NOTE 3: LONG-TERM OBLIGATIONS

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

	Final Maturity Date	Weighted- Average Interest Rate		September 30, 2014			December 31, 2013
				(in thousands)
Senior secured term loan	August 2020	4.25	%	$	297,000		$	299,250
Senior revolving loan	August 2018	—		—			—
Capital leases	April 2017	4.3	%	3,279			6,548
Note payable	October 2014	2.1	%	1,026			4,079
Acquisition-related liabilities	May 2021	N/A		1,093			2,580
Total long-term obligations, including current portion				302,398			312,457
Current maturities of long-term obligations
Senior secured term loan				(3,000		)	(3,000		)
Capital leases				(2,807		)	(3,690		)
Notes payable				(1,026		)	(4,079		)
Acquisition-related liabilities				(43		)	(2,580		)
Total current maturities of long-term obligations				(6,876		)	(13,349		)
Total long-term obligations				$	295,522		$	299,108

2013 Secured Credit Agreement

On August 27, 2013, we entered into a $400 million senior secured credit facility consisting of a $100 million senior revolving loan commitment, maturing in August 2018, and a $300 million senior secured term loan, maturing in August 2020 (the “Credit Agreement”).

During the term of the Credit Agreement, we have the right, subject to compliance with the covenants specified in the Credit Agreement, to increase the amounts available under the Credit Agreement up to a maximum of $600 million in one or more tranches including increasing the term loan from $300 million to $500 million and total capacity under the senior revolving loan commitment from its original $100 million up to a maximum of $200 million. The Credit Agreement is secured by liens on our real property and a significant portion of our personal property.

On March 26, 2014, we entered into the First Amendment to the Credit Agreement (“First Amendment”) which reduced the interest rate options for our senior secured term loan and reduced the LIBOR floor resulting in a total interest rate reduction of 50 basis points as described below.

Prior to the First Amendment, the senior secured term loan bore interest as follows: (1) 2.75% plus prime rate subject to a 2% floor; or (2) 3.75% plus one, two, three or six month LIBOR subject to a 1% LIBOR floor. Effective with the date of the First Amendment, the senior secured loan bears interest as follows: (1) 2.50% plus prime rate subject to a 1.75% floor; or (2) 3.50% plus one, two, three or six month LIBOR subject to a 0.75% LIBOR floor. As of September 30, 2014, all outstanding borrowings under the senior secured term loan were based on the 0.75% LIBOR floor and the applicable margin was 3.50% for an aggregate floating rate of 4.25%.

Borrowings under the senior revolving loan bear interest at various rates based on our total net leverage ratio with two rate options as follows: (1) for base rate advances, borrowings bear interest at prime rate plus 200 to 300 basis points; and (2) for LIBOR advances, borrowings bear interest at LIBOR plus 300 to 400 basis points. As of September 30, 2014, there were no borrowings outstanding under the senior revolving loan and outstanding letters of credit were $1.0 million.

In April 2014 we entered into a forward interest rate swap effective from August 31, 2015 through August 27, 2020, with a notional amount of approximately $73.7 million equal to the portion of the outstanding amortized principal amount of the senior secured term loan being hedged as of the effective date of the forward interest rate swap. Under the swap we will pay a fixed amount of interest of 2.81% on the notional amount and the swap counterparty will pay a floating amount of interest based on LIBOR with a one-month designated maturity subject to a floor of 0.75% which is consistent with the Company’s obligation under the term loan. The interest rate swap contains a floor of 0.75% to ensure that the one-month LIBOR received on each settlement of the interest rate swap cannot go below 0.75%.

The objective of entering into this interest rate swap is to eliminate the variability of the cash flows in interest payments related to the portion of the debt being hedged. The interest rate swap qualifies as a cash flow hedge and, as such, is being accounted for at estimated fair value with changes in estimated fair value being deferred in accumulated other comprehensive income until such time as the hedged transaction is recognized in earnings. This cash flow hedge is expected to be highly effective and any ineffectiveness will be immediately recognized in earnings.

The fair value of the interest rate swap liability for the three months ended September 30, 2014 decreased by $0.1 million and increased by $0.3 million for the period from the inception date in 2014 to September 30, 2014. These changes are included in accumulated other comprehensive income. As the derivative will not begin settling until August 2015, there were no cash settlements during the period from inception of the swap to September 30, 2014. The hedge was determined to be highly effective during the period from inception of the cash flow hedge through September 30, 2014 with any ineffectiveness considered as de minimis. The fair value of the interest rate swap as of September 30, 2014 was a liability of $1.3 million and was included in “Other long-term liabilities” on the Condensed Consolidated Balance Sheets. We did not utilize any derivative instruments during the period ended September 30, 2013.

In 2013, we entered into a two-year 3% interest rate cap agreement for a notional amount of $150.0 million equal to the portion of the senior secured term loan being hedged. The interest rate cap agreement settles monthly and expires on August 31, 2015. It bears a strike rate of 3% with an underlying rate equal to one month USD LIBOR, which is consistent with the variable rate on our senior secured term loan. As the strike rate of 3% was greater than the underlying rate, the caplets for the three and nine months ended September 30, 2014, expired with a $0 value. As of September 30, 2014, the hedge was determined to be highly effective and is expected to continue to be highly effective in mitigating the risk of increases in the Company’s expected interest expense payments related to its senior secured term loan consistent with LIBOR rising above 3%.

All changes in the estimated fair value of the interest rate cap were included in accumulated other comprehensive income and represented a de minimis amount as of September 30, 2014. The hedge was determined to be perfectly effective during the period from inception of the cash flow hedge through September 30, 2014 with no ineffectiveness recognized in earnings. The fair value of the interest rate cap as of September 30, 2014 was less than $1,000 and as of December 31, 2013 was $27,000 and was included in “Other noncurrent assets” on the Condensed Consolidated Balance Sheets.

We manage exposure to counter-party credit risk related to our derivative positions by entering into contracts with various major financial institutions that can be expected to fully perform under the terms of such instruments.

The term loan facility under our Credit Agreement requires scheduled quarterly principal payments of $750,000, and a final installment equal to the remaining principal balance in August 2020. In addition, the Credit Agreement contains certain annual mandatory pre-payment terms based on a percentage of excess cash flow, commencing with measurement for the fiscal year ending December 31, 2014, and initial payment, if any, in fiscal year 2015. Excess cash flow, as defined in the Credit Agreement includes Consolidated EBITDA (as defined in the Credit Agreement) adjusted for capital expenditures, interest paid, income taxes paid, principal payments, certain acquisition-related obligations and working capital changes. Such annual mandatory prepayments are only required when the net leverage ratio exceeds 2.75 to 1.00.

The Credit Agreement contains a financial covenant related to a net leverage ratio (as defined in the Credit Agreement) which is not permitted to exceed 4.50 to 1.00 as well as other customary covenants related to limitations on (i) creating liens, debt, guarantees or other contingent obligations, (ii) engaging in mergers, acquisitions and consolidations, (iii) paying dividends or other distributions to, and redeeming and repurchasing securities from, equity holders, (iv) prepaying, redeeming or repurchasing subordinated or junior debt, and (v) engaging in certain transactions with affiliates, in each case, subject to customary exceptions. Under our Credit Agreement, our ability to pay dividends and repurchase securities from equity holders is limited by a requirement that such payments are not to exceed, in the aggregate, 50% of net income, as adjusted, on a cumulative basis for all quarterly periods from the closing date and ending prior to the date of payment or repurchase. Adjustments to Consolidated Net Income, as defined in the Credit Agreement include, among other items, the exclusion of extraordinary items, cumulative effect of a change in accounting principle, intangible asset amortization and impairment charges, non-cash compensation expense, cumulative effect of foreign currency translations, and gains or losses from discontinued operations. As of September 30, 2014, we were in compliance with all financial covenants.

