<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 March 31, 1996
[ ] 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 May 07, 1996
Common Stock, $.01 Par Value 5,929,095
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, JUNE 30,
1996 (UNAUDITED) 1995
---------------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $14,923,000 $ 831,000
Trade accounts receivable, net of allowance for doubtful
accounts of $1,098,000 at 3/31/96 and $610,000 at 6/30/95 (Note 8) 40,267,000 33,269,000
Notes receivable - current portion 60,000 50,000
Inventories (Note 2) 1,894,000 3,283,000
Prepaid expenses and other current assets 2,753,000 1,822,000
----------- -----------
Total current assets 59,897,000 39,255,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $21,968,000 at 3/31/96 and
$20,391,000 at 6/30/95 (Note 8) 14,913,000 12,219,000
NOTES RECEIVABLE, net of current portion 170,000 136,000
OTHER ASSETS (Notes 7 and 8) 5,123,000 2,600,000
----------- -----------
$80,103,000 $54,210,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (Note 8) $16,508,000 $12,998,000
Accrued expenses and other current liabilities 4,021,000 3,008,000
Income taxes payable (Note 3) 253,000 114,000
Current portion of long-term debt 2,726,000 2,607,000
----------- -----------
Total current liabilities 23,508,000 18,727,000
CONVERTIBLE SUBORDINATED DEBENTURES (Note 7) 28,115,000 --
LONG-TERM DEBT (Notes 6 and 8) 7,505,000 17,104,000
DEFERRED INCOME TAXES 8,000 8,000
----------- -----------
59,136,000 35,839,000
----------- -----------
COMMITMENTS AND CONTINGENCIES ( Note 9)
STOCKHOLDERS' EQUITY (Note 4):
Preferred Stock - $.01 par value; authorized 3,000,000 shares;
no shares outstanding
Common Stock - $ .01 par value; authorized 18,000,000 shares;
outstanding 5,393,087 shares 3/31/96;
outstanding 5,524,257 shares 6/30/95 54,000 55,000
Additional Paid-in Capital 14,687,000 14,992,000
Retained Earnings 6,381,000 3,479,000
Treasury Stock - 35,200 shares of common stock (155,000) (155,000)
----------- -----------
Total stockholders' equity 20,967,000 18,371,000
----------- -----------
$80,103,000 $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>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ---------------------------
1996 1995 1996 1995
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales and Revenues:
Sales $133,600,000 $106,504,000 $46,984,000 $40,840,000
Service Revenues 30,931,000 28,217,000 10,271,000 9,162,000
------------ ------------ ----------- -----------
164,531,000 134,721,000 57,255,000 50,002,000
Costs and Expenses:
Cost of Sales 123,579,000 97,510,000 43,568,000 37,478,000
Operating Expenses 27,231,00 24,878,000 9,424,000 8,486,000
------------ ------------ ----------- -----------
150,810,000 122,388,000 52,992,000 45,964,000
------------ ------------ ----------- -----------
Gross Margin (Excluding depreciation
and amortization) 13,721,000 12,333,000 4,263,000 4,038,000
Selling, General and Administrative 4,630,000 3,997,000 1,549,000 1,385,000
Depreciation and Amortization 2,064,000 1,800,000 711,000 605,000
------------ ------------ ----------- -----------
Operating Income 7,027,000 6,536,000 2,003,000 2,048,000
------------ ------------ ----------- -----------
Other Expenses (Income):
Interest Expense 1,593,000 1,054,000 666,000 390,000
Interest Income (157,000) (58,000) (135,000) (13,000)
Minority Interest -- 95,000 -- --
Gain-Sale of Options (274,000) -- -- --
------------ ------------ ----------- -----------
1,162,000 1,091,000 531,000 377,000
------------ ------------ ----------- -----------
Income Before Provision for Income Taxes 5,865,000 5,445,000 1,472,000 1,671,000
Provision for Income Taxes 2,370,000 2,240,000 595,000 668,000
------------ ------------ ----------- -----------
Net Income 3,495,000 3,205,000 877,000 1,003,000
Retained Earnings at Beginning of Period 3,479,000 4,555,000 5,557,000 5,857,000
Retirement of Common stock (431,000) (1,022,000) -- (122,000)
Dividends on Common Stock (162,000) (50,000) (53,000) (50,000)
------------ ------------ ----------- -----------
Retained Earnings at End of Period $6,381,000 $6,688,000 $6,381,000 $6,688,000
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net Income Per Common Share and
Common Equivalent Share (Primary) (Note 5) $.56 $.52 $.14 $.16
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net Income Per Common Share-Assuming
Full Dilution (Note 5) $.54 $.52 $.13 $.16
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Weighted Average Number of Shares of
Common Stock (Note 5) 5,931,000 5,928,000 5,926,000 5,975,000
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
3
See accompanying notes to consolidated financial statements.
