Credit Agreement

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Credit Agreement

Credit AgreementOn May 4, 2021, we entered into a Credit Agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as Agent and Issuing Lender, under which we may borrow or issue letters of credit in an aggregate of up to $40.0 million under a revolving credit facility (the “Revolving Credit Facility”), which will mature on May 4, 2024, subject to our compliance with certain financial covenants. At June 30, 2021, we had $8.0 million of borrowings outstanding under the Credit Agreement at a weighted average interest rate of 2.75 percent per annum and $9.2 million of letters of credit issued under the Credit Agreement at a fee of 1.75 percent per annum.

For each borrowing under the Revolving Credit Facility, we can elect whether the loans bear interest at (i) the Base Rate plus Applicable Margin; or (ii) the LIBOR Rate plus Applicable Margin. Base Rate is the highest of (a) the Prime Rate, (b) the Federal Funds Rate, plus 0.50 percent and (c) LIBOR for an interest period of three months plus 1.00 percent. The Applicable Margin to be added to a Base Rate borrowing is 0.75 percent. The LIBOR Rate is (x) LIBOR (which shall not be less than 1.00 percent) divided by (y) 1.00 minus the Eurodollar Reserve Percentage. The Applicable Margin to be added to a LIBOR borrowing is 1.75 percent. A commitment fee of 0.25 percent per annum will accrue on the daily average unused amount of the commitments under the Revolving Credit Facility.

Under the Credit Agreement, we are required to maintain compliance with the following financial covenants on a pro forma basis, after giving effect to any borrowings (in each case commencing with the fiscal quarter ending June 30, 2021): (i) the Consolidated Total Leverage Ratio, which is the ratio of (a) Consolidated Funded Indebtedness on such date to (b) Consolidated EBITDA for the most recently completed Reference Period shall not be greater than 3.00 to 1.00.; (ii) the Current Ratio, which is (a) consolidated current assets to (b) consolidated current liabilities, in each case with certain exclusions, shall not be less than 1.25 to 1.00; (iii) Consolidated Interest Coverage Ratio, which is the ratio of (a) Consolidated EBITDA for the most recently completed Reference Period to (b) Consolidated Interest Expense for the most recently completed Reference Period shall be not be less than 3.00 to 1.00; and (iv) the Consolidated Tangible Net Worth, which is (a) our shareholders’, equity as shown on our consolidated statement of financial position, with certain exclusions, minus (b) all goodwill and intangible assets as of such date shall not be less than $100.0 million. The Reference Period means the most recently completed four consecutive fiscal quarters.

Consolidated EBITDA is defined under the Credit Agreement as: (a) Consolidated Net Income for such period plus (b) the sum of the following, without duplication, to the extent deducted in determining Consolidated Net Income for such period: (i) Consolidated Interest Expense; (ii) expense for taxes measured by net income, profits or capital (or any similar measures), paid or accrued, including federal and state and local income taxes, foreign income taxes and franchise taxes; and (iii) depreciation, amortization and other non-cash charges or expenses, excluding any non-cash charge or expense that represents an accrual for a cash expense to be taken in a future period; less (c) the sum of the following, without duplication, to the extent included in determining Consolidated Net Income for such period: (i) interest income, (ii) federal, state, local and foreign income tax credits us and our subsidiaries for such period (to the extent not netted from income tax expense); (iii) any unusual and non-recurring gains; (iv) non-cash gains or non-cash items; and (v) any cash expense made during such period which represents the reversal of any non-cash expense that was added in a prior period pursuant to clause (b)(iii) above subsequent to the fiscal quarter in which the relevant non-cash expenses, charges or losses were incurred.

The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants. The affirmative covenants require us to provide the lenders with certain financial statements, business plans, compliance certificates and other documents and reports and to comply with certain laws. The negative covenants restrict each of the borrowers’ ability to incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of its assets or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the Credit Agreement. The negative covenants further restrict our ability to make certain restricted payments.

Our obligations under the Credit Agreement are secured by a pledge of substantially all of our personal property and substantially all of the personal property of certain of our other direct and indirect subsidiaries.

At June 30, 2021, we were in compliance with all covenants under the Credit Agreement. We incurred $0.3 million of debt issuance costs, which are included in other assets and are being amortized to interest expense over the term of the Credit Agreement.