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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 12, 1998
PENNZOIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
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<S> <C>
1-5591 74-1597290
(Commission File Number) (IRS Employee Identification No.)
P.O. BOX 2967, HOUSTON, TEXAS 77252-2967
(Address of principal executive offices) (Zip Code)
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(Registrant's telephone number including area code): (713) 546-4000
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ITEM 5. OTHER EVENTS.
On April 15, 1998, Pennzoil Company ("Pennzoil") announced a comprehensive
restructuring that will result in the separation of Pennzoil's motor oil,
refined products and fast lube operations (which generally include Pennzoil
Products Company ("PPC") and Jiffy Lube International, Inc. ("Jiffy Lube") and
their respective subsidiaries (collectively, "Pennzoil Products Group")) from
Pennzoil's exploration and production operations. The restructuring includes the
pro rata distribution of Pennzoil Products Group (i.e., the common stock of PPC
(which will at such time hold the motor oil and refined products operations of
PPC and the common stock of Jiffy Lube)) to holders of Pennzoil common stock.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS.
(b) Pro Forma Financial Information
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Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
as of September 30, 1998.................................. F-1
Pro Forma Condensed Consolidated Statement of Earnings
(Unaudited) For the Nine Month Period Ended September 30,
1998...................................................... F-2
Notes to Pennzoil Company Unaudited Pro Forma Condensed
Consolidated Financial Statements......................... F-3
Pro Forma Adjustments....................................... F-3
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(c) Exhibits
Exhibit 12 -- computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the nine months ended September 30, 1998 and
the computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends -- Pro Forma for the nine months ended September 30, 1998, as
adjusted for a reduction of interest as a result of the application of cash to
be received from Pennzoil Products Group immediately prior to the spin off.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
PENNZOIL COMPANY
By: /s/ DAVID P. ALDERSON, II
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David P. Alderson, II
Group Vice President -- Finance &
Accounting
Date: , 1998
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PENNZOIL COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
SEPTEMBER 30, 1998
(EXPRESSED IN THOUSANDS)
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PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
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<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.......................... $ 12,251 $ 60,000(e) $ 72,251
Other current assets............................... 169,310 (60,000)(e) 109,310
---------- ----------- ----------
Total current assets....................... 181,561 181,561
PROPERTY, PLANT AND EQUIPMENT, AT COST
Oil and Gas, successful efforts method of
accounting...................................... 4,732,601 -- 4,732,601
Other.............................................. 30,743 -- 30,743
---------- ----------- ----------
Total property, plant and equipment........ 4,763,344 -- 4,763,344
Less accumulated depreciation, depletion and
amortization.................................... 3,031,091 -- 3,031,091
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Net property, plant and equipment.......... 1,732,253 -- 1,732,253
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OTHER ASSETS
Net Assets of Discontinued Pennzoil Products Group
Operations...................................... 1,073,593 (1,073,593)(d) --
Marketable securities and other assets............. 644,553 -- 644,553
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Total assets......................................... $3,631,960 $(1,073,593) $2,558,367
========== =========== ==========
CURRENT LIABILITIES.................................. $ 201,104 $ -- $ 201,104
LONG-TERM DEBT, LESS CURRENT MATURITIES
Exchangeable debentures............................ 738,641 -- 738,641
Other long-term debt............................... 1,181,492 (388,409)(e) 793,083
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Total long-term debt, less current
maturities............................... 1,920,133 (388,409) 1,531,724
Other liabilities.................................... 332,181 -- 332,181
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Total liabilities.......................... 2,453,418 (388,409) 2,065,009
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Shareholders' equity................................. 1,178,542 (685,184)(f) 493,358
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Total liabilities and shareholders' equity........... $3,631,960 $(1,073,593) $2,558,367
========== =========== ==========
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F-1
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PENNZOIL COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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AS PRO FORMA
REPORTED ADJUSTMENTS PRO FORMA
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<S> <C> <C> <C>
Revenues................................................ $427,619 $427,619
Investment and other income, net........................ 277,919 2,475(a) 280,394
-------- -------- --------
705,538 2,475 708,013
COST AND EXPENSES
Operating expenses.................................... 163,752 -- 163,752
Selling, general, and administrative.................. 47,334 -- 47,334
Depreciation, depletion, and amortization............. 159,702 -- 159,702
Exploration expense................................... 117,389 -- 117,389
Taxes other than income............................... 23,585 -- 23,585
Interest charges, net................................. 119,523 (17,490)(b) 102,033
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Income before income tax................................ 74,253 19,965 94,218
Income tax provision.................................... 21,084 7,587(c) 28,671
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Earnings from continuing operations..................... 53,169 12,378 65,547
Earnings from Discontinued Pennzoil Products Group
Operations............................................ 33,579 (33,579) --
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Net Earnings............................................ 86,748 (21,201) 65,547
Preferred Stock Dividend................................ 3,191 -- 3,191
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Net Earnings Available to Common Shareholders........... $ 83,557 (21,201) $ 62,356
Basic Earnings Per Share
Continuing Operations................................. $ 1.05 $ 1.31
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Discontinued Operations............................... 0.70
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$ 1.75
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Diluted Earnings Per Share
Continuing Operations................................. $ 1.03 $ 1.29
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Discontinued Operations............................... 0.70
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$ 1.73
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Average Shares Outstanding -- Basic..................... 47,682 47,682
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Average Shares Outstanding -- Diluted................... 48,225 48,225
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F-2
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NOTES TO PENNZOIL COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated financial
statements of Pennzoil Company ("Pennzoil") illustrate the pro forma effect of
certain proposed transactions. These transactions include the disposition of
Pennzoil's motor oil, refined products and fast lube operations ("Pennzoil
Products Group"), and the planned use of cash payments made by Pennzoil Products
Group to Pennzoil immediately prior to the Spin-Off (as defined below).
