icfi-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

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: 001-33045

 

ICF International, Inc.

(Exact name of Registrant as Specified in its Charter)

 

 

Delaware 

 

22-3661438 

(State or Other Jurisdiction of

Incorporation or Organization) 

 

(I.R.S. Employer

Identification No.) 

 

 

 

9300 Lee Highway, Fairfax, VA 

 

22031 

(Address of Principal Executive Offices) 

 

(Zip Code) 

 

Registrant’s telephone number, including area code: (703) 934-3000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act.

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common Stock

ICFI

NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes       No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes       No

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

 

Large accelerated filer

 

 

 

 

Accelerated filer

 

Non-accelerated filer

 

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes       No

As of April 26, 2019, there were 18,830,058 shares outstanding of the registrant’s common stock.

 


ICF INTERNATIONAL, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q FOR THE

PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets at March 31, 2019 (Unaudited) and December 31, 2018

3

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018

4

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018

5

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

Item 4.

Controls and Procedures

23

 

 

PART II. OTHER INFORMATION

25

 

 

 

Item 1.

Legal Proceedings

25

 

 

 

Item 1A.

Risk Factors

25

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

 

 

 

Item 3.

Defaults Upon Senior Securities

25

 

 

 

Item 4.

Mine Safety Disclosures

25

 

 

 

Item 5.

Other Information

25

 

 

 

Item 6.

Exhibits

26

 

 

 

 


PART I. FINANCIAL INFORMATION

Item  1.

Financial Statements 

ICF International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

  

 

 

March 31, 2019

 

 

 

December 31, 2018

 

 

 

(Unaudited)

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,689

 

 

 

$

11,694

 

Contract receivables, net

 

 

222,472

 

 

 

 

230,966

 

Contract assets

 

 

151,805

 

 

 

 

126,688

 

Prepaid expenses and other assets

 

 

15,548

 

 

 

 

16,253

 

Income tax receivable

 

 

4,222

 

 

 

 

6,505

 

Total Current Assets

 

 

399,736

 

 

 

 

392,106

 

Property and Equipment, net

 

 

50,888

 

 

 

 

48,105

 

Other Assets:

 

 

 

 

 

 

 

 

 

Restricted cash - non-current

 

 

 

 

 

 

1,292

 

Goodwill

 

 

720,360

 

 

 

 

715,644

 

Other intangible assets, net

 

 

33,520

 

 

 

 

35,494

 

Operating lease - right-of-use assets

 

 

127,587

 

 

 

 

 

Other assets

 

 

22,530

 

 

 

 

21,221

 

Total Assets

 

$

1,354,621

 

 

 

$

1,213,862

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

87,039

 

 

 

$

102,599

 

Contract liabilities

 

 

35,936

 

 

 

 

33,494

 

Operating lease liabilities - current

 

 

30,324

 

 

 

 

 

Accrued salaries and benefits

 

 

50,014

 

 

 

 

44,103

 

Accrued subcontractors and other direct costs

 

 

49,955

 

 

 

 

58,791

 

Accrued expenses and other current liabilities

 

 

27,902

 

 

 

 

39,072

 

Total Current Liabilities

 

 

281,170

 

 

 

 

278,059

 

Long-term Liabilities:

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

232,318

 

 

 

 

200,424

 

Operating lease liabilities - non-current

 

 

112,676

 

 

 

 

 

Deferred rent

 

 

 

 

 

 

13,938

 

Deferred income taxes

 

 

43,344

 

 

 

 

40,165

 

Other

 

 

22,542

 

 

 

 

20,859

 

Total Liabilities

 

 

692,050

 

 

 

 

553,445

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

Preferred stock, par value $.001; 5,000,000 shares authorized; none issued

 

 

 

 

 

 

 

Common stock, par value $.001; 70,000,000 shares authorized; 22,660,508 and 22,445,576 shares issued as of March 31, 2019 and December 31, 2018, respectively; 18,865,729 and 18,817,495 shares outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

