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<SEC-DOCUMENT>0000897069-01-000256.txt : 20010330
<SEC-HEADER>0000897069-01-000256.hdr.sgml : 20010330
ACCESSION NUMBER:		0000897069-01-000256
CONFORMED SUBMISSION TYPE:	10-K405
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010329

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-K405
		SEC ACT:		
		SEC FILE NUMBER:	000-29466
		FILM NUMBER:		1583584

	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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K
<TEXT>


                                  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, 2000

                                    or

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     For the transition period from _______________ to _______________

                         Commission file number: 0-29466

                          NATIONAL RESEARCH CORPORATION
             (Exact name of registrant as specified in its charter)

                 Wisconsin                                 47-0634000
     ---------------------------------                   --------------
        (State or other jurisdiction                    (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. |X|

Aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 1, 2001: $10,158,615.

Number of shares of the registrant's common stock outstanding at March 1, 2001:
7,039,998 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2001 Annual Meeting of Shareholders are
incorporated by reference into Part III.

<PAGE>
                                     PART I

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 20 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 and by pursuing strategic opportunities to
acquire other healthcare performance information providers. Since 1997, the
Company followed this strategy by hiring new sales associates. In June 1998, the
Company also acquired Healthcare Research Systems, Ltd. ("HRS"), an Ohio-based
provider of survey-based performance measurement, analysis and tracking services
to the healthcare industry.

         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.

                                       2
<PAGE>

         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 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, the Company piloted the new syndicated NRC DoctorGuide, a
stand-alone individual report card on primary care physicians. 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

                                       3
<PAGE>

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 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 535 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

                                       4
<PAGE>

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 its CD-ROM-based desktop delivery system the Report Card 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. 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 expected to be completed by mid-2001. The
report cards on the individual physicians can be sold to health plans,
employees, physician management groups, with summary reports available to the
general public via DoctorGuide.com.

Clients

         The Company's ten largest clients accounted for 41%, 43% and 40% of the
Company's total revenues in 2000, 1999 and 1998, respectively. The United States
Department of Defense, through a primary contractor, United Healthcare
Corporation, accounted for 14.6% of total revenues in 2000.

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, Tennessee, Pennsylvania, 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 10 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 108 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.

                                       5
<PAGE>

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 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.

Employees

         As of December 31, 2000, the Company employed a total of 80 persons on
a full-time basis. In addition, as of such date, the Company had 98 part-time
associates primarily in its survey operations, representing approximately 54
full-time equivalent employees. None of the Company's employees are represented
by a collective bargaining agreement. The Company considers its relationship
with its employees to be good.


                                       6
<PAGE>

Executive Officers of the Registrant

         The following table sets forth certain information, as of March 1,
2001, regarding the executive officers of the Company:

      Name             Age               Positions
      ----             ---               ---------

Michael D. Hays         46       President, Chief Executive Officer and Director

Jona S. Raasch          42       Vice President and Chief Operations Officer

Patrick E. Beans        43       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.

         Patrick E. Beans has served as Vice President, Treasurer and Chief
Financial Officer since August 1997, as Secretary since September 1997, as a
director since October 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
         -----------------

         The Company filed a $2.8 million counter suit to a lawsuit filed in May
2000 in the United States District Court for the District of Nebraska by Cap
Gemini America, Inc., the software developer of the Company's QualPro technology
(a proprietary system that automates the creation and processing of surveys).
Cap Gemini is suing the Company for approximately $1.1 million due under a
consulting agreement between the two firms. The Company has withheld a portion
of the consulting fee because of Cap Gemini's failure to fulfill the terms of
the consulting agreement, creating a costly delay in the roll-out of QualPro and
necessitating considerable expense on the part of the Company to make the
software perform as required. The Company believes it has a strong case and that
the outcome of the lawsuit will have little or no impact on the operations or
financial condition of the Company.

                                       7
<PAGE>

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 2000 fiscal year.

                                    PART II
                                    -------

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, 1999 through December 31, 2000:

                                                           High      Low
                                                           ----      ---

         First quarter ended March 31, 1999............    5 1/2     3 1/2

         Second quarter ended June 30, 1999............    3 5/8     1 3/4

         Third quarter ended September 30, 1999........    3 3/8     2 1/8

         Fourth quarter ended December 31, 1999........    4 11/16   3 1/8

         First quarter ended March 31, 2000............    6 3/8     3 7/16

         Second quarter ended June 30, 2000............    8 1/8     4 1/2

         Third quarter ended September 30, 2000........    63/4      4 5/8

         Fourth quarter ended December 31, 2000........    51/2      3 3/8

         On March 1, 2001, there were approximately 18 shareholders of record
and approximately 592 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.

Item 6.  Selected Financial Data
         -----------------------

         The selected statement of income data for the years ended December 31,
2000, 1999 and 1998 and the balance sheet data at December 31, 2000 and 1999 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, 1997 and
1996 and the balance sheet data at December 31, 1998, 1997 and 1996 are derived
from audited financial statements not included herein.


                                       8
<PAGE>
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                       ---------------------------------------------------------------
                                                           2000        1999        1998(1)        1997        1996
                                                         --------    --------     --------      --------    --------
                                                                    (In thousands, except per share data)
Statement of Income Data:
<S>                                                      <C>         <C>          <C>           <C>         <C>
Revenues..........................................       $ 18,316    $ 18,184     $ 17,665      $ 16,284    $ 12,600
Operating expenses:
  Direct expenses.................................          9,120      11,133        9,422         7,178       5,685
  Selling, general and administrative.............          4,602       4,177        4,843         3,980       3,060
  Depreciation and amortization...................          1,269         817          426           159         173
  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................         14,991      16,491       17,732        13,057       8,918
                                                         --------    --------     --------      --------    --------
Operating income (loss)...........................          3,325       1,693          (67)        3,227       3,682
Other income and expenses, net....................            531         530          849           367         152
                                                         --------    --------     --------      --------    --------
Income before income taxes........................          3,856       2,223          782         3,594       3,834
Provision for income taxes........................          1,139         748          321           376           -
Pro forma income taxes(2).........................              -           -            -           804       1,534
                                                         --------    --------     --------      --------    --------
Pro forma net income(2)...........................       $  2,717    $  1,475     $    461      $  2,414    $  2,300
                                                         ========    ========     ========      ========    ========
Pro forma net income per share - basic and
    diluted(2)....................................       $   0.39    $   0.21     $   0.06      $   0.37    $  0.37
                                                         ========    ========     ========      ========    ========
Weighted average shares outstanding - basic(3)....          7,019       7,054        7,283         6,440       6,185
Weighted average shares outstanding - diluted(3)..          7,025       7,057        7,301         6,440       6,185
<CAPTION>

                                                                                December 31,
                                                       ---------------------------------------------------------------
                                                           2000        1999         1998          1997        1996
                                                         --------    --------     --------      --------    --------
                                                                               (In thousands)
Balance Sheet Data:
<S>                                                      <C>         <C>          <C>           <C>         <C>
Working capital...................................       $  8,342    $  5,246     $  8,954      $ 17,681    $  2,018
Total assets......................................         31,637      29,256       26,279        22,563       6,153
Total debt, including current portion.............          5,430       3,619          105             -           -
Total shareholders' equity........................         21,382      18,566       17,435        18,121       2,079

- ---------------------------
(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.
</TABLE>

                                       9
<PAGE>

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 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

         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'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.

         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

                                       10
<PAGE>

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
the 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 piloted its new renewable syndicated service, the NRC
DoctorGuide, in 2000. 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 expected to be completed by mid-2001. The
report cards on the individual physicians can be sold to health plans,
employees, physician management groups, with summary reports available to the
general public via DoctorGuide.com.

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.
<TABLE>
<CAPTION>
                                                       Percentage of Total Revenues          Percentage Increase
                                                          Year Ended December 31,                (Decrease)
                                                       -----------------------------        -----------------------
                                                                                         2000 over      1999 over
                                                        2000        1999        1998         1999          1998
                                                       -----       -----       -----        -----         -----

<S>                                                    <C>         <C>         <C>         <C>           <C>
Revenues                                               100.0%      100.0%      100.0%         0.7%          2.9%
Operating expenses:
  Direct expenses.............................          49.8        61.2        53.3        (18.1)         18.2
  Selling, general and administrative.........          25.1        23.0        27.4         10.2         (13.7)
  Depreciation and amortization...............           6.9         4.5         2.4         55.3          91.8
  Acquired-in-process research and
       development cost.......................             -           -        15.5            -        (100.0)
  Cost of closing duplicate facilities and
       severance charges......................             -         2.0         1.7       (100.0)         19.8
  Special compensation charge.................             -           -           -            -             -
                                                       -----       -----       -----
          Total operating expenses............          81.8        90.7       100.3         (9.1)         (7.0)
                                                       -----       -----       -----
Operating income (loss).......................          18.2%        9.3%       (0.3)%        N/A           N/A
                                                       =====       =====       =====
</TABLE>

                                       11
<PAGE>

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 a decrease 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. Direct expenses as a percentage of total revenues are expected to
remain at similar levels as 2000 in 2001.

         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 an increase 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. Selling,
general and administrative expenses as a percentage of total revenues are
expected to decrease slightly 2001.

         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. Depreciation and
amortization expenses as a percent of total revenues are expected to decrease
slightly in 2001.

         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. The effective tax rate for 2001 is expected
to increase to 34% due to the lack of federal tax credits.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         Total revenues. Total revenues increased 2.9% in 1999 to $18.2 million
from $17.7 million in 1998 primarily due to the addition of new clients.

         Direct expenses. Direct expenses increased 18.2% to $11.1 million in
1999 from $9.4 million in 1998. The increase in direct expenses in 1999 was due
primarily to an increase in software conversion costs of $617,000, labor and
payroll expenses of $609,000, computer support and equipment expenses of
$204,000 and, to a lesser extent, increases in printing and postage of $91,000,
fieldwork expenses of $80,000 and occupancy costs of $50,000; which were offset
by a decrease in travel expenses of $24,000. Direct expenses increased as a
percentage of total revenues to 61.2% in 1999 from 53.3% during 1998 due to an
increase in expenses associated with the Company's planned conversion of
internal software and, and to a lesser extent, an increase in the use of
telephone methodology, which increases labor costs. Direct expenses as a
percentage of total revenues are

                                       12
<PAGE>

expected to decrease from the 1999 levels in 2000 primarily due to the
completion of the Company's software conversion.

         Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 13.7% to $4.2 million in 1999 from $4.8
million in 1998. This decrease was primarily due to a decrease in marketing
costs of $226,000, salary and benefit expenses of $179,000, travel expenses of
$92,000, office supplies and postage of $76,000 and legal and accounting
expenses of $30,000. These decreases were partially offset by an increase in
recruiting and relocation costs of $40,000. Selling, general and administrative
expenses decreased as a percentage of total revenues to 23.0% in 1999 from 27.4%
in 1998 partially due to underutilized rental space leased by the Company from
June 1998 to December 1998. Selling, general and administrative expenses as a
percentage of total revenues are expected to increase from the 1999 levels in
2000 as a result of anticipated increases in sales and marketing activities.

