-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LEbJvcccIOupaBKfNQysDAjJurdpbQ+L0NblkHxpehDxjZ6r6TTmc/IA+u3ZoL6l fOlr1psnyFb1DHoXmLGyJQ== 0000912057-96-008978.txt : 19960513 0000912057-96-008978.hdr.sgml : 19960513 ACCESSION NUMBER: 0000912057-96-008978 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCURY AIR GROUP INC CENTRAL INDEX KEY: 0000052532 STANDARD INDUSTRIAL CLASSIFICATION: AIRPORTS, FLYING FIELDS & AIRPORT TERMINAL SERVICES [4581] IRS NUMBER: 111800515 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07134 FILM NUMBER: 96559710 BUSINESS ADDRESS: STREET 1: 5456 MCCONNELL AVE CITY: LOS ANGELES STATE: CA ZIP: 90066 BUSINESS PHONE: 3106462994 FORMER COMPANY: FORMER CONFORMED NAME: IPM TECHNOLOGY INC DATE OF NAME CHANGE: 19891225 FORMER COMPANY: FORMER CONFORMED NAME: IDEAL PRECISION METER CO INC DATE OF NAME CHANGE: 19690911 FORMER COMPANY: FORMER CONFORMED NAME: PRECISION METER CO INC DATE OF NAME CHANGE: 19670906 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from to Commission File No. 1-7134 MERCURY AIR GROUP, INC. (Exact name of registrant as specified in its charter) New York 11-1800515 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5456 McConnell Avenue, Los Angeles, CA 90066 (Address of principal executive offices) (Zip Code) (310) 827-2737 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Number of Shares Outstanding Title As of May 07, 1996 Common Stock, $.01 Par Value 5,929,095 MERCURY AIR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, JUNE 30, 1996 (UNAUDITED) 1995 ---------------- --------- CURRENT ASSETS: Cash and cash equivalents $14,923,000 $ 831,000 Trade accounts receivable, net of allowance for doubtful accounts of $1,098,000 at 3/31/96 and $610,000 at 6/30/95 (Note 8) 40,267,000 33,269,000 Notes receivable - current portion 60,000 50,000 Inventories (Note 2) 1,894,000 3,283,000 Prepaid expenses and other current assets 2,753,000 1,822,000 ----------- ----------- Total current assets 59,897,000 39,255,000 PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated depreciation and amortization of $21,968,000 at 3/31/96 and $20,391,000 at 6/30/95 (Note 8) 14,913,000 12,219,000 NOTES RECEIVABLE, net of current portion 170,000 136,000 OTHER ASSETS (Notes 7 and 8) 5,123,000 2,600,000 ----------- ----------- $80,103,000 $54,210,000 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable (Note 8) $16,508,000 $12,998,000 Accrued expenses and other current liabilities 4,021,000 3,008,000 Income taxes payable (Note 3) 253,000 114,000 Current portion of long-term debt 2,726,000 2,607,000 ----------- ----------- Total current liabilities 23,508,000 18,727,000 CONVERTIBLE SUBORDINATED DEBENTURES (Note 7) 28,115,000 -- LONG-TERM DEBT (Notes 6 and 8) 7,505,000 17,104,000 DEFERRED INCOME TAXES 8,000 8,000 ----------- ----------- 59,136,000 35,839,000 ----------- ----------- COMMITMENTS AND CONTINGENCIES ( Note 9) STOCKHOLDERS' EQUITY (Note 4): Preferred Stock - $.01 par value; authorized 3,000,000 shares; no shares outstanding Common Stock - $ .01 par value; authorized 18,000,000 shares; outstanding 5,393,087 shares 3/31/96; outstanding 5,524,257 shares 6/30/95 54,000 55,000 Additional Paid-in Capital 14,687,000 14,992,000 Retained Earnings 6,381,000 3,479,000 Treasury Stock - 35,200 shares of common stock (155,000) (155,000) ----------- ----------- Total stockholders' equity 20,967,000 18,371,000 ----------- ----------- $80,103,000 $54,210,000 ----------- ----------- ----------- -----------
2 See accompanying notes to consolidated financial statements. MERCURY AIR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, ---------------------------- --------------------------- 1996 1995 1996 1995 ---------------------------- --------------------------- Sales and Revenues: Sales $133,600,000 $106,504,000 $46,984,000 $40,840,000 Service Revenues 30,931,000 28,217,000 10,271,000 9,162,000 ------------ ------------ ----------- ----------- 164,531,000 134,721,000 57,255,000 50,002,000 Costs and Expenses: Cost of Sales 123,579,000 97,510,000 43,568,000 37,478,000 Operating Expenses 27,231,00 24,878,000 9,424,000 8,486,000 ------------ ------------ ----------- ----------- 150,810,000 122,388,000 52,992,000 45,964,000 ------------ ------------ ----------- ----------- Gross Margin (Excluding depreciation and amortization) 13,721,000 12,333,000 4,263,000 4,038,000 Selling, General and Administrative 4,630,000 3,997,000 1,549,000 1,385,000 Depreciation and Amortization 2,064,000 1,800,000 711,000 605,000 ------------ ------------ ----------- ----------- Operating Income 7,027,000 6,536,000 2,003,000 2,048,000 ------------ ------------ ----------- ----------- Other Expenses (Income): Interest Expense 1,593,000 1,054,000 666,000 390,000 Interest Income (157,000) (58,000) (135,000) (13,000) Minority Interest -- 95,000 -- -- Gain-Sale of Options (274,000) -- -- -- ------------ ------------ ----------- ----------- 1,162,000 1,091,000 531,000 377,000 ------------ ------------ ----------- ----------- Income Before Provision for Income Taxes 5,865,000 5,445,000 1,472,000 1,671,000 Provision for Income Taxes 2,370,000 2,240,000 595,000 668,000 ------------ ------------ ----------- ----------- Net Income 3,495,000 3,205,000 877,000 1,003,000 Retained Earnings at Beginning of Period 3,479,000 4,555,000 5,557,000 5,857,000 Retirement of Common stock (431,000) (1,022,000) -- (122,000) Dividends on Common Stock (162,000) (50,000) (53,000) (50,000) ------------ ------------ ----------- ----------- Retained Earnings at End of Period $6,381,000 $6,688,000 $6,381,000 $6,688,000 ------------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- Net Income Per Common Share and Common Equivalent Share (Primary) (Note 5) $.56 $.52 $.14 $.16 ------------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- Net Income Per Common Share-Assuming Full Dilution (Note 5) $.54 $.52 $.13 $.16 ------------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- Weighted Average Number of Shares of Common Stock (Note 5) 5,931,000 5,928,000 5,926,000 5,975,000 ------------ ------------ ----------- ----------- ------------ ------------ ----------- -----------
3 See accompanying notes to consolidated financial statements. MERCURY AIR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED MARCH 31 1996 1995 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,495,000 $3,205,000 Adjustments to derive cash flow from Operating activities: Depreciation and amortization 2,064,000 1,800,000 Minority interest -- 95,000 Amortization of officers' loans 116,000 137,000 Changes in operating assets and liabilities: Trade and other accounts receivable (6,652,000) (14,790,000) Inventories 1,389,000 (2,248,000) Prepaid expenses and other current assets (931,000) (1,011,000) Deferred taxes -- (95,000) Accounts payable 3,042,000 7,458,000 Income taxes payable 139,000 (699,000) Accrued expenses and other current liabilities 1,013,000 670,000 ----------- ------------ Net cash provided by (used in) operating activities 3,675,000 (5,478,000) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) Decrease in notes receivable (44,000) 173,000 Addition to other assets (996,000) (281,000) Additions to property, equipment and leaseholds (1,960,000) (1,006,000) ----------- ------------ Net cash used in investing activities (3,000,000) (1,114,000) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from Convertible Debentures 26,385,000 -- Proceeds from long-term debt 464,000 10,048,000 Reduction of long-term debt (12,533,000) (2,117,000) Payment of dividend on common stock (162,000) (50,000) Repurchase and retire common stock (820,000) (1,475,000) Redemption by subsidiary of a portion of its common stock owned by minority shareholder -- (450,000) Proceeds from issuance of common stock 83,000 494,000 ----------- ------------ Net cash provided by financing activities 13,417,000 6,450,000 ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,092,000 (142,000) CASH AND CASH EQUIVALENTS, beginning of period 831,000 1,770,000 ----------- ------------ CASH AND CASH EQUIVALENTS, end of period $14,923,000 $1,628,000 ----------- ------------ ----------- ------------ CASH PAID DURING THE PERIOD: Interest $1,248,000 $1,054,000 Income taxes $2,231,000 $2,862,000 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of 225,000 common shares in exchange for the remaining minority interest of Mercury Air Cargo, Inc. $1,406,000 Issuance of Notes Payable for the acquisition of assets $2,016,000
4 See accompanying notes to consolidated financial statements. MERCURY AIR GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (Unaudited) Note 1- BASIS OF PRESENTATION: The accompanying unaudited financial statements reflect all adjustments (consisting of normal, recurring accruals only) which are necessary to fairly present the results for the interim periods. Such financial statements have been prepared in accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X and therefore do not include all the information or footnotes necessary for a complete presentation. They should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 1995 and the notes thereto. The results of operations for the nine months ended March 31, 1996 are not necessarily indicative of results for the full year. Note 2- INVENTORIES: Inventories consist of the following: MARCH 31, JUNE 30, 1996 1995 ---- ---- Aviation Fuel $1,722,000 $3,166,000 Supplies, Parts and other 172,000 117,000 ---------- ---------- $1,894,000 $3,283,000 ---------- ---------- ---------- ---------- Note 3- INCOME TAXES: Income taxes have been computed based on the estimated annual effective tax rate for the respective periods. 5 Note 4- STOCKHOLDERS' EQUITY: In the nine months ended March 31, 1996, the Company repurchased and retired 155,420 shares of its Common Stock at a cost of approximately $820,000, an average cost of $5.28 per share. The effect on Stockholders' Equity was a charge to Additional Paid-In Capital of $387,000, a charge to Retained Earnings of $431,000 and a charge to Common Stock of $2,000. In addition, during the nine months ended March 31, 1996, certain Directors and employees exercised stock options resulting in the issuance of 24,250 common shares of the Company. Note 5- EARNINGS PER SHARE: Earnings per Common Share is computed by dividing net income available to common stockholders, by the weighted average number of common stock and common stock equivalents outstanding during the period.
FULLY DILUTED PRIMARY NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS 3/31/96 3/31/96 3/31/96 3/31/96 ------- ------- ------- ------- Weighted average number of common shares outstanding during the period 5,931,000 5,926,000 5,931,000 5,926,000 Common stock equivalents resulting from the assumed exercise of stock options. 270,000 282,000 265,000 267,000 --------- --------- --------- --------- Weighted average number of common and common equivalent shares outstanding during the period 6,201,000 6,208,000 6,196,000 6,193,000 --------- --------- --------- --------- Weighted average number of common shares resulting from the assumed conversion of debentures 617,000 1,863,000 --------- --------- Weighted average fully diluted shares outstanding during the period. 6,818,000 8,071,000 --------- --------- --------- ---------
6 For purposes of computing fully diluted earnings per share, interest expense on the convertible debentures of $198,000, net of tax, has been added back to net income for both periods. Weighted average outstanding shares and earnings per share have been retroactively restated to reflect the 10% stock dividend paid on May 1, 1996 which amounted to the issuance of approximately 539,000 shares. Note 6- LONG-TERM DEBT: Amounts borrowed under the Company's line of credit were $157,000 at March 31, 1996. Amounts borrowed under the revolving credit line bear interest at prime plus one half percent or LIBOR plus 2%. The line of credit permits borrowings of up to $16,000,000 subject to eligible available collateral. Note 7- CONVERTIBLE SUBORDINATED DEBENTURES: On January 31, 1996, pursuant to a public offering, the Company issued $28,115,000 principal amount of 7 3/4 % convertible subordinated debentures due February 1, 2006. The debentures are convertible into shares of the Company's common stock at a price of $9.1182 per share (adjusted for the 10% stock dividend paid on May 1, 1996). Costs and fees, including underwriting discount and commissions, totaled approximately $1,730,000 and are included in other assets. Capitalized loan fees are being amortized over the life of the debentures. Note 8- ACQUISITION OF EXCEL CARGO, INC: On September 30, 1995, the Company acquired the assets of Excel Cargo, Inc., a cargo handling company located in Montreal, Canada, for approximately $2,766,000. The purchase price consisted of an eight year 8.5% debenture in the amount of $2,016,000, payable in equal monthly installments over eight years, and $750,000 cash. In addition, the Company paid off outstanding bank notes totaling $573,000 at the closing. The purchase price has been allocated to assets and liabilities as follows: Accounts Receivable $ 346,000 Property, equipment and leasehold 2,711,000 Goodwill 750,000 Notes Payable (573,000) Accounts Payable and other current liabilities (468,000) ----------- Purchase price $2,766,000 ----------- 7 Note 9- SUBSEQUENT EVENT: On April 10, 1996, the Company signed a $9,000,000 agreement to purchase some of the assets of Raytheon Aircraft Services' fixed base operations (FBO) at six airport locations. The transaction is schedule to be completed by the end of this fiscal year and remains subject to certain conditions. Under the terms of the agreement, Mercury will pay $4,350,000 in cash at closing and issue an eight year promissory note for the balance. 8 Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations-Comparison of the Three Months Ended March 31, 1996 and March 31,1995 and Comparison of the Nine Months ended March 31, 1996 and March 31, 1995: The following tables set forth, for the periods indicated, the revenues and gross margin for each of the Company's four operating units, as well as selected other financial statement data.
NINE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31, ($ IN MILLIONS) 1996 1995 1996 1995 AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL REVENUES REVENUES REVENUES REVENUES Revenues: Fuel Sales and Services (1) $130.6 79.4% $104.0 77.2% $46.0 80.2% $40.0 80.0% Cargo Operations 10.7 6.5% 7.1 5.3% 3.6 6.3% 2.3 4.7% Goverment Contract Services 10.5 6.4% 11.9 8.8% 3.3 5.8% 3.8 7.6% FBOs (1) 12.7 7.7% 11.7 8.7% 4.4 7.7% 3.9 7.7% ------- ------ ------ ------ ----- ------ ------ ------ Total Revenues $164.5 100.0% $134.7 100.0% $57.3 100.0% $50.0 100.0% ------- ------ ------ ------ ----- ------ ------ ------ ------- ------ ------ ------ ----- ------ ------ ------ % OF UNIT % OF UNIT % OF UNIT % OF UNIT AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES Gross Margin (2): Fuel Sales and Services (1) $5.7 4.4% $5.1 4.9% $1.9 4.2% $1.8 4.6% Cargo Operations 3.4 31.6% 2.1 29.1% 1.0 27.6% 0.6 25.0% Goverment Contract Services 2.4 23.2% 3.1 25.9% 0.7 21.0% 1.0 26.9% FBOs (1) 2.2 17.0% 2.1 17.6% 0.7 15.0% 0.6 15.2% ------- ------ ------ ------ ----- ------ ------ ------ Total Gross Margin $13.7 8.3% $12.3 9.2% $4.3 7.4% $4.0 8.1% ------- ------ ------ ------ ----- ------ ------ ------ ------- ------ ------ ------ ----- ------ ------ ------ % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES Selling, General and Administrative $4.6 2.8% $4.0 3.0% $1.6 2.7% $1.4 2.8% Depreciation and Amortization 2.1 1.3% 1.8 1.3% 0.7 1.2% 0.6 1.2% ------- ------ ------ ------ ----- ------ ------ ------ Operating Income 7.0 4.3% 6.5 4.9% 2.0 3.5% 2.0 4.1% Interest Expense and Other 1.1 0.7% 1.1 0.8% 0.5 0.9% 0.4 0.8% ------- ------ ------ ------ ----- ------ ------ ------ Income before Income Taxes 5.9 3.6% 5.4 4.1% 1.5 2.6% 1.7 3.3% Provision for Income Taxes 2.4 1.4% 2.2 1.7% 0.6 1.1% 0.7 1.3% ------- ------ ------ ------ ----- ------ ------ ------ Net Income $3.5 2.1% $3.2 2.4% $0.9 1.5% $1.0 2.0% ------- ------ ------ ------ ----- ------ ------ ------
(1) Amounts for the three months ended March 31, 1995 and the nine months ended March 31, 1995 have been reclassified to conform to the fiscal 1996 presentation. (2) Gross Margin as used here and throughout Management's Discussion excludes depreciation and amortization and selling, general and administrative expense. 9 Three Months ended March 31, 1996 Compared to March 31, 1995. Revenue increased 14.5% to $57.3 million in the current period from $50.0 million a year ago. Gross margin increased 5.6% to $4.3 million in the current period from $4.0 million a year ago. Revenues from fuel sales and services represented 80.2% of total revenues in the current period compared to 80.0% of total revenues a year ago. Revenues from fuel sales and services increased to $46.0 million from $40.0 million last year. The increase in revenues from fuel sales and services was primarily due to an increase in the number of gallons sold. Average fuel prices were marginally higher in the current year compared with last year. Gross margin from fuel sales and services increased to $1.9 million in the current period compared with $1.8 million last year. Higher volume offset lower per gallon margins in the current period. Revenues and gross margin from fuel sales and services include the activities of Mercury's contract fueling business, as well as activities from a number of other commercial services including the provision of certain refueling services, non-aviation fuel brokerage and other services managed at LAX as part of Mercury's fuel sales and services operations. Revenues from cargo operations in the current period increased 55.3% to $3.6 million from $2.3 million a year ago. This increase was due in part to a general increase in the volume of business from existing accounts and in part to the acquisition of Excel Cargo, Inc. in September 1995. Gross margin from cargo operations in the current period increased 71.1% to $1.0 million from $.6 million in the year ago period. Revenues from government contract services in the current period declined 13.5% to $3.3 million from $3.8 million in the year ago period. The decrease in revenues from government contract services in the current period compared to last year was due to five contract terminations during fiscal 1995 and five contracts terminations during the nine months ended March 31, 1996, which terminations were only partially offset by a new contract received in November 1994 and a new contract in October 1995. Gross margin from government contract services in the current period decreased 32.5% to $ .7 million from $1.0 million last year due to lower revenues. During the three month period ended March 31, 1996 two contracts were terminated. Revenues from FBOs increased by 14.5% in the current period to $4.4 million from $3.9 million a year ago due to an increase in fuel sales and to higher service revenues. Gross margin increased 13.2% in the current period to $661,000 from $584,000 last year. The increase was primarily attributable to an increase in sales and revenues. Selling, general and administrative expenses in the current period increased 11.8% to $1.6 million from $1.4 million in last year's period. The increase was primarily due to higher compensation expense and, to a lesser extent, higher professional fees and facility expenses. 