(

)

Summary of Significant Accounting Policies

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. The Company’s solutions enable its clients to understand the voice of the customer with greater clarity, immediacy and depth.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company

and its wholly-owned subsidiary, National Research Corporation Canada. Prior to becoming a wholly-owned subsidiary in

March 2016,

the accounts of Customer-Connect LLC (“Connect”), then a variable interest entity for which NRC Health was deemed the primary beneficiary, were included in the consolidated financial statements of the Company. On

June 30, 2016,

Customer-Connect LLC was dissolved. All significant intercompany transactions and balances have been eliminated.

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Translation of Foreign Currencies

The Company

’s Canadian subsidiary uses as its functional currency the local currency of the country in which it operates. It translates its assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate during the period. The Company includes translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’ equity. Gains and losses related to transactions denominated in a currency other than the functional currency of the country in which the Company operates and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income.

Revenue Recognition

The Company derives a majority of its operating revenue from its annually renewable services, which include performance measurement and improvement services, healthcare analytics and governance education services. The Company provides these services to its clients under annual client service contracts, although such contracts are generally cancelable

on short or

notice without penalty. Services are provided under subscription-based service agreements. The Company recognizes subscription-based service revenue over the period of time the service is provided. Generally, the subscription periods are for

twelve

months and revenue is recognized equally over the subscription period.

Certain contracts

, excluding subscription-based service agreements, are fixed-fee arrangements with a portion of the project fee billed in advance and the remainder billed periodically over the duration of the project. Revenue for services provided under these contracts are recognized under the proportional performance method. Under the proportional performance method, the Company recognizes revenue based on output measures or key milestones such as survey set-up, survey mailings, survey returns and reporting. The Company measures its progress based on the level of completion of these output measures and recognizes revenue accordingly. Management judgments and estimates must be made and used in connection with revenue recognized using the proportional performance method. If management made different judgments and estimates, then the amount and timing of revenue for any period could differ materially from the reported revenue.

The Company

’s revenue arrangements with a client

may

include combinations of NRC Health’s Experience, Transparency, Governance, and Market Insights solutions which

may

be executed at the same time, or within close proximity of

one

another (referred to as a multiple-element arrangement). When the periods or patterns of revenue recognition differ, each element of a multiple-element arrangement is accounted for as a separate unit of accounting provided each delivered element is sold separately by the Company or another vendor; and for an arrangement that includes a general right of return relative to the undelivered elements, delivery or performance of the undelivered services are considered probable and substantially in the control of the Company. The Company’s arrangements generally do

not

include a general right of return related to the delivered services. If these criteria are

not

met, the arrangement is accounted for as a single unit of accounting with revenue generally recognized equally over the subscription period or recognized under the proportional performance method.

When a contract contains multiple elements, revenue is allocated to each separate unit of accounting based on relative selling price using a selling price hierarchy: vendor-specific objective evidence (“VSOE”), if available,

third

-party evidence (“TPE”) if VSOE is

not

available, or estimated selling price if VSOE nor TPE is available. VSOE is established based on the services normal selling price and discounts for the specific services when sold separately. TPE is established by evaluating similar competitor services in standalone arrangements. If neither exists for a deliverable, the best estimate of the selling price (“ESP”) is used for that deliverable based on list price, representing a component of management’s market strategy, and an analysis of historical prices for bundled and standalone arrangements. Revenue allocated to an element is limited to revenue that is

not

subject to refund or otherwise represents contingent revenue. VSOE, TPE and ESP are periodically adjusted to reflect current market conditions. These adjustments are

not

expected to differ significantly from historical results.

Business Combinations

The Company uses the acquisition method of accounting for acquired businesses. Under the acquisition method, the financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the

estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is required in estimating the fair value of assets acquired, especially intangible assets. As a result, in the case of significant acquisitions the Company typically engages

third

-party valuation specialists in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company

’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on the Company’s historical write-off experience and current economic conditions. The Company reviews the allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The following table provides the activity in the allowance for doubtful accounts for the years ended

December 31, 2017,

2016

and

2015:

	Balance at Beginning of Year		Bad Debt Expense		Write-offs Net of Recoveries		Balance at End of Year
	(In thousands)
Year Ended December 31, 2015	$	206	$	111	$	144	$	173
Year Ended December 31, 2016	$	173	$	218	$	222	$	169
Year Ended December 31, 2017	$	169	$	249	$	218	$	200

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.

