Description of business and basis of presentation

National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare providers, payers and other healthcare organizations in the United States and Canada. Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients. The Company’s solutions enable its clients to understandare offered at an enterprise level through the voiceVoice of the customer with greater clarity, immediacyCustomer ("VoC") platform, The Governance Institute, and depth.legacy Experience solutions. 

The Company’sOur six operating segments are aggregated into one reporting segment because they have similar economic characteristics and meet the other aggregation criteria from the Financial Accounting Standards Board (“FASB”) guidance on segment disclosure. The six operating segments are Experience, The Governance Institute, Market Insights, Transparency, NRC HealthNational Research Corporation Canada and Transitions, (formerly Connect), which offer a portfolio of solutions that address specific needs around market insight, experience, transparency and governance for healthcare providers, payers and other healthcare organizations.

TheOur condensed consolidated balance sheet of the Company at December 31, 2016,2019 was derived from the Company’sour audited consolidated balance sheet as of that date. All other financial statements contained herein are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) the Company considersthat we consider necessary for a fair presentation of financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States.

Information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in the Company’sour Form 10-K for the year ended December 31, 2016,2019, filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2017.6, 2020.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The condensed consolidated financial statements include the accounts of the Company and itsour wholly-owned subsidiary, National Research Corporation Canada, doing business as NRC Health Canada. The condensed consolidated statement of income for the nine months ended September 30, 2016 also included Customer-Connect LLC.  Customer-Connect LLC became a wholly-owned subsidiary in March 2016 and was previously a variable interest entity for which NRC Health was deemed the primary beneficiary. On June 30, 2016, Customer-Connect LLC was dissolved. All significant intercompany transactions and balances have been eliminated.

TheOur Canadian subsidiary uses as its functional currency the local currency of the Company’s foreign subsidiary, National Research Corporation Canada, doing business as NRC Health Canada, is the subsidiary’s local currency. The Companycountry in which it operates. It translates theits assets and liabilities of its foreign subsidiaryinto U.S. dollars at the period-endexchange rate of exchangein effect at the balance sheet date. It translates its revenue and its foreign subsidiary’s income statement balancesexpenses at the average exchange rate prevailing during the period. The Company records the resultingWe include translation adjustmentgains and losses in accumulated other comprehensive loss,income (loss), a component of shareholders’ equity. Since the undistributed earnings of the Company’s foreign subsidiary are considered to be indefinitely reinvested, no taxes were provided for on currency translation adjustments arising from converting the investment denominated in a foreign currency to U.S. dollars. Gains and losses related to transactions denominated in a currency other than the subsidiary’s localfunctional currency of the country in which we operate and short-term intercompany accounts are included in other income (expense) in the condensed consolidated statements of income.

Revenue Recognition

Equity InvestmentsWe derive a majority of our revenues from our annually renewable subscription-based service agreements with our customers, which include performance measurement and improvement services, healthcare analytics and governance education services. Such agreements are generally cancelable on short or no notice without penalty. See Note 2 for further information about our contracts with customers. We account for revenue using the following steps:

The Company acquires equity investments to promote business and strategic objectives. For investments that do not have a readily determinable fair value, the Company applies either cost or equity method of accounting depending on the nature of its investment and its ability to exercise significant influence. Investments are periodically analyzed to determine whether or not there are any indicators of impairment and written down to fair value if the investment has incurred an other than temporary impairment. During the three-month period ended September 30, 2017, the Company acquired a $1.3 million investment in convertible preferred stock of PracticingExcellence.com, Inc., a privately-held Delaware Corporation (“PX”), which is carried at cost and included in other non-current assets. The Company has a seat on PX's board of directors and the Company's investment, which is not considered to be in-substance common stock, represents approximately 15.7% of the issued and outstanding equity interests in PX at September 30, 2017.

	●	Identify the contract, or contracts, with a customer;
	●	Identify the performance obligations in the contract;
	●	Determine the transaction price;
	●	Allocate the transaction price to the identified performance obligations; and

●

Recognize revenue when, or as, we satisfy the performance obligations.

ReclassificationsOur revenue arrangements with a client may include combinations of more than one service offering which may be executed at the same time, or within close proximity of one another. We combine contracts with the same customer into a single contract for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated together. For contracts that contain more than one separately identifiable performance obligation, the total transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance obligations. The stand-alone selling prices are based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin or residual approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. Our revenue arrangements do not contain any significant financing element due to the contract terms and the timing between when consideration is received and when the service is provided.

ReclassificationsOur arrangements with customers consist principally of four different types of arrangements: 1) subscription-based service agreements; 2) one-time specified services performed at a single point in time; 3) fixed, non-subscription service agreements; and 4) unit-priced service agreements.

Subscription-based services - Services that are provided under subscription-based service agreements are usually for a twelve month period and represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period as requested by the customer. These agreements are renewable at the option of the customer at the completion of the initial contract term for an agreed upon price increase each year. These agreements represent a series of distinct monthly services that are substantially the same, with the same pattern of transfer to the customer as the customer receives and consumes the benefits throughout the contract period. Accordingly, subscription services are recognized ratably over the subscription period. Subscription services are typically billed annually in advance but may also be billed on a quarterly and monthly basis.

One-time services – These agreements typically require us to perform a specific one-time service in a particular month. We are entitled to a fixed payment upon completion of the service. Under these arrangements, we recognize revenue at the point in time we complete the service and it is accepted by the customer.

Fixed, non-subscription services – These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information which is based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over the term of the contract. Changes in estimates are accounted for using a cumulative catch up adjustment which could impact the amount and timing of revenue for any period.

Unit-price services – These arrangements typically require us to perform certain services on a periodic basis as requested by the customer for a per-unit amount which is typically billed in the month following the performance of the service. Revenue under these arrangements is recognized over the time the services are performed at the per-unit amount.

Revenue is presented net of any sales tax charged to our clients that we are required to remit to taxing authorities. We recognize contract assets or unbilled receivables related to revenue recognized for services completed but not invoiced to the clients. Unbilled receivables are classified as receivables when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.  

Deferred Contract Costs

Deferred contract costs, net is stated at gross deferred costs less accumulated amortization. We defer commissions and incentives, including payroll taxes, if they are incremental and recoverable costs of obtaining a renewable customer contract. Deferred contract costs are amortized over the estimated term of the contract, including renewals, which generally ranges from three to five years. The contract term was estimated by considering factors such as historical customer attrition rates and product life. The amortization period is adjusted for significant changes in the estimated remaining term of a contract.  An impairment of deferred contract costs is recognized when the unamortized balance of deferred contract costs exceeds the remaining amount of consideration we expect to receive net of the expected future costs directly related to providing those services.  We have elected the practical expedient to expense contract costs when incurred for any nonrenewable contracts with a term of one year or less. We deferred incremental costs of obtaining a contract of $1.6 million and $868,000 in the three months ended March 31, 2020 and 2019, respectively. Deferred contract costs, net of accumulated amortization was $4.9 million and $4.2 million at March 31, 2020 and December 31, 2019, respectively. Total amortization by expense classification for the three months ended March 31, 2020 and 2019 was as follows:

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $1,000 and $21,000 for the three months ended March 31, 2020 and 2019, respectively.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU requires the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The adoption of this standard did not impact on our condensed consolidated financial statements. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable, determined based on our historical write-off experience, current economic conditions and reasonable and supportable forecasts about the future. We review the allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been made from noncurrent deferred income taxes to other noncurrent liabilitiesexhausted and the potential for recovery is considered remote.

The following table provides the activity in the 2016 condensedallowance for doubtful accounts for the three months ended March 31, 2020 and 2019 (In thousands):

Leases

We determine whether a lease is included in an agreement at inception. Operating lease ROU assets are included in operating lease right-of-use assets in our consolidated balance sheetsheet. Finance lease assets are included in property and equipment. Operating and finance lease liabilities are included in other current liabilities and other long term liabilities. Certain lease arrangements may include options to extend or terminate the lease. We include these provisions in the ROU and lease liabilities only when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in direct expenses and selling, general and administrative expenses. Our lease agreements do not contain any residual value guarantees.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments during the lease term. ROU assets and lease liabilities are recorded at lease commencement based on the estimated present value of lease payments. Because the unrecognized tax benefits relatedrate of interest implicit in each lease is not readily determinable, we use our estimated incremental collateralized borrowing rate at lease commencement, to state taxes grosscalculate the present value of federal tax benefits, consistentlease payments. When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently issued debt and public interest rate information.

