<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1995
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition period from to
Commission File No. 1-7134
------
MERCURY AIR GROUP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1800515
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5456 McConnell Avenue, Los Angeles, CA 90066
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(310) 827-2737
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Number of Shares Outstanding
Title As of November 06, 1995
----- -----------------------
Common Stock, $.01 Par Value 5,371,087
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<PAGE>
PART 1 -- FINANCIAL INFORMATION
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30 JUNE 30
1995 (Unaudited) 1995
----------------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $529,000 $831,000
Trade accounts receivable, net of allowance for doubtful
accounts of $810,000 at 9/30/95 and $610,000 at 6/30/95 (Note 7) 35,992,000 33,269,000
Notes receivable - current portion 60,000 50,000
Inventories (Note 2 ) 3,071,000 3,283,000
Prepaid expenses and other current assets 1,573,000 1,822,000
----------- -----------
Total current assets 41,225,000 39,255,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $20,995,000 at 9/30/95 and
$20,391,000 at 6/30/95 ( Note 7 ) 14,883,000 12,219,000
NOTES RECEIVABLE, net of current portion 197,000 136,000
OTHER ASSETS (Note 7) 3,186,000 2,600,000
----------- -----------
$59,491,000 $54,210,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ( Note 7 ) $15,187,000 $12,998,000
Accrued expenses and other current liabilities 1,913,000 3,008,000
Income taxes payable (Note 3) 846,000 114,000
Current portion of long-term debt 2,791,000 2,607,000
------------ -----------
Total current liabilities 20,737,000 18,727,000
LONG-TERM DEBT (Notes 6 and 7) 20,011,000 17,104,000
DEFERRED INCOME TAXES 8,000 8,000
------------ -----------
Total liabilities 40,756,000 35,839,000
------------ -----------
COMMITMENTS AND CONTINGENCIES ( Note 8 )
STOCKHOLDERS' EQUITY (Note 4):
Preferred Stock - $.01 par value; authorized 3,000,000 shares;
no shares outstanding
Common Stock - $ .01 par value; authorized 9,000,000 shares;
outstanding 5,371,087 shares 9/30/95;
outstanding 5,524,257 shares 6/30/95 54,000 55,000
Additional Paid-in Capital 14,611,000 14,992,000
Retained Earnings 4,225,000 3,479,000
Treasury Stock - 32,000 shares of common stock (155,000) (155,000)
------------ -----------
Total stockholders' equity 18,735,000 18,371,000
------------ -----------
$59,491,000 $54,210,000
============ ===========
</TABLE>
2
See accompanying notes to consolidated financial statements.
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1995 1994
---------------------------
<S> <C> <C>
Sales and Revenues:
Sales $42,214,000 $26,155,000
Service Revenues 9,666,000 9,399,000
------------ -----------
51,880,000 35,554,000
Costs and Expenses:
Cost of Sales 38,747,000 23,666,000
Operating Expenses 8,536,000 8,037,000
------------ -----------
47,283,000 31,703,000
------------ -----------
Operating Income 4,597,000 3,851,000
------------ -----------
Other Expenses (Income):
Selling, General and Administrative 1,473,000 1,190,000
Depreciation and Amortization 623,000 606,000
Interest Expense 437,000 302,000
Interest Income (12,000) (13,000)
Minority Interest - 42,000
------------ -----------
2,521,000 2,127,000
------------ -----------
Income Before Income Taxes 2,076,000 1,724,000
Provision for Income Taxes ( Note 3) 844,000 722,000
------------ -----------
Net Income 1,232,000 1,002,000
Retained Earnings at Beginning of Period 3,479,000 4,555,000
Retirement of Common Stock (431,000) (370,000)
Dividends on Common Stock (55,000) -
------------ -----------
Retained Earnings at End of Period $4,225,000 $5,187,000
============ ===========
Net Income Per Common Share and
Common Equivalent Share (Primary) (Note 5) $0.22 $0.18
============ ===========
Weighted Average Number of Shares of
Common Stock (Note 5) 5,415,000 5,354,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,232,000 $1,002,000
Adjustments to derive cash flow from
operating activities:
Depreciation and amortization 623,000 606,000
Minority interest - 42,000
Amortization of officers' loans 39,000 39,000
Changes in operating assets and liabilities:
Trade and other accounts receivable (2,377,000) (6,461,000)
Inventories 212,000 (606,000)
Prepaid expenses and other current assets 249,000 207,000
Accounts payable 1,721,000 3,470,000
Income taxes payable 732,000 181,000
Accrued expenses and other current liabilities (1,095,000) (917,000)
----------- ------------
Net cash provided by (used in) operating activities 1,336,000 (2,437,000)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
( Increase) Decrease in notes receivable (71,000) 15,000
Addition to other assets (640,000) (78,000)
Additions to property, equipment and leaseholds (561,000) (167,000)
----------- ------------
Net cash used in investing activities (1,272,000) (230,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,829,000 2,720,000
Reduction of long-term debt (1,327,000) (589,000)
Payment of dividend on common stock (55,000) -
Repurchase and retire common stock (820,000) (542,000)
Proceeds from issuance of common stock 7,000 13,000
----------- ------------
Net cash (used in) provided by financing activities (366,000) 1,602,000
----------- ------------
NET INCREASE ( DECREASE) IN CASH AND
CASH EQUIVALENTS (302,000) (1,065,000)
CASH AND CASH EQUIVALENTS, beginning of period 831,000 1,770,000
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $529,000 $705,000
=========== ============
CASH PAID DURING THE PERIOD:
Interest $437,000 $302,000
Income taxes $112,000 $542,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Notes Payable for the acquisition of Assets (Note 7) $2,016,000
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited financial statements reflect all adjustments
(consisting of normal, recurring accruals only) which are necessary to fairly
present the results for the interim periods. Such financial statements have been
prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X and therefore do not include all the information or footnotes
necessary for a complete presentation. They should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended June 30, 1995 and
the notes thereto. The results of operations for the three months ended
September 30, 1995 are not necessarily indicative of results for the full year.
