<PAGE>
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1994 Commission File No. 1-5591
PENNZOIL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-1597290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Pennzoil Place, P.O. Box 2967
Houston, Texas 77252-2967
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 546-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 outstanding of each class of common stock, as of latest
practicable date, April 29, 1994:
Common stock, $.83 1/3 par value, 45,980,196 shares.
<PAGE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31
----------------------------
1994 1993
----------- -----------
(Expressed in thousands
except per share amounts)
<S> <C> <C>
REVENUES $ 622,076 $ 650,541
COSTS AND EXPENSES
Cost of sales 371,639 388,207
Selling, general and administrative expenses 89,980 85,096
Depreciation, depletion and amortization 75,450 78,611
Exploration expenses 9,683 2,067
Taxes, other than income 17,069 17,814
Interest charges, net 41,589 48,978
----------- -----------
INCOME BEFORE INCOME TAX 16,666 29,768
Income tax 5,928 8,243
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 10,738 21,525
Cumulative effect of change in accounting principle (See Note 2) (4,948) -
----------- -----------
NET INCOME $ 5,790 $ 21,525
=========== ===========
EARNINGS (LOSS) PER SHARE
Income before cumulative effect of change in accounting principle $ 0.24 $ 0.53
Cumulative effect of change in accounting principle (0.11) -
----------- -----------
TOTAL $ 0.13 $ 0.53
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.75 $ 0.75
=========== ===========
AVERAGE SHARES OUTSTANDING 45,934 40,736
=========== ===========
NUMBER OF SHARES OUTSTANDING 45,964 40,757
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
March 31, December 31,
1994 1993
------------- -------------
(Expressed in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 64,278 $ 262,275
Marketable securities and other investments 787,822 684,308
Receivables 409,497 363,287
Inventories
Crude oil, natural gas and sulphur 31,919 38,965
Motor oil and refined products 119,518 123,282
Deferred income tax 13,645 13,587
Other current assets 70,224 58,098
------------- -------------
Total current assets 1,496,903 1,543,802
Property, plant and equipment, net 2,353,056 2,324,444
Marketable securities and other investments (See Note 3) 806,891 654,973
Other assets 366,657 362,984
------------- -------------
TOTAL ASSETS $ 5,023,507 $ 4,886,203
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 6,236 $ 19,568
Notes payable 400,717 433,031
Accounts payable and accrued liabilities 284,756 248,724
Taxes accrued 9,960 93,242
Other current liabilities 29,872 26,702
------------- -------------
Total current liabilities 731,541 821,267
Long-term debt 2,068,400 1,973,488
Deferred income tax 354,184 304,902
Other liabilities 292,504 280,742
------------- -------------
TOTAL LIABILITIES 3,446,629 3,380,399
------------- -------------
COMMITMENTS AND CONTINGENCIES (See Note 5)
SHAREHOLDERS' EQUITY (See Note 3) 1,576,878 1,505,804
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,023,507 $ 4,886,203
============= =============
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 4
PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31
---------------------------------
1994 1993
----------- -----------
(Expressed in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,790 $ 21,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 75,450 78,611
Dry holes and impairments 4,977 (453)
Deferred income tax (576) (3,691)
Non-cash and other nonoperating items 11,443 (8,149)
Cumulative effect of change in accounting principle 4,948 -
Change in operating assets and liabilities (90,056) 57,885
----------- -----------
Net cash provided by operating activities 11,976 145,728
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (129,808) (47,753)
Purchases of marketable securities and other investments (203,998) (55,620)
Proceeds from sales of marketable securities
and other investments 98,984 62,819
Proceeds from sales of assets 977 7,182
Other investing activities 6,324 (7,869)
----------- -----------
Net cash used in investing activities (227,521) (41,241)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of short-term debt, net (32,314) (47,925)
Debt and capital lease obligation repayments (55,900) (513,309)
Proceeds from issuance of debt 139,963 584,560
Dividends paid (34,456) (30,557)
Other financing activities 255 47
----------- -----------
Net cash provided by (used in) financing activities 17,548 (7,184)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (197,997) 97,303
CASH AND CASH EQUIVALENTS, beginning of period 262,275 20,732
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 64,278 $ 118,035
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 5
PART I. FINANCIAL INFORMATION - continued
PENNZOIL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General -
The condensed consolidated financial statements included herein have been
prepared by Pennzoil Company ("Pennzoil") without audit and should be read in
conjunction with the financial statements and the notes thereto included in
Pennzoil's latest annual report. The foregoing financial statements include
only normal recurring accruals and all adjustments which Pennzoil considers
necessary for a fair presentation.