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,495,000 $3,205,000
Adjustments to derive cash flow from
Operating activities:
Depreciation and amortization 2,064,000 1,800,000
Minority interest -- 95,000
Amortization of officers' loans 116,000 137,000
Changes in operating assets and liabilities:
Trade and other accounts receivable (6,652,000) (14,790,000)
Inventories 1,389,000 (2,248,000)
Prepaid expenses and other current assets (931,000) (1,011,000)
Deferred taxes -- (95,000)
Accounts payable 3,042,000 7,458,000
Income taxes payable 139,000 (699,000)
Accrued expenses and other current liabilities 1,013,000 670,000
----------- ------------
Net cash provided by (used in) operating activities 3,675,000 (5,478,000)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in notes receivable (44,000) 173,000
Addition to other assets (996,000) (281,000)
Additions to property, equipment and leaseholds (1,960,000) (1,006,000)
----------- ------------
Net cash used in investing activities (3,000,000) (1,114,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from Convertible Debentures 26,385,000 --
Proceeds from long-term debt 464,000 10,048,000
Reduction of long-term debt (12,533,000) (2,117,000)
Payment of dividend on common stock (162,000) (50,000)
Repurchase and retire common stock (820,000) (1,475,000)
Redemption by subsidiary of a portion of its common stock
owned by minority shareholder -- (450,000)
Proceeds from issuance of common stock 83,000 494,000
----------- ------------
Net cash provided by financing activities 13,417,000 6,450,000
----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 14,092,000 (142,000)
CASH AND CASH EQUIVALENTS, beginning of period 831,000 1,770,000
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $14,923,000 $1,628,000
----------- ------------
----------- ------------
CASH PAID DURING THE PERIOD:
Interest $1,248,000 $1,054,000
Income taxes $2,231,000 $2,862,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 225,000 common shares in exchange for the
remaining minority interest of Mercury Air Cargo, Inc. $1,406,000
Issuance of Notes Payable for the acquisition of assets $2,016,000
</TABLE>
4
See accompanying notes to consolidated financial statements.
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(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 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 nine months
ended March 31, 1996 are not necessarily indicative of results for the full
year.
Note 2- INVENTORIES:
Inventories consist of the following:
MARCH 31, JUNE 30,
1996 1995
---- ----
Aviation Fuel $1,722,000 $3,166,000
Supplies, Parts and other 172,000 117,000
---------- ----------
$1,894,000 $3,283,000
---------- ----------
---------- ----------
Note 3- INCOME TAXES:
Income taxes have been computed based on the estimated annual effective
tax rate for the respective periods.
5
<PAGE>
Note 4- STOCKHOLDERS' EQUITY:
In the nine months ended March 31, 1996, the Company repurchased and
retired 155,420 shares of its Common Stock at a cost of approximately
$820,000, an average cost of $5.28 per share. 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 nine months ended March 31, 1996, certain Directors and
employees exercised stock options resulting in the issuance of 24,250 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>
FULLY DILUTED PRIMARY
NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS
3/31/96 3/31/96 3/31/96 3/31/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding during the period 5,931,000 5,926,000 5,931,000 5,926,000
Common stock equivalents resulting
from the assumed exercise of stock
options. 270,000 282,000 265,000 267,000
--------- --------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding
during the period 6,201,000 6,208,000 6,196,000 6,193,000
--------- ---------
--------- ---------
Weighted average number of common
shares resulting from the assumed
conversion of debentures 617,000 1,863,000
--------- ---------
Weighted average fully diluted shares
outstanding during the period. 6,818,000 8,071,000
--------- ---------
--------- ---------
</TABLE>
6
<PAGE>
For purposes of computing fully diluted earnings per share, interest expense
on the convertible debentures of $198,000, net of tax, has been added back to
net income for both periods.
