1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1997 Commission File No. 1-5591
PENNZOIL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-1597290
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Pennzoil Place, P.O. Box 2967
Houston, Texas 77252-2967
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 546-4000
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 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 .
Number of shares outstanding of each class of common stock,
as of latest practicable date, July 31, 1997:
Common stock, par value $0.83-1/3 per share, 47,190,592
shares.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Expressed in thousands except per share amounts)
REVENUES $ 648,357 $ 636,580 $1,297,357 $1,223,921
COSTS AND EXPENSES
Cost of sales 373,293 371,654 729,165 711,749
Selling, general and administrative expenses 98,111 82,910 178,213 169,547
Depreciation, depletion and amortization 74,784 73,009 137,351 138,999
Exploration expenses 12,279 11,863 22,319 21,708
Taxes, other than income 11,751 13,605 24,863 27,347
Interest charges, net 41,161 46,804 78,280 94,367
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX 36,978 36,735 127,166 60,204
Income tax provision 13,101 12,192 45,738 19,892
----------- ----------- ----------- -----------
NET INCOME $ 23,877 $ 24,543 $ 81,428 $ 40,312
=========== =========== =========== ===========
EARNINGS PER SHARE $ .51 $ .53 $ 1.74 $ .87
=========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .50 $ .50
=========== =========== =========== ============
AVERAGE SHARES OUTSTANDING 46,971 46,447 46,888 46,420
=========== =========== =========== ===========
END OF PERIOD SHARES OUTSTANDING 47,031 46,466 47,031 46,466
=========== =========== =========== ===========
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
3
PART I. FINANCIAL INFORMATION - continued
PENNZOIL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, December 31,
1997 1996
------------- -------------
(Expressed in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 43,885 $ 34,383
Receivables 212,054 250,328
Inventories
Crude oil and natural gas 20,419 24,365
Motor oil and refined products 178,543 147,554
Deferred income tax 16,484 20,834
Other current assets 55,771 60,128
------------- -------------
Total current assets 527,156 537,592
Property, plant and equipment, net 2,438,910 2,318,084
Marketable securities and other investments 953,181 955,182
Other assets 305,572 313,396
------------- -------------
TOTAL ASSETS $ 4,224,819 $ 4,124,254
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,182 $ 1,181
Accounts payable and accrued liabilities 275,498 274,618
Interest accrued 30,051 30,827
Other current liabilities 77,206 86,321
------------- -------------
Total current liabilities 384,937 392,947
Long-term debt 2,241,594 2,217,806
Deferred income tax 265,477 241,791
Other liabilities 287,352 302,635
------------- -------------
TOTAL LIABILITIES 3,179,360 3,155,179
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 1,045,459 969,075
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,224,819 $ 4,124,254
============= =============
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
4
PART I. FINANCIAL INFORMATION - continued
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30
---------------------------------
1997 1996
----------- -----------
(Expressed in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 81,428 $ 40,312
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 137,351 138,999
Dry holes and impairments 9,231 5,173
Deferred income tax 28,681 19,402
Non-cash and other nonoperating items 22,270 17,590
Change in operating assets and liabilities (5,759) (122,670)
----------- -----------
Net cash provided by operating activities 273,202 98,806
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (254,436) (262,113)
Purchases of marketable securities and other investments (272,980) (302,042)
Proceeds from sales of marketable securities and other
investments 277,161 313,909
Proceeds from sales of assets 10,228 127,023
Other investing activities (36,778) (3,525)
----------- -----------
Net cash used in investing activities (276,805) (126,748)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, net 43,622 27,489
Debt and capital lease obligation repayments (773,480) (645,365)
Proceeds from issuance of debt 750,000 684,206
Dividends paid (23,465) (23,214)
Other financing activities 16,428 -
----------- -----------
Net cash provided by financing activities 13,105 43,116
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,502 15,174
CASH AND CASH EQUIVALENTS, beginning of period 34,383 23,615
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 43,885 $ 38,789
=========== ===========
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
5
PART I. FINANCIAL INFORMATION - continued
PENNZOIL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General -
The condensed consolidated financial statements included
herein have been prepared by Pennzoil Company ("Pennzoil") without
audit and should be read in conjunction with the financial
statements and the notes thereto included in Pennzoil's latest
annual report. The foregoing financial statements include only
normal recurring accruals and all adjustments which Pennzoil
considers necessary for a fair presentation. Certain prior period
items have been reclassified in the condensed consolidated
financial statements in order to conform with the current year
presentation.