(2) Employers' Accounting for Postemployment Benefits -
Effective January 1, 1994, Pennzoil changed its method of accounting for
postemployment benefits by adopting the new requirements of Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits." This standard requires employers to recognize the
obligation to provide postemployment benefits if the obligation is attributable
to employees' services already rendered, employees' rights to those benefits
accumulate or vest, payment of the benefits is probable and the amounts can be
reasonably estimated. If those four conditions are not met, the employer
should recognize the obligation to provide postemployment benefits when it is
probable that a liability has been incurred and the amount can be reasonably
estimated. Pennzoil recorded a charge of $4.9 million ($7.6 million before
tax), or $.11 per share, as of January 1, 1994 to reflect the cumulative effect
of the change in accounting principle for periods prior to 1994.
Postemployment benefit costs during 1994 are not expected to be materially
different as a result of adopting the new standard.
(3) Accounting for Certain Investments in Debt and Equity Securities -
Effective January 1, 1994, Pennzoil changed its method of accounting for
certain investments in debt and equity securities by adopting the new
requirements of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This standard requires that, except for debt securities
classified as "held-to-maturity securities," investments in debt and equity
securities must be reported at fair value. As a result, Pennzoil's investment
in Chevron Corporation ("Chevron") common stock is reported at fair value, with
the unrealized gain excluded from earnings and reported as a separate component
of shareholders' equity. At January 1, 1994 and March 31, 1994, Pennzoil
beneficially owned 9,035,518 shares of Chevron common stock that were acquired
at an average cost of $67.36 per share. The fair market value for the shares
of Chevron common stock held by Pennzoil as of December 31, 1993 and March 31,
1994 was $87.125 per share and $84.00 per share, respectively (based on the
closing transaction price for Chevron shares reported on the New York Stock
Exchange ("NYSE") on those dates). Adoption of the standard resulted in an
increase in shareholders' equity of $106.8 million as of January 1, 1994,
representing the net unrealized gain related to Pennzoil's investment in
Chevron common stock. Prior year financial statements have not been
restated to reflect the new accounting method. As of March 31, 1994, the
net unrealized gain included in shareholders' equity related to Pennzoil's
investment in Chevron common stock was $97.8 million.
<PAGE>
<PAGE> 6
PART I. FINANCIAL INFORMATION - continued
Pennzoil's investments in debt securities are classified as
"held-to-maturity" based on Pennzoil's ability and intent to hold those
securities to maturity. Such securities are carried at cost, net of
unamortized premium or discount, if any, and consist of domestic commercial
paper, Federal National Mortgage Association notes, certificates of deposit and
Treasury bills. All of Pennzoil's "held-to-maturity" securities have
contractual maturities of less than one year. The carrying amounts of
Pennzoil's "held-to-maturity" securities approximate their fair values based on
the relatively short maturities of those investments and on quoted market
prices, where such prices are available.
(4) Investment in Chevron Common Stock; Exchange of Stock with Chevron
Corporation -
At March 31, 1994, Pennzoil beneficially owned 9,035,518 shares of Chevron
common stock. From 1989 through 1991, Pennzoil acquired 32,944,100 shares of
Chevron common stock with approximately $2.2 billion of the net proceeds of the
$3.0 billion payment received by Pennzoil from Texaco Inc. ("Texaco") in 1988
in settlement of certain litigation.
In October 1992, Pennzoil completed a transaction with Chevron, pursuant
to which Pennzoil exchanged 15,750,000 shares of Chevron common stock held by
Pennzoil for all the capital stock of Pennzoil Petroleum Company ("Pennzoil
Petroleum"), which owns Gulf of Mexico, Gulf Coast, Permian Basin and other
domestic oil and gas producing properties.
In November 1993, Pennzoil sold 8,158,582 shares of Chevron common stock
in a block trade on the NYSE for a price of $89.00 per share before commissions
($88.38 per share net of commissions). The sale resulted in a net realized
gain of $137.0 million ($171.6 million before tax), or $3.25 per share.
The 9,035,518 shares of Chevron common stock currently held by Pennzoil
have been deposited with exchange agents for possible exchange for $402.5
million principal amount of Pennzoil's 6-1/2% Exchangeable Senior Debentures
issued in January 1993 and $500.0 million principal amount of Pennzoil's 4-3/4%
Exchangeable Senior Debentures issued in October 1993.
