Debt

Debt consists of the following at:



	September 30, 2012			December 31, 2011
Capex loan payable to a bank, interest at a variable rate (1.98% and 2.02% at September 30, 2012 and December 31, 2011, respectively) with monthly payments of interest and principal through May 2016	$	6,285,000		$	7,571,000
Mexican loan payable to a bank, interest at a variable rate (1.94% at September 30, 2012 and December 31, 2011) with annual principal and monthly interest payments through January 2014	3,200,000			4,800,000
Industrial Development Revenue Bond, interest adjustable weekly (0.37% at September 30, 2012 and December 31, 2011), payable quarterly, principal due in variable quarterly installments through April 2013, secured by a bank letter of credit	625,000			1,210,000
Revolving line of credit, interest at a variable rate (1.94% at September 30, 2012) with monthly interest payments and a maturity date of May 31, 2014	752,000			—
Mexican Expansion Revolving loan	—			—
Total	10,862,000			13,581,000
Less current portion	(4,691,000		)	(4,104,000		)
Long-term debt	$	6,171,000		$	9,477,000

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 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.

The Company is completing a $14,500,000 capacity expansion to its Matamoros, Mexico production facility. In anticipation of funding needs for this expansion, the Company amended the Credit Agreement in 2011 to secure an additional $10,000,000 Mexican expansion revolving loan as described below.

Revolving Line of Credit

On July 9, 2012, the Company and its wholly owned subsidiary, CoreComposites de Mexico, S. de R.L. de C.V., entered into a seventh amendment (the "Seventh Amendment") to the Credit Agreement. Pursuant to the terms of the Seventh Amendment, the parties agreed to extend the commitment for the revolving line of credit to May 31, 2014. 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).

Mexican Expansion Revolving Loan

At September 30, 2012, 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 September 30, 2012, 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 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.

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 (0.10% at September 30, 2012). 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 Income. The pre-tax loss previously recognized in Accumulated Other Comprehensive Income, totaling $200,000 as of December 31, 2009, is being amortized as an increase to interest expense of $5,000 per month, or $3,000 net of tax, over the remaining term of the interest rate swap agreement. The fair value of the swap was a liability of $15,000 and $52,000 as of September 30, 2012 and December 31, 2011, respectively. The Company recorded interest income of $37,000 for a mark-to-market adjustment of swap fair value for the first nine months of 2012 related to this swap. The notional amount of the swap at September 30, 2012 and December 31, 2011 was $625,000 and $1,210,000, 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 (0.23% at September 30, 2012). 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 this 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 Statements of Income. The pre-tax loss previously recognized in Accumulated Other Comprehensive Income, totaling $146,000 as of March 31, 2009, is being amortized as an increase to interest expense of $2,000 per month, or $1,000 net of tax, over the remaining term of the interest rate swap agreement. The fair value of the swap as of September 30, 2012 and December 31, 2011 was a liability of $237,000 and $279,000, respectively. The Company recorded interest income of $42,000 for a mark-to-market adjustment of swap fair value for the first nine months of 2012 related to this swap. The notional amount of the swap at September 30, 2012 and December 31, 2011 was $6,286,000 and $7,571,000, respectively.

Interest expense includes $41,000 and $52,000 of expense for settlements related to the Company’s swaps for the three months ended September 30, 2012 and 2011, respectively. For the nine months ended September 30, 2012 and 2011, interest expense includes $134,000 and $179,000, respectively, of expense for settlements related to the Company’s swaps.