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, 1999 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 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 of stock were outstanding, as of latest
practicable date, July 31, 1999:
Common Stock, par value $0.10 per share, 77,856,966
shares.
<PAGE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1999 1998(A) 1999 1998(A)
----------- ----------- ----------- -----------
(Expressed in thousands except per share amounts)
(Note 2)
<S> <C> <C> <C> <C>
REVENUES $ 774,586 $ 498,969 $1,498,467 $ 942,411
COSTS AND EXPENSES
Cost of sales 550,857 329,189 1,055,388 584,246
Purchases from affiliate - 34,328 - 104,325
Selling, general and administrative 154,443 85,606 317,980 163,447
Depreciation and amortization 30,356 18,912 63,870 36,676
Taxes, other than income 3,445 2,580 7,815 6,082
Interest charges, net 21,081 3,254 38,822 5,947
Affiliated interest - 14,157 - 28,210
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX 14,404 10,943 14,592 13,478
Income tax provision 8,102 4,893 10,509 6,829
----------- ----------- ----------- -----------
NET INCOME $ 6,302 $ 6,050 $ 4,083 $ 6,649
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.08 $ 0.13 $ 0.05 $ 0.14
=========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE $ 0.1875 $ - $ 0.3750 $ -
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING:
Basic 77,757 47,847 77,703 47,847
=========== =========== =========== ===========
Diluted 78,053 47,847 78,006 47,847
=========== =========== =========== ===========
END OF PERIOD SHARES OUTSTANDING 77,823 47,847 77,823 47,847
=========== =========== =========== ===========
<FN>
<F1>
(A) Excludes Quaker State Corporation results.
<F2>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
(Expressed in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 37,088 $ 14,899
Receivables 341,211 291,997
Inventories 295,956 306,512
Materials and supplies, at average cost 13,348 12,422
Deferred income taxes 47,413 47,413
Other current assets 63,647 63,328
------------- -------------
Total current assets 798,663 736,571
Property, plant and equipment, net 990,981 1,032,076
Deferred income taxes 21,025 36,614
Goodwill 1,108,648 1,104,353
Other assets 211,971 235,380
------------- -------------
TOTAL ASSETS $ 3,131,288 $ 3,144,994
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,080 $ 1,283
Accounts payable 243,988 245,721
Payroll accrued 28,618 18,734
Other current liabilities 149,768 147,609
------------- -------------
Total current liabilities 423,454 413,347
Total long-term debt, less current maturities 1,039,547 1,026,054
Capital lease obligations, less current maturities 71,346 74,464
Other liabilities 271,334 280,922
------------- -------------
TOTAL LIABILITIES 1,805,681 1,794,787
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 1,325,607 1,350,207
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,131,288 $ 3,144,994
============= =============
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 4
PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30
---------------------------------
1999 1998(A)
----------- -----------
(Expressed in thousands)
(Note 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,083 $ 6,649
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 63,870 36,676
Deferred income tax 7,732 11,810
Distributions from equity investees
in excess of (less than) earnings (4,134) 4,926
Other non-cash items 4,618 14,393
Changes in other operating assets and liabilities (66,642) (70,723)
----------- -----------
Net cash provided by operating activities 9,527 3,731
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (30,925) (29,028)
Proceeds from sales of assets 73,106 13,788
Other investing activities (4,936) 8,299
----------- -----------
Net cash provided by (used in) investing activities 37,245 (6,941)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt and capital lease obligation repayments (585,318) (9,643)
Proceeds from note payable to affiliate - 10,429
Proceeds from issuances of debt 596,968 1,457
Dividends paid (29,143) -
Other financing activities (7,090) -
----------- -----------
Net cash prodvided by (used in) financing activities (24,583) 2,243
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 22,189 (967)
CASH AND CASH EQUIVALENTS, beginning of period 14,899 9,132
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 37,088 $ 8,165
=========== ===========
<FN>
<F1>
(A) Excludes Quaker State Corporations results.
<F2>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 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)Spin-off from Pennzoil Company and Acquisition of Quaker State -
On December 30, 1998, Pennzoil Company distributed to its
stockholders 47.8 million shares of common stock of its wholly
owned subsidiary Pennzoil-Quaker State (the "Spin-off")
representing all of the shares of Pennzoil-Quaker State owned by
Pennzoil Company. As a result of the distribution, Pennzoil
Company, now renamed PennzEnergy Company, and Pennzoil-Quaker State
are no longer affiliated entities.
Also, on December 30, 1998, Pennzoil-Quaker State acquired
Quaker State Corporation ("Quaker State") in a merger transaction,
and Quaker State became a wholly owned subsidiary of Pennzoil-
Quaker State. As a result of the acquisition, stockholders of
Quaker State received 0.8204 of a share of common stock of Pennzoil-
Quaker State in exchange for each share of Quaker State capital
stock previously owned.
Pennzoil-Quaker State accounted for the acquisition using the
purchase method of accounting and, accordingly, has included the
results of operations of Quaker State beginning on the date
acquired. The purchase price, which was calculated based on the
market capitalization of Quaker State, was allocated to the assets
and liabilities acquired based upon the estimated fair value of
those assets and liabilities as of the acquisition date. The
excess of the aggregate purchase price over estimated fair value of
the net assets acquired has been reflected as goodwill in the
condensed consolidated financial statements and is being amortized
on a straight-line basis over 40 years.
The condensed consolidated financial statements reflect the
preliminary allocation of the purchase price. A final allocation
of the purchase price will be made by the end of 1999. Pennzoil-
Quaker State does not anticipate material changes in this
allocation.
At December 31, 1998, Pennzoil-Quaker State recognized certain
liabilities related to the merger. Those liabilities related to
Quaker State operations ($27.9 million) were recognized as an
adjustment to the purchase price. Other liabilities accrued of
$10.6 million that related to the acquiror (Pennzoil-Quaker State)
were expensed. During the three months and six months ended June
30, 1999, the $27.9 million liability related to the Quaker State
operations was reduced by $10.6 million and $12.4 million,
respectively, primarily for severance paid to certain Quaker State
employees. No additional liabilities were recorded in connection
with the acquisition during the six months ended June 30, 1999. The
remaining accrual of $15.5 million at June 30, 1999 includes
amounts for severance costs and relocation costs for certain Quaker
State employees.
<PAGE>
<PAGE> 6
PART I. FINANCIAL INFORMATION - continued
During the three months and six months ended June 30, 1999, the
$10.6 million accrued liability related to the acquiror was reduced
by $1.8 million and $4.3 million, respectively, primarily related
to payments for resolving certain conflicts between Jiffy Lube and
Q Lube franchise-operated service centers. No additional
liabilities resulting from restructuring or reorganizations related
to the acquisition of Quaker State were accrued during the six
months ended June 30, 1999. The remaining accrual of $6.3 million
at June 30, 1999 includes amounts for costs of closing some Jiffy
Lube company-operated fast lube service centers and the resolution
of certain conflicts between Jiffy Lube and Q Lube franchise-
operated service centers. During the three months and six months
ended June 30, 1999, the Company also incurred approximately $14.3
million and $27.4 million, respectively, in previously unaccrued
expenses primarily due to post year-end acquisition-related systems
integration costs, rationalization of Q Lube centers, Quaker State
employee transition bonuses and key employee bonuses earned during
the period.
The Company expects to incur additional acquisition-related
costs and expenses in future periods and will adjust the
preliminary purchase price allocation or charge these amounts to
income, as appropriate, depending on their nature. These future
costs and expenses relate to additional facility closings, conflict
resolution between franchise-operated service centers, employee
severance, systems integration and conversion costs of Q Lube
franchise-operated service centers. These costs and expenses are
not accruable until a plan is formulated and approved and amounts
are paid or certain obligations are contractually committed. The
restructurings and reorganizations related to the Quaker State
acquisition are expected to be completed in mid 2000.
The following unaudited pro forma information for the six
months ended June 30, 1998 has been prepared as if the acquisition
of Quaker State occurred on January 1, 1998 after including the
additional amortization of goodwill, brands and other intangible
assets, interest expense and related income tax effects. The
unaudited pro forma information does not reflect adjustments for
any estimated general and administrative expense savings,
operational efficiencies and one-time costs related to the
acquisition of Quaker State, nor is it necessarily indicative of
future results of operations or results that would have actually
occurred had the acquisition of Quaker State been consummated on
January 1, 1998.
<TABLE>
Six months ended
June 30, 1998
------------------------------
(Expressed in thousands except
per share amounts)
<S> <C>
Revenues $ 1,556,399
Net income 17,962
Basic and diluted earnings per share 0.23
</TABLE>
(3) 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. SFAS No. 133 requires 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, deferring the effective date of SFAS No. 133 until fiscal
years beginning after June 15, 2000. The effect of adopting SFAS
No. 133 has not been determined, but is not expected to have a
material impact on Pennzoil-Quaker State's results of operations.
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION - continued
(4) Summarized Financial Data of Excel Paralubes -
Summarized operations information for Excel Paralubes, an
equal partnership with Conoco Inc., for the three months and six
months ended June 30, 1999 and 1998 on a 100% basis follows:
<TABLE>
Three months ended June 30 Six months ended June 30
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Expressed in thousands)
(Unadudited)
<S> <C> <C> <C> <C>
Revenues $ 81,611 $ 72,907 $ 125,138 $ 131,019
Operating earnings 17,733 16,210 24,601 26,247
Net income 8,099 6,602 5,285 7,051
</TABLE>
Pennzoil-Quaker State's net investment in Excel Paralubes,
carried as a credit balance of $49.2 million and $51.8 million at
June 30, 1999 and December 31, 1998, 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 for the three months ended
June 30, 1999 and 1998 of $4.0 million and $3.3 million,
respectively, is included in revenues in the condensed consolidated
statement of income. Pennzoil-Quaker State's equity in Excel
Paralubes' pretax income for the six months ended June 30, 1999 and
1998 was $2.6 million and $3.5 million, respectively.
(5) Debt -
In January 1999, Pennzoil-Quaker State, using funds from its
commercial paper and money market facilities, repaid $370.0 million
of borrowings under a Quaker State revolving credit agreement and
terminated the revolving credit agreement. On March 30, 1999,
Pennzoil-Quaker State issued debt in the form of $200.0 million of
6 3/4% Notes ("Notes") due April 1, 2009 and $400.0 million of 7
3/8% Debentures ("Debentures") due April 1, 2029. The net proceeds
of $592.2 million from the Notes and Debentures were used to pay
down variable rate debt. Due to the issuance of the Notes and
Debentures, Pennzoil-Quaker State reduced the capacity under its
revolving credit facility from $1.0 billion to $700 million on
March 30, 1999 as required by the credit facility agreement. There
were no borrowings under this facility during the six months ended
June 30, 1999.
