<PAGE>
================================================================================
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 December 31, 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 of (IRS employer
incorporation or organization) identification no.)
4370 LA JOLLA VILLAGE DRIVE, SUITE 1050
SAN DIEGO, CALIFORNIA 92122
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (619) 642-2999
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock - $1 par value New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: none.
----------------------
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 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]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
$76,781,109 as of March 18, 1997
* Assumes Berkshire Hathaway Inc. (and its subsidiaries) and ESL Partners,
L.P., owning approximately 19.9% and 19.7%, respectively, of the outstanding
shares of common stock of the Company on March 18, 1997 are not affiliates of
the Company.
The number of shares of common stock outstanding as of March 18, 1997 was
6,068,313.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C>
Portions of Annual Report to Shareholders for the Year ended December 31, 1996 PART I and PART II
Portions of Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders PART III
</TABLE>
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
PRINCIPAL BUSINESSES
The principal businesses of PS Group Holdings, Inc. (the Company), which
are conducted through subsidiaries, are aircraft leasing (PS Group, Inc.), fuel
sales and distribution (PS Trading, Inc.), and oil and gas production and
development (Statex Petroleum, Inc.).
REORGANIZATION AND RESTRICTIONS ON THE TRANSFER OF SHARES OF THE COMPANY
On June 5, 1996, the Company and PS Group, Inc. (PSG) completed a holding
company reorganization (the Reorganization) that was approved at the 1996 Annual
Meeting of Stockholders of PSG on that date. As a result of the Reorganization,
each share of PSG was converted, on a tax-free basis, into one share of the
Company. 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 and thus the financial statements for
periods prior to the Reorganization have not been restated. 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. The
Reorganization was intended to accomplish this purpose by imposing certain
restrictions on the transfer of shares of the Company. 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
Company's Restated Certificate of Incorporation, the transfer restrictions
prohibit, without prior approval of the Board of Directors, the direct or
indirect disposition or acquisition of any stock of the Company 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.
STATE OF INCORPORATION AND EXECUTIVE OFFICES
The Company was incorporated in Delaware in 1996, and through the
Reorganization became the successor corporation to PSG. PSG was incorporated in
Delaware in 1972 as the successor to a California corporation originally
incorporated in 1945. The Company has its principal executive offices at 4370 La
Jolla Village Drive, Suite 1050, San Diego, California, 92122; telephone number
(619) 642-2999.
SEGMENT INFORMATION
Certain information required by "ITEM 1. BUSINESS" is incorporated by
reference from pages 8 through 19 of the Company's 1996 Annual Report to
Shareholders. This incorporated information includes financial information
about the Company's business segments. Additional disclosure is made in this
Form 10-K.
CORPORATE EMPLOYEES
As of December 31, 1996, the Company had no employees. The corporate
staff of PSG consisted of 7 full-time employees who manage the aircraft leasing
operations and perform administrative functions including administrative
services to the Company. The PSG corporate staff also provides some
administrative services to its subsidiaries for which it is reimbursed. None of
the employees of PSG or its subsidiaries are covered by union contracts.
1
<PAGE>
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in, or
incorporated by reference into this 1996 Annual Report on Form 10K 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 prospects, 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. Investors are
cautioned that all forward-looking 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 1996 Annual Report on Form 10K and in filings the
Company has made with the Securities and Exchange Commission.
CERTAIN ADDITIONAL INFORMATION
PS TRADING, INC. (PST) -- FUEL SALES AND DISTRIBUTION
RISKS. PST's operations are subject to all risks inherent in the business
of fuel sales and distribution including fuel spillage and distribution
accidents, which could result in damage to or destruction of property, or could
result in personal injury or loss of life. Such an event could result in
substantial cost to PST. PST carries substantial insurance coverage but may not
be fully insured against all such risks.
ECONOMIC AND COMPETITIVE FACTORS AFFECTING PST. Virtually every refiner
and reseller of refined petroleum products who sell in PST's market areas
(including other large distributors and major oil companies) is a competitor or
potential competitor of PST for the sale of its products. Many of these
companies have greater financial resources and broader marketing capabilities
than PST. In some instances competitors, especially refiners, may have lower
costs for the refined petroleum products they sell and may thus be in a
favorable position to offer product prices to PST's customers lower than those
PST can offer.
ENVIRONMENTAL ISSUES. Since PSG or PST own or lease fuel storage
facilities or pipelines at several locations and since PST contracts with
independent companies to deliver fuel on its behalf, it is possible that future
claims may be made against PSG or PST regarding potential soil and groundwater
pollution. See "ITEM 3. LEGAL PROCEEDINGS" for one current matter at San
Francisco International Airport in which an investigatory and remediation order
has been issued by the California Regional Water Quality Control Board, San
Francisco Region. Typically PST operates at locations served by other companies
including major airlines, oil companies and airports, most of which have greater
financial resources and higher levels of operations at the locations served than
PST.
2
<PAGE>
STATEX PETROLEUM, INC. (STATEX) - OIL AND GAS PRODUCTION AND DEVELOPMENT
ACREAGE. The following table sets forth, by states, Statex well ownership
and producing acreage as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Wells Net Wells Producing Acres
------------- -------------- ---------------
Oil Gas Oil Gas Gross Net
----- ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Louisiana - 2 - 0.04 22 3
New Mexico 1 - 0.06 - 120 8
North Dakota 1 - 1.00 - 304 304
Oklahoma 1 17 0.03 6.16 6,154 1,931
Texas 184 8 137.98 1.79 17,647 9,534
--------------------------------------------------
Total 187 27 139.07 7.99 24,247 11,780
</TABLE>
The following table sets forth, by states, undeveloped acreage ownership as of
December 31, 1996:
<TABLE>
<CAPTION>
Acres
-----------------
Gross Net
-----------------
<S> <C> <C>
Oklahoma 1,708 214
Texas 4,527 2,280
-----------------
Total 6,235 2,494
</TABLE>
RISKS. Statex's operations are subject to all risks inherent in the
exploration for and production of oil and gas, including blowouts, cratering and
fires, which could result in damage to or destruction of oil and gas wells or
formations, producing facilities or property, or could result in personal injury
or loss of life. Such an event could result in substantial cost to Statex and
could have a material adverse effect upon its financial condition if Statex is
not fully insured against such risk. Statex carries substantial insurance
coverage but may not be fully insured against all such risks.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL ISSUES. Statex's operations are
affected from time to time in varying degrees by political developments and
federal and state laws and regulations. In particular, oil and gas production
operations and returns are affected by tax and other laws relating to the
petroleum industry, changes in such laws and constantly changing administrative
regulations. In addition, oil and gas operations are subject to regulation,
interruption and termination by governmental authorities for environmental
issues and other considerations. Additionally, in most, if not all, areas where
Statex conducts activities, there are statutory provisions regulating the
production of oil and gas. These provisions allow administrative agencies to
promulgate rules in connection with the operation and production of both oil and
gas wells, including the method of developing new fields, spacing of wells and
the maximum daily production allowable for both oil and gas wells and various
environmental issues.
ECONOMIC AND COMPETITIVE FACTORS AFFECTING STATEX. Statex is engaged
primarily in the production and sale of crude oil and natural gas. Statex has
literally hundreds of competitors, most of which are larger and have greater
resources than Statex. Oil and natural gas are fungible commodities and, as
such, the prices Statex receives for its products are directly related to the
open market price for such products at the time of sale. These prices generally
fluctuate and are for the most part controlled by the laws of supply and demand.
The price for oil is particularly driven by worldwide production and demand.
Statex has virtually no control over the establishment of prices for its
products. To the extent there should be an oversupply of product and resulting
lower prices, Statex's revenues would be negatively impacted.
3
<PAGE>
ITEM 2. PROPERTIES
EXECUTIVE OFFICES AND OTHER GROUND FACILITIES
The Company's executive offices and principal administrative offices are
located at 4370 La Jolla Village Drive, Suite 1050, San Diego, California under
a five-year lease entered into by PSG expiring in mid-2001. At December 31,
1996, PSG leased approximately 3,000 square feet for executive offices. Base
rent for the first 22 months of the lease totals approximately $512,000, and
base rent for the remaining 38 months totals approximately $211,000.
PST owns an 8,000 square foot building located at 17742 Preston Road,
Dallas, Texas which is used as its administrative offices. In addition, PST's
wholesale operation leases 1,560 square feet for administrative offices at 5620
Birdcage Street, Suite 130, Citrus Heights, California for an annual rent of
$23,000.
Statex leases approximately 5,000 square feet for executive offices at 1801
Royal Lane, Suite 110, Dallas, Texas at a rental of $34,900 for 1997 and $23,400
for the nine-month period ending in September 1998. There is a 2-year renewal
option at 95% of current market rates. For information regarding Statex oil and
gas properties see "Statex Petroleum, Inc. (Statex) - Oil and Gas Production and
Development" under "ITEM 1. BUSINESS".
The Company believes that its present properties are adequate for its
business in light of its current operations.
FLIGHT EQUIPMENT
The aircraft owned by PSG as of March 18, 1997 are listed in the following
table.
<TABLE>
<CAPTION>
Type of Aircraft Number Owned
---------------- ------------
<S> <C>
British Aerospace BAe 146-200 10 (a)
McDonnell Douglas MD-80 7 (b)
Boeing 737-300 2 (c)
</TABLE>
Notes:
(a) These aircraft are all leased to US Airways, Inc. for terms expiring
in 2000.
(b) Six MD-80s are leased to US Airways, Inc. for terms expiring from 1998
to 2004. One is leased to Continental Airlines, Inc. for a term
expiring at the beginning of 2008.
(c) One aircraft is leased to Continental for a term expiring at the
beginning of 2008. One aircraft is leased to America West Airlines for
a term expiring in 2006.
4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company, along with numerous other companies including major airlines,
major oil companies and the owner of the San Francisco International Airport
(most of which have greater financial resources than the Company), is under an
order dated October 28, 1994 by the California Regional Water Quality Control
Board, San Francisco Region, to participate in the investigation, remediation
and monitoring of actual or alleged soil and groundwater pollution at San
Francisco International Airport. The Company and other potentially responsible
parties subject to the order are complying with the order. No litigation has
been filed or is pending concerning this matter. The Company intends to
vigorously defend any suits that may be filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
5
<PAGE>
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and certain additional
information concerning the executive officers of the Company.
<TABLE>
<CAPTION>
Age on
March 1, Positions with the Company
Name 1997 and Principal Occupation
- - ----------------------------- -------- ---------------------------------
<S> <C> <C>
Lawrence A. Guske 52 Vice President - Finance and
Chief Financial Officer of the
Company since January 15, 1996,
Vice President -Finance and Chief
Financial Officer of PSG since
1987.
Charles E. Rickershauser, Jr. 68 Chairman of the Board, Chief
Executive Officer and a director
of the Company since January 15,
1996, Chairman of the Board of
PSG since 1991, a director of PSG
since 1984 and Chief Executive
Officer of PSG since October
1994. From 1980 until 1986 he was
Chairman of the Board and Chief
Executive Officer of the Pacific
Stock Exchange Incorporated. From
1986 until his retirement in 1990
he was a partner in the law firm
of Fried, Frank, Harris, Shriver
& Jacobsen.
Johanna Unger 48 Vice President, Secretary and
Controller of the Company since
January 15, 1996, Vice President
and Controller of PSG since 1988
and Secretary of the PSG since
1994.
</TABLE>
There are no family relationships between any of the Company's executive
officers. Each of the Company's executive officers is elected annually and
serves at the pleasure of the Board of Directors.
6
<PAGE>
PART II
The information required by Items 5, 6, 7 and 8 of this Part II are hereby
incorporated by reference from page 1 and the pages 8 through 43 of the
Company's 1996 Annual Report to Shareholders.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Part III, Items 10 through 13, is
incorporated by reference from the Company's definitive Proxy Statement which
will be filed with the Securities and Exchange Commission on or prior to April
30, 1997. Certain information concerning the Executive Officers of the Company
is included in Part I, supra. See "ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE
COMPANY."
PART IV
ITEM 14. FINANCIAL STATEMENTS, EXHIBITS
AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
1. Financial Statements: See Index to Financial Statements, Page F-1.
2. Exhibits: See Index to Exhibits following Page F-2.
(b) Reports on Form 8-K
December 10, 1996 Reported a special cash distribution of $1.50 per
share was to be paid December 31, 1996. Also reported
that the board of directors of the Company had been
expanded from seven to nine members and that William
H. Borthwick and Steven D. Broidy had been appointed
as the two new directors.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned thereunto duly authorized.
DATED: March 27, 1997.
PS GROUP HOLDINGS, INC.
(Registrant)
By: /s/ Lawrence A. Guske
_________________________________
LAWRENCE A. GUSKE
Vice President - Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes Lawrence A. Guske and Johanna Unger, and each of
them, as attorneys-in-fact, on his or her behalf, individually and in each
capacity stated below, to sign and file any amendment to this Form 10-K Annual
Report.
8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - -------------------------------- --------------------------- --------------
<S> <C> <C>
/s/ C. E. Rickershauser, Jr. Chairman of the Board, March 27, 1997
- - -------------------------------- Chief Executive Officer
(C. E. Rickershauser, Jr.)
/s/ J. P. Guerin Vice Chairman of the Board March 27, 1997
- - --------------------------------
(J. P. Guerin)
/s/ Lawrence A. Guske Vice President - March 27, 1997
- - -------------------------------- Finance and Chief
(Lawrence A. Guske) Financial Officer
(principal financial
officer)
/s/ Johanna Unger Vice President, Controller March 27, 1997
- - -------------------------------- and Secretary (principal
(Johanna Unger) accounting officer)
/s/ Robert M. Fomon Director March 27, 1997
- - --------------------------------
(Robert M. Fomon)
/s/ William H. Borthwick Director March 27, 1997
- - --------------------------------
(William H. Borthwick)
/s/ Steven D. Broidy Director March 27, 1997
- - --------------------------------
(Steven D. Broidy)
/s/ Donald W. Killian, Jr. Director March 27, 1997
- - --------------------------------
(Donald W. Killian, Jr.)
/s/ Gordon C. Luce Director March 27, 1997
- - --------------------------------
(Gordon C. Luce)
/s/ Christopher H.B. Mills Director March 27, 1997
- - --------------------------------
(Christopher H.B. Mills)
/s/ Joseph S. Pirinea Director March 27, 1997
- - --------------------------------
(Joseph S. Pirinea)
</TABLE>
9
<PAGE>
PS GROUP HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
[ITEM 14(A)]
<TABLE>
<CAPTION>
Page Reference
------------------------------
Annual
Report to
Form 10-K Stockholders
------------- --------------
<S> <C> <C>
Report of Ernst & Young LLP, independent auditors 41
Consolidated statements of financial position at
December 31, 1996 and 1995 23
Consolidated income statements for each of
the three years in the period ended
December 31, 1996 24
Consolidated statements of cash flows for each of
the three years in the period ended
December 31, 1996 25
Consolidated statements of stockholders' equity for
each of the three years in the period ended
December 31, 1996 26
Notes to consolidated financial statements 27 - 36
Supplementary information:
Quarterly financial information (unaudited) 37
Oil and gas operations (unaudited) 37 - 40
Consent of Ernst & Young LLP, independent auditors F-2
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
The consolidated statements of financial position of PS Group Holdings,
Inc. at December 31, 1996 and 1995 and the related statements of operations,
cash flows and stockholders' equity and the report of Ernst & Young LLP,
independent auditors, are set forth on the pages indicated above in the Annual
Report to Stockholders of PS Group Holdings, Inc. for the year ended December
31, 1996 and are incorporated herein by reference.
F-1
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of PS Group Holdings, Inc. of our report dated March 7, 1997, included in the
1996 Annual Report to Stockholders of PS Group Holdings, Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-97926) pertaining to the Employee Incentive Stock Option Program
and the Incentive Stock Option Plan of PS Group, Inc. of our report referred to
above, with respect to the consolidated financial statements of PS Group
Holdings, Inc. incorporated herein by reference.
ERNST & YOUNG LLP
San Diego, California
March 27, 1997
F-2
<PAGE>
INDEX TO EXHIBITS
(2) Plan of Reorganization - Restated Agreement and Plan of Reorganization
dated January 31, 1996 among PS Group, Inc., the Company and PSG Merger
Subsidiary. (Incorporated by reference from the Company's prospectus
filed with the SEC on April 17, 1996 as part of the Company's
Registration Statement on Form S-4 [Registration Statement No. 333-
00821] filed on February 9, 1996, as supplemented by supplements dated
May 1, May 14 and May 22, 1996.)
(3)(i) Articles of Incorporation - Restated Certificate of Incorporation,
effective June 5, 1996. (Incorporated by reference to Exhibit 99.4 to
the Company's Form 8-K filed on June 6, 1996.)
(3)(ii) Bylaws - Restated Bylaws as amended effective March 12, 1997.
(Incorporated by reference to Exhibit 99.3 to the Company's Form 8-K
filed on March 13, 1997.)
(10) Material Contracts:
(a) 1984 Stock Incentive Plan of PS Group, Inc. (Incorporated by
reference to Exhibit 4.1 to the Company's Post-Effective Amendment
No. 3 to Form S-8 of PS Group, Inc. [Registration Statement No. 2-
97926] filed on June 11, 1996.)
(b) Amendment to 1984 Stock Incentive Plan for PS Group, Inc.
(Incorporated by reference to Exhibit 4.2 to the Company's Post-
Effective Amendment No. 3 to Form S-8 of PS Group, Inc.
[Registration Statement No. 2-97926] filed on June 11, 1996.)
(c) Form 1, Form 2, Form 3, and Form 4 of Option Agreement effective
November 17, 1984. (Incorporated by reference to Exhibit 4.3 to the
Company's Post-Effective Amendment No. 3 to Form S-8 of PS Group,
Inc. [Registration Statement No. 2-97926] filed on June 11, 1996.)
(d) Second Amendment to 1984 Stock Incentive Plan of PS Group, Inc.
(Incorporated by reference to Exhibit 4.4 to the Company's Post-
Effective Amendment No. 3 to Form S-8 of PS Group, Inc.
[Registration Statement No. 2-97926] filed on June 11, 1996.)
(e) Retirement Plan for Corporate Officers of PSA, Inc. (now PS Group,
Inc.) and Participating Subsidiaries effective March 12, 1984,
amending and restating the Retirement Plan for Corporate Officers
of Pacific Southwest Airlines. (Incorporated by reference to
Exhibit 10(d) to PSG's 1994 Annual Report on Form 10-K.)
(f) Employment Agreement dated January 15, 1988 between the Company and
Lawrence A. Guske. This Agreement is substantially identical in all
material respects to the Employment Agreement between the Company
and Johanna Unger.
(g) Amendment dated April 1, 1989 to Employment Agreement between the
Company and Lawrence A. Guske. This Amendment is substantially
identical in all material respects to Amendment to Employment
Agreement between the Company and Johanna Unger.
(h) Letter dated January 30, 1996 from Charles E. Rickershauser, Jr. to
Lawrence A. Guske relating to the relationship between the
Employment Agreement referred to in Exhibit 10(f) and the
Reorganization. This Letter is substantially identical in all
material respects to the Letter between Charles E.
Rickershauser, Jr. and Johanna Unger.
Index-1
<PAGE>
(i) Agreement dated December 14, 1990 between Berkshire Hathaway Inc.
("Berkshire") and PSG relating to Berkshire's acquisition of PSG's
Common Stock.
(j) Form of Indemnity Agreement with the Directors and Officers of the
Company. (Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-4 [Registration
Statement No. 333-00821] filed on February 9, 1996.)
(k) Executive Retirement Agreement between PSG and Charles E.
Rickershauser, Jr. dated March 12, 1997.
(l) Agreement Relating to 1996 Annual Meeting dated May 19, 1996.
(m) Amendment to Agreement Relating to 1996 Annual Meeting dated March
12, 1997.
(13) Annual report to shareholders - Inside front cover, page 1 and all the
pages following the Letter to Stockholders.
(21) Subsidiaries of the registrant.
(23) Consent of independent auditors (see page F-2 of Item 14(a) of this Form
10-K).
(27) Financial data schedule.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Matters relating to executive compensation plans and arrangements can be found
within the index to exhibits as follows: (10)(a), (10)(b), (10)(c), (10(d),
(10)(e), (10)(f), (10)(g), (10)(h), 10(j) and (10)(k).
ALL EXHIBITS INCORPORATED BY REFERENCE ON OR AFTER JUNE 5, 1996 ARE FILED IN PS
GROUP HOLDINGS, INC. DOCUMENTS (COMMISSION FILE NUMBER 1-7141); EXHIBITS
INCORPORATED BY REFERENCE BEFORE JUNE 5, 1996 ARE FILED IN PS GROUP, INC.
DOCUMENTS (SAME COMMISSION FILE NUMBER AS PS GROUP HOLDINGS, INC.).
Index-2
<PAGE>
EXHIBIT 10(F)
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into as of January 15, 1988,
by and between PS Group, Inc. ("Employer") and Lawrence A. Guske ("Employee").
1. Employment. Employer agrees to employ Employee in the position of
----------
Vice President-Finance and Chief Financial officer and Employee agrees to accept
such employment on the terms and conditions set forth below.
2. Term. The term of this agreement shall be one year from the date
----
hereof; provided, however, that at the end of such one-year period this
agreement shall continue in effect on an indefinite basis until terminated by
either party as set forth in Section 8 hereof.
3. Duties of Employee. During the term of this agreement, Employee shall
------------------
have the duties and authority normally associated with the position of Vice
President-Finance and Chief Financial Officer; provided that, Employer at its
discretion may from time to time assign new or different duties and authority to
Employee; and provided further that Employer retains the right to modify the
title or position of Employee at any time.
<PAGE>
4. Exclusive Services. Employee shall devote his full energies, ability
------------------
and time to the performance of his duties under this agreement, and shall carry
out such duties in a competent and efficient manner. Employee shall not without
the written consent of Employer render services for compensation to any other
employer during the term of this agreement, nor shall Employee engage in any
other activity which conflicts or interferes with the performance of his duties
hereunder.
5. Compensation. As consideration for his services hereunder, Employee
------------
shall receive an annual salary of $125,000.00, payable in accordance with
Employer's normal payroll practices and subject to any deductions or
withholdings required by law or to which Employee agrees in advance in writing.
Following the initial one-year duration of this agreement, Employer at its
discretion may from time to time modify the salary paid to Employee hereunder.
6. Benefits. In addition to his annual salary hereunder, Employee shall
--------
receive those benefits to which Employee is entitled under the terms of any
employee benefit plan maintained by Employer; provided, however, that this
agreement shall not require Employer to maintain any such employee benefit plan,
and Employer may modify or discontinue such plans at any time.
-2-
<PAGE>
7. Confidentiality. Employee agrees that he will not disclose to any
---------------
third party, either during his employment or thereafter, any confidential
information or data concerning the business or customers of Employer acquired by
him during the term of employment.
8. Termination. This agreement shall terminate under the following
-----------
circumstances.
a. The agreement shall automatically terminate upon the death,
disability or retirement of Employee.
b. Employer may terminate the agreement for cause as defined in
Section 10(a) hereof during the initial one-year term upon notice to Employee;
provided, however, that during such initial one-year term Employer may for any
reason relieve Employee of all duties and authority hereunder, but in such event
Employer shall continue payment of compensation and benefits to Employee for the
remainder of the initial one-year term.
c. Following the initial one-year term of this agreement, either
party may terminate the agreement at will, with or without cause, upon notice to
the other party.
-3-
<PAGE>
9. Effect of Termination. Termination of this agreement pursuant to
---------------------
Section 8 shall have the following effect.
a. If the agreement is terminated pursuant to Section 8(a) hereof on
account of Employee's death, disability or retirement, the agreement shall be of
no further force and effect, and the parties shall be released from all
obligations hereunder; provided, however, that such termination shall not affect
the entitlement of Employee or his heirs to any death, disability or retirement
payments to which they may be entitled under any employee benefit plans
maintained by Employer.
b. If the agreement is terminated for cause pursuant to Section 8(b)
hereof, Employer shall be released of all of its obligations hereunder. If
Employee is otherwise relieved of his duties pursuant to Section 8(b) hereof,
the agreement shall continue in effect until one-year following its execution at
which time it will be deemed terminated pursuant to Section 8(c) hereof.
c. If the agreement is terminated pursuant to Section 8(c) hereof,
the agreement shall be of no further force and effect and both parties shall be
relieved of their obligations hereunder; provided, however, that if the
agreement is so terminated, such termination shall not affect
-4-
<PAGE>
the entitlement of Employee to which he otherwise may be entitled under any
employee benefit plan.
10. Change of Control. If this agreement is terminated by Employer
-----------------
without cause as defined herein within two (2) years following a change in
control of Employer as defined herein, or if Employee voluntarily terminates his
employment for good reason as defined herein within two (2) years following such
a change of control, Employee shall receive, in addition to termination benefits
to which he is otherwise entitled under any employee benefit plans maintained by
Employer, the following: (i) a cash payment equal to one-year's compensation at
his then current annual salary; (ii) continuation of all employee benefits to
which he would be entitled pursuant to Section 6 hereof for a period of one-
year; (iii) a cash payment equal to the difference between the exercise price
and the then-current market value of any stock options held by Employee in PS
Group, Inc. which are not yet exercisable as of the termination date, upon
Employee's agreement to cancellation of any such stock options.
a. "Cause" as used in this section shall mean (i) commission by
Employee of a significant act of dishonesty, deceit or breach of fiduciary duty
in the performance of his duties hereunder; (ii) the gross neglect or willful
failure of Employee to perform his duties hereunder; or (iii) any act by
-5-
<PAGE>
Employee which reflects materially and adversely upon Employer.
b. "Change in control of Employer" as used in this section shall
mean a change in control of a nature that would be required to be reported in
response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or not
Employer is then subject to such reporting requirement; provided that, without
limitation, such a change in control shall be deemed to have occurred if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Employer representing
25% or more of the combined voting power of Employer then outstanding
securities; or (B) during any period of two consecutive years (the "Period"),
individuals who at the beginning of the Period constitute the Board, including
for this purpose any new director whose election or nomination for election by
Employer's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
Period, cease for any reason to constitute a majority thereof.
c. "Good reason" as used in this section shall mean (i) a reduction
in Employee's annual base salary; (ii) a
-6-
<PAGE>
significant change in the nature and scope of Employee's authority, duties and
responsibilities which, in the reasonable judgment of Employee, constitutes a
demotion from the position he held immediately prior to the change of control;
(iii) the relocation of Employee, without his consent, to a location more than
fifty (50) miles from the location of Employee's office immediately prior to the
change of control except for required travel substantially consistent with
Employee's travel obligations prior to change of control.
11. Out-Placement Services. If this agreement is terminated by Employer
----------------------
without cause as defined in Section 10(a) hereof, or if Employee voluntarily
terminates his employment for good reason as defined in Section l(c) hereof,
Employer shall at its expense provide Employee with professional out-placement
services to assist Employee in finding alternative employment.
12. Entire Agreement. This agreement constitutes the entire agreement
----------------
between the parties concerning the subject matter hereof, and supersedes all
other written, oral or implied agreements between the parties. This agreement
may be modified or amended only by a writing signed by both parties.
Lawrence A. Guske PS GROUP, INC.
-----------------------
Employee
/s/ Lawrence A. Guske /s/ Paul C. Barkley
----------------------- --------------------------
Signature Paul C. Barkley
President
-7-
<PAGE>
EXHIBIT 10(G)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement ("First Amendment") is
entered into as of April 1, 1989 by and between PS Group, Inc. ("Employer") and
Lawrence A. Guske ("Employee") and amends the Employment Agreement dated as of
January 15, 1988, between Employer and Employee.
R E C I T A L S
WHEREAS, the Board of Directors of Employer has approved certain
amendments to the Employment Agreement between Employer and Employee;
NOW THEREFORE, Employer and Employee agrees as follows:
AGREEMENT
1. Amendatory Provisions. Employer and Employee agree that the
---------------------
Employment Agreement is amended:
1.1 Section 2. is amended to read in full as follows:
"2. Term. The term of this agreement shall be for a period of one
----
year and shall automatically be extended indefinitely thereafter until
canceled by either party upon one year's written notice to the other
party or as otherwise terminated pursuant to Section 8 hereof."
1.2 Subsection b. of Section 8. is amended to read in full as
follows:
"Employer may terminate the Agreement for cause as defined in Section
10(a) hereof."
1.3 Subsection c. of Section 8. is deleted.
1.4 The second sentence of Subsection b. of Section 9. is deleted.
1.5 Subsection c. of Section 9. is deleted.
1.6 Clause (i) of Section 10. is amended to read in full as follows:
"(i) cash payment equal to two years compensation at his then current
annual salary;"
<PAGE>
2. Effectiveness of the Employment Agreement. Except as hereby
-----------------------------------------
amended, the Employment Agreement shall remain in full force and effect.
PS GROUP, INC.
/s/ George M. Shortley
------------------------------
GEORGE M. SHORTLEY
President and Chief
Executive Officer
/s/ Lawrence A. Guske
------------------------------
LAWRENCE A. GUSKE
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<PAGE>
EXHIBIT 10(H)
January 30, 1996
Lawrence A. Guske
PS Group, Inc.
4370 La Jolla Village Drive
Suite 1050
San Diego, California 92122
Re: Employment Agreement
--------------------
Dear Larry:
As you know, PS Group, Inc. (the "Company") is contemplating entering into
a holding company reorganization transaction pursuant to which the Company would
become a wholly-owned subsidiary of a newly-formed holding company (the
"Reorganization").
The employment agreement dated as of January 15, 1988 between you and the
Company provides for special treatment upon the occurrence of a "Change in
control of Employer." As we have discussed, the consummation of the
Reorganization will not constitute a "Change in control of Employer" for the
purposes of your employment agreement.
Please execute this letter in the space provided below to confirm your
agreement with the foregoing.
Sincerely,
/s/ Charles E. Rickershauser
Charles E. Rickershauser
Chairman of the Board and
Chief Executive Officer
Agreed and Accepted
/s/ Lawrence A. Guske
- - ------------------------
Lawrence A. Guske
Dated: January 30, 1996
------------------
<PAGE>
EXHIBIT 10(I)
[On Berkshire Hathaway Inc. Letterhead]
December 13, 1990
PS Group, Inc.
Suite 1050
4370 La Jolla Village Drive
San Diego, CA 92122
Attention: Mr. J. P. Guerin
Dear Mr. Guerin:
On behalf of Berkshire Hathaway Inc. ("Berkshire") I have discussed with
you the possible interest of Berkshire and its subsidiaries in making additional
market purchases of PS Group Inc. ("PS Group") common stock if PS Group's Rights
Agreement dated as of June 30, 1986, as amended to the date of this letter
("Shareholder Rights Plan"), were to be amended to permit such purchases above
the present threshold of 22.5%. With the approval of your Board of Directors you
have suggested the following terms upon which such additional purchases by
Berkshire and its subsidiaries would be acceptable to PS Group, and have stated
that if Berkshire agrees to these terms PS Group would amend its shareholder
Rights Plan to permit purchases as described herein. The terms of our agreement
are as follows:
1. The PS Group Shareholder Rights Plan will be amended as set forth in
Exhibit A hereto so as to permit purchases by Berkshire and its subsidiaries of
PS Group common shares representing not in excess of an aggregate of 45% of the
number of PS Group common shares outstanding.
2. Berkshire will vote all common shares of PS Group owned by it or by
its subsidiaries, which are in excess of 22.5% of the outstanding common shares
of PS Group, in the same proportion as all other PS Group shares (including the
shares owned by Berkshire not in excess of 22.5% of the outstanding common
shares of Ps Group) are voted in connection with all matters on which common
shares of PS Group are voted. Berkshire is not restricted in voting PS Group
common shares owned by it or its subsidiaries which in the aggregate do not
exceed 22.5% of the outstanding common shares of PS Group.
3. Berkshire will not sell any PS Group shares owned by it in any
transaction if Berkshire knows, following reasonable inquiry, that as a result
of such transaction any purchaser in such transaction will be the "Beneficial
Owner" (as defined in PS Group's shareholder Rights Plan) of a number of PS
Group shares sufficient to make such purchaser an "Acquiring Person" as defined
in the Shareholder Rights Plan.
<PAGE>
December 13, 1990
Page 2
4. Berkshire will not make any further purchases of PS Group common shares
following receipt of notice from PS Group that further purchases of such shares
by Berkshire may cause the delisting of PS Group common shares on the New York
Stock Exchange.
5. Berkshire will not be a "participant" as defined in Rule 14a-11 under
the Securities Exchange Act of 1934 in any proxy solicitation in opposition to a
solicitation by PS Group involving the election or removal of PS Group
directors, nor will Berkshire solicit, within the meaning of Rule 14a-1(1), any
proxy in connection with any other matter on which a vote of PS Group
shareholders is taken, if such solicitation is in opposition to any proposal or
position approved by the PS Group Board. The provisions of this paragraph 5
shall not apply to Berkshire requesting or directing its subsidiaries to execute
proxies with respect to PS Group common shares owned by them.
6. Berkshire will not be a member of a 13(d) group (other than a 13(d)
group composed solely of itself and its affiliates) with respect to any
securities of PS Group.
7. Berkshire will cause its subsidiaries owning PS Group shares to comply
with all obligations of Berkshire set forth herein.
The foregoing provisions constitute an agreement between Berkshire and PS
Group.
Berkshire Hathaway Inc.
By /s/ Warren E. Buffett
------------------------------
Warren E. Buffett
Chairman
Accepted and Agreed
this 14th day of December, 1990
PS Group, Inc.
By /s/ J. P. Guerin, Jr.
------------------------------
J. P. Guerin, Jr.
Chairman
-2-
<PAGE>
December 13, 1990
Page 3
I will not purchase any common shares of PS Group (excluding shares
purchased by Berkshire and its subsidiaries) at any time when Berkshire owns any
of PS Group's outstanding common shares, nor will I make any such purchases
without first executing in my individual capacity an agreement similar to the
above agreement (but applicable to me as an individual) in form and substance
satisfactory to counsel for PS Group.
/s/ Warren E. Buffett
------------------------------
Warren E. Buffett
-3-
<PAGE>
EXHIBIT 10(K)
EXECUTIVE RETIREMENT AGREEMENT
This Executive Retirement Agreement is made this 12th day of March, 1997,
by and between PS Group, Inc., a Delaware corporation (the "Company"), and
Charles E. Rickershauser, Jr. (the "Executive"), with reference to the following
facts:
A. The Executive has served as Chairman of the Board of the Company
since 1991, and as Chief Executive Officer of the Company since October, 1994.
B. The Executive is not a participant in the Retirement Plan for
Corporate Officers of PS Group, Inc. and Participating Subsidiaries.
C. The Company has previously agreed to accrue an unfunded
retirement benefit for the Executive of Fifty Thousand Dollars ($50,000.00) per
year plus accrued interest thereon (based on the rate paid on one-year U.S.
Treasury Bills as of January 1 of each calendar year) for each year he serves as
Chairman of the Board of the Company.
D. The Company desires further to compensate the Executive for his
services to the Company by augmenting his accrued retirement benefit, and to
clarify the terms and conditions under which such retirement benefit will be
accrued and paid.
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. DEFINITIONS
-----------
For purposes of this Agreement, the following terms are defined
as follows:
1.1 "Account" means the account maintained pursuant to Section 2
of this Agreement.
1.2 "Actuarial Equivalent" means a benefit of equivalent value
when computed using the actuarial assumptions in effect at the time of
computation for computing the equivalency of benefits under the Retirement Plan
for Corporate Officers of PS Group, Inc. and Participating Subsidiaries.
1.3 "Beneficiary" means the person or persons designated or
determined pursuant to Section 3.4.
<PAGE>
1.4 "Board" means the Board of Directors of the Company, without
the participation of the Executive.
1.5 "Joint and 50% Survivor Annuity" means a annuity payable
monthly for the life of the Executive with a survivor annuity payable monthly
for the life of the spouse of the Executive which is equal to one-half (1/2) of
the amount of the annuity payable during the joint lives of the Executive and
his spouse, which is the Actuarial Equivalent of the balance in the Account on
the Payment Trigger Date, and which is also the Actuarial Equivalent of a single
life annuity for the life of the Executive.
1.6 "Payment Trigger Date" means the later of January 1, 2001,
or the Termination Date.
1.7 "Previously Accrued Amounts" means the unfunded retirement
benefit and interest thereon which accrued on or before December 31, 1996
pursuant to the previous agreement between the Company and the Executive, and
which consists of:
(a) Fifty Thousand Dollars ($50,000.00) per year accrued on
December 31 of each calendar year from 1991 through 1996, inclusive;
(b) Interest accrued during each calendar year from 1992
through 1996, inclusive, at the rate paid on one-year U.S. Treasury Bills as of
January 1 of such calendar year.
1.8 "Termination Date" means the date on which the Executive
ceases to perform services for any reason (including, but not limited to, the
Executive's death, total and permanent disability, or retirement) for the
Company either in the capacity of Chairman of the Board of Directors or in the
capacity of Chief Executive Officer.
2. THE ACCOUNT
-----------
2.1 The Company shall establish and maintain the Account, which
shall be credited with the following amounts:
(a) As of December 31, 1996, the Previously Accrued Amounts;
(b) As of December 31, 1996, the sum of Fifty Thousand
Dollars ($50,000.00);
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<PAGE>
(c) As of the last day of each calendar month in calendar
1997, the sum of Eight Thousand Three Hundred Thirty-Three and 33/100 Dollars
($8,333.33), but subject to Section 2.2 if any calendar month includes the
Termination Date;
(d) As of the last day of each calendar month in each
calendar year after 1997, the sum of Four Thousand One Hundred Sixty-Seven
Dollars ($4,167.00), but subject to the provisions of Section 2.2 if any
calendar month includes the Termination Date; and
(e) Interest during each calendar year beginning with 1997
compounded daily at the rate paid on one-year U.S. Treasury Bills as of January
1 of such calendar year; provided, however, that such interest shall cease to
accrue on the Payment Trigger Date.
2.2 For the calendar month which includes the Termination Date,
the full amount specified in Section 2.1(c) or Section 2.1(d), as the case may
be, with respect to such month shall be credited to the Account on the
Termination Date rather than on the last day of such month, and no amounts shall
be credited to the Account under Section 2.1(c) or Section 2.1(d) with respect
to any calendar month after the calendar month which includes the Termination
Date.
2.3 In accordance with the provisions of Section 7, the Account
shall be for bookkeeping purposes only, and the Company shall not be required to
acquire or maintain any investments corresponding to the Account balance.
3. PAYMENT OF BENEFITS
-------------------
Payment of benefits under this Agreement shall commence as soon
as administratively practicable following the Payment Trigger Date in accordance
with the following provisions:
3.1 Unless the Executive elects otherwise at the time and in the
manner set forth in Section 3.3, benefits will be paid: (a) if the Executive is
not married on the Payment Trigger Date, in the form of a single life annuity
payable monthly during the Executive's life which is the Actuarial Equivalent of
the balance in the Account as of the Payment Trigger Date, or (b) if the
Executive is married on the Payment Trigger Date, in the form of a Joint and 50%
Survivor Annuity.
3.2 The Executive may elect, at the time and in the manner
specified in Section 3.3, to receive, in lieu of the applicable form of benefits
set forth in Section 3.1, benefits in one of the following optional forms, each
of which shall be the Actuarial Equivalent of the applicable form of benefit
under Section 3.1:
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<PAGE>
(a) A single life annuity payable monthly during the
Executive's life;
(b) A monthly benefit payable during the Executive's life
with the provision that, after the Executive's death, the same monthly benefit
will be continued to the Beneficiary, if such Beneficiary survives the
Executive, during the lifetime of such Beneficiary through the month in which
the Beneficiary dies;
(c) A monthly benefit payable for the life of the Executive;
provided, however, that if the Executive dies before having received one hundred
twenty (120) monthly payments, monthly payments shall be continued to his
Beneficiary for the remainder of the one hundred twenty (120) month certain
period; or
(d) A monthly benefit payable for the life of the Executive;
provided, however, that if the Executive dies before having received two hundred
forty (240) monthly payments, monthly payments shall be continued to his
Beneficiary for the remainder of the two hundred forty (240) month certain
period.
3.3 To be effective, an election of one of the optional forms of
benefit set forth in Section 3.2, or a revocation of such election, must be (a)
in writing in a form acceptable to the Board, (b) signed by the Executive, (c)
timely made, (d) name the Beneficiary (except in the case of a single life
annuity), and (e) fulfill such other requirements as the Company may establish.
To be timely made, an election must be delivered to the Board either (i) at
least one (1) year before the Payment Trigger Date, or (ii) if accompanied by
evidence of the Executive's good health satisfactory to the Board, at any time
before the Payment Trigger Date. Any controversy regarding whether the
Executive is in good health will be resolved by a medical doctor jointly
selected by the Executive and the Board, or if they are unable to agree on a
medical doctor, by a medical doctor selected jointly by the Executive's medical
doctor and a medical doctor selected by the Board. An election pursuant to this
Section 3.3 shall become irrevocable on the Payment Trigger Date, and may not be
rescinded or modified thereafter.
3.4 If the Executive elects one of the alternate forms of
benefit specified in Section 3.2(b), (c), or (d), the Executive shall designate
in writing to the Board one or more persons (a "Beneficiary") to receive
benefits if the Executive dies after the Payment Trigger Date. The Executive
may change the designation of his Beneficiaries at any time by giving written
notice of such change to the Board. The Executive may designate one or more
contingent Beneficiaries to receive benefits in the event of the death of the
Primary Beneficiaries. If, upon the death of the Executive, no designation of a
Beneficiary is effective, or no designated Beneficiary survives, benefit
payments shall be made to the following
-4-
<PAGE>
persons in the following order of priority: (a) the Executive's surviving
spouse; (b) the Participant's surviving children, and any descendants of a
deceased child by right of representation; (c) the Executive's surviving
parents; (d) the Executive's surviving brothers and sisters, and the descendants
of any deceased brother or sister by right of representation; and (e) the
executor or administrator of the estate of the Executive. If benefits become
payable to any of the persons specified in clauses (b) through (e) of the
preceding sentence, the Executive's last designated Beneficiary, rather than any
of such persons, shall be the measuring life for determining the amount of
annuity payments.
4. CONFIDENTIAL INFORMATION; FORFEITURE OF BENEFITS
------------------------------------------------
Notwithstanding any other provision of this Agreement to the
contrary, benefits under this Agreement are paid with the understanding that the
Executive does not engage or become involved in any occupation or any activity
or relationship which involves the use or disclosure to others of information or
practices or acquired or learned while employed by the Company or any of its
subsidiaries or parent and which any of them reasonably regards as confidential
or their property or trade secret, or in any other activity detrimental to any
of them. If the Company, after a thorough investigation, finds that the
Executive has violated the provisions of this Section 4, benefits payable
hereunder shall be forfeited. Notwithstanding any other provision of this
Agreement to the contrary, no benefits will be payable under this Agreement if
the Executive confesses to, or is convicted of, an act of fraud, theft or
dishonest amounting to a felony and arising in the course of or in connection
with his employment with the Company or any of its subsidiaries or parent, and,
in such case, all such benefits will be forfeited.
5. RECEIPT OF RELEASES
-------------------
Any payment of benefits under this Agreement shall, to the full
extent thereof, be in full satisfaction of all claims against the Company and
its subsidiaries and parent, and the Company may require the recipient thereof,
as a condition precedent to such payment, to execute a receipt and release to
such effect.
6. ERISA; ADMINISTRATION
---------------------
6.1 This Agreement constitutes a pension benefit plan within the
meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), which is unfunded and maintained for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees. This Plan constitutes the "summary plan description"
required under ERISA, as well as the governing document of the Plan. The
"administrator" of the Plan, within the meaning of Section 3(16) of ERISA, and
the "named fiduciary" thereof, within the meaning of Section 402 of ERISA, is
the
-5-
<PAGE>
Board. Attached hereto as Exhibit "A" is a statement of the Executive's rights
under ERISA. Attached hereto as Exhibit "B" is a statement of the claims
procedure under this Agreement and ERISA.
6.1 The Board, acting as the "administrator" under ERISA, shall
have the full power, authority, and discretion to construe and interpret the
terms and provisions of this Agreement, and to compute and certify to the amount
and form of benefits payable under this Agreement. Any interpretation or
construction of this Agreement by the Board shall be final and binding on all
parties, including, but not limited to, the Executive and any Beneficiary.
7. UNSECURED GENERAL CREDITOR
--------------------------
The Executive and his Beneficiaries, heirs, successors, and
assigns shall have no legal or equitable rights, claims, or interests in any
specific property or assets of the Company. No assets of the Company shall be
held under any trust, or held in any way as collateral security for the
fulfilling of the obligations of the Company under this Agreement. This
Agreement shall not cause any of the Company's assets to be pledged or
restricted. The obligations of the Company under the Agreement shall be merely
that of an unfunded and unsecured promise of the Company to pay money in the
future, and the rights of the Executive and his Beneficiaries shall be no
greater than those of unsecured general creditors. The Company may, but need
not, acquire investments corresponding to the Account hereunder, and it is not
under any obligation to maintain any investment it may make. Any such
investments, if made, shall be in the name of the Company, and shall be its sole
property in which neither the Executive nor any Beneficiary shall have any
interest.
8. RESTRICTION AGAINST ASSIGNMENT
------------------------------
The Company shall pay all amounts payable hereunder only to the
person or persons designated by this Agreement and not to or for any other
person. No part of the Account shall be liable for the debts, contracts, or
engagements of the Executive, any Beneficiary, or successors in interest, nor
shall the Account be subject to execution by levy, attachment, or garnishment or
by any other legal or equitable proceeding, nor shall any such person have any
right to alienate, anticipate, transfer, commute, pledge, encumber, or assign
any benefits or payments hereunder in any manner whatsoever. Any purported
alienation, anticipation, transfer, commutation, pledge, encumbrance, or
assignment shall be void and of no effect. If the Executive, any Beneficiary, or
successor in interest is adjudicated bankrupt, and such person's rights to
distribution or payment under this Agreement are subject to involuntary transfer
or assignment in any such proceeding, the Board may in its discretion cancel
such distribution or payment (or any part thereof) to or for the benefit of the
Executive, such Beneficiary or successor in interest.
-6-
<PAGE>
9. WITHHOLDING
-----------
There shall be deducted from each payment to the Executive or a
Beneficiary made under this Agreement all taxes which are required to be
withheld by the Company from such payment. If any taxes, including employment
taxes with respect to the Account, are required to be withheld prior to the time
of payment, the Company may withhold such amounts from other compensation paid
to the Executive.
10. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION
--------------------------------------------------
The Board may amend, modify, suspend or terminate this Agreement
in whole or in part, except that no amendment, modification, suspension or
termination shall have any retroactive effect to reduce any amounts allocated to
the Account.
11. GOVERNING LAW
-------------
This Agreement shall be construed, governed and administered in
accordance with the laws of the State of California, to the extent such laws are
not preempted by ERISA.
12. PAYMENTS ON BEHALF OF PERSONS UNDER INCAPACITY
----------------------------------------------
In the event that any amount becomes payable under this Agreement
to a person who, in the sole judgment of the Board, is considered by reason of
physical or mental condition to be unable to give a valid receipt or release
therefor, the Board may direct that such payment be made to any person found by
the Board, in its sole judgment, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Board and the Company.
13. NO EMPLOYMENT RIGHTS
--------------------
This Agreement shall not confer upon the Executive any right to
be employed by or serve as a director of the Company or any of its subsidiaries
or parent, or any other right not expressly provided hereunder.
-7-
<PAGE>
14. HEADINGS NOT PART OF AGREEMENT
------------------------------
Headings and subheadings in this Agreement are inserted for
convenience of reference only and are not to be considered in the construction
of the provisions hereof.
15. COUNTERPARTS
------------
This Agreement may be executed in two counterparts, each of which
shall constitute an original document but both of which together shall
constitute a single instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
The "Company"
PS GROUP, INC.
By: /s/ Lawrence A. Guske
------------------------------------------
Lawrence A. Guske
Vice President-Finance
The "Executive"
/s/ Charles E. Rickershauser, Jr.
-----------------------------------------------
Charles E. Rickershauser, Jr.
-8-
<PAGE>
EXHIBIT A
---------
INFORMATION PROVIDED UNDER ERISA. This Executive Retirement Agreement
--------------------------------
constitutes an unfunded Plan of deferred compensation, maintained on a calendar
year basis. The Company is the Plan sponsor, Plan Administrator, and agent for
service of legal process. The Company bears the costs of all benefits under the
Plan.
The Company's address, telephone number, and employer identification number
are as follows:
4370 La Jolla Village Drive, Suite 1050
San Diego, CA 92122
Attn: Ms. Johanna Unger
Telephone No.: (619) 642-2999
Employer Identification No.: 33-0692068
The Plan number assigned to the Plan is 003.
STATEMENT OF ERISA RIGHTS. A Participant in this Plan is entitled to
-------------------------
certain rights and protections under a federal law known as "ERISA." ERISA
provides that all Plan Participants shall be entitled to examine, without
charge, at the Plan Administrator's office, all Plan documents and the Plan's
annual report. Copies of these documents and other Plan information may also be
obtained upon written request to the Plan Administrator. A reasonable charge
may be made for copies.
In addition to creating rights for plan participants, ERISA imposes duties
upon the people who are responsible for the operation of this Plan. The people
who operate this Plan, called "fiduciaries" of the Plan, have a duty to do so
prudently and in your interest. No one, including your employer or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining benefits or exercising your rights under ERISA. If your claim
for benefits is denied in whole or in part, you must receive a written
explanation of the reason for this denial. You have the right to have the Plan
Administrator review and reconsider your claim, as described in Exhibit B to the
letter to which this Exhibit is attached.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them within
30 days, you may file a claim in Federal court. In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to $100 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control
<PAGE>
of the Plan Administrator. If you have a claim for benefits which is denied or
ignored, in whole or in part, you may file a claim in Federal or state court.
If you are discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file a lawsuit in
Federal court. The court will decide who should pay the costs and legal fees of
lawsuit. If you are successful, the court may order the person you have sued to
pay these costs and fees. If you lose, the court may order you to pay these
costs and fees, for example, if it finds your claim is frivolous.
If you have any questions about your Plan, you should contact the Plan
Administrator. If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest Area Office of the U.S.
Labor-Management Services Administration, Department of Labor.
-2-
<PAGE>
EXHIBIT B
---------
If you believe you are entitled to a benefit under this Agreement, you may
make a claim for such benefit by filing with the Company a written statement
setting forth the amount and type of payment so claimed. The statement shall
also set forth the facts supporting the claim. The claim may be filed by
mailing or delivering it to the Board of Directors of the Company.
Within sixty (60) calendar days after receipt of such a claim, the Board
shall notify you in writing of its action on such claim and if such claim is not
allowed in full, shall state the following in a manner calculated to be
understood by you:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent provisions of this Agreement
on which the denial is based;
(c) A description of any additional material or information
necessary for you to be entitled to the benefits that have been denied and
an explanation of why such material or information is necessary; and
(d) An explanation of this Agreement's claim review procedure.
If you disagree with the action taken by the Board, you or your duly
authorized representative may apply to the Board for a review of such action.
Such application shall be made within one hundred twenty (120) calendar days
after receipt by you of the notice of the Board's action on your claim. The
application for review shall be filed in the same manner as the claim for
benefits. In connection with such review, you may inspect any documents or
records pertinent to the matter and may submit issues and comments in writing to
the Board. A decision by the Board shall be communicated to you within sixty
(60) calendar days after receipt of the application. The decision on review
shall be in writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by you, and specific references to the
pertinent provisions of this Agreement on which the decision is based.
<PAGE>
EXHIBIT 10(L)
AGREEMENT RELATING TO 1996 ANNUAL MEETING
This Agreement Relating to 1996 Annual Meeting (this "AGREEMENT") is made as
of May 19, 1996 by and among PS Group, Inc., a Delaware corporation ("GROUP"),
PS Group Holdings, Inc., a Delaware corporation ("HOLDINGS"), and Joseph S.
Pirinea ("JP").
WHEREAS, a stockholder of Group has nominated JP (the "JP NOMINATION") for
election as a member of the Board of Directors of Group (the "GROUP BOARD") at
the 1996 Annual Meeting of Stockholders of Group to be held on May 28, 1996
(the "1996 ANNUAL MEETING") in opposition to the current members of the
Company Board who have been nominated for election to the same class of
directors at the 1996 Annual Meeting (the "BOARD NOMINEES");
WHEREAS, JP has submitted a stockholder proposal at the 1996 Annual Meeting
(the "JP PROPOSAL"); and
WHEREAS, JP has announced his opposition to the proposed holding company
reorganization (the "REORGANIZATION"), provided for in the Restated Agreement
and Plan of Reorganization dated as of January 31, 1996, as amended (the
"REORGANIZATION AGREEMENT"), by and among the Company, Holdings and PSG Merger
Subsidiary, Inc., which is to be submitted for adoption at the 1996 Annual
Meeting;
NOW, THEREFORE, in consideration of the mutual promises of the parties
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties to this Agreement
(the "PARTIES") hereby agree as follows:
1 Provisions Relating to the JP Nomination and Related Matters
1.1 JP hereby withdraws the JP Nomination and agrees that Group is not
required to submit it for a vote at the 1996 Annual Meeting.
1.2 Group hereby represents and warrants to JP that the Group Board has
adopted a resolution to increase its size from five to six effective at the
organizational meeting of the Group Board to be held immediately following the
conclusion of the 1996 Annual Meeting (the "1996 ORGANIZATIONAL MEETING") and
that both the Group Board as a whole, and J. P. Guerin as the sole director in
the class whose terms of office will expire at the 1997 Annual Meeting of
Stockholders of Group, have adopted resolutions pursuant to which JP will be
appointed to the vacancy so created at the 1996 Organizational Meeting.
1.3 Holdings hereby represents and warrants to JP that the Board of
Directors of Holdings (the "HOLDINGS BOARD") has adopted a resolution to the
effect that, if the Reorganization is consummated, the size of the Holdings
Board will be increased from five to six and JP will be appointed as a member
of the class of directors of Holdings whose terms of office will expire at the
1997 Annual Meeting of Stockholders of Holdings.
1.4 As a member of the Group Board or the Holdings Board, as applicable
(the "APPLICABLE BOARD"), JP will be entitled to the same rights (including
indemnification rights) as are provided to all other directors of Group or
Holdings, as applicable (the "APPLICABLE COMPANY"), in respect of their
service as such under Delaware law, the certificate of incorporation and
bylaws of the Applicable Company, any indemnification agreements in effect
with the other directors of the Applicable Company and any policies or
resolution of the Applicable Board regarding director compensation and
reimbursement of expenses.
1.5 Nothing in this Agreement is intended to limit the discretion of the
Applicable Board to expand its respective size by creating vacancies and
appointing directors to fill them. Prior to any such expansion that is to be
effective before JP becomes a director of either Applicable Board under this
Agreement, JP shall be given reasonable notice of the Applicable Company's
intention to effect such expansion.
1.6 Group and Holdings each represents and warrants to JP, with respect to
the Applicable Board, that the Applicable Board will continue to hold regular
meetings no less frequently than quarterly and that its Executive Committee
will not exercise its powers to bind the Applicable Company with respect to
any material
1
<PAGE>
decision unless, in the reasonable good faith judgment of such Executive
Committee, the interests of the Applicable Company or its stockholders would be
materially jeopardized by deferring the matter pending a decision of the full
Applicable Board.
2 Provisions Relating to the JP Proposal and Related Matters
2.1 JP hereby withdraws the JP Proposal.
2.2 Group represents and warrants that the Group Board has adopted a
resolution to the effect that, unless the Reorganization is consummated within
30 days of the 1996 Organizational Meeting, a Strategic Planning Committee of
the Group Board will be formed and JP will be a member of it, together with two
other directors (who will be Charles E. Rickershauser, Jr., if he is re-elected
to the Group Board at the 1996 Annual Meeting, and J. P. Guerin).
2.3 Holdings represents and warrants to JP that the Holdings Board has
adopted a resolution to the effect that, if JP becomes a member of the Holdings
Board as provided in Section 1.3 and the Reorganization is consummated, then
the provisions of Section 2.2 shall apply as if references therein to a
Strategic Planning Committee of the Company Board were references to a
Strategic Planning Committee of the Holdings Board.
2.4 The charter of the Strategic Planning Committee referred to in Sections
2.2 and 2.3 shall be to explore alternatives for enhancing stockholder value,
including, without limitation, alternatives that would enable the Applicable
Company to make prudent distributions to its stockholders in the future. Such
Strategic Planning Committee shall be directed to continue to work with the
specialized investment banking firm that has been assisting Group in evaluating
the feasibility of a sale of some or all of its aircraft and to consider, in
the good faith exercise of its business judgment, whether its work in
evaluating all of the Applicable Company's businesses would be enhanced by
retaining additional investment banking assistance. Such Strategic Planning
Committee shall be a deliberative, not a decision-making, body and it shall be
directed to make periodic reports to the Applicable Board and submit any
recommendations for Applicable Board review and appropriate action.
3 Provisions Relating to the Reorganization
3.1 Group and Holdings hereby agree that, prior to the consummation of the
Reorganization and following the filing with the Secretary of State of Delaware
of the Restated Certificate of Incorporation of Holdings pursuant to Section
1.6 of the Reorganization Agreement, all necessary action will have been taken
by the Holdings Board and by Group as the sole stockholder of Holdings to
approve an amendment to such Restated Certificate of Incorporation providing
for the changes set forth in Annex A hereto (the "POST-CLOSING CERTIFICATE
AMENDMENTS") and Holdings covenants that, promptly following the consummation
of the Reorganization, a further Restated Certificate of Incorporation of
Holdings reflecting only the Post-Closing Certificate Amendments shall be filed
in accordance with Delaware law.
3.2 Holdings shall cause the legend affixed to certificates representing
shares of its Common Stock issued pursuant to, and following the consummation
of, the Reorganization to read in its entirety in the amended form set forth as
Annex B hereto.
4 Provisions Relating to the 1996 Annual Meeting and Related Matters
4.1 JP shall provide to Group and Holdings such information as they may
reasonably request for inclusion in supplemental materials to be disseminated
in connection with the 1996 Annual Meeting under the Securities Act of 1933, as
amended, and/or the Securities Exchange Act of 1934, as amended, and the
regulations promulgated each of those statutes (collectively, the "SECURITIES
ACTS") in order to comply with the disclosure requirements of the Securities
Acts regarding the respective agreements of Group and Holdings in Section 2
with respect to the appointment of JP to the Applicable Board. JP represents
and warrants to Holdings and Group that such information shall not contain any
material misstatement or omission.
2
<PAGE>
4.2 All press releases, other formal public statements, and filings with
the Securities and Exchange Commission (the "SEC") to be made either by the
Companies or JP from the date hereof until the conclusion of the 1996 Annual
Meeting, shall, to the extent that they refer to this Agreement, the Disputed
Matters or the respective positions of the Companies or JP with respect
thereto, be subject to the approval of all Parties (not to be unreasonably
withheld or delayed); provided, however, that if either of the Companies
determines, with the advice of its counsel, that under the requirements of the
Securities Acts, other applicable federal or state law or the requirements of
any national securities exchange, it is required to issue a press release or
other formal public statement or make a filing with the SEC that contains
material covered by the preceding sentence and time will not permit submission
thereof for JP's approval, it may nevertheless take the action it determines
to be required. The Parties acknowledge that documents provided to one another
for review under this Section 4.2 may contain non-public confidential
information which shall not be used for any purpose other than fulfillment of
the provision of this Section 4.2.
4.3 JP shall vote, or cause to be voted, at the 1996 Annual Meeting all
shares of the Common Stock of Group over which he exercises sole or shared
voting power in favor of the adoption of the Reorganization Agreement and in
favor of the election to the Company Board of both Board Nominees. JP
represents and warrants that he has sole or shared voting power over
approximately 1.00% of the outstanding shares of Common Stock of Group.
4.4 JP shall, to the fullest extent consistent with the Securities Acts,
make such solicitations of proxies as he determines appropriate and useful in
favor of the adoption of the Reorganization Agreement and the election of the
Board Nominees.
4.5 As soon as practicable following the execution of this Agreement, Group
shall issue a press release in the form of Annex C hereto and file with the
SEC a Current Report on Form 8-K containing only the text set forth in Annex D
hereto and the exhibits referred to therein. JP agrees to such issuance and
filing pursuant to Section 4.2.
5 Certain Representations and Warranties
5.1 Group and Holdings each hereby represents and warrants to JP that: (a)
its respective execution, delivery and performance of this Agreement has been
approved by the Applicable Board and does not violate its respective
certificate of incorporation, bylaws or any agreement to which it is a party;
and (b) this Agreement constitutes its respective binding and enforceable
agreement.
5.2 JP hereby represents to Group and Holdings that: (a) the execution,
delivery and performance of this Agreement does not violate any agreement to
which he is a party; (b) this Agreement constitutes his binding and
enforceable agreement; and (c) he has consulted with counsel of his choice in
connection with his decision to enter into and be bound by this Agreement.
6 General Provisions
6.1 This Agreement constitutes the entire agreement of the Parties and
supersedes any and all prior agreements or understandings (whether written or
oral and whether or not entered into with intent to be legally bound) between
or among any of them with respect to the subject matter hereof.
6.2 This Agreement is made for the benefit exclusively of the Parties and
is not intended to confer any rights or impose any obligations on any other
person or entity.
6.3 This Agreement shall be governed by, and construed in accordance with,
the law of the State of Delaware without regard to the conflict-of-law
principles of such State.
3
<PAGE>
6.4 Exclusive Jurisdiction to resolve any dispute arising under or in
connection with this Agreement is hereby conferred on the Chancery Court of
the State of Delaware or, if the dispute involves issues of federal law or
which such Chancery Court lacks or declines jurisdiction, on the U.S. federal
district court located in the State of Delaware. The Parties hereby submit to
the exclusive jurisdiction of said Courts.
6.5 This Agreement shall be binding upon, and enure to the benefit of, the
respective legal successors of the Parties; provided, however, that the
provisions of this Agreement relating to the nomination of, election to and
membership of the Applicable Board and the Strategic Planning Committee
thereof by JP are for the exclusive and personal benefit of JP.
6.6 This Agreement may be executed in counterparts, each of which shall
constitute an original but all of which shall together constitute a single
instrument.
6.7 Promptly following the date of this Agreement, Group shall pay JP the
amount of $10,000 in respect of reimbursement of his actual out-of-pocket
expenses in connection with the JP Nomination, the JP Proposal and this
Agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of the Parties
as of the date first above written.
PS GROUP, INC. JOSEPH S. PIRINEA
By: /s/ Charles E. Rickershauser, Jr. /s/ Joseph S. Pirinea
---------------------------------
Charles E. Rickershauser, Jr.
Chairman and
Chief Executive Officer
PS GROUP HOLDINGS, INC.
By: /s/ Charles E. Rickershauser, Jr.
---------------------------------
Charles E. Rickershauser, Jr.
Chairman and
Chief Executive Officer
5
<PAGE>
EXHIBIT 10(M)
AMENDMENT TO
AGREEMENT RELATING TO 1996 ANNUAL MEETING
This Amendment is made as of March 12, 1997 by and among PS Group, Inc., a
Delaware corporation, PS Group Holdings, Inc., a Delaware corporation and Joseph
S. Pirinea;
WHEREAS, the parties to this Agreement (the "Parties") are parties to An
Agreement Relating to 1996 Annual Meeting (the "Agreement") dated as of May 19,
1996; and
WHEREAS, the Parties desire to amend the Agreement in the manner
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties hereby agree that Sections 2.2, 2.3 and 2.4 of the
Agreement are hereby deleted and of no further force and effect and are hereby
replaced by the following provision:
"2.2. The Holdings Board shall be responsible for, and shall, explore
alternatives for enhancing stockholder value, including, without
limitation, alternatives that would enable the Applicable Company to make
prudent distributions to stockholders in the future."
IN WITNESS WHEREOF, this Amendment has been executed by each of the Parties
as of the date first above written.
PS GROUP HOLDINGS, INC. JOSEPH S. PIRINEA
-and-
PS GROUP, INC.
By: /s/Charles E. Rickershauser, Jr. By: /s/Joseph S. Pirinea
-------------------------------- ---------------------
Charles E. Rickershauser, Jr. Joseph S. Pirinea
Chairman and Chief Executive
Officer of both said companies
<PAGE>
EXHIBIT 13
[INSIDE FRONT COVER OF 1996 ANNUAL REPORT]
- - --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION INCLUDED IN THIS
1996 ANNUAL REPORT TO SHAREHOLDERS MAY BE DEEMED FORWARD-LOOKING, SUCH AS
INFORMATION RELATING TO THE FUTURE PROSPECTS OF PS GROUP INC.'S (PSG'S) AIRCRAFT
LEASES, THE CONSEQUENCES OF ANY UNSCHEDULED RETURN OF AIRCRAFT UNDER LEASE, PS
TRADING INC.'S PROSPECTS, 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. INVESTORS ARE CAUTIONED THAT ALL
FORWARD-LOOKING 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 1996 ANNUAL REPORT TO SHAREHOLDERS AND IN FILINGS THE COMPANY
HAS MADE WITH THE SECURITIES AND EXCHANGE COMMISSION. SHOULD ANY OF SUCH RISKS
OR UNCERTAINTIES MATERIALIZE OR SHOULD OTHER ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS OR OUTCOMES MAY VARY MATERIALLY FROM THOSE CONTEMPLATED IN SUCH FORWARD-
LOOKING STATEMENTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
REORGANIZATION AND RESTRICTIONS ON
THE TRANSFER OF SHARES OF THE COMPANY
ON JUNE 5, 1996, THE COMPANY AND PSG COMPLETED A HOLDING COMPANY
REORGANIZATION (THE REORGANIZATION) THAT WAS APPROVED AT THE 1996 ANNUAL MEETING
OF STOCKHOLDERS OF PSG ON THAT DATE. AS A RESULT OF THE REORGANIZATION, EACH
SHARE OF PSG WAS CONVERTED, ON A TAX-FREE BASIS, INTO ONE SHARE OF THE COMPANY.
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 AND THUS THE FINANCIAL STATEMENTS FOR PERIODS PRIOR TO
THE REORGANIZATION HAVE NOT BEEN RESTATED AND REPRESENT THE CONSOLIDATED
FINANCIAL STATEMENTS OF PSG. 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. THE REORGANIZATION WAS INTENDED TO
ACCOMPLISH THIS PURPOSE BY IMPOSING CERTAIN RESTRICTIONS ON THE TRANSFER OF
SHARES OF THE COMPANY. 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 THE COMPANY'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 THE COMPANY 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.
- - --------------------------------------------------------------------------------
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
================================================================================
PS Group Holdings, Inc. (the Company), NYSE Symbol: PSG, operates (through
subsidiaries) three principal business segments - aircraft leasing, fuel sales
and distribution, and oil and gas production and development.
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $274,746 $167,004 $125,448 $156,968 $145,118
Income (loss) from continuing
operations before change
in accounting 9,610 3,032 (4,582) (8,842) 2,082
Income (loss) from discontinued
operations 11,818 (12,528) (69,664)
Cumulative effect of change in
accounting 2,900
---------------------------------------------------------
Net income (loss) 9,610 3,032 7,236 (18,470) (67,582)
Income (loss) per common share:
Continuing operations 1.58 .50 (.76) (1.46) .35
Discontinued operations 1.95 (2.07) (11.68)
Cumulative effect of change in
accounting .48
---------------------------------------------------------
Net income (loss) per share 1.58 .50 1.19 (3.05) (11.33)
Cash distributions or dividends per
common share/(a)/ 1.50 1.50 .15
Capital additions 4,225 1,386 485 1,430 2,451
</TABLE>
/(a)/ The special distributions in 1995 and 1996 are not precedents for
future distributions.
<TABLE>
<CAPTION>
AT YEAR END
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets 298,689 307,686 361,258 381,206 429,955
Total debt 105,785 122,609 137,225 163,159 190,719
Stockholders' equity 123,591 123,082 129,151 121,899 140,243
Stockholders' 20.37 20.28 21.28 20.10 23.22
equity per share
Debt to equity ratio .86 to 1 1 to 1 1.06 to 1 1.34 to 1 1.36 to 1
</TABLE>
COMPARABILITY
- - -------------------------------------------------------------------------------
As more fully described elsewhere in this Annual Report to Shareholders,
results from continuing operations are not comparable between years in part due
to the following significant unusual items (all amounts, except (i) are pretax):
(i) in 1996, a $5.6 million reduction of tax liabilities was recorded, (ii) in
1996, a $1.8 million gain was recorded on the sale of an interest in six 737-200
aircraft, (iii) in 1995, a $1.7 million loss on disposition of 747 aircraft was
recorded and in 1994, 1993 and 1992, write-downs of $7.2 million, $17 million
and $9.9 million, respectively, were recorded related to 747 aircraft previously
leased to airlines which had declared bankruptcy, (iv) in 1994, 1993 and 1992,
gains (net of losses) of $.6 million, $2.5 million and $3 million, respectively,
were recorded on marketable equity securities' transactions, and (v) in 1994, an
accrual of $5 million was made for the settlement of securities litigation.
In 1994, the assets of the travel management segment and the major asset of
the metallic waste recycling segment were sold. Accordingly, these two segments
are shown as discontinued operations in the years 1992 through 1994.
================================================================================
1
<PAGE>
AIRCRAFT LEASING
================================================================================
The aircraft leasing business is conducted by PSG and represents by far the
major portion of the Company's assets and its largest source of cash flow.
Aircraft leasing contributed $34.1 million to 1996's consolidated revenues, or
12% of the total. In addition, 1996's consolidated revenues included a pretax
net gain of approximately $1.8 million (after-tax net gain of approximately $1.1
million - $.18 per share) from the sale of PSG's one-third interest in six older
737-200 aircraft that were sold to the lessee, Continental Airlines, Inc.
(Continental), at the end of the lease term on December 31, 1996. The cash
proceeds from this sale were $3.1 million. With the expiration of the leases on
the six 737-200's, PSG's future annual cash flow and pretax income will be
reduced approximately $1.3 million and $.1 million, respectively. Even though
the Company has no current intention to expand its leasing activity, this
segment will likely remain the main factor in the Company's total operations.
PSG's lease portfolio is comprised of 19 jet aircraft that are leased to three
major U.S. airlines. All 19 of the aircraft on lease are newer-generation
aircraft that meet Federal Stage 3 noise requirements and thereby qualify for
operation in the United States without modification beyond 1999. Of the 19
aircraft, nine are operated by these three airlines whose operations are
primarily scheduled passenger service in the continental United States. The
remaining ten aircraft are either subleased or awaiting sublease by PSG's
principal lessee, US Airways, Inc. (US Airways), to smaller, mainly foreign,
commuter airlines. US Airways grounded the ten aircraft over four years ago due
to a cutback in service. Even though most of these ten aircraft have been
subleased to other airlines, US Airways continues to be responsible for the
leases. All required lease payments were made by all of PSG's lessees in 1996 on
a timely basis.
TYPE OF AIRCRAFT LEASES. All of PSG's leases are net leases, which provide that
the lessees bear the direct operating costs and the risk of physical loss of the
aircraft, pay taxes, maintain the aircraft, indemnify PSG against any liability
suffered as the result of any act or omission of the lessee, maintain casualty
insurance in an amount equal to the specific amount set forth in the lease
(which may be less than market value) and maintain liability insurance naming
PSG as an additional insured. In general, substantially all the obligations
connected with the operation and maintenance of the leased aircraft are assumed
by the lessee and minimal obligations are imposed upon PSG. The leases also
typically provide that, in those limited instances where the lessees have the
voluntary right to terminate the lease, the lessee is obligated to pay PSG a
stipulated sum which would retire any existing indebtedness relating to the
aircraft and otherwise provide PSG with the same economic value it would have
received had the lease continued (see below as to potential early termination of
US Airways' MD-80 leases). The leases also generally provide options to the
lessee to extend the lease at stipulated or fair market value lease rates or
purchase the aircraft at a stipulated amount or at fair market value at the end
of the lease term. The PSG leases and related aircraft are encumbered by long-
term debt that will be fully amortized by the end of the lease term. PSG
aircraft leases expire, by year, as follows:
<TABLE>
<CAPTION>
Aircraft Type 1998 1999 2000 2004 2006 2008 Total
------------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BAe 146-200 10 10
MD-80 3 1 2 1 7
737-300 1 1 2
----
19
====
</TABLE>
================================================================================
8
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
During 1997, US Airways has the option to give notice and extend the leases for
three years at the current rental rates on the three MD-80's shown above to
expire in 1998. If US Airways does not exercise this option, it is obligated
to make a termination payment ranging from approximately $2.2 to $2.5 million
per aircraft. During 1993, when five MD-80 aircraft were refinanced, PSG was
required to grant concessions to US Airways which included lower BAe 146
aircraft purchase option prices and modified aircraft return conditions. If in
the future PSG should desire to sell, modify, further encumber or pay off
existing debt related to a leased aircraft, PSG may have to grant concessions to
the lessee of the aircraft to complete such a transaction. Such concessions
could have an effect on future results of operations.
In November 1996, US Airways announced an agreement in principle with Airbus
Industrie (Airbus) as to the possible purchase of 120 to 400 A320-type aircraft.
The Airbus purchase is contingent upon several conditions, including US Airways
achieving a competitive cost structure. If the various conditions are met, US
Airways has stated that the new aircraft deliveries could start in 1998 and
would result in the phase-out of US Airways' MD-80's, as well as its earlier
generation DC-9-30's and 737-200 aircraft. US Airways is currently unwilling to
indicate to PSG the specific effect of the aircraft phase-out on the six MD-80's
which are leased from PSG. US Airways operates 31 MD-80's. PSG believes that
US Airways' older aircraft (DC-9-30's and 737-200's) will be phased out first if
US Airways proceeds with the Airbus order. US Airways has not yet disclosed
whether the consummation of the Airbus order and the resultant disposition of
the existing aircraft would result in additional expenses or losses being
recorded by US Airways.
PSG'S AIRCRAFT LESSEES. Besides aircraft leased to US Airways and Continental,
PSG also leases one aircraft to America West Airlines, Inc. (America West). ALL
INFORMATION CONTAINED IN THIS ANNUAL REPORT RELATING TO PSG'S THREE AIRCRAFT
LESSEES WAS OBTAINED FROM PUBLISHED MEDIA REPORTS. PSG REFERS READERS TO PUBLIC
INFORMATION REGARDING US AIRWAYS, CONTINENTAL AND AMERICA WEST FOR FURTHER
DETAILS RELATING TO THEIR FINANCIAL CONDITION. Since PSG's leases are
relatively long-term, PSG is concerned as to both the current and long-term
futures of its three lessees. A summary of the recent results and current
status of each of PSG's lessees follows:
. US AIRWAYS leases 16 of PSG's aircraft consisting of six MD-80 aircraft and
ten BAe 146-200 aircraft. Lease revenues from US Airways were 77.8% of total
lease revenues for 1996. From mid-1992 through 1995 all of US Airways' 18 BAe
146's, including the ten leased from PSG, were out of service. During late-
1995 and 1996 US Airways subleased seven of the ten BAe 146 aircraft leased
from PSG. US Airways has a commitment to sublease two additional BAe 146
aircraft in the second quarter of 1997. Generally the BAe 146 subleases extend
through US Airways' primary lease term which expires in the fall of 2000.
Prior to the delivery of the BAe 146 aircraft to the sublessees, US Airways
completed various maintenance tasks to enable the aircraft to return to
service. US Airways' BAe 146 aircraft sublessees are smaller commuter/"feeder"
airlines, most of which are "start-up" carriers. Three of the BAe 146's are
subleased by US Airways to a U.S. airline and the remainder are subleased to
three European airlines. US Airways indicates they have had other inquiries as
to subleasing the last uncommitted PSG-owned BAe 146. PSG is encouraged by
these
================================================================================
9
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
developments since, generally, operating aircraft are worth more than aircraft
held in storage.
US Airways, like, most U.S. airlines, recorded improved operating results in
1996. US Airways' unit costs, which are the highest of the major U.S.
airlines, continued to increase in 1996, but the increase was more than offset
by higher fares, passenger levels and load factors which thereby enhanced US
Airways' profits. In 1996, US Airways also benefited from the suspension of
service (mid-June through September) by low-cost, low-fare ValuJet Airlines
(ValuJet). As a result of these positive factors, US Airways' parent, US
Airways Group, Inc. (US Airways Group), recorded net income (after preferred
dividends) in 1996 of $175 million versus net income in 1995 of $34 million.
US Airways' competition continues to intensify. Besides the re-start-up of
ValuJet, US Airways is faced with increased competition from Delta Airlines'
(Delta) new low-cost, low-fare subsidiary, Delta Express. Delta Express
started service in October 1996 as a result of employee wage and work rule
concessions to enable Delta to meet the increased competition from Southwest
Airlines (Southwest), ValuJet and other new airlines. Southwest continued to
expand into US Airways' markets with new service to Providence, which competes
with US Airways' service at Boston. US Airways Group, in its SEC Form 10-Q
report for the third quarter of 1996 stated: ". . . the competitive threat
posed by low cost, low fare competition presents a serious challenge to the
Company to lower US Airways' cost structure to remain competitive and ensure
long-term financial viability."
Starting in late-1995, all of US Airways various labor agreements became
amendable and US Airways is now in collective bargaining talks with all the
unions representing most of its employees. US Airways is attempting to secure
". . . meaningful wage and benefit concessions and productivity improvements
from its unionized employee groups." (Source: US Airways Group SEC Form 10-Q
report for the third quarter of 1996.)
US Airways' cash, cash equivalents and short-term investments remain strong -
at December 31,1996 approximately $1.6 billion. British Airways PLC (British
Airways), the owner of approximately $400 million of US Airways Group's
preferred stock, is seeking a long-term alliance with American Airlines, Inc.
(American). US Airways Group and US Airways are suing both British Airways and
American for disrupting the existing marketing/investment agreements between
US Airways Group, US Airways and British Airways.
. CONTINENTAL leases one MD-80 and one 737-300 from PSG. Continental also
reported significantly improved results in 1996 compared to 1995. Net income
was up sharply in 1996 despite a $128 million pretax charge to write-down
aircraft and spare parts that will be phased out of service early because of
new aircraft orders. Results for 1996 were net income of $319 million versus
net income of $224 million in 1995. During 1996 Continental increased an order
for new aircraft to be delivered between 1997 and 2003. The amended aircraft
purchase commitment is in excess of $4 billion for 61 jet aircraft. Also
during 1996, Continental had discussions with Delta as to a possible
combination of operations of the two airlines. These discussions did not
proceed beyond the preliminary
================================================================================
10
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
stage. Continental's cash and cash equivalents totaled $1.1 billion at
December 31, 1996. Stockholders' equity at December 31, 1996 was $581 million,
a significant improvement from Continental's condition at the end of 1994
before they abandoned the money-losing, low-fare Continental Lite operation.
While still highly leveraged, Continental has strengthened its financial
position and operating results.
. AMERICA WEST leases one 737-300 aircraft from PSG. America West, which emerged
from bankruptcy in 1994, is partially owned by Continental (one percent
ownership, 7.9 percent voting interest) and both carriers have implemented
various programs to cross-feed passengers and reduce common costs. America
West continued to expand operations in 1996, but some of that growth was
achieved at lower revenue yields per passenger mile, which decreased the
revenue contribution from the expanded services, while operating costs,
particularly fuel and maintenance expenses, increased significantly in 1996.
America West recorded net income of almost $9 million in 1996 (after recording
a non-cash, non-recurring pretax charge of $65.1 million in the third quarter
of 1996 for items related to aircraft, parts, facilities and pending
litigation). In 1995 America West reported net income of $54 million. Cash,
cash equivalents and short-term investments totaled approximately $177 million
at December 31, 1996. America West's equity at December 31, 1996 was
approximately $623 million after buying back $44 million of its common stock
and warrants in 1996. While unit costs have increased, America West continues
to be one of the lowest cost airline operators and has announced that it plans
to continue to expand operations.
================================================================================
11
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
OPERATING STATISTICS (at year-end) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET AIRCRAFT LEASED:/(a)/
BAe 146-200 aircraft /(b)/ 10.0 10.0 10.0 10.0 10.0
MD-80 aircraft 7.0 7.0 7.0 7.0 7.0
737-300 aircraft 2.0 2.0 2.0 2.0 2.0
737-200 aircraft/(c)/ - 2.0 2.3 2.3 2.3
-----------------------------------
Total aircraft leased 19.0 21.0 21.3 21.3 21.3
Aircraft leased under operating leases 14.0 16.0 16.3 16.3 16.3
Aircraft leased under financing leases 5.0 5.0 5.0 5.0 5.0
AIRCRAFT HELD FOR SALE 747-100 /(d)/ - - 2.0 2.0 2.0
</TABLE>
(a) At December 31, 1996, PSG had a 100% interest in all aircraft.
(b) Not-operated by US Airways since the spring of 1992. In 1996, US Airways
subleased seven aircraft. Two additional aircraft are committed to be
subleased and delivered in the first quarter of 1997 and US Airways is
pursuing a potential sublessee - for the last aircraft in storage.
(c) During 1996, PSG's 1/3 interest in the six 737-200 aircraft was sold to the
lessee and during 1995, one 737-200 aircraft, in which PSG had a 1/3
interest, was declared a casualty loss.
(d) During 1995, the two 747-100 aircraft were sold.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in thousands) 1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues/(e)/ $ 35,919 $ 35,032 $ 35,637 $ 35,920 $ 36,412
Operating expenses/(f)/ 13,980 15,770 21,346 31,165 22,544
--------------------------------------------------------
Income before interest expense and taxes 21,939 19,262 14,291 4,755 13,868
Identifiable assets at year-end 211,382 233,547 279,508 302,341 324,719
Depreciation and amortization 13,902 13,978 14,085 13,837 12,394
Income before interest and taxes
as a percent of revenues 61.1% 55.0% 40.1% 13.2% 38.1%
</TABLE>
(e) Includes a $1.8 million gain on the sale of PSG's 1/3 interest in six 737-
200 aircraft in 1996.
(f) Includes a $1.7 million loss on the disposition of 747 aircraft in 1995 and
write-downs on 747 aircraft in 1994, 1993 and 1992 of $7.2 million, $17
million, and $9.9 million, respectively.
- - --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1994 THROUGH 1996 AND KNOWN TRENDS
- - --------------------------------------------------------------------------------
The reduction in aircraft leasing revenues in each year from 1994 to 1996
(excluding the $1.8 million gain on the sale of PSG's 1/3 interest in six 737-
200 aircraft in 1996) reflects the reduced revenue recognition associated with
aircraft leased under financing leases. Income fluctuated in 1996, 1995 and 1994
largely as a result of (i) the $1.8 million gain on the sale of the interest in
the 737 aircraft in 1996, (ii) the $1.7 million loss on disposition of the 747
aircraft in 1995 and (iii) the $7.2 million write-downs of the 747 aircraft in
1994.
================================================================================
12
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
EFFECT OF UNSCHEDULED RETURN OF AIRCRAFT. Because of the cyclical nature of the
airline business, the long-term prospects of all airlines, except for the
largest and best capitalized, are uncertain. The long-term prospects for US
Airways - which has the highest unit cost structure in the industry and
virtually zero equity - and Continental and America West - both of which emerged
from bankruptcy in 1993 and 1994, respectively, and remain highly leveraged -
are even more unpredictable. It is possible that all of the leased aircraft
will remain with PSG's existing lessees and, based on recent financial results,
prospects are improved as to that possibility. On the other hand, if there is
economic deterioration of PSG's lessees, some or all of the aircraft could be
returned to PSG or the leases could be renegotiated on terms less favorable to
PSG.
While the unscheduled return of aircraft appears less likely than in the prior
year, should US Airways default on its leases with PSG, or file bankruptcy and
reject certain aircraft leases, there could be a material decrease in the market
value of the types of aircraft leased to US Airways due to an increased
availability of these aircraft for lease or sale. In such a 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. Should PSG have
any of its leased aircraft prematurely returned before the end of the lease
terms, PSG would have to continue to make the principal and interest payments to
the aircraft lenders to be able to pursue a sale or lease of the aircraft in
order to maintain or salvage some of PSG's equity interest (all of PSG's leased
aircraft have debt obligations - all non-recourse debt except for $17.2 million
at December 31, 1996 of recourse debt on five BAe 146's). Whether PSG undertook
such a course of action would be dependent on PSG having sufficient liquidity
(cash) to maintain the debt payments and a viable market for the specific type
of used aircraft PSG would be marketing. Both of these factors are uncertain.
If the lenders took control and sold the aircraft, PSG would likely lose most or
all its equity. If, in the future, PSG had sufficient liquidity after a lessee
defaulted and elected to pay the scheduled debt service to the lender(s), then
PSG would be required to find purchasers or new lessees for the aircraft. When
marketing aircraft, PSG competes with many airline and leasing companies that
have greater financial resources and broader marketing and support capabilities
to effect a sale or lease than PSG. To the extent that sales prices were less
than PSG's carrying value or less favorable lease rates were obtained, PSG would
be negatively affected.
================================================================================
13
<PAGE>
FUEL SALES AND DISTRIBUTION
================================================================================
PS Trading, Inc. (PST), a wholly-owned subsidiary of PSG, is composed of three
separate divisions consisting of wholesale fuel marketing, aviation fuel sales
and facility services. PST contributed $227.7 million to 1996's consolidated
revenues, or 83% of the total. While 1996 results reflect very large increases
in revenue, particularly from the wholesale fuel marketing division,
expectations were not met as to profitability and overall results were a loss
due to: 1) operating losses from significant fuel price reductions in the fourth
quarter of 1996; 2) year-end adjustments to cost of sales primarily related to
excise and sales taxes; and 3) unusual charges related to environmental and fuel
line removal costs by the facility services division.
WHOLESALE FUEL MARKETING - The wholesale fuel marketing division (Wholesale
Division), which is headquartered in the Sacramento, California area, has sales
representatives in Southern and Northern California, as well as Arizona and New
Mexico. The Wholesale Division continued to grow in 1996 as revenues increased
114% over 1995. These revenues are from low-margin sales of refined petroleum
products, primarily diesel and gasoline, to commercial, military, municipal and
reseller customers. Generally, the Wholesale Division delivers its fuel to its
customers via third party trucking companies hired by PST. Growth in 1996 was
enhanced by the hiring of additional sales representatives and the establishment
of new fuel inventory locations, primarily in California. The Wholesale
Division maintained fuel inventories in leased, co-mingled storage tanks in
California, Arizona and Nevada. These locations are supplied by pipeline
deliveries of fuel purchased direct from refineries in Northern and Southern
California. The Wholesale Division also has agreements to make "rack" purchases
of fuel at other fuel storage locations where PST does not maintain inventory.
With the purchase of fuel directly from the refiner, PST has been able to
generally enhance its operating margins but it has taken on the risk of
fluctuating prices by maintaining its own fuel inventory. Because of new
regulations which became effective in 1996, only new higher specification, lower
polluting motor fuels may now be sold in California and these special fuels are
only being produced by California refineries. Because of actual and "rumored"
refinery production interruptions due to scheduled and unscheduled maintenance,
California fuel prices in 1996 were more volatile and this is expected to
continue in the future. This volatility enhanced the Wholesale Division's
results in the second quarter of 1996 when fuel prices increased but severely
depressed their results in the third and particularly fourth quarters of 1996
when fuel prices declined. In addition, year-end adjustments to cost of sales in
combination with the fourth quarter losses resulted in operating losses in the
Wholesale Division in 1996 versus operating profits in 1995. These results were
very disappointing in light of the increased investment in inventories and
accounts receivable to expand the Wholesale Division's operation in 1996. Based
on the recommendations of an independent consultant, the Board of Directors of
the Company reassessed the Wholesale Division's operations and financial results
and approved a plan which management believes will increase profitability by
concentrating on higher margin, generally lower volume customers. As a result of
implementing the plan, sales, inventories and accounts receivable will be
reduced in 1997.
AVIATION FUEL SALES - The aviation fuel sales division (Aviation Division)
conducts its operations out of PST's Dallas, Texas corporate office. Aviation
revenues increased 16% from 1995 to 1996. These revenues are from sales of jet
fuel to charter, cargo and scheduled airlines, corporate jet operators, and a
limited numbers of resellers. The Aviation Division, like the
================================================================================
14
<PAGE>
FUEL SALES AND DISTRIBUTION - CONTINUED
================================================================================
Wholesale Division, purchases jet fuel direct from refineries which is delivered
via pipeline to third party fuel storage facilities or PSG-owned fuel storage
tanks (see Facility Services below). In addition, the Aviation Division
purchases jet fuel at storage locations where it does not maintain inventories,
particularly for its corporate jet customers. Jet fuel prices tend to fluctuate,
but generally they have not been as volatile as West Coast motor fuel prices.
FACILITY SERVICES - PST and PSG own or lease various limited fuel storage
facilities or pipelines in several locations including the San Francisco, Los
Angeles and Sacramento Airports. During 1996, revenues from pipelines at the San
Francisco International Airport (SFO) were reduced because of construction of a
new international terminal and these revenues will be eliminated when the
existing terminal served by PST's pipeline is demolished in early 2000. In 1996,
PST recorded $1.2 million of expenses related to the investigation and
remediation (I&M) of potential soil and ground water pollution at SFO and
pipeline removal costs previously mentioned. The 1996 I&M expense included an
accrual of PST's best estimate of additional SFO I&M expenses yet to be
incurred. These estimates of additional expenditures may change in the future.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
OPERATING STATISTICS 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gallons of fuel sold (in thousands) 299,581 169,528 111,855 145,281 112,663
Average price per gallon (in cents) 76 70 70 73 75
Employees at year-end 33 29 23 24 21
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in thousands) 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $227,747 $122,417 $ 79,642 $106,904 $ 85,450
Operating expenses /(a)/ 229,660 121,278 78,240 105,578 84,198
--------------------------------------------------------------
Income (loss) before interest
expense and taxes (1,913) 1,139 1,402 1,326 1,252
Identifiable assets at year-end 37,657 20,180 17,943 15,975 14,161
Net assets before debt at year-end /(b)/ 18,801 13,604 8,033 9,430 7,612
Capital additions 115 265 64 67 203
Depreciation and amortization 406 299 321 336 366
Income (loss) before interest expense
and taxes as a percent of revenues (.8)% .9% 1.8% 1.2% 1.5%
</TABLE>
(a) Operating expenses for 1996 include $1.2 million for expenses related to
pipe removal at SFO and I&M expense related to potential soil and ground
water pollution at SFO.
(b) Identifiable assets less current liabilities.
================================================================================
15
<PAGE>
FUEL SALES AND DISTRIBUTION - CONTINUED
================================================================================
- - --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1994 THROUGH 1996 AND KNOWN TRENDS
- - --------------------------------------------------------------------------------
Fuel sales and distribution revenues increased 86% during 1996 compared to 1995
primarily due to a 77% increase in the gallons of fuel sold as a result of
increased marketing efforts by the Wholesale Division. Similarly, 1995 revenues
were 54% greater than in 1994 due to a 52% increase in gallons sold by the
Wholesale Division. As discussed in detail above, 1996 results of the Wholesale
Division were not satisfactory. Based on the recommendations of an independent
consultant, the Board of Directors has approved a plan which management believes
will increase profitability by concentrating on higher margin, generally lower
volume customers. As a result of implementing the plan, sales, inventories and
accounts receivable will be reduced in 1997.
PST's fuel inventories increased from $4.4 million at the end of 1995 to $13.1
million at the end of 1996. These increased inventories subjected PST to
greater variation in profitability due to fuel price fluctuations. The
volatility of fuel prices in 1996 enhanced the Wholesale Division's results in
the second quarter of 1996, when fuel prices increased, but severely depressed
the results in the third and particularly fourth quarters of 1996 when fuel
prices declined. In addition, year-end adjustments to cost of sales in
combination with the fourth quarter losses resulted in operating losses in the
Wholesale Division in 1996 versus operating profits in 1995.
As discussed in Note 1 of the Notes to Consolidated Financial Statements,
operating expenses for 1996 include $1.2 million of I&M expense related to
potential soil and ground water pollution and pipe removal at SFO. Included in
the $1.2 million is PST's best estimate of additional expenses yet to be
incurred. It is reasonably possible that the estimate of additional expenditures
yet to be incurred may change in the future.
Income as a percent of revenues varied between 1994 and 1995 because of changing
margins on fuel sales (largely due to competitive pricing) and the percentage of
lower volume/higher margin customers.
================================================================================
16
<PAGE>
OIL AND GAS PRODUCTION AND DEVELOPMENT
================================================================================
Oil and gas operations are conducted by Dallas-based Statex Petroleum, Inc.
(Statex), a wholly-owned subsidiary of PSG. Statex contributed $8.6 million to
1996's consolidated revenue, or 3% of the total. Statex is an independent oil
and gas producing company which focuses on properties with secondary recovery
and development drilling potential. Its current portfolio of producing
properties is located primarily in North and West Texas and Western Oklahoma.
For several years prior to 1996, Statex concentrated on enhancing the value of
its core North Texas waterflood properties. By taking advantage of improved
polymer technology, recovery efficiencies have been improved. Stringent cost
control procedures have been followed to reduce operating costs. In 1995,
Statex entered into a line of credit collateralized by its major oil properties.
During 1996, Statex utilized this line for infill drilling on its core
properties and to acquire three new properties. A fourth new property is under
contract to be closed in the first half of 1997. Statex will continue to
evaluate properties for feasible acquisitions where there is a probability for
expanded drilling and development, as well as secondary recovery potential.
PRODUCTION AND RESERVES - Production volumes, net to Statex, for December 1996
were 997 barrels of oil per day (BOPD) and 1,117 MCF of gas per day (MCFPD)
versus 848 BOPD and 1,346 MCFPD at the end of 1995. Oil reserves at year-end
increased to 5,050,709 barrels of oil (BO) versus 4,885,525 BO at the end of
1995. Gas reserves were 2,810,711 MCF at year-end 1996 as compared to 2,959,542
MCF for 1995. The increased oil volumes are from the new properties acquired
during 1996. Development drilling commenced on these properties during the
second half of the year. As reported in prior years, development drilling on
Statex's North Texas waterflood properties was deferred pending an increase in
crude oil prices. Statex took advantage of the recent high prices and has been
successful in replacing oil production lost to normal waterflood decline.
Drilling has continued through year-end and further increases in oil production
are expected. The decline in gas reserves was due to normal decline and larger
gas balancing recoupments in 1995. Statex expects increases in gas reserves and
gas volumes at year-end 1997 as the property under contract to be acquired is
predominantly gas.
NEW PROPERTIES - Two properties were acquired in 1996 which adjoin Statex's core
property, the Eliasville Waterflood Project (Eliasville) located in Stephens
County, Texas. The West Eliasville project, which is situated on the southwest
side of Eliasville, consists of eight producing wells which produced 51 net BOPD
in December. Additional unproven leases were also acquired potentially
increasing the size of the project - the area will soon be unitized and then
waterflooded. It is expected that at least six additional wells will be drilled
on the project. The South Eliasville Project, which adjoins Eliasville to the
southeast, was expanded in 1996 by the acquisition of the surface and mineral
rights of the key project tract. The acquisition of these two properties will
not only result in increased revenues and reserves, but also provide "economy of
scale" type benefits in overhead cost, purchasing and crude oil marketing.
Statex owns 100% of both properties. The third new property, the Lake Trammel
Unit (LTU) located in Nolan County, Texas was acquired just prior to year-end. A
66% working interest was acquired from an independent producer who owns most of
the remaining interest and who will continue as operator. The property has been
a very successful waterflood for years but has not been developed on its
perimeter. New wells
================================================================================
17
<PAGE>
OIL AND GAS PRODUCTION AND DEVELOPMENT - CONTINUED
================================================================================
have been drilled around the unit which show parts of the flank areas to be
productive. New LTU wells are scheduled for drilling early in 1997. This
development plus upgrades in the original water flood area are expected to
result in a substantial production increase to the December producing rate of 67
BOPD net to Statex. As mentioned, the fourth project is primarily gas and is
scheduled for closing by mid-year 1997. It is also a West Texas project with
considerable upside potential from both undeveloped locations and enhanced
recovery procedures.
WELLS DRILLED IN 1996 - As a result of increased oil and gas prices, Statex
accelerated its drilling effort in the last three months of the year, placing
reserves on stream which had previously been reflected as undeveloped. A total
of 15 producing wells were drilled during 1996. Two wells and one injection
well were in process at year-end.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
OPERATING STATISTICS 1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proved reserves:
Crude oil (Mbbls) 5,051 4,886 5,082 6,856 8,438
Natural gas (MMcf) 2,811 2,960 3,026 3,737 4,849
Undeveloped oil and gas acreage:
Gross/(b)/ 6,235 3,388 6,586 5,877 6,303
Net/(c)/ 2,494 615 902 1,687 2,070
Producing wells:
Gross/(b)/ 214 121 107 114 126
Net/(c)/ 147 83 81 87 96
Production:
Crude oil (Mbbls) 338 337 405 446 435
Natural gas (MMcf) 469 552 520 467 559
Wells drilled:/(a)/
Gross/(b)/ 15 2 - 8 9
Net/(c)/ 12 1 - 7 9
Average price during year:
Crude oil - per barrel $21.90 $17.56 $16.21 $17.64 $20.03
Natural gas - per thousand cubic feet $ 2.11 $ 1.59 $ 1.99 $ 2.02 $ 1.68
Year-end price:
Crude oil - per barrel $24.25 $18.00 $16.00 $12.50 $18.00
Natural gas - per thousand cubic feet $ 3.27 $ 1.90 $ 1.50 $ 2.15 $ 2.00
Average production costs per equivalent
barrel $ 9.07 $ 8.74 $ 7.88 $ 9.93 $10.72
Employees at year-end 8 8 8 9 9
</TABLE>
Mbbls = thousands of barrels MMcf = millions of cubic feet
(a) All the wells drilled in 1996 were development producing wells; there were
no dry holes.
(b) Gross refers to the total amount owned by all participants.
(c) Net refers to Statex's ownership interest in the gross amount.
================================================================================
18
<PAGE>
OIL AND GAS PRODUCTION AND DEVELOPMENT - CONTINUED
================================================================================
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in thousands) 1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 8,573 $ 6,848 $ 7,683 $ 8,907 $10,483
Operating expenses/(d)/ 6,346 5,985 6,305 10,283 7,526
------------------------------------------------
Income (loss) before interest expense
and taxes 2,227 863 1,378 (1,376) 2,957
Identifiable assets at year-end 24,386 19,974 20,536 22,175 26,232
Net assets before debt at year-end/(e)/ 22,811 19,306 19,757 20,950 24,814
Capital additions 4,077 1,121 419 1,360 2,237
Depreciation, depletion and amortization 2,010 1,747 1,990 1,957 2,013
</TABLE>
(d) 1993 operating expenses include a $1.8 million write-off of oil properties
and $.7 million of loss on sale of oil and gas properties.
(e) Identifiable assets less current liabilities.
- - --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1994 THROUGH 1996 AND KNOWN TRENDS
- - --------------------------------------------------------------------------------
Oil and gas production revenues for 1996 were 25% higher than in 1995 primarily
due to a 25% increase in the average price of crude oil per barrel and a 33%
increase in the average price of natural gas per MCF. These price increases
were partially offset by a 15% reduction in natural gas production due primarily
to normal production decline rates. Revenues in 1995 were 11% lower than in
1994 due primarily to reduced oil volumes resulting from normal production
decline rates. As shown by both the average and the year-end crude oil and
natural gas prices above, there has been significant volatility in these prices.
================================================================================
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
================================================================================
In addition to the information set forth below, reference is made to the
individual sections on each business segment presented elsewhere in this Annual
Report (which are incorporated by reference herein) for a description of each of
the Company's principal business segments, an analysis of financial data from
1994 to 1996 relating to, and a discussion of known trends affecting, that
segment.
FINANCIAL CONDITION
Refer to the Consolidated Statements of Cash Flows for detailed components of
the Company's cash flow activities. At December 31, 1996, the Company's
principal sources of liquidity were cash, cash equivalents and U.S. Government
securities of $14.1 million, a $4.1 million decrease from December 31, 1995.
The major components of this change in liquidity are as follows:
CASH FLOWS FROM OPERATING ACTIVITIES. The Company's primary source of cash was
provided by operating activities which created a positive cash flow of $16
million.
CASH USED IN FINANCING ACTIVITIES. Financing activities used $25.9 million
primarily for debt payments of $19.8 million and a special cash distribution
to shareholders of $9.1 million. Statex's bank credit agreement provided $3
million.
CASH FLOWS FROM INVESTING ACTIVITIES (EXCEPT FOR MARKETABLE SECURITY
TRANSACTIONS). Investing activities, exclusive of marketable securities,
provided $5 million primarily from the $3.2 million in net proceeds from the
disposition of PSG's one-third interest in six Boeing 737-200 aircraft and
$5.9 million provided from aircraft finance leases and collection of notes
receivable. These sources of cash were partially offset by capital additions
of $4.2 million primarily related to the acquisition and development of oil
and gas properties which were partially financed by the $3 million borrowed
under Statex's bank credit agreement.
At December 31, 1996, PSG had $5.5 million outstanding under its October 1995
bank credit agreement, as amended, consisting entirely of letters of credit
(LC's). No borrowings are permitted under the bank credit agreement. The credit
agreement provides for long-term LC's, aggregating $3.5 million and for up to $2
million of LC's that may be issued to support the operations of PST. All
outstanding LC's require cash collateralization. The credit agreement expires
in 1997 as to the PST-related LC's and in 2000 as to the long-term LC's.
Statex has a separate bank credit agreement with a $4 million availability at
December 31, 1996, which, on approval, could be increased up to $9.7 million
(based on the valuation of oil and gas reserves owned by Statex at November 1,
1996). At December 31, 1996, $3 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 aircraft lease portfolio represents the major portion of the Company's
assets and its largest source of cash flow. The lease portfolio consists of 19
aircraft, the preponderance of which are 16 aircraft leased to US Airways.
PSG's assets include approximately $143.5 million for which realization is
substantially dependent upon the future performance of US Airways under aircraft
leases with PSG.
================================================================================
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
================================================================================
In February 1996, the California Franchise Tax Board issued notices of net
deficiencies to PSG for the years 1987 through 1990. These deficiencies and
related interest total approximately $13.8 million as of March 31, 1997. PSG is
protesting the adjustments proposed in these notices and believes that adequate
provision has been made in the Consolidated Financial Statements for any
possible assessments of additional taxes and interest. However, any such
assessment would negatively impact liquidity.
The Company believes that, absent a failure by US Airways to meet its lease
obligations to PSG, its cash, cash equivalents and U.S. Government securities,
plus projected cash flow, are adequate to meet the operating and capital needs
of the Company in both the short and long-term. The Company's estimated capital
additions for 1997, primarily for oil and gas development activities, are
between $3.5 million and $6.8 million depending upon Statex's ability to acquire
and develop new oil and gas fields with suitable enhanced recovery potential.
Statex's separate bank credit agreement will be used to finance their planned
capital additions.
USAGE OF TAX BENEFIT CARRYFORWARDS. The Company has substantial net operating
loss carryforwards, investment tax credit carryforwards and other tax benefits
(the Tax Benefits) for use in offsetting future taxable income. As discussed in
Note 8 of the Notes to Consolidated Financial Statements, as of December 31,
1996, the Company believes it had approximately $60 million of federal net
operating loss carryforwards and $12.5 million of federal investment tax credit
carryforwards, plus other state and federal tax benefits. Besides the customary
financial and legal difficulties ordinarily involved in using these tax
benefits, there is a special limitation on the use of these tax benefits that
arises when an "ownership change" occurs for federal income tax purposes.
Generally speaking, an "ownership change" occurs whenever, within a three-year
period, the aggregate ownership of a company's stock by its "5-percent
shareholders" (as defined by the applicable federal income tax regulations)
increases by more than 50 percentage points. Making the calculation is complex
and uncertain. The Company believes that as of March 1, 1997, no "ownership
change" had occurred with respect to the Company, but that the aggregate
percentage point increase in the ownership of the Company's stock by "5-percent
shareholders" during the preceding three-year period was in excess of 26%.
Certain "5-percent shareholders" ownership interest is not included in the 26%
because such shares have been held for more than three years . If such shares
(held more than three years by "5-percent shareholders"), which exceed 32%
ownership at December 31, 1996, are sold they would be added to the change in
ownership percentage for three years from the date of sale and could, dependent
on the number of shares sold, result in an "ownership change". The sole purpose
of the Reorganization, described in Note 1 of the Notes to the Consolidated
Financial Statements, was to help preserve the Tax Benefits by decreasing the
risk of an ownership change for federal income tax purposes. The Reorganization
was intended to accomplish this purpose by imposing certain Transfer
Restrictions (as described in Note 1 of the Notes to the Consolidated Financial
Statements) on the transfer of shares of the Company. While the Company believes
that the Transfer Restrictions will be enforceable, if the binding nature of the
Transfer Restrictions were challenged there is no assurance that a court would
hold that the Transfer Restrictions are enforceable. Furthermore, while the
Company believes that the remedies provided in the Transfer Restrictions are
generally sufficient, it is possible that the relevant tax authorities will take
the position the Transfer Restrictions do not provide adequate remedies for tax
================================================================================
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
================================================================================
purposes with respect to every transaction that the Transfer Restrictions
purport to prevent. Therefore, even with the Transfer Restrictions in place, it
is possible that transactions could occur that would severely limit the
Company's ability to utilize the Tax Benefits. In addition, there can be no
assurance that legislation will not be adopted that would limit the Company's
ability to utilize the Tax Benefits in future periods. However, the Company is
not aware of any proposed legislation for changes in the tax laws that could
materially impact the ability of the Company to utilize the Tax Benefits.
The issuance of new equity securities or the buy-back of outstanding common
stock by the Company could negatively affect the "ownership change" calculation
described above. Therefore, the Company will likely be constrained in its
ability to effect such equity transactions while there is concern as to the
"ownership change" calculation.
RESULTS OF OPERATIONS
REVENUES (EXCEPT FROM SEGMENTS). Interest and other income varied in each year
primarily as a result of the annual changes in the amounts of outstanding cash,
marketable securities and notes receivable and the interest rates earned.
Included in other income in 1994 are net investment gains of $.6 million which
resulted from the sale of marketable securities.
COSTS AND EXPENSES. The changes in cost of sales in each year from 1994 to 1996
are primarily a reflection of the increase in fuel sales. The increase in
general and administrative expenses (G&A) between 1995 and 1996 is due largely
to $600,000 of expenses associated with the Reorganization described in Note 1
of the Notes to the Consolidated Financial Statements and expanded operations of
the fuel sales and distribution segment. The decrease in G&A between 1994 and
1995 is due primarily to the 1994 expense accrual related to the cancellation of
employment contracts with two former PSG officers. This decrease was partially
offset by expanded operations of the fuel sales and distribution segment. The
loss on disposition of aircraft in 1995 relates to two 747-100 aircraft that
were sold in June 1995. As described in Note 4 of Notes to the Consolidated
Financial Statements, in early 1995, PSG settled outstanding securities
litigation for $5 million and recorded the expense in 1994. Interest expense
varied each year due to changes in the level of outstanding debt and changes in
the average interest rate.
PROVISION (CREDIT) FOR TAXES. Refer to Notes 1 and 8 of Notes to the
Consolidated Financial Statements for an explanation of the elements included in
the provision (credit) for taxes including a $5.6 million reduction in the 1996
tax provision.
================================================================================
22
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
================================================================================
<TABLE>
<CAPTION>
1996 1995
----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,350 $ 3,999
U.S. Government securities, partially pledged 6,799 14,270
Accounts and notes receivable 26,932 22,381
Current portion of aircraft leases, pledged 10,075 6,170
Fuel inventory, including prepaid amounts, at 13,073 4,423
average cost
Prepaid expenses and other current assets 5,842 4,250
----------------------
Total current assets 70,071 55,493
Oil and gas properties, at cost, pledged 38,825 35,142
Less accumulated depreciation, depletion and (18,549) (17,480)
amortization
----------------------
20,276 17,662
Other property and equipment, at cost 7,598 7,849
Less accumulated depreciation (5,270) (5,226)
----------------------
2,328 2,623
Aircraft under operating leases, at cost, pledged 230,978 245,178
Less accumulated depreciation (125,380) (124,678)
----------------------
105,598 120,500
Investment in aircraft financing leases, pledged 88,669 97,004
Other assets 11,747 14,404
----------------------
$ 298,689 $ 307,686
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,231 $ 6,289
Accrued interest 2,968 3,540
Accrued excise and sales tax 7,866 1,715
Other accrued liabilities 3,148 2,500
Current portion of long-term obligations 23,890 19,244
----------------------
Total current liabilities 48,103 33,288
Long-term obligations 81,895 103,365
Deferred income taxes 37,572 40,535
Other liabilities 7,528 7,416
Commitments and contingencies
Stockholders' equity:
Preferred stock, 1,000 shares authorized, none
issued
Common stock, par value $1 per share, 10,500 shares
authorized, 6,068 shares issued and outstanding 6,068 6,068
Additional paid-in capital 98,420 98,420
Retained earnings 19,103 18,594
----------------------
Total stockholders' equity 123,591 123,082
----------------------
$ 298,689 $ 307,686
======================
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Continuing operations:
Revenues:
Fuel sales and distribution $227,747 $122,417 $ 79,642
Oil and gas production and development 8,573 6,848 7,683
Aircraft leasing 34,073 35,032 35,637
Gain on aircraft sale 1,846
Interest and other income 2,507 2,707 2,486
--------------------------------
274,746 167,004 125,448
--------------------------------
Costs and expenses:
Cost of sales 231,250 123,633 80,715
Depreciation, depletion and amortization 16,364 16,088 16,500
General and administrative expenses 6,366 4,830 6,594
Loss on aircraft disposition and write-downs 1,701 7,190
Settlement of securities litigation 5,000
Interest expense 13,821 15,509 16,630
--------------------------------
267,801 161,761 132,629
--------------------------------
Income (loss) from continuing operations before
taxes 6,945 5,243 (7,181)
Provision (credit) for taxes (2,665) 2,211 (2,599)
--------------------------------
Income (loss) from continuing operations 9,610 3,032 (4,582)
Discontinued operations, net of tax:
Loss from operations (3,503)
Net gain on dispositions 15,321
--------
11,818
--------------------------------
Net income $ 9,610 $ 3,032 $ 7,236
================================
Income (loss) per share:
Continuing operations $ 1.58 $ .50 $ (.76)
Loss from operations of discontinued operations (.58)
Net gain on dispositions of discontinued operations 2.53
--------------------------------
Net income per share $ 1.58 $ .50 $ 1.19
================================
Shares used in determination of net income
per share 6,068 6,068 6,067
================================
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 9,610 $ 3,032 $ (4,582)
Non-cash items:
Depreciation, depletion and amortization 16,364 16,088 16,500
(Gains) losses on aircraft sales and write-downs (1,846) 1,701 7,190
Settlement of securities litigation 5,000
Marketable securities transactions (44) (426) (828)
Deferred taxes and other (2,826) 2,968 (8,159)
Changes in non-cash working capital affecting
cash from operating activities:
Accounts receivable (5,429) (4,059) 141
Fuel inventory, including prepaid amounts (8,650) (1,060) (2,036)
Prepaid and other current assets (2,207) 874 2,382
Accounts payable 3,942 (107) 136
Accrued interest (572) (393) (217)
Accrued sales and excise tax 6,151 (2,243) 2,893
Accrued legal settlement (5,000)
Other current liabilities 1,470 (3,450) (2,754)
--------------------------------
Net cash provided from operating activities 15,963 7,925 15,666
--------------------------------
Cash flows from financing activities:
Debt related:
Additions to long-term obligations 3,000 13,500
Reductions in long-term obligations (19,825) (14,617) (36,905)
Equity related:
Special cash distributions to stockholders (9,101) (9,101)
--------------------------------
Net cash used in financing activities (25,926) (23,718) (23,405)
--------------------------------
Cash flows from investing activities:
Purchase of available-for-sale securities (15,962)
Disposition of available-for-sale securities 7,225 2,883 3,740
Maturity of held-to-maturity securities 1,090 1,248 1,176
Capital additions (4,225) (1,386) (485)
Proceeds from disposition of property and equipment 3,154 2,215
Collateralization of letters of credit, net 156 2,065 (7,691)
Changes in finance leases, notes receivable and other 5,914 5,949 4,921
--------------------------------
Net cash provided from (used in) investing activities 13,314 (2,988) 1,661
--------------------------------
Discontinued operations:
Loss from operations (3,503)
Net gain on dispositions 15,321
Deferred taxes 10,213
Decrease in net assets 1,694
--------
Net cash provided from discontinued operations 23,725
--------------------------------
Net increase (decrease) in cash and cash equivalents 3,351 (18,781) 17,647
Cash and cash equivalents at beginning of year 3,999 22,780 5,133
--------------------------------
Cash and cash equivalents at end of year $ 7,350 $ 3,999 $ 22,780
================================
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
===============================================================================
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-In Retained
Shares Amount Capital Earnings
---------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 6,065 $6,065 $ 98,407 $ 17,427
Net income 7,236
Common stock issued 3 3 13
---------------------------------------
Balance at December 31, 1994 6,068 6,068 98,420 24,663
Net income 3,032
Special cash distribution ($1.50 per share) (9,101)
---------------------------------------
Balance at December 31, 1995 6,068 6,068 98,420 18,594
Net income 9,610
Special cash distribution ($1.50 per share) (9,101)
---------------------------------------
Balance at December 31, 1996 6,068 $6,068 $ 98,420 $ 19,103
=======================================
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION AND RESTRICTIONS ON THE TRANSFER OF COMMON SHARES - On June 5,
1996, PS Group Holdings, Inc. (the Company) and PS Group, Inc. (PSG) completed a
holding company reorganization (the Reorganization) that was approved at the
1996 Annual Meeting of Stockholders of PSG on that date. As a result of the
Reorganization, each share of PSG was converted, on a tax-free basis, into one
share of the Company. 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 and thus the financial statements
for periods prior to the Reorganization have not been restated and represent the
consolidated financial statements of PSG. 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. The
Reorganization was intended to accomplish this purpose by imposing certain
restrictions on the transfer of common shares of the Company. 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
Company's Restated Certificate of Incorporation), the transfer restrictions
prohibit, without prior approval of the Board of Directors, the direct or
indirect disposition or acquisition of any stock of the Company 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.
CONSOLIDATION - The consolidated financial statements include the accounts of PS
Group Holdings, Inc. and its subsidiaries. As used in the following footnotes,
"the Company" refers to PS Group Holdings, Inc. and its subsidiaries.
RECLASSIFICATION - Certain reclassifications have been made to the 1994 and 1995
financial statements to make them comparable to the presentation of the 1996
financial statements.
MANAGEMENT'S ESTIMATES - 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 and disclosures made in the accompanying notes to the consolidated
financial statements. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
DEPRECIATION AND AMORTIZATION - Depreciation to estimated residual values is
computed on the straight-line basis over the estimated useful lives of the
related assets, which are generally 15 to 18 years for leased aircraft and from
3 to 30 years for other property and equipment.
ACCOUNTING FOR OIL AND GAS PRODUCING ACTIVITIES - The Company follows the
successful efforts method of accounting for oil and gas exploration and
development costs, as described below:
================================================================================
27
<PAGE>
================================================================================
LEASE ACQUISITIONS - The Company defers the costs of acquiring unproven oil
and gas leases until they are either assigned or sold to other parties or
retained by the Company for possible future development. An allowance for the
abandonment of unproven leases is provided using the straight-line method over
the life of the leases.
EXPLORATION AND DEVELOPMENT COSTS - The costs of drilling and equipping all
development wells are capitalized. The costs of drilling exploratory wells
are initially deferred. If proved reserves are discovered, the costs of the
wells are capitalized. If proved reserves are not discovered, the costs of
drilling the wells, net of any salvage value, are charged to expense.
DEPRECIATION, DEPLETION AND AMORTIZATION - Depletion of producing leases is
computed for individual properties using the unit-of-production method based
on estimated proved reserves. Depreciation of wells and related equipment is
computed using the unit-of-production method, based on proved developed
reserves.
MARKETABLE SECURITIES - The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on January 1, 1994. In accordance with Statement 115, prior years'
financial statements were not restated to reflect the change in accounting
method. There was no material cumulative effect of adopting Statement 115.
At December 31, 1996, PSG held $2.9 million of U.S. Treasury bills maturing on
January 9, 1997 ($2 million of which were carried as non-current pursuant to a
collateral agreement). At December 31, 1995, PSG had $3.8 million of U.S.
Treasury bills maturing on January 11, 1996 ($2.8 million of which were carried
as non-current pursuant to a collateral agreement) and approximately $3.5
million in a repurchase agreement transaction with a major investment bank
classified as cash equivalents. Management has classified these investments as
held-to-maturity securities at December 31, 1996 and 1995. The fair market
value of these investments approximates cost.
PSG held approximately $5.9 million of U.S. Government securities at December
31, 1996 that were classified as available-for-sale. These securities were
carried at market, which is not materially different than cost. The securities
mature $1 million in 1997 and $4.9 million in 1998.
NET INCOME PER SHARE - Net income per share is based on the weighted average
number of common shares outstanding during the period.
POLICIES CONCERNING ASSET IMPAIRMENT - In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted Statement 121 in the first
quarter of 1996 and there was no financial statement impact.
================================================================================
28
<PAGE>
================================================================================
PSG's assets include approximately $143.5 million for which realization is
substantially dependent upon the future performance of US Airways, Inc. (US
Airways) under aircraft leases with PSG. All payments due from US Airways are
current through March 1997. However, US Airways' long-term financial future may
be uncertain. Should US Airways 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 US Airways due to
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.
INVESTMENT TAX CREDITS - Investment tax credits are accounted for using the
flow-through method.
ENVIRONMENTAL EXPENDITURES - Environmental expenditures are expensed or
capitalized based upon their economic benefit. Costs which improve a property,
as compared with the condition of the property when constructed or acquired, and
costs which prevent future environmental contamination are capitalized. To date
the Company has not capitalized any environmental expenditures. Costs related to
environmental damage resulting from operating activities subsequent to
acquisition are expensed. Liabilities for these expenditures are not discounted
to their present value and are recorded when it is probable that obligations
have been incurred and the amounts can reasonably be estimated. See Note 5 for
information on an environmental remediation liability.
2. DISCONTINUED OPERATIONS
In 1994, the assets of the travel management segment and the major asset of the
metallic waste recycling segment were sold, and they are shown as discontinued
operations. Proceeds from the sales were $40 million and $1.5 million,
respectively. Operating revenues during 1994 were $17.9 million for travel
management and $.2 million for the metallic waste recycling segment. Net
interest expense charged to the discontinued operations by PSG was $.7 million
in 1994. Components of discontinued operations for 1994, including related
taxes are as follows (in thousands):
<TABLE>
<S> <C>
Loss from operations:
Travel management $(4,022)
Metallic waste recycling (1,361)
-------
(5,383)
Credit for taxes (1,880)
-------
$(3,503)
=======
Gain (loss) on dispositions:
Travel management $28,571
Metallic waste recycling (1,329)
-------
27,242
Provision for taxes 11,921
-------
$15,321
=======
</TABLE>
================================================================================
29
<PAGE>
================================================================================
3. LONG-TERM OBLIGATIONS
At December 31, 1996, PSG had $5.5 million outstanding under its October 1995
bank credit agreement, as amended, consisting entirely of letters of credit
(LC's). No borrowings are permitted under the bank credit agreement. The
credit agreement provides for long-term LC's aggregating $3.5 million and for up
to $2 million of LC's that may be issued to support the operations of PS
Trading, Inc. (PST). All outstanding LC's require cash collateralization. The
credit agreement expires in 1997 as to the PST-related LC's and in 2000 as to
the long-term LC's. Under the terms of the bank credit agreement PSG is
required to maintain at least $3 million in cash and cash equivalents.
Statex Petroleum, Inc. (Statex) has a separate bank credit agreement with $4
million of availability at December 31, 1996, which could be increased up to
$9.7 million (based on the valuation of oil and gas reserves owned by Statex at
November 1, 1996) with bank approval. At December 31, 1996, $3 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.
Long-term obligations at December 31, excluding current maturities, consist of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------
<S> <C> <C>
Loans secured by ten BAe 146 aircraft; bearing interest at
6.6% to 12%; due 2000 $23,738 $ 30,690
Loans secured by five MD-80 aircraft; bearing interest at
8.1% to 10.7%; due 1998 and 1999 15,041 26,672
Loans secured by two MD-80 aircraft; bearing interest at
7.3% and 11.9%; due 2004 and 2006 19,720 21,925
Note payable secured by one Boeing 737 aircraft; bearing
interest at 11.2%; due 2006 11,641 13,840
Note payable secured by one Boeing 737 aircraft; bearing
interest at 11.6%; due 2002 8,755 10,238
Bank credit agreement secured by producing oil and gas
property; bearing interest at prime plus 1%; due 1998 3,000
------------------
$81,895 $103,365
==================
</TABLE>
Interest payments of $14,393,000, $15,285,000 and $16,815,000 were made in 1996,
1995 and 1994, respectively.
Principal payments on existing long-term obligations in each of the four years
after 1997 are as follows: $24,291,000 in 1998; $17,285,000 in 1999; $13,330,000
in 2000; and $4,965,000 in 2001. Payments subsequent to 2001 total $22,024,000.
================================================================================
30
<PAGE>
================================================================================
4. SECURITIES LITIGATION
In October 1995, the United States District Court approved the settlement
reached in March 1995 of all pending class action litigation against PSG and
certain of its directors and officers. While the $5 million settlement
liability was recorded as of December 31, 1994, the actual cash payment to an
escrow account was made by PSG in July 1995.
5. ENVIRONMENTAL REMEDIATION LIABILITY
Under an order from the California Regional Water Control Board, PSG, and many
other potentially responsible parties (PRPs), participated during 1996 in a
process of investigation and remediation (I&M) related to potential soil and
ground water pollution at the San Francisco International Airport (SFO). PSG
has various fuel storage and fuel distribution facilities which were acquired
and subsequently improved at various times since 1982. As a result of the I&M
process, PSG recorded in 1996 total expenses of $1.2 million composed of actual
expenditures and PSG's best estimate of additional expenses yet to be incurred.
The accrual for the future I&M expenditures is expected to be paid out over the
next two years. The 1996 I&M expense total includes expenditures related to the
removal of various SFO fuel distribution pipelines as a result of construction
of a new terminal at SFO. It is reasonably possible that the estimate of
additional expenditures yet to be incurred may change in the future. When PSG
purchased the original SFO facilities, the former owners indemnified PSG for
environmental impacts occurring before the acquisition by PSG. PSG may have to
initiate litigation against these previous owners as PRPs to recover some of the
SFO I&M expenses. PSG has not recorded an estimate of potential recovery from
these previous owners.
As indicated in Note 1, the Company accrues for environmental costs and
expenses. The Company is subject to numerous local, state and federal
environmental laws, rules and regulations, which expose the Company to the
possibility of judicial or administrative actions for remediation and/or
penalties. As a result of other future remediation projects or changes in
regulatory requirements, the Company could incur additional future liabilities.
6. COMMON STOCK OPTIONS
Changes in stock options outstanding during 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Options Option
Outstanding Prices
----------- -----------------
<S> <C> <C>
Balance at December 31, 1994 14,600 $6.83 - 29.75
Canceled (4,800) 19.76
-----------
Balance at December 31, 1995 9,800 6.83 - 29.75
Canceled (1,800) 6.83 - 25.08
-----------
Balance at December 31, 1996 8,000 29.75
===========
</TABLE>
================================================================================
31
<PAGE>
================================================================================
At December 31, 1996 and 1995, all outstanding options are exercisable. The
stock option plan expired in September 1994 and no more options may be granted
although existing options can be exercised.
7. AIRCRAFT LEASES AND AIRCRAFT SOLD
At December 31, 1996, PSG leased jet aircraft to three commercial airlines under
agreements accounted for as operating or financing leases. The future minimum
lease payments scheduled to be received on aircraft currently under lease are
(in thousands):
<TABLE>
<CAPTION>
Operating Financing
Leases Leases
-----------------------
<S> <C> <C>
1997 $23,245 $ 14,801
1998 21,269 12,653
1999 15,463 12,655
2000 15,463 9,553
2001 2,424 9,552
Later years 11,716 43,755
----------------------
Total $89,580 $102,969
======================
</TABLE>
Information on financing leases (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------------
<S> <C> <C>
Total investment $98,744 $103,174
Unguaranteed residual values (included in
total investment) 28,240 28,240
Unearned income 32,464 41,808
</TABLE>
Aircraft under operating leases are depreciated to estimated residual values
which aggregate $41.3 million, or 18% of original cost.
During the fourth quarter of 1994, PSG wrote-down its investment in two 747-100
aircraft (which were converted to freighters) by $7.2 million. These two
aircraft were sold in 1995 and an additional $1.7 million pretax loss was
recorded.
On December 31, 1996, PSG sold its one-third interest in six Boeing 737-200
aircraft at the end of the lease term to the lessee and recorded a pretax gain
of $1.8 million on gross proceeds of $3.1 million.
================================================================================
32
<PAGE>
================================================================================
8. PROVISION (CREDIT) FOR TAXES
The provision (credit) for taxes from continuing operations was comprised of (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Current:
Federal taxes $ 396
State taxes 23 $ 62 $ 69
Deferred taxes 2,480 2,149 (2,668)
Reduction of tax liability (5,564)
---------------------------
$(2,665) $2,211 $(2,599)
===========================
</TABLE>
The provision for income taxes in 1996 was reduced by $5.6 million due to the
reduction of income tax liabilities recorded in prior years, but no longer
required due to the completion of Internal Revenue Service audits and the
current evaluation of the pending California Franchise Tax Board (CFTB)
assessment described below.
Income taxes and related interest of $361,000, $1,509,000 and $4,288,000 were
paid in 1996, 1995 and 1994, respectively. In addition, refunds of prior years'
income taxes of $132,000, $123,000 and $559,000 were received in 1996, 1995 and
1994, respectively.
A reconciliation between the amount computed by multiplying income (loss) from
continuing operations before taxes by the statutory federal rate, and the amount
of reported taxes is as follows:
<TABLE>
<CAPTION>
Percent of Pretax
Income (Loss)
1996 1995 1994
-------------------
<S> <C> <C> <C>
Statutory federal rate 35% 35% (35)%
Increase (reductions) in taxes resulting from:
Reduction of tax liability (80)
State taxes net of federal income tax benefit 6 6
Other 1 1 (1)
-------------------
(38)% 42% (36)%
===================
</TABLE>
================================================================================
33
<PAGE>
================================================================================
Significant components of deferred tax liabilities and assets for Federal and
State income taxes as of December 31, 1996 and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 80,279 $ 94,036
Other 8,709 5,733
--------------------
Total deferred tax liabilities 88,988 99,769
Deferred tax (assets):
Financing leases (8,925) (7,060)
Net effect of tax benefit transfer agreement 219 (424)
Write-downs of subsidiaries (9,943) (9,943)
Net operating loss carryforward (22,568) (28,200)
Capital loss carryforward (2,762) (2,762)
Investment tax credit carryforward (12,524) (12,524)
AMT credit carryforward (3,460) (3,460)
Other (4,239) (7,647)
--------------------
Total deferred tax (assets) (64,202) (72,020)
Valuation allowance 12,786 12,786
--------------------
Net deferred tax (assets) (51,416) (59,234)
--------------------
Net deferred tax liability $ 37,572 $ 40,535
====================
</TABLE>
Certain reclassifications were made in the 1995 presentation of deferred tax
assets to be consistent with the way the actual 1995 income tax returns were
filed.
The valuation allowance against deferred tax assets relates primarily to capital
losses for which future realization is uncertain. To the extent the Company is
unable to fully utilize in the future some or all of the deferred tax assets
shown in the table above, the Company would record a corresponding amount as
additional income tax expense with an equal reduction in operating results and
stockholders' equity.
There is a federal tax net operating loss carryforward (NOL) of approximately
$60.8 million at December 31, 1996, which expires beginning in 2005. A Separate
Return Limitation Year (SRLY) net operating loss carryforward in the amount of
$5.1 million (related to the discontinued metallic waste recycling segment)
expires in 2005. A California net operating loss carryforward of approximately
$21.3 million starts expiring in 1997. The unused investment tax credit (ITC)
for tax return purposes at December 31, 1996 is $12.5 million, which expires
from 2000 to 2002.
The Company is subject to certain tax regulations which could severely limit the
carryforward of NOLs and ITCs. Pursuant to Internal Revenue Code Sections 382
and 383, if, within a three year period, certain defined changes in ownership
exceed 50% of the Company's outstanding shares, the future annual use of the
NOLs and tax credits may be significantly limited. Refer to Note 1 for a
discussion of restrictions on the transfer of common
================================================================================
34
<PAGE>
================================================================================
stock of the Company which were imposed through the June 5, 1996 Reorganization
and designed to decrease the risk of an ownership change for federal income tax
purposes.
In February 1996, the CFTB issued notices of net deficiencies to PSG for the
years 1987 through 1990. The net deficiencies total $5.9 million plus estimated
interest of $7.9 million through March 31, 1997. PSG is protesting the
adjustments proposed in these notices and believes that adequate provision has
been made in the Consolidated Financial Statements for possible assessments of
additional taxes and interest.
9. BUSINESS SEGMENTS
The Company (through its subsidiaries) operates in three principal business
segments -aircraft leasing, fuel sales and distribution, and oil and gas
production and development. Revenues from US Airways equaled 10%, 17% and 23% of
total revenues in the years 1996, 1995 and 1994, respectively. Operating
revenues; income (loss) from continuing operations before interest expense and
taxes; depreciation, depletion and amortization; identifiable assets at year-
end; and capital additions for each of the Company's principal business segments
for each of the three years ended December 31, 1996 are included under "Selected
Financial Data" in each business segment's section of this Annual Report and are
an integral part of these Consolidated Financial Statements. A reconciliation
of this Selected Financial Data for the principal business segments follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
REVENUES FROM CONTINUING OPERATIONS:
Principal business segments $272,239 $164,297 $122,962
Corporate and other 2,507 2,707 2,486
--------------------------------
Total $274,746 $167,004 $125,448
================================
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE AND TAXES:
Principal business segments $ 22,254 $ 21,264 $ 17,074
Corporate and other (1,488) (512) (7,625)
--------------------------------
Total $ 20,766 $ 20,752 $ 9,449
================================
DEPRECIATION, DEPLETION AND AMORTIZATION:
Principal business segments $ 16,318 $ 16,024 $ 16,398
Corporate and other 46 64 102
--------------------------------
Total $ 16,364 $ 16,088 $ 16,500
================================
IDENTIFIABLE ASSETS AT YEAR-END:
Principal business segments $273,425 $275,416 $317,987
Corporate and other 25,264 32,270 43,271
--------------------------------
Total $298,689 $307,686 $361,258
================================
CAPITAL ADDITIONS:
Principal business segments $ 4,192 $ 1,386 $ 483
Corporate and other 33 2
--------------------------------
Total $ 4,225 $ 1,386 $ 485
================================
</TABLE>
================================================================================
35
<PAGE>
================================================================================
10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the Consolidated
Statement of Financial Position, when it is practicable to estimate such value.
In cases where quoted market prices are not available, fair value is based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flow. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the financial
instrument. Statement 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company. The methods and assumptions discussed below were used by the
Company in estimating fair value disclosures for its financial instruments.
CASH AND CASH EQUIVALENTS - The carrying amounts approximate fair value
because of the short maturity of these items.
U.S. GOVERNMENT SECURITIES - The fair value for U.S. Government securities is
based on quoted market prices.
NOTES RECEIVABLE - The fair value for notes receivable is estimated using
discounted cash flow analyses, using interest rates which might be offered if
the notes were renegotiated currently.
CASH COLLATERAL ACCOUNT - The cash collateral account is invested in a fund
which holds U.S. Government securities. The market value of the fund is equal
to the cost.
DEBT INSTRUMENTS - The fair value of debt is estimated using discounted cash
flow analyses, based on management's best estimate of current market rates for
similar types of borrowing arrangements.
The estimated fair value of financial instruments at December 31, 1996 and 1995
is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,350 $ 7,350 $ 3,999 $ 3,999
U.S. Government securities 8,798 8,801 17,070 17,075
Notes receivable 2,565 2,582 4,250 4,284
Cash collateral account 5,471 5,471 5,627 5,627
----------------------------------------------
$ 24,184 $ 24,204 $ 30,946 $ 30,985
==============================================
Financial liabilities:
Debt instruments $105,785 $109,110 $122,609 $122,378
==============================================
</TABLE>
================================================================================
36
<PAGE>
================================================================================
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
1996 QUARTERS First Second Third Fourth
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 50,117 $ 71,616 $ 77,638 $75,375
Gross profit 6,405 7,839 6,327 6,561
Net income 871 1,567 1,048 6,124
Net income per share .14 .26 .17 1.01
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERS First Second Third Fourth
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 37,087 $ 41,724 $ 42,951 $45,242
Gross profit 6,705 5,058 7,016 6,803
Net income (loss) 909 (25) 1,241 907
Net income per share .15 - .20 .15
</TABLE>
Gross profit is income from continuing operations before interest expense,
general and administrative expenses, and taxes.
The provision for income taxes in the fourth quarter of 1996 was reduced by $5.6
million due to the reduction of income tax liabilities recorded in prior years,
but no longer required (see Note 8). Also In the fourth quarter of 1996, PSG
sold its one-third interest in six 737-200 aircraft for a pretax gain of $1.8
million.
12. OIL AND GAS OPERATIONS (UNAUDITED)
CHANGES IN ESTIMATED NET PROVED DEVELOPED AND UNDEVELOPED RESERVES BASED ON
INTERNAL RESERVE REPORTS (in thousands):
<TABLE>
<CAPTION>
Oil Gas
(Bbls)* (Mcf)*
-----------------
<S> <C> <C>
December 31, 1993 6,856 3,737
Revisions of previous estimates (1,369) (191)
Production (405) (520)
-----------------
December 31, 1994 5,082 3,026
Revisions of previous estimates (106) 486
Extensions, discoveries, and other additions 98
Purchases of reserves in place 149
Production (337) (552)
-----------------
December 31, 1995 4,886 2,960
Revisions of previous estimates (555) 237
Extensions, discoveries and other additions 371
Purchases of reserves in place 688 83
Sales of reserves in place (1)
Production (338) (469)
-----------------
December 31, 1996 5,051 2,811
=================
</TABLE>
================================================================================
37
<PAGE>
<TABLE>
<CAPTION>
Oil Gas
(Bbls) (Mcf)
-----------------
<S> <C> <C>
Net proved developed reserves at December 31, 1994 3,638 3,026
=================
Net proved developed reserves at December 31, 1995 3,237 2,960
=================
Net proved developed reserves at December 31, 1996 3,407 2,811
=================
</TABLE>
* Bbls = barrels; Mcf = one thousand cubic feet
CAPITALIZED COSTS AND COSTS INCURRED (in thousands) - The aggregate costs at
December 31, 1996, 1995 and 1994 relating to oil and gas producing activities
(all of which are in the continental United States) are presented below for
capitalized costs and costs incurred.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Capitalized costs:
Proved properties $ 38,810 $ 35,118 $ 34,806
Unproved properties net of allowance for
abandonments 15 24 3
--------------------------------
Total 38,825 35,142 34,809
Accumulated depreciation, depletion and
amortization (18,589) (17,665) (16,457)
--------------------------------
Net capitalized costs $ 20,236 $ 17,477 $ 18,352
================================
Costs incurred:
Property acquisition costs $ 1,805 $ 325
Exploration costs, including unsuccessful wells 6 49
Development costs 2,141 653 $ 336
---------------------------------
Total expenditures $ 3,952 $ 1,027 $ 336
=================================
</TABLE>
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (in thousands) - The
results of operations for oil and gas producing activities (excluding general
and administrative expenses and interest costs) for the years ended December 31,
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
<S> <C> <C> <C>
Oil and gas revenues $ 8,573 $ 6,848 $ 7,683
Production costs (4,050) (3,923) (4,096)
Exploration costs (6) (49)
Depreciation, depletion and amortization (2,010) (1,747) (1,990)
-----------------------------
Income before income tax expense 2,507 1,129 1,597
Income tax expense (1,027) (463) (666)
-----------------------------
Income from operations for producing activities $ 1,480 $ 666 $ 931
=============================
</TABLE>
================================================================================
38
<PAGE>
================================================================================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (in thousands) -
Pursuant to Statement of Financial Accounting Standards No. 69, all publicly
traded enterprises having significant oil and gas producing activities are
required to present a standardized measure of the discounted future net cash
flows relating to proved oil and gas reserve quantities, as well as the changes
in significant components of the standardized measure from prior periods. There
are numerous uncertainties inherent in estimating quantities of proved reserves
and in projecting the future rates of production and timing of development
expenditures. The future cash inflows determined from such reserve data
represent estimates only. Moreover, the present values should not be construed
as the current market values of the Company's oil and gas reserves or the costs
that would be incurred to obtain equivalent reserves. A market value
determination would include many additional factors including (i) anticipated
future increases or decreases in oil and gas prices and production and
development costs; (ii) an allowance for return on investment; (iii) regulatory
actions; (iv) the value of additional reserves, not considered proved at the
present time, which may be recovered as a result of further exploration and
development activities; and (v) other business risks.
The tables below present the required information relating to proved oil and gas
reserves as of December 31, 1996, 1995 and 1994. The future cash inflows are
calculated using the market price of oil and gas at the end of the year
presented.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Future cash inflows $139,650 $ 97,879 $ 90,908
Future production costs (59,125) (45,508) (45,710)
Future development and abandonment costs (7,667) (6,874) (6,264)
--------------------------------
Future net cash inflows before income taxes /(a)/ 72,858 45,497 38,934
Future income tax expenses (18,146) (10,064) (7,882)
--------------------------------
Future net cash inflows 54,712 35,433 31,052
Discount factor at 10% (24,139) (17,584) (14,806)
--------------------------------
Standardized measure of discounted future
net cash inflows $ 30,573 $ 17,849 $ 16,246
================================
</TABLE>
(a) The present value of future net cash inflows before income taxes
discounted at 10% was $38,276, $21,342 and $18,970 as of December 31,
1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Year-end market price used for
future cash inflows:
Crude oil - per barrel $24.25 $18.00 $16.00
Natural gas - per thousand cubic feet 3.27 1.90 1.50
</TABLE>
================================================================================
39
<PAGE>
================================================================================
The following are the principal sources of change in the standardized measure of
discounted future net cash inflows for the years ended December 31, 1996, 1995
and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
<S> <C> <C> <C>
Standardized measure at beginning of the year $17,849 $16,246 $12,481
Revenues less production costs for the year (4,404) (2,885) (3,554)
Net change in sales prices net of production costs 11,819 3,989 7,454
Extensions and discoveries 2,147 216
Changes in estimated future development costs (304) (239) 732
Costs incurred that reduced future development costs 1,976 132
Revisions of previous quantity estimates (3,572) (121) (4,888)
Accretion of discount 2,134 1,897 1,526
Net change in income tax expense (4,210) (769) 49
Purchase of reserves in place 5,115 615
Sale of reserves in place (3)
Changes in production rates (timing) and other 2,026 (1,232) 2,446
-----------------------------
Standardized measure at end of year $30,573 $17,849 $16,246
=============================
</TABLE>
================================================================================
40
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
================================================================================
THE BOARD OF DIRECTORS AND STOCKHOLDERS
PS GROUP HOLDINGS, INC.
We have audited the accompanying consolidated statements of financial position
of PS Group Holdings, Inc. as of December 31, 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 December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PS Group Holdings,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Diego, California
March 7, 1997
================================================================================
41
<PAGE>
PS GROUP HOLDINGS, INC.
DIRECTORS AND OFFICERS
================================================================================
<TABLE>
<CAPTION>
DIRECTORS OFFICERS OFFICERS AND MANAGEMENT
PS GROUP HOLDINGS, INC. PS GROUP HOLDINGS, INC. PS TRADING, INC.
AND PS GROUP, INC.
<S> <C> <C>
Charles E. Rickershauser, Jr. Charles E. Rickershauser, Jr. Douglas A. Jones
Chairman of the Board & Chairman of the Board & President
Chief Executive Officer Chief Executive Officer
Michael E. Kooken
J.P. Guerin* Lawrence A. Guske Vice President
Vice Chairman of the Board, Vice President - Finance &
Private Investor Chief Financial Officer L. Travis Sanders
General Manager - Aviation
William H. Borthwick Johanna Unger Marketing
Attorney-at-Law Vice President, Controller &
Secretary
Steven D. Broidy OFFICERS
Private Investor STATEX PETROLEUM, INC.
Robert M. Fomon B. Andrew Wilkinson
President, Robert M. Fomon President & Chief Operating
and Company (a private Officer
investment company)
Dhar Carman
Donald W. Killian, Jr.* Executive Vice President &
Retired Attorney-at-Law Chief Financial Officer
Gordon C. Luce*
Independent Financial
Advisor
Christopher H.B. Mills
Chief Executive Officer
North Atlantic Smaller
Companies Investment Trust
(a United Kingdom publicly-
traded investment company)
Joseph S. Pirinea
Certified Public Accountant
*Member of the Audit Committee
</TABLE>
================================================================================
42
<PAGE>
PS GROUP HOLDINGS, INC.
INVESTOR INFORMATION
================================================================================
COMMON STOCK TRANSFER AND
- - -------------------------
DIVIDEND DISBURSING AGENT AND REGISTRAR
- - ---------------------------------------
Questions regarding stockholder's accounts should be directed to:
ChaseMellon Shareholder Services, L.L.C.
PO Box 3315
South Hackensack, New Jersey 07606
800-356-2017
www.cmssonline.com
Common Stock listed on the New York Stock Exchange and the Pacific Exchange.
Symbol: PSG
CORPORATE OFFICES
- - -----------------
4370 La Jolla Village Drive, Suite 1050
San Diego, California 92122
619-642-2999
619-642-1955 (facsimile)
AUDITORS
- - --------
Ernst & Young LLP
501 West Broadway, Suite 1100
San Diego, California 92101
ANNUAL MEETING
- - --------------
May 30, 1997
9:00 a.m.
Sheraton Grande Hotel
333 South Figueroa Street
Los Angeles, California 90071
MARKET PRICES OF COMMON STOCK
- - ---------------------------------
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
1996:
First quarter 11 1/8 9 3/8
Second quarter 15 10 1/2
Third quarter 13 5/8 11 5/8
Fourth quarter 14 7/8 12 3/8
1995:
First quarter 11 1/8 8 1/2
Second quarter 12 9 5/8
Third quarter 11 1/8 9 1/2
Fourth quarter 12 9 3/4
</TABLE>
DIVIDENDS AND CASH DISTRIBUTIONS ON COMMON STOCK
- - ------------------------------------------------
Special cash distributions of $1.50 per share were declared and paid in 1996 and
in 1995. These distributions are not precedents for future distributions and are
treated by recipients as 1996 and 1997 distributions, respectively.
INVESTOR RELATIONS
- - ------------------
As of March 3, 1997, there were 1,440 holders of record of the Company's common
stock.
THE COMPANY WILL SUPPLY TO STOCKHOLDERS, UPON WRITTEN REQUEST TO THE CORPORATE
SECRETARY, AT THE CORPORATE OFFICES IN SAN DIEGO, CALIFORNIA, WITHOUT CHARGE, A
COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR 1996.
================================================================================
43
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 18, 1997
<TABLE>
<CAPTION>
Name of Corporation Jurisdiction of Incorporation
- - ------------------- -----------------------------
<S> <C>
PS Group, Inc. Delaware
PS Trading, Inc. California
PSG Services, Inc. Delaware
PSG Systems, Inc. Delaware
Statex Petroleum, Inc. California
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,350
<SECURITIES> 6,799
<RECEIVABLES> 26,932
<ALLOWANCES> 0
<INVENTORY> 13,073
<CURRENT-ASSETS> 70,071
<PP&E> 277,401
<DEPRECIATION> 149,199
<TOTAL-ASSETS> 298,689
<CURRENT-LIABILITIES> 48,103
<BONDS> 0
0
0
<COMMON> 6,068
<OTHER-SE> 117,523
<TOTAL-LIABILITY-AND-EQUITY> 298,689
<SALES> 236,320
<TOTAL-REVENUES> 274,746
<CGS> 231,250
<TOTAL-COSTS> 231,250
<OTHER-EXPENSES> 22,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,821
<INCOME-PRETAX> 6,945
<INCOME-TAX> (2,665)
<INCOME-CONTINUING> 9,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,610
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
