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
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)
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee,
Pennzoil-Quaker State Company
Savings and Investment Plan:
We have audited the accompanying statement of net assets available for
benefits of the Pennzoil-Quaker State Company Savings and Investment
Plan (the Plan) as of December 31, 1999, 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
audit.
We conducted our audit 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 audit
provides 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 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 audit was 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 audit 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
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<TABLE>
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999
<CAPTION>
<S> <C>
ASSETS:
Investments, at fair value (Note 4) $124,912,111
Receivables
Employee contributions 584,486
Employer contributions 481,749
Investment income 6,363
-------------
1,072,598
-------------
Total assets 125,984,709
-------------
LIABILITIES:
Payable to trustee 736,373
-------------
NET ASSETS AVAILABLE FOR BENEFITS $125,248,336
=============
<FN>
See notes to financial statements.
</FN>
</TABLE>
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<TABLE>
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
<CAPTION>
<S> <C>
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year $ -
NET TRANSFERS:
From PennzEnergy Savings and Investment Plan (Note 1 and 2) 121,392,882
From Hourly Plan 344,926
-------------
121,737,808
CONTRIBUTIONS:
Employee 7,483,978
Employer 5,213,000
Rollovers from Qualified Plans (Note 2) 133,034
-------------
12,830,012
INVESTMENT INCOME:
Dividends 2,186,979
Interest 896,943
Loan Repayment Interest 414,102
Net depreciation in fair value of investments (2,197,696)
-------------
1,300,328
ADMINISTRATIVE EXPENSES (Note 2) (9,881)
DISTRIBUTIONS AND WITHDRAWALS (Note 2) (10,573,161)
OTHER (36,770)
-------------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $125,248,336
=============
<FN>
See notes to financial statements
</FN>
</TABLE>
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PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
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 (Pennzoil-Quaker State or the Company)
representing all of the shares of Pennzoil-Quaker State
owned by Pennzoil, renamed PennzEnergy Company, which was
acquired by Devon Energy Corporation (Devon) in a separate
transaction on August 17, 1999.
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
Pennzoil-Quaker State and Devon common stock. Effective
with the distribution, the Plan only invests new monies in
Pennzoil-Quaker State Company common stock.
2. DESCRIPTION OF THE PLAN:
General
The Pennzoil-Quaker State Company Savings and Investment
Plan (the Plan) was established effective January 1, 1999 by
Pennzoil-Quaker State. During 1999, net assets available for
benefits of $121.4 million related to Pennzoil-Quaker State
employees were transferred in-kind to the Plan from the
PennzEnergy Savings and Investment Plan. The purpose of the
Plan is to encourage 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.
The following description of the Plan provides only general
information. Participants should refer to the Plan document
for a more complete description of the Plan's provisions.
Salaried employees become eligible to participate in the
Plan on the effective date or entry date coinciding with or
immediately following their completion of one year of
service. When changing wage status, a participant's account
balance is transferred between the Plan and the Pennzoil-
Quaker State Company Savings and Investment Plan for Hourly
Employees. Such transfers are reflected at current value as
of the date of transfer in the accompanying financial
statements.
Effective August 1, 1999, the Plan was amended by changing
all references to PennzEnergy Company common stock therein
to Devon common stock.
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<PAGE>
Plan Administration
The Plan is administered by an administrative committee
(Administrative Committee) consisting of at least three
members appointed by the Board of Directors of the Company.
Merrill Lynch Trust Company is sole trustee of the Plan.
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
may authorize, by payroll deduction, a contribution 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 Company matches an employee's contribution
dollar- for- dollar up to 6 percent of their base pay.
Upon written request filed with the Administrative
Committee, a participant who is otherwise eligible to
participate in the Plan but who has not yet completed the
participation requirements, may transfer an amount from
another qualified investment plan (Rollover Amount) into the
Plan, provided that such Rollover Amount is transferred in
the form of cash. The Rollover Amount must be deposited in
the investment funds and shall at all times be fully vested
and nonforfeitable and share in the income of the investment
funds. However, such Rollover Amount may not share in
employer matching contributions.
