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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------------------------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-7141
PS GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0692068
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
4370 LA JOLLA VILLAGE DRIVE, SUITE 1050
SAN DIEGO, CALIFORNIA 92122
(Address of principal executive offices)
(Zip code)
(619) 642-2999
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1996: 6,068,313 shares of common stock, $1 par
value.
________________________________________________________________________________
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PS GROUP HOLDINGS, INC.
As more fully described in Part II - Item 2, PS Group Holdings, Inc. (PSGH) and
PS Group, Inc. (PSG) completed a holding company reorganization on June 5, 1996.
On that date PSGH became the successor registrant to PSG.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
for the quarter ended June 30, 1996 may be deemed forward-looking such as
information relating to the future prospects of PSG's aircraft leases, the
consequences of any unscheduled return of aircraft under lease, PS Trading
Inc.'s potential for growth, plans for expansion of Statex Petroleum, Inc., the
availability of certain tax benefits and the amount of otherwise-taxable income
against which such benefits may be offset. Such statements involve risks and
uncertainties, including, but not limited to the impact of the financial
condition and results of operations of the lessees of PSG's aircraft, the impact
of economic conditions on each business segment, the impact of competition, the
impact of governmental legislation and regulation and possible future changes
therein, and other risks detailed in this Form 10-Q, the 1995 PSG Annual Report
to Shareholders and in other filings PSGH and PSG have made with the Securities
and Exchange Commission.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Included herein on pages F-1 to F-4.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Included herein on pages F-5 to F-7.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
1
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ITEM 2. CHANGES IN SECURITIES.
PSGH and PSG completed a holding company reorganization that was
approved at the 1996 Annual Meeting of Stockholders of PSG on June 5, 1996. As
a result of the reorganization, each share of PSG was converted on a tax-free
basis into one share of PSGH. The sole purpose of the reorganization was to
help preserve PSG's substantial net operating loss and investment tax credit
carryforwards and other tax benefits by decreasing the risk of an "ownership
change" for federal income tax purposes. This has been accomplished by imposing
certain restrictions on the transfer of shares of PSGH. These restrictions are
found in Article XI of the Restated Certificate of Incorporation of PSGH and are
shown on a legend on each stock certificate issued by PSGH. In general, and
subject to an exemption for certain dispositions of shares by persons who were
"pre-existing 5% shareholders" on June 5, 1996 as defined in Article XI of the
Restated Certificate of Incorporation of PSGH, the transfer restrictions
prohibit, without prior approval of the Board of Directors, the direct or
indirect disposition or acquisition of any stock of PSGH by or to any holder who
owns, or would, as a result thereof, own (either directly or through the tax
attribution rules) 5% or more of the stock upon such acquisition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders of PSG held on May 28, 1996 was, by
stockholder vote, immediately adjourned until June 5, 1996. The purpose of the
meeting was to elect two directors with terms expiring in 1999 and to vote on a
proposal to adopt the holding company reorganization.
The votes were cast at the June 5, 1996 reconvened meeting as follows:
<TABLE>
<CAPTION>
For Withheld
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<S> <C> <C>
Charles E. Rickershauser, Jr. 5,131,532 438,191
Donald W. Killian, Jr. 5,131,464 438,259
<CAPTION>
For Against Abstain
------------- --------- -------
<S> <C> <C> <C>
Holding Company Reorganization 4,216,675 915,546 19,967
</TABLE>
2
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The seven directors of PSGH were elected and appointed pursuant to the Restated
Agreement and Plan of Reorganization as disclosed in Form 8-K filed on June 7,
1996.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K for PSG:
Dated
-------------
April 3, 1996 Reported that PSG entered into a Restated
Agreement and Plan of Reorganization dated as of
January 31, 1996.
May 13, 1996 Reported that the Board of Directors of PSG
amended the Bylaws to confirm that in any election
of directors, the election shall be decided by a
plurality of the votes cast. Also reported that
PSG entered into an Amendment Agreement dated as
of May 11, 1996 amending the Restated Agreement
and Plan of Reorganization to provide
corresponding confirmation in the applicable
provision of the Restated Bylaws of PSGH.
May 20, 1996 (as amended on May 21, 1996 on Form 8-K/A)
Reported that PSG and PSGH entered into an
agreement with Joseph S. Pirinea regarding the
1996 annual meeting of stockholders pursuant to
which (among other things) Mr. Pirinea was to be
appointed to a newly-created vacancy on the PSG
Board of Directors at the Board's organizational
meeting to be held immediately following the
conclusion of the 1996 Annual
3
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Meeting of Stockholders and to be appointed to the
Board of PSGH.
