<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: June 30, 1999
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)
(858) 642-2999
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 6, 1999: 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 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
for the second quarter of 1999 may be deemed forward-looking, such as: the
possibility of a 1999 sale of one BAe 146 aircraft owned by PS Group, Inc.
("PSG") and the impact of such sale on PSG's financial condition, results of
operations, and tax benefits; information related to the expected final
settlement with the California Franchise Tax Board ("CFTB"); the availability of
certain tax benefits and the amount of tax benefits that will be used on account
of the April 1999 sale of five BAe 146 aircraft; 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 including
information related to the proposed settlement agreement between PS Trading,
Inc. ("PST") and the City and County of San Francisco ("CCSF"); the volatility
of the prices of crude oil and natural gas and the resultant effect on Statex
Petroleum, Inc. ("Statex"), the oil and gas production and development segment
of the Company, the effect of the volatility of the price of crude oil on the
fair value of Statex's commodity swap agreement for crude oil and Statex's
ability to remain in compliance with financial loan covenants contained in its
separate bank credit agreement, and the Company's ability to pay the principal
and interest outstanding under this credit agreement if the bank is unwilling to
grant future waivers and declares the loan due and payable; and the impact of
Year 2000 issues on the Company. Investors are cautioned that all forward-
looking statements involve risks and uncertainties, including, but not limited
to: the effect of the possible 1999 sale of one BAe 146 aircraft on the
Company's financial condition, results of operations, and tax benefits; the
possibility that the settlement of tax claims asserted by the State of
California will not become final or will be for an amount in excess of the
amount paid by PSG or will involve litigation; the efficacy of the transfer
restrictions on the Company's common stock in preserving the Company's remaining
substantial tax benefits, the Company's ability to realize such benefits, and
the possible effect on 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 uncertainties inherent in estimating the cost
of environmental remediation and related pending and potential litigation at
SFIA, including the possibility that the proposed settlement between PST and
CCSF will not be approved or will involve litigation; the future effect on
earnings of Statex's commodity swap agreement; the possibility of future non-
compliance with financial loan covenants by Statex, and the possible inability
of Statex to obtain waivers from its bank with respect to such noncompliance;
the impact on the business, financial condition and results of operations of the
Company if the Company or its subsidiaries, or third parties with which they
have material business relationships, are unsuccessful in solving the Year 2000
issues in a timely manner; 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 for the second quarter of 1999, the Company's Form 10-K/A for 1998
(including portions of the Company's Annual Report to Stockholders for 1998
incorporated by reference in such Form 10-K/A), 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
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PS Group Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1998
----------- -----------
ASSETS (Unaudited) (Note A)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,703 $ 3,747
U.S. Government securities 19,137 636
Accounts and notes receivable 3,219 4,894
Current portion of aircraft leases 7,232 8,366
Other current assets 1,585 1,410
----------- -----------
Total current assets 35,876 19,053
Property and equipment, net 11,222 10,980
Aircraft leased under operating leases, net 42,136 62,359
Investment in aircraft financing leases 71,052 74,944
Other assets 3,083 4,393
----------- -----------
$ 163,369 $ 171,729
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 2,374 $ 1,897
Accrued interest 853 1,023
Environmental remediation liability 1,795 1,076
Current portion of long-term obligations 8,146 19,706
----------- -----------
Total current liabilities 13,168 23,702
Long-term obligations 35,763 36,605
Deferred income taxes 20,212 18,680
Environmental remediation liability 2,713 3,498
Other liabilities 7,400 7,580
Stockholders' equity:
Common stock 6,068 6,068
Additional paid-in capital 75,596 75,596
Retained earnings 2,449 -
----------- -----------
Total stockholders' equity 84,113 81,664
----------- -----------
$ 163,369 $ 171,729
=========== ===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
