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 March 31, 2000 Commission File No. 1-14501
PENNZOIL-QUAKER STATE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 76-0200625
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
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 .
Number of shares of stock were outstanding, as of latest
practicable date, April 30, 2000:
Common Stock, par value $0.10 per share, 78,373,708 shares.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
March 31
----------------------------
2000 1999
----------- -----------
(Expressed in thousands
except per share amounts)
REVENUES $ 779,912 $ 704,062
COSTS AND EXPENSES
Cost of sales 595,724 500,549
Selling, general and administrative 135,119 147,700
Restructuring charges 34,405 -
Depreciation and amortization 25,860 33,514
Taxes, other than income 4,330 4,370
Interest charges, net 21,641 17,741
----------- -----------
INCOME (LOSS) BEFORE INCOME TAX (37,167) 188
Income tax provision (benefit) (19,259) 2,407
----------- -----------
NET LOSS $ (17,908) $ (2,219)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.23) $ (0.03)
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.1875 $ 0.1875
=========== ===========
BASIC AND DILUTED AVERAGE SHARES OUTSTANDING 78,216 77,648
=========== ===========
END OF PERIOD SHARES OUTSTANDING 78,318 77,697
=========== ===========
NET LOSS $ (17,908) $ (2,219)
OTHER COMPREHENSIVE INCOME, NET OF TAX 308 3,492
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (17,600) $ 1,273
=========== ===========
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
3
PART I. FINANCIAL INFORMATION - continued
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
------------- -------------
(Unaudited)
(Expressed in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 32,190 $ 20,155
Receivables 385,206 312,320
Inventories 338,051 298,202
Materials and supplies 10,765 11,063
Other current assets 33,847 44,298
------------- -------------
Total current assets 800,059 686,038
Property, plant and equipment, net 500,817 502,101
Deferred income taxes 291,390 272,677
Goodwill and other intangibles 1,097,955 1,065,143
Other assets 213,850 207,262
------------- -------------
TOTAL ASSETS $ 2,904,071 $ 2,733,221
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,900 $ 1,080
Accounts payable 200,584 210,700
Payroll accrued 36,115 28,328
Other current liabilities 163,723 129,295
------------- -------------
Total current liabilities 403,322 369,403
Total long-term debt, less current maturities 1,191,415 1,026,153
Capital lease obligations, less current maturities 66,603 68,786
Other liabilities 323,131 319,011
------------- -------------
TOTAL LIABILITIES 1,984,471 1,783,353
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 919,600 949,868
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,904,071 $ 2,733,221
============= =============
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
4
PART I. FINANCIAL INFORMATION - continued
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
---------------------------------
2000 1999
----------- -----------
(Expressed in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (17,908) $ (2,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 25,860 33,514
Deferred income tax (18,914) 1,815
Distributions from equity investees less than earnings (3,465) (980)
Other non-cash items 16,229 2,963
Changes in accounts receivable (54,685) (90,353)
Changes in other operating assets and liabilities (13,926) 3,089
----------- -----------
Net cash used in operating activities (66,809) (52,171)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (10,491) (11,343)
Acquisitions (64,941) -
Proceeds from sales of assets 3,707 30,479
Other investing activities (987) 4,674
----------- -----------
Net cash provided by (used in) investing activities (72,712) 23,810
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt and capital lease obligation repayments (1,828) (372,573)
Proceeds from issuances of debt 167,965 626,087
Dividends paid (14,581) (14,560)
Other financing activities - (6,149)
----------- -----------
Net cash provided by financing activities 151,556 232,805
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,035 204,444
CASH AND CASH EQUIVALENTS, beginning of period 20,155 14,899
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 32,190 $ 219,343
=========== ===========
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
5
PART I. FINANCIAL INFORMATION - continued
PENNZOIL-QUAKER STATE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General -
The condensed consolidated financial statements included herein
have been prepared by Pennzoil-Quaker State Company ("Pennzoil-Quaker
State" or the "Company") without audit and should be read in
conjunction with the financial statements and the notes thereto
included in Pennzoil-Quaker State's latest annual report. The
foregoing financial statements include only normal recurring accruals
and all adjustments which Pennzoil-Quaker State 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 June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. The
standards require that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally
document, designate, and assess the effectiveness of transactions
that receive hedge accounting. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No.
