<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 December 31, 1997.
[ ] 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 January 27, 1998
----- ----------------------
<S> <C>
Common Stock, $.01 Par Value 7,066,951
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30,
1997 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,394,000 $ 2,889,000
Cash- restricted (Note 3) 7,000,000
Trade accounts receivable, net of allowance for doubtful
accounts of $2,772,000 at 12/31/97 and $1,875,000 at 6/30/97 40,860,000 43,924,000
Notes receivable - current portion (Note 3) 2,839,000 1,939,000
Inventories , principally aviation fuel 2,106,000 1,948,000
Prepaid expenses and other current assets 3,406,000 2,705,000
------------ ------------
Total current assets 56,605,000 60,405,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $26,952,000 at 12/31/97 and
$25,180,000 at 6/30/97 30,046,000 24,834,000
NOTES RECEIVABLE, net of current portion 91,000 956,000
OTHER ASSETS (Note 7) 9,065,000 6,110,000
DEFERRED INCOME TAXES 332,000 332,000
------------ ------------
$ 96,139,000 $ 92,637,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,741,000 $ 16,937,000
Accrued expenses and other current liabilities 5,012,000 4,475,000
Current portion of long-term debt 2,672,000 1,878,000
------------ ------------
Total current liabilities 27,425,000 23,290,000
LONG-TERM DEBT 17,450,000 15,195,000
CONVERTIBLE SUBORDINATED DEBENTURES 28,115,000 28,115,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 6):
Preferred Stock - $.01 par value; authorized 3,000,000 shares;
no shares outstanding
Common Stock - $ .01 par value; authorized 18,000,000 shares; outstanding
7,105,351 shares 12/31/97;
outstanding 7,524,651 shares 6/30/97 71,000 75,000
Additional paid-in capital 19,636,000 20,796,000
Retained earnings 4,183,000 5,907,000
Notes receivable from sale of stock-officers (662,000) (662,000)
Cumulative translation adjustment (79,000) (79,000)
------------ ------------
Total stockholders' equity 23,149,000 26,037,000
------------ ------------
$ 96,139,000 $ 92,637,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------------------------------------
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and Revenues:
Sales $ 108,406,000 $ 117,233,000 $ 53,978,000 $ 60,382,000
Service revenues 29,414,000 26,075,000 14,677,000 13,543,000
----------------------------------------------- -------------
137,820,000 143,308,000 68,655,000 73,925,000
----------------------------------------------- -------------
Costs and Expenses:
Cost of sales 96,355,000 108,334,000 47,935,000 55,677,000
Operating expenses 27,088,000 23,482,000 13,367,000 12,328,000
----------------------------------------------- -------------
123,443,000 131,816,000 61,302,000 68,005,000
----------------------------------------------- -------------
Gross Margin (Excluding depreciation and amortization) 14,377,000 11,492,000 7,353,000 5,920,000
----------------------------------------------- -------------
Expenses (Income):
Selling, general and administrative 2,926,000 3,149,000 1,540,000 1,675,000
Provision for bad debts 906,000 545,000 453,000 273,000
Depreciation and amortization 2,390,000 1,789,000 1,224,000 980,000
Interest expense 1,754,000 1,681,000 898,000 884,000
Interest income (368,000) (217,000) (140,000) (85,000)
Loss resulting from bankruptcy of customer (Note 4) 7,050,000
----------------------------------------------- -------------
14,658,000 6,947,000 3,975,000 3,727,000
----------------------------------------------- -------------
(Loss) Income Before (Credit) Provision for Income Taxes (281,000) 4,545,000 3,378,000 2,193,000
(Credit) Provision for Income Taxes (113,000) 1,818,000 1,351,000 878,000
----------------------------------------------- -------------
Net (Loss) Income (168,000) 2,727,000 2,027,000 1,315,000
=============================================== =============
Earnings (Loss) per share (Note 5):
Basic $ (0.02) $ 0.36 $ 0.28 $ 0.18
=============================================== =============
Diluted $ (0.02) $ 0.29 $ 0.21 $ 0.14
=============================================== =============
</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>
SIX MONTHS ENDED DECEMBER 31,
1997 1996
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (168,000) $ 2,727,000
Adjustments to derive cash flow from
Operating activities:
Bad debt expense 7,748,000 545,000
Depreciation and amortization 2,390,000 1,789,000
Amortization of officers' loans 77,000 77,000
Changes in operating assets and liabilities:
Trade and other accounts receivable 316,000 (12,296,000)
Inventories (158,000) 409,000
Prepaid expenses and other current assets (701,000) (379,000)
Accounts payable 2,804,000 7,304,000
Income taxes payable (198,000)
Accrued expenses and other current liabilities 537,000 570,000
----------------------------
Net cash provided by operating activities 12,845,000 548,000
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash-restricted 1,000,000
Decrease in notes receivable 965,000 330,000
Addition to other assets (3,266,000) (823,000)
Acquisition of business, net of cash acquired (7,150,000)
Additions to property, equipment and leaseholds (3,118,000) (1,975,000)
----------------------------
Net cash used in investing activities (4,419,000) (9,618,000)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long -term debt 942,000 2,609,000