23

 

 

 

 

22

 

Additional paid-in capital

 

 

330,763

 

 

 

 

326,208

 

Retained earnings

 

 

499,126

 

 

 

 

486,442

 

Treasury stock

 

 

(155,073

)

 

 

 

(139,704

)

Accumulated other comprehensive loss

 

 

(12,268

)

 

 

 

(12,551

)

Total Stockholders’ Equity

 

 

662,571

 

 

 

 

660,417

 

Total Liabilities and Stockholders’ Equity

 

$

1,354,621

 

 

 

$

1,213,862

 

The accompanying notes are an integral part of these consolidated financial statements.

3


ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands, except per share amounts)  

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

341,254

 

 

$

302,780

 

Direct costs

 

 

215,949

 

 

 

188,826

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

Indirect and selling expenses

 

 

96,519

 

 

 

89,659

 

Depreciation and amortization

 

 

4,762

 

 

 

4,469

 

Amortization of intangible assets

 

 

2,135

 

 

 

2,244

 

Total operating costs and expenses

 

 

103,416

 

 

 

96,372

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

21,889

 

 

 

17,582

 

Interest expense

 

 

(2,453

)

 

 

(1,666

)

Other (expense) income

 

 

(412

)

 

 

104

 

Income before income taxes

 

 

19,024

 

 

 

16,020

 

Provision for income taxes

 

 

3,706

 

 

 

3,603

 

Net income

 

$

15,318

 

 

$

12,417

 

 

 

 

 

 

 

 

 

 

Earnings per Share:

 

 

 

 

 

 

 

 

Basic

 

$

0.81

 

 

$

0.67

 

Diluted

 

$

0.80

 

 

$

0.65

 

 

 

 

 

 

 

 

 

 

Weighted-average Shares:

 

 

 

 

 

 

 

 

Basic

 

 

18,825

 

 

 

18,670

 

Diluted

 

 

19,263

 

 

 

19,158

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.14

 

 

$

0.14

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

283

 

 

 

1,609

 

Comprehensive income, net of tax

 

$

15,601

 

 

$

14,026

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)   

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

15,318

 

 

$

12,417

 

Adjustments to reconcile net income to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

(159

)

 

 

628

 

Deferred income taxes

 

 

3,144

 

 

 

2,640

 

Non-cash equity compensation

 

 

4,151

 

 

 

2,391

 

Depreciation and amortization

 

 

6,897

 

 

 

6,712

 

Facilities consolidation reserve

 

 

(67

)

 

 

(64

)

Amortization of debt issuance costs

 

 

127

 

 

 

130

 

Other adjustments, net

 

 

(264

)

 

 

(535

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Net contract assets and liabilities

 

 

(23,152

)

 

 

(11,413

)

Contract receivables

 

 

8,236

 

 

 

3,319

 

Prepaid expenses and other assets

 

 

1,353

 

 

 

(5,107

)

Accounts payable

 

 

(15,561

)

 

 

(6,942

)

Accrued salaries and benefits

 

 

5,913

 

 

 

834

 

Accrued subcontractors and other direct costs

 

 

(8,796

)

 

 

(13,540

)

Accrued expenses and other current liabilities

 

 

(8,705

)

 

 

4,457

 

Income tax receivable and payable

 

 

(757

)

 

 

(2,120

)

Other liabilities

 

 

(366

)

 

 

346

 

Net Cash Used in Operating Activities

 

 

(12,688

)

 

 

(5,847

)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Capital expenditures for property and equipment and capitalized software

 

 

(7,539

)

 

 

(3,236

)

Payments for business acquisitions, net of cash received

 

 

(1,819

)

 

 

(11,835

)

Net Cash Used in Investing Activities

 

 

(9,358

)

 

 

(15,071

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Advances from working capital facilities

 

 

163,240

 