         Depreciation and amortization. Depreciation and amortization expenses
increased 91.8% to $817,000 in 1999 from $426,000 in 1998. The increase is
primarily due to the amortization of the intangible assets of HRS acquired in
June 1998 and the internal development of software. The increase in amortization
due to HRS acquisition intangible assets in 1999 was $336,000, as compared to
$127,000 in 1998, which included only seven months of amortization. Depreciation
and amortization expenses increased as a percentage of total revenues to 4.5% in
1999 from 2.4% in 1998.

         Closing of duplicate facilities and severance charge. In December 1999,
NRC closed its duplicate office in Columbus, Ohio. In connection with the
closing of this office, NRC incurred severance, write-down of an intangible
asset and other charges of approximately $364,000. The aggregate charges in 1999
to income net of taxes associated with the closing of duplicate office was
$235,000, or $0.03 per share.

         Provision for income taxes. The provision for income taxes totaled
$748,000 (33.6% effective tax rate) for 1999 compared to $321,000 (41.0%
effective tax rate) for 1998. The effective tax rate was lower in 1999 due to
certain federal income tax credits. The effective tax rate for 2000 is expected
to remain at a similar level due to anticipated federal and state tax credits.

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 December 31, 2000, the Company had cash and cash equivalents of
$3.2 million and working capital of $8.3 million.

         During 2000, the Company generated $2.0 million of net cash from
operating activities as compared to $3.5 million of net cash generated during
1999. The decrease in cash flow was due, in part, to a decrease in billings in
excess of revenues earned and an increase in unbilled revenues, both of which
were partially offset by a decrease in trade accounts receivables. These changes
were mainly due to the timing of the billing of certain customers in 2000, which
timing the Company expects will reverse, in part, in 2001. The decrease in cash
flows was also due to a decrease in accounts payable and accrued expenses, wages
and profit sharing, largely due to timing.

                                       13
<PAGE>

         Net cash used in investing activities was $1.9 million for 2000 and
$7.8 million for 1999. The 2000 decrease in cash used was primarily due to the
decrease in investments available-for-sale of $6.9 million, which was partially
offset by an increase of $1.3 million for investment in the renovation of the
Company's new building and the purchase of furniture, computer equipment and
software. 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 $1.9 million for 2000,
compared to $533,000 in 1999. The 2000 cash provided was primarily from the $1.8
million construction financing for the renovation of the Company's new office
building and the $125,000 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
2001 to be funded through cash generated from operations. The Company expects
that capital expenditures during 2001 will be primarily for telecommunications
equipment, computer hardware and software, production equipment and furniture.

         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, 2000 and 1999, the Company had $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, 2000 and 1999, the
Company had $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.

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, 2000, 56,700
shares have been repurchased under the new authorization.

Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that all derivatives be
recognized as either assets or liabilities in the balance sheet and measured at
their fair value. If certain conditions are met, a derivative may be
specifically designated as (i) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(ii) a hedge of the exposure to variable cash flows of a forecasted transaction
or (iii) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign-

                                       14
<PAGE>

currency denominated forecasted transaction. SFAS 133, as amended by Statement
of Financial Accounting Standards No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not expect the
effect of SFAS 133 to be significant to its financial reporting.

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, 2000
and 1999, then the Company's interest income would have decreased, and pre-tax
income would have decreased approximately $50,000 and $60,000, 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, 2000 and 1999 is as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
                                                                                  Quarter
                                                                                   Ended
                                         ----------------------------------------------------------------------------------------
                                          Dec. 31,   Sept. 30,  June 30,    Mar. 31,   Dec. 31,   Sept. 30,  June 30,   Mar. 31,
                                            2000       2000       2000       2000        1999       1999       1999       1999
                                            ----       ----       ----       ----        ----       ----       ----       ----
<S>                                        <C>        <C>        <C>        <C>         <C>        <C>        <C>        <C>
Revenues..............................     $4,206     $5,017     $4,638     $4,455      $4,618     $5,598     $4,305     $3,663
Direct expenses.......................      1,822      2,449      2,331      2,518       2,082      3,469      3,005      2,577
Selling, general and administrative...      1,068      1,212      1,222      1,100       1,165      1,061      1,046        905
Depreciation and amortization.........        316        342        347        264         266        203        179        169
Cost of closing of duplicate
 facilities and severance charges(1)..         --         --         --         --         364         --         --         --
                                           ------     ------     ------     ------      ------     ------     ------     ------
Operating income (loss)...............      1,000      1,014        738        573         741        865         75         12
Other income and expenses, net........         29        173        178        151         146         95        133        156
Provision for income taxes............        287        356        266        230         262        334         85         67
                                              ---        ---        ---        ---         ---        ---         --         --
Net income............................     $  742     $  831     $  650     $  494      $  625     $  626     $  123     $  101
                                           ======     ======     ======     ======      ======     ======     ======     ======
Net income per share - basic
   and diluted........................     $ 0.11     $ 0.12     $ 0.09     $ 0.07      $ 0.09     $ 0.09     $ 0.02     $ 0.01
Weighted average shares outstanding-
   basic..............................      7,032      7,025      7,013      7,006       7,036      7,050      7,056      7,077
Weighted average shares outstanding-
   diluted............................      7,038      7,069      7,062      7,037       7,039      7,051      7,057      7,085

- -----------------------
(1)      In the quarter ended December 31, 1999, the Company recorded severance costs, impairment losses on intangible assets and
         property and equipment and other charges of approximately $364,000. The aggregate affect of these charges on net income
         and earnings per share in such quarter was $235,000 or $0.03 per share. See Note 12 to the Company's Financial
         Statements.
</TABLE>

                                       15
<PAGE>
                          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, 2000 and 1999 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, 2000. 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, 2000 and 1999 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.