Weighted average outstanding shares and earnings per share have been
retroactively restated to reflect the 10% stock dividend paid on May 1, 1996
which amounted to the issuance of approximately 539,000 shares.
Note 6- LONG-TERM DEBT:
Amounts borrowed under the Company's line of credit were $157,000 at
March 31, 1996. Amounts borrowed under the revolving credit line bear
interest at prime plus one half percent or LIBOR plus 2%. The line of
credit permits borrowings of up to $16,000,000 subject to eligible available
collateral.
Note 7- CONVERTIBLE SUBORDINATED DEBENTURES:
On January 31, 1996, pursuant to a public offering, the Company issued
$28,115,000 principal amount of 7 3/4 % convertible subordinated debentures
due February 1, 2006. The debentures are convertible into shares of the
Company's common stock at a price of $9.1182 per share (adjusted for the 10%
stock dividend paid on May 1, 1996). Costs and fees, including underwriting
discount and commissions, totaled approximately $1,730,000 and are included
in other assets. Capitalized loan fees are being amortized over the life of
the debentures.
Note 8- 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:
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
-----------
7
<PAGE>
Note 9- SUBSEQUENT EVENT:
On April 10, 1996, the Company signed a $9,000,000 agreement to purchase
some of the assets of Raytheon Aircraft Services' fixed base operations (FBO)
at six airport locations. The transaction is schedule to be completed by the
end of this fiscal year and remains subject to certain conditions. Under the
terms of the agreement, Mercury will pay $4,350,000 in cash at closing and
issue an eight year promissory note for the balance.
8
<PAGE>
Item 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations-Comparison of the Three Months Ended March 31, 1996 and
March 31,1995 and Comparison of the Nine Months ended March 31, 1996 and
March 31, 1995:
The following tables set forth, for the periods indicated, the revenues and
gross margin for each of the Company's four operating units, as well as
selected other financial statement data.
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31,
($ IN MILLIONS) 1996 1995 1996 1995
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
REVENUES REVENUES REVENUES REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel Sales and
Services (1) $130.6 79.4% $104.0 77.2% $46.0 80.2% $40.0 80.0%
Cargo Operations 10.7 6.5% 7.1 5.3% 3.6 6.3% 2.3 4.7%
Goverment Contract
Services 10.5 6.4% 11.9 8.8% 3.3 5.8% 3.8 7.6%
FBOs (1) 12.7 7.7% 11.7 8.7% 4.4 7.7% 3.9 7.7%
------- ------ ------ ------ ----- ------ ------ ------
Total Revenues $164.5 100.0% $134.7 100.0% $57.3 100.0% $50.0 100.0%
------- ------ ------ ------ ----- ------ ------ ------
------- ------ ------ ------ ----- ------ ------ ------
% OF UNIT % OF UNIT % OF UNIT % OF UNIT
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
Gross Margin (2):
Fuel Sales and
Services (1) $5.7 4.4% $5.1 4.9% $1.9 4.2% $1.8 4.6%
Cargo Operations 3.4 31.6% 2.1 29.1% 1.0 27.6% 0.6 25.0%
Goverment Contract
Services 2.4 23.2% 3.1 25.9% 0.7 21.0% 1.0 26.9%
FBOs (1) 2.2 17.0% 2.1 17.6% 0.7 15.0% 0.6 15.2%
------- ------ ------ ------ ----- ------ ------ ------
Total Gross Margin $13.7 8.3% $12.3 9.2% $4.3 7.4% $4.0 8.1%
------- ------ ------ ------ ----- ------ ------ ------
------- ------ ------ ------ ----- ------ ------ ------
% OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
Selling, General
and Administrative $4.6 2.8% $4.0 3.0% $1.6 2.7% $1.4 2.8%
Depreciation and
Amortization 2.1 1.3% 1.8 1.3% 0.7 1.2% 0.6 1.2%
------- ------ ------ ------ ----- ------ ------ ------
Operating Income 7.0 4.3% 6.5 4.9% 2.0 3.5% 2.0 4.1%
Interest Expense
and Other 1.1 0.7% 1.1 0.8% 0.5 0.9% 0.4 0.8%
------- ------ ------ ------ ----- ------ ------ ------
Income before
Income Taxes 5.9 3.6% 5.4 4.1% 1.5 2.6% 1.7 3.3%
Provision for
Income Taxes 2.4 1.4% 2.2 1.7% 0.6 1.1% 0.7 1.3%
------- ------ ------ ------ ----- ------ ------ ------
Net Income $3.5 2.1% $3.2 2.4% $0.9 1.5% $1.0 2.0%
------- ------ ------ ------ ----- ------ ------ ------
</TABLE>
(1) Amounts for the three months ended March 31, 1995 and the nine months
ended March 31, 1995 have been reclassified to conform to the fiscal 1996
presentation.