(2) New Accounting Standards -
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," which establishes new
standards for computing and presenting earnings per share. The
provisions of the statement are effective for fiscal years ending
after December 15, 1997. If the provisions of SFAS No. 128 had
been adopted in the first half of 1997 and 1996, basic and diluted
earnings per share would not have been materially different from
primary and fully diluted earnings per share, respectively, as
calculated in accordance with Accounting Principles Board Opinion
No. 15.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in a full
set of general-purpose financial statements. The statement
requires (a) classification of items of other comprehensive income
by their nature in a financial statement and (b) display of the
accumulated balance of other comprehensive income separate from
retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information," which
establishes standards for reporting information about operating
segments in annual financial statements and requires that selected
information be reported about the operating segments in interim
financial reports issued to the shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997.
(3) Accounts Receivable -
In September 1996, Pennzoil Receivables Company, a wholly
owned special purpose subsidiary of Pennzoil, entered into a
receivables sales facility, which provides for the ongoing sales of
up to $135.0 million of accounts receivable of certain Pennzoil
subsidiaries. The facility expires in September 1997. Accounts
receivable sold under this agreement totaled $135.0 million as of
June 30, 1997. Pennzoil used the proceeds to reduce outstanding
debt. Fees associated with the sale of accounts receivable totaled
$2.2 million and $4.2 million for the quarter and six months ended
June 30, 1997, respectively. These fees are netted against other
income.
6
PART I. FINANCIAL INFORMATION - continued
(4) Debt -
In April 1997, Pennzoil redeemed $38.5 million principal amount
of indebtedness consisting of all of Pennzoil's outstanding 9%
debentures due 2017. The purchase premium and related unamortized
discount and debt issue costs relating to the redemption resulted
in an after-tax charge of $1.3 million, or $.03 per share, in the
second quarter of 1997.
(5) Union Pacific Resources' Unsolicited Tender Offer -
On June 23, 1997, Union Pacific Resources Group Inc. ("UPR")
announced that a UPR subsidiary had commenced a two-tiered,
partial tender offer (the "Offer") for just over half
of Pennzoil's shares of common stock at a price
of $84.00 per share in cash on the front-end. UPR
also announced that it was seeking to negotiate a merger
(the "Proposed Squeeze Out Merger" and, together with the Offer,
the "UPR Proposal") in which the remaining Pennzoil shares would be
converted into Common Stock of UPR ("UPR Common Stock"). Under the
UPR Proposal, the number of shares of UPR Common Stock in the
Proposed Squeeze Out Merger would be determined, within a pricing
collar of $25.00 to $30.00, by dividing $84.00 by the average of
the closing prices per share of UPR Common Stock for the 20
consecutive trading days ending 5 days prior to any meeting of
Pennzoil shareholders called for the purpose of voting on the
Proposed Squeeze Out Merger. If the average of the closing prices
of UPR Common Stock during such 20-day period were less than $25.00
or greater than $30.00, the exchange ratio for the Proposed Squeeze
Out Merger would be fixed at 3.36 shares of UPR Common Stock or
2.80 shares of UPR Common Stock, respectively.
On July 1, 1997, Pennzoil's Board of Directors determined that
the UPR Proposal, including the Offer, was inadequate and not in
the best interests of Pennzoil and its shareholders. Accordingly,
Pennzoil's Board of Directors recommended that Pennzoil
shareholders reject the UPR Proposal and not tender their shares to
UPR pursuant to the Offer.
In its recommendation to Pennzoil shareholders, Pennzoil's
Board of Directors cited, among other things: (i) the Board's
belief that the UPR Proposal does not reflect the inherent value of
Pennzoil; (ii) the Board's belief that continued pursuit of
Pennzoil's strategic plan will produce greater value for
Pennzoil shareholders than the UPR Proposal; (iii) the coercive
nature of UPR's two-tiered, front-end loaded offer, which is
designed to compel Pennzoil shareholders to tender into the Offer
to avoid receiving UPR Common Stock in the Proposed Squeeze Out
Merger; and (iv) the "value" of the UPR Proposal is substantially
less than $84.00 per share because of uncertainty of the value of
the UPR Common Stock to be forced onto the Pennzoil shareholders in
the Proposed Squeeze Out Merger.
The Board also reviewed the opinions of Lehman Brothers Inc.,
Evercore Group Inc. and J.P. Morgan Securities Inc., Pennzoil's
financial advisors, that the consideration to be received by
Pennzoil shareholders pursuant to the UPR Proposal, including the
Offer, is inadequate from a financial point of view.
