UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2013

or

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________ to ________

Commission File Number 0-29466

        National Research Corporation         

(Exact name of Registrant as specified in its charter)

Wisconsin	47-0634000
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1245 Q Street, Lincoln, Nebraska          68508

(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  ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  

 Large accelerated filer ☐  Accelerated filer ☒  Non-accelerated filer ☐   Smaller reporting company ☐

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)

Yes ☐    No  ☒ 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Class A Common Stock, $.001 par value, outstanding as of October 31, 2013: 20,732,784 shares

Class B Common Stock, $.001 par value, outstanding as of October 31, 2013: 3,455,410 shares

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NATIONAL RESEARCH CORPORATION

FORM 10-Q INDEX

For the Quarter Ended September 30, 2013

			Page No.
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Income	5
		Condensed Consolidated Statements of Comprehensive Income	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8-16
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	22
PART II.	OTHER INFORMATION
	Item 1A.	Risk Factors	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
	Item 6.	Exhibits	22
	Signatures		23
	Exhibit Index		24

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Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as National Research Corporation (“NRC” or the “Company”) “believes,” “expects,” or other words of similar import. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-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 following factors:

● The possibility of non-renewal of the Company’s client service contracts;

● The Company’s ability to compete in its markets, which are highly competitive, and the possibility of increased price pressure and expenses;

● The effects of an economic downturn;

● The impact of consolidation in the healthcare industry;

● The impact of federal healthcare reform legislation or other regulatory changes;

● The Company’s ability to retain its limited number of key clients;

● The Company’s ability to attract and retain key managers and other personnel;

● The possibility that the Company’s intellectual property and other proprietary information technology could be copied or independently developed by its competitors;

● Regulatory developments; and

● The factors set forth under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as such section may be updated by Part II, Item 1A of the Company’s subsequently filed Quarterly Reports on Form 10-Q (including this Report).

Shareholders, potential investors and other readers are urged to consider these and other 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 Quarterly Report on Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

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PART I – Financial Information

ITEM 1. Financial Statements

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and par value, unaudited)

	September 30, 2013			December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	18,934		$	8,286
Trade accounts receivable, less allowance for doubtful accounts of $187 and $244 in 2013 and 2012, respectively		11,377			12,119
Unbilled revenue		2,123			932
Prepaid expenses		1,723			1,269
Income tax receivable		334			158
Deferred income taxes		--			547
Other current assets		417			504
Total current assets		34,908			23,815
Property and equipment, net		12,040			12,493
Intangible assets, net		5,050			5,794
Goodwill		57,698			57,799
Other		218			145
Total assets	$	109,914		$	100,046
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable	$	2,238		$	12,436
Accounts payable		818			291
Accrued wages, bonus and profit sharing		3,937			4,392
Accrued expenses		2,488			2,265
Current portion of capital lease obligations		110			102
Deferred Income Taxes		20			--
Deferred revenue		16,516			15,812
Total current liabilities		26,127			35,298
Notes payable, net of current portion		8,638			--
Deferred income taxes		7,177			7,527
Deferred revenue		296			254
Other long term liabilities		138			225
Total liabilities		42,376			43,304
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized 2,000,000 shares, none issued		--			--
Class A Common stock, $0.001 par value; authorized 60,000,000 shares, issued 25,249,029 in 2013 and 25,129,776 in 2012, outstanding 20,732,784 in 2013 and 20,624,976 in 2012		25			25
Class B Common stock, $0.001 par value; authorized 80,000,000 shares, issued 4,208,118 in 2013 and 4,188,296 in 2012, outstanding 3,455,411 in 2013 and 3,437,496 in 2012		4			4
Additional paid-in capital		41,298			39,493
Retained earnings		54,275			44,700
Accumulated other comprehensive income		746			1,124
Treasury stock, at cost; 4,516,245 Class A shares, 752,707 Class B shares in 2013 and 4,504,800 Class A shares, 750,800 Class B shares in 2012		(28,810	)		(28,604	)
Total shareholders’ equity		67,538			56,742
Total liabilities and shareholders’ equity	$	109,914		$	100,046

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share amounts, unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Revenue	$	22,407		$	21,386		$	69,667		$	64,425
Operating expenses:
Direct		9,452			8,769			29,196			26,333
Selling, general and administrative		6,019			5,821			18,903			17,541
Depreciation and amortization		907			1,149			2,788			3,606
Total operating expenses		16,378			15,739			50,887			47,480
Operating income		6,029			5,647			18,780			16,945
Other income (expense):
Interest income		14			8			45			20
Interest expense		(91	)		(134	)		(309	)		(416	)
Other, net		(4	)		(29	)		28			(16	)
Total other expense		(81	)		(155	)		(236	)		(412	)
Income before income taxes		5,948			5,492			18,544			16,533
Provision for income taxes		2,135			1,915			6,827			5,168
Net income	$	3,813		$	3,577		$	11,717		$	11,365
Earnings Per Share of Common Stock:
Basic Earnings Per Share:
Class A	$	0.09		$	0.09		$	0.28		$	0.28
Class B	$	0.55		$	0.53		$	1.70		$	1.68
Diluted Earnings Per Share:
Class A	$	0.09		$	0.09		$	0.28		$	0.27
Class B	$	0.54		$	0.51		$	1.67		$	1.64
Dividends Per Share of Common Stock:
Class A	$	--		$	0.04		$	0.05		$	0.13
Class B	$	--		$	0.26		$	0.31		$	0.78
Weighted average shares and share equivalents outstanding:
Class A - basic		20,672			20,373			20,671			20,262
Class B - basic		3,445			3,395			3,445			3,377
Class A - diluted		21,111			20,883			21,087			20,823
Class B - diluted		3,514			3,480			3,513			3,470