(2) Gross Margin as used here and throughout Management's Discussion excludes
depreciation and amortization and selling, general and administrative
expense.
9
<PAGE>
Three Months ended March 31, 1996 Compared to March 31, 1995.
Revenue increased 14.5% to $57.3 million in the current period from $50.0
million a year ago. Gross margin increased 5.6% to $4.3 million in the
current period from $4.0 million a year ago.
Revenues from fuel sales and services represented 80.2% of total revenues in
the current period compared to 80.0% of total revenues a year ago. Revenues
from fuel sales and services increased to $46.0 million from $40.0 million
last year. The increase in revenues from fuel sales and services was
primarily due to an increase in the number of gallons sold. Average fuel
prices were marginally higher in the current year compared with last year.
Gross margin from fuel sales and services increased to $1.9 million in the
current period compared with $1.8 million last year. Higher volume offset
lower per gallon margins in the current period. Revenues and gross margin
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 55.3% to $3.6
million from $2.3 million a year ago. This increase was due in part to a
general increase in the volume of business from existing accounts and in part
to the acquisition of Excel Cargo, Inc. in September 1995. Gross margin from
cargo operations in the current period increased 71.1% to $1.0 million from
$.6 million in the year ago period.
Revenues from government contract services in the current period declined
13.5% to $3.3 million from $3.8 million in the year ago period. The decrease
in revenues from government contract services in the current period compared
to last year was due to five contract terminations during fiscal 1995 and
five contracts terminations during the nine months ended March 31, 1996,
which terminations were only partially offset by a new contract received in
November 1994 and a new contract in October 1995. Gross margin from
government contract services in the current period decreased 32.5% to $ .7
million from $1.0 million last year due to lower revenues. During the three
month period ended March 31, 1996 two contracts were terminated.
Revenues from FBOs increased by 14.5% in the current period to $4.4 million
from $3.9 million a year ago due to an increase in fuel sales and to
higher service revenues. Gross margin increased 13.2% in the current period
to $661,000 from $584,000 last year. The increase was primarily
attributable to an increase in sales and revenues.
Selling, general and administrative expenses in the current period increased
11.8% to $1.6 million from $1.4 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.
10
<PAGE>
Depreciation and amortization expense in the current period increased 17.5%
to $711,000 from $605,000 a year ago. The increase in the current period is
related primarily to the acquisition of Excel Cargo, Inc.
Interest expense in the current period increased 70.8% to $666,000 from
$390,000 last year. The increase was due to significantly higher average
outstanding long term debt in the current period, primarily due to the
Convertible Debenture offering which was completed in this period.
Interest income in the current period increased to $135,000 from $13,000 last
year. Interest income in the current period is primarily related to
investment of a portion of the offering proceeds in short-term marketable
securities.
Income tax expense approximated 40.4% of pre-tax income in the current period
and 40.0% a year ago, reflecting the expected effective annual tax rate.
Nine Months Ended March 31, 1996 compared to March 31, 1995.
Revenue increased 22.1% to $164.5 million in the current period from $134.7
million a year ago. Gross margin increased 11.3% to $13.7 million in the
current period from $12.3 million a year ago.
Revenues from fuel sales and services represented 79.4% of total revenues in
the current period compared to 77.2% of total revenues a year ago. Revenues
from fuel sales and services increased to $130.6 million from $104.0 million
last year. The increase in revenue from fuel sales and services was
primarily due to an increase in the number of gallons sold. Average fuel
prices were marginally higher in the current year compared with last year.
Gross margin from fuel sales and services increased 12.5% in the current
period to $5.7 million from $5.1 million a year ago. The increase in gross
margin from fuel sales and services in the current period compared to last
year was attributable primarily to an increase in fuel sales.
