Long-Term Debt

Long-term debt is as follows (in thousands):



	2011			2010
Revolving credit facility, due 2014	$	—		$	—
7⁷/₈% senior subordinated notes, due 2013	284,878			296,270
8³/₈% senior subordinated notes, due 2014 ($25.2 million and $32.2 million outstanding principal amount as of the years ended 2011 and 2010, respectively)	25,424			32,610
Term Loan B, due 2016 ($356.2 million and $380.0 million outstanding principal amount as of the years ended 2011 and 2010, respectively)	353,033			376,200
10¹/₂% senior notes, due 2016	170,000			170,000
8⁷/₈% senior second lien notes, due 2018 ($400.0 million outstanding principal amount as of the years ended 2011 and 2010)	397,704			397,432
Other debt including capital leases	15,304			21,491
	1,246,343			1,294,003
Less current maturities	(8,809		)	(10,098		)
Long-term debt	$	1,237,534		$	1,283,905

The estimated fair value of the Company’s long-term debt was approximately $1.1 billion and $1.3 billion as of the years ended 2011 and 2010, respectively. The fair value was determined by the Company to be Level 2 under the fair value hierarchy and was based upon quoted market values and financing options available to the Company with similar terms and maturities. Interest expense in 2011 reflected average outstanding debt of approximately $1.4 billion and a weighted average interest rate of 8.0%, compared to the average outstanding debt of approximately $1.3 billion and a weighted average interest rate of 8.7% in 2010. Cash interest payments on long-term debt were $111.0 million, $102.7 million and $103.7 million in 2011, 2010 and 2009, respectively.

2010 Credit Facilities and Debt Compliance

On December 21, 2010, the Company entered into the 2010 Credit Facilities. The proceeds of the 2010 Credit Facilities were used to refinance the Company’s revolving credit facility due 2012 (“2006 Revolving Credit Facility”) and its term loans and delayed-draw term loans due 2013 (“Term Loans”, collectively with the 2006 Revolving Credit Facility, the “Amended Credit Facilities”). The 2010 Credit Facilities extended the maturity of approximately one quarter of the Company’s total debt and enhanced its liquidity by extending the maturity of the 2006 Revolving Credit Facility. Proceeds from the 2010 Credit Facilities together with available cash were used to repay the outstanding Term Loans, accrued interest thereon and to pay certain fees and expenses incurred related to the 2010 Credit Facilities. The Term Loan B was issued at a discount of $3.8 million, of which $3.2 million remains unamortized as of the year ended 2011.

Borrowing rates under the 2010 Credit Facilities are selected at the Company’s option at the time of each borrowing and are generally based on London Interbank Offered Rate (“LIBOR”) or the prime rate publicly announced by Bank of America, N.A. from time to time, in each case plus a specified interest rate margin. With respect to the Term Loan B, LIBOR based borrowings will not have an interest rate of less than 1.50% per annum plus an applicable margin of 4.75% per annum, and prime rate borrowings will not have an interest rate of less than 2.50% per annum plus an applicable margin of 3.75% per annum. The Company also pays a commitment fee on unused revolving loan commitments of 0.75% per annum. All revolving loans mature on December 21, 2014 and the Term Loan B amortizes in quarterly installments equal to 1% per year, which commenced on March 21, 2011, with the remaining principal amounts due at maturity on December 21, 2016, in each case subject to certain conditions that could result in an earlier maturity.

The 2010 Credit Facilities contain certain restrictions that, among other things and with certain exceptions, limit the ability of the Company to incur additional indebtedness, prepay subordinated debt, transfer assets outside of the Company, pay dividends or repurchase shares of the Company's common stock. The 2010 Credit Facilities also contain customary financial covenants, including a maximum Consolidated Leverage Covenant, a maximum Consolidated First Lien Leverage Covenant and a minimum Consolidated Interest Coverage Covenant. All three of these financial covenants were reset as a result of the 2010 Credit Facilities. The Consolidated Leverage Covenant threshold, with which the Company must be in pro forma compliance at all times, now requires the Company to not exceed 6.50:1.00 at any time during fiscal year 2011, then steps down in 0.25 increments beginning in the second quarter of 2012 until it reaches 5.50:1.00 during fiscal year 2014 and remains at that level for the remainder of the term. The Consolidated First Lien Leverage Covenant now requires the Company to not exceed 2.50:1.00 through the second quarter of 2012, then steps down to 2.25:1.00 and remains at that level for the remainder of the term. The Consolidated Interest Coverage Covenant now requires the Company to not be less than 1.50:1.00 through the fourth quarter of 2011, then steps up incrementally, reaching 1.75:1.00 in 2013 and remains at that level for the remainder of the term.

