Mercury Air Group, Inc. Form 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

February 17, 2004 Mercury Air Group, Inc., ( the “Company”) issued a press release announcing among other things, its financial results for the three- and six-month periods ended December 31, 2003. The press release is incorporated herein to this Form 8-K by reference and a copy of this press release is attached hereto as Exhibit 99.1.

The information contained in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise be subject to the liabilities of that section.

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 hereunto duly authorized.

Mercury Air Group, Inc. Reports Second Quarter Net Loss
MercFuels and Maytag Aircraft Report Improved Margins

Los Angeles, CA (February 17, 2004) Mercury Air Group, Inc. (AMEX/PCX: MAX) reported a net loss for the three-month period ended December 31, 2003 of $1,517,000, or $0.47 per basic and diluted share. The results for the second quarter of fiscal 2004 compare to the Company’s net loss for the three-month period ended December 31, 2002 of $596,000, or $0.18 per basic and diluted share. The second fiscal quarter losses were primarily the result of a settlement expense in the amount of $1,799,000, on both a pre-tax and after-tax basis and due to the continued accrual of debt premiums of $287,000 associated with our senior subordinated note.

“Our second quarter financial results were adversely impacted by settlement expenses and the accrual of debt premiums associated with our Senior Subordinated Note. These two items reduced our after-tax net income for the quarter by approximately $2.0 million or $0.60 per basic and diluted share and overshadowed otherwise improved operating results on a quarter to quarter basis,” said Joseph A. Czyzyk, President and CEO of Mercury Air Group, Inc. adding, “Our future remains strong with Maytag being awarded the air terminal and ground handling services contract at the Kuwait International Airport, demand for aviation fuel from our MercFuels business increasing, an increase in air cargo activity and the pending sale of our FBO business, which we expect to close at the end of March or early April 2004. When complete, the sale of our FBOs will result in a significant reduction of debt and debt service costs, which will position Mercury for improved profitability.”

On December 12, 2003 the Company announced that it had entered into a settlement agreement with J O Hambro Capital Management and certain of its affiliates and private clients (the “Hambro Settlement”). The settlement expense, which is a non-deductible expense for income tax purposes, is the difference between the face value of the notes issued and the trading value of the stock purchased based on the closing stock price on the American Stock Exchange on the day of the settlement.

Revenue for the second quarters of fiscal 2004 and 2003 was $113,887,000 and $113,962,000, respectively. The revenue for the second quarter of fiscal 2003 includes aviation fuel sales of $7,201,000 to National Airlines, Inc. (“National”), which ceased operations in November 2002. The Company’s gross margin for the second quarter of fiscal 2004 was $6,912,000 as compared to the gross margin of $6,888,000 in the second quarter of fiscal 2003. Last year’s results include gross margin of $162,000 for the sales of aviation fuel to National.

MercFuels, Inc. (“MercFuels”), the Company’s aviation fuel reseller subsidiary, had revenue of $74,901,000 on sales volume of 70,844,000 gallons in the second quarter of fiscal 2004 as compared to sales revenue of $75,041,000 on sales volume of 78,170,000 gallons last year, which includes sales revenue of $7,201,000 on sales volume of 8,031,000 gallons to National. MercFuels’ average per gallon aviation fuel sales price in the second quarter of fiscal 2004 was $1.057 as compared to last year’s second quarter per gallon average aviation fuel sales price of $0.96. MercFuels’ gross margin in the second quarter of fiscal 2004 increased 29.2% as compared to last year’s second quarter to $1,874,000 from $1,451,000 last year, which included $161,000 for aviation fuel sales to National. The average sales margin per gallon on aviation fuel sales was $0.043 as compared to $0.035 last year. MercFuels’ aviation fuel sales volume within the corporate airlines

sector increased to 8,797,000 gallons, or 12.4% of MercFuels’ total sales volume in the second quarter of fiscal 2004, as compared to 8,125,000 gallons, or 10.4% of MercFuels’ total sales volume last year.