As of June 30, 1999, borrowings under Pennzoil-Quaker State's
commercial paper programs totaling $276.1 million have been
classified as long-term debt. Pennzoil-Quaker State also maintains
a long-term credit facility with Canadian banks, which provides for
up to C$27 million through October 25, 1999. As of June 30, 1999,
borrowings under the Company's Canadian facility totaling US$9.6
million have been classified as long-term debt. Such debt
classification is based upon the availability of long-term credit
facilities to refinance this facility and the Company's intent
to maintain such commitments in excess of one year.
<PAGE>
<PAGE> 8
PART I. FINANCIAL INFORMATION - continued
(6) Earnings Per Share -
Computations for basic and diluted earnings per share for the
three months and six months ended June 30, 1999 and 1998 consist of
the following:
<TABLE>
Three Months Ended June 30 Six Months Ended June 30
------------------------------ ----------------------------
1999 1998(A) 1999 1998(A)
------------- ------------ ------------ -----------
(Expressed in thousands except per share amounts)
<S> <C> <C>
Net income $ 6,302 $ 6,050 $ 4,083 $ 6,649
Basic weighted average shares 77,757 47,847 77,703 47,847
Effect of dilutive securities (B):
Awards 296 - 303 -
------------- ------------ ------------ -----------
Diluted weighted average shares 78,053 47,847 78,006 47,847
Basic and diluted earnings per share 0.08 0.13 0.05 0.14
<FN>
<F1> (A) Excludes Quaker State Corporation results and shares issued in the acquisition.
<F2> (B) A weighted average number of options to purchase 6.9 million shares were outstanding for the
the three months and six months ended June 30, 1999 but were not included in the computation of
diluted earnings per share because the options' prices were greater than the average market price
of the common shares.
</FN>
</TABLE>
(7) Use of Derivatives -
In order to hedge interest rate exposure on the Debentures
issued in March 1999, in August 1998, Pennzoil-Quaker State entered
into four interest rate locks covering a total of $100 million,
based upon the 30-year Treasury rate. To achieve its hedged
position, Pennzoil-Quaker State entered into forward rate
agreements in which it would pay or receive the difference between
(1) the 30-year Treasury rate at the time the forward was entered
into and (2) the 30-year Treasury rate at the time of maturity.
Under current accounting, these transactions qualified as a hedge
of an anticipated transaction. Any gains or losses from the
interest rate hedges were deferred during the interim period with
the offset to a payable or receivable. The hedge contracts matured
in March 1999 when the Company issued $400 million of 30-year
Debentures. The total loss of $ 2.1 million on the interest rate
hedges was treated as an adjustment to the issue price of the
Debentures, effectively creating a discount that will be amortized
over the life of the borrowings.
In August 1999, Pennzoil-Quaker State approved a tactical
hedging program to lock-in the crack spread on up to fifty percent
of its production of certain refined fuel products through the end
of 1999. The majority of the hedging approved under this program
was completed on August 6, 1999.
<PAGE>
<PAGE> 9
PART I. FINANCIAL INFORMATION - continued
(8) Comprehensive Income -
Effective January 1, 1998, Pennzoil-Quaker State adopted SFAS
No. 130, "Reporting Comprehensive Income," which requires that
certain items that are excluded from net income but included as a
component of total shareholders' equity be presented in the
Company's financial statements. The components of Pennzoil-Quaker
State's comprehensive income consist of foreign currency
translation adjustments, unrealized holding gains and losses on
available-for-sale securities and minimum pension liability.
Comprehensive income for the three and six months ended June 30,
1999 and 1998 is as follows:
<TABLE>
Three months ended Six months ended
June 30 June 30
---------------------------- ----------------------------
1999 1998(A) 1999 1998 (A)
----------- ----------- ----------- -----------
(Expressed in thousands)
(Unadudited)
<S> <C> <C> <C> <C>
Net income $ 6,302 $ 6,050 $ 4,083 $ 6,649
Other comprehensive income, net of tax (4,431) (1,120) (939) (1,084)
------------ ------------ ------------ ------------
Comprehensive income $ 1,871 $ 4,930 $ 3,144 $ 5,565
============ ============ ============ ============
<FN>
<F1> (A) Excludes Quaker State Corporation results.
</FN>
</TABLE>
(9) Transactions with PennzEnergy Company -
As a result of the Spin-off, PennzEnergy and Pennzoil-Quaker
State have an arrangement to share certain services for a period of
up to one year after the date of the Spin-off. Any or all of the
services being provided may be discontinued by the Company with at
least 30 days prior written notice of the discontinuation. Where
corporate administrative costs can be directly associated with
Pennzoil-Quaker State or PennzEnergy, fees are paid based upon
actual costs of providing these services. Indirect administrative
costs incurred are allocated through a monthly charge based on a
formula that considers the relative total assets, sales and
employees of the companies.
(10) Cash Flow Information -
Cash paid for interest during the six months ended June 30,
1999 and 1998 was $26.0 million and $5.8 million, respectively.
Cash paid for income taxes during the six months ended June 30,
1999 was $0.6 million and no payments were made during the six
months ended June 30, 1998.