Note 2 - INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
---- ----
<S> <C> <C>
Aviation Fuel $2,955,000 $3,166,000
Supplies and Parts 116,000 117,000
---------- ----------
$3,071,000 $3,283,000
========== ==========
</TABLE>
NOTE 3 - INCOME TAXES:
Income taxes have been computed based on the estimated annual effective
tax rate for the respective years.
NOTE 4 - STOCKHOLDERS EQUITY:
In the three months ended September 30, 1995, the Company repurchased
and retired 155,420 shares of its Common Stock at a cost of approximately
$820,000. The effect on Stockholders' Equity was a charge to Additional
Paid-In Capital of $387,000, a charge to Retained Earnings of $431,000 and a
charge to Common Stock of $2,000. In addition, during the period ended
September 30, 1995, certain Directors exercised stock options resulting in the
issuance of 2,250 common shares of the Company.
5
<PAGE>
NOTE 5 - EARNINGS PER SHARE:
Earnings per Common Share is computed by dividing net income available to
common stockholders, by the weighted average number of Common Stock and Common
Stock equivalents outstanding during the period.
<TABLE>
<S> <C>
Weighted average number of Common
Shares outstanding during the period 5,415,000
Common Stock equivalents resulting
from the assumed exercise of stock
options 241,000
---------
Weighted average number of common
and common equivalent shares outstanding
during the period 5,656,000
=========
</TABLE>
NOTE 6 - LONG-TERM DEBT:
Amounts borrowed under the Company's line of credit were $11,947,000 at
September 30, 1995. Amounts borrowed under the revolving credit line bear
interest at prime plus one half percent (1/2%) or LIBOR plus 2%.The line of
credit permits borrowing of up to $16,000,000 subject to eligible available
collateral.
NOTE 7- ACQUISITION OF EXCEL CARGO, INC:
On September 30, 1995, the Company acquired the assets of Excel Cargo, Inc.,
a cargo handling company located in Montreal, Canada, for approximately
$2,766,000. The purchase price consisted of an eight year 8.5% debenture in the
amount of $2,016,000, payable in equal monthly installments over eight years,
and $750,000 cash. In addition, the Company paid off outstanding bank notes
totaling $573,000 at the closing. The purchase price has been allocated to
assets and liabilities as follows:
<TABLE>
<S> <C>
Accounts Receivable $ 346,000
Property, equipment and leasehold 2,711,000
Goodwill 750,000
Notes Payable (573,000)
Accounts Payable and other current liabilities (468,000)
----------
Purchase price $2,766,000
==========
</TABLE>
6
<PAGE>
NOTE 8 - SUBSEQUENT EVENT:
On October 18, 1995, the Company signed a letter of intent to acquire all of the
common stock of Carnival Air Lines. Under the terms of the proposed merger, the
Company will issue approximately 5,646,000 shares of common stock, representing
50% of Mercury's outstanding common stock on a fully diluted basis after the
closing. The transaction will be accounted for as a pooling of interests and is
subject to the approval of the company's shareholders and Board of Directors and
to standard closing conditions and regulatory approvals.
7
<PAGE>
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations--Comparison of the Three Months Ended September 30, 1995
and September 30, 1994:
The following tables set forth, for the periods indicated, the revenues and
operating income for each of the Company's four operating units, as well as
selected other financial statement data.
