<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 June 30, 1996 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, 1996:
Common stock, par value $0.83-1/3 per share, 46,487,341
shares.
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<PAGE> 2
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
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Expressed in thousands except per share amounts)
<S> <C> <C> <C> <C>
REVENUES $ 636,580 $ 646,613 $1,223,921 $1,281,953
COSTS AND EXPENSES
Cost of sales 371,654 386,604 711,749 755,436
Selling, general and administrative expenses 82,910 103,001 169,547 202,458
Depreciation, depletion and amortization 73,009 90,815 138,999 183,426
Exploration expenses 11,863 11,309 21,708 20,381
Taxes, other than income 13,605 13,851 27,347 28,582
Interest charges, net 46,804 47,767 94,367 96,246
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX 36,735 (6,734) 60,204 (4,576)
Income tax provision (benefit) 12,192 (1,944) 19,892 (2,529)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 24,543 $ (4,790) $ 40,312 $ (2,047)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE $ .53 $ (.10) $ .87 $ (.04)
=========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE $ .25 $ .75 $ .50 $ 1.50
=========== =========== =========== ============
AVERAGE SHARES OUTSTANDING 46,447 46,218 46,420 46,188
=========== =========== =========== ===========
NUMBER OF SHARES OUTSTANDING 46,466 46,244 46,466 46,244
=========== =========== =========== ===========
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Expressed in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 38,789 $ 23,615
Receivables 357,161 335,876
Inventories
Crude oil, natural gas and sulphur 29,198 41,363
Motor oil and refined products 126,044 119,830
Deferred income tax 22,384 26,452
Other current assets 66,065 57,689
------------- -------------
Total current assets 639,641 604,825
Property, plant and equipment, net 2,454,247 2,418,025
Marketable securities and other investments 952,821 910,334
Other assets 339,584 374,592
------------- -------------
TOTAL ASSETS $ 4,386,293 $ 4,307,776
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,762 $ 2,263
Notes payable - 468,934
Accounts payable and accrued liabilities 264,385 330,263
Interest accrued 33,535 35,358
Other current liabilities 64,304 81,450
------------- -------------
Total current liabilities 363,986 918,268
Long-term debt 2,570,452 2,038,921
Deferred income tax 262,287 227,941
Other liabilities 301,810 286,414
------------- -------------
TOTAL LIABILITIES 3,498,535 3,471,544
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 887,758 836,232
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,386,293 $ 4,307,776
============= =============
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 4
PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30
---------------------------------
1996 1995
----------- -----------
(Expressed in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 40,312 $ (2,047)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 138,999 183,426
Dry holes and impairments 5,173 7,846
Deferred income tax 19,402 (3,296)
Non-cash and other nonoperating items 17,590 (9,376)
Change in operating assets and liabilities (122,670) 87,420
----------- -----------
Net cash provided by operating activities 98,806 263,973
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (262,113) (191,540)
Purchases of marketable securities and other investments (302,042) (309,486)
Proceeds from sales of marketable securities and other
investments 313,909 306,144
Proceeds from sales of assets 127,023 56,557
Other investing activities (3,525) (21,448)
----------- -----------
Net cash used in investing activities (126,748) (159,773)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, net 27,489 169,541
Debt and capital lease obligation repayments (645,365) (207,980)
Proceeds from issuance of debt 684,206 15,000
Dividends paid (23,214) (69,295)
----------- -----------
Net cash provided by (used in) financing activities 43,116 (92,734)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15,174 11,466
CASH AND CASH EQUIVALENTS, beginning of period 23,615 24,884
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 38,789 $ 36,350
=========== ===========
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</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. Certain prior period
items have been reclassified in the condensed consolidated
financial statements in order to conform with the current year
presentation.
(2) Adoption of New Accounting Standard -
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which established
an elective new standard on accounting for stock-based
compensation. SFAS No. 123 establishes a fair value-based method
of accounting for stock-based compensation plans awarded after
December 31, 1995 and encourages companies to adopt the accounting
method set forth in SFAS No. 123 in place of the existing
accounting method, which requires expense recognition only in
situations where stock compensation plans award intrinsic value to
employees at the date of grant. Companies that elect not to follow
SFAS No. 123 for accounting purposes must make annual pro forma
disclosure of its effects.
As of January 1, 1996, Pennzoil adopted SFAS No. 123 using the
pro forma disclosure method described in the pronouncement.
Accordingly, adoption of the statement did not affect Pennzoil's
results of operations or financial position. Information required
by SFAS No. 123 relating to stock-based compensation will be
included in footnotes to Pennzoil's audited financial statements.
(3) Transactions Involving Oil and Gas and Other Assets
In July 1996, Pennzoil completed two related transactions with
Gulf Canada Resources Limited ("Gulf Canada"): (i) the
establishment of a joint venture for the development of natural gas
reserves in the Zama area of northern Alberta and (ii) the sale by
Pennzoil of its remaining, non-strategic Canadian oil and gas
assets to Gulf Canada. After working capital and closing
adjustments, Pennzoil received net proceeds of US $192.8 million
from the sale of the Canadian oil and gas assets to Gulf Canada.
No material pretax gain or loss resulted from the sale, but an
after-tax gain, expected to be approximately $20 million, will be
recorded in the third quarter of 1996. The sale included 840,000
net acres of land, 75 percent of which is undeveloped. The
properties sold were located in Alberta and northwestern British
Columbia and included net proved reserves of approximately 35
million barrels ("MMbbls") of oil equivalent and were producing
approximately 5 thousand barrels ("Mbbls") per day of liquids and
33 million cubic feet ("MMcf") per day of natural gas, net of
royalties. Included in Pennzoil's consolidated results are
revenues of $26.9 million and operating income of $.2 million
from these properties during the first six months of 1996.
In July 1996, Pennzoil completed the sale of approximately half
of its interest in the Azeri-Chirag-Gunashli ("ACG") joint
development unit offshore Azerbaijan in the Caspian Sea to Exxon
Azerbaijan Limited ("Exxon"), ITOCHU Oil Exploration Co., Ltd.
("ITOCHU") and Unocal Khazar, Ltd. ("Unocal"). The three companies
<PAGE>
<PAGE> 6
PART I. FINANCIAL INFORMATION - continued
will pay approximately $130 million to Pennzoil for a 5 percent
working interest in the ACG unit (3.0006 percent to Exxon, 1.4705
percent to ITOCHU and 0.5289 percent to Unocal) and the right to
receive 51 percent of the payments due Pennzoil for reimbursement
of costs incurred in developing a gas utilization project for the
Gunashli Field. Cash payments are scheduled in three installments
with the first installment being made in two payments consisting of
approximately $83 million received at closing and another $5
million expected during the third quarter of 1996. Subsequent
installments of $22 million and $20 million are due at first
production and when the unit reaches production of 200,000 barrels
per day, respectively. Pennzoil retains a 4.8175 percent working
interest in the ACG unit. As part of the transaction, the three
companies will fund all of Pennzoil's future obligations in the ACG
project, retroactive to January 1, 1996, until all such
expenditures and accrued interest are recovered from Pennzoil's
share of production from the ACG unit. No gain or loss will result
from this transaction as proceeds from the sale will be applied to
reduce Pennzoil's net investment in the ACG unit.
In addition to its interest in the ACG unit, Pennzoil retains a
30 percent interest in a definitive exploration, development and
production sharing contract covering the Karabakh prospect, also
located in the Caspian Sea. The Karabakh agreement was ratified by
the Azerbaijan Parliament in February 1996.
In the first quarter of 1996, Pennzoil substantially completed
its domestic asset highgrading program and the related disposition
of noncore oil and gas assets commenced in 1992. Proceeds from the
sale of oil and gas assets totaled $88.6 million for the six months
ended June 30, 1996 with $88.1 million of those sales occurring
during the first quarter of 1996. Gains or losses on such sales
during the six months ended June 30, 1996 were insignificant.
