<PAGE> 1
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 March 31, 1995 or
/ / 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.
<TABLE>
<CAPTION>
Number of Shares Outstanding
Title As of May 10, 1995
----- ------------------
<S> <C>
Common Stock, $.01 Par Value 5,009,011
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
ASSETS 1995 1994
(Unaudited)
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,628,000 $1,770,000
Trade accounts receivable, net of allowance for doubtful
accounts of $1,220,000 at 3/31/95 and $508,000 at 6/30/94 31,954,000 17,164,000
Notes receivable - current portion 47,000 185,000
Inventories (Note 2) 3,199,000 951,000
Prepaid expenses and other current assets 2,308,000 1,297,000
----------- -----------
Total current assets 39,136,000 21,367,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $19,892,000 at 3/31/95 and
$18,277,000 at 6/30/94 11,811,000 12,570,000
NOTES RECEIVABLE, net of current portion 151,000 186,000
OTHER ASSETS (Note 6) 2,266,000 1,319,000
----------- -----------
$53,364,000 $35,442,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $14,378,000 $6,920,000
Accrued expenses and other current liabilities 2,748,000 2,078,000
Income taxes payable (Note 3) - 699,000
Current portion of long-term debt 2,782,000 2,317,000
----------- -----------
Total current liabilities 19,908,000 12,014,000
LONG-TERM DEBT (Note 7) 16,116,000 8,650,000
DEFERRED INCOME TAXES 123,000 218,000
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY (Note 6) - 924,000
----------- -----------
Total liabilities 36,147,000 21,806,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 4):
SERIES A PREFERRED STOCK - $.01 par value; authorized
3,000,000 shares; no outstanding shares - -
COMMON STOCK - $ .01 par value; authorized 9,000,000 shares;
outstanding 5,003,511 shares 3/31/95;
outstanding 4,905,779 shares 6/30/94 50,000 49,000
ADDITIONAL PAID-IN CAPITAL 10,634,000 9,187,000
RETAINED EARNINGS 6,688,000 4,555,000
TREASURY STOCK - 32,000 shares of common stock (155,000) (155,000)
----------- -----------
Total stockholders' equity 17,217,000 13,636,000
----------- -----------
$53,364,000 $35,442,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
---------------------------- ---------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales and Revenues:
Sales $106,504,000 $53,190,000 $40,840,000 $17,762,000
Service Revenues 28,217,000 25,073,000 9,162,000 8,851,000
------------ ----------- ----------- -----------
134,721,000 78,263,000 50,002,000 26,613,000
Costs and Expenses:
Cost of Sales 99,405,000 47,335,000 39,373,000 15,710,000
Operating Expenses 22,983,000 21,699,000 6,591,000 7,554,000
------------ ----------- ----------- -----------
122,388,000 69,034,000 45,964,000 23,264,000
------------ ----------- ----------- -----------
Operating Income 12,333,000 9,229,000 4,038,000 3,349,000
------------ ----------- ----------- -----------
Other Expenses (Income):
Selling, General and Administrative 3,997,000 3,077,000 1,385,000 1,075,000
Depreciation and Amortization 1,800,000 1,475,000 605,000 552,000
Interest Expense 1,054,000 781,000 390,000 285,000
Interest Income (58,000) (125,000) (13,000) (35,000)
Minority Interest 95,000 180,000 -- 65,000
------------ ----------- ----------- -----------
6,888,000 5,388,000 2,367,000 1,942,000
------------ ----------- ----------- -----------
Income Before Income Taxes 5,445,000 3,841,000 1,671,000 1,407,000
Provision for Income Taxes 2,240,000 1,608,000 668,000 588,000
------------ ----------- ----------- -----------
Net Income 3,205,000 2,233,000 1,003,000 819,000
Dividends on Preferred Stock -- (75,000) -- --
------------ ----------- ----------- -----------
Net Income Applicable to Common Stock 3,205,000 2,158,000 1,003,000 819,000
Retained Earnings at Beginning of Period 4,555,000 2,646,000 5,857,000 3,388,000
Dividend on Common Stock (50,000) -- (50,000)
Repurchase and Retire Preferred
and Common Stock (1,022,000) (912,000) (122,000) (315,000)
------------ ----------- ----------- -----------
Retained Earnings at End of Period 6,688,000 3,892,000 6,688,000 3,892,000
============ =========== =========== ===========
Net Income Per Common Share and
Common Equivalent Share (Primary) (Note 5) $0.62 $0.71 $0.19 $0.16
============ =========== =========== ===========
Net Income Per Common Share-Assuming
Full Dilution (Note 5) $0.62 $0.48 $0.19 $0.16
============ =========== =========== ===========
Weighted Average Number of Shares of
Common Stock (Note 5) 4,899,108 2,896,405 4,938,008 4,061,173
============ =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31
---------------------------------
1995 1994
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,205,000 $2,233,000
Adjustments to derive cash flow from
operating activities:
Depreciation and amortization 1,800,000 1,475,000
Minority interest 95,000 180,000
Amortization of officers' loans 137,000 117,000
Changes in operating assets and liabilities:
Trade and other accounts receivable (14,790,000) (1,070,000)
Inventories (2,248,000) (78,000)
Prepaid expenses and other current assets (1,011,000) (1,132,000)
Deferred taxes (95,000) 93,000
Accounts payable 7,458,000 836,000
Income taxes payable (699,000) (351,000)
Accrued expenses and other current liabilities 670,000 694,000
----------- ----------
Net cash provided by (used in) operating activities (5,478,000) 2,997,000
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes receivable 173,000 253,000
Increase in other assets (281,000) (153,000)
Additions to property, equipment and leaseholds (1,006,000) (859,000)
----------- ----------
Net cash used in investing activities (1,114,000) (759,000)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 494,000 1,203,000
Reduction of long-term debt (2,117,000) (3,889,000)
Proceeds from long-term debt 10,048,000 2,913,000
Cash dividend paid or accrued on preferred stock -- (75,000)
Repurchase and retire common stock and preferred stock (1,475,000) (1,751,000)
Cash dividend paid on common stock (50,000) --
Redemption by subsidiary of a portion of its common stock
owned by minority shareholder (450,000) --
----------- ----------
Net cash (used in) provided by financing activities 6,450,000 (1,599,000)
----------- ----------
NET INCREASE <DECREASE> IN CASH AND
CASH EQUIVALENTS (142,000) 639,000
CASH AND CASH EQUIVALENTS, beginning of period 1,770,000 539,000
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $1,628,000 $1,178,000
=========== ==========
CASH PAID DURING THE PERIOD:
Interest $1,054,000 $781,000
Income taxes $2,862,000 $2,097,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Direct financing for purchase of equipment and property $1,348,000
Cancellation of a note receivable and other assets as
consideration for the purchase of leasehold property $540,000
Issuance of 225,000 common shares in exchange for the remaining
minority interest of Mercury Air Cargo, Inc. (Note 6) $1,406,000
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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, 1994 and the notes thereto. The results of operations for the nine
months ended March 31, 1995 are not necessarily indicative of results for the
full year.
Note 2 - Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
---- ----
<S> <C> <C>
Aviation Fuel $ 3,074,000 $ 757,000
Supplies and Parts 125,000 194,000
----------- ---------
$ 3,199,000 $ 951,000
=========== =========
</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 nine months ended March 31, 1995, the Company
repurchased and retired 236,300 shares of its Common Stock at a cost of
approximately $1,475,000 or $6.24 per share. The effect on Stockholders' Equity
was a charge to Additional Paid-In Capital of $451,000, a charge to Retained
Earnings of $1,022,000 and a charge to Common Stock of $2,000. During this
period stock options and underwriter warrants were
5
<PAGE> 6
exercised resulting in proceeds to the Company totaling $322,000 from the
issuance of 109,032 common shares of the Company.
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>
<CAPTION>
Nine Months Three Months
March 31, March 31,
1995 1995
---- ----
<S> <C> <C>
Weighted average number of Common
Shares outstanding during the period 4,899,108 4,938,008
Common Stock equivalents resulting
from the assumed exercise of stock
options 230,324 230,324
--------- ---------
Weighted average number of common and
common equivalent shares outstanding
during the period 5,129,432 5,168,332
--------- ---------
</TABLE>
During this period, primary and fully diluted earnings per
share are equivalent.
Note 6 - Acquisition of Minority Interest:
In November 1994, the Company acquired from an Executive
Officer of the Company, the outstanding minority interest in its 80% owned
subsidiary, Mercury Air Cargo, Inc. (MAC). The transaction included a redemption
of 5% in exchange for $450,000 in cash and acquisition of the remaining 15%
through the issuance of 225,000 common shares valued at $1,406,000 ($6.25 per
share) for a total consideration of $1,856,000. The acquisition of the minority
interest has been accounted for as a purchase and accordingly, the excess of the
cost over the book value ($1,019,000) of the shares acquired has been allocated
to goodwill and is included in Other Assets.
Note 7- Long Term Debt:
Amounts borrowed under the Company's line of credit were
$8,925,000 at March 31, 1995. Amounts borrowed under the revolving credit line
bear interest at prime plus one quarter percent (1/4%) or two hundred (200)
basis points over the underlying base libor rate and mature in October 1997.
