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Note 10 - Financing Arrangements | 12 Months Ended
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Mar. 31, 2017
Notes to Financial Statements |
Debt Disclosure [Text Block] |
10. | FINANCING ARRANGEMENTS
As of March 31, 2017, the Company had a senior secured revolving credit facility of $25.0 million (the “Revolving Credit Facility”). The Revolving Credit Facility includes a sublimit for issuances of letters of credit of up to $500,000. Under the Revolving Credit Facility, at March 31, 2017, each of the Company, MAC, CSA, GGS, GAS, Jet Yard, and ATGL was permitted to make borrowings. Borrowings under the Revolving Credit Facility bear interest (payable monthly) at an annual rate of one -month LIBOR plus an incremental amount ranging from 1.50% to 2.00% based on a consolidated leverage ratio. In addition, a commitment fee accrues with respect to the unused amount of the Revolving Credit Facility at an annual rate of 0.15%. The Company includes commitment fee expense within the interest expense and other line item of the accompanying consolidated statements of income (loss). Amounts applied to repay borrowings under the Revolving Credit Facility may be reborrowed, subject to the terms of the facility. Pursuant to an August 29, 2017 amendment to the agreement governing the Revolving Credit Facility, the maturity of the Revolving Credit Facility was extended to April 1, 2019. See Note 24 for a discussion of this and other amendments to the agreement governing the Revolving Credit Facility entered into after March 31, 2017. Borrowings under the Revolving Credit Facility, together with hedging obligations, if any, owing to the lender under the Revolving Credit Facility or any affiliate of such lender, are secured by a first -priority security interest in substantially all assets of the Company and the other borrowers (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing), but excluding interests in real property. The agreement governing the Revolving Credit Facility contains affirmative and negative covenants, including covenants that restrict the ability of the Company and the other borrowers to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of their business, enter into certain operating leases, and make certain capital expenditures. The credit agreement governing the Revolving Credit Facility also contains financial covenants, including a minimum consolidated tangible net worth of $18.0 million plus, on a cumulative basis and commencing with the fiscal year ended March 31, 2017, 50% of consolidated net income for the fiscal year then ended, a minimum consolidated fixed charge coverage ratio of 1.35 to 1.0, a minimum consolidated asset coverage ratio of 1.50 to 1.0 for the quarter ended March 31, 2017 and 1.75 to 1.0 thereafter (though the consolidated asset coverage ratio is not to be tested under the agreement governing the Revolving Credit Facility for the quarters ending June 30, 2017, September 30, 2017 and December 31, 2017), a maximum consolidated leverage ratio of 3.5 to 1.0, and a covenant limiting the aggregate amount of assets the Company and its subsidiaries lease, or hold for leasing, to others to no more than $5,000,000 at any time. The Company was not in compliance with the maximum consolidated leverage ratio covenant as of the March 31, 2017, December 31, 2016 and September 30, 2016 measurement dates and has agreed that the covenant will not be tested at the June 30, 2017 measurement date. The lender has waived compliance with this covenant as of these measurement dates. The agreement governing the Revolving Credit Facility contains events of default including, without limitation, nonpayment of principal, interest or other obligations, violation of covenants, misrepresentation, cross-default to other debt, bankruptcy and other insolvency events, judgments, certain ERISA events, certain changes of control of the Company, termination of, or modification to materially reduce the scope of the services required to be provided under, certain agreements with FedEx, and the occurrence of a material adverse effect upon the Company and the other borrowers as a whole. The Company is exposed to changes in interest rates on its prior line of credit and its current revolving credit facility. If the LIBOR interest rate had been increased by one percentage point, based on the weighted average balance outstanding for the year, the change in annual interest expense would have been negligible. A total of $17,908,000 in borrowings were outstanding under the credit facility on March 31, 2017. At March 31, 2017, the annual interest rate applicable to borrowings under the Revolving Credit Facility was one -month “LIBOR” rate plus 200 basis points. The one -month LIBOR rate at March 31, 2017 was approximately 0.98%. Except as indicated above, the Company was in compliance with all covenants