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PS Group Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Aircraft leasing $ 4,374 $ 6,060 $ 10,097 $ 12,288
Gain on aircraft sales 967 - 967 -
Oil and gas production 1,763 1,593 2,832 3,380
Fuel storage and distribution 202 190 387 382
Interest and other income 306 430 476 731
-------- -------- -------- --------
7,612 8,273 14,759 16,781
-------- -------- -------- --------
Costs and expenses:
Cost of sales 1,049 1,229 1,928 2,594
Depreciation, depletion, and 1,592 3,177 4,365 6,341
amortization
General and administrative expenses 730 701 1,741 1,588
Interest expense 1,124 1,800 2,503 3,995
-------- -------- -------- --------
4,495 6,907 10,537 14,518
-------- -------- -------- --------
Income before taxes 3,117 1,366 4,222 2,263
Provision for taxes 1,289 573 1,773 956
-------- -------- -------- --------
Net income $ 1,828 $ 793 $ 2,449 $ 1,307
======== ======== ======== ========
Basic and diluted net income per share $ .30 $ .13 $ .40 $ .22
======== ======== ======== ========
Shares used in determining basic and
diluted net income per share 6,068 6,068 6,068 6,068
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
3
<PAGE>
PS Group Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from continuing operations:
Cash provided from operating activities $ 8,632 $ 7,651
Cash flows from investing activities:
Proceeds from disposition of equipment 20,151 -
Purchase of U.S. Government securities (18,300) (13,955)
Proceeds from maturities of U.S. Government securities 332 454
Capital additions (primarily oil and gas related) (889) (1,314)
Financing leases and other 2,897 5,181
-------- --------
Net cash provided from (used in) investing activities 4,191 (9,634)
-------- --------
Cash flows from financing activities:
Additions to long-term obligations 850 -
Reductions in long-term obligations (13,252) (10,672)
-------- --------
Net cash used in financing activities (12,402) (10,672)
-------- --------
Cash provided from discontinued operation 535 5,591
-------- --------
Net increase (decrease) in cash and cash equivalents 956 (7,064)
Cash and cash equivalents at beginning of period 3,747 10,921
-------- --------
Cash and cash equivalents at end of period $ 4,703 $ 3,857
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
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PS Group Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
Note A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. 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. Operating results for the
quarter and six month period ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's 1998 Annual Report to Stockholders
(Exhibit 13 to the Company's Form 10-K/A for the year ending December 31, 1998).
Note B. Aircraft Sales and Potential Additional 1999 Aircraft Sale
In April 1999, PSG sold five BAe 146 aircraft to US Airways, Inc. ("US
Airways"). The Company's second quarter 1999 net gain from these sales was
approximately $.6 million - $.09 per share. Net cash proceeds were
approximately $12.5 million after debt and accrued interest payments of
approximately $7.6 million. It is estimated that the tax gain on these sales
will utilize all of the estimated net operating loss carryforwards remaining as
of December 31, 1998.
US Airways continues to indicate that it might exercise its lease termination
rights on the last remaining BAe 146 aircraft leased from PSG, perhaps as early
as the third quarter of 1999. PSG estimates that the sale of the sixth and last
BAe aircraft in the latter part of 1999 would not result in any net gain or loss
and that net cash proceeds would be approximately $1 million after debt
repayments of approximately $1.5 million. It is estimated that such a sale
would utilize approximately $.7 million of the estimated remaining investment
tax credits. PSG has no control over US Airways exercising its lease
termination rights on this aircraft.
5
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Note C. Expected Final Settlement with the CFTB
PSG's tentative settlement with the State of California relating to net tax
claims for the years 1987 through 1990 will become final on August 20, 1999 if,
as expected, no further action is taken by the CFTB. PSG paid the $6 million
tentative settlement amount in November 1998.
Note D. 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 were imposed in order to help preserve the
Company's 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. At the time these restrictions were imposed, the Company had
substantial federal net operating loss carryforwards ("NOL's"). It is estimated
that with the sale of the five BAe aircraft in April 1999, these NOL's have been
completely utilized. However, investment tax credit carryforwards and other tax
benefits still remain. 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.