133" which defers the effective date of SFAS No. 133 until all fiscal
years beginning after June 15, 2000. The Company is currently
assessing SFAS No. 133 to determine what impact, if any, this
pronouncement will have on the Company's financial position or
results of operations.
(3) Summarized Financial Data of Excel Paralubes -
Summarized operations information for Excel Paralubes, an equal
partnership with Conoco Inc., for the three months ended March 31,
2000 and 1999 on a 100% basis follows:
Three months ended March 31
----------------------------
2000 1999
----------- -----------
(Expressed in thousands)
(Unaudited)
Revenues $ 114,864 $ 43,527
Operating earnings 14,470 6,868
Net income (loss) 4,373 (2,814)
Pennzoil-Quaker State's net investment in Excel Paralubes,
carried as a credit balance of $59.4 million and $50.5 million at
March 31, 2000 and 1999, respectively, is netted against other equity
investments and included in other assets on the condensed
consolidated balance sheet. Pennzoil-Quaker State's equity in Excel
Paralubes' pretax income (loss) for the three months ended March 31,
2000 and 1999 of $2.2 million and $(1.4) million, respectively, is
included in revenues in the condensed consolidated statement of
operations and comprehensive income.
6
PART I. FINANCIAL INFORMATION - continued
(4) Debt -
Pennzoil-Quaker State primarily utilizes commercial paper
programs to manage its cash flow needs and currently limits
aggregate borrowings under those commercial paper programs to $600.0
million. As of March 31, 2000 commercial paper borrowings totaling
$387.1 million have been classified as long-term debt. Such debt
classification is based upon the availability of long-term credit
facilities to refinance the commercial paper and the Company's intent
to maintain such commitments in excess of one year. The Company had
three short-term variable-rate credit arrangements with banks at
March 31, 2000 and intends to enter into several additional
arrangements. The Company currently limits its aggregate borrowings
under these types of credit arrangements to $300.0 million.
Outstanding borrowings were $32.0 million at March 31, 2000 and were
classified as long-term debt. Such debt classification is also based
on the availability of long-term credit facilities to refinance these
arrangements and the Company's intent to maintain such commitments in
excess of one year. The Company has a revolving credit facility with
a group of banks that provides for up to $600.0 million of committed
unsecured revolving credit borrowings through November 14, 2000,
with any outstanding borrowings on such date being converted into a
term credit facility terminating on November 14, 2001. There were no
borrowings outstanding under this revolving credit at March 31, 2000.
Pennzoil-Quaker State also maintains a revolving credit facility
with a Canadian bank, which provides for up to US$18.7 million of
committed borrowings through October 29, 2000 with any outstanding
borrowings on such date being converted into a term credit facility
terminating on October 29, 2001. As of March 31, 2000, borrowings
under the Company's Canadian facility totaling US$13.8 million have
been classified as long-term debt.
(5) Earnings Per Share -
Computations for basic and diluted loss per share for the three
months ended March 31, 2000 and 1999 consist of the following:
Three Months Ended March 31
----------------------------
2000 1999
----------- -----------
(Expressed in thousands
except per share amounts)
Net loss $ (17,908) $ (2,219)
Basic and diluted weighted average shares (A) 78,216 77,648
Basic and diluted loss per share (0.23) (0.03)
<FN>
<F1> (A) A weighted average number of options to purchase 9.8 million and 6.9
million shares of common stock and awards of 583.7 thousand and 308.8
thousand shares of common stock were outstanding for the three months
ended March 31, 2000 and 1999, respectively, but were not included in the
computation of diluted loss per share because these options and awards
would result in an antidilutive per share amount.