under this credit facility at March 31, 2017. In connection with and upon consummation of the Contrail Aviation acquisition in July 2016, Contrail Aviation entered into a Credit Agreement (the “Contrail Credit Agreement”) with a bank lender. The Contrail Credit Agreement provided for revolving credit borrowings by Contrail Aviation in an amount up to the lesser of $12,000,000 or a borrowing base. The borrowing base was computed monthly and was equal to the sum of 75% of the value of eligible inventory (up to a maximum of $9,000,000 ) and 80% of outstanding eligible accounts receivable. The borrowing base at March 31, 2017 was $ 3.2 million, and the outstanding principal balance of borrowings under the Contrail Credit Agreement were $0 as of that date. Borrowings under the Contrail Credit Agreement bore interest at a rate equal to one -month LIBOR plus 2.80%, and mature in January 2018. The obligations of Contrail Aviation under the Contrail Credit Agreement were required to be guaranteed by each of its subsidiaries (if any), and were (and the guaranty obligations of any such subsidiary guarantors were required to be) secured by a first -priority security interest in substantially all of the assets of Contrail Aviation and any such subsidiary guarantors, as applicable (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, real property, and proceeds of the foregoing). The obligations of Contrail Aviation under the Contrail Credit Agreement were also guaranteed by the Company, with such guaranty limited in amount to a maximum of $1,600,000, plus interest on such amount at the rate of interest in effect under the Contrail Credit Agreement, plus costs of collection. The Contrail Credit Agreement contained affirmative and negative covenants, including covenants that restricted the ability of Contrail Aviation and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contained financial covenants applicable to Contrail Aviation and its subsidiaries, including a minimum debt service coverage ratio of 1.75 to 1.0, a maximum ratio of total liabilities to tangible net worth of 2.5 to 1.0, and a $10,000 limitation on annual operating lease payments. At March 31, 2017, Contrail Aviation was in compliance with its bank covenants. Delphax, through its Canadian subsidiary, Delphax Canada, maintains a debt facility pursuant to a Senior Credit Agreement (the “Delphax Senior Credit Agreement”). The obligations of Delphax Canada under the Delphax Senior Credit Agreement are guaranteed by Delphax. Prior to January 6, 2017, the Delphax Senior Credit Agreement provided for a $7.0 million revolving senior secured credit facility from a third -party lender (the “Senior Lender”), with the amount available for borrowing being subject to a borrowing base of North American accounts receivable and inventory. Borrowings under the Delphax Senior Credit Agreement are secured by substantially all of Delphax ’s North American assets. The Delphax Senior Credit Agreement expires in November 2018 and includes certain financial covenants. The Delphax Senior Credit Agreement initially provided for interest based upon the prime rate plus a margin and an additional margin applicable during the pendency of a default. On September 1, 2016, the Senior Lender gave Delphax Canada notice of such default, applied the default interest margin, and communicated that it would be reducing the eligible inventory advance rate under the Delphax Senior Credit Agreement by 0.5% per week for each week commencing September 9, 2016. Delphax Canada was permitted by the Senior Lender to continue to make borrowings under the Delphax Senior Credit Agreement notwithstanding the existence of such default. The intercompany balance under the Delphax Senior Credit Agreement as of March 31, 2017, as well as the intercompany payment and receipt of fees and interest accruing after January 6, 2017, are eliminated in the presentation of the consolidated financial statements. Pursuant to an Assignment and Acceptance Agreement dated January 6, 2017 between the Senior Lender and the Company, on January 6, 2017 the Company acquired all rights, and assumed all obligations, of the Senior Lender under the Delphax Senior Credit Agreement, including obligations, if any, to fund future borrowings under the Delphax Senior Credit Agreement. In connection with this transaction, the Company paid to the Senior Lender an amount equal to approximately $1.26 million for the outstanding borrowing balance, plus accrued and unpaid interest and fees. Also in connection with this transaction, the Company, Delphax and Delphax Canada entered into an amendment to the Delphax Senior Credit Agreement to reduce the maximum amount of borrowings permitted to be outstanding under the Delphax Senior Credit Agreement from $7.0 million to $2.5 million, to revise the borrowing base to include in the borrowing base 100% of purchase orders from customers for