XML 22 R13.htm IDEA: XBRL DOCUMENT  v2.3.0.11
Debt
 6 Months Ended
Jun. 30, 2011
Debt [Abstract]  
Debt
6. Debt
Debt consists of the following at:
                 
    June 30,     December 31,  
    2011     2010  
Capex loan payable to a bank, interest at a variable rate with monthly payments of interest and principal over a seven-year period through May 2016
  $ 8,428,571     $ 9,285,714  
 
               
Mexican loan payable to a bank, interest at a variable rate with annual principal and monthly interest payments over a five-year period through May 2014
    4,800,000       6,400,000  
 
               
Term loan payable to a bank, interest at a variable rate with monthly payments of interest and principal over a seven-year period through January 2011. Paid in full during January 2011
    —       107,131  
 
               
Industrial Revenue Bond, interest adjustable weekly, payable quarterly, principal due in variable quarterly installments through April 2013, secured by a bank letter of credit
    1,585,000       1,940,000  
 
               
Revolving line of credit
    —       —  
 
               
Revolving loan
    —       —  
 
           
Total
    14,813,571       17,732,845  
Less current portion
    (4,074,289 )     (4,151,420 )
 
           
Long-term debt
  $ 10,739,282     $ 13,581,425  
 
           
Credit Agreement
In 2008, the Company and its wholly owned subsidiary, CoreComposites de Mexico, S. de R.L. de C.V., entered into a credit agreement (the “Credit Agreement”) to refinance certain existing debt and borrow funds to finance the construction of the Company’s new manufacturing facility in Mexico.
Under this Credit Agreement, the Company received certain loans, subject to the terms and conditions stated in the agreement, which included (1) a $12,000,000 Capex loan; (2) an $8,000,000 Mexican loan; (3) an $8,000,000 variable rate revolving line of credit; (4) a $2,678,563 term loan to refinance an existing term loan; and (5) a letter of credit in an undrawn face amount of $3,332,493 with respect to the Company’s existing Industrial Development Revenue Bond (“IDRB”) financing. The Credit Agreement is secured by a guarantee of each U.S. subsidiary of the Company, and by a lien on substantially all of the present and future assets of the Company and its U.S. subsidiaries, except that only 65% of the stock issued by CoreComposites de Mexico, S. de C.V. has been pledged. The $8,000,000 Mexican loan is also secured by substantially all of the present and future assets of the Company’s Mexican subsidiary.
As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the Company plans to add additional capacity to its Matamoros, Mexico facility to meet demand in 2012 and beyond. The Company expects to invest approximately $14,500,000 for this capacity expansion, of which approximately $8,700,000 is planned to be spent in 2011. To secure additional funding for this capacity expansion, the Company and its wholly owned subsidiary, CoreComposites de Mexico, S. de R.L. de C.V., entered into a sixth amendment (the “Sixth Amendment”) to the Credit Agreement on June 17, 2011. Pursuant to the terms of the Sixth Amendment, the parties agreed to modify certain terms of the Credit Agreement. These modifications included (1) the addition of a $10,000,000 Mexican Expansion Revolving Loan with a commitment through May 31, 2013 at an applicable margin of Libor plus 175 basis points; (2) modification to the fixed charge definition to exclude capital expenditures of up to $14,500,000 associated with the Matamoros facility expansion project; (3) a decrease in the applicable margin for interest rates to 175 basis points from 275 basis points for the Capex and Mexican loans and the revolving line of credit; (4) a decrease in the non-refundable letter of credit fee for the IDRB letter of credit to 175 basis points from 300 basis points; and (5) an extension of the commitment period for the revolving line of credit to May 31, 2013.
Revolving Line of Credit
At June 30, 2011, the Company had available an $8,000,000 variable rate revolving line of credit, scheduled to mature on May 31, 2013. The revolving line of credit bears interest at daily LIBOR plus 175 basis points and is collateralized by all of the present and future assets of the Company and its U.S. subsidiaries (except that only 65% of the stock issued by CoreComposites de Mexico, S. de C.V. has been pledged).
Revolving Loan
At June 30, 2011, the Company had available a $10,000,000 variable rate revolving loan, scheduled to mature on May 31, 2013. The revolving loan bears interest at daily LIBOR plus 175 basis points and is collateralized by all of the present and future assets of the Company and its U.S. subsidiaries (except that only 65% of the stock issued by CoreComposites de Mexico, S. de C.V. has been pledged).