The unaudited pro forma condensed consolidated balance sheet has been
prepared assuming that the transactions occurred on the last day of the period
presented. The pro forma condensed consolidated statement of earnings has been
prepared assuming that the transactions and agreements occurred at the beginning
of the period presented.
The unaudited pro forma condensed consolidated financial statements have
been prepared using assumptions deemed appropriate and are presented herein for
illustrative purposes only. These unaudited pro forma financial statements are
not necessarily indicative of the future financial position or results of
operations of Pennzoil, or of the financial position or results of operations of
Pennzoil that would have actually been reported had the events reported herein
occurred as of the dates indicated.
PRO FORMA ADJUSTMENTS
(a) Investment and Other Income, Net -- Represents an increase in interest
income as a result of the application to cash of $60 million in proceeds to be
received from Pennzoil Products Group in accordance with the distribution
agreement. The interest rate assumed for this pro forma adjustment is 5.5%,
which approximates Pennzoils' short-term investment rates.
(b) Interest Expense -- Represents a reduction in interest expense as a
result of the application of cash to be received from Pennzoil Products Group
immediately prior to the Spin-Off, which will be applied to reduce amounts
outstanding under Pennzoil's various debt agreements. The interest rate assumed
for this pro forma adjustment is 6%, which approximates Pennzoil's short-term
borrowing rates.
(c) Income Taxes -- Reflects the tax impact of pro forma adjustments
assuming a 38% effective tax rate.
(d) Net Assets of Discontinued Operations -- Represents the disposition of
Pennzoil Products Group. Pennzoil Products Group will be separated and
subsequently spun off from Pennzoil. Pennzoil shareholders will receive a pro
rata distribution of all the issued and outstanding shares of common stock of
the Pennzoil Products Group (the "Spin-Off").
(e) Long-Term Debt -- Represents transfer of debt of $5.7 million plus
$442.7 million of cash received from Pennzoil Products Group used to reduce
outstanding variable-rate indebtedness and to reduce the intercompany trade
receivable associated with crude oil sales. Certain intercompany indebtedness is
to be repaid by Pennzoil Products Group to Pennzoil immediately prior to the
Spin-Off. 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. The maximum payment has been assumed in
the pro forma statements. If the cash received from Pennzoil Products Group is
in excess of the variable-rate indebtedness outstanding at such time, Pennzoil
currently intends that the balance would be temporarily applied to cash and
would subsequently be used for debt reduction through repurchase, redemption or
payment at maturity of a portion of Pennzoil's outstanding notes and debentures
due 1999-2009, which may create an extraordinary loss on extinguishment of
indebtedness. Pennzoil has not determined which notes and debentures may be
repurchased or redeemed in such event.
(f) Shareholder's Equity -- Represents disposition of net assets of
discontinued operations less reduction in debt to be funded by cash received
from Pennzoil Products Group.
F-3
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INDEX TO EXHIBITS
Exhibit 12 -- computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the nine months ended September 30, 1998 and
the computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends -- Pro Forma for the nine months ended September 30, 1998, as
adjusted for a reduction of interest as a result of the application of cash to
be received from Pennzoil Products Group immediately prior to the spin off.
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EXHIBIT 12
PENNZOIL COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS -- PRO FORMA
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FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
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1998
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(DOLLAR
AMOUNTS
EXPRESSED IN
THOUSANDS)
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Income from continuing operations........................... $ 53,169
Amortization of capitalized interest........................ 6,153
Income tax provision........................................ 21,084
Interest charges............................................ 124,165
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Income before income tax provision and interest charges..... $204,571
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Fixed charges............................................... $134,126
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Restated for the Discontinued Pennzoil Products Group
Operations................................................ 1.53
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Pro Forma................................................... 1.78
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DETAIL OF INTEREST, FIXED CHARGES AND PRO FORMA ADJUSTMENT
Interest charges per Consolidated Statement of Earnings
which includes amortization of debt discount, expense and
premium................................................... $124,337
Preferred stock dividends (grossed up to pretax, based on
38% tax rate)............................................. 5,147
Add: portion of rental expense representative of interest
factor(1)................................................. 4,642
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Total fixed charges............................... $134,126
Less preferred stock dividends.............................. 5,147
Less interest capitalized per Consolidated Statement of
Earnings.................................................. 4,814
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Total interest charges............................ $124,165
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Pro Forma Adjustments --
Increase in income from continuing operations............. 12,378
Increase in income tax.................................... 7,587
Decrease in interest charges per Consolidated Statement of
Earnings which includes amortization of debt discount,
expense and premium.................................... 17,490
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(1) Interest factor based on management's estimates and approximates one-third
of rental expense.