(5) Commitments and Contingencies -
In 1988, Pennzoil received $3.0 billion from Texaco in settlement of
all litigation between Pennzoil and Texaco arising out of Texaco's tortious
interference with Pennzoil's contractual rights to purchase a minority interest
in Getty Oil Company. From 1989 through 1991, Pennzoil acquired 32,944,100
shares of Chevron common stock with approximately $2.2 billion of the net
Texaco settlement proceeds.
For federal income tax purposes, Pennzoil originally reported that it
recognized no gain upon receipt of the $3.0 billion and obtained no tax basis
in the Chevron shares. Pennzoil's reporting position was based on its belief
that, under Section 1033 of the Internal Revenue Code, the $3.0 billion
received from Texaco was an amount realized as a result of the involuntary
conversion of property and that the Chevron shares were similar or related in
service or use to the property converted by Texaco. During 1990 and 1991,
Pennzoil recalculated its 1988 federal income tax liability to recognize
approximately $800 million of income, being the excess of the $3.0 billion
received over the amount expended to acquire Chevron shares. As a result of
these adjustments, current taxes were increased, and deferred taxes were
decreased, by $120.4 million in 1990 and $13.2 million in 1991. In addition,
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION - continued
Pennzoil paid interest on such taxes of $17.6 million during 1990 and $3.7
million in 1991.
In January 1994, Pennzoil received a letter and examination report from
the District Director of the Internal Revenue Service ("IRS") that proposes a
tax deficiency based on an audit of Pennzoil's 1988 federal income tax return.
The examination report proposes two principal adjustments with which Pennzoil
disagrees.
The first adjustment challenges Pennzoil's position under Section 1033 of
the Internal Revenue Code that (i) at least $2.2 billion of the $3.0 billion
cash payment received from Texaco in 1988 in settlement of certain litigation
was realized as a result of the involuntary conversion of property and (ii) the
shares of Chevron common stock purchased with $2.2 billion of the net Texaco
settlement proceeds were similar or related in service or use to the property
converted by Texaco. Although these issues have not been resolved, Pennzoil
believes that its position is sound, and it intends to contest the proposed
adjustment in court unless an acceptable settlement is reached. The proposed
tax deficiency relating to this proposed adjustment is $550.9 million, net of
available offsets. Pennzoil estimates that the additional after-tax interest
on this proposed deficiency would be approximately $245.3 million as of March
31, 1994. If Pennzoil's position is not sustained by the courts, Pennzoil
would be required to pay the assessed taxes, plus the accrued interest, and
Pennzoil's tax basis in the shares of common stock of Chevron and Pennzoil
Petroleum (see Note 4) would be Pennzoil's cost. This assessed amount would be
reduced by the $103.0 million of additional taxes paid in the first quarter of
1994 as a result of the gain realized from the November 1993 sale of 8,158,582
Chevron shares (see Note 4), which gain was calculated based on the Chevron
shares sold having no tax basis. Pennzoil's consolidated financial statements
do not include an accrual for the interest that would be due in such event.
The second adjustment proposed by the IRS would permanently capitalize,
rather than allow Pennzoil to deduct, approximately $366 million incurred by
Pennzoil in 1988 and earlier years for litigation and related expenses in
connection with the Texaco settlement, even if it were determined that the
entire $3.0 billion is includable in Pennzoil's 1988 taxable income. Pennzoil
believes that this proposed adjustment is irrational and capricious and will
not be sustained in court. The proposed tax deficiency relating to the
disallowance of deductions is $124.6 million, and the estimated additional
after-tax interest on this proposed deficiency would be approximately $49.2
million as of March 31, 1994. If the deductions for legal and related expenses
were ultimately disallowed, Pennzoil would be required to pay the assessed
taxes, plus the accrued interest. Pennzoil's consolidated financial statements
do not include an accrual for the taxes that would be assessed as a result of
the proposed disallowance of deductions or the related interest that would be
due in such event.
