Air Industries Group - Form 8-K Summary
Business Context and Reporting Period
This Current Report (Form 8-K) covers events occurring on January 27, 2017, with the report dated January 30, 2017. The filing details the divestiture of a subsidiary and a concurrent amendment to the company's primary credit facility.
Key Financial Metrics and Transactions
- Asset Sale: Sold 100% of AMK Welding, Inc. to Meyer Tool, Inc. for a base purchase price of $4,500,000, subject to working capital adjustments.
- Contingent Consideration: Potential additional quarterly payments up to $1,500,000, calculated as 5% of AMK's Net Revenues starting April 1, 2017.
- Debt Reduction: Proceeds were allocated to pay down debt and liabilities:
- $1,700,000 applied to the Term Loan.
- $1,800,000 applied to outstanding Revolving Advances.
- $500,000 applied to existing accounts payable.
- $500,000 reserved for future accounts payable or further Revolving Advance reduction.
- Covenant Adjustments: The PNC Loan Agreement was amended to waive non-compliance with Fixed Charge Coverage and Minimum EBITDA covenants as of September 30, 2016.
Material Changes and Loan Amendments
The sale of AMK triggered a Fourteenth Amendment to the PNC Loan Agreement, releasing AMK from its obligations. Key changes to the loan terms include:
- Covenant Ratios:
- Standard Fixed Charge Coverage Ratio: Minimum 1.25 to 1.00 (tested quarterly on a rolling 12-month basis).
- Q2 2017 (June 30): Minimum 1.00 to 1.00 (tested on prior 6 months).
- Q3 2017 (Sept 30): Minimum 1.10 to 1.00 (tested on prior 9 months).
- Repayment Schedule: Weekly repayment of excess advances ($5,294,071) reduced from $100,000 to $50,000 for January, February, and March 2017. Payments revert to $100,000 weekly thereafter until fully repaid.
Outlook, Risks, and Management Commentary
Management issued a press release on January 30, 2017, announcing the sale and 2016 revenues (details of 2016 revenues are in the press release exhibit, not the 8-K text). The transaction removes AMK from the consolidated financial statements and reduces immediate debt obligations. The filing notes that the press release is not deemed "filed" for Section 18 liability purposes unless expressly incorporated by reference.
Investor Verification Checklist
- Verify the final purchase price after the working capital adjustment.
- Review the press release (Exhibit 99.1) for specific 2016 revenue figures and future guidance.
- Monitor the quarterly 5% revenue payments from AMK to determine if the $1.5M cap is reached.
- Confirm the company's ability to meet the new Fixed Charge Coverage Ratio requirements for the June and September 2017 quarters.
- Assess the impact of the AMK divestiture on future consolidated revenue and EBITDA.