The Offer, which is subject to numerous conditions and
uncertainties, including eliminating the effects of Pennzoil's
shareholder rights plan as applied to the UPR Proposal, will expire
on September 24, 1997, unless extended.
7
PART I. FINANCIAL INFORMATION - continued
(6) Use of Derivatives -
Pennzoil has a price risk management program that utilizes
derivative financial instruments, principally crude oil and natural
gas swaps, to reduce the price risks associated with fluctuations
in crude oil and natural gas prices. These financial instruments
are designated as hedges and accounted for on the accrual basis
with gains and losses being recognized based on the type of
contract and exposure being hedged. Realized gains or losses on
crude oil and natural gas swaps designated as hedges of anticipated
transactions related to anticipated production are treated as
deferred credits or charges and are included in other current
liabilities or other current assets on the balance sheet. Net
gains and losses on crude oil and natural gas swaps designated as
hedges of anticipated transactions, including accrued gains or
losses upon maturity or termination of the contract, are deferred
and recognized in income when the associated hedged commodities are
produced.
In order for crude oil and natural gas swaps to qualify as a
hedge of an anticipated transaction, the derivative contract must
identify the expected date of the transaction, the commodity
involved, and the expected quantity to be purchased or sold. In
the event that a hedged transaction does not occur, future gains
and losses, including termination gains or losses, are included in
the income statement when incurred.
In the statement of cash flows, cash receipts or payments
related to financial instruments are classified consistent with the
cash flows from the transaction being hedged.
Pennzoil has not materially hedged crude oil or natural gas
prices in 1997. Pennzoil will constantly review and may alter its
hedged positions as conditions change.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net income for the quarter and six months ended June 30, 1997
was $23.9 million, or $.51 per share, and $81.4 million, or $1.74
per share, respectively. This compares with net income of $24.5
million, or $.53 per share, for the second quarter of 1996 and
$40.3 million, or $.87 per share, for the six months ended June 30,
1996. The decrease in earnings for the second quarter of 1997
compared to the prior year was primarily due to pretax charges of
$10.0 million associated with the sale of PennUnion Energy
Services, L.L.C. ("PennUnion"), a natural gas marketing subsidiary,
$2.0 million on the early retirement of debt and $6.0 million
incurred in connection with the UPR Proposal (reference is made to
Note 5 of the Notes to Condensed Consolidated Financial Statements)
partially offset by higher results in the motor oil and refined
products segment and higher realized natural gas and liquids
prices. The increase in earnings for the six months ended June 30,
1997, compared to the prior year, was primarily attributable to
lower interest expense and higher results in the oil and gas and
motor oil and refined products segments.
8
PART I. FINANCIAL INFORMATION - continued
Oil and Gas
Operating income from this segment for the quarter and six
months ended June 30, 1997 was $69.1 million and $176.3 million,
respectively. This compares with operating income of $65.5 million
and $114.8 million, respectively, for the same periods in 1996.
The increase in operating income for both the quarter and six
months ended June 30, 1997, compared to the same periods in 1996,
was primarily due to higher realized prices for natural gas and
liquids, lower general and administrative expenses and lower other
taxes partially offset by lower natural gas and liquids production
volumes.
Natural gas price realizations averaged $1.98 per thousand
cubic feet ("Mcf") and $2.34 per Mcf, respectively, for the quarter
and six months ended June 30, 1997, compared to $1.83 per Mcf and
$1.81 per Mcf, respectively, for the same periods in 1996. Liquids
price realizations averaged $15.66 per barrel and $17.40 per barrel
for the quarter and six months ended June 30, 1997, compared to
$15.51 per barrel and $14.86 per barrel, respectively, for the same
periods in 1996. Natural gas volumes produced for sale were 616.4
million cubic feet ("MMcf") per day and 570.1 MMcf per day,
respectively, for the quarter and six months ended June 30, 1997,
compared to 628.5 MMcf per day and 594.1 MMcf per day,
respectively, for the same periods in 1996. Liquids production
volumes were 62.8 thousand barrels ("Mbbls") per day and 58.2 Mbbls
per day, respectively, for the quarter and six months ended June
30, 1997, compared to 65.0 Mbbls per day and 62.7 Mbbls per day,
respectively, for the same periods in 1996.
In June 1997, Pennzoil agreed to sell most of its U.S. natural
gas production to Columbia Energy Services Corp. for at least four
years at market prices.
