<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 [Fee Required] for the fiscal year ended December 31, 1995 or
[_] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required].
COMMISSION FILE NUMBER: 1-7141
PS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2760133
(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 Stock 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.
$55,926,468 as of February 29, 1996
* Assumes Berkshire Hathaway Inc. (and its subsidiaries), ESL Partners, L.P.,
and Donaldson, Lufkin & Jenrette Securities Corporation, owning approximately
19.9%, 19.7%, and 7.7%, respectively, of the outstanding shares of common
stock of the Company on February 29, 1996 are not affiliates of the Company.
The number of shares of common stock outstanding
as of February 29, 1996 was 6,068,313.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Annual Report to Shareholders for the
Year ended December 31, 1995........................ PART I and PART II
Portions of Definitive Proxy Statement for the
1996 Annual Meeting of Shareholders................... PART III
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
PRINCIPAL BUSINESSES
The principal businesses of PS Group, Inc. (the "Company") are aircraft
leasing (conducted directly), fuel sales and distribution, and oil and gas
production and development.
STATE OF INCORPORATION AND EXECUTIVE OFFICES
The Company was incorporated in Delaware in 1972 (under the original name
PSA, Inc.) as the successor to a California corporation originally incorporated
in 1945. The Company has its principal executive offices at 4370 La Jolla
Village Drive, Suite 1050, San Diego, California, 92122; telephone number (619)
642-2999.
ITEMS INCORPORATED BY REFERENCE
Certain information required by "Item 1. - Business" is incorporated by
reference from pages 8 through 16 of the Company's 1995 Annual Report to
Shareholders. This incorporated information includes financial information
about the Company's business segments. Additional disclosure is made in this
Form 10-K.
CORPORATE EMPLOYEES
As of December 31, 1995 the Company's corporate staff (excluding employees
of subsidiaries) consisted of 7 full-time employees who manage the aircraft
leasing operations and furnish administrative services to the Company. The
staff also provides some administrative services for its subsidiaries for which
it is reimbursed. None of the employees of the Company or its subsidiaries are
covered by union contracts.
PROPOSED HOLDING COMPANY REORGANIZATION
The Board of Directors of the Company has proposed for submission to
shareholders at the 1996 Annual Meeting of Shareholders (the "1996 Annual
Meeting") a holding company reorganization pursuant to which the Company would
become a wholly-owned subsidiary of PS Group Holdings, Inc. ("Holdings"), a
newly-formed company organized under the laws of the State of Delaware which is
currently a wholly-owned subsidiary of the Company (the "Reorganization"). If
the Reorganization is consummated, each outstanding share of the Company's
Common Stock will be converted into one share of Holdings Common Stock (to be
listed on the New York and Pacific Stock Exchanges) and the Company will be a
wholly-owned subsidiary of Holdings. The sole purpose of the Reorganization is
to help preserve the Company's substantial net operating loss carryforwards,
investment tax credit carryforwards and other tax benefits (the "Tax Benefits")
for use in offsetting future taxable income. The Reorganization is intended to
accomplish this objective by imposing certain transfer restrictions (the
"Transfer Restrictions") on the shares of Holdings Common Stock in order to help
decrease the risk of certain transfers of shares of the Company's Common Stock
that could result in the occurrence of an "ownership change" for income tax
purposes, which would limit the ability of the Company to use these tax
benefits.
On February 9, 1996, Holdings filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 (Registration No. 333-00821)
covering the shares of its
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Common Stock to be issued in the Reorganization (the prospectus contained in
such Registration Statement, in its final form, will also constitute the
Company's proxy statement for the 1996 Annual Meeting). Reference is made to
such Registration Statement for further information with respect to the proposed
Reorganization. As of the date of this Form 10-K, such Registration Statement
has not been declared effective by the Securities and Exchange Commission. The
shares of Holdings Common Stock covered by such Registration Statement will be
offered in connection with the Reorganization, and forms of proxy for use by
shareholders of the Company in voting on the Reorganization at the 1996 Annual
Meeting will be disseminated, only pursuant to the definitive version of such
prospectus/proxy statement.
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-K
or incorporated by reference from the Company's 1995 Annual Report to
Shareholders is forward looking, such as information relating to the future
prospects of the Company's aircraft leases, the consequences of any unscheduled
return of aircraft under lease, PS Trading's potential for growth, plans for
expansion of Statex Petroleum, the availability of the Tax Benefits, the amount
of otherwise-taxable income against which such benefits may be offset, and the
effect of the proposed Transfer Restrictions in reducing the risk of a loss of
the Tax Benefits. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including, but not limited to, the impact of
economic conditions on each of the Company's business segments, the impact of
competition, the impact of governmental legislation and regulation, and other
risks detailed in this Form 10-K, in the Company's 1995 Annual Report to
Shareholders and in other Securities and Exchange Commission filings of the
Company.
CERTAIN ADDITIONAL INFORMATION
PS TRADING, INC. (PST) -- FUEL SALES AND DISTRIBUTION
RISKS. PST's operations are subject to all risks inherent in the business
of fuel sales and distribution including fuel spillage and distribution
accidents, which could result in damage to or destruction of property, or could
result in personal injury or loss of life. Such an event could result in
substantial cost to PST. PST carries substantial insurance coverage but may not
be fully insured against all such risks.
ECONOMIC AND COMPETITIVE FACTORS AFFECTING PST. Virtually every refiner
and reseller of refined petroleum products who sell in PST's market areas
(including other large distributors and major oil companies) is a competitor or
potential competitor of PST for the sale of its products. Many of these
companies have greater financial resources and broader marketing capabilities
than PST. In some instances competitors, especially refiners, may have lower
costs for the refined petroleum products they sell and may thus be in a
favorable position to offer product prices to PST's customers lower than those
PST can offer.
ENVIRONMENTAL ISSUES. Since PST owns or leases fuel storage facilities or
pipelines at several locations and contracts with independent companies to
deliver fuel on its behalf, it is possible that future claims may be made
against PST regarding potential soil and groundwater pollution. Currently no
claim has been asserted. However, see "Legal Proceedings" for discussion of an
order filed by the California Regional Water Quality Control Board, San
Francisco Region. Typically PST operates at locations served by other companies
including major airlines, oil companies and airports, most of which have greater
financial resources and higher levels of operations at the locations served than
PST.
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STATEX PETROLEUM, INC. (STATEX) - OIL AND GAS PRODUCTION AND DEVELOPMENT
ACREAGE. The following table sets forth, by states, Statex well ownership
and producing acreage as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Wells Net Wells Producing Acres
------------- --------------- ---------------
Oil Gas Oil Gas Gross Net
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Alabama 2 - 1.00 - 320 160
Louisiana - 2 - 0.04 22 3
New Mexico 1 - 0.06 - 120 8
North Dakota 1 - 1.00 - 304 304
Oklahoma 2 17 0.05 6.16 7,196 1,952
Texas 91 5 72.56 1.69 10,871 5,261
----------------------------------------------------
Total 97 24 74.67 7.89 18,833 7,688
</TABLE>
The following table sets forth, by states, undeveloped acreage ownership
as of December 31, 1995:
<TABLE>
<CAPTION>
Acres
-----------------
Gross Net
----- -----
<S> <C> <C>
Oklahoma 1,708 214
Texas 1,680 401
----- -----
Total 3,388 615
</TABLE>
RISKS. Statex's operations are subject to all risks inherent in the
exploration for and production of oil and gas, including blowouts, cratering and
fires, which could result in damage to or destruction of oil and gas wells or
formations, producing facilities or property, or could result in personal injury
or loss of life. Such an event could result in substantial cost to Statex and
could have a material adverse effect upon its financial condition if Statex is
not fully insured against such risk. Statex carries substantial insurance
coverage but may not be fully insured against all such risks.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL ISSUES. Statex's operations are
affected from time to time in varying degrees by political developments and
federal and state laws and regulations. In particular, oil and gas production
operations and returns are affected by tax and other laws relating to the
petroleum industry, changes in such laws and constantly changing administrative
regulations. In addition, oil and gas operations are subject to regulation,
interruption and termination by governmental authorities for environmental
issues and other considerations. Additionally, in most, if not all, areas where
Statex conducts activities, there are statutory provisions regulating the
production of oil and gas. These provisions allow administrative agencies to
promulgate rules in connection with the operation and production of both oil and
gas wells, including the method of developing new fields, spacing of wells and
the maximum daily production allowable for both oil and gas wells and various
environmental issues.
ECONOMIC AND COMPETITIVE FACTORS AFFECTING STATEX. Statex is engaged
primarily in the production and sale of crude oil and natural gas. Statex has
literally hundreds of competitors, most of which are larger and have greater
resources than Statex. Oil and natural gas are fungible commodities and, as
such, the prices Statex receives for its products are directly related to the
open market price for such products at the time of sale. These prices generally
fluctuate and are for the most part controlled by the laws of supply and demand.
The price for oil is particularly driven by worldwide production and demand.
Statex has virtually no control over the establishment of prices
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for its products. To the extent there should be an oversupply of product and
resulting lower prices, Statex's revenues would be negatively impacted.
ITEM 2. PROPERTIES
EXECUTIVE OFFICES AND OTHER GROUND FACILITIES
The Company's executive offices and principal administrative offices are
located at 4370 La Jolla Village Drive, Suite 1050, San Diego, California. At
December 31, 1995 the Company leased approximately 7,000 square feet for
executive offices. During early 1996 the Company renegotiated a new lease to
reduce its space to approximately 3,000 square feet. The new lease is expected
to become effective in mid-1996 and will run for a five-year period ending in
2001. Base rent for the first 22 months of the lease totals approximately
$512,000, and base rent for the remaining 38 months totals approximately
$211,000.
PST owns an 8,000 square foot building located at 17742 Preston Road,
Dallas, Texas which is used as its administrative offices. In addition, PST's
wholesale operations leases 1,560 square feet for administrative offices at 5620
Birdcage Street, Suite 130, Citrus Heights, California for an annual rent of
$23,000.
Statex leases approximately 5,000 square feet for executive offices at 1801
Royal Lane, Suite 110, Dallas, Texas at an annual rental of $34,000, for a
period ending in mid-1998 with a 2-year renewal option at 95% of current market
rates. For information regarding Statex oil and gas properties see "Business -
Oil and Gas Production and Development."
The Company believes that its present properties are adequate for its
business in light of its current operations.
FLIGHT EQUIPMENT
The aircraft owned by the Company as of February 29, 1996 are listed in the
following table.
<TABLE>
<CAPTION>
Type of Aircraft Number Owned
---------------- -------------
<S> <C>
McDonnell Douglas MD-80 7(a)
British Aerospace BAe146-200 10(b)
Boeing 737-200 6(c)
Boeing 737-300 2(d)
</TABLE>
Notes:
(a) Six MD-80s are leased to USAir for terms expiring from 1998 to 2004. One
is leased to Continental for a term expiring at the beginning of 2008.
(b) These aircraft are all leased to USAir for terms expiring in 2000.
(c) The Company owns a one-third interest in each of these aircraft. United
States Airlease and Airlease, Ltd. each also own a one-third interest. All
six aircraft are leased to Continental for terms expiring in 1996.
(d) One aircraft is leased to Continental for a term expiring at the beginning
of 2008. One aircraft is leased to America West for a term expiring in 2006.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In 1992 three related lawsuits were filed against the Company, certain of
its directors and officers by stockholders in the United States District Court
for the Southern District of California and a fourth lawsuit was filed in the
United States District Court for the Central District of Illinois (the Illinois
Case). All of the Southern District of California cases were consolidated into
a single case (the California Case). Both the California Case and the Illinois
Case were purported class actions alleging that the defendants made materially
false and misleading statements in public statements in filings with the
Securities and Exchange Commission and other reports, or omitted in such
materials information necessary to make them not misleading, and that the
defendants are therefore liable to the plaintiff class for declines in the price
of the Company's common stock during a defined class period.