In June 1996, Pennzoil signed a definitive agreement to sell
Vermejo Park Ranch to Vermejo Park, L.L.C., a Georgia limited
liability company. The ranch is located in northern New Mexico and
southern Colorado and is approximately 578,000 acres. Pennzoil
expects to record a pretax gain on the sale of approximately $40
million when the anticipated transaction closes in the third
quarter of 1996.
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, 1996
was $24.5 million, or $.53 per share, and $40.3 million, or $.87
per share, respectively. This compares with net losses of $4.8
million, or $.10 per share, for the second quarter of 1995 and $2.0
million, or $.04 per share, for the six months ended June 30, 1995.
The increase in earnings for the second quarter of 1996 and six
months ended June 30, 1996 compared to the prior year was primarily
due to improved results from the oil and gas segment and lower
overall operating costs and general and administrative expenses.
Oil and Gas
Operating income from this segment for the quarter and six
months ended June 30, 1996 was $65.5 million and $114.8 million,
respectively. This compares with operating income of $32.5 million
and $45.4 million, respectively, for the same periods in 1995. The
increase in operating income for both the quarter and six months
ended June 30, 1996 was primarily due to higher natural gas prices,
lower operating and general and administrative expenses and lower
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION - continued
depreciation, depletion and amortization ("DD&A") expense. The
lower DD&A expense experienced in the second quarter of 1996 and
six months ended June 30, 1996 was primarily attributable to lower
DD&A rates as a result of the July 1, 1995 write-down of assets
associated with the adoption of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and to a decrease in natural gas and liquids volumes
resulting from the disposition of noncore oil and gas properties.
Effective July 1, 1995, Pennzoil adopted the requirements of
SFAS No. 121 which, in certain instances, specifies that the
carrying values of assets be written down to fair values. For
Pennzoil, this resulted in write-downs of proved oil and gas
properties that were not required under its prior impairment
policy. The pretax charge taken in the third quarter of 1995 for
the asset impairment of Pennzoil's proved oil and gas properties
was $378.9 million.
Natural gas price realizations averaged $1.83 per thousand
cubic feet ("Mcf") and $1.81 per Mcf, respectively, for the quarter
and six months ended June 30, 1996, compared to $1.45 per Mcf and
$1.43 per Mcf, respectively, for the same periods in 1995. Natural
gas volumes produced for sale were 628.5 MMcf per day and 594.1
MMcf per day, respectively, for the quarter and six months ended
June 30, 1996, compared to 718.6 MMcf per day and 700.5 MMcf per
day, respectively, for the same periods in 1995. Liquids
production volumes were 65.0 Mbbls per day and 62.7 Mbbls per day,
respectively, for the quarter and six months ended June 30, 1996,
compared to 69.6 Mbbls per day and 71.4 Mbbls per day,
respectively, for the same periods in 1995.
In the first quarter of 1996, Pennzoil substantially completed
its domestic asset highgrading program and the related disposition
of noncore oil and gas assets commenced in 1992. Proceeds from the
sale of oil and gas assets totaled $88.6 million for the six months
ended June 30, 1996 with $88.1 million of those sales occurring
during the first quarter of 1996. Gains or losses on such sales
during the six months ended June 30, 1996 were insignificant.
In July 1996, Pennzoil completed two related transactions
with Gulf Canada: (i) the establishment of a joint venture for the
development of natural gas reserves in the Zama area of northern
Alberta and (ii) the sale by Pennzoil of its remaining, non-
strategic Canadian oil and gas assets to Gulf Canada. After working
capital and closing adjustments, Pennzoil received net proceeds of
US $192.8 million from the sale of the Canadian oil and gas assets
to Gulf Canada. No material pretax gain or loss resulted from the
sale, but an after-tax gain, expected to be approximately $20
million, will be recorded in the third quarter of 1996. The sale
included 840,000 net acres of land, 75 percent of which is
undeveloped. The properties sold were located in Alberta and
northwestern British Columbia and included net proved reserves of
approximately 35 MMbbls of oil equivalent and were producing
approximately 5 Mbbls per day of liquids and 33 MMcf per day of
natural gas, net of royalties. Included in Pennzoils's consolidated
results are revenues of $26.9 million and operating income of $.2
million from these properties during the first six months of 1996.
In July 1996, Pennzoil completed the sale of approximately half
of its interest in the ACG joint development unit offshore
Azerbaijan in the Caspian Sea to Exxon, ITOCHU and Unocal. The
three companies will pay approximately $130 million to Pennzoil for
a 5 percent working interest in the ACG unit (3.0006 percent to
Exxon, 1.4705 percent to ITOCHU and 0.5289 percent to Unocal) and
the right to receive 51 percent of the payments due Pennzoil for
reimbursement of costs incurred in developing a gas utilization
project for the Gunashli Field. Cash payments are scheduled in
three installments with the first installment being made in two
payments consisting of approximately $83 million received at
closing and another $5 million expected during the third quarter of
1996. Subsequent installments of $22 million and $20 million are
due at first production and when the unit reaches production of
200,000 barrels per day, respectively. Pennzoil retains a 4.8175
percent working interest in the ACG unit. As part of the
transaction, the three companies will fund all of Pennzoil's future
obligations in the ACG project, retroactive to January 1, 1996,
<PAGE>
<PAGE> 8
PART I. FINANCIAL INFORMATION - continued
until all such expenditures and accrued interest are recovered from
Pennzoil's share of production from the ACG unit. No gain or loss
will result from this transaction as proceeds from the sale will be
applied to reduce Pennzoil's net investment in the ACG unit.
In addition to its interest in the ACG unit, Pennzoil retains a
30 percent interest in a definitive exploration, development and
production sharing contract covering the Karabakh prospect, also
located in the Caspian Sea. The Karabakh agreement was ratified by
the Azerbaijan Parliament in February 1996.
Motor Oil & Refined Products
Operating income from this segment for the quarter and six
months ended June 30, 1996 was $15.8 million and $30.2 million,
respectively. This compares to operating income of $13.4 million
and $27.7 million, respectively, for the same periods in 1995.
The increase in operating income for the quarter and six
months ended June 30, 1996 from the comparable periods in 1995 was
primarily attributable to higher results from domestic marketing
and the international division. These increases were partially
offset by higher manufacturing expenses, and pre-operating
expenses related to Excel Paralubes, a joint venture partnership
with Conoco, Inc. for construction and operation of a new lube base
oil plant near Lake Charles, Louisiana. Completion of the plant
and initial startup is expected before year-end.
Franchise Operations
The franchise operations segment, operating through Pennzoil's
wholly owned subsidiary Jiffy Lube International, Inc. ("Jiffy
Lube"), recorded operating income of $5.3 million and $9.8 million,
respectively, for the quarter and six months ended June 30, 1996.
This compares with operating income of $5.0 million and $4.9
million, respectively, for the same periods in 1995. The increase
in operating income for the three months ended June 30, 1996 is
primarily due to lower selling, general and administrative ("SG&A")
expenses partially offset by startup costs associated with 26
company-operated centers opened since March 31, 1996. Operating
income for the six month period ended June 30, 1996 was $9.8
million compared to $4.8 million for the same period in 1995.
Results for 1995 included net charges of $6.0 million
related to litigation settlements. Operating income for the six
month period of 1995 was $10.8 million after adjusting for
these charges. Results for the first six months of 1996
reflect the first quarter impact of severe winter weather-related
costs in the northeastern part of the United States where Jiffy
Lube has a high concentration of company-operated stores as well as
the startup costs associated with 41 company-operated centers
opened since December 31, 1995. These costs were partially offset
by lower SG&A expenses for the six month period as compared to
the prior year.
Domestic systemwide sales reported on a comparable store basis
for the quarter and six months ended June 30, 1996 increased $.8
million and $6.3 million, respectively, from comparable periods in
1995. There were 1,275 domestic lube centers (including 499 Jiffy
Lube company-operated centers) open as of June 30, 1996.