</FN>
(6) Use of Derivatives -
Pennzoil-Quaker State has approved a tactical hedging program to
lock in the refining margins on up to ninety percent of its production
of certain refined fuel products through year-end 2000. Pursuant to
this strategy, Pennzoil-Quaker State entered into several futures
contracts in January 2000 and additional contracts in May 2000. An
operating loss of $1.6 million related to this program was recognized
in cost of sales during the first quarter of 2000. The estimated
fair value of the unrealized gain associated with the open futures
contracts was $0.1 million at March 31, 2000.
In April 2000, in conjunction with the purchase of two British
automotive consumer products companies, the Company entered into an
UK pound sterling forward swap for the pound sterling equivalent of
approximately $17.3 million. The swap will be settled in June
2000.
7
PART I. FINANCIAL INFORMATION - continued
(7) Comprehensive Income (Loss) -
The components of the Company's other comprehensive income (loss)
include changes in foreign currency translation adjustments,
unrealized holding gains and losses on available-for-sale securities
and minimum pension liability. The Company's comprehensive income
(loss) information is included in the accompanying condensed
consolidated statement of operations and comprehensive income.
(8) Cash Flow Information -
Cash paid for interest during the three months ended March 31,
2000 and 1999 was $13.7 million and $10.2 million, respectively. An
income tax refund, net of tax payments, of $0.7 million was received
during the three months ended March 31, 2000. Income taxes paid
during the three months ended March 31, 1999 were $0.3 million.
(9) Restructuring Charges and Other -
In the first quarter of 2000, the Company recorded a $34.4
million charge to accrue the costs associated with a general and
administrative cost reduction effort. The charge affected each
operating segment as follows: Lubricants and Consumer Products -
$11.0 million; Base Oil and Specialty Products - $5.4 million; Jiffy
Lube - $1.0 million; Other - $17.0 million. The Company is reducing
the number of employees and consolidating office space in order to
reduce general and administrative expenses. The restructuring is
expected to be completed by the end of 2000. These charges primarily
include severance for approximately 400 administrative and
operational employees, the accrual of future lease obligations and
restoration costs of office space in Houston. Also included in the
charge was the write-off of obsolete information technology assets.
No employees had been terminated as of March 31, 2000.
Pennzoil-Quaker State also recorded a first quarter 2000 charge
of $13.0 million related to a January 18, 2000 fire at the
Shreveport, Louisiana refinery facility. The charge, recorded in
cost of sales, included repairs, business interruption losses, and
legal and other related obligations, net of expected insurance
recovery. The explosion and resulting fire occurred in the
unifiner area, a part of the fuels processing unit. The fire
temporarily shut down the refinery for approximately two weeks and
all units are currently in full operation. The Company does not
expect to incur any additional costs as a result of the Shreveport
fire.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Pennzoil-Quaker State's operations are conducted primarily
through the following three segments: (1) Lubricants and Consumer
Products, (2) Jiffy Lube and (3) Base Oil and Specialty Products.
Results of Operations
Net sales for Pennzoil-Quaker State for the quarter ended March
31, 2000 were $765.6 million, an increase of $67.7 million, or
approximately 10%, from the same period in 1999. The increase in
net sales was primarily due to higher refined products prices
partially offset by lower Jiffy Lube net sales resulting from sales
of stores.
Net loss for the quarter ended March 31, 2000 was $17.9 million,
or 23 cents per basic share. This compares with a net loss of $2.2
million, or 3 cents per basic share for the quarter ended March 31,
1999. The decrease in income is primarily related to charges
resulting from a fire at the Shreveport, Louisiana refinery and one-
time costs associated with the Company's general and administrative
cost reduction project.
8
PART I. FINANCIAL INFORMATION - continued
Pennzoil-Quaker State also recorded a first quarter 2000 charge
of $13.0 million related to a January 18, 2000 fire at the
Shreveport, Louisiana refinery facility. The charge, recorded in
cost of sales, included repairs, business interruption losses, and
legal and other related obligations, net of expected insurance
recovery. The explosion and resulting fire occurred in the
unifiner area, a part of the fuels processing unit. The fire
temporarily shut down the refinery for approximately two weeks and
all units are currently in full operation. The Company does not
expect to incur any additional costs as a result of the Shreveport
fire.
In the first quarter of 2000, the Company recorded a $34.4
million charge to accrue the costs associated with a general and
administrative cost reduction effort. The charge affected each
operating segment as follows: Lubricants and Consumer Products -
$11.0 million; Base Oil and Specialty Products - $5.4 million; Jiffy
Lube - $1.0 million; Other - $17.0 million. The Company is reducing
the number of employees and consolidating office space in order to
reduce general and administrative expenses. The Company expects to
save approximately $40.0 million in annual pretax general and
administrative costs. The restructuring is expected to be completed
by the end of 2000. These charges primarily include severance for
approximately 400 administrative and operational employees, the
accrual of future lease obligations and restoration costs of office
space in Houston. Also included in the charge was the write-off of
obsolete information technology assets. No employees had been
terminated as of March 31, 2000. The Company expects costs to be
funded through cash flows from operating activities.
Lubricants and Consumer Products
Net sales for the Lubricants and Consumer products segment
were $485.8 million for the quarter ended March 31, 2000 compared
to $479.1 million for the same period last year. The increase
in net sales is primarily due to higher international and consumer
product sales and higher average lubricants product prices.
Operating income for this segment was $46.7 million for the quarter
ended March 31, 2000 compared to $42.1 million for the same period
last year. Operating income for the first quarter of 2000 included
$1.4 million of expenses related to the Company's acquisition of
Quaker State Corporation that occurred in December of 1998.
Operating income for the first quarter of 1999 included $4.5 million
of merger related expenses. Excluding these merger related expenses,
operating income was $48.1 million for the first quarter of 2000
compared to $46.6 million for the same period last year. The
increase is primarily due to higher consumer products and
international operating income partially offset by higher division
overhead.
In February 2000, the Company completed the acquisition of Auto
Fashions, a 25 year-old Australian automotive accessories firm
operated by Robert Hicks Pty Ltd. for approximately US$5.3 million.
Auto Fashions is a leader in Australian automotive air fresheners,
sunshades and comfort accessories and has a leading share position in
most of the categories it participates in. In early March, the
Company completed the acquisition of certain assets of Sagaz
Industries ("Sagaz"), a manufacturer and marketer of automobile seat
covers and cushions in North America, for approximately $62.5
million, subject to certain working capital adjustments. Sagaz was
absorbed into the Company's Axius(R) auto accessories business unit
in Moorpark, California. In April 2000, the Company signed a
definitive agreement to acquire two automotive consumer products
companies, Airfresh UK Limited ("Airfresh") and Bluecol Brands
Limited ("Bluecol") from Armour Trust plc for approximately $16.7
million. Airfresh manufactures, markets and distributes air
freshener and fragrance products for the automotive aftermarket with
primary markets in the U.K. and France. Bluecol manufactures,
markets and distributes branded anti-freeze, glass cleaning products,
rust treatments, cooling system treatments, and exterior appearance
products for the U.K. automotive aftermarket. The transaction closed
during the last week of April.
9
PART I. FINANCIAL INFORMATION - continued
Jiffy Lube
Net sales for this segment were $82.1 million for the quarter
ended March 31, 2000. This compares to net sales of $119.3 million
for the same period in 1999. The decrease in net sales for the first
quarter was primarily due to the sale of company-operated centers to
franchisees. Other income for this segment for the quarter ended
March 31, 2000 was $3.0 million compared to $1.8 million for the same
period in 1999. The increase in other income was primarily due to
higher franchise fees. Operating income from this segment for the
quarter ended March 31, 2000 was $3.2 million compared to $0.1
million for the same period in 1999. The improvement in operating
income for the first quarter 2000 was primarily due to higher
comparable sales in company-operated centers, higher rental and
royalty income, lower selling, general and administrative expenses
and merger costs.
