<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 June 30, 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,
July 31, 1994:
Common stock, $.83-1/3 par value, 46,028,485 shares.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
(Expressed in thousands except per share amounts)
<S> <C> <C> <C> <C>
REVENUES $ 651,809 $ 685,177 $1,273,885 $1,335,718
COSTS AND EXPENSES
Cost of sales 378,001 401,941 749,640 790,148
Selling, general and administrative expenses 102,097 86,244 192,077 171,340
Depreciation, depletion and amortization 78,356 77,804 153,806 156,415
Exploration expenses 8,506 5,394 18,189 7,461
Taxes, other than income 15,305 16,730 32,374 34,544
Interest charges, net 43,581 47,014 85,170 95,992
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX 25,963 50,050 42,629 79,818
Income tax 9,153 15,811 15,081 24,054
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 16,810 34,239 27,548 55,764
Extraordinary item - (4,724) - (4,724)
Cumulative effect of change in accounting principle (See Note 2) - - (4,948) -
----------- ----------- ----------- -----------
NET INCOME $ 16,810 $ 29,515 $ 22,600 $ 51,040
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE
Income before extraordinary item and cumulative
effect of change in accounting principle $ 0.37 $ 0.84 $ 0.60 $ 1.37
Extraordinary item - (0.12) - (0.12)
Cumulative effect of change in accounting principle - - (0.11) -
----------- ----------- ----------- -----------
TOTAL $ 0.37 $ 0.72 $ 0.49 $ 1.25
=========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE $ 0.75 $ 0.75 $ 1.50 $ 1.50
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING 45,989 40,776 45,961 40,756
=========== =========== =========== ===========
NUMBER OF SHARES OUTSTANDING 46,013 40,796 46,013 40,796
=========== =========== =========== ===========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
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PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
June 30, December 31,
1994 1993
------------- -------------
(Expressed in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 831,943 $ 262,275
Marketable securities and other investments 46,086 684,308
Receivables 420,896 363,287
Inventories
Crude oil, natural gas and sulphur 40,938 38,965
Motor oil and refined products 118,742 123,282
Deferred income tax 13,703 13,587
Other current assets 52,453 58,098
------------- -------------
Total current assets 1,524,761 1,543,802
Property, plant and equipment, net 2,674,917 2,324,444
Marketable securities and other investments (See Note 3) 804,709 654,973
Other assets 363,931 362,984
------------- -------------
TOTAL ASSETS $ 5,368,318 $ 4,886,203
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 6,641 $ 19,568
Notes payable 413,080 433,031
Accounts payable and accrued liabilities 286,688 248,724
Taxes accrued 15,735 93,242
Other current liabilities 38,403 26,702
------------- -------------
Total current liabilities 760,547 821,267
Long-term debt 2,362,104 1,973,488
Deferred income tax 389,929 304,902
Other liabilities 293,796 280,742
------------- -------------
TOTAL LIABILITIES 3,806,376 3,380,399
------------- -------------
COMMITMENTS AND CONTINGENCIES (See Note 7)
SHAREHOLDERS' EQUITY (See Note 3) 1,561,942 1,505,804
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,368,318 $ 4,886,203
============= =============
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
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PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30
---------------------------------
1994 1993
----------- -----------
(Expressed in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 22,600 $ 51,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 153,806 156,415
Dry holes and impairments 8,276 464
Deferred income tax (3,532) (6,090)
Non-cash and other nonoperating items 16,907 (2,526)
Extraordinary Item - 4,724
Cumulative effect of change in accounting principle 4,948 -
Change in operating assets and liabilities (100,744) (21,463)
----------- -----------
Net cash provided by operating activities 102,261 182,564
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (256,047) (160,219)
Acquisition of Co-enerco Resources Ltd. (230,924) -
Purchases of marketable securities and other investments (220,400) (104,259)
Proceeds from sales of marketable securities and other
investments 857,044 116,237
Proceeds from sales of assets 28,201 11,020
Other investing activities 2,456 5,016
----------- -----------
Net cash provided by (used in) investing activities 180,330 (132,205)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of short-term debt, net (19,951) (18,191)
Debt and capital lease obligation repayments (105,469) (740,254)
Proceeds from issuance of debt 481,194 774,453
Dividends paid (68,953) (61,143)
Other financing activities 256 235
----------- -----------
Net cash provided by (used in) financing activities 287,077 (44,900)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 569,668 5,459
CASH AND CASH EQUIVALENTS, beginning of period 262,275 20,732
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 831,943 $ 26,191
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
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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, 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, was $87.125 per share (based on
the closing transaction price for Chevron shares reported on the New York Stock
Exchange ("NYSE") on that date). After a "two-for-one" stock split of Chevron
common stock in June 1994, Pennzoil beneficially owned 18,071,036 shares of
common stock at June 30, 1994, acquired at an average cost of $33.68 per share.
The fair market value for the shares of Chevron common stock held by Pennzoil as
of June 30, 1994 was $41.875 per share (based on the closing transaction price
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PART I. FINANCIAL INFORMATION - continued
for Chevron shares reported on the NYSE on that date). 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 June 30, 1994, the net unrealized
gain included in shareholders' equity related to Pennzoil's investment in
Chevron common stock was $96.3 million.
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 solely of domestic commercial paper.
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) Acquisition of Co-enerco Resources Ltd. -
In June 1994, Pennzoil Canada, Inc. ("Pennzoil Canada"), an indirect
wholly owned subsidiary of Pennzoil, completed a cash tender offer for all
outstanding common shares and 6% convertible subordinated debentures of
Co-enerco Resources Ltd. ("Co-enerco"), which is engaged principally in oil and
gas acquisition, exploration, development and production in Western Canada.