 

 

138,240

 

Payments on working capital facilities

 

 

(131,346

)

 

 

(112,999

)

Payments on capital expenditure obligations

 

 

 

 

 

(814

)

Debt issue costs

 

 

 

 

 

(21

)

Proceeds from exercise of options

 

 

404

 

 

 

1,800

 

Dividends paid

 

 

(2,636

)

 

 

 

Net payments for stockholder issuances and buybacks

 

 

(15,218

)

 

 

(9,109

)

Net Cash Provided by Financing Activities

 

 

14,444

 

 

 

17,097

 

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

 

 

305

 

 

 

120

 

 

 

 

 

 

 

 

 

 

Decrease in Cash, Cash Equivalents, and Restricted Cash

 

 

(7,297

)

 

 

(3,701

)

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period

 

 

12,986

 

 

 

24,266

 

Cash, Cash Equivalents, and Restricted Cash, End of Period

 

$

5,689

 

 

$

20,565

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

1,597

 

 

$

1,596

 

Income taxes

 

$

1,066

 

 

$

615

 

The accompanying notes are an integral part of these consolidated financial statements.

5


Notes to Consolidated Financial Statements

(in thousands, except per share amounts)

NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS

Basis of Presentation

The accompanying consolidated financial statements include the accounts of ICF International, Inc. and its subsidiaries (collectively, the “Company”), and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). All significant intercompany transactions and balances have been eliminated.

Nature of Operations

The Company provides professional services and technology-based solutions to government and commercial clients, including management, marketing, technology, and policy consulting and implementation services in the areas of: energy, environment, and infrastructure; health, education and social programs; safety and security; and consumer and financial services. The Company offers a full range of services to these clients throughout the entire life cycle of a policy, program, project, or initiative, from research, analysis, assessment and advice to design and implementation of programs and technology-based solutions, as well as the provision of engagement services and programs.

The Company’s major clients are U.S. federal government departments and agencies, most significantly the Department of Health and Human Services, Department of State and Department of Defense. The Company also serves U.S. state (including territories) and local government departments and agencies, international governments, and commercial clients worldwide. Commercial clients include airlines, airports, electric and gas utilities, oil companies, banks and other financial services companies, transportation, travel and hospitality firms, non-profits/associations, law firms, manufacturing firms, retail chains, and distribution companies. The term “federal” or “federal government” refers to the U.S. federal government, and “state and local” or “state and local government” refers to U.S. state and local governments and U.S. territorial governments, unless otherwise indicated.

The Company, incorporated in Delaware, is headquartered in Fairfax, Virginia. It maintains offices throughout the world, including 65 or more offices in the U.S. and U.S. territories and 15 or more offices in key regions outside the U.S., including offices in the United Kingdom, Belgium, China, India, and Canada.

Interim Results

The unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These rules and regulations permit some of the information and footnote disclosures normally included in financial statements, prepared in accordance U.S. GAAP, to be condensed or omitted. In management’s opinion, the unaudited consolidated financial statements contain all adjustments that are of a normal recurring nature, necessary for a fair presentation of the results of operations and financial position of the Company for the interim periods presented. The Company reports operating results and financial data in one operating segment and reporting unit. Operating results for the three months periods ended March 31, 2019 and 2018 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2018 and the notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 27, 2019 (the “Annual Report”).

Reclassifications

Certain amounts in the 2018 consolidated financial statements have been reclassified to conform to the current year presentation. The reclassifications were immaterial.