Pennzoil has formally protested the IRS' proposed tax deficiency in
writing within the required 30-day time period. The issue has been forwarded
to the IRS Appeals Office, which is empowered to settle disputes with
taxpayers, taking into account the hazards of litigation. If Pennzoil and the
IRS Appeals Office are unable to reach a negotiated resolution of these tax
issues, the IRS would forward a letter requiring Pennzoil to pay the assessed
taxes, plus the accrued interest, within 90 days, unless Pennzoil files a
petition with the United States Tax Court. If Pennzoil were to choose to file
suit in the Tax Court, Pennzoil would not pay any taxes unless and until the
Tax Court rendered a judgment against Pennzoil, but interest would continue to
accrue on any taxes ultimately determined to be due. Alternatively, Pennzoil
would be entitled to choose to pay the assessed taxes, plus the accrued
interest, and file a claim for a refund in either the United States Court of
<PAGE>
<PAGE> 8
PART I. FINANCIAL INFORMATION - continued
Claims or the United States District Court for the Southern District of Texas.
Paying the assessed taxes would halt the accrual of interest on any taxes
finally determined to be owing by Pennzoil. In such event, any refund to
Pennzoil would include a refund by the IRS of the prior interest paid by
Pennzoil, as well as a payment by the IRS of additional interest accrued on the
assessed taxes previously paid by Pennzoil. If litigation is necessary, a case
of this kind would normally take several years in the absence of a settlement,
which could occur at any stage in the process.
Pennzoil had cash and cash equivalents and current marketable securities
and other investments of $852.1 million at March 31, 1994. As a result of
these available liquid assets and Pennzoil's available credit facilities,
Pennzoil believes that it has the financial flexibility to deal with any
eventuality that may occur in connection with the dispute with the IRS,
including the possibility of paying the taxes assessed, plus the accrued
interest, and suing for a refund if Pennzoil is not able to resolve the
disputed matters through discussions with the IRS.
Reference is made to Note 8 of Notes to Consolidated Financial Statements
in Pennzoil's Annual Report on Form 10-K for the year ended December 31, 1993
for additional information.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net income for the quarter ended March 31, 1994 was $5.8 million, or $.13
per share, compared to $21.5 million, or $.53 per share, for the same period in
1993. Effective January 1, 1994, Pennzoil changed its method of accounting for
postemployment benefit costs by adopting the new requirements of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." As a result, Pennzoil recorded a charge of $4.9
million, or $.11 per share, as of January 1, 1994, to reflect the cumulative
effect of change in accounting principle for periods prior to 1994. Income
before cumulative effect of change in accounting principle for the quarter
ended March 31, 1994 was $10.7 million, or $.24 per share. Net income for the
first quarter 1993 included an after-tax gain of $6.9 million, or $.17 per
share, relating to a gain on the sale of securities. The decrease in earnings
for the first quarter of 1994, compared to the prior year, was primarily
attributable to lower results from the oil and gas and franchise operations
segments and lower other operating income. These decreases were partially
offset by higher results from the motor oil and refined products segment and
lower net interest expense.
Oil and Gas
Operating income from this segment was $37.6 million for the quarter ended
March 31, 1994, compared with $50.9 million for the same period in 1993. The
decrease in operating income was primarily due to lower liquids prices and
higher exploration expense partially offset by an increase in natural gas
prices. Liquids prices averaged $11.92 per barrel during the first quarter of
1994, down $4.28 per barrel from the comparable period in 1993. Natural gas
prices averaged $2.24 per MCF during the first quarter of 1994 compared to
$1.84 per MCF during the first quarter of 1993.
In April 1994, Pennzoil signed a definitive acquisition agreement with
Co-enerco Resources Ltd. ("Co-enerco"), which is engaged principally in oil and
gas acquisition, exploration, development and production in western Canada.
<PAGE>
<PAGE> 9
PART I. FINANCIAL INFORMATION - continued
Pursuant to the agreement, Pennzoil Canada, Inc. ("Pennzoil Canada"), an
indirect wholly owned subsidiary of Pennzoil, has commenced a cash tender offer
to acquire all outstanding Co-enerco common shares at Cdn. $8.60 per share and
to acquire all outstanding principal amount of Co-enerco's 6% convertible
subordinated debentures at Cdn. $1,050 per Cdn. $1,000 principal amount. The
cash tender offer will expire on May 31, 1994, unless extended by Pennzoil, and
is conditioned upon at least 66-2/3% of the outstanding Co-enerco shares (on a
diluted basis) being validly tendered for purchase and upon the fulfillment of
other conditions, including receipt of all necessary regulatory approvals.
After completion of the offer, Pennzoil Canada intends to acquire all the
remaining equity interest in Co-enerco at a price per common share equal to
that paid under the offer.