Base Oil and Specialty Products
Net sales for this segment were $263.9 million for the quarter
ended March 31, 2000. This compares to net sales of $150.9 million
for the same period in 1999. The increase is primarily due to higher
average sales prices for fuels, base oils and other refined petroleum
products. Other income for this segment for the quarter ended
March 31, 2000 was $5.9 million compared to $5.1 million for the
same period in 1999. The increase in other income was primarily
due to higher equity earnings from Excel Paralubes. Operating loss
from this segment for the quarter ended March 31, 2000 was $12.1
million compared to operating loss of $6.0 million for the same
period in 1999. The decrease in operating income was primarily due
to higher crude oil costs and one-time costs associated with the
Shreveport fire.
In April 2000, Pennzoil-Quaker State completed a sale of its
Rouseville, Pennsylvania wax processing facilities and the related
assets at the Rouseville facility to Calumet Lubricants Company, LP.
Also included in the sale was Pennzoil-Quaker State's share of its
Bareco Products partnership with Baker Petrolite Corporation, a
division of Baker Hughes Incorporated. The Company received gross
proceeds of $27.6 million from the sale. No material gain or loss is
is expected.
Corporate Administrative Expense
Corporate administrative expense increased $30.3 million to
$52.1 million for the quarter ended March 31, 2000 compared to the
same period in 1999. The increase is due to one-time costs of $34.4
million associated with the Company's general and administrative cost
reduction effort.
Capital Resources and Liquidity
Cash Flow. As of March 31, 2000, Pennzoil-Quaker State had cash
and cash equivalents of $32.2 million. During the quarter ended
March 31, 2000 cash and cash equivalents increased $12.0 million.
For purposes of the condensed consolidated statement of cash
flows, all highly liquid investments purchased with a maturity of
three months or less are considered to be cash equivalents.
10
PART I. FINANCIAL INFORMATION - continued
Debt Instruments and Repayments. Pennzoil-Quaker State primarily
utilizes its commercial paper programs to manage its cash flow needs.
Pennzoil-Quaker State currently limits aggregate borrowings under its
commercial paper programs to $600.0 million. As of March 31, 2000
commercial paper borrowings totaling $387.1 million have been
classified as long-term debt. Such debt classification is based upon
the availability of long-term credit facilities to refinance the
commercial paper and the Company's intent to maintain such
commitments in excess of one year. The Company had three short-term
variable-rate credit arrangements with banks at March 31, 2000 and
intends to enter into several additional arrangements. The Company
currently limits its aggregate borrowings under these types of credit
arrangements to $300.0 million. Outstanding borrowings were $32.0
million at March 31, 2000 and were classified as long-term debt.
Such debt classification is also based on the availability of long-
term credit facilities to refinance these arrangements and the
Company's intent to maintain such commitments in excess of one year.
The Company has a revolving credit facility with a group of banks
that provides for up to $600.0 million of committed unsecured
revolving credit borrowings through November 14, 2000, with any
outstanding borrowings on such date being converted into a term
credit facility terminating on November 14, 2001. There were no
borrowings outstanding under this revolving credit at March 31, 2000.
Pennzoil-Quaker State also maintains a revolving credit
facility with a Canadian bank, which provides for up to US$18.7
million of committed borrowings through October 29, 2000, with any
outstanding borrowings on such date being converted into a term
credit facility terminating on October 29, 2001. As of March 31,
2000, borrowings under the Company's Canadian facility totaling
US$13.8 million have been classified as long-term debt.
