<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, 1998.
[ ] 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 February 4, 1999
----- ----------------------------
<S> <C>
Common Stock, $.01 Par Value 6,575,446
</TABLE>
<PAGE> 2
PART I -FINANCIAL INFORMATION
MERCURY AIR GROUP, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30,
1998 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,622,000 $ 7,836,000
Trade accounts receivable, net of allowance for doubtful
accounts of $1,701,000 at 12/31/98 and $1,686,000 at 6/30/98 42,605,000 38,387,000
Notes receivable - current portion 1,123,000 940,000
Inventories, principally aviation fuel 1,860,000 1,539,000
Prepaid expenses and other current assets 3,053,000 2,275,000
------------- -------------
Total current assets 50,263,000 50,977,000
CASH-RESTRICTED 3,539,000 9,161,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $32,415,000
(12/31/98);$29,006,000 (6/30/98) 54,529,000 44,252,000
NOTES RECEIVABLE, net of current portion 52,000 56,000
OTHER ASSETS (Note 3) 10,613,000 7,295,000
------------- -------------
$ 118,996,000 $ 111,741,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,971,000 $ 16,403,000
Accrued expenses and other current liabilities 6,024,000 5,242,000
Income taxes payable 898,000 1,409,000
Current portion of long-term debt 3,788,000 3,732,000
------------- -------------
Total current liabilities 27,681,000 26,786,000
LONG-TERM DEBT (Note 4) 41,376,000 30,619,000
DEFERRED INCOME TAXES 196,000 196,000
CONVERTIBLE SUBORDINATED DEBENTURES (Note 7) 24,065,000 28,090,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Notes 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 6,575,446 shares 12/31/98;
outstanding 7,082,753 shares 6/30/98 65,000 71,000
Additional paid-in capital 19,614,000 20,465,000
Retained earnings 6,903,000 6,415,000
Cumulative translation adjustment (242,000) (239,000)
Notes receivable from sale of stock (662,000) (662,000)
------------- -------------
Total stockholders' equity 25,678,000 26,050,000
------------- -------------
$ 118,996,000 $ 111,741,000
============= =============
</TABLE>
2
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,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales and Revenues:
Sales $ 69,506,000 $ 108,406,000 $ 34,671,000 $ 53,978,000
Service revenues 39,759,000 29,414,000 21,994,000 14,677,000
------------- ------------- ------------- -------------
109,265,000 137,820,000 56,665,000 68,655,000
------------- ------------- ------------- -------------
Costs and Expenses:
Cost of sales 55,913,000 96,355,000 27,984,000 47,935,000
Operating expenses 37,779,000 27,088,000 20,764,000 13,367,000
------------- ------------- ------------- -------------
93,692,000 123,443,000 48,748,000 61,302,000
------------- ------------- ------------- -------------
Gross Margin (Excluding depreciation
and amortization) 15,573,000 14,377,000 7,917,000 7,353,000
------------- ------------- ------------- -------------
Expenses (Income):
Selling, general and administrative 3,356,000 2,926,000 1,614,000 1,540,000
Provision for bad debts 902,000 906,000 451,000 453,000
Depreciation and amortization 3,691,000 2,390,000 1,860,000 1,224,000
Interest expense 2,025,000 1,754,000 1,041,000 898,000
Interest income (115,000) (368,000) (49,000) (140,000)
Loss resulting from bankruptcy of customer 7,050,000
------------- ------------- ------------- -------------
9,859,000 14,658,000 4,917,000 3,975,000
------------- ------------- ------------- -------------
Income (Loss) Before Provision for Income Taxes 5,714,000 (281,000) 3,000,000 3,378,000
Provision (Credit) for Income Taxes 2,228,000 (113,000) 1,173,000 1,351,000
------------- ------------- ------------- -------------
Net Income (Loss) Before Extraordinary Item $ 3,486,000 ($ 168,000) $ 1,827,000 $ 2,027,000
------------- ------------- ------------- -------------
Extraordinary Item (Note 7) (Less applicable
income taxes of $120,000 (six months); $22,000
(three months) (187,000) (34,000)
------------- ------------- ------------- -------------
Net Income (Loss) $ 3,299,000 ($ 168,000) $ 1,793,000 $ 2,027,000
============= ============= ============= =============
Net Income (Loss) Per Common Share (Note 5):
Basic:
Before extraordinary item $ 0.52 ($ 0.02) $ 0.28 $ 0.28
Extraordinary item -0.03 (0.01)
============= ============= ============= =============
Net income $ 0.49 ($ 0.02) $ 0.27 $ 0.28
============= ============= ============= =============
Diluted:
Before Extraordinary item $ 0.38 ($ 0.02) $ 0.21 $ 0.21
Extraordinary item -0.02
============= ============= ============= =============
Net Income $ 0.37 ($ 0.02) $ 0.20 $ 0.21
============= ============= ============= =============
</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,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 3,299,000 ($ 168,000)
Adjustments to derive cash flow from
Operating activities:
Bad debt expense 902,000 7,748,000
Depreciation and amortization 3,691,000 2,390,000
Amortization of officers' loans 20,000 77,000
Changes in operating assets and liabilities:
Trade and other accounts receivable (5,120,000) 316,000
Inventories (321,000) (158,000)
Prepaid expenses and other current assets (778,000) (701,000)
Accounts payable 568,000 2,804,000
Income taxes payable (511,000)
Accrued expenses and other current liabilities 782,000 537,000
------------ ------------
Net cash provided by operating activities 2,532,000 12,845,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash-tax exempt bond 5,622,000
Restricted cash-pledged certificates of deposit 1,000,000
(Increase) Decrease in notes receivable (179,000) 965,000
Addition to other assets (202,000) (3,266,000)
Acquisition of business, net of cash acquired (Note 3 and 8) (4,200,000)
Additions to property, equipment and leaseholds (9,104,000) (3,118,000)
------------ ------------
Net cash (used in) investing activities (8,063,000) (4,419,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long -term debt 10,000,000 942,000
Reduction of long-term debt (1,987,000) (2,143,000)
Reduction of convertible subordinated debentures (4,025,000)
Payment of dividend on common stock (94,000)
Repurchase and retire common stock (4,686,000) (2,626,000)
Proceeds from issuance of common stock 15,000
------------ ------------
Net cash used in financing activities (683,000) (3,921,000)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (6,214,000) 4,505,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,836,000 2,889,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,622,000 $ 7,394,000
============ ============
CASH PAID DURING THE PERIOD:
Interest $ 2,310,000 $ 1,754,000
Income taxes $ 2,619,000 $ 184,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Notes Payable for the acquisition of assets $ 4,250,000
Issuance of 124,224 shares of common stock for acquisition
of assets of Weather Data $ 1,000,000
Note receivable assigned to the Company in exchange for
the Company's certificate of deposit which was used to
guaranty a customer debt $ 1,000,000
Issuance of note payable for the acquisition of assets
of Jackson FBO $ 2,800,000
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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, 1998 and the notes thereto. The results of operations for the six
months ended December 31, 1998 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 - OTHER ASSETS:
On August 1, 1998, the Company acquired the weather observation
and forecasting and air traffic control government contracts and related assets
of Weather Data Services, Inc. for $3,500,000, which consisted of $2,500,000 in
cash and $1,000,000 of the Company's stock. The purchase price has been
allocated to intangible assets including contracts and goodwill.