The aggregate amount necessary to fund the acquisition of all Co-enerco
common shares at Cdn. $8.60 per share and all Co-enerco convertible debentures
at Cdn. $1,050 per Cdn. $1,000 principal amount and to pay the related fees and
expenses is currently expected to be approximately Cdn. $260 million. Pennzoil
Canada has begun negotiations to establish a credit facility with a syndicate
of Canadian chartered banks, borrowings under which would be guaranteed by
Pennzoil. Pennzoil currently expects that Pennzoil Canada will finance the
acquisition of Co-enerco common shares and convertible debentures primarily
from borrowings under this credit facility.
Motor Oil & Refined Products
Operating income from this segment was $25.8 million for the quarter ended
March 31, 1994, an increase of $6.7 million from the same period in 1993. This
increase was primarily attributable to higher refinery margins, higher motor
oil margins and higher volumes of motor oil sold internationally. Partially
offsetting these increases were higher advertising, manufacturing and marketing
expenses.
Franchise Operations
The franchise operations segment recorded an operating loss of $.7 million
for the quarter ended March 31, 1994, compared with operating income of $2.4
million for the same period in 1993. The decrease in operating results for the
first quarter, compared to the prior year, was due to higher operating expenses
primarily due to an insurance reserve for self-insured claims. These higher
operating expenses were partially offset by improved company store results.
Domestic systemwide sales reported by Jiffy Lube centers for the first
quarter of 1994 increased $14.7 million, or approximately 12%, to $137.5
million, compared with the first quarter of 1993. Average ticket prices
increased to $33.65 for the quarter ended March 31, 1994, compared with $33.26
for the first quarter of 1993. There were 1,079 domestic lube centers
(including 413 Jiffy Lube company-operated centers) open as of March 31, 1994.
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION - continued
Sulphur
The sulphur segment recorded a loss of $3.7 million for the quarter ended
March 31, 1994, compared with a loss of $2.8 million for the same period in
1993. The decrease was primarily due to lower sulphur prices as evidenced by a
decrease in the average Green Markets Tampa Recovered Contract Price range
mid-point from $72.00 per long ton during the first quarter of 1993 to a
mid-point of $50.50 per long ton during the first quarter of 1994. Intense
competition in the domestic market has pushed sulphur prices down, primarily
because of aggressive marketing by U.S. producers. Partially offsetting these
lower sulphur prices were lower unit costs primarily due to reduced workforce
expenses and reduced gas and water treatment costs at the Culberson mine.
Sales volumes for the first quarter of 1994 increased by 25,000 long tons
compared with levels experienced during the first quarter of 1993. So long as
sulphur prices and volumes remain at first quarter levels, operating results in
the sulphur segment will continue to be adversely affected and the sulphur
segment will likely generate an operating loss.
Prices at the beginning of the second quarter of 1994 increased $2.50 to
an average mid-point of $53.00 per long ton.
Other
Other operating income for the quarter ended March 31, 1994 was $16.9
million, a decrease of $8.2 million from the comparable period in 1993. Other
operating income for 1993 included a $10.5 million pretax gain on the sale of
common stock of Pogo Producing Company held by Pennzoil.
Net interest expense for the quarter ended March 31, 1994 decreased $7.4
million from the same period in 1993 primarily due to Pennzoil's efforts
throughout 1993 to retire higher cost debt.
Capital Resources and Liquidity
As of March 31, 1994, Pennzoil had cash and cash equivalents and current
marketable securities and other investments of $852.1 million. During the
three months ended March 31, 1994, Pennzoil's cash and cash equivalents and
current marketable securities and other investments decreased $94.5 million.
Cash flows from operating activities totaled $12.0 million during the first
quarter of 1994 and included net income tax payments of $128.0 million, of
which $103.0 million was paid as a result of the gain realized from the
November 1993 sale of 8,158,582 shares of Chevron common stock (see Notes
4 and 5 of Notes to Condensed Consolidated Financial Statements).
Pennzoil's other income includes dividend income from its investment in
Chevron common stock of $8.4 million and $15.0 million for the quarters ended
March 31, 1994 and 1993, respectively.
Investment in Chevron Common Stock -
At March 31, 1994, Pennzoil beneficially owned 9,035,518 shares of Chevron
common stock. From 1989 through 1991, Pennzoil acquired 32,944,100 shares of
Chevron common stock with approximately $2.2 billion of the net proceeds of the
$3.0 billion payment received by Pennzoil from Texaco Inc. in 1988 in
settlement of certain litigation.
