<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 September 30, 1998 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 of 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 stock, as of
latest practicable date, October 31, 1998:
Preferred stock, par value $1.00 per share, 1,500,000
shares.
Common stock, par value $0.83-1/3 per share, 47,810,419
shares.
<PAGE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Expressed in thousands except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 124,668 $ 205,619 $ 427,619 $ 633,000
Investment and other income, net 240,644 20,778 277,919 32,354
----------- ----------- ----------- -----------
Total revenues 365,312 226,397 705,538 665,354
COSTS AND EXPENSES
Operating expenses 59,004 52,138 163,752 156,782
Selling, general and administrative 31,208 11,273 47,334 23,931
Depreciation, depletion and amortization 49,718 60,211 159,702 167,598
Exploration expense 85,494 18,791 117,389 41,110
Taxes, other than income 7,726 9,370 23,585 28,230
Interest charges, net 40,094 39,839 119,523 118,653
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX 92,068 34,775 74,253 129,050
Income tax provision 33,249 10,898 21,084 42,562
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM 58,819 23,877 53,169 86,488
Income from discontinued Pennzoil Products
Group operations, net of tax (See note 2) 9,442 13,947 33,579 32,763
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 68,261 37,824 86,748 119,251
Extraordinary items, net of tax (See note 4) (205,549) (2,575) (205,549) (2,575)
----------- ----------- ----------- -----------
NET INCOME (LOSS) (137,288) 35,249 (118,801) 116,676
Preferred stock dividends 2,434 - 3,191 -
----------- ----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS $ (139,722) $ 35,249 $ (121,992) $ 116,676
=========== =========== =========== ===========
NET INCOME (LOSS) $ (137,288) $ 35,249 $ (118,801) $ 116,676
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX 42,810 (1,695) 38,292 (5,388)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (94,478) $ 33,554 $ (80,509) $ 111,288
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE
Continuing operations $ 1.17 $ 0.50 $ 1.05 $ 1.83
Discontinued operations 0.20 0.30 0.70 0.70
Extraordinary item (4.30) (0.05) (4.31) (0.05)
----------- ----------- ----------- -----------
TOTAL BASIC EARNINGS (LOSS) PER SHARE $ (2.93) $ 0.75 $ (2.56) $ 2.48
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $ 1.17 $ 0.49 $ 1.03 $ 1.80
Discontinued operations 0.20 0.29 0.70 0.69
Extraordinary item (4.28) (0.05) (4.26) (0.05)
----------- ----------- ----------- -----------
TOTAL DILUTED EARNINGS (LOSS) PER SHARE $ (2.91) $ 0.73 $ (2.53) $ 2.44
=========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE $ 0.25 $ 0.25 $ 0.75 $ 0.75
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING
Basic 47,761 47,208 47,682 47,002
=========== =========== =========== ===========
Diluted 47,957 48,365 48,225 47,760
=========== =========== =========== ===========
END OF PERIOD SHARES OUTSTANDING 47,790 47,382 47,790 47,382
=========== =========== =========== ===========
<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
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
(Unaudited)
(Expressed in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 12,251 $ 9,462
Receivables 118,511 150,979
Crude oil and natural gas inventories 7,194 6,638
Deferred income tax 19,794 19,479
Other current assets 23,811 68,796
------------- -------------
Total current assets 181,561 255,354
Property, plant and equipment, net 1,732,253 1,708,420
Marketable securities and other investments 609,545 900,421
Net assets of discontinued Pennzoil Products Group operations (See Note 2) 1,073,593 1,076,942
Other assets 35,008 42,069
------------- -------------
TOTAL ASSETS $ 3,631,960 $ 3,983,206
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 822 $ -
Accounts payable and accrued liabilities 128,294 224,847
Interest accrued 44,069 30,016
Other current liabilities 27,919 44,206
------------- -------------
Total current liabilities 201,104 299,069
Long-term debt, less current maturities
Exchangeable debentures 738,641 889,027
Other long-term debt 1,181,492 1,258,722
------------- -------------
Total long-term debt, less current maturities 1,920,133 2,147,749
Deferred income tax 224,108 287,498
Other liabilities 108,073 110,351
------------- -------------
TOTAL LIABILITIES 2,453,418 2,844,667
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 1,178,542 1,138,539
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,631,960 $ 3,983,206
============= =============
<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>
Nine Months Ended
September 30
---------------------------------
1998 1997
----------- -----------
(Expressed in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (118,801) $ 116,676
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 159,702 167,598
Dry holes and impairments 80,160 19,441
Deferred income tax (91,147) 17,168
Extraordinary loss associated with refinancing
of exchangeable debentures 321,170 -
Gain on sale of securities associated with
refinancing of exchangeable debentures (230,083) -
Other non-cash items 12,798 16,126
Income from discontinued Pennzoil Products
Group operations, net of tax (33,579) (32,763)
Changes in operating assets and liabilities 27,721 58,018
----------- -----------
Net cash provided by operating activities 127,941 362,264
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (330,586) (288,575)
Purchases of marketable securities and other investments (479,662) (431,394)
Proceeds from sales of marketable securities and other
investments 599,209 437,031
Proceeds from sales of assets 62,010 5,466
Other investing activities (44,178) (20,738)
----------- -----------
Net cash used in investing activities (193,207) (298,210)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from/(repayments of) notes payable (49,508) 60,328
Debt and capital lease obligation repayments (848,565) (1,169,024)
Proceeds from issuance of debt 820,000 1,165,000
Net proceeds from issuance of preferred stock 147,000 -
Dividends paid (38,962) (35,272)
Other financing activities 1,162 31,159
----------- -----------
Net cash provided by financing activities 31,127 52,191
----------- -----------
CASH PROVIDED BY (USED IN) DISCONTINUED PENNZOIL
PRODUCTS GROUP OPERATIONS 36,928 (113,610)
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,789 2,635
CASH AND CASH EQUIVALENTS, beginning of period 9,462 18,586
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 12,251 $ 21,221
=========== ===========
<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) Discontinued Operations -
On April 14, 1998, Pennzoil, Pennzoil's subsidiary Pennzoil
Products Company ("PPC") and Downstream Merger Company, a wholly
owned subsidiary of PPC ("Merger Sub"), entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Quaker State
Corporation ("Quaker State"). The Merger Agreement and related
agreements provide for the separation of Pennzoil's motor oil,
refined products and fast lube operations (which generally include
PPC and Jiffy Lube International, Inc. ("Jiffy Lube") and their
respective subsidiaries and is collectively referred to as
"Pennzoil Products Group") from its exploration and production
operations and for the combination of the motor oil, refined
products and fast lube operations with Quaker State.