In the fall of 1992 the Company obtained dismissals of both the California
Case and Illinois Case. In each instance, however, the court granted the
plaintiffs leave to file an amended petition. In December 1992 the California
case and the Illinois Case were consolidated in the Southern District of
Illinois (the Consolidated Case). In March 1995 the Company reached an
agreement in principle to settle with all defendants for $5 million all pending
class action litigation. In October 1995 the United States District Court
approved the settlement. While the $5 million settlement liability was recorded
as of December 31, 1994, the actual cash payment was made by the Company in July
1995.
The Company, along with numerous other companies including major airlines,
major oil companies and the owner of the San Francisco International Airport
(most of which have greater financial resources than the Company), is under an
order by the California Regional Water Quality Control Board, San Francisco Bay
Region, to participate in the investigation, remediation and monitoring of
actual or alleged soil and groundwater pollution at San Francisco International
Airport. The Company and other potentially responsible parties have undertaken
a joint compliance effort. No litigation is currently pending concerning this
matter. The Company will vigorously defend against future claims, if any, in
this matter.
The Company is a defendant in several other lawsuits related to the
ordinary course of business, none of which are expected to have a materially
adverse effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None during the year ended December 31, 1995.
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<PAGE>
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and certain additional
information concerning the executive officers of the Company.
<TABLE>
<CAPTION>
Age on
February 29, Positions with the Company
Name 1996 and Principal Occupation
---- ------------ -----------------------------------------
<S> <C> <C>
Lawrence A. Guske 51 Vice President - Finance and Chief
Financial Officer of the Company
(since 1987).
Charles E. Rickershauser, Jr. 67 Chairman of the Board (since 1991),
Chief Executive Officer (since 1994)
and Director (since 1984). Previously a
partner in the law firm of Fried, Frank,
Harris, Shriver and Jacobsen (1986-1990);
Chairman of the Board & CEO of the
Pacific Stock Exchange (1979-1986).
Johanna Unger 47 Vice President and Controller of the
Company (since 1988) and Secretary of
the Company (since 1994).
</TABLE>
There are no family relationships between any of the Company's executive
officers. Each of the Company's executive officers are elected annually and
serve at the pleasure of the Board of Directors.
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<PAGE>
PART II
The information required by Items 5, 6, 7 and 8 of this Part II are hereby
incorporated by reference from page 1 and pages 17 through 40 of the Company's
1995 Annual Report to Shareholders.
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Part III, Items 10 through 13, is
incorporated by reference from the Company's definitive Proxy Statement which
will be filed with the Securities and Exchange Commission on or prior to April
30, 1996. Certain information concerning the Executive Officers of the Company
is included in Part I, supra. See "Additional Item. Executive Officers of the
Company."
PART IV
ITEM 14. FINANCIAL STATEMENTS, EXHIBITS
AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
1. Financial Statements: See Index to Financial Statements, Page F-1.
2. Exhibits: See Index to Exhibits following Page F-2.
(b) Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned thereunto duly authorized.
DATED: March 26, 1996.
PS GROUP, 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.
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<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C. E. Rickershauser, Jr. Chairman of the Board, March 26, 1996
- ----------------------------- Chief Executive Officer
(C. E. Rickershauser, Jr.)
/s/ Lawrence A. Guske Vice President - March 26, 1996
- ----------------------------- Finance and Chief
(Lawrence A. Guske) Financial Officer
(principal financial
officer)
/s/ Johanna Unger Vice President, Controller March 26, 1996
- ----------------------------- and Secretary (principal
(Johanna Unger) accounting officer)
/s/ Robert M. Fomon Director March 26, 1996
- -----------------------------
(Robert M. Fomon)
/s/ J. P. Guerin Director March 26, 1996
- -----------------------------
(J. P. Guerin)
/s/ Donald W. Killian, Jr. Director March 26, 1996
- -----------------------------
(Donald W. Killian, Jr.)
/s/ Gordon C. Luce Director March 26, 1996
- -----------------------------
(Gordon C. Luce)
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PS GROUP, 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 38
Consolidated statements of financial position at
December 31, 1995 and 1994 20
Consolidated statements of operations for each of
the three years in the period ended
December 31, 1995 21
Consolidated statements of cash flows for each of
the three years in the period ended
December 31, 1995 22
Consolidated statements of stockholders' equity for
each of the three years in the period ended
December 31, 1995 23
Notes to consolidated financial statements 24
Supplementary information:
Quarterly financial information (unaudited) 34
Oil and gas operations (unaudited) 35
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, Inc. at
December 31, 1995 and 1994 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, Inc. for the year ended December 31, 1995 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, Inc. of our report dated February 9, 1996, included in the 1995
Annual Report to Stockholders of PS Group, Inc.
We also consent to the incorporation by reference in ( i) the Registration
Statement (Form S-8 No. 2-97926) pertaining to the Employee Incentive Stock
Option Program and the Incentive Stock Option Plan of PS Group, Inc. and (ii)
the Registration Statement (Form S-8, No. 33-45608) pertaining to the Recontek,
Inc. 1987 Employment Stock Option Plan of our report referred to above, with
respect to the consolidated financial statements of PS Group, Inc. incorporated
herein by reference.
ERNST & YOUNG LLP
San Diego, California
March 26, 1996
F-2
<PAGE>
INDEX TO EXHIBITS
(3)(i) Articles of Incorporation.
(a) Restated Certificate of Incorporation. (Incorporated by reference to
Exhibit (3)(a) to the Company's Current Report on Form 8-K dated
November 18, 1986.)
(b) Certificate of Amendment of Certificate of Incorporation.
(Incorporated by reference to Exhibit (3)(b) to the Company's
Current Report on Form 8-K dated November 18, 1986.)
(c) Certificate of Amendment to Certificate of Incorporation dated May
24, 1990. (Incorporated by reference to Exhibit 3(c) to the
Company's 1990 Annual Report on Form 10-K.)
(d) Certificate of Amendment to Certificate of Incorporation dated June
12, 1992. (Incorporated by reference to Exhibit 3(d) to the
Company's 1992 Annual Report on Form 10-K.)
(3)(ii) Bylaws as amended through March 24, 1995. (Incorporated by reference to
Exhibit 3(ii) to the Company's 1994 Annual Report on Form 10-K.)
(4) Instruments defining the rights of security holders, including
indentures:
(a) Amended and Restated Rights Agreement dated as of June 30, 1986
between the Company and Chemical Bank (Successor Rights Agent to
Bank of America, N.T. & S.A.) (Incorporated by reference to the
Company's Current Report on Form 8-K dated February 16, 1996.)
(b) Amendment dated September 15, 1988 to Rights Agreement between the
Company and Bank of America. (Incorporated by reference to the
Company's Current Report on Form 8-K dated September 12, 1988.)
(c) Amendment dated September 16, 1990 to Rights Agreement between the
Company and Bank of America. (Incorporated by reference to the
Company's Current Report on Form 8-K dated September 16, 1990.)
(d) Amendment dated December 14, 1990 to Rights Agreement between the
Company and Bank of America. (Incorporated by reference to the
Company's Current Report on Form 8-K dated December 14, 1990.)
(10) Material contracts:
(a) 1984 Stock Incentive Plan of PS Group, Inc. (Incorporated by
reference to Exhibit (19)(a) to the Company's report on Form 10-Q
for the quarter ended June 30, 1985.)
(b) Amendment to 1984 Stock Incentive Plan for PS Group, Inc., as
approved by the Stockholders May 21, 1987. (Incorporated by
reference to Exhibit (10)(g) to the Company's 1987 Annual Report on
Form 10-K.)
(c) Form 1, Form 2, Form 3, and Form 4 of Option Agreement effective
November 17, 1984. (Incorporated by reference to Exhibit (19)(h) to
the Company's report on Form 10-Q for the quarter ended June 30,
1985.)
Index-1
<PAGE>
(d) 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 the Company's 1994 Annual Report on Form 10-K.)
(e) Employment Agreement dated January 15, 1988 between the Company and
Lawrence A. Guske. (Incorporated by reference to Exhibit 10(q) to
the Company's 1988 Annual Report on Form 10-K.) This Agreement is
substantially identical in all material respects to the Employment
Agreement between the Company and Johanna Unger.
(f) Amendment dated April 1, 1989 to Employment Agreement between the
Company and Lawrence A. Guske. (Incorporated by reference to Exhibit
10(q) to the Company's 1989 Annual Report on Form 10-K.) This
Amendment is substantially identical in all material respects to
Amendment to Employment Agreement between the Company and Johanna
Unger.
(g) Agreement dated December 14, 1990 between Berkshire Hathaway Inc.
("Berkshire") and the Company relating to Berkshire's acquisition of
the Company's Common Stock. (Incorporated by reference to Exhibit
10(v) to the Company's 1990 Annual Report on Form 10-K.)
(h) Form of Indemnification Agreement. (Incorporated by reference to
Exhibit 10(w) to the Company's 1990 Annual Report on Form 10-K as
filed on Form 8 Amendment thereto dated May 29, 1991.)
(i) Arrangement for Pension benefit for Chairman of the Board of the
Company. (Incorporated by reference to Exhibit 10(u) to the
Company's 1992 Annual Report on Form 10-K.)
(j) Amended and Restated Credit Agreement dated October 3, 1995 between
the Company and Bank of America National Trust and Savings
Association. (Incorporated by reference to Exhibit (10)(a) to the
Company's report on Form 10-Q for the quarter ended September 30,
1995.)
(k) Agreement and Plan of Reorganization dated as of January 30, 1996 by
and among the Company, PS Group Holdings, Inc. and PSG Merger
Subsidiary, Inc. (Incorporated by reference to the Company's current
report on Form 8-K dated February 16, 1996.)
(12) Computation of Ratios.
(13) Inside front cover, page 1 and pages 8 to 40 from the 1995 Annual
Report to Stockholders.
(21) Subsidiaries.
(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)(h) and (10)(i).
ALL EXHIBITS INCORPORATED BY REFERENCE ARE FILED IN PS GROUP, INC. DOCUMENTS
COMMISSION FILE NUMBER 1-7141.
Index-2
<PAGE>
EXHIBIT (12)
PS GROUP, INC.
1995 ANNUAL REPORT ON FORM 10-K
COMPUTATION OF RATIOS
The debt to equity ratios set forth on page 1 of the Company's 1995 Annual
Report to Stockholders are derived by dividing stockholders' equity into total
debt for each year.
<PAGE>
Exhibit 13 - PS Group, Inc. Annual Report to Shareholders
(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
1995 Annual Report to Shareholders is forward looking, such as information
relating to the future prospects of PS Group Inc.'s (PSG's) aircraft leases, the
consequences of any unscheduled return of aircraft under lease, PS Trading
Inc.'s potential for growth, plans for expansion of Statex Petroleum, Inc., the
availability of certain tax benefits, the amount of otherwise-taxable income
against which such benefits may be offset, and the effect of the proposed
transfer restrictions in reducing the risk of a loss of the tax benefits.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including, but not limited to, the impact of economic conditions
on each business segment, the impact of competition, the impact of governmental
legislation and regulation, and other risks detailed in this 1995 Annual Report
to Shareholders and in filings PSG has made with the Securities and Exchange
Commission.
- --------------------------------------------------------------------------------
POTENTIAL RESTRICTION ON USE OF FUTURE TAX BENEFITS
PSG has substantial net operating loss carryforwards, investment tax credit
carryforwards and other tax benefits for use in offsetting future taxable
income. As of December 31, 1995, PSG believes it had approximately $95.6 million
of federal net operating loss carryforwards and $12.5 million of federal
investment tax credit carryforwards, in addition to 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. As of March 1996, if an "ownership change" was triggered,
PSG's usage of future tax carryforwards and unused tax credits would under most
circumstances be limited to approximately $3.4 million per year for 15 years and
PSG could end up paying taxes that would otherwise not be due.