The obligations under the 2010 Credit Facilities are guaranteed by the Company and each existing and future direct and indirect domestic subsidiary of the Company. The 2010 Credit Facilities are secured by a first priority perfected security interest in substantially all assets of the Company and its domestic subsidiaries. As the 2010 Credit Facilities have senior secured and first priority lien position in the Company’s capital structure and the most restrictive covenants, then provided the Company is in compliance with the 2010 Credit Facilities, the Company would also be in compliance, in most circumstances, with the Company’s incurrence tests within all of the Company’s debt indentures.

Any default under the 2010 Credit Facilities would prevent the Company from borrowing additional amounts and could cause the indebtedness outstanding under the 2010 Credit Facilities and, by reason of cross-acceleration or cross-default provisions, all of the aforementioned notes and any other indebtedness the Company may then have, to become immediately due and payable.

As of the year ended 2011, the Company was in compliance with all debt agreement covenants. The Company anticipates being in compliance with all of its debt agreements throughout its 2012 fiscal year.

In connection with the issuance of the 2010 Credit Facilities, the Company incurred a loss on early extinguishment of debt of $7.0 million, of which $4.8 million relates to fees paid to consenting lenders and $2.2 million relates to the write-off of previously unamortized debt issuance costs. In addition, the Company capitalized $5.3 million, of which $3.4 million relates to fees paid to consenting lenders and $1.9 million relates to expenses, both of which are being amortized over the remaining life of the 2010 Credit Facilities.

On October 28, 2011, the Company completed the 2011 Amendment to allow the Company to repurchase up to $30 million of its outstanding notes, subject to a maximum leverage ratio and the satisfaction of certain other conditions. In connection with the Amendment, the Company paid $2.6 million to consenting lenders and related fees, which will be capitalized and amortized to interest expense, net in the consolidated statement of operations over the remaining life of the 2010 Credit Facilities. The Company may from time to time seek to purchase its outstanding notes in open market purchases, privately negotiated transactions or other means. Such repurchases, if any, will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors.

8⁷/₈% Notes Issuance and 2010 Refinancing

On February 5, 2010, the Company issued $400 million of 8⁷/₈% senior second lien notes ("8⁷/₈% Notes") that were sold with registration rights to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, and to certain non-United States persons in accordance with Regulation S under the Securities Act of 1933. The 8⁷/₈% Notes were issued at a discount of approximately $2.8 million, of which approximately $2.3 million and $2.6 million remained unamortized as of the years ended 2011 and 2010, respectively. Net proceeds after fees and expenses were used to pay down $300.0 million of the Company’s Term Loans and $88.0 million outstanding under the 2006 Revolving Credit Facility.

The 8⁷/₈% Notes were issued pursuant to an indenture among Cenveo, Inc., certain subsidiary guarantors and Wells Fargo Bank, National Association, as trustee, and an Intercreditor Agreement among Cenveo, Inc., certain subsidiary guarantors, Bank of America, N.A., as first lien agent and control agent, and Wells Fargo Bank, National Association, as second lien collateral agent. The 8⁷/₈% Notes pay interest semi-annually on February 1 and August 1, commencing August 1, 2010. The 8⁷/₈% Notes have no required principal payments prior to their maturity on February 1, 2018. The 8⁷/₈% Notes are guaranteed on a senior secured basis by Cenveo, Inc. and substantially all of its domestic subsidiaries with a second priority lien on substantially all of the assets that secure the 2010 Credit Facilities, and on a senior unsecured basis by substantially all of the Canadian subsidiaries. As such the 8⁷/₈% Notes rank pari passu with all the Company’s senior debt and senior in right of payment to all of the Company’s subordinated debt. The Company can redeem the 8⁷/₈% Notes, in whole or in part, on or after February 1, 2014, at redemption prices ranging from 100.0% to approximately 104.4%, plus accrued and unpaid interest. In addition, at any time prior to February 1, 2013, the Company may redeem up to 35% of the aggregate principal amount of the notes originally issued with the net cash proceeds of certain public equity offerings. The Company may also redeem up to 10% of the aggregate principal amount of notes per twelve-month period before February 1, 2014 at a redemption price of 103% of the principal amount, plus accrued and unpaid interest, and redeem some or all of the notes before February 1, 2014 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus a “make whole” premium. Each holder of the 8⁷/₈% Notes has the right to require the Company to repurchase such holder’s notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest thereon, upon the occurrence of certain events specified in the indenture that constitute a change in control. The 8⁷/₈% Notes contain customary covenants, representations and warranties, plus a consolidated secured debt to consolidated cash flow liens incurrence test. In order to fulfill its registration rights obligations, on April 28, 2010, the Company launched a registered exchange offer (“Exchange Offer”) to exchange any and all of its outstanding unregistered 8⁷/₈% Notes for publicly tradable notes having substantially identical terms and guarantees, except that the exchange notes will be freely tradable. The Exchange Offer expired on May 26, 2010, and nearly all unregistered 8⁷/₈% Notes were exchanged for registered 8⁷/₈% Notes.