Pursuant to the offer, Pennzoil Canada acquired approximately 22.9 million
common shares of Co-enerco (approximately 94% on a diluted basis) and
approximately Cdn. $49.6 million principal amount of the Co-enerco debentures
(approximately 99%). Subsequent to the completion of the tender offer, Pennzoil
Canada took the necessary steps under the compulsory acquisition provisions of
applicable Canadian law to acquire the remaining Co-enerco common shares and
debentures on the same terms as under the tender offer. The acquisition of
these remaining common shares and debentures of Co-enerco was completed in July
1994.
Pennzoil Canada paid $230.9 million in cash in connection with the
acquisition of Co-enerco common shares and debentures and repayment of
Co-enerco's outstanding bank debt. The acquisition was accounted for using the
purchase method of accounting and the results of operations of Co-enerco will be
included in Pennzoil's consolidated statement of income subsequent to June 1994.
(5) Investment in Chevron Common Stock; Exchange of Stock with Chevron
Corporation -
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.
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION - continued
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.
In June 1994, Chevron declared a "two-for-one" stock split, thus increasing the
number of Chevron shares beneficially held by Pennzoil from 9,035,518 to
18,071,036 as of June 30, 1994. All share and per share information related
to Pennzoil's investment in Chevron common stock prior to June 1994 has not been
adjusted to reflect the "two-for-one" stock split.
The 18,071,036 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 due
January 15, 2003, and $500.0 million principal amount of Pennzoil's 4-3/4%
Exchangeable Senior Debentures due October 1, 2003.
(6) Debt -
In June 1993, Pennzoil called for redemption $96.1 million principal amount
of indebtedness (including $66.1 million of Pennzoil's 10% debentures due 2011
and $30.0 million of Pennzoil's 10-1/8% debentures due 2011). The redemptions
were completed in July 1993. As of June 30, 1993, this indebtedness was
defeased by placing funds required for the redemption with the trustee for the
indebtedness. The premiums and related unamortized discount and debt issue
costs relating to these redemptions resulted in an extraordinary charge of $4.7
million, net of tax, or $.12 per share, in the second quarter of 1993.
(7) 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, 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
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PART I. FINANCIAL INFORMATION - continued
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 $257.3 million as of June 30,
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 5) 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 5), 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 $52.2 million as of June 30,
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. 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. Pennzoil and the IRS Appeals Office are currently negotiating their
positions on these tax issues. 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 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.
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<PAGE> 9
PART I. FINANCIAL INFORMATION - continued
Pennzoil had cash and cash equivalents and current marketable securities
and other investments of $878.0 million at June 30, 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 and six months ended June 30, 1994 was $16.8
million, or $.37 per share, and $22.6 million, or $.49 per share, respectively.
This compares with net income of $29.5 million, or $.72 per share, for the
second quarter of 1993 and $51.0 million, or $1.25 per share, for the six months
ended June 30, 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 extraordinary item and cumulative effect of change in accounting
principle for the quarter and six months ended June 30, 1994 decreased $17.4
million and $28.2 million, respectively, compared to the prior year. The
decrease in earnings for both the quarter and six months ended June 30, 1994,
compared to the prior year, was primarily attributable to lower results from the
oil and gas and motor oil and refined products segments and lower other
operating income. These decreases were partially offset by lower net interest
expense.
Oil and Gas
Operating income from this segment for the quarter and six months ended
June 30, 1994 was $54.1 million and $91.7 million, respectively. This compares
with operating income of $68.4 million and $119.3 million, respectively, for the
same periods in 1993. The decrease in operating results for the quarter compared
to the prior year was primarily due to lower natural gas and liquids prices.
The decrease in operating results for the six months ended June 30, 1994,
compared to the prior year, was primarily due to lower liquids prices and higher
exploration expense. Liquids prices averaged $14.11 per barrel and $13.05 per
barrel, respectively, during the quarter and six months ended June 30, 1994
compared to $16.42 per barrel and $16.31 per barrel, respectively, for the same
periods in 1993. Natural gas prices averaged $1.88 per MCF and $2.05 per MCF,
respectively, during the quarter and six months ended June 30, 1994 compared to
$2.16 per MCF and $2.00 per MCF, respectively, for the same periods in 1993.
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION - continued
In June 1994, Pennzoil Canada, Inc. ("Pennzoil Canada"), an indirect wholly
owned subsidiary of Pennzoil, completed the acquisition of substantially all
outstanding common shares and 6% convertible subordinated debentures of
Co-enerco Resources Ltd. ("Co-enerco"). Co-enerco is engaged principally in oil
and gas acquisition, exploration, development and production in Western Canada
(see Note 4).
In July 1994, Pennzoil Qatar, Inc. ("Pennzoil Qatar"), an indirect wholly
owned subsidiary of Pennzoil, was awarded the rights to explore acreage of Block
8 offshore Qatar. The block is located 50 miles from shore in the Arabian Gulf
and is adjacent to three large producing oil fields. Under the production
sharing agreement, Pennzoil Qatar has committed to a seismic acquisition and
drilling program over the next four years. Evaluation activities will start
immediately, with drilling beginning in late 1995.
Motor Oil & Refined Products
Operating income from this segment for the quarter and six months ended
June 30, 1994 was $16.6 million and $42.4 million, respectively. This compares
to operating income of $29.4 million and $48.5 million, respectively, for the
same periods in 1993. The decrease in operating income for the quarter was
primarily attributed to lower refinery margins and throughput, and higher
manufacturing, advertising and other marketing expenses. Partially offsetting
these were higher motor oil margins, increased specialty product volumes sold
and higher volumes of motor oil sold internationally. The decrease in operating
income for the six months ended June 30, 1994 was primarily attributed to higher
manufacturing, advertising and other marketing expenses. Partially offsetting
these were higher motor oil margins, increased specialty product volumes sold
and higher volumes of motor oil sold internationally.
In June 1994, Conoco, Inc. ("Conoco") and Pennzoil agreed to carry out a
joint venture project at Conoco's refinery in Westlake, Louisiana. Operating
through a 50-50 joint venture, the companies will construct a new, state-of-the
art lube oil hydrocracker facility estimated to cost approximately $500 million,
which is expected to be funded with project financing. The facility will
produce more than 15,000 barrels per day of high quality base oils. Base oils
are the basic ingredients in finished lubricants. Site preparation is expected
to begin late this year and the facility is expected to be completed in about 33
months. Conoco will act as construction manager and operator of the lubricating
base oil plant with support positions staffed by both companies.