In August 1997, Pennzoil filed a petition with the West
Virginia Public Service Commission to sell its utility division,
along with certain other noncore oil and gas properties in West
Virginia, to Gasco Distribution System, Inc. for $8.5 million.
Until the West Virginia Public Service Commission application is
approved, Pennzoil will continue to operate the properties and
natural gas utility.
Pennzoil plans to drill four international exploration wells
in the second half of 1997. In Azerbaijan, Pennzoil and its
partners, LUKoil of Russia, Agip of Italy and LUKAgip, a
subsidiary of LUKoil and Agip, began drilling the first
exploration well on the Karabakh structure offshore Baku on August
6, 1997. Pennzoil has a 30% interest in the Karabakh prospect.
In Qatar, Pennzoil plans to drill two exploration wells on Block 8
(100% Pennzoil) during the second half of 1997 and one well in
1998. Pennzoil is actively pursuing a partner to join in the
drilling of these wells. Also, during the second half of 1997,
Pennzoil will drill an exploration well in southwestern Australia
on the EP 408 (Whicher Range) concession and will work over an
existing well. Pennzoil has a 44% interest in the concession.
Also in Azerbaijan, in the Azeri-Chirag-Gunashli ("ACG") unit
where Pennzoil retains a 4.82% carried interest, the Azerbaijan
International Operating Company ("AIOC") expects to deliver first
oil volumes to the pipeline in October 1997.
9
PART I. FINANCIAL INFORMATION - continued
In Venezuela, Pennzoil participated in the winning bids on two
blocks in Lake Maracaibo, which were awarded in the third marginal
field bid round. Pennzoil will have a 60% interest in the
B2X-68/79 block and a 50% interest in the B2X-70/80 block. The
operating agreements with Lagoven, an affiliate of Petroleos de
Venezuela SA, covering both blocks were signed on July 28, 1997.
At Pennzoil's East Falcon block, Pennzoil is finalizing the
interpretation of a 3-D seismic shoot over the Cumarebo Field and
testing several wells in the La Vela Field.
In Egypt, Repsol, as operator, drilled the SEGOS No. 1 well
in June 1997 on the Southeast Gulf of Suez Block (50% Pennzoil).
The well was noncommercial and was plugged and abandoned.
Pennzoil plans to drill four exploratory wells in Egypt in
1998. Pennzoil, as operator, will drill two wells in the Southwest
Gebel el Zeit concession (87.5% Pennzoil) and one well in the North
July Field (100% Pennzoil). Pennzoil's partner, IEOC,
a subsidiary of Agip, will also drill one well in the West Feiran
Field (50% Pennzoil). All four wells are offshore in the Gulf of
Suez.
Motor Oil & Refined Products
Operating income from this segment for the quarter and six
months ended June 30, 1997 was $25.8 million and $38.9 million,
respectively. This compares to operating income of $15.8 million
and $30.2 million, respectively, for the same periods in 1996.
Earnings from manufacturing operations for the quarter ended
June 30, 1997 were up significantly from the same period last year
due to the completion of two major refining projects, as well as
higher margins for industrial specialties products and lower staff
expenses. These positive impacts were partially offset by lower
base oil margins.
Excel Paralubes, Pennzoil's lubricating base oil plant
partnership with Conoco Inc. ("Conoco"), completed startup and
operated at near capacity during the second quarter of 1997. On
July 22, 1997, the partners in Excel Paralubes achieved "financial
completion" of the lube base oil facilities under the intercreditor
agreement. With financial completion obtained, Pennzoil Company's
guarantee to Excel's lenders is no longer required and has been
terminated.
The fuels upgrade project at the Shreveport refinery came
on-line in April 1997 and is also running close to design levels.
This project increases the utilization of the crude oil capacity as
well as upgrades the by-products from the existing processes to
higher value fuels products. As a result, total crude oil
processed at Pennzoil's refineries increased over 2,100 barrels
per day for the quarter ended June 30, 1997 over the same
period in 1996.
10
PART I. FINANCIAL INFORMATION - continued
The additional revenues from these projects were partially
offset by lower base oil margins. Base oil prices declined with
the extra supply brought to the market from Excel Paralubes and
PetroCanada's new base oil facility. Base oil margins with respect
to West Texas Intermediate crude oil prices averaged $.46 per
gallon for the second quarter of 1997, compared to an average of
$.68 per gallon for the same period in 1996.
On July 10, 1997, Pennzoil signed an agreement with Conoco to
form a specialties joint venture. The venture, to be called
Penreco, will combine Pennzoil's white oil, petrolatum and
specialty solvents businesses with Conoco's solvents businesses.