Bank Covenants
The Company is required to meet certain financial covenants included in the Credit Agreement with respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary affirmative and negative covenants. As of June 30, 2011, the Company was in compliance with its financial covenants associated with the loans made under the Credit Agreement as described above.
Management regularly evaluates the Company’s ability to meet its debt covenants based on the Company’s forecasts. Based upon the Company’s forecasts, which are primarily based on industry analysts’ estimates of heavy and medium-duty truck production volumes, as well as other assumptions, management believes that the Company will be able to maintain compliance with its financial covenants for the next 12 months.
Management believes that cash flow from operating activities, available borrowings under the Credit Agreement and the additional financing obtained in the second quarter of 2011 will be sufficient to meet the Company’s liquidity needs. If a material adverse change in the financial position of the Company should occur, or if actual sales or expenses are substantially different than what has been forecasted, the Company’s liquidity and ability to obtain further financing to fund future operating and capital requirements could be negatively impacted.
Interest Rate Swaps
In conjunction with its variable rate IDRB, the Company entered into an interest rate swap agreement through April 2013, which was initially designated as a cash flow hedging instrument. Under this agreement, the Company paid a fixed rate of 4.89% to the counterparty and received 76% of the 30-day commercial paper rate. During 2010, the Company determined this interest rate swap was no longer highly effective. As a result, the Company discontinued the use of hedge accounting effective January 1, 2010 related to this swap, and began recording mark-to-market adjustments within interest expense in the Company’s Consolidated Statements of Operations. The pre-tax amount previously recognized in Accumulated Other Comprehensive Income (Loss), totaling $(199,990) as of December 31, 2009, is being amortized as an increase to interest expense of $3,384 per month, net of tax, over the remaining term of the interest rate swap agreement beginning January 2010. The fair value of the swap was a liability of $85,657 and $126,095 as of June 30, 2011 and December 31, 2010, respectively. The Company recorded interest income of $40,438 for a mark-to-market adjustment of swap fair value for the first six months of 2011 related to this swap. The notional amount of the swap at June 30, 2011 and December 31, 2010 was $1,585,000 and $1,940,000, respectively.
Effective December 18, 2008, the Company entered into an interest rate swap agreement that became effective May 1, 2009 and continues through May 2016, which was designated as a cash flow hedge of the $12,000,000 Capex loan. Under this agreement, the Company pays a fixed rate of 2.295% to the counterparty and receives LIBOR. Effective March 31, 2009, the interest terms in the Company’s Credit Agreement related to the $12,000,000 Capex loan were amended. The Company then determined that the interest rate swap was no longer highly effective. As a result, the Company discontinued the use of hedge accounting effective March 31, 2009 related to this swap, and began recording mark-to-market adjustments within interest expense in the Company’s Consolidated Statement of Operations. The pre-tax amount previously recognized in Accumulated Other Comprehensive Income (Loss), totaling $(145,684) as of March 31, 2009, is being amortized as an increase to interest expense of $1,145 per month, net of tax, over the remaining term of the interest rate swap agreement beginning June 2009. The fair value of the swap as of June 30, 2011 and December 31, 2010 was a liability of $238,648 and $224,499, respectively. The Company recorded interest expense of $14,149 for a mark-to-market adjustment of swap fair value for the first six months of 2011 related to this swap. The notional amount of the swap at June 30, 2011 and December 31, 2010 was $8,428,571 and $9,285,714, respectively.
Interest expense includes $61,000 and $87,000 of expense for settlements related to the Company’s swaps for the three months ended June 30, 2011 and 2010, respectively. For the six months ended June 30, 2011 and 2010, interest expense includes $127,000 and $181,000, respectively, of expense for settlements related to the Company’s swaps.