The Company capitalizes certain costs incurred in connection with obtaining or developing internal-use software, including payroll and payroll-related costs for employees who are directly associated with the internal-use software projects and external direct costs of materials and services. Capitalization of such costs ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during the preliminary project and post-implementation stages, as well as software maintenance and training costs are expensed as incurred.

The Company capitalized approximately

$3.0

million and

$2.5

million of costs incurred for the development of internal-use software for the years ended

December 31, 2017

and

2016,

respectively.

he 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 the straight-line method of depreciation and amortization over estimated useful lives of

three

ten

years for furniture and equipment,

three

five

years for computer equipment,

one

five

years for capitalized software, and

seven

forty

years for the Company’s office building and related improvements.

Leases are categorized as operating or capital at the inception of the lease. Assets under capital lease obligations are reported at the lower of fair value or the present value of the aggregate future minimum lease payments at the beginning of the lease term. The Company depreciates capital lease assets

without transfer-of-ownership or bargain-purchase-options using the straight-line method over the lease terms, excluding any lease renewals, unless the lease renewals are reasonably assured. Capital lease assets with transfer-of-ownership or bargain-purchase-options are depreciated using the straight-line method over the assets’ estimated useful lives.

Impairment of Long-L

ived Assets and Amortizing Intangible Assets

Long-lived

assets, such as property and equipment and purchased intangible assets subject to depreciation or amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company

first

compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is

not

recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and

third

-party independent appraisals, as considered necessary.

impairments were recorded during the years ended

December 31, 2017,

2016,

2015.

Among others, m

anagement believes the following circumstances are important indicators of potential impairment of such assets and as a result

may

trigger an impairment review:

●

Significant underperformance in comparison to historical or projected operating results;

●

Significant changes in the manner or use of acquired assets or the Company

’s overall strategy;

●

Significant negative trends in the Company

’s industry or the overall economy;

●

A significant decline in the market price for the Company

’s common stock for a sustained period; and

●

The Company

’s market capitalization falling below the book value of the Company’s net assets.

Goodwill and

Intangible Assets

Intangible assets include customer relationships, trade names,

technology, non-compete agreements and goodwill. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets

may

not

be recoverable. The Company reviews intangible assets with indefinite lives for impairment annually as of

October 1

and whenever events or changes in circumstances indicate that the carrying value of an asset

may

not

be recoverable.

When performing the impairment assessment, the Company will

first

assess qualitative factors to determine whether it is necessary to recalculate the fair value of the intangible assets with indefinite lives. If the Company believes, as a result of the qualitative assessment, that it is more likely than

not

that the fair value of the indefinite

-lived intangibles is less than their carrying amount, the Company calculates the fair value using a market or income approach. If the carrying value of intangible assets with indefinite lives exceeds their fair value, then the intangible assets are written-down to their fair values. The Company did

not

recognize any impairments related to indefinite-lived intangibles during

2017,

2016

2015.

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are

not

individually identified and separately recognized. All of the Company

’s goodwill is allocated to its reporting units, which are the same as its operating segments. Goodwill is reviewed for impairment at least annually, as of

October 1,

and whenever events or changes in circumstances indicate that the carrying value of goodwill

may

not

be recoverable.

January 2017,

the FASB issued A

ccounting Standards Update (“ASU”)

2017

04,

Intangibles—Goodwill and Other

(Topic

350

Simplifying the Test for Goodwill Impairment

(“ASU

2017

04”

). In connection with the

October 1, 2017

annual impairment analysis, the Company early adopted ASU

2017

04,

which eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment (Step

). The new guidance

may

result in more or less impairment than could previously be recognized. The adoption of this guidance did

not

impact the Company's results of operations or financial position since only a qualitative analysis was performed as part of the

October 1, 2017

annual impairment analysis.