In connection with the 2010 Refinancing, the Company incurred a loss on early extinguishment of debt of $2.6 million, of which $1.1 million relates to the write-off of previously unamortized debt issuance costs and $1.5 million relates to fees paid to consenting lenders. In addition, the Company capitalized $2.1 million of which $1.5 million relates to amendment expenses and $0.6 million relates to fees paid to consenting lenders, both of which will be amortized over the remaining life of the Amended Credit Facilities. In connection with the issuance of the 8⁷/₈% Notes, the Company capitalized $9.4 million of which $7.6 million relates to fees paid to consenting lenders and $1.8 million relates to offering expenses, all of which will be amortized over the eight year life of the 8⁷/₈% Notes.

10¹/₂% Notes

On June 13, 2008, the Company issued the 10¹/₂% senior notes ("10¹/₂% Notes") upon the conversion of the Company’s Senior Unsecured Loan. The 10¹/₂% Notes were then sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, and to certain non-United States persons in accordance with Regulation S under the Securities Act of 1933. The Company did not receive any net proceeds as a result of this transaction. The 10¹/₂% Notes pay interest semi-annually on February 15 and August 15, and have no required principal payments prior to their maturity on August 15, 2016. The Company can redeem the 10¹/₂% Notes, in whole or in part, on or after August 15, 2012, at redemption prices ranging from 100% to 105¹/₄%, plus accrued and unpaid interest.

Upon the issuance of the 10¹/₂% Notes and the conversion of the Senior Unsecured Loan, the Company incurred a loss on early extinguishment of debt of $4.2 million related to the write-off of unamortized debt issuance costs. The Company also capitalized debt issuance costs of approximately $5.3 million, which are being amortized over the life of the 10¹/₂% Notes.

In 2009, the Company purchased in the open market approximately $5.0 million of its 10¹/₂% Notes and retired them for $3.3 million plus accrued and unpaid interest. In connection with the retirement of these 10¹/₂% Notes, the Company recorded a gain on early extinguishment of debt of $1.6 million, which included $0.1 million of unamortized deferred costs. These open market purchases were made within permitted restricted payment limits under the Company debt agreements.

8³/₈% Notes

On March 7, 2007, in connection with the acquisition of Cadmus Communications Corporation (“Cadmus”), the Company assumed the 8³/₈% senior subordinated notes, due 2014 (“8³/₈% Notes”), which pay interest semi-annually on June 15 and December 15, and require no principal payments prior to maturity on June 15, 2014. Also in connection with the acquisition, the Company recorded a $2.8 million increase to the value of the 8³/₈% Notes to record them at their fair value, which fair value increase is being amortized over the life of the 8³/₈% Notes.

In 2011, the Company purchased in the open market approximately $7.0 million of its 8³/₈% Notes and retired them for $5.4 million plus accrued and unpaid interest. In connection with the retirement of these 8³/₈% Notes, the Company recorded a gain on early extinguishment of debt of $1.7 million, which included the write-off of $0.1 million of the above noted fair value increase to the 8³/₈% Notes. In 2009, the Company purchased in the open market approximately $40.1 million of its 8³/₈% Notes and retired them for $23.0 million plus accrued and unpaid interest. In connection with the retirement of these 8³/₈% Notes, the Company recorded a gain on early extinguishment of debt of $17.6 million, which included the write off of $0.6 million of the above noted fair value increase to the 8³/₈% Notes and $0.1 million of fees. These open market purchases were made within permitted restricted payment limits under the Company debt agreements.