NOTE 4 - LONG-TERM DEBT:
At December 31, 1998, long-term debt includes $10,000,000
borrowed during this period under the Company's $18,600,000 revolving credit
line. This facility matures in February 2000 and bears interest at prime or
LIBOR plus 1.5%.
5
<PAGE> 6
NOTE 5- EARNINGS PER SHARE:
Basic income ( loss ) per common share is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted income ( loss ) per share is computed by dividing net
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
December 31, 1998 December 31, 1997 December 31, 1998
Diluted Basic Diluted Basic Diluted Basic
<S> <C> <C> <C> <C> <C> <C>
Weighted average number of common
shares outstanding during the
period 6,708,000 6,708,000 7,332,000 7,332,000 6,582,000 6,582,000
Common stock equivalents resulting
from the assumed exercise of stock
options 365,000 -- -- -- 365,000 --
Common shares resulting from the
assumed conversion of debentures 3,643,000 -- -- -- 3,390,000 --
------------ ------------ ------------ ------------ ------------ ------------
Weighted average number of common
and common equivalent shares
outstanding during the period 10,716,000 6,708,000 7,332,000 7,332,000 10,337,000 6,582,000
============ ============ ============ ============ ============ ============
Net income (loss) before
extraordinary item $ 3,486,000 $ 3,486,000 $ (168,000) $ (168,000) $ 1,827,000 $ 1,827,000
Interest expense, net of tax, on
convertible debenture 632,000 -- -- -- 294,000 --
------------ ------------ ------------ ------------ ------------ ------------
Adjusted income (loss) before
extraordinary item $ 4,118,000 $ 3,486,000 $ (168,000) $ (168,000) $ 2,121,000 $ 1,827,000
------------ ------------ ------------ ------------ ------------ ------------
Extraordinary item (187,000) (187,000) -- -- (34,000) (34,000)
------------ ------------ ------------ ------------ ------------ ------------
Adjusted income (loss) $ 3,931,000 $ 3,299,000 $ (168,000) $ (168,000) $ 2,087,000 $ 1,793,000
------------ ------------ ------------ ------------ ------------ ------------
Common and common share
equivalents 10,716,000 6,708,000 7,332,000 7,332,000 10,337,000 6,582,000
============ ============ ============ ============ ============ ============
Earnings (Loss) per share:
Before Extraordinary Item $ .38 $ .52 $ (.02) $ (.02) $ .21 $ .28
Extraordinary Item (.02) (.03) -- -- -- (.01)
------------ ------------ ------------ ------------ ------------ ------------
Net Income $ .37 $ .49 $ (.02) $ (.02) $ .20 $ .27
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
Diluted Basic
<S> <C> <C>
Weighted average number of common
shares outstanding during the
period 7,159,000 7,159,000
Common stock equivalents resulting
from the assumed exercise of stock
options 286,000 --
Common shares resulting from the
assumed conversion of debentures 3,941,000 --
------------ ------------
Weighted average number of common
and common equivalent shares
outstanding during the period 11,386,000 7,159,000
============ ============
Net income (loss) before
extraordinary item $ 2,027,000 $ 2,027,000
Interest expense, net of tax, on
convertible debenture 336,000 --
------------ ------------
Adjusted income (loss) before
extraordinary item $ 2,363,000 $ 2,027,000
------------ ------------
Extraordinary item -- --
------------ ------------
Adjusted income (loss) $ 2,363,000 $ 2,027,000
------------ ------------
Common and common share
equivalents 11,386,000 7,159,000
============ ============
Earnings (Loss) per share:
Before Extraordinary Item $ .21 $ .28
Extraordinary Item -- --
------------ ------------
Net Income $ .21 $ .28
============ ============
</TABLE>
6
<PAGE> 7
NOTE 6 - STOCKHOLDINGS' EQUITY:
During the six month period ended December 31, 1998, the Company
repurchased 641,781 shares of its common stock at a cost of approximately
$4,682,000 which was charged to: Common Stock $6,000; Additional paid in capital
$1,865,000; and Retained Earnings $2,811,000.
NOTE 7 - CONVERTIBLE SUBORDINATED DEBENTURES/ EXTRAORDINARY ITEM:
During the six month period the Company repurchased 4,025 bonds
($1,000 par value) in the open market at a cost $4,129,000 plus accrued
interest. The excess of cost over par value of $104,000 plus $203,000 in bond
issuance costs have been charged to extraordinary item, net of a tax benefit of
$120,000, in the amount of $187,000. For the three months ended December 31,
1998, the excess of cost over par value plus bond issuance costs totalling
$56,000 have been charged to extraordinary item, net of a tax benefit of
$22,000, in the amount of $34,000.
NOTE 8 - ACQUISITION:
Effective November 30, 1998, the Company acquired substantially all the
assets of Jackson Air Center in Mississippi for $4,500,000 in cash. The Company
borrowed $2.8 million in term debt under its senior credit facility and the
balance was funded from borrowings under its revolver. The purchase price has
been allocated primarily to Property, Equipment and Leaseholds ($4,195,000) with
the balance to inventory and accounts payable.
NOTE 9 - COMPREHENSIVE INCOME:
In June of 1997, the Financial Accounting Standards Board issued
statement of Financial Accounting Standard No. 130 "Reporting Comprehensive
Income." This statement, which the Company adopted in fiscal 1999, establishes
standards for reporting and displaying comprehensive income and its components
in a full set of financial statements. For the periods presented, adjustments to
derive comprehensive income were insignificant .
7
<PAGE> 8
ITEM 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS- COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1998
AND DECEMBER 31, 1997 AND COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1998
AND DECEMBER 31, 1997.
The following tables set forth, for the periods indicated, the revenues and
gross margin for each of the Company's four operating units, as well as selected
other financial statement date.
<TABLE>
<CAPTION>
Six Months Ended December 31, Three Months Ended December 31,
----------------------------- -------------------------------
($ in millions) 1998 1997 1998 1997
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 $ 60.5 55.4% $ 96.0 69.7% $ 31.0 54.9% $ 47.7 69.4%
FBOs 23.2 21.2% 22.7 16.4% 11.6 20.5% 11.5 16.7%
Cargo operations 13.4 12.3% 10.8 7.9% 7.7 13.6% 6.0 8.8%
Government contract services 12.1 11.1% 8.3 6.0% 6.2 11.0% 3.5 5.1%
------- ------- ------- ------- ------- ------- ------ -------
Total Revenue $109.20 100.0% $ 137.8 100.0% $ 56.5 100.0% $ 68.7 100.0%
======= ======= ======= ======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended December 31, Three Months Ended December 31,
----------------------------- -------------------------------
($ in millions) 1998 1997 1998 1997
Amount % of Unit Amount % of Unit Amount % of Unit Amount % of Unit
Revenues Revenues Revenues Revenues
------ --------- ------- --------- ------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Margin (1):
Fuel sales and services $ 4.9 8.1% $ 4.4 4.6% $ 2.6 8.5% $ 2.1 4.5%
FBOs 5.5 23.5% 4.4 19.3% 2.7 22.9% 2.2 18.9%
Cargo operations 2.6 19.6% 3.5 31.9% 1.4 18.0% 2.1 34.2%
Government contract services 2.6 21.3% 2.1 25.3% 1.2 19.8% 1.0 28.6%
------ ----- ------ ----- ------ ----- ------ -----
Total Gross Margin $ 15.6 14.3% $ 14.4 10.4% $ 7.9 14.0% $ 7.4 10.7%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
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>
Selling, General and
Administrative $ 3.4 3.1% $2.9 2.1% $1 .6 2. 8% $1.5 2.2%
Provision for bad debts .9 .8% .9 .7% .5 .8% .5 .7%
Depreciation and amortization 3.7 3.4% 2.4 1.7% 1.9 3.3% 1.2 1.8%
Loss resulting from bankruptcy
of Customer -- -- 7.1 5.1% -- -- -- --
Interest expense and other 1.9 1.7% 1.4 1.0% 1.0 1.8% .8 1.1%
---- ---- ---- ---- ---- ---- ---- ----
Income (loss) before income
taxes 5.7 5.2% (.3) (.2)% 2.9 5.3% 3.4 4.9%
Provision (credit) for income
taxes 2.2 2.0% (.1) (.1)% 1.2 2.1% 1.4 2.0%
---- ---- ---- ---- ---- ---- ---- ----
Net income (loss) before
extraordinary item $3.5 3.2% $(.2) (.1)% $1.7 3.2% $2.0 3.0%
---- ---- ---- ----
Extraordinary item (.2) (.2)% -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Net income (loss) $3.3 3.0% $(.2) (.1)% $1.7 3.2% $2.0 3.0%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) Gross margin as used here and throughout Management's Discussion excludes
depreciation and amortization and selling, general and administrative expense.
8
<PAGE> 9
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997.
Revenue fell by 17.5% to $56.7 million in the current period from $68.7 million
a year ago due to a decline in both the price of fuel and volume of fuel sold.
Gross margin increased 7.7% to $7.9 million in the current period from $7.4
million a year ago.
Revenues from fuel sales and services represented 54.9% of total revenues in the
current period compared to 69.4% of total revenues a year ago. Revenues from
fuel sales and services fell 38.9% to $31.0 million from $47.7 million last
year. The decline in revenues from fuel sales and services was due to a decrease
in the volume of fuel sold, a significant portion of which was due to the loss
of Western Pacific's fuel business in February 1998, and a decrease in the price
of fuel . Gross margin from fuel sales and service increased by 24.4% to $2.6
million in the current period from $2.1 million last year due to RPA's
contribution. Revenues and operating income from fuel sales and services include
the activities of Mercury's contract fueling business, as well as activities
from a number of other commercial services including the provision of certain
refueling services, non-aviation fuel brokerage and other services managed at
LAX as part of Mercury's fuel sales and services operations. In addition, fuel
sales and services include the activities of Mercury's wholly owned subsidiary,
RPA, subsequent to its acquisition in February 1998. RPA is a developer of
software products for the aviation business. Revenue from RPA was $2.5 million
in the current period.
Revenues from FBOs increased by 1.2% in the current period to $11.6 million from
$11.5 million a year ago. Gross margin increased 22.0% in the current period to
$2.7 million from $2.2 million last year. The increase was attributable to an
increase in the number of gallons sold and higher per gallon fuel margins.
Revenues from cargo operations in the current period increased 28.4% to $7.7
million from $6.0 million a year ago. This increase was due to an increase in
cargo handling revenues at LAX and Atlanta, which was acquired in April 1998,
and partially offset by a decline in space brokerage revenue. Gross margin from
cargo operations in the current period decreased 32.3% to $1.4 million from $2.1
million in the year ago period primarily due to lower space brokerage revenues,
higher costs and losses in the Miami cargo handling division. The Company is
currently evaluating strategic alternatives for its Miami cargo handling
operations.
Revenues from government contract services increased 78.6% in the current period
to $6.2 million from $3.5 million in the year ago period. The increase in
revenues from government contract services was due primarily to the addition of
the Weather Data contracts as of August 1, 1998. Gross margin from government
contract services in the current period increased 23.7% to $1.2 million from
$1.0 million last year due to higher revenues. Gross margin as a percentage of
revenues declined as a result of lower margins derived from Weather Data's
contracts.
Selling, general and administrative expenses in the current period increased
4.8% to $1.61 million from $1.54 million in last year's period due primarily to
higher compensation expense.
Depreciation and amortization expense increased 52.0% in the current period to
$1.86 million from $ 1.224 million a year ago primarily due to the LAX Cargo
warehouse expansion during fiscal 1998, acquisitions during the past twelve
months and continuing capital expenditures.
Interest expense increased 15.9% in the current period to $1.04 million from
$.898 million a year ago due to higher average outstanding borrowings
Income tax expense approximated 39.1% of pre-tax income in the current period
and 40.0% of pretax income a year ago reflecting the expected effective annual
income tax rates.
In the current three month period, extraordinary item of $34,000 consists of a
charge of $56,000 related to the cost of repurchasing convertible subordinated
debentures in excess of par value and related bond issuance costs, net of a tax
benefit of $22,000.
9
<PAGE> 10
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997.
Revenues decreased 20.7% to $109.2 million in the current period from $137.8
million a year ago. Gross Margin increased 8.3% to $15.6 million in the current
period from $14.4 million a year ago.
Revenues from fuel sales and services represented 55.4% of total revenues in the
current period compared to 69.7% of total revenue a year ago. Revenues from fuel
sales and services decreased 37.0% to $60.5 million from $96.0 million last
year. The decrease in revenues from fuel sales and services was primarily due to
a decrease in the price of fuel and a decrease in the volume of fuel sold, a
significant portion of which was due to the loss of Western Pacific's fuel
business. Gross margin from fuel sales and services increased 10.6% in the
current period to $4.9 million from $4.4 million a year ago. The increase in
gross margin from fuel sales and services in the current period compared to last
year was attributable to RPA's contribution in the second quarter. Revenue from
RPA was $3.7 million in the current six month period.
Revenue from FBOs increased 2.3% in the current period to $23.2 million from
$22.7 million a year ago. Gross margin increased 24.6% to $5.5 million from $4.4
million in the year ago period due to an increase in gallons sold and higher per
gallon fuel margins. FBOs include the activities of Charleston which opened in
November 1998 and Jackson which was acquired on November 30, 1998.
Revenues from cargo operations in the current period increased 24.0% to $13.4
million from $10.8 million a year ago. The increase was primarily due to an
increase in cargo handling revenue at LAX and Atlanta and partially offset by a
decline in space brokerage revenue. Gross margin from cargo operations in the
current period decreased 23.9% to $2.6 million from $3.4 million in the year ago
period due to increased losses in Miami, lower space brokerage revenue and
higher operating costs. The Company is currently evaluating strategic
alternatives for its Miami cargo handling operation.
Revenues from government contract services in the current period increased 46.1%
to $12.1 million from $8.3 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 addition of the Weather Data contracts as of
August 1, 1998. Gross margin from government contract services in the current
period increased 22.5% to $2.6 million from $2.1 million last year due to higher
revenues.
Selling general and administrative expenses in the current period increased
14.7% to $3.4 million from $2.9 million in the year ago period. The increase was
primarily due to higher compensation expense.
Depreciation and amortization expense in the current period increased 54.4% to
$3.7 million from $2.4 million a year ago. The increase in the current period is
primarily related to the LAX cargo warehouse expansion during fiscal 1998,
acquisitions during the past twelve months and capital expenditures.
Interest expense increased 15.5% in the current six months to $2.025 million
from $1.754 million a year ago due to higher average outstanding borrowings.
Interest income decreased 68.8% in the current six months to $115,000 from
$368,000 in the year ago period due to lower balances of notes receivable and
invested cash.
Loss resulting from the bankruptcy of a customer was $7,050,000 in the year ago
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 expense approximated 39.0% of pretax income in the current period and
income tax credit approximated 40.2% of pretax loss a year ago, reflecting the
expected effective annual tax rate.
10
<PAGE> 11
In the current six month period, extraordinary item of $187,000 consists of a
charge of $307,000 related to the cost of repurchasing convertible subordinated
debentures in excess of par value and related bond issuance costs, net of a tax
benefit of $120,000.
LIQUIDITY AND CAPITAL RESOURCES:
Mercury has historically financed its operations primarily through operating
cash flow, bank debt, the $19 million of tax exempts bonds issued in 1998 and
the $28 million of convertible subordinated debentures issued in 1996. Mercury's
cash balance at December 31, 1998 totaled $1,622,000.
Net cash provided by operating activities totaled $2,532,000 during the period
ended December 31, 1998. During this period, the primary sources of net cash
provided by operating activities was net income and depreciation and
amortization totalling $6,990,000. The primary use of cash from operating
activities was an increase in accounts receivable of $5,120,000. Accounts
receivable at December 31, 1998 increased from June 30, 1998 balances due to
higher sales in the December quarter versus the June quarter. Days sales
outstanding were approximately 68 at December 31, 1998 versus approximately 70
at June 30, 1998.
Net cash used in investing activities was $8,063,000 during the current period.
The primary source of cash from investing activities included a reduction of
$5,622,000 in restricted cash related to the construction of the Burbank FBO.
The primary use of cash from investing activities included additions to
property, equipment and leaseholds of $9,104,000 and acquisition of business,
net of cash acquired, of $4,200,000.
Net cash used in financing activities totaled $683,000 during the current
period. The primary use of cash from financing activities in the current six
month period was the reduction in convertible subordinated debentures of
$4,025,000 and repurchases of 641,781 shares of common stock totaling
$4,686,000. The primary source of cash from financing activities was proceeds
from long-term debt of $10,000,000.
The Company's Senior unsecured bank credit facility consists of a $18,600,000
Revolver and various term facilities. At December 31, 1998, there was
$10,000,000 outstanding under the Revolver and the balance of the term loans
totalled $8,059,000. The Company has recently received a commitment from its
senior lenders to replace its $47.9 million unsecured credit facility with an
$80 million secured facility. This transaction is expected to close in February
1999.
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 has 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 $9.0 million.
Upon completion of the construction, the Company's lease will be extended
through April 2025 . As of December 31, 1998, the Company has spent
approximately $6.7 million on this project. The Company is also retrofitting or
replacing a number of fuel farms during fiscal 1999 at an estimated cost of
$2,500,000. Amounts drawn down in connection with the CEDFA bond financing is
being used to finance the Burbank FBO construction while existing lines of
credit will finance the fuel farm modifications.
11
<PAGE> 12
YEAR 2000 ISSUE
The Company has established a year 2000 compliance plan which is substantially
complete. The compliance program primarily involves information technology,
facilities and equipment and major suppliers of jet fuel. To date, the Company
has spent less than $100,000 and the total estimated cost related to year 2000
compliance is approximately $100,000.
The Company has substantially completed a year 2000 compliance program for
information technology and is currently in the testing phase. All required
information technology changes are anticipated to be operational by the third
quarter of fiscal 1999. The Company does not believe that year 2000 issues
affecting its facilities and equipment are substantial. The Company, however,
conducts most of its business on airport properties and, as such, is dependent
on various third parties to complete aspects of year 2000 compliance which will
ensure that airport operations are not significantly impacted or interrupted.
While the Company has no reason to believe that year 2000 compliance by these
third parties will not be substantially completed on time, the Company can give
no assurance to that effect. With respect to major suppliers, the Company
believes year 2000 compliance issues will not affect its ability to continue
purchasing jet fuel in sufficient quantities, given the number of alternative
sources.
No contingency plans have been developed for information technology since the
Company believes that its compliance program will be completed timely.
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q which are not
historical facts are forward-looking statements. In addition, Mercury, from
time-to-time, makes forward-looking statements concerning its expected future
operations and performance and other developments. Such forward-looking
statements are necessarily estimates reflecting Mercury's best judgment based
upon current information and involve a number of risks and uncertainties, and
there can be no assurance that other factors will not affect the accuracy of
such forward-looking statements. While it is impossible to identify all such
factors, factors which could cause actual results to differ materially from
those estimated by Mercury include, but are not limited to, risks associated
with acquisitions, the financial condition of customers, non-renewal of
contracts, government regulation, as well as operating risks, general conditions
in the economy and capital markets, and other factors which may be identified
from time-to-time in Mercury's Securities and Exchange Commission filings and
other public announcements.
12
<PAGE> 13
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 3, 1998, 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 6,180,407 58,419 -0-
Joseph A. Czyzyk 6,180,407 58,419 -0-
Dr. Philip J. Fagan, Jr. 6,176,747 62,079 -0-
Frederick H. Kopko 6,180,407 58,419 -0-
William G. Langton 6,178,076 60,750 -0-
Robert L. List 6,179,951 58,875 -0-
</TABLE>
The proposal to adopt the Company's 1998 Long-Term Incentive Plan pursuant to
which 600,000 shares of Common Stock of the Company will be reserved for
issuance pursuant to options to be granted to employees, officers and
consultants under such plan was adopted at the meeting by the following votes:
<TABLE>
<CAPTION>
Broker Non-vote/
For Against Abstained Unvoted
- --- ------- --------- -------
<S> <C> <C> <C>
3,674,320 1,334,586 35,658 1,194,262
</TABLE>
The proposal to adopt the Company's 1998 Directors Stock Option Plan pursuant to
which 300,000 shares of Common Stock of the Company will be reserved for
issuance pursuant to options to be granted to outside directors under such plan
was adopted at the meeting by the following votes:
<TABLE>
<CAPTION>
Broker Non-vote/
For Against Abstained Unvoted
- --- ------- --------- -------
<S> <C> <C> <C>
3,592,382 1,401,433 50,748 1,194,263
</TABLE>
Item 5. Other Information
None
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
6(a)
Exhibit
No. Description