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013			2012
Net income	$	3,813	$	3,577	$	11,717		$	11,365
Other comprehensive income (loss):
Foreign currency translation adjustment	$	241	$	419	$	(378	)	$	360
Other comprehensive income (loss)	$	241	$	419	$	(378	)	$	360
Comprehensive Income	$	4,054	$	3,996	$	11,339		$	11,725

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Nine months ended September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	11,717		$	11,365
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,788			3,606
Deferred income taxes		161			(413	)
Non-cash share-based compensation expense		706			179
Tax benefit from exercise of stock options		56			373
Loss on disposal of property and equipment		1			2
Net changes in assets and liabilities:
Trade accounts receivable		710			(2,884	)
Unbilled revenue		(1,230	)		33
Prepaid expenses and other		(446	)		(693	)
Accounts payable		512			(297	)
Accrued expenses, wages, bonuses and profit sharing		(241	)		1,427
Income taxes receivable and payable		(173	)		(235	)
Deferred revenue		777			1,131
Net cash provided by operating activities		15,338			13,594
Cash flows from investing activities:
Purchases of property and equipment		(1,561	)		(1,890	)
Net cash used in investing activities		(1,561	)		(1,890	)
Cash flows from financing activities:
Payments on notes payable		(1,560	)		(1,410	)
Payments on capital lease obligations		(81	)		(89	)
Proceeds from exercise of stock options		375			1,058
Common stock withheld from vested restricted shares for payroll tax withholdings		(55	)		(527	)
Excess tax benefit from share-based compensation		575			1,353
Payment of dividends on common stock		(2,142	)		(5,299	)
Net cash used in financing activities		(2,888	)		(4,914	)
Effect of exchange rate changes on cash		(241	)		154
Increase in cash and cash equivalents		10,648			6,944
Cash and cash equivalents at beginning of period		8,286			8,082
Cash and cash equivalents at end of period	$	18,934		$	15,026
Supplemental disclosure of cash paid for:
Interest expense	$	286		$	394
Income taxes	$	6,071		$	3,897

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.              BASIS OF CONSOLIDATION AND PRESENTATION

The Company is a leading provider of analytics and insights that facilitate revenue growth, patient, employee and customer retention and patient engagement for healthcare providers, payers and other healthcare organizations. The Company’s solutions support the improvement of business and clinical outcomes, while facilitating regulatory compliance and the shift to population-based health management for its clients. The Company’s ability to systematically capture, analyze and deliver to its client’s self-reported information from patients, families and consumers is critical in today’s healthcare market. NRC believes that access to and analysis of its extensive consumer-driven information will become even more valuable in the future as healthcare providers increasingly need to more deeply understand and engage patients and consumers in an effort towards effective population-based health management.

During the first quarter of 2013, the Company condensed its eight operating segments into two operating segments that are aggregated into one reporting segment because they have similar economic characteristics and meet the other aggregation criteria from the Financial Accounting Standards Board (“FASB”) guidance on segment disclosure.  The two operating segments, organized by geographic area, are National Research Corporation (United States) and National Research Corporation Canada, which each offer a portfolio of solutions to address specific market needs around growth, retention, engagement and thought leadership for healthcare organizations. 

The condensed consolidated balance sheet of the Company at December 31, 2012, was derived from the Company’s audited consolidated 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 accounting principles generally accepted in the United States.

Information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in the Company’s Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2013.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, National Research Corporation Canada, and the accounts of a variable interest entity, Customer-Connect LLC (“Connect”) for which we have been deemed the primary beneficiary. All significant intercompany transactions and balances have been eliminated.

The functional currency of the Company’s foreign subsidiary, National Research Corporation Canada, is the subsidiary’s local currency. The Company translates the assets and liabilities of its foreign subsidiary at the period-end rate of exchange and its foreign subsidiary’s income statement balances at the average rate prevailing during the period. The Company records the resulting translation adjustment in accumulated other comprehensive income, a component of shareholders’ equity. Since the undistributed earnings of the Company’s foreign subsidiary are considered to be indefinitely reinvested, no taxes were provided for on currency translation adjustments arising from converting the investment denominated in a foreign currency to U.S. dollars. Gains and losses related to transactions denominated in a currency other than the subsidiary’s local currency and short-term intercompany accounts are included in other income (expense) in the condensed consolidated statements of income.

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Recapitalization

In May 2013, the Company consummated a recapitalization (the “May 2013 Recapitalization”) pursuant to which the Company established two classes of common stock (class A common stock and class B common stock), issued a dividend of three shares of class A common stock for each share of the Company’s then existing common stock and reclassified each then existing share of common stock as one-half of one share of class B common stock. All previously reported share and per share amounts in the accompanying financial statements and related notes have been restated to reflect the May 2013 Recapitalization.

Fair Value Measurements

The Company’s valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s market assumptions. The inputs are then classified into the following hierarchy: (1) Level 1 Inputs—quoted prices in active markets for identical assets and liabilities; (2) Level 2 Inputs—observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and (3) Level 3 Inputs—unobservable inputs.