Revenues from cargo operations in the current period increased 50.3% to $10.7
million from $7.1 million a year ago. The increase was primarily due to a
general increase in the volume of business from existing accounts and
partially due to the acquisition of Excel Cargo, Inc. on September 30, 1995.
Gross margin from cargo operations in the current period increased 63.3% to
$3.4 million from $2.1 million in the year ago period.
Revenues from government contract services in the current period declined
11.8% to $10.5 million from $11.9 million in the year ago period. The
decrease in revenues from government contract services in the current period
compared to last year was primarily due to five contract terminations during
fiscal 1995 and five contact terminations during the current period, which
terminations were only partially offset by two new contracts received, one in
November 1994 and one in October 1995. Gross margin from government contract
11
<PAGE>
services in the current period decreased 20.9% to $2.4 million from $3.1
million last year primarily due to lower revenues.
Revenues from FBOs increased 8.3% in the current period to $12.7 million from
$11.7 million a year ago due to an increase in fuel sales and higher
services revenues. Operating income increased 4.1% in the current period to
$2.2 million from $2.1 million a year ago.
Selling, general and administrative expenses in the current period increased
15.8% to $4.6 million from $4.0 million in the year ago period. The increase
was primarily due to higher compensation expense and, to a lesser extent,
higher professional fees and facility expenses.
Depreciation and amortization expense in the current period increased 14.7%
to $2.1 million from $1.8 million a year ago. The increase in the current
period is primarily related to the acquisition of Excel Cargo, Inc.
Interest expense in the current period increased 51.1% to $1.6 million from
$1.1 million last year. The increase was due to significantly higher average
outstanding long-term debt in the current period.
Charges for minority interest were eliminated in the current period as
compared to $95,000 last year. The elimination was due to the acquisition of
the remaining minority interest's share of Mercury Air Cargo in November 1994.
The Company recognized a gain of $274,000 in the current period from the
sale of options it held to acquire common shares of one of its airline
customers.
Income tax expense approximated 40.4% of pretax income in the current period
and 41.1% 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 March 31, 1996 totaled $14.9 million.
Net cash provided by operating activities totaled $3,675,000 during the
period ended March 31, 1996. During this period, the primary source of net
cash provided by operating activities was net income plus depreciation and
amortization totaling $5,559,000, an increase in accounts payable of
$3,042,000, a decrease in inventories of $1,389,000 and an increase in
accrued expenses and other current liabilities of $1,013,000. The primary
use of cash for operating activities in this period was an increase in
accounts receivable of $6,652,000 and an increase in prepaid expenses and
other current assets of $931,000.
12
<PAGE>
Net cash used in investing activities totaled $3,000,000 during the current
period. The primary use of cash from investing activities included additions
to other assets of $996,000, which includes goodwill from the acquisition of
Excel Cargo, Inc. of $810,000, and additions to property, equipment and
leaseholds of $1,960,000.
Net cash provided by financing activities totaled $13,417,000 during the
current period. The primary source of cash from financing activities during
this period was net proceeds from the Convertible Debenture of $26,385,000.
The primary use of cash in financing activities was the reduction in long-
term debt of $12,533,000.
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
$3,708,000 was outstanding as of March 31, 1996. 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 1997,
subject to renewal by the parties. At March 31,1996, Mercury had
approximately $157,000 of borrowings under the Revolver and had approximately
$15,000,000 of additional borrowing availability based on the 85% of eligible
receivables test. See Note 6 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 or an average cost of $5.28 per share.
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.
On January 31, 1996 pursuant to a public offering, the Company issued
$28,115,000 of 7 3/4% convertible subordinated debentures due on February 1,
2006. Proceeds to the Company, net of underwriting discount and other
associated costs, totaled $26,385,000 of which approximately $14,000,000 was
used to repay the Revolver. The balance will be used for potential
acquisitions and general corporate purposes. The debentures are convertible
into the Company's common stock at a conversion rate of $9.1182 per share
(adjusted for the 10% stock dividend paid on May 1, 1996).
Absent a major prolonged surge in oil prices or a capital intensive
acquisition, the Company believes its operating cash flow, revolver, recent
public offering of debentures 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.