Revenue from the Company’s Mercury Air Centers, Inc (“Air Centers”) subsidiary was $23,450,000 and $23,882,000 in the second quarters of fiscal 2004 and 2003, respectively. Air Centers’ sales volume was 7,978,000 gallons and 8,381,000 gallons for the second quarters of fiscal 2004 and 2003, respectively. The Air Centers’ gross margin was $3,084,000 and $2,941,000 for the second quarters of fiscal 2004 and 2003, respectively. On October 28, 2003, the Company announced that it had entered into a definitive agreement to sell 100% of the outstanding stock in Air Centers to Allied Capital Corporation (“Allied”), subject to the Company’s stockholders’ approval, completion of due diligence and regulatory agencies’ approvals. According to the terms of the definitive agreement, as amended, the transaction is to close on or before May 14, 2004. The Air Centers’ gross margin in the second quarter of fiscal 2004 was $3,084,000, an increase of $143,000, or 4.9%, from last year’s second quarter gross margin of $2,941,000. The average sales margin per gallon on the sale of aviation fuel in the second quarter of fiscal 2004 was $0.873 as compared to $0.836 last year.

The Company’s Mercury Air Cargo, Inc. (“Air Cargo”) subsidiary had revenue of $10,683,000 in the second quarter of fiscal 2004, an increase of $1,529,000 or 16.7% from last year’s second quarter revenue of $9,154,000. Air Cargo’s gross margin was $523,000 in the second quarter of fiscal 2004 versus a gross margin of $1,300,000 in the second quarter of fiscal 2003. The gross margin in fiscal 2004 was adversely impacted due to a reserve for employee severance costs.

Maytag Aircraft, Inc., the Company’s wholly-owned subsidiary engaged in government contract services, had revenue of $5,915,000 in the second quarter of fiscal 2004 as compared to $6,314,000 in the second quarter of fiscal 2003. Maytag Aircraft’s gross margin for the second quarters of fiscal 2004 and fiscal 2003 was $1,431,000 and $1,196,000, respectively, representing an increase in fiscal 2004 of 19.6%.

The current quarter’s income tax provision was increased by $702,000 due to the nondeductability of certain expenses associated with the Hambro Settlement resulting in the Company reporting an income tax expense for the current quarter despite reporting a loss before income taxes. Excluding the expenses associated with the Hambro Settlement from the Company’s reported second quarter fiscal 2004 loss before income taxes, the current quarter’s income tax benefit would have been $521,000, or an effective income tax rate of 38.9% of the Company’s loss before income taxes excluding the Hambro Settlement.

For the six month period ended December 31, 2003, the Company reported a net loss of $1,819,000, or $0.56 per basic and diluted share, as compared to a net loss of $1,185,000, or $0.37 per basic and diluted share, for the comparable fiscal 2003 period. The fiscal 2004 loss includes the after-tax settlement expense of $1,799,000 associated with the J O Hambro Settlement and an accrual for debt premiums on the Senior Subordinated Note of $702,000, net of income taxes. Revenue in fiscal 2004 was $214,900,000, a decrease of $6,957,000, or 3.1%, from revenue of $221,857,000 for same period in fiscal 2003. Last year’s revenue includes $24,660,000 for aviation fuel sales to National. Excluding the sales revenue from National from last year’s results, revenue increased in fiscal 2004 by $17,703,000, or 9.0%. Gross margin for the first six months of fiscal 2004 increased 6.1% to $13,627,000 from $12,838,000 last year.

MercFuels’ aviation fuel sales volume for the first six months of fiscal 2004 was 135,114,000 gallons, a decrease of 23,086,000 from last year’s sales volume of 158,200,000 gallons, which includes 28,967,000 gallons sold to National. Excluding the National sales volume from last year’s results, MercFuels’ sales volume increased 5,881,000 gallons or 4.6%. Despite the lower sales volume, MercFuels’ gross margin for fiscal 2004 increased 7.5% to $3,300,000 from $3,071,000 in fiscal 2003, which includes $406,000 for the National sales. The average per gallon fuel sales margin in fiscal 2004 was $0.041 as compared to $0.035 in fiscal 2003. MercFuels’ aviation fuel sales volume within the corporate airlines sector increased to 16,786,000 gallons, or 12.4% of MercFuels’ total sales volume in fiscal 2004, as compared to 13,654,000 gallons, or 8.6% of MercFuels’ total sales volume last year.