products up to $500,000, to provide that the interest rate on all borrowings outstanding until all loans under the Delphax Senior Credit Agreement are repaid in full will be a default rate equal to 2.5% per month to be paid monthly, and to provide for the payment to the Company from Delphax Canada and Delphax of fees equal to $25,000 upon execution of the amendment and of $50,000 upon repayment in full of all loans under the Delphax Senior Credit Agreement. On January 6, 2017, the Company notified Delphax and Delphax Canada of certain “Events of Default” (as defined under the Delphax Senior Credit Agreement) existing under the Senior Credit Agreement and that the Company was reserving all rights to exercise remedies under the Delphax Senior Credit Agreement and that no delay in exercising any such remedy is to be construed as a waiver of any of its remedies. Notwithstanding such notice, the Company continued to permit borrowings by Delphax Canada under the D elphax Senior Credit Agreement. As of March 31, 2017, Delphax had aggregat e borrowings of approximately $1,873,000 outstanding under the Delphax Senior Credit Agreement. At March 31, 2017, Delphax Canada was not in compliance with financial covenants under the Delphax Senior Credit Agreement. Due to Delphax Canada’s noncompliance with financial covenants, at March 31, 2017 the Company had the contractual right to cease permitting borrowings under the Delphax Senior Credit Agreement and to declare all amounts outstanding due and payable immediately. Notwithstanding the existence of these events of default, the Company permitted additional borrowings under the Delphax Senior Credit Agreement to, among other things, fund a final production run by Delphax Canada of consumable products for its legacy printing systems, which production run was primarily completed over the first six months of calendar 2017. Delphax Canada is Delphax's sole manufacturing subsidiary. Events of default under the Delphax Senior Credit Agreement persisted. On July 13, 2017, the Company delivered a demand for payment and Notice of Intention to Enforce Security to Delphax Canada. On August 10, 2017, the Company foreclosed on all personal property and rights to undertakings of Delphax Canada. The Company foreclosed as a secured creditor with respect to amounts owed to it by Delphax Canada under the Delphax Senior Credit Agreement. The Company provided notice of its intent to foreclose to Delphax Canada and its secured creditors and shareholder on July 26, 2017. The outstanding amount owed to the Company by Delphax Canada under the Delphax Senior Credit Agreement on July 26, 2017 was approximately $1,510,000. The Company also submitted an application to the Ontario Superior Court of Justice in Bankruptcy and Insolvency (the "Ontario Court") seeking that Delphax Canada be adjudged bankrupt. On August 8, 2017, the Ontario Court issued an order adjudging Delphax Canada to be bankrupt. The recipients of the foreclosure notice did not object to the foreclosure or redeem. As a result, the foreclosure was completed on August 10, 2017, and the Company accepted the personal property and rights to undertakings of Delphax Canada in satisfaction of the amount secured by the Delphax Senior Credit Agreement. On October 31, 2016, the Company and its subsidiaries, MAC, GGS, CSA, GAS, ATGL, Jet Yard and Stratus Aero entered into a Loan Agreement dated as of October 31, 2016, ( the “Construction Loan Agreement”) with the lender to borrow up to $1,480,000 to finance the acquisition and development of the Company’s new corporate headquarters facility to be located in Denver, North Carolina. Under the Construction Loan Agreement, the Company may make monthly drawings to fund construction costs until October 2017. Borrowings under the Construction Loan Agreement bear interest at the same rate charged under the Revolving Credit Facility. Monthly interest payments began in November 2016. Monthly principal payments (based on a 25 -year amortization schedule) are to commence in November 2017, with the final payment of the remaining principal balance due in October 2026. Borrowings under the Construction Loan Agreement are secured by a mortgage on the new headquarters facility and a collateral assignment of the Company’s rights in life insurance policies with respect to certain former executives, as well as the same collateral securing borrowings under the Revolving Credit Facility. At March 31, 2017, outstanding borrowings under the Construction Loan were $562,000. Estimated repayments/maturities of long-term debt as of March 31, 2017 are as follows: approximately $25,000 in fiscal year 2018, approximately $17,968,000 in fiscal year 2019, approximately $60,000 in each of the fiscal years 2020 - 2022, and approximately $295,000 cumulatively thereafter.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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