The transactions contemplated by the Merger Agreement are (1)
a pro rata distribution (or spin-off), on a share-for-share basis,
of all of the issued and outstanding Common Stock of PPC (which,
among other things, will at such time hold the motor oil and
refined products operations of PPC and the fast lube operations of
Jiffy Lube) to the holders of Common Stock of Pennzoil and (2) a
merger of Merger Sub with and into Quaker State, in which holders
of Capital Stock of Quaker State will receive, in exchange for each
share held, 0.8204 shares of Common Stock of PPC. Immediately
following the transactions contemplated by the Merger Agreement,
approximately 38.5% of PPC will be owned by former Quaker State
stockholders and approximately 61.5% of PPC will be owned by
shareholders of Pennzoil.
Quaker State's stockholders approved the merger on September
18, 1998 and the required waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 has expired. The spin-off
and merger are expected to occur during the fourth quarter of 1998
following the anticipated receipt of a favorable tax ruling from
the Internal Revenue Service.
The historical operating results of Pennzoil Products Group
are shown net of tax as discontinued operations in the Condensed
Consolidated Statement of Income and Comprehensive Income. The net
assets of discontinued operations in the Condensed Consolidated
Balance Sheet include those assets and liabilities attributable to
the Pennzoil Products Group's businesses. In addition, Pennzoil's
historical financial position and results of operations have been
adjusted to reflect discontinued operations for all periods
presented.
<PAGE>
<PAGE> 6
PART I. FINANCIAL INFORMATION - continued
In connection with the spin-off, certain intercompany
indebtedness, including affiliated payables and notes payable, is
to be repaid by Pennzoil Products Group to Pennzoil immediately
prior to the transaction. The maximum payment is the total of $500
million plus outstanding cash of Pennzoil Products Group, less
existing third party debt and capital lease obligations of Pennzoil
Products Group. This anticipated payment has not been reflected in
the discontinued operations of Pennzoil Products Group.
After-tax earnings from discontinued operations for the
quarter and nine months ended September 30, 1998 were $9.4 million
and $33.6 million, respectively. This compares to $13.9 million
and $32.8 million, respectively, for the same periods in 1997. Taxes
on earnings from discontinued operations for the quarter and nine
months ended September 30, 1998 were $6.9 million and $24.5 million,
respectively. This compares to $10.3 million and $24.4 million,
respectively, for the same periods in 1997. Revenue included in
discontinued operations for the quarter and nine months ended
September 30, 1998 was $474.9 million and $1,417.3 million,
respectively. This compares to $515.7 million and $1,545.0
million, respectively, for the same periods in 1997.
The components of net assets of discontinued Pennzoil Products
Group operations at September 30, 1998 and December 31, 1997 are
summarized as follows:
<TABLE>
September 30, December 31,
1998 1997
------------- -------------
(Expressed in thousands)
<S> <C> <C>
Current Assets $ 403,944 $ 399,360
Property, plant and equipment, net 800,394 790,177
Goodwill 159,902 158,489
Other assets 218,253 211,597
Current liabilities (245,078) (246,926)
Long-term debt and capital lease obligations (113,854) (116,936)
Other liabilities (149,968) (118,819)
------------- -------------
$ 1,073,593 $ 1,076,942
============= =============
</TABLE>
(3) New Accounting Standards -
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosure about Segments of an Enterprise and Related
Information," which establishes standards for reporting information
about operating segments in annual financial statements and
requires that selected information be reported about the operating
segments in interim financial reports issued to the shareholders.
It also establishes standards for related disclosure about products
and services, geographic areas, and major customers. Pennzoil
plans to adopt SFAS No. 131 in its annual financial statement
disclosures for the fiscal year ending December 31, 1998.
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION - continued
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") No. 98-
1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This SOP is effective for fiscal years
beginning after December 15, 1998 and earlier adoption is
permitted. The adoption of SOP No. 98-1 is not expected to have a
material impact on Pennzoil's results of operations.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on
the Costs of Start-Up Activities." This SOP is effective for
financial statements for fiscal years beginning after December 15,
1998 and earlier adoption is permitted. Pennzoil is currently
evaluating the impact of SOP No. 98-5.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This SFAS
establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. This standard also
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the
income statement, and requires a company to formally document,
designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999 and early adoption is
permitted. The effect of adopting SFAS No. 133 has not been
determined, but is not expected to have a material impact on
Pennzoil's results of operations (Reference is made to Note 5 of
Notes to Condensed Consolidated Financial Statements).
(4) Debt -
On July 1, 1998, Pennzoil commenced an offer to issue new
exchangeable senior debentures ("New Debentures") in exchange for a
portion of its 6.50% Exchangeable Senior Debentures (the "6.50%
Debentures") and 4.75% Exchangeable Senior Debentures (the "4.75%
Debentures"). The exchange offer expired on July 31, 1998 and on
August 3, 1998, Pennzoil issued $443.8 million principal amount of
new 4.90% Debentures in exchange for $211.6 million principal
amount of 6.50% Debentures and $317.4 million principal amount of
new 4.95% Debentures in exchange for $211.6 million principal
amount of 4.75% Debentures. Pennzoil realized a pretax
extraordinary loss on early extinguishment of debt of $318.4
million, which is the difference between the carrying amount of the
exchanged debentures of $420.7 million (net of related unamortized
debt issue costs of $2.5 million) and the estimated market value
(net of discount) of the New Debentures being issued of $739.1
million. After an income tax benefit of $114.6 million, the
extraordinary loss totaled $203.8 million.
Holders of the remaining $464.2 million of the 6.50% and 4.75%
Debentures exercised their exchange rights to obtain either shares
of Chevron Corporation ("Chevron") common stock or the cash value
thereof. Pennzoil delivered Chevron common stock with a historical
cost of $308.0 million for substantially all of the exchange
requests resulting in a realized pretax gain of $156.2 million
included in investment and other income, net on the Condensed
Consolidated Statement of Income and Comprehensive Income, and an
extraordinary loss of $1.7 million on the write-off of the
remaining unamortized debt issue cost net of an income tax benefit
of $0.9 million.
<PAGE>
<PAGE> 8
PART I. FINANCIAL INFORMATION - continued
Completion of the exchange offers allowed Pennzoil to release
and sell on the open market approximately 1.5 million shares of
Chevron common stock that previously had been allocated for the
exchange rights of the 6.50% Debentures and 4.75% Debentures.
Pennzoil realized pretax income of $73.9 million through the sale
of these shares.
Each 4.90% Debenture and each 4.95% Debenture is exchangeable
into 9.3283 shares of Chevron common stock; each matures on August
15, 2008 and is not callable until August 15, 2000. The New
Debentures are exchangeable at the option of the holders at any
time prior to maturity, unless previously redeemed, for shares of
Chevron common stock. In lieu of delivering Chevron common stock,
Pennzoil may, at its option, pay to any holder an amount in cash
equal to the market value of the Chevron common stock to satisfy
the exchange request. Changes in the fair value of the New
Debentures, which fluctuates with changes in the market value of
Chevron common stock, will be recorded in income.
(5) Use of Derivatives -
Pennzoil has a price risk management program that utilizes
derivative financial instruments, principally crude oil and natural
gas swaps, to reduce the price risks associated with fluctuations
in crude oil and natural gas prices. These financial instruments
are designated as hedges and accounted for on the accrual basis
with gains and losses being recognized based on the type of
contract and exposure being hedged. Realized gains or losses on
crude oil and natural gas swaps designated as hedges of anticipated
transactions related to anticipated production are treated as
deferred credits or charges and are included in other current
liabilities or other current assets on the balance sheet. Net
gains and losses on crude oil and natural gas swaps designated as
hedges of anticipated transactions, including accrued gains or
losses upon maturity or termination of the contract, are deferred
and recognized in income when the associated hedged commodities are
produced.
In order for crude oil and natural gas swaps to qualify as a
hedge of an anticipated transaction, the derivative contract must
identify the expected date of the transaction, the commodity
involved, and the expected quantity to be purchased or sold. In
the event that a hedged transaction does not occur, future gains
and losses, including termination gains or losses, are included in
the income statement when incurred. In the statement of cash
flows, cash receipts or payments related to financial instruments
are classified consistent with the cash flows from the transaction
being hedged. Effective January 1, 2000, the accounting for
derivative financial instruments will be amended as required
pursuant to SFAS No. 133 (Reference is made to Note 3 of Notes to
Condensed Consolidated Financial Statements). Under this new
standard, crude oil and natural gas swaps used to hedge future
crude oil and natural gas production will be marked to fair value
with unrealized changes in the fair value of the crude oil and
natural gas swaps recorded as comprehensive income. At the time of
maturity or termination of the contract, any deferred gain or loss
is recognized in earnings.
Pennzoil has not materially hedged crude oil or natural gas
prices in 1998. Pennzoil will continually review and may alter its
hedged positions as conditions change.
<PAGE>
<PAGE> 9
PART I. FINANCIAL INFORMATION - continued
(6) Earnings Per Share -
Earnings per share of common stock outstanding were computed as
follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Expressed in thousands except per share amounts)
<S> <C> <C> <C> <C>
Income from continuing operations $ 58,819 $ 23,877 $ 53,169 $ 86,488
Less: Preferred stock dividend 2,434 - 3,191 -
Income from continuing operations available
to common shareholders $ 56,385 $ 23,877 $ 49,978 $ 86,488
Basic weighted average shares 47,761 47,208 47,682 47,002
Effect of dilutive securities <F1>:
Options 51 1,037 396 638
Awards 145 120 147 120
Diluted weighted average shares 47,957 48,365 48,225 47,760
Per share income from continuing operations
available to common shareholders
Basic $ 1.17 $ 0.50 $ 1.05 $ 1.83
Diluted $ 1.17 $ 0.49 $ 1.03 $ 1.80
<FN>
<F1> A weighted average number of options to purchase 2,851,247 and
169,280 shares of common stock were outstanding for the three
months ended September 30, 1998 and 1997, respectively, but
were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than
the average market price of the common shares. A weighted
average number of options to purchase 1,524,082 and 863,948
shares of common stock were outstanding for the nine months
ended September 30, 1998 and 1997, respectively, but were not
included in the computation of diluted earnings per share
because the options' exercise prices were greater than the
average market price of the common shares.
</FN>
</TABLE>
(7) Comprehensive Income -
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which requires that an enterprise classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance
sheet. Pennzoil adopted SFAS No. 130 in the first quarter of 1998.
Components of comprehensive income consist of foreign currency
translation adjustments, unrealized holding gains and losses on
available-for-sale securities and minimum pension liability. Other
comprehensive income for the quarter and nine months ended
September 30, 1998 is primarily related to unrealized holding gains
on Chevron common stock of $43.9 million.
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION - continued
(8) Preferred Stock -
On June 2, 1998, Pennzoil issued 1,500,000 shares of cumulative
preferred stock at $100 per share. Dividends on the 6.49% Series A
Cumulative Preferred Stock, par value $1.00 per share, are
cumulative from the date of original issue and will be payable
quarterly, in cash, when declared by the Board of Directors of the
Company, commencing September 30, 1998. Preferred dividends are
required to be deducted from net income in determining net income
per common share. The Series A Cumulative Preferred Stock will be
redeemable at the option of Pennzoil at any time on or after June
2, 2008, in whole or in part, at a redemption price of $100 per
share, plus accrued and unpaid dividends to the redemption date.
(9) Statement of Cash Flow Information -
Significant noncash investing and financing activities are as
follows:
1. In August 1998, Pennzoil issued $761.2 million in new
exchangeable senior debentures in exchange for $432.2
million of its 6.50% and 4.75% exchangeable senior
debentures. Reference is made to Note 4 of Notes to
Condensed Consolidated Financial Statements.
2. In August 1998, Pennzoil exchanged Chevron common
stock with a historical cost of $308.0 million for
$464.2 million in 6.50% and 4.75% exchangeable senior
debentures. Reference is made to Note 4 of Notes to
Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Continuing Operations
Before extraordinary items totaling $205.5 million, income
from continuing operations available to common shareholders for the
quarter and nine months ended September 30, 1998 was $56.4 million,
or $1.17 per share, and $50.0 million, or $1.05 per share,
respectively. This compares with net income available to common
shareholders before extraordinary items of $23.9 million, or $0.50
per share, for the third quarter of 1997 and $86.5 million, or
$1.83 per share, for the nine months ended September 30, 1997.
The income increase for the quarter ended September 30, 1998
compared to the same period in 1997 was primarily due to a gain on
the disposition of Chevron common stock and the exchange of a
portion of Pennzoil's old debentures for Chevron stock (Reference
is made to Note 4 of Notes to Condensed Consolidated Financial
Statements) partially offset by higher exploration expense, lower
realized liquids prices, lower natural gas production volumes and
charges associated with the pending merger of Pennzoil Products
Group with Quaker State. The income decrease for the nine months
ended September 30, 1998 compared to the same period in 1997 was
primarily due to higher exploration expense, lower realized liquids
prices and lower natural gas production volumes.
Oil and Gas
Operating loss for the quarter and nine months ended September
30, 1998 was $77.9 million and $22.2 million, respectively. This
compares with operating income of $67.7 million and $244.0 million,
respectively, for the same periods in 1997. The decrease in
operating income for the quarter and nine months ended September
30, 1998, compared to the same periods in 1997, was primarily due to
higher exploration expense, lower realized liquids prices and lower
natural gas production volumes.
<PAGE>
<PAGE> 11
PART I. FINANCIAL INFORMATION - continued
Natural gas price realizations averaged $1.91 per thousand
cubic feet ("Mcf") and $2.04 per Mcf, respectively, for the quarter
and nine months ended September 30, 1998, compared to $2.09 per Mcf
and $2.25 per Mcf, respectively, for the same periods in 1997.
Liquids price realizations averaged $9.79 per barrel and $11.07 per
barrel for the quarter and nine months ended September 30, 1998,
compared to $15.55 per barrel and $16.77 per barrel, respectively,
for the same periods in 1997. Natural gas volumes produced for
sale were 434.2 million cubic feet ("MMcf") per day and 471.6 MMcf
per day, respectively, for the quarter and nine months ended
September 30, 1998, compared to 619.4 MMcf per day and 586.7 MMcf
per day, respectively, for the same periods in 1997. Liquids
production volumes were 53.7 thousand barrels ("Mbbls") per day and
54.2 Mbbls per day, respectively, for the quarter and nine months
ended September 30, 1998, compared to 59.9 Mbbls per day and 58.8
Mbbls per day, respectively, for the same periods in 1997. The
lower volumes are primarily attributable to production declines at
Pennzoil's West Cameron 580 field, the sale of Pennzoil's remaining
Canadian natural gas interests in December 1997 and hurricane
related production curtailment in and adjacent to the Gulf of
Mexico.
In the Gulf of Mexico, new wells at West Cameron 575 and West
Cameron 291 came on stream during the third quarter of 1998 and
additional wells at West Cameron 575 and Ship Shoal 154 will come
on stream in the fourth quarter of 1998. Pennzoil is also
continuing its in-fill drilling program in the Carthage field in
east Texas and its enhanced oil recovery project in SACROC in west
Texas. Pennzoil's onshore domestic drilling program for the fourth
quarter of 1998 includes six south Louisiana and south Texas
exploration wells. Pennzoil also spud an offshore exploration well
at High Island 19 and production tests are being performed on South
Marsh Island 23J-1 to establish commerciality.
Internationally, the Azerbaijan International Operating
Company ("AIOC") delivered its first oil shipment to the Black Sea
in March from the Azeri-Chirag-Gunashli ("ACG") joint development
area offshore Baku in the Caspian Sea. At the end of the third
quarter of 1998, daily oil production at ACG was 72,000 barrels.
This production should rise to an estimated 100,000 barrels per day
by year-end 1998. The ACG joint development area is estimated to
contain 4.9 billion barrels of crude oil. Pennzoil has a 4.8
percent carried interest in the field.
On the nearby Karabakh prospect, Pennzoil took a $34.9 million
charge in the third quarter of 1998 after Caspian International
Petroleum Company ("CIPCO"), the joint operating company in which
Pennzoil has a 30 percent interest, determined that the first two
exploratory wells were not commercial. CIPCO is presently drilling
the final commitment well on the prospect and should be to total
depth by mid November 1998.
In Egypt, Pennzoil has five concessions covering 9.2 million
acres. Four of the concessions are in the Gulf of Suez: North July
(100 percent Pennzoil), West Feiran (50 percent Pennzoil),
Southwest Gebel el-Zeit (43.75 percent Pennzoil), and Southeast
Gulf of Suez (25 percent Pennzoil). The fifth block, West Beni
Suef (100 percent Pennzoil), is located in Egypt's western desert.
In July 1998, Pennzoil entered into agreements whereby Seagull
Energy can earn half of Pennzoil's interest in the Southwest Gebel
el-Zeit Block and the Southeast Gulf of Suez Block in exchange for
funding current and future exploration costs. During the third
quarter of 1998 Pennzoil drilled two wells in Southwest Gebel el-
Zeit Block and AGIP, the operator on the West Feiran Block, drilled
one well. None of the wells found commercial hydrocarbons and
Pennzoil recorded charges of $6.2 million in the third quarter of
1998. Pennzoil is also conducting a seismic program on the West
Beni Suef field that will continue for the rest of the year.
<PAGE>
<PAGE> 12
PART I. FINANCIAL INFORMATION - continued
On July 1, 1998, Pennzoil began operating the B2X-68/79 and
B2X-70/80 oil production blocks in Venezuela. The blocks each
encompass approximately 10,000 acres in eastern Lake Maracaibo.