Franchise Operations
The franchise operations segment recorded operating income of $2.3 million
for the quarter ended June 30, 1994 and $1.6 million for the six months ended
June 30, 1994. This compares to an operating loss of $.2 million and operating
income of $2.2 million, respectively, for the same periods in 1993. The
increase in operating results for the quarter is attributable to same center
increases in average cars serviced per day and average ticket prices as well as
higher company store operating results. The decrease in operating results for
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PART I. FINANCIAL INFORMATION - continued
the six months ended June 30, 1994, as compared to the prior year, is 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 quarter
and six months ended June 30, 1994 increased $18.6 million and $33.3 million,
respectively, from comparable periods in 1993. Average ticket prices increased
to $34.30 and $34.04 for the quarter and six months ended June 30, 1994,
respectively, compared with $33.67 and $33.46, respectively, for the same
periods in 1993. There were 1,086 domestic lube centers open (including 416
Jiffy Lube company-operated centers) as of June 30, 1994.
Sulphur
The sulphur segment recorded operating losses of $3.4 million and $7.1
million for the quarter and six months ended June 30, 1994, respectively. This
compares to losses of $2.8 million and $5.6 million, respectively, for the same
periods 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 $66.50 per long ton and $69.00 per long ton,
respectively, during the quarter and six months ended June 30, 1993 to
mid-points of $53.00 per long ton and $51.50 per long ton, respectively, during
the same periods in 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 quarter and six
months ended June 30, 1994 have increased 27,000 and 52,000 long tons,
respectively, compared with the same periods in 1993. So long as sulphur prices
and volumes remain at these levels, operating results in the sulphur segment
will continue to be adversely affected and the sulphur segment will likely
generate an operating loss.
Sulphur prices have recently strengthened as evidenced by an increase of
$2.50 per long ton in the average Green Markets Tampa Recovered Contract Price
range mid-point for the second quarter of 1994 as compared to the first quarter
of 1994 and an additional increase of $5.50 per long ton at the beginning of the
third quarter of 1994.
Other
Other operating income for the quarter and six months ended June 30, 1994,
was $17.8 million and $34.7 million, respectively. This compares to other
operating income of $19.1 million and $44.3 million, respectively, for the same
periods in 1993. Other operating income for the first quarter of 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 and six months ended June 30, 1994
decreased $3.4 million and $10.8 million, respectively, from the same periods in
1993 primarily due to Pennzoil's efforts throughout 1993 to retire higher cost
debt.
<PAGE>
<PAGE> 12
PART I. FINANCIAL INFORMATION - continued
Capital Resources and Liquidity
As of June 30, 1994, Pennzoil had cash and cash equivalents and current
marketable securities and other investments of $878.0 million. During the six
months ended June 30, 1994, Pennzoil's cash and cash equivalents and current
marketable securities and other investments decreased $68.6 million. Cash flows
from operating activities totaled $102.3 million for the six months ended June
30, 1994 and included net income tax payments of $132.6 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 Corporation ("Chevron") common stock (see Notes 5
and 7 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 $16.7 million for the quarter and six
months ended June 30, 1994, respectively, compared to $15.0 million and $30.1
million, respectively, for the same periods in 1993.
In June 1994, in connection with its acquisition of Co-enerco, Pennzoil
Canada established a Cdn. $260 million credit facility with a syndicate of
Canadian banks, borrowings of which are guaranteed by Pennzoil. Also in June
1994, Pennzoil Canada established a Cdn. $40 million credit facility with a
Canadian bank, borrowings of which are guaranteed by Pennzoil. Borrowings under
these facilities can be made in any combination of U.S. or Canadian dollars and
were $185.0 million and $10.0 million, respectively, as of June 30, 1994.
Investment in 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.
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.
In June 1994, Chevron declared a "two-for-one" stock split, thus increasing
the number of Chevron shares beneficially held by Pennzoil from 9,035,518 to
18,071,036 as of June 30, 1994. All share and per share information related to
Pennzoil's investment in Chevron common stock prior to June 1994 has not been
adjusted to reflect the "two-for-one" stock split.
The 18,071,036 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 due
January 15, 2003 and $500.0 million principal amount of Pennzoil's 4-3/4%
Exchangeable Senior Debentures due October 1, 2003.