Significant Accounting Policies

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other liabilities (current and non-current) on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments as of the commencement date. Since most lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate as of the commencement date in estimating the present value of future payments. The operating lease ROU asset is based on the present value of future lease payments and excludes impacts from lease incentives and initial costs incurred to obtain the lease. Lease terms, for the purposes of determining each lease’s present value, include options to extend or terminate the lease if it is reasonably certain and economically reasonable that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

6


The Company uses leases to obtain use of a variety of different resources, including those for the use of facilities or equipment. These agreements may contain both lease and non-lease components which are generally accounted for separately. For equipment leases (including copier leases), the Company accounts for the lease component as well as insignificant non-lease components as a single lease.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard related to leases, Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet for those leases classified as operating leases. Under the new standard, required disclosures enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The Company, using a modified retrospective adoption approach, is also required to recognize and measure leases existing at the beginning of the period of adoption, with certain practical expedients available.

The Company adopted the standard effective January 1, 2019. The Company choose the following practical expedients: not to re-assess existing and expired contracts to determine if they contain embedded leases; not to re-assess lease classification on existing leases; not to re-assess initial direct costs of obtaining leases; to account for lease and non-lease components as a single lease component for equipment leases; and to only apply the standard to leases with a term of twelve months or greater.

The most significant impact of adopting the standard was the recognition of ROU assets and lease liabilities for operating leases on the Company’s consolidated balance sheet but it did not have an impact on the Company’s consolidated statements of comprehensive income or consolidated statements of cash flow. The impact to the consolidated balance sheets before and after the adoption are as follows:

 

 

January 1, 2019

 

 

Before Adoption

 

 

Adoption Adjustments

 

 

After Adoption

 

Operating lease - right-of-use assets

$

 

 

$

137,152

 

 

$

137,152

 

Operating lease liabilities - current

 

 

 

 

30,951

 

 

 

30,951

 

Accrued expenses and other current liabilities

 

1,843

 

 

 

(1,843

)

 

 

 

Operating lease liabilities - non-current

 

 

 

 

121,982

 

 

 

121,982

 

Deferred rent

 

13,938

 

 

 

(13,938

)

 

 

 

 

Stock Compensation

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718).  The standard simplifies the accounting for share-based compensation to non-employees by aligning the guidance with share-based payments to employees.  It is effective for interim and annual reporting periods beginning after December 15, 2018.  The Company’s adoption of ASU 2018-07 did not have a material impact on the consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is considered a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard also requires the entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement and present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting arrangement. The standard is effective for interim periods and fiscal years beginning after December 15, 2019 with early adoption permitted. The standard may be implemented using either the retrospective or prospective method. The Company is currently in the process of evaluating the impact of adoption and mode of adoption but does not anticipate that there will be a material impact on the consolidated financial statements as a result of adopting the standard.

 

7


NOTE 2 – CONTRACT RECEIVABLES, NET

Contract receivables, net consisted of the following:  

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Billed and billable

 

$

227,583

 

 

$

236,250

 

Allowance for doubtful accounts

 

 

(5,111

)

 

 

(5,284

)

Contract receivables, net

 

$

222,472

 

 

$

230,966

 

 

NOTE 3 – GOODWILL

The changes in the carrying amount of goodwill during the three-months period ended March 31, 2019 were as follows:

 

Balance as of December 31, 2018

$

715,644

 

Goodwill resulting from business combination - Olson (1)

 

3,047

 

Goodwill resulting from business combination - We Are Vista (2)

 

579

 

Effect of foreign currency translation

 

1,090

 

Balance as of March 31, 2019

$

720,360

 

 

(1)

In 2019, the Company recorded changes to goodwill representing an immaterial correction of an error for income tax balances related to acquired assets and liabilities from the business combination that occurred in 2014.  These balances were not significant to our previously reported financial position.

 

(2)

Goodwill measurement period adjustment related to the settlement of the working capital adjustment under the purchase agreement.

NOTE 4 – LONG-TERM DEBT

On May 17, 2017, the Company entered into a Fifth Amended and Restated Business Loan and Security Agreement with a syndication of 11 commercial banks (the “Credit Facility”). The Credit Facility: (i) included modifications to the Company’s Fourth Amended and Restated Business Loan and Security Agreement, (ii) matures on May 17, 2022, (iii) increased the borrowing ceiling up to $600.0 million without a borrowing base requirement, taking into account financial, performance-based limitations, and (iv) provided for an “accordion,” which permits additional revolving credit commitments of up to $300.0 million, subject to lenders’ approval.