1.1 Underwriting Agreement for the Company's $25,000,000 7-3/4% Convertible
Subordinated Debentures due February 1, 2006. (11)
3.1 Restated Certificate of Incorporation (4)
3.2 Form of Amendment to Restated Certificate of Incorporation creating the
Series A 8% Convertible Cumulative Redeemable Preferred Stock (4)
3.3 Form of Amendment to Restated Certificate of Incorporation declaring the
Separation Date for the Series A 8% Convertible Redeemable Preferred
Stock (5)
3.4 Bylaws of the Company (4)
3.5 Amendment to Bylaws of the Company (10)
4.1 Form of Indenture between Mercury Air Group, Inc. and IBJ Schroder Bank
& Trust Company. (11)
4.2 Negotiable Promissory Note, dated as of June 21, 1996, from Mercury Air
Group, Inc. to Raytheon Aircraft Services, Inc. (13)
4.3 Legend Agreement, dated as of August 29, 1996 between Mercury Air Group,
Inc. and Raytheon Aircraft Services, Inc. (13)
10.1 Employment Agreement dated December 10, 1993 between the Company and
Seymour Kahn (8)
10.2 Stock Purchase Agreement between the Company, SK Acquisition, Inc.,
Randolph E. Ajer, Kevin J. Walsh, Grant Murray and Joseph Czyzyk (2)
10.3 Company's 1990 Long-Term Incentive Plan (6)
10.4 Company's 1990 Directors Stock Option Plan (1)
10.5 Lease for 6851 West Imperial Highway, Los Angeles, California (4)
10.6 Memorandum Dated September 15, 1997 regarding Summary of Officer Life
Insurance Policies with Benefits Payable to Officers or Their Designated
Beneficiaries (15)
10.7 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for
Seymour Kahn, Joseph Czyzyk and Randolph E. Ajer (10)
10.8 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for
Kevin Walsh and William Silva (10)
10.9 The Company's 401(k) Plan consisting of LCI Actuaries, Inc. Regional
Prototype Defined Contribution Plan and Trust and Adoption Agreement (7)
10.10 Non-Qualified Stock Option Agreement by and between the Company and
Seymour Kahn dated January 21, 1993 (7)
10.11 Stock Purchase Agreement among the Company, SK Acquisition, Inc. and
William L. Silva dated as of August 9, 1993 (8)
10.12 Stock Exchange Agreement dated as of November 15, 1994 between Joseph
Czyzyk and the Company (9)
10.13 Employment Agreement dated November 15, 1994 between the Company and
Joseph Czyzyk (16)
10.14 Non-Qualified Stock Option Agreement dated August 24, 1995, by and
between S.K. Acquisition and Mercury Air Group, Inc. (12)
10.15 Non-Qualified Stock Option Agreement dated March 21, 1996, by and
between Frederick H. Kopko and Mercury Air Group, Inc. (12)
10.16 Credit Agreement by and among Sanwa Bank California, Mellon Bank, N.A.,
The First National Bank of Boston and Mercury Air Group, Inc. dated
March 14, 1997. (14)
10.17 First Amendment to Credit Agreement and Related Loan Documents dated as
of November 1997, by and among Sanwa Bank California, Mellon Bank, N.A.,
BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.18 First Amendment of 1998 to Credit Agreement and Other Loan Documents
dated as of April 1, 1998,
14
<PAGE> 15
by and among Sanwa Bank California, Mellon Bank, N.A., BankBoston, N.A.
and Mercury Air Group, Inc. (3)
10.19 Second Amendment of 1998 to Credit Agreement and Other Loan Documents
dated as of April 1998, by and between Sanwa Bank California, Mellon
Bank, N.A., BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.20 Third Amendment of 1998 to Credit Agreement and Other Loan Documents
dated as of August 31, 1998, by and between Sanwa Bank California,
Mellon Bank, N.A., BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.21 Loan Agreement between California Economic Development Financing
Authority and Mercury Air Group, Inc. relating to $19,000,000 California
Economic Development Financing Authority Variable Rate Demand Airport
Facilities Revenue Bonds, Series 1998 (Mercury Air Group, Inc. Project)
dated as of April 1, 1998. (3)
10.22 Reimbursement Agreement dated as of April 1, 1998, by and among Sanwa
Bank California, Mellon Bank, N.A., BankBoston, N.A. and Mercury Air
Group, Inc. (3)
10.23 First Amendment to Reimbursement Agreement and Other L/C Documents as of
August 31, 1998, by and between Sanwa Bank California, Mellon Bank,
N.A., BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.24 Fourth Amendment of 1998 to Credit Agreement and Other Loan Documents by
and between Sanwa Bank California, Mellon Bank, N.A., BankBoston, N.A.
and Mercury Air Group, Inc. dated September 15, 1998.
10.25 Second Amendment to Reimbursement Agreement and Other L/C Documents by
and between Sanwa Bank California, Mellon Bank, N.A., BankBoston, N.A.
and Mercury Air Group, Inc. dated September 15, 1998.
- ----------------------
(1) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 10, 1993 Annual Meeting of Shareholders and is
incorporated herein by reference.
(2) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 6, 1989 and is incorporated herein by
reference.
(3) All such documents were previously filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and are
incorporated herein by reference.
(4) All such documents were previously filed as Exhibits to the Company's
Registration Statement No. 33-39044 on Form S-2 and are incorporated herein by
reference.
(5) Such document was previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1992 and is incorporated
herein by reference.
(6) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 2, 1992 Annual Meeting of Shareholders.
(7) All such documents were previously filed as Exhibits to the Company's Annual
Report on Form 10-K for the year ended June 30, 1993 and are incorporated herein
by reference.
(8) All such documents were previously filed as Exhibits to the Company's Annual
Report on Form 10-K for the year ended June 30, 1994 and are incorporated herein
by reference.
(9) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated November 15, 1994 and is incorporated herein by
reference.
15
<PAGE> 16
(10) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995 and are incorporated
herein by reference.
All such documents were previously filed as Exhibits to the Company's
Registration Statement No. 33-65085 on Form S-1 and are incorporated herein by
reference.
All such documents were previously filed as Exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996 and are incorporated
herein by reference.
(13) All such documents were previously filed as Exhibits to the Company's
Report on Form 8-K filed September 13, 1996 and are incorporated herein by
reference
(14) Such document was previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 and is incorporated
herein by reference.