10 Depreciation and amortization expense in the current period increased 17.5% to $711,000 from $605,000 a year ago. The increase in the current period is related primarily to the acquisition of Excel Cargo, Inc. Interest expense in the current period increased 70.8% to $666,000 from $390,000 last year. The increase was due to significantly higher average outstanding long term debt in the current period, primarily due to the Convertible Debenture offering which was completed in this period. Interest income in the current period increased to $135,000 from $13,000 last year. Interest income in the current period is primarily related to investment of a portion of the offering proceeds in short-term marketable securities. Income tax expense approximated 40.4% of pre-tax income in the current period and 40.0% a year ago, reflecting the expected effective annual tax rate. Nine Months Ended March 31, 1996 compared to March 31, 1995. Revenue increased 22.1% to $164.5 million in the current period from $134.7 million a year ago. Gross margin increased 11.3% to $13.7 million in the current period from $12.3 million a year ago. Revenues from fuel sales and services represented 79.4% of total revenues in the current period compared to 77.2% of total revenues a year ago. Revenues from fuel sales and services increased to $130.6 million from $104.0 million last year. The increase in revenue from fuel sales and services was primarily due to an increase in the number of gallons sold. Average fuel prices were marginally higher in the current year compared with last year. Gross margin from fuel sales and services increased 12.5% in the current period to $5.7 million from $5.1 million a year ago. The increase in gross margin from fuel sales and services in the current period compared to last year was attributable primarily to an increase in fuel sales. Revenues from cargo operations in the current period increased 50.3% to $10.7 million from $7.1 million a year ago. The increase was primarily due to a general increase in the volume of business from existing accounts and partially due to the acquisition of Excel Cargo, Inc. on September 30, 1995. Gross margin from cargo operations in the current period increased 63.3% to $3.4 million from $2.1 million in the year ago period. Revenues from government contract services in the current period declined 11.8% to $10.5 million from $11.9 million in the year ago period. The decrease in revenues from government contract services in the current period compared to last year was primarily due to five contract terminations during fiscal 1995 and five contact terminations during the current period, which terminations were only partially offset by two new contracts received, one in November 1994 and one in October 1995. Gross margin from government contract 11 services in the current period decreased 20.9% to $2.4 million from $3.1 million last year primarily due to lower revenues. Revenues from FBOs increased 8.3% in the current period to $12.7 million from $11.7 million a year ago due to an increase in fuel sales and higher services revenues. Operating income increased 4.1% in the current period to $2.2 million from $2.1 million a year ago. Selling, general and administrative expenses in the current period increased 15.8% to $4.6 million from $4.0 million in the year ago period. The increase was primarily due to higher compensation expense and, to a lesser extent, higher professional fees and facility expenses. Depreciation and amortization expense in the current period increased 14.7% to $2.1 million from $1.8 million a year ago. The increase in the current period is primarily related to the acquisition of Excel Cargo, Inc. Interest expense in the current period increased 51.1% to $1.6 million from $1.1 million last year. The increase was due to significantly higher average outstanding long-term debt in the current period. Charges for minority interest were eliminated in the current period as compared to $95,000 last year. The elimination was due to the acquisition of the remaining minority interest's share of Mercury Air Cargo in November 1994. The Company recognized a gain of $274,000 in the current period from the sale of options it held to acquire common shares of one of its airline customers. Income tax expense approximated 40.4% of pretax income in the current period and 41.1% a year ago, reflecting the expected effective annual tax rate. LIQUIDITY AND CAPITAL RESOURCES Mercury has historically financed its operations primarily through operating cash flow and borrowings under its revolving line of credit (the "Revolver"). Mercury's cash balance at March 31, 1996 totaled $14.9 million. Net cash provided by operating activities totaled $3,675,000 during the period ended March 31, 1996. During this period, the primary source of net cash provided by operating activities was net income plus depreciation and amortization totaling $5,559,000, an increase in accounts payable of $3,042,000, a decrease in inventories of $1,389,000 and an increase in accrued expenses and other current liabilities of $1,013,000. The primary use of cash for operating activities in this period was an increase in accounts receivable of $6,652,000 and an increase in prepaid expenses and other current assets of $931,000. 