Beginning in 1995, Jiffy Lube and the Sears Merchandise Group
("Sears") agreed to open fast-oil change units in Sears Auto
Centers over a three year period. Under the agreement, Jiffy Lube
remodels, equips and operates service areas within the Sears Auto
Centers, while Sears continues to utilize the remaining bays for
its operations. As of June 30, 1996, there were 57 Jiffy Lube units
open and operating within Sears Auto Centers. Sears and Jiffy Lube
will continue to review the market and work toward agreement on the
final plans for additional units.
<PAGE>
<PAGE> 9
PART I. FINANCIAL INFORMATION - continued
Other
Other operating income for the quarter and six months ended
June 30, 1996 was $10.3 million and $25.8 million, respectively,
compared with $6.9 million and $47.9 million for the same periods
in 1995. The increase in other operating income for the quarter
ended June 30, 1996, compared to the same period in 1995, was
partially due to higher investment income. The decrease in other
operating income for the six months ended June 30, 1996, compared
to the same period in 1995, was primarily due to a favorable
resolution of a Texas franchise tax issue, which resulted in
Pennzoil's receiving a $23.2 million refund in the second quarter
of 1995. In addition, Pennzoil received approximately $1.5 million
in interest associated with the franchise tax refund.
Pennzoil's other income includes dividend income of $9.0
million and $18.1 million for the quarter and six months ended June
30, 1996, respectively, from its investment in common stock of
Chevron Corporation ("Chevron"). In July 1996, Chevron increased
the amount of quarterly dividends paid to holders of its common
stock from $.50 per share to $.54 per share. Pennzoil beneficially
owns 18,071,036 shares of common stock of Chevron.
Net interest expense for the quarter and six months ended June
30, 1996 decreased $1.0 million and $1.8 million, respectively,
from the same periods in 1995 primarily due to increased
capitalized interest.
In June 1996, Pennzoil signed a definitive agreement to sell
Vermejo Park Ranch to Vermejo Park, L.L.C., a Georgia limited
liability company. The ranch is located in northern New Mexico and
southern Colorado and is approximately 578,000 acres. Pennzoil
expects to record a pretax gain on the sale of approximately
$40 million when the anticipated transaction closes in the third
quarter of 1996.
Capital Resources and Liquidity
Cash Flow. As of June 30, 1996, Pennzoil had cash and cash
equivalents of $38.8 million. During the six months ended June 30,
1996, cash and cash equivalents increased $15.2 million. Cash
flows from operating activities totaled $98.8 million during the
first six months of 1996.
Debt Instruments and Repayments. In May 1996, Pennzoil entered
into a revolving credit facility with a group of banks which
provides for up to $600 million of unsecured revolving credit
borrowings through May 1997, with any outstanding borrowings at
such time being converted into a term facility terminating in May
1998. Pennzoil has the option, subject to the extension of
additional credit by new or existing banks, to increase the size of
the facility by $100 million. This revolving credit facility
replaces and supersedes the previous revolving credit facility of
Pennzoil. As of June 30, 1996, borrowings totaled $90.0 million.
As of June 30, 1996, borrowings under Pennzoil's
commercial paper and variable-rate credit arrangements totaled
$496.4 million, all of which, beginning with the execution of the
aforementioned revolving credit facility, has been classified as
long-term debt. Such debt classification is based upon the
availability of committed long-term credit facilities to
refinance such commercial paper and short-term borrowings and
Pennzoil's intent to maintain such amounts in excess of one year
subject to overall reductions in debt levels. Similar borrowings
totaling $468.9 million were reflected as short-term debt as of
December 31, 1995.
In July 1996, Pennzoil completed a sale of its non-strategic
Canadian oil and gas assets to Gulf Canada. Pennzoil received net
proceeds of US $192.8 million which were used to reduce outstanding
debt under Pennzoil's Canadian revolving debt facility. In
addition, Pennzoil completed the sale of approximately half of its
interest in the ACG joint development unit offshore Azerbaijan in
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION - continued
the Caspian Sea. Pennzoil used the $83 million proceeds received
at closing to reduce outstanding debt.