Net production from the two blocks is currently 2,500 barrels per
day. Development drilling should commence in Lake Maracaibo late
in the fourth quarter of 1998.
In Australia, the Whicher Range No. 1 and Whicher Range No. 4
were deemed to be uneconomical following completion stimulation and
flow testing operations completed in the third quarter of 1998.
This resulted in a pretax charge of $12.4 million in the third
quarter of 1998.
Other
Other operating income for the quarter and nine months ended
September 30, 1998 was $236.8 million and $257.7 million,
respectively, compared with $14.9 million and $24.9 million for the
same periods in 1997. Pennzoil's other income increased primarily
due to gains on the disposition of Chevron stock and the exchange
of a portion of Pennzoil's old debentures for Chevron stock.
Reference is made to Note 4 of Notes to Condensed Consolidated
Financial Statements. Pennzoil beneficially owned approximately 7
million shares of common stock of Chevron on September 30, 1998.
Net interest expense for the quarter and nine months ended
September 30, 1998 increased $0.3 million and $0.9 million,
respectively, from the same periods in 1997 primarily due to higher
short-term borrowings.
Capital Resources and Liquidity
Preferred Stock. On June 2, 1998, Pennzoil issued 1,500,000
shares of cumulative preferred stock at $100 per share. Dividends
on the 6.49% Series A Cumulative Preferred Stock, par value $1.00
per share, are cumulative from the date of original issue and will
be payable quarterly, in cash, when declared by the Board of
Directors of the Company, commencing September 30, 1998. The
Series A Cumulative Preferred Stock will be redeemable at the
option of Pennzoil at any time on or after June 2, 2008, in whole
or in part, at a redemption price of $100 per share, plus accrued
and unpaid dividends to the redemption date.
Cash Flow. As of September 30, 1998, Pennzoil had cash and
cash equivalents of $12.3 million. During the nine months ended
September 30, 1998, cash and cash equivalents increased $2.8
million.
Debt Instruments and Repayments. During the nine months ended
September 30, 1998, Pennzoil refinanced its outstanding
exchangeable debentures for new exchangeable debentures which
resulted in a decrease of $149.6 million of outstanding
exchangeable debentures. Reference is made to Note 4 of the Notes
to Condensed Consolidated Financial Statements for additional
information on Pennzoil's exchangeable debentures.
Borrowings under Pennzoil's commercial paper, revolving credit
facility and other variable-rate credit arrangements totaled $298.0
million as of September 30, 1998, all of which has been classified
as long-term debt.
<PAGE>
<PAGE> 13
PART I. FINANCIAL INFORMATION - continued
Year 2000
Pennzoil completed a review of its key computer systems and
has identified a number of systems that were affected by the year
2000 compliance issue. Pennzoil is undertaking or has completed
conversions or upgrades of these non-compliant financial,
operating, human resources, payroll and seismic data systems.
These conversions and upgrades are targeted for completion during
the second quarter of 1999, after compliant upgrades are received
from the vendors, currently scheduled for the first quarter of
1999. Upgrades and standardization to network, infrastructure,
desktop and communications systems to make these assets compliant
are in progress. This effort is scheduled for completion in the
first quarter of 1999 following the release of compliant updates
from the vendors. International as well as domestic sites were
included in these assessments. The assessment of specialized
hardware and software unique to an international location should be
completed by December 1998. The only system replacements that have
been accelerated to remedy non-compliance are some of the Pennzoil
voicemail systems and security systems. No major IT projects
have been deferred due to year 2000 compliance issues. Contingency
planning will be started for the IT systems in the first quarter of
1999 and will include backup, standby and storage service solutions
to reduce the impact of critical service providers. The validation
phase that consists of testing mission-critical and significant
systems will be completed by June 1999.
Pennzoil has completed a comprehensive inventory and is
currently assessing and renovating systems and devices with
embedded chips in the exploration, production, and non-production
facilities. The exploration and production facilities consist of
offshore platforms, onshore regions, gas plants, regional
pipelines and a natural gas retail distribution operation. These
facilities, which include the processing, storage and movement of
oil and natural gas, have the greatest inherent risk since embedded
chip systems control and monitor these processes. At this time,
several of Pennzoil's onshore exploration and production
facilities have non-compliant metering and control equipment.
These deficiencies are being addressed by upgrading or replacing the
non-compliant portion of mission-critical equipment. This effort
is targeted for completion by the end of June 1999. Non mission-
critical production equipment that may have non-compliant
components is being replaced with compliant components during
normal maintenance and repair outages that occur through 1999. If
for any reason, these systems do not receive maintenance prior to
the millenium or are still found to be non-compliant after the
millenium, they will be operated in a manual mode until further
renovation and testing is completed. In addition, all currently
compliant control systems that have potential for environmental,
safety, or business interruption impact will be tested during
scheduled maintenance. The majority of this type of production
equipment is used to monitor and control production only.
Nevertheless, operation of these systems would still be reduced or
discontinued if a component is found to be non-compliant in order
to prevent safety and environmental problems. Contingency planning
is also underway to provide alternatives in the event these systems
are partially or completely inoperable. Spare components are being
tested to ensure compliant systems remain compliant through the
maintenance process.
Pennzoil is contacting key suppliers, banks, customers and
other unaffiliated companies that have business relationships with
Pennzoil to assess their year 2000 compliance programs. Pennzoil
could be adversely affected by the failure of these unaffiliated
companies to adequately address the year 2000 issue. This
assessment includes activities such as face-to-face meetings,
reviews of year 2000 readiness and co-operative testing.
Contingency planning will be included in this assessment to
identify arrangements to mitigate the impact of disruptions from
outside sources. This process is targeted for completion by the
end of June 1999. In addition, Pennzoil has implemented internal
procedures to respond cooperatively to inquiries from regulatory
agencies and other businesses about its year 2000 program.