                                           KPMG LLP
Lincoln, Nebraska
February 9, 2001

                                       16
<PAGE>
<TABLE>
                                           NATIONAL RESEARCH CORPORATION

                                                   Balance Sheets

                                             December 31, 2000 and 1999
<CAPTION>
                                     Assets                                              2000               1999
                                     ------                                              ----               ----
Current assets:
<S>                                                                                   <C>                <C>
  Cash and cash equivalents.....................................................      $ 3,218,805        $  1,149,587
  Investments in marketable debt securities.....................................        6,577,112          10,876,608
  Trade accounts receivable, less allowance for doubtful
    accounts of $77,276 and $63,098 in 2000 and 1999, respectively..............        1,713,621           2,918,124
  Unbilled revenues.............................................................        1,247,296             622,610
  Prepaid expenses and other....................................................          213,075              53,727
  Income taxes recoverable......................................................           62,833                  --
  Deferred income taxes.........................................................          217,205             215,018
                                                                                      -----------        ------------
         Total current assets...................................................       13,249,947          15,835,674

Net property and equipment......................................................       13,218,340           7,525,943

Deferred income taxes...........................................................           85,600             438,136
Goodwill and other intangible assets, net of accumulated amortization...........        5,057,761           5,440,252
Other...........................................................................           25,825              15,592
                                                                                      -----------        ------------

         Total assets...........................................................      $31,637,473        $ 29,255,597
                                                                                      ===========        ============

                      Liabilities and Shareholders' Equity
                      ------------------------------------
Current liabilities:
  Construction financing line of credit.........................................      $       ---        $  3,544,000
  Current portion of notes payable..............................................          134,518              54,332
  Accounts payable..............................................................        1,771,498           1,680,385
  Accrued wages, bonus and profit sharing.......................................          513,254             669,900
  Accrued expenses..............................................................          679,869           1,132,934
  Income taxes payable..........................................................              ---             234,533
  Billings in excess of revenues earned.........................................        1,809,090           3,273,577
                                                                                      -----------        ------------
         Total current liabilities..............................................        4,908,229          10,589,661

Notes payable, net of current portion...........................................        5,295,814              20,324
Bonuses, profit sharing accruals and other accrued expenses.....................           50,999              79,245
                                                                                      -----------        ------------
         Total liabilities......................................................       10,255,042          10,689,230
                                                                                      -----------        ------------

Shareholders' equity:
  Preferred stock, $.01 par value; authorized 2,000,000 shares,
    no shares issued and outstanding............................................              ---                 ---
  Common stock, $.001 par value; authorized 20,000,000 shares,
    issued 7,332,413 in 2000 and 7,305,000 in 1999, outstanding 7,030,713 in                7,332               7,305
    2000 and 7,006,300 in 1999..................................................
  Additional paid-in capital....................................................       16,964,720          16,839,839
  Retained earnings.............................................................        5,927,019           3,210,292
  Accumulated other comprehensive income........................................          (13,571)                ---
  Treasury stock, at cost; 301,700 shares in 2000 and 298,700 shares
    in 1999.....................................................................       (1,503,069)         (1,491,069)
                                                                                      -----------        ------------
         Total shareholders' equity.............................................       21,382,431          18,566,367
                                                                                      -----------        ------------


         Total liabilities and shareholders' equity.............................      $31,637,473        $ 29,255,597
                                                                                      ===========        ============
See accompanying notes to financial statements.
</TABLE>

                                       17
<PAGE>
<TABLE>
                                           NATIONAL RESEARCH CORPORATION

                                                Statements of Income

                                        Three years ended December 31, 2000
<CAPTION>
                                                                   2000              1999              1998
                                                                   ----              ----              ----
<S>                                                            <C>               <C>               <C>
Revenues.............................................          $ 18,316,116      $ 18,184,007      $ 17,664,682

Operating expenses:
  Direct expenses....................................             9,119,750        11,133,090         9,422,342
  Selling, general and administrative................             4,602,223         4,177,185         4,842,584
  Depreciation and amortization......................             1,269,535           816,740           425,876
  Acquired-in-process research and development cost..                   ---               ---         2,737,542
  Cost of closing duplicate facilities and severance
     charges.........................................                   ---           363,965           303,740
                                                               ------------      ------------      ------------
         Total operating expenses....................            14,991,508        16,490,980        17,732,084
                                                               ------------      ------------      ------------

         Operating income (loss).....................             3,324,608         1,693,027           (67,402)
                                                               ------------      ------------      ------------

Other income (expense):
  Interest income....................................               661,675           573,460           852,173
  Interest expense...................................               (91,709)           (7,706)           (7,360)
  Other, net.........................................               (38,423)          (35,778)            4,380
                                                               ------------      ------------      ------------

         Total other income..........................               531,543           529,976           849,193
                                                               ------------      ------------      ------------

         Income before income taxes..................             3,856,151         2,223,003           781,791

  Provision for income taxes.........................             1,139,424           747,691           320,508
                                                               ------------      ------------      ------------

         Net income..................................          $  2,716,727      $  1,475,312      $    461,283
                                                               ============      ============      ============


Net income per share - basic and diluted.............          $       0.39      $       0.21      $       0.06
                                                               ============      ============      ============

</TABLE>

See accompanying notes to financial statements.