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) Base Oil and Specialty Products and (3) Fast Lube
Operations.
Results of operations of Pennzoil-Quaker State do not include
Quaker State's results of operations for 1998. The assets and
liabilities of Quaker State are included in Pennzoil-Quaker State's
condensed consolidated balance sheet for the periods presented. In
addition, operating results for the three months and six months
ended June 30, 1998 include certain affiliated charges for interest
and services provided by Pennzoil Company prior to the Spin-off.
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION - continued
Results of Operations
Net sales for Pennzoil-Quaker State for the quarter and six
months ended June 30, 1999 were $763.6 million and $1,481.4
million, respectively. This compares with net sales of $485.1
million for the quarter ended June 30, 1998 and $912.2 million for
the six months ended June 30, 1998. The increases for the quarter
and six months ended June 30, 1999 compared to the same periods in
1998 are primarily due to the acquisition of Quaker State.
Purchases from affiliate for the three and six months ended June
30, 1998 relate to purchases of crude oil at market prices from
Pennzoil Company. Pennzoil-Quaker State began purchasing crude oil
primarily from unrelated third parties in the third quarter of
1998.
Net income for the quarter and six months ended June 30, 1999
was $6.3 million, or 8 cents per basic share and $4.1 million, or 5
cents per basic share, respectively. This compares with net income
of $6.1 million, or 13 cents per basic share for the quarter ended
June 30, 1998 and $6.6 million, or 14 cents per basic share for the
six months ended June 30, 1998. Net income for three months and
six months ended June 30, 1999 included pretax charges of $14.3
million and $27.4 million, respectively, due to one-time costs
(legal, severance, rationalization of Q Lube centers and other
charges) associated with the Company's merger with Quaker State.
Net income for the three months and six months ended June 30, 1999
also included pretax charges of $1.4 million and $3.0 million,
respectively, due to one-time restructuring charges related to the
Base Oil and Specialty Products segment.
Lubricants and Consumer Products
Net sales for this segment for the quarter and six months
ended June 30, 1999 were $518.3 million and $1,017.2 million,
respectively. This compares to net sales of $252.8 million and
$481.3 million, respectively, for the same periods in 1998. The
increases in net sales are primarily due to the acquisition of
Quaker State. Other income for this segment for the quarter and
six months ended June 30, 1999 was $5.8 million and $5.9 million,
respectively. This compares to $1.9 million and $5.7 million,
respectively, for the same periods in 1998. Operating income from
this segment for the quarter and six months ended June 30, 1999 was
$51.6 million and $93.6 million, respectively. This compares to
$25.3 million and $45.7 million, respectively, for the same periods
in 1998. The increases were also primarily due to the acquisition
of Quaker State. Higher lubricating products sales volumes,
combined with lower overall expenses, also contributed to the
increases, which were partially offset by one-time merger costs.
Base Oil and Specialty Products
Net sales for this segment for the quarter and six months
ended June 30, 1999 were $188.4 million and $339.3 million,
respectively. This compares to net sales of $193.1 million and
$374.5 million, respectively, for the same periods in 1998. The
decreases were primarily due to lower average sales prices for
fuels, base oils and other refined petroleum products. Other
income for this segment for the quarter and six months ended June
30, 1999 was $6.9 million and $12.1 million, respectively. This
compares to $10.2 million and $20.4 million, respectively, for the
same periods in 1998. The decrease in other income for the six
months ended June 30, 1999 compared to the same period in 1998 was
primarily due to lower equity earnings from Excel Paralubes,
Pennzoil-Quaker State's base oil partnership with Conoco Inc., due
to a scheduled turnaround. Operating loss from this segment for
the quarter and six months ended June 30, 1999 was $3.6 million and
$9.6 million, respectively. This compares to operating income of
$7.0 million and $11.5 million, respectively, for the same periods
in 1998. The decreases were primarily due to lower fuels margins
and lower realized lube margins.
<PAGE>
<PAGE> 11
PART I. FINANCIAL INFORMATION - continued
Fast Lube Operations
Net sales for this segment for the quarter and six months
ended June 30, 1999 were $111.1 million and $230.4 million,
respectively. This compares to net sales of $84.0 million and
$161.0 million, respectively, for the same periods in 1998. The
increase in net sales is primarily due to the addition of Quaker
State's Q Lube operations. Other income (loss) for this segment for
the quarter and six months ended June 30, 1999 was $(1.0) million
and $0.8 million, respectively. This compares to $3.2 million and
$6.9 million, respectively, for the same periods in 1998. The
decrease in other income was primarily due to lower gains on sales
of assets. Operating loss from this segment for the quarter and
six months ended June 30, 1999 was $1.0 million and $0.9 million,
respectively. This compares to operating income of $6.9 million
and $11.6 million, respectively, for the same periods in 1998. The
decreases were primarily due to increased operating costs within
company operated centers and higher selling, general and
administrative expenses primarily related to one-time merger costs.
During the second quarter of 1999, the Company sold and closed
a significant number of company operated centers as part of the
merging of the Q Lube stores into the Jiffy Lube system. Various
company operated centers have been closed and others sold to
franchisees to settle territorial and other disputes. As of June
30, 1999, the Company owned and operated approximately 750 centers.
As of December 31, 1998 the Company owned and operated
approximately 993 centers. Approximately $15.5 million in expenses
were accrued in the fourth quarter of 1998 related to store
closings. No additional accruals have been recorded related to
store closings. No material gain or loss has been recognized
related to sales of Company stores.
