinal Cord Patient Survey Annually (* estimated patients) 1 Surveys * * 16 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 5. Home Based Primary Care Survey Annually (* estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 6. Prosthetics and Sensory Aids Patient Survey (* estimated patients) 1 Surveys * * 10 pages approx. (Every other year) Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 7. Diabetic Foot Care (DQIP) Annually (* estimated patients) 1 Surveys * * 20 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 6 The Government may exercise the option to renew this contract for four (4) additional years in accordance with Clause 52.217-9. If the option is exercised, written notice will be provided. SUPPLIES OR SERVICES AND PRICE/COST OPTION YEAR I: Contractor to provide all labor, equipment, materials and supervision to process Patient Surveys as listed herein for the Department of Veterans Affairs for the period of October 1, 2002 through September 30, 2003. - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 1. Recently Discharged Inpatient Survey Semi-Annually (* estimated patients) 2 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 2. Ambulatory Care Survey General Primary Care Visits (Quarterly) (* estimated patients) 4 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 7 - -------------------------------------------------------------------------------- 3. Ambulatory Care Survey Persian Gulf Era Survey (Deployed and Non-Deployed) Annually (*estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 4. Ambulatory Care Spinal Cord Patient Survey Annually (* estimated patients) 1 Surveys * * 16 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 5. Home Based Primary Care Survey Annually (* estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 6 Diabetic Foot Care (DQIP) Annually (* estimated patients) 1 Surveys * * 20 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 8 SUPPLIES OR SERVICES AND PRICE/COST OPTION YEAR II: Contractor to provide all labor, equipment, materials and supervision to process Patient Surveys as listed herein for the Department of Veterans Affairs for the period of October 1, 2003 through September 30, 2004. - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 1. Recently Discharged Inpatient Survey Semi-Annually (* estimated patients) 2 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 2. Ambulatory Care Survey General Primary Care Visits (Quarterly) (* estimated patients) 4 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 3. Ambulatory Care Survey Persian Gulf Era Survey (Deployed and Non-Deployed) Annually (*estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 9 - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 4. Ambulatory Care Spinal Cord Patient Survey Annually (* estimated patients) 1 Surveys * * 16 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 5. Home Based Primary Care Survey Annually (* estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 6. Prosthetics and Sensory Aids Patient Survey (* estimated patients) 1 Surveys * * 10 pages approx. (Every other year) Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 7. Diabetic Foot Care (DQIP) Annually (* estimated patients) 1 Surveys * * 20 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 10 SUPPLIES OR SERVICES AND PRICE/COST OPTION YEAR III: Contractor to provide all labor, equipment, materials and supervision to process Patient Surveys as listed herein for the Department of Veterans Affairs for the period of October 1, 2004 through September 30, 2005. - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 1. Recently Discharged Inpatient Survey Semi-Annually (* estimated patients) 2 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 2. Ambulatory Care Survey General Primary Care Visits (Quarterly) (* estimated patients) 4 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 3. Ambulatory Care Survey Persian Gulf Era Survey (Deployed and Non-Deployed) Annually (*estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 11 - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 4. Ambulatory Care Spinal Cord Patient Survey Annually (* estimated patients) 1 Surveys * * 16 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 5. Home Based Primary Care Survey Annually (* estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 6. Diabetic Foot Care (DQIP) Annually (* estimated patients) 1 Surveys * * 20 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 12 SUPPLIES OR SERVICES AND PRICE/COST OPTION YEAR IV: Contractor to provide all labor, equipment, materials and supervision to process Patient Surveys as listed herein for the Department of Veterans Affairs for the period of October 1, 2005 through September 30, 2006. - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 1. Recently Discharged Inpatient Survey Semi-Annually (* estimated patients) 2 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 2. Ambulatory Care Survey General Primary Care Visits (Quarterly) (* estimated patients) 4 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 3. Ambulatory Care Survey Persian Gulf Era Survey (Deployed and Non-Deployed) Annually (* estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 13 - -------------------------------------------------------------------------------- ITEM TOTAL NO. SURVEY DESCRIPTION QTY UNIT UNIT COST COST - -------------------------------------------------------------------------------- 4. Ambulatory Care Spinal Cord Patient Survey Annually (* estimated patients) 1 Surveys * * 16 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 5. Home Based Primary Care Survey Annually (* estimated patients) 1 Surveys * * 12 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 6. Prosthetics and Sensory Aids Patient Survey (* estimated patients) 1 Surveys * * 10 pages approx. (Every other year) Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- 7. Diabetic Foot Care (DQIP) Annually (* estimated patients) 1 Surveys * * 20 pages approx. Set Up Costs * Printing * Distribution Costs * Receipt and Processing Costs * Comment Capture * Reporting * POSTAGE * - -------------------------------------------------------------------------------- * Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the SEC pursuant to Rule 24b-2. 14 EX-23 4 pdm291b.txt CONSENT [KPMG LOGO] Accountants' Consent The Board of Directors National Research Corporation: We consent to incorporation by reference in the registration statements (File No. 333-52135 and 333-52143) on Form S-8 of National Research Corporation of our report dated February 12, 2002, except as to note 13 which is as of February 21, 2002, relating to the balance sheets of National Research Corporation as of December 31, 2001 and 2000, and the related statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2001, and the related financial statement schedule, which reports appear in the December 31, 2001, annual report on Form 10-K of National Research Corporation. /s/ KPMG LLP Lincoln, Nebraska March 26, 2002 -----END PRIVACY-ENHANCED MESSAGE-----