13
<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
On March 21, 1996, the Company held its annual meeting of
shareholders. Proposal 1 for election of directors and Proposal 2 for
Amendment to the Company's Restated Articles of Incorporation to
increase from 9,000,000 to 18,000,000 the number of authorized shares
of Mercury Common Stock were accepted by the following votes at the
meeting:
PROPOSAL 1:
ABSTAIN/
NAME FOR AGAINST BROKER NON-VOTE
Seymour Kahn 4,896,314 30,065 -0-
Joseph A. Czyzyk 4,893,314 30,065 -0-
Dr. Philip J. Fagan 4,895,982 30,397 -0-
Frederick H. Kopko 4,896,114 30,265 -0-
William G. Langton 4,893,452 32,927 -0-
Robert L. List 4,896,314 33,193 -0-
PROPOSAL 2: ABSTAIN/
FOR AGAINST BROKER NON-VOTE
4,809,720 100,379 16,280
14
<PAGE>
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.1 Non-qualified Stock Option Agreement dated August 24,
1995, by and between S.K. Acquisition, Inc. and Mercury
Air Group, Inc.
Exhibit 10.2 Non-qualified Stock Option Agreement dated March 21,
1996, by and between Frederick H. Kopko and Mercury Air
Group, Inc.
Exhibit 27 Financial Data Schedule
15
<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
_____________________________________
Seymour Kahn
Chairman and Chief
Executive Officer
_____________________________________
Randy Ajer
Secretary/Treasurer
Chief Accounting Officer
Date: May 07, 1996
16
<PAGE>
EXHIBIT 10.1
NON-QUALIFIED STOCK OPTION AGREEMENT
MERCURY AIR GROUP, INC.
THIS AGREEMENT, entered into as of the 24th day of August, 1995 (the
"Agreement Date"), by and between S.K. Acquisition, Inc., a Delaware
Corporation ("SKAI"), and Mercury Air Group, Inc., a New York corporation
(the "Company").
WITNESSETH THAT:
WHEREAS, SKAI has been selected by the Board of Directors of the Company
to receive a Non-Qualified Stock Option award outside of the Company's
existing stock option plans for its role in facilitating a stock repurchase
transaction between Grant Murray ("Murray") and the Company and in full
payment of all interest due SKAI with respect to the loans made to Murray in
connection with that certain Stock Purchase Agreement and related note by and
among Murray, Randolph E. Ajer, Kevin Walsh and Joseph A. Czyzyk and SKAI
dated as of December 10, 1990 (collectively, the "Stock Purchase Agreement");
and
WHEREAS, the Company maintains the Mercury Air Group, Inc. 1990
Long-Term Incentive Plan (the "Plan") and, except to the extent that this
Agreement contains specific conflicting provisions, this Agreement shall be
deemed governed by and subject to the provisions of such Plan.
NOW, THEREFORE, IT IS AGREED, by and between the Company and SKAI, as
follows:
1. AWARD, PURCHASE PRICE. Subject to the terms of this Agreement and
the Plan, SKAI is hereby awarded an option (the "Option") to purchase a total
of Thirty-Three Thousand (33,000) shares of Common Stock, $.01 par value (the
"Stock"). The option price of each share of Stock subject to the Option
shall be $5.045. The Option is not intended, and will not be treated, as an
incentive stock option (as that term is used in section 422A of the Internal
Revenue Code of 1986, as amended).
2. DATE OF EXERCISE. The Option shall be exercisable no earlier than
October 17, 1996 or such later date as the conditions to effectiveness of
this Agreement specified in paragraph 11 have been met and shall expire on
the tenth anniversary of the Agreement.
3. METHOD OF OPTION EXERCISE. The option may be exercised in whole or
in part by filing a written notice with the Secretary of the Company at its
corporate headquarters prior to the date the Option expires. Such notice
shall specify the number of shares of Stock which SKAI elects to purchase,
and shall be accompanied by payment of the option price for such shares of
Stock indicated by SKAI's election. Subject to the provisions of the
following sentence, payment shall be by cash or by check payable to the
Company. To the extent permitted by the Compensation Committee of the Board
(the "Committee"), all or a portion of such required amount may be paid
1
<PAGE>
by delivery of shares of Stock having an aggregate Fair Market Value (valued
as of the date of exercise) that is equal to the amount of cash which would
otherwise be required.