<TABLE>
<CAPTION>
Three Months Ended September 30,
($ in millions) 1995 1994
% of Total % of Total
Amount Revenues Amount Revenues
<S> <C> <C> <C> <C>
Revenues:
Fuel Sales and Services (1) $ 41.1 79.3% $ 25.1 70.6%
Cargo Operations 2.9 5.6% 2.1 5.8%
Government Contract Services 3.6 6.8% 4.2 11.8%
FBOs (1) 4.3 8.3% 4.2 11.8%
------- ------ ------ ------
Total Revenues $51.9 100.0% $35.6 100.0%
======= ====== ====== ======
% of Unit % of Unit
Amount Revenues Amount Revenues
Operating Income:
Fuel Sales and Service (1) $2.0 4.7% $1.4 5.5%
Cargo Operations 0.9 32.1% 0.5 25.9%
Government Contract Services 0.9 24.7% 1.0 24.3%
FBOs (1) 0.8 19.5% 0.9 21.6%
------- ------ ------ ------
Total Operating Income $4.6 8.9 % $3.8 10.8%
======= ====== ====== ======
% of Total % of Total
Amount Revenues Amount Revenues
Selling, General and Administrative $1.5 2.8% $1.2 3.3%
Depreciation and Amortization 0.6 1.2% 0.6 1.7%
Interest Expense and Other 0.4 0.9% 0.3 1.0%
------- ------ ------ ------
Income before Income Taxes 2.1 4.0% 1.7 4.8%
Provision for Income Taxes 0.9 1.6% 0.7 2.0%
------- ------ ------ ------
Net Income $1.2 2.4% $1.0 2.8%
======= ====== ====== ======
</TABLE>
(1) Amounts for the three months ended September 30, 1994 have been reclassified
to conform to the fiscal 1996 presentation.
8
<PAGE>
Three Months ended September 30, 1995 Compared to September 30, 1994.
Revenue increased 45.9% to $51.9 million in the current period from $35.6
million a year ago. Operating income increased 19.4% to $4.6 million in the
current period from $3.8 million a year ago.
Revenues from fuel sales and services represented 79.3% of total revenues in
the current period compared to 70.6% of total revenues a year ago. Revenues from
fuel sales and services increased to $41.1 million from $25.1 million last year.
The increase in revenues from fuel sales and services was primarily due to an
increase in the number of gallons sold as a result of the addition of a
significant number of new accounts subsequent to September 1994. Average fuel
prices were marginally higher in the current year compared with last year.
Operating income from fuel sales and services in the current period increased
40.5% to $2.0 million from $1.4 million a year ago. The increase in operating
income from fuel sales and services in the current period compared to last year
was attributable primarily to an increase in fuel sales, and to a much lesser
extent, a slight improvement in per gallon margins. Revenues and operating
income from fuel sales and services include the activities of Mercury's contract
fueling business, as well as activities from a number of other commercial
services including the provision of certain refueling services, non-aviation
fuel brokerage and other services managed at LAX as part of Mercury's fuel sales
and services operations.
Revenues from cargo operations in the current period increased 39.7% to $2.9
million from $2.1 million a year ago. This increase was primarily due to a
general increase in the volume of business from existing accounts. Operating
income from cargo operations in the current period increased 72.7% to $.9
million from $.5 million in the year ago period.
Revenues from government contract services in the current period declined 15.8%
to $3.6 million from $4.2 million in the year ago period. The decrease in
revenues from governmental contract services in the current period compared to
last year was primarily due to five contract terminations during fiscal 1995,
which terminations were only partially offset by a new contract received in
November 1994. Operating income from government services in the current period
decreased 14.5% to $.9 million from $1.0 million last year due to lower
revenues. Subsequent to September 30, 1995, five contracts held by Maytag have
been terminated or are scheduled for termination by December 31, 1995.
Revenues from FBOs increased by 2.9% in the current period to $4.3 million from
$4.2 million a year ago in part due to an increase in fuel sales and to higher
service revenues. Operating income declined 6.4% in the current period to $.8
million from $.9 million last year. The decline was primarily attributable to
lower per gallon margins and higher operating expenses.
Selling, general and administrative expenses in the current period increased
23.8% to $1.5 million from $1.2 million in last year's period. The increase was
primarily due to higher compensation expense and, to a lesser extent, higher
professional fees and facility expenses.
9
<PAGE>
Depreciation and amortization expense in the current period increased 2.8% to
$623,000 from $606,000 a year ago.
Interest expense in the current period increased 44.7% to $.44 million from
$.3 million last year. The increase was due to significantly higher average
outstanding bank borrowings in the current period.