The following details the Company’s financial assets and liabilities within the fair value hierarchy at September 30, 2013, and December 31, 2012:

Fair Values Measured on a Recurring Basis

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of September 30, 2013
Money Market Funds	$	7,578	$	--	$	--	$	7,578
Commercial Paper		10,658		--		--		10,658
Total	$	18,236		--		--	$	18,236
As of December 31, 2012
Money Market Funds	$	5,245	$	--	$	--	$	5,245
Commercial Paper		2,242		--		--		2,242
Total	$	7,487		--	$	--	$	7,487

The Company’s long-term debt is recorded at historical cost. The following are the carrying amounts and estimated fair values, based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit risk:

	September 30, 2013		December 31, 2012
	(In thousands)
Total carrying amounts of long-term debt	$	10,876	$	12,436
Estimated fair value of long-term debt	$	10,738	$	12,490

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The Company estimated the fair value of its long-term, fixed-rate debt using a Level 2 discounted cash flow analysis based on current borrowing rates for debt with similar maturities.

The Company believes that the carrying amounts of trade accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short maturity of those instruments. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes goodwill and non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). As of September 30, 2013, and December 31, 2012, there was no indication of impairment related to the Company’s non-financial assets.

2.              VARIABLE INTEREST ENTITY

Connect was formed in June 2013 to develop and commercialize the connect programs. Connect programs provide healthcare organizations the technology to engage patients through real-time identification and management of individual patient needs, preferences, risks, and experiences.  The platform ensures that organizations have access to a longitudinal view of the patient to more effectively manage patient engagement across the continuum of care. NRC has a 49% ownership interest in Connect. NG Customer-Connect, LLC holds 25% interest, and the remaining 26% is held by Illuminate Health, LLC. NRC has agreed to lease certain employees to Connect. In return for a fee, Connect will service the Company’s discharge call program clients. NRC will make capital contributions of up to $2.5 million on an as-needed basis as determined by the Board of Directors of Connect. Profits and losses are allocated under the hypothetical liquidation at book value approach.

NRC is deemed the primary beneficiary of the variable interest entity. An entity is considered the primary beneficiary of a variable interest entity if it has both the power to direct the activities of the variable interest entity that most significantly impact the variable interest entity’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity. Connect is thinly capitalized and relies on NRC advances and reimbursements to fund its operations. Together, NRC and NRC associates hold a majority of the voting rights on Connect board of directors and has the ability to direct the majority of Connect operations.

NRC has a future obligation to purchase the other equity units in Connect when certain targeted events have been achieved. If, at any time, there is at least $12.5 million of annual recurring contract value, including the NRC contracts being serviced, and the members have approved a financial statement showing a pro forma minimum 35% EBITDA margin for revenue on a going-forward basis, then within 90 days thereafter NRC is required to purchase from the other members, and the other members shall be required to sell to NRC, all of their equity units not owned by NRC. As of September 30, 2013, the price at which NG Customer Connect, LLC and Illuminate Health LLC had the obligation to sell their equity units to NRC was $0.

Included in the Company’s condensed consolidated financial statements for three and nine-month periods ended September 30, 2013, were Connect’s net operating losses of $391,000 and $471,000, respectively. All net operating losses of Connect during 2013 were attributable to NRC.

3.              INCOME TAXES

The Company’s effective tax rate increased to 35.9% for the three-month period ended September 30, 2013, compared to 34.9% for the same period in 2012. The effective tax rate for the nine-month period ended September 30, 2013, increased to 36.8% compared to 31.3% for the same period in 2012. These increases were primarily due to an adjustment to income taxes of $575,000 for decreases in deferred state tax rates resulting from legislative changes in 2012, and nondeductible fees associated with the May 2013 Recapitalization that were incurred during the nine-month period ended September 30, 2013 and are part of the annualized effective tax rate.

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The unrecognized tax benefit as of September 30, 2013, was $172,000, excluding interest of $14,000 and no penalties. The full unrecognized tax benefits, if recognized, would favorably impact the effective income tax rate. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will stay consistent during the next 12 months due to any growth in unrecognized tax benefits being offset by the expiration of the U.S. federal statute of limitations associated with certain other tax positions. The Company accrues interest and penalties related to uncertain tax position in the statements of income as income tax expense.

4.              NOTES PAYABLE

The Company had two term notes, which were used to partially finance acquisitions in 2008 and 2010. Borrowings under the term notes bore interest at an annual rate of 3.79%.

On May 9, 2013, the Company refinanced the two existing term notes by combining them into one $11.8 million term note. The new term loan is payable in 60 monthly installments of $212,468. Borrowings under the new term note bear interest at an annual rate of 3.12%. The outstanding balance of the term loan at September 30, 2013 was $10.9 million.

The Company also has a revolving credit note that was renewed in May 2013 to extend the term to June 30, 2014.The maximum aggregate amount available under the revolving credit note is $6.5 million, subject to a borrowing base equal to 75% of the Company’s eligible accounts receivable. Borrowings under the revolving credit note bear interest at a variable annual rate, with three rate options at the discretion of management as follows: (1) 2.5% plus the daily reset one-month London Interbank Offered Rate (“LIBOR”) or (2) 2.2% plus the one-, two- or three- month LIBOR rate, or (3) the bank’s one-, two, three, six, or twelve month Money Market Loan Rate. As of September 30, 2013 the revolving credit note did not have a balance. According to the borrowing base requirements, the Company had the capacity to borrow $6.5 million as of September 30, 2013.

