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Indebtedness

9 Months Ended

Sep. 30, 2012

7. Substantially all of the Company’s assets are pledged as collateral with its banks.

The Company has various loans in place that together constitute the short-term and long-term loan balances shown in the balance sheet at September 30, 2012 and December 31, 2011. These are summarized in the following table:


Indebtedness	September 30, 2012						December 31, 2011
$000’s	Long-term		Short-term		Total		Long-term		Short-term		Total
Term loan	$	38,500	$	9,500	$	48,000	$	46,000	$	8,000	$	54,000
Notes payable on product acquisitions and asset purchase		0		6,115		6,115		5,917		6,460		12,377

Total indebtedness	$	38,500	$	15,615	$	54,115	$	51,917	$	14,460	$	66,377

On January 10, 2011, the Company entered into a new $137,000 senior secured credit facility with a syndicate of banks led by Bank of the West. The facility consists of a revolving commitment of $75,000, and an initial term commitment of $62,000. Both the revolving line of credit and the term loan mature on January 10, 2016. The facility replaces the Company’s previous $135,000 facility, which the Company has retired through borrowing from the new facility. As part of concluding this new credit agreement, the real estate loan was repaid in full. Finally, in January 2011, the Company took a one-time non-cash charge in the amount of $546 related to extinguishment of the term loan.

On March 31, 2011, as required under the terms of the amended and restated credit agreement, the Company entered into a fixed interest rate swap with an amortizing notional covering 75% or $45,000 of term loan debt. The termination date for the interest rate swap is December 14, 2014. The interest rate swap has been designated and qualifies as a cash flow hedge. The effective portion of the gains or losses on the interest rate swap will be reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

At September 30, 2012, the Company had in place one interest rate swap contract with a notional amount of $40,875 or 85.16% of the outstanding term debt that is accounted for under FASB ASC 815 as a cash flow hedge. The effective portion of the gains or losses on the interest rate swap is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Amounts in other comprehensive income expected to be reclassified to earnings in the coming 12 months are $(701). Amounts recorded in earnings for hedge ineffectiveness for the period ending September 30, 2012 were immaterial.

During 2011, the Company entered into two Euro exchange forward contract in the amounts of €4,500 each for Euro-denominated liabilities that will be settled in January 2013. These transactions are accounted for in accordance with the ASC 815, as non-designated hedges. The fair value is being recorded in the Balance Sheet, with the change in value recorded in earnings, and generally offset by the gains and losses associated with the underlying foreign-currency-denominated balances, which are also reported in earnings.

The Company has four key covenants in relation to its senior, secured credit facility with its banking syndicate. The covenants are as follows: (1) the Company must maintain its borrowings below a certain consolidated funded debt ratio, (2) the Company has a limitation on its annual spending on the acquisition of fixed asset capital additions, (3) the Company must maintain a certain consolidated fixed charge coverage ratio, and (4) the Company must maintain a certain modified current ratio which compares the on hand value of receivables plus inventory with the level of its working capital revolver debt. As of September 30, 2012 the Company met all covenants related to that credit facility.

At September 30, 2012, based on its performance against the most restrictive covenants listed above, the Company had the capacity to increase its borrowings by up to $75,000 under the credit facility agreement.

On July 3, 2012, the Company entered into Amendment No. 1 to its senior credit facility agreement, which provides the Company permission to make investments in foreign subsidiaries in an aggregate amount not to exceed $2,000.

The following tables illustrate the impact of derivatives on the Company’s income statement for the three months and nine months ended September 30, 2012.

The Effect of Derivative Instruments on the Statement of Financial Performance

For the Period Ended September 30

For the three months ended September 30


Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
	2012			2011				2012			2011				2012		2011
Interest rate contracts	$	(137	)	$	(787	)	Interest Expense	$	(178	)	$	(188	)	Interest Expense	$	—	$	—
Foreign Exchange contracts		—			—		Cost of Sales		—			—		Cost of Sales		—		—

Total	$	(137	)	$	(787	)		$	(178	)	$	(188	)		$	—	$	—


Derivatives Not Designated as Hedging Instruments under ASC 815	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
		2012		2011
Foreign Exchange contracts	Other income/(expense)	$	115	$	8

Total		$	115	$	8

For the nine months ended September 30


Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Derivatives in ASC 815 Cash Flow Hedging Relationships	2012			2011				2012			2011				2012			2011
Interest rate contracts	$	(460	)	$	(1,944	)	Interest Expense	$	(546	)	$	(395	)	Interest Expense	$	(1	)	$	(1	)
Foreign Exchange contracts		—			—		Cost of Sales		—			—		Cost of Sales		—			—

Total	$	(460	)	$	(1,944	)		$	(546	)	$	(395	)		$	(1	)	$	(1	)


Derivatives Not Designated as Hedging Instruments under ASC 815	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
		2012			2011
Foreign Exchange contracts	Other income/(expense)	$	(77	)	$	8

Total		$	(77	)	$	8

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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