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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, 2020

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: (703934-3000

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 May 1, 2020, there were 18,827,268 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, 2020

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets at March 31, 2020 (Unaudited) and December 31, 2019

3

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2020 and 2019

4

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019

5

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

Item 2.

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

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

PART II. OTHER INFORMATION

28

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 3.

Defaults Upon Senior Securities

29

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

30

 

 

 


PART I. FINANCIAL INFORMATION

Item  1.

Financial Statements 

ICF International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

  

(in thousands, except share and per share amounts)

 

March 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

58,661

 

 

$

6,482

 

Contract receivables, net

 

 

238,474

 

 

 

261,176

 

Contract assets

 

 

151,558

 

 

 

142,337

 

Prepaid expenses and other assets

 

 

19,885

 

 

 

17,402

 

Income tax receivable

 

 

10,280

 

 

 

7,320

 

Total Current Assets

 

 

478,858

 

 

 

434,717

 

Property and Equipment, net

 

 

61,951

 

 

 

58,237

 

Other Assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

905,177

 

 

 

719,934

 

Other intangible assets, net

 

 

70,048

 

 

 

25,829

 

Operating lease - right-of-use assets

 

 

145,344

 

 

 

133,965

 

Other assets

 

 

22,645

 

 

 

23,352

 

Total Assets

 

$

1,684,023

 

 

$

1,396,034

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

10,000

 

 

$

-

 

Accounts payable

 

 

92,818

 

 

 

134,578

 

Contract liabilities

 

 

29,318

 

 

 

37,413

 

Operating lease liabilities - current

 

 

33,333

 

 

 

32,500

 

Accrued salaries and benefits

 

 

57,615

 

 

 

52,130

 

Accrued subcontractors and other direct costs

 

 

34,906

 

 

 

45,619

 

Accrued expenses and other current liabilities

 

 

31,893

 

 

 

35,742

 

Total Current Liabilities

 

 

289,883

 

 

 

337,982

 

Long-term Liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

506,979

 

 

 

164,261

 

Operating lease liabilities - non-current

 

 

128,990

 

 

 

119,250

 

Deferred income taxes

 

 

39,494

 

 

 

37,621

 

Other long-term liabilities

 

 

27,921

 

 

 

22,369

 

Total Liabilities

 

 

993,267

 

 

 

681,483

 

 

 

 

 

 

 

 

 

 

Contingencies (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, par value $.001; 70,000,000 shares authorized; 23,106,335 and 22,846,374 shares issued at March 31, 2020 and December 31, 2019, respectively; 18,827,268 and 18,867,555 shares outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

23

 

 

 

23

 

Additional paid-in capital

 

 

350,658

 

 

 

346,795

 

Retained earnings

 

 

552,303

 

 

 

544,840

 

Treasury stock, 4,279,067 and 3,978,819 shares at March 31, 2020 and December 31, 2019, respectively

 

 

(188,961

)

 

 

(164,963

)

Accumulated other comprehensive loss

 

 

(23,267

)

 

 

(12,144

)

Total Stockholders’ Equity

 

 

690,756

 

 

 

714,551

 

Total Liabilities and Stockholders’ Equity

 

$

1,684,023

 

 

$

1,396,034

 

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

3


ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except per share amounts)

 

2020

 

 

2019

 

Revenue

 

$

358,238

 

 

$

341,254

 

Direct costs

 

 

230,616

 

 

 

215,949

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

Indirect and selling expenses

 

 

103,271

 

 

 

96,519

 

Depreciation and amortization

 

 

5,179

 

 

 

4,762

 

Amortization of intangible assets

 

 

2,853

 

 

 

2,135

 

Total operating costs and expenses

 

 

111,303

 

 

 

103,416

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

16,319

 

 

 

21,889

 

Interest expense

 

 

(3,525

)

 

 

(2,453

)

Other income (expense)

 

 

190

 

 

 

(412

)

Income before income taxes

 

 

12,984

 

 

 

19,024

 

Provision for income taxes

 

 

2,372

 

 

 

3,706

 

Net income

 

$

10,612

 

 

$

15,318

 

 

 

 

 

 

 

 

 

 

Earnings per Share:

 

 

 

 

 

 

 

 

Basic

 

$

0.56

 

 

$

0.81

 

Diluted

 

$

0.55

 

 

$

0.80

 

 

 

 

 

 

 

 

 

 

Weighted-average Shares:

 

 

 

 

 

 

 

 

Basic

 