<PAGE>
<PAGE> 13
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 Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
(Expressed in thousands)
<S> <C> <C> <C> <C>
REVENUES
Oil and Gas $ 210,353 $ 232,127 $ 414,317 $ 444,808
Motor Oil & Refined Products 387,574 403,169 744,979 771,825
Franchise Operations 65,136 53,399 127,354 105,602
Sulphur 14,896 17,467 30,827 37,634
Other 16,721 18,372 38,256 48,423
Intersegment Sales (42,871) (39,357) (81,848) (72,574)
----------- ----------- ----------- -----------
Total revenues $ 651,809 $ 685,177 $1,273,885 $1,335,718
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)
Oil and Gas $ 54,121 $ 68,399 $ 91,707 $ 119,278
Motor Oil & Refined Products 16,600 29,406 42,358 48,494
Franchise Operations 2,335 (174) 1,598 2,214
Sulphur (3,406) (2,779) (7,136) (5,626)
Other 17,760 19,145 34,702 44,331
----------- ----------- ----------- -----------
Total operating income 87,410 113,997 163,229 208,691
Corporate administrative expenses 17,866 16,933 35,430 32,881
Interest charges, net 43,581 47,014 85,170 95,992
----------- ----------- ----------- -----------
Income before income tax 25,963 50,050 42,629 79,818
Income tax 9,153 15,811 15,081 24,054
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 16,810 34,239 27,548 55,764
Extraordinary item - (4,724) - (4,724)
Cumulative effect of change in accounting principle - - (4,948) -
----------- ----------- ----------- -----------
NET INCOME $ 16,810 $ 29,515 $ 22,600 $ 51,040
=========== =========== =========== ===========
RATIO OF EARNINGS TO FIXED CHARGES 1.38 1.68
=========== ===========
</TABLE>
<PAGE>
<PAGE> 14
PART I. FINANCIAL INFORMATION - continued
<TABLE>
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING DATA
- --------------
OIL AND GAS
Net production
Crude oil, condensate and natural
gas liquids (barrels per day) 66,203 61,945 64,811 63,293
Natural gas produced for sale (Mcf per day) 720,463 672,043 690,161 676,810
Weighted average prices
Crude oil, condensate and natural
gas liquids (per barrel) $ 14.11 $ 16.42 $ 13.05 $ 16.31
Natural gas (per Mcf) $ 1.88 $ 2.16 $ 2.05 $ 2.00
MOTOR OIL & REFINED PRODUCTS
Sales (barrels per day)
Gasoline and naphtha 25,695 25,857 25,268 25,678
Distillates and gas oils 31,118 31,450 30,212 29,851
Lubricating oil and other specialty products 22,662 24,135 22,765 23,235
Residual fuel oils 3,931 2,490 3,582 2,303
----------- ----------- ----------- -----------
Total sales (barrels per day) 83,406 83,932 81,827 81,067
=========== =========== =========== ===========
Raw materials processed (barrels per day) 58,621 63,336 57,647 61,018
Refining capacity (barrels per day) 70,700 70,700 70,700 70,700
FRANCHISE OPERATIONS
Domestic systemwide sales (in thousands) $ 154,096 $ 135,464 $ 291,588 $ 258,277
Same center sales (in thousands) $ 149,811 $ 135,224 $ 283,906 $ 257,922
Centers open (U.S.) 1,086 1,058 1,086 1,058
SULPHUR
Sales (thousands of long tons) 267 240 557 505
Average Green Markets Tampa Recovered
Contract Price range (1) (per long ton) $51.00-55.00 $65.00-68.00 $49.00-54.00 $67.00-71.00
<FN>
(1) This is a representative market price and does not
necessarily reflect what is received by Pennzoil.
</TABLE>
<PAGE>
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) In June 1994, Pennzoil received an Administrative Complaint from the
United States Environmental Protection Agency ("EPA") alleging violation of the
Superfund Amendments and Reauthorization Act in connection with reporting
requirements under this statute and the EPA regulations relating thereto with
respect to Pennzoil's refinery in Roosevelt, Utah. The Complaint seeks civil
penalties of $329,000. Pennzoil intends to vigorously contest both the alleged
liability and the amount of the proposed penalty.
(b) In July 1994, the West Virginia Division of Environmental Protection
opened negotiations with Pennzoil and Pennzoil's indirect subsidiary Eureka Pipe
Line Company ("Eureka") for a consent order addressing numerous environmental
matters relating to operations of Pennzoil and Eureka. As currently proposed by
the state agency, the consent order would require Eureka to undertake
environmental remediation at several locations and would impose civil penalties
of approximately $1.5 million. Pennzoil and Eureka are investigating the
state's position, but currently intend to vigorously contest many of the state's
claims and the amount of any civil penalty assessed.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Shareholders
May 19, 1994
<TABLE>
<CAPTION>
Broker
(c) Proposals For Against Withheld Abstain Non-Votes
--------- ---------- ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Election of Directors
Howard H. Baker, Jr. 39,114,670 - 251,592 - -
Harry H. Cullen 39,140,730 - 225,532 - -
James L. Pate 39,136,417 - 229,845 - -
Approval of Appointment of
Arthur Andersen & Co.
as Independent Public
Accountants 39,045,653 171,203 - 149,406 -
</TABLE>
<PAGE>
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits --
3(a) Bylaws of Pennzoil Company, as amended through May 19, 1994.
12 Computation of Ratio of Earnings to Fixed Charges for the
six months ended June 30, 1994 and 1993.
99 Exhibit index
(b) Reports --
No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
<PAGE> 17
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
August 10, 1994
<PAGE>
<PAGE>
EXHIBIT 3(a)
PENNZOIL COMPANY
BY-LAWS
(As Amended)
ARTICLE I.
MEETINGS OF SHAREHOLDERS
SECTION 1. The annual meeting of the shareholders of this
Corporation shall be held on the third Thursday of May in each year,
at ten o'clock A.M., and on any subsequent day or days to which such
meeting may be adjourned, for the purposes of electing directors and
of transacting such other business as may properly come before the
meeting. The Board of Directors shall designate the place for the
holding of such meeting, and at least ten days' notice shall be given
to the shareholders of the place so fixed. If the day designated
herein is a legal holiday, the annual meeting shall be held on the
first succeeding day which is not a legal holiday. If for any reason
the annual meeting shall not be held on the day designated herein, the
Board of Directors shall cause the annual meeting to be held as soon
thereafter as may be convenient.
SECTION 2. Special meetings of the shareholders may be called
at any time by the Board of Directors, the Chairman of the Board, the
Executive Committee, the Chairman of the Executive Committee or the
President. Upon written request of any person or persons who have
duly called a special meeting, it shall be the duty of the Secretary
of the Corporation to fix the date of the meeting to be held not less
than ten nor more than sixty days after the receipt of the request and
to give due notice thereof. If the Secretary shall neglect or refuse
to fix the date of the meeting and give notice thereof, the person or
persons calling the meeting may do so.
SECTION 3. Every special meeting of the shareholders shall be
held at such place within or without the State of Delaware as the
Board of Directors may designate, or, in the absence of such
designation, at the registered office of the Corporation in the State
of Delaware.
SECTION 4. Written notice of every meeting of the
shareholders shall be given by the Secretary of the Corporation to
each shareholder of record entitled to vote at the meeting, by placing
such notice in the mail at least ten days, but not more than sixty
days, prior to the day named for the meeting addressed to each
shareholder at his address appearing on the books of the Corporation
or supplied by him to the Corporation for the purpose of notice.