7⁷/₈% Notes

In 2004, the Company issued $320.0 million of the 7⁷/₈% senior subordinated notes due 2013 (“7⁷/₈% Notes”), with semi-annual interest payments due on June 1 and December 1, and no required principal payments prior to the maturity on December 1, 2013. The Company may redeem these notes, in whole or in part, at redemption prices from 103.938% to 100%, plus accrued and unpaid interest.

In 2011, the Company purchased in the open market approximately $11.4 million of its 7⁷/₈% Notes and retired them for $9.0 million plus accrued and unpaid interest. In connection with the retirement of these 7⁷/₈% Notes, the Company recorded a gain on early extinguishment of debt of $2.4 million, which included the write off of $0.1 million of unamortized debt issuance costs. In 2009, the Company purchased in the open market approximately $7.1 million of its 7⁷/₈% Notes and retired them for $4.3 million plus accrued and unpaid interest. In connection with the retirement of these 7⁷/₈% Notes, the Company recorded a gain on early extinguishment of debt of $2.8 million, which included the write off of $0.1 million of unamortized debt issuance costs. These open market purchases were made within permitted restricted payment limits under the Company debt agreements.

Other Debt

Other debt as of the year ended 2011 primarily consisted of equipment loans. Of this debt, $12.8 million had an average fixed interest rate of 4.5% while $2.5 million had variable interest rates with an average interest rate of 1.1%.

The aggregate annual maturities for long-term debt, are as follows (in thousands):



2012	$	8,809
2013	293,505
2014	32,665
2015	5,624
2016	511,000
Thereafter	400,000
	$	1,251,603

Interest Rate Swaps

From time to time the Company enters into interest rate swap agreements to hedge interest rate exposure of notional amounts of its floating rate debt. As of the year ended 2011, the Company did not have any outstanding interest rate swap obligations. As of the year ended 2010, the Company had $200.0 million of de-designated interest rate swap agreements that had not been terminated all of which were redeemed in 2011. Ineffectiveness, as a result of these de-designations, was marked-to-market through interest expense, net in the consolidated statement of operations. The fair value of these de-designated swap was recorded in accumulated other comprehensive loss in the consolidated balance sheet and was amortized to interest expense, net in the consolidated statement of operations. For the year ended 2011, income from ineffectiveness of $2.2 million and expense of $2.2 million, respectively, relating to the amortization from accumulated other comprehensive loss (Note 15) was recorded in interest expense, net in the consolidated statement of operations. For the year ended 2010, income from ineffectiveness of $1.4 million and expense of $1.9 million relating to the amortization from accumulated other comprehensive loss (Note 15) was recorded in interest expense, net in the consolidated statement of operations.

The Company’s interest rate swaps were valued using discounted cash flows, as no quoted market prices exist for the specific instruments. The primary inputs to the valuation are maturity and interest rate yield curves, specifically three-month LIBOR, using commercially available market sources. The interest rate swaps are categorized as Level 2 as required by the Fair Value Measurements and Disclosures Topic of the ASC 820. The table below presents the fair value of the Company’s interest rate swaps, which was included in other current liabilities in the Company's consolidated balance sheet (in thousands):



	2011		2010
Interest Rate Swaps (ineffective)	$	—	$	2,222

Subsequent event

In the first quarter of 2012, the Company purchased in the open market approximately $13.8 million, $2.0 million and $5.0 million of its 7⁷/₈% Notes, 8³/₈% Notes and 10¹/₂% Notes, respectively, and retired them for $12.2 million, $1.6 million and $4.9 million, respectively, plus accrued and unpaid interest. In connection with the retirement of these 7⁷/₈% Notes, 8³/₈% Notes and the 10¹/₂% Notes, the Company will record a gain on early extinguishment of debt of approximately $2.1 million, which includes the write-off of $0.1 million of unamortized debt issuance costs in the first quarter of 2012.

In February of 2012, the Company amended 2010 Credit Facilities (“2012 Amendment”), to increase its restricted dispositions basket in order to divest its documents and forms business. The 2012 Amendment required that 25% of net proceeds be used to repay the Term Loan B and requires that the remaining amount be used to reinvest in the business. The 2012 Amendment allows the Company to repay junior debt in an amount equal to 75% of the net proceeds.