4. ASSIGNS AND SUCCESSORS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets. Notwithstanding
the foregoing, this Agreement may not be transferred, assigned or otherwise
conveyed by SKAI.
5. DEFINITIONS. Except where the context clearly implies or indicates
the contrary, a word, term, or phrase used in the Plan is similarly used in
this Agreement.
6. ADMINISTRATION. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee, and
the Committee shall have all powers with respect to this Agreement as it has
with respect to the Plan. Any interpretation of the Agreement by the
Committee and any decision made by it with respect to the Agreement is final
and binding on all persons.
7. PLAN GOVERNS. Except to the extent that this Agreement contains
specific inconsistent provisions (in which case the provisions of this
Agreement shall be controlling), this Agreement shall be subject to the terms
of the Plan, a copy of which may be obtained by SKAI from the office of the
Secretary of the Company.
8. AMENDMENT. This Agreement may be amended by written agreement of
SKAI and the Company, without the consent of any other person.
9. RELEASE BY SKAI. SKAI hereby releases any remaining claims and
rights which it has under the Stock Purchase Agreement and ancillary
documents (solely to the extent that such claims and rights arise from the
portions of the Stock Purchase Agreement which relate to the sale of shares
of Stock to Murray), including without limitation its right to receive
interest on the loans made to Murray pursuant to the Stock Purchase Agreement.
10. REGISTRATION RIGHTS. SKAI shall be entitled to register the Stock
issuable upon exercise of this Option for resale in connection with any
registration statement which the Company files under which registration for
such resale is available subject to: (I) executing such documents as are
required by any underwriter in connection with such registration statement;
and (II) subject to pro rata cut back with all other holders of registration
rights at the discretion of the underwriter. The Company shall give SKAI
notice prior to the filing of any such registration statement and within ten
(10) days of any such notice SKAI shall furnish the Company with a notice
specifying the number of shares which it elects to include in such
registration statement (subject to the cutback set forth in this paragraph).
11. CONDITIONS TO EFFECTIVENESS. This Agreement shall be effective
upon filing of an amendment of the Restated Articles of Incorporation of the
Company with the New York Secretary of State's Office increasing from
9,000,000 to 18,000,000 the authorized shares of Stock and acceptance of the
shares underlying this Option for listing on the American Stock
2
<PAGE>
Exchange. In the event that these conditions to effectiveness are not
satisfied prior to June 30, 1996, this Option and the releases contained
herein shall terminate with no further force and effect.
12. INVESTMENT STOCK. SKAI represents to the Company that the Shares
issuable upon exercise of this Agreement will be acquired for investment
purposes and not with a view to resale. The certificates evidencing the
Shares shall bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND CANNOT BE SOLD, TRANSFERRED OR
ASSIGNED WITHOUT REGISTRATION THEREUNDER OR AN EXEMPTION FROM SUCH
REGISTRATION AS EVIDENCED BY AN OPINION OF COUNSEL DELIVERED TO THE
COMPANY.
In the event that the Shares are registered, the Company will remove the
foregoing legend.
IN WITNESS WHEREOF, each of SKAI and the Company has caused these
presents to be executed in its name and on its behalf all as of the Agreement
Date.
S.K. ACQUISITION, INC.
By: _________________________
Its: President
MERCURY AIR GROUP, INC.
By: _________________________
Its: Chief Financial Officer
3
<PAGE>
EXHIBIT 10.2
NON-QUALIFIED STOCK OPTION AGREEMENT
MERCURY AIR GROUP, INC.
THIS AGREEMENT, entered into as of the 21st day of March, 1996 (the
"Agreement Date"), by and between Frederick H. Kopko (the "Consultant"), and
Mercury Air Group, Inc., a New York corporation (the "Company").
WITNESSETH THAT:
WHEREAS, the Consultant has been selected by the Compensation Committee
of the Board of Directors of the Company (the "Committee") to receive a
Non-Qualified Stock Option award outside of the Company's existing stock
option plans; and
WHEREAS, the Company maintains the Mercury Air Group, Inc. 1990
Long-Term Incentive Plan (the "Plan") and, except as specifically set forth
herein to the contrary, this Agreement shall be deemed governed by and
subject to the provisions of such Plan.