The Company has the option to borrow funds under the Credit Facility at interest rates based on both LIBOR (1, 3, or 6 month rates) and the Base Rate (as defined herein), at its discretion, plus their applicable margins. Base Rates are fluctuating per annum rates of interest equal to the highest of (i) the Federal Funds Open Rate, plus 0.5%, (ii) the Prime Rate, and (iii) the daily LIBOR rate, plus a LIBOR Margin between 1.00% and 2.00% based on its Leverage Ratio (as defined under the Credit Facility). The interest accrued based on LIBOR rates is to be paid on the last business day of the interest period (1, 3, or 6 months), while interest accrued based on the Base Rate is to be paid in quarterly installments. The Credit Facility also provides for letters of credit aggregating up to $60.0 million, which reduce the funds available under the Credit Facility when issued.  The unused portion of the Credit Facility is subject to a commitment fee between 0.13% and 0.25% per annum based on the Leverage Ratio.

The Credit Facility is collateralized by substantially all of the assets of the Company and requires that the Company remain in compliance with certain financial and non-financial covenants. The financial covenants require, among other things, that the Company maintain at all times an Interest Coverage Ratio (as defined under the Credit Facility) of not less than 3.00 to 1.00 and a Leverage Ratio of not more than 3.75 to 1.00 (subject to adjustment, in certain circumstances) for each fiscal quarter. As of March 31, 2019, the Company was in compliance with its covenants under the Credit Facility.

As of March 31, 2019, the Company had $232.3 million long-term debt outstanding, ten outstanding letters of credit totaling $3.1 million, and unused borrowing capacity of $364.6 million under the Credit Facility (excluding the accordion). Taking into account the financial, performance-based limitations, available borrowing capacity (excluding the accordion) was $273.9 million as of March 31, 2019. The weighted-average interest rate on debt outstanding was 3.76% and 2.84% for the first three months of 2019 and 2018, respectively.

NOTE 5 – LEASES

The Company has operating leases for facilities and equipment which have remaining terms ranging from 1 to 29 years. The leases may include options to extend the lease periods for up to 5 years at rates approximating market rates and/or options to terminate the leases within 1 year. The leases may include a residual value guarantee or a responsibility to return the property to its original state of use. Certain leases contain provisions that provide for rental increases based on consumer price indices. The change in rent expense resulting from changes in these indices are included within variable rent.

8


Operating leases consisted of the following at March 31, 2019:

 

Real estate facilities

 

$

132,596

 

Office equipment

 

 

2,062

 

Other

 

 

486

 

 

 

 

135,144

 

Amortization of right-of-use assets

 

 

(7,557

)

Total operating lease right-of-use assets

 

$

127,587

 

Rent expense is recognized on a straight-line basis over the lease term, net of sublease payments.  Rent expense consists of the following:

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

Operating lease costs

 

$

8,896

 

Short-term lease costs

 

 

681

 

Variable lease costs

 

 

12

 

Total operating lease costs

 

 

9,589

 

Sublease income

 

 

 

Total rent expense

 

$

9,589

 

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

 

March 31, 2020

 

$

34,825

 

March 31, 2021

 

 

32,970

 

March 31, 2022

 

 

31,653

 

March 31, 2023

 

 

25,967

 

March 31, 2024

 

 

13,065

 

Thereafter

 

 

18,694

 

Total future minimum lease payments

 

 

157,174

 

Less:  Interest

 

 

(14,174

)

Total operating lease liabilities

 

$

143,000

 

 

 

 

 

 

Operating lease liabilities - current

 

$

30,324

 

Operating lease liabilities - non-current

 

 

112,676

 

Total operating lease liabilities

 

$

143,000

 

Other information related to operating leases is as follows:

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

9,389

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

2,159

 

Weighted-average remaining lease term - operating leases

 

 

5.1

 

Weighted-average discount rate - operating leases

 

 

3.8

%

At March 31, 2019, the Company had additional operating leases that have not yet commenced of $16.6 million.  Such operating leases will commence within the next year and with lease terms of 1 year to 28 years.