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. PSG believes that as of March 26, 1996, no "ownership
change" had occurred with respect to PSG, but that the aggregate percentage
point increase in the ownership of PSG's stock by "5-percent shareholders" was
in excess of 35%. PSG generally has no control over either the purchase or sale
of its shares by 5% shareholders. In addition, the issuance of new equity
securities or the buy back of outstanding common stock by PSG would negatively
effect the "ownership change" calculation. Therefore, PSG will likely be
constrained in its ability to effect such equity transactions while there is
concern as to the "ownership change" calculation.
At the 1996 Annual Meeting, stockholders of PSG will have the opportunity
to vote on a holding company reorganization transaction which is designed to
help decrease the risk that an "ownership change" will occur.
- -------------------------------------------------------------------------------
<PAGE>
PS GROUP, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
================================================================================
PS Group, Inc. (PSG), NYSE Symbol: PSG, operates three principal business
segments -aircraft leasing, fuel sales and distribution, and oil and gas
production and development.
<TABLE>
<CAPTION>
FOR THE YEAR 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data and ratios)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $167,004 $125,448 $156,968 $145,118 $176,751
Income (loss) from continuing
operations before change
in accounting 3,032 (4,582) (8,842) 2,082 3,362
Income (loss) from discontinued
operations 11,818 (12,528) (69,664) (27,303)
Cumulative effect of change in
accounting 2,900
---------------------------------------------------------------------
Net income (loss) 3,032 7,236 (18,470) (67,582) (23,941)
Income (loss) per common share:
Continuing operations .50 (.76) (1.46) .35 .62
Discontinued operations 1.95 (2.07) (11.68) (5.00)
Cumulative effect of change in
accounting .48
---------------------------------------------------------------------
Net income (loss) per share .50 1.19 (3.05) (11.33) (4.38)
Cash distributions or dividends per
common share 1.50/(a)/ .15 .60
Capital additions 1,386 485 1,430 2,451 7,350
</TABLE>
(a) The 1995 special distribution of $1.50 per share is a 1996 distribution
for recipients and is not a precedent for further distributions.
<TABLE>
<CAPTION>
AT YEAR END
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets 305,971 361,258 381,206 429,955 497,717
Total debt 122,609 137,225 163,159 190,719 215,140
Stockholders' equity 123,082 129,151 121,899 140,243 190,685
Stockholders' equity per share 20.28 21.28 20.10 23.22 34.90
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPARABILITY
Results from continuing operations are not comparable between years in part
due to the following significant unusual items (all amounts are pre-tax): (i)
in 1995, a $1.7 million loss on disposition of 747 aircraft was recorded and in
1994, 1993, 1992 and 1991, write-downs of $7.2 million, $17 million, $9.9
million and $31.2 million, respectively, were recorded related to 747 aircraft
previously leased to airlines which had declared bankruptcy, (ii) in 1994, 1993,
1992 and 1991, gains (net of losses) of $.6 million, $2.5 million, $3 million
and $13.7 million, respectively, were recorded on marketable equity securities'
transactions and (iii) in 1994 an accrual of $5 million was made for the
settlement of securities litigation.
In 1994, the assets of PSG's travel management segment and the major asset
of PSG's metallic waste recycling segment were sold. Accordingly, these two
segments are shown as discontinued operations in the years 1991 through 1994.
================================================================================
1.
<PAGE>
AIRCRAFT LEASING
================================================================================
PSG's aircraft leasing business represents by far the major portion of its
assets and its largest source of cash flow. Aircraft leasing contributed $35
million to 1995 consolidated revenues, or 21% of the total. Even though PSG has
no current intention to expand its leasing activity, this segment will likely
remain the main factor in PSG's operations. PSG's lease portfolio is comprised
of jet aircraft that are leased to major US airlines whose primary operations
are scheduled passenger service in the continental United States. All required
lease payments were made timely by the lessees in 1995. Nineteen of the 21
aircraft on lease are newer-generation aircraft which meet Federal Stage 3 noise
requirements which thereby qualify for continued operation in the United States
without modification beyond 1999.
TYPE OF AIRCRAFT LEASES. All of PSG's leases are net leases, which provide that
the lessees bear the direct operating costs and the risk of physical loss of the
aircraft, pay taxes, maintain the aircraft, indemnify PSG against any liability
suffered as the result of any act or omission of the lessee, maintain casualty
insurance in an amount equal to the specific amount set forth in the lease
(which may be less than market value) and maintain liability insurance naming
PSG as an additional insured. In general, substantially all obligations
connected with the operation and maintenance of the leased aircraft are assumed
by the lessee and minimal obligations are imposed upon PSG. The leases also
typically provide that in those limited instances where the lessees have the
voluntary right to terminate the lease, the lessee is obligated to pay PSG a
stipulated sum which would retire any existing indebtedness relating to the
aircraft and otherwise provide PSG with the same economic value it would have
received had the lease continued. The leases also generally provide an option
to the lessee to extend the lease at stipulated or fair market value lease
rates. The PSG leases and related aircraft (except the Boeing 737-200 leases and
aircraft) are encumbered by long-term debt that will be fully amortized by the
end of the lease term. PSG aircraft leases expire, by year, as follows:
<TABLE>
<CAPTION>
Number of Aircraft Leases Expiring
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aircraft Type 1996 1998 1999 2000 2004 2006 2008 Total
- ------------------------------- ---- ---- ---- ---- ---- ---- ---- -----
737-200 2* 2*
BAe 146-200 10 10
MD-80 3 1 2 1 7
737-300 1 1 2
--
21
==
</TABLE>
* 1/3 interest in 6 aircraft
PSG'S AIRCRAFT LESSEES. PSG's aircraft lessees are USAir, Inc. (USAir),
Continental Airlines, Inc. (Continental) and America West Airlines, Inc.
(America West). The information reported herein relating to PSG's aircraft
lessees was obtained from published media reports. PSG refers readers to public
information regarding USAir, Continental and America West for further details
relating to their financial condition. Since PSG's leases are relatively long-
================================================================================
8.
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
term, PSG is concerned as to both the current and long-term futures of its three
lessees. A summary of the recent results and current status of each of PSG's
lessees follows:
. USAIR leases 16 of PSG's aircraft consisting of six MD-80 aircraft and ten
BAe 146-200 aircraft. Lease revenues from USAir were 79% of total lease
revenues for 1995. From mid-1992 through 1995 all of USAir's 18 BAe-146s,
including the ten leased from PSG, have been out of service. As a result of
pending aircraft sublease transactions, USAir in late 1995 took three of the
BAe 146s out of storage to have various maintenance tasks completed to enable
the aircraft to return to operation. These three aircraft are leased from
PSG. One of the BAe 146s was subleased under a multi-year agreement to a
United Kingdom airline in January 1996 and the two other BAe 146s are
expected to be delivered to a start-up U.S. airline when they receive U.S.
government approval to operate. USAir also indicates they have had other
inquiries as to the availability of the BAe 146s. PSG is encouraged by these
developments since, generally, operating aircraft are worth more than
aircraft held in storage.
1995 was a year of both success and failure for USAir. As a result of
Continental discontinuing their Continental Lite high-frequency, low-fare
service in 1995, USAir was able to raise fares significantly in those
markets. USAir also reduced costs in 1995 by eliminating non-productive
flights and implementing many other cost-reduction programs that were part of
USAir's $1 billion expense reduction program - $500 million from wage and
benefit savings and $500 million from other cutbacks. USAir indicates they
achieved their $500 million in other cost savings for 1995 and that savings
in 1996 will increase to approximately $600 million. USAir also recorded some
of the highest load factors in the industry. As a result of these positive
factors, USAir's parent, USAir Group, Inc., recorded net income (before
preferred dividends - which have been suspended) in 1995 of $119 million
versus a net loss in 1994 of $685 million. USAir also projected they would
end 1995 with a cash balance near $1 billion.
Offsetting this success in 1995 was a failure by USAir to reach agreement
with its labor unions to reduce annual wages and benefits by $500 million.
After preliminary agreements were reached, USAir and the unions reached an
impasse and USAir ended discussions. USAir concedes that their long-term
future depends on reduced costs, including lower labor costs. USAir plans to
renew their request for labor concessions through the regular collective
bargaining process when current labor agreements expire in 1996 and 1997.
USAir's new Chairman and CEO, Stephen M. Wolf, who was appointed in January
1996 may accelerate this timetable which was set by his predecessor. Mr. Wolf
has successfully negotiated labor concessions with three airlines he has
previously headed up.
USAir remains the high-cost airline in the industry. Southwest Airlines,
Inc., a low-cost, low-fare airline, introduced service to Florida markets
served by USAir in January 1996 and will expand further in USAir's markets in
1996. Another low-cost, low-fare, start-up carrier, ValuJet Airlines, Inc.,
continues to expand in USAir's markets. To be a long-term survivor, USAir has
to reduce its unit costs to be competitive or merge with a financially
stronger carrier. In late-1995 USAir approached both United and American
Airlines as to a possible
================================================================================
9.
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
combination (merger, purchase of USAir, etc.). After an initial preliminary
evaluation, both carriers indicated they were not interested. If USAir fails
in its attempt to reduce costs and ceases to pay rent on some or all of the
aircraft it leases from PSG, there will be a material adverse impact on PSG.
Due to USAir's poor financial condition (negative stockholder equity), there
is uncertainty as to whether PSG will recover its investment in aircraft
leased to USAir.
. CONTINENTAL leases one MD-80 and one 737-300 from PSG as well as six older
737-200 aircraft in which PSG has a one-third interest. During 1995 one of
the seven 737-200 aircraft leased to Continental was declared a casualty loss
after ground damage and PSG was paid its current book value for its one-third
interest in the aircraft.
Continental also recorded significantly improved results in 1995 compared to
1994. Early in 1995 Continental Lite, the lower-cost, low-fare division of
Continental, was shut down and the aircraft were redeployed as part of a
route realignment and capacity rationalization plan. Continental also retired
24 wide-body aircraft from their fleet and negotiated settlements of the
lease agreements. Rents on 11 other wide-body aircraft operated by
Continental were reduced through negotiation. While overall capacity was
reduced, passenger traffic declined by a lesser amount and Continental's
overall load factor increased in 1995. Results for 1995 were net income of
$224 million versus a net loss of $613 million in 1994. Profits for 1995 were
the first from operating results since 1978. Also in 1995, Continental
restructured debt payment schedules and deferred aircraft deliveries to
improve liquidity. Cash and equivalents totaled over $600 million at
September 30, 1995. With these positive results in 1995, the uncertainty
experienced in 1994 as to PSG's recovery of its investment in aircraft leased
to Continental has been substantially reduced.
. AMERICA WEST leases one 737-300 aircraft from PSG. America West, which
emerged from bankruptcy in 1994, is partially owned by Continental and both
carriers have implemented various programs to cross feed passengers and
reduce common costs. America West expanded operations in 1995 while
successfully managing their costs to continue to be one of the lowest-unit
cost operators in the country. America West recorded net income of almost $54
million in 1995 down from $62 million in 1994 when America West was in
bankruptcy until August 26, 1994. Cash and equivalents totaled approximately
$250 million at September 30, 1995. America West intends to continue to
expand service to its existing hub operations at Phoenix and Las Vegas.
