SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 11-K
ANNUAL REPORT
____________________
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
____________________
For the Fiscal Year Ended December 31, 1999
_____________________
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND
INVESTMENT PLAN FOR HOURLY EMPLOYEES
Commission File No. 1-14501
______________________
PENNZOIL-QUAKER STATE COMPANY
Pennzoil Place, P. O. Box 2967
Houston, Texas 77252-2967
(Name of issuer of securities held pursuant to the plan and address of
its principal executive office)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee,
Pennzoil-Quaker State Company
Savings and Investment Plan for Hourly Employees:
We have audited the accompanying statements of net assets available
for benefits of the Pennzoil-Quaker State Company Savings and
Investment Plan for Hourly Employees (the Plan) as of December 31,
1999 and 1998, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1999. These
financial statements and the supplemental schedules referred to below
are the responsibility of the Administrative Committee. Our
responsibility is to express an opinion on these financial statements
and supplemental schedules based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit 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 the Administrative Committee, 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 net assets available for
benefits of the Plan as of December 31, 1999 and 1998, and the changes
in net assets available for benefits for the year ended December 31,
1999, in conformity with accounting principles generally accepted in
the United States.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental
schedules of assets held for investment purposes as of December 31,
1999, included as Schedule I, and reportable transactions (series of
investment transactions) for the year ended December 31, 1999,
included as Schedule II, are presented for purposes of additional
analysis and are not a required part of the basic financial statements
but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974. The supplemental
schedules have been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
June 26, 2000
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
1999 1998
------------- ------------
ASSETS:
Investments, at fair value (Note 4) $19,313,692 $17,724,166
Receivables-
Employee contributions 76,014 175,798
Employer contributions 43,676 46,033
Investment income 20,516 9,922
------------ ------------
140,206 231,753
------------ ------------
Total assets 19,453,898 17,955,919
------------ ------------
LIABILITIES:
Payable to brokers 48,348 108,566
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $19,405,550 $17,847,353
============ ============
<FN>
See notes to financial statements.
</FN>
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year $17,847,353
CONTRIBUTIONS:
Employee 1,754,242
Employer 1,044,461
------------
2,798,703
INVESTMENT INCOME:
Dividends 304,621
Interest 208,832
Loan Repayment Interest 92,164
Net depreciation in fair value of investments (289,369)
------------
316,248
NET TRANSFERS TO SALARIED PLAN (Note 2) (344,926)
ADMINISTRATIVE EXPENSES (1,878)
DISTRIBUTIONS AND WITHDRAWALS (Note 2) (1,209,950)
------------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $19,405,550
============
<FN>
See notes to financial statements
</FN>
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SPIN-OFF OF PENNZOIL-QUAKER STATE COMPANY FROM PENNZOIL COMPANY:
On December 30, 1998, Pennzoil Company (Pennzoil) distributed to its
shareholders 47.8 million shares of common stock of its wholly owned
subsidiary Pennzoil-Quaker State Company (the Company or Pennzoil-
Quaker State) representing all of the shares of the Company owned by
Pennzoil. As a result of the distribution, Pennzoil Company, renamed
PennzEnergy Company (PennzEnergy), and Pennzoil-Quaker State are no
longer affiliated entities.
As part of the spin-off transaction, the Pennzoil Company Savings and
Investment Plan for Hourly Employees (the Plan) was renamed Pennzoil-
Quaker State Company Savings and Investment Plan for Hourly Employees
and covers only the hourly employees of Pennzoil-Quaker State and
participating subsidiaries and affiliated companies, effective
December 31, 1998. Net assets related to PennzEnergy employees were
transferred to the Pennzoil Company Savings and Investment Plan
effective November 30, 1998.
In connection with the spin-off, Pennzoil distributed one share of
Pennzoil-Quaker State common stock for every share of Pennzoil common
stock. As a result, the Plan holds both PennzEnergy and Pennzoil-
Quaker State common stock. Effective with the distribution, the Plan
only invests new monies in Pennzoil-Quaker State common stock.
On August 17, 1999, Devon Energy Corporation (Devon) acquired
PennzEnergy in a merger transaction. PennzEnergy shareholders
received 0.4475 shares of common stock in Devon for each share of
PennzEnergy owned. In conjunction with the merger transaction, the
Plan document was amended by changing all references to PennzEnergy
common stock therein to Devon common stock.
