<PAGE>
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended March 31, 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)
Registrant's telephone number, including area code: (713) 546-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
Number of shares outstanding of each class of common stock,
as of latest practicable date, April 30, 1998:
Common stock, par value $0.83-1/3 per share, 47,685,588
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
March 31
----------------------------
1998 1997
----------- -----------
(Expressed in thousands
except per share amounts)
<S> <C> <C>
REVENUES $ 545,810 $ 649,000
COSTS AND EXPENSES
Cost of sales 307,782 355,872
Selling, general and administrative expenses 86,689 80,102
Depreciation, depletion and amortization 73,362 62,568
Exploration expenses 12,675 10,040
Taxes, other than income 11,464 13,112
Interest charges, net 41,880 37,118
----------- -----------
INCOME BEFORE INCOME TAX 11,958 90,188
Income tax provision 2,300 32,637
----------- -----------
NET INCOME $ 9,658 $ 57,551
=========== ===========
Foreign currency translation adjustment $ (875) $ 1
Unrealized gains on securities, net of tax:
Unrealized holding gains arising during the period 431 -
Less: reclassification adjustment for gains
realized in net income (30) (1,019)
----------- -----------
Net unrealized gains 401 (1,019)
----------- -----------
OTHER COMPREHENSIVE INCOME, NET OF TAX (474) (1,018)
---------- -----------
COMPREHENSIVE INCOME $ 9,184 $ 56,533
=========== ===========
EARNINGS PER SHARE:
Basic $ 0.20 $ 1.23
=========== ===========
Diluted $ 0.20 $ 1.21
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.25 $ 0.25
=========== ===========
AVERAGE SHARES OUTSTANDING:
Basic 47,593 46,818
=========== ===========
Diluted 48,402 47,455
=========== ===========
END OF PERIOD SHARES OUTSTANDING - BASIC 47,654 46,937
=========== ===========
<FN>
<F1>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION - continued
<TABLE>
PENNZOIