Financing Arrangements
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Jul. 02, 2011
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Financing Arrangements |
During
the second quarter of 2011, the company exercised a provision under
its current credit facility that allowed the company to increase
the amount of availability under the revolving credit line by
approximately $102.0 million. Terms of the
company’s senior credit agreement provide for $600.0 million
of availability under a revolving credit line. As of
July 2, 2011, the company had $300.7 million of borrowings
outstanding under this facility. The company also had
$4.9 million in outstanding letters of credit as of July 2, 2011,
which reduces the borrowing availability under the revolving credit
line. Remaining borrowing availability under this
facility, which is also reduced by the company’s foreign
borrowings, was $285.6 million at July 2, 2011.
At
July 2, 2011, borrowings under the senior secured credit facility
are assessed at an interest rate of 1.0% above LIBOR for long-term
borrowings or at the higher of the Prime rate and the Federal Funds
Rate. At July 2, 2011 the average interest rate on the
senior debt amounted to 1.23%. The interest rates on borrowings
under the senior secured credit facility may be adjusted quarterly
based on the company’s indebtedness ratio on a rolling
four-quarter basis. Additionally, a commitment fee based
upon the indebtedness ratio is charged on the unused portion of the
revolving credit line. This variable commitment fee
amounted to 0.2% as of July 2, 2011.
In
August 2006, the company completed its acquisition of Houno A/S in
Denmark. This acquisition was funded in part with locally
established debt facilities with borrowings in Danish Krone.
On July 2, 2011 these facilities amounted to $3.9 million in
U.S. dollars, including $2.0 million outstanding under a revolving
credit facility and $1.9 million of a term loan. The interest
rate on the revolving credit facility is assessed at 1.25% above
Euro LIBOR, which amounted to 3.9% on July 2, 2011. The term loan
matures in 2013 and the interest rate is assessed at
4.6%.
In
April 2008, the company completed its acquisition of Giga Grandi
Cucine S.r.l in Italy. This acquisition was funded in part with
locally established debt facilities with borrowings denominated in
Euro. On July 2, 2011 these facilities amounted to $4.9
million in U.S. dollars. The interest rate on the credit
facilities is tied to six-month Euro LIBOR. At July 2, 2011, the
average interest rate on these facilities was approximately 3.0%.
The facilities mature in April 2015.
The
company’s debt is reflected on the balance sheet at cost.
Based on current market conditions, the company believes its
interest rate margins on its existing debt are below the rate
available in the market, which causes the fair value of debt to
fall below the carrying value. The company believes the
current interest rate margin is approximately 1.0% below current
market rates. However, as the interest rate margin is
based upon numerous factors, including but not limited to the
credit rating of the borrower, the duration of the loan, the
structure and restrictions under the debt agreement, current
lending policies of the counterparty, and the company’s
relationships with its lenders, there is no readily available
market data to ascertain the current market rate for an equivalent
debt instrument. As a result, the current interest rate
margin is based upon the company’s best estimate based upon
discussions with its lenders.
The
company estimated the fair value of its loans by calculating the
upfront cash payment a market participant would require to assume
the company’s obligations. The upfront cash
payment is the amount that a market participant would be able to
lend at July 2, 2011 to achieve sufficient cash inflows to cover
the cash outflows under the company’s senior revolving credit
facility assuming the facility was outstanding in its entirety
until maturity. Since the company maintains its
borrowings under a revolving credit facility and there is no
predetermined borrowing or repayment schedule, for purposes of this
calculation the company calculated the fair value of its
obligations assuming the current amount of debt at the end of the
period was outstanding until the maturity of the company’s
senior revolving credit facility in December
2012. Although borrowings could be materially greater or
less than the current amount of borrowings outstanding at the end
of the period, it is not practical to estimate the amounts that may
be outstanding during future periods. The fair value of
the company’s senior debt obligations as estimated by the
company based upon its assumptions is approximately $304.9 million
at July 2, 2011, as compared to the carrying value of $309.4
million.
The
carrying value and estimated aggregate fair value, based primarily
on market prices, of debt is as follows (in
thousands):
The
company believes that its current capital resources, including cash
and cash equivalents, cash generated from operations, funds
available from its revolving credit facility and access to the
credit and capital markets will be sufficient to finance its
operations, debt service obligations, capital expenditures, product
development and integration expenditures for the foreseeable
future.
The
company has historically entered into interest rate swap agreements
to effectively fix the interest rate on a portion of its
outstanding debt. The agreements swap one-month LIBOR
for fixed rates. As of July 2, 2011 the company had the following
interest rate swaps in effect:
The
terms of the senior secured credit facility limit the paying of
dividends, capital expenditures and leases, and require, among
other things, a maximum ratio of indebtedness to earnings before
interest, taxes, depreciation and amortization
(“EBITDA”) of 3.5 and a minimum EBITDA to fixed charges
ratio of 1.25. The credit agreement also provides that if a
material adverse change in the company’s business operations
or conditions occurs, the lender could declare an event of default.
Under terms of the agreement, a material adverse effect is defined
as (a) a material adverse change in, or a material adverse effect
upon, the operations, business properties, condition (financial and
otherwise) or prospects of the company and its subsidiaries taken
as a whole; (b) a material impairment of the ability of the company
to perform under the loan agreements and to avoid any event of
default; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against the company of
any loan document. A material adverse effect is determined on a
subjective basis by the company's creditors. The credit
facility is secured by the capital stock of the company’s
domestic subsidiaries, 65% of the capital stock of the
company’s foreign subsidiaries and substantially all other
assets of the company. At July 2, 2011, the company was
in compliance with all covenants pursuant to its borrowing
agreements.
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