Corporate Administrative Expense
Corporate administrative expense for the quarter and six months
ended June 30, 1999 was $18.7 million and $40.5 million,
respectively. This compares to $10.1 million and $19.6 million,
respectively, for the same periods in 1998. The increases are
primarily due to the addition of Quaker State and one-time merger
costs.
As a result of the Spin-off, PennzEnergy and Pennzoil-Quaker
State have an arrangement to share certain services for a period of
up to one year after the date of the Spin-off. Any or all of the
services being provided may be discontinued by the Company with at
least 30 days prior written notice of the discontinuation. Where
corporate administrative costs can be directly associated with
Pennzoil-Quaker State or PennzEnergy, fees are paid based upon
actual costs of providing these services. Indirect administrative
costs incurred are allocated through a monthly charge based on a
formula that considers the relative total assets, sales and
employees of the companies.
Prior to the Spin-off, Pennzoil Company charged Pennzoil-Quaker
State for all direct costs associated with its operations and
indirect administrative costs were allocated through a monthly
charge.
Capital Resources and Liquidity
Cash Flow. As of June 30, 1999, Pennzoil-Quaker State had
cash and cash equivalents of $37.1 million. During the six months
ended June 30, 1999, cash and cash equivalents increased $22.2
million due primarily to higher cash provided by operations and
increased sales of assets.
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.
<PAGE>
<PAGE> 12
PART I. FINANCIAL INFORMATION - continued
Debt Instruments and Repayments. In January 1999, Pennzoil-
Quaker State, using funds from its commercial paper and money
market facilities, repaid $370.0 million of borrowings under a
Quaker State revolving credit agreement and terminated the
revolving credit agreement. On March 30, 1999, Pennzoil-Quaker
State issued debt in the form of $200.0 million of 6 3/4% Notes due
April 1, 2009 and $400.0 million of 7 3/8% Debentures due April 1,
2029. The net proceeds of $592.2 million from the Notes and
Debentures were used to pay down variable rate debt. Due to the
issuance of the Notes and Debentures, Pennzoil-Quaker State
reduced the capacity under its revolving credit facility from $1.0
billion to $700 million on March 30, 1999 as required by the credit
facility agreement. There were no borrowings under this facility
during the six months ended June 30, 1999.
As of June 30, 1999, borrowings under Pennzoil-Quaker State's
commercial paper programs totaling $276.1 million have been
classified as long-term debt. Pennzoil-Quaker State also maintains
a long-term credit facility with a Canadian bank, which provides
for up to C$27 million through October 25, 1999. As of June 30,
1999, borrowings under the Company's Canadian facility totaling
US$9.6 million have been classified as long-term debt. Such debt
classification is based upon the availability of long-term credit
facilities to refinance this facility and the Company's intent to
maintain such commitments in excess of one year.
Accounts Receivable. Pennzoil-Quaker State Company, 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 increased and extended its one-year
receivables sales facility in June 1999 to provide for ongoing
sales of up to $160.0 million of accounts receivable. The Company's
net accounts receivable sold under this facility totaled $156.8
million at June 30, 1999.
The Company maintains a lube center receivable purchase and
sale agreement, which provides for the sale of certain notes
receivable up to $150.0 million, through a wholly owned subsidiary,
Pennzoil Lube Center Acceptance Corporation ("PLCAC"). PLCAC is a
special limited purpose 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 June 30,
1999, the Company has sold a total of $148.4 million of notes
receivable under this agreement, of which $120.3 million were
outstanding to the third party purchaser at June 30, 1999.
Year 2000 Issues
The Company has conducted a review of its key computer systems
and identified a number of systems that were affected by the year
2000 issue. The Company completed conversion of these non-compliant
financial, operating, human resources and payroll systems to a new
information technology system in 1998. In addition, the Company
upgraded electronic commerce systems to compliant versions during
the second quarter of 1999. Upgrades and standardization of
network, infrastructure, desktop and communications systems to make
these assets compliant were also completed in the second quarter of
1999 which includes the majority of the international locations.
Upgrades and conversions for the remaining international locations
will be completed by November 1999. Critical end-user spreadsheets
and databases have been reviewed and converted to handle year 2000
processing. Any remaining end user systems will be completed by
September 30, 1999. Validation testing of all critical hardware
and software was completed during the second quarter of 1999. The
only validation testing still in progress is for certain financial
support systems such as tax reporting and reconciliation systems,
the financial software used at some of the international locations,
and four third-party datasets for the Jiffy Lube systems which will
be completed by the end of August 1999.
<PAGE>
<PAGE> 13
PART I. FINANCIAL INFORMATION - continued
The only system replacements that have been accelerated
to remedy non-compliance are the Company voicemail systems and the
international desktop hardware, software, financial and operational
systems. No major information technology projects have been
deferred due to year 2000 compliance matters. Contingency planning
for the information technology systems began in the second quarter
of 1999. It includes backup, standby and storage of critical
equipment and parts to reduce the impact of major service providers
as well as providing for alternate processing locations and
performing manual processes in the event of system unavailability.
Contingency planning and testing of contingency plans should be
completed by September 30, 1999.