2. DESCRIPTION OF THE PLAN:
General
The following description of the Plan provides only general
information. Participants should refer to the Plan agreement for a
more complete description of the Plan's provisions.
The purpose of the Plan is to encourage hourly employees to save, and
invest systematically, a portion of their current compensation in
order that they may have an additional source of income upon their
retirement or disability, or for their family in the event of their
death. Upon changing wage status to salaried, a participant's account
balance is transferred between the Plan and the Pennzoil-Quaker State
Company Savings and Investment Plan.
Each person employed by Pennzoil-Quaker State, who is a member of a
collective bargaining unit which has agreed to participate in the Plan
and who receives remuneration on an hourly basis on or after
January 1, 1989, is eligible to participate in the Plan on the later
of the effective date or the entry date coinciding with or next
following their completion of one year of service.
Plan Administration
The Plan is administered by an administrative committee (the
Administrative Committee) consisting of at least three members
appointed by the Board of Directors of the Company. The sole trustee
of the Plan is Mellon Bank, N.A. All administrative expenses are
borne by the Company with the exception of fees for investment
management and loan processing fees for participant loans.
The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended (ERISA).
Contributions
In order to participate in the Plan, an eligible employee must elect
to make a contribution to the Plan in whole percentages of not less
than 1 percent and not more than 12 percent of annual compensation.
Employee contributions may be made "after-tax" or, under a Section
401(k) option, on a "before-tax" basis. The sum of the rates of
pretax and after-tax contributions are subject to the following
limitations:
Years of Participation (a) Maximum Combined Contribution Rate
Less than 5 years 9%
5 - 10 years 10%
More than 10 years 12%
For each Plan year Pennzoil-Quaker State contributes an amount on
behalf of participating employees equal to the following percentages
of the aggregate pretax and after-tax contribution rates shown above.
Applicable
Percentage -
Years of Employer Matching
Participation (a) Contribution
Less than 5 years 50%
5 - 10 years 75%
More than 10 years 100%
(a) Includes years of participation in the Plan or the Pennzoil
Company and participating companies Employees Stock Purchase Plans.
Investment Choices
Employer contributions are invested primarily in Pennzoil-Quaker State
common stock. At the Company's discretion, employer contributions may
be made either in cash or in common stock. Employee contributions are
invested in either common stock or in the other investment funds as
designated by the participant. During 1999, Pennzoil-Quaker State
contributed 54,582 shares of its common stock valued at the average of
the high and low market prices on the date of the contribution. All
employee and employer contributions (other than stock) are initially
invested in interest-bearing short-term, highly liquid investments. A
separate account is maintained for each participant which reflects the
participant's contributions, employer contributions, withdrawals, and
the participant's allocable share of the Plan's investment earnings.
Participants who have attained age 55 have the option to transfer all
or a part of their existing employer contributions to be invested
among the various investment options. Subject to the above, Devon
common stock held in the employer's contribution account may not be
transferred to be invested in other options. Employee contributions
are invested as designated by participating employees in four mutual
funds, a common/collective trust fund and/or Pennzoil-Quaker State
common stock.
In conjunction with the spin-off and subsequent merger transaction,
Devon common stock, formerly PennzEnergy common stock, is a frozen
investment. Each member's account held in Devon common stock will
be maintained in the trust fund as a separate frozen account and any
cash dividends or other income paid with respect to the Devon common
stock will be reinvested in Pennzoil-Quaker State common stock.
Loans
A participant may apply to the Administrative Committee of the Plan to
borrow from his or her accounts, subject to certain limitations. Such
loans will be for a term not to exceed five years (up to 20 years in
the case of loans to purchase a primary residence). The minimum loan
amount is $1,000 and the maximum loan amount is the lesser of $50,000
or 50 percent of the participant's account balances. Interest rates on
loans are fixed at the Prime Rate plus one percent.
Repayment of loans are made each pay period by payroll deductions, or
a loan may be prepaid in full by a lump sum payment. Upon retirement,
death or termination of employment, participants have 60 days after
the next payment due date to pay the loan in full.
Participant loans are reported as an asset of the Plan and principal
and interest payments received are transferred to the investment funds
based on the participant's current contribution elections.
Vesting and Disposition of Forfeitures
Participants are always fully vested in employee contributions.