SECTION 5. The Board of Directors may fix a date, not less
than ten nor more than sixty days preceding the date of any meeting of
shareholders, as a record date for the determination of shareholders
entitled to notice of, or to vote at, any such meeting. The Board of
Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
SECTION 6. The notice of every meeting of the shareholders
may be accompanied by a form of proxy approved by the Board of
Directors in favor of such person or persons as the Board of Directors
may select.
SECTION 7. A majority of the outstanding shares of stock of
the Corporation entitled to vote, present in person or represented by
proxy, shall constitute a quorum at any meeting of the shareholders,
and the shareholders present at any duly convened meeting may continue
to do business until adjournment notwithstanding any withdrawal from
the meeting of holders of shares counted in determining the existence
of a quorum. Directors shall be elected by a plurality of the votes
cast in the election. For all matters as to which no other voting
requirement is specified by the General Corporation Law of the State
of Delaware (the "General Corporation Law"), the Restated Certificate
of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation") or these By-laws, the affirmative vote required for
shareholder action shall be that of a majority of the shares present
in person or represented by proxy at the meeting (as counted for
purposes of determining the existence of a quorum at the meeting). In
the case of a matter submitted for a vote of the shareholders as to
which a shareholder approval requirement is applicable under the
shareholder approval policy of the New York Stock Exchange, the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934
or any provision of the Internal Revenue Code, in each case for which
no higher voting requirement is specified by the General Corporation
Law, the Certificate of Incorporation or these By-laws, the vote
required for approval shall be the requisite vote specified in such
shareholder approval policy, Rule 16b-3 or Internal Revenue Code
provision, as the case may be (or the highest such requirement if more
than one is applicable). For the approval of the appointment of
independent public accountants (if submitted for a vote of the
shareholders), the vote required for approval shall be a majority of
the votes cast on the matter.
SECTION 8. Any meeting of the shareholders may be adjourned
from time to time, without notice other than by announcement at the
meeting at which such adjournment is taken, and at any such adjourned
meeting at which a quorum shall be present any action may be taken
that could have been taken at the meeting originally called; provided
that if the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of
record entitled to vote at the adjourned meeting.
<PAGE>
SECTION 9. Subject to such rights of the holders of Preferred
Stock or Preference Common Stock or any series thereof as shall be
prescribed in the Certificate of Incorporation or in the resolutions
of the Board of Directors providing for the issuance of any such
series, only persons who are nominated in accordance with the
procedures set forth in this Section 9 shall be eligible for election
as, and to serve as, directors. Nominations of persons for election
to the Board of Directors may be made at a meeting of the shareholders
at which Directors are to be elected (a) by or at the direction of the
Board of Directors or (b) by any shareholder of the Corporation
entitled to vote at such meeting in the election of directors who
complies with the requirements of this Section 9. Such nominations,
other than those made by or at the direction of the Board of
Directors, shall be preceded by timely advance notice in writing to
the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to, or mailed and received at, the principal
executive offices of the Corporation not less than 60 days prior to
the scheduled meeting date, regardless of any postponements, deferrals
or adjournments of the meeting to a later date; provided, however,
that if the scheduled meeting date differs from the annual meeting
date prescribed by the By-laws as in effect on the date of the next
preceding annual meeting of shareholders and if less than 70 days'
notice or prior public disclosure of the scheduled meeting date is
given or made, notice by the shareholder, to be timely, must be so
delivered or received not later than the close of business on the
tenth day following the earlier of the day on which the notice of such
meeting was mailed to shareholders or the day on which such public
disclosure was made. A shareholder's notice to the Secretary shall
set forth (x) as to each person whom the shareholder proposes to
nominate for election or re-election as a director, (i) the name, age,
business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the number of
shares of each class of capital stock of the Corporation beneficially
owned by such person and (iv) the written consent of such person to
having such person's name placed in nomination at the meeting and to
serve as a director if elected, and (y) as to the shareholder giving
the notice, (i) the name and address, as they appear on the
Corporation's books, of such shareholder and (ii) the number of shares
of each class of voting stock of the Corporation which are then
beneficially owned by such shareholder. The presiding officer of the
meeting of shareholders shall determine whether the requirements of
this Section 9 have been met with respect to any nomination or
intended nomination. If the presiding officer determines that any
nomination was not made in accordance with the requirements of this
Section 9, he shall so declare at the meeting and the defective
nomination shall be disregarded.
SECTION 10. At an annual meeting of shareholders, only such
business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting (a) by or
at the direction of the Board of Directors or (b) by any shareholder
of the Corporation who complies with the requirements of this Section
10 and as shall otherwise be proper subjects for shareholder action
and shall be properly introduced at the meeting. For a proposal to be
properly brought before an annual meeting by a shareholder, the
shareholder must have given timely advance notice thereof in writing
to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to, or mailed and received at, the principal
executive offices of the Corporation not less than 60 days prior to
the scheduled meeting date, regardless of any postponements, deferrals
or adjournments of that meeting to a later date; provided, however,
that if the scheduled meeting date differs from the meeting date
prescribed by the By-laws as in effect on the date of the next
preceding annual meeting of shareholders and if less than 70 days'
notice or prior public disclosure of the scheduled meeting date is
given or made, notice by the shareholder, to be timely, must be so
delivered or received not later than the close of business on the
tenth day following the earlier of the day on which the notice of such
meeting was mailed to shareholders or the day on which such public
disclosure was made. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before
the annual meeting (a) a description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they
appear on the Corporation's books, of the shareholder proposing such
business and any other shareholders known by such shareholder to be
supporting such proposal, (c) the class and number of shares of the
Corporation's stock which are beneficially owned by the shareholder on
the date of such notice and (d) any financial interest of the
shareholder in such proposal.