The term note and revolving credit note are secured by certain of the Company’s assets, including the Company’s land, building, trade accounts receivable and intangible assets. The term note and revolving credit note contain various restrictions and covenants applicable to the Company, including requirements that the Company maintain certain financial ratios at prescribed levels and restrictions on the ability of the Company to consolidate or merge, create liens, incur additional indebtedness or dispose of assets. As of September 30, 2013, the Company was in compliance with these restrictions and covenants.

5.              SHARE-BASED COMPENSATION

The Company measures and recognizes compensation expense for all share-based payments. The compensation expense is recognized based on the grant-date fair value of those awards. All of the Company’s existing stock option awards and non-vested stock awards have been determined to be equity-classified awards.

The Company’s 2001 Equity Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 class A and 300,000 class B shares of the Company’s common stock. Stock options granted may be either nonqualified or incentive stock options. Stock options vest over one to five years following the date of grant and option terms are generally five to ten years following the date of grant.

The Company’s 2004 Non-Employee Director Stock Plan (the “2004 Director Plan”) is a nonqualified plan that provides for the granting of options with respect to 1,650,000 class A and 275,000 class B shares of the Company’s common stock. The 2004 Director Plan provides for grants of nonqualified stock options to each director of the Company who is not employed by the Company. On the date of each annual meeting of shareholders of the Company, options to purchase 36,000 class A shares and 6,000 class B shares of the Company’s common stock are granted to directors that are re-elected or retained as a director at such meeting. Stock options vest one year following the date of grant and option terms are generally ten years following the date of grant, or three years in the case of termination of the outside director’s service.

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The Company’s 2006 Equity Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 class A and 300,000 class B shares of the Company’s common stock. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant and option terms are generally five to ten years following the date of grant.

The Company granted options to purchase 232,344 shares of the Company’s class A common stock and 38,718 shares of the class B common stock during the nine-month period ended September 30, 2013. The Company granted options to purchase 238,890 class A and 39,815 class B shares of common stock during the nine-month period ended September 30, 2012. Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of grant. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following assumptions:

	2013			2012
Expected dividend yield at date of grant	2.26%	to	3.46%	2.63%	to	3.98%
Expected stock price volatility	30.34%	to	30.51%	29.10%	to	31.70%
Risk-free interest rate	0.55%	to	1.07%	0.56%	to	1.15%
Expected life of options (in years)	4	to	6	4	to	6

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of the Company’s common stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years the Company estimates that options will be outstanding. The Company considers groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes stock option activity under the Company’s 2001 and 2006 Equity Incentive Plans and the 2004 Director Plan for the nine months ended September 30, 2013:

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	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Class A
Outstanding at December 31, 2012		1,367,754		$	8.45
Granted		232,344		$	15.98
Exercised		(119,253	)	$	2.20
Forfeited		--			--
Outstanding at September 30, 2013		1,480,845		$	10.14		6.66	$	12,872
Exercisable at September 30, 2013		729,975		$	8.87		5.53	$	7,271
Class B
Outstanding at December 31, 2012		227,959		$	18.45
Granted		38,718		$	29.35
Exercised		(19,875	)	$	13.20
Forfeited		--			--
Outstanding at September 30, 2013		246,802		$	20.58		6.66	$	2,310
Exercisable at September 30, 2013		121,662		$	18.68		5.53	$	1,360

The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plan for the nine months ended September 30, 2013:

	Class A Shares Outstanding		Class A Weighted Average Grant Date Fair Value Per Share		Class B Shares Outstanding		Class B Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2012		60,609	$	5.77		10,101	$	34.65
Granted		--		--		--		--
Vested		--		--		--		--
Forfeited		--		--		--		--
Outstanding at September 30, 2013		60,609	$	5.77		10,101	$	34.65

As of September 30, 2013, the total unrecognized compensation cost related to non-vested stock awards was approximately $375,000 and is expected to be recognized over a weighted average period of 2.77 years.

6.     GOODWILL AND OTHER INTANGIBLE ASSETS

The following represents a summary of changes in the Company’s carrying amount of goodwill for the nine months ended September 30, 2013:

	(In thousands)
Balance as of December 31, 2012	$	57,799
Foreign currency translation		(101	)
Balance as of September 30, 2013	$	57,698

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Intangible assets consisted of the following:

	September 30, 2013			December 31, 2012
	(In thousands)
Non-amortizing other intangible assets:
Trade name	$	1,191		$	1,191
Amortizing other intangible assets:
Customer related intangibles		10,509			10,521
Non-compete agreements		430			430
Trade name		1,902			1,902
Total other intangible assets		14,032			14,044
Accumulated amortization		(8,982	)		(8,250	)
Other intangible assets, net	$	5,050		$	5,794

7.              PROPERTY AND EQUIPMENT

	September 30, 2013			December 31, 2012
	(In thousands)
Property and equipment	$	32,780		$	31,191
Accumulated depreciation		(20,740	)		(18,698	)
Property and equipment, net	$	12,040		$	12,493

8.              EARNINGS PER SHARE

Net income per share of class A common stock and class B common stock is computed using the two-class method. Basic net income per share is computed by allocating undistributed earnings to common shares and using the weighted-average number of common shares outstanding during the period.

Diluted net income per share is computed using the weighted-average number of common shares and, if dilutive, the potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.