12 Net cash used in investing activities totaled $3,000,000 during the current period. The primary use of cash from investing activities included additions to other assets of $996,000, which includes goodwill from the acquisition of Excel Cargo, Inc. of $810,000, and additions to property, equipment and leaseholds of $1,960,000. Net cash provided by financing activities totaled $13,417,000 during the current period. The primary source of cash from financing activities during this period was net proceeds from the Convertible Debenture of $26,385,000. The primary use of cash in financing activities was the reduction in long- term debt of $12,533,000. Mercury's credit facility consists of the Revolver and the Term Loan. The credit facility is secured by substantially all of Mercury's assets. The original principal balance of the Term Loan was $7,500,000, of which $3,708,000 was outstanding as of March 31, 1996. The Term Loan is amortized and paid on a monthly basis and matures in August 1998. Pursuant to the Revolver, funds may be obtained in an amount equal to the value of up to 85% of Mercury's eligible receivables, as determined by the lender, up to an aggregate of $16,000,000 with an initial term maturing in October 1997, subject to renewal by the parties. At March 31,1996, Mercury had approximately $157,000 of borrowings under the Revolver and had approximately $15,000,000 of additional borrowing availability based on the 85% of eligible receivables test. See Note 6 of Notes to Consolidated Financial Statements. During this period, Mercury repurchased 155,420 shares of Common Stock at a total cost of approximately $820,000 or an average cost of $5.28 per share. Management is currently authorized by Mercury's board of directors and under Mercury's loan agreements to repurchase up to an additional approximately $240,000 in Common Stock. On January 31, 1996 pursuant to a public offering, the Company issued $28,115,000 of 7 3/4% convertible subordinated debentures due on February 1, 2006. Proceeds to the Company, net of underwriting discount and other associated costs, totaled $26,385,000 of which approximately $14,000,000 was used to repay the Revolver. The balance will be used for potential acquisitions and general corporate purposes. The debentures are convertible into the Company's common stock at a conversion rate of $9.1182 per share (adjusted for the 10% stock dividend paid on May 1, 1996). Absent a major prolonged surge in oil prices or a capital intensive acquisition, the Company believes its operating cash flow, revolver, recent public offering of debentures and vendor credit will provide it with sufficient liquidity during the next twelve months. In the event that fuel prices increase significantly for an extended period of time, the Company's liquidity could be adversely affected unless the Company is able to increase vendor credit or increase lending limits under its revolving credit facility. The Company believes, however, its revolver and vendor credit should provide it with sufficient liquidity in the event of a major temporary surge in oil prices. The Company has no significant outstanding contracts or commitments for the purchase of equipment or installation of facilities. 13 PART 11-OTHER INFORMATION Item 1. Legal proceedings Not applicable Item 2. Change in Securities Not applicable Item 3. Default Upon Senior Securities Not applicable Item 4. Submission of matters to a Vote of Security Holders On March 21, 1996, the Company held its annual meeting of shareholders. Proposal 1 for election of directors and Proposal 2 for Amendment to the Company's Restated Articles of Incorporation to increase from 9,000,000 to 18,000,000 the number of authorized shares of Mercury Common Stock were accepted by the following votes at the meeting: PROPOSAL 1: ABSTAIN/ NAME FOR AGAINST BROKER NON-VOTE Seymour Kahn 4,896,314 30,065 -0- Joseph A. Czyzyk 4,893,314 30,065 -0- Dr. Philip J. Fagan 4,895,982 30,397 -0- Frederick H. Kopko 4,896,114 30,265 -0- William G. Langton 4,893,452 32,927 -0- Robert L. List 4,896,314 33,193 -0- PROPOSAL 2: ABSTAIN/ FOR AGAINST BROKER NON-VOTE 4,809,720 100,379 16,280 14 Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K Exhibit 10.1 Non-qualified Stock Option Agreement dated August 24, 1995, by and between S.K. Acquisition, Inc. and Mercury Air Group, Inc. Exhibit 10.2 Non-qualified Stock Option Agreement dated March 21, 1996, by and between Frederick H. Kopko and Mercury Air Group, Inc. Exhibit 27 Financial Data Schedule 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mercury Air Group, Inc. Registrant _____________________________________ Seymour Kahn Chairman and Chief Executive Officer _____________________________________ Randy Ajer Secretary/Treasurer Chief Accounting Officer Date: May 07, 1996 16 EX-10.1 2 EX-10.1 EXHIBIT 10.1 NON-QUALIFIED STOCK OPTION AGREEMENT MERCURY AIR GROUP, INC. THIS AGREEMENT, entered into as of the 24th day of August, 1995 (the "Agreement Date"), by and between S.K. Acquisition, Inc., a Delaware Corporation ("SKAI"), and Mercury Air Group, Inc., a New York corporation (the "Company"). WITNESSETH THAT: WHEREAS, SKAI has been selected by the Board of Directors of the Company to receive a Non-Qualified Stock Option award outside of the Company's existing stock option plans for its role in facilitating a stock repurchase transaction between Grant Murray ("Murray") and the Company and in full payment of all interest due SKAI with respect to the loans made to Murray in connection with that certain Stock Purchase Agreement and related note by and among Murray, Randolph E. Ajer, Kevin Walsh and Joseph A. Czyzyk and SKAI dated as of December 10, 1990 (collectively, the "Stock Purchase Agreement"); and WHEREAS, the Company maintains the Mercury Air Group, Inc. 1990 Long-Term Incentive Plan (the "Plan") and, except to the extent that this Agreement contains specific conflicting provisions, this Agreement shall be deemed governed by and subject to the provisions of such Plan. NOW, THEREFORE, IT IS AGREED, by and between the Company and SKAI, as follows: 1. AWARD, PURCHASE PRICE. Subject to the terms of this Agreement and the Plan, SKAI is hereby awarded an option (the "Option") to purchase a total of Thirty-Three Thousand (33,000) shares of Common Stock, $.01 par value (the "Stock"). The option price of each share of Stock subject to the Option shall be $5.045. The Option is not intended, and will not be treated, as an incentive stock option (as that term is used in section 422A of the Internal Revenue Code of 1986, as amended). 2. DATE OF EXERCISE. The Option shall be exercisable no earlier than October 17, 1996 or such later date as the conditions to effectiveness of this Agreement specified in paragraph 11 have been met and shall expire on the tenth anniversary of the Agreement. 3. METHOD OF OPTION EXERCISE. The option may be exercised in whole or in part by filing a written notice with the Secretary of the Company at its corporate headquarters prior to the date the Option expires. Such notice shall specify the number of shares of Stock which SKAI elects to purchase, and shall be accompanied by payment of the option price for such shares of Stock indicated by SKAI's election. Subject to the provisions of the following sentence, payment shall be by cash or by check payable to the Company. To the extent permitted by the Compensation Committee of the Board (the "Committee"), all or a portion of such required amount may be paid 1 by delivery of shares of Stock having an aggregate Fair Market Value (valued as of the date of exercise) that is equal to the amount of cash which would otherwise be required. 4. ASSIGNS AND SUCCESSORS. This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets. Notwithstanding the foregoing, this Agreement may not be transferred, assigned or otherwise conveyed by SKAI. 5. DEFINITIONS. Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in this Agreement. 6. ADMINISTRATION. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons. 7. PLAN GOVERNS. Except to the extent that this Agreement contains specific inconsistent provisions (in which case the provisions of this Agreement shall be controlling), this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by SKAI from the office of the Secretary of the Company. 8. AMENDMENT. This Agreement may be amended by written agreement of SKAI and the Company, without the consent of any other person. 9. RELEASE BY SKAI. SKAI hereby releases any remaining claims and rights which it has under the Stock Purchase Agreement and ancillary documents (solely to the extent that such claims and rights arise from the portions of the Stock Purchase Agreement which relate to the sale of shares of Stock to Murray), including without limitation its right to receive interest on the loans made to Murray pursuant to the Stock Purchase Agreement. 10. REGISTRATION RIGHTS. SKAI shall be entitled to register the Stock issuable upon exercise of this Option for resale in connection with any registration statement which the Company files under which registration for such resale is available subject to: (I) executing such documents as are required by any underwriter in connection with such registration statement; and (II) subject to pro rata cut back with all other holders of registration rights at the discretion of the underwriter. The Company shall give SKAI notice prior to the filing of any such registration statement and within ten (10) days of any such notice SKAI shall furnish the Company with a notice specifying the number of shares which it elects to include in such registration statement (subject to the cutback set forth in this paragraph). 11. CONDITIONS TO EFFECTIVENESS. This Agreement shall be effective upon filing of an amendment of the Restated Articles of Incorporation of the Company with the New York Secretary of State's Office increasing from 9,000,000 to 18,000,000 the authorized shares of Stock and acceptance of the shares underlying this Option for listing on the American Stock 2 Exchange. In the event that these conditions to effectiveness are not satisfied prior to June 30, 1996, this Option and the releases contained herein shall terminate with no further force and effect. 