Note E. Segment Information
<TABLE>
<CAPTION>
Three Months Six Months
Ending June 30, Ending June 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Aircraft leasing $ 5,341 $ 6,060 $ 11,064 $ 12,288
Oil and gas production 1,763 1,593 2,832 3,380
Fuel storage and distribution 202 190 387 382
Interest and other 306 430 476 731
-------- -------- -------- --------
Consolidated revenues $ 7,612 $ 8,273 $ 14,759 $ 16,781
======== ======== ======== ========
Segment profit (loss):
Aircraft leasing $ 3,223 $ 2,057 $ 5,245 $ 3,733
Oil and gas production 162 (547) (120) (954)
Fuel storage and distribution 87 87 195 156
Other 258 370 447 772
Unallocated corporate expenses (613) (601) (1,545) (1,444)
-------- -------- -------- --------
Consolidated income before income taxes $ 3,117 $ 1,366 $ 4,222 $ 2,263
======== ======== ======== ========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1998
---------- ----------
(in thousands)
<S> <C> <C>
Segment assets:
Aircraft leasing $ 123,481 $ 150,588
Oil and gas production 13,038 12,254
Fuel storage and distribution 638 906
Other 26,212 7,981
---------- ----------
Consolidated assets $ 163,369 $ 171,729
========== ==========
</TABLE>
Segment assets for aircraft leasing decreased by $27.1 million (18%) from the
amount reported at December 31, 1998 primarily as a result of the sale of the
aircraft sold in April 1999 (refer to Note B above) and depreciation. Segment
assets - other increased $18.2 million (228%) from December 31, 1998 largely
because of the increase in U.S. Government securities which were purchased
primarily with the net sales proceeds of the aircraft sold in April 1999 (refer
to Note B above).
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Readers are cautioned that forward-looking statements contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Company's disclosures under the heading:
"CAUTION REGARDING FORWARD-LOOKING STATEMENTS" found on page 1.
Financial Condition
At June 30, 1999, the Company's principal sources of liquidity were cash, cash
equivalents, and U.S. Government securities totaling $23.8 million, a $19.5
million increase from December 31, 1998. The major increase in liquidity
related to the net cash proceeds from the sale of the aircraft described in Note
B of the Notes to Unaudited Condensed Consolidated Financial Statements.
Working capital increased by $27.4 million since December 31, 1998 principally
because of the increase in U.S. Government securities described above and the
reclassification of the Statex bank debt to long-term (see discussion below).
The Company's capitalization consisted of 34% long and short-term obligations
and 66% equity at June 30, 1999 compared to 41% long and short-term obligations
and 59% equity at December 31, 1998. The decrease in long and short-term
obligations from December 31, 1998 to June 30, 1999 resulted primarily from US
Airways' repayment of the debt on the five BAe 146 aircraft sold in April 1999
as well as normal loan payments.
At the end of the second quarter of 1999, $1 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.
7
<PAGE>
Statex has a separate bank credit agreement collateralized by its major oil and
gas properties. As of June 30, 1999, $6.7 million was borrowed under this
agreement. Due to losses in the third and fourth quarters of 1998, Statex did
not meet a financial covenant contained in its bank loan agreement relating to
the fixed charge ratio. Statex obtained waivers from the bank relating to its
non-compliance with this financial covenant in the third and fourth quarters of
1998. Statex was in compliance with all financial loan covenants in the first
and second quarters of 1999. It is possible that future losses could cause
Statex to be out of compliance again with this financial covenant or with other
covenants in its bank credit agreement. There can be no assurances that the
bank will be willing to grant additional waivers in the future. If any needed
additional waivers are not granted, the bank could, by notice to Statex, declare
the outstanding principal and interest due and payable. Because of the
uncertainty in obtaining future waivers if needed, the outstanding balance of
this debt at December 31, 1998 was classified as current even though it is not
due until September 2000. The Company believes that if, in the future, the bank
declared the Statex note due and payable, and if the Company felt it was
appropriate, then it would have adequate funds to advance to Statex to pay the
outstanding principal and interest. At June 30, 1999, this debt was carried as
long-term since Statex was in compliance with all of its loan covenants for the
second quarter of 1999.
PSG's aircraft lease portfolio represents the major portion of the Company's
assets and its largest source of cash flow. Following the April 1999 sale of
five BAe 146 aircraft, the lease portfolio consisted of ten aircraft, of which
seven are leased to US Airways. For a discussion of US Airways' financial
condition and its potential impact on PSG, refer to the section entitled
"Aircraft Leasing" in the Company's 1998 Annual Report to Stockholders (Exhibit
13 to the Company's Form 10-K/A for the year ending December 31, 1998). 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, and projected cash flow are adequate to meet the operating and
planned capital needs of the Company in both the short and long-term.
Results of Operations - Comparison of the Three and Six Months Periods Ended
June 30, 1999 and 1998
Refer to Note E of the Notes to Unaudited Condensed Consolidated Financial
Statements for a schedule showing revenues, profit (loss), and assets by
reportable segment.