The Company reviews for

goodwill impairment by

first

assessing qualitative factors to determine whether any impairment

may

exist. If the Company believes, as a result of the qualitative assessment, that it is more likely than

not

that the fair value of a reporting unit is less than its carrying amount, a quantitative analysis will be performed, and the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit exceeds its carrying value, then goodwill is written down by this difference. The Company performed a qualitative analysis as of

October 1, 2017

and determined the fair value of each reporting unit likely significantly exceeded its carrying value.

impairments were recorded during the years ended

December 31, 2017,

2016

2015.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under that method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bas

is 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. The Company uses the deferral method of accounting for its investment tax credits related to state tax incentives. During the years ended

December 31, 2017,

2016

and

2015,

the Company recorded income tax benefits relating to these tax credits of

$4,000,

$77,000,

and

$156,000,

respectively.

he Company recognizes the effect of income tax positions only if those positions are more likely than

not

of being sustained. Recognized income tax positions are measured at the largest amount that is greater than

50%

likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Share-Based Compensation

The compensation expense

on share-based payments is recognized based on the grant-date fair value of those awards. All of the Company’s existing stock option awards and non-vested stock awards have been determined to be equity-classified awards. The Company prospectively elected ASU

2016

09,

Compensation – Stock Compensation (Topic

718

) Improvements to Employee Share-Based Payment Accounting

(“ASU

2016

09”

) in

2016.

As a result, the tax benefit from stock options exercised was recognized as a reduction to our provision for income taxes for the years ended

December 31, 2017

and

2016

rather than as an increase to additional paid-in capital for the year ended

December 31, 2015

prior to adoption.

Amounts recognized in the financial statements with respect to these plans:

	20 17			20 16			20 15
	(In thousands)
Amounts charged against income, before income tax benefit	$	1,845		$	1,929		$	1,383
Amount of related income tax benefit		(2,310	)		(1,164	)		(505	)
Net (benefit) expense to net income	$	(465	)	$	765		$	878

Cash and Cash Equivalents

he Company considers all highly liquid investments with original maturities of

three

months or less to be cash equivalents. Cash equivalents were

$34.5

million and

$32.7

million as of

December 31, 2017,

and

2016,

respectively, consisting primarily of money market accounts, Eurodollar deposits and funds invested in commercial paper. At certain times, cash equivalent balances

may

exceed federally insured limits.

Reclassifications

$191,000

have been made from noncurrent deferred income taxes to other noncurrent liabilities in the

2016

consolidated balance sheet to present the unrecognized tax benefits related to state taxes gross of federal tax benefits, consistent with the

2017

financial statement presentation. There was

impact on the previously reported net income and earnings per share.

Fair Value

Measurements

The Company

’s valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s market assumptions. The inputs are then classified into the following hierarchy: (

) Level

Inputs—quoted prices in active markets for identical assets and liabilities; (

) Level

Inputs—observable market-based inputs other than Level

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; (

) Level

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 its 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

measurement in the table below.

The following details the Company’s financial assets within the fair value hierarchy at

December 31, 2017

and

2016:

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of December 31, 201 7
Money Market Funds	$	13,971	$	--	$	--	$	13,971
Commercial Paper		--		10,490		--		10,490
Eurodollar Deposits		--		10,017		--		10,017
Total Cash Equivalents	$	13,971	$	20,507	$	--	$	34,478
As of December 31, 201 6
Money Market Funds	$	11,200	$	--	$	--	$	11,200
Commercial Paper		--		21,450		--		21,450
Total Cash Equivalents	$	11,200	$	21,450	$	--	$	32,650

There were

transfers between levels during the years ended

December 31,

201

and

2016.

The Company's long-term

debt described in Note

is recorded at historical cost. The fair value of long-term debt is classified in Level

of 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.

The following are the carrying a

mount and estimated fair values of long-term debt:

	December 31, 2017		December 31, 201 6
	(In thousands)
Total carrying amount of long-term debt	$	1,067	$	3,540
Estimated fair value of long-term debt	$	1,066	$	3,533

The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate their fair value. All non-financial assets that are

not

recognized or disclosed at fair value in the financial statements on a recurring basis, which includes

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

December 31, 2017

and

2016,

there was

indication of impairment related to these assets.

ontingencies

From time to time, the Company is 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.