The liquidation rights and the rights upon the consummation of an extraordinary transaction are the same for the holders of class A common stock and class B common stock. Other than share distributions and liquidation rights, the amount of any dividend or other distribution payable on each share of class A common stock will be equal to one-sixth (1/6th) of the amount of any such dividend or other distribution payable on each share of class B common stock. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the class A and class B common stock as if the earnings for the year had been distributed.

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	For the Three Months Ended September 30, 2013				For the Three Months Ended September 30, 2012
	Class A Common Stock		Class B Common Stock		Class A Common Stock		Class B Common Stock
	(In thousands, except per share data)
Numerator for net income per share - basic:
Allocation of distributed earnings	$	--	$	--	$	887	$	887
Allocation of undistributed earnings		1,906		1,906		901		901
Net income attributable to common shareholders	$	1,906	$	1,906	$	1,788	$	1,788
Denominator for net income per share - basic:
Weighted average common shares outstanding - basic		20,672		3,445		20,373		3,395
Net income per share - basic	$	0.09	$	0.55	$	0.09	$	0.53
Numerator for net income per share - diluted:
Net income attributable to common shareholders for basic computation	$	1,906	$	1,906	$	1,788	$	1,788
Denominator for net income per share - diluted:
Weighted average common shares outstanding - basic		20,672		3,445		20,373		3,395
Weighted average effect of dilutive securities:
Stock Options		404		63		481		80
Restricted Stock		35		6		29		5
Weighted average common shares outstanding - diluted		21,111		3,514		20,883		3,480
Net income per share - diluted	$	0.09	$	0.54	$	0.09	$	0.51

	For the Nine Months Ended September 30, 2013				For the Nine Months Ended September 30, 2012
	Class A Common Stock		Class B Common  Stock		Class A Common Stock		Class B Common Stock
	(In thousands, except per share data)
Numerator for net income per share - basic:
Allocation of distributed earnings	$	1,071	$	1,071	$	2,649	$	2,649
Allocation of undistributed earnings		4,787		4,787		3,034		3,034
Net income attributable to common shareholders	$	5,858	$	5,858	$	5,683	$	5,683
Denominator for net income per share - basic:
Weighted average common shares outstanding - basic		20,671		3,445		20,262		3,377
Net income per share - basic	$	0.28	$	1.70	$	0.28	$	1.68
Numerator for net income per share - diluted:
Net income attributable to common shareholders for basic computation	$	5,858	$	5,858	$	5,683	$	5,683
Denominator for net income per share - diluted:
Weighted average common shares outstanding - basic		20,671		3,445		20,262		3,377
Weighted average effect of dilutive securities:
Stock Options		381		62		519		86
Restricted Stock		35		6		42		7
Weighted average common shares outstanding - diluted		21,087		3,513		20,823		3,470
Net income per share - diluted	$	0.28	$	1.67	$	0.27	$	1.64

The Company excluded 144,000 and 146,106 shares of class A common stock options for the three-month periods ended September 30, 2013 and 2012, respectively, and 24,351 shares of class B common stock options for the three-month period ended September 30, 2012, from the diluted net income per share computation because the exercise or grant price exceeded the fair market value of the common stock on such date. The Company excluded 133,114 and 225,153 shares of class A common stock options and 8,566 and 37,526 of the class B common stock options for the nine-month periods ended September 30, 2013 and 2012, respectively from the diluted net income per share computation because the exercise or grant price exceeded the fair market value of the common stock on such date. Also excluded were 1,590 shares of class A restricted stock awards and 265 of shares of class B restricted stock awards for the three-month period ended September 30, 2012. There were no restricted stock shares excluded for the nine-month period ended September 30, 2013.

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9.              RELATED PARTY TRANSACTIONS     

A board member of the Company serves as an officer of Ameritas Life Insurance Corp. (“Ameritas”). In connection with the Company’s regular assessment of its insurance-based associate benefits, which is conducted by an independent insurance broker and the costs associated therewith, the Company purchases dental and vision insurance for certain of its associates from Ameritas. The total value of these purchases was $53,000 and $50,000 for the three-month periods ended September 30, 2013 and 2012, respectively, and $160,000 and $149,000 for the nine-month periods ended September 30, 2013 and 2012, respectively.

Michael Hays, our Chief Executive Officer, is a director and owner of 14% of the equity interests of Nebraska Global Investment Company LLC. The Company purchased certain technology consulting and software development services from Nebraska Global Investment Company LLC. There were no purchases for the three-month periods ended September 30, 2013 and $11,000 for the three-month period ended September 30, 2012, and the total value was $57,000 for the nine-month period ended September 30, 2013 and $11,000 during the same period in 2012.

ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of (Operations)

Overview

The Company is a leading provider of analytics and insights that facilitate revenue growth, patient, employee and customer retention and patient engagement for healthcare providers, payers and other healthcare organizations. The Company’s solutions support the improvement of business and clinical outcomes, while facilitating regulatory compliance and the shift to population-based health management for its clients. The Company’s ability to systematically capture, analyze and deliver to its client’s self-reported information from patients, families and consumers is critical in today’s healthcare market. NRC believes that access to and analysis of its extensive consumer-driven information will become even more valuable in the future as healthcare providers increasingly need to more deeply understand and engage patients and consumers in an effort towards effective population-based health management.

