-----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, RuLrswU+MuJA9XLAxGbM9nGkVCVWXk3cS2ZuVW4t+XssEbCRDx0AeAGuEA/paqeM WFVKUZ0md6aYD46chnNnew== 0000950150-96-001063.txt : 19960930 0000950150-96-001063.hdr.sgml : 19960930 ACCESSION NUMBER: 0000950150-96-001063 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: AMEX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCURY AIR GROUP INC CENTRAL INDEX KEY: 0000052532 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 111800515 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07134 FILM NUMBER: 96635961 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-K405 1 FORM 10-K DATED JUNE 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year ended June 30, 1996 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number: 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, California 90066 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (310) 827-2737 Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange on Title of Each Class Which Registered - ------------------- ------------------------- Common Stock - Par Value $.01 American Stock Exchange Pacific Stock exchange
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 ___ 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] As of August 16, 1996, 6,048,721 shares of the Registrant's Common Stock were outstanding. Of these shares, 1,726,479 shares were held by persons who may be deemed to be affiliates. The 4,322,242 shares held by nonaffiliates as of August 16, 1996 had an aggregate market value (based on the closing price of these shares on the American Stock Exchange of $7.75 a share) of $ 33,497,375.50. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement which is to be distributed in connection with the Annual Meeting of Shareholders to be held on December 5, 1996 are incorporated by reference into Part III of this Form 10-K. 3 PART I ITEM 1. BUSINESS. Mercury Air Group, Inc., a New York corporation, provides a broad range of services to the aviation industry through four principal operating units: fuel sales and services, cargo operations, fixed base operations and government contract services. Fuel sales and services include the sale of fuel and delivery of fuel primarily to commercial airlines and air freight carriers. Cargo operations consist of cargo handling, space brokerage operations and general cargo sales agent services. Fixed base operations ("FBOs") include fuel sales, into-plane services, ground support services and aircraft hangar and tie-down facilities for commercial, private and other aircraft. Government contract services principally consist of operating government-owned fuel depots and refueling aircraft for the military. As used in this Annual Report, the term "Company" or "Mercury" refers to Mercury Air Group, Inc. and, unless the context otherwise requires, its subsidiaries. The Company's principal executive offices are located at 5456 McConnell Avenue, Los Angeles, California 90066 and its telephone number is (310) 827-2737. A. NARRATIVE DESCRIPTION OF THE BUSINESS. FUEL SALES AND SERVICES Mercury's fuel sales consist of contract fueling and related fuel management services. Sales of aviation fuel are made primarily to domestic and international airline customers. Contract fuel sales are generally made pursuant to verbal or short-term contracts whereby Mercury provides fuel supply and, in most cases, delivery to meet all or a portion of a customer's fuel supply requirements. To facilitate its fuel sales business at locations where Mercury does not have facilities, Mercury has developed an extensive network of third party delivery and supply relationships which enable it to provide fuel to customers, on a scheduled or ad hoc basis. Through these third party relationships, Mercury is currently supplying fuel to customers at over 100 airports in the United States and, to a lesser extent, internationally. Mercury believes that it adds value for its customers and is able to attract business by providing high quality service and by offering a combination of favorable pricing and credit terms. Mercury provides 24-hour, single source, coordinated supply and delivery on a national and international basis and provides related support services. Mercury believes its scale of operations and creditworthiness allow the purchase of fuel on more favorable price and credit terms than would be available to most of its customers on an individual basis. In general, the aviation industry is capital intensive and highly leveraged. Recognizing the financial risks of the airline industry, major oil companies often restrict or prohibit the extension of credit to smaller or less well-capitalized airlines. Consequently, in order to obtain fuel from a major oil company, many carriers must either post a letter of credit or prepay for fuel purchases. These supply requirements can absorb a substantial portion of an airline's working capital. 2 4 Mercury believes that the extension of credit to smaller or less well-capitalized airlines represents a risk, but also is a contributing factor in attracting and retaining customers. Accordingly, Mercury frequently extends credit on an unsecured or partially secured basis to customers which may exhibit a higher credit risk profile and who may otherwise be required to prepay or post letters of credit for fuel purchases. The amount of credit extended to any particular customer is a subjective decision. Factors considered in credit decisions include the customer's financial strength and payment history, competitive conditions in the market, the expected productivity of the account, collateral provided (if any) and, with respect to domestic accounts, the availability of credit insurance. Mercury considers its existing credit portfolio to be of acceptable quality and, on an ongoing basis, establishes allowances that in management's judgment are adequate to absorb potential credit problems inherent in the portfolio. Mercury purchases fuel at current market prices from a number of independent and major oil companies based on the expected requirements of its customers. Mercury's terms of payment range from ten to thirty days for most of its fuel purchases except for bulk pipeline purchases which generally are payable two days from invoice receipt. Mercury has agreements with certain suppliers under which Mercury purchases a minimum amount of fuel each month at prices which approximate current market prices. Mercury makes occasional spot purchases of fuel to take advantage of market differentials. In order to meet customer supply requirements, Mercury carries limited inventories at numerous locations and two to three weeks inventory requirements at a few key pipeline terminals. Due to the nature of Mercury's business, the volume of Mercury's aviation fuel inventories will occasionally fluctuate. Depending upon the price and price movement of aviation fuel, such inventories may subject Mercury to a risk of financial loss. Mercury's fuel supply contracts may generally be canceled by either party with no further obligations. In some cases, Mercury has monthly purchase requirements which are established based on historical volumes of fuel purchased by Mercury. Such fuel purchase history may result in the seller agreeing to provide a monthly allocation to Mercury such that the seller agrees to dedicate a portion of its available fuel for Mercury's requirements. Mercury benefits from such an allocation because, during periods of short fuel supply, reductions in supply are generally made first to those buyers who have not been given any allocations. To maintain dedicated allocations of fuel, Mercury usually purchases fuel at levels approximating the allocated amount. However, Mercury is not obligated to purchase any fuel under an allocation. Currently, the monthly allocations from Mercury's fuel suppliers represent only a small portion of Mercury's total monthly supply requirements. Mercury's consolidated fuel sales could be materially adversely affected by a significant decrease in the availability, or increase in the price of, aviation fuel. Consolidated fuel sales of $182.7 million in fiscal 1996 and $145.2 million in fiscal 1995 represented approximately 81% and 79% of consolidated revenues in fiscal 1996 and fiscal 1995, respectively. Although Mercury believes that there are currently adequate aviation fuel supplies and that aviation fuel supplies will generally remain available, events outside Mercury's control have resulted and could result in spot shortages or rapid increases in fuel costs. Although Mercury is generally able to pass through rising fuel costs to its customers, extended periods of high fuel costs could adversely affect Mercury's ability to purchase fuel in sufficient quantities because of credit limits placed on Mercury by its fuel suppliers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." 3 5 In addition to contract fueling, Mercury considers a number of other commercial activities which are headquartered at Los Angeles International Airport ("LAX") as part of its fuel sales and services operations. These activities include refueling services at LAX and John Wayne International Airport in Santa Ana, California, the brokering of non-aviation fuel to the industrial and commercial market place, the provision of air frame and power plant mechanics to commercial airlines and the provision of cargo warehouse manpower to a commercial airline. Refueling services at LAX and John Wayne International Airport consist of the delivery of fuel by Company owned trucks or hydrant carts for a fee. Mercury also maintains fuel tanks at LAX to support its fuel sales and refueling services. CARGO OPERATIONS The Company's cargo operations are conducted through its wholly owned subsidiary, Mercury Air Cargo, Inc. ("MAC"), which provides the following services: cargo handling, space brokerage and general cargo sales agent services. Cargo Handling. MAC provides domestic and international air cargo handling, air mail handling and bonded warehousing. MAC is one of only three non-airline providers of contractual cargo containerization and palletization for international carriers and airfreight forwarders at LAX. In addition, MAC receives cargo and loads pallets for air transportation. MAC's cargo handling operations occur primarily at LAX. In February 1996, MAC acquired the stock of Floracool, Inc. a cargo handling company in Miami, Florida. See "Recent Developments". In September 1995, MAC expanded its cargo handling operations by acquiring the assets of Excel Cargo, Inc., located in Montreal and Toronto, Canada. In May 1994, MAC expanded its cargo handling operations by opening an off- airport warehouse in San Francisco, California. See "Properties". MAC is able to compete in the cargo handling business by offering quality service from its strategically located LAX, San Francisco, Montreal, Toronto and Miami warehouse facilities. At LAX, a portion of Mercury's cargo handling operations are conducted in a facility subject to a month-to-month lease. Continuous long-term growth in MAC's cargo handling operations can only be realized by maintaining and expanding current warehouse facilities or by obtaining additional warehouse facilities at LAX and new locations. Space Brokerage. MAC brokers cargo space on international flights to and from Europe, the Middle East, Mexico and Central and South America. Space brokerage involves contracting for cargo space on airlines and subsequently, on MAC's own airway bill, selling that space to customers with shipping needs. MAC has established a network of shipping agents who assist in obtaining cargo for shipment on space purchased from airlines, and who facilitate the delivery and collection of freight charges for cargo shipped on MAC's airway bills. Unlike an air cargo company which operates its own aircraft, MAC's space brokerage business utilizes otherwise unfilled cargo space on scheduled airline flights. Accordingly, MAC is able to profit from the sale of cargo transportation space worldwide without the fixed overhead expense of maintaining aircraft. 4 6 MAC purchases cargo space from a number of airlines worldwide. As a result of its large volume of cargo space purchases and its ability to negotiate among airlines, MAC adds value for its customers and is able to attract business by offering favorable pricing. MAC's revenues are the difference between the cost of the space and the amount at which the space is sold. General Sales Agent Services. MAC also serves as general cargo sales agent for airlines in the Far East, Mexico, Central and South America and in the United States. In this capacity, MAC sells the transportation of cargo on client airlines' flights, using the client airlines' own airway bills. MAC earns commissions from the airlines for selling air cargo space. As with its space brokerage operations, the growth potential for MAC'S general cargo sales agent business is not limited by requirements for physical facilities or by requirements for additional capital investments. FIXED BASE OPERATIONS Mercury currently provides FBO services at LAX; Cannon International Airport in Reno, Nevada; Meadows Field Airport in Bakersfield, California; Burbank-Glendale-Pasadena Airport in Burbank, California; Santa Barbara Municipal Airport in Santa Barbara, California; Ontario International Airport in Ontario, California; Hartsfield International Airport in Atlanta, Georgia; Peachtree-DeKalb Airport in Atlanta, Georgia; Corpus Christi International Airport in Corpus Christi, Texas; and Addison Airport in Dallas, Texas. See "Properties." At each FBO, Mercury maintains administrative offices; conducts retail fuel sales and refueling operations which service principally corporate and private aircraft ("general aviation") and to some extent commercial airlines; and acts as a landlord for office and aircraft tie-down space tenants. In addition, at Cannon International Airport, Mercury provides ground handling services for commercial airlines. Each FBO operates refueling vehicles and maintains fuel storage tanks to support its into-plane and fuel sales activities. The FBO facilities and the property on which their operations are conducted are leased from the respective airport authorities. See "Properties." In August 1996, the Company acquired certain assets of five FBOs from Raytheon Aircraft Services, Inc. See "Recent Developments". During fiscal 1993, the Company acquired certain assets including equipment and leasehold interests of two competing FBOs at Meadows Field Airport to complement its existing FBO operation at that airport. GOVERNMENT CONTRACT SERVICES Mercury conducts its government contract services business through its subsidiary, Maytag Aircraft Corporation ("Maytag"). Headquartered in Colorado Springs, Colorado, Maytag provides services at fifteen U.S. military bases, primarily for the U.S. Navy, including twelve in the United States, one in Greece and two in Japan. Maytag provides services to the government pursuant to contracts for each base which run for one to four years. Under most of these contracts, Maytag operates government-owned fuel depots and services a variety of aircraft for the military. Under the terms of its contracts, Maytag supplies all necessary personnel and equipment to provide 24-hour refueling capability. All fuel handled in these 5 7 operations is government owned. In connection with its government contract services business, Maytag owns and operates a fleet of refueling trucks and other support vehicles. The following table lists the bases which Maytag services, as of September 15, 1996, and the expiration of each contract for each base.
Location Expiration Date of Contract -------- --------------------------- Bangor, WA September 1996 * Willow Grove, PA September 1996 Brunswick, ME October 2000 Yokota, Japan March 1997*** Pensacola, FL August 1997 Whidbey Island, WA August 1997 Fallon, NV September 1997 Fukuoka, Japan September 1997** Whiting Field, FL October 1997 Yuma, AZ July 1998 Point Mugu, CA April 1999 El Centro, CA September 1999 Washington, DC July 2000 Lakehurst, NJ September 2000 Souda Bay, Crete October 2000
* Contract to provide library services . ** Contract to provide air terminal services . *** Contract to provide base housing maintenance. Maytag's government contracts are subject to competitive bidding, are generally awarded on a firm fixed-price basis and are subject to termination at the discretion of the United States Government in whole or in part. Termination of a contract may occur if the United States Government determines that it is in its best interest to discontinue the contract, in which case closure costs will be paid to Maytag. Termination may also occur if Maytag defaults under a contract. Maytag has never experienced any such default termination. Maytag's government services business has been negatively impacted by contract losses due to base closures, the loss of competitive bids, small business contract set asides and internalization of the refueling function by the United States military. Since June 30, 1994, twelve contracts held by Maytag have been terminated, five each in fiscal 1995 and fiscal 1996 and two in September 1996. However, during fiscal 1996, Maytag was successful in its bid to renew a four-year contract at Washington, D.C. and acquired a new contract at Yokota, Japan, which began in October 1995, to provide base housing maintenance. Based upon the July 13, 1995 presidential approval of the Defense Base Closure and Realignment Commission recommendation, no additional bases served by Maytag were selected for closure under the last round of federally mandated base closures. The Company knows of no additional plans by the United States Government to close bases. 6 8 Gross margin from government services in fiscal 1996 included $420,000 from the five contracts which were terminated in fiscal 1996 and $208,000 from two contracts which are scheduled to terminate in fiscal 1997. RECENT DEVELOPMENTS FBO- ACQUISITION OF ASSETS On August 28, 1996, pursuant to an Asset Purchase Agreement dated April 8, 1996, Mercury completed the acquisition from Raytheon Aircraft Services, Inc. (RAYTHEON AIRCRAFT SERVICES, INC.) of certain assets of five FBOs located in Ontario, California (Ontario International Airport); Atlanta, Georgia (Hartsfield International Airport); Atlanta, Georgia (Peachtree-DeKalb Airport); Corpus Christi, Texas (Corpus Christi International Airport) and Dallas, Texas (Addison Airport). See "Properties". The purchase price for the assets was $8,250,000, which consisted of $4,350,000 in cash and a promissory note in the principal amount of $3,900,000. The promissory note bears interest at the prime rate and is payable over eight years in equal quarterly installments of principal and interest. The Company retains the right through October 31, 1996 to acquire a sixth location at Hanscom Field Airport in Bedford, Massachusetts for $750,000, which would be added to the promissory note. FLORACOOL, INC. Pursuant to a Stock Purchase agreement dated February 27, 1996, the Company, through its wholly-owned subsidiary Mercury Air Cargo, Inc., acquired all of the issued and outstanding shares of stock of Floracool, Inc. for $250,000 in cash. Floracool is engaged in the cargo handling business and owns certain assets located at Miami International Airport including a lease and permit issued by Dade County Department of Transportation. See "Properties." LAX CARGO HANGAR On June 18, 1996, the Company entered into a five year lease with the Los Angeles Department of Airports ("DOA") for a 174,000 square foot cargo warehouse. Subsequent to entering into this lease, the Company entered into a contract to remodel and reconstruct portions of this cargo facility at a cost not to exceed $6,000,000 including finance charges. The construction period will be eighteen months during which time the Company will pay $50,000 annually in rent. After eighteen months, rent will increase to $174,000 per month. Commencing with the nineteenth month, the DOA will reimburse the Company's construction costs, including finance charges, up to $6,000,000 in the form of monthly rent credits at the rate of up to $120,000 per month. If the lease is not renewed after sixty months, the unreimbursed portion of construction costs will be paid by the DOA to Mercury. MAJOR CUSTOMERS During fiscal 1996, no customer accounted for over 10% of Mercury's consolidated revenues. 7 9 SEASONAL NATURE OF BUSINESS Mercury's commercial fuel sales, FBOs and aircraft support operations are seasonal in nature, being relatively stronger during the months of April through September in its fueling operations and FBOs than during the months of October through March. Commercial air traffic and traffic at the FBOs is reduced during the winter months due in part to weather conditions and increased during the summer months due in part to additional commercial flights and more recreational flying. Mercury's cargo business is relatively stronger during the months of October through March than during the months of April through September. The cargo business is affected by the patterns for commercial and retail inventory build-ups in international trade. Operations at military facilities are not seasonal. POTENTIAL LIABILITY AND INSURANCE Mercury's business activities subject it to risk of significant potential liability under federal and state statutes, common law and contractual indemnification agreements. Mercury reviews the adequacy of its insurance on an on going basis. Mercury believes it follows generally accepted standards for its lines of business with respect to the purchase of business insurance and risk management practices. The Company purchases airport liability and general and auto liability in amounts which the Company believes are adequate for the risks of its business. COMPETITION Mercury competes with major companies which maintain their own source of aviation fuel and with other aircraft support companies whose total sales and financial resources far exceed those of Mercury. In addition, certain airlines provide cargo and fueling services comparable to those furnished by Mercury. At LAX, Mercury competes with, in addition to the airlines, three independent fuel delivery services providers and primarily with two non-airline entities with respect to air cargo handling. Each FBO has a minimum of one competitor at each airport. Mercury has many principal competitors with respect to government contracting services including certain small disadvantaged businesses which receive a ten percent (10%) cost advantage with respect to certain bids and set asides of certain contracts. Substantially all Mercury's services are subject to competitive bidding. Mercury competes on the basis of price and quality of service. ENVIRONMENTAL MATTERS Mercury must continuously comply with federal, state and local environmental statutes and regulations associated with its numerous underground fuel storage tanks. These requirements include, among other things, tank and pipe testing for tightness, soil sampling for evidence of leaking and remediation of detected leaks and spills. Mercury has installed stringent inventory systems for its underground storage tanks and has placed sensors underground which detect leaking. Mercury's operations are subject to frequent inspection by federal and local environmental agencies and local fire and airline quality control departments. To date, there have been no material capital expenditures nor has there been a material negative impact on Mercury's earnings or competitive position in performing such compliance and related remediation work. To date, Mercury has not received any notice of violation or been subject to any cease and abatement proceeding by any governmental agency as a result of failure to comply with applicable environmental laws and regulations. Based on tests performed to date, Mercury knows of no basis for any notice of violation or cease and abatement proceeding by any governmental agency. 8 10 EMPLOYEES As of August 31, 1996 Mercury employed 1152 persons in its following operating units: fuel sales and services, 216 persons; cargo handling, 342 persons; FBOs, 314 persons; and government contract service, 280 persons. Mercury is in the process of discussing collective bargaining agreements for its government refueling operation at Point Mugu, California. Management believes that, in general, wages, hours, fringe benefits and other conditions of employment offered throughout Mercury's operations are at least equivalent to those found elsewhere in its industry and that its general relationship with its employees is satisfactory. ITEM 2. PROPERTIES Mercury owns its executive offices, which consists of approximately 20,000 square feet, located at 5456 McConnell Avenue, Los Angeles, California. Listed below are the significant properties leased or owned by Mercury as of September 15, 1996:
Leased Expiration Activity Location or Annual of Conducted and Type Owned Rental Lease at Facility Size -------- ----- ------ ---------- ----------- ---- 6851 and 6805 W. Leased $443,000 December Executive offices and 70,000 sq. ft. on Imperial Highway, Los 1999 cargo hangar, with 5.5 acres Angeles, California offices and executive (Two story office offices rented to building and customers hanger)(1) 5456 McConnell Owned N/A N/A Executive offices 20,000 sq. ft. Los Angeles, brick building California (2) 700 World Way West, Leased $300,000 December Service and refueling 2,000 sq. ft. on LAX (Executive 1998 of private aircraft 1.93 acres terminal) (1) 2601 East Plumb Lane, Leased $21,000 June 1997 Service, maintenance 2,300 sq. ft. Cannon International and refueling of executive terminal Airport, Reno, Nevada commercial and private and 85,000 sq. ft. (Cement block aircraft and sublessor of hangar building and of building and hangar facilities hangars)(1) space 655 So. Rock Blvd., Building $12,000 June 2017 Service, maintenance 23.7 acres of Cannon International owned, and refueling of land; hangar and Airport, Reno, land commercial and private administrative Nevada(1) rented aircraft and sublessor building of building and hangar consisting of space 33,000 sq. ft.