Price Risk Management. Pennzoil has a price risk management
program that permits utilization of agreements and financial
instruments (such as futures, forward and option contracts and
swaps and collars) to reduce the price risks associated with
fluctuations in crude oil and natural gas prices. The primary
purpose of the program, as it relates to 1996 crude oil and natural
gas production, is to help provide Pennzoil with sufficient cash
from operations in 1996 to fund its capital spending program
without increasing debt. As of June 30, 1996, Pennzoil had entered
into transactions that committed an average of approximately 301
MMcf per day of natural gas for the remainder of 1996 to be sold at
fixed prices (New York Mercantile Exchange ("NYMEX")-based) ranging
from $1.73 to $2.71 per Mcf, with a weighted average price of $1.83
per Mcf, and Pennzoil had entered into transactions that committed
an average of approximately 37 Mbbls per day of crude oil for the
remainder of 1996 to be sold at fixed prices (NYMEX-based) ranging
from $16.75 per barrel to $17.53 per barrel, with a weighted
average price of $16.97 per barrel. Pennzoil will constantly
review and may alter its hedged positions as conditions change.
<PAGE>
<PAGE> 11
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
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Dollar amounts expressed in thousands)
<S> <C> <C> <C> <C>
REVENUES
Oil and Gas $ 204,218 $ 201,843 $ 379,300 $ 391,019
Motor Oil & Refined Products 438,517 400,718 831,666 779,001
Franchise Operations 76,576 72,879 147,991 139,999
Other 13,330 13,424 35,288 55,456
Intersegment sales (96,061) (42,251) (170,324) (83,522)
----------- ----------- ----------- -----------
Total revenues $ 636,580 $ 646,613 $1,223,921 $1,281,953
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)
Oil and Gas $ 65,484 $ 32,475 $ 114,807 $ 45,383
Motor Oil & Refined Products 15,780 13,394 30,208 27,659
Franchise Operations 5,311 5,046 9,836 4,898
Other 10,315 6,856 25,802 47,914
----------- ----------- ----------- -----------
Total operating income 96,890 57,771 180,653 125,854
Corporate administrative expenses 13,351 16,738 26,082 34,184
Interest charges, net 46,804 47,767 94,367 96,246
----------- ----------- ----------- -----------
Income (loss) before income tax 36,735 (6,734) 60,204 (4,576)
Income tax provision (benefit) 12,192 (1,944) 19,892 (2,529)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 24,543 $ (4,790) $ 40,312 $ (2,047)
============ ============ =========== ===========
RATIO OF EARNINGS TO FIXED CHARGES 1.51 -
=========== ===========
AMOUNT BY WHICH FIXED CHARGES EXCEED EARNINGS $ - $ 7,351
=========== ===========
</TABLE>
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<PAGE> 12
PART I. FINANCIAL INFORMATION - continued
<TABLE>
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING DATA
- --------------
OIL AND GAS
Net production
Crude oil, condensate and natural
gas liquids (barrels per day) 65,009 69,584 62,706 71,445
Natural gas produced for sale (Mcf per day) 628,472 718,606 594,123 700,540
Weighted average prices
Crude oil, condensate and natural
gas liquids (per barrel) $ 15.51 $ 15.01 $ 14.86 $ 14.66
Natural gas (per Mcf) $ 1.83 $ 1.45 $ 1.81 $ 1.43
MOTOR OIL & REFINED PRODUCTS
Sales (barrels per day)
Gasoline and naphtha 21,177 19,211 20,898 20,464
Distillates and gas oils 26,527 28,319 27,078 28,403
Lubricating oil and other specialty products 24,807 24,037 23,328 24,039
Residual fuel oils 4,095 3,737 4,068 3,916
----------- ----------- ----------- -----------
Total sales (barrels per day) 76,606 75,304 75,372 76,822
=========== =========== =========== ===========
Raw materials processed (barrels per day) 54,148 54,328 52,782 54,936
Refining capacity (barrels per day) 62,700 62,700 62,700 62,700
FRANCHISE OPERATIONS
Domestic systemwide sales (in thousands) $ 178,596 $ 167,679 $ 343,414 $ 320,213
Same center sales (in thousands) $ 167,103 $ 166,221 $ 323,459 $ 317,161
Centers open (U.S.) 1,275 1,142 1,275 1,142
</TABLE>
<PAGE>
<PAGE> 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Shareholders
May 9, 1996
<TABLE>
<CAPTION>
Broker
(c) Proposals For Against Withheld Abstain Non-Votes
----------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Election of Directors
Alfonso Fanjul 39,641,855 - 728,735 - -
Berdon Lawrence 39,743,031 - 627,559 - -
Brent Scowcroft 39,559,045 - 811,545 - -
Cyril Wagner, Jr. 39,748,525 - 622,065 - -
Approval of Appointment of
Arthur Andersen LLP
As Independent Public
Accountants 39,968,136 266,068 - 136,386 -
Amendment of the
Restated Certificate
of Incorporation 34,676,217 329,578 - 293,541 5,071,254
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
12 Computation of Ratio of Earnings to Fixed Charges for the
six months ended June 30, 1996 and 1995.