Pennzoil's PENRECO (R) and MAGIE BROS (R) products are used in
cosmetics, pharmaceuticals, plastics, textiles, agricultural
products, food processing, inks, and aluminum rolling oils.
Conoco's Conosol (R) and LVT (R) products are sold primarily into
the drilling fluids, mining, and cleaning products markets, and
as carrier oils for many consumer products.
For the segment's marketing operations, total domestic
lubricating product sales were up 3% in the second quarter of 1997
over the same period in 1996 and margins remained strong. These
improvements were partially offset by lower sales of Gumout brand
fuel additives and higher selling and advertising expenses.
Pennzoil motor oil continues to be the nation's top selling motor
oil with a U.S. market share in excess of 21%.
Franchise Operations
The franchise operations segment, which operates through Jiffy
Lube International, Inc. ("Jiffy Lube"), recorded operating income
of $6.3 million and $10.8 million, respectively, for the quarter
and six months ended June 30, 1997. This compares with operating
income of $5.3 million and $9.8 million, respectively, for the same
periods in 1996. The increase in operating income for the quarter
and six months ended June 30, 1997 was primarily due to lower
expenses at company operated stores.
Systemwide average ticket prices for the quarter ended June,
30, 1997 increased $0.48 to $36.14 and for the six months ended
June 30, 1997 increased $0.63 to $35.83, from comparable
periods in 1996. There were 1,441 domestic lube centers (including
550 Jiffy Lube company operated centers) open as of June 30, 1997.
Jiffy Lube plans to open approximately 150 centers in
1997. In the first six months of 1997, Jiffy Lube has opened 61
new centers. As of June 30, 1997, there were 138 fast-oil change
units open in Sears Centers of which 104 are company operated.
Other
Other operating income (loss) for the quarter and six months
ended June 30, 1997 was ($3.2) million and $12.5 million,
respectively, compared with $10.3 million and $25.8 million for the
same periods in 1996. The decrease in other operating income for
the quarter and six months ended June 30, 1997, compared to the
same periods in 1996, was primarily due to charges associated with
the sale of PennUnion and the early retirement of debt.
Pennzoil's other income includes dividend income of $10.4
million and $20.2 million for the quarter and six months ended June
30, 1997, respectively, from its investment in common stock of
Chevron Corporation ("Chevron"). Pennzoil beneficially owns
approximately 18 million shares of common stock of Chevron.
Net interest expense for the quarter and six months ended June
30, 1997 decreased $5.6 million and $16.1 million, respectively,
from the same periods in 1996 primarily due to lower borrowing and
higher capitalized interest.
11
PART I. FINANCIAL INFORMATION - continued
Corporate Administrative Expense
Corporate administrative expense for the quarter and six
months ended June 30, 1997 was $19.9 million and $33.0 million,
respectively, compared with $13.4 million and $26.1 million for the
same periods in 1996. The increase in corporate administrative
expense for the quarter and six months ended June 30, 1997,
compared to the same periods in 1996, was primarily due to charges
incurred in connection with the UPR Proposal. Reference is made to
Note 5 of the Notes to Condensed Consolidated Financial Statements.
Capital Resources and Liquidity
Cash Flow. As of June 30, 1997, Pennzoil had cash and cash
equivalents of $43.9 million. During the six months ended June 30,
1997, cash and cash equivalents increased $9.5 million. Cash flows
from operating activities totaled $273.2 million during the first
six months of 1997.
Accounts Receivable. In September 1996, Pennzoil Receivables
Company, a wholly owned special purpose subsidiary of Pennzoil,
entered into a receivables sales facility, which provides for the
ongoing sales of up to $135.0 million of accounts receivable of
certain Pennzoil subsidiaries. The facility expires in September
1997. Accounts receivable sold under this agreement totaled $135.0
million as of June 30, 1997. Pennzoil used the proceeds to reduce
outstanding debt. Fees associated with the sale of accounts
receivable totaled $2.2 million and $4.2 million for the quarter
and six months ended June 30, 1997, respectively. These fees are
netted against other income.
Debt Instruments and Repayments. In April 1997, Pennzoil
redeemed $38.5 million principal amount of indebtedness
consisting of all of Pennzoil's outstanding 9% debentures due
2017. The purchase premium and related unamortized discount and
debt issue costs relating to the redemption resulted in an after-
tax charge of $1.3 million, or $.03 per share, in the second
quarter of 1997.