                                       18
<PAGE>
<TABLE>
                                                   NATIONAL RESEARCH CORPORATION

                                    Statements of Shareholders' Equity and Comprehensive Income

                                                Three years ended December 31, 2000
<CAPTION>
                                                                                          Accumulated
                                                              Additional                     Other
                                      Preferred   Common       Paid-in       Retained     Comprehensive    Treasury
                                        Stock      Stock       Capital       Earnings     Income (Loss)      Stock         Total
                                        -----      -----       -------       --------     -------------      -----         -----

<S>                                   <C>        <C>         <C>            <C>           <C>            <C>            <C>
Balances at December 31, 1997......   $   ---     $7,305     $16,839,839    $ 1,273,697   $       ---    $       ---    $18,120,841

Comprehensive income...............
   Net income/total comprehensive
    income.........................       ---        ---             ---        461,283           ---            ---        461,283
                                       ------     ------      ----------     ----------    ----------     ----------     ----------
Purchase of 213,000 shares
   of treasury stock...............       ---        ---             ---            ---           ---     (1,147,594)    (1,147,594)
                                       ------     ------      ----------     ----------    ----------     ----------     ----------

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)    18,566,370

Issuance of 27,413 common shares from
   the exercise of stock options...       ---         27         113,053            ---           ---            ---        113,080

Tax benefit from the exercise of          ---        ---          11,828            ---           ---            ---         11,828
options............................
Comprehensive income...............
   Other comprehensive loss, net of       ---        ---             ---            ---       (13,571)           ---        (13,571)
    income taxes of $5,816.........
   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
                                       ======     ======      ==========     ==========    ==========     ==========     ==========

</TABLE>

See accompanying notes to financial statements.

                                       19
<PAGE>
<TABLE>
                                           NATIONAL RESEARCH CORPORATION

                                              Statements of Cash Flows

                                        Three years ended December 31, 2000
<CAPTION>
                                                                     2000               1999               1998
                                                                     ----               ----               ----
Cash flows from operating activities:
<S>                                                               <C>                <C>                 <C>
  Net income............................................          $ 2,716,727        $ 1,475,312         $  461,283
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation and amortization.......................            1,269,535            816,740            425,876
    Impairment losses...................................                  ---            230,813                ---
    Acquired in-process research and development cost...                  ---                ---          2,737,542
    Deferred income taxes...............................              356,165            117,852             (3,600)
    Loss on sale of property and equipment..............               25,682             22,106             (2,489)
    Loss on sale of other investments...................                   43                788                ---
    Other non-cash charges..............................               32,581             25,920                ---
    Change in assets and liabilities:
     Trade accounts receivable..........................            1,204,504             22,232          1,278,132
     Unbilled revenues..................................             (624,686)           407,741           (260,819)
     Prepaid expenses and other.........................             (145,272)           122,300             27,665
     Accounts payable...................................             (464,158)           135,326           (698,495)
     Accrued expenses, wages and profit sharing.........             (585,956)          (101,491)          (368,537)
     Income taxes payable/recoverable...................             (297,366)           234,533            465,827
     Billings in excess of revenues earned..............           (1,464,487)            (9,885)           (93,646)
                                                                   ----------         ----------          ---------

          Net cash provided by operating activities.....            2,023,312          3,500,287          3,968,739
                                                                   ----------         ----------          ---------
Cash flows from investing activities:
  Purchases of property and equipment...................           (6,194,318)        (4,904,156)        (1,927,929)
  Acquisition, net of cash acquired.....................                  ---                ---         (5,899,588)
  Purchases of securities available-for-sale............          (13,218,641)       (13,330,053)       (11,611,973)
  Proceeds from the maturities of securities
     available-for-sale.................................           17,498,708         10,462,000         16,823,183
  Proceeds from sale of property and equipment..........               27,978              1,000             13,112
                                                                   ----------         ----------          ---------

          Net cash used in investing activities.........           (1,886,273)        (7,771,209)        (2,603,195)
                                                                   ----------         ----------         ----------
Cash flows from financing activities:
  Borrowings (payments) under line of credit............           (3,544,000)         3,544,000                ---
  Proceeds from issuance of debt........................            5,440,000                ---                ---
  Payments on notes payable.............................              (76,729)           (30,792)           (18,590)
  Payment of purchase price payable.....................                  ---         (2,636,936)               ---
  Proceeds from issuance of common stock................              124,908                ---                ---
  Purchase of treasury stock............................              (12,000)          (343,475)        (1,147,594)
                                                                   ----------         ----------         ----------
          Net cash provided by (used in) financing
            activities..................................            1,932,179            532,797         (1,166,184)
                                                                   ----------         ----------         ----------
          Net increase (decrease) in cash and
            cash equivalents............................            2,069,218         (3,738,125)           199,360

Cash and cash equivalents at beginning of period........            1,149,587          4,887,712          4,688,352
                                                                   ----------         ----------          ---------

Cash and cash equivalents at end of period..............          $ 3,218,805        $ 1,149,587         $4,887,712
                                                                   ==========         ==========          =========
Supplementary information:
  Cash paid for:
  Interest, including capitalized interest of $325,963
     and $54,617 in 2000 and 1999, respectively.........          $   417,567        $    62,685         $    7,360
                                                                   ==========         ==========          =========
  Income taxes..........................................          $ 1,068,798        $   397,540         $  928,246
                                                                   ==========         ==========          =========

Noncash investing and financing activities:
   In 1998, the Company assumed liabilities of $0.6 million and incurred purchase price payable of $2.7 million in
   connection with the acquisition of a business.