6
<PAGE> 7
MERCURY AIR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1995 and March 31, 1994:
Revenues increased by approximately 88% from $26,613,000 a year ago to
$50,002,000 in the current period. Fuel sales, which represented approximately
82% and 67% of consolidated revenue in the quarter ended March 1995 and March
1994, respectively, rose approximately 130% in the current period on an increase
in the number of gallons sold. During fiscal 1995, the Company added several
customers from its new sales offices in Houston and Miami, such locations
accounting for a material portion of the increase. Revenues from Government
services decreased approximately 8% to $3,810,000 in the current period from
$4,147,000 a year ago due to the loss of two contracts, one in August 1994 and
one in September 1994, partially offset by the addition of a new contract in
November 1994. Revenues derived from Cargo operations increased by approximately
28% to $2,321,000 in the current period from $1,816,000 last year. The increase
in cargo revenue is due in part to a general increase in volume of business from
existing customers and in part to the addition of two new locations, one in San
Francisco and one in Miami.
Operating income for the three months ended March 31, 1995 increased
21% from $3,349,000 a year ago to $4,038,000 in the current period. Operating
income improved most significantly in the Company's International fuel sales and
service division, from $1,017,000 in the year ago period to $1,933,000 in the
current period, due to a substantial increase in fuel sales. Government services
declined from $1,044,000 last year to $1,025,000 in the current period due to
lower revenues. Fixed Base Operations ("FBO's) operating income declined from
$590,000 a year ago to $499,000 in the current period primarily due to bad
winter weather which resulted in a lower gross margin caused by a reduction in
fuel sales. Cargo's income declined from $698,000 a year ago to $581,000 in the
current period due to higher operating expenses in the current period including
labor and other compensation costs. In addition, Cargo's income was effected by
costs associated with start-up operations in Miami and San Francisco. In March
1995, the Company ceased it's Cargo operations in Miami.
7
<PAGE> 8
Selling, general and administrative expenses ("S,G&A") increased
approximately 29% from $1,075,000 a year ago to $1,385,000 in the current
period. The increase is primarily attributable to a higher provision for bad
debts, $212,000 in the current period compared with $81,000 in the year ago
period, and higher compensation expense. The increased provision for bad debts
is due to significantly higher sales in the current period and a resulting
increase in accounts receivable.
Charges for depreciation and amortization increased by nearly 10% from
$552,000 in last year's period to $605,000 in the current period. Current period
depreciation was higher as a result of capital expenditures made in fiscal 1994
and during fiscal 1995.
Interest expense increased approximately 37% from $285,000 in the year
ago period to $390,000 in the current period. The increase was due to
significant sales and revenue growth causing higher bank borrowings and due to
higher interest rates during the current period.
Charges for minority interest diminished to zero in the current period
from $65,000 a year ago. The reduction is due to elimination of the minority
shareholders interest in November 1994. See Note 6 of Notes to Consolidated
Financial Statements in this Quarterly Report on Form 10-Q.
Income tax expense approximated 40% of pretax income in the current
period and approximately 42% in the year ago period reflecting the expected
effective annual tax rates.
Comparison of the Nine Months ended March 31, 1995 and March 31, 1994:
Revenues increased 72% in the current nine month period to $134,721,000
from $78,263,000 a year ago. Fuel sales represented approximately 79% of
consolidated revenue in the current period and approximately 68% of consolidated
revenue in the same period last year and rose 100% in the current period due to
an increase in the number of gallons sold. The increase is due to the addition
of a significant number of new accounts during the current period attributable
in part to the opening of new sales offices in Houston and Miami in October
1994. Revenues from Government services were nearly unchanged, $11,887,000 in
the current period and $11,877,000 in the year ago period. During the current
period two contracts expired, one in August 1994 and one in September 1994, and
one contract was added in November 1994. Cargo revenue increased 41% to
$7,105,000 in the current period from $5,025,000 in the year ago period. The
increase in cargo revenue is due in part to a general increase in volume of
business from existing accounts and due in part to the addition of two
locations, one in San Francisco and one in Miami. In March 1995, the Company
ceased it's cargo operations in Miami.
Operating income increased by 34% from $9,229,000 in the nine month
period last year to $12,333,000 in the current nine month period. Operating
results from International
8
<PAGE> 9
fuel sales and service rose 115% from $2,602,000 in the year ago period to
$5,586,000 in the current period. Operating income rose primarily due to a
significant increase in fuel sales. Cargo's operating results increased nearly
4% from $1,996,000 last year to $2,068,000 in the current period. Higher income
is attributable to an increase in revenue. Government services rose 5% from
$2,928,000 in the year ago period to $3,077,000 in the current period due
primarily to lower operating expenses. Operating results from the FBO's fell 6%
from $1,703,000 a year ago to $1,602,000 in the current period. The reduction
was caused by lower gross margin associated with a reduction in fuel sales due
to difficult winter conditions.
S,G & A increased 30% in the current period to $3,997,000 from
$3,077,000 a year ago. Included in S,G & A is provision for bad debts of
$658,000 in the current period compared with $243,000 a year ago. The higher
provision in the current period is related to higher sales and accounts
receivable. S, G & A was also impacted in the current period by higher
compensation expense.