 

9


NOTE 6 – OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS

Other comprehensive income (loss) includes foreign currency translation adjustments arising from the conversion of financial statements of foreign subsidiaries into U.S. dollars, the amortization of the gain on the sale of an interest rate hedge agreement, and the change in the fair value of current interest rate hedge agreements. Components of accumulated other comprehensive loss as of March 31, 2019 and 2018 are as follows:

 

 

Three Months Ended March 31, 2019

 

 

Foreign

Currency

Translation

Adjustments

 

 

Gain on Sale

of Interest

Rate Hedge

Agreement (1)

 

 

Change in

Fair Value of

Interest Rate

Hedge

Agreements (2)(5)

 

 

Total

 

Accumulated other comprehensive (loss) income at

   January 1, 2019

$

(14,168

)

 

$

2,164

 

 

$

(547

)

 

$

(12,551

)

Current period other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassifications

 

1,254

 

 

 

 

 

 

(1,164

)

 

 

90

 

Amounts reclassified from accumulated other

   comprehensive income

 

 

 

 

(180

)

 

 

23

 

 

 

(157

)

Effect of taxes (3)

 

 

 

 

47

 

 

 

303

 

 

 

350

 

Total current period other comprehensive (loss) income

 

1,254

 

 

 

(133

)

 

 

(838

)

 

 

283

 

Accumulated other comprehensive (loss) income at

   March 31, 2019

$

(12,914

)

 

$

2,031

 

 

$

(1,385

)

 

$

(12,268

)

 

 

Three Months Ended March 31, 2018

 

 

Foreign

Currency

Translation

Adjustments

 

 

Gain on Sale

of Interest

Rate Hedge

Agreement (1)

 

 

Change in

Fair Value of

Interest Rate

Hedge

Agreement (2)

 

 

Total

 

Accumulated other comprehensive (loss) income at

   January 1, 2018

$

(7,638

)

 

$

2,158

 

 

$

441

 

 

$

(5,039

)

Reclassification of stranded tax effects due to adoption of accounting principle (4)

 

(1,307

)

 

 

478

 

 

 

 

 

 

(829

)

Adjusted beginning balance

 

(8,945

)

 

 

2,636

 

 

 

441

 

 

 

(5,868

)

Current period other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassifications

 

1,578

 

 

 

 

 

 

445

 

 

 

2,023

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

(120

)

 

 

 

 

 

(120

)

Effect of taxes (3)

 

(341

)

 

 

47

 

 

 

 

 

 

(294

)

Total current period other comprehensive (loss) income

 

1,237

 

 

 

(73

)

 

 

445

 

 

 

1,609

 

Accumulated other comprehensive (loss) income at March 31, 2018

$

(7,708

)

 

$

2,563

 

 

$

886

 

 

$

(4,259

)

 

 

(1)

Represents the unamortized value of an interest rate hedge agreement, designated as a cash flow hedge, which was sold on December 1, 2016. The fair value of the interest rate hedge agreement, at the date of the sale, was recorded in other comprehensive income, net of tax, and is being reclassified to interest expense when earnings are impacted by the hedged items and as interest payments are made on the Credit Facility from January 31, 2018 to January 31, 2023.

 

(2)

Represents the change in fair value of interest rate hedge agreements designated as a cash flow hedge.  The fair value of the interest rate hedge agreements was recorded in other comprehensive income and will be reclassified to interest expense when earnings are impacted by the hedged items and as interest payments are made on the Credit Facility from August 31, 2018 to August 31, 2023.  

