<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 September 30, 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 November 1, 1996
----- ----------------------
Common Stock, $.01 Par Value 6,007,721
<PAGE> 2
PART I - FINANCIAL INFORMATION
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, JUNE 30,
1996 1996
-------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,693,000 $11,820,000
Trade accounts receivable, net of allowance for doubtful
accounts of $1,084,000 at 9/30/96 and $809,000 at 6/30/96 50,951,000 41,377,000
Notes receivable - current portion 465,000 560,000
Inventories, principally aviation fuel 2,657,000 2,623,000
Prepaid expenses and other current assets 1,904,000 2,154,000
------------ -----------
Total current assets 60,670,000 58,534,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $23,201,000 at 9/30/96 and
$22,491,000 at 6/30/96 (Note 3) 22,924,000 14,703,000
NOTES RECEIVABLE, net of current portion 144,000 158,000
OTHER ASSETS 6,368,000 5,728,000
------------ -----------
$90,106,000 $79,123,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $21,292,000 $15,080,000
Accrued expenses and other current liabilities 2,464,000 3,794,000
Income taxes payable (Note 2) 953,000 198,000
Current portion of long-term debt 2,531,000 2,555,000
------------ -----------
Total current liabilities 27,240,000 21,627,000
LONG-TERM DEBT (Note 3) 39,196,000 35,008,000
DEFERRED INCOME TAXES 256,000 256,000
------------ -----------
66,692,000 56,891,000
------------ -----------
STOCKHOLDERS' EQUITY:
Preferred Stock - $.01 par value; authorized 3,000,000 shares;
no shares outstanding
Common Stock - $ .01 par value; authorized 18,000,000 shares;
outstanding 6,024,721 shares 9/30/96;
outstanding 6,053,321 shares 6/30/96 60,000 60,000
Additional Paid-in Capital 20,808,000 20,910,000
Retained Earnings 3,254,000 2,040,000
Notes Receivable-Officers (662,000) (732,000)
Cumulative translation adjustment (46,000) (46,000)
------------ -----------
Total stockholders' equity $23,414,000 $22,232,000
------------ -----------
$90,106,000 $79,123,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
-------------------------
<S> <C>
Sales and Revenues:
Sales $56,851,000 $42,214,000
Service Revenues 12,532,000 9,666,000
----------- -----------
69,383,000 51,880,000
Costs and Expenses:
Cost of Sales 52,657,000 38,747,000
Operating Expenses 11,154,000 8,536,000
----------- -----------
63,811,000 47,283,000
----------- -----------
Gross Margin (Excluding depreciation and amortization) 5,572,000 4,597,000
Selling, General and Administrative 1,746,000 1,473,000
Depreciation and Amortization 809,000 623,000
----------- -----------
Operating Income 3,017,000 2,501,000
----------- -----------
Other Expenses (Income):
Interest Expense 797,000 437,000
Interest Income (132,000) (12,000)
----------- -----------
Income Before Provision for Income Taxes 2,352,000 2,076,000
Provision for Income Taxes 940,000 844,000
----------- -----------
Net Income $ 1,412,000 $1,232,000
=========== ===========
Net Income Per Common Share and
Common Equivalent Share (Primary) (Note 4) $0.22 $0.20
=========== ===========
Net Income Per Common Share-Assuming
Full Dilution (Note 4) $0.19 $0.20
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,412,000 $ 1,232,000
Adjustments to derive cash flow from
Operating activities:
Depreciation and amortization 809,000 623,000
Amortization of officers' loans 39,000 39,000
Changes in operating assets and liabilities:
Trade and other accounts receivable (9,574,000) (2,377,000)
Inventories (34,000) 212,000
Prepaid expenses and other current assets 250,000 249,000
Accounts payable 6,212,000 1,721,000
Income taxes payable 755,000 732,000
Accrued expenses and other current liabilities (1,330,000) (1,095,000)
----------- -----------
Net cash provided by (used in) operating activities (1,461,000) 1,336,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (Increase) in notes receivable 179,000 (71,000)
Addition to other assets (760,000) (640,000)
Additions to property, equipment and leaseholds (5,049,000) (561,000)
----------- -----------
Net cash used in investing activities (5,630,000) (1,272,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 897,000 1,829,000
Reduction of long-term debt (633,000) (1,327,000)
Payment of dividend on common stock (76,000) (55,000)
Repurchase and retire common stock (228,000) (820,000)
Proceeds from issuance of common stock 4,000 7,000
----------- -----------
Net cash used in financing activities (36,000) (366,000)
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (7,127,000) (302,000)
CASH AND CASH EQUIVALENTS, beginning of period 11,820,000 831,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,693,000 $ 529,000
=========== ===========
CASH PAID DURING THE PERIOD:
Interest $ 1,311,000 $ 437,000
Income taxes $185,000 $ 112,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Notes Payable for the acquisition of assets $ 3,900,000 $ 2,016,000
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 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, 1996 and the notes thereto. The results of operations for the
three months ended September 30, 1996 are not necessarily indicative of results
for the full year.