Such document was previously filed as an Exhibit to the Company's Annual Report
on Form 10-K for the year ended June 30, 1997 and is incorporated herein by
reference.
(16) All such documents were previously filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended June 30, 1998 and is incorporated
herein by reference.
(b) Reports on Form 8-K:
None.
16
<PAGE> 17
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/ JOSEPH CZYZYKC
---------------------------------------
Joseph Czyzykc
Chief Executive Officer
/s/ RANDY AJER
---------------------------------------
Randy Ajer
Secretary/Treasurer
Chief Accounting Officer
February 05, 1999
17
<PAGE> 1
EXHIBIT 10.24
FOURTH AMENDMENT OF 1998 TO CREDIT AGREEMENT
AND
OTHER LOAN DOCUMENTS
THIS FOURTH AMENDMENT OF 1998 TO CREDIT AGREEMENT AND OTHER LOAN
DOCUMENTS (the "Amendment") is made and dated as of the 15th day of September,
1998, by and between SANWA BANK CALIFORNIA ("Sanwa"), MELLON BANK, N.A. and
BANKBOSTON, N.A. as the current Lenders under the Credit Agreement referred to
below (and as the term "Lender" and capitalized terms not otherwise defined
herein are used in the Credit Agreement), SANWA, as Agent for the Lenders, and
MERCURY AIR GROUP, INC., a New York corporation (the "Company").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of March 14, 1997,
by and among the Agent, the Lenders and the Company (the "Credit Agreement"),
the Lenders agreed to extend credit to the Company on the terms and subject to
the conditions set forth therein.
B. The Company, the Agent and the Lenders have agreed to amend the
Credit Agreement in certain respects as set forth more particularly below.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Purchase or Retirement of Stock. To reflect the agreement of the
parties hereto to increase the limit on permitted stock repurchases and
redemptions currently contained in the Credit Agreement, effective as of the
Effective Date (as defined in Paragraph 4 below), subparagraph 12(f) of the
Credit Agreement is hereby amended to delete the dollar amount "$9,000,000.00"
appearing therein and to replace the same with the dollar amount
"$12,000,000.00."
2. Reaffirmation of Loan Documents. The Company hereby affirms and
agrees that (a) the execution and delivery by the Company of and the performance
of its obligations under this Amendment shall not in any way amend, impair,
invalidate or otherwise affect any of the obligations of the Company or the
rights of the Agent or the Lenders under the Credit Agreement or any other Loan
Document, (b) the term "Obligations" as used in the Loan Documents includes,
without limitation, the
1
<PAGE> 2
EXHIBIT 10.24
Obligations of the Company under the Credit Agreement as amended hereby and
(c).each of the Loan Documents remains in full force and effect.
3. Reaffirmation of Guaranties. By executing this Amendment as provided
below, each Guarantor acknowledges the terms and conditions agreed to by the
Company, the Agent and the Lenders under this Amendment, and affirms and agrees
that (a) the execution and delivery by the Company and the performance of its
obligations under this Amendment shall not in any manner or to any extent affect
any of the obligations of such Guarantor or the rights of the Agent or the
Lenders under the Guaranty executed by such Guarantor or any other document or
instrument made or given by such Guarantor in connection therewith, (b) the term
"Obligations" as used in the Guaranties includes, without limitation, the
Obligations of the Company under the Credit Agreement as amended hereby, and (c)
each Guaranty remains in full force and effect.
4. Effective Date. This Amendment shall be effective as of the date (the
"Effective Date") that there has been delivered to the Agent:
(a) A copy of this Amendment, duly executed by each party hereto
and acknowledged by each of the Guarantors; and
(b) Such corporate resolutions, incumbency certificates and other
authorizing documentation as the Agent may request.
5. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Lenders that at the date hereof and at and as of
the Effective Date:
(a) The Company and each of the Guarantors has the corporate
power and authority and the legal right to execute, deliver and perform this
Amendment and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Amendment. This Amendment has been
duly executed and delivered on behalf of the Company and each of the Guarantors
and constitutes the legal, valid and binding obligation of such Person,
enforceable against such Person in accordance with its terms.
(b) Both prior to and after giving effect hereto: (1) the
representations and warranties of the Company contained in the Credit Agreement
and the other Loan Documents are accurate and complete in all respects, and (2)
there has not occurred an Event of Default or Potential Default which has not
been expressly waived hereby.
6. No Other Amendment. Except as expressly amended hereby, the Loan
Documents shall remain in full force and effect as written and amended to date.
2
<PAGE> 3
EXHIBIT 10.24
7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
MERCURY AIR GROUP, INC.,
a New York corporation
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
SANWA BANK CALIFORNIA, as Agent and as a Lender
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
MELLON BANK, N.A., as a Lender
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
BANKBOSTON, N.A., as a Lender
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
3
<PAGE> 4
EXHIBIT 10.24
ACKNOWLEDGED AND AGREED TO
as of this 15th day of September, 1998:
EXCEL CARGO, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
FLORACOOL, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
HERMES AVIATION, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
MAYTAG AIRCRAFT CORPORATION
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
4
<PAGE> 5
EXHIBIT 10.24
MERCURY AIR CARGO, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
VULCAN AVIATION, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
WOFFORD FLYING SERVICE, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
RENE PEREZ & ASSOCIATES, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
5
<PAGE> 1
EXHIBIT 10.25
SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT
AND
OTHER L/C DOCUMENTS
THIS SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT AND OTHER L/C DOCUMENTS
(the "Amendment") is made and dated as of the 15th day of September, 1998, by
and between SANWA BANK CALIFORNIA ("Sanwa"), MELLON BANK, N.A. and BANKBOSTON,
N.A. ("BankBoston") as the current Credit Support Providers under the
Reimbursement Agreement referred to below (and as the term "Credit Support
Providers" and capitalized terms not otherwise defined herein are used in the
Credit Agreement), BANKBOSTON, as the Issuing Bank for the Letter of Credit,
SANWA, as Agent for the Credit Support Providers, and MERCURY AIR GROUP, INC., a
New York corporation (the "Company").