In May 1997, Pennzoil entered into a revolving credit facility
with a group of banks which provides for up to $600 million of
unsecured revolving credit borrowings through May 1998, with any
outstanding borrowings at such time being converted into a term
facility terminating in May 1999. Pennzoil has the option, subject
to the extension of additional credit by new or existing banks, to
increase the size of the facility by $100 million. This revolving
credit facility replaces and supersedes the previous revolving
credit facility of Pennzoil. As of June 30, 1997, borrowings
totaled $125 million.
Borrowings under Pennzoil's commercial paper and variable-rate
credit arrangements totaled $371.7 million as of June 30, 1997, all
of which has been classified as long-term debt.
12
PART I. FINANCIAL INFORMATION - continued
(UNAUDITED)
The following tables show revenues and operating income by segment,
other components of income and operating data.
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Dollar amounts expressed in thousands)
REVENUES
Oil and Gas $ 204,274 $ 204,218 $ 431,015 $ 379,300
Motor Oil & Refined Products 453,095 438,517 886,048 831,666
Franchise Operations 83,647 76,576 158,797 147,991
Other (2,460) 13,330 9,009 35,288
Intersegment sales (90,199) (96,061) (187,512) (170,324)
----------- ----------- ----------- -----------
Total revenues $ 648,357 $ 636,580 $1,297,357 $1,223,921
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)
Oil and Gas $ 69,107 $ 65,484 $ 176,286 $ 114,807
Motor Oil & Refined Products 25,802 15,780 38,851 30,208
Franchise Operations 6,316 5,311 10,812 9,836
Other (3,181) 10,315 12,484 25,802
----------- ----------- ----------- -----------
Total operating income 98,044 96,890 238,433 180,653
Corporate administrative expenses 19,905 13,351 32,987 26,082
Interest charges, net 41,161 46,804 78,280 94,367
----------- ----------- ----------- -----------
Income before income tax 36,978 36,735 127,166 60,204
Income tax provision 13,101 12,192 45,738 19,892
----------- ----------- ----------- -----------
NET INCOME $ 23,877 $ 24,543 $ 81,428 $ 40,312
============ ============ =========== ===========
RATIO OF EARNINGS TO FIXED CHARGES 2.19 1.51
=========== ===========
13
PART I. FINANCIAL INFORMATION - continued
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
OPERATING DATA
- --------------
OIL AND GAS
Net production
Crude oil, condensate and natural
gas liquids (barrels per day) 62,781 65,009 58,232 62,706
Natural gas produced for sale (Mcf per day) 616,360 628,472 570,111 594,123
Weighted average prices
Crude oil, condensate and natural
gas liquids (per barrel) $ 15.66 $ 15.51 $ 17.40 $ 14.86
Natural gas (per Mcf) $ 1.98 $ 1.83 $ 2.34 $ 1.81
MOTOR OIL & REFINED PRODUCTS
Sales (barrels per day)
Gasoline and naphtha 20,696 21,177 19,120 20,898
Distillates and gas oils 24,943 26,527 27,702 27,078
Lubricating oil and other specialty products 31,378 24,807 28,662 23,328
Residual fuel oils 1,114 4,095 2,307 4,068
----------- ----------- ----------- -----------
Total sales (barrels per day) 78,131 76,606 77,791 75,372
=========== =========== =========== ===========
Crude oil processed
(barrels per day) 56,285 54,148 54,652 52,782
Crude oil refining capacity
(barrels per day) 62,700 62,700 62,700 62,700
FRANCHISE OPERATIONS
Domestic systemwide sales (in thousands) $ 194,859 $ 178,596 $ 373,564 $ 343,414
Same center sales (in thousands) $ 177,970 $ 177,800 $ 341,100 $ 341,149
Centers open (U.S.) 1,441 1,275 1,441 1,275
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
12 Computation of Ratio of Earnings to Fixed Charges for
the six months ended June 30, 1997 and 1996
27 Financial Data Schedule
(b) Reports -
During the second quarter of 1997, Pennzoil filed the
following Current Reports on Form 8-K with the Securities
and Exchange Commission:
Date of Report Items Reported
July 11, 1997 Pennzoil's amendment of its By-laws.
July 11, 1997 Information related to Union Pacific
Resources Group Inc. ("UPR")
unsolicited tender offer. Reference
is made to Note 5 of the Notes to
Condensed Consolidated Financial
Statements.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
PENNZOIL COMPANY
Registrant
S/N Michael J. Maratea
Michael J. Maratea
Vice President and Controller
August 12, 1997