EFFECT OF UNSCHEDULED RETURN OF AIRCRAFT. Should USAir default on their leases
with PSG, or file bankruptcy and reject certain aircraft leases, there could be
a material decrease in the market value of the types of aircraft leased to USAir
due to an increased availability of these aircraft for lease or sale. In such a
case, PSG could suffer significant losses on the ultimate disposal of the
related aircraft or upon the ultimate repossession of the aircraft by the
lenders. Should PSG have any of its leased aircraft prematurely returned before
the end of the lease terms, PSG would have to continue to make the principal and
interest payments to the aircraft lenders to be able to pursue a sale or lease
of the aircraft in order to maintain or salvage some of PSG's equity interest.
All of PSG's wholly-owned leased aircraft have
================================================================================
10.
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
debt obligations (all non-recourse debt except for $20.4 million of recourse
debt on five BAe-146s). Whether PSG undertook such a course of action would be
dependent on PSG having sufficient liquidity (cash) to maintain the debt
payments and a viable market for the specific type of used aircraft PSG would be
marketing. Both of these factors are uncertain. In addition, when marketing
aircraft PSG competes with many leasing companies that have greater financial
resources and broader marketing and support capabilities to effect a sale or
lease than PSG.
AIRCRAFT SOLD. In June 1995 PSG sold two Boeing 747-100SF aircraft which were
held for sale since they were returned to PSG in early 1992 when the lessee of
the aircraft, Pan American World Airways, Inc., ceased operations.
Subsequently, these aircraft were converted into full cargo configuration under
an agreement with a third party vendor, and obligations for approximately $20
million were incurred. As a result of this sale, PSG recorded, in the second
quarter of 1995, a $1.7 million pre-tax loss on disposition. The net cash
proceeds to PSG (after payment of costs and expenses and the repayment of the
obligation mentioned above) were approximately $1.5 million.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
OPERATING STATISTICS (at year-end) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET AIRCRAFT LEASED:/(a)/
BAe 146-200 aircraft /(b)/ 10.0 10.0 10.0 10.0 10.0
MD-80 aircraft 7.0 7.0 7.0 7.0 7.0
737-200 aircraft /(c)/ 2.0 2.3 2.3 2.3 2.3
737-300 aircraft 2.0 2.0 2.0 2.0 2.0
-----------------------------------
Total aircraft leased 21.0 21.3 21.3 21.3 21.3
Aircraft leased under operating leases/(d)/ 16.0 16.3 16.3 16.3 15.3
Aircraft leased under financing leases /(d)/ 5.0 5.0 5.0 5.0 6.0
AIRCRAFT HELD FOR SALE - 747-100 /(e)/ - 2.0 2.0 2.0 2.0
</TABLE>
(a) At December 31, 1995, PSG had a 100% interest in all aircraft except
for a 1/3 interest in six 737-200 aircraft.
(b) Not-operated by USAir, Inc. since the spring of 1992. In early 1996
USAir subleased one aircraft and is pursuing other potential
sublessees.
(c) During 1995, one 737-200 aircraft, in which PSG had a 1/3 interest, was
declared a casualty loss.
(d) During 1992, a 737-300 aircraft was reclassified from a financing lease
to an operating lease.
(e) During 1995, the two 747-100 aircraft were sold.
================================================================================
11.
<PAGE>
AIRCRAFT LEASING - CONTINUED
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 35,032 $ 35,637 $ 35,920 $ 36,412 $ 46,200
Operating expenses/(f)/ 15,770 21,346 31,165 22,544 45,123
------------------------------------------------------------------------------------
Income before interest and taxes 19,262 14,291 4,755 13,868 1,077
Identifiable assets at year-end 233,547 279,508 302,341 324,719 338,034
Depreciation and amortization 13,978 14,085 13,837 12,394 13,478
Income before interest and taxes
as a percent of revenues 55.0% 40.1% 13.2% 38.1% 2.3%
</TABLE>
(f) Includes a $1.7 million loss on the disposition of 747 aircraft in 1995 and
write-downs on 747 aircraft in 1994, 1993, 1992 and 1991 of $7.2 million,
$17 million, $9.9 million and $31.2 million, respectively.
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1993 THROUGH 1995 AND KNOWN TRENDS
- --------------------------------------------------------------------------------
The reduction in revenues in each year from 1993 to 1995 reflects the reduced
revenue recognition associated with aircraft leased under financing leases.
Income fluctuates in each year from 1993 to 1995 largely as a result of the $1.7
million loss on disposition of the 747 aircraft in 1995 and the $7.2 million and
$17 million write-downs of the same aircraft in 1994 and 1993.
The future long-term prospects of USAir, Continental and America West are
unknown. It is possible that all of the leased aircraft will remain with the
existing carriers. 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. If the aircraft
were returned, PSG would be faced with a choice of maintaining control of the
aircraft by continuing to make the scheduled debt payments or losing control of
the aircraft to the lenders who would seek a buyer of the aircraft. Except for
debt of $20.4 million on five BAe-146s, all other PSG wholly-owned aircraft are
encumbered by debt which is nonrecourse to PSG. 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. 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. See Management's Discussion and Analysis of
Financial Condition for additional information.
================================================================================
12.
<PAGE>
FUEL SALES AND DISTRIBUTION
================================================================================
PS Trading, Inc. (PST), a wholly-owned subsidiary of PSG, is composed of three
separate divisions consisting of aviation fuel sales, wholesale fuel marketing
and facility services. PST contributed $122 million to 1995 consolidated
revenues, or 73% of the total.
AVIATION FUEL SALES - Although the aviation fuel sales division was displaced in
1995 by the wholesale fuel marketing division as the leader in fuel sales,
aviation fuel sales remains the largest contributor to operating results. Both
revenues and operating results from aviation fuel sales declined in 1995
compared to 1994, which included the benefit of sales to a scheduled airline
which suffered financial difficulties in 1994 and prompted PST to discontinue
sales to this carrier. The aviation fuel sales division, which is based in
Dallas, Texas, prides itself in being able to provide fuel to its corporate
customers across the United States as well as overseas. The aviation fuel sales
division strives to provide timely, responsive, quality service at reasonable
margins.
WHOLESALE FUEL MARKETING - During 1995 wholesale fuel marketing became PST's
largest contributor to revenue. Revenues in 1995 increased by 146% over 1994.
Sales of refined petroleum products, primarily diesel and gasoline, are to
commercial, military, municipal and reseller customers. This operation is
headquartered in the Sacramento, California area with sales representatives
covering both Southern and Northern California, as well as Arizona, New Mexico
and Oregon. During 1995 PST increased the number of storage terminals in
California that are supplied by pipeline quantities of gasoline and diesel fuel
purchased direct from refineries. PST plans to begin shipping via pipeline to
Oregon and Washington have been delayed and are now planned for 1996. These
pipeline purchases have reduced the average cost of fuel and have made PST more
competitive in the marketplace. The expected improvement in operating margins
from these pipeline purchases did not materialize in 1995 due to what appeared
to be an abnormally small differential during much of 1995 in the price of fuel
purchased direct from the refinery versus the price of fuel purchased at local
terminal facilities. PST is looking forward in 1996 to having these pricing
differentials more closely track historical patterns. During 1996 PST will hire
additional sales representatives to expand existing sales territories, plus
initiate direct marketing to Washington.
FACILITY SERVICES - PST owns or leases limited fuel storage facilities or
pipelines in several locations including the San Francisco, Oakland and Los
Angeles International Airports. Revenues from pipelines at the San Francisco
International Airport have been reduced because of the construction of a new
international terminal and will be eliminated when the new terminal is completed
in about two to three years. During 1996 PST plans on leasing additional
storage capacity in Seattle and Portland for PST fuel inventories.
<TABLE>
<CAPTION>
OPERATING STATISTICS 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gallons of fuel sold (in thousands) 169,528 111,855 145,281 112,663 100,040
Average price per gallon (in cents) 70 70 73 75 73
Employees at year-end 29 23 24 21 18
=======================================================================================================================
</TABLE>
13.
<PAGE>
FUEL SALES AND DISTRIBUTION - CONTINUED
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $122,417 $79,642 $106,904 $85,450 $75,302
Operating expenses 121,278 78,240 105,578 84,198 74,177
-------------------------------------------------------------------------
Income before interest and taxes 1,139 1,402 1,326 1,252 1,125
Identifiable assets at year-end 20,180 17,943 15,975 14,161 12,756
Net assets before debt at year-end/(a)/ 13,604 8,033 9,430 7,612 8,978
Capital additions 265 64 67 203 153
Depreciation and amortization 299 321 336 366 400
Income before interest and taxes as
a percent of revenues .9% 1.8% 1.2% 1.5% 1.5%
</TABLE>
(a) Identifiable assets less current liabilities.
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1993 THROUGH 1995 AND KNOWN TRENDS
- --------------------------------------------------------------------------------
Revenues increased 54% during 1995 compared to 1994 primarily due to a 52%
increase in the gallons of fuel sold as a result of increased marketing efforts
by the wholesale fuel marketing division.
Revenues decreased 26% during 1994 compared to 1993 due to a 23% decrease in the
gallons of fuel sold and a 4% decrease in the average sales price per gallon.
Most of the volume reduction relates to declines in sales to one airline and the
discontinuance of sales to another airline. This did not have a material effect
on net operating results.
Income as a percent of revenues varies because of changing margins on fuel
distribution contracts (largely due to competitive pricing) and the percentage
of lower volume/higher margin customers. With PST now holding more fuel in
inventory, it will be subject to greater variation in profitability due to fuel
price fluctuation.
================================================================================
14.
<PAGE>
OIL AND GAS PRODUCTION AND DEVELOPMENT
================================================================================
Oil and gas operations are conducted by Dallas-based Statex Petroleum, Inc.
(Statex), a wholly-owned subsidiary of PSG. Statex contributed $7 million to
1995 consolidated revenue, or 4% of the total. Statex's primary business
activity is the application of secondary recovery processes to increase the
productivity of producing properties which yield crude oil. For the past
several years Statex has concentrated on enhancing its properties in North Texas
by water injection. In certain situations, polymer injection has been utilized
to improve the water flood efficiency. Infill drilling on the properties to
increase recovery efficiencies has also been very successful. Additional infill
drilling on existing properties is prospective but has been delayed pending a
stabilization of crude oil prices at approximately $18 per barrel. With the
continued deferment of capital expenditures, the year-end gross production from
the enhanced recovery project averaged 1,060 barrels of oil per day (BOPD)
versus 1,225 BOPD at the end of 1994.
Statex continued to improve the profit margin of its properties during 1995 by
reducing operating expenses, especially in the area of power costs. At year-
end, a major upgrade of the power systems for the purpose of reducing power
failures and the associated equipment damage and production downtime is in
progress. Plans for 1996 call for extension of the major field by drilling two
wells and continued work with polymer injection to improve water flood
efficiency.
Statex entered into a bank credit agreement collateralized by its major oil
properties. The initial availability is $1.5 million, but, on approval, could
be increased up to $8.2 million (based on the valuation of current oil and gas
reserves). In January 1996 Statex borrowed $342,000 under this credit agreement
to purchase an interest in a West Texas property. This source of funding is
intended for the acquisition and development of properties which Statex may
acquire in the future.
During 1995 Statex actively searched the Mid-Continent area for additional
properties having enhanced recovery potential and is in the process of acquiring
an interest in two of these fields. This activity will continue in 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proved reserves:
Crude oil (Mbbls) 4,886 5,082 6,856 8,438 8,776
Natural gas (MMcf) 2,960 3,026 3,737 4,849 6,164
Undeveloped oil and gas acreage:
Gross/(a)/ 3,388 6,586 5,877 6,303 9,187
Net/(b)/ 615 902 1,687 2,070 3,654
Producing wells:
Gross/(a)/ 121 107 114 126 140
Net/(b)/ 83 81 87 96 104
Production:
Crude oil (Mbbls) 337 405 446 435 447
Natural gas (MMcf) 552 520 467 559 646
===================================================================================================================================
</TABLE>
15.