<PAGE>
<PAGE> 14
PART I. FINANCIAL INFORMATION - continued
As with most companies, Pennzoil anticipates more issues
arising from international business partners, especially in the
banking, utility, shipping and governmental segments. Pennzoil is
currently reviewing all banking relationships in international
locations. In addition, Pennzoil is actively involved in a joint
industry effort through the American Petroleum Institute to
collectively address the readiness of their common business
partners such as utilities and governmental agencies, and to share
approaches to solving the specific problems of each international
location.
If these steps are not completed successfully in a timely
manner, Pennzoil's operations and financial performance could be
adversely affected through disruptions in operations. Costs
associated with such disruptions currently cannot be estimated.
Both incremental historical and estimated future costs related
to the year 2000 issue are not expected to be material to the
financial results of Pennzoil for several reasons. Most of the
renovation is being accomplished with upgrades to existing software
that is under maintenance contracts. The implementation of the
major IT systems was not accelerated to remedy year 2000 problems.
Independent quality assurance services and tools are being used to
assure the reliability of the assessment and costs. These services
will be supplemented with Pennzoil resources. Costs for all year
2000 activities are estimated to be less than $8 million. This
estimate does not include Pennzoil's potential share of year 2000
costs that may be incurred by partnerships and joint ventures in
which the company participates but is not the operator.
Pennzoil has a June 30, 1999 target readiness date for all
major phases of its year 2000 preparations. Pennzoil's existing
emergency response plan will be re-evaluated in the fourth quarter
of 1999, using the latest information available for infrastructure
services such as utilities. Adjustments to this plan will be made
based on this information. Pennzoil expects to be fully ready for
the new millenium.
Readers are cautioned that forward-looking statements
contained in this year 2000 update should be read in conjunction
with the company's disclosures under the heading: "Forward-Looking
Statements - Safe Harbor Provisions".
Discontinued Operations
After-tax earnings from discontinued operations for the
quarter and nine months ended September 30, 1998 were $9.4 million
and $33.6 million, respectively. This compares to $13.9 million
and $32.8 million, respectively, for the same periods in 1997. Taxes
on earnings from discontinued operations for the quarter and nine
months ended September 30, 1998 were $6.9 million and $24.5 million,
respectively. This compares to $10.3 million and $24.4 million,
respectively, for the same periods in 1997. Revenue included in
discontinued operations for the quarter and nine months ended
September 30, 1998 was $474.9 million and $1,417.3 million,
respectively. This compares to $515.7 million and $1,545.0
million, respectively, for the same periods in 1997.
Forward-Looking Statements - Safe Harbor Provisions
This quarterly report on Form 10-Q of Pennzoil Company for the
quarter ended September 30, 1998 contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, which are intended to be covered by the safe
harbors created thereby. To the extent that such statements are
not recitations of historical fact, such statements constitute
forward-looking statements which, by definition, involve risks and
uncertainties. Where, in any forward-looking statements, Pennzoil
expresses an expectation or belief as to future results or events,
such expectation or belief is expressed in good faith and believed
to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or
accomplished.
<PAGE>
<PAGE> 15
PART I. FINANCIAL INFORMATION - continued
The following are factors that could cause actual results or
events to differ materially from those anticipated, and include but
are not limited to: general economic, financial and business
conditions; commodity prices for natural gas and crude oil; the
effect of weather on natural gas demand and consumption;
competition for international drilling rights; the costs of
exploration and development of petroleum reserves; exploration
risks; political risks impacting exploration and development;
competition in the motor oil and marketing business; base oil
margins and supply and demand in the base oil business; the success
and cost of advertising and promotional efforts; mechanical failure
in refining operations; unanticipated environmental liabilities;
changes in and compliance with governmental regulations; changes in
tax laws; and the cost and effects of legal proceedings.
<PAGE>
<PAGE> 16
<TABLE>
PART I. FINANCIAL INFORMATION - continued
(UNAUDITED)
The following tables show revenues and operating income by segment,
other components of income and operating data.
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Dollar amounts expressed in thousands)
<S> <C> <C> <C> <C>
REVENUES
Oil and Gas $ 127,017 $ 210,703 $ 445,973 $ 641,718
Other 238,295 15,694 259,565 23,636
----------- ----------- ----------- -----------
Total revenues $ 365,312 $ 226,397 $ 705,538 $ 665,354
=========== =========== =========== ===========
OPERATING INCOME (LOSS)
Oil and Gas $ (77,900) $ 67,689 $ (22,224) $ 243,975
Other 236,831 14,944 257,704 24,971
----------- ----------- ----------- -----------
Total operating income 158,931 82,633 235,480 268,946
Corporate administrative expense 26,769 8,019 41,704 21,243
Interest charges, net 40,094 39,839 119,523 118,653
----------- ----------- ----------- -----------
Income before income tax 92,068 34,775 74,253 129,050
Income tax provision 33,249 10,898 21,084 42,562
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM 58,819 23,877 53,169 86,488
DISCONTINUED OPERATIONS, NET OF TAX 9,442 13,947 33,579 32,763
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 68,261 37,824 86,748 119,251
EXTRAORDINARY ITEM, NET OF TAX (205,549) (2,575) (205,549) (2,575)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (137,288) $ 35,249 $ (118,801) $ 116,676
=========== =========== =========== ===========
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 1.53 2.05
=========== ===========
</TABLE>
<PAGE>
<PAGE> 17
<TABLE>
PART I. FINANCIAL INFORMATION - continued
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING DATA
- --------------
CONTINUING OPERATIONS:
- ----------------------
OIL AND GAS
Net production
Crude oil, condensate and natural
gas liquids (barrels per day) 53,671 59,938 54,225 58,807
Natural gas produced for sale (Mcf per day) 434,200 619,364 471,599 586,709
Weighted average prices
Crude oil, condensate and natural
gas liquids (per barrel) $ 9.79 $ 15.55 $ 11.07 $ 16.77
Natural gas (per Mcf) $ 1.91 $ 2.09 $ 2.04 $ 2.25
DISCONTINUED OPERATIONS:
- ------------------------
MOTOR OIL & REFINED PRODUCTS
Sales (barrels per day)
Gasoline and naphtha 24,804 18,807 23,751 19,015
Distillates and gas oils 26,218 24,073 25,877 26,479
Lubricating oil and other specialty products 29,500 25,014 26,847 23,932
Residual fuel oils 1,691 1,284 3,046 1,962
Penreco specialty products <F1> 4,090 5,243 4,166 5,268
----------- ----------- ----------- -----------
Total sales (barrels per day) 86,303 74,421 83,687 76,656
=========== =========== =========== ===========
Raw materials processed
(barrels per day) <F2> 74,426 63,245 72,047 64,891
Refining capacity
(barrels per day) <F2> 80,300 76,000 80,300 76,000
FAST LUBE OPERATIONS
Domestic systemwide sales (in thousands) $ 209,961 $ 199,002 $ 610,402 $ 572,566
Same center sales (in thousands) $ 199,630 $ 197,682 $ 578,204 $ 569,163
Centers open (U.S.) 1,574 1,476 1,574 1,476
<FN>
<F1> Represents PPG's proportional share of Penreco sales for 1998 and 100% of PPG's
specialty sales in 1997.