 

(3)

The Company’s effective tax rate for the three months ended March 31, 2019 and 2018 was 19.5% and 22.5%, respectively.

 

(4)

The Company has adjusted the balance at December 31, 2017 of accumulated other comprehensive loss for the stranded tax effects caused by the enactment of the Tax Act.

 

(5)

The fair value of the fixed interest rate swap asset is included in other liabilities on the consolidated balance sheet.

 

10


NOTE 7 – STOCKHOLDERS’ EQUITY

Changes in stockholders’ equity for the three months ended March 31, 2019 and 2018 are as follows:

 

 

Three Months Ended March 31, 2019

 

 

Common Stock

 

Additional Paid-in

 

Retained

 

Treasury Stock

 

Accumulated Other Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Shares

 

Amount

 

Loss

 

Total

 

Balance at January 1, 2019

 

18,817

 

$

22

 

$

326,208

 

$

486,442

 

 

3,629

 

$

(139,704

)

$

(12,551

)

$

660,417

 

Net income

 

 

 

 

 

 

 

15,318

 

 

 

 

 

 

 

 

15,318

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

283

 

 

283

 

Equity compensation

 

 

 

 

 

4,151

 

 

 

 

 

 

 

 

 

 

4,151

 

Exercise of stock options

 

11

 

 

 

 

404

 

 

 

 

 

 

 

 

 

 

404

 

Issuance of shares pursuant to vesting of

   stock units

 

255

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net payments for stock issuances and buybacks

 

(217

)

 

 

 

 

 

 

 

217

 

 

(15,369

)

 

 

 

(15,369

)

Dividends declared

 

 

 

 

 

 

 

(2,634

)

 

 

 

 

 

 

 

(2,634

)

Balance at March 31, 2019

 

18,866

 

$

23

 

$

330,763

 

$

499,126

 

 

3,846

 

$

(155,073

)

$

(12,268

)

$

662,571

 

 

 

Three Months Ended March 31, 2018

 

 

Common Stock

 

Additional Paid-in

 

Retained

 

Treasury Stock

 

Accumulated Other Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Shares

 

Amount

 

Loss

 

Total

 

Balance at January 1, 2018

 

18,662

 

$

22

 

$

307,821

 

$

434,766

 

 

3,357

 

$

(121,540

)

$

(5,039

)

$

616,030

 

Net income

 

 

 

 

 

 

 

12,417

 

 

 

 

 

 

 

 

12,417

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

1,609

 

 

1,609

 

Equity compensation

 

 

 

 

 

2,320

 

 

 

 

 

 

71

 

 

 

 

2,391

 

Exercise of stock options

 

76

 

 

 

 

1,800

 

 

 

 

 

 

 

 

 

 

1,800

 

Issuance of shares pursuant to vesting of stock units

 

187

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

Net payments for stock issuances and buybacks

 

(158

)

 

 

 

 

 

 

 

158

 

 

(9,109

)

 

 

 

(9,109

)

Reclassification of stranded tax effects due to

   adoption of accounting principle

 

 

 

 

 

 

 

829

 

 

 

 

 

 

(829

)

 

 

Dividends declared

 

 

 

 

 

 

 

(2,637

)

 

 

 

 

 

 

 

(2,637

)

Balance at March 31, 2018

 

18,767

 

$

22

 

$

311,941

 

$

445,375

 

 

3,512

 

$

(130,578

)

$

(4,259

)

$

622,501

 

 

NOTE 8 – RESTRICTED CASH

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheet for the periods presented to the total of cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows for the three months ended March 31, 2019 and 2018:

 

 

 

2019

 

 

2018

 

 

 

Beginning

 

 

Ending

 

 

Beginning

 

 

Ending

 

Cash and cash equivalents

 

$

11,694

 

 

$

5,689

 

 

$

11,809

 

 

$