<PAGE>
OIL AND GAS PRODUCTION AND DEVELOPMENT - CONTINUED
================================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS - CONTINUED 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wells drilled:
Gross/(a)/ 2 - 8 9 13
Net/(b)/ 1 - 7 9 13
Average price during year:
Crude oil - per barrel $17.56 $ 16.21 $ 17.64 $20.03 $20.71
Natural gas - per thousand cubic feet $ 1.59 $ 1.99 $ 2.02 $1.68 $1.46
Year-end price:
Crude oil - per barrel $18.00 $ 16.00 $ 12.50 $18.00 $18.20
Natural gas - per thousand cubic feet $ 1.90 $ 1.50 $ 2.15 $2.00 $1.60
Employees at year-end 8 8 9 9 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 6,848 $ 7,683 $ 8,907 $10,483 $10,367
Operating expenses/(c)/ 5,985 6,305 10,283 7,526 7,041
------- ------- ------- ------- -------
Income (loss) before interest and taxes 863 1,378 (1,376) 2,957 3,326
Identifiable assets at year-end 19,974 20,536 22,175 26,232 25,072
Net assets before debt at year-end/(d)/ 19,306 19,757 20,950 24,814 23,789
Capital additions 1,121 419 1,360 2,237 6,208
Depreciation, depletion and amortization 1,747 1,990 1,957 2,013 1,905
</TABLE>
(c) 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.
(d) Identifiable assets less current liabilities.
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL DATA FOR 1993 THROUGH 1995 AND KNOWN TRENDS
- --------------------------------------------------------------------------------
Revenues for 1995 were 11% lower than 1994 due primarily to reduced volumes
resulting from normal production decline rates. Capital expenditures normally
used to moderate the rate of decline were not made. Revenues were 14% lower in
1994 versus 1993 because the average price of oil was down 8% and oil production
was down 9%. As shown by both the average and the year-end crude oil and
natural gas prices above, there has been significant volatility in these prices.
Operating expenses for 1993 were significantly higher than in 1994 due to a $1.8
million write-off of an oil field which did not respond to water flood
enhancement and $.7 million of losses on the sales of oil and gas properties.
================================================================================
16.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
================================================================================
FINANCIAL CONDITION
Refer to the Consolidated Statements of Cash Flows for the the components of
PSG's cash flow activities. At December 31, 1995 PSG's principal source of
liquidity was cash, cash equivalents and marketable securities of $18.3 million,
a $5.6 million decrease from December 31, 1994. The major components of the
change in liquidity are as follows:
CASH FLOWS FROM OPERATING ACTIVITIES. PSG's primary source of cash was
provided by operating activities which created positive cash flow of $8.6
million.
CASH FLOWS FROM FINANCING ACTIVITIES. Debt payments used $14.6 million of
cash and, on December 30, 1995 a special cash distribution totaling $9.1
million was paid to shareholders.
CASH FLOWS FROM INVESTING ACTIVITIES (EXCEPT FOR MARKETABLE SECURITY
TRANSACTIONS). In 1995 capital additions used $1.4 million of cash. Net
proceeds from the disposition of aircraft, largely due to the sale of two 747
aircraft, amounted to $2.2 million. Cash of $2.1 million was released in
connection with reducing cash used as collateral for outstanding letters of
credit.
At December 31, 1995, PSG had $5.6 million outstanding under its October 1995
bank credit agreement, consisting entirely of letters of credit (LC's). No
borrowings are permitted under the bank credit agreement. The credit agreement
provides for long-term LC's, aggregating $4.6 million and for up to $5 million
of LC's that may be issued to support the operations of PST. All outstanding
LC's require cash collateralization. The credit agreement expires in 1996 as to
the PST-related LC's and in 2000 as to the long-term LC's.
Statex has a separate bank credit agreement currently with a $1.5 million
availability, but, on approval, could be increased up to $8.2 million (based on
the current valuation of oil and gas reserves owned by Statex). 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 PSG's assets and
its largest source of cash flow. The lease portfolio of 21 equivalent aircraft
is dominated by 16 aircraft leased to USAir including ten BAe-146 aircraft that
are grounded. Refer to the section on Aircraft Leasing in this Annual Report
for additional information on USAir.
If USAir's financial condition should deteriorate to a point where it sought
protection from its creditors, it is almost certain USAir would reject the
leases for the ten BAe-146 aircraft it leases from PSG. All lease payments due
from USAir are current through March 1996. If subsequent to March 1996, USAir
were to cease paying rent on the ten BAe-146's leased to it and PSG did not
continue to make the related debt payments, PSG's remaining 1996 net cash flow
would be reduced by approximately $4.4 million (rent receipts of $14.4 million
less debt payments of $10 million). In addition, if the ten BAe-146 aircraft
were returned, PSG would likely sustain a major loss on disposition of these
aircraft which had a net book value of approximately $65 million at the end of
1995. The recourse debt applicable to these ten aircraft totals approximately
$20.4 million and the non-recourse debt totals approximately $16.8 million at
December 31, 1995. The six MD-80 aircraft leased to USAir had a net book value
of approximately $87.9 million at the end of 1995. The total non-recourse debt
applicable to these six MD-80's totaled $45.5 million at December 31, 1995. If
subsequent
================================================================================
17.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
================================================================================
to March 1996, USAir were to cease paying all rent to PSG and PSG did not
continue to make the related debt payments, PSG's remaining 1996 annual net cash
flow would be reduced by approximately $5.5 million (rent receipts of $29.4
million less debt payments of $23.9 million).
If USAir were to default under its leases with PSG, a decision would be required
as to whether PSG desired to maintain control of the aircraft. If the aircraft
lenders consented and PSG agreed to continue to make the principal and interest
payments (P & I payments), PSG would have the opportunity to sell or re-lease
the aircraft if the lenders agreed. Without such action by PSG the lenders would
take control of and market the returned aircraft and PSG would relinquish its
equity interest in the aircraft. Subsequent to March 1996 the remaining 1996 P
& I payments are $13.9 million for the six MD-80s and $10 million for the ten
BAe-146s leased to USAir. The dilemma for PSG if an aircraft default were to
occur is does PSG have sufficient cash to continue to make P & I payments while
no rent is being received from the lessee and is it financially prudent to
continue to make P & I payments.
Refer to Note 1 of Notes to the Consolidated Financial Statements for an
explanation of PSG's current policies concerning asset impairment. In March
1995, the Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. PSG will adopt Statement
121 in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
In February 1996, the California Franchise Tax Board issued notices of net
deficiencies to PSG for the years 1987 through 1990. These deficiencies and
related interest total approximately $12.2 million as of February 29, 1996. PSG
will protest 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.
PSG believes that, absent a failure by USAir to meet its lease obligations to
PSG, its cash and cash equivalents, plus projected cash flow, are adequate to
meet the operating and capital needs of PSG in both the short and long-term. As
occurred in 1995, PSG expects to use cash in 1996 for working capital for
expanding the fuel distribution subsidiary's operations. PSG's planned capital
additions for 1996, primarily for oil and gas development activities, are
approximately $12 million, most of which relates to Statex acquiring and
developing two new oil and gas fields with enhanced recovery potential.
Statex's separate bank credit agreement will be used to finance most of the
planned capital addition.
USAGE OF TAX BENEFIT CARRYFORWARDS. PSG has substantial net operating loss
carryforwards, investment tax credit carryforwards and other tax benefits for
use in offsetting future taxable income. As discussed in Note 8 of the Notes to
Consolidated Financial Statements, as of December 31, 1995, PSG believes it had
approximately $95.6 million of federal net operating loss carryforwards and
$12.5 million of federal investment tax credit carryforwards, in
================================================================================
18.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
================================================================================
addition to 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. PSG
believes that as of March 26, 1996, no "ownership change" had occurred with
respect to PSG, but that the aggregate percentage point increase in the
ownership of PSG's stock by "5-percent shareholders" was in excess of 35%. PSG
generally has no control over either the purchase or sale of its shares by 5%
shareholders. In addition, the issuance of new equity securities or the buy back
of outstanding common stock by PSG would negatively effect the "ownership
change" calculation. Therefore, PSG will likely be constrained in its ability to
effect such equity transactions while there is concern as to the "ownership
change" calculation. At the 1996 Annual Meeting, stockholders of PSG will have
the opportunity to vote on a holding company reorganization transaction which is
designed to help decrease the risk that an "ownership change" will occur.
RESULTS OF OPERATIONS
Refer to the individual sections on each business segment in this Annual Report
for a description of each of PSG's principal business segments, an analysis of
financial data from 1993 to 1995 and a discussion of known trends.
REVENUES (EXCEPT FROM SEGMENTS). Interest and dividend income varied in each
year primarily as a result of the annual changes in the amounts of outstanding
cash, marketable securities and notes receivable and the interest rates earned.
Net investment gains of $.6 million in 1994 and $2.5 million in 1993 resulted
from the sale of a portion of the marketable securities held in PSG's portfolio.
With the sales of marketable securities in 1994, future results are not expected
to yield significant gains from marketable security transactions.
COSTS AND EXPENSES. The changes in cost of sales in each year from 1993 to 1995
are primarily a reflection of the change in sales volume of PST. The decrease in
general and administrative expenses (G&A) between 1995 and 1994, and the
increase in G&A between 1994 and 1993, are largely due to the 1994 accrual
related to the cancellation of employment contracts with two former PSG officers
who resigned and 1994 legal expenses related to the securities litigation
described below. The loss on disposition of aircraft and aircraft write-downs
relate to two 747-100 aircraft that were sold in June 1995. In early 1995 PSG
settled outstanding securities litigation for $5 million. Refer to Note 4 of
Notes to the Consolidated Financial Statements for details of the settlement.
Interest expense varied each year due to changes in the level of outstanding
debt and changes in the average interest rate. Included in interest expense are
yen foreign exchange losses of $3.9 million in 1993. All yen denominated debt
was repaid in June 1993.
PROVISION (CREDIT) FOR TAXES. Refer to Notes 1 and 8 of Notes to the
Consolidated Financial Statements for an explanation of the elements included in
the provision (credit) for taxes.
================================================================================
19.
<PAGE>
PS GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
================================================================================
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,999 $ 22,780
Marketable securities, partially pledged 14,270 1,113
Accounts receivable 20,993 16,934
Notes receivable 1,388 1,370
Current portion of aircraft leases, pledged 6,170 5,487
Fuel inventory, at average cost 4,423 3,363
Prepaid expenses and other current assets 2,535 4,939
----------- -----------
Total current assets 53,778 55,986
Oil and gas property and other equipment, at cost 42,991 42,733
Less accumulated depreciation, depletion and amortization (22,706) (21,652)
----------- -----------
20,285 21,081
Aircraft under operating leases, at cost, pledged 245,178 247,544
Less accumulated depreciation (124,678) (112,611)
----------- -----------
120,500 134,933
Investment in aircraft financing leases, pledged 97,004 101,248
Aircraft held for sale 29,100
Other assets 14,404 18,910
----------- -----------
$ 305,971 $ 361,258
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,289 $ 6,396
Accrued interest 3,540 3,933
Accrued legal settlement 5,000
Income taxes payable 4,944
Other accrued liabilities 2,500 10,273
Current portion of long-term obligations 19,244 15,151
----------- -----------
Total current liabilities 31,573 45,697
Long-term obligations 103,365 122,074
Deferred income taxes 40,535 32,840
Other liabilities 7,416 31,496
Commitments and contingencies
Stockholders' equity:
Preferred stock, 1,000 shares authorized, none issued
Common stock, par value $1 per share, 10,500 shares
authorized, 6,068 shares issued and outstanding 6,068 6,068
Additional paid-in capital 98,420 98,420
Retained earnings 18,594 24,663
----------- -----------
Total stockholders' equity 123,082 129,151
----------- -----------
$ 305,971 $ 361,258
=========== ===========
</TABLE>
================================================================================
See accompanying notes to consolidated financial statements.