Reduction of long-term debt (2,143,000) (1,325,000)
Payment of dividend on common stock (94,000) (151,000)
Repurchase and retire common stock (2,626,000) (357,000)
Notes receivable-officers 70,000
Proceeds from issuance of common stock 4,000
----------------------------
Net cash (used in) provided by financing activities (3,921,000) 850,000
----------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,505,000 (8,220,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,889,000 11,820,000
----------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,394,000 $ 3,600,000
============================
CASH PAID DURING THE PERIOD:
Interest $ 1,754,000 $ 1,681,000
Income taxes $ 184,000 $ 2,074,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Notes Payable for the acquisition of assets $ 4,250,000 $ 4,650,000
Note receivable assigned to the Company in exchange for
the Company's certificate of deposit which was used to
guaranty a customer debt (Note 3) $ 1,000,000
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(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, 1997,
Quarterly Report on Form 10-Q for the period ended September 30, 1997 and the
notes thereto. The results of operations for the six months ended December 31,
1997 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
income tax rate for the respective years.
Note 3 - Restricted Cash / Notes receivable:
The remaining $ 1 million of restricted cash represented a certificate
of deposit which served as collateral for a customer's (AeroPeru) bank loan. In
November 1997, AeroPeru's bank used the certificate of deposit to repay the bank
loan and the $1 million note was assigned to the Company. Subsequent to December
31, 1997, the Company received $500,000 of cash from AeroPeru and agreed to
extend the remaining balance until February 28, 1998 with interest at 7% per
annum.
Note 4 - Loss resulting from bankruptcy of customer:
On October 5, 1997, Western Pacific Airlines, Inc. (WPAI) filed
bankruptcy under Chapter 11 and, as a result, the Company has written off
$5,000,000 of certificates of deposit which were pledged to guarantee a bank
loan to WPAI. In addition, the Company has written off $2,050,000 of accounts
receivable due from WPAI. Effective February 5, 1998 WPAI ceased operations.
Note 5- Earnings Per Share:
At December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share". SFAS
128 replaces the presentation of primary earnings per share with a presentation
of basic earnings per share based upon weighted average number of common shares
for the period. It also requires dual presentation of basic and diluted earnings
per share for companies with " complex capital structures," as defined. SFAS 128
was adopted by the Company at December 31, 1997. Earnings per share for the
current and prior periods has been presented in conformity with the provisions
of SFAS 128.
Basic ( loss ) income per common share is computed by dividing net
( loss ) income by the weighted average number of common shares outstanding
during the period.
5
<PAGE> 6
Diluted ( loss ) income per share is computed by dividing net ( loss ) income by
the weighted average number of common shares and common stock equivalents.
Common stock equivalents include stock options and shares resulting from the
assumed conversion of subordinated debentures, when dilutive.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended Three Months Ended Three Months Ended
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
Diluted Basic Diluted Basic Diluted Basic Diluted Basic
=========== =========== =========== =========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average
number of common
shares outstanding
during the period 7,332,000 7,332,000 7,536,000 7,536,000 7,159,000 7,159,000 7,513,000 7,513,000
Common Stock
equivalents resulting
from the assumed
exercise of stock
options -- -- 299,000 -- 286,000 -- 299,000 --
Common shares
resulting from the
assumed conversion
of debentures
-- -- 4,019,000 -- 3,941,000 -- 4,019,000 --
=========== =========== =========== =========== =========== =========== =========== ===========
Weighted average
number of common
and common
equivalent shares
outstanding during the
period 7,332,000 7,332,000 11,854,000 7,536,000 11,386,000 7,159,000 11,831,000 7,513,000
========== ========== ========== ========== ========== ========== ========== ===========
Net (Loss) Income $ (168,000) $(168,000) $2,727,000 $2,727,000 $2,027,000 $2,027,000 $1,315,000 $1,315,000
Interest expense, net
of tax, on Convertible
Debenture -- -- 690,000 -- 336,000 -- 345,000 --
Adjusted (Loss)
Income $(168,000) $(168,000) $ 3,417,000 $2,727,000 $2,363,000 $2,027,000 $1,660,000 $ 1,315,000
---------- ---------- ----------- ---------- ---------- ---------- ---------- -----------
Earnings (Loss) per
share $ (.02) $ (.02) $ .29 $ .36 $ .21 $ .28 $ .14 $ .18
========= =========== ========== ========== ========== ========== ========== ==========
</TABLE>
Note 6- Stockholdings' Equity:
During the six months ended December 31, 1997, the Company
repurchased 419,300 shares of its common stock at a cost of approximately
$2,626,000 or an average price per share of $6.26, which was charged to: Common
Stock $4,000; Additional paid in capital $1,160,000; and Retained Earnings
$1,462,000.
Note 7- Other Assets:
At December 31, 1997, Other assets included $3,139,000 related to LAX
warehouse construction costs which will be reimbursed to the Company in the form
of rent credits over a five year period by the Airport Authority commencing in
the month when the warehouse is operational but no later than June 1998. The
Airport Authority will reimburse the Company for construction costs up to
approximately $7.4 million.
6
<PAGE> 7
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations-Comparison of the Three Months Ended December 31, 1997
and December 31, 1996 and comparison of the Six Months ended
December 31, 1997 and December 31, 1996:
The following tables set forth, for the periods indicated, the revenues and
gross margin for each of the Company's four operating units, as well as selected
other financial statement data.
<TABLE>
<CAPTION>
Six Months Ended December 31, Three Months Ended December 31,
($ in millions) 1997 1996 1997 1996
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 $ 96.0 69.7 % $110.4 77.0 % $47.7 69.4 % $56.0 75.8%
FBOs 22.7 16.4 % 15.9 11.1 % 11.5 16.7 % 9.4 12.7%
Cargo Operations 10.8 7.9 % 10.2 7.1 % 6.0 8.8 % 5.3 7.1%
Government Contract Service 8.3 6.0 % 6.8 4.7 % 3.5 5.1 % 3.2 4.3%
------ ----- ------ ----- ----- ----- ----- -----
Total Revenues $137.8 100.0 % $143.3 100.0 % $68.7 100.0 % $73.9 100.0%
====== ===== ====== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
% of Unit % of Unit % of Unit % of Unit
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Margin (1):
Fuel Sales and Services $ 4.4 4.6 % $ 4.3 3.9 % $2.1 4.5 % $2.0 3.6%
FBOs 4.4 19.3 % 2.6 16.2 % 2.2 18.9 % 1.6 16.6%
Cargo Operations 3.5 31.9 % 3.0 29.5 % 2.1 34.2 % 1.5 28.6%
Government Contract Service 2.1 25.3 % 1.6 23.1 % 1.0 28.6 % .8 26.2%
----- ---- ----- ---- --- ---- ---- ---
Total Gross Margin $14.4 10.4 % $11.5 8.0 % 7.4 10.7 % $5.9 8.0%
===== ==== ===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
% of Total %of Total % of Total % of Total
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
-------- -------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selling, General and
Administrative $2.9 2.1 % $3.2 2.3 % $1.5 2.2 % $ 1.7 2.4%
Provision for bad debts .9 .7 % .5 .4 % .5 .7 % .3 .4%
Depreciation and
amortization 2.4 1.7 % 1.8 1.3 % 1.2 1.8 % 1.0 1.4%
Loss resulting from
bankruptcy of customer 7.1 5.1 %
Interest expense and other 1.4 1.0 % 1.5 1.0 % .8 1.1 % .8 1.1%
---- --- ---- --- ---- --- --- ---
(Loss) Income before Income
Taxes (.3) (.2)% 4.5 3.3 % 3.4 4.9 % 2.2 3.2%
(Credit) Provision for
Income Taxes (.1) (.1)% 1.8 1.3 % 1.4 2.0 % .9 1.3%
---- --- ---- --- ---- --- ---- ---
Net (Loss)Income $(.2) (.1)% $2.7 2.0 % $2.0 3.0 % $1.3 1.9%
==== === ==== === ==== === ==== ===
</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 DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996.
Total revenue fell by 7.1% to $68.7 million in the current period from $73.9
million a year ago due to a decline in the price of fuel . Gross margin
increased 24.2% to $7.4 million in the current period from $5.9 million a year
ago principally due to the acquisition of additional FBO locations and improved
cargo operations.
Revenues from fuel sales and services represented 69.4% of total revenues in the
current period compared to 75.8% of total revenues a year ago. Revenues from
fuel sales and services fell 15.0% to $47.7 million from $56.0 million last
year. The decline in revenues from fuel sales and services was due primarily to
a decrease in the price of fuel . Gross margin from fuel sales and service
increased by 5.6% to $2.1 million in the current period from $2.0 million last
year due to higher 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
services operations.
Revenues from FBOs increased by 22.0% in the current period to $11.5 million
from $9.4 million a year ago primarily due to the addition of three new
locations since November 1996. Gross margin increased 38.9% in the current
period to $2.2 million from $1.6 million last year. The increase was
attributable primarily to higher revenues due for the most part to the addition
of new locations and higher per gallon fuel margins.
Revenues from cargo operations in the current period increased 14.4% to $6.0
million from $5.3 million a year ago. This increase was due primarily to an
increase in space brokerage and partially to an increase in handling. Gross
margin from cargo operations in the current period increased 36.8% to $2.1
million from $1.5 million in the year ago period primarily due to higher
revenues in the higher margin space brokerage activity and incremental business
at existing handling locations.
Revenues from government contract services increased 9.1% in the current period
to $3.5 million from $3.2 million in the year ago period. The increase in
revenues from government contract services was due primarily to the addition of
a contract to service fourteen locations in Central and South America effective
June 1997. Gross margin from government contract services in the current period
increased 18.6% to $1.0 million from $0.8 million last year due to higher
revenues and higher margin Central and South American contracts.
Selling, general and administrative expenses in the current period decreased
8.1% to $1.54 million from $1.675 million in last year's period due primarily to
lower professional fees and lower compensation expense.
Provision for bad debts increased by 65.9% in the current period to $453
thousand from $273 thousand a year ago reflecting a higher reserve rate based on
recent experience.
Depreciation and amortization expense increased 24.9% in the current period to
$1.224 million from $980 thousand a year ago primarily due to acquisitions of
FBO locations during the past eighteen months .
Income tax expense approximated 40.0% of pre-tax income in both periods
reflecting the expected effective annual tax rate.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996.
Due to a decline in the price of fuel, revenues decreased 3.8 % to $137.8
million in the current period from $143.3 million a year ago. Gross Margin
increased 25.1% to $14.4 million in the current period from $11.5 million a year
ago principally due to the acquisition of additional FBO locations and otherwise
due to improved operations in general.
Revenues from fuel sales and services represented 69.7% of total revenues in the
current period compared to 77% of total revenue a year ago. Revenues from fuel
sales and services decreased to $96.0 million from $110.4 million last year. The
decrease in revenues from fuel sales and services was primarily due to a
decrease in the price of fuel. Gross margin from fuel sales and services
increased 2.2% in the current period to $4.4 million from $4.3 million a year
ago. The increase in gross margin from fuel sales and services in the current
period compared to last year was largely attributable to an increase in per
gallon margin.
8
<PAGE> 9
Revenue from FBOs increased 42% in the current period to $22.7 million from
$16.0 million a year ago primarily due to the addition of seven new locations in
fiscal 1997 and one new location in July 1997. Gross Margin increased 69.3% to
$4.4 million from $2.6 million in the year ago period due to higher revenues and
higher per gallon fuel margins.
Revenues from cargo operations in the current period increased 6.4% to $10.8
million from $10.2 million a year ago. The increase was primarily due to an
increase in space brokerage activity. Gross margin from cargo operations in the
current period increased 15.0% to $3.4 million from $3.0 million in the year ago
period due to higher space brokerage activity.
Revenues from government contract services in the current period increased 22.9%
to $8.3 million from $6.8 million in the year ago period. The increase in
revenues from government contract services in the current period compared to
last year was primarily due to the Central and South American contracts added in
June 1997. Gross margin from government contract services in the current period
increased 35.1% to $2.1 million from $1.56 million last year due to higher
revenues and the higher margin Central and South American contracts.
Selling general and administrative expenses in the current period decreased 7.1%
to $2.9 million from $3.1 million in the year ago period. The decrease was
primarily due to lower compensation expense and lower professional fees.
Provision for bad debts increased by 66.2% in the current period to $906
thousand form $545 thousand a year ago reflecting a higher reserve rate based on
recent experience.
Depreciation and amortization expense in the current period increased 33.6% to
$2,390,000 from $1,789,000 a year ago. The increase in the current period is
primarily related to the acquisitions of eight FBO locations since August 1996.
Loss resulting from the bankruptcy of a customer was $7,050,000 in the current
period and was related to the bankruptcy filing by Western Pacific Airlines,
Inc. (WPAI) on October 5, 1997. The charge includes a $5 million reduction in
restricted cash and approximately $2,050,000 write off of WPAI's account
receivable. The restricted cash consisted of pledged certificates of deposits
which guaranteed bank loans to WPAI.
Income tax credit approximated 40.2% of pretax loss in the current period and
income tax expense approximated 40% of pretax income 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 bank debt. Additionally in February 1996, the Company issued $28
million of convertible subordinated debentures for the purpose, among other
reasons, of expanding operations through acquisitions. Mercury's cash balance at
December 31, 1997 totaled $7,394,000.
Net cash provided by operating activities totaled $ 12,845,000 during the period
ended December 31, 1997. During this period, the primary sources of net cash
provided by operating activities was the non-cash charge for bad debt expense of
$7,748,000, depreciation and amortization of $2,390,000 and accounts payable of
$2,804,000. The non-cash charge for bad debt expense of $7,748,000 included a
$5,000,000 reduction in restricted cash, a write off of $1,842,000 in accounts
receivable and $906,000 increase in allowance for doubtful accounts.
Net cash used in investing activities was $4,419,000 during the current period.
The primary source of cash from investing activities included a reduction of
$2,000,000 in restricted cash. The primary use of cash from investing activities
included additions to property, equipment and leaseholds of $3,118,000 and
additions to other assets of $3,266,000.
9
<PAGE> 10
Net cash used in financing activities was $3,921,000 during the current period.
The primary use of cash from financing activities in the current six month
period was the reduction in long-term debt of $2,143,000 and repurchases of
419,300 shares of common stock totaling $2,626,000 or $6.26 per share.
Subsequent to December 31,1997, the Company repurchased 38,400 shares of its
common stock at a total cost of approximately $230,000 or $5.99 per share.
Management is currently authorized by Mercury's board of directors and under
Mercury's loan agreements to repurchase up to approximately $145,000 of
additional Common Stock.
The Company's Senior unsecured bank credit facility consists of a $25,000,000
Revolver and various term facilities. At December 31, 1997, there was no
outstanding balance under the Revolver and the balance of the term loans
totalled $10,612,000.
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 has the following significant contracts or commitments for the
purchase of equipment or installation of facilities. The Company is party to a
lease and various contracts pursuant to which it will remodel and reconstruct a
174,000 square foot cargo warehouse at a cost of approximately $10,000,000. To
date, the Company has spent approximately $4.6 million on this project. The
Company currently anticipates that the warehouse will be operational by June
1998. The Company has also entered into a new lease with respect to its Burbank,
California FBO. Pursuant to the terms of the lease, the Company will construct
new hangar and terminal space and refurbish some of its existing space at a cost
of approximately $5.0 million. Upon completion of the construction, the
Company's lease will be extended through April 2025. Under the terms of its
lease for an FBO presently under construction in Charleston, South Carolina, the
Company will fund a portion of the construction cost, currently estimated at
$800,000. The Company will fund these projects, at least on an interim basis,
from its existing lines of credit.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On December 4, 1997, the Company held its annual meeting of
shareholders. All of the Company's directors were re-elected at the meeting by
the following votes:
<TABLE>
<CAPTION>
Abstain/
Name For Against Broker Non-vote
---- --- ------- ---------------
<S> <C> <C> <C>
Seymour Kahn 7,166,669 31,994 -0-
Robert L. List 7,167,346 31,317 -0-
Philip Fagan, Jr 7,169,351 29,312 -0-
Frederick H. Kopko 7,169,351 29,312 -0-
William G. Langton 7,168,601 30,062 -0-
Joseph A. Czyzyk 7,168,876 29,787 -0-
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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
/s/ SEYMOUR KAHN
-----------------------------------
Seymour Kahn
Chairman and Chief
Executive Officer
/s/ RANDY AJER
-----------------------------------
Randy Ajer
Secretary/Treasurer
Chief Accounting Officer
Date: February 6, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET OF DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENTS
OF INCOME FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS CONTAINED IN FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,394
<SECURITIES> 0
<RECEIVABLES> 46,471
<ALLOWANCES> 2,772
<INVENTORY> 2,106
<CURRENT-ASSETS> 56,605
<PP&E> 56,998
<DEPRECIATION> 26,952
<TOTAL-ASSETS> 96,139
<CURRENT-LIABILITIES> 27,425
<BONDS> 45,565
0
0
<COMMON> 71
<OTHER-SE> 23,078
<TOTAL-LIABILITY-AND-EQUITY> 96,139
<SALES> 108,406
<TOTAL-REVENUES> 137,820
<CGS> 96,355
<TOTAL-COSTS> 123,443
<OTHER-EXPENSES> 14,658
<LOSS-PROVISION> 906
<INTEREST-EXPENSE> 1,754
<INCOME-PRETAX> (281)
<INCOME-TAX> (113)
<INCOME-CONTINUING> (168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