<F2> Includes Pennzoil's 50% ownership in Excel Paralubes.
</FN>
</TABLE>
<PAGE>
<PAGE> 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
3 By-laws of Pennzoil Company, as amended through September
23, 1998.
12 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the nine months ended
September 30, 1998 and 1997.
27 Financial Data Schedule
(b) Reports -
No reports on Form 8-K were filed during the quarter for which
this report was filed.
<PAGE>
<PAGE> 19
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
November 12, 1998
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 first
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 or by shareholders entitled to cast
not less than 25% of the votes which all shareholders are
entitled to cast (i.e., by 25% of the outstanding shares entitled
to vote). 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.
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 shareholders at which directors are to be elected
(a) by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (b) by any shareholder of the
Corporation (i) who is a shareholder of record on the date of the
giving of the notice provided for in this Section 9 and on the
record date for the determination of shareholders entitled to
vote at such annual meeting and (ii) who complies with the
requirements of this Section 9. In addition to any other
applicable requirements, nominations, other than those made by or
at the direction of the Board of Directors (or any duly
authorized committee thereof) shall be preceded by timely notice
thereof in proper written form 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 90 days nor more than 120 days
prior to the anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within
30 days before or after such anniversary date, notice by the
shareholder, in order to be timely, must be so received not later
than the close of business on the tenth day following the day on
which such notice of the date of the annual meeting was mailed or
public disclosure of the date of the annual meeting was made,
whichever first occurs. In no event shall the public disclosure
of an adjournment of an annual meeting commence a new time period
for the giving of a shareholder's notice as described above.
To be in proper written form, a shareholder's notice
to the Secretary must set forth (a) as to each person whom the
shareholder proposes to nominate for 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 class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of
record by such person and (iv) any other information relating to
such person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the shareholder giving the notice
(i) the name and record address of such shareholder, (ii) the
class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such
shareholder, (iii) a description of all arrangements or
understandings between such shareholder and each proposed nominee
and any other person or persons (including their names) pursuant
to which the nomination(s) are to be made by such shareholder,
(iv) a representation that such shareholder intends to appear in
person or by proxy at the meeting to nominate the persons named
in its notice and (v) any other information relating to such
shareholder that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of the directors pursuant
to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee to be named as a nominee
and to serve as a director if elected.
No person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the
procedures set forth in this Section 9. If the Chairman of the
meeting determines that a nomination was not made in accordance
with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective
nomination shall be disregarded.
Notwithstanding anything in the second paragraph of
this Section 9 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the
Corporation is increased and there is no public disclosure by the
Corporation naming all of the nominees for director or specifying
the size of the increased Board of Directors at least 100 days
prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this by-law shall
also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the 10th
day following the day on which such public disclosure is first
made by the Corporation.
For purposes of this Section 9 and Section 10 of these
by-laws, "public disclosure" shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press,
PR Newswire, Bloomberg or comparable national news service or in
a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act.
SECTION 10. No business may be transacted at an annual meeting
of shareholders, other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors (or any duly
authorized committee thereof), (b) otherwise properly brought
before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or
(c) otherwise properly brought before the annual meeting by any
shareholder of the Corporation (i) who is a shareholder of record
on the date of the giving of the notice provided for in this
Section 10 and on the record date for the determination of
shareholders entitled to vote at such annual meeting and (ii) who
complies with the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder,
such shareholder must have given timely notice thereof in proper
written form 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 90 days nor more than 120 days
prior to the anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within
30 days before or after such anniversary date, notice by the
shareholder, in order to be timely, must be so received not later
than the close of business on the tenth day following the day on
which such notice of the date of the annual meeting was mailed or
public disclosure (as defined in Section 9) of the date of the
annual meeting was made, whichever first occurs. In no event
shall the public disclosure of an adjournment of an annual
meeting commence a new time period for the giving of a
shareholder's notice as described above.
To be in proper written form, a shareholder's notice
to the Secretary must set forth as to each matter such
shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before
the annual meeting (which shall include the text of the
resolution to be presented for adoption, indicating without
limitation the text of any proposed alteration, amendment,
rescission or repeal of these By-laws) and the reasons for
conducting such business at the annual meeting, (ii) the name and
record address of such shareholder, (iii) the class or series and
number of shares of capital stock of the Corporation which are
owned beneficially or of record by such shareholder, (iv) a
description of all arrangements or understandings between such
shareholder and any other person or persons (including their
names) in connection with the proposal of such business by such
shareholder and any material interest of such shareholder in such
business and (v) a representation that such shareholder intends
to appear in person or by proxy at the annual meeting to bring
such business before the meeting.
No business shall be conducted at the annual meeting
of shareholders except business brought before the annual meeting
in accordance with the procedures set forth in this Section 10;
provided, however, that, once business has been properly brought
before the annual meeting in accordance with such procedures,
nothing in this Section 10 shall be deemed to preclude discussion
by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought
before the annual meeting in accordance with the foregoing
procedures, the Chairman shall declare to the meeting that the
business was not properly brought before the meeting and such
business shall not be transacted.
At a special meeting of shareholders, only such
business shall be conducted as shall have been set forth in the
notice relating to the meeting. At any meeting, matters incident
to the conduct of this meeting may be voted upon or otherwise
disposed of as the presiding officer of the meeting shall
determine to be appropriate.