Participants vest in employer contributions at a rate of 25 percent
per year beginning at the end of two years of service, becoming fully
vested after five years of service. Any nonvested portion of employer
contributions shall be forfeited upon termination. Forfeitures shall
be allocated as follows: first, to reinstate any employer
contribution amounts of participants who return to service and,
second, to restore any amounts previously forfeited as unclaimed
benefits. Any remaining amounts are applied to reduce succeeding
employer contributions.
Withdrawals
Withdrawals may be made from either an employee's previous pretax or
after-tax contributions, net of previous withdrawals, upon written
notice to the Administrative Committee of the Plan. After-tax
withdrawals result in the participant's forfeiture of the right to
participate in the Plan for 180 days. Pretax withdrawals are allowed
only when the participant's age is 59-1/2 or older, unless a financial
hardship exists. Hardship withdrawals will cause the participants to
be suspended from making further contributions for 365 days.
Withdrawals may be made from employer contributions only if the
participant has been a member of the Plan for five full Plan years and
will cause an employee to be suspended from participation in the Plan
for 180 days.
Distribution of Benefits
Benefits that are vested are payable to participants or their
beneficiaries at retirement, permanent disability, death or
termination of service.
Termination or Amendment of the Plan
The Plan may be terminated, amended or modified by the Board of
Directors of the Company at any time. Upon complete or partial
termination of the Plan, all amounts credited to the accounts with
respect to which the Plan has been terminated shall become fully
vested and nonforfeitable.
3. SUMMARY OF ACCOUNTING POLICIES:
Basis of Accounting
The financial statements of the Plan are presented on the accrual
basis of accounting, except that amounts allocated to accounts of
persons who have withdrawn from participation in the earnings and
operations of the Plan are not recorded as a liability of the Plan but
are classified as a component of net assets available for benefits.
There were no such amounts outstanding at December 31, 1999 and 1998.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the
Administrative Committee to use estimates and assumptions that affect
the accompanying financial statements and disclosures. Actual results
could differ from those estimates.
Asset Valuation
The Plan's investments are reflected in the accompanying financial
statements at year-end current values, which represent fair values.
For common stocks, fair value was determined by using the applicable
closing price of the common stock as listed on the New York Stock
Exchange on the last trading day of the Plan year. For all mutual
funds, fair value was determined based on the closing price of the
mutual fund as listed on the applicable stock exchange on the last
trading day of the Plan year. The Merrill Lynch Retirement
Preservation Trust Fund is a common/collective trust fund investing
primarily in guaranteed investment contracts (GICs), synthetic GICs,
and U.S. Government securities. The guaranteed investment contracts
are fully benefit responsive and are recorded at contract value, which
approximates fair value. The effective yield was approximately 6.22%
per other plan for the year ended December 31, 1999.
Net appreciation or depreciation in fair value of investments consists
of realized gains or losses on sale of investments and unrealized
appreciation or depreciation in fair value of investments.
4. INVESTMENTS:
The following presents investments that represent 5 percent or more of
the Plan's net assets:
December 31,
1999 1998
------------- -------------
Pennzoil-Quaker State Company common stock $ 3,271,858 $ 2,957,301
Devon Energy Corporation common stock 2,618,329 3,270,561
Merrill Lynch Retirement Preservations Trust 3,290,898 3,291,343
Dreyfus Basic S&P 500 Stock Index Fund 6,583,038 5,216,067
Davis New York Venture Fund 1,668,773 1,140,719
Participant loans 990,226 1,022,117
During 1999, the Plan's investments depreciated in value by $289,369
as follows:
Common Stock $ (1,534,281)
Mutual Funds 1,244,912
-------------
$ (289,369)
=============
5. NONPARTICIPANT-DIRECTED INVESTMENTS:
Information about the net assets and the significant components of the
changes in net assets relating to nonparticipant-directed investments
is as follows:
December 31,
1999 1998
------------- -------------
Net Assets:
Pennzoil-Quaker State Company common stock $ 1,626,598 $ 1,472,587
Devon Energy Corporation common stock 1,283,957 1,634,668
Battle Mountain Gold Company common stock 2,063 4,064
Cash and temporary investments 61,555 89,014
Employer contributions receivable 43,676 46,033
Investment income receivable 3,005 9,691
Payable to brokers (48,348) (63,002)
------------- -------------
$ 2,972,506 $ 3,193,055
============= =============
For the Year Ended
December 31,1999
-------------
Changes in Net Assets:
Employer contributions $ 804,036
Dividends 111,155
Interest 5,772
Net depreciation in fair value of investments (761,940)
Transfers to Salaried Plan (76,422)
Interfund transfers (169,700)
Administrative Expenses (509)
Distributions and Withdrawals (132,941)
-------------
$ (220,549)
=============
6. FEDERAL INCOME TAXES:
The Plan obtained its latest determination letter on June 14, 1995, in
which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code of 1986, as amended (IRC). The Administrative
Committee believes that the Plan is currently designed and being
operated in compliance with the applicable requirements of the IRC.