Investment Choices
Employer contributions are invested solely in Pennzoil-
Quaker State common stock. At the Company's option,
employer contributions may be made either in cash or common
stock. Employee contributions may be invested in either
Pennzoil-Quaker State common stock or in any of the other
investment funds as designated by the participant. During
1999, the Company contributed 446,420 shares of common stock
valued at the average of the high and low market prices on
the date of the contributions. 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 investment
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.
A separate account is maintained for each participant which
reflects the participant's contributions, employer's
contributions, withdrawals, and the participant's allocable
share of the Plan's investment earnings.
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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 from six
months to 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 vested 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 final
paycheck 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 or attainment of age 55. 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 of an employee's
previous pretax or after-tax contributions, net of previous
withdrawals, upon written notice to the Administrative
Committee. After-tax withdrawals cause the participants to
forfeit the right to participate in the Plan for 180 days,
while pretax withdrawals are allowed only when the
participant is age 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 only after
withdrawing all amounts from any prior plan accounts and any
Rollover Amounts, and will cause an employee to be suspended
from participation in the Plan for 180 days.
Distribution of Benefits
Benefits are payable to participants or their beneficiaries
at retirement, permanent disability, death or termination of
service.
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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. 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.
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 values, which represent
fair values. For common stock, fair value was determined by
using the closing price of the common stock as listed on the
New York Stock Exchange on the last trading day of the Plan
year. Fair value of the mutual funds 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 (CIG), synthetic GIC's,
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 approximated 6.22% for December 31, 1999.
Net appreciation or depreciation in fair value of
investments consists of realized gains or losses on sales of
investments and unrealized appreciation or depreciation in
fair value of investments.
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4. INVESTMENTS:
The following presents investments that represent 5 percent
or more of the Plan's net assets.
<TABLE>
<CAPTION>
December 31, 1999
-------------
<S> <C>
Pennzoil-Quaker State Company common stock $ 18,790,188
Devon Energy Corporation common stock 15,719,205
Merrill Lynch Retirement Preservation Trust 15,744,731
Merrill Lynch Equity Index Trust 41,421,248
Davis New York Venture Fund 21,068,899
During 1999, the Plan's investments depreciated in value by $2,197,696
as follows:
Common Stock $(39,608,205)
Mutual Funds 8,356,669
Common/Collective Trusts 29,053,840
-------------
$ (2,197,696)
=============
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1999
-------------
<S> <C>
Net Assets:
Pennzoil-Quaker State Company common stock $ 13,300,060
Devon Energy Corporation common stock 119,189
Battle Mountain Gold Company common stock 10,843
Employer contributions receivable 481,749
Investment income receivable 6,363
Payable to Trustee (498,955)
-------------
$ 13,419,249
=============
Year Ended
December 31,1999
-------------
Changes in Net Assets:
Transfer from PennzEnergy Savings and Investment Plan $ 34,185,780
Transfer from Hourly Plan 76,422
Employer Contributions 4,685,856
Dividends 916,217
Net depreciation in fair value of investments (24,678,859)
Distributions and Withdrawals (1,828,816)
Administrative Expenses (288)
Other 62,937
-------------
$ 13,419,249
=============
</TABLE>
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6. FEDERAL INCOME TAXES:
During 1999, the Plan requested a determination letter from
the Internal Revenue Service (IRS) as to the qualified
status of the Plan. Although the Administrative Committee
has not received a response from the IRS, the Administrative
Committee believes that the Plan was qualified and the
related trust was tax-exempt as of December 31, 1999.
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 Merrill Lynch Trust Company. Merrill Lynch Trust Company
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 $9,881 for the year ended December 31, 1999.
9. RECONCILIATION TO FORM 5500:
Benefits pending payment to participants that have provided
notice of withdrawal totaled $83,998 as of December 31,
1999. The following is a reconciliation of net assets
available for benefits per the financial statements to the
Form 5500:
<TABLE>
<CAPTION>
December 31,
1999
-------------
<S> <C>
Net assets available for benefits per the financial statements $125,248,336
Less- Amounts allocated to withdrawing participants (83,998)
-------------
Net assets available for benefits per the Form 5500 at December 31, 1999 $125,164,338
=============
The following is a reconciliation of distributions and withdrawals per the financial
statements to the Form 5500:
Year Ended
December 31,
1999
-------------
Distributions and withdrawals per the financial statements $ 10,573,161
Add- Amounts allocated to withdrawing participants at December 31, 1999 83,998
-------------
Distributions and withdrawals per the Form 5500 $ 10,657,159
=============
</TABLE>
Amounts allocated to withdrawing participants are recorded
on the Form 5500 for benefit claims that have been processed
and approved for participants prior to December 31, 1999,
but have not yet been paid as of that date.
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10. SUBSEQUENT EVENTS:
Effective January 1, 2000, certain employees covered by the
Pennzoil-Quaker State Company Thrift and Stock Purchase Plan
became eligible to contribute to the Plan.
Effective May 8, 2000 the Board of Directors adopted a
resolution to allow participants to diversify any Devon
Energy common stock accumulated as a result of company
matching contributions.
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<TABLE>
SCHEDULE I
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
<CAPTION>
Current
Identity of Issue/Description Principal/Shares or Units Cost Value
----------------------------- ------------------------- ----------- -----------
<S> <C> <C>
Pennzoil-Quaker State Company <F1> 1,844,526 shares--$.10 par value $37,690,922 $ 18,790,188
Devon Energy Corporation 478,150 shares--$.10 par value 28,814,481 15,719,205
Battle Mountain Gold Company 9,512 shares--$.10 par value 44,362 19,614
Merrill Lynch Retirement
Preservation Trust <F1> 15,744,731 units <F2> 15,744,731
Merrill Lynch Equity Index Trust <F1> 409,300 units <F2> 41,421,248
Fidelity Advisor Balanced Fund 308,624 units <F2> 5,632,395
Davis New York Venture Fund 732,577 units <F2> 21,068,899
J.P. Morgan Institutional Bond Fund 187,296 units <F2> 1,747,470
Pennzoil-Quaker State Company
Savings and Investment Plan <F1>
Participant Loans at interest
rates ranging from 7.0% to 10.0% <F2> 4,768,361
------------
Total assets held for investment purposes $124,912,111
============
<FN>
<F1> Represents party-in-interest.
<F2> Cost omitted for participant-directed investments.
</FN>
</TABLE>
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<TABLE>
SCHEDULE II
PENNZOIL-QUAKER STATE COMPANY SAVINGS AND INVESTMENT PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
(SERIES OF INVESTMENT TRANSACTIONS)
FOR THE YEAR ENDED DECEMBER 31, 1999
<CAPTION>
Identity of Party Involved Purchase Selling Cost of Net
and Description of Assets Price<F1> Price<F1> Asset Loss
------------------------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Devon Energy Corporation common stock,
Purchases (136 transactions) $22,342,978 $ - $22,342,978 $ -
Sales (374 transactions) - 14,645,904 24,450,917 (9,805,013)
Pennzoil-Quaker State Company common
stock
Purchases (470 transactions) 9,831,206 - 9,831,206 -
Sales (390 transactions) - 1,201,913 2,041,987 (840,074)
<FN>
<F1> Current value of asset on transaction date is equal to the selling price/purchase 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>
</TABLE>
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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
By S/N MARK S. ESSELMAN
Mark S. Esselman
Chairman of the Administrative
Committee
June 28, 2000
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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. 333-69833.
ARTHUR ANDERSEN LLP
Houston, Texas
June 26, 2000