Note 2 - Income Taxes:
Income taxes have been computed based on the estimated annual
effective tax rate for the respective years.
Note 3 - Acquisition of Assets:
On August 28, 1996, the Company completed the acquisition of
certain assets of five FBOs. The purchase price for the assets was $8,250,000
which consisted of $4,350,000 in cash and a promissory note in the principal
amount of $3,900,000, bearing interest at the prime rate and payable over eight
years. The purchase price of $8,250,000 is included in Property, Equipment and
Leaseholds.
5
<PAGE> 6
Note 4 - 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>
1996 1995
--------- ---------
<S> <C> <C>
Weighted average number of Common
Shares outstanding during the period 6,048,000 5,957,000
Common Stock equivalents resulting
from the assumed exercise of stock
options 231,000 265,000
--------- ---------
Weighted average number of common
and common equivalent shares outstanding
during the period - primary 6,279,000 6,222,000
Common shares resulting from the assumed
conversion of debentures 3,215,000 --
--------- ---------
Fully diluted weighted average number of
common and common equivalent shares
outstanding during the period 9,494,000 6,222,000
========= =========
</TABLE>
Interest expense on the convertible debentures of $345,000, net of income tax,
has been added back to net income for purposes of computing fully diluted
earnings per share for the three months ended September 30, 1996.
6
<PAGE> 7
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS-COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995
The following tables set forth, for the periods indicated, the
revenues and gross margin for each of the Company's four operating units, as
well as selected other financial statement data.
<TABLE>
<CAPTION>
Three Months Ended September 30,
($ in millions) 1996 1995
Amount % of Total Amount % of Total
Revenues Revenues
<S> <C> <C> <C> <C>
Revenues:
Fuel Sales and Services $54.3 78.3% $41.1 79.3%
Cargo Operations 4.9 7.1% 2.9 5.6%
Goverment Contract Services 3.6 5.2% 3.6 6.8%
FBOs 6.6 9.4% 4.3 8.3%
---------- ---------- ---------- ----------
Total Revenues $69.4 100.0% $51.9 100.0%
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
% of Unit % of Unit
Amount Revenues Amount Revenues
<S> <C> <C> <C> <C>
Gross Margin (1):
Fuel Sales and Service $2.3 4.3% $2.0 4.7%
Cargo Operations 1.5 30.4% 0.9 32.1%
Goverment Contract Services 0.8 20.2% 0.9 24.7%
FBOs 1.0 15.6% 0.8 19.5%
---------- ---------- ---------- ----------
Total Gross Margin $5.6 8.0% $4.6 8.9%
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
% of Total % of Total
Amount Revenues Amount Revenues
<S> <C> <C> <C> <C>
Selling, General and Administrative $1.7 2.5% $1.5 2.8%
Depreciation and Amortization 0.8 1.2% 0.6 1.2%
Interest Expense and Other 0.7 0.9% 0.4 0.9%
---------- ---------- ---------- ----------
Income before Income Taxes 2.4 3.4% 2.1 4.0%
Provision for Income Taxes 1.0 1.4% 0.9 1.6%
---------- ---------- ---------- ----------
Net Income $1.4 2.0% $1.2 2.4%
---------- ---------- ---------- ----------
</TABLE>
(1) Gross Margin as used here and throughout Management's Discussion
excludes depreciation and amortization and selling, general and
administrative expense.
Page 7
<PAGE> 8
Three Months ended September 30, 1996 Compared to September 30, 1995.
Revenue increased 33.7% to $69.4 million in the current period from $51.9
million a year ago. Gross margin increased 21.2% to $5.6 million in the
current period from $4.6 million a year ago.
Revenues from fuel sales and services represented 78.3% of total revenues in
the current period compared to 79.3% of total revenues a year ago. Revenues
from fuel sales and services increased to $54.3 million from $41.1 million
last year. The increase in revenues from fuel sales and services was due to
both an increase in the number of gallons sold and an increase in the price of
fuel. Gross margin from fuel sales and services in the current period increased
19.7% to $2.3 million from $2.0 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 the number of gallons sold.