   Accounts payable included $555,270 in 2000 and $863,216 in 1999 for purchases of property and equipment.
</TABLE>

See accompanying notes to financial statements.

                                       20
<PAGE>
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 41%, 43% and 40% of the Company's total revenues in 2000,
1999 and 1998, respectively. One client accounted for 14.6%, 15.7%, and 14.6% of
total revenues in 2000, 1999 and 1998, respectively. A second client accounted
for 12.9% and 10.2% of total revenues in 1999 and 1998, 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


                                       21
<PAGE>

each edition. Revenues and costs for these services are recognized as the
customization services are performed and completed.

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 $596,000,
$1,491,000 and $1,494,000 of costs incurred for the development of internal use
software for the years ended December 31, 2000, 1999 and 1998, respectively,
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.

         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.

Marketable Securities

         All marketable securities held by the Company at December 31, 2000 and
1999 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.
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

                                       22
<PAGE>

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" 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.

         The weighted average shares outstanding is calculated as follows:
<TABLE>
<CAPTION>
                                                               2000               1999                1998
                                                               ----               ----                ----

<S>                                                          <C>                <C>                 <C>
Common stock...........................................      7,019,097          7,054,487           7,283,051
Dilutive effect of options.............................          5,918              2,987              18,315
                                                             ---------          ---------           ---------
Weighted average shares used for dilutive
   per share...........................................      7,025,015          7,057,474           7,301,366
                                                             =========          =========           =========
</TABLE>

         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.

Comprehensive Income

         Other than unrealized holding gains on securities available-for-sale,
the Company has no sources of other comprehensive income. Because the cost of
the Company's available-for-sale securities approximated market value in 1999
and 1998, the Company reported no other comprehensive income for the two years
ended December 31, 1999.

Reclassification

         Other income for the prior years has been reclassified to conform to
the December 31, 2000 presentation.


                                       23
<PAGE>
2.       Acquisition
         -----------

         Effective June 1, 1998, the Company acquired the business of Healthcare
Research Systems, Ltd. ("HRS") through an acquisition of assets. Consideration
paid by the Company at closing included a cash payment of $5,100,000 plus an
estimated payment of $350,000 for the net working capital acquired. The Company
also incurred liabilities of $625,362 related to management's plans to exit
certain activities of HRS and has paid $170,000 of direct acquisition costs. The
acquisition agreement was subsequently amended to return to the Company the
entire $350,000 estimated payment for the net working capital surplus paid at
closing and to provide for the Company's assumption of additional
pre-acquisition liabilities of HRS of $629,588. The amendment to the acquisition
agreement was recorded in the third quarter of 1998 as an adjustment to the
purchase price, increasing goodwill by $629,588. As the Company completed its
original exit plans in 1999, management determined that the ultimate costs of
certain exit activities were less than the liabilities accrued at the time of
the acquisition. As a result, the Company reduced its goodwill and accrued
liabilities by $153,390 for the excess of accrued liabilities over actual costs.
During 2000, the Company negotiated a reduction in the incurred liabilities
related to the management's plan to exit certain activities which reduced the
Company's liabilities by $84,318. In October 1998, the amended acquisition
agreement removed the contingencies associated with scheduled payments of
additional purchase price in 1999 and the Company paid the scheduled payments of
purchase price during 1999.

         The acquisition of HRS has been accounted for as a purchase, and
accordingly, the operating results of HRS have been included in the Company's
financial statements since the date of acquisition. The purchase price of
approximately $8,900,000, as adjusted for accrued liabilities, has been
allocated to the following assets based upon management's preliminary estimates
of the fair values of identifiable assets of HRS at the date of acquisition.
Assets, including in-process research and development, acquired are as follows:

                                                                    Estimated
                                                       Fair Value      Life
                                                       ----------   ---------
         Property and equipment...................     $  150,000   5-7 years
         Workforce in place.......................        272,882    10 years
         Customer lists...........................        359,048    15 years
         Goodwill.................................      5,417,771    20 years
                                                        ---------
                                                        6,199,701

         In-process research and development......      2,737,542    0 years
                                                        ---------

                                                       $8,937,243

         In 1998, the Company also terminated the employment of certain of its
employees whose responsibilities were duplicative of those performed by
employees acquired in the HRS acquisition. The terminations resulted in a
severance charge of $303,740 in 1998. All severance payments related to this
charge were paid prior to December 31, 1998.

                                       24
<PAGE>
3.       Investments in Marketable Debt Securities
         -----------------------------------------

         The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value of securities by major security type and class of
security at December 31, 2000, were as follows:
<TABLE>
<CAPTION>
                                                                       Gross            Gross
                                                      Amortized      Unrealized       Unrealized
                                                        Cost       Holding Gains    Holding Losses      Fair Value
                                                        ----       -------------    --------------      ----------
  Debt securities:
<S>                                                  <C>            <C>               <C>              <C>
    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
                                                      ===========    ==========        =========        ===========
</TABLE>

         There were no sales of marketable securities in advance of scheduled
maturities of available-for-sale marketable debt securities during 2000, 1999 or
1998. The amortized cost of debt securities at December 31, 2000, 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.