The Jiffy Lube Point of Sale system is year 2000 ready
except for a third-party auxiliary component that provides vehicle
make and model part information. This vendor-supplied dataset
currently cannot accept information for year 2000 models. This
component will be upgraded by September 30, 1999. Contingencies
for this information would be to utilize other suppliers, which
would be done by the time new model information is generally
available in September 1999.
The Company has conducted a comprehensive inventory and
assessment of systems and devices with embedded chips in them,
which included the manufacturing and non-manufacturing
environments. The manufacturing environment which consists of
refining, blending, storage and the movement of petrochemicals has
the greatest inherent risk since embedded chip systems control and
monitor these processes. Critical embedded chip systems have been
remediated and tested for year 2000 readiness and were completed in
the second quarter of 1999. At this time, two Company
manufacturing facilities have three non-compliant control systems.
One of these systems will be upgraded by September 30, 1999. A
similar system was successfully upgraded and tested at the same
facility in June 1999. The other two systems will be upgraded in
August 1999 and by September 30, 1999, during a scheduled plant
shutdown. Compliant versions of the software now exist for both
systems and pilot tests of similar systems have been run at the
Company's technology center. System testing will be performed at
both facilities at the time of their upgrade. The only equipment
with embedded chips still to be upgraded is a flow meter, a lab
testing device, and a telephone system. These upgrades will be
completed by the end of August 1999. Replacement and upgrades of
embedded chip systems at international locations is over 75%
completed and tested. The remaining systems are to be completed
and tested by September 30, 1999 or earlier. If for any reason
these systems are still found to be non-compliant, additional plant
or operations shutdowns could be necessary to conduct further
remediation and testing. In addition, currently compliant control
systems that have the potential for environmental, safety or
business interruption impact have been tested during scheduled
maintenance. Nevertheless, operation of these systems would be
reduced or discontinued if a component is found to be non-compliant
in order to prevent safety and environmental problems. Contingency
planning is also underway to provide alternatives in the event
these systems are partially or completely inoperable. The
Company employed an independent engineering firm to inventory and
assess the embedded chip equipment in use at company lube centers.
All equipment was identified and assessed as year 2000 ready except
for the emissions testing and a component of the car wash equipment
because the internal software and hardware were not accessible.
These two items require additional follow up with the vendor or the
state agency issuing this equipment, which will be completed by
August 31, 1999. However, this type of equipment is not a critical
service to lube operations and in the event of an equipment
failure, they would be temporarily discontinued until remediation
is completed.
<PAGE>
<PAGE> 14
PART I. FINANCIAL INFORMATION - continued
The Company has contacted and continues to monitor year
2000 readiness of key suppliers, banks, customers and other
unaffiliated companies that have business relationships with the
Company. The Company could be adversely affected by the failure of
these unaffiliated companies to adequately address the year 2000
issue. These assessments include activities such as face-to-face
meetings, reviews of their year 2000 readiness programs and
cooperative testing. Completion of this assessment ranges from 65%
to 90% for all business units. Specific areas still being assessed
are the local suppliers for two manufacturing and two marketing
operations, governmental agencies, and third-party service
providers. A special review of the assessment and contingency
arrangements of key suppliers to the Jiffy Lube locations will be
completed by September 1999 to ensure that critical parts and
supplies will not be interrupted due to a year 2000 problem.
Contingency planning for key suppliers and customers, which
includes third-party business partners, infrastructure providers,
and transportation vendors, was started in the second quarter of
1999. Contingencies include arrangements to mitigate the impact of
disruptions from these outside sources. Contingency plans and
testing of these plans will be completed by September 30, 1999.
As with most companies, the Company anticipates more
issues arising from international business partners, especially in
the banking, utility, shipping and governmental segments. This
assessment is currently underway and is 60% complete. Contingency
planning is in progress and will be completed by September 30,
1999.
Although the Company's primary focus has been to identify and
remediate mission critical non-compliant systems and equipment, all
non-critical systems and equipment have been included in this
review.
In addition, the Company has implemented internal
procedures to respond cooperatively to inquiries from regulatory
agencies and other businesses about its year 2000 program. The
Company is actively involved in a joint industry effort through the
American Petroleum Institute to collectively address the readiness
of their common business partners such as utilities and
governmental agencies, and to share approaches to solving the
specific problems of each international location.
Quaker State is continuing its year 2000 program after the
merger. Quaker State has completed reviews of computer systems and
embedded technologies at all locations, including its blending and
packaging facilities. Hardware, software, and embedded systems are
being upgraded or replaced by September 30, 1999. Blending
equipment was upgraded for all but one blending site by June 30,
1999, with the last site to be completed by September 30, 1999. In
addition, certain aspects of Quaker State's year 2000 program
included not upgrading or replacing certain systems as they were
deemed to be redundant as a result of the acquisition by the
Company. The operating and financial systems for the lubricants
business segments and the Canadian facility were made compliant by
converting their business processes to the current Pennzoil-Quaker
State systems, which was completed at the end of July 1999. At
present, the Q Lube Point of Sale ("POS") software utilized in Q
Lube stores is not year 2000 compliant. The software vendor
released a compliant version in the second quarter of 1999. Current
plans include the conversion of Q Lube locations, including
information systems, to Jiffy Lube stores, which utilize compliant
POS software. In the event the conversion is delayed, contingency
plans provide for the remaining stores to upgrade to the compliant
version of the Q Lube POS software. This upgrade would begin in
September 1999 to allow enough time to complete the conversions.