We elected the practical expedient to account for lease and non-lease components as a single lease component for all asset classifications. We have also made a policy election to not record short-term leases with a duration of 12 months or less on the balance sheet.

Implementation Costs of Hosting Arrangements

When a software license is included in a cloud computing arrangement and we have the ability and feasibility to download the software, it is accounted for as software, included in property and equipment, and amortized. If a software license is not included or we do not have the ability or feasibility to download software included in a cloud computing arrangement, it is accounted for as a service contract, which is expensed to direct expenses or selling, general and administrative expenses during the service period. Effective January 1, 2020, we prospectively adopted ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the 2017requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The adoption did not significantly impact our results of operations and financial statement presentation. There was no impact on the previously reported net income and earnings per share.position.

Fair Value Measurements

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

Commercial paper and Eurodollar deposits are included in cash equivalents and are valued at amortized cost, which approximates fair value due to their short-term nature. Eurodollar deposits are United States dollars deposited in a foreign bank branch of a United States bank and have daily liquidity. Both of these are included as a Level 2 measurement in the table below.

The following details the Company’sour financial assets and liabilities within the fair value hierarchy at September 30, 2017March 31, 2020 and December 31, 2016:2019:

There were no transfers between levels during the three-month period ended March 31, 2020.

Fair Values Measured on a Recurring Basis

The Company’sOur long-term debt described in Note 4 is recorded at historical cost. The following are the carrying amounts and estimated fair values, using avalue of long-term debt is classified in Level 2 discounted cash flow analysisof the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit risk:credit. The following are the carrying amount and estimated fair values of long-term debt:

The Company believes that the carrying amounts of trade accounts receivable, accounts payable, and accrued expenses approximate their fair value due to the short maturity of those instruments. Long-livedvalue. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes ROU assets, property and equipment, goodwill, intangibles and cost method investments, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). As of September 30, 2017,March 31, 2020, and December 31, 2016,2019, there was no indication of impairment related to these assets.

Annually, we consider whether the recorded goodwill and indefinite lived intangibles have been impaired. However, goodwill and intangibles must be tested between annual tests if an event occurs or circumstances change to indicate that it is more likely than not that an impairment loss has been incurred (“triggering event”). We considered the current and expected future economic and market conditions, including the impact of the COVID-19 pandemic on each of our reporting units. We also assessed our current market capitalization compared to book value, forecasts and margins in our last quantitative impairment testing. We concluded that a triggering event has not occurred which would require an interim impairment test to be performed as it is not more likely than not that an impairment loss has been incurred at March 31, 2020.

Our Canadian reporting unit generates service revenue from a relatively small number of customers with approximately 56.5% of its annual revenue concentrated in one customer contract which currently expires in March 2021. While historically we have been successful in renewing or retaining contracts with our customers, should we be unable to or choose not to renew a significant contract, it would likely result in an impairment of goodwill at this reporting unit. The carrying amount of goodwill related to our Canadian reporting unit at March 31, 2020 was $2.0 million.

Commitments and Contingencies

From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. Legal fees, net of estimated insurance recoveries, are expensed as incurred. There were no outstanding claims at March 31, 2020.

A sales tax accrual of $775,000 was recorded in 2019 after we became aware that a state sales tax liability was both probable and estimable as of December 31, 2019, due to sales taxes that should have been collected from customers in 2019 and certain previous years. We are working through voluntary disclosure agreements with certain states and will have procedures in place to start collecting and remitting sales tax in June or July of 2020. State and local jurisdictions have differing rules and regulations governing sales, use, and other taxes and these rules and regulations can be complex and subject to varying interpretations that may change over time. As a result, we could face the possibility of tax assessment and audits, and our liability for these taxes and associated interest and penalties could exceed our original estimates. In addition, we incurred additional sales tax expense in the first quarter of 2020 of $50,000 and will incur additional expense in the second quarter of 2020, since we will not start collecting sales tax from customers until June or July of 2020.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). Among other clarifications and simplifications related to income tax accounting, this ASU simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences.  The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years.  Early adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the annual period that includes that interim period.  Additionally, entities that elect early adoption must adopt all the amendments in the same period.  Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings.  We are currently in the process of further evaluating the impact that this new guidance will have on our consolidated financial statements.