 

18,840

 

 

 

18,825

 

Diluted

 

 

19,197

 

 

 

19,263

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.14

 

 

$

0.14

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax

 

 

(11,123

)

 

 

283

 

Comprehensive (loss) income, net of tax

 

$

(511

)

 

$

15,601

 

 

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

4


ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2020

 

 

2019

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

10,612

 

 

$

15,318

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

444

 

 

 

(159

)

Deferred income taxes

 

 

4,756

 

 

 

3,144

 

Non-cash equity compensation

 

 

3,826

 

 

 

4,151

 

Depreciation and amortization

 

 

8,032

 

 

 

6,897

 

Facilities consolidation reserve

 

 

(71

)

 

 

(67

)

Amortization of debt issuance costs

 

 

246

 

 

 

127

 

Other adjustments, net

 

 

(766

)

 

 

(264

)

Changes in operating assets and liabilities, net of the effects of acquisitions:

 

 

 

 

 

 

 

 

Net contract assets and liabilities

 

 

(17,349

)

 

 

(23,152

)

Contract receivables

 

 

40,488

 

 

 

8,236

 

Prepaid expenses and other assets

 

 

(1,070

)

 

 

1,353

 

Accounts payable

 

 

(49,200

)

 

 

(15,561

)

Accrued salaries and benefits

 

 

4,453

 

 

 

5,913

 

Accrued subcontractors and other direct costs

 

 

(10,326

)

 

 

(8,796

)

Accrued expenses and other current liabilities

 

 

(5,835

)

 

 

(8,705

)

Income tax receivable and payable

 

 

(2,996

)

 

 

(757

)

Other liabilities

 

 

(476

)

 

 

(366

)

Net Cash Used in Operating Activities

 

 

(15,232

)

 

 

(12,688

)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Capital expenditures for property and equipment and capitalized software

 

 

(4,704

)

 

 

(7,539

)

Payments for business acquisitions, net of cash received

 

 

(253,021

)

 

 

(1,819

)

Net Cash Used in Investing Activities

 

 

(257,725

)

 

 

(9,358

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Advances from working capital facilities

 

 

744,331

 

 

 

163,240

 

Payments on working capital facilities

 

 

(389,776

)

 

 

(131,346

)

Debt issue costs

 

 

(2,081

)

 

 

 

Proceeds from exercise of options

 

 

37

 

 

 

404

 

Dividends paid

 

 

(2,639

)

 

 

(2,636

)

Net payments for stock issuances and buybacks

 

 

(23,998

)

 

 

(15,218

)

Net Cash Provided by Financing Activities

 

 

325,874

 

 

 

14,444

 

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

 

 

(738

)

 

 

305

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

 

 

52,179

 

 

 

(7,297

)

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

 

 

6,482

 

 

 

12,986

 

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

 

$

58,661

 

 

$

5,689

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

3,892

 

 

$

1,597

 

Income taxes

 

$

895

 

 

$

1,066

 

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 and analysis, and assessment and advice to design and implementation of programs and technology-based solutions, and 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, hospitals, health insurers and other health-related 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 (including territories) and local governments, unless otherwise indicated.

The Company, incorporated in Delaware, is headquartered in Fairfax, Virginia. It maintains offices throughout the world, including more than 75 offices in the U.S. and U.S. territories and 15 offices in key markets outside the U.S., including offices in the United Kingdom, Belgium, China, India, and Canada.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Areas of the consolidated financial statements where estimates may have the most significant effect include contractual and regulatory reserves, valuation and lives of tangible and intangible assets, contingent consideration related to business acquisitions, impairment of goodwill and long-lived assets, accrued liabilities, revenue recognition and costs to complete fixed-price contracts, bonus and other incentive compensation, stock-based compensation, reserves for tax benefits and valuation allowances on deferred tax assets, provisions for income taxes, collectability of receivables, and loss accruals for litigation. Actual results experienced by the Company may differ from management's estimates.

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 with 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, 2020 and 2019 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, 2019 and the notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 28, 2020 (the “Annual Report”).

Reclassifications

As part of an amendment to the Credit Facility, as defined in Note 4 “Long-term Debt” below, the Company currently has both a term loan and a revolving debt facility within its Credit Facility. Previously, the unamortized debt issuance costs was included within Other assets in accordance with U.S. GAAP. The Company has reclassified unamortized debt issuance costs as of December 31, 2019 as Long-term debt for consistency of presentation.

