LONG-TERM OBLIGATIONS

6 Months Ended

Jun. 30, 2012

LONG-TERM OBLIGATIONS

LONG-TERM OBLIGATIONS

NOTE 3:   LONG-TERM OBLIGATIONS

The following is a summary of long-term obligations outstanding (in thousands):

	Final Maturity Date	Weighted- Average Interest Rate		June 30, 2012			December 31, 2011
				(in thousands)
Senior revolving loan	December 2015	3.1	%	$	212,000		$	217,000
Capital leases	April 2017	7.0	%	5,017			6,025
Notes payable	September 2014	2.2	%	9,053			11,004
Acquisition-related liabilities	December 2013	8.1	%	16,029			29,449
Total long-term obligations, including current portion				242,099			263,478
Current maturities of long-term obligations
Capital leases				(2,992		)	(3,213		)
Notes payable				(3,969		)	(3,924		)
Acquisition-related liabilities				(10,382		)	(8,347		)
Total current maturities of long-term obligations				(17,343		)	(15,484		)
Total Long-term obligations				$	224,756		$	247,994

Credit Facilities

We have a senior credit facility that provides for a senior revolving loan with an aggregate amount of funds available of $325.0 million with a maturity date of December 2015. We have the right, subject to compliance with the covenants as set forth in the credit facility agreement, to increase the borrowings to a maximum of $375.0 million.  The credit facility is secured by liens on our land and buildings and substantially all of our personal property.

Borrowings under the senior revolving loan bear interest at various rates based on our leverage ratio with two rate options at the discretion of management as follows:  (1) for base rate advances, borrowings bear interest at prime rate plus 75 to 175 basis points; and (2) for LIBOR rate advances, borrowings bear interest at LIBOR rate plus 175 to 275 basis points. At June 30, 2012, borrowings of $212.0 million under this facility had a weighted average interest rate of 3.1%. The average amount of borrowings under this facility during the second quarter of 2012 was $219.3 million, at a weighted average interest rate of 3.0%.  The maximum month-end amount outstanding during the second quarter of 2012 was $227.0 million. At June 30, 2012, the amount available for borrowings under the credit facility under the most restrictive debt covenant was approximately $36.0 million.

The financial covenants contained in the credit facility include a total debt leverage ratio and a fixed charge coverage ratio (all as defined in our credit facility agreement).  The leverage ratio is not permitted to exceed 3.00 to 1.00 and the fixed charge coverage ratio is not permitted to be less than 1.25 to 1.00.  As of June 30, 2012, we were in compliance with all financial covenants.

Other restrictive covenants contained in our credit facility include limitations on incurring additional indebtedness and completing acquisitions.  We generally cannot incur indebtedness outside the credit facility, with the exception of capital leases, up to $15.0 million, and subordinated debt, up to $100 million.  In addition, for acquisitions we must be able to demonstrate that, on a pro forma basis, we would be in compliance with our covenants during the four quarters prior to the acquisition, and bank permission must be obtained for acquisitions in which cash consideration exceeds $125.0 million or total consideration exceeds $175.0 million.  The total consideration for all acquisitions consummated during the term of our credit facility may not exceed $300.0 million in the aggregate without lender permission.

Capital Leases

We lease certain equipment under capital leases that generally require monthly payments with final maturity dates during various years through 2017.  As of June 30, 2012, our capital leases had a weighted-average interest rate of approximately 7.0%.

Notes Payable

During the fourth quarter of 2011 we entered into a note payable related to a software license agreement that bears interest of approximately 2.2% and is payable quarterly through September 2014.

Acquisition-related Liabilities

In connection with the acquisitions of Jupiter eSources LLC (“Jupiter eSources”) on October 1, 2010, and De Novo on December 28, 2011, we incurred liabilities related to contingent consideration for earn-out opportunities based on future revenue growth. We estimated the fair value of the contingent consideration using probability assessments of projected revenue over the earn-out period, and applied an appropriate discount rate based upon the weighted average cost of capital.  This fair value is based on significant level 3 inputs that are not observable in the market.

Amounts recorded in connection with acquisition-related liabilities as of June 30, 2012 and December 31, 2012 are as follows:

	June 30, 2012		December 31, 2011
	(in thousands)
De Novo contingent consideration:
Current portion	$	5,875	$	—
Long-term portion	5,647		16,226
Total De Novo contingent consideration	11,522		16,226
De Novo deferred acquisition price
Current portion	4,507		—
Long-term portion	—		4,870
Total De Novo deferred acquisition price	4,507		4,870
Jupiter eSources deferred acquisition price
Current portion	—		8,353
Total acquisition-related liabilities	$	16,029	$	29,449

Jupiter eSources

The undiscounted amount of all potential future payments that we could be required to make under the Jupiter eSources earn-out was between $0 and $20 million over a four-year measurement period following the October 1, 2010 date of acquisition.  During the second quarter of 2011 a $2.8 million reduction in the fair value of the Jupiter eSources potential contingent consideration was recorded.  During the fourth quarter of 2011, based on our probability assessments over the remainder of the earn-out period, we determined that it is not likely that any earn-out for Jupiter eSources will be achieved and based on this continued assessment, there is no liability recorded related to this earn-out as of June 30, 2012 and December 31, 2011.

In connection with the acquisition of Jupiter eSources, we withheld a portion of the purchase price for potential claims for indemnification and purchase price adjustments in the amount of $8.4 million that was paid in May 2012.

De Novo

The undiscounted amount of all potential future payments that we could be required to make under the De Novo earn-out opportunity is between $0 and $29.1 million over a two-year measurement period following December 28, 2011, the date of acquisition.  A portion of the De Novo earn-out is contingent upon certain of the sellers remaining employees of Epiq.  If those sellers do not remain employees of Epiq, the portion of the earn-out to which they were entitled is forfeited and will not be allocated to the remaining sellers.  The portion of the contingent consideration that is not tied to employment was considered to be part of the total consideration paid for net assets in connection with the purchase of De Novo and has been measured and recognized at fair value.

In connection with the acquisition of De Novo, a portion of the purchase price is being held by us and deferred until June 2013 as security for potential indemnification claims.  This amount has been discounted using an appropriate imputed interest rate.

During the second quarter of 2012, the employment for one of the De Novo employees entitled to a portion of the earn-out ended.  According to the purchase agreement with De Novo, a portion of the earn-out subject to continued employment of this employee was forfeited in its entirety.

As of June 30, 2012, based on the present value calculation of the potential payouts determined through an analysis of current projected revenue measures related to this potential contingent consideration, and including the impact of the forfeiture discussed above, a decrease in fair value of $5.5 million was recorded related to the earn-out which is included in “Fair value adjustment to contingent consideration” in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2012.

See Note 11 of our Notes to Condensed Consolidated Financial Statements for further detail related to the De Novo earn-out and holdback amounts.