9 11 1601 Skyway Drive and Leased $22,000 February Offices and refueling 2,000 sq. ft. Meadows Field Fuel 2008 of commercial and facility on 5 Parcels No. 9 and 10, private aircraft acres Meadows Field Airport, Bakersfield, California (1) Meadows Field, Leased $44,000 February Landlord, service and 49,200 sq. ft. Parcels 1-5 Meadows 2008 refueling of commercial building on 17.2 Field Airport, and private aircraft acres Bakersfield, California (3 buildings) (1) Meadows Field, Hangar Leased $46,000 June 2001 Landlord, service and 30,000 sq. ft. 6 and Parcel A refueling of commercial hangar on 2.7 Meadows Field and private aircraft acres Airport, Bakersfield, California (4) Meadows Field, Leased $21,000 Month-to- Landlord, service and 1,200 sq. ft. Parcels 1 and 2 and Month refueling of commercial building on 10.86 Lease site 4 and 6 and private aircraft acres Meadows Field Airport, Bakersfield, California Meadows Field, Lease Leased $25,000 March 2015 Landlord, service and 35,940 sq. ft. site 2 Meadows Field refueling of commercial executive terminal Airport, Bakersfield, and private aircraft and hangar on 6.14 California (4) acres Burbank-Glendale- Leased $158,000 July 2000 Landlord, service and 45,000 sq. ft. Pasadena Airport, refueling of commercial Burbank, California and private aircraft (Aircraft facility) Burbank-Glendale- Building $465,000 August Landlord, service and 106,000 sq. ft. Pasadena Airport, owned, 1999 refueling of commercial Burbank, California land and private aircraft (Aircraft facility) leased Burbank-Glendale- Leased $187,000 November Hangar Facility 5,200 sq. ft. Pasadena Airport, 1999 Burbank, California (Hangar) Santa Barbara Leased $101,000 Month-to- Service, maintenance, 2,000 sq. ft. Municipal Airport, Month and refueling of terminal; 2 Santa Barbara, commercial and private hangars totaling California (Tie-down aircraft 13,120 sq. ft. space and 3 buildings) (1)
10 12 6145 Lehman Drive, Owned N/A N/A Executive and support 8,000 sq. ft. Suite 300, Colorado personnel offices; Springs, Colorado landlord (Brick block building with furnished offices) (3) 526 Forbes Blvd., San Leased $162,000 April 1999 Cargo handling with 45,403 sq. ft. Francisco, California offices building LAX (B-4 Hangar) 6401 Leased $360,000 Month-to- Cargo handling with 45,000 sq. ft. West Imperial Hwy., month offices hangar Los Angeles, California 12005, Rue Cargo A-3, Leased $312,000 November Cargo handling with 50,000 sq.ft Suite 102 2005 offices warehouse Aeroport International De Montreal 6500 N.W. 20th St. Leased $350,000 Month-to- Cargo handling with 66,240 sq.ft. Building 2141, Door Month offices cargo hangar 11 Miami, Fl 33152 2261 N.W. 66th Ave. Leased $726,000 September Cargo handling with 50,000 sq. ft. Miami, Fl 33126 2001 offices cargo hangar Wm. B. Hartsfield Leased $107,000 March 2002 Service, maintenance 428,656 sq. ft. International Airport and refueling of office and hangar 1200 Hartsfield Dr. commercial and private on 9.84 acres Atlanta, Ga 30320 aircraft and sublessor (5) of building and hangar space 4400 Glenn Curtiss Leased $298,000 September Service, maintenance 49,472 sq. ft. Dr. 2021 and refueling of 2.80 acres Hangar #1. commercial and private Dallas, Tx 75248 (5) aircraft and sublessor of building and hangar space 4400 Glenn Curtiss Leased $51,000 June Service, maintenance 57,949 sq. ft. Dr. 2022 and refueling of Office and hangar Hangar #2 and #3 commercial and private on 6.28 acres Dallas, TX 75248 (5) aircraft and sublessor of building and hangar space 4400 Glenn Curtiss Leased $8,000 July Service, mintenance and 12,600 sq. ft. Dr. 2021 refueling of commercial Office and hangar Hangar #4 and private aircraft Dallas, Tx 75248 (5) and sublessor of building and hangar space
11 13 4400 Glenn Curtis Dr. Leased $28,000 December Fuel Farm 2000 Dallas, Tx 75248 (5) 355 Pinson Drive Leased $19,000 October Service, maintenance 66,096 sq. ft Corpus Christi, Tx 1997 and refueling of office and hangar 78469 commercial and private on 6.69 acres aircraft and sublessor of building and hangar space 2161 East Avion St. Leased $226,000 April Service, maintenance 54,650 sq. ft. Ontario, CA 91761 2007 and refueling of Office and hangar Ontario Intl Airport commercial and private on 15.11 acres aircraft and sublessor of building and hangar space 1951 Airport Road Leased $191,000 November Service, maintenance 164,288 sq. ft. Atlanta, GA 30341 2006 and refueling of office and hangar Peachtree-Dekalb commercial and private on 22.46 acres Airport aircraft and sublessor of building and hangar space 6060 Avion Drive Leased $50,000 June Cargo hangar 174, 000 sq.ft. Los Angeles, 2001 with office Cargo facility International Airport (6) Lester B. Person Leased $128,000 July Cargo handling 13,942 sq.ft. International Airport 1997 with office Toronto
(1) The leasehold interest is subject to a security interest granted to Mercury's secured lender under its loan agreements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". (2) This property was purchased in April 1994 for $1,800,000 and is subject to a first mortgage in the sum of $916,500 at June 30, 1996 repayable in equal monthly installments of principal of $9,750, plus interest at 7.5% per annum, the last payment due in April 2004. (3) This property is subject to a first mortgage in the sum of $419,680 at June 30, 1996 repayable with interest at 9% in equal monthly installments of approximately $4,450, the last payment due May 2010. (4) This property is subject to a first mortgage in the sum of $956,339 at June 30, 1996 repayable with interest at prime in equal monthly installments, the last payment due in December 2004. (5) The leasehold interest is subject to a security interest granted to Raytheon Aircraft Services, Inc. (6) See "Recent Developments" for additional lease terms and construction plans. 12 14 At each of the locations where Mercury conducts its refueling business, including eleven commercial locations and fifteen military locations, Mercury's operations are dependent on a fleet of refueling vehicles. All locations utilize refueling trucks for transporting and pumping fuel. At LAX, in addition to refueling trucks, hydrant trucks are also maintained which pump fuel from hydrant lines directly into the aircraft. Mercury's owned equipment is subject to a lien in favor of its secured lender. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." At commercial airports where Mercury operates FBOs, Mercury maintains its own above and below ground fuel storage capabilities, as follows:
Approximate Capacity Location (gallons) -------- ----------- LAX 312,000 Bakersfield 105,000 Burbank 119,000 Santa Barbara 35,000 Reno 100,000 Ontario, California 88,000 Dallas, Texas 57,000 Corpus Christi, Texas - Atlanta, Georgia (Hartsfield) 48,000 Atlanta, Georgia(Peachtree) 48,000
Management believes that Mercury's property and equipment are adequate for its present business needs. Mercury fully utilizes the real properties it owns or leases for its business. ITEM 3. LEGAL PROCEEDINGS Other than routine litigation incident to Mercury's business, Mercury knows of no material litigation or administrative proceedings pending against Mercury to which Mercury or any of its subsidiaries is a party or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 13 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Mercury's Common Stock is listed and traded on the AMEX under the Symbol "MAX". The table below sets forth, for the quarterly periods indicated, the high and low closing sale prices per share of Common Stock. All per share stock price information has been adjusted to reflect the June 16, 1995 ten percent stock dividend and May 1, 1996 ten percent stock dividend.
High Low ---- --- FISCAL 1996: Quarter ended September 30, 1995................................. $ 8.41 $6.94 Quarter ended December 31, 1995.................................. 10.00 7.39 Quarter ended March 31, 1996..................................... 9.31 7.27 Quarter ended June 30, 1996...................................... 10.38 7.88 FISCAL 1995: Quarter ended September 30, 1994.................................. $ 5.78 $4.35 Quarter ended December 31, 1994................................... 6.41 4.95 Quarter ended March 31, 1995...................................... 8.17 5.69 Quarter ended June 30, 1995....................................... 8.23 6.50
As of September 24, 1996, there were approximately 487 holders of record. In December 1994, Mercury's Board of Directors adopted a quarterly dividend plan of $.01 per common share in cash. The first such dividend was paid on February 1, 1995. In May 1996, Mercury's Board of Directors increased the quarterly dividend to $.0125 per share. Based upon the current number of shares of Common Stock outstanding and assuming the quarterly amount of $.0125 per share remains in effect, annual dividend requirements will amount to approximately $303,000. Mercury intends to review its dividend policy from time to time in light of Mercury's earnings, financial condition and other relevant factors, including applicable covenants in debt and other agreements. In this regard, as discussed in Note 7 of Notes to Consolidated Financial Statements, certain of Mercury's loan agreements provide for the maintenance of specified levels of working capital as well as limitations on cash dividends. 14 16 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data for each of the five years ended June 30 have been derived from the audited consolidated financial statements of Mercury. The information set forth below should be read in conjunction with the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED JUNE 30, --------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- OPERATING DATA -------------- REVENUES (1) $225,374 $183,000 $103,069 $84,543 $71,746 COSTS AND EXPENSES 206,960 166,427 90,404 75,640 65,254 GROSS MARGIN 18,414 16,573 12,665 8,903 6,492 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,818 2,409 2,049 1,680 1,349 DEPRECIATION AND AMORTIZATION INTEREST EXPENSE 2,375 1,478 1,080 1,084 898 OTHER EXPENSE (INCOME) (2) (596) 11 106 (1,103) (102) INCOME BEFORE INCOME TAXES 7,766 7,312 5,169 3,363 616 PROVISION FOR INCOME TAXES 3,086 3,005 2,174 1,413 257 NET INCOME 4,680 4,307 2,995 1,950 359 NET INCOME PER COMMON SHARE ON A FULLY DILUTED BASIS(3) 0.70 0.69 0.54 0.35 0.01 WEIGHTED AVERAGE COMMON OUTSTANDING SHARES(3) 5,963,954 5,962,174 4,091,872 2,674,704 2,633,566 BALANCE SHEET DATA AT JUNE 30, ------------------ ------------------------------------------------------------------------- TOTAL ASSETS $ 79,123 $54,210 $35,442 $31,800 $26,090 SHORT-TERM DEBT (INCLUDING CURRENT PORTION OF LONG-TERM DEBT) 2,555 2,607 2,317 1,654 1,242 LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK AND CONVERTIBLE DEBENTURES 35,008 17,104 8,650 9,821 7,299 DIVIDENDS PER COMMON SHARE .0425 0.02 0.00 0.00 0.00
(1) Revenue consists of consolidated sales and revenues. (2) Fiscal 1993 includes a pretax gain from legal judgment in the amount of $1,060,000 (3) Shares outstanding and earnings per share have been adjusted retroactively to reflect the payment of ten percent stock dividends on June 16, 1995 and May 1, 1996. 15 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FISCAL 1996, 1995 AND 1994. The following tables set forth, for the periods indicated, the revenues and gross margin for each of the Company's four operating units, as well as selected other financial statement data.
Year Ended June 30, --------------------------------------------------------------------------------- ($ in millions) 1996 1995 1994 % of Total % of Total % of Total Amount Revenues Amount Revenues Amount Revenues --------------------------------------------------------------------------------- Revenues: Fuel Sales and Services $178.6 79.3% $141.8 77.5% $64.4 62.5% Cargo Operations 15.5 6.9% 9.9 5.4% 7.0 6.8% Government Contract Services 13.8 6.1% 15.6 8.5% 16.0 15.5% FBOs 17.4 7.7% 15.7 8.6% 15.7 15.2% ---- ---- -------- -------- -------- ------- Total Revenues $225.4 100.0% $183.0 100.0% $103.1 100.0% ====== ====== ====== ====== ====== ====== % of Unit % of Unit % of Unit Amount Revenues Amount Revenues Amount Revenues --------------------------------------------------------------------------------- Gross Margin (1): Fuel Sales and Services $7.9 4.4% $6.9 4.9% $3.0 4.7% Cargo Operations 4.7 30.5% 2.8 28.5% 2.7 38.4% Government Contract Services 3.0 21.7% 4.2 26.7% 4.0 25.0% FBOs 2.8 16.0% 2.7 17.1% 3.0 18.9% --- ----- ------- ----- ------- ----- Total Gross Margin $18.4 8.2% $16.6 9.1% $12.7 12.3% ----- ---- ===== ==== ===== ===== % of Unit % of Unit % of Unit Amount Revenues Amount Revenues Amount Revenues --------------------------------------------------------------------------------- Selling, General and Administrative $6.0 2.7% $5.4 2.9% $4.3 4.1% Depreciation and Amortization 2.8 1.3% 2.4 1.3% 2.0 2.0% Interest Expense and Other 1.8 0.8% 1.5 0.8% 1.2 1.2% --- ---- --------- -------- -------- -------- Income before Income Taxes 7.8 3.4% 7.3 4.0% 5.2 5.0% Provision for Income Taxes 3.1 1.4% 3.0 1.6% 2.2 2.1% --- ---- ------- -------- -------- -------- Net Income $4.7 2.1% $4.3 2.4% $3.0 2.9% ==== ==== ===== ===== ===== =====
(1) Gross Margin as used here and throughout Management's discussion excludes depreciation and amortization and selling, general and administrative expenses. 16 18 Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995 Revenue increased 23.2% to $225.4 million in fiscal 1996 from $183.0 million in fiscal 1995. Gross margin increased 11.1% to $18.4 million in fiscal 1996 from $16.6 million in fiscal 1995. Revenues from fuel sales and services represented 79.3% of total revenues in fiscal 1996 compared to 77.5% of total revenues in fiscal 1995. Revenues from fuel sales and services in fiscal 1996 increased 26% to $178.6 million from $141.8 million in fiscal 1995. The increase in revenues from fuel sales and services was primarily due to an increase in the number of gallons sold to new and existing accounts and, to a lesser extent, due to an increase in average fuel prices. Average fuel prices increased approximately 6% in fiscal 1996 compared to fiscal 1995. Gross margin from fuel sales and services in fiscal 1996 increased 14.6% to $7.9 million from $6.9 million in fiscal 1995. The increase in gross margin from fuel sales and services in fiscal 1996 compared to fiscal 1995 was attributable to an increase in fuel sales. Revenues and gross margins 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 fiscal 1996 increased 56.8% to $15.5 million from $9.9 million in fiscal 1995. This increase was primarily due to a general increase in the volume of business from existing accounts and to the additions of Excel Cargo and Floracool in fiscal 1996. Excel Cargo was acquired on September 30, 1995 and operates in Montreal and Toronto in Canada. Floracool was acquired in January 1996 and operates in Miami. Gross margin from cargo operations in fiscal 1996 increased 67.7% to $4.7 million from $2.8 million in fiscal 1995. This increase in gross margin from cargo operations in fiscal 1996 compared to fiscal 1995 was primarily attributable to an increase in cargo revenues. Revenues from government contract services in fiscal 1996 declined 11.5% to $13.8 million from $15.6 million in fiscal 1995. Revenues from government contract services in fiscal 1996 included $1.8 million from five contracts which were terminated in fiscal 1996 and $.8 from two contracts which are scheduled to terminate in fiscal 1997. The decrease in revenues from government contract services in fiscal 1996 compared to fiscal 1995 was due to contract terminations in fiscal 1995 and fiscal 1996, which terminations were only partially offset by new contracts received in November 1994 and October 1995. Gross margin from government contract services in fiscal 1996 declined 28.1% to $3.0 million from $4.2 million in fiscal 1995 due to lower revenues and lower margins. Gross margin from government contract services in fiscal 1996 included $.4 million from the five contracts which were terminated in fiscal 1996 and $.2 from two contracts which are scheduled to terminate in fiscal 1997. Revenues from FBOs in fiscal 1996 increased 10.7% to $17.4 million from $15.7 million in fiscal 1995. The increase in revenues from FBOs was due to an increase in fuel sales and services revenues. Gross margin from FBOs in fiscal 1996 increased 3.6% to $2.8 million from $2.7 million in fiscal 1995. The increase in gross margin from FBOs in fiscal 1996 compared to fiscal 1995 was attributable primarily to an increase in revenues. Selling, general and administrative expenses in fiscal 1996 increased 12.8% to $6.0 million from $5.4 million in fiscal 1995. The increase was primarily due to higher professional fees and higher compensation expenses. Selling, general and administrative expense includes provision for bad debts which totaled $945,000 in fiscal 1996 compared to $905,000 in fiscal 1995. 17 19 Depreciation and amortization expenses in fiscal 1996 increased 17.0% to $2.8 million from $2.4 million in fiscal 1995. The increase was primarily due to the acquisition of Excel Cargo, Inc. in fiscal 1996 and, to a lesser extent, capital expenditures of $2.3 million in fiscal 1996. Interest expense in fiscal 1996 increased 60.7% to $2.4 million from $1.5 million in fiscal 1995. The increase was due to significantly higher average outstanding long-term debt in fiscal 1996 compared to fiscal 1995. Interest income increased in fiscal 1996 to $322,000 from $84,000 in fiscal 1995 primarily due to excess cash balances subsequent to the Debenture Offering in February 1996 which were invested in short term cash equivalents. See Note 7 of Notes to Consolidated Financial Statements. Charges for minority interest in fiscal 1996 were eliminated compared to $95,000 in fiscal 1995. Minority interest was eliminated due to the acquisition of the remaining minority interest's share of Mercury Air Cargo in November 1994. See Note 2 of Notes to Consolidated Financial Statements. Income tax expense approximated 40% of pre-tax income for fiscal 1996 and 41% for fiscal 1995, reflecting the effective annual tax rate. Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994 Revenue increased 77.6% to $183.0 million in fiscal 1995 from $103.1 million in fiscal 1994. Gross margin increased 30.9% to $16.6 million in fiscal 1995 from $12.7 million in fiscal 1994. Revenues from fuel sales and services represented 77.5% of total revenues in fiscal 1995 compared to 62.5% of total revenues in fiscal 1994. Revenues from fuel sales and services in fiscal 1995 increased 120% to $141.8 million from $64.4 million in fiscal 1994. The increase in revenues from fuel sales and services was primarily due to an increase in the number of gallons sold as a result of the addition of a significant number of new accounts in fiscal 1995. These new accounts were attributable in part to the opening of sales offices in Houston and Miami in October 1994. Average fuel prices were marginally higher in fiscal 1995 compared with fiscal 1994. Gross margin from fuel sales and services in fiscal 1995 increased 127.9% to $6.9 million from $3.0 million in fiscal 1994. The increase in gross margin from fuel sales and services in fiscal 1995 compared to fiscal 1994 was attributable primarily to an increase in fuel sales and, to a much lesser extent, a slight improvement in per gallon margins. Revenues from cargo operations in fiscal 1995 increased 41.8% to $9.9 million from $7.0 million in fiscal 1994. This increase was primarily due to a general increase in the volume of business from existing accounts and the addition of a new location in San Francisco. During fiscal 1995 Mercury opened a cargo operation in Miami; however, in March 1995, the operation was closed as a result of the loss of a key employee. Gross margin from cargo operations in fiscal 1995 increased 5.5% to $2.8 million from $2.7 million in fiscal 1994. The increase in gross margin was significantly lower than the corresponding revenue increase due to operating losses at the San Francisco and Miami locations in fiscal 1995 and higher labor and other operating costs at LAX in fiscal 1995 compared to fiscal 1994. Revenues from government contract services in fiscal 1995 declined 2.6% to $15.6 million from $16.0 million in fiscal 1994. Revenues from government contract services in fiscal 1995 included $5.3 million from ten contracts, five of which were terminated in fiscal 1995 and the balance of which were terminated at the end of the first quarter or during the second quarter of fiscal 1996. The decrease in revenues from government contract services in fiscal 1995 compared to fiscal 1994 was primarily due to the 18 20 contract terminations during fiscal 1995, which terminations were only partially offset by a new contract received in November 1994. Gross margin from government services in fiscal 1995 increased 4.1% to $4.2 million from $4.0 million in fiscal 1994 due to lower operating expenses. Gross margin from government services in fiscal 1995 included $1.4 million from the ten contracts described above which have been terminated. Mercury did not experience significant charge-offs associated with the contract terminations described above. Revenues from FBOs remained relatively constant in fiscal 1995 at $15.7 million compared to fiscal 1994, but gross margin declined 9.0% from $3.0 million in fiscal 1994 to $2.7 million in fiscal 1995. The decline was primarily attributable to a reduction in the volume of fuel sold, as well as lower per gallon margins. Selling, general and administrative expenses in fiscal 1995 increased 25.9% to $5.4 million from $4.3 million in fiscal 1994. The increase was primarily due to an increase in the provision for bad debts. Provision for bad debts increased to $905,000 in fiscal 1995 from $324,000 in fiscal 1994 due to a significant increase in sales and accounts receivable. Excluding the provision for bad debts, selling, general and administrative expenses in fiscal 1995 increased 13.2% to $4.5 million from $3.9 million in fiscal 1994, primarily due to higher compensation expenses related to expansion of Mercury's business. Depreciation and amortization expense in fiscal 1995 increased 17.6% to $2.4 million from $2.0 million in fiscal 1994. The increase was primarily due to $2.0 million of capital expenditures in fiscal 1995 and $5.0 million of capital expenditures in fiscal 1994. Interest expense in fiscal 1995 increased 36.9% to $1.5 million from $1.1 million in fiscal 1994. The increase was due to higher interest rates and significantly higher average outstanding bank borrowing in fiscal 1995 compared to fiscal 1994. Interest income decreased in fiscal 1995 to $84,000 from $140,000 in fiscal 1994 due to the declining principal balance of Mercury's outstanding notes receivable. Charges for minority interest in fiscal 1995 decreased to $95,000 from $246,000 in fiscal 1994. The decrease was due to the acquisition of the remaining minority interest's share of Mercury Air Cargo in November 1994. See Note 2 of Notes to Consolidated Financial Statements. Income tax expense approximated 41% of pre-tax income for fiscal 1995 and 42% for fiscal 1994, reflecting the effective annual tax rate. LIQUIDITY AND CAPITAL RESOURCES Until issuance of the convertible subordinated debentures in February 1996, Mercury had historically financed its operations primarily through operating cash flow and borrowings under its revolving line of credit (the "Revolver"). Mercury's cash and cash equivalents balance at June 30, 1996 totaled $11,820,000. Net cash provided by operating activities totaled $2,951,000 during fiscal 1996. During this period, the primary source of net cash provided by operating activities was net income plus depreciation and amortization totaling $7,498,000 and an increase in accounts payable of $1,614,000. The primary use of cash for operating activities in fiscal 1996 was an increase in accounts receivable of $7,762,000. 19 21 Net cash provided by financing activities totaled $12,581,000 during fiscal 1996. The primary source of cash from financing activities during this period was net proceeds from the convertible debentures of $26,280,000. The primary use of cash in financing activities was the reduction in long-term debt of $13,316,000. 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 $3,384,000 was outstanding as of June 30, 1996. The Term Loan is amortized and paid on a monthly basis and matures in August 1998. Pursuant to the Revolver, funds may be obtained in an amount equal to the value of up to 85% of Mercury's eligible receivables, as determined by the lender, up to an aggregate of $16,000,000 with an initial term maturing in October 1997, subject to renewal by the parties. At June 30, 1996, Mercury had approximately $6,000 of borrowing under the Revolver and had approximately $15,000,000 of additional borrowing availability based on the 85% of eligible receivables test. See Note 7 of Notes to Consolidated Financial Statements. In February 1996, the Company received net proceeds of $26,280,000 from the public offering of $28,115,000 principal amount of 7.75% convertible subordinated debentures due February 1, 2006. See Note 7 of Notes to Consolidated Financial Statements. During fiscal 1996, Mercury repurchased 155,420 shares of Common Stock at a total cost of approximately $820,000. Management is currently authorized by Mercury's board of directors and under Mercury's loan agreements to repurchase up to an additional approximately $2,000,000 in Common Stock. During fiscal 1996, Mercury received approximately $126,000 from the exercise of stock options which resulted in the issuance of 35,350 shares of Common Stock. Historically, the Company's capital expenditure requirements have been related to refueling and ground handling equipment for both commercial and government service operations and the acquisition of new operating facilities. In fiscal 1994, the Company spent approximately $2,400,000 for equipment requirements related to new and existing contracts and to purchase equipment previously held under noncancelable operating leases. During fiscal 1994, the Company also acquired a 20,000 square foot building for its headquarters at a cost of approximately $1,800,000. In addition, the Company invested nearly $800,000 to acquire a leasehold interest at its Bakersfield FBO. In fiscal 1995, the Company purchased a building in Colorado Springs at a cost of $500,000 to relocate its government services headquarters. The Company also invested nearly $700,000 for computer equipment and to remodel and furnish its Los Angeles headquarters building. In addition, the Company spent approximately $700,000 to purchase refueling and ground equipment for its commercial, FBO and government service operations. In fiscal 1996 the Company spent approximately $2,700,000 for property and equipment in the acquisition of Excel Cargo, Inc. In addition, the Company invested approximately $2,300,000 primarily to purchase refueling and ground equipment for its commercial operations. In August 1996, the Company acquired certain assets of five FBOs from RAS for $8,250,000, which consisted of $4,350,000 cash and a promissory note in the principal amount of $3,900,000. The Company has committed to spend $6,000,000 remodeling and reconstructing a cargo facility at LAX, is seeking financing for this project and is entitled to receive related rent credits. See "Recent Developments". The Company's accounts receivable grew from $33,269,000 at June 30, 1995 to $41,377,000 at June 30, 1996, an increase of $8,108,000, with an increase in accounts payable during the same period of only $2,082,000 to $15,080,000 at June 30, 1996 from $12,998,000 at June 30, 1995. Accounts receivable days outstanding was 62 days for both the quarter ended June 30, 1995 and for the quarter ended June 30, 1996 20 22 based upon consolidated revenue for each period. Accounts receivable days outstanding are impacted by a high volume of fuel brokerage which is reported in revenues on a net margin basis and a high concentration of fuel sales to customers with extended payment terms. Allowance for doubtful accounts increased to $809,000 at June 30, 1996 from $610,000 at June 30, 1995. 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. Inflation The Company believes that inflation has not had a significant effect on its results of operations during the past three fiscal years. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See Part IV, Item 14, pages F1 through F17 immediately following. ITEM 9. ACCOUNTING AND FINANCIAL DISCLOSURE DISPUTES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Reference is made to the information set forth under the caption "Election of Directors" of the Company's Proxy Statement for the annual meeting scheduled for December 5, 1996 (the "Proxy Statement") for a description of the directors and executive officers of the Company, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Reference is made to the information set forth under the caption "Executive Compensation" of the Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Reference is made to the table, including the footnotes thereto, set forth under the caption "Election of Directors" of the Proxy Statement, for certain information respecting ownership of stock of the Company by management and certain shareholders, which table and footnotes are incorporated herein by reference. 21 23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Reference is made to the information set forth under the caption "Certain Transactions" of the Proxy Statement for certain information with respect to relationships and related transactions, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (a) (1) Financial Statements Independent Auditors' Report.........................................................................F-1 Consolidated Balance Sheets as of June 30, 1996 and 1995.............................................F-2 Consolidated Statements of Income for each of the three years in the period ended June 30, 1996..........................................................F-3 Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 1996..........................................................F-4 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 1996.............................................F-5 Notes to Consolidated Financial Statements for the three years ended June 30, 1996.................................................................F-6 to F-19 (a) (2) Supplemental Schedule for each of the three years in the period ended June 30, 1996: Schedule II - Valuation and Qualifying Accounts......................................................F-20
All other items are not included in this Form 10-K for the reason that they are not applicable or are included in the information as set forth in the Consolidated Financial Statements or in the Notes to Consolidated Financial Statements. (a) (3) Exhibits:
Exhibit No. Description 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 (6) 3.4 Bylaws of the Company (4)
22 24 3.5 Amendment to Bylaws of the Company (13) 4.1 Form of Indenture between Mercury Air Group, Inc. and IBJ Schroder Bank & Trust Company. (14) 4.2 Negotiable Promissory Note, dated as of June 21, 1996, from Mercury Air Group, Inc. to Raytheon Aircraft Services, Inc. (15) 4.3 Legend Agreement, dated as of August 29, 1996 between Mercury Air Group, Inc. and Raytheon Aircraft Services, Inc. (15) 10.1 Underwriter's Unit Warrant dated June 18, 1991 issued to Emanuel and Company by the Company (4) 10.2 Employment Agreement dated December 10, 1993 between the Company and Seymour Kahn (10) 10.3 Loan and Security Agreements among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. dated December 6, 1989 (2) 10.4 Stock Purchase Agreement between the Company, SK Acquisition, Inc., Randolph E. Ajer, Kevin J. Walsh, Grant Murray and Joseph Czyzyk (2) 10.5 Company's 1990 Long-Term Incentive Plan (7) 10.6 Company's 1990 Directors Stock Option Plan (1) 10.7 Lease for 6851 West Imperial Highway, Los Angeles, California (4) 10.8 Amendment to Loan Agreement and Security Agreement among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. dated October 2, 1990 (4) 10.9 Second Amendment to Loan and Security Agreement among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. dated April 18, 1991 (4) 10.10 Third Amendment to Loan and Security Agreement among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. dated June 1991 (5) 10.11 Amendment to Loan and Security Agreements and Term Notes dated as of April 1, 1992 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. dated April 1, 1992 (6) 10.12 Amendment to Loan and Security Agreements and Term Notes dated as of April 1, 1992 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (8) 10.13 Amendment to Loan and Security Agreements and Term Notes dated as of December 21, 1992 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9) 10.14 Amendment to Loan and Security Agreements and Term Notes dated as of August 30, 1993 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9) 10.15 Memorandum Dated September 15, 1995 regarding Summary of Officer Life Insurance Policies with Benefits Payable to Officers or Their Designated Beneficiaries (13) 10.16 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for Seymour Kahn, Joseph Czyzyk and Randolph E. Ajer (13) 10.17 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for Kevin Walsh and William Silva (13)
23 25 10.18 The Company's 401(k) Plan consisting of LCI Actuaries, Inc. Regional Prototype Defined Contribution Plan and Trust and Adoption Agreement (9) 10.19 Amendment to Loan and Security Agreements and Term Notes dated as of September 21, 1993 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9) 10.20 Non-Qualified Stock Option Agreement by and between the Company and Seymour Kahn dated January 21, 1993 (9) 10.21 Non-Qualified Stock Option Agreement by and between the Company and William G. Langton dated August 9, 1993 (9) 10.22 Stock Purchase Agreement among the Company, SK Acquisition, Inc. and William L. Silva dated as of August 9, 1993 (10) 10.23 Amendment to Loan and Security Agreements and Term Notes dated as of September 21, 1993 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (10) 10.24 Amendment to Loan and Security Agreements and Term Notes dated as of April 1, 1994 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (10) 10.25 Stock Exchange Agreement dated as of November 15, 1994 between Joseph Czyzyk and the Company (11) 10.26 Employment Agreement dated November 15, 1995 between the Company and Joseph Czyzyk (12) 10.27 Amendment to Loan and Security Agreements and Term Notes dated as of December 20, 1994 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (12) 10.28 Amendment to Loan and Security Agreements and Term Notes dated as of December 17, 1994 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (12) 10.29 Amendment to Loan and Security Agreements and Term Notes dated as of June 12, 1995 among the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (13) 10.30 Loan and Security Agreement dated as of June 12, 1995 between Mercury Air Cargo, Inc. and Marine Midland Business Loans, Inc. (13) 10.31 Agreement dated August 1, 1995 between Mercury Air Group, Inc. and Grant Murray (13) 10.32 Amendment to Loan and Security Agreements dated as of September 24, 1996 among the Company, Maytag Aircraft Corporation, Mercury Air Cargo, Inc. and Marine Midland Business Loans, Inc. 10.33 Underwriting Agreement for the Company's $25,000,000 7-3/4% Convertible Subordinated Debentures due February 1, 2006 (14) 10.34 Asset Purchase Agreement, dated as of April 8, 1996, by and between Raytheon Aircraft Services, Inc. and Mercury Air Group, Inc. (15) 10.35 Amendment Letter to Asset Purchase Agreement, dated as of August 29, 1996, by and between Raytheon Aircraft Services, Inc. and Mercury Air Group, Inc. (15)
24 26 11.1 Computation of Earnings Per Share (3) 22.1 Subsidiaries of Registrant 23.1 Consent of Deloitte & Touche LLP with respect to incorporation of their report on the audited financial statements contained in this Annual Report on Form 10-K and the Company's Registration Statement on Form S-8 (Registration Statement No. 33-69414)
_________________________________ (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) Such statement is included in Note 12 of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K and is 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 Annual Report on Form 10-K for the year ended June 30, 1991 and is incorporated herein by reference. (6) All such documents were previously filed as Exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and are incorporated herein by reference. (7) Such document was previously filed as Appendix A to the Company's Proxy Statement for the December 2, 1992 Annual Meeting of Shareholders. (8) Such document was previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the year ended June 30, 1992 and is incorporated herein by reference. (9) 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. 25 27 (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, 1994 and are incorporated herein by reference. (11) Such document was previously filed as an Exhibit to the Company's Current Report on Form 8-K dated November 15, 1995 and is incorporated herein by reference. (12) All such documents were previously filed as Exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 and are incorporated herein by reference. (13) 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. (14) 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. (15) 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. (b) Reports on Form 8-K: Report on Form 8-K filed September 13, 1996 with respect to the acquisition of assets of fixed base operations. (c) Identification of management contracts and compensatory plans and arrangements: Exhibits 10.2, 10.4, 10.5, 10.6, 10.15, 10.16, 10.17, 10.18, 10.20, 10.21, 10.22, 10.26 and 10.31 constitute the management contracts and compensatory plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K. Such documents are either filed as exhibits to this Annual Report on Form 10-K or were previously filed as exhibits to the filings indicated in the notes to Item 14(a) and are incorporated herein by reference. 26 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized in the City of Los Angeles, State of California, on the 27th day of September 1996. MERCURY AIR GROUP, INC. By: /s/ SEYMOUR KAHN ------------------------------- Seymour Kahn Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated: Signatures Principal Executive Officer: /s/ SEYMOUR KAHN Dated: September 27, 1996 - -------------------- Seymour Kahn Chief Executive Officer and Director Principal Chief Operating Officer and Director: /s/ JOSEPH CZYZYK Dated: September 27, 1996 - ------------------- Joseph Czyzyk Chief Operating Officer and Director Principal Financial and Accounting Officer: /s/ RANDOLPH E. AJER Dated: September 27, 1996 - -------------------- Randolph E. Ajer Executive Vice President, Secretary and Treasurer Additional Directors: /s/ ROBERT L. LIST Dated: September 27, 1996 - ------------------- Robert L. List Director /s/ PHILIP J. FAGAN, JR., M.D. Dated: September 27, 1996 - ------------------------------ Philip J. Fagan, Jr., M.D. Director /s/ WILLIAM G. LANGTON Dated: September 27, 1996 - ---------------------- William G. Langton Director /s/ FREDERICK H. KOPKO, JR. Dated: September 27, 1996 - --------------------------- Frederick H. Kopko, Jr. Director
27 29 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Mercury Air Group, Inc. Los Angeles, California We have audited the accompanying consolidated balance sheets of Mercury Air Group, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Mercury Air Group, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California September 19, 1996 30 PART I - FINANCIAL INFORMATION MERCURY AIR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30 JUNE 30 1996 1995 --------------- -------------- CURRENT ASSETS: Cash and cash equivalents $11,820,000 $831,000 Trade accounts receivable, net of allowance for doubtful accounts of $809,000 at 6/30/96 and $610,000 at 6/30/95 (Note 7) 41,377,000 33,269,000 Notes receivable - current portion 560,000 50,000 Inventories, principally aviation fuel 2,623,000 3,283,000 Prepaid expenses and other current assets 2,154,000 1,822,000 --------------- -------------- Total current assets 58,534,000 39,255,000 PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated depreciation and amortization of $22,491,000 at 6/30/96 and $20,391,000 at 6/30/95 (Notes 3 and 7 ) 14,703,000 12,219,000 NOTES RECEIVABLE, net of current portion 158,000 136,000 OTHER ASSETS (Note 4) 5,728,000 2,600,000 --------------- -------------- $79,123,000 $54,210,000 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $15,080,000 $12,998,000 Accrued expenses and other current liabilities (Note 5) 3,794,000 3,008,000 Income taxes payable (Note 6) 198,000 114,000 Current portion of long-term debt (Note 7) 2,555,000 2,607,000 --------------- -------------- Total current liabilities 21,627,000 18,727,000 LONG-TERM DEBT (Note 7) 35,008,000 17,104,000 DEFERRED INCOME TAXES (Note 6) 256,000 8,000 --------------- -------------- Total liabilities 56,891,000 35,839,000 --------------- -------------- COMMITMENTS AND CONTINGENCIES (Notes 10 and 13) STOCKHOLDERS' EQUITY (Notes 7 and 8 ): Preferred Stock - $.01 par value; authorized 3,000,000 shares; no shares outstanding Common Stock - $ .01 par value; authorized 18,000,000 shares; outstanding 6,053,321 shares 6/30/96; outstanding 5,524,257 shares 6/30/95 60,000 55,000 Additional paid-in capital 20,910,000 14,992,000 Retained earnings 2,040,000 3,479,000 Treasury stock - 35,200 shares of common stock 6/30/95 (155,000) Cumulative translation adjustment (46,000) Notes receivable from sale of stock (Note 8) (732,000) --------------- -------------- Total stockholders' equity 22,232,000 18,371,000 --------------- -------------- $79,123,000 $54,210,000 =============== ==============
F-2 See accompanying notes to consolidated financial statements. 31 MERCURY AIR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year ended June 30 ------------------------------------------- 1996 1995 1994 -------------- ------------- -------------- Sales and Revenues (Note 11): Sales $182,674,000 $145,166,000 $68,991,000 Service revenues 42,700,000 37,834,000 34,078,000 -------------- ------------- -------------- 225,374,000 183,000,000 103,069,000 -------------- ------------- -------------- Costs and Expenses: Cost of sales 169,015,000 132,838,000 61,060,000 Operating expenses 37,945,000 33,589,000 29,344,000 -------------- ------------- -------------- 206,960,000 166,427,000 90,404,000 -------------- ------------- -------------- Gross Margin (Excluding depreciation and amortization) 18,414,000 16,573,000 12,665,000 -------------- ------------- -------------- Other Expenses (Income): Selling, general and administrative (Note 4) 6,051,000 5,363,000 4,261,000 Depreciation and amortization 2,818,000 2,409,000 2,049,000 Interest expense 2,375,000 1,478,000 1,080,000 Interest income (322,000) (84,000) (140,000) Minority interest (Note 2) 95,000 246,000 Other income (274,000) -------------- ------------- -------------- 10,648,000 9,261,000 7,496,000 -------------- ------------- -------------- Income Before Income Taxes 7,766,000 7,312,000 5,169,000 Provision for Income Taxes (Note 6) 3,086,000 3,005,000 2,174,000 -------------- ------------- -------------- Net Income $4,680,000 $4,307,000 $2,995,000 ============== ============= ============== Net Income applicable to Common Stock $4,680,000 $4,307,000 $2,920,000 ============== ============= ============== Net Income Per Common Share and Common Equivalent Share (Primary) (Note 12) $0.75 $0.69 $0.68 ============== ============= ============== Net Income Per Common Share-Assuming Full Dilution (Note 12) $0.70 $0.69 $0.54 ============== ============= ============== Weighted Average Number of Shares of Common Stock (Note 12) 5,963,954 5,962,174 4,091,872 ============== ============= ==============
F-3 See accompanying notes to consolidated financial statements. 32 MERCURY AIR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30 ------------------------------------------ 1996 1995 1994 -------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $4,680,000 $4,307,000 $2,995,000 Adjustments to derive cash flow from operating activities: Depreciation and amortization 2,818,000 2,409,000 2,049,000 Minority interest 95,000 246,000 Amortization of officers' loans 154,000 140,000 154,000 Increase (decrease) in deferred income taxes 248,000 (210,000) (651,000) Changes in operating assets and liabilities: Trade and other accounts receivable (7,762,000) (16,105,000) (474,000) Inventories 661,000 (2,332,000) (103,000) Prepaid expenses and other current assets (332,000) (525,000) (304,000) Accounts payable 1,614,000 6,078,000 150,000 Income taxes payable 84,000 (368,000) 348,000 Accrued expenses and other current liabilities 786,000 930,000 (43,000) -------------- ------------- ------------- Net cash provided by (used in) operating activities 2,951,000 (5,581,000) 4,367,000 -------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investment 300,000 (Increase) decrease in notes receivable (532,000) 185,000 677,000 Addition to other assets (535,000) (632,000) (259,000) Acquisition of businesses, net of cash acquired (960,000) Additions to property, equipment and leaseholds (2,516,000) (1,574,000) (1,933,000) -------------- ------------- ------------- Net cash used in investing activities (4,543,000) (2,021,000) (1,215,000) -------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: NET PROCEEDS FROM CONVERTIBLE DEBENTURES 26,280,000 Payment of dividend on common stock (233,000) (100,000) Proceeds from long-term debt 464,000 10,752,000 2,876,000 Reduction of long-term debt (13,316,000) (2,443,000) (5,902,000) Payment of dividend on preferred stock (75,000) Issuance of common stock 206,000 379,000 3,097,000 Repurchase and retire preferred and common stock and warrants (820,000) (1,475,000) (1,917,000) Redemption by subsidiary of common stock owned by minority shareholder (450,000) -------------- ------------- ------------- Net cash provided by (used in) financing activities 12,581,000 6,663,000 (1,921,000) -------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,989,000 (939,000) 1,231,000 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 831,000 1,770,000 539,000 -------------- ------------- ------------- CASH AND CASH EQUIVALENTS, END OF YEAR $11,820,000 $831,000 $1,770,000 ============== ============= ============= CASH PAID DURING THE YEAR: Interest $1,515,000 $1,478,000 $1,080,000 Income taxes $2,671,000 $3,607,000 $2,477,000 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Direct financing for purchase of equipment and property $435,000 $2,518,000 Cancellation of a note receivable and other assets as consideration for the purchase of leasehold property $540,000 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 Issuance of 110,000 common shares in exchange for notes receivable 732,000
F-4 See accompanying notes to consolidated financial statements. 33 MERCURY AIR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A Preferred Stock Common Stock ----------------------- --------------------- Additional Number of Number of Paid-in shares Amount shares Amount Capital ---------- -------- ----------- ------- ----------- BALANCE, June 30, 1993 558,998 6,000 2,254,199 22,000 7,017,000 Net income Cash Dividend on Series A Preferred Stock Repurchase and retire Preferred Stock (80,256) (1,000) (640,000) Series A Preferred Stock converted into Common Stock (478,742) (5,000) 1,914,968 19,000 (14,000) Repurchase and retire Common Stock (169,200) (1,000) (264,000) Common Stock issued on exercise of warrants and options 905,812 9,000 3,088,000 --------- ------- --------- ------- ----------- BALANCE, June 30, 1994 0 0 4,905,779 49,000 9,187,000 Net income Cash Dividend on Common Stock Repurchase and retire Common Stock (236,300) (2,000) (450,000) Common Stock issued on exercise of warrants and options 128,532 1,000 378,000 Tax benefit from exercise of stock options 217,000 Common stock issued in exchange for the remaining minority interest of Mercury Air Cargo, Inc. 225,000 2,000 1,404,000 Issue 10% stock dividend 501,246 5,000 4,256,000 --------- ------- --------- ------- ----------- BALANCE, June 30, 1995 0 $0 5,524,257 $55,000 $14,992,000 --------- ------- --------- ------- ----------- Net income Cash Dividend on Common Stock Repurchase and retire Common Stock (155,420) (2,000) (387,000) Common Stock issued on exercise of warrants and options 35,350 1,000 125,000 Tax benefit from exercise of stock options 74,000 Issue 10% Stock dividend 549,134 5,000 5,417,000 Retire treasury stock (123,000) Common Stock sold to officers 100,000 1,000 812,000 Foreign currency adjustment --------- ----- --------- ------- ----------- Balance, June 30, 1996 0 $0.00 6,053,321 $60,000 $20,910,000 --------- ----- --------- ------- ----------- Common Stock in Treasury -------------------- Cummulative Notes Retained Number of translation receivable Earnings shares Amount adjustment officers ---------- --------- -------- ----------- ---------- BALANCE, June 30, 1993 2,646,000 32,000 (155,000) Net income 2,995,000 Cash Dividend on Series A Preferred Stock (75,000) Repurchase and retire Preferred Stock (475,000) Series A Preferred Stock converted into Common Stock Repurchase and retire Common Stock (536,000) Common Stock issued on exercise of warrants and options ---------- ------- --------- BALANCE, June 30, 1994 4,555,000 32,000 (155,000) Net income 4,307,000 Cash Dividend on Common Stock (100,000) Repurchase and retire Common Stock (1,022,000) Common Stock issued on exercise of warrants and options Tax benefit from exercise of stock options Common stock issued in exchange for the remaining minority interest of Mercury Air Cargo, Inc. Issue 10% stock dividend (4,261,000) 3,200 ---------- ------- --------- BALANCE, June 30, 1995 $3,479,000 35,200 (155,000) ---------- ------- --------- Net income 4,680,000 Cash Dividend on Common Stock (233,000) Repurchase and retire Common Stock (431,000) Common Stock issued on exercise of warrants and options Tax benefit from exercise of stock options Issue 10% Stock dividend (5,423,000) Retire treasury stock (32,000) (35,200) 155,000 Common Stock sold to officers (732,000) Foreign currency adjustment (46,000) ---------- ------- -------- -------- --------- Balance, June 30, 1996 $2,040,000 0 $0 ($46,000) ($732,000) ========== ======= ======== ======== =========
F-5 See accompanying notes to consolidated financial statements. 34 MERCURY AIR GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED JUNE 30, 1996 Note 1 - Summary of Significant Accounting Policies: Business Mercury Air Group, Inc. and subsidiaries (the "Company") are principally engaged in the conduct of cargo handling, cargo general sales agency and air cargo space brokerage, and the sale and delivery of aviation fuels to commercial, air courier and commuter airlines, and to general aviation aircraft. The Company also provides ground support services to U.S. military aircraft. Principles of Consolidation The consolidated financial statements include the accounts of Mercury Air Group, Inc.,and its subsidiaries. All material intercompany transactions and balances have been eliminated. Cash and Cash Equivalents Cash equivalents consist of short-term, highly liquid investments that are readily convertible into cash and were purchased with maturities of three months or less. Inventories Inventory amounts are stated at the lower of aggregate cost (first-in, first-out method) or market. Property, Equipment and Leaseholds Property, equipment and leaseholds are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful life of the asset (3-25 years) and over the lease life or useful life for leasehold improvements, whichever is less. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired arose in the acquisitions of Maytag Aircraft Corporation, a wholly-owned subsidiary, in 1984, the minority interest in Mercury Air Cargo, Inc. in November 1994, Excel Cargo, Inc. in September 1995 and Floracool, Inc. in 1996. Such costs are being amortized on the straight-line method over 15- 40 years. The F-6 35 Company assesses recoverability on a periodic basis. Factors included in evaluating recoverability include historical earnings and projected future earnings of the operations. Foreign Currency Translation. Assets and liabilities of the Company's foreign subsidiary are translated into U.S. dollars at the exchange rate prevailing at the balance sheet date and, where appropriate, at historical rates of exchange. Income and expense accounts are translated at the weighted average rate in effect during the year. The aggregate effect of translating the financial statements of the foreign subsidiary is included as a separate component of stockholders' equity. Foreign exchange gains (losses) were not significant during the year ended June 30, 1996. Revenue Recognition Revenues are recognized upon delivery of product or completion of the service. The Company's contracts with the U.S. Government are subject to profit renegotiation. The Company has not been required to adjust profits arising out of U.S. Government contracts to date. Income Taxes Deferred tax assets and liabilities are recognized based on differences between financial statement and tax basis of assets and liabilities using presently enacted tax rates. Income Per Share Per share data is based on the weighted average number of shares outstanding, after giving effect to the cumulative dividend on cumulative preferred stock, and common stock equivalents, excluding those common stock equivalents that would increase the income per share. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash, accounts receivable and payable, and debt instruments. The book values of all financial instruments, other than debt instruments, are representative of their fair values due to their short-term maturity. The book values of the Company's debt instruments are considered to approximate their fair values because the interest rates of these instruments are based on current rates offered to the Company. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the F-7 36 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. New Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, " requires that certain long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company adopted SFAS No. 121 in 1996, the effect of which was not significant. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," effective for transactions entered into in fiscal years beginning after December 15, 1995. The Company plans to continue accounting for stock- based compensation under Accounting Principles Board Opinion No. 25," Accounting for Stock Issued to Employees," and related interpretations as permitted by SFAS No.123. Beginning in 1997, under SFAS No. 123, the Company will disclose pro forma net income and earnings per share as if the fair value method of accounting for stock-based compensation had been elected, for all awards granted in fiscal years 1996 and 1997. Note 2 - Related Party Transactions: Twenty percent of Mercury Air Cargo, Inc. ("MAC"), a subsidiary of the Company, was owned by a company which is wholly-owned by an executive officer of Mercury Air Group, Inc. The minority interest share in the net income of MAC resulting from this ownership amounted to $95,000 (1995) and $246,000 (1994). In November 1994, the Company acquired the remaining minority interest from the executive officer. The transaction included a redemption of 5% in exchange for $450,000 in cash and acquisition of the remaining 15% through the issuance of 272,250 common shares (after adjustment for two 10% stock dividends) valued at $1,406,000 ($5.16 per share) for a total consideration of $1,856,000. The acquisition of the minority interest has been accounted for as a purchase and, accordingly, the excess of the cost over the book value ($1,019,000) of the shares acquired is included in other assets in the accompanying consolidated balance sheet at June 30, 1996. (See Note 4). . F-8 37 Note 3 - Property, Equipment and Leaseholds: Property, equipment and leaseholds consist of the following:
June 30 ------- 1996 1995 ---- ---- Land, buildings and leasehold improvements $ 17,813,000 $ 16,187,000 Equipment, furniture and fixtures 19,248,000 16,391,000 Construction in progress 133,000 32,000 ------------ ------------ 37,194,000 32,610,000 Less accumulated depreciation and amortization (22,491,000) (20,391,000) ------------ ------------ $ 14,703,000 $ 12,219,000 ============ ============
Note 4 - Other Assets: Other assets consist of the following:
June 30 ------- 1996 1995 ---- ---- Cost in excess of net assets acquired $ 2,341,000 $1,466,000 Capitalized loan fees (Note 7) 1,777,000 Deferred lease cost 13,000 26,000 Other assets 1,300,000 698,000 Loans to officers 297,000 410,000 ----------- ---------- $ 5,728,000 $2,600,000 =========== ==========
Cost in excess of net assets acquired includes $802,000 which arose from the Company's acquisition of the outstanding minority interest in MAC in November 1994 (See Note 2), $768,000 from the Company's acquisition of Excel Cargo, Inc. in September 1995 (See Note 9) and $150,000 from the Company's acquisition of Floracool, Inc. in January 1996. (See Note 9). In 1991, four executive officers of the Company each agreed to purchase 121,000 (after adjustment for the 10% stock dividends) shares of the Company's stock from a company owned by the Chairman and Chief Executive Officer at $2.48 per share pursuant to a Stock Purchase Agreement ("Agreement"). The officers each paid $30,000 in cash, or $120,000, with the remaining aggregate purchase price of $1,080,000 to be paid over a five year period ending in 1996. As part of the Agreement to purchase the stock, the Company agreed to loan the executives the $1,080,000 in quarterly installments. Beginning in 1994, one fifth of the amount ultimately to be loaned will be forgiven each year over a five year period ending in 1998 provided each of the officers remains in the employ of the Company. F-9 38 In 1994, a fifth executive officer of the Company purchased 121,000 shares (after adjustment for the 10% stock dividend) of the Company's stock from a company owned by the Chairman and Chief Executive Officer at $2.48 per share pursuant to a Stock Purchase Agreement similar to the agreements above. The officer paid $30,000 in cash with the remaining purchase price of $270,000 to be paid over a five year period ending in 1998. The Company agreed to loan the executive the $270,000 in quarterly installments. Beginning in 1996, one fifth of the amount to be loaned, or $54,000, will be forgiven each year over a five year period ending in 2000 provided the officer remains in the employ of the Company. For accounting purposes, the amounts subject to forgiveness of $1,080,000 and $270,000 are being treated as additional compensation over the seven year period from the date of the Agreements through 1998 and 2000, respectively. The loans to officers are increased by actual amounts advanced by the Company and are decreased annually, by one-seventh of the amount to be forgiven, or approximately $154,000 in fiscal 1994, $140,000 in 1995, and $154,000 in fiscal 1996. In July 1995, one of the executive officers resigned resulting in the elimination of any future forgiveness with respect to that officer's loan. In August 1995, the Company repurchased this officer's stock for $453,000, less the balance outstanding on the loan. Note 5 - Accrued Expenses and Other Current Liabilities: Accrued expenses and other current liabilities consist of the following:
June 30 ------- 1996 1995 ---- ---- Salaries and wages $ 1,633,000 $ 1,918,000 Other 2,161,000 1,090,000 ----------- ----------- $ 3,794,000 $ 3,008,000 =========== ===========
Note 6 - Income Taxes: The provision for taxes on income consists of the following:
Year ended June 30 ------------------ 1996 1995 1994 ---- ---- ---- Federal, current $ 2,160,000 $2,565,000 $ 2,262,000 State, current 678,000 650,000 563,000 ----------- ---------- ----------- 2,838,000 3,215,000 2,825,000 Deferred, primarily federal 248,000 (210,000) (651,000) ----------- ----------- ----------- Net provision $ 3,086,000 $3,005,000 $ 2,174,000 =========== ========== ===========
F-10 39 Deferred taxes arise from the recognition of certain items of revenue and expense for tax purposes in years different from those in which they are recognized in the financial statements. Major components of deferred tax assets and liabilities were as follows:
June 30 ------- 1996 1995 ---- ---- Depreciation/amortization $ 120,000 $ 150,000 Deferred and prepaid expenses 578,000 275,000 State income taxes (230,000) (209,000) Allowance for doubtful accounts (324,000) (244,000) Miscellaneous 112,000 36,000 --------- --------- $ 256,000 $ 8,000 ========= =========
The reconciliation of the federal statutory rate to the Company's effective tax rate on income is summarized as follows:
Year ended June 30 ------------------ 1996 1995 1994 ---- ---- ---- Computed "expected" tax rate 34% 34% 34% State income taxes, net of federal income tax benefit 6 6 6 Other - 1 2 --- --- --- Effective rate 40% 41% 42% === === ===
F-11 40 Note 7 - Long-term Debt: Long-term debt consists of the following:
June 30 ------- 1996 1995 ---- ---- Notes payable to banks $ 3,390,000 $14,870,000 Convertible subordinated debentures, interest only at 7.75%, due February 2006 28,115,000 Installment notes, payable to financial institutions in monthly installments aggregating approximately $78,000 at June 30, 1996 including interest from 7.23% to 11.85%, collateralized by certain assets of the Company and maturing from 1996 through 2002. 1,791,000 2,075,000 Convertible subordinated debentures to seller of Excel Cargo in monthly installments of $29,009 including interest at 8.5%, collateralized by property acquired, maturing in September 2003 1,895,000 Mortgage payable to financial institution in monthly principal installments of $9,750 plus interest at 7.5% per annum, collateralized by land and building, maturing in April 2004. 917,000 1,034,000 Mortgage payable to financial institution in monthly installments of $4,447 including interest at 9% per annum, collateralized by land and building, maturing in May 2010. 420,000 434,000 Note payable to seller of assets and leasehold at Bakersfield, California due in December 2004, interest at prime (8.25% at June 30, 1996), collateralized by property acquired, which is principally a leasehold. 956,000 1,017,000 Note payable to seller of assets and leasehold at Bakersfield, California due in November 1997, interest at 10%. 79,000 126,000 Other 155,000 ----------- ----------- 37,563,000 19,711,000 Less current portion 2,555,000 2,607,000 ----------- ----------- $35,008,000 $17,104,000 =========== ===========
F-12 41 Notes payable to banks at June 30, 1996 consists principally of a term loan in the amount of $3,384,000, which is payable in monthly payments of approximately $125,000 plus interest at prime plus 3/4% or LIBOR + 2 1/4% and is scheduled to mature in August 1998. At June 30, 1996 the Company also has a revolving credit line that matures in October 1997, bears interest at prime plus 1/2% or LIBOR + 2% and permits borrowing of up to $16,000,000 subject to available eligible collateral. At June 30, 1996, there was $6,000 in outstanding borrowings under the credit line. The term loan and line of credit are collateralized by substantially all of the Company's assets. 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 $1,835,000 and are included in other assets (See Note 4). Capitalized loan fees are being amortized over the life of the debentures. Certain debt agreements contain provisions that require: the maintenance of certain financial ratios, minimum tangible net worth (as defined ) and minimum working capital levels and limit payments of dividends on common stock to $350,000 annually, annual capital expenditures and payments under operating leases. Long-term debt payable subsequent to June 30, 1996 is as follows: 1997 $2,555,000 1998 2,245,000 1999 1,544,000 2000 582,000 2001 582,000 Thereafter 30,055,000 ----------- $37,563,000 ===========
F-13 42 Note 8 - Common Stock: The Company has 18,000,000 authorized shares of common stock having a par value of $0.01 per share. The Company has reserved 3,939,389 shares of common stock of which 237,218 shares relate to the 1990 Long-Term Incentive Plan; 282,300 shares relate to the 1990 Directors' Stock Option Plan, 162,800 shares relate to special option grants made outside the Company's option plans and 3,257,071 shares relate to convertible debentures. A summary of stock option activity is as follows:
Option Prices Long-Term Option Prices Directors' Stock Incentive Plan Option Plan Outstanding June 30, 1993 2.125- 3.38 175,000 1.875 - 3.00 90,000 Granted 3.688 25,000 3.688 40,000 Exercised 2.125- 2.25 (32,500) 1.875 - 2.25 (13,000) ------- ------- Outstanding June 30, 1994 2.13-3.688 167,500 1.875 - 3.69 117,000 Granted 7.00 40,000 Exercised 2.125- 2.25 (54,700) 2.125 - 3.00 (30,500) ------- ------- 2.125-3.688 112,800 1.875 - 7.00 126,500 10% Stock Dividend 11,280 12,650 ------- ------- Outstanding June 30, 1995 1.93- 3.35 124,080 1.70 - 6.36 139,150 Granted 7.613-8.977 76,000 8.977 44,400 Cancelled 3.35 (11,000) Exercised 1.93 (3,000) 1.93-6.36 (21,250) ------- ------- 1.93- 9.97 186,080 1.70-9.97 162,300 10% Stock Dividend 18,608 16,230 Exercised (5,200) (5,900) ------- ------- Outstanding June 30, 1996 1.754-8.977 199,488 1.545-8.977 172,630 ======= =======
F-14 43 At June 30, 1996, options to purchase 125,000 shares at prices ranging from $1.55 to $5.78 are exercisable under the Directors' Stock Option Plan. All of the options outstanding under the Long-Term Incentive Plan are exercisable. On January 21, 1993, a special option grant for 121,000 shares at $1.93 was made and is exercisable at June 30, 1996. On August 9, 1993 a special option grant for 11,000 shares at $2.84 was made and such option was exercised in March, 1995. During fiscal 1996, the Company sold 110,000 shares of its common stock to two officers for $812, 500. The officers each paid $40,000 in cash and issued promissory notes for the balance of the purchase price which totalled $732,500. The notes are payable over ten years and due in 2006. All amounts have been restated to include the 10% stock dividend paid on May 1, 1996. Note 9- Acquisitions: 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 ==========
In February 1996, the Company acquired all of the issued and outstanding stock of Floracool, Inc., a cargo handling company in Florida, for $250,000 cash, which included goodwill of $150,000. F-15 44 Note 10- Commitments and Contingencies: Leases The Company is obligated under noncancellable operating leases. Certain leases include renewal clauses and require payment of real estate taxes, insurance and other operating costs. Total rental expense on all such leases for the fiscal years 1996, 1995 and 1994 was approximately $3,477,000, $2,502,000 and $2,265,000, respectively, net of sublease income of approximately $230,000 annually. The minimum annual rentals on all noncancellable operating leases having a term of more than one year at June 30, 1996 are as follows: 1997 $ 2,116,000 1998 3,135,000 1999 4,032,000 2000 3,306,000 2001 2,601,000 Thereafter 2,383,000 ----------- Total minimum payments required $17,573,000 ===========
Subsequent to June 30,1996, the Company entered into noncellable operating leases at five additional locations (See Note 13). The minimum annual rentals associated with these operating leases are: 1997 $ 795,000 1998 955,000 1999 955,000 2000 942,000 2001 914,000 Thereafter 9,820,000 ----------- Total minimum payments required $14,381,000 ===========
Litigation The Company is also a defendant in certain litigation arising in the normal course of business. In the opinion of management, the ultimate resolution of such litigation will not have a significant effect of the financial statements. F-16 45 Note 11 - Major Customers and Foreign Customers: Revenues from the United States government amounted to approximately 6%, 9% and 16% for fiscal 1996, 1995 and 1994, respectively. The Company does business with a number of foreign airlines, principally in the sale of aviation fuels. For the most part, such sales are made within the United States and utilize the same assets and generally the same personnel as are utilized in the Company's domestic business. Revenues related to these foreign airlines amounted to approximately 37%, 39% and 45% of consolidated revenues for the years ended June 30, 1996, 1995 and 1994, respectively. Note 12 - Earnings Per Share: Primary earnings per common share is computed by dividing net income available to common stockholders, which gives effect to the cash portion of the cumulative dividend on preferred stock, by the weighted average number of common stock and common stock equivalents outstanding during the period. Options granted to purchase 494,218 shares of common stock under the Company's Long-Term Incentive Plan and Directors' Stock Option Plan at exercise prices ranging from $1.55 to $ 8.98 were included as common stock equivalents in fiscal 1996 for purposes of computing primary earnings per share.
Fully Diluted Primary ------------- --------- Weighted average number of common shares outstanding during the period 5,963,954 5,963,954 Common stock equivalents resulting from the assumed exercise of stock options 254,603 254,603 --------- --------- Weighted average number of common and common equivalent shares outstanding during the period 6,218,557 6,218,557 --------- ========= Common shares resulting from the assumed conversion of debentures 1,331,952 --------- 7,550,509 =========
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 549,134 shares. F-17 46 Interest expense on the convertible debentures of $581,000, net of income tax, has been added back to net income for purposes of computing fully diluted earnings per share for the year ended June 30, 1996. Note 13 - Subsequent Event On August 28, 1996 the Company completed the acquisition of certain assets of five FBOs. The purchase price for the assets was $8,250,000 which consisted of $4,350,000 in cash and a promissory note in the principal amount of $3,900,000, bearing interest at the prime rate and payable over eight years. F-18 47 Note 14 - Quarterly Financial Data (Unaudited):
EARNINGS PER SHARE -------------------- SALES AND FULLY REVENUES GROSS MARGIN NET INCOME PRIMARY DILUTED -------------- ------------- ------------ --------- ---------- FISCAL YEAR JUNE 30, 1996 - -------------------------- FIRST QUARTER $51,880,000 $4,597,000 $1,232,000 $0.20 $0.20 SECOND QUARTER 55,396,000 4,861,000 1,386,000 0.21 0.21 THIRD QUARTER 57,255,000 4,263,000 877,000 0.14 0.13 FOURTH QUARTER 60,843,000 4,693,000 1,185,000 0.19 0.16 ------------ ----------- ---------- ----- ----- FISCAL YEAR JUNE 30, 1996 $225,374,000 $18,414,000 $4,680,000 $0.75 $0.70 ============ =========== ========== ===== ===== FISCAL YEAR JUNE 30, 1995 - -------------------------- FIRST QUARTER $35,554,000 $3,851,000 $1,002,000 $0.16 $0.16 SECOND QUARTER 49,165,000 4,444,000 1,200,000 0.19 0.19 THIRD QUARTER 50,002,000 4,038,000 1,003,000 0.16 0.16 FOURTH QUARTER 48,279,000 4,240,000 1,102,000 0.17 0.17 ------------ ----------- ---------- ----- ----- FISCAL YEAR JUNE 30, 1995 $183,000,000 $16,573,000 $4,307,000 $0.69 $0.69 ============ =========== ========== ===== =====
F-19 48 MERCURY AIR GROUP, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED JUNE 30, 1996
Additions ----------------------------- (1) (2) Balance at charged to charged to Balance beginning costs and other accounts- at end Classification of period expenses describe Deductions of period - ------------------------------------ -------------- ------------- ------------- -------------- ------------ 1996 - ------ Allowance for doubtful accounts $610,000 $945,000 (C) ($746,000)(a) $809,000 ============= =========== =========== ============ ========== 1995 - ------ Allowance for doubtful accounts $508,000 $905,000 (C) ($803,000)(a) $610,000 ============= =========== =========== ============ ========== 1994 - ------ Allowance for doubtful accounts $83,000 $624,000 (b) ($199,000)(a) $508,000 ============= =========== =========== ============ ==========
(a) Accounts receivable write-off (b) Included in the $624,000 is $324,000 charged to selling, general and administrative expenses and $300,000 recorded as a reduction to revenues. (c) Amount charged to selling, general and administrative expense. F-20 EX-10.32 2 AMENDMENT TO LOAN AND SECURITY AGREEMENTS 1 Exhibit 10.32 AMENDMENT TO LOAN AND SECURITY AGREEMENTS THIS AMENDMENT (this "Amendment") dated as of September 24, 1996 is entered into by and among MARINE MIDLAND BUSINESS LOANS, INC., a Delaware corporation ("Lender"), and MERCURY AIR GROUP, INC., a New York corporation formerly known as IPM Technology, Inc. ("Mercury"), MAYTAG AIRCRAFT CORPORATION, a Colorado corporation ("Maytag") and MERCURY AIR CARGO, INC., a California corporation ("Cargo"). Mercury, Maytag and Cargo shall collectively be referred to herein as "Borrowers". RECITALS A. Lender and the respective Borrowers are parties to those three (3) certain Loan and Security Agreements dated as of December 6, 1989 or June 12, 1995, as amended (singly, the "Agreement," and collectively, the "Agreements"). B. Lender and Borrowers desire to amend the Agreements in certain respects, but subject to the terms and conditions set forth below. AGREEMENT In consideration of the above recitals and of the mutual covenants contained herein, Lender and Borrowers agree as follows: 1. Defined Terms. Each of the terms defined in the Agreements which are used herein shall have the same meaning as set forth in the Agreements, unless otherwise specified herein. 2. Dividends. With respect to Section 11.8 of the Mercury Agreement, Mercury may pay cash dividends on its common stock in an aggregate amount not to exceed $350,000 during any fiscal year, so long as no Default has occurred and is continuing and no Default would result from such payment. 3. Investments and Advances. With respect to Sections 11.9 of the Mercury and Maytag Agreements and Section 10.8 of the Cargo Agreement, Borrowers may make investments in, and/or advances to, other persons, firms or corporations, so long as (a) the aggregate outstanding amount of such investments and advances (excluding the existing investments in Sun Jet Holdings, Inc. of approximately $500,000, Jet USA Airlines, Inc. of approximately $500,000, and Western Pacific Airlines of approximately $400,000, and excluding the Mercury employee loans previously agreed to by Lender) do not exceed $1,500,000, and (b) no Default has occurred and is continuing and no Default would result from such investments and advances. 2 4. Guaranties. With respect to Section 11.10 of the Mercury Agreement, Lender consents to the Guaranty dated as of August 27, 1996 executed by Mercury with respect to certain indebtedness owed by Empresa de Transporte Aereo del Peru S.A. to Compass Bank-Texas in the principal amount of $1,000,000. 5. Locations. Schedules 5.7 to the Mercury and Maytag Agreements and Schedule 1 to the Cargo Agreement are hereby deleted in their entirety and replaced with Schedule 5.7 attached hereto and incorporated herein by reference. 6. Continuing Effect of Loan Documents. (a) Except as specifically amended as set forth above, the Agreements and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed; and (b) Upon the effectiveness of this Amendment, each reference in the Loan Documents to the Agreements shall mean and be a reference to the Agreements as amended hereby. 7. Borrowers' Representations and Warranties. Borrowers represent and warrant as follows: (a) Each of the representations and warranties contained in the Agreements is hereby reaffirmed as of the date hereof, each as if set forth herein; (b) The execution, delivery and performance of this Amendment are within Borrowers' powers, have been duly authorized by all necessary action, have received all necessary approvals, if any, and do not contravene any law or any contractual restrictions binding on Borrowers; (c) This Amendment is the legal, valid and binding obligation of Borrowers, enforceable against Borrowers in accordance with its terms; and (d) No event has occurred and is continuing which constitutes an Event of Default under the Agreements after giving effect to this Amendment. 8. Conditions Precedent. This Amendment shall become effective when, and only when, Lender shall have received all of the following, in form and substance satisfactory to Lender: (a) A counterpart of this Amendment duly executed by Borrowers and acknowledged by the guarantor indicated hereinbelow; and (b) Such other documents, instruments or agreements as Lender may reasonably request. 2 3 9. Governing Law. This Amendment shall be deemed to be a contract under and subject to, and shall be construed for all purposes and in accordance with, the internal laws of the State of California. 10. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. WITNESS the due execution hereof as of the date first above written. MARINE MIDLAND BUSINESS LOANS, INC. By: -------------------------------- Title: ---------------------------- MERCURY AIR GROUP, INC. By: ------------------------------- Title: ----------------------------- MAYTAG AIRCRAFT CORPORATION By: ------------------------------- Title: ----------------------------- MERCURY AIR CARGO, INC. By: ------------------------------- Title: ----------------------------- 3 4 CONSENT AND REAFFIRMATION OF GUARANTORS The undersigned, as guarantor under the Guaranty dated April 1, 1992, hereby consents to the foregoing Amendment and acknowledges and reaffirms its obligations and liabilities under such Guaranty, which shall remain in full force and effect. Dated: As of September 24, 1995 HERMES AVIATION, INC., a California corporation By: ------------------------------- Title: ----------------------------- EX-22.1 3 SUBSIDIARY LIST 1 EXHIBIT 22.1 SUBSIDIARY LIST 1. AEG Finance Corp, a Delaware corporation, wholly-owned by Maytag Aircraft Corporation 2. Mercury Environmental and Scientific Services, Inc., a California corporation, wholly-owned by Mercury Air Group, Inc. 3. Maytag Aircraft Corporation, a Colorado corporation, wholly-owned by Mercury Air Group, Inc. 4. Mercury Air Cargo, Inc., a California corporation, wholly-owned by Mercury Air Group, Inc. 5. Hermes Aviation, Inc., a California corporation, wholly-owned by Mercury Air Cargo, Inc. 6. Pegasus de Mexico S.A. de C.V., a Mexican corporation, owned 99% by Mercury Air Cargo, Inc. and 1% by Hermes Aviation, Inc. 7. Excel Cargo, Inc., a California corporation, wholly-owned by Mercury Air Group, Inc. 8. Floracool, Inc., a Florida corporation, wholly-owned by Mercury Air Cargo, Inc. 9. Vulcan Aviation, Inc., a California corporation, wholly-owned by Mercury Air Cargo, Inc. 10. Maytag Aircraft Corporation, a Cayman corporation, wholly-owned by Maytag Aircraft Corporation. EX-23.1 4 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-69414 of Mercury Air Group, Inc. on Form S-8 of our report dated September 19, 1996 appearing in the Annual Report on Form 10-K of Mercury Air Group, Inc. for the year ended June 30, 1996. DELOITTE & TOUCHE LLP Los Angeles, California September 25, 1996 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1996 1,000 U.S. DOLLARS YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 1,000 11,820 0 42,746 809 2,623 58,534 37,194 22,491 79,123 21,627 35,008 0 0 60 22,172 79,123 182,674 225,374 169,015 206,960 10,648 945 2,375 7,766 3,086 0 0 0 0 4,680 $0.75 $0.70
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