Contingency planning is to be completed by September 30, 1999.
The Company's existing emergency response plan will be
re-evaluated in the fourth quarter of 1999, using the latest
information available for infrastructure services such as
utilities. Adjustments to this plan will be made based on this
information.
<PAGE>
<PAGE> 15
PART I. FINANCIAL INFORMATION - continued
If the above steps are not completed successfully in a timely
manner, the Company's operations and financial performance could be
adversely affected through disruptions in operations. Even if
these steps are completed disruptions in operations could occur.
Costs associated with such disruptions currently cannot be
estimated. Both incremental historical and estimated future costs
related to the year 2000 issue are not expected to be material to
the financial position or results of operations of the Company for
several reasons. Most of the remediation is being accomplished with
upgrades to existing software that are under maintenance contracts.
The implementation of the major information technology systems was
not accelerated to remedy year 2000 problems. Independent quality
assurance services and tools are being used to assure the
reliability of the assessment and costs. These services will be
supplemented with Company resources. Costs for all year 2000
activities are estimated to be less than $5.0 million.
Forward-looking statements contained under "Year 2000
Issues" should be read in conjunction with the Company's
disclosures under the heading: "Forward-Looking Statements - Safe
Harbor Provisions."
Forward-Looking Statements - Safe Harbor Provisions
This quarterly report on Form 10-Q of Pennzoil-Quaker State
for the quarter ended June 30, 1999 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 proceeding.
<PAGE>
<PAGE> 16
<TABLE>
PART I. FINANCIAL INFORMATION - continued
The following table shows revenues and operating income by segment
and other components of income.
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1999 1998(A) 1999 1998(A)
----------- ----------- ----------- -----------
(Dollar amounts expressed in thousands)
(unaudited)
<S> <C> <C> <C> <C>
REVENUES
Net sales
Lubricants and Consumer Products $ 518,265 $ 252,819 $1,017,166 $ 481,250
Base Oil and Specialty Products 188,441 193,123 339,344 374,514
Fast Lube Operations 111,129 83,956 230,429 160,954
Intersegment sales and other (54,218) (44,823) (105,510) (104,519)
----------- ----------- ----------- -----------
763,617 485,075 1,481,429 912,199
----------- ----------- ----------- -----------
Other income, net
Lubricants and Consumer Products 5,809 1,874 5,855 5,690
Base Oil and Specialty Products 6,925 10,181 12,055 20,440
Fast Lube Operations (1,022) 3,180 777 6,892
Other (743) (1,341) (1,649) (2,810)
----------- ----------- ----------- -----------
10,969 13,894 17,038 30,212
----------- ----------- ----------- -----------
Total revenues $ 774,586 $ 498,969 $1,498,467 $ 942,411
=========== =========== =========== ===========
OPERATING INCOME
Lubricants and Consumer Products $ 51,568 $ 25,299 $ 93,646 $ 45,704
Base Oil and Specialty Products (3,628) 7,041 (9,606) 11,476
Fast Lube Operations (978) 6,912 (866) 11,562
Other 7,251 (792) 10,780 (1,534)
----------- ----------- ----------- -----------
Total operating income 54,213 38,460 93,954 67,208
Corporate administrative expense 18,728 10,106 40,540 19,573
Interest charges, net 21,081 17,411 38,822 34,157
----------- ----------- ----------- -----------
Income before income tax 14,404 10,943 14,592 13,478
Income tax provision 8,102 4,893 10,509 6,829
----------- ----------- ----------- -----------
NET INCOME $ 6,302 $ 6,050 $ 4,083 $ 6,649
=========== =========== =========== ===========
RATIO OF EARNINGS TO FIXED CHARGES 1.21 1.32
=========== ===========
<FN>
<F1>
(A) Excludes Quaker State Corporation results.
</FN>
</TABLE>
<PAGE>
<PAGE> 17
<TABLE>
PART I. FINANCIAL INFORMATION - continued
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
1999 1998(A) 1999 1998(A)
------------ ------------ ------------ ------------
(unaudtied)
<S> <C> <C> <C> <C>
OPERATING DATA
- --------------
LUBRICANTS AND CONSUMER PRODUCTS
Total revenues (in thousands):
Lubricants $ 376,037 $ 207,884 $ 730,645 $ 399,048
Consumer Products 90,149 16,134 184,515 29,113
International 58,071 31,070 108,019 58,730
Eliminations & other (183) (395) (158) 49
------------ ------------ ------------ ------------
Total revenues $ 524,074 $ 254,693 $ 1,023,021 $ 486,940
============ ============ ============ ============
Operating income (in thousands):
Lubricants $ 36,323 $ 27,704 $ 72,861 $ 52,391
Consumer Products 13,925 2,361 24,311 4,912
International 4,028 (1,449) 5,611 (3,101)
Division overhead (2,708) (3,317) (9,187) (8,498)
------------ ------------ ------------ ------------
Total operating income $ 51,568 $ 25,299 $ 93,646 $ 45,704
============ ============ ============ ============
FAST LUBE OPERATIONS
Domestic systemwide sales (in thousands) $ 278,895 $ 208,594 $ 555,807 $ 400,411
Same center sales Jiffy Lube (in thousands)(B) $ 210,020 $ 206,623 $ 403,354 $ 396,919
Centers open 2,147 1,556 2,147 1,556
BASE OIL AND SPECIALTY PRODUCTS (C)
Raw materials processed (barrels per day) 75,815 69,600 68,400 70,367
Refining capacity (barrels per day) 76,000 76,000 76,000 76,000
Refiner's margin ($ per barrel) $ 4.92 $ 7.57 $ 6.19 $ 7.79
Operating costs ($ per barrel) $ 3.50 $ 6.15 $ 4.53 $ 5.97
Depreciation ($ per barrel) $ 1.08 $ 1.14 $ 1.20 $ 1.13
Refinery Feedstocks:
Paraffinic Crude Oil 66% 69% 68% 71%
Naphthenic Crued Oil 6% 7% 7% 7%
Other Feedstocks and Blendstocks 28% 24% 25% 22%
Refinery Yields:
Gasolines 27% 31% 27% 30%
Distillates 33% 32% 32% 32%
Lube Base Stocks 27% 26% 27% 24%
Waxes 3% 3% 3% 3%
Other Products 10% 8% 11% 11%
Market Data:
WTI Crude Oil ($ per barrel) $ 17.66 $ 14.69 $ 15.35 $ 15.32
3-2-1 crack spread ($ per barrel) (D) $ 1.62 $ 3.89 $ 1.50 $ 3.23
Base oil gross margin ($ per barrel) (E) $ 16.38 $ 19.87 $ 17.77 $ 20.08
<FN>
<F1>
(A) Excludes Quaker State Corporation statistics.
