<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: JUNE 30, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-7141
PS GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0692068
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
4370 LA JOLLA VILLAGE DRIVE, SUITE 1050
SAN DIEGO, CALIFORNIA 92122
(Address of principal executive offices)
(Zip code)
(619) 642-2999
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 3, 1998: 6,068,313 shares of common stock, $1 par
value.
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<PAGE>
PS GROUP HOLDINGS, INC.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1996 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q for the second quarter of 1998 may be deemed forward-looking such as:
information relating to the future prospects of the aircraft lessees of PS
Group, Inc. (PSG), the aircraft leasing subsidiary of PS Group Holdings, Inc.
(the Company); the potential liability for environmental contamination at the
San Francisco International Airport (SFIA), the related cost of remediation and
pending and potential litigation, and the recoverability of any portion of this
cost from third parties; the availability of certain tax benefits, and the
amount of otherwise-taxable income against which such benefits may be offset;
and the volatility of the prices of crude oil and natural gas and the effect on
Statex Petroleum, Inc. (Statex), the oil and gas production and development
segment of the Company. 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 uncertainties inherent in estimating the cost of
environmental remediation and related pending and potential litigation at SFIA;
the efficacy of the transfer restrictions on the Company's common stock in
preserving the Company's substantial tax benefits, the Company's ability to
realize such benefits, and the possible effect of the availability of such
benefits if stockholders of the Company do not vote to extend such transfer
restrictions beyond their scheduled expiration in the year 2000; the impact of
the volatility of the prices of crude oil and natural gas on Statex; the impact
of economic conditions on each business segment; the impact of competition; the
impact of governmental legislation and regulation and possible future changes
therein; and other risks detailed in this Form 10-Q, the 1997 Annual Report to
Stockholders of the Company, and in other 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. The Company does not undertake to publicly update or revise its
forward-looking statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Included herein on pages F-1 to F-4.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Included herein on pages F-5 and F-6.
1
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the Company's Form 10-K for the year ended
December 31, 1997, the City and County of San Francisco (CCSF), on July 11,
1997, filed a complaint in the Superior Court, State of California, County of
San Francisco (the Court), against various present and former tenants who had
operated fuel storage and other facilities at SFIA seeking to recover costs
incurred in connection with the investigation and clean-up of contamination in
and around SFIA. The action was removed to the United States District Court for
the Northern District of California and is now captioned City and County of San
Francisco v. ARCO, et. al., U.S. District Court, N. D. Cal., Case No. C97-2965
CAL (the CCSF Action). For additional information with respect to this action
and two related cross actions, see Note 4 of the Notes to Consolidated Financial
Statements included in the Company's 1997 Annual Report to Stockholders (Exhibit
13 to the Company's Form 10-K for the year ending December 31, 1997).
Most of the parties in the CCSF Action have agreed to participate in a
mediation presided over by retired Judge Daniel Weinstein in San Francisco.
Judge Weinstein will be seeking to mediate and settle all of the claims by SFIA
against the various SFIA tenants, as well as contribution and indemnity claims
among the tenants. The mediation will commence on September 22, 1998, and
continue from time to time thereafter. Those parties not participating in the
mediation will be ordered by the Court to proceed with the litigation. The
Company is unable to determine the possible outcome of the mediation, including
whether or not the mediation will avoid the ultimate litigation of the claims in
the CCSF Action.
The Company is unable to determine whether any of the claims mentioned
above will ultimately have any material adverse consequences to it beyond the
environmental remediation charges the Company recorded in the year ended
December 31, 1997 described in Note 4 of the Notes to Consolidated Financial
Statements included in the Company's 1997 Annual Report to Stockholders (Exhibit
13 to the Company's Form 10-K for the year ending December 31, 1997).
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
2
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders of the Company was held on June 5, 1998.
The purpose of the meeting was to elect all directors of the Company to serve
until the 1999 annual meeting of stockholders and until their successors are
elected and qualified. The votes cast for directors were as follows:
<TABLE>
<CAPTION>
For Withheld
--------- --------
<S> <C> <C>
William H. Borthwick 5,257,503 10,232
Steven D. Broidy 5,259,903 7,832
Robert M. Fomon 5,226,896 40,839
J. P. Guerin 5,230,776 36,959
Donald E. Killian, Jr. 5,257,665 10,070
Gordon C. Luce 5,256,609 11,126
Christopher H. B. Mills 5,260,211 7,524
Joseph S. Pirinea 5,260,316 7,419
Charles E. Rickershauser, Jr. 5,228,176 39,559
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 3, 1998
PS GROUP HOLDINGS, INC.
-----------------------
(Registrant)
/s/ Lawrence A. Guske
-----------------------
LAWRENCE A. GUSKE
Vice President - Finance and
Chief Financial Officer and
Authorized Officer of the Registrant
3
<PAGE>
PS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
----------- --------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,857 $ 10,921
U.S. Government securities 19,668 5,815
Accounts and notes receivable 5,259 6,090
Current portion of aircraft leases 8,366 8,630
Other current assets 1,349 1,631
Net current assets of discontinued operation 1,726 7,293
-------- --------
Total current assets 40,225 40,380
Property and equipment, net 23,636 23,772
Aircraft leased under operating leases, net 67,490 72,444
Investment in aircraft financing leases 77,606 82,067
Other assets 5,638 6,359
-------- --------
$214,595 $225,022
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 2,023 $ 2,057
Accrued interest 3,155 4,404
Environmental remediation liability 1,193 1,384
Current portion of long-term obligations 15,262 18,211
-------- --------
Total current liabilities 21,633 26,056
Long-term obligations 47,788 55,511
Deferred income taxes 36,859 36,450
Environmental remediation liability 3,620 3,716
Other liabilities 6,680 6,581
Stockholders' equity:
Common stock 6,068 6,068
Additional paid-in capital 90,640 90,640
Retained earnings 1,307
-------- --------
Total stockholders' equity 98,015 96,708
-------- --------
$214,595 $225,022
======== ========
</TABLE>
See accompanying notes.
F-1
<PAGE>
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- -----------------
1998 1997 * 1998 1997 *
------ ------- ------- -------
Continuing operations:
Revenues:
<S> <C> <C> <C> <C>
Aircraft leasing $ 6,060 $ 7,902 $ 12,288 $ 15,843
Oil and gas production 1,593 2,135 3,380 4,651
Fuel storage and distribution 190 166 382 316
Interest and other income 430 372 731 767
------- -------- -------- --------
8,273 10,575 16,781 21,577
------- -------- -------- --------
Costs and expenses:
Cost of sales 1,229 1,350 2,594 2,650
Depreciation, depletion, and amortization 3,177 5,547 6,341 9,392
Environmental remediation expenses - 3,729 - 3,729
General and administrative expenses 701 832 1,588 1,852
Interest expense 1,800 2,800 3,995 5,830
------- -------- -------- --------
6,907 14,258 14,518 23,453
------- -------- -------- --------
Income (loss) from continuing operations
before taxes 1,366 (3,683) 2,263 (1,876)
Provision (credit) for taxes 573 (1,572) 956 (787)
------- -------- -------- --------
Income (loss) from continuing operations 793 (2,111) 1,307 (1,089)
Loss from discontinued operation, net of tax - (1,658) - (1,672)
------- -------- -------- --------
Net income (loss) $ 793 $ (3,769) $ 1,307 $ (2,761)
======= ======== ======= ========
Basic and diluted earnings (loss) per share:
Continuing operations $ .13 $ (.35) $ .22 $ (.18)
Discontinued operation - (.27) - (.27)
------- -------- -------- --------
Net income (loss) per share $ .13 $ (.62) $ .22 $ (.45)
======= ======== ======== ========
Shares used in determining basic and diluted
earnings (loss) per share 6,068 6,068 6,068 6,068
======= ======== ======== ========
</TABLE>
* Restated as described in Note 1.
See accompanying notes.
F-2
<PAGE>
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997 *
-------- --------
<S> <C> <C>
Cash flows from continuing operations:
Cash provided from operating activities $ 7,651 $ 10,436
Cash flows from investing activities:
Purchase of U.S. Government securities (13,955)
Proceeds from maturities of U.S. Government securities 454 993
Capital additions (primarily oil and gas related) (1,314) (1,920)
Financing leases and other 5,181 6,287
-------- --------
Net cash provided from (used in) investing activities (9,634) 5,360
-------- --------
Cash flows from financing activities:
Additions to long-term obligations 300
Reductions in long-term obligations (10,672) (13,626)
-------- --------
Net cash used in financing activities (10,672) (13,326)
-------- --------
Cash provided from (used in) discontinued operation 5,591 (1,825)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,064) 645
Cash and cash equivalents at beginning of period 10,921 7,290
-------- --------
Cash and cash equivalents at end of period $ 3,857 $ 7,935
======== ========
</TABLE>
* Restated as described in Note 1.
See accompanying notes.
F-3
<PAGE>
PS GROUP HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) In the opinion of management, the accompanying Unaudited Condensed
Consolidated Financial Statements include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair statement of the
consolidated financial position at June 30, 1998, and the results of
operations for the three and six months ended June 30, 1998 and 1997, and
the cash flows for the six months ended June 30, 1998 and 1997. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
could differ from those estimates. During the fourth quarter of 1997 and the
first quarter of 1998, the assets of the wholesale and aviation fuel sales
divisions, respectively, of PS Trading, Inc. (PST) were sold. Accordingly,
fuel sales is shown as a discontinued operation in all periods presented and
amounts for 1997 have been restated. Certain reclassifications have been
made to the 1997 financial statements to make them comparable to the 1998
presentation. These Unaudited Condensed Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto contained in the Company's 1997 Annual Report to Stockholders
(Exhibit 13 to the Company's Form 10-K for the year ending December 31,
1997).
(b) Restrictions on the transfer of common shares - There are certain
restrictions imposed 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" (as defined in 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. These restrictions have been imposed in order to help
preserve the Company'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 transfer
restrictions, by their terms, are scheduled to expire immediately following
the conclusion of the Company's annual meeting of stockholders for the year
2000, unless the stockholders pass a resolution extending such expiration
date.
F-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
At June 30, 1998, the Company's principal sources of liquidity were cash,
cash equivalents, and U.S. Government securities totaling $23.5 million, a $6.8
million increase from December 31, 1997. The major changes in cash and cash
equivalents are reported in the Unaudited Condensed Consolidated Statements of
Cash Flows. Working capital increased by $4.3 million since December 31, 1997.
The Company's capitalization consisted of 39% long and short-term obligations
and 61% equity at June 30, 1998 compared to 43%/57% at December 31, 1997.
At the end of the second quarter of 1998, $1.9 million was outstanding under
a bank credit agreement, consisting entirely of letters of credit, all of which
were fully cash collateralized. No additional letters of credit or borrowings
are permitted under the bank credit agreement.
Statex has a separate bank credit agreement collateralized by its major oil
properties. As of June 30, 1998, $5 million was borrowed under this credit
agreement out of a total availability of $7.5 million. The availability of
borrowings depends upon the bank's valuation of the oil and gas reserves at the
date such borrowings are requested. This source of funding is intended for the
acquisition and development of oil and gas properties.
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 15
aircraft, of which 12 are leased to US Airways, Inc. (US Airways). PSG's assets
include $99.4 million for which realization is substantially dependent upon the
future performance of US Airways under those aircraft leases with PSG. For a
complete discussion of US Airways' relationships to PSG's financial condition,
refer to the section entitled "Aircraft Leasing" in the Company's 1997 Annual
Report to Stockholders (Exhibit 13 to the Company's Form 10-K for the year
ending December 31, 1997). PSG refers readers to public information regarding
US Airways for further details relating to its financial condition.
The Company believes that its cash, cash equivalents, U.S. Government
securities, projected cash flow, and the availability under Statex's bank credit
agreement are adequate to meet the operating and planned capital needs of the
Company in both the short and long-term.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30,
1998 AND 1997
REVENUES
Aircraft leasing revenues were 23% lower in the second quarter and 22% lower
in the first half of 1998 compared to the same periods in 1997 principally due
to fewer aircraft under lease. Four BAe 146 aircraft were sold in the fourth
quarter of 1997 reducing the total number of aircraft under lease from 19 to 15.
F-5
<PAGE>
Oil and gas production revenues for the second quarter were 25% lower and for
the first half of 1998 were 27% lower compared to the 1997 periods principally
due to sharply lower oil and reduced gas prices.
COSTS AND EXPENSES
The net decrease in depreciation expense in the second quarter and first
half of 1998 relates primarily to (i) reduced depreciation expense which
resulted from the sale of the four BAe 146 aircraft discussed above and (ii)
additional depreciation expense of $1.7 million recorded in the second quarter
of 1997 related to five of the ten BAe 146 aircraft which were then leased to US
Airways. With respect to those five aircraft, the specified lease termination
values were below the net book values of the aircraft. This additional
depreciation was recorded to reflect notification received from US Airways that
it might exercise its lease termination rights with respect to four of the ten
BAe 146 aircraft (including three of these five aircraft on which additional
depreciation was being recorded) at specified lease termination values, and, in
fact, US Airways did exercise these rights in the fourth quarter of 1997. In
light of this notification and the improved market for possible sales by US
Airways, PSG adjusted its depreciation to reflect the lease termination values
on these five aircraft.
The $3.7 million of environmental remediation expenses in the second quarter
and first half of 1997 relate to estimated costs for the investigation and
remediation of potential soil and groundwater pollution at SFO where PST, as the
operator of various fuel storage and distribution facilities, has been named as
a potentially responsible party. Refer to Item 1. Legal Proceedings for
additional information.
General and administrative expenses were lower in the second quarter and
first half of 1998 compared to 1997 primarily due to lower professional fees.
Interest expense was lower in the second quarter and first half of 1998
compared to the same periods in 1997 primarily due to lower levels of
outstanding debt.
INCOME TAXES
Taxes in both 1998 and 1997 differ from the corporate federal tax rate
primarily because of the effect of state taxes.
SEGMENT RESULTS
PSG recorded higher net income in the second quarter and first half of 1998
compared to 1997's results which were depressed by the additional depreciation
expense described above.
Statex recorded a net loss in the second quarter and first half of 1998 due
to sharply lower oil prices in 1998 versus 1997. There is significant
volatility in oil and gas prices and such volatility is expected to continue.
PST's fuel storage and distribution operation recorded a small profit in 1998
versus a large loss in 1997 which was related to the environmental remediation
expenses described above.
F-6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,857
<SECURITIES> 19,668
<RECEIVABLES> 13,625
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,225
<PP&E> 222,992
<DEPRECIATION> (131,866)
<TOTAL-ASSETS> 214,595
<CURRENT-LIABILITIES> 21,633
<BONDS> 0
0
0
<COMMON> 6,068
<OTHER-SE> 91,154
<TOTAL-LIABILITY-AND-EQUITY> 214,595
<SALES> 3,380
<TOTAL-REVENUES> 16,781
<CGS> 2,594
<TOTAL-COSTS> 2,594
<OTHER-EXPENSES> 7,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,995
<INCOME-PRETAX> 2,263
<INCOME-TAX> 956
<INCOME-CONTINUING> 1,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,307
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