27 Financial Data Schedule
(b) Reports -
Pennzoil filed with the Securities and Exchange Commission a
current report on Form 8-K dated July 17, 1996 reporting that
Pennzoil had completed a sale of a significant portion of its'
Canadian oil and gas assets to Gulf Canada. Reference is made to
Note 3 of Notes to Condensed Consolidated Financial Statements.
<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 Michael J. Maratea
Michael J. Maratea
Vice President and Controller
August 12, 1996
<TABLE>
EXHIBIT 12
PENNZOIL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
For the six months ended
June 30,
----------------------------------
1996 1995
------------- -------------
(Dollar amounts expressed in thousands)
<S> <C> <C>
Net Income (Loss) $ 40,312 $ (2,047)
Income tax provision (benefit)
Federal and foreign 17,616 (3,588)
State 2,276 1,059
------------- -------------
Total income tax provision (benefit) 19,892 (2,529)
Interest charges 106,625 108,929
------------- -------------
Income before income tax provision (benefit) and interest charges $ 166,829 $ 104,353
============= =============
Fixed charges $ 110,407 $ 111,704
============= =============
Ratio of earnings to fixed charges 1.51 .93
============= =============
Amount by which fixed charges exceed earnings $ - $ 7,351
============= =============
<CAPTION>
DETAIL OF INTEREST AND FIXED CHARGES
For the six months ended
June 30,
----------------------------------
1996 1995
------------- -------------
(Expressed in thousands)
<S> <C> <C>
Interest charges per Consolidated Statement of Income
which includes amortization of debt discount, expense and premium $ 98,149 $ 99,021
Add: portion of rental expense representative of interest factor <F1> 12,258 12,683
------------- -------------
Total fixed charges $ 110,407 $ 111,704
Less: interest capitalized per Consolidated Statement of Income 3,782 2,775
------------- -------------
Total interest charges $ 106,625 $ 108,929
============= =============
<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, 1996 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.
- -----------
12 Computation of Ratio of Earnings to Fixed Charges for the six
months ended June 30, 1996 and 1995.
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 38,789
<SECURITIES> 0
<RECEIVABLES> 366,226
<ALLOWANCES> 9,065
<INVENTORY> 155,242
<CURRENT-ASSETS> 639,641
<PP&E> 6,086,948
<DEPRECIATION> 3,632,701
<TOTAL-ASSETS> 4,386,293
<CURRENT-LIABILITIES> 363,986
<BONDS> 2,074,029
<COMMON> 43,507
0
0
<OTHER-SE> 844,251
<TOTAL-LIABILITY-AND-EQUITY> 4,386,293
<SALES> 1,179,078
<TOTAL-REVENUES> 1,223,921
<CGS> 711,749
<TOTAL-COSTS> 733,457
<OTHER-EXPENSES> 166,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,367
<INCOME-PRETAX> 60,204
<INCOME-TAX> 19,892
<INCOME-CONTINUING> 40,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,312
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