NRC has achieved a market leadership position through its more than 32 years of industry innovation and experience, as well as its long-term, recurring revenue relationships (solutions that are used or required by a client each year) with many of the healthcare industry’s largest organizations. Since its founding in 1981 in Lincoln, Nebraska, the Company has focused on meeting the evolving information needs of the healthcare industry through internal product development, as well as select acquisitions.

Results of Operations

The following table sets forth for the periods indicated, select financial information derived from the Company’s condensed consolidated financial statements expressed as a percentage of total revenue. The trends illustrated may not necessarily be indicative of future results. The discussion that follows the table should be read in conjunction with the condensed consolidated financial statements.

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	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Revenue:		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses:
Direct		42.2			41.0			41.9			40.9
Selling, general and administrative		26.9			27.2			27.1			27.2
Depreciation and amortization		4.0			5.4			4.0			5.6
Total operating expenses		73.1			73.6			73.0			73.7
Operating income		26.9	%		26.4	%		27.0	%		26.3%

Three Months Ended September 30, 2013, Compared to Three Months Ended September 30, 2012

Revenue. Revenue for the three-month period ended September 30, 2013, increased 4.8% to $22.4 million, compared to $21.4 million in the three-month period ended September 30, 2012. The increase was due to new customer sales, as well as increases in sales to the existing client base.

Direct expenses. Direct expenses increased 7.8% to $9.5 million for the three-month period ended September 30, 2013, compared to $8.8 million in the same period during 2012. This was due to increases in variable expenses of $87,000 (mainly due to postage and contracted survey-related costs for the higher volume of surveys), and an increase in fixed expenses of $597,000 from additional investments in technology, research and service resources. As a result, direct expenses increased as a percentage of revenue to 42.2% in the three-month period ended September 30, 2013, from 41.0% during the same period of 2012.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 3.4% to $6.0 million for the three-month period ended September 30, 2013, compared to $5.8 million for the same period in 2012, primarily due to increases in annual software license fees. Selling, general, and administrative expenses decreased as a percentage of revenue to 26.9% for the three-month period ended September 30, 2013, from 27.2% for the same period in 2012.

Depreciation and amortization. Depreciation and amortization expenses decreased to $907,000 for the three-month period ended September 30, 2013, compared to $1.1 million for the same period in 2012, due to larger software development projects being fully depreciated and certain acquired intangibles becoming fully amortized in the second quarter of 2012. Depreciation and amortization expenses as a percentage of revenue decreased to 4.0% for the three-month period ended September 30, 2013, from 5.4% during the same period of 2012.

Provision for income taxes. Provision for income taxes was $2.1 million (35.9% effective tax rate) for the three-month period ended September 30, 2013, compared to $1.9 million (34.9% effective tax rate) for the same period in 2012. The effective tax rate for the three-month period ended September 30, 2013, is higher than the rate in the same period of 2012 due to nondeductible fees associated with the May 2013 Recapitalization that are part of the annualized effective rate, as well as less of a decrease in unrecognized tax benefits during the three-month period ended September 30, 2013, compared to the decrease in unrecognized tax benefits for the same period in 2012.

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Nine Months Ended September 30, 2013, Compared to Nine Months Ended September 30, 2012

Revenue. Revenue for the nine-month period ended September 30, 2013, increased 8.1% to $69.7 million compared to $64.4 million in the nine-month period ended September 30, 2012. The increase was due to new customer sales as well as increased sales to the existing client base. Revenue from subscription-based agreements comprised 80.8% of the total revenue for the nine-month period ended September 30, 2013, compared to 73.7% of total revenue for the nine-month period ended September 30, 2012. Subscription-based agreements, which represent 82.9% of the recurring contract value as of September 30, 2013, are recurring annual service agreements where revenue is spread evenly over the period of service provided.

Direct expenses. Direct expenses increased 10.9% to $29.2 million in the nine-month period ended September 30, 2013, compared to $26.3 million in the same period during 2012 due to an increase in variable expenses of $1.6 million, including postage and contracted survey-related costs to service the higher volume of business, and an increase in fixed expenses of $1.3 million from additional investments in technology, research and service resources. Direct expenses increased as a percentage of revenue to 41.9% in the nine-month period ended September 30, 2013, from 40.9% during the same period of 2012, due to higher survey volumes for the subscription-based products and investments in technology, research, and service resources.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 7.8% to $18.9 million for the nine-month period ended September 30, 2013, compared to $17.5 million for the same period in 2012, due to additional expense from the May 2013 Recapitalization and increases in annual software license fees. Selling, general, and administrative expenses decreased as a percentage of revenue to 27.1% in the nine-month period ended September 30, 2013, from 27.2% during the same period of 2012.

Depreciation and amortization. Depreciation and amortization expenses decreased to $2.8 million for the nine-month period ended September 30, 2013, compared to $3.6 million for the same period in 2012, due to larger software development projects being fully depreciated and certain acquired intangibles becoming fully amortized during the second quarter of 2012. Depreciation and amortization expenses as a percentage of revenue decreased to 4.0% in the nine-month period ended September 30, 2013, from 5.6% in the same period of 2012.

Provision for income taxes. The provision for income taxes totaled $6.8 million (36.8% effective tax rate) for the nine-month period ended September 30, 2013, compared to $5.2 million (31.3% effective tax rate) for the same period in 2012. The effective tax rate for the nine-month period ended September 30, 2013, is higher than the rate in the same period of 2012, primarily due to an adjustment to income taxes of $575,000 for decreases in deferred state tax rates resulting from legislative changes in 2012 and nondeductible fees associated with the May 2013 Recapitalization that are part of the annualized effective rate.