May 28, 1996 Reported that the PSG and PSGH Boards of Directors
had committed to appoint Christopher Mills as an
additional director at its organizational meeting
to be held immediately following the conclusion of
the 1996 Annual Meeting of Stockholders. Also
reported that PSG's and PSGH's Boards of Directors
committed to undertake a study of the possibility
of proposing for stockholder approval the
elimination from its Certificate of Incorporation
of the present provisions for a classified board.
Report on Form 8-K for PSGH:
June 7, 1996 Reported that as of the effective time of the
Reorganization on June 5, 1996, PSGH Common Stock
was deemed registered pursuant to Section 12(b) of
the 1934 Act.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PS GROUP HOLDINGS, INC.
-----------------------
(Registrant)
Date: August 7, 1996
/s/ Lawrence A. Guske
- - -----------------------------
LAWRENCE A. GUSKE
Vice President - Finance and
Chief Financial Officer
4
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<TABLE>
<CAPTION>
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(in thousands)
<S> <C> <C>
ASSETS 1996 1995
________ ________
Current assets:
Cash and cash equivalents $ 6,556 $ 3,999
Marketable securities 9,868 14,270
Accounts and notes receivable 28,813 22,381
Current portion of aircraft leases 9,923 6,170
Fuel inventory 8,062 4,423
Other current assets 6,488 2,535
-------- --------
Total current assets 69,710 53,778
Property and equipment, net 21,097 20,285
Aircraft leased under operating leases, net 113,549 120,500
Investment in aircraft financing leases 91,036 97,004
Other assets 13,078 14,404
-------- --------
$308,470 $305,971
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,985 $ 6,289
Other current liabilities 7,494 6,040
Current portion of long-term obligations 23,088 19,244
-------- --------
Total current liabilities 41,567 31,573
Long-term obligations 91,463 103,365
Deferred income taxes 41,952 40,535
Other liabilities 7,968 7,416
Stockholders' equity:
Common stock 6,068 6,068
Additional paid-in capital 98,420 98,420
Retained earnings 21,032 18,594
-------- --------
Total stockholders' equity 125,520 123,082
-------- --------
$308,470 $305,971
======== ========
</TABLE>
See accompanying notes.
F - 1
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PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ------------------
1996 1995 1996 1995
----------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Fuel sales and distribution $ 60,738 $30,476 $ 99,915 $ 56,325
Oil and gas production 2,054 1,809 3,847 3,587
Aircraft leasing 8,433 8,847 17,263 17,745
Interest and other 391 592 708 1,154
----------------- ------------------
71,616 41,724 121,733 78,811
----------------- ------------------
Costs and expenses:
Cost of sales 59,739 31,047 99,471 57,516
Depreciation, depletion and amortization 4,038 4,064 8,018 8,123
General and administrative expenses 1,655 1,099 2,938 2,084
Loss on aircraft disposition 1,701 1,701
Interest expense 3,498 3,813 7,130 7,823
----------------- ------------------
68,930 41,724 117,557 77,247
----------------- ------------------
Income before taxes 2,686 0 4,176 1,564
Provision for taxes 1,119 25 1,738 680
----------------- ------------------
Net income (loss) $ 1,567 $ (25) $ 2,438 $ 884
================= ==================
Net income per share $ .26 $ - $ .40 $ .15
================= ==================
Shares used in determining net income
per share 6,068 6,068 6,068 6,068
================= ==================
</TABLE>
See accompanying notes.
F - 2
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<TABLE>
<CAPTION>
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(in thousands)
<S> <C> <C>
1996 1995
-------- --------
Cash provided from operating activities $ 6,962 $ 7,394
Cash flows from financing activities:
Additions to long-term obligations 1,700
Reductions in long-term obligations (9,759) (7,784)
-------- --------
Net cash used in financing activities (8,059) (7,784)
-------- --------
Cash flows from investing activities:
Proceeds from marketable securities and other 5,093 2,532
Proceeds from disposition of property and equipment 14 1,526
Cash collateralization of letters of credit, net 324 1,917
Capital additions (1,777) (401)
-------- --------
Net cash provided from investing activities 3,654 5,574
-------- --------
Net increase in cash and cash equivalents 2,557 5,184
Cash and cash equivalents at beginning of period 3,999 22,780
-------- --------
Cash and cash equivalents at end of period $ 6,556 $27,964
======== ========
</TABLE>
See accompanying notes.
F - 3
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PS GROUP HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) PS Group Holdings, Inc. (PSGH) and PS Group, Inc. (PSG) completed a holding
company reorganization that was approved at the 1996 Annual Meeting of
Stockholders of PSG on June 5, 1996. As a result of the reorganization,
each share of PSG was converted, on a tax-free basis, into one share of
PSGH. The reorganization did not result in any change in the consolidated
financial condition, business or assets of PSG. The reorganization was
accounted for on an historical cost basis, thus the financial statements
for periods prior to the reorganization have not been restated in any way.
The sole purpose of the reorganization was to help preserve PSG's
substantial net operating loss and investment tax credit carryforwards and
other tax benefits by decreasing the risk of an "ownership change" for
federal income tax purposes. This has been accomplished by imposing
certain restrictions on the transfer of shares of PSGH. In general, and
subject to an exemption for certain dispositions of shares by persons who
were "pre-existing 5% shareholders" (as defined in Article XI of PSGH's
Restated Certificate of Incorporation) on June 5, 1996, the transfer
restrictions prohibit, without prior approval of the Board of Directors,
the direct or indirect disposition or acquisition of any stock of PSGH by
or to any holder who owns, or would, as a result thereof, own (either
directly or through the tax attribution rules) 5% or more of the stock upon
such acquisition.
(b) In the opinion of management, the accompanying Unaudited Condensed
Consolidated Financial Statements include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair statement of the
consolidated financial position at June 30, 1996 and the results of
operations for the three and six months ended June 30, 1996 and 1995, and
cash flows for the six months ended June 30, 1996 and 1995. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.
These Unaudited Condensed Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
contained in the PSG 1995 Annual Report to Stockholders (the 1995 Annual
Report).
(c) In the first quarter of 1996, PSGH adopted Financial Accounting Standards
Board Statement 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The effect of the adoption
was not material.
F - 4
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PS GROUP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At June 30, 1996, PSGH's principal sources of liquidity were cash, cash
equivalents and marketable securities of $16.4 million, a $1.8 million decrease
from December 31, 1995. The major changes in cash and cash equivalents are
reported in the Unaudited Condensed Consolidated Statements of Cash Flows.
Working capital increased by $5.9 million since December 31, 1995. PSGH's
capitalization consisted of 48% long and short-term obligations and 52% equity
at June 30, 1996 compared to 50%/50% at December 31, 1995.
At the end of 1996's second quarter, PSG had $5 million outstanding under its
bank credit agreement, consisting entirely of letters of credit, all of which
were fully cash collateralized. No borrowings are permitted under the bank
credit agreement.
Statex Petroleum, Inc. (Statex), PSGH's oil and gas production and development
subsidiary, has a separate bank credit agreement collateralized by its major oil
properties. The total availability is $4 million but on approval could be
increased up to $7.1million. During the first six months of 1996, $1.7 million
was borrowed under this agreement. This source of funding is intended for the
acquisition and development of properties which Statex may acquire in the
future.
PSG's assets include approximately $151.8 million for which realization is
substantially dependent upon the future performance of USAir, Inc. (USAir) under
aircraft leases with PSG. All payments due from USAir are current through
August 1, 1996, however USAir's long-term financial future is uncertain. Should
USAir default on their leases with PSG, or file bankruptcy and reject certain of
such leases, there could be a material decrease in the market value of the types
of aircraft leased to USAir due to an increased availability of these aircraft
for lease or sale. In such case, PSG could suffer significant losses on the
ultimate disposal of the related aircraft or upon the ultimate repossession of
the aircraft by the lenders. For a more complete discussion of USAir's
relationships to PSG's financial condition, refer to PSG's 1995 Annual Report.
PSGH refers readers to information released by USAir for details relating to
their financial condition.
During 1996, USAir has made additional progress in subleasing some of the ten
BAe 146-200 aircraft which are leased from PSG and have been in storage for
several years while USAir has continued to make the lease payments to PSG. As
of June 30, 1996, USAir has subleased and delivered four of PSG's ten BAe 146
aircraft to two European regional airlines. In addition, USAir has indicated
they have reached final agreement to sublease three more of PSG's BAe 146
aircraft to a U.S. regional airline in the fall of 1996 and preliminary
agreement to sublease two of PSG's BAe
F - 5
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146's to another European regional airline with delivery by the end of 1996.
PSGH believes that both the value of the BAe 146's and the prospects for
potentially releasing or selling the BAe 146's at the end of the USAir lease
term in the fall of 2000 are enhanced if the aircraft are in operation prior to
lease expiration. In their press release of second quarter 1996 results, USAir
announced the reversal of $29.5 million of a prior write-down for the grounded
BAe 146-200 aircraft as a result of their success in subleasing the BAe 146
aircraft which are leased from PSG and other lessors.
PSG and its two partners have agreed to sell six Boeing 737-200 aircraft at the
end of the lease term on December 31, 1996 to the lessee, Continental Airlines,
Inc. PSG has a one-third interest in the aircraft. Upon completion of the
sale, PSG expects to record an after-tax gain of approximately $1 million ($.17
per share) on gross cash proceeds of $3.1 million.
PSGH believes that, absent a failure by USAir to meet its lease obligations to
PSG, its cash, cash equivalents, marketable securities and the availability
under Statex's bank credit agreement, plus projected cash flow, are adequate to
meet the operating and planned capital needs of PSGH in both the short and long-
term.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30,
1996 AND 1995
REVENUES - Revenues from PSGH's fuel sales and distribution subsidiary, PS
Trading, Inc. (PST), increased 99% for the second quarter and 77% for the first
half of 1996 compared to the same periods in 1995. The increase is primarily
the result of expanded marketing efforts by the wholesale fuel division which
resulted in an 85% growth in gallons of fuel sold in the second quarter and a
65% growth during the first half of 1996. Revenues also rose due to an 8%
increase in the average fuel price during both of the 1996 periods.
Oil and gas production revenues were higher during the second quarter and first
half of 1996 principally due to higher oil prices.
Aircraft lease revenues were down in the second quarter and first half of 1996
due to declining revenues from financing leases and lease rate resets on certain
aircraft leases (which were matched by lower interest rates on the related
debt). Partially offsetting these items, in the first half of 1996, was the
settlement of PSG's administrative claim in the Pan Am bankruptcy for $108,000
more than originally estimated and the $231,000 sale of 747 engine parts from
inoperable engines returned by Pan Am related to the two 747 aircraft sold by
PSG in 1995.
Interest and other revenues were down from the first quarter and first half of
1995 due to lower levels of interest bearing assets, plus investment losses of
$25,000 in the second quarter and $155,000 in the first half of 1996 were
recorded related to
F - 6
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market value adjustments on PSG's investments in U.S. Government securities as a
result of higher interest rates.
COSTS AND EXPENSES - The 92% increase in cost of sales during the second quarter
and the 73% increase during the first half of 1996 reflect the increased volume
at PST discussed above. Included in PST's costs are expenses of $524,000
incurred during the second quarter and $697,000 incurred during the first half
of 1996 at the San Francisco International Airport (SFO) primarily for the
permanent removal of fuel distribution pipelines as a result of construction.
The increases in general and administrative expenses for the second quarter and
first half of 1996 are largely due to expenses associated with the holding
company reorganization approved by shareholders on June 5, 1996 and additional
expenses to support PST's expanded operations.
The second quarter and first half of 1995 include a $1.7 million loss from the
sale of two 747-100SF aircraft.
Interest expense decreased in the 1996 periods primarily due to lower levels of
outstanding debt.
INCOME TAXES - Taxes in both 1996 and 1995 differ from the corporate federal
tax rate primarily because of the effect of state taxes.
SEGMENT RESULTS - The combination of higher prices, which enhanced margins of
fuel held in inventory, and higher volume significantly increased PST's 1996
second quarter and first half net income. The increase was partially offset by
the pipeline expenses at SFO discussed above. PST, as a holder of inventory,
benefits from rising petroleum product prices through enhanced fuel margins
generated from the sale of previously purchased lower-cost inventory. Likewise,
PST fuel margins deteriorate as product prices decline and may even disappear in
a market with fast declining petroleum product prices. In a market with falling
product prices, previously purchased higher cost fuel in inventory is sold at
current market related pricing while inventory is being replenished through
current purchases of lower cost fuel. While petroleum product prices increased
dramatically early in the second quarter of 1996, they started to decline in the
latter part of 1996's second quarter and continued to decline early into 1996's
third quarter.
Statex recorded higher net income in the 1996 periods principally due to higher
oil prices.
1996 results for PSG's aircraft leasing activity, were approximately the same as
in 1995 except for the loss from the sale of the two 747 aircraft
F - 7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,556
<SECURITIES> 9,868
<RECEIVABLES> 28,901
<ALLOWANCES> (88)
<INVENTORY> 9,923
<CURRENT-ASSETS> 69,710
<PP&E> 289,986
<DEPRECIATION> (155,340)
<TOTAL-ASSETS> 308,470
<CURRENT-LIABILITIES> 41,567
<BONDS> 0
0
0
<COMMON> 6,068
<OTHER-SE> 119,452
<TOTAL-LIABILITY-AND-EQUITY> 308,470
<SALES> 103,762
<TOTAL-REVENUES> 121,733
<CGS> 99,471
<TOTAL-COSTS> 99,471
<OTHER-EXPENSES> 10,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,130
<INCOME-PRETAX> 4,176
<INCOME-TAX> 1,738
<INCOME-CONTINUING> 2,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,438
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