The presiding officer of the annual meeting shall determine
whether the requirements of this Section 10 have been met with respect
to any shareholder proposal. If the presiding officer determines that
a shareholder proposal was not made in accordance with the terms of
this Section 10, he shall so declare at the meeting and any such
proposal shall not be acted upon at the meeting.
At a special meeting of shareholders, only such business
shall be acted upon as shall have been set forth in the notice
relating to the meeting or as shall constitute matters incident to the
conduct of the meeting as the presiding officer of the meeting shall
determine to be appropriate.
2
<PAGE>
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. The business, affairs and property of the
Corporation shall be managed by a board of ten directors divided
into three classes as provided in the Certificate of Incorporation of
the Corporation. Each director shall hold office for the full term to
which he shall have been elected and until his successor is duly
elected and shall qualify, or until his earlier death, resignation or
removal. A director need not be a resident of the State of Delaware
or a shareholder of the Corporation.
SECTION 2. Except as provided in the Certificate of
Incorporation of the Corporation, newly created directorships
resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION 3. No director of the Corporation shall be removed
from his office as a director by vote or other action of shareholders
or otherwise except for cause.
SECTION 4. Regular meetings of the Board of Directors shall
be held at such place or places within or without the State of
Delaware, at such hour and on such day as may be fixed by resolution
of the Board of Directors, without further notice of such meetings.
The time or place of holding regular meetings of the Board of
Directors may be changed by the Chairman of the Board or the President
by giving written notice thereof as provided in Section 6 of this
Article II.
SECTION 5. Special meetings of the Board of Directors shall
be held, whenever called by the Chairman of the Board, the Chairman of
the Executive Committee, the President, by four directors or by
resolution adopted by the Board of Directors, at such place or places
within or without the State of Delaware as may be stated in the notice
of the meeting.
SECTION 6. Written notice of the time and place of, and
general nature of the business to be transacted at, all special
meetings of the Board of Directors, and written notice of any change
in the time or place of holding the regular meetings of the Board of
Directors, shall be given to each director personally or by mail or by
telegraph, telecopier or similar communication at least one day before
the day of the meeting; provided, however, that notice of any meeting
need not be given to any director if waived by him in writing, or if
he shall be present at such meeting.
SECTION 7. A majority of the directors in office shall
constitute a quorum of the Board of Directors for the transaction of
business; but a lesser number may adjourn from day to day until a
quorum is present. Except as otherwise provided by law or in these
By-laws, all questions shall be decided by the vote of a majority of
the directors present.
SECTION 8. Any action which may be taken at a meeting of the
directors or members of the Executive Committee may be taken without a
meeting if consent in writing setting forth the action so taken shall
be signed by all of the directors or members of the Executive
Committee as the case may be and shall be
filed with the Secretary of the Corporation.
SECTION 9. The Board of Directors may designate one or more
of its number to be Vice Chairman of the Board, Chairman of the
Executive Committee, and Chairman of any other committees of the Board
and to hold such other positions on the Board as the Board of
Directors may designate.
ARTICLE III.
EXECUTIVE COMMITTEE
The Board of Directors may, by resolution adopted by a majority
of the whole Board, designate two or more of its number to constitute
an Executive Committee which committee, during intervals between
meetings of the Board, shall have and exercise the authority of the
Board of Directors in the management of the business of the
Corporation to the extent permitted by law.
ARTICLE IV.
OFFICERS
SECTION 1. The officers of the Corporation shall consist of a
Chairman of the Board, President, Secretary, Treasurer and such
Executive, Group, Senior or other Vice Presidents, and other officers
as may be elected or appointed by the Board of Directors. Any number
of offices may be held by the same person. All officers shall hold
office until their successors are elected or appointed, except that
the Board of Directors may remove any officer at any time at its
discretion.
3
<PAGE>
SECTION 2. The officers of the Corporation shall have such
powers and duties as generally pertain to their offices, except as
modified herein or by the Board of Directors, as well as such powers
and duties as from time to time may be conferred by the Board of
Directors. The Chairman of the Board shall have such duties as may be
assigned to him by the Board of Directors and shall preside at
meetings of the Board and at meetings of the stockholders. The
President shall be the chief executive officer of the Corporation and
shall have general supervision over the business, affairs, and
property of the Corporation.
ARTICLE V.
SEAL
The seal of the Corporation shall be in such form as the Board of
Directors shall prescribe.
ARTICLE VI.
CERTIFICATES OF STOCK
The shares of stock of the Corporation shall be represented by
certificates of stock, signed by the President or such Vice President
or other officer designated by the Board of Directors, countersigned
by the Treasurer or the Secretary; and such signature of the
President, Vice President, or other officer, such countersignature of
the Treasurer or Secretary, and such seal, or any of them, may be
executed in facsimile, engraved or printed. In case any officer who
has signed or whose facsimile signature has been placed upon any share
certificate shall have ceased to be such officer because of death,
resignation or otherwise before the certificate is issued, it may be
issued by the Corporation with the same effect as if the officer had
not ceased to be such at the date of its issue. Said certificates of
stock shall be in such form as the Board of Directors may from time to
time prescribe.
ARTICLE VII.
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify, and advance
Expenses (as this and all other capitalized words are defined in
Section 12) to, Indemnitee to the fullest extent permitted by
applicable law in effect on July 24, 1986, and to such greater extent
as applicable law may thereafter permit. The rights of Indemnitee
provided under the preceding sentence shall include, but not be
limited to, the right to be indemnified to the fullest extent
permitted by Section 145(b) of the D.G.C.L. in Proceedings by or in the
right of the Corporation and to the fullest extent permitted by
Section 145(a) of the D.G.C.L. in all other Proceedings.
SECTION 2. If Indemnitee is, by reason of his Corporate
Status, a witness in or a party to and is successful, on the merits or
otherwise, in any Proceeding, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to any
Matter in such Proceeding, the Corporation shall indemnify Indemnitee
against all Expenses actually and reasonably incurred by him or on his
behalf relating to each Matter. The termination of any Matter in such
a Proceeding by dismissal, with or without prejudice, shall be deemed
to be a successful result as to such Matter.