Charges for minority interest were eliminated in the current period as compared
to $42,000 last year. The elimination was due to the acquisition of the
remaining minority interest's share of Mercury Air Cargo in November 1994.
Income tax expense approximated 40.7% of pre-tax income in the current period
and 41.8% a year ago, reflecting the expected effective annual tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Mercury has historically financed its operations primarily through operating
cash flow and borrowings under its revolving line of credit (the "Revolver").
Mercury's cash balance at September 30, 1995 totaled $529,000.
Net cash provided by operating activities totaled $1,336,000 during the period
ended September 30, 1995. During this period, the primary source of net cash
provided by operating activities was net income plus depreciation and
amortization totaling $1,855,000, an increase in accounts payable of $1,721,000
and an increase in income taxes payable of $732,000. The primary use of cash
for operating activities in this period was an increase in accounts receivable
of $2,377,000 and a decrease in accrued expenses and other current liabilities
of $1,095,000
Net cash used in investing activities totaled $1,272,000 during the current
period. The primary use of cash from investing activities included additions to
other assets of $640,000, which includes Goodwill from the acquisition of Excel
Cargo, Inc. of $750,000, and additions to property, equipment and leaseholds of
$561,000.
Net cash used in financing activities totaled $366,000 during the current
period. The primary source of cash from financing activities during this period
was borrowing under the revolver of $1,829,000. The primary use of cash in
financing activities was the reduction in long-term debt of $1,327,000 and
repurchases of common stock totaling $820,000.
Mercury's credit facility consists of the Revolver and the Term Loan. The credit
facility is secured by substantially all of Mercury's assets. The original
principal balance of the Term Loan was $7,500,000, of which $4,378,000 was
outstanding as of September 30, 1995. The Term Loan is amortized and paid on a
monthly basis and matures in August 1998. Pursuant to the Revolver, funds may be
obtained in an amount equal to the value of up to 85% of Mercury's eligible
receivables, as determined by the lender, up to an aggregate of $16,000,000
with an initial term maturing in October
10
<PAGE>
1997, subject to renewal by the parties. At September 30, 1995, Mercury had
approximately $11,947,000 of borrowing under the revolver and had approximately
$3,000,000 of additional borrowing availability based on the 85% of eligible
receivables test. See Note 6 of Notes to Consolidated Financial Statements.
On September 30, 1995, the Company issued debentures in the face amount of
$2,016,000 in connection with the acquisition of Excel Cargo, Inc. See note 7 of
Notes to Consolidated Financial Statements.
During this period, Mercury repurchased 155,420 shares of Common Stock at a
total cost of approximately $820,000. Management is currently authorized by
Mercury's board of directors and under Mercury's loan agreements to repurchase
up to an additional approximately $240,000 in Common Stock.
Absent a major prolonged surge in oil prices or a capital intensive acquisition,
the Company believes its operating cash flow, revolver and vendor credit will
provide it with sufficient liquidity during the next twelve months. In the event
that fuel prices increase significantly for an extended period of time, the
Company's liquidity could be adversely affected unless the Company is able to
increase vendor credit or increase lending limits under its revolving credit
facility. The Company believes, however, its revolver and vendor credit should
provide it with sufficient liquidity in the event of a major temporary surge in
oil prices.
The Company has no significant outstanding contracts or commitments for the
purchase of equipment or installation of facilities.
11
<PAGE>
PART 11-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGE IN SECURITIES
Not applicable
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27- Financial Data Schedule
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mercury Air Group, Inc.
Registrant
/s/ SEYMOUR KAHN
------------------------------
Seymour Kahn
Chairman and Chief
Executive Officer
/s/ RANDY AJER
-------------------------------
Randy Ajer
Secretary Treasurer
Chief Accounting Officer
Date: November 13, 1995
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET OF SEPTEMBER 30, 1995 AND THE CONSOLIDATED STATEMENTS
OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 529
<SECURITIES> 0
<RECEIVABLES> 36,862
<ALLOWANCES> 810
<INVENTORY> 3,071
<CURRENT-ASSETS> 41,225
<PP&E> 35,878
<DEPRECIATION> 20,995
<TOTAL-ASSETS> 59,491
<CURRENT-LIABILITIES> 20,737
<BONDS> 20,011
<COMMON> 54
0
0
<OTHER-SE> 18,681
<TOTAL-LIABILITY-AND-EQUITY> 59,491
<SALES> 42,214
<TOTAL-REVENUES> 9,666
<CGS> 38,747
<TOTAL-COSTS> 47,283
<OTHER-EXPENSES> 2,521
<LOSS-PROVISION> 247
<INTEREST-EXPENSE> 437
<INCOME-PRETAX> 2,076
<INCOME-TAX> 844
<INCOME-CONTINUING> 1,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,232
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
