Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

EVERTEC is a defendant in a number of legal proceedings arising in the ordinary course of business. Based on the opinion of legal counsel, management believes that the final disposition of these matters will not have a material adverse effect on the business, results of operations or financial condition of the Company. The Company has identified certain claims in which a loss may be incurred, but in the aggregate the loss would be minimal. For other claims, where the proceedings are in an initial phase, the Company is unable to estimate the range of possible loss for such legal proceedings. However, the Company at this time believes that any loss related to these latter claims will not be material.

Leases

The Company’s leases accounting policy follows the guidance from Accounting Standards Codification (“ASC”) 842, Leases, which provides guidance on the recognition, presentation and disclosure of leases in consolidated financial statements.

The Company determines if an arrangement is or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease payable, and operating lease liabilities in the consolidated balance sheet. Finance leases are included in property and equipment, accrued liabilities, and other long-term liabilities in the consolidated balance sheet.

ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, Management used the Company’s collateralized incremental borrowing rate (“IBR”) based on the information available at commencement date in determining the present value of future payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. We monitor events or changes in circumstances that change the timing or amount of future lease payments which results in the remeasurement of a lease liability, with a corresponding adjustment to the ROU asset. The lease payment terms may include fixed payment terms and variable payments. Fixed payment terms and variable payments that depend on an index (i.e., Consumer Price Index or “CPI”) or rate are considered in the determination of the operating lease liabilities. While lease liabilities are not remeasured because of changes to the CPI, changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. Variable payments that do not depend on an index or rate are not included in the lease liabilities determination. Rather, these payments are recognized as variable lease expense when incurred. Variable lease payments are included within operating costs and expenses in the consolidated statement of income and comprehensive income. For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For finance leases, lease expense is composed of

interest expense and amortization expense. The lease liability of these leases is measured using the interest rate method. The ROU asset from financing leases are amortized on a straight-line basis, and is presented as part of Property and Equipment, net.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company elected the practical expedient of not separating lease and related non-lease components for all classes of underlying assets (i.e., building and equipment). The Company also elected as an accounting policy to not recognize lease liabilities and ROU assets for any future short-term leases (i.e., leases with a lease term of 12 months or less).

The Company has operating leases for certain office facilities, buildings, telecommunications and other equipment; and finance leases for certain equipment. The Company’s lease contracts have remaining terms ranging from 1 year to 10 years, some of which may include options to extend the leases for up to 5 years, and some which may include the option to terminate the lease within 1 year.

At December 31, 2019, equipment leases classified as finance leases, which are included within Property and Equipment, net, were $0.6 million, net of accumulated depreciation.

Total lease cost for the twelve months ended December 31, 2019, was as follows:



	Twelve months ended
	December 31, 2019
(in thousands)
Operating lease cost	$	7,573
Finance lease cost
Amortization of right-of-use assets	255
Interest on lease liabilities	24
Variable lease cost	2,515
	$	10,367

Other information related to leases, at December 31, 2019, was as follows:



(In thousands)
Right-of-use assets obtained in exchange for operating lease obligations:	$	940
Weighted average remaining lease term, in years
Operating leases	6
Finance leases	1
Weighted Average Discount Rate
Operating leases	4.7		%
Finance leases	4.2		%

Future minimum lease payments under leases at December 31, 2019 were as follows:



(In thousands)	Operating Leases			Finance Leases
2020	$	6,574		$	307
2021	5,824			34
2022	5,483			2
2023	5,496			—
2024	4,995			—
Thereafter	6,297			—
Total future minimum lease payments	34,669			343
Less: imputed interest	(4,217		)	(35		)
Total	$	30,452		$	308

Reported as of December 31, 2019
Accrued liabilities	$	—		$	276
Operating lease liability - current	5,773			—
Operating lease liability - long-term	24,679			—
Other long-term liabilities	—			32
	$	30,452		$	308