Note 9 – Debt

Secured Commercial Mortgage - On May 25, 2006, the Company entered into an agreement for a $35.0 million Secured Commercial Mortgage (the Mortgage) with Citibank, F.S.B. The Mortgage is secured by the Company's facility and land in Exton, Pennsylvania and bears interest at one-month LIBOR plus an 0.82% Loan Credit Spread. At December 31, 2011, the outstanding Mortgage balance was $29.3 million.

The Mortgage contains various conditions to borrowing, including affirmative, restrictive and financial maintenance covenants. Certain of the more significant covenants require the Company to maintain a Minimum Fixed Charge Coverage Ratio of EBITDA (as defined in the Mortgage) to debt service equal to or greater than 1.50–to–1.0 and an interest rate hedge of at least 50 percent of the outstanding principal balance of the Mortgage through an interest rate protection product reasonably acceptable to Citibank, F.S.B.

Interest Rate Swap Agreement - In order to hedge its interest rate risk under the Mortgage, the Company entered into a $35.0 million aggregate 10-year fixed interest rate swap agreement (the Swap) with Citibank, N.A. in May 2006. The Swap is secured by the Company's facility and land in Exton, Pennsylvania. The Company is using the Swap as a cash flow hedge of the Company's interest payments under the Mortgage. The Swap converts the variable LIBOR portion of the Mortgage payments to a fixed rate of 6.44% (5.62% fixed interest rate plus a 0.82% Loan Credit Spread).

The Company follows the provisions of FASB ASC Topic 815, "Derivatives and Hedging," to account for the Swap as a cash flow hedge due to the hedging of forecasted interest rate payments and to record the Swap at its fair value on the Condensed Consolidated Balance Sheets. This value represents the estimated amount the Company would receive or pay to terminate the Swap. As such, the Company records a mark-to-market adjustment at the end of each period. In establishing the fair value, the Company includes and evaluates dealer quotes, the counterparty's ability to settle the asset or liability and the counterparty's creditworthiness. Additionally, the Company considers current interest rates, collateralization of the Mortgage and the Swap by the land and building and any adverse Company or industry specific events that would impact the fair value measurement.

The Company utilizes the Hypothetical Derivative Method in determining hedge effectiveness each period. Transactions that would cause ineffectiveness would include the prepayment of the Mortgage or an adverse Company or industry specific event that would impact the fair value measurement, which would result in the Company reclassifying the ineffective portion into interest expense within the Condensed Consolidated Statements of Operations and an impact to the Condensed Consolidated Statements of Cash Flows. If the conditions underlying the Swap or the hedge item do not change, the Swap will be considered to be highly effective. The effective portion of the Swap's gain or loss, due to a change in the fair value, is reported as a component of Accumulated other comprehensive loss and has no impact on the Condensed Consolidated Statements of Operations or Cash Flows.

As of December 31, 2011 and June 30, 2011, the fair value of the Swap was in an unrealized loss position of $5,401 ($3,180, net of tax) and $4,920 ($3,009, net of tax), respectively, with the gross unrealized loss position included in Other non-current liabilities and the net of tax position included in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets. Interest expense under the Swap is recorded in earnings at the fixed rate set forth in the Swap.

For the three and six months ended December 31, 2011 and 2010, no amounts were recognized in interest expense due to ineffectiveness or amounts excluded from the assessment of hedge effectiveness. The Company does not currently anticipate any material unrealized losses to be recognized within the subsequent 12 months as the anticipated transactions under the Mortgage and Swap occur, unless the Mortgage, or a portion thereof, is prepaid.

The following table summarizes the fair value of the Swap as of December 31, 2011 and June 30, 2011 on the Condensed Consolidated Balance Sheet:


Derivative Designed as a Hedging Instrument	Location in the Condensed Consolidated Balance Sheet	Fair Value as of December 31, 2011		Fair Value as of June 30, 2011
Interest Rate Swap Contract	Other non-current liabilities	$	5,401	$	4,920

Total Derivative		$	5,401	$	4,920

The following table summarizes the Swap's impact on Accumulated other comprehensive loss and earnings for the three and six months ended December 31, 2011 and 2010:


	Amount of Gain/(Loss) Recognized in Other Comprehensive Loss on Derivative (Effective Portion)
Derivative in Cash Flow Hedging Relationship	For the Six Months Ended December 31,
Derivative in Cash Flow Hedging Relationship	2011			2010
Interest Rate Swap Contract	$	(1,296	)	$	(325	)

Total	$	(1,296	)	$	(325	)


	Amount of Gain/(Loss) Reclassed From Accumulated Other Comprehensive Loss Into Income (Effective Portion)
Location of Loss Reclassed From Accumulated	For the Three Months Ended						For the Six Months Ended
Other Comprehensive Loss Into Income	December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
Interest expense	$	(405	)	$	(419	)	$	(815	)	$	(853	)

Total	$	(405	)	$	(419	)	$	(815	)	$	(853	)


	Amount of Gain / (Loss) Recognized in Income on Derivative (Ineffective Portion)
Location of Loss Reclassed From Accumulated	For the Three Months Ended						For the Six Months Ended
Other Comprehensive Loss Into Income	December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
Interest expense	$	—		$	—		$	—		$	—

Total	$	—		$	—		$	—		$	—

Credit Agreement - On May 26, 2011, the Company entered into a Loan and Agency Agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo). The Credit Agreement provides for a three-year, unsecured revolving credit facility (Revolving Credit Facility) of $35.0 million, evidenced by a Revolving Credit Note, dated May 26, 2011, issued by the Company in favor of Wells Fargo.

Under the terms of the Credit Agreement, the Company may borrow up to the aggregate amount of the unused commitment under the Revolving Credit Facility. The Revolving Credit Facility may be used for the working capital and general corporate purposes of the Company, including permitted acquisitions and capital expenditures.

Borrowings under the Revolving Credit Facility will, at the Company's option, bear interest at a rate based upon the London Inter Bank Offering Rate (LIBOR) as in effect for one, two, three or six-month periods, as elected by the Company, plus an applicable margin, or if no election is made, the one-month LIBOR plus an applicable margin. The Credit Agreement will terminate on May 25, 2014, unless the lenders elect to extend the Credit Agreement for up to two additional one-year periods upon the request of the Company, and contains customary representations, covenants and events of default. Certain of the more significant covenants set forth in the Credit Agreement require the Company to maintain (i) a maximum funded debt to EBITDA calculation of 3.0–to–1.0; (ii) a minimum tangible net worth of $35.0 million; (iii) a minimum fixed charge coverage ratio of 1.5–to–1.0; and (iv) impose restrictions on indebtedness and liens against the Company's assets. As of December 31, 2011, there were no borrowings on the Revolving Credit Facility.