<F2>
(B) Excludes Q Lube centers acquired from Quaker State Corporation.
<F3>
(C) Includes Pennzoil-Quaker State's 50% ownership in Excel Paralubes.
<F4>
(D) Regular unleaded gasoline and low sulphur diesel vs. WTI crude oil.
<F5>
(E) Exxon 100N posting vs. WTI crude oil.
</FN>
</TABLE>
<PAGE>
<PAGE> 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a)Annual Meeting of Shareholders
May 6, 1999
(c) Broker
Proposals For Against Withheld Abstain Non-Votes
Election of Directors
Alfonso Fanjul 67,278,844 - 1,180,276 - -
Forrest R. Haselton 67,319,054 - 1,140,066 - -
Berdon Lawrence 67,305,288 - 1,153,832 - -
Approval of Appointment
of Arthur Andersen LLP
As Independent Public
Accountants 67,954,374 350,394 - 154,352 -
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, 1999 and 1998.
27 Financial Data Schedule
(b) Reports -
No reports on Form 8-K were filed during the quarter for
which this report was filed.
<PAGE>
<PAGE> 19
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
August 12, 1999
<PAGE>
<PAGE> 20
<TABLE>
EXHIBIT 12
PENNZOIL-QUAKER STATE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
For the six months ended
June 30,
----------------------------------
1999 1998
------------- -------------
(Dollar amounts expressed in thousands)
<S> <C> <C>
Income (loss) from continuing operations
before income from equity investees $ (10,218) $ (7,423)
Distribution of income from equity investees 10,168 14,069
Amortization of capitalized interest 982 884
Income tax provision 10,509 6,829
Interest charges 54,218 44,406
------------- -------------
Income before income tax provision and interest charges $ 65,659 $ 58,765
============= =============
Fixed charges $ 54,218 $ 44,661
============= =============
Amount by which fixed charges exceeds earnings
============= =============
Ratio of earnings to fixed charges 1.21 1.32
============= =============
<CAPTION>
DETAIL OF INTEREST AND FIXED CHARGES
For the six months ended
June 30,
----------------------------------
1999 1998
------------- -------------
(Expressed in thousands)
<S> <C> <C>
Interest charges per Consolidated Statement of Income
which includes amortization of debt discount, expense and premium $ 38,822 $ 34,412
Add: portion of rental expense representative of interest factor <F1> 15,396 10,249
------------- -------------
Total fixed charges $ 54,218 $ 44,661
Less: interest capitalized per Consolidated Statement of Income - 255
------------- -------------
Total interest charges $ 54,218 $ 44,406
============= =============
<FN>
<F1> Interest factor based on management's estimates and approximates one-third of rental expense.
</FN>
</TABLE>
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, 1999 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)
EXHIBIT
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No.
- -----------
12 Computation of Ratio of Earnings to Fixed Charges for the six
months ended June 30, 1999 and 1998.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 37,088
<SECURITIES> 0
<RECEIVABLES> 354,836
<ALLOWANCES> 13,625
<INVENTORY> 295,956
<CURRENT-ASSETS> 798,663
<PP&E> 1,796,421
<DEPRECIATION> 805,440
<TOTAL-ASSETS> 3,131,288
<CURRENT-LIABILITIES> 423,454
<BONDS> 1,110,893
<COMMON> 7,782
0
0
<OTHER-SE> 1,317,825
<TOTAL-LIABILITY-AND-EQUITY> 3,131,288
<SALES> 1,481,429
<TOTAL-REVENUES> 1,498,467
<CGS> 1,055,388
<TOTAL-COSTS> 1,055,388
<OTHER-EXPENSES> 71,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,822
<INCOME-PRETAX> 14,592
<INCOME-TAX> 10,509
<INCOME-CONTINUING> 4,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,083
<EPS-BASIC> 0.05 <F1>
<EPS-DILUTED> 0.05
<FN>
<F1> Reflects basic earnings per share.
</FN>
</TABLE>