SECTION 11. Meetings of shareholders shall be presided over by
the Chairman of the Board or in his absence by the President, or
in his absence by a Vice President, or in the absence of the
foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary of the Corporation shall
act as secretary of the meeting, but in the absence of the
Secretary the chairman of the meeting may appoint any person to
act as secretary of the meeting.
The date and time of the opening and the closing of
the polls for each matter upon which the shareholders will vote
at a meeting shall be determined by the person presiding over the
meeting. The Board of Directors of the Corporation may adopt by
resolution such rules and regulations for the conduct of the
meeting of shareholders as it shall deem appropriate. Except to
the extent inconsistent with such rules and regulations as
adopted by the Board of Directors, the chairman of any meeting of
shareholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures,
whether adopted by the Board of Directors or prescribed by the
chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of
business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the
meeting to shareholders of record of the Corporation, their duly
authorized and constituted proxies or such other persons as the
chairman of the meeting shall determine; (iv) restrictions on
entry to the meeting after the time fixed for the commencement
thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined
by the Board of Directors or the chairman of the meeting,
meetings of shareholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
The Board of Directors shall be divided into three classes as
provided in the Certificate of Incorporation. The number of
directors shall be thirteen. Each director shall hold office for
the full term to which he shall have been elected and until his
successor shall have been duly elected and qualified, or until
his earlier death, resignation or removal.
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
President, or a majority of the directors then in office, 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.
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 be the chief
executive officer of the Corporation and shall have general
supervision over the business, affairs, and property of the
Corporation and over its several officers, and shall preside at
meetings of the Board and at meetings of the stockholders. The
President shall be the chief operating officer of the Corporation
and shall have such duties as may be assigned to him by the Board
of Directors.
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 in connection with a Proceeding 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 incurred in
connection with a Proceeding 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, 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 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. The Corporation may, by action of the Board of
Directors, provide indemnification to employees, agents or other
persons not having Corporate Status with the same or different
scope and effect as the indemnification authorized by this
Article VII.
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 or officer of the Corporation, or is
or was serving at the request of the Corporation as a director or
officer 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 or officer 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.
"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 without the express prior approval thereof by
the Board of Directors.
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
SECTION 1. Except as may be otherwise provided in
Section 2 of this Article VIII, 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.
SECTION 2. There shall be required for any alteration,
amendment or repeal of, or addition to, these By-laws the effect
of which would be to require a greater percentage vote for action
by the Board of Directors or by the shareholders than is
otherwise provided by these By-laws or by applicable law the vote
of (a) shareholders entitled to cast that same greater percentage
of the votes which all shareholders are entitled to cast (if the
action is to be by the shareholders) or (b) that same greater
percentage of the directors then in office (if the action is to
be by the Board of Directors), provided that in neither case
shall a percentage vote in excess of 66-2/3% thereof be required
pursuant to this sentence. This Section 2 may not be altered,
amended or repealed unless such alteration, amendment or repeal
is adopted by the vote of 66-2/3% of the directors then in office
or the vote of shareholders entitled to cast 66-2/3% of the votes
which all shareholders are entitled to cast.
September 23, 1998
<TABLE>
EXHIBIT 12
PENNZOIL COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
<CAPTION>
For the nine months ended
September 30,
----------------------------------
1998 1997
------------- -------------
(Dollar amounts expressed in thousands)
<S> <C> <C>
Income from continuing operations $ 53,169 $ 86,488
Income tax provision 21,084 42,562
Amortization of capitalized interest 6,153 7,126
Interest charges 124,165 122,621
------------- -------------
Income before income tax provision and interest charges $ 204,571 $ 258,797
============= =============
Fixed charges $ 134,126 $ 126,490
============= =============
Ratio of earnings to combined fixed charges and preferred stock dividends 1.53 2.05
============= =============
<CAPTION>
DETAIL OF INTEREST AND FIXED CHARGES
For the nine months ended
September 30,
----------------------------------
1998 1997
------------- -------------
(Expressed in thousands)
<S> <C> <C>
Interest charges per Consolidated Statement of Income
which includes amortization of debt discount, expense and premium $ 124,337 $ 122,522
Preferred stock dividends (grossed up to pre-tax, based on 38% tax rate) 5,147 -
Add: portion of rental expense representative of interest factor <F1> 4,642 3,968
------------- -------------
Total fixed charges $ 134,126 $ 126,490
Less: preferred stock dividends 5,147 -
Less: interest capitalized per Consolidated Statement of Income 4,814 3,869
------------- -------------
Total interest charges $ 124,165 $ 122,621
============= =============
<FN>
<F1> Interest factor based on management's estimates and approximates one-third of rental expense.
</FN>
</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 September 30, 1998 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 By-laws of Pennzoil Company, as amended through September
23, 1998.
12 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the nine months ended
September 30, 1998 and 1997.
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,251
<SECURITIES> 0
<RECEIVABLES> 130,993
<ALLOWANCES> 12,482
<INVENTORY> 7,194
<CURRENT-ASSETS> 181,561
<PP&E> 4,797,344
<DEPRECIATION> 3,065,091
<TOTAL-ASSETS> 3,631,960
<CURRENT-LIABILITIES> 201,104
<BONDS> 1,920,133
<COMMON> 43,507
0
1,500
<OTHER-SE> 1,133,535
<TOTAL-LIABILITY-AND-EQUITY> 3,631,960
<SALES> 427,619
<TOTAL-REVENUES> 705,538
<CGS> 163,752
<TOTAL-COSTS> 281,141
<OTHER-EXPENSES> 183,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,523
<INCOME-PRETAX> 74,253
<INCOME-TAX> 21,084
<INCOME-CONTINUING> 53,169
<DISCONTINUED> 33,579
<EXTRAORDINARY> (205,549)
<CHANGES> 0
<NET-INCOME> (118,801)
<EPS-PRIMARY> (2.56)<F1>
<EPS-DILUTED> (2.53)
<FN>
<F1> Reflects basic earnings per share.
</FN>
</TABLE>