                                                               2000
                                                               ----
                                                       Fair          Amortized
                                                       Value            Cost
                                                       -----         ---------

         Due after three months through one year   $  5,532,370   $  5,544,542
         Due after one year through five years        1,043,784      1,050,999
                                                      ---------      ---------
                                                   $  6,576,154   $  6,595,541
                                                    ===========    ===========

4.       Property and Equipment
         ----------------------

         At December 31, 2000 and 1999 property and equipment consisted of the
following:

                                                         2000          1999
                                                         ----          ----

         Furniture and equipment...................  $  1,415,522  $   416,214
         Computer equipment and software...........     5,407,782    4,319,118
         Building..................................     7,862,117    3,613,003
         Land......................................       425,000      425,000
                                                     ------------   ----------
                                                       15,110,421    8,773,335
         Less accumulated depreciation and
               amortization........................     1,892,081    1,247,392
                                                      -----------   ----------
                  Net property and equipment.......  $ 13,218,340  $ 7,525,943
                                                     ============   ==========

         During 2000 the Company moved to its new headquarters and sold or
otherwise disposed of certain old furniture and equipment used at the old
headquarters, which had accumulated depreciation of approximately $350,000.


                                       25
<PAGE>
5.       Goodwill and Other Intangible Assets
         ------------------------------------

         Goodwill and other intangible assets consist of the following at
December 31, 2000 and 1999:

                                                  2000             1999
                                                  ----             ----

         Customer lists.....................   $    359,048     $    359,048
         Goodwill...........................      5,417,771        5,502,089
                                                -----------      -----------
                                                  5,776,819        5,861,137

         Accumulated amortization...........       (719,058)        (420,885)
                                                -----------      -----------
                                               $  5,057,761     $  5,440,252
                                                ===========      ===========

6.       Income Taxes
         ------------

         Income tax expense (benefit) consisted of the following components:

                                    Current         Deferred          Total
                                    -------         --------          -----
         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
                                    =======          =======         =======
         1998:
             Federal............. $ 713,514       $ (442,014)    $   271,500
             State...............    95,000          (45,992)         49,008
                                     ------          -------          ------
                  Total.......... $ 808,514       $ (488,006)    $   320,508
                                    =======         ========         =======

         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:

                                                  2000        1999       1998
                                                  ----        ----       ----

         Expected federal income taxes......   $ 1,311,100  $ 755,800  $266,000
         State income taxes, net of
          federal benefit...................       153,600     80,100    32,900
         Tax credits and incentives.........      (386,100)   (66,000)      ---
         Other..............................        60,824    (22,209)   21,608
                                               -----------   --------   -------
                  Total.....................   $ 1,139,424  $ 747,691  $320,508
                                                 =========    =======   =======


                                       26
<PAGE>
         Deferred tax assets and liability at December 31, 2000 and 1999, were
comprised of the following:

                                                     2000          1999
                                                     ----          ----
         Deferred tax assets:
         Allowance for doubtful accounts......... $  30,100     $  24,600
         Accrued expenses........................   157,800       164,400
         Bonus and profit sharing accruals.......    34,000        29,600
         In process research and development.....   461,000       434,554
         Investments available-for-sale..........     5,816           ---
                                                  ---------     ---------

              Gross deferred tax assets..........   688,716       653,154

         Deferred tax liability:
          Basis in property and equipment           385,911           ---
                                                  ---------     ---------
              Net deferred tax assets............ $ 302,805     $ 653,154
                                                  ===========   =========

         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.

7.       Notes Payable
         -------------

         Notes payable consist of the following:

                                                               2000      1999
                                                               ----      ----
         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                                      $5,410,050  $    ---

         Note payable to Fifth Shore Partnership, at
         9.0%, payable in monthly installments of
         $1,808 including interest, with final payment
         of principal and interest paid October 1, 2000           ---    39,988

         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 the assets of the Company                  20,282    34,668
                                                           ----------  --------

         Total notes payable                                5,430,332    74,656

         Less current portion                                 134,518    54,332
                                                           ----------  --------

         Notes payable, net of current portion             $5,295,814  $ 20,324
                                                           ==========  ========

         The aggregate maturities of notes payable for each of the five years
subsequent to December 31, 2000 are: 2001 - $134,518; 2002 - $132,848; 2003 -
$139,639; 2004 - $151,605; and 2005 - $164,596.


                                       27
<PAGE>

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 "Equity Incentive Plan"). The Equity Incentive Plan provides for the
granting of options to purchase 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 five years. At December 31, 2000, the number of shares available for
issuance pursuant to future grants under the Equity Incentive Plan was 380,895
shares.

         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 2000 and 1999. At December 31, 2000, the
number of shares available for issuance pursuant to future grants under the
Director Plan was 24,000.

         Options to purchase shares of common stock have been granted in 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:

                                                           2000    1999   1998
                                                           ----    ----   ----
                                                         (in thousands, except
                                                           per share amounts)
 Pro forma:
     Net income, as reported........................     $2,717  $1,475   $461
     Net income, adjusted for the fair value method.      2,687   1,324    267

     Income per share, as reported (1)..............      $0.39   $0.21  $0.06
     Income per share, adjusted for the fair
          value method(1)...........................       0.39    0.19   0.04

(1) Amounts are the same for both basic and diluted income per share.