 

6


Significant Accounting Policies

Goodwill

The Company tests for impairment, at a minimum, on an annual basis or earlier where certain events or changes in circumstances indicate that goodwill may more likely than not be impaired. As of March 31, 2020, the Company’s market capitalization based on its stock price was above its book value and has not fluctuated below book value subsequent to that date. The Company has experienced declines in the market price of its stock subsequent to the end of the first quarter as a result of the impact from the COVID-19 pandemic on the global economy. If there are significant decreases in its stock price for a sustained period or other unfavorable factors, the Company may be required to perform a goodwill impairment assessment, which may result in a recognition of goodwill impairment that could be material to the consolidated financial statements.

Long-Lived Assets

The Company reviews its long-lived assets, including property and equipment and amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for any excess of the carrying amount over the fair value of the asset.  

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease 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.

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

 

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

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Company adopted the standard in the first quarter of 2020 and the standard was implemented using the prospective method. The Company’s adoption of ASU 2018-15 did not have a material impact on the consolidated financial statements.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.  The standard, as amended, requires companies to measure credit losses by using a methodology that reflects the expected credit losses based on historical information, current economic conditions, and reasonable and supportable information. The Company adopted the standard in the first quarter of 2020 utilizing a modified-retrospective transition approach that required a cumulative-effect adjustment of $0.5 million to the opening retained earnings in the consolidated statement of stockholders’ equity as of the date of the adoption.

7


Recent Accounting Pronouncements Not Yet Adopted

 

Reference Rate Reform

In March 2020, FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.

 

NOTE 2 – CONTRACT RECEIVABLES, NET

Contract receivables, net consisted of the following: 

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Billed and billable

 

$

242,808

 

 

$

264,682

 

Allowance for doubtful accounts

 

 

(4,334

)

 

 

(3,506

)

Contract receivables, net

 

$

238,474

 

 

$

261,176

 

 

NOTE 3 – GOODWILL

The changes in the carrying amount of goodwill during the three-months period ended March 31, 2020 were as follows:

 

Balance as of December 31, 2019

 

$

719,934

 

Goodwill resulting from business combination - ITG

 

 

188,339

 

Effect of foreign currency translation

 

 

(3,096

)

Balance as of March 31, 2020

 

$

905,177

 

   

NOTE 4 – LONG-TERM DEBT

At March 31, 2020 and December 31, 2019, debt consisted of:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Average

Interest Rate

 

 

Outstanding

Balance

 

 

Average

Interest Rate

 

 

Outstanding

Balance

 

Term Loan

 

 

 

 

 

$

200,000

 

 

 

 

 

 

$

 

Revolving Credit

 

 

 

 

 

 

320,000

 

 

 

 

 

 

 

165,444

 

Total before debt issuance costs

 

 

3.05

%

 

 

520,000

 

 

 

3.59

%

 

 

165,444

 

Unamortized debt issuance costs

 

 

 

 

 

 

(3,021

)

 

 

 

 

 

 

(1,183

)

 

 

 

 

 

 

$

516,979

 

 

 

 

 

 

$

164,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

 

 

$

10,000

 

 

 

 

 

 

$

 

Long-term debt - non-current

 

 

 

 

 

 

506,979

 

 

 

 

 

 

 

164,261

 

 

 

 

 

 

 

$

516,979

 

 

 

 

 

 

$

164,261

 

 

On March 3, 2020, the Company entered into the First Amendment (the “First Amendment”) to the Fifth Amended and Restated Business Loan and Security Agreement with a group of ten commercial banks (the “Credit Facility”). The First Amendment amended the Fifth Amended and Restated Business Loan and Security Agreement to, among other things, (i) add a new term loan facility in the original principal amount of $200.0 million; (ii) increase the swing line commitment amount by $25.0 million to $75.0 million; (iii) extend the maturity date; and (iv) modify certain definitions and certain covenants. As a result, the Credit Facility now consists of (i) a term loan facility of $200.0 million; (ii) a revolving line of credit of up to $600.0 million with additional revolving credit commitments of up to $300.0 million, subject to lenders’approval; and (iii) a sub-limit of $75.0 million for swing line loans.  The Credit Facility matures on March 3, 2025.

8


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 (as defined under the Credit Facility) 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 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 4.00 to 1.00 (subject to a step-up to 4.25 to 1.0 for a four quarter period following permitted acquisitions as defined under the Credit Facility) for each fiscal quarter. As of March 31, 2020, the Company had elected to step-up its leverage ratio covenant and was in compliance with its covenants under the Credit Facility.