12. INVESTMENT STOCK. SKAI represents to the Company that the Shares issuable upon exercise of this Agreement will be acquired for investment purposes and not with a view to resale. The certificates evidencing the Shares shall bear the following legend: THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND CANNOT BE SOLD, TRANSFERRED OR ASSIGNED WITHOUT REGISTRATION THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION AS EVIDENCED BY AN OPINION OF COUNSEL DELIVERED TO THE COMPANY. In the event that the Shares are registered, the Company will remove the foregoing legend. IN WITNESS WHEREOF, each of SKAI and the Company has caused these presents to be executed in its name and on its behalf all as of the Agreement Date. S.K. ACQUISITION, INC. By: _________________________ Its: President MERCURY AIR GROUP, INC. By: _________________________ Its: Chief Financial Officer 3 EX-10.2 3 EX-10.2 EXHIBIT 10.2 NON-QUALIFIED STOCK OPTION AGREEMENT MERCURY AIR GROUP, INC. THIS AGREEMENT, entered into as of the 21st day of March, 1996 (the "Agreement Date"), by and between Frederick H. Kopko (the "Consultant"), and Mercury Air Group, Inc., a New York corporation (the "Company"). WITNESSETH THAT: WHEREAS, the Consultant has been selected by the Compensation Committee of the Board of Directors of the Company (the "Committee") to receive a Non-Qualified Stock Option award outside of the Company's existing stock option plans; and WHEREAS, the Company maintains the Mercury Air Group, Inc. 1990 Long-Term Incentive Plan (the "Plan") and, except as specifically set forth herein to the contrary, this Agreement shall be deemed governed by and subject to the provisions of such Plan. NOW, THEREFORE, IT IS AGREED, by and between the Company and the Consultant, as follows: 1. AWARD, PURCHASE PRICE. Subject to the terms of this Agreement and the Plan, the Consultant is hereby awarded an option (the "Option") to purchase a total of 5,000 shares of Common Stock, $.01 par value ("Stock"). The option price of each share of Stock subject to the Option shall be $9.875. The Option is not intended, and will not be treated, as an incentive stock option (as that term is used in section 422A of the Internal Revenue Code of 1986, as amended). 2. DATE OF EXERCISE. The Option shall be exercisable from the Agreement Date through the tenth anniversary of the Agreement Date. 3. METHOD OF OPTION EXERCISE. The option may be exercised in whole or in part by filing a written notice with the Secretary of the Company at its corporate headquarters prior to the date the Option expires. Such notice shall specify the number of shares of Stock which the Consultant elects to purchase, and shall be accompanied by payment of the option price for such shares of Stock indicated by the Consultant's election. Subject to the provisions of the following sentence, payment shall be by cash or by check payable to the Company. To the extent permitted by the Committee, all or a portion of such required amount may be paid by delivery of shares of Stock having an aggregate Fair Market Value (valued as of the date of exercise) that is equal to the amount of cash which would otherwise be required. 4. HEIRS AND SUCCESSORS. This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. Subject to the terms of the Plan, any benefits payable to the Consultant under 1 this Agreement that are not paid at the time of the Consultant's death shall be paid at the time and in the form determined in accordance with the foregoing provisions of this Agreement, to the beneficiary designated by the Consultant in writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Consultant fails to designate a beneficiary, or if the designated beneficiary of the deceased Consultant dies before the Consultant or before complete payment of the amounts distributable under this Agreement, the Committee shall, in its discretion, direct that amounts to be paid under this Agreement be paid to: (a) one or more of the Consultant's relatives by blood, adoption or marriage and in such proportion as the Committee decides; or (b) the legal representative or representatives of the estate of the last to die of the Consultant and his beneficiary. 5. DEFINITIONS. Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in this Agreement. 6. ADMINISTRATION. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons. 7. PLAN GOVERNS. Except as specifically set forth in this Agreement, notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Consultant from the office of the Secretary of the Company. 2 8. AMENDMENT. This Agreement may be amended by written Agreement of the Consultant and the Company, without the consent of any other person. IN WITNESS WHEREOF, the Consultant has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, and its corporate seal to be affixed hereto, all as of the Agreement Date. FREDERICK H. KOPKO _____________________________ MERCURY AIR GROUP, INC. By: ________________________ Its: Chief Financial Officer 3 EX-27 4 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEET OF MARCH 31, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 14,923 0 41,425 1,098 1,894 59,897 36,881 21,968 80,103 23,508 35,620 0 0 54 20,913 80,103 133,600 30,931 123,579 157,504 1,162 692 1,593 5,865 2,370 3,495 0 0 0 3,495 .56 .54
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