NOW, THEREFORE, IT IS AGREED, by and between the Company and the
Consultant, as follows:
1. AWARD, PURCHASE PRICE. Subject to the terms of this Agreement and
the Plan, the Consultant is hereby awarded an option (the "Option") to
purchase a total of 5,000 shares of Common Stock, $.01 par value ("Stock").
The option price of each share of Stock subject to the Option shall be
$9.875. The Option is not intended, and will not be treated, as an incentive
stock option (as that term is used in section 422A of the Internal Revenue
Code of 1986, as amended).
2. DATE OF EXERCISE. The Option shall be exercisable from the
Agreement Date through the tenth anniversary of the Agreement Date.
3. METHOD OF OPTION EXERCISE. The option may be exercised in whole or
in part by filing a written notice with the Secretary of the Company at its
corporate headquarters prior to the date the Option expires. Such notice
shall specify the number of shares of Stock which the Consultant elects to
purchase, and shall be accompanied by payment of the option price for such
shares of Stock indicated by the Consultant's election. Subject to the
provisions of the following sentence, payment shall be by cash or by check
payable to the Company. To the extent permitted by the Committee, all or a
portion of such required amount may be paid by delivery of shares of Stock
having an aggregate Fair Market Value (valued as of the date of exercise)
that is equal to the amount of cash which would otherwise be required.
4. HEIRS AND SUCCESSORS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
Subject to the terms of the Plan, any benefits payable to the Consultant
under
1
<PAGE>
this Agreement that are not paid at the time of the Consultant's death shall
be paid at the time and in the form determined in accordance with the
foregoing provisions of this Agreement, to the beneficiary designated by the
Consultant in writing filed with the Committee in such form and at such time
as the Committee shall require. If a deceased Consultant fails to designate
a beneficiary, or if the designated beneficiary of the deceased Consultant
dies before the Consultant or before complete payment of the amounts
distributable under this Agreement, the Committee shall, in its discretion,
direct that amounts to be paid under this Agreement be paid to:
(a) one or more of the Consultant's relatives by blood, adoption or
marriage and in such proportion as the Committee decides; or
(b) the legal representative or representatives of the estate of the last
to die of the Consultant and his beneficiary.
5. DEFINITIONS. Except where the context clearly implies or indicates
the contrary, a word, term, or phrase used in the Plan is similarly used in
this Agreement.
6. ADMINISTRATION. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee, and
the Committee shall have all powers with respect to this Agreement as it has
with respect to the Plan. Any interpretation of the Agreement by the
Committee and any decision made by it with respect to the Agreement is final
and binding on all persons.
7. PLAN GOVERNS. Except as specifically set forth in this Agreement,
notwithstanding anything in this Agreement to the contrary, the terms of this
Agreement shall be subject to the terms of the Plan, a copy of which may be
obtained by the Consultant from the office of the Secretary of the Company.
2
<PAGE>
8. AMENDMENT. This Agreement may be amended by written Agreement of
the Consultant and the Company, without the consent of any other person.
IN WITNESS WHEREOF, the Consultant has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its
behalf, and its corporate seal to be affixed hereto, all as of the Agreement
Date.
FREDERICK H. KOPKO
_____________________________
MERCURY AIR GROUP, INC.
By: ________________________
Its: Chief Financial Officer
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET OF MARCH 31, 1996 AND THE CONSOLIDATED STATEMENTS
OF INCOME AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED MARCH 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 14,923
<SECURITIES> 0
<RECEIVABLES> 41,425
<ALLOWANCES> 1,098
<INVENTORY> 1,894
<CURRENT-ASSETS> 59,897
<PP&E> 36,881
<DEPRECIATION> 21,968
<TOTAL-ASSETS> 80,103
<CURRENT-LIABILITIES> 23,508
<BONDS> 35,620
0
0
<COMMON> 54
<OTHER-SE> 20,913
<TOTAL-LIABILITY-AND-EQUITY> 80,103
<SALES> 133,600
<TOTAL-REVENUES> 30,931
<CGS> 123,579
<TOTAL-COSTS> 157,504
<OTHER-EXPENSES> 1,162
<LOSS-PROVISION> 692
<INTEREST-EXPENSE> 1,593
<INCOME-PRETAX> 5,865
<INCOME-TAX> 2,370
<INCOME-CONTINUING> 3,495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,495
<EPS-PRIMARY> .56
<EPS-DILUTED> .54
</TABLE>