Liquidity and Capital Resources

The Company believes that its existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flows will be sufficient to meet its projected capital and debt maturity needs and dividend policy for the foreseeable future.

The Company will make capital contributions up to $2.5 million on an as-needed basis as determined by the Board of Directors of Connect. Additionally, the Company has a future obligation to purchase the other equity units in Connect when certain targeted events have been achieved. If, at any time, Connect has at least $12.5 million of annual recurring contract value, including the NRC contracts being serviced, and the members have approved a financial statement showing a pro forma minimum 35% EBITDA margin for revenue on a going-forward basis, then within 90 days thereafter NRC is required to purchase from the other members, and the other members shall be required to sell to NRC, all of their equity units not owned by NRC. As of September 30, 2013, the price at which the other members had the obligation to sell their equity units to NRC was $0.

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The Company had cash and cash equivalents of $18.9 million at September 30, 2013, of which $7.8 million was held in Canada. All of the amounts held in Canada are intended to be indefinitely reinvested in foreign operations. The amounts held outside of the U.S. are eligible for repatriation, but under current law, would be subject to U.S. federal income taxes, less applicable foreign tax credits. It is impractical to determine the additional income tax liability, if any, associated with such repatriation.

Working Capital

The Company had a working capital balance of $8.8 million as of September 30, 2013, compared to a working capital deficiency of $11.5 million as of December 31, 2012. The change in the working capital balance was primarily due to the refinancing of the Company’s term notes in May 2013. The current portion of the notes payable balance at December 31, 2012 was $12.4 million and as of September 30, 2013 was $2.2 million. The remaining change was primarily due to increases in cash and cash equivalents of $10.6 million. The Company’s working capital is significantly impacted by its large deferred revenue balances. The deferred revenue balances as of September 30, 2013, and December 31, 2012 were $16.5 million and $15.8 million, respectively.

The deferred revenue balance is primarily due to timing of initial billings on new and renewal contracts. The Company typically invoices clients for performance tracking services and custom research projects before they have been completed. Billed amounts are recorded as billings in excess of revenue earned, or deferred revenue, on the Company’s condensed consolidated financial statements, and are recognized as income when earned. In addition, when work is performed in advance of billing, the Company records this work as revenue earned in excess of billings, or unbilled revenue. Substantially all deferred revenue and all unbilled revenue will be earned and billed respectively, within 12 months of when the respective period ends.

Cash Flow Analysis

A summary of operating, investing, and financing activities is shown in the following table:

	Nine Months Ended September 30,
	2013			2012
	(In thousands)
Provided by operating activities	$	15,338		$	13,594
Used in investing activities		(1,561	)		(1,890	)
Used in financing activities		(2,888	)		(4,914	)
Effect of exchange rate change on cash		(241	)		154
Net increase in cash and cash equivalents		10,648			6,944
Cash and cash equivalents at end of period	$	18,934		$	15,026

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Cash Flows from Operating Activities

Cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization, gain or loss on sale of property and equipment, deferred taxes, share-based compensation and related taxes, and the effect of working capital changes.

Net cash provided by operating activities was $15.3 million for the nine months ended September 30, 2013, which included net income of $11.7 million, plus non-cash charges (benefits) for deferred tax expense, depreciation and amortization, and non-cash stock compensation totaling $3.7 million. Changes in working capital reduced 2013 cash flows from operating activities by $91,000, primarily due to annual prepaid commitments, timing of income tax payments, and payments of annual bonuses. These changes were partially offset by increasing cash flows from timing in vendor payments and timing of billings and collections on new or renewal contracts.

Net cash provided by operating activities was $13.6 million for the nine months ended September 30, 2012, which included net income of $11.4 million, plus non-cash charges (benefits) for deferred tax expense, depreciation and amortization and non-cash stock compensation totaling $3.7 million. Changes in working capital reduced 2012 cash flows from operating activities by $1.5 million, primarily due to the timing of initial billings on new or renewal contracts decreasing cash flows provided from trade accounts receivable and an increase in prepaid expenses. These reductions were offset by an increase in deferred revenue and accrued expenses, wages, bonuses and profit sharing.

Cash Flows from Investing Activities

Net cash of $1.6 million and $1.9 million was used for investing activities in the nine months ended September 30, 2013 and 2012, respectively, for purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $2.9 million in the nine months ended September 30, 2013. Proceeds from the exercise of stock options and the excess tax benefit of share-based compensation provided cash of $375,000 and $575,000, respectively. Cash was used to pay dividends of $2.1 million, payroll taxes on vested restricted shares of $55,000, capital lease obligations of $81,000 and to repay borrowings under the term notes totaling $1.6 million.

Net cash used in financing activities was $4.9 million in the nine months ended September 30, 2012. Proceeds from the exercise of and the excess tax benefit of share-based compensation provided cash of $1.1 million and $1.4 million, respectively. Cash was used to pay dividends of $5.3 million, payroll taxes on vested restricted shares of $527,000, capital lease obligations of $89,000 and to repay borrowings under the term notes totaling $1.4 million.

The effect of changes in foreign exchange rates decreased cash and cash equivalents by $241,000 in the nine months ended September 30, 2013 and increased cash and cash equivalents by $154,000 for the nine months ended September 30, 2012.