The remaining annual maturities under the senior secured term loan for the next five fiscal years and thereafter are:

(in thousands)
Year Ending December 31,
2014 (October 1 – December 31)	$	750
2015	3,000
2016	3,000
2017	3,000
2018 and Thereafter	287,250
Total	$	297,000

Capital Leases

We lease certain equipment under capital leases that generally require monthly payments with final maturity dates during various periods through 2019. As of September 30, 2014, our capital lease obligations had a weighted-average interest rate of approximately 4.3 %.

Note Payable

During 2011 we entered into a note payable related to a software license agreement that bears interest of approximately 2.1% and is payable quarterly through the fourth quarter of 2014.

Acquisition-related Liabilities

Amounts recorded in connection with acquisition-related liabilities as of September 30, 2014 and December 31, 2013 are as follows:

	September 30, 2014		December 31, 2013
	(in thousands)
Minus 10 deferred acquisition price
Current portion	$	43	$	—

Minus 10 contingent consideration
Long-term portion	1,050		—

De Novo contingent consideration
Current portion	—		2,580
Total acquisition-related liabilities	$	1,093	$	2,580

Jupiter eSources LLC

In October 2010, the Company acquired Jupiter eSources LLC (“Jupiter eSources”). In connection with the acquisition, contingent consideration was payable to the Jupiter eSources sellers based on revenue thresholds as defined in the purchase agreement. The undiscounted amount of all potential future payments that could be required under the Jupiter eSources contingent consideration is between $0 and $10.0 million over the remaining measurement period through December 2014.

Based on our assessments of projected revenue over the remainder of the measurement period, we determined that it is not likely that any contingent consideration for Jupiter eSources will be realized and as such there was no liability recorded related to this contingent consideration as of September 30, 2014 or December 31, 2013.

De Novo Legal LLC

In December 2011, the Company acquired De Novo Legal LLC and its affiliated companies (“De Novo Legal”). In connection with the acquisition, contingent consideration was payable to the De Novo sellers based on revenue-related thresholds related to our Technology segment (the “Performance Measure”) for the January 1, 2013 to December 31, 2013 measurement period (the “Earn-out period”). Therefore, in the first quarter of 2014, we provided an earn-out statement and paid the sellers $3.5 million as a result of the Company’s calculation of the Performance Measure for the earn-out period. The sellers disputed the Company’s calculation of the earn-out amount and alleged that the Performance Measure was higher, thereby triggering the next tier of contingent consideration. The Company and the sellers participated in the agreed dispute resolution process as specified under the acquisition agreement and in April 2014 agreed to settle this matter for a cash payment to the sellers of $1.5 million which was paid to the sellers in April 2014. As a result, we recorded a total adjustment of $1.5 million to the contingent consideration obligation as of March 31, 2014, of which $1.1 million is included in “Fair value adjustment to contingent consideration” and $0.4 million is included in “Selling, general and administrative expense” in the Condensed Consolidated Statements of Income for the nine months ended September 30, 2014. There are no further payments remaining under the contingent consideration obligation with respect to De Novo Legal.

Minus 10

In connection with the April 2014 acquisition of Minus 10 we withheld approximately $43,000 of the purchase price as security for potential indemnification claims payable approximately 14 months following the closing date of the acquisition. Also, in connection with the acquisition of Minus 10, we incurred an obligation to pay certain contingent consideration which may be payable to the sellers based on future levels of qualifying profit and other measures as defined in the purchase agreement. This contingent consideration opportunity for the sellers would be payable, if earned, over seven discrete measurement periods through December 31, 2020. The Minus 10 contingent consideration obligation has been measured and recognized at a fair value of approximately $1.1 million as of September 30, 2014 which is included in “Long-term obligations” on the Condensed Consolidated Balance Sheets. A discount rate of 25.0% was applied to the contingent consideration liability which is reflective of the inherent risk attributable to this new product line given its status as an early-stage venture. Subsequent fair value changes, measured quarterly, up to the ultimate amount paid, will be recognized in earnings. See Note 7 of our Notes to Condensed Consolidated Financial Statements for further discussion of the Minus 10 acquisition.