SECTION 3. Indemnitee shall be advanced Expenses within 10
days after requesting them to the fullest extent permitted by Section 145(e)
of the D.G.C.L.
SECTION 4. To obtain indemnification Indemnitee shall submit
to the Corporation a written request with such information as is
reasonably available to Indemnitee. The Secretary of the Corporation
shall promptly advise the Board of Directors of such request.
SECTION 5. If there has been no Change of Control at the time
the request for indemnification is sent, Indemnitee's entitlement to
indemnification shall be determined in accordance with Section 145(d) of the
D.G.C.L. If entitlement to indemnification is to be determined by
Independent Counsel, the Corporation shall furnish notice to
Indemnitee within 10 days after receipt of the request for
indemnification, specifying the identity and address of Independent
Counsel. The Indemnitee may, within 14 days after receipt of such
written notice of selection, deliver to the Corporation a written
objection to such selection. Such objection may be asserted only on
the ground that the Independent Counsel so selected does not meet the
requirements of Independent Counsel and the objection shall set forth
with particularity the factual basis of such assertion. If there is
an objection to the selection of Independent Counsel, either the
Corporation or Indemnitee may petition the Court of Chancery of the
State of Delaware or any other court of competent jurisdiction for a
determination that the objection is without a reasonable basis and/or
for the appointment of Independent Counsel selected by the Court.
SECTION 6. If there has been a Change of Control at the time
the request for indemnification is sent, Indemnitee's entitlement to
indemnification shall be determined in a written opinion by
Independent Counsel selected by Indemnitee. Indemnitee shall give the
Corporation written notice advising of the identity and address of the
Independent Counsel so selected. The Corporation may,
4
<PAGE>
within 7 days after receipt of such written notice of selection, deliver
to the Indemnitee a written objection to such selection. Indemnitee may,
within 5 days after the receipt of such objection from the
Corporation, submit the name of another Independent Counsel and the
Corporation may, within 7 days after receipt of such written notice of
selection, deliver to the Indemnitee a written objection to such
selection. Any objection is subject to the limitations in Section 5.
Indemnitee may petition the Court of Chancery of the State of Delaware
or any other Court of competent jurisdiction for a determination that
the Corporation's objection to the first and/or second selection of
Independent Counsel is without a reasonable basis and/or for the
appointment as Independent Counsel of a person selected by the Court.
SECTION 7. If a Change of Control shall have occurred before
the request for indemnification is sent by Indemnitee, Indemnitee
shall be presumed (except as otherwise expressly provided in this
Article) to be entitled to indemnification upon submission of a
request for indemnification in accordance with Section 4 of this
Article, and thereafter the Corporation shall have the burden of proof
to overcome the presumption in reaching a determination contrary to
the presumption. The presumption shall be used by Independent Counsel
as a basis for a determination of entitlement to indemnification
unless the Corporation provides information sufficient to overcome
such presumption by clear and convincing evidence or the
investigation, review and analysis of Independent Counsel convinces
him by clear and convincing evidence that the presumption should not
apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or
persons empowered under Section 5 or 6 of this Article to determine
entitlement to indemnification shall not have made and furnished to
Indemnitee in writing a determination within 60 days after receipt by
the Corporation of the request therefor, the requisite determination
of entitlement to indemnification shall be deemed to have been made
and Indemnitee shall be entitled to such indemnification unless
Indemnitee knowingly misrepresented a material fact in connection with
the request for indemnification or such indemnification is prohibited
by law. The termination of any Proceeding or of any Matter therein,
by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly
provided in this Article) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the Corporation, or
with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that his conduct was unlawful.
SECTION 8. The Corporation shall pay any and all reasonable
fees and expenses of Independent Counsel incurred acting pursuant to
this Article and in any proceeding to which it is a party or witness
in respect of its investigation and written report and shall pay all
reasonable fees and expenses incident to the procedures in which such
Independent Counsel was selected or appointed. No Independent Counsel
may serve if a timely objection has been made to his selection until a
Court has determined that such objection is without a reasonable
basis.
SECTION 9. In the event that (i) a determination is made
pursuant to Section 5 or 6 that Indemnitee is not entitled to
indemnification under this Article, (ii) advancement of Expenses is
not timely made pursuant to Section 3 of this Article, (iii)
Independent Counsel has not made and delivered a written opinion
determining the request for indemnification (a) within 90 days after
being appointed by the Court, or (b) within 90 days after objections
to his selection have been overruled by the Court, or (c) within 90
days after the time for the Corporation or Indemnitee to object to his
selection, or (iv) payment of indemnification is not made within 5
days after a determination of entitlement to indemnification has been
made or deemed to have been made pursuant to Section 5, 6 or 7 of this
Article, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. In the event that a determination shall
have been made that Indemnitee is not entitled to indemnification, any
judicial proceeding or arbitration commenced pursuant to this Section
shall be conducted in all respects as a de novo trial on the merits
and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any
judicial proceeding commenced pursuant to this Section, the
Corporation shall have the burden of proving that Indemnitee is not
entitled to indemnification or advancement of Expenses, as the case
may be. If a determination shall have been made or deemed to have
been made that Indemnitee is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial
proceeding commenced pursuant to this Section 9, or otherwise, unless
Indemnitee knowingly misrepresented a material fact in connection with
the request for indemnification, or such indemnification is prohibited
by law.
The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section 9 that the
procedures and presumptions of this Article are not valid, binding and
enforceable and shall stipulate in any such court that the Corporation
is bound by all provisions of this Article. In the event that
Indemnitee, pursuant to this Section 9, seeks a judicial adjudication
5
<PAGE>
to enforce his rights under, or to recover damages for breach of, this
Article, Indemnitee shall be entitled to recover from the Corporation,
and shall be indemnified by the Corporation against, any and all
Expenses actually and reasonably incurred by him in such judicial
adjudication, but only if he prevails therein. If it shall be
determined in such judicial adjudication that Indemnitee is entitled
to receive part but not all of the indemnification or advancement of
Expenses sought, the Expenses incurred by Indemnitee in connection
with such judicial adjudication or arbitration shall be appropriately
prorated.
