-----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, AAOWOLxrzbhgN2BB36r66mu0Y6QY4+IKup7YQJetCFyyBfsKl2scKjoCIW+addsp DywHhV2eBTQUWYtM5SwoHA== 0000897069-98-000295.txt : 19980518 0000897069-98-000295.hdr.sgml : 19980518 ACCESSION NUMBER: 0000897069-98-000295 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL RESEARCH CORP CENTRAL INDEX KEY: 0000070487 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 470634000 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29466 FILM NUMBER: 98622430 BUSINESS ADDRESS: STREET 1: 1033 O ST CITY: LINCOLN STATE: NE ZIP: 68508 BUSINESS PHONE: 4024752525 MAIL ADDRESS: STREET 1: 1033 O ST CITY: LINCOLN STATE: NE ZIP: 68508 10-Q 1 NATIONAL RESEARCH CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission File Number 0-29466 National Research Corporation (Exact name of Registrant as specified in its charter) Wisconsin 47-0634000 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1033 "O" Street, Lincoln, Nebraska 68508 (Address of principal executive offices) (Zip Code) (402) 475-2525 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.001 par value, outstanding as of May 1, 1998: 7,305,000 shares NATIONAL RESEARCH CORPORATION FORM 10-Q INDEX For the Quarter Ended March 31, 1998 Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets 3 Condensed Statements of Income 4 Condensed Statements of Cash Flows 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 Exhibit Index 12 PART I - Financial Information ITEM 1 Financial Statements NATIONAL RESEARCH CORPORATION CONDENSED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) Assets Current assets: Cash and cash equivalents $ 3,893,360 $ 4,688,352 Investments in marketable debt securities 15,651,125 13,220,553 Trade accounts receivable less allowance for doubtful accounts of $67,808 in 1998 and $62,808 in 1997 1,331,743 3,094,772 Unbilled revenues 633,872 559,856 Prepaid expenses and other 576,697 184,156 Deferred income taxes 112,255 127,225 ----------- ----------- Total current assets 22,199,052 21,874,914 ----------- ----------- Property and equipment, net of accumulated depreciation and amortization 725,306 519,955 Deferred income taxes 136,745 155,775 Other 42,538 12,482 ----------- ----------- Total assets $23,103,641 $22,563,126 =========== =========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $ 902,387 $ 615,930 Accrued wages, bonuses and profit sharing 710,025 1,161,917 Income taxes payable 363,229 118,000 Billings in excess of revenues earned 2,155,697 2,297,751 ----------- ----------- Total current liabilities 4,131,338 4,193,598 Bonuses and profit sharing accruals 289,701 248,684 ----------- ----------- Total liabilities 4,421,039 4,442,282 ----------- ----------- Shareholders' equity: Common stock, $.001 par value; authorized 20,000,000 shares, issued and outstanding 7,305,000 Preferred stock, $.01 par value; authorized 2,000,000 7,305 7,305 shares, no shares issued and outstanding Additional paid-in capital -- -- Retained earnings 16,839,839 16,839,839 1,835,458 1,273,700 ---------- ---------- Total shareholders' equity 18,682,602 18,120,844 ---------- ---------- Total liabilities and shareholders' equity $23,103,641 $22,563,126 ========== ========== See accompanying notes to condensed financial statements.
NATIONAL RESEARCH CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, 1998 1997 Revenues: Renewable performance tracking services $2,787,493 $2,871,051 Renewable syndicated service 301,104 340,621 Custom and other research 317,503 228,122 --------- --------- Total revenues 3,406,100 3,439,794 --------- --------- Operating expenses: Direct expenses 1,508,961 1,393,421 Selling, general and administrative 1,188,588 950,802 Depreciation and amortization 51,993 41,597 --------- --------- Total operating expenses 2,749,542 2,385,820 --------- --------- Operating income 656,558 1,053,974 Interest and other income, net 262,200 45,067 Income before income taxes 918,758 1,099,041 Provision for income taxes 357,000 -- --------- --------- Net income $ 561,758 $1,099,041 ========= ========= Net income $ 561,759 $1,099,041 Pro forma income taxes -- 439,614 --------- --------- Pro forma net income 561,758 659,427 ========= ========= Pro forma net income per share - basic and diluted $ .08 $ .11 ========= ========= Weighted average common shares outstanding 7,305,000 6,184,812 ========= ========= See accompanying notes to condensed financial statements. NATIONAL RESEARCH CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1998 1997 Cash flows from operating activities: Net income $ 561,758 $ 1,099,041 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 51,993 41,597 Changes in assets and liabilities: Trade accounts receivable 1,763,029 (1,199,219) Unbilled revenues (74,016) (55,635) Prepaid expenses and other (392,541) 2,523 Deferred income taxes 34,000 -- Accounts payable and accrued expenses 286,457 354,459 Accrued wages, bonuses and profit sharing (410,875) (40,184) Income taxes payable 245,229 -- Billings in excess of revenues earned (142,054) 394,781 ---------- --------- Net cash provided by operating activities 1,922,980 597,363 ---------- --------- Cash flows from investing activities: Purchases of property and equipment (287,400) (184,539) Purchases of securities available-for-sale (4,430,572) (24,295) Proceeds from the maturities of securities available-for-sale 2,000,000 1,500,000 ---------- --------- Net cash provided by (used in) investing activities (2,717,972) 1,291,166 ---------- --------- Cash used in financing activity: Dividends paid -- (359,384) ---------- --------- Net increase (decrease) in cash and cash (794,992) 1,529,145 equivalents Cash and cash equivalents at beginning of period 4,688,352 2,782,212 ---------- --------- Cash and cash equivalents at end of period $3,893,360 $4,311,357 ========== ========= See accompanying notes to condensed financial statements.