Capital Expenditures

Cash paid for capital expenditures was $1.6 million for the nine-month period ended September 30, 2013. These expenditures consisted mainly of computer software, computer hardware, furniture and other equipment. The Company expects similar capital expenditure purchases for the remainder of 2013 consisting primarily of computer software and hardware and other equipment to be funded through cash generated from operations.

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Debt and Equity

The Company had two term notes, which were used to partially finance acquisitions in 2008 and 2010. Borrowings under the term notes bore interest at an annual rate of 3.79%. The Company refinanced these two term notes on May 9, 2013, and combined them into one new term note. Borrowings under the new term note bear interest at an annual rate of 3.12%. The outstanding balance of the new term note at September 30, 2013, was $10.9 million. For additional information on the new term loan, see Note 4 above.

The Company also has a revolving credit note that was renewed in May 2013 to extend the term to June 30, 2014. This revolving credit note provides for the maximum aggregate borrowings of $6.5 million, subject to a borrowing base equal to 75.0% of the Company’s eligible accounts receivable. Borrowings under the revolving credit note bear interest at a variable annual rate, with three rate options at the discretion of management as follows: (1) 2.5% plus the daily reset one-month LIBOR rate, or (2) 2.2% plus the one-, two-, or three-month LIBOR rate, or (3) the bank’s one-, two-, three-, six- or twelve-month Money Market Loan Rate. As of September 30, 2013, the revolving credit note did not have a balance. According to the borrowing base requirements, the Company had the capacity to borrow $6.5 million as of September 30, 2013.   

The term note and revolving credit note are secured by certain of the Company’s assets, including the Company’s land, building, trade accounts receivable and intangible assets. The term note and revolving credit note contain various restrictions and covenants applicable to the Company, including requirements that the Company maintain certain financial ratios at prescribed levels and restrictions on the ability of the Company to consolidate or merge, create liens, incur additional indebtedness or dispose of assets. As of September 30, 2013, the Company was in compliance with these restrictions and covenants.

The Company has capital leases for computer equipment, office equipment, and inserting equipment. The balance of the capital leases as of September 30, 2013 was $248,000.

Shareholders’ equity increased $10.8 million to $67.5 million at September 30, 2013, from $56.7 million at December 31, 2012. The increase was primarily due to net income of $11.7 million and $1.8 million related to share-based compensation, partially offset by dividends paid of $2.1 million, share repurchases of $205,000 and foreign currency translation adjustment of $378,000.

Contractual Obligations

The Company had contractual obligations to make payments in the following amounts in the future as of September 30, 2013:

Contractual Obligations(1)	Total Payments		Remainder in 2013		One to Three Years		Three to Five Years		After Five Years
(In thousands)
Operating leases	$	2,137	$	178	$	1,266	$	575	$	118
Capital leases		280		34		238		8		--
Uncertain tax positions(2)		172		--		--		--		--
Long-term debt		11,699		637		5,099		5,099		864
Total	$	14,288	$	849	$	6,603	$	5,682	$	982

⁽¹⁾ Amounts are inclusive of interest payments, where applicable.

⁽²⁾ We have $172,000 in liabilities associated with uncertain tax positions. We are unable to reasonably estimate the expected cash settlement dates of these uncertain tax positions with the taxing authorities.

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Stock Repurchase Program

In February 2006, the Board of Directors of the Company authorized the repurchase of 2,250,000 class A and 375,000 class B shares of common stock in the open market or in privately negotiated transactions. As of September 30, 2013, the remaining number of common stock shares that could be purchased under this authorization was 418,749 class A shares and 69,791 class B shares.

ITEM 3.     Quantitative and Qualitative Disclosures about Market Risk

There are no material changes to the disclosures regarding the Company’s market risk exposures made in its Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 4.     Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – Other Information

ITEM 1A.  Risk Factors

There have been no material changes to the risk factors relating to the Company set forth in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 2.     Unregistered Sales of Equity Securities and Use of Proceeds

During February 2006, the Board of Directors of the Company authorized the repurchase of an additional 2,250,000 class A and 375,000 class B shares of Common Stock in the open market or in privately negotiated transactions. Unless terminated earlier by resolution of the Company’s Board of Directors, the repurchase program will expire when the Company has repurchased all shares authorized for repurchase thereunder. As of October 31, 2013, 610,417 shares of the Company’s prior common stock (now equivalent to 1,831,251 shares of class A common stock and 305,208 shares of class B common stock) have been repurchased under that authorization. No stock was repurchased during the three-month period ended September 30, 2013.

ITEM 6.     Exhibits

The exhibits listed in the accompanying index of exhibits are filed as part of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NATIONAL RESEARCH CORPORATION
Date: November 7, 2013	By:	/s/ Michael D. Hays
		Michael D. Hays
		Chief Executive Officer (Principal Executive Officer)

Date: November 7, 2013	By:	/s/ Kevin R. Karas
		Kevin R. Karas
		Senior Vice President Finance, Treasurer, Secretary and Chief Financial Officer (Principal Financial and Accounting Officer)

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NATIONAL RESEARCH CORPORATION

EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period ended September 30, 2013

Exhibit

(31.1) Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

(31.2) Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

(32) Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

(101)* Financial statements from the Quarterly Report on Form 10-Q of National Research Corporation for the quarter ended September 30, 2013, formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Notes to Condensed Consolidated Financial Statements, and (vi) document and entity information.

* In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

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