Aircraft Leasing
Aircraft leasing revenues (excluding the gain on aircraft sales) declined 28%
and 18%, respectively, in the second quarter and first half of 1999 compared to
the same periods in 1998 principally due to (i) the sale of the five BAe-146
aircraft in April 1999, (ii) reduced revenue recognition associated with
aircraft leased under financing leases, and (iii) lease rate resets on certain
aircraft leases tied to lower interest rates (these lower lease rates were
matched by lower interest expense on the related debt). In future periods,
leasing revenues will continue to decline because of the reduced revenue
recognition associated
8
<PAGE>
with aircraft leased under financing leases, possible lease rate resets on
certain aircraft, and possible future aircraft sales.
The segment profit from aircraft leasing in both the second quarter and the
first half of 1999 included a gain of $967,000 from the sale of the five BAe 146
aircraft. Segment profit from aircraft leasing, before the gain on aircraft
sales, was 10% and 15% higher in the second quarter and first half of 1999,
respectively, primarily due to lower interest expense (due to lower debt
balances and lower interest rates) and an adjustment to the lease revenue that
resulted from the sale of the five BAe 146 aircraft.
Refer to Note B of the Notes to Unaudited Condensed Consolidated Financial
Statements for information on the five BAe 146 aircraft sold in April 1999 and
the potential sale of an additional BAe 146 aircraft during 1999. As aircraft
are sold, revenues and net income from the aircraft leasing segment will be
reduced.
Oil and Gas Production and Development
Oil and gas production revenues for the second quarter of 1999 were 11% higher
than in the second quarter of 1998 principally due to 20% higher average oil
prices, partially offset by lower gas prices. Revenues in the first six months
of 1999 were 16% lower than in 1998 principally due to 14% less oil production
and 16% less gas production. The lower production levels, which occurred
principally in the first quarter of 1999, were necessitated by the lower prices
in the fourth quarter of 1998 and the first quarter of 1999. For June 1999, the
average monthly oil price received by Statex was 77% greater than the December
1998 average price. There has been significant volatility in oil and gas prices
and such volatility is expected to continue.
In order to reduce the effect of the volatility in oil prices, Statex entered
into a commodity swap agreement ("the swap") in April 1999 which hedges the
price of crude oil for approximately 55% of its current average oil production
for a twelve month period starting in May 1999. Gains or losses under the swap
are deferred and recognized as an adjustment to oil revenues in each month as
the swap is settled. In the second quarter of 1999, Statex recognized a $10,000
reduction in revenues as a result of the swap. While the swap was entered into
to reduce Statex's exposure to decreases in crude oil prices, it also limits the
benefit that Statex might otherwise receive from increases in crude oil prices.
As of June 30, 1999, Statex has hedged the price of 15,000 barrels of crude oil
for each of the next ten months at a weighted average price of $16.41 per
barrel. At June 30, 1999, based on the difference between the swap prices and
the posted future prices for crude oil over the remaining term of the swap, the
estimated fair value of the swap is $(367,000). The actual market price of
crude oil when the swap is settled each month will differ from June 30, 1999
posted future prices.
The operating results from oil and gas production and development were better in
the second quarter and first half of 1999 compared to the similar periods of
1998. This was primarily due to the higher oil prices discussed above, lower
depreciation, depletion, and amortization rates in 1999 (which resulted from the
impairment losses recorded in the third and fourth quarters of 1998), and the
cost controls instituted by management during the latter part of 1998 when there
was a significant decrease in oil and gas prices.
9
<PAGE>
Fuel Storage and Distribution
Revenues from the fuel storage and distribution segment were approximately the
same in the second quarter and first half of 1999 as they were in the 1998
periods. The segment profit increased 25% in 1999's first half compared to the
same period in 1998 primarily due to lower repair and maintenance costs.
Unallocated Corporate Overhead
Unallocated corporate overhead was approximately the same in the second quarter
of 1999 as it was in the second quarter of 1998. It was larger in the first
half of 1999 compared to 1998 due to higher professional services fees.
Income Taxes
Income taxes in both 1999 and 1998 differ from the corporate federal tax rate
primarily because of the effect of state taxes.