As of March 31, 2020, the Company had $520.0 million long-term debt outstanding from the Credit Facility (including the term loan, exclusive of unamortized debt issuance costs), outstanding letters of credit totaling $2.9 million, net derivative obligations of $9.9 million and unused borrowing capacity of $277.1 million under the Credit Facility (excluding the accordion). Taking into account the financial, performance-based limitations, available borrowing capacity (excluding the accordion and the term loan) was $125.6 million as of March 31, 2020. 

Future repayments of debt principal are as follows:

 

 

 

 

 

 

 

Payments due by March 31,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Total

 

Term Loan

 

$

10,000

 

 

$

10,000

 

 

$

10,000

 

 

$

15,000

 

 

$

155,000

 

 

$

 

 

$

200,000

 

Revolving Credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

320,000

 

 

 

 

 

 

320,000

 

Total

 

$

10,000

 

 

$

10,000

 

 

$

10,000

 

 

$

15,000

 

 

$

475,000

 

 

$

 

 

$

520,000

 

 

NOTE 5 – LEASES

The Company has operating leases for facilities and equipment which have remaining terms ranging from 1 to 14 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. A limited number of 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.

Operating leases consisted of the following at March 31, 2020 and December 31, 2019:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Real estate facilities

 

$

178,227

 

 

$

165,752

 

Office equipment

 

 

2,269

 

 

 

1,631

 

Other

 

 

863

 

 

 

892

 

 

 

 

181,359

 

 

 

168,275

 

Amortization of right-of-use assets

 

 

(36,015

)

 

 

(34,310

)

Total operating lease right-of-use assets

 

$

145,344

 

 

$

133,965

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Operating lease costs

 

$

9,326

 

 

$

8,896

 

Short-term lease costs

 

 

431

 

 

 

681

 

Variable lease costs

 

 

1

 

 

 

4

 

Total rent expense

 

$

9,758

 

 

$

9,581

 

 

9


Future minimum lease payments under non-cancellable leases as of March 31, 2020 were as follows:

 

March 31, 2021

 

$

39,815

 

March 31, 2022

 

 

39,877

 

March 31, 2023

 

 

33,163

 

March 30, 2024

 

 

20,008

 

March 30, 2025

 

 

22,838

 

Thereafter

 

 

193,009

 

Total future minimum lease payments

 

 

348,710

 

Less:  Interest

 

 

(186,387

)

Total operating lease liabilities

 

$

162,323

 

 

 

 

 

 

Operating lease liabilities - current

 

$

33,333

 

Operating lease liabilities - non-current

 

 

128,990

 

Total operating lease liabilities

 

$

162,323

 

 

Other information related to operating leases is as follows:

 

 

 

March 31, 2020

 

 

March 31, 2019

 

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

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

9,526

 

 

$

9,389

 

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

 

$

21,098

 

 

$

2,159

 

Weighted-average remaining lease term - operating leases

 

 

6.0

 

 

 

5.1

 

Weighted-average discount rate - operating leases

 

 

3.6

%

 

 

3.8

%

 

At March 31, 2020, the Company had additional operating leases that have not yet commenced with a potential lease liability of $129.8 million.  Such operating leases are anticipated to commence, where we take possession of the property and commence any required buildout, over the next three years, with lease terms of 5 years to 17 years.

 

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

Other comprehensive (loss) income 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, 2020 and 2019 are as follows:

 

 

 

Three Months Ended March 31, 2020

 

 

 

Foreign

Currency

Translation

Adjustments

 

 

Gain on Sale

of Interest

Rate Hedge

Agreement (1)

 

 

Change in

Fair Value of

Interest Rate

Hedge

Agreements (2)

 

 

Total

 

Accumulated other comprehensive (loss) income at December 31, 2019

 

$

(10,995

)

 

$

1,634

 

 

$

(2,783

)

 

$

(12,144

)

Current period other comprehensive  (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss before reclassifications

 

 

(5,430

)

 

 

 

 

 

(8,601

)

 

 

(14,031

)

Amounts reclassified from accumulated other comprehensive income (4)

 

 

 

 

 

(180

)

 

 

230

 

 

 

50

 

Effect of taxes (3)

 

 

612

 

 

 

47

 

 

 

2,199

 

 

 

2,858

 

Total current period other comprehensive (loss) income

 

 

(4,818

)

 

 

(133

)

 

 

(6,172

)