Accounts Receivable. Pennzoil-Quaker State, through its wholly
owned subsidiary Pennzoil Receivables Company ("PRC"), sells certain
of its accounts receivable to a third party purchaser. PRC is a
special limited purpose corporation and the assets of PRC are
available solely to satisfy the claims of its own creditors and not
those of Pennzoil-Quaker State or its affiliates. The Company
entered into a new one-year receivables sales facility in June 1999
that provides for ongoing sales of up to $160.0 million of accounts
receivable. The Company's net accounts receivable sold under its
receivable sales facility totaled $160.0 million at March 31, 2000.
The Company maintains a lube center receivable purchase and
sale agreement, which provides for the sale of certain notes
receivable up to $210.0 million, through a wholly owned subsidiary,
Pennzoil Lube Center Acceptance Corporation ("PLCAC"). The aggregate
purchase price limit was increased in January 2000 from $200.0
million to $210.0 million. PLCAC is a Nevada corporation and the
assets of PLCAC are available solely to satisfy the claims of its own
creditors and not those of Pennzoil-Quaker State or its affiliates.
Through March 31, 2000, the Company has sold a total of $196.6
million of notes receivable under this agreement, of which $158.5
million were outstanding to the third party purchaser at March 31,
2000.
Disclosures about Market Risk
The Company's primary exposure to market risk includes changes
in interest rates, commodity prices and foreign currency exchange
rates.
Pennzoil-Quaker State has approved a tactical hedging program to
lock in refining margins on up to ninety percent of its production of
certain refined fuel products through year-end 2000. Pursuant to
this strategy, Pennzoil-Quaker State entered into several futures
contracts in January 2000 and additional contracts in May 2000. A
loss of $1.6 million related to current period operations was
recognized in cost of sales during the first quarter of 2000. The
estimated fair value of the unrealized gain associated with the open
futures contracts was $0.1 million at March 31, 2000.
In April 2000, in conjunction with the purchase of two British
automotive consumer products companies, the Company entered into an
UK pound sterling forward swap for the pound sterling equivalent of
approximately $17.3 million in April 2000. The swap will be settled
in June 2000.
11
PART I. FINANCIAL INFORMATION - continued
Forward-Looking Statements - Safe Harbor Provisions
This quarterly report on Form 10-Q of Pennzoil-Quaker State for
the quarter ended March 31, 2000 contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, which are intended to be covered by the safe
harbors created thereby. To the extent that such statements are not
recitations of historical fact, such statements constitute forward-
looking statements, which, by definition, involve risks and
uncertainties. Where, in any forward-looking statements, Pennzoil-
Quaker State expresses an expectation or belief as to future results
or events, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance
that the statement of expectation or belief will result or be
achieved or accomplished.
The following are factors that could cause actual results or
events to differ materially from those anticipated, and include but
are not limited to: general economic, financial and business
conditions; competition in the motor oil and marketing business; base
oil margins and supply and demand in the base oil business; the
success and cost of advertising and promotional efforts; mechanical
failure in refining operations; unanticipated environmental
liabilities; changes in and compliance with governmental regulations;
changes in tax laws; and the cost and effects of legal proceedings.
12
PART I. FINANCIAL INFORMATION - continued
(UNAUDITED)
The following table shows revenues and operating income by segment
and other components of income.