Year 2000 Issues
The Company and each of its subsidiaries are working to resolve the potential
impact of the Year 2000 on the ability of their computerized information systems
to accurately process information that may be date sensitive. Any system that
recognizes a date using "00" as the year 1900 rather than the year 2000 could
result in errors or systems failures. The Company, PSG, and PST share a number
of common computer systems in their operations. In addition, Statex uses a
number of computer systems in its operations. Since all of these systems use
only standardized computer programs developed by major software vendors, the
Company and its subsidiaries are dependent on those software vendors to make the
needed modifications to accommodate the Year 2000. Some of these programs have
already been modified. For other programs, the vendors have indicated (either
in correspondence or on their Web sites) that the modifications will be
completed in advance of the Year 2000, although some of the vendors have stated
that there are no assurances that this will be accomplished. As a contingency,
if any vendor does not modify its software to address the Year 2000 issues on a
timely basis, the Company believes that there will be appropriate alternative
software available that is Year 2000 compliant and that can be substituted with
no material effect on operations. The Company and its subsidiaries believe,
based on advice from outside consultants, that their computer hardware is
already Year 2000 compliant. Based on information currently available, the
Company believes that the costs to address the Year 2000 issues discussed above
will be less than $100,000 and that the software modifications using existing or
substitute vendors will be completed during the third quarter of 1999.
The Company and its subsidiaries are dependent upon third party providers to
perform many services including insurance coverage, employee benefit program
administration, shareholder related services, printing, utilities, and
communications. Correspondence from most of these providers, as well as general
information on their Web sites, indicates that they expect to address their
significant Year 2000 issues on a timely basis. The Company will continue to
monitor the progress of all of its significant third party providers.
10
<PAGE>
The Company has no control over these providers becoming Year 2000 compliant. As
a contingency, if a provider does not become Year 2000 compliant in a timely
manner, the Company, in many cases, may be able to change to another service
provider that is compliant. Such a contingency plan is expected to be completed
during the third quarter of 1999.
The Company's largest revenue source is aircraft lease revenue from US Airways,
America West Airlines, Inc., and Continental Airlines, Inc. Lease revenue
represented 68% of total revenues for the first half of 1999. Revenue from US
Airways alone represented 48% of total revenues for the same period. The
Company has approached each lessee regarding its compliance with Year 2000
issues. Each has indicated to the Company and in filings made with the
Securities and Exchange Commission that it is not currently Year 2000 compliant.
However, each has disclosed that they are working toward becoming compliant.
These lessees have further indicated that they could suffer material adverse
effects on their results of operations and financial condition if they or third
parties they rely upon are not Year 2000 compliant. Such an adverse effect
could jeopardize the lessees' ability to make lease payments to the Company.
The Company has no control over these lessees becoming Year 2000 compliant and,
accordingly, no contingency plan is available to the Company. In the event that
failure to become Year 2000 compliant on the part of any lessee adversely
affects its ability to make lease payments to the Company, the Company is unable
to estimate the amount of lease revenue, if any, that would not be paid. It is
possible that the Company could sustain a significant interruption in its
revenue stream that would affect the Company's ability to make its debt payments
on loans secured by leased aircraft.
Oil and gas revenues generated by Statex amounted to 19% of consolidated
revenues for the first half of 1999. Approximately 66% of Statex's revenues
come directly or indirectly from Sunoco, Inc. ("Sunoco") which has disclosed in
public filings that, while it is not yet compliant, it is working to resolve its
Year 2000 issues. To the extent that Sunoco or other current purchasers from
Statex were unable to purchase oil and gas due to Year 2000 issues, Statex
expects that, at least in most cases, it will be able to find alternative
purchasers. However, there is no assurance that this could be done or that
pricing from alternative purchasers would be the same as that obtained from
current purchasers. A contingency plan for alternative purchasers is expected
to be in place during the third quarter of 1999. Most of Statex's power to
operate its production equipment comes from one large Texas utility. In public
filings, this utility has disclosed that, while it is not yet Year 2000
compliant, it is working to resolve these issues. Statex's operations could be
negatively impacted if this utility company or any of its other utility
providers were not Year 2000 compliant and could not provide their services.
The Company is unable to estimate the potential impact on its operations if
Statex's customers or its utility providers are not Year 2000 compliant.
