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
THRIFT AND STOCK PURCHASE 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
Thrift and Stock Purchase Plan:
We have audited the accompanying statements of net assets available
for benefits of the Pennzoil-Quaker State Company Thrift and Stock
Purchase Plan (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 nonexempt 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
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<TABLE>
PENNZOIL-QUAKER STATE COMPANY
THRIFT AND STOCK PURCHASE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at fair value (Note 3) $34,413,974 $35,237,768
Receivables
Employee contributions 42,340 78,842
Company contributions 16,712 27,442
------------ ------------
59,052 106,284
NET ASSETS AVAILABLE FOR BENEFITS $34,473,026 $35,344,052
============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
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<TABLE>
PENNZOIL-QUAKER STATE COMPANY
THRIFT AND STOCK PURCHASE 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 $35,344,052
CONTRIBUTIONS
Employee 3,296,230
Employer 1,256,236
Rollovers from qualified plans 97,125
------------
4,649,591
INVESTMENT INCOME
Dividends and interest 2,575,703
Loan repayment interest 117,335
Net depreciation in fair value of investments (Note 3) (2,208,468)
------------
484,570
DISTRIBUTIONS AND WITHDRAWALS (5,987,155)
ADMINISTRATIVE EXPENSES (16,401)
NET TRANSFERS TO OTHER PLANS (1,631)
------------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $34,473,026
============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
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PENNZOIL-QUAKER STATE COMPANY THRIFT AND STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. DESCRIPTION OF PLAN:
General
The Pennzoil-Quaker State Company Thrift and Stock Purchase
Plan (formerly the Quaker State Corporation Thrift and Stock
Purchase Plan) (the Plan) is a defined contribution and
profit sharing plan available to certain former employees of
Quaker State Corporation, a wholly owned subsidiary of
Pennzoil-Quaker State Company (the Company), and certain
employees of subsidiaries of Quaker State Corporation who
have reached age 21 and are not participating in the
Pennzoil-Quaker State Savings and Investment Plan. 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.
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.
Fidelity Management 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
Under the Plan, certain participants may elect to make
contributions on a tax-deferred basis in the form of a
salary reduction (Tax-Deferred Contributions) up to the
lesser of 15% of their compensation or $10,000 (as adjusted
annually by the Internal Revenue Service (IRS)). Some highly
compensated employees are limited to lower contributions to
satisfy IRS discrimination testing limits. In addition,
employees may elect to make contributions on an after-tax
basis in the form of a payroll deduction (Thrift
Contributions) of up to 6% of their compensation; however,
the sum of the Thrift Contributions and the Tax-Deferred
Contributions cannot exceed 15% of the participant's
compensation. For contribution purposes, not more than
$160,000 of a participant's compensation (as adjusted
annually by the IRS) can be taken into account for any one
calendar year. Subject to limitations, the Company will make
contributions (Company Matching Contributions) in an amount
equal to 50% of a participant's total contributions paid
each pay date up to a maximum of 6% of that participant's
salary. In addition, the Plan accepts rollover contributions
from employees' former employer qualified plans and conduit
IRAs.
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Investment Options
All Company contributions are invested in Pennzoil-Quaker
State common stock; however, participants may select
any one or more of the funds for their contributions in 1%
increments. Employee contributions are invested, as
designated by participating employees, in eight mutual
funds, one money market fund and/or Pennzoil-Quaker State
common stock. A separate account is maintained for each
participant that reflects the participant's contributions,
employer's withdrawals, and the participant's allocable
share of the Plan's investment earnings.
Participant Loans
A participant may apply to the Administrative Committee of
the Plan to borrow from his or her accounts, subject to
certain limitations. Each loan is to be repaid over a period
not to exceed five years or ten years for certain loans
related to a participant's primary residence.
The interest rate applied to a new loan is the current prime
rate as reported in the Wall Street Journal plus one
percent. Principal and interest payments are generally made
through payroll deductions and are credited to the
participant's individual employee loan account(s).
As of December 31, 1999, there were 581 loans to
participants, maturing from 2000 to 2007, with interest
rates ranging between 8.0 % and 9.5 %. As of December 31,
1998, there were 743 loans to participants, maturing from
1999 to 2008, with interest rates ranging between 7.9% and
10.5%.
Vesting
Participants are fully vested in all contributions made to
the Plan plus actual earnings thereon.
Participant Accounts and Benefit Payments
An account is maintained for each participant, which is
credited daily with the participant's contributions and an
allocation of Company matching and Plan earnings. The
benefit to which a participant is entitled is the benefit
that can be provided from that participant's account.
Benefits are payable to participants or their beneficiaries
at retirement, permanent disability, death or termination of
service.
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.
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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, or complete
discontinuance of contributions, the rights of each affected
participant to amounts credited to his or her accounts shall
be nonforfeitable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The financial statements of the Plan are presented under the
accrual basis of accounting. Amounts allocated to accounts
of persons who have withdrawn from participation in the
earnings and operation 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 are no such
amounts at December 31, 1999.
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. Dividend income is
recorded on the ex-dividend date. Interest income is
recorded as earned.
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.
Other
Administrative expenses, including trustee, legal, auditing
and other fees, are paid by the Company and therefore, are
not expenses of the Plan.
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3. INVESTMENTS:
The following presents investments that represent 5 percent
or more of the Plan's net assets.
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<CAPTION>
December 31,
1999 1998
------------- -------------
<S> <C> <C>
Pennzoil-Quaker State Company common stock $ 7,392,671 $ 10,450,974
Fidelity Magellan Fund 4,312,503 3,010,939
Fidelity Contra Fund 3,884,285 2,992,961
Fidelity Growth & Income Fund 9,195,070 8,889,954
Fidelity Retirement Money Market Fund 2,252,605 2,269,150
During 1999, the Plan's investments (including gains and
losses on investments bought and sold, as well as held
during the year) depreciated in value by $2,208,468 as
follows:
Common stock $ (3,343,680)
Mutual funds 1,135,212
-------------
$ (2,208,468)
=============
</TABLE>
4. 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 1998
------------- -------------
<S> <C> <C>
Net Assets:
Common stock $ 4,522,044 $ 6,070,830
Money market accounts 159,474 99,183
Company contributions receivable 16,712 27,442
------------- -------------
$ 4,698,230 $ 6,197,455
============= =============
Year Ended
December 31,1999
-------------
Changes in Net Assets:
Contributions $ 1,256,237
Dividends and interest 1,197
Loan repayment interest 2,867
Net depreciation (1,706,719)
Distributions and withdrawals (1,062,417)
Transfers among funds (3,281)
Transfers to other plans (1,631)
Participant loans 14,522
-------------
$ (1,499,225)
=============
</TABLE>
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5. FEDERAL INCOME TAXES:
The IRS has determined and informed the Company by a letter
dated January 27, 1998, that the Plan and related trust are
designed in accordance with applicable sections of the
Internal Revenue Code of 1986, as amended (IRC). Although
the Plan has been amended since receiving the determination
letter, the Administrative Committee believes that the Plan
is designed and is currently being operated in compliance
with the applicable requirements of the IRC.
Thrift Contributions are included in the participant's
income in the year the payroll deductions are made and are
not deductible by the participant for federal income tax
purposes. Tax-Deferred Contributions are not included in
the participant's income for federal income tax purposes
and, therefore, are not subject to federal income tax or
withholding at the time of contribution.
Company Matching Contributions and earnings reinvested into
the various funds are not taxable to the participant until
distributed or a deemed distribution of a loan has occurred.
6. RISKS AND UNCERTAINTIES:
The Plan provides for various investments in common stock,
mutual funds, and money market accounts. 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.
7. RELATED-PARTY TRANSACTIONS:
Certain Plan investments are shares of mutual funds managed
by Fidelity Management Trust Company. Fidelity Management
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 $16,401 for the year ended
December 31, 1999.
8. SUBSEQUENT EVENTS:
Effective January 1, 2000, the Plan was amended to restrict
contributions to the Plan only to employees of Blue Coral,
Inc. and the Company's Canadian subsidiaries, including
Quaker State, Inc. and Valley Camp, Inc.
Effective January 1, 2000, the Plan was amended to allow
participants who have attained age 55 to direct full shares
of Pennzoil-Quaker State common stock held in company
matching contributions accounts, profit sharing accounts,
Tye profit sharing accounts, and ESOP accounts to be
liquidated and the proceeds invested among the other funds.
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<TABLE>
SCHEDULE I
PENNZOIL-QUAKER STATE COMPANY
THRIFT AND STOCK PURCHASE PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
<CAPTION>
Current
Identity of Issue/Description Principal/Shares or Units Cost Value
----------------------------- ------------------------- ----------- -----------
<S> <C> <C>
Pennzoil-Quaker State Company <F1> 725,661 shares--$.10 par value $12,458,805 $ 7,392,671
Fidelity Institutional Cash Portfolio <F1> 260,707 260,707
Fidelity Puritan Fund <F1> 70,027 units <F2> 1,332,605
Fidelity Magellan Fund <F1> 31,563 units <F2> 4,312,503
Fidelity Contra Fund <F1> 64,717 units <F2> 3,884,285
Spartan U.S. Equity Fund <F1> 8,319 units <F2> 433,357
Fidelity Investment Grade Bond Fund <F1> 212,958 units <F2> 1,467,282
Fidelity Growth & Income Fund <F1> 194,976 units <F2> 9,195,070
Fidelity Low-Priced Stock Fund <F1> 64,380 units <F2> 1,457,573
Fidelity Diversified International Fund <F1> 46,132 units <F2> 1,181,900
Fidelity Retirement Money Market Fund <F1> 2,252,605 units <F2> 2,252,605
Pennzoil-Quaker State Company Thrift and
Stock Purchase Plan Participant loans at
interest rates ranging from 8.0% to 9.5% <F2> 1,243,416
-----------
$34,413,974
===========
<FN>
<F1> Represents exempt party-in-interest.
<F2> Cost omitted for participant-directed investments.
</FN>
</TABLE>
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<TABLE>
SCHEDULE II
PENNZOIL-QUAKER STATE COMPANY
THRIFT AND STOCK PURCHASE PLAN
SCHEDULE OF NONEXEMPT TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<CAPTION>
Relationship to Plan Earnings
Identity of Employer or Amount Incurred
Party Involved Other Party-in-Interest Description of Transaction Loaned on Loan
--------------------- ----------------------- --------------------------------------------------- ------ --------
<S> <C> <C>
Pennzoil-Quaker State
Company Employers Lending of monies from the Plan to the Employers-,
employee contributions were due on January 22, 1999
and not remitted until February 2, 1999. Earnings
were based on actual return on investments. $1,124 $ 35
Pennzoil-Quaker State
Company Employers Lending of monies from the Plan to the Employers-,
employee contributions were due on September 28, 1998
and not remitted until May 12, 1999. Earnings were
based on actual return on investments. 1,553 117
Pennzoil-Quaker State
Company Employers Lending of monies from the Plan to the Employers-,
employee contributions were due on June 21, 1999
and not remitted until June 30, 1999. Earnings were
based on actual return on investments. 15,925 1,039
Pennzoil-Quaker State
Company Employers Earnings on lending of monies from the Plan to the
Employers-, employee contributions were due in 1997
and not remitted until July 13, 1999. Earnings were
based on actual return on investments. - 3,163
Pennzoil-Quaker State
Company Employers Earnings on lending of monies from the Plan to the
Employers-, employee contributions were due in 1998
and not remitted until July 13, 1999. Earnings were
based on actual return on investments. - 979
</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
THRIFT AND STOCK PURCHASE 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. 333-72835.
ARTHUR ANDERSEN LLP
Houston, Texas
June 26, 2000