20.
<PAGE>
PS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Continuing operations:
Revenues:
Fuel sales and distribution $122,417 $ 79,642 $106,904
Oil and gas production and development 6,848 7,683 8,907
Aircraft leasing 35,032 35,637 35,920
Interest, dividends and net investment gains 2,707 2,486 5,237
---------------------------------------
167,004 125,448 156,968
---------------------------------------
Cost and expenses:
Cost of sales 124,218 81,234 112,624
Depreciation, depletion and amortization 16,088 16,500 16,247
General and administrative expenses 4,245 6,075 4,879
Loss on aircraft disposition and write-downs 1,701 7,190 17,000
Settlement of securities litigation 5,000
Interest expense 15,509 16,630 19,479
---------------------------------------
161,761 132,629 170,229
---------------------------------------
Income (loss) from continuing operations before
taxes and cumulative effect of change in
accounting 5,243 (7,181) (13,261)
Provision (credit) for taxes 2,211 (2,599) (4,419)
---------------------------------------
Income (loss) from continuing operations before
cumulative effect of change in accounting 3,032 (4,582) (8,842)
Discontinued operations, net of tax:
Loss from operations (3,503) (12,528)
Net gain on dispositions 15,321
---------------------------------------
11,818 (12,528)
Cumulative effect of change in accounting 2,900
---------------------------------------
Net income (loss) $ 3,032 $ 7,236 $(18,470)
=======================================
Income (loss) per share:
Continuing operations $.50 $ (.76) $ (1.46)
Loss from operations of discontinued operations (.58) (2.07)
Net gain on dispositions of discontinued operations 2.53
Cumulative effect of change in accounting .48
---------------------------------------
Net income (loss) per share $.50 $ 1.19 $ (3.05)
=======================================
Shares used in determination of income (loss)
per share 6,068 6,067 6,057
=======================================
</TABLE>
================================================================================
See accompanying notes to consolidated financial statements.
21.
<PAGE>
PS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 3,032 $ (4,582) $ (5,942)
Non-cash items:
Depreciation, depletion and amortization 16,088 16,500 16,247
Aircraft dispositions and write-downs 1,701 7,190 17,000
Settlement of securities litigation 5,000
Marketable securities transactions (426) (828) (2,706)
Cumulative effect of change in accounting (2,900)
Deferred taxes and other 2,968 (8,159) 2,320
Changes in non-cash working capital affecting
cash from operating activities:
Accounts receivable (4,059) 141 (1,085)
Inventory (1,060) (2,036) (16)
Other current assets 1,557 2,964 (546)
Accounts payable (107) 136 866
Accrued interest (393) (217) 120
Accrued legal settlement (5,000)
Other current liabilities (5,693) 139 (489)
-------------------------------
Net cash provided from operating activities 8,608 16,248 22,869
-------------------------------
Cash flows from financing activities:
Debt related:
Additions to long-term obligations 13,500 59,715
Reductions in long-term obligations (14,617) (36,921) (91,114)
Equity related:
Stock options exercised 16 126
Special cash distribution to stockholders (9,101)
-------------------------------
Net cash used in financing activities (23,718) (23,405) (31,273)
-------------------------------
Cash flows from investing activities:
Purchase of marketable securities (15,962)
Proceeds from disposition of marketable securities 4,131 4,916 10,346
Capital additions (1,386) (485) (1,430)
Proceeds from disposition of property and equipment 2,215 410
Collateralization of letters of credit 2,065 (7,691)
Changes in notes receivable and other 5,266 4,339 8,811
-------------------------------
Net cash provided from (used in) investing (3,671) 1,079 18,137
-------------------------------
Discontinued operations:
Loss from operations (3,503) (12,528)
Net gain on dispositions 15,321
Deferred taxes 10,213 (6,542)
Decrease in net assets 1,694 2,087
-------------------------------
Net cash provided from (used in) discontinued
operations 23,725 (16,983)
-------------------------------
Net increase (decrease) in cash and cash equivalents (18,781) 17,647 (7,250)
Cash and cash equivalents at beginning of year 22,780 5,133 12,383
-------------------------------
Cash and cash equivalents at end of year $ 3,999 $ 22,780 $ 5,133
===============================
</TABLE>
================================================================================
See accompanying notes to consolidated financial statements.
22.
<PAGE>
PS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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, 1992 6,039 $6,039 $98,307 $ 35,897
Net loss (18,470)
Common stock issued 26 26 100
--------------------------------------
Balance at December 31, 1993 6,065 6,065 98,407 17,427
Net income 7,236
Common stock issued 3 3 13
--------------------------------------
Balance at December 31, 1994 6,068 6,068 98,420 24,663
Net income 3,032
Special cash distribution ($1.50 per share) (9,101)
--------------------------------------
Balance at December 31, 1995 6,068 $6,068 $98,420 $ 18,594
======================================
</TABLE>
================================================================================
See accompanying notes to financial statements.
23.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
PSG and its subsidiaries.
MANAGEMENT'S ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and disclosures made in the accompanying notes to the consolidated
financial statements. Actual results could differ from those estimates.
CASH EQUIVALENTS - PSG considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION - Depreciation to estimated residual values is
computed on the straight-line basis over the estimated useful lives of the
related assets, which are generally 15 to 18 years for leased aircraft and from
3 to 30 years for other property and equipment.
ACCOUNTING FOR OIL AND GAS PRODUCING ACTIVITIES - PSG follows the successful
efforts method of accounting for oil and gas exploration and development costs,
as described below:
LEASE ACQUISITIONS - PSG defers the costs of acquiring unproven oil and gas
leases until they are either assigned or sold to other parties or retained by
PSG 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 fields using the unit-of-production method based on
estimated proved reserves. Depreciation and amortization of wells and related
equipment is computed using the unit-of-production method, based on proved
developed reserves.
MARKETABLE SECURITIES - PSG adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994. In accordance with Statement 115 prior years' financial
statements were not restated to reflect the change in accounting method. There
was no material cumulative effect of adopting Statement 115.
At December 31, 1995, PSG held $3.8 million of U.S. Treasury bills maturing on
January 11, 1996 ($2.8 million of which were classified as non-current pursuant
to a collateral agreement) and approximately $3.5 million in a repurchase
agreement transaction (REPO) with a major investment bank (Seller) classified as
cash equivalents. In accordance with the terms of the REPO, PSG purchased
specifically identified U.S. Government securities which were held by the Seller
who subsequently repurchased the securities with interest on
================================================================================
24.
<PAGE>
================================================================================
January 2, 1996. At December 31, 1994, PSG had $4.8 million of U.S. Treasury
Bills maturing on January 12, 1995 ($3.7 million of which were classified as
non-current pursuant to a collateral agreement) and approximately $22.6 million
in a REPO. Management has classified these investments as held-to-maturity
securities at December 31, 1995 and 1994. The fair market value of these
investments approximates cost.
PSG held approximately $13.3 million of U.S. Treasury securities at December 31,
1995 that were classified as available-for-sale. These securities were carried
at market, which is not materially different than cost. In January 1996, $3.2
million of these securities were sold for approximately the market value at
December 31, 1995. The remaining securities mature $5 million in 1997 and $5.1
million in 1998. During 1994 PSG sold approximately $3.1 million of equity
securities and realized gains totaling approximately $.6 million.
NET INCOME (LOSS) PER SHARE - Net income (loss) per share is based on the
weighted average number of common shares outstanding during the period.
PROVISION (CREDIT) FOR TAXES - Effective January 1, 1993, PSG adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
the differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of Statement 109, income taxes were determined using the deferred method whereby
income and expense items that were reported in different years in the financial
statements and tax returns were measured at the tax rate in effect in the year
the difference originated. As permitted by Statement 109, PSG has elected not
to restate the financial statements of prior years. The cumulative effect of
the change in accounting shown for 1993 was a gain of $2.9 million - $.48 per
share, although the effect of the change on the results of operations for the
year ended December 31, 1993 was not material. Investment tax credits are
accounted for using the flow-through method.
ASSET IMPAIRMENT - It is PSG's policy to record an asset impairment loss if it
is probable that the expected future undiscounted cash flows of an asset (the
sum of the estimated future cash flows expected to result from the use of an
asset and its eventual disposition) do not exceed the carrying value of the
asset. If an impairment occurred PSG would record the difference between the
undiscounted cash flow and the carrying value of the related asset as an
impairment loss. PSG's leased aircraft represents by far the major portion of
its assets. Potential impairment of these aircraft (including the $159.3 million
of assets related to aircraft leased to USAir described in the next paragraph)
has been evaluated annually by comparing the current carrying value to the sum
of the projected undiscounted cash flows to be received from the lease payments
and the estimated residual values. In addition, the estimated market values of
all aircraft has been compared to carrying value. Based on both of these
evaluations, management currently believes there is no impairment loss related
to PSG's assets.
PSG's assets include approximately $159.3 million for which realization is
substantially dependent upon the future performance of USAir under aircraft
leases with PSG. All
================================================================================
25.
<PAGE>
================================================================================
payments due from USAir are current through March 1996, however USAir's long-
term financial future is uncertain. Should USAir default on their leases with
PSG, or file bankruptcy and reject certain of such leases, there could be a
material decrease in the market value of the types of aircraft leased to USAir
due to an increased availability of these aircraft for lease or sale. In such a
case, PSG could suffer significant losses on the ultimate disposal of the
related aircraft or upon the ultimate repossession of the aircraft by the
lenders. Refer to Management's Discussion and Analysis of Financial Condition
for additional information.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. PSG will
adopt Statement 121 in the first quarter of 1996 and, based on current
conditions, does not believe the effect of adoption will be material.
2. DISCONTINUED OPERATIONS
In 1994 the assets of PSG's travel management segment and the major asset of
PSG's metallic waste recycling segment were sold and they are shown as
discontinued operations in 1994 and 1993. Proceeds from the sales were $40
million and $1.5 million, respectively.
Operating revenues of the discontinued operations are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------
<S> <C> <C>
Travel management $17,912 $110,875
Metallic waste recycling 153 134
-------------------
$18,065 $111,009
===================
</TABLE>
Components of discontinued operations, including related taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------
<S> <C> <C>
Loss from operations:
Travel management $(4,022) $(10,216)
Metallic waste recycling (1,361) (8,369)
-------------------
(5,383) (18,585)
Credit for taxes (1,880) (6,057)
-------------------
$(3,503) $(12,528)
===================
Gain (loss) on dispositions:
Travel management $28,571
Metallic waste recycling (1,329)
-------
27,242
Provision for taxes 11,921
-------
$15,321
=======
</TABLE>
================================================================================
26.
<PAGE>
================================================================================
Net interest expense charged to the discontinued operations by PSG was $651,000
in 1994 and $4,471,000 in 1993.
3. LONG-TERM OBLIGATIONS
At December 31, 1995 PSG had $5.6 million outstanding under its October 1995
bank credit agreement, consisting entirely of letters of credit (LC's). No
borrowings are permitted under the bank credit agreement. The credit agreement
provides for long-term LC's aggregating $4.6 million and for up to $5 million of
LC's that may be issued to support the operations of PST. All outstanding LC's
require cash collateralization. The credit agreement expires in 1996 as to the
PST related LC's and in 2000 as to the long-term LC's. Under the terms of the
bank credit agreement PSG is required to maintain at least $3 million in cash
and cash equivalents.
