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
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.
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:
The following table sets forth, by states, undeveloped acreage ownership as of December 31, 1995:
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
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.
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.
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.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the year ended December 31, 1995.
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.
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.
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.
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters
ITEM 6.
ITEM 6. Selected Financial Data
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
ITEM 9.
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.
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. 2. Exhibits: See Index to Exhibits following Page.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this 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.
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)
PS GROUP, INC. [ITEM 14(A)]
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.
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
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
(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 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