Since the Septembe

2017

announcement of the original proposed recapitalization plan (see Note

three

purported class action and/or derivative complaints have been filed in state or federal courts by

three

individuals claiming to be shareholders of the Company. All of the complaints name as defendants the Company and the individual directors of the Company. Two of these lawsuits were filed in the United States District Court for the District of Nebraska— a putative class action lawsuit captioned

Gennaro v. National Research Corporation, et al.

, and a putative class and derivative action lawsuit captioned

Gerson v. Hays, et al.

,. These lawsuits were consolidated by order of the federal court. A

third

lawsuit was filed the Circuit Court for Milwaukee County, Wisconsin—a putative class action lawsuit captioned

Apfel

Hays, et al

. The allegations in all of the lawsuits are very similar. The plaintiffs allege, among other things, that the defendants breached their fiduciary duties in connection with the allegedly unfair proposed transaction, at an allegedly unfair price, conducted in an allegedly unfair and conflicted process and in alleged violation of Wisconsin law and the Company’s Articles of Incorporation. One of the lawsuits also alleges the proposed transactions is a voidable “conflict of interest transaction” under Wisconsin statutes. The plaintiffs in these lawsuits seek, among other things, an injunction enjoining the defendants from consummating the original proposed recapitalization plan, damages, equitable relief and an award of attorneys’ fees and costs of litigation. The Company believes that the allegations of the complaints are without merit and intends to defend these lawsuits vigorously. Despite the changes to the original proposed recapitalization plan that culminated in the

December 13, 2017

announcement of a revised proposed recapitalization plan, the Company expects that these shareholders or other shareholders might assert similar claims regarding the proposed recapitalization plan. The Company will defend any such lawsuits vigorously.

As of

December 31, 2017,

losses have been accrued as the Company does

not

believe the losses are probable or estimable.

Earnings Per Share

Net income per share of class A common stock and class B common stock is computed using the

two

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

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

The liquidation rights and the rights upon the consummation of an extraordinary transaction are the same for the holders of class A common stock and class B common stock. Other than share distributions and liquidation rights, the amount of any dividend or other distribution payable on each share of class A common stock will be equal to

one

sixth

(

1/6

) of the amount of any such dividend or other distribution payable on each share of class B common stock. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the class A and class B common stock as if the earnings for the year had been distributed.

December 31,

16,

and

2015,

the Company had

156,610

and

487,639

options of class A shares and

49,262,

and

58,429

options of class B shares, respectively, which have been excluded from the diluted net income per share computation because the exercise price exceeds the fair market value. At

December 31, 2017,

2016,

and

2015

an additional

104,647,

390,300,

and

68,779

options of class A shares and

1,858,

34,178,

and

1,101

options of class B shares, respectively were excluded as their inclusion would be anti-dilutive.

	2017						2016						2015
	Class A			Class B			Class A			Class B			Class A			Class B
	(In thousands, except per share data)
Numerato r for net income per share - basic:
Net income	$	11,388		$	11,555		$	10,178		$	10,341		$	8,759		$	8,851
Allocation of distributed and undistributed income to unvested restricted stock shareholders		(88	)		(87	)		(88	)		(88	)		(76	)		(77	)
Net income attributable to common shareholders	$	11,300		$	11,468		$	10,090		$	10,253		$	8,683		$	8,774
Denominator for net income per share - basic:
Weighted average common shares outstanding - basic		20,770			3,514			20,713			3,505			20,741			3,478
Net income per share - basic	$	0.54		$	3.26		$	0.49		$	2.93		$	0.42		$	2.52
Numerator for net income per share - diluted:
Net income attributable to common shareholders for basic computation	$	11,300		$	11,468		$	10,090		$	10,253		$	8,683		$	8,774
Denominator for net income per share - diluted:
Weighted average common s hares outstanding - basic		20,770			3,514			20,713			3,505			20,741			3,478
Weighted average effect of dilutive securities – stock options:		857			89			324			55			240			44
Denominator for diluted earnings per share – adjusted weighted average shares		21,627			3,603			21,037			3,560			20,981			3,522
Net income per share - diluted	$	0.52		$	3.18		$	0.48		$	2.88		$	0.41		$	2.49