In March 2020, FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We expect to apply the optional expedient for contract modification to account for the change in the reference rate on impacted credit facilities prospectively by adjusting the effective interest rate.

The following table disaggregates revenue for the three-month periods ending March 31, 2020 and 2019 based on timing of revenue recognition (in thousands):

Our solutions within the digital VoC platform in the three-month periods ending March 31, 2020 and 2019 accounted for 69.1% and 57.8% of total revenue, respectively. The remaining revenue consists of legacy Experience and Governance Solutions.

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (In thousands):

Significant changes in contract assets and contract liabilities during the three months ended March 31, 2019 and 2018 are as follows (in thousands):

We applied the practical expedient to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Total remaining contract revenue for contracts with original duration of greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at March 31, 2020 approximated $759,000, of which $671,000 and $88,000 are expected to be recognized during 2020 and 2021, respectively.

The effective tax rate for the three-month period ended September 30, 2017 increasedMarch 31, 2020 decreased to 42.1%a (3.4)% benefit compared to 35.3%16.9% expense for the same period in 20162019 mainly due to $384,000 of additional tax expense from non-deductible proposed recapitalization expenses (see Note 9). The effective tax rate for the nine-month period ended September 30, 2017 increased to 35.9% compared to 33.8% for the same period in 2016. The increase in the effective tax rate for the nine-month period ended September 30, 2017 was primarily due to $384,000 of additional tax expense from non-deductible proposed recapitalization expenses, increases in the estimated state tax rates as well as a greater proportion of United States income subject to higher tax rates than Canadian income. The Company also had reduced tax expense in 2016 of $105,000 from United States federal tax examination adjustments, net of interest and penalties, and state tax return adjustments decreasing tax expense.  These are partially offset by increased tax benefits of $149,000 in 2017$2.6 million from the exercise and vesting of options and dividends paidshare-based compensation awards partially offset by higher state income taxes due to non-vested shareholders. the requirements to file in more states.  

In March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. While we continue to evaluate the impact of the CARES Act, we don’t currently believe it will have a material impact on our consolidated financial statements or related disclosures.

Our long-term debt consists of the following:  

Our credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) includes (i) a $15,000,000 revolving credit facility (the “Line of Credit”), (ii) a $40,000,000 term loan (the “Term Loan”) and (iii) a $15,000,000 delayed draw-dawn term facility (the “Delayed Draw Term Loan” and, together with the Line of Credit and the Term Loan, the “Credit Facilities”). The Company’s term noteDelayed Draw Term Loan may be used to fund any permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit can be used to fund ongoing working capital needs and for other general corporate purposes.

The Term Loan is payable in monthly installments of $212,468. $462,988 through April 2020 and $526,362 thereafter, with a balloon payment due at maturity in April 2023. The Term Loan bears interest at a fixed rate per annum of 5%.

Borrowings under the term note bear interest at an annual rateLine of 3.12%. The outstanding balance ofCredit and the term note at September 30, 2017 was $1.7 million.

The Company also has a revolving credit note which was amended and extended effective June 30, 2017 with a maturity date of June 30, 2018. The maximum aggregate amount available under the revolving credit note is $12.0 million. Borrowings under the revolving credit noteDelayed Draw Term Loan, if any, bear interest at a variable annualfloating rate with three rate options atequal to the discretion of management as follows: (1) 2.1% plus the one-month30-day London Interbank Offered Rate (“LIBOR”) or (2) 2.1% plus 225 basis points (3.61% at March 31, 2020). Interest on the one-, two- or three- month LIBOR rate, or (3)Line of Credit accrues and is payable monthly. Principal amounts outstanding under the bank’s one-, two, three, six, or twelve month Money Market Loan Rate.Line of Credit are due and payable in full at maturity, in April 2021. As of September 30, 2017March 31, 2020, and December 31, 2019, the revolving credit noteLine of Credit did not have a balancebalance. There were no borrowings on the Line of Credit for three months ended March 31, 2020. There have been no borrowings on the Delayed Draw Term Loan since origination.

We paid a one-time fee equal to 0.25% of the amount borrowed under the Term Loan at the closing of the Credit Facilities. We are also obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Company hadDelayed Draw Term Loan facility at a rate of 0.20% per annum based on the capacity to borrow $12.0 million.actual daily unused portions of the Line of Credit and the Delayed Draw Term Loan facility, respectively.