Charges for depreciation and amortization increased 18% to $1,800,000
in the current period from $1,475,000 a year ago principally as a result of
capital expenditures made in fiscal 1994 and during fiscal 1995.
Interest income decreased from $125,000 a year ago to $58,000 in the
current period primarily as a result of significantly lower average balances of
notes receivable.
Interest expense increased 35% to $1,054,000 in the current nine month
period from $781,000 in the year ago period. The increase is due to higher
interest rates and significantly higher average outstanding bank borrowings in
the current period.
Income tax expense approximated 41% of pretax income in the current
period and 42% in the year ago period reflecting the expected effective annual
tax rates.
Liquidity and Capital Resources
The Company's line of credit at March 31, 1995 allowed it to borrow
funds in an amount equal to a value up to 85% of the Company's eligible
receivables as determined by the lender, up to $12,000,000 on a revolving basis
with an initial term maturing in October 1997. As of March 31, 1995, amounts
borrowed under this line of credit approximated $8,925,000 and additional
availability approximated $2,000,000 based upon the $12,000,000 limit. The
Company is presently negotiating with its bank to increase its line of credit.
Amounts borrowed under the line of credit increased to $8,925,000 at March 31,
1995 primarily to finance accounts receivable which grew by $14,790,000 during
the same period, from $17,164,000 at June 30, 1994 to $31,954,000 at March 31,
1995, primarily as a result of increased sales. In addition, inventories grew
from $951,000 at June 30, 1994 to $3,199,000 at March 31, 1995 due to a
significant increase in jet fuel inventory caused by the many locations added in
the current year where the Company
9
<PAGE> 10
sells fuel. Partially offsetting the increase in accounts receivable and
inventories was an increase of $7,458,000 in accounts payable, from $6,920,000
at June 30, 1994 to $14,378,000 at March 31, 1995. Accounts payable rose due to
substantially higher fuel purchases related to higher fuel sales.
During the nine months ended March 31, 1995, the Company repurchased
and retired 236,300 shares of its Common Stock at a cost of approximately
$1,475,000 or an average cost of $6.24 per share. The Company is authorized to
repurchase an additional $550,000 of its Common Stock.
In December 1994, the Company's Board of Directors adopted a quarterly
dividend plan of $.01 per common share in cash. The first such dividend was paid
on February 1, 1995 to shareholders of record on January 16, 1995 and amounted
to approximately $50,000. The second quarterly dividend was paid on May 1, 1995
to shareholders of record on April 10, 1995 and amounted to approximately
$50,000. Based upon the current number of common shares outstanding and assuming
the quarterly amount of $.01 per share remains in effect, annual dividend
requirements will amount to approximately $200,000.
Absent a major prolonged surge in oil prices, the Company believes its
operating cash flow, revolving credit facility, vendor credit and cash balances
will provide it with sufficient liquidity during the next twelve months.
The Company has no significant outstanding contracts or commitments for
the purchase of equipment or installation of facilities.
10
<PAGE> 11
PART II - 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.
11
<PAGE> 12
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
By: /s/ Seymour Kahn
-------------------
Seymour Kahn
Chairman and Chief
Executive Officer
Principal Executive Officer:
/s/ SEYMOUR KAHN Dated: May 10, 1995
- - - - - ------------------
Seymour Kahn
Chief Executive Officer and Director
Principal Financial and Accounting Officer:
/s/ RANDOLPH E. AJER Dated: May 10, 1995
- - - - - -------------------
Randy Ajer
Secretary/Treasurer
Chief Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1995 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED MARCH 31, 1995. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANACIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-1-1994
<PERIOD-END> MAR-31-1995
<CASH> 1,628
<SECURITIES> 0
<RECEIVABLES> 32,463
<ALLOWANCES> 1,220
<INVENTORY> 3,199
<CURRENT-ASSETS> 39,136
<PP&E> 31,703
<DEPRECIATION> 19,892
<TOTAL-ASSETS> 53,364
<CURRENT-LIABILITIES> 19,908
<BONDS> 16,116
<COMMON> 50
0
0
<OTHER-SE> 17,167
<TOTAL-LIABILITY-AND-EQUITY> 53,364
<SALES> 106,504
<TOTAL-REVENUES> 28,217
<CGS> 99,405
<TOTAL-COSTS> 122,388
<OTHER-EXPENSES> 6,888
<LOSS-PROVISION> 658
<INTEREST-EXPENSE> 1,054
<INCOME-PRETAX> 5,445
<INCOME-TAX> 2,240
<INCOME-CONTINUING> 3,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,205
<EPS-PRIMARY> $.62
<EPS-DILUTED> $.62
</TABLE>