Three Months Ended
March 31
----------------------------
2000 1999
----------- -----------
(Dollar amounts expressed
in thousands)
REVENUES
Net sales
Lubricants and Consumer Products $ 485,802 $ 479,082
Base Oil and Specialty Products 263,936 150,903
Jiffy Lube 82,084 119,300
Intersegment sales and other (66,177) (51,292)
----------- -----------
765,645 697,993
----------- -----------
Other income, net
Lubricants and Consumer Products $ 2,603 $ 46
Base Oil and Specialty Products 5,974 5,130
Jiffy Lube 2,953 1,799
Other 2,737 (906)
----------- -----------
14,267 6,069
----------- -----------
Total revenues $ 779,912 $ 704,062
=========== ===========
OPERATING INCOME (LOSS)
Lubricants and Consumer Products $ 46,693 $ 42,078
Base Oil and Specialty Products (12,079) (5,978)
Jiffy Lube 3,249 112
Other (1,323) 3,529
----------- -----------
Total operating income 36,540 39,741
Corporate administrative expense 17,661 21,812
Restructuring charges 34,405 -
Interest charges, net 21,641 17,741
----------- -----------
Income (loss) before income tax (37 167) 188
Income tax provision (benefit) (19,259) 2,407
----------- -----------
NET LOSS $ (17,908) $ (2,219)
=========== ===========
RATIO OF EARNINGS TO FIXED CHARGES - -
=========== ===========
AMOUNT BY WHICH FIXED CHARGES EXCEEDS EARNINGS $ 40,406 $ 301
=========== ===========
13
PART I. FINANCIAL INFORMATION - continued
(UNAUDITED)
Three Months Ended
March 31
------------------------------
2000 1999
------------ ------------
OPERATING DATA
- --------------
LUBRICANTS AND CONSUMER PRODUCTS
Total revenues (in thousands):
Lubricants $ 346,462 $ 344,860
Consumer products 87,283 84,295
International operations 56,973 49,943
Eliminations & other (2,313) 30
------------ ------------
Total revenues $ 488,405 $ 479,128
============ ============
Operating income (in thousands):
Lubricants $ 40,098 $ 40,045
Consumer products 15,162 11,137
International operations 4,467 1,633
Division overhead (13,034) (10,737)
------------ ------------
Total operating income $ 46,693 $ 42,078
============ ============
JIFFY LUBE
Domestic systemwide sales (in thousands) $ 279,459 $ 259,048
Same center sales (in thousands) $ 258,794 $ 244,671
Centers open 2,161 2,127
BASE OIL AND SPECIALTY PRODUCTS (A)
Raw materials processed (barrels per day) 49,683 60,983
Refining capacity (barrels per day)(B) 65,700 76,000
Refiner's margin ($ per barrel) $ 6.31 $ 7.46
Operating costs ($ per barrel) $ 8.39 $ 5.82
Depreciation ($ per barrel) $ 0.48 $ 1.35
Refinery Feedstocks:
Paraffinic crude oil 46% 70%
Naphthenic crude oil 8% 8%
Other feedstocks and blendstocks 46% 22%
Refinery Yields:
Gasolines 21% 29%
Distillates 31% 31%
Lube base stocks 31% 25%
Waxes 2% 3%
Other products 15% 12%
Market Data:
WTI crude oil ($ per barrel) $ 28.74 $ 13.06
3-2-1 crack spread ($ per barrel) (C) $ 3.79 $ 1.41
Base oil gross margin ($ per barrel) (D) $ 17.72 $ 19.03
<FN>
<F1>
(A) Includes Pennzoil-Quaker State's 50% ownership in Excel Paralubes.
<F2>
(B) Rouseville, PA refinery stopped processing crude oil on February 2, 2000.
<F3>
(C) Regular unleaded gasoline and low sulphur diesel vs. WTI crude oil.
<F4>
(D) Exxon 100N posting vs. WTI crude oil.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
3 By-laws of Pennzoil-Quaker State Company, as amended through
June 1, 2000.
12 Computation of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 2000 and 1999.
27 Financial Data Schedule.
(b) Reports -
During the first quarter of 2000, Pennzoil-Quaker State filed
the following Current Reports on Form 8-K with the Securities and
Exchange Commission:
Date of Report Items Reported
April 19, 2000 Information related
to Pennzoil-Quaker State's sale of
its Rouseville, Pennsylvania wax
processing facilities and the
related assets at the Rouseville
facility to Calumet Lubricants
Company, LP.
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-QUAKER STATE COMPANY
Registrant
S/N Michael J. Maratea
Michael J. Maratea
Vice President and Controller
May 11, 2000