If the Company or its subsidiaries, or any third parties with which they have
material business relationships, are unsuccessful in solving the Year 2000
issues in a timely manner it could have a material adverse effect on the
Company's business, financial condition, and results of operations. Beyond the
information disclosed above, the Company is unable to determine the extent of
such potential adverse effects.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The information called for by this item is provided under the caption "Oil and
Gas Production and Development" under Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As reported in the Company's Form 10-K/A for the year ended December 31, 1998,
the 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
at SFIA, including oil companies, rental car companies, and airlines. As the
owner of SFIA, CCSF alleged that the tenants were liable for environmental
contamination at SFIA. CCSF sought to recover from the tenants the costs it had
incurred in investigating and cleaning-up 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 information with respect to the CCSF Action, the related cross actions, and
the environmental remediation liability, see Note 4 of the Notes to Consolidated
Financial Statements included in the Company's 1998 Annual Report to
Stockholders (Exhibit 13 to the Company's Form 10-K/A for the year ending
December 31, 1998). The following paragraphs update the status of the CCSF
Action.
In April 1999, CCSF filed a Second Amended Complaint naming PST as a defendant.
Previously, CCSF had not alleged claims against PST or PSG, although ARCO had
filed a Cross-Complaint and Third Party Complaint against PSG in 1997. PST
filed an answer to the Second Amended Complaint in May 1999, denying the claims
alleged against it by CCSF. At the same time, PST filed claims against ARCO,
Texaco, and Lockheed Air Terminal Inc. ("Lockheed"), alleging that each company
was liable for any potential liability of PST to CCSF. ARCO, Texaco, and
Lockheed have each denied PST's claims, and each has filed claims alleging that
PST and/or PSG are liable for their environmental liability to CCSF.
In May 1999, PST entered into a settlement agreement with CCSF, which would
require PST to pay $680,000 in exchange for a release by CCSF of any and all
investigatory and clean-up costs incurred by CCSF as of May 1998. The SFIA
Airports Commission approved the settlement in June 1999. The proposed
settlement agreement will become final once the Federal District Court has
adjudged the settlement a "good faith settlement." Two tenants of SFIA have
filed objections to the proposed settlement. However, settlements with other
tenants have previously been approved by the Federal District Court even with
objections by the same two tenants. The Federal District Court is scheduled to
consider the proposed settlement agreement on August 13, 1999. If the Court
grants the motion, then the proposed settlement will become final. The granting
of the "good faith settlement" motion will bar other SFIA tenants from
asserting non-contractual contribution
12
<PAGE>
and indemnity claims against PST or PSG. The proposed settlement agreement will
not affect those claims among PST/PSG and ARCO, Texaco, and Lockheed which are
not barred by the "good faith settlement" determination. It will also not
preclude CCSF from seeking to recover future investigatory and remediation costs
from PST.
Apart from the CCSF Action, in June 1999, the Regional Water Quality Control
Board, San Francisco Bay Region, approved an order that identifies PST and other
SFIA tenants as dischargers at certain locations at SFIA, establishes clean-up
standards, and orders that certain investigation, remediation, and monitoring be
conducted at SFIA. While PST has already undertaken some of this work, PST is
preparing to participate with other tenants in certain investigatory,
remedation, and monitoring activities that have not yet been undertaken or
completed.
The Company is unable to determine whether any of the claims mentioned above
will ultimately have any material adverse consequences to it beyond the
approximately $4.5 million (representing the unspent balance of the estimated
remediation liabilities recorded in 1997 and 1996) of estimated environmental
remediation liability recorded as of June 30, 1999.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Company was held on May 27, 1999. The
purpose of the meeting was to elect all directors of the Company to serve until
the 2000 annual meeting of stockholders and until their successors are elected
and qualified. The votes cast for directors were as follows:
For Withheld
------------- ------------
William H. Borthwick 3,873,620 11,830
Steven D. Broidy 3,877,194 8,256
J.P. Guerin 3,877,169 8,281
Donald W. Killian, Jr. 3,873,668 11,782
Christopher H.B. Mills 3,818,644 66,806
Charles E. Rickershauser, Jr. 3,875,659 9,791
13
<PAGE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 6, 1999
PS GROUP HOLDINGS, INC.
-----------------------
(Registrant)
/s/ Lawrence A. Guske
___________________________
LAWRENCE A. GUSKE
Vice President - Finance and
Chief Financial Officer and
Authorized Officer of the
Registrant
14
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