RECITALS
A. Pursuant to that certain Reimbursement Agreement dated as of April 1,
1998, by and among the Agent, the Issuing Bank, the Credit Support Providers and
the Company (the "Reimbursement Agreement"), the Issuing Bank and the Credit
Support Providers agreed to extend credit to the Company on the terms and
subject to the conditions set forth therein.
B. The Company, the Agent, the Issuing Bank and the Credit Support
Providers have agreed to amend the Reimbursement Agreement in certain respects
as set forth more particularly below.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Purchase or Retirement of Stock. To reflect the agreement of the
parties hereto to increase the limit of permitted stock repurchases and
redemptions currently contained in the Reimbursement Agreement, effective as of
the Effective Date (as defined in Paragraph 4 below), subparagraph 8(f) of the
Reimbursement Agreement is hereby amended to delete the dollar amount
"$9,000,000.00" appearing therein and to replace the same with the dollar amount
"$12,000,000.00."
2. Reaffirmation of Loan Documents. The Company hereby affirms and
agrees that (a) the execution and delivery by the Company of and the performance
of its obligations under this Amendment shall not in any way amend, impair,
invalidate or otherwise affect any of the obligations of the Company or the
rights of the Agent or the
1
<PAGE> 2
EXHIBIT 10.25
Credit Support Providers under the Reimbursement Agreement or any other Loan
Document, (b) the term "Obligations" as used in the Loan Documents includes,
without limitation, the Obligations of the Company under the Reimbursement
Agreement as amended hereby.
3. Reaffirmation of Guaranties. By executing this Amendment as provided
below, each Guarantor acknowledges the terms and conditions agreed to by the
Company, the Agent and the Credit Support Providers under this Amendment, and
affirms and agrees that (a) the execution and delivery by the Company and the
performance of its obligations under this Amendment shall not in any manner or
to any extent affect any of the obligations of such Guarantor or the rights of
the Agent or the Credit Support Providers under the Guaranty executed by such
Guarantor or any other document or instrument made or given by such Guarantor in
connection therewith, (b) the term "Obligations" as used in the Guaranties
includes, without limitation, the Obligations of the Company under the
Reimbursement Agreement as amended hereby, and (c) each Guaranty remains in full
force and effect.
4. Effective Date. This Amendment shall be effective as of the date (the
"Effective Date") that there has been delivered to the Agent:
(a) A copy of this Amendment, duly executed by each party hereto
and acknowledged by each of the Guarantors; and
(b) Such corporate resolutions, incumbency certificates and other
authorizing documentation as the Agent may request.
5. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Credit Support Providers that at the date hereof
and at and as of the Effective Date:
(a) The Company and each of the Guarantors has the corporate
power and authority and the legal right to execute, deliver and perform this
Amendment and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Amendment. This Amendment has been
duly executed and delivered on behalf of the Company and each of the Guarantors
and constitutes the legal, valid and binding obligation of such Person,
enforceable against such Person in accordance with its terms.
(b) Both prior to and after giving effect hereto: (1) the
representations and warranties of the Company contained in the Reimbursement
Agreement and the other Loan Documents are accurate and complete in all
respects, and (2) there has not occurred an Event of Default or Potential
Default which has not been expressly waived hereby.
6. No Other Amendment. Except as expressly amended hereby, the Loan
Documents shall remain in full force and effect as written and amended to date.
2
<PAGE> 3
EXHIBIT 10.25
7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
MERCURY AIR GROUP, INC.,
a New York corporation
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
SANWA BANK CALIFORNIA, as Agent and as a Credit Support Provider
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
MELLON BANK, N.A., as a Credit Support Provider
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
BANKBOSTON, N.A., as the Issuing Bank and a Credit Support Provider
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
3
<PAGE> 4
EXHIBIT 10.25
ACKNOWLEDGED AND AGREED TO
as of the 15th day of September, 1998:
EXCEL CARGO, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
FLORACOOL, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
HERMES AVIATION, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
MAYTAG AIRCRAFT CORPORATION
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
4
<PAGE> 5
EXHIBIT 10.25
MERCURY AIR CARGO, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
VULCAN AVIATION, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
WOFFORD FLYING SERVICE, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
RENE PEREZ & ASSOCIATES, INC.
By
------------------------------------
Name
---------------------------------
Title
---------------------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENTS
OF INCOME FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN FORM 10-Q FOR
THE PERIOD ENDED DECEMBER 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,622
<SECURITIES> 0
<RECEIVABLES> 45,429
<ALLOWANCES> 1,701
<INVENTORY> 1,860
<CURRENT-ASSETS> 50,263
<PP&E> 86,944
<DEPRECIATION> 32,415
<TOTAL-ASSETS> 118,996
<CURRENT-LIABILITIES> 27,681
<BONDS> 65,441
0
0
<COMMON> 65
<OTHER-SE> 25,613
<TOTAL-LIABILITY-AND-EQUITY> 118,996
<SALES> 69,506
<TOTAL-REVENUES> 109,265
<CGS> 55,913
<TOTAL-COSTS> 93,692
<OTHER-EXPENSES> 9,859
<LOSS-PROVISION> 902
<INTEREST-EXPENSE> 2,025
<INCOME-PRETAX> 5,714
<INCOME-TAX> 2,228
<INCOME-CONTINUING> 3,486
<DISCONTINUED> 0
<EXTRAORDINARY> 187
<CHANGES> 0
<NET-INCOME> 3,299
<EPS-PRIMARY> .49<F1>
<EPS-DILUTED> .37
<FN>
<F1>FOR THE PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