In October 1992, Pennzoil completed a transaction with Chevron, pursuant
to which Pennzoil exchanged 15,750,000 shares of Chevron common stock held by
Pennzoil for all the capital stock of Pennzoil Petroleum Company, which owns
Gulf of Mexico, Gulf Coast, Permian Basin and other domestic oil and gas
producing properties.
<PAGE>
<PAGE> 11
PART I. FINANCIAL INFORMATION - continued
In November 1993, Pennzoil sold 8,158,582 shares of Chevron common stock
in a block trade on the New York Stock Exchange for a price of $89.00 per share
before commissions ($88.38 per share net of commissions). The sale resulted in
a net realized gain of $137.0 million ($171.6 million before tax), or $3.25 per
share.
The 9,035,518 shares of Chevron common stock currently held by Pennzoil
have been deposited with exchange agents for possible exchange for $402.5
million principal amount of Pennzoil's 6-1/2% Exchangeable Senior Debentures
issued in January 1993 and $500.0 million principal amount of Pennzoil's 4-3/4%
Exchangeable Senior Debentures issued in October 1993.
<PAGE>
<PAGE> 12
PART I. FINANCIAL INFORMATION - continued
<TABLE>
(UNAUDITED)
The following tables show revenues and operating income by segment, other components of income and
operating data.
<CAPTION>
Three Months Ended
March 31
----------------------------
1994 1993
----------- -----------
(Expressed in thousands)
<S> <C> <C>
REVENUES
Oil and Gas $ 203,964 $ 212,681
Motor Oil & Refined Products 357,405 368,656
Franchise Operations 62,218 52,203
Sulphur 15,931 20,167
Other 21,535 30,051
Intersegment Sales (38,977) (33,217)
----------- -----------
Total revenues $ 622,076 $ 650,541
----------- -----------
OPERATING INCOME (LOSS)
Oil and Gas $ 37,586 $ 50,879
Motor Oil & Refined Products 25,758 19,088
Franchise Operations (737) 2,388
Sulphur (3,730) (2,847)
Other 16,942 25,186
----------- -----------
Total operating income 75,819 94,694
Corporate administrative expenses 17,564 15,948
Interest charges, net 41,589 48,978
----------- -----------
Income before income tax 16,666 29,768
Income tax 5,928 8,243
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 10,738 21,525
Cumulative effect of change in accounting principle (4,948) -
----------- -----------
NET INCOME $ 5,790 $ 21,525
=========== ===========
</TABLE>
<PAGE>
<PAGE> 13
PART I. FINANCIAL INFORMATION - continued
<TABLE>
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31
------------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATING DATA
- --------------
OIL AND GAS
Net production
Crude oil, condensate and natural
gas liquids (barrels per day) 63,404 64,656
Natural gas produced for sale (Mcf per day) 659,523 681,630
Weighted average prices
Crude oil, condensate and natural
gas liquids (per barrel) $ 11.92 $ 16.20
Natural gas (per Mcf) $ 2.24 $ 1.84
MOTOR OIL & REFINED PRODUCTS
Sales (barrels per day)
Gasolines and naphtha 24,837 25,497
Distillates and gas oils 29,296 28,234
Lubricating oil and other specialty products 22,870 22,324
Residual fuel oils 3,230 2,115
----------- -----------
Total sales (barrels per day) 80,233 78,170
=========== ===========
Raw materials processed (barrels per day) 56,662 58,675
Refining capacity (barrels per day) 70,700 70,700
FRANCHISE OPERATIONS
Domestic systemwide sales (in thousands) $ 137,492 $ 122,813
Centers open (U.S.) 1,079 1,048
SULPHUR
Sales (in thousands of long tons) 290 265
Average Green Markets Tampa Recovered
Contract Price range (1) (per long ton) $48.00-53.00 $70.00-74.00
<FN>
(1) This is a representative market price and does not necessarily reflect what is received by Pennzoil.
</TABLE>
<PAGE>
<PAGE> 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports --
No reports on Form 8-K were filed during the quarter for which this
report was filed.
<PAGE>
<PAGE> 15
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 COMPANY
Registrant
S/N Mark A. Malinski
Mark A. Malinski
Group Vice President - Accounting
and Controller
May 9, 1994