         The weighted average fair value of options granted in 2000, 1999 and
1998 was $4.99, $5.51 and $1.80, 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 2000, 1999 and 1998 was estimated at the date
of grant using the Black-Scholes model with the following assumptions:


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                                           2000        1999           1998
                                                           ----        ----           ----

<S>                                                   <C>          <C>            <C>
         Expected dividend yield at date of grant..           0          0              0
         Expected stock price volatility...........        45.0%      45.0%          45.0%
         Risk-free interest rate...................         6.0%       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
</TABLE>

         The following information relates to options to purchase common stock:

                                                Number of     Weighted Average
                                                 Shares        Exercise Price
                                                 ------        --------------

     Balance at December 31, 1997..........      167,130          $15.00
         Granted...........................      342,878            4.37
         Canceled..........................     (107,378)          13.58
                                                -------

     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
         Canceled..........................     (118,332)           5.26
                                                 -------

     Balance at December 31, 2000..........      341,692            5.90
                                                 =======

     Exercisable at December 31, 2000......      269,198            6.26
                                                 =======

         At December 31, 2000, 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 3.03 years, of which 260,524
shares are between $3.71 and $4.99.

9.       Leases
         ------

         The Company leased office space for a monthly base rental payment plus
maintenance and utilities. Rental expense was $276,359, $401,105 and $385,735
during 2000, 1999 and 1998, 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 are approximately $351,450 in 2001.

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 2000, 1999 and 1998.

         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


                                       29
<PAGE>

         executive management incentive plan are paid over a five-year period.
         Expense recorded under these plans was $273,793, $162,458 and $84,013
         in 2000, 1999 and 1998, respectively.

11.      Restructuring Expenses and Impairment of Assets
         -----------------------------------------------

         During the quarter ended December 31, 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 2000, 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. No
                  severance benefits were paid in 1999 and, therefore, accrued
                  expenses include liabilities of $104,437 for unpaid severance
                  benefits at December 31, 1999. 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
                  HRS. 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 duplicative property and equipment abandoned
                  with the Columbus, Ohio facilities.

         o        Lease costs of $11,287 were accrued for contractual
                  commitments on abandoned facilities in connection with
                  management's exit plans.

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.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         ---------------------------------------------------------------
         Financial Disclosure
         --------------------

         None.


                                       30
<PAGE>
                                    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.

                                    PART IV
                                    -------

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.


                                       31
<PAGE>
                                   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         March 29, 2001
- ------------------------       Officer and Director l
Michael D. Hays                (Principa Executive Officer)


/s/ Patrick E. Beans           Vice President, Treasurer,         March 29, 2001
- ------------------------       Secretary, Chief Financial
Patrick E. Beans               Officer and Director (Principal
                               Financial and Accounting Officer)


/s/ John N. Nunnelly           Director                           March 29, 2001
- ------------------------
John N. Nunnelly


/s/ Paul C. Schorr, III        Director                           March 29, 2001
- ------------------------
Paul C. Schorr, III


                                       32
<PAGE>
                   INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
                               STATEMENT SCHEDULE


                                                         Page in this Form 10-K
                                                         -----------------------

Independent Auditors' Report                                               16

Balance Sheets as of December 31, 2000 and 1999                            17

Statements of Income for each of the years in                              18
the three-year period ended December 31, 2000

Statements of Shareholders' Equity for each of                             19
the years in the three-year period ended
December 31, 2000

Statements of Cash Flows for each of the three years                       20
in the period ended December 31, 2000

Notes to Financial Statements                                           21-30

Independent Auditors' Report on Financial Statement Schedule               34


Financial Statement Schedule:                                              35
  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.



                                       33
<PAGE>
          INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE


The Board of Directors
National Research Corporation:

Under date of February 9, 2001, we reported on the balance sheets of National
Research Corporation as of December 31, 2000 and 1999, 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, 2000,
which are included in the 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 9, 2001

                                       34
<PAGE>
<TABLE>

                                         NATIONAL RESEARCH CORPORATION

                               Schedule II -- Valuation and Qualifying Accounts

<CAPTION>

                                                      Balance at                      Write-offs,       Balance
                                                       Beginning       Bad Debt         Net of           at End
                                                        of Year        Expense        Recoveries        of Year
                                                      ----------       --------       ----------        --------
Allowance for doubtful accounts:
<S>                   <C> <C>                          <C>              <C>               <C>            <C>
  Year Ended December 31, 1998.................        $  62,808        40,000            40,917         61,891

  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

</TABLE>

See accompanying independent auditors' report.


                                       35
<PAGE>
                                  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 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)]

(10.3)+        Subcontract, dated as of May 9, 1997, as amended, between
               National Research Corporation and United HealthCare Corporation
               [Incorporated by reference to Exhibit (10.7) to National Research
               Corporation's Form S-1 Registration Statement (Registration No.
               333-33273)]

(23)           Consent of KPMG LLP

(99)           Proxy Statement for the 2001 Annual Meeting of Shareholders

               [Except to the extent specifically incorporated by reference, the
               Proxy Statement for the 2001 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.


                                      36


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>CONSENT
<TEXT>


                              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 8, 2001, relating to the balance sheets of National
Research Corporation as of December 31, 2000 and 1999, 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, 2000,
and related schedule, which reports appear in the December 31, 2000, annual
report on Form 10-K of National Research Corporation.

                                       /s/ KPMG LLP



Lincoln, Nebraska
March 29, 2001

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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