Air Centers’ revenue for the first six months of fiscal 2004 was $45,983,000 producing a gross margin of $6,288,000. This compares to revenue for the first six months of fiscal 2003 of $47,708,000 resulting in a gross margin of $5,914,000. Aviation fuels sales volume in fiscal 2004 was 15,740,000 gallons, a decrease

Air Cargo’s revenue for the first six months of fiscal 2004 was $19,577,000 as compared to $16,444,000 for fiscal 2003, an increase of 19.1%. Air Cargo’s gross margin in fiscal 2004 was $1,296,000 as compared to $1,704,000 in fiscal 2003, a decrease of 23.9% primarily due to the establishment of a reserve for employee severance and an increase in bad debt expense.

Maytag Aircraft’s revenue for the first six months of fiscal 2004 was $11,742,000, a decrease of $778,000, or 6.2% from last year’s revenue of $12,520,000. Maytag Aircraft’s gross margin increased to $2,743,000, representing an increase of 27.6% from last year’s gross margin of $2,149,000.

Los Angeles-based Mercury Air Group (AMEX/PCX:MAX) provides aviation petroleum products, air cargo services and transportation, and support services for international and domestic commercial airlines, general and government aircraft and specialized contract services for the United States government. Mercury Air Group operates four business segments worldwide: Mercury Air Centers, Inc., MercFuels, Inc., Maytag Aircraft Corporation and Mercury Air Cargo, Inc. For more information, please visit www.mercuryairgroup.com.

Statements contained in this news release, which are not historical facts, are forward looking statements as that item is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from estimated results. Such risks and uncertainties are detailed in the Company’s filings with the Securities and Exchange Commission.

MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(all amounts in thousands of dollars, except per share amounts)


					Six Months Ended						Three Months Ended
					December 31,						December 31,
					(Unaudited)						(Unaudited)

					2003			2002			2003			2002

Sales and revenues:
			Sales		$	167,865		$	175,336		$	89,289		$	89,886
			Service revenues			47,035			46,521			24,598			24,076

						214,900			221,857			113,887			113,962

Costs and expenses:
			Cost of sales			147,585			156,247			78,599			80,213
			Operating expenses			53,688			52,772			28,376			26,861

						201,273			209,019			106,975			107,074

				Gross margin (excluding depreciation and amortization)		13,627			12,838			6,912			6,888

Expenses (income):
			Selling, general and administrative			5,040			5,241			2,765			2,651
			Provision for bad debts			60			759			(323	)		407
			Depreciation and amortization			4,279			4,049			2,108			1,998
			Interest expense			4,525			2,915			1,931			1,533
			Hambro settlement costs									1,799			1,799
			Debt extinguishment costs									1,733			1,208
			Other (income) expense			(245	)		(50	)		(32	)

				Total expenses (income)		15,458			14,647			8,248			7,797

	Loss before income tax provision (benefit)					(1,831	)		(1,809	)		(1,336	)		(909	)
				Income tax provision (benefit)		(12	)		(624	)		181			(313	)

Net loss						(1,819	)		(1,185	)		(1,517	)		(596	)
Accrued preferred stock dividends												19			9

Net loss applicable to common stockholders						($1,838	)		($1,185	)		($1,526	)		($596	)

Net loss per common share:
		Basic:				($0.56	)		($0.37	)		($0.47	)		($0.18	)

		Diluted:				($0.56	)		($0.37	)		($0.47	)		($0.18	)

MERCURY AIR GROUP, INC.
SELECTED BUSINESS SEGMENT DATA
For the Three and Six Month Periods Ended December 31, 2003 and 2002
(Unaudited)
(all amounts in thousands)


			Six Months Ended						Three Months Ended
			December 31,						December 31,

			2003			2002			2003			2002

Revenue
	MercFuels		$	139,890		$	145,614		$	74,901		$	75,041
	Mercury Air Centers			45,983			47,708			23,450			23,882
	Mercury Air Cargo			19,577			16,444			10,683			9,154
	Maytag Aircraft			11,742			12,520			5,915			6,314
	Intersegment elimination			(2,292	)		(429	)		(1,062	)		(429	)

		Total Revenue	$	214,900		$	221,857		$	113,887		$	113,962

Gross Margin
	MercFuels		$	3,300		$	3,071		$	1,874		$	1,451
	Mercury Air Centers			6,288			5,914			3,084			2,941
	Mercury Air Cargo			1,296			1,704			523			1,300
	Maytag Aircraft			2,743			2,149			1,431			1,196

		Total Gross Margin	$	13,627		$	12,838		$	6,912		$	6,888

Depreciation and Amortization
	MercFuels		$	234		$	108		$	119		$	54
	Mercury Air Centers			2,699			2,581			1,319			1,328
	Mercury Air Cargo			917			1,092			459			546
	Maytag Aircraft			160			181			79			90
	Other			269			87			132			(20	)

		Total Depreciation & Amortization	$	4,279		$	4,049		$	2,108		$	1,998

Sales Volume (thousands of gallons)
	MercFuels			135,114			158,200			70,844			78,170
	Mercury Air Centers			15,740			17,137			7,978			8,381

MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(all amounts in thousands of dollars)


				December 31,			June 30,
				2003			2003

				(Unaudited)
			ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	3,387		$	2,802
	Trade accounts receivable				52,036			46,753
	Inventories, principally aviation fuel				4,034			4,422
	Prepaid expenses and other current assets				5,276			5,241
	Deferred taxes, current				1,339			901

	TOTAL CURRENT ASSETS				66,072			60,119
PROPERTY, EQUIPMENT AND LEASEHOLDS, net					57,649			58,844
NOTES RECEIVABLE					1,239			1,815
DEFERRED INCOME TAXES, LONG TERM					2,847			2,284
GOODWILL					4,389			4,389
OTHER INTANGIBLE ASSETS					883			1,033
OTHER ASSETS					3,937			4,471

TOTAL ASSETS				$	137,016		$	132,955

			LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	37,349		$	34,677
	Accrued expenses and other current liabilities				12,334			9,554
	Current portion of long-term debt				4,143			4,194

	TOTAL CURRENT LIABILITIES				53,826			48,425
LONG-TERM DEBT					23,273			25,501
SENIOR SUBORDINATED NOTE					23,533			23,445
SUBORDINATED NOTE					3,586
OTHER NONCURRENT LIABILITIES					1,265			608
DEFERRED RENT					1,571			1,885
MINORITY INTEREST					195			180

TOTAL LIABILITIES					107,249			100,044

MANDATORILY REDEEMABLE PREFERRED STOCK					500			481
STOCKHOLDERS’ EQUITY:
		Common Stock — $ .01 par value; authorized 18,000,000 shares;			30			33
		Additional paid-in capital			20,726			22,496
		Retained earnings			12,181			14,018
		Accumulated other comprehensive loss			62			(86	)
		Notes receivable from officers			(3,732	)		(4,031	)

			TOTAL STOCKHOLDERS’ EQUITY		29,267			32,430

			TOTAL LIABILITIES, PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY	$	137,016		$	132,955

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Delaware	1-7134	11-1800515

(State or other jurisdiction of	(Commission File Number)	(IRS Employer Identification No.)
incorporation)

5456 McConnell Avenue, Los Angeles, California (Address of principal executive offices)		90066 (Zip Code)


	Item 7. Financial Statements and Exhibits.
	Item 12. Disclosure of Results of Operations and Financial Condition.
SIGNATURES
	EXHIBIT INDEX
EXHIBIT 99.1


Exhibit
Number

99.1		Press Release of Mercury Air Group, Inc., dated February 17, 2004.


		MERCURY AIR GROUP, INC.

		(Registrant)

Date February 20, 2004		/S/ Robert Schlax

		Robert Schlax
		Vice President of Finance and
		Chief Financial Officer


Exhibit
Number		Exhibit Description

99.1		Press Release of Mercury Air Group, Inc., dated February 17, 2004.

Table of Contents

Table of Contents

Table of Contents

Table of Contents


Date of Report (Date of earliest event reported)		February 17, 2004


Registrant’s telephone number, including area code		(310) 827-2737


Company Contact:		Investor Relations:
Joseph Czyzyk		David Herbst/Larry Barrios
Mercury Air Group, Inc.		The MWW Group
(310) 827-2737		(213)486-6560ext.317


		–NEWS RELEASE–