The term noteCredit Agreement is collateralized by substantially all of our assets, subject to permitted liens and revolving credit note are secured byother agreed exceptions, and contains customary representations, warranties, affirmative and negative covenants (including financial covenants) and events of default. The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness and liens, repurchases of our Common Stock and acquisitions, subject in each case to certain of the Company’s assets, including the Company’s land, building, trade accounts receivable and intangible assets.exceptions. The term note and revolving credit note contain various restrictions and covenants applicable to the Company, including requirements that the Company maintainCredit Agreement also contains certain financial ratios at prescribed levelscovenants with respect to a minimum fixed charge coverage ratio of 1.10x and restrictions on the abilitya maximum cash flow leverage ratio of the Company to consolidate or merge, create liens, incur additional indebtedness or dispose of assets.3.00x. As of September 30, 2017, the Company wasMarch 31, 2020, we were in compliance with itsour financial covenants.

The Company measuresWe measure and recognizesrecognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of the Company’sour existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur.

The Company’sOur 2001 Equity Incentive Plan provided for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 shares of class A common stock and 300,000 shares of class B commonour Common stock. Stock options granted could have been either nonqualified or incentive stock options. Stock options vest over one to five years following the date of grant and option terms are generally five to ten years following the date of grant. Due to the expiration of the 2001 Equity Incentive Plan at December 31, 2015, there were no shares of stock available for future grants.

The Company’sOur 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides for the granting of options with respect to 3,000,000 shares of class A common stock and 500,000 shares of class B common stock.our Common Stock. The 2004 Director Plan provides for grants of nonqualified stock options to each director of the Companyour directors who iswe do not employed by the Company. Onemploy. Beginning in 2018, on the date of each annual meeting of shareholders, of the Company, options to purchase 36,000 shares of class A common stock and 6,000 sharesCommon Stock equal to an aggregate grant date fair value of class B common stock$100,000 are granted to directorseach non-employee director that areis elected or retained as a director at each such meeting. Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years infrom the case of termination of the outside director’s service.

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

The CompanyDuring the three months ended March 31, 2020 and 2019, we granted options to purchase 299,91748,934 and 73,331 shares of the Company’s class A common stock and 49,986 shares of the class B common stock during the nine-month period ended September 30, 2017.Common Stock, respectively. Options to purchase shares of common stock wereare typically granted with exercise prices equal to the fair value of the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant. The fair value of the stock options granted was estimated using a Black-Scholes valuation model with the following weighted average assumptions:

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

The following table summarizes stock option activity under the Company’s 2001 and 2006 Equity Incentive Plans and the 2004 Director Plan for the nine monthsthree-month period ended September 30, 2017:March 31, 2020:

As of September 30, 2017,March 31, 2020, the total unrecognized compensation cost related to non-vested stock option awards was approximately $1.5$2.2 million and $186,000 for class A and class B common shares, respectively, which iswas expected to be recognized over a weighted average period of 2.46 years and 2.56 years for class A and class B common stock shares, respectively.3.59 years.

During the three months ended March 31, 2019, we granted 6,005 non-vested shares of Common Stock under the 2006 Equity Incentive Plan. No shares were granted during the three months ended March 31, 2020. As of March 31, 2020, we had 49,554 non-vested shares of Common Stock outstanding under the 2006 Equity Incentive Plan. These shares vest over five years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the date of grant. We recognized $50,000 and $73,000 of non-cash compensation for the three months ended March 31, 2020 and 2019, respectively, related to this non-vested stock, which is included in direct fixed and selling, general and administrative expenses. During the three months ended March 31, 2020, 34,622 shares vested.

The following table summarizes information for the nine months ended September 30, 2017 regarding non-vested stock granted to associates under the 2001 and 2006 Equity Incentive Plans:Plan for the three-month period ended March 31, 2020:

As of September 30, 2017,March 31, 2020, the total unrecognized compensation cost related to non-vested stock awards was approximately $1.0 million$361,000 and is expected to be recognized over a weighted average period of 2.422.91 years.

The following represents a summary of changes in the Company’s carrying amount of goodwill for the nine monthsthree-month period ended September 30, 2017:March 31, 2020:

Intangible assets consisted of the following: