<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-7141
PS GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0692068
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
4370 LA JOLLA VILLAGE DRIVE, SUITE 1050
SAN DIEGO, CALIFORNIA 92122
(Address of principal executive offices)
(Zip code)
(619) 642-2999
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 4, 1998: 6,068,313 shares of common stock, $1 par
value.
- --------------------------------------------------------------------------------
<PAGE>
PS GROUP HOLDINGS, INC.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1996 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q for the first quarter of 1998 may be deemed forward-looking such as:
information relating to the future prospects of the aircraft lessees of PS
Group, Inc. (PSG), the aircraft leasing subsidiary of PS Group Holdings, Inc.
(the Company); the potential liability for environmental contamination at the
San Francisco International Airport (SFIA), the related cost of remediation and
pending and potential litigation, and the recoverability of any portion of this
cost from third parties; the availability of certain tax benefits, and the
amount of otherwise-taxable income against which such benefits may be offset;
and the volatility of the prices of crude oil and natural gas and the effect on
Statex Petroleum, Inc. (Statex), the oil and gas production and development
segment of the Company. Investors are cautioned that all forward-looking
statements involve risks and uncertainties, including, but not limited to: the
impact of the financial condition and results of operations of the lessees of
PSG's aircraft; the uncertainties inherent in estimating the cost of
environmental remediation and related pending and potential litigation at SFIA;
the efficacy of the transfer restrictions on the Company's common stock in
preserving the Company's substantial tax benefits, the Company's ability to
realize such benefits, and the possible effect of the availability of such
benefits if stockholders of the Company do not vote to extend such transfer
restrictions beyond their scheduled expiration in the year 2000; the impact of
the volatility of the prices of crude oil and natural gas on Statex; the impact
of economic conditions on each business segment; the impact of competition; the
impact of governmental legislation and regulation and possible future changes
therein; and other risks detailed in this Form 10-Q, the 1997 Annual Report to
Stockholders of the Company, and in other filings the Company has made with the
Securities and Exchange Commission. Should any of such risks or uncertainties
materialize or should other assumptions prove incorrect, actual results or
outcomes may vary materially from those contemplated in such forward-looking
statements. The Company does not undertake to publicly update or revise its
forward-looking statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Included herein on pages F-1 to F-4.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Included herein on pages F-5 and F-6.
1
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the Company's Form 10-Q's for the quarters ended
June 30 and September 30, 1997, and in the Form 10-K for the year ended December
31, 1997, the City and County of San Francisco (CCSF), on July 11, 1997, filed a
complaint in the Superior Court, State of California, County of San Francisco
(the Court), against various present and former tenants who had operated fuel
storage and other facilities at SFIA seeking to recover costs incurred in
connection with the investigation and clean-up of contamination in and around
SFIA. The action was removed to the United States District Court for the
Northern District of California and is now captioned City and County of San
Francisco v. ARCO, et. al., U.S. District Court, N. D. Cal., Case No. C97-2965
CAL (the CCSF Action). For additional information with respect to this action
and two related cross actions, see Note 4 of the Notes to Consolidated Financial
Statements included in the Company's 1997 Annual Report to Stockholders (Exhibit
13 to the Company's Form 10-K for the year ending December 31, 1997).
The status report on the CCSF Action previously scheduled to be delivered
to the Court on April 15, 1998 has been re-set for July 13, 1998 with a case
management conference set for July 24, 1998, and mediation to commence among
willing parties on September 22, 1998.
The Company is unable to determine whether any of the claims mentioned
above will ultimately have any material adverse consequences to it beyond the
environmental remediation charges the Company recorded in the year ended
December 31, 1997 described in Note 4 of the Notes to Consolidated Financial
Statements included in the Company's 1997 Annual Report to Stockholders (Exhibit
13 to the Company's Form 10-K for the year ending December 31, 1997).
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
2
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K
March 5, 1998 Reported, effective February 28, 1998, that the Company
had sold the assets of the aviation fuel division of
the Company's fuel sales and distribution subsidiary.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 4, 1998
PS GROUP HOLDINGS, INC.
-----------------------
(Registrant)
/s/ L.A. Guske
------------------------
LAWRENCE A. GUSKE
Vice President - Finance and
Chief Financial Officer and
Authorized Officer of the Registrant
3
<PAGE>
PS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
--------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,556 $ 10,921
U.S. Government securities 5,682 5,815
Accounts and notes receivable 5,002 6,090
Current portion of aircraft leases 7,615 8,630
Other current assets 1,613 1,631
Net current assets of discontinued operation 6,029 7,293
-------- --------
Total current assets 38,497 40,380
Property and equipment, net 23,860 23,772
Aircraft leased under operating leases, net 69,965 72,444
Investment in aircraft financing leases 78,346 82,067
Other assets 5,753 6,359
-------- --------
$216,421 $225,022
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 1,599 $ 2,057
Accrued interest 3,360 4,404
Environmental remediation liability 1,263 1,384
Current portion of long-term obligations 16,481 18,211
-------- --------
Total current liabilities 22,703 26,056
Long-term obligations 49,898 55,511
Deferred income taxes 36,224 36,450
Environmental remediation liability 3,806 3,716
Other liabilities 6,568 6,581
Stockholders' equity:
Common stock 6,068 6,068
Additional paid-in capital 90,640 90,640
a Retained earnings 514
-------- --------
Total stockholders' equity 97,222 96,708
-------- --------
$216,421 $225,022
======== ========
</TABLE>
See accompanying notes.
F-1
<PAGE>
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1998 1997 *
---------- ---------
<S> <C> <C>
Continuing operations:
Revenues:
Aircraft leasing $6,228 $ 7,941
Oil and gas production 1,787 2,516
Fuel storage and distribution 192 150
Interest and other income 301 395
------ -------
8,508 11,002
------ -------
Costs and expenses:
Cost of sales 1,365 1,300
Depreciation, depletion, and amortization 3,164 3,845
General and administrative expenses 887 1,020
Interest expense 2,195 3,030
------ -------
7,611 9,195
------ -------
Income from continuing operations before taxes 897 1,807
Provision for taxes 383 785
------ -------
Income from continuing operations 514 1,022
Discontinued operation, net of tax - (14)
------ -------
Net income $ 514 $ 1,008
====== =======
Basic and diluted earnings per share:
Continuing operations $ .08 $ .17
Discontinued operation - -
------ -------
Net income per share $ .08 $ .17
====== =======
Shares used in determining basic and diluted
earnings per share 6,068 6,068
====== =======
</TABLE>
* Restated as described in Note 1.
See accompanying notes.
F-2
<PAGE>
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997 *
------- --------
<S> <C> <C>
Cash flows from continuing operations:
Cash provided from operating activities $ 3,362 $ 5,389
Cash flows from investing activities:
Proceeds from maturities of U.S. Government securities 454 531
Capital additions (primarily oil and gas related) (798) (723)
Financing leases and other 4,869 6,387
------- --------
Net cash provided from investing activities 4,525 6,195
------- --------
Cash flows from financing activities:
Additions to long-term obligations 300
Reductions in long-term obligations (7,343) (10,126)
------- --------
Net cash used in financing activities (7,343) (9,826)
------- --------
Cash provided from discontinued operation 1,091 2,142
------- --------
Net increase in cash and cash equivalents 1,635 3,900
Cash and cash equivalents at beginning of period 10,921 7,290
------- --------
Cash and cash equivalents at end of period $12,556 $ 11,190
======= ========
</TABLE>
* Restated as described in Note 1.
See accompanying notes.
F-3
<PAGE>
PS GROUP HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) In the opinion of management, the accompanying Unaudited Condensed
Consolidated Financial Statements include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair statement of the
consolidated financial position at March 31, 1998, and the results of
operations for the three months ended March 31, 1998 and 1997, and the cash
flows for the three months ended March 31, 1998 and 1997. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results
could differ from those estimates. During the fourth quarter of 1997 and
the first quarter of 1998, the assets of the wholesale and aviation fuel
sales divisions, respectively, of PS Trading, Inc. were sold. Accordingly,
fuel sales is shown as a discontinued operation in all periods presented
and amounts for 1997 have been restated. Certain reclassifications have
been made to the 1997 financial statements to make them comparable to the
1998 presentation. These Unaudited Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto contained in the Company's 1997 Annual Report
to Stockholders (Exhibit 13 to the Company's Form 10-K for the year ending
December 31, 1997).
(b) Restrictions on the transfer of common shares - There are certain
restrictions imposed on the transfer of common shares of the Company. In
general, and subject to an exemption for certain dispositions of shares by
persons who were "pre-existing 5% shareholders" (as defined in the
Company's Restated Certificate of Incorporation) on June 5, 1996, the
transfer restrictions prohibit, without prior approval of the Board of
Directors, the direct or indirect disposition or acquisition of any stock
of the Company by or to any holder who owns, or would, as a result thereof,
own (either directly or through the tax attribution rules) 5% or more of
the stock upon such acquisition. These restrictions have been imposed in
order to help preserve the Company's substantial net operating loss and
investment tax credit carryforwards and other tax benefits by decreasing
the risk of an "ownership change" for federal income tax purposes. The
transfer restrictions, by their terms, are scheduled to expire immediately
following the conclusion of the Company's annual meeting of stockholders
for the year 2000, unless the stockholders pass a resolution extending such
expiration date.
F-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
At March 31, 1998, the Company's principal sources of liquidity were cash,
cash equivalents, and U.S. Government securities totaling $18.2 million, a $1.5
million increase from December 31, 1997. The major changes in cash and cash
equivalents are reported in the Unaudited Condensed Consolidated Statements of
Cash Flows. Working capital increased by $1.5 million since December 31, 1997.
The Company's capitalization consisted of 41% long and short-term obligations
and 59% equity at March 31, 1998 compared to 43%/57% at December 31, 1997.
At the end of the first quarter of 1998, $2.4 million was outstanding under a
bank credit agreement, consisting entirely of letters of credit, all of which
were fully cash collateralized. No additional letters of credit or borrowings
are permitted under the bank credit agreement.
Statex has a separate bank credit agreement collateralized by its major oil
properties. As of March 31, 1998, $5 million was borrowed under this credit
agreement out of a total availability of $7.5 million. The availability of
borrowings depends upon the bank's valuation of the oil and gas reserves at the
date such borrowings are requested. This source of funding is intended for the
acquisition and development of oil and gas properties.
PSG's aircraft lease portfolio represents the major portion of the Company's
assets and its largest source of cash flow. The lease portfolio consists of 15
aircraft, of which 12 are leased to US Airways, Inc. (US Airways). PSG's assets
include $101.9 million for which realization is substantially dependent upon the
future performance of US Airways under those aircraft leases with PSG. For a
complete discussion of US Airways' relationships to PSG's financial condition,
refer to the section entitled "Aircraft Leasing" in the Company's 1997 Annual
Report to Stockholders (Exhibit 13 to the Company's Form 10-K for the year
ending December 31, 1997). PSG refers readers to public information regarding
US Airways for further details relating to its financial condition.
The Company believes that its cash, cash equivalents, U.S. Government
securities, projected cash flow, and the availability under Statex's bank credit
agreement are adequate to meet the operating and planned capital needs of the
Company in both the short and long-term.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997
REVENUES
Aircraft leasing revenues were 22% lower in the first quarter of 1998
compared to the same period in 1997 principally due to fewer aircraft under
lease. Four BAe 146 aircraft were sold in the fourth quarter of 1997 reducing
the total number of aircraft under lease from 19 to 15.
Oil and gas production revenues for the first quarter of 1998 were 29% lower
compared to 1997's first quarter principally due to lower oil and gas prices.
F-5
<PAGE>
COSTS AND EXPENSES
The decrease in depreciation expense in the first quarter of 1998 relates
primarily to the sale of the four BAe 146 aircraft discussed above.
General and administrative expenses were lower in the first quarter of 1998
compared to 1997 primarily due to lower personnel costs and professional fees.
Interest expense was lower in the first quarter of 1998 compared to the same
period in 1997 primarily due to lower levels of outstanding debt.
INCOME TAXES
Taxes in both 1998 and 1997 differ from the corporate federal tax rate
primarily because of the effect of state taxes.
SEGMENT RESULTS
PSG recorded lower net income in the first quarter of 1998 compared to 1997's
first quarter, primarily as a result of fewer aircraft on lease in 1998. Statex
recorded a net loss in the first quarter of 1998 due to sharply lower oil and
reduced gas prices in 1998 versus 1997. There is significant volatility in oil
and gas prices and such volatility is expected to continue.
F-6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,556
<SECURITIES> 5,682
<RECEIVABLES> 5,002
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,497
<PP&E> 222,536
<DEPRECIATION> 128,711
<TOTAL-ASSETS> 216,421
<CURRENT-LIABILITIES> 22,703
<BONDS> 0
0
0
<COMMON> 6,068
<OTHER-SE> 91,154
<TOTAL-LIABILITY-AND-EQUITY> 216,421
<SALES> 8,207
<TOTAL-REVENUES> 8,508
<CGS> 1,365
<TOTAL-COSTS> 4,529
<OTHER-EXPENSES> 887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,195
<INCOME-PRETAX> 897
<INCOME-TAX> 383
<INCOME-CONTINUING> 514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 514
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