Revenues and operating income from fuel sales and services included 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 68.7% to $4.9
million from $2.9 million a year ago. This increase was due in part to the
acquisitions of Excel Cargo, Inc. and Floracool, Inc, during fiscal 1996 and
due in part to a general increase in the volume of business from existing
accounts. Gross margin from cargo operations in the current period increased
60.0% to $1.5 million from $0.9 million in the year ago period due to higher
revenues.
Revenues from government contract services in the current period were unchanged
at $3.6 million from the year ago period. Gross margin from government
contract services in the current period decreased 17.2% to $0.8 million from
$0.9 million last year due to more competitive pricing and a lower number of
active contracts.
Revenues from FBOs increased by 52.4% in the current period to $6.6 million
from $4.3 million a year ago due in part to an increase from existing locations
and due to the addition of five new locations effective August 29, 1996. Gross
margin increased 21.6% in the current period to $1.0 million from $0.8 million
last year. The increase was attributable to higher revenues.
Selling, general and administrative expenses in the current period increased
18.5% to $1.7 million from $1.5 million in last year's period. The increase
was primarily due to higher compensation expense and higher professional fees.
8
<PAGE> 9
Depreciation and amortization expense in the current period increased 29.9% to
$809,000 from $623,000 a year ago due to acquisitions including Excel and
Floracool in fiscal 1996 and the five FBO locations in August 1996.
Interest expense (net) in the current period increased 56.5% to $0.67 million
from $0.43 million last year. The increase was due to significantly higher
average outstanding borrowing in the current period principally related to the
Company's $28 million convertible debentures offering in February 1996.
Income tax expense approximated 40.0% of pre-tax income in the current period
and 40.7% a year ago, reflecting the expected effective annual tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Until issuance of the convertible subordinated debentures in February 1996,
Mercury had 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, 1996 totalled $4,693,000.
Net cash used in operating activities totaled $1,461,000 during the period
ended September 30, 1996. During this period, the primary sources of net cash
provided by operating activities was net income plus depreciation and
amortization totaling $2,221,000, an increase in accounts payable of $6,212,000
and an increase in income taxes payable of $755,000. The primary uses of cash
for operating activities in this period was an increase in accounts receivable
of $9,574,000 and a decrease in accrued expenses and other current liabilities
of $1,330,000.
Net cash used in investing activities totaled $5,630,000 during the current
period. The primary use of cash from investing activities included additions
to property, equipment and leaseholds of $5,049,000, principally related to the
acquisition of certain assets of five FBOs, and additions to other
assets of $760,000.
Net cash used in financing activities totaled $36,000 during the current
period. The primary source of cash from financing activities during this
period was borrowing of $897,000. The primary use of cash in financing
activities was the reduction in long-term debt of $633,000 and repurchases of
30,600 shares of common stock totaling $228,000, or $7.45 per share.
On January 31, 1996, 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.
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
9
<PAGE> 10
$7,500,000, of which $ 3,059,000 was outstanding as of September 30, 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 September 30, 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.
During this period, Mercury repurchased 30,600 shares of Common Stock at a
total cost of approximately $228,000. Management is currently authorized by
Mercury's board of directors and under Mercury's loan agreements to repurchase
up to an additional approximately $1,772,000 in Common Stock.
Absent a major prolonged surge in oil prices or a capital intensive
acquisition, the Company believes its operating cash flow, revolver, vendor
credit and cash balance 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's only significant contract or commitment is for the purchase of
equipment or installation of facilities relating to the remodeling and
reconstruction of a 174,000 square foot cargo warehouse at a cost not to exceed
$6,000,000.
10
<PAGE> 11
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: November 7, 1996
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENTS
OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN FORM 10-Q FOR
THE PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,693
<SECURITIES> 0
<RECEIVABLES> 52,500
<ALLOWANCES> 1,084
<INVENTORY> 2,657
<CURRENT-ASSETS> 60,670
<PP&E> 46,125
<DEPRECIATION> 23,201
<TOTAL-ASSETS> 90,106
<CURRENT-LIABILITIES> 27,240
<BONDS> 39,196
0
0
<COMMON> 60
<OTHER-SE> 23,354
<TOTAL-LIABILITY-AND-EQUITY> 90,106
<SALES> 56,851
<TOTAL-REVENUES> 12,532
<CGS> 52,657
<TOTAL-COSTS> 63,811
<OTHER-EXPENSES> 3,220
<LOSS-PROVISION> 272
<INTEREST-EXPENSE> 797
<INCOME-PRETAX> 2,352
<INCOME-TAX> 940
<INCOME-CONTINUING> 1,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,412
<EPS-PRIMARY> .22
<EPS-DILUTED> .19
</TABLE>