NATIONAL RESEARCH CORPORATION Notes to Condensed Financial Statements 1. INTERIM FINANCIAL REPORTING The condensed balance sheet of National Research Corporation (the "Company") at December 31, 1997 was derived from the Company's audited balance sheet as of that date. All other financial statements contained herein are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) the Company considers necessary for a fair presentation of financial position, results of operations and cash flows in accordance with generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto that are included in the Company's Form 10-K for the fiscal year ended December 31, 1997, filed with the Securities and Exchange Commission in March 1998. On January 1, 1998, the Company adopted the American Institute of Certified Public Accountants Statement of Position No. 98-1 (SOP 98-1), Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Under that accounting standard, 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 $195,000 of costs incurred for the development of internal use software for the three months ended March 31, 1998, with such costs classified as property and equipment. Prior to January 1, 1998, the Company's accounting policy was to expense as incurred all costs of software developed for internal use. Costs incurred prior to January 1, 1998, for the development of internal use software have not been adjusted or capitalized as a result of the Company's adoption of SOP 98-1. 2. S CORPORATION STATUS From August 1, 1994 through October 13, 1997 (three days prior to the Company's initial public offering), the Company was an S Corporation and, accordingly, was not subject to Federal and state income taxes for the three months ended March 31, 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. Since October 14, 1997, the Company has been a C Corporation. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth, for the periods indicated, selected financial information derived from the Company's condensed financial statements, expressed as a percentage of total revenues. The trends illustrated in the following table may not necessarily be indicative of future results. The discussion that follows the table should be read in conjunction with the condensed financial statements. Percentage of Total Revenues Three Months Ended March 31, 1998 1997 Revenues: Renewable performance tracking services 81.8% 83.5% Renewable syndicated service 8.8 9.9 Custom and other research 9.4 6.6 ------ ------ Total revenues 100.0 100.0 ====== ====== Operating expenses: Direct expenses 44.3 40.5 Selling, general and administrative 34.9 27.6 Depreciation and amortization 1.5 1.2 ------ ----- Total operating expenses 80.7 69.3 ------ ----- Operating income 19.3% 30.7% ====== ===== Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Total revenues. Total revenues remained constant in the three month periods ended March 31, 1998 and 1997 at $3.4 million. Revenues from the Company's renewable performance tracking services decreased 2.9% to $2.8 million in the three month period ended March 31, 1998 from $2.9 million in the same period during 1997 primarily due to the loss of a large client, Kaiser Permanente-Northern California Region ("Kaiser"), which was largely offset by an increase in the scope of existing tracking projects and, to a lesser extent, the addition of new clients. Revenues for the Company's renewable syndicated service decreased 11.6% to $301,000 in the three month period ended March 31, 1998 compared to $341,000 in the same three month period in 1997 due to timing of sales. The Company's custom research revenue increased 39.2% to $318,000 in the three month period ended March 31, 1998 from $228,000 in the same period of 1997 primarily due to the timing of the start and completion of projects during the quarter. Direct expenses. Direct expenses increased 8.3% to $1.5 million in the three month period ended March 31, 1998 from $1.4 million in the same period during 1997. The increase in direct expenses in the 1998 period was due to an increase in labor and payroll expenses of $132,000 primarily due to the Company not reducing its full-time labor force in proportion with the reduction in revenues due to the loss of Kaiser as a client, which was partially offset by a decrease in postage and printing expenses of $79,000. Direct expenses increased as a percentage of total revenues to 44.3% in the three month period ended March 31, 1998 from 40.5% during the same period of 1997. The increase in direct expenses as a percentage of total revenues in the 1998 period was due to the Company maintaining its full-time labor force and not reducing such labor force in proportion with the reduction in revenues due to the loss of Kaiser as a client. Selling, general and administrative expenses. Selling, general and administrative expenses increased 25.0% to $1.2 million for the three month period ended March 31, 1998 from $951,000 for the same period in 1997. This increase was primarily due to an increase of $182,000 associated with the expansion of the Company's sales and marketing workforce and expenses of $127,000 associated with being a public company. Sales, general and administrative expenses increased as a percentage of total revenues to 34.9% for the three month period ended March 31, 1998 from 27.6% for the same period in 1997. Depreciation and amortization. Depreciation and amortization expenses increased 25.0% to $52,000 in the three month period ended March 31, 1998 from $42,000 in the same period of 1997. Depreciation and amortization expenses increased as a percentage of total revenues to 1.5% in the three month period ended March 31, 1998 from 1.2% in the same period of 1997. Liquidity and Capital Resources The Company's principal source of funds historically has been cash flow from its operations. The Company's cash flow has been sufficient to provide funds for working capital and capital expenditures. As of March 31, 1998, the Company had cash and cash equivalents of $3.9 million and working capital of $18.1 million. During the three months ended March 31, 1998, the Company generated $1.9 million of net cash from operating activities as compared to $597,000 of net cash generated during the same period in the prior year. The increase in cash flow was mainly due to the timing of the collection of a $717,000 account receivable in January 1998 and the timing of costs incurred in advance of billings on certain projects, combined with a decline in accounts receivable and unchanging balances in unbilled revenues and billings in excess of cost. For the three months ended March 31, 1998, net cash used by investing activities was $2.7 million as compared to net cash provided of $1.3 million during the same period in the prior year. The 1998 decrease in cash provided was primarily due to the purchase of investments available- for-sale, which was partially offset by an investment of $287,000 in furniture, computer equipment, software and production equipment to meet the needs of the Company's business. The 1997 cash provided was primarily due to the maturing of investments available-for-sale, which was partially offset by an investment of $185,000 in furniture, computer equipment and production equipment. The Company's investments available-for-sale consist principally of United States government securities with maturities of twelve months or less. Net cash used in financing activities was $0 and $359,000 for the three months ended March 31, 1998 and 1997, respectively. Net cash used in financing activities for the 1997 period was the result of S Corporation distributions to shareholders. The Company typically bills clients for projects before they have been completed. Billed amounts are recorded as billings in excess of costs or deferred revenue on the Company's financial statements and are recognized as income when earned. As of March 31, 1998 and as of December 31, 1997, the Company had $2.1 million and $2.3 million of deferred revenues, respectively. In addition, when work is performed in advance of billing, the Company records this work as a cost in excess of billings or unbilled revenue. At March 31, 1998 and December 31, 1997, the Company had $634,000 and $560,000 of unbilled revenues, respectively. Substantially all deferred and unbilled revenues will be earned and billed, respectively, within 12 months of the respective period ends. PART II - Other Information ITEM 2 Changes in Securities and Use of Proceeds (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) The Company's Registration Statement on Form S-1 (Registration No. 333-33273) (the "Registration Statement") relating to the offer and sale (the "Offering") of an aggregate of 2,415,000 shares of Common Stock was declared effective by the Securities and Exchange Commission on October 9, 1997. Of the 2,415,000 shares of Common Stock registered under the Registration Statement, 1,250,000 shares were sold by the Company and 1,165,000 shares (including 315,000 shares sold pursuant to the exercise of an over-allotment option granted to the underwriters) were sold by a certain shareholder of the Company, Michael D. Hays (the "Selling Shareholder"). During the fourth quarter of 1997, all of the shares of Common Stock registered were sold in the Offering at a price of $15.00 per share, for an aggregate price of $18,750,000 and $17,475,000 for the shares of Common Stock sold by the Company and the Selling Shareholder, respectively. After deducting the underwriting discount of $1.05 per share, the Selling Shareholder received net proceeds equal to $16,251,750 and the Company received net proceeds equal to $17,437,500 less expenses of $596,411 incurred in connection with the Offering. The entire net proceeds to the Company of $16,841,089 are currently being held in temporary investments of United States government securities with maturities of two years or less. ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibit Number Description (27) Financial Data Schedule (EDGAR version only) (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended March 31, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL RESEARCH CORPORATION (Registrant) Date: May 15, 1998 By: /s/ Michael D. Hays Michael D. Hays President and Chief Executive Officer Date: May 15, 1998 By: /s/ Patrick E. Beans Patrick E. Beans Vice President, Treasurer, Secretary and Chief Financial Officer Principal Financial and Accounting Officer) NATIONAL RESEARCH CORPORATION EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q for the Quarterly Period ended March 31, 1998 Exhibit (27) Financial Data Schedule (EDGAR version only) EX-27 2
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 3,893 15,651 1,400 68 0 22,199 1,322 596 23,104 4,131 0 0 0 7 18,675 23,104 0 3,406 0 1,509 1,241 5 0 657 357 657 0 0 0 562 .08 .08
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