Therefore, the Administrative Committee believes that the Plan was
qualified and the related trust was tax-exempt as of December 31, 1999
and 1998.
7. RISKS AND UNCERTAINTIES:
The Plan provides for various investments in common stock, a
common/collective trust fund, mutual funds and cash and temporary
investments. Investment securities, in general, are exposed to
various risks, such as interest rate, credit and overall market
volatility risk. Due to the level of risk associated with certain
investment securities, it is reasonably possible that changes in the
values of investment securities will occur in the near term.
8. RELATED-PARTY TRANSACTIONS:
Certain Plan investments are shares of mutual funds managed by Mellon
Bank, N. A. Mellon Bank, N. A. is the trustee as defined by the Plan
and, therefore, these transactions qualify as party-in-interest
transactions. Fees paid by the Plan for the investment management
services amounted to $1,878 for the year ended December 31, 1999.
SCHEDULE I
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
Current
Identity of Issue/Description Principal/Shares or Units Cost Value
----------------------------- ------------------------- ----------- -----------
Pennzoil-Quaker State Company <F1> 321,164 shares--$.10 par value $ 3,995,915 $ 3,271,858
Devon Energy Corporation 79,645 shares--$.10 par value 1,872,054 2,618,329
Battle Mountain Gold Company 2,128 shares--$.10 par value 5,852 4,389
Merrill Lynch Retirement
Preservation Trust 3,290,898 units <F2> 3,290,898
Dreyfus Basic S&P 500
Stock Index Fund 214,641 units <F2> 6,583,038
Davis New York Venture Fund 58,024 units <F2> 1,668,773
Fidelity Advisor Balanced Fund 31,450 units <F2> 573,960
J.P. Morgan Institutional Bond Fund 21,264 units <F2> 198,391
Mellon Bank - EB temporary
investment fund <F1> 113,830 units 113,830 113,830
Pennzoil-Quaker State Company
Savings and Investment Plan
for Hourly Employees <F1>
Participant Loans with interest
rates ranging from 8.75% to 10.0% <F2> 990,226
-----------
Total assets held for investment purposes $19,313,692
===========
<FN>
<F1> Represents party-in-interest.
<F2> Cost omitted for participant-directed investments.
</FN>
SCHEDULE II
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
SCHEDULE OF REPORTABLE TRANSACTIONS
(SERIES OF INVESTMENT TRANSACTIONS)
FOR THE YEAR ENDED DECEMBER 31, 1999
Identity of Party Involved Purchase Selling Cost of Net
and Description of Assets Price<F1> Price<F1> Asset Gain
- ------------------------------- ---------- ----------- ---------- --------
Pennzoil-Quaker State Company common
stock, $.10 par value -
Purchases (67 transactions) $1,915,595 $ - $1,915,595 $ -
Sales (41 transactions) - 384,352 369,530 14,822
Mellon Bank - EB Temporary
Investment Fund -
Purchases (183 transactions) 2,040,039 - 2,040,039 -
Sales (182 transactions) - 2,064,909 2,064,909 -
<FN>
<F1> Current value of asset on transaction date is equal to the purchase or selling price.
Prices are shown net of related expenses.
NOTE: This schedule is a listing of a series of investment
transactions in the same security which exceed 5% of the
current value of the Plan's assets as of the beginning
of the Plan year.
</FN>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Administrative Committee has duly caused this report to be
signed by the undersigned thereunto duly authorized.
PENNZOIL-QUAKER STATE COMPANY SAVINGS
AND INVESTMENT PLAN FOR HOURLY
EMPLOYEES
By S/N MARK S. ESSELMAN
Mark S. Esselman
Chairman of the Administrative
Committee
June 28, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated June 26, 2000, included in this Form
11-K, into Pennzoil-Quaker State Company's previously filed
Registration Statement File No. 333-69835.
ARTHUR ANDERSEN LLP
Houston, Texas
June 26, 2000