SECTION 10. The rights of indemnification and to receive
advancement of Expenses as provided by this Article shall not be
deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate of
Incorporation, the By-laws, any agreement, a vote of stockholders or a
resolution of directors, or otherwise. No amendment, alteration or
repeal of this Article or any provision thereof shall be effective as
to any Indemnitee for acts, events and circumstances that occurred, in
whole or in part, before such amendment, alteration or repeal. The
provisions of this Article shall continue as to an Indemnitee whose
Corporate Status has ceased and shall inure to the benefit of his
heirs, executors and administrators.
SECTION 11. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and,
to the fullest extent possible, the provisions of this Article shall
be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
SECTION 12. For purposes of this Article:
"Change of Control" means a change in control of the
Corporation after July 24, 1986 in any one of the following
circumstances (1) there shall have occurred an event required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
(or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"),
whether or not the Corporation is then subject to such reporting
requirement; (2) any "person" (as such term is used in Section 13(d)
and 14(d) of the Act) shall have become the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Corporation representing 40% or more of the combined
voting power of the Corporation's then outstanding voting securities
without prior approval of at least two-thirds of the members of the
Board of Directors in office immediately prior to such person
attaining such percentage interest; (3) the Corporation is a party to
a merger, consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of
Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter;
(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (including
for this purpose any new director whose election or nomination for
election by the Corporation's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board of Directors.
"Corporate Status" describes the status of a person who (a)
is or was a director, officer or employee of the Corporation, or is or
was serving at the request of the Corporation as a director, officer
or employee of another corporation, partnership, joint venture, trust
or other enterprise, in each case which is controlled by the
Corporation, or (b) is or was serving, at the written
request of the Corporation or pursuant to an agreement in writing with
the Corporation which request or agreement provides for
indemnification under these By-laws, as a director, officer or
employee of another corporation, partnership, joint venture, trust or
other enterprise not controlled by the Corporation, provided that if
such written request or agreement referred to in this clause (b)
provides for a lesser degree of indemnification by the Corporation
than that provided pursuant to this Article VII, the provisions
contained in or made pursuant to such written request or agreement
shall govern. References above to "other enterprises" shall include
employee benefit plans and references to "serving at the request of
the Corporation" shall include any service as a director, officer or
employee which imposes duties on, or involves services by, such
director, officer or employee with respect to an employee benefit plan
or its participants or beneficiaries.
"D.G.C.L." means the Delaware General Corporation Law.
"Disinterested Director" means a director of the Corporation
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by indemnitee.
"Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other
disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or
defend, investigating, or being or preparing to be a witness in a
Proceeding.
6
<PAGE>
"Indemnitee" includes any person who is, or is
threatened to be made, a witness in or a party to any Proceeding as
described in Section 1 or 2 of this Article by reason of his Corporate
Status.
"Independent Counsel" means a law firm, or member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the five years previous to his selection or
appointment has been, retained to represent: (i) the Corporation or
Indemnitee in any matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification
hereunder.
"Matter" is a claim, a material issue, or a substantial
request for relief.
"Proceeding" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative,
except one initiated by an Indemnitee pursuant to Section 9 of this
Article to enforce his rights under this Article.
SECTION 13. Any communication required or permitted to the Corporation
shall be addressed to the Secretary of the Corporation and any such
communication to Indemnitee shall be addressed to his home address unless
he specifies otherwise and shall be personally delivered or delivered by
overnight mail delivery.
ARTICLE VIII.
AMENDMENTS
These By-laws may be altered, amended, added to or repealed by the
shareholders at any annual or special meeting, by the vote of shareholders
entitled to cast at least a majority of the votes which all shareholders
are entitled to cast (i.e., by the vote of a majority of the outstanding
shares entitled to vote), and, except as may be otherwise required by
law, the power to alter, amend, add to or repeal these By-laws is also
vested in the Board of Directors (subject always to the power of the
shareholders to change such action); provided, however, that notice of
the general nature of any such action proposed to be taken shall be
included in the notice of the meeting of shareholders or of the Board of
Directors at which such action is taken.
May 19, 1994
7
<TABLE>
EXHIBIT 12
PENNZOIL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
For the six months ended
June 30,
----------------------------------
1994 1993
------------- -------------
(Dollar amounts expressed in thousands)
<S> <C> <C>
Income from continuing operations $ 27,548 $ 55,764
Income taxes
Federal and foreign 11,819 20,250
State 3,262 3,804
------------- -------------
Total income taxes 15,081 24,054
Interest charges 96,720 105,816
------------- -------------
Income before income taxes and interest charges $ 139,349 $ 185,634
============= =============
Fixed charges $ 101,214 $ 110,400
============= =============
Ratio of earnings to fixed charges 1.38 1.68
============= =============
<CAPTION>
DETAIL OF INTEREST AND FIXED CHARGES
For the six months ended
June 30,
----------------------------------
1994 1993
------------- -------------
(Expressed in thousands)
<S> <C> <C>
Interest charges per Consolidated Statement of Income
which includes amortization of debt discount, expense and premium $ 89,664 $ 100,576
Add portion of rental expense representative of interest factor <F1> 11,550 9,824
------------- -------------
Total fixed charges $ 101,214 $ 110,400
Less interest capitalized per Consolidated Statement of Income 4,494 4,584
------------- -------------
Total interest charges $ 96,720 $ 105,816
============= =============
<FN>
<F1> Interest factor based on management's estimates and approximates one-third of rental expense.
</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, 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)
EXHIBIT
<PAGE>
PENNZOIL COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No.
- -----------
3(a) Bylaws of Pennzoil Company, as amended through May 19, 1994.
12 Computation of Ratio of Earnings to Fixed Charges for the six
months ended June 30, 1993 and 1994.
<PAGE>