Recent Accounting Pronouncements

Not

Yet Adopted

May 2014,

the FASB issued ASU

2014

09,

Revenue from Contracts with Customers (Topic

606

)

(“ASU

2014

09”

). ASU

2014

requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU

2014

will replace most existing revenue recognition guidance in accounting principles generally accepted in the United States when it becomes effective. The standard is effective for annual and interim reporting periods in fiscal years beginning after

December 15, 2017.

An entity

may

choose to adopt ASU

2014

either retrospectively or through a cumulative effect adjustment as of the start of the

first

period for which it applies the standard. The Company has completed system changes and is analyzing the resulting impact that this new guidance will have on its consolidated financial statements. The Company will adopt this new guidance using the modified retrospective approach beginning

January 1, 2018

by recording a cumulative effect adjustment. The Company expects the most significant change to result from deferring direct and incremental costs of obtaining a contract, consisting of commissions and incentives, and recognizing the expense over the estimated life of the client contract, including renewal periods, rather than expensing as incurred, which is the Company’s current practice. The Company expects adjustments to retained earnings of

more than

$2.7

million, net of related tax effects, upon adoption of deferring and amortizing direct and incremental contract costs. The Company also expects to record other immaterial adjustments, related to performance obligation determinations and estimating variable contingent consideration for certain contracts which were previously only recognized once the contingency was resolved and the services were performed. These amounts are only estimates and involve significant judgements by management including estimating the lives of its contracts, the value of performance deliverables and the expected amount to be earned from the satisfaction of those deliverables. The Company will finalize its calculation of the financial impact of the adoption of ASU

2014

in the

first

quarter of

2018.

ASU

2014

also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

January 2016,

the FASB issued ASU

2016

01,

Financial Instruments

—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU

2016

changes certain recognition, measurement, presentation and disclosure aspects related to financial instruments. ASU

2016

is effective for financial statements issued for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. Early adoption is

not

permitted. The Company believes its adoption will

not

significantly impact the Company’s results of operations and financial position.

February 2016,

the FASB issued ASU

2016

02,

Leases (Topic

842

). This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than

twelve

months on its balance sheet. This ASU is effective in fiscal years beginning after

December 15, 2018,

with early adoption permitted, and requires a modified retrospective transition method. As of

December 31, 2017,

the Company had approximately

$3.0

million of operating lease commitments which would be recorded on the balance sheet under the new guidance. However, the Company is currently in the process of further evaluating the impact that this new guidance will have on its consolidated financial statements and does

not

plan to elect early adoption.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments

– Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. This ASU will require 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 guidance is effective for annual reporting periods beginning after

December 15, 2019

and interim periods within those fiscal years. The Company believes its adoption will

not

significantly impact the Company’s results of operations and financial position.

August 2016,

the FASB issued ASU

2016

15,

Statement of Cash Flows (Topic

230

) Classification of Certain Cash Receipts and Cash Payments which eliminates the diversity in practice related to

eight

cash flow classification issues.

This ASU is effective for the Company on

January 1, 2018

with early adoption permitted. The Company will adopt this ASU on

January 1, 2018

and believes it will

not

impact the Company’s results of operations and financial position.

October 2016,

the FASB issued ASU

2016

16,

Intra-Entity Transfers of Asset Other Than Inventory (“ASU

2016

16”

), which requires entities to recognize the tax consequences of intercompany asset transfers other than inventory transfers in the period in which the transfer takes place. ASU

2016

is effective for fiscal years and interim periods within fiscal years beginning after

December 15, 2017.

ASU

2016

is to be adopted using a modified retrospective approach with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The cumulative effect adjustment will include recognition of the income tax consequences of intra-entity transfers of assets other than inventory that occur before the adoption date.

The Company believes the adoption of ASU

2016

will

not

impact the Company’s consolidated financial statements.