Statex has a separate bank credit agreement currently with a $1.5 million
availability, but which on approval, could be increased up to $8.2 million
(based on the current valuation of oil and gas reserves owned by Statex). There
are no borrowings under this agreement at December 31, 1995. 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>
1995 1994
--------------------
<S> <C> <C>
Loans secured by ten BAe-146 aircraft; bearing interest at
6.8% to 12.5%; due 2000 $ 30,690 $ 37,246
Loans secured by five MD-80 aircraft; bearing interest at
8.1% to 10.7%; due 1998 and 1999 26,672 36,262
Loans secured by two MD-80 aircraft; bearing interest at
9.6% and 11.9%; due 2004 and 2006 21,925 22,837
Note payable secured by one Boeing 737 aircraft; bearing
interest at 11.2%; due 2006 13,840 14,169
Note payable secured by one Boeing 737 aircraft, bearing
interest at 11.6%; due 2002 10,238 11,560
--------------------
$103,365 $122,074
====================
</TABLE>
PSG paid interest of $15,285,000, $16,815,000 and $15,453,000 in 1995, 1994 and
1993, respectively.
Principal payments on existing long-term obligations in each of the four years
after 1996 are as follows: $23,893,000 in 1997; $21,291,000 in 1998; $17,285,000
in 1999; and $13,330,000 in 2000.
================================================================================
27.
<PAGE>
================================================================================
4. SECURITIES LITIGATION
In October 1995 the United States District Court approved the settlement reached
in March 1995 of all pending class action litigation against PSG and certain of
its directors and officers. While the $5 million settlement liability was
recorded as of December 31, 1994, the actual cash payment to an escrow account
was made by PSG in July 1995.
5. PREFERRED SHARE PURCHASE RIGHTS PLAN
PSG has a Preferred Share Purchase Rights Plan. Pursuant to the Plan one
preferred share purchase right (Right) has been issued for and trades with each
outstanding share of common stock. Each Right entitles the holder to buy 1/100th
of a share of junior participating preferred stock, Series D, at an exercise
price of $100 per Right. The Rights can be redeemed at any time by PSG for $.05
per Right prior to a party becoming an "Acquiring Person" (as defined in the
Plan and described below). The Rights become exercisable and separately
transferable only if a party becomes an Acquiring Person or announces a tender
offer for 30% or more of PSG's common stock. Upon becoming exercisable the
Rights also permit a holder (other than an Acquiring Person), (i) in the event
PSG is merged with another company, to receive a number of shares of common
stock of the surviving company having a market value of twice the exercise price
of each Right or (ii) in the event a party becomes an Acquiring Person or in the
event of self-dealing by a control shareholder, to receive a number of shares of
PSG stock having a market value of twice the exercise price of each Right. PSG
has reserved 90,000 shares of junior participating preferred stock, Series D,
for issuance if necessary. The Plan defines an Acquiring Person as any party
that acquires 20% or more of PSG's common stock, except that Warren E. Buffet,
Berkshire Hathaway Inc. or their affiliates only become Acquiring Persons if
they acquire 45% or more of PSG's common stock. The Plan has been amended to
provide that the proposed holding company reorganization referred to in Note 8
will not trigger the Rights.
6. COMMON STOCK OPTIONS
Changes in stock options outstanding during 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Options Option
Outstanding Prices
----------- -------------
<S> <C> <C>
Balance at December 31, 1993 23,100 $ 3.41-29.75
Exercised (2,900) 3.41- 6.83
Canceled (5,600) 13.90-24.86
-----------
Balance at December 31, 1994 14,600 6.83-29.75
Canceled (4,800) 19.76
-----------
Balance at December 31, 1995 9,800 6.83-29.75
===========
</TABLE>
================================================================================
28.
<PAGE>
================================================================================
At December 31, 1995 and 1994 all outstanding options are exercisable. The
stock option plan expired in September 1994 and no more options may be granted
although existing options can be exercised.
7. AIRCRAFT LEASES AND AIRCRAFT SOLD
At December 31, 1995 PSG leased jet aircraft to three commercial airlines under
agreements accounted for as operating or financing leases.
The future minimum lease payments scheduled to be received on aircraft currently
under lease are (in thousands):
<TABLE>
<CAPTION>
Operating Financing
Leases Leases
---------------------------------
<S> <C> <C>
1996 $ 25,795 $ 12,318
1997 24,640 14,983
1998 22,662 12,835
1999 16,858 12,837
2000 16,858 9,735
Later years 14,140 54,034
---------------------------------
Total $120,953 $116,742
=================================
</TABLE>
Information on financing leases (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------------------
<S> <C> <C>
Total investment $103,174 $106,735
Unguaranteed residual values (included in
total investment) 28,240 28,240
Unearned income 41,808 50,223
</TABLE>
Aircraft under operating leases are depreciated to estimated residual values
which aggregate approximately $41.3 million, or approximately 18% of original
cost.
During the fourth quarters of 1994 and 1993, PSG wrote-down its investment in
two 747-100 aircraft (which were converted to freighters) by $7.2 million and
$17 million, respectively. These two aircraft were sold in 1995 and an
additional $1.7 million loss on disposition was recorded.
8. PROVISION (CREDIT) FOR TAXES
The provision (credit) for taxes from continuing operations was comprised of (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------
<S> <C> <C> <C>
Current taxes:
Federal $ 38
State $ 62 $ 69 70
Deferred taxes 2,149 (2,668) (4,527)
---------------------------
$2,211 $(2,599) $(4,419)
===========================
</TABLE>
================================================================================
29.
<PAGE>
================================================================================
PSG paid income taxes and related interest of $1,509,000, $4,288,000 and
$152,000 in 1995, 1994, and 1993, respectively. In addition, refunds of prior
years' income taxes of $123,000, $559,000 and $67,000 were received in 1995,
1994 and 1993, 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 Pre-tax Loss
---------------------------
1995 1994 1993
---------------------------
<S> <C> <C> <C>
Statutory federal rate 35% (35)% (35)%
Increase (reductions) in taxes resulting from:
State and foreign taxes net of federal income
tax benefit 6
Other 1 (1) 2
---------------------------
42% (36)% (33)%
===========================
</TABLE>
Significant components of PSG deferred tax liabilities and assets for Federal
and state income taxes as of December 31, 1995 and 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 94,036 $ 95,944
Other 5,733 10,157
--------------------
Total deferred tax liabilities 99,769 106,101
Deferred tax (assets):
Aircraft write-downs (16,810)
Financing leases (8,769) (7,365)
Net effect of tax benefit transfer agreement (3,902) (3,748)
Write-downs of subsidiaries (14,343) (14,343)
Net operating loss carryforward (21,979) (19,780)
Capital loss carryforward (2,762) (3,425)
Investment tax credit carryforward (12,524) (12,542)
AMT credit carryforward (3,460) (3,460)
Other (4,281) (3,257)
--------------------
Total deferred tax (assets) (72,020) (84,730)
Valuation allowance 12,786 13,914
--------------------
Net deferred tax (assets) (59,234) (70,816)
--------------------
Net deferred tax liability $ 40,535 $ 35,285
====================
</TABLE>
Certain reclassifications were made in the 1994 presentation of deferred tax
assets to be consistent with the way the actual 1994 income tax returns were
filed.
================================================================================
30.
<PAGE>
================================================================================
The valuation allowance against deferred tax assets relates primarily to capital
losses for which future realization is uncertain. To the extent PSG is unable
to fully utilize in the future some or all of the deferred tax assets shown in
the table above, PSG would record a corresponding amount as additional income
tax expense with an equal reduction in operating results and stockholders'
equity.
There is a federal tax net operating loss carryforward (NOL) of approximately
$95.6 million at December 31, 1995, 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
$19.2 million starts expiring in 1997. The unused investment tax credit (ITC)
for tax return purposes at December 31, 1995 is $12.5 million, which expires
from 2000 to 2003.
PSG is subject to certain tax regulations which could severely limit the
carryforward 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 PSG's outstanding shares, the future annual use of the NOLs and tax
credits may be significantly limited. At the 1996 Annual Meeting, stockholders
of PSG will have the opportunity to vote on a holding company reorganization
which is designed to help decrease the risk that an ownership change will occur.
In February 1996 the California Franchise Tax Board issued notices of net
deficiencies to PSG for the years 1987 through 1990. The net deficiencies total
$5.9 million plus estimated interest of $6.3 million through February 29, 1996.
PSG intends to protest the adjustments proposed in these notices and believes
that adequate provision has been made in the Consolidated Financial Statements
for possible assessments of additional taxes and interest.
9. BUSINESS SEGMENTS
PSG operates three principal business segments - aircraft leasing, fuel sales
and distribution, and oil and gas production and development.
Revenues from USAir equaled 17%, 23% and 18% of total revenues in the years
1995, 1994 and 1993, respectively.
Fuel sales and distribution revenues from two airline customers amounted to 11%
and 14%, respectively, of total revenues in 1993. Sales to these airlines has
been discontinued. Because of the low margins in this segment, the loss of
individual customers does not have a material effect on consolidated operating
results.
Revenues; income before interest, taxes and cumulative effect of change in
accounting; depreciation, depletion and amortization; identifiable assets; and
capital additions for each of PSG's principal business segments for each of the
three years ended December 31, 1995 are included under "Selected Financial Data"
in each business segments' section of this Annual Report and are an integral
part of these Consolidated Financial Statements.
================================================================================
31.
<PAGE>
================================================================================
A reconciliation of this Selected Financial Data for the principal business
segments follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
--------------------------------
REVENUES FROM CONTINUING OPERATIONS:
Principal business segments $164,297 $122,962 $151,731
Corporate and other 2,707 2,486 5,237
--------------------------------
Total $167,004 $125,448 $156,968
================================
INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE, TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING:
Principal business segments $ 21,264 $ 17,074 $ 4,704
Corporate and other (512) (7,625) 1,514
--------------------------------
Total $ 20,752 $ 9,449 $ 6,218
================================
DEPRECIATION, DEPLETION AND AMORTIZATION:
Principal business segments $ 16,024 $ 16,398 $ 16,130
Corporate and other 64 102 117
--------------------------------
Total $ 16,088 $ 16,500 $ 16,247
================================
IDENTIFIABLE ASSETS:
Principal business segments $273,701 $317,987 $340,491
Corporate and other 32,270 43,271 25,402
Discontinued operations 15,313
--------------------------------
Total $305,971 $361,258 $381,206
================================
CAPITAL ADDITIONS:
Principal business segments $ 1,386 $ 483 $ 1,427
Corporate and other 2 3
--------------------------------
Total $ 1,386 $ 485 $ 1,430
================================
</TABLE>
10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the Consolidated
Statement of Financial Position, when it is practicable to estimate such value.
In cases where quoted market prices are not available, fair value is based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flow. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the financial
instrument. Statement 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
PSG.
================================================================================
32.
<PAGE>
================================================================================
The methods and assumptions discussed below were used by PSG 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.
MARKETABLE SECURITIES: The fair value for marketable securities is based on
quoted market prices.
NOTES RECEIVABLE: The fair value for notes receivable is estimated using
discounted cash flow analyses, using interest rates which might be offered if
the notes were renegotiated currently.
CASH COLLATERAL ACCOUNT: The cash collateral account is invested in a fund
which holds U.S. Government instruments. The market value of the fund is
equal to the cost.
DEBT INSTRUMENTS: The fair value of PSG's 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 PSG's financial instruments at December 31, 1995 and
1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,999 $ 3,999 $ 22,780 $ 22,780
Marketable securities 17,070 17,075 4,813 4,813
Notes receivable 4,250 4,284 4,982 4,841
Cash collateral account 5,627 5,627 7,692 7,692
---------------------------------------------
$ 30,946 $ 30,985 $ 40,267 $ 40,126
=============================================
Financial liabilities:
Debt instruments $122,609 $122,378 $137,225 $130,184
=============================================
</TABLE>
================================================================================
33.
