<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, 1997 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.
$70,295,334 as of March 19, 1998
*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 19, 1998, are not affiliates of the
Company.
The number of shares of common stock outstanding as of March 19, 1998 was
6,068,313.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C>
Portions of Annual Report to Stockholders for the Year ended December 31, 1997................... PART I and PART II
Portions of Definitive Proxy Statement for the 1998 Annual Meeting of Stockholders............... PART III
=====================================================================================================================
</TABLE>
<PAGE>
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
1997 Annual Report on Form 10-K 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 possible consequences of any unscheduled return of aircraft
under lease; the possibility of 1998 sales of six BAe 146 aircraft owned by PSG
or the potential future phase-out of six MD-80 aircraft owned by PSG from the
fleet of the lessee and the impact of such sales or phase-out on PSG's financial
condition, results of operations, and net operating loss carryforward; 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 possibility that future claims may be made regarding
potential soil and groundwater pollution at the Los Angeles International
Airport, the Oakland International Airport, or the Sacramento International
Airport where PSG or PS Trading, Inc. (PST) own fuel storage facilities and/or
pipelines; the ultimate amount of net proceeds to be received from the sale of
the assets of the Aviation Division of PST and the final gain or loss, if any,
on the sale and the shut-down of this division; the outcome of the proposed
assessment received from the California Franchise Tax Board (CFTB) for state
income tax deficiencies for the years 1987 through 1990 and the time period for
the final resolution of such assessment; the tax treatment of the Company's
special distributions to stockholders in 1995, 1996, and 1997; the availability
of certain tax benefits, and the amount of otherwise-taxable income against
which such benefits may be offset; the amount of 1998 capital additions; and the
quantities of oil and gas reserves owned by Statex Petroleum, Inc. (Statex), the
oil and gas production and development segment of the Company, and the related
future net cash inflows from oil and gas producing activities. 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 effect of any 1998 sales of
BAe 146 aircraft or the potential future phase-out of six MD-80 aircraft from
the fleet of the lessee on the Company's financial condition, results of
operations, and net operating loss carryforward; the uncertainties inherent in
estimating the cost of environmental remediation and related pending and
potential litigation at SFIA; the uncertainties arising from the potentiality
for future claims relating to pollution at three other airports; uncertainties
in estimating the net proceeds and final gain or loss, if any, from the sale of
the assets of PST's Aviation Division; the possibility that the ultimate
settlement with CFTB will involve litigation or will be for an amount in excess
of that reserved for by the Company; the possibility that the ultimate tax
treatment of the special distributions to stockholders would be different than
that determined by the Company; 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 on 1998 cash flow and borrowings to finance capital additions
if capital additions vary from the current estimate; the impact of the actual
quantities of oil and gas reserves and the related 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 1997 Annual Report on Form 10-K 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.
-1-
<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.), oil
and gas production and development (Statex Petroleum, Inc.), and fuel storage
and distribution (PS Trading, Inc.).
In October 1997, PST completed the sale of the assets of its wholesale
fuel sales division located in Sacramento, California. This division was
primarily engaged in the sale of diesel fuel and gasoline. In February 1998,
PST sold the assets of its aviation fuel sales division located in Dallas,
Texas. The sale of PST's fuel sales divisions has resulted in the discontinuance
of the fuel sales business segment.
For information regarding certain 1997 sales of aircraft previously owned
by PSG, reference is made to the disclosure under the caption "Aircraft Leasing"
on page 6 of the Company's 1997 Annual Report to Stockholders, incorporated by
reference herein (Exhibit 13).
For general information with respect to the Company's businesses, reference
is made to pages 6 to 14 of the Company's Annual Report to Stockholders,
incorporated by reference herein (Exhibit 13).
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). 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" (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. 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.
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
-2-
<PAGE>
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 6 through 14 of the Company's 1997 Annual Report to
Stockholders, incorporated by reference herein (Exhibit 13). This incorporated
information includes financial information about the Company's business
segments. Additional disclosure is made below in this Form 10-K under
"CERTAIN ADDITIONAL INFORMATION."
CORPORATE EMPLOYEES
As of December 31, 1997, the Company had no employees. The corporate staff
of PSG consisted of 6 full-time employees (plus two part-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.
CERTAIN ADDITIONAL INFORMATION
The following information supplements the information incorporated by
reference herein from pages 11 to 14 of the Company's 1997 Annual Report to
Stockholders, incorporated by reference herein (Exhibit 13).
STATEX PETROLEUM, INC. (STATEX) - OIL AND GAS PRODUCTION AND DEVELOPMENT
ACREAGE. The following table sets forth, by state, Statex well ownership
and producing acreage as of December 31, 1997:
<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 23 3
New Mexico - 1 - 0.07 120 8
North Dakota 1 - 1.00 - 304 304
Oklahoma 1 17 0.02 6.16 6,154 1,931
Texas 209 20 157.95 2.86 19,275 9,784
Wyoming 9 - 7.02 - 1,506 1,175
-----------------------------------------------------
Total 220 40 165.99 9.13 27,382 13,205
</TABLE>
The following table sets forth, by states, undeveloped acreage ownership as of
December 31, 1997:
<TABLE>
<CAPTION>
Acres
---------------
Gross Net
------- ------
<S> <C> <C>
Oklahoma 1,708 214
Texas 4,298 2,378
------- -----
Total 6,006 2,592
</TABLE>
-3-
<PAGE>
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 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.
PS TRADING, INC. (PST) -- FUEL STORAGE AND DISTRIBUTION
RISKS. PST's operations are subject to all risks inherent in the business
of jet fuel storage and distribution including fuel contamination, 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 limited insurance coverage
but may not be fully insured against all such risks. All of PST's facilities
are located and operated on airports under provisions of leases or operating
permits. Such leases and permits have provisions to terminate operations and in
some cases remove PST's facilities if the airport constructs new facilities or
decides to modify the fueling systems.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL ISSUES. PST's operations are
affected from time to time in varying degrees by political developments and
federal and state laws and regulations. In particular, fuel storage and
distribution operations are affected by tax and other laws relating to the
petroleum industry, changes in such laws and constantly changing administrative
regulations. In addition, fuel storage and distribution 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 PST conducts activities, there are statutory provisions
regulating fuel storage and distribution. These provisions allow administrative
agencies to promulgate rules in connection with the operation
-4-
<PAGE>
of fuel storage and distribution facilities including effective capacity,
configuration, and testing and safety requirements as well as various
environmental issues.
Since PSG or PST own fuel storage facilities or pipelines at San Francisco
International Airport (SFIA), Los Angeles International Airport, Oakland
International Airport, and Sacramento International Airport, it is possible that
future claims may be made against PSG or PST regarding potential soil and
groundwater pollution. See "ITEM 3. LEGAL PROCEEDINGS" as to environmental
claims at SFIA. 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.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages, and certain additional
information concerning the executive officers of the Company.
Age on
March 1, Positions with the Company
Name 1998 and Principal Occupation
- ----------------------------- -------- ---------------------------------------
Lawrence A. Guske 53 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. 69 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.
Johanna Unger 49 Vice President, Secretary, and
Controller of the Company since January
15, 1996, Vice President and Controller
of PSG since 1988 and Secretary of PSG
since 1994.
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.
ITEM 2. PROPERTIES
EXECUTIVE OFFICES AND OTHER GROUND FACILITIES
The Company's executive offices and principal administrative offices
consist of 3,000 square feet located at 4370 La Jolla Village Drive, Suite 1050,
San Diego, California under a
-5-
<PAGE>
five-year lease entered into by PSG expiring in June 2001. Base rent for the
first half of 1998 totals $70,000 and base rent for the remaining 38 months
totals $211,000.
PST owns an 8,000 square foot building located at 17742 Preston Road,
Dallas, Texas which is used as its administrative offices. Since the fuel sales
divisions of PST have been sold, the Company intends to sell this building
during 1998.
Statex leases approximately 5,000 square feet for executive offices at 1801
Royal Lane, Suite 110, Dallas, Texas under a lease that expires on September 1,
1998. Rent for 1997 was $35,000 and rent for the first eight months of 1998
will be $24,000. There is a two-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 1, 1998 are listed in the following
table.
Type of Aircraft Number Owned
---------------- ------------
British Aerospace BAe 146-200 6 (a)
McDonnell Douglas MD-80 7 (b)
Boeing 737-300 2 (c)
(a) These aircraft are all leased to US Airways, Inc.(US Airways) for terms
expiring in 2000.
(b) Six MD-80s are leased to US Airways for terms expiring from 1999 to
2004 and one is leased to Continental Airlines, Inc. (Continental) 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 and one aircraft is leased to America West Airlines
for a term expiring in 2006.
ITEM 3. LEGAL PROCEEDINGS
As previously reported in the Company's Form 10-Q's for the quarters ended
June 30 and September 30, 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, 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,
incorporated by reference herein (Exhibit 13).
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 PST recorded in the year ended December 31,
1997 described in Note 4 of the Notes to
-6-
<PAGE>
Consolidated Financial Statements included in the Company's 1997 Annual Report
to Stockholders, incorporated by reference herein (Exhibit 13).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
PART II
The information required by Items 5 through 8 of this Part II is hereby
incorporated by reference from page 1 and the pages 6 through 39 of the
Company's 1997 Annual Report to Stockholders, incorporated by reference herein
(Exhibit 13).
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 required by Items 10 through 13 of this Part III, is hereby
incorporated by reference from the Company's definitive Proxy Statement which
will be filed with the Securities and Exchange Commission on or before April 30,
1998. Certain information concerning the Executive Officers of the Company is
included in Part I, supra, under "EXECUTIVE OFFICERS OF THE COMPANY."
ITEM 10. Directors and Executive Officers of the Registrant.
ITEM 11. Executive Compensation.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
ITEM 13. Certain Relationships and Related Transactions.
-7-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits
1. Financial Statements: See Index to Financial Statements, Page F-1.
2. Financial Statements Schedules Required Under Item 8: None.
3. Exhibits: See Index to Exhibits following Page F-2.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: March 25, 1998.
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>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C. E. Rickershauser, Jr. Chairman of the Board, March 25, 1998
- ----------------------------- Chief Executive
(C. E. Rickershauser, Jr.) Officer
/s/ J. P. Guerin Vice Chairman of the March 25, 1998
- ----------------------------- Board
(J. P. Guerin)
/s/ Lawrence A. Guske Vice President - March 25, 1998
- ----------------------------- Finance and Chief
(Lawrence A. Guske) Financial Officer
(principal financial
officer)
/s/ Johanna Unger Vice President, March 25, 1998
- ----------------------------- Controller, and
(Johanna Unger) Secretary (principal
accounting officer)
Director
- -----------------------------
(Robert M. Fomon)
/s/ William H. Borthwick Director March 25, 1998
- -----------------------------
(William H. Borthwick)
/s/ Steven D. Broidy Director March 25, 1998
- -----------------------------
(Steven D. Broidy)
/s/ Donald W. Killian, Jr. Director March 25, 1998
- -----------------------------
(Donald W. Killian, Jr.)
/s/ Gordon C. Luce Director March 25, 1998
- -----------------------------
(Gordon C. Luce)
/s/ Christopher H.B. Mills Director March 25, 1998
- -----------------------------
(Christopher H.B. Mills)
/s/ Joseph S. Pirinea Director March 25, 1998
- -----------------------------
(Joseph S. Pirinea)
-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 37
Consolidated statements of financial position at
December 31, 1997 and 1996 18
Consolidated statements of operations for each of
the three years in the period ended
December 31, 1997 19
Consolidated statements of cash flows for each of
the three years in the period ended
December 31, 1997 20
Consolidated statements of stockholders' equity for
each of the three years in the period ended
December 31, 1997 21
Notes to consolidated financial statements 22 - 32
Supplementary information:
Quarterly financial information (unaudited) 33
Oil and gas operations (unaudited) 34 - 36
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, 1997 and 1996 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, 1997 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 February 13, 1998, included in
the 1997 Annual Report to Stockholders of PS Group Holdings, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
March 25, 1998
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 May 30, 1997. (Incorporated by reference to Exhibit 99.1 to
the Company's Form 8-K filed on May 30, 1997.)
(3)(ii) Bylaws - Restated Bylaws as amended effective May 30, 1997.
(Incorporated by reference to Exhibit 99.4 to the Company's Form 8-K
filed on May 30, 1997.)
(10) Material Contracts:
(a) 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.)
(b) 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.)
(c) Split Dollar Insurance Agreement dated as of January 1, 1986
between PS Group, Inc. (PSG) and Lawrence A. Guske. This Agreement
is substantially identical in all material respects to the Split
Dollar Insurance Agreement between PSG and Johanna Unger.
(d) Employment Agreement dated January 15, 1988 between PSG and
Lawrence A. Guske. This Agreement is substantially identical in
all material respects to the Employment Agreement between PSG and
Johanna Unger. (Incorporated by reference to Exhibit 10(f) to the
Company's 1996 Annual Report on Form 10-K.)
(e) Amendment dated April 1, 1989 to Employment Agreement between PSG
and Lawrence A. Guske. This Amendment is substantially identical
in all material respects to Amendment to Employment Agreement
between PSG and Johanna Unger. (Incorporated by reference to
Exhibit 10(g) to the Company's 1996 Annual Report on Form 10-K.)
(f) 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(b) and the
Reorganization. This Letter is substantially identical in all
material respects to the Letter between Charles E. Rickershauser,
Jr. and Johanna Unger. (Incorporated by reference to Exhibit 10(h)
to the Company's 1996 Annual Report on Form 10-K.)
(g) Split Dollar Life Insurance Agreement dated as of December 1, 1991
between PSG and Janet Rickershauser (daughter of Charles E.
Rickershauser, Jr.).
(h) Amended and Restated Executive Retirement Agreement between PSG
and Charles E. Rickershauser, Jr. dated as of March 23, 1998.
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. (Incorporated by reference to Exhibit 10(i) to the
Company's 1996 Annual Report on Form 10-K.)
(12) Statement of Computation of Ratios.
(13) Annual report to stockholders - 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), and (10)(h).
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 PSG DOCUMENTS (SAME
COMMISSION FILE NUMBER AS PS GROUP HOLDINGS, INC.).
Index-2
<PAGE>
EXHIBIT 10(C)
PS GROUP, INC.
SPLIT DOLLAR INSURANCE AGREEMENT
(Officer)
THIS AGREEMENT made and entered into as of the 1st day of January, 1986, by
and between PS Group, Inc., a Delaware corporation and participating
subsidiaries (the Employer), and LAWRENCE A. GUSKE (the Employee) with reference
to Policy No. 121,250,550 issued by Pacific Mutual Life Insurance Company on the
life of the Employee. This Agreement supersedes and replaces any Split Dollar
Insurance Agreement previously entered into between the Employer and Employee.
WHEREAS, Employee is a valued employee of Employer, and Employer wishes to
retain him in its employ; and
WHEREAS, Employer, as an inducement to such continued employment, wishes to
assist Employee with his personal life insurance program;
NOW, THEREFORE, the Employer and Employee agree as follows:
1. DEFINITIONS.
-----------
A. Disability. "Disability" shall mean the Employee's total and
----------
permanent disability. The determination of whether or not an Employee is
totally and permanently disabled will be made by reference to standards of
eligibility contained in the Employer's Long Term Disability Plan, the rules and
regulations of the Federal Social Security Administration, and such other
relevant standards as the Employer may apply in good faith. The Employer may
require the Employee to submit to an examination by a competent physician or
medical clinic selected by the Employer. On the basis of such medical evidence,
the determination of the Employer as to whether or not a condition of total and
permanent disability exists shall be conclusive.
1
<PAGE>
B. Early Retirement. "Early Retirement" shall mean any termination
----------------
of employment other than on account of death after the Employee attains age 55
and completes ten (10) years of service as an officer and/or staff vice
president with the Employer, and before the Employee attains age 60.
C. Gross Income. "Gross Income" shall be determined as of January 1
------------
of each year and shall consist of the sum of (a) the Employee's salary at the
annual rate in effect on that date and (b) any cash bonuses payable to the
Employee by the Employer during the 12-month period immediately preceding such
date. "Gross Income" shall not include any income taxable to the Employee by
reason of the benefits provided under the Agreement.
D. Insurer. "Insurer" shall mean Pacific Mutual Life Insurance
-------
Company and any other life insurance company that may issue a Policy under this
Agreement.
E. Normal Retirement. "Normal Retirement" shall mean any
-----------------
termination of employment other than on account of death after the Employee
attains age 60.
F. Policy. "Policy" shall mean all of the life insurance policies
------
on the Employee's life purchased by the Employer pursuant to this Agreement,
including any paid-up additions acquired with dividends from such policies.
G. Termination of Employment. "Termination of Employment" shall
-------------------------
mean the Employee's ceasing to be employed by the Employer for any reason
whatsoever, voluntary or involuntary, other than Normal or Early Retirement,
Disability or death.
2. SURVIVOR BENEFITS.
-----------------
A. Amount of Survivor Benefit During Employment. The survivor
--------------------------------------------
benefit provided under this Agreement on the life of the Employee while he is
employed by the Employer shall be the greater of (i) the Employee's Gross Income
multiplied by 4 (rounded up to the next thousand dollars) less $50,000 or (ii)
$338,000. The survivor benefit on the life of the Employee shall be paid as a
lump sum benefit. The Employer shall use its best efforts to provide the
survivor benefit in the form of insurance on the life of the Employee, but shall
pay any amount by which the
2
<PAGE>
survivor benefit hereunder exceeds the insurance proceeds on the life of the
Employee in the form of a taxable salary continuation death benefit. Any amount
which is paid as a taxable salary continuation death benefit shall be grossed up
to provide an equivalent after-tax payment based on the maximum income tax
bracket in effect for individuals at the date of death. The amount of coverage
provided hereunder shall be adjusted as of January 1 of each year based on any
increases in the Employee's Gross Income.
B. Amount of Survivor Benefit After Retirement. The survivor
-------------------------------------------
benefit provided under this Agreement on the life of the Employee if he retires
pursuant to Normal Retirement shall be equal to the Employee's annual Gross
Income at the time of his Normal Retirement (rounded up to the next $1,000). If
the Employee retires pursuant to Early Retirement, the survivor benefit provided
under this Agreement on the life of the Employee shall be equal to the
Employee's annual Gross Income at the time of his Early Retirement (rounded up
to the next $1,000), reduced by 10% for each year or part thereof between the
Employee's age at the time of his Early Retirement and age 60. Upon his
retirement the Employee may elect to have his survivor benefit paid upon his
death in either the form of a lump sum benefit or as salary continuation
payments over a period of five years. The salary continuation payments shall be
actuarially equivalent in the aggregate to the lump sum benefit which would
otherwise be payable, except that the salary continuation payments shall be
grossed up to provide actuarially equivalent after-tax payments based on the
maximum income tax bracket in effect for individuals at the date of death.
C. Amount of Survivor Benefit During Disability. The survivor
--------------------------------------------
benefit provided under this Agreement on the life of the Employee while he is
suffering from a Disability and before he attains age 60 shall be a percent of
the survivor benefit provided under Section 2(A) above, based on the Employee's
Gross Income at the time of his Disability, determined as follows:
(i) During the first thirty-six (36) months of Disability,
including the first six (6) months required to establish a condition of
Disability and the next thirty (30) months of such disability, one hundred
percent (100%) of the amount provided under Section 2(A);
(ii) During the remaining months of Disability, if any, until
the total months of Disability are equal to the total months of employment
with the Employer, sixty percent (60%) of the amount provided under Section
2(A);
3
<PAGE>
(iii) During the remaining months of Disability, if any, until
the Employee attains age 60, forty percent (40%) of the amount provided
under Section 2(A); and
(iv) After the Employee attains age 60, the amount provided
under Section 2(B).
D. No Insurance After Termination of Employment. No insurance will
--------------------------------------------
be provided under this Agreement on the life of the Employee following his
Termination of Employment if the Employee terminates employment for any reason
other than Normal or Early Retirement, Disability or death.
3. OWNERSHIP OF THE POLICY. The Employer shall acquire one or more
-----------------------
permanent insurance policies on the life of the Employee. The Employer will be
the owner and hold all incidents of ownership in the insurance policies,
including the rights to borrow from any policies and to receive dividends, if
paid. The entire interest in the cash value with respect to all insurance
policies shall belong to the Employer. The Employee may specify in writing to
the Employer the beneficiary or beneficiaries of any death benefits not in
excess of the amounts set forth in Section 2 above. Upon receipt of a written
request from the Employee, the Employer will immediately take such action as
shall be necessary to implement such beneficiary appointment. The death
benefits under the insurance policies on the life of the Employee which are not
payable to the Employee's beneficiaries shall be payable to the Employer.
4. PAYMENT OF PREMIUMS. All premiums due on the insurance policies shall
-------------------
be paid by the Employer. However, the Employee agrees to reimburse the Employer
each year during employment in the amount which would otherwise be required to
be included in the Employee's income for Federal income tax purposes by reason
of the "economic benefit" of his insurance coverage provided by the Employer
under this Agreement; provided, however, that the Employer, in its sole
discretion, may decline to accept any such reimbursement and require the
inclusion of such "economic benefit" in the Employee's income. In its
discretion the Employer may deduct the Employee's payments for this coverage
from the Employee's salary or bonus.
5. TRANSFER OF INTEREST. In the event the Employee shall transfer all of
--------------------
his interest in the Policy, then all of the Employee's interest in the Policy
and in this Agreement shall
4
<PAGE>
be vested in the transferee, who shall be substituted as a party hereunder, and
the Employee shall have no further interest in the Policy or in this Agreement.
6. WITHHOLDING. The Employee and any beneficiary shall make appropriate
-----------
arrangements with the Employer for the satisfaction of any Federal, state or
local income tax withholding requirements and Social Security or other employee
tax requirements applicable to the provision of benefits under this Agreement.
If no other arrangements are made, the Employer may provide, at its discretion,
for such withholding and tax payments as may be required.
7. BENEFICIARY DESIGNATION. The Employee shall have the right, at any
-----------------------
time, to designate any person or persons as the beneficiary to whom payment
under Section 2 of this Agreement shall be made in the event of the Employee's
death. Each beneficiary designation shall become effective only when filed in
writing with the Employer during the Employee's lifetime on a form prescribed by
the Employer. The filing of a new beneficiary designation form will cancel any
inconsistent beneficiary designation previously filed.
If the Employee fails to designate a beneficiary as provided above, or
if all designated beneficiaries predecease the Employee or die prior to complete
distribution of the Employee's death benefits, the Employee's death benefits
shall be paid to the Employee's then surviving spouse, or, if none, to the
Employee's estate, until directed otherwise by the court that has jurisdiction
over the assets belonging to the Employee's probate estate.
8. OBLIGATIONS OF THE INSURER. The Insurer shall be bound only by the
--------------------------
provisions and endorsements on the Policy, and any payments made or actions
taken by it in accordance therewith shall fully discharge it from all claims,
suits and demands of all persons whatsoever. Except as specifically provided by
endorsement on the Policy, it shall in no way be bound by the provisions of this
Agreement.
9. EMPLOYEE'S RIGHTS. Neither the establishment of this Agreement nor
-----------------
the payment of any benefits shall be construed as giving to the Employee, his
transferee or beneficiary, any legal or equitable right against the Employer or
any officer or employee thereof, unless such right is specifically provided for
in this Agreement. Furthermore, nothing in this Agreement shall be construed as
giving the Employee the right to be retained in the service or employ of the
Employer.
5
<PAGE>
10. RELEASE. Any payment to or for the benefit of the Employee or his
-------
beneficiaries in accordance with the provisions hereof shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Employer.
11. MISCELLANEOUS PROVISIONS.
------------------------
A. Notices. Notices required by this Agreement to be given by
-------
either party to the other shall be in writing and shall be considered to have
been duly given or served if personally delivered, or sent by first class,
certified or registered mail, return receipt requested, postage prepaid, if to
the Employer, to the Employer's then-principal office which, as of the date
hereof, is 3225 North Harbor Drive, San Diego, California 92101, and if to the
Employee, to the Employee's last-known address as shown in the records of the
Employer.
B. Governing Law. This Agreement shall be subject to and governed
-------------
by the laws of the State of California.
C. Severability. The invalidity or partial invalidity of any
------------
portion of this Agreement shall not invalidate the remainder thereof, and said
remainder shall remain in full force and effect.
D. Captions. The captions at the head of a section or a paragraph
--------
of this Agreement are designed for convenience of reference only and are not to
be resorted to for the purpose of interpreting any provision of this Agreement.
E. Gender and Number. Whenever appropriate, the masculine includes
-----------------
the feminine, the singular includes the plural and vice versa.
F. Amendment. This Split Dollar Agreement may be amended, altered,
---------
modified or terminated by the Employer at any time. Such action shall not
affect any right of the Employee existing before the action; however, the
Employer is not obligated to continue any benefit, any insurance or any
insurance policy after such action.
G. Binding Agreement. This Agreement shall bind the parties hereto,
-----------------
their successors, assigns, heirs, executors, administrators and transferees, and
any Policy beneficiary.
6
<PAGE>
H. Protective Provisions. In the event of the Employee's suicide
---------------------
during the first two years while the Policy is in effect, or if the Employee
makes any material misstatement or nondisclosure of information that would give
cause to the Insurer not to pay benefits under the Policy, then no benefits will
be payable under this Agreement or, in the Company's sole discretion, benefits
may be payable in a reduced amount.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
PS GROUP, INC., EMPLOYER
By /s/ G.M. Shortley
---------------------------------
Its Executive Vice President
-------------------------------
/s/ L.A. Guske
----------------------------------
LAWRENCE A. GUSKE, EMPLOYEE
7
<PAGE>
EXHIBIT 10(G)
PS GROUP, INC.
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is made as of the 1st day of December, 1991, by and
between PS Group, Inc., a Delaware corporation (the "Company"), and Janet
Rickershauser (the "Owner").
ARTICLE I
DEFINITIONS
1.1 Collateral Assignment shall mean the Collateral Assignment
Agreement, attached as Schedule A to this Agreement, assigning the Policy as
collateral to the Company pursuant to paragraph 2.5 of this Agreement.
1.2 Cumulative Company Premiums shall mean the cumulative premiums
paid by the Company on the Policy pursuant to paragraph 2.3 of this Agreement.
1.3 Economic Benefit shall mean the value of the economic benefit of
the life insurance coverage provided under this Agreement for income tax
purposes as determined on the basis of the Internal Revenue Code and regulations
and revenue rulings issued by the Internal Revenue Service and other applicable
authorities.
1.4 Executive shall mean Charles E. Rickershauser, Jr.
1.5 Insurance Company shall mean Pacific Mutual Life Insurance
Company.
1.6 Policy shall mean the life insurance policy on the life of the
Executive, purchased by the Owner pursuant to paragraph 2.1 of this Agreement,
or any other policy or policies substituted therefor.
1
<PAGE>
ARTICLE 2
POLICY
2.1 Policy. The Owner has entered into a contract of life insurance
with the Insurance Company insuring the life of the Executive. The Policy
number is 1A2246221-0. The Owner hereby agrees that the Policy shall be subject
to the term and conditions of this Agreement and Collateral Assignment.
2.2 Incidents of Ownership. The Owner shall hold all incidents of
ownership in the Policy, except as otherwise provided in this Agreement and the
Collateral Assignment.
2.3 Premiums. The Company shall make six annual premium payments,
each equal to $17,189.00, in each of the first six years of the Policy. Any
further premium payments necessary to maintain the policy will be paid by the
Owner, at the discretion of the Owner.
2.4 Surrender, Borrowing and Withdrawal Rights. Neither the Owner
nor the Company shall be entitled to surrender the Policy, to borrow against the
Policy or to make withdrawals from the Policy, except by mutual consent
evidenced by a written instrument executed by the Company and the Owner.
2.5 Collateral Assignment. To secure the Company's interest in the
Policy under this Agreement, the Owner hereby agrees to assign the Policy to the
Company as collateral under the Collateral Assignment Agreement attached as
Schedule A to this Agreement.
ARTICLE 3
DEATH BENEFIT
In the event of the Executive's death (whether before or after he
retires or otherwise terminates employment with the Company) prior to
termination of this Agreement, the Company shall be entitled to receive from the
proceeds of the Policy, if sufficient, an amount equal to the
2
<PAGE>
Cumulative Company Premiums. The balance of the proceeds, if any, shall be paid
to the Owner and thereupon this Agreement and the Collateral Assignment shall
both terminate.
ARTICLE 4
AMENDMENT OR TERMINATION OF AGREEMENT
Except as otherwise provided in this Agreement, the Company shall not
amend or terminate this Agreement without the written consent of the Owner. The
Owner shall have the right to terminate this Agreement at any time by paying the
Company an amount equal to the Cumulative Company Premiums, thereupon the
Company shall release all rights and interest in the Policy to the Owner and
this Agreement and the Collateral Assignment shall both terminate.
ARTICLE 5
MISCELLANEOUS
5.1 Binding Effect. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors and
assigns.
5.2 Gender, Singular and Plural. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, or neuter, as the
identity of the person or persons may require. As the context may require, the
singular may be read as the plural and the plural as the singular.
5.3 Captions. The captions of the articles and paragraphs of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
3
<PAGE>
5.4 Validity. In the event any provision of this Agreement is held
invalid, void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provisions of this Agreement.
5.5 Notice. Any notice or filing required or permitted to be given
to the Company or the Owner under this Agreement shall be sufficient if in
writing and hand-delivered, or sent by registered or certified mail, in the case
of the Company, to the principal office of the Company, directed to the
attention of its President, and in the case of the Owner, to the address
indicated at the end of this Agreement. Such notice shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
5.6 Notice to Insurance Company. The Insurance Company shall not be
a party to this Agreement. The Company shall be responsible for notifying the
Insurance Company of any changes in the ownership rights and interest of the
Company and the Owner and the Insurance Company shall be entitled to rely upon
such notification received from the Company.
5.7 Waiver of Breach. The waiver by either party of any breach of
any provision or condition under this Agreement shall not operate or be
construed as a waiver of any subsequent condition or breach.
5.8 Arbitration. Any dispute relating to this Agreement shall be
settled by arbitration, before three arbitrators in San Diego County, in
accordance with the Rules of the American Arbitration Association. Each of the
parties shall select one arbitrator, and these two arbitrators shall select the
third arbitrator, provided that, if the third arbitrator cannot be agreed upon,
he or she shall be selected by the presiding judge of the Superior Court of San
Diego County, upon petition brought by either party. The award of the
arbitrators in any arbitration proceeding shall be final and may be enforced in
any court of competent jurisdiction. The unsuccessful party to such arbitration
proceeding shall pay to the successful party (i) all costs and expenses
(including reasonable attorney's fees) incurred therein by the successful party,
all of which shall be included in, and as a part of, the award rendered in such
proceeding, and (ii) all such costs and expenses incurred by the successful
party in enforcing such arbitration award.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Owner has hereunto set
her hand, on the day and year first above written.
PS Group, Inc.
By /s/ G.M. Shortley
------------------------------------------
George M. Shortley
Its President and Chief Executive Officer
/s/ Janet Rickershauser
------------------------------------------
Janet Rickershauser
506 W. 122nd St., #23
------------------------------------------
New York, NY 10027
------------------------------------------
Address
5
<PAGE>
PS GROUP, INC.
COLLATERAL ASSIGNMENT AGREEMENT
SCHEDULE A
As collateral security for any and all liabilities incurred arising
with respect to premium payments made on behalf of the Assignor, the undersigned
Assignor hereby assigns, transfers and sets over to PS Group, Inc. (the
"Assignee"), its successors and assigns, all rights and benefits and privileges
under Policy number 1A2246221-0 and any supplementary contracts issued in
connection therewith (the "Policy") issued by Pacific Mutual Life Insurance
Company (the "Insurer") on the life of Charles E. Rickershauser, Jr. (the
"Insured"), subject to the terms and conditions contained in the Policy and that
certain Split Dollar Life Insurance Agreement entered as of December 1, 1991 by
and between the Assignee and the Assignor (the "Split Dollar Life Insurance
Agreement") and subject to any loan indebtedness that may exist on the Policy.
The Insurer is authorized to accept and to act upon any written
statement signed by the Assignee as to the respective interests of the Assignor
and Assignee under the Policy and the Split Dollar Life Insurance Agreement and
to disburse to the Assignee any funds claimed by it pursuant to this collateral
assignment and the Split Dollar Life Insurance Agreement without the consent of
the Assignor. Any payment so made to the Assignee shall fully release and
discharge the Insurer to the extent of such payment.
Dated: December 1, 1991 /s/ Janet Rickershauser
---------------------------------------
Assignor
By /s/ G.M. Shortley
------------------------------------
George M. Shortley
Its President & Chief Executive Officer
-----------------------------------
6
<PAGE>
EXHIBIT 10(H)
AMENDED AND RESTATED EXECUTIVE RETIREMENT AGREEMENT
---------------------------------------------------
This Amended and Restated Executive Retirement Agreement is made this 23rd
day of March, 1998, 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 and the Executive are parties to an Executive Retirement
Agreement dated March 12, 1997 (the "Original Agreement") that was entered into
in order to compensate the Executive for his services to the Company by
augmenting his accrued unfunded retirement benefit and to clarify terms and
conditions under which such retirement benefit would be accrued and paid.
D. This Agreement amends and restates the Original Agreement in order to
provide for an increase in the amount of the unfunded retirement benefit to be
credited to the Executive's Account (as hereinafter defined) for calendar year
1998 from $50,000 to $100,000 while confirming all the other provisions of the
Original Agreement.
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 of the equavalency of benefits under the Retirement Plan for
Corporate Officers of PS Group, Inc. and Participating Subsidiaries.
<PAGE>
1.3 "Beneficiary" means the person or persons designated or
determined pursuant to Section 3.4.
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 an 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
($50,000.00);
(c) As of the last day of each calendar month in calendar year
1997 and calendar year 1998, respectively, the sum of Eight Thousand Three
Hundred Thirty-Three and 33/100 Dollars ($) 8.333.33), but subject to Section
2.2 if any calendar month includes the Termination Date;
2
<PAGE>
(d) As of the last day of each calendar month in each calendar year
after 1998, 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), as the case may be, 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:
(a) A single life annuity payable monthly during the Executive's
life;
3
<PAGE>
(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 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
4
<PAGE>
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 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
dishonesty 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 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.
5
<PAGE>
6.2 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.
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.
7
<PAGE>
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.
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
The "Company"
PS GROUP, INC.
/s/ L.A. GUSKE
By: ___________________________
Lawrence A. Guske
Vice President-Finance
The "Executive"
/s/ CHARLES E. RICKERSHAUSER, JR.
__________________________________
Charles E. Rickershauser, Jr.
9
<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 (12)
STATEMENT OF COMPUTATION OF RATIOS
The debt to equity ratios set forth on page 1 of the Company's 1997 Annual
Report to Stockholders are derived by dividing total debt at the end of each
year by stockholders' equity at the end of each year.
<PAGE>
Document 97-0
EXHIBIT 13
[INSIDE FRONT COVER]
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
1997 Annual Report to Stockholders 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 possible consequences of any unscheduled return of aircraft
under lease; the possibility of 1998 sales of six BAe 146 aircraft owned by PSG
or the potential future phase-out of six MD-80 aircraft owned by PSG from the
fleet of the lessee and the impact of such sales or phase-out on PSG's financial
condition, results of operations, and net operating loss carryforward; 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 ultimate amount of net proceeds to be received from the sale
of the assets of the Aviation Division of PS Trading, Inc. (PST) and the final
gain or loss, if any, on the sale and the shut-down of this division; the
outcome of the proposed assessment received from the California Franchise Tax
Board (CFTB) for state income tax deficiencies for the years 1987 through 1990
and the time period for the final resolution of such assessment; the tax
treatment of the Company's special distributions to stockholders in 1995, 1996,
and 1997; the availability of certain tax benefits, and the amount of otherwise-
taxable income against which such benefits may be offset; the amount of 1998
capital additions; and the quantities of oil and gas reserves owned by Statex
Petroleum, Inc. (Statex), the oil and gas production and development segment of
the Company, and the related future net cash inflows from oil and gas producing
activities. 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 effect of any 1998 sales of BAe 146 aircraft or the potential future phase-
out of six MD-80 aircraft from the fleet of the lessee on the Company's
financial condition, results of operations, and net operating loss carryforward;
the uncertainties inherent in estimating the cost of environmental remediation
and related pending and potential litigation at SFIA; uncertainties in
estimating the net proceeds and final gain or loss, if any, from the sale of the
assets of PST's Aviation Division; the possibility that the ultimate settlement
with CFTB will involve litigation or will be for an amount in excess of that
reserved for by the Company; the possibility that the ultimate tax treatment of
the special distributions to stockholders would be different than that
determined by the Company; 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 on 1998 cash flow and borrowings to finance capital additions
if capital additions vary from the current estimate; the impact of the actual
quantities of oil and gas reserves and the related 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 1997 Annual Report to Stockholders 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. The Company does not undertake
to publicly update or revise its forward-looking statements.
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.
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
================================================================================
The Company (NYSE Symbol: PSG) operates, through subsidiaries, three business
segments - aircraft leasing, oil and gas production and development, and fuel
storage and distribution.
<TABLE>
<CAPTION>
FOR THE YEAR 1997 1996/(a)/ 1995/(a)/ 1994/(a)/ 1993/(a)/
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $ 43,765 $ 48,031 $ 46,189 $ 47,116 $ 51,014
Income (loss) from continuing
operations before accounting change (562) 10,276 2,696 (5,178) (9,436)
Income (loss) from discontinued
operations (2,048) (666) 336 12,414 (11,934)
Cumulative accounting change 2,900
----------------------------------------------------------------
Net income (loss) (2,610) 9,610 3,032 7,236 (18,470)
----------------------------------------------------------------
Basic and diluted earnings (loss)
per share:
Continuing operations (.09) 1.69 .44 (.85) (1.56)
Discontinued operations (.34) (.11) .06 2.04 (1.97)
Cumulative accounting change .48
----------------------------------------------------------------
Net income (loss) per share (.43) 1.58 .50 1.19 (3.05)
----------------------------------------------------------------
Cash distributions per share/(b)/ 4.00 1.50 1.50
Capital additions 5,409 4,110 1,263 448 1,380
<CAPTION>
AT YEAR END
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets 225,022 280,083 299,312 351,347 374,647
Total debt 73,722 105,785 122,609 137,225 163,159
Stockholders' equity 96,708 123,591 123,082 129,151 121,899
Stockholders' equity per share 15.94 20.37 20.28 21.28 20.10
Debt to equity ratio .76 to 1 .86 to 1 1 to 1 1.06 to 1 1.34 to 1
</TABLE>
COMPARABILITY
- --------------------------------------------------------------------------------
As more fully described elsewhere in this Annual Report to Stockholders, the
income (loss) from continuing operations is not comparable between years due, in
part, to the following significant unusual items (all amounts, except (iv) are
pretax): (i) in 1997 and 1996, $5.5 million and $1.2 million of environmental
remediation expenses were recorded; (ii) in 1997, $3.5 million of additional
depreciation expense was recorded on five BAe 146 aircraft; (iii) in 1997, a $.5
million gain was recorded on the sale of one BAe 146 aircraft; (iv) in 1996, a
$5.6 million reduction of tax liabilities was recorded; (v) in 1996, a $1.8
million gain was recorded on the sale of an interest in six 737-200 aircraft;
(vi) in 1995, a $1.7 million loss on disposition of 747 aircraft was recorded
and in 1994 and 1993, write-downs of $7.2 million and $17 million, respectively,
were recorded related to 747 aircraft previously leased to airlines which had
declared bankruptcy; (vii) in 1994 and 1993, gains (net of losses) of $.6
million and $2.5 million, respectively, were recorded on marketable equity
securities' transactions; and (viii) in 1994, an accrual of $5 million was made
for the settlement of securities litigation.
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 discontinued in all
periods presented. 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 1993 and 1994.
(a) 1993 through 1996 has been restated to show fuel sales as a discontinued
operation.
(b) The special cash distributions in 1997, 1996, and 1995 are not precedents
for future distributions. See page 39 for additional information on these
distributions.
================================================================================
1.
<PAGE>
AIRCRAFT LEASING
================================================================================
The aircraft leasing business, conducted by PSG, represents the major portion of
the Company's assets and its largest source of cash flow and revenues. Aircraft
leasing contributed $30.6 million to 1997's consolidated revenues from
continuing operations, or 70% of the total. This is contrasted with 12% of the
consolidated 1996 revenues as disclosed in the 1996 Annual Report to
Stockholders when the revenues included the operations of the Company's fuel
sales divisions which are shown as discontinued operations in 1997. As of
December 31, 1997, twelve PSG aircraft were under lease to US Airways, Inc. (US
Airways), two to Continental Airlines, Inc. (Continental), and one to America
West Airlines (America West). All of these aircraft meet Federal Stage 3 noise
requirements and qualify for operation in the United States without modification
beyond 1999. Of the 15 aircraft, nine are operated by the lessees in scheduled
passenger service in the continental United States. The remaining six aircraft
are subleased by US Airways although US Airways continues to be responsible for
the leases.
The PSG aircraft leases expire in the following years:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Aircraft Type 1999 2000 2001 2004 2006 2008 Total
------------- ---- ---- ---- ---- ---- ---- -----
BAe 146-200 6 6
MD-80 1 3 2 1 7
737-300 1 1 2
--
15
==
</TABLE>
During 1997, US Airways exercised its option to extend the leases on three MD-80
aircraft for three years at the then-current rental rates. The original leases
were scheduled to expire in 1998. During 1993, when five MD-80 aircraft were
refinanced, PSG was required to grant concessions to US Airways including lower
BAe 146 aircraft lease termination values and modified aircraft return
conditions.
AIRCRAFT SALES. In the fourth quarter of 1997, US Airways exercised its lease
termination rights by purchasing (and subsequently selling) four BAe 146
aircraft from PSG. PSG's net cash proceeds were $8.3 million, after debt
repayment of $10.2 million. A $.5 million gain ($.3 million after-tax, $.04 per
share) was recorded on one of the aircraft sold. There were no gains or losses
on the other three aircraft since they were being depreciated so the net book
values would equal the lease termination values. Refer to Note 1 of Notes to
the Consolidated Financial Statements for a discussion of this depreciation.
The tax gain on these four sales will utilize $18.5 million of the available net
operating loss carryforward.
POTENTIAL EARLY LEASE TERMINATIONS AND AIRCRAFT SALES. US Airways has indicated
to PSG that in 1998 it wants to sell the remaining six BAe 146 aircraft it
leases from PSG, but as of the date of this Annual Report to Stockholders there
are no indications of any US Airways sales in 1998. PSG has no control over US
Airways' possible sales of the BAe 146 aircraft and there are no assurances such
sales will occur. If US Airways were successful, which does not currently seem
likely, and all six aircraft were sold in the fourth quarter of 1998, there
would be net cash proceeds of approximately $13.8 million, after debt repayment
of approximately $9.3 million; a pretax gain of approximately $1 million
recorded on four of the aircraft sold (there would be no gain or loss on the
other two aircraft); and utilization of approximately $23 million of the
available net operating loss carryforward, which, based on current projections,
================================================================================
6.
<PAGE>
Aircraft Leasing - Continued
================================================================================
would result in the use of almost all of the remaining net operating loss
carryforwards in 1998. (If the sales were to occur earlier in 1998, the amounts
shown would change marginally.)
TYPE OF AIRCRAFT LEASES. In general, substantially all the obligations
connected with the operation and maintenance of the leased aircraft, including
maintaining insurance at specified levels in the leases, are assumed by the
lessee and minimal obligations are imposed upon PSG. 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 or earlier in certain cases. The PSG
leases and related aircraft are encumbered by debt that will be fully amortized
on or before the end of the lease term.
PSG'S AIRCRAFT LESSEES. Since PSG's leases are relatively long-term and are
net leases, PSG is affected by 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. ALL INFORMATION (EXCEPT AS OTHERWISE EXPRESSLY
INDICATED) 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.
. US AIRWAYS leases six MD-80 aircraft and six BAe 146-200 aircraft from PSG.
Lease revenues from US Airways were 81% of total lease revenues for 1997.
All of the BAe 146 aircraft are subleased and generally the subleases extend
through US Airways' primary lease term which expires in the fall of 2000.
These sublessees are smaller commuter 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 two European airlines.
In October 1997, US Airways announced an agreement to acquire up to 400 A320-
type aircraft manufactured by Airbus Industrie G.I.E. (Airbus). US Airways has
announced it has 124 Airbus aircraft on firm order, six of which are scheduled
for delivery in 1998, 20 in 1999, and 98 in the years 2000-2002. US Airways
has also announced that the Airbus aircraft deliveries 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 has advised PSG that it is not currently in a
position 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 as US Airways takes delivery of Airbus aircraft.
US Airways reported a record pretax income of $672 million for 1997. US
Airways' unit costs declined slightly in 1997 but remain the highest of the
major U.S. airlines. During 1997, US Airways reached agreement with its pilots
on a new five-year labor contract which provides concessions in pay increases
and work rules. The agreement also allows US Airways to establish a low-cost,
low-fare product to compete directly against Southwest, Delta Express, and
AirTran Airlines. As part of the labor contract, US Airways agreed to "grow"
the airline by at least 2.5% per year. As a result of this growth commitment,
US Airways ordered the 124 new Airbus aircraft, as mentioned above. US Airways
is continuing negotiations with
================================================================================
7.
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
its other labor unions for similar concessions to those received from the
pilots. While US Airways remains a highly leveraged airline, its management
believes progress was made in 1997 as witnessed by the following statement in
the US Airways' third quarter 1997 Form 10-Q: "This new pilot contract, along
with the Company's agreements to acquire new aircraft and jet engines .... are
of paramount importance to the Company's future, particularly with respect to
ensuring competitiveness and long-term financial viability."
At December 31, 1997, US Airways' cash, cash equivalents, and short-term
investments remained strong totaling approximately $2 billion.
. CONTINENTAL leases one MD-80 and one 737-300 from PSG. Continental reported
a record pretax profit of $640 million for 1997. Continental's cash and cash
equivalents were in excess of $1 billion at December 31, 1997. While still
highly leveraged, Continental has strengthened its financial position and
operating results.
. AMERICA WEST leases one 737-300 aircraft from PSG. America West 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 1997.
America West reported record pretax profits of $140 million for 1997. Cash,
cash equivalents, and short-term investments totaled approximately $172
million at December 31, 1997. America West continues to be one of the lowest-
cost airline operators.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
OPERATING STATISTICS (at year-end) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------
NET AIRCRAFT LEASED:/(a)/
<S> <C> <C> <C> <C> <C>
BAe 146-200 aircraft/(b)/ 6.0 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
-----------------------------------
Total aircraft leased 15.0 19.0 21.0 21.3 21.3
Aircraft leased under operating leases 10.0 14.0 16.0 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 aircraft /(d)/ - - - 2.0 2.0
</TABLE>
(a) At December 31, 1997, PSG had a 100% interest in all aircraft shown.
(b) These aircraft have not been operated by US Airways since the spring of
1992 and at December 31, 1997, all are subleased by US Airways to other
airlines. In the fourth quarter of 1997, US Airways exercised its lease
termination rights by purchasing (and subsequently selling) four of the BAe
146 aircraft.
(c) During 1996, PSG sold its 1/3 interest in the six 737-200 aircraft 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.
================================================================================
8.
<PAGE>
Aircraft Leasing - Continued
================================================================================
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues/(e)/ $ 31,122 $ 35,919 $ 35,032 $ 35,637 $ 35,920
Operating expenses/(f) (g)/ 15,202 13,980 15,770 21,346 31,165
-----------------------------------------------------------
Income before interest expense and taxes 15,920 21,939 19,262 14,291 4,755
Identifiable assets at year-end 168,421 211,382 233,547 279,508 302,341
Depreciation and amortization/(g)/ 15,155 13,902 13,978 14,085 13,837
Income before interest and taxes
as a percent of revenues 51.2% 61.1% 55.0% 40.1% 13.2%
</TABLE>
(e) Includes a $.5 million gain on the sale of one BAe 146 aircraft in 1997 and
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 of $7.2 million in 1994 and $17 million in
1993.
(g) During 1997, the depreciation method was changed on five BAe 146 aircraft
so that the net book values would match the lease termination values, this
resulted in $3.5 million of additional depreciation expense.
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1995 THROUGH 1997 AND KNOWN TRENDS
- --------------------------------------------------------------------------------
Aircraft leasing revenues were lower in 1997 compared to 1996 because: (i) 1996
included a $1.8 million gain from the sale of an interest in six 737-200
aircraft while 1997 included a $.5 million gain from the sale of a BAe 146
aircraft, (ii) certain lease revenues were discontinued due to aircraft sales in
1996 and 1997, (iii) there was reduced revenue recognition associated with
aircraft leased under financing leases, and (iv) there were lease rate resets on
certain aircraft leases tied to lower interest rates (these lower lease rates
were matched by lower interest expense amounts on the related debt). The lease
revenue for 1996 was higher than in 1995 due to the $1.8 million gain on the
sale of the 737-200 aircraft which was partially offset by the reduced revenue
recognition associated with aircraft leased under financing leases and the lease
rate resets on certain aircraft leases. In future years, leasing revenues will
decline from the 1997 level because of the reduced revenue recognition
associated with aircraft leased under financing leases, lease rate resets on
certain aircraft, and aircraft sales in 1997. As additional aircraft are sold,
leasing revenues in future periods will be reduced. Refer to the discussion
above for the effects of possible 1998 sales of the six remaining BAe 146
aircraft.
Income before interest and taxes fluctuated in the last three years because of
the revenue items discussed above, the $3.5 million of additional depreciation
expense on five BAe 146 aircraft in 1997 (refer to Note 1 of Notes to the
Consolidated Financial Statements), and a $1.7 million loss on disposition of
the 747 aircraft in 1995.
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 limited
equity for its size) 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 significantly improved as
================================================================================
9.
<PAGE>
Aircraft Leasing - Continued
================================================================================
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 unlikely at present, should
PSG's lessees default on their leases, or file bankruptcy and reject certain
aircraft leases, there could be a material decrease in the market value of the
aircraft leased to PSG's lessees due to an increased availability of those
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 any of PSG's leased
aircraft be returned before the end of the respective 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 $5.5 million at
December 31, 1997 of recourse debt on two BAe 146's). Whether PSG undertook
such a course of action would be dependent on PSG having sufficient liquidity 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.
================================================================================
10.
<PAGE>
Document 97-3
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's revenues increased in 1997
from $8.6 million to $10 million, contributing 23% of the 1997 consolidated
revenues from continuing operations. Statex is an independent oil and gas
producing company which focuses primarily on properties with secondary recovery
and/or development potential. Its main areas of concentration are in North-
central and West Texas, and in Western Oklahoma. For the last several years
Statex has focused on improving production in its core properties both by
increased drilling and utilization of polymer technology to effect recoveries.
Although it is following strict cost control procedures, the main properties, by
their nature, have extremely high water volumes which increase operating costs.
In an attempt to reduce these costs, Statex has made several acquisitions in the
past one and one-half years, securing interests in properties which management
believes will ultimately help to reduce the overall cost per barrel.
Statex has a line of credit collateralized by its major properties. During the
year, Statex utilized this line for infield drilling on both its core properties
and on three properties acquired in 1996 and one property acquired in 1997.
With the sharp decline in oil and gas prices late in 1997 and continuing into
1998, Statex will continue to evaluate properties in hopes of finding
acquisitions that will enhance Statex's drilling program.
PRODUCTION AND RESERVES. Production volumes, net to Statex, for December 1997
were 1,051 barrels of oil per day (BOPD) and 1,435 MCF of gas per day (MCFPD)
versus 997 BOPD and 1,117 MCFPD at the end of 1996. Oil reserves at year-end
were 4,912,000 barrels of oil (BO), after production of 395,000 BO, versus
5,051,000 BO at the end of 1996. After 1997 production of 767,000 MCF, gas
reserves increased to 4,653,000 MCF at year-end 1997 as compared to 2,811,000
MCF at year-end 1996. The increased gas volumes are from drilling and a new
property acquired during 1997. The high product prices during early 1997 enabled
an increased drilling program that was successful in replacing oil and gas
production lost due to normal decline. Additional drilling in 1998 will be based
upon the economics of the lower market prices for oil and gas.
ACTIVITIES. During the year, 14 infield wells were drilled at Statex's 100%
owned core property, Eliasville, located in Stephens County, Texas. This
drilling succeeded in stemming the normal production decline and increased the
average daily production during 1997 from 719 BOPD to 753 BOPD. During 1998,
Statex plans to establish a new secondary recovery unit on the 100% owned
property contiguous to Eliasville. During 1997, two wells were drilled and in
early 1998, an additional well was completed on the Lake Trammel Unit, a 1996
acquisition, in which Statex has a 66% working interest. Net production to
Statex from Lake Trammel increased from 67 BOPD, when acquired, to 91 BOPD in
December 1997. Several additional wells are budgeted for the coming year. A
total of nine wells (40% working interest) were drilled during the year in the
Lazy JL Field in West Texas. In addition to proving several new locations,
those wells provided information needed to proceed with a pilot waterflood in
which several wells will have water injected into them on a test basis to
determine the feasibility of a full scale waterflood program. As a result of
higher oil and gas prices early in 1997, Statex accelerated its total drilling
effort in the first nine months, placing reserves on stream which had previously
been reflected as undeveloped or were added as new reserves. A total of 29 wells
were drilled, 27 as producers. Two wells were converted to water injection wells
in 1997.
================================================================================
11.
<PAGE>
<TABLE>
<CAPTION>
OIL AND GAS PRODUCTION AND DEVELOPMENT - CONTINUED
============================================================================================
- --------------------------------------------------------------------------------------------
OPERATING STATISTICS 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proved reserves:
Crude oil (Mbbls) 4,912 5,051 4,886 5,082 6,856
Natural gas (MMcf) 4,653 2,811 2,960 3,026 3,737
Undeveloped oil and gas acreage:
Gross/(a)/ 6,006 6,235 3,388 6,586 5,877
Net/(b)/ 2,592 2,494 615 902 1,687
Producing wells:
Gross/(a)/ 260 214 121 107 114
Net/(b)/ 175 147 83 81 87
Production:
Crude oil (Mbbls) 395 338 337 405 446
Natural gas (MMcf) 767 469 552 520 467
Wells drilled:/(c)/
Gross/(a)/ 29 15 2 - 8
Net/(b)/ 21 12 1 - 7
Average price during year:
Crude oil - per barrel $20.07 $21.90 $17.56 $16.21 $17.64
Natural gas - per thousand cubic feet $2.56 $2.11 $1.59 $1.99 $2.02
Year-end price:
Crude oil - per barrel $15.50 $24.25 $18.00 $16.00 $12.50
Natural gas - per thousand cubic feet $2.23 $3.27 $1.90 $1.50 $2.15
Average production costs per equivalent barrel $9.49 $9.07 $8.74 $7.88 $9.93
Employees at year-end 9 8 8 8 9
</TABLE>
Mbbls = thousands of barrels MMcf = millions of cubic feet
(a) Gross refers to the total amount owned by all participants.
(b) Net refers to Statex's ownership interest in the gross amount.
(c) All the wells drilled in 1997 were development producing wells; there
were two dry holes. Three were in process at year-end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $10,016 $8,573 $6,848 $7,683 $8,907
Operating expenses/(d)//(e)/ 8,626 6,346 5,985 6,305 10,283
----------------------------------------
Income (loss) before interest expense and taxes 1,390 2,227 863 1,378 (1,376)
Identifiable assets at year-end 25,906 24,386 19,974 20,536 22,175
Net assets before debt at year-end/(f)/ 24,403 22,811 19,306 19,757 20,950
Capital additions 5,294 4,077 1,121 419 1,360
Depreciation, depletion, and amortization/(e)/ 3,130 2,010 1,747 1,990 1,957
</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) 1997 includes a $.5 million write-down in the carrying value of one
field caused by the significant year-end drop in the price of crude oil.
(f) Identifiable assets less liabilities except debt.
================================================================================
12.
<PAGE>
OIL AND GAS PRODUCTION AND DEVELOPMENT - CONTINUED
================================================================================
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1995 THROUGH 1997 AND KNOWN TRENDS
- --------------------------------------------------------------------------------
Revenues increased 17% from 1996 to 1997 due to a 17% increase in oil
production, a 64% increase in gas production, and a 21% increase in average gas
prices. These increases were partially offset by an 8% decrease in average
crude oil prices. Depreciation, depletion, and amortization for 1997 includes a
$.5 million write-down in the carrying value of one field caused by the
significant year-end drop in the price of crude oil. Operating expenses for
1997 were also higher than in 1996 due to increased well maintenance costs.
Oil and gas production revenues for 1996 were 25% higher than in 1995 primarily
due to a 25% increase in the average price of oil and a 33% increase in the
average price of gas. These price increases were partially offset by a 15%
reduction in natural gas production due primarily to normal production decline
rates.
As shown by both the average and the year-end oil and gas prices above, there is
significant volatility in oil and gas prices and such volatility is expected to
continue.
================================================================================
13.
<PAGE>
FUEL STORAGE AND DISTRIBUTION
================================================================================
The fuel storage and distribution segment is operated by PST, a wholly-owned
subsidiary of PSG. PST owns limited fuel storage and distribution facilities at
San Francisco International Airport (SFIA), Los Angeles International Airport,
Oakland International Airport, and Sacramento International Airport. Revenues
of this segment amounted to only $.7 million, or 1.5% of 1997's total revenues.
In 1997, PST recorded $5.5 million of expense related to environmental
remediation at SFIA.
As described in Note 4 of Notes to the Consolidated Financial Statements, PST's
fuel sales divisions are shown as discontinued operations in 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA /(a)/ (in thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 655 $ 776 $1,224 $1,310 $1,246
Operating expenses /(b)/ 6,502 1,914 521 553 597
-------------------------------------------------
Income (loss) before interest expense and taxes (5,847) (1,138) 703 757 649
Identifiable assets at year-end 859 1,081 1,317 1,507 1,671
Net assets before debt at year-end /(c)/ (4,403) 831 1,317 1,507 1,671
Capital additions 97 142 27 16
Depreciation and amortization 355 292 195 195 195
</TABLE>
(a) Data for the years 1993 to 1996 has been restated to eliminate the fuel
sales divisions of PST since that business segment was discontinued.
(b) Includes environmental remediation expenses at SFIA of $5.5 million in
1997 and $1.2 million in 1996.
(C) Identifiable assets less liabilities. Includes environmental remediation
liabilities of $5.1 million in 1997 and $.3 million in 1996.
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1995 THROUGH 1997 AND KNOWN TRENDS
- --------------------------------------------------------------------------------
Revenues were lower in 1997 compared to 1996 because several fuel storage tanks
at SFIA were out of service for repairs and upgrade during most of 1997. These
revenues will likely increase in 1998 when the repairs and upgrades are
completed. Revenues fell from 1995 to 1996 because of the permanent closure in
1995 of certain gates served by PST's distribution system at SFIA. PST's
distribution revenues will be eliminated at SFIA when the existing terminal
served by PST's pipeline is demolished in early 2000. These revenues amounted to
$.2 million in 1997.
As described in Note 4 of Notes to the Consolidated Financial Statements,
operating expenses were high in the last two years due to environmental
remediation expenses at SFIA of $5.5 million in 1997 and $1.2 million in 1996.
These remediation efforts will continue for several years and the estimated
future SFIA environmental remediation expenses which have been recorded may
require future revision.
================================================================================
14.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
================================================================================
Reference is made to the item captioned "Forward-Looking Statements" on the
inside front cover of this Annual Report to Stockholders.
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 business segments, an analysis of financial data from 1995 to 1997
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, 1997, the Company's
principal sources of liquidity were cash, cash equivalents, and U.S. Government
securities of $16.7 million, a $2.6 million increase from December 31, 1996.
The major components of the change in liquidity are as follows (in thousands):
<TABLE>
<S> <C>
From continuing operations:
Sources:
Operations $ 25,609
Proceeds from sale of aircraft 18,514
Sale of securities and reduction in cash collateral 4,023
Borrowings by Statex 2,000
Financing leases and other 9,035
Uses:
Payment of long-term liabilities (34,063)
Cash distributions to stockholders (24,273)
Capital additions (5,409)
--------
Net used by continuing operations (4,564)
Cash provided from discontinued operations 7,211
--------
Net increase in liquidity $ 2,647
========
Components of net increase in liquidity:
Increase in cash and cash equivalents $ 3,631
Decrease in U.S. Government securities (984)
--------
Net increase in liquidity $ 2,647
========
</TABLE>
At December 31, 1997, PSG had $2.4 million outstanding under its October 1995
bank credit agreement consisting entirely of letters of credit (LC's). No
additional LC's or any borrowings are permitted under the agreement which
expires in 2000. All outstanding LC's require cash collateralization and PSG is
required to maintain at least $3 million in cash and cash equivalents.
Statex has a separate bank credit agreement with $7.5 million available at
December 31, 1997. The availability of borrowings in excess of $7.5 million
depends upon the bank's valuation of the oil and gas reserves at the date such
borrowings were requested. At December 31, 1997,
================================================================================
15.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
$5 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 15
aircraft, the preponderance of which are 12 aircraft leased to US Airways.
PSG's assets include $105.9 million for which realization is substantially
dependent upon the future performance of US Airways under aircraft leases with
PSG.
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 $15.1 million as of December 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 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
estimates that 1998 capital additions will be approximately $4.5 million,
primarily for oil and gas development activities. The ultimate amount depends
upon Statex's ability to acquire and develop new oil and gas properties with
suitable enhanced recovery potential. Statex's separate bank credit agreement
will be used to finance or assist in financing their planned capital additions.
Management has assesed all issues relating to the year 2000. Management
believes that the Company will be ready for the year 2000 on a timely basis and
that the costs to address the year 2000 issue will be insignificant.
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 7 of the Notes to Consolidated Financial Statements, as of December 31,
1997, the Company believes it had approximately $24.5 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 December 31, 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
approximately 8%. Certain "5-percent shareholders" ownership interest is not
included in the 8% because such shares have been held for more than three years.
If such shares (held more than three years by "5-percent shareholders"), which
approximate 45% ownership at December 31, 1997, 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 Notes to the
================================================================================
16.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
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 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 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.
RESULTS OF OPERATIONS
REVENUES (EXCEPT FROM SEGMENTS). Interest income varied in each year as a
result of changes in the amounts of outstanding cash, U.S. Government
securities, and notes receivable, and the interest rates earned. 1996 and 1995
also included non-recurring items classified as other income.
COSTS AND EXPENSES. The increase in cost of sales in each year from 1995 to
1997 was related to the increase in oil and gas production revenues. The
increase in depreciation expense between 1996 and 1997 was due to the change in
estimate for depreciation expense recorded on five BAe 146 aircraft described in
Note 1 of Notes to the Consolidated Financial Statements. The environmental
remediation expenses relate to actual and estimated costs for the investigation
and remediation of potential soil and groundwater pollution at San Francisco
International Airport where PST, as the operator of various fuel storage and
distribution facilities, has been named as a potentially responsible party and
in respect of which it is a defendant in a lawsuit filed by a prior lessee of
the facility seeking indemnification. Refer to Note 4 of Notes to the
Consolidated Financial Statements for a complete description of these expenses.
The increase in general and administrative expenses between 1995 and 1996, and
the decrease between 1996 and 1997 were primarily because of $600,000 of
expenses associated with the 1996 Reorganization described in Note 1 of Notes to
the Consolidated Financial Statements. In addition, 1997 reflected reduced
legal services, fees for professional tax services, and employee benefits. The
loss on aircraft disposition in 1995 relates to two 747-100 aircraft that were
sold in June 1995. 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 7 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.
===============================================================================
17.
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
================================================================================
<TABLE>
<CAPTION>
1997 1996*
------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,921 $ 7,290
U.S. Government securities, partially pledged 5,815 6,799
Accounts and notes receivable 6,090 8,529
Current portion of aircraft leases, pledged 8,630 10,075
Prepaid expenses and other current assets 1,631 1,738
Net current assets of discontinued operation 7,293 17,034
-------- ---------
Total current assets 40,380 51,465
Oil and gas properties, at cost, pledged 44,364 38,825
Less accumulated depreciation, depletion, and
amortization (21,658) (18,549)
-------- ---------
22,706 20,276
Other property and equipment, at cost 6,190 5,302
Less accumulated depreciation (5,124) (3,910)
-------- ---------
1,066 1,392
Aircraft under operating leases, at cost, pledged 171,264 230,978
Less accumulated depreciation (98,820) (125,380)
-------- ---------
72,444 105,598
Investment in aircraft financing leases, pledged 82,067 88,669
Other assets 6,359 11,747
Net long-term assets of discontinued operation 936
-------- ---------
$225,022 $ 280,083
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest $ 4,404 $ 2,968
Accounts payable and other accrued liabilities 2,057 2,389
Environmental remediation liability 1,384 250
Current portion of long-term obligations 18,211 23,890
-------- ---------
Total current liabilities 26,056 29,497
Long-term obligations 55,511 81,895
Deferred income taxes 36,450 37,572
Environmental remediation liability 3,716
Other liabilities 6,581 7,528
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 90,640 98,420
Retained earnings 19,103
-------- ---------
Total stockholders' equity 96,708 123,591
-------- ---------
$225,022 $ 280,083
======== =========
</TABLE>
* Restated as described in Note 1.
================================================================================
See accompanying notes to consolidated financial statements.
18.
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATION
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
1997 1996* 1995*
-------------------------------------------------
<S> <C> <C> <C>
Continuing operations:
Revenues:
Aircraft leasing $30,605 $34,073 $35,032
Gain on aircraft sales 514 1,846
Oil and gas production 10,016 8,573 6,848
Fuel storage and distribution 655 776 1,224
Interest and other income 1,975 2,763 3,085
-------------------------------------------------
43,765 48,031 46,189
-------------------------------------------------
Costs and expenses:
Cost of sales 5,899 4,471 4,396
Depreciation, depletion, and amortization 18,691 16,250 15,984
Environmental remediation expenses 5,533 1,238
General and administrative expenses 3,129 4,225 3,808
Loss on aircraft disposition 1,701
Interest expense 11,370 13,800 15,628
-------------------------------------------------
44,622 39,984 41,517
-------------------------------------------------
Income (loss) from continuing operations
before taxes (857) 8,047 4,672
Provision (credit) for taxes (295) (2,229) 1,976
-------------------------------------------------
Income (loss) from continuing operations (562) 10,276 2,696
Discontinued operation, net of tax:
Loss from operations (1,465) (666) 336
Loss on disposition (583)
-------------------------------------------------
Income (loss) from discontinued operation (2,048) (666) 336
-------------------------------------------------
Net income (loss) $(2,610) $ 9,610 $ 3,032
=================================================
Basic and diluted earnings (loss) per
share:
Continuing operations $ (.09) $ 1.69 $ .44
Loss from operations of discontinued operation (.24) (.11) .06
Loss on disposition of discontinued operation (.10)
-------------------------------------------------
Net income (loss) per share $ (.43) $ 1.58 $ .50
=================================================
Shares used in determination of basic and
diluted earnings (loss) per share 6,068 6,068 6,068
=================================================
</TABLE>
* Restated as described in Note 1.
================================================================================
See accompanying notes to consolidated financial statements.
19.
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
1997 1996* 1995*
--------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ (562) $ 10,276 $ 2,696
Non-cash items:
Depreciation, depletion, and amortization 18,691 16,250 15,984
(Gains) losses on aircraft sales (514) (1,846) 1,701
Environmental remediation liability 5,100 250
Deferred taxes and other 2,198 (2,434) 2,307
Changes in non-cash working capital affecting
cash from operating activities:
Accounts receivable 2,373 280 (358)
Prepaid and other current assets (290) (550) (1,533)
Accrued legal settlement (5,000)
Other current liabilities (1,387) 425 (2,859)
--------------------------------------
Net cash provided from operating activities 25,609 22,651 12,938
--------------------------------------
Cash flows from investing activities:
Proceeds from disposition of equipment 18,514 3,154 2,215
Disposition of available-for-sale securities 956 7,225 2,883
Maturity of held-to-maturity securities 940 1,090 1,248
Reduction in collateral for letters of credit 3,111 156 2,065
Purchase of available-for-sale securities (15,962)
Capital additions (5,409) (4,110) (1,263)
Changes in finance leases and other 9,035 5,900 5,857
--------------------------------------
Net cash provided from (used in)
investing activities 27,147 13,415 (2,957)
--------------------------------------
Cash flows from financing activities:
Additions to long-term obligations 2,000 3,000
Reductions in long-term obligations (34,063) (19,825) (14,617)
Special cash distributions to stockholders (24,273) (9,101) (9,101)
--------------------------------------
Net cash used in financing activities (56,336) (25,926) (23,718)
--------------------------------------
Discontinued operations:
Income (loss) from operations (1,465) (666) 336
Loss on disposition (583)
Deferred taxes (1,418) (436) 235
(Increase) decrease in net assets 10,677 (5,739) (5,621)
--------------------------------------
Net cash provided from (used in) discontinued
operations 7,211 (6,841) (5,050)
Net increase (decrease) in cash and cash
equivalents 3,631 3,299 (18,787)
Cash and cash equivalents at beginning of year 7,290 3,991 22,778
--------------------------------------
Cash and cash equivalents at end of year $ 10,921 $ 7,290 $ 3,991
======================================
</TABLE>
*Restated as described in Note 1.
================================================================================
See accompanying notes to consolidated financial statements.
20.
<PAGE>
PS GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(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, 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
Net loss (2,610)
Special cash distributions ($4.00 per
share) (7,780) (16,493)
-----------------------------------------------------
Balance at December 31, 1997 6,068 $6,068 $90,640 $ -
=====================================================
</TABLE>
================================================================================
See accompanying notes to consolidated financial statements.
21.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - These consolidated financial statements include the accounts of
PS Group Holdings, Inc. (PSGH) and its subsidiaries. As used in the following
footnotes, "the Company" refers to PS Group Holdings, Inc. and its subsidiaries,
"PSG" refers to PS Group, Inc., "Statex" refers to Statex Petroleum, Inc., and
"PST" refers to PS Trading, Inc.
BUSINESS AND BASIS OF PRESENTATION - PSGH operates, through subsidiaries, three
business segments - aircraft leasing through PSG, oil and gas production and
development through Statex, and fuel storage and distribution through PST. As
more fully described in Note 2, the fuel sales divisions of PST are shown as a
discontinued operation and, accordingly, amounts for 1996 and 1995 have been
restated.
REORGANIZATION AND RESTRICTIONS ON THE TRANSFER OF COMMON SHARES - On June 5,
1996, PSGH and PSG completed a holding company reorganization (the
Reorganization). As a result of the Reorganization, each share of PSG was
converted, on a tax-free basis, into one share of PSGH. The Reorganization did
not result in any change in the consolidated financial condition, business or
assets of PSG. The Reorganization was accounted for on an historical cost basis
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 PSGH. In
general, and subject to an exemption for certain dispositions of shares by
persons who were "pre-existing 5% shareholders" (as defined in Article XI of
PSGH's Restated Certificate of Incorporation) on June 5, 1996, the transfer
restrictions prohibit, without prior approval of the Board of Directors, the
direct or indirect disposition or acquisition of any stock of PSGH by or to any
holder who owns, or would, as a result thereof, own (either directly or through
the tax attribution rules) 5% or more of the stock upon such acquisition. 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.
RECLASSIFICATION - Certain reclassifications have been made to the 1996 and 1995
financial statements to make them comparable to the presentation of the 1997
financial statements.
ACCOUNTING 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 is generally recorded to estimated
residual
================================================================================
22.
<PAGE>
===============================================================================
values (which is sometimes equal to the stipulated lease termination
values) using 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 20 years for other property and equipment. See the discussion below for
the depreciation method used for five BAe 146 aircraft.
CHANGE IN ACCOUNTING ESTIMATE FOR DEPRECIATION - In the second quarter of 1997,
PSG started to record increased depreciation expense on five of the ten BAe 146
aircraft leased to US Airways to reflect lower interim termination values. With
respect to these five aircraft, the specified lease termination values were
below the net book values of the aircraft. This additional depreciation was
recorded to reflect the notification received in the second quarter of 1997 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 is being recorded) at specified lease termination
values. In light of the 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. PSG was previously depreciating all ten aircraft
to the final lease termination amounts on a straight-line basis. The additional
pretax depreciation expense relating to this change was $3.5 million in 1997.
The after-tax effect was $2.1 million ($.34 per share). In the fourth quarter
of 1997, US Airways did exercise its lease termination rights on four of the
aircraft (see Note 6).
ACCOUNTING FOR OIL AND GAS PRODUCING ACTIVITIES - The Company follows the
successful efforts accounting method for oil and gas producing activities, as
described below:
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.
HELD-TO-MATURITY SECURITIES - At December 31, 1997, PSG had $2 million of U.S.
Treasury bills maturing on January 8, 1998 ($1.2 million were carried as non-
current pursuant to a collateral agreement). At December 31, 1996, PSG had $2.9
million of U.S. Treasury bills maturing on January 9, 1997 ($2 million were
carried as non-current pursuant to a collateral agreement). The fair market
value of these investments approximates cost.
AVAILABLE-FOR-SALE SECURITIES - At December 31, 1997 and 1996, PSG had $5
million and $5.9 million, respectively, of U.S. Government securities. The
outstanding balance at December 31, 1997 will mature in August 1998. These
securities are carried at market, which
===============================================================================
23.
<PAGE>
================================================================================
approximates cost.
ENVIRONMENTAL EXPENDITURES - The Company complies with Statement of Position 96-
1, "Environmental Remediation Liabilities," issued by the American Institute of
Certified Public Accountants. In accordance with that statement and, as more
fully described in Note 4, PST recorded environmental remediation expenses of
$5.5 million in 1997 and $1.2 million in 1996.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE - Basic and diluted earnings (loss)
per share are based on the weighted-average number of common shares outstanding
during the period. Because the Company has no dilutive securities, basic and
diluted earnings (loss) per share are the same. During the fourth quarter of
1997 the Company adopted Financial Accounting Standards Board Statement No.128,
"Earnings per Share." This resulted in no change to the Company's earnings per
share data for any period presented in these financial statements.
INVESTMENT TAX CREDITS - Investment tax credits are accounted for using the
flow-through method.
PENDING ACCOUNTING CHANGES - In June 1997, the Financial Accounting Standards
Board issued Statement No. 130 "Reporting Comprehensive Income" and Statement
No. 131 "Disclosures about Segments of an Enterprise and Related Information."
Statement No. 130 establishes standards for reporting comprehensive income in
financial statements. Statement No. 131 expands certain reporting and
disclosure requirements for segments from current standards. The Statements are
effective for fiscal years beginning after December 31, 1997 and the Company
does not expect the adoption of these new standards to result in material
changes to previously reported amounts or disclosures.
2. SALE OF THE ASSETS OF THE FUEL SALES DIVISIONS OF PST
In October 1997, PST completed the sale of the assets of its wholesale fuel
sales division located in Sacramento, California. This division was primarily
engaged in the sale of diesel fuel and gasoline. As a result of the sale, the
realization of accounts receivable, and the liquidation of fuel inventories, PST
recorded a third quarter 1997 pretax loss of $988,000. The loss included
severance and benefits for terminated employees and the estimated losses on the
future collection of accounts receivable which were indemnified by PST.
In February 1998, PST sold the assets of its aviation fuel sales division
located in Dallas, Texas. It is estimated that the combined effects of this
sale, the results of operations from January 1, 1998 until the sale closed, and
the shut-down costs will not result in any material gain or loss.
The sale of both fuel sales divisions of PST has resulted in the discontinuance
of that business segment. Operating revenues of the discontinued fuel sales
divisions of PST were $163,255,000 in 1997, $227,021,000 in 1996, and
$121,209,000 in 1995. The income (loss) from discontinued operations shown on
the Consolidated Statement of Operations is net of applicable income tax
provisions (credits) of ($1,013,000) in 1997, ($436,000) in 1996, and $235,000
in 1995. The loss on disposition shown for 1997 is net of tax credits of
$405,000. Intercompany interest income (expense) based on outstanding advances
to or from PSG recorded by the discontinued operation
================================================================================
24.
<PAGE>
================================================================================
was ($283,000) in 1997, ($306,000) in 1996, and $119,000 in 1995. As of December
31, 1997, the net assets and liabilities of the discontinued operation were as
follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable $7,557
Fuel inventory 3,504
Other current assets 2,424
Office condominium and equipment,
net of accumulated depreciation 727
Current liabilities (6,919)
--------
Net assets $7,293
========
</TABLE>
3. LONG-TERM OBLIGATIONS
At December 31, 1997, PSG had $2.4 million outstanding under its October 1995
amended bank credit agreement consisting entirely of letters of credit (LC's).
No additional LC's or any borrowings are permitted under the agreement which
expires in 2000. All outstanding LC's require cash collateralization and PSG is
required to maintain at least $3 million in cash and cash equivalents.
Statex has a separate bank credit agreement with $7.5 million available at
December 31, 1997. The availability of borrowings in excess of $7.5 million
depends upon the bank's valuation of the oil and gas reserves at the date such
borrowings were requested. At December 31, 1997, $5 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>
1997 1996
-----------------
<S> <C> <C>
Loans secured by six (ten in 1996) BAe 146 aircraft;
bearing interest at 6.6% to 12%; due 2000 $ 9,253 $23,738
Loans secured by five MD-80 aircraft; bearing interest at
8.1% to 10.7%; due 1998 and 1999 5,008 15,041
Loans secured by two MD-80 aircraft; bearing interest at
7.3% and 11.9%; due 2004 and 2006 18,251 19,720
Note payable secured by one Boeing 737 aircraft; bearing
interest at 11.2%; due 2006 10,909 11,641
Note payable secured by one Boeing 737 aircraft; bearing
interest at 11.6%; due 2002 7,090 8,755
Bank credit agreement secured by producing oil and gas
property; bearing interest at prime plus 1%; due 2000 5,000 3,000
----------------
$55,511 $81,895
=================
</TABLE>
Interest payments of $9,933,000, $14,393,000, and $15,285,000 were made in 1997,
1996, and 1995, respectively.
================================================================================
25.
<PAGE>
================================================================================
Principal payments on existing long-term obligations in each of the four years
after 1998 are as follows: $13,906,000 in 1999; $14,617,000 in 2000; $4,965,000
in 2001; and $4,784,000 in 2002. Payments after 2002 total $17,239,000.
4. ENVIRONMENTAL REMEDIATION LIABILITY AND RELATED LITIGATION
Environmental remediation expenses of $5.5 million and $1.2 million were
recorded in 1997 and 1996. These expenses relate to actual and estimated costs
for the investigation and remediation (I&M) of potential soil and groundwater
pollution at San Francisco International Airport (SFIA) where PST, as the
operator of various fuel storage and distribution facilities, has been named as
a potentially responsible party (PRP). Payment of amounts accrued as
environmental remediation expenses is expected to continue through 2005.
PST's estimate of the I&M costs relates primarily to expenditures incurred or
anticipated to be incurred in response to claims by the City and County of San
Francisco (CCSF) for: 1) the removal or cementing-in-place of a 3.6 mile
underground pipeline which has not been used since 1987; 2) PST's estimated
portion of claims by CCSF for both specific projects and airport-wide I&M
expenditures through June 30, 1997 (CCSF is seeking a total reimbursement in
excess of $18.4 million from 26 tenants, plus potentially 51 other firms which
operated at SFIA, and has not, to date, asserted its definitive allocation among
the tenants or operators), plus PST's estimated portion of estimated future CCSF
claims from July 1, 1997 through December 31, 1998; 3) I&M expenses for a small
fuel storage facility removed in 1993; and 4) PST's portion of additional
estimated I&M expenses related to future SFIA construction that will continue
past the year 2000. There is a substantial likelihood that PST's estimate of
SFIA expenditures may change in the near and long term to reflect updated
information concerning: 1) the level, area, and method of remediation of
contamination; 2) possible changes in PST's allocation of remediation expenses;
3) the possibility of claims, other than the Atlantic Richfield Company claims
described below, being filed against PSG or PST by other PRPs; 4) other PRPs not
being able or willing to fund their allocated portion of expenses; and 5) the
size and complexity of the litigation described below, particularly if current
efforts to put in place an alternative dispute resolution, also described below,
are unsuccessful.
On July 11, 1997, CCSF filed a complaint 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 cleanup of
contamination in and around SFIA (the CCSF Action). The CCSF Action, which is
pending in the United States District Court for the Northern District of
California (the Court), alleges claims based on the California Water Code,
breach of contract, violation of CCSF rules and regulations, nuisance, waste,
trespass, negligence, equitable indemnity, and declaratory relief. Neither the
Company nor any of its subsidiaries is a named defendant in the CCSF Action.
PSG and PST, along with the majority of present and former tenants at SFIA, have
entered into a tolling agreement with CCSF which tolls the statute of
limitations and other time-based defenses that any of the parties to the tolling
agreement have against another, and permits the parties to attempt to resolve
their disputes regarding environmental cleanup at SFIA without the necessity of
litigation. None of the parties to the tolling agreement are defendants in the
CCSF Action, but the tolling agreement does not stop the future filing of
lawsuits against PST or PSG by CCSF or others. The
================================================================================
26.
<PAGE>
================================================================================
defendants in the CCSF Action are all present and former tenants who declined to
sign the tolling agreement. The tolling agreement tolls any claims by CCSF and
other participating tenants against PST or PSG arising out of PST's fuel storage
and distribution facilities at SFIA. It also tolls any claims PST or PSG may
have against CCSF or any of the participating tenants relating to environmental
investigatory and cleanup costs at SFIA.
In September 1997, a defendant in the CCSF Action, Atlantic Richfield Company
(ARCO), filed two related cross-actions. In the first counterclaim, filed on
September 2, 1997 against PSG and other parties, ARCO denies that it has any
liability for any investigatory or remediation costs at SFIA and it also denies
that it is jointly and severally liable for any environmental costs. ARCO seeks
a judicial declaration stating the rights, obligations, and responsibilities of
all of the parties for the contamination-related costs alleged in the CCSF
Action. The second cross-action is a third party complaint, filed on September
17, 1997 in which ARCO alleges that PSG agreed to defend and indemnify ARCO in
various lease agreements (covering certain pipelines, equipment, and facilities
at SFIA) for all the contamination claims alleged against ARCO in the CCSF
Action. ARCO asks for unspecified damages for breach of contract, a declaration
of ARCO's rights under such contracts, and ARCO's costs and attorney's fees in
the CCSF Action.
On October 21, 1997, the Court entered an order, based upon a stipulation,
staying discovery in the CCSF Action and the related ARCO cross-actions, staying
the parties' disclosure obligations, staying any motion practice, and staying
any parties' obligations to file responsive pleadings or cross-actions to permit
the parties and potential parties to meet and confer for the purpose of
developing a mediation and/or case management plan for the case. Consequently,
PSG has not filed a responsive pleading to the counterclaim or the third party
complaint, and it has not filed any cross-actions.
Efforts continue to try to avoid the expense of litigation of these claims. On
December 12, 1997, the Court, with the consent of the parties, issued a Case
Management Order (Order). This Order provides for the parties to undertake a
process which might ultimately lead to the claims being settled by alternative
dispute resolution (ADR). This process involves additional fact gathering and
settlement negotiation prior to entering into a mediation phase. The parties
have agreed to submit a status report to the Court on April 15, 1998, and meet
with the Court on April 24, 1998 to report on the progress of the mediation.
The stated goal of the parties is to resolve some claims on or before May 15,
1998, and to commence mediations on the unresolved claims by the end of 1998.
If the parties are unsuccessful in resolving all of the claims in the mediation
process, then litigation of the unresolved claims will proceed in the CCSF
Action. Litigation of the CCSF Action would likely be a substantially lengthier
and more expensive process than ADR.
The Company is unable to determine the extent, if any, to which any expenditures
which PST incurs in connection with environmental costs at SFIA may be
recoverable from third parties, including the prior lessees of the facilities
that PST took by way of assignment, other tenants at SFIA, or PST's insurers.
Both the prior lessees and PST insurers have disputed PST's claims for recovery
of SFIA environmental costs. One of the prior lessees, ARCO, has asserted
indemnification claims against PSG and the remaining prior lessee has indicated
that it will
================================================================================
27.
<PAGE>
================================================================================
assert a similar claim against PST. PST is not able to estimate and therefore
has not recorded an estimate of potential recovery from or by the third parties.
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.
5. COMMON STOCK OPTIONS
During 1997 all outstanding stock options expired. The stock option plan
expired in September 1994 and no more options may be granted.
6. AIRCRAFT LEASES AND AIRCRAFT SOLD
At December 31, 1997, PSG leased jet aircraft to three commercial airlines under
agreements accounted for as operating or financing leases. Revenues from US
Airways equaled 57%, 55%, and 60% of revenues from continuing operations in the
years 1997, 1996, and 1995, respectively.
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>
1998 $18,789 $12,754
1999 18,650 12,837
2000 17,055 9,735
2001 8,228 9,734
2002 2,424 9,736
Later years 9,292 34,564
-------------------
Total $74,438 $89,360
===================
</TABLE>
Information on financing leases at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------
<S> <C> <C>
Total investment $90,697 $98,744
Unguaranteed residual values
(included in total investment) 28,240 28,240
Unearned income 26,903 32,464
</TABLE>
Aircraft under operating leases are depreciated to estimated residual values
(which is sometimes equal to the stipulated lease termination values) totaling
$31.2 million, or 18% of original cost.
During the fourth quarter of 1997, US Airways exercised its lease termination
rights on four BAe 146 aircraft. As described in Note 1, three of these
aircraft were being depreciated at a
================================================================================
28.
<PAGE>
================================================================================
rate that the net book values would equal the termination values and,
accordingly, there were no gains or losses on the sale of these aircraft. PSG
recorded a pretax gain of $.5 million on the sale of the fourth aircraft. Gross
proceeds to PSG for the four aircraft, including debt repaid, were $18.5
million.
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.
7. PROVISION (CREDIT) FOR TAXES
The provision (credit) for taxes from continuing operations was comprised of (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------
<S> <C> <C> <C>
Current:
Federal taxes $ 515 $ 396
State taxes 94 23 $ 62
Deferred taxes (904) 2,916 1,914
Reduction of tax liability (5,564)
----------------------------
$(295) $(2,229) $1,976
============================
</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 an
evaluation of the pending California Franchise Tax Board (CFTB) assessment
described below.
Income taxes and related interest of $367,000, $361,000, and $1,509,000 were
paid in 1997, 1996, and 1995, respectively. In addition, refunds of prior
years' income taxes of $951,000, $132,000, and $123,000 were received in 1997,
1996, and 1995, 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)
---------------------
1997 1996 1995
---------------------
<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 1 6 6
Other 1 1
---------------------
(34)% (38)% 42%
=====================
</TABLE>
================================================================================
29.
<PAGE>
================================================================================
Significant components of deferred tax liabilities and assets for federal and
state income taxes as of December 31, 1997 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 61,794 $ 75,481
Net effect of tax benefit transfer agreement 1,218 218
Other 10,104 10,421
--------------------
Total deferred tax liabilities 73,116 86,120
Deferred tax (assets):
Investment tax credit carryforward (12,524) (12,524)
Financing leases (11,101) (8,974)
Write-downs of subsidiaries (9,943) (9,943)
Net operating loss carryforward (9,250) (23,550)
Capital loss carryforward (3,783) (3,783)
AMT credit carryforward (3,753) (3,460)
Other (38) (40)
--------------------
Total deferred tax (assets) (50,392) (62,274)
Valuation allowance 13,726 13,726
--------------------
Net deferred tax (assets) (36,666) (48,548)
--------------------
Net deferred tax liability $ 36,450 $ 37,572
====================
</TABLE>
Certain reclassifications were made in the 1996 presentation of deferred tax
assets to be consistent with the way the actual 1996 income tax returns were
filed.
The valuation allowance against deferred tax assets relates to capital losses
for which future realization is uncertain.
There is a federal tax net operating loss carryforward (NOL) of approximately
$24.5 million at December 31, 1997, 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
$11.3 million starts expiring in 1998. The unused investment tax credit (ITC)
at December 31, 1997 is $12.5 million, which can be used to offset up to 75% of
federal tax liability, expires from 2000 to 2002.
Because the Company has NOLs it is subject to certain tax regulations which
could severely limit the usage and 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 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.
================================================================================
30.
<PAGE>
================================================================================
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 $9.2 million through December 31, 1997. PSG is protesting the
adjustments proposed in these notices and the Company believes that adequate
provision has been made in the Consolidated Financial Statements for possible
assessments of additional taxes and interest.
8. BUSINESS SEGMENTS
The Company operates, through subsidiaries, three business segments - aircraft
leasing, oil and gas production and development, and fuel storage and
distribution. 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
business segments for each of the three years ended December 31, 1997 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>
1997 1996 1995
--------------------------------
REVENUES FROM CONTINUING OPERATIONS:
<S> <C> <C> <C>
Principal business segments $ 41,793 $ 45,268 $ 43,104
Corporate and other 1,972 2,763 3,085
--------------------------------
Total $ 43,765 $ 48,031 $ 46,189
================================
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INTEREST EXPENSE
AND TAXES:
Principal business segments $ 11,463 $ 23,028 $ 20,828
Corporate and other (950) (1,181) (528)
--------------------------------
Total $ 10,513 $ 21,847 $ 20,300
================================
DEPRECIATION, DEPLETION, AND
AMORTIZATION:
Principal business segments $ 18,640 $ 16,204 $ 15,920
Corporate and other 51 46 64
--------------------------------
Total $ 18,691 $ 16,250 $ 15,984
================================
IDENTIFIABLE ASSETS AT YEAR-END:
Principal business segments $195,186 $236,849 $254,838
Corporate and other 22,543 26,200 32,270
Discontinued operations 7,293 17,034 12,204
--------------------------------
Total $225,022 $280,083 $299,312
================================
CAPITAL ADDITIONS:
Principal business segments $ 5,391 $ 4,077 $ 1,263
Corporate and other 18 33
--------------------------------
Total $ 5,409 $ 4,110 $ 1,263
================================
</TABLE>
================================================================================
31.
<PAGE>
================================================================================
9. 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 following methods and assumptions 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.
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, 1997 and 1996
is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $10,921 $10,921 $ 7,290 $ 7,290
U.S. Government securities 7,015 7,015 8,798 8,801
Notes receivable 2,041 1,994 2,565 2,582
Cash collateral account 2,360 2,360 5,471 5,471
------------------------------------------
$22,337 $22,290 $ 24,124 $ 24,144
==========================================
Financial liabilities:
Debt instruments $73,722 $77,390 $105,785 $109,110
==========================================
</TABLE>
================================================================================
32.
<PAGE>
================================================================================
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
1997 QUARTERS First* Second* Third* Fourth
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Continuing operations:
Revenues $11,002 $10,575 $11,446 $10,742
Gross profit 6,019 111 2,529 4,983
Net income (loss) from continuing operations $ 1,022 $(2,111) $ (676) $ 1,203
Net loss from discontinued operations (14) (1,658) (329) (47)
-------------------------------------------
Net income (loss) $ 1,008 $(3,769) $(1,005) $ 1,156
===========================================
Basic and diluted earnings (loss) per share:
Continuing operations $ .17 $ (.35) $ (.11) $ .20
Discontinued operations (.27) (.06) (.01)
-------------------------------------------
Net income (loss) $ .17 $ (.62) $ (.17) $ .19
===========================================
1996 QUARTERS First* Second* Third* Fourth*
- -----------------------------------------------------------------------------------------------
Continuing operations:
Revenues $11,150 $11,175 $11,302 $14,404
Gross profit 5,825 5,353 6,004 8,890
Net income from continuing operations $ 753 $ 358 $ 1,136 $ 8,029
Net (income) loss from discontinued operations 118 1,209 (88) (1,905)
-------------------------------------------
Net income $ 871 $ 1,567 $ 1,048 $ 6,124
===========================================
Basic and diluted earnings (loss) per share:
Continuing operations $ .12 $ .06 $ .19 $ 1.32
Discontinued operations .02 .20 (.02) (.31)
-------------------------------------------
Net income $ .14 $ .26 $ .17 $ 1.01
===========================================
</TABLE>
* Restated as described in Note 1.
Gross profit is income from continuing operations before interest expense,
general and administrative expenses, and taxes.
As described in Note 6, US Airways exercised its termination rights on four BAe
146 aircraft in the fourth quarter of 1997. A pretax gain of $.5 million was
recorded on one of the aircraft and no gain or loss was recorded on the other
three. 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 7). Also in the fourth quarter of 1996,
================================================================================
33.
<PAGE>
================================================================================
PSG sold its one-third interest in six 737-200 aircraft for a pretax gain of
$1.8 million.
11. 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, 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
Revisions of previous estimates (102) 1,445
Extensions, discoveries, and other additions 335 427
Purchases of reserves in place 23 737
Production (395) (767)
----------------
December 31, 1997 4,912 4,653
================
Oil Gas
(Bbls) (Mcf)
----------------
Net proved developed reserves at December 31, 1995 3,237 2,960
================
Net proved developed reserves at December 31, 1996 3,407 2,811
================
Net proved developed reserves at December 31, 1997 3,408 4,313
================
</TABLE>
* Bbls = barrels; Mcf = one thousand cubic feet
================================================================================
34.
<PAGE>
================================================================================
CAPITALIZED COSTS AND COSTS INCURRED - The capitalized costs at December 31,
1997, 1996, and 1995 relating to oil and gas producing activities (all of which
are in the continental United States) and costs incurred for the years ending
December 31, 1997, 1996, and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Capitalized costs:
Proved properties $ 44,325 $ 38,810 $ 35,118
Unproved properties net of allowance for
abandonments 39 15 24
--------------------------------
Total 44,364 38,825 35,142
Accumulated depreciation, depletion, and
amortization (21,658) (18,549) (17,665)
--------------------------------
Net capitalized costs $ 22,706 $ 20,276 $ 17,477
================================
Costs incurred:
Property acquisition costs $ 2,062 $ 1,805 $ 325
Exploration costs, including unsuccessful wells 6 6 49
Development costs 3,502 2,141 653
--------------------------------
Total expenditures $ 5,570 $ 3,952 $ 1,027
================================
</TABLE>
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES - The results of
operations for oil and gas producing activities (excluding general and
administrative expenses and interest costs) for the years ended December 31,
1997, 1996, and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------
<S> <C> <C> <C>
Oil and gas revenues $ 9,925 $ 8,573 $ 6,848
Production costs (5,298) (4,050) (3,923)
Exploration costs (6) (6) (49)
Depreciation, depletion and amortization (3,047) (2,010) (1,747)
-----------------------------
Income before income tax expense 1,574 2,507 1,129
Income tax expense (551) (1,027) (463)
-----------------------------
Income from operations for producing activities $ 1,023 $ 1,480 $ 666
=============================
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - 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
================================================================================
35.
<PAGE>
================================================================================
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 future cash inflows
are calculated using the market price of oil and gas at the end of the year
presented. The following tables present the required information relating to
proved oil and gas reserves as of December 31, 1997, 1996, and 1995 (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Future cash inflows $ 92,560 $139,650 $ 97,879
Future production costs (51,685) (59,125) (45,508)
Future development and abandonment costs (6,582) (7,667) (6,874)
--------------------------------
Future net cash inflows before income taxes /(a)/ 34,293 72,858 45,497
Future income tax expenses (5,936) (18,146) (10,064)
--------------------------------
Future net cash inflows 28,357 54,712 35,433
Discount factor at 10% (13,621) (24,139) (17,584)
--------------------------------
Standardized measure of discounted future
net cash inflows $ 14,736 $ 30,573 $ 17,849
================================
</TABLE>
(a) The present value of future net cash inflows before income taxes
discounted at 10% was $17,006, $38,276, and $18,970 as of December 31, 1997,
1996, and 1995, respectively.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------
Year-end market price used for future cash inflows:
<S> <C> <C> <C>
Crude oil - per barrel $15.50 $24.25 $18.00
Natural gas - per thousand cubic feet 2.23 3.27 1.90
</TABLE>
The following are the principal sources of change in the standardized measure of
discounted future net cash inflows for the years ended December 31, 1997, 1996,
and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------
<S> <C> <C> <C>
Standardized measure at beginning of the year $30,573 $17,849 $16,246
Revenues less production costs for the year (4,627) (4,404) (2,885)
Net change in sales prices net of production costs (21,573) 11,819 3,989
Extensions and discoveries 1,367 2,147 216
Changes in estimated future development costs 45 (304) (239)
Costs incurred that reduced future development costs 1,760 1,976 132
Revisions of previous quantity estimates 511 (3,572) (121)
Accretion of discount 3,828 2,134 1,897
Net change in income tax expense 4,184 (4,210) (769)
Purchase of reserves in place 1,583 5,115 615
Sale of reserves in place (3)
Changes in production rates (timing) and other (2,915) 2,026 (1,232)
-----------------------------
Standardized measure at end of year $14,736 $30,573 $17,849
=============================
</TABLE>
===============================================================================
36.
<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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Diego, California
February 13, 1998
================================================================================
37.
<PAGE>
PS GROUP HOLDINGS, INC.
DIRECTORS AND OFFICERS
================================================================================
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS MANAGEMENT
PS GROUP HOLDINGS, INC. PS GROUP HOLDINGS, INC. PS TRADING, INC.
AND PS GROUP, INC.
Charles E. Rickershauser, Jr. Charles E. Rickershauser, Jr. L. Travis Sanders
Chairman of the Board & Chairman of the Board & General Manager - Aviation Marketing
Chief Executive Officer Chief Executive Officer
John Shortley
J.P. Guerin* Lawrence A. Guske Controller
Vice Chairman of the Board, Vice President - Finance &
Private Investor Chief Financial Officer
William H. Borthwick Johanna Unger OFFICERS
Attorney-at-Law Vice President, Controller & STATEX PETROLEUM, INC.
Secretary
Steven D. Broidy
Private Investor B. Andrew Wilkinson
President & Chief Operating
Robert M. Fomon Officer
President, Robert M. Fomon
and Company (a private Dhar Carman
investment company) Executive Vice President &
Chief Financial Officer
Donald W. Killian, Jr.*
Retired Attorney-at-Law Stephanie Bronson
Controller
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>
================================================================================
38.
<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.
P.O. Box 3315
South Hackensack, New Jersey 07606
800-356-2017
www.chasemellon.com
The Common Stock is listed on the New York Stock Exchange and the Pacific
Exchange under the symbol: PSG. As of March 4, 1998, there were 1,397 holders
of record of the Company's Common Stock.
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
June 5, 1998
9:00 a.m.
Los Angeles Marriott - Downtown
333 South Figueroa Street
Los Angeles, California 90071
_________________
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 1997 Annual Report on Form 10-K (without exhibits).
MARKET PRICES OF COMMON STOCK
<TABLE>
<CAPTION>
High Low High Low
---- --- ---- ---
1997 1996
---------------- -----------------
<S> <C> <C> <C> <C>
First quarter 14 1/2 12 1/2 11 1/8 9 3/8
Second quarter 13 7/8 12 1/8 15 10 1/2
Third quarter 14 15/16 12 3/8 13 5/8 11 5/8
Fourth quarter 16 3/8 11 1/8 14 7/8 12 3/8
</TABLE>
DIVIDENDS AND CASH DISTRIBUTIONS ON COMMON STOCK
Special cash distributions were declared and paid in 1997, 1996, and 1995.
However, they are not precedents for future distributions. Following is a
summary of these special cash distributions:
<TABLE>
<CAPTION>
Form
1099
Year Tax mailing
Distribution distributed Year status date
per share by Company received (a) (d)
- --------------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C>
December 1995 1996 Return of Jan. '97
1995-$1.50 capital (b)
December 1996 1997 Return of Jan. '98
1996-$1.50 capital (b)
August 1997 1997 Taxable Jan. '98
1997-$1.50 dividend
December 1997 1998 (c) Jan. '99
1997-$2.50
</TABLE>
(a) Tax status is subject to review by the IRS. Stockholders are advised to
consult their tax advisors.
(b) Constitutes a return of capital and is not taxable as a dividend.
(c) Tax status to be determined - Form 1099 to be mailed in January 1999.
(d) Form 1099 is mailed in January of the year following the calendar year in
which the distribution is received.
================================================================================
39.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 1, 1998
Name of Corporation Jurisdiction of Incorporation
- ------------------- -----------------------------
PS Group, Inc. Delaware
PS Trading, Inc. California
PSG Services, Inc. Delaware
PSG Systems, Inc. Delaware
Statex Petroleum, Inc. California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,921
<SECURITIES> 5,815
<RECEIVABLES> 6,090
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,380
<PP&E> 221,818
<DEPRECIATION> 125,602
<TOTAL-ASSETS> 225,022
<CURRENT-LIABILITIES> 26,056
<BONDS> 0
0
0
<COMMON> 6,068
<OTHER-SE> 90,640
<TOTAL-LIABILITY-AND-EQUITY> 225,022
<SALES> 10,016
<TOTAL-REVENUES> 43,765
<CGS> 5,899
<TOTAL-COSTS> 5,899
<OTHER-EXPENSES> 8,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,370
<INCOME-PRETAX> (857)
<INCOME-TAX> (295)
<INCOME-CONTINUING> (562)
<DISCONTINUED> (2,048)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,610)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