<PAGE>
================================================================================
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
1995 QUARTERS First Second Third Fourth
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Continuing operations:
Revenues $37,087 $41,724 $42,951 $45,242
Gross profit 6,559 4,912 6,870 6,656
Net income (loss) 909 (25) 1,241 907
Income per share .15 - .20 .15
<CAPTION>
1994 QUARTERS First Second Third Fourth
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Continuing operations:
Revenues $32,945 $25,506 $30,643 $36,354
Gross profit (loss) 7,782 6,495 6,799 (5,552)
Income (loss) from continuing operations 1,486 394 191 (6,653)
Income (loss) from discontinued operations 12,209 (2,869) 2,478
--------------------------------------
Net income (loss) 13,695 (2,475) 191 (4,175)
Income (loss) per share:
Continuing operations .24 .06 .03 (1.10)
Discontinued operations 2.02 (.47) .41
--------------------------------------
Net income (loss) 2.26 (.41) .03 (.69)
</TABLE>
Gross profit (loss) is income (loss) from continuing operations before interest
expense, general and administrative expenses, and taxes. In the fourth quarter
of 1994 a write-down of $7.2 million was recorded related to two 747 freighter
aircraft previously leased to Pan Am and ultimately sold in June 1995. In
1994's fourth quarter $5 million was accrued for settlement of a securities
litigation described in Note 4.
================================================================================
34.
<PAGE>
================================================================================
12. OIL AND GAS OPERATIONS (UNAUDITED)
CHANGES IN ESTIMATED NET PROVED DEVELOPED AND UNDEVELOPED RESERVES BASED ON
INTERNAL RESERVE REPORTS (IN THOUSANDS):
<TABLE>
<CAPTION>
Oil Gas
(Bbls)* (Mcf)*
-----------------
<S> <C> <C>
December 31, 1992 8,438 4,849
Revisions of previous estimates (977) (525)
Extensions, discoveries and other additions 2 90
Sales of reserves in place (161) (210)
Production (446) (467)
-----------------
December 31, 1993 6,856 3,737
Revisions of previous estimates (1,369) (191)
Production (405) (520)
-----------------
December 31, 1994 5,082 3,026
Revisions of previous estimates (106) 486
Extensions, discoveries, and other additions 98
Purchases of reserves in place 149
Production (337) (552)
-----------------
December 31, 1995 4,886 2,960
=================
<CAPTION>
Oil Gas
(Bbls) (Mcf)
-----------------
Net proved developed reserves at December 31, 1993 4,665 3,737
=================
Net proved developed reserves at December 31, 1994 3,638 3,026
=================
Net proved developed reserves at December 31, 1995 3,237 2,960
=================
</TABLE>
* Bbls = barrels; Mcf = one thousand cubic feet
CAPITALIZED COSTS AND COSTS INCURRED (IN THOUSANDS) - The aggregate costs at
December 31, 1995, 1994 and 1993 relating to oil and gas producing activities
(all of which are in the continental United States) are presented below for
capitalized costs and costs incurred.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Capitalized costs:
Proved properties $ 35,118 $ 34,806 $ 34,457
Unproved properties net of allowance for
abandonments 24 3 5
--------------------------------
Total 35,142 34,809 34,462
Accumulated depreciation, depletion and
amortization (17,665) (16,457) (14,533)
--------------------------------
Net capitalized costs $ 17,477 $ 18,352 $ 19,929
================================
</TABLE>
================================================================================
35.
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Costs incurred:
Property acquisition costs $ 325 $ 10
Exploration costs, including unsuccessful wells 49 8
Development costs 653 $ 336 1,324
--------------------------------
Total expenditures $ 1,027 $ 336 $ 1,342
================================
</TABLE>
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (IN THOUSANDS) - The
results of operations for oil and gas producing activities (excluding general
and administrative expenses and interest costs) for the years ended December 31,
1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------
<S> <C> <C> <C>
Oil and gas revenues $ 6,848 $ 7,683 $ 8,907
Production costs (3,923) (4,096) (5,498)
Exploration costs (49) (8)
Depreciation, depletion and amortization (1,747) (1,990) (1,957)
-----------------------------
Income before income tax expense 1,129 1,597 1,444
Income tax expense (463) (666) (491)
-----------------------------
Income from operations for producing activities $ 666 $ 931 $ 953
=============================
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (IN THOUSANDS) -
Pursuant to Statement of Financial Accounting Standards No. 69, all publicly
traded enterprises having significant oil and gas producing activities are
required to present a standardized measure of the discounted future net cash
flows relating to proved oil and gas reserve quantities, as well as the changes
in significant components of the standardized measure from prior periods. There
are numerous uncertainties inherent in estimating quantities of proved reserves
and in projecting the future rates of production and timing of development
expenditures. The future cash inflows determined from such reserve data
represent estimates only. Moreover, the present values should not be construed
as the current market values of PSG's oil and gas reserves or the costs that
would be incurred to obtain equivalent reserves. A market value determination
would include many additional factors including (i) anticipated future increases
or decreases in oil and gas prices and production and development costs; (ii) an
allowance for return on investment; (iii) regulatory actions; (iv) the value of
additional reserves, not considered proved at the present time, which may be
recovered as a result of further exploration and development activities; and (v)
other business risks.
================================================================================
36.
<PAGE>
================================================================================
The tables below present the required information relating to PSG's proved oil
and gas reserves as of December 31, 1995, 1994 and 1993. The future cash
inflows are calculated using the market price of oil and gas at the end of the
year presented.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Future cash inflows $ 97,879 $ 90,908 $ 98,741
Future production costs (45,508) (45,710) (56,036)
Future development and abandonment costs (6,874) (6,264) (7,346)
--------------------------------
Future net cash inflows before income tax/(a)/ 45,497 38,934 35,359
Future income tax expenses (10,064) (7,882) (7,347)
--------------------------------
Future net cash flows 35,433 31,052 28,012
Discount factor at 10% (17,584) (14,806) (15,531)
--------------------------------
Standardized measure of discounted future
net cash flows $ 17,849 $ 16,246 $ 12,481
================================
</TABLE>
(a) The discounted present value at 10% of future net cash inflows before
income taxes was $21,342, $18,970 and $15,254 as of December 31, 1995, 1994
and 1993, respectively.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------
<S> <C> <C> <C>
Year-end market price used for
future cash inflows:
Crude oil - per barrel $18.00 $16.00 $12.50
Natural gas - per thousand cubic feet 1.90 1.50 2.15
</TABLE>
The following are the principal sources of change in the standardized measure of
discounted future net cash flows for the years ended December 31, 1995, 1994
and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Standardized measure at beginning of the year $16,246 $12,481 $ 30,003
Revenues less production costs for the year (2,885) (3,554) (3,385)
Net change in sales prices net of production costs 3,989 7,454 (15,264)
Extensions and discoveries 216 130
Changes in estimated future development costs (239) 732 669
Costs incurred that reduced future development costs 132 520
Revisions of previous quantity estimates (121) (4,888) (2,946)
Accretion of discount 1,897 1,526 3,683
Net change in income taxes (769) 49 4,055
Purchase of reserves in place 615
Sale of reserves in place (800)
Changes in production rates (timing) and other (1,232) 2,446 (4,184)
------------------------------
Standardized measure at end of year $17,849 $16,246 $ 12,481
==============================
</TABLE>
================================================================================
37.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
================================================================================
THE BOARD OF DIRECTORS AND STOCKHOLDERS
PS GROUP, INC.
We have audited the accompanying consolidated statements of financial position
of PS Group, Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of operations, cash flows, and stockholders' equity for each of the
three years in the period ended December 31, 1995. 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, Inc. at
December 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes.
/s/ Ernst & Young LLP
San Diego, California
February 9, 1996
================================================================================
38.
<PAGE>
PS GROUP, INC.
DIRECTORS AND OFFICERS
================================================================================
DIRECTORS
PS GROUP, INC.
Charles E. Rickershauser, Jr.
Chairman of the Board and
Chief Executive Officer
Robert M. Fomon
President, Robert M. Fomon
and Company (a private
investment company)
J.P. Guerin*
Private Investor
Donald W. Killian, Jr.*
Attorney-at-Law
Gordon C. Luce*
Independent Financial
Advisor
OFFICERS
PS GROUP, INC.
Charles E. Rickershauser, Jr.
Chairman of the Board and
Chief Executive Officer
Lawrence A. Guske
Vice President - Finance &
Chief Financial Officer
Johanna Unger
Vice President, Controller &
Secretary
OFFICERS
PS TRADING, INC.
Douglas A. Jones
President
Michael E. Kooken
Vice President
OFFICERS
STATEX PETROLEUM, INC.
B. Andrew Wilkinson
President & Chief Operating
Officer
Dhar Carman
Executive Vice President &
Chief Financial Officer
*Member of the Audit Committee
================================================================================
39.
<PAGE>
PS GROUP, INC.
INVESTOR INFORMATION
================================================================================
COMMON STOCK TRANSFER AND
DIVIDEND DISBURSING AGENT & REGISTRAR
- -------------------------------------
Questions regarding stockholder's accounts should be directed to:
Chemical Mellon Shareholder Services, L.L.C.
PO Box 590
Ridgefield Park, New Jersey 07660
800-356-2017
Common Stock listed on the New York and Pacific Stock Exchanges. Symbol: PSG
CORPORATE OFFICES
- -----------------
4370 La Jolla Village Drive, Suite 1050
San Diego, California 92122
619-642-2999
619-642-1955 (facsimile)
AUDITORS
- --------
Ernst & Young LLP
501 West Broadway, Suite 1100
San Diego, California 92101
ANNUAL MEETING
- --------------
May 28, 1996 at 10:00 a.m.
Sheraton Grande Hotel
333 South Figueroa Street
Los Angeles, California 90071
MARKET PRICES OF COMMON STOCK
- --------------------------------
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995:
First quarter 11 1/8 8 1/2
Second quarter 12 9 5/8
Third quarter 11 1/8 9 1/2
Fourth quarter 12 9 3/4
1994:
First quarter 14 3/4 10 5/8
Second quarter 12 9 3/8
Third quarter 11 3/8 9 5/8
Fourth quarter 11 8 7/8
</TABLE>
DIVIDENDS ON COMMON STOCK
- -------------------------
A special cash distribution of $1.50 per share was declared and paid in 1995.
This distribution is a 1996 distribution for recipients and is not a precedent
for further distributions.
No dividends were declared in 1994.
INVESTOR RELATIONS
- ------------------
As of March 1, 1996 there were 1,518 holders of record of PSG's common stock.
PSG will supply to stockholders, upon written request to the corporate office
and without charge, a copy of PSG's annual report on Form 10-K for the year
1995.
================================================================================
40.
<PAGE>
EXHIBIT (21)
PS GROUP, INC.
1995 ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES
AS OF FEBRUARY 29, 1996
Name of Corporation Jurisdiction of Incorporation
- ------------------- -----------------------------
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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,999
<SECURITIES> 14,270
<RECEIVABLES> 22,381
<ALLOWANCES> 0
<INVENTORY> 4,423
<CURRENT-ASSETS> 53,778
<PP&E> 288,169
<DEPRECIATION> 147,384
<TOTAL-ASSETS> 305,971
<CURRENT-LIABILITIES> 31,573
<BONDS> 0
0
0
<COMMON> 6,068
<OTHER-SE> 117,014
<TOTAL-LIABILITY-AND-EQUITY> 305,971
<SALES> 129,265
<TOTAL-REVENUES> 167,004
<CGS> 124,218
<TOTAL-COSTS> 124,218
<OTHER-EXPENSES> 20,333
<LOSS-PROVISION> 1,701
<INTEREST-EXPENSE> 15,509
<INCOME-PRETAX> 5,243
<INCOME-TAX> 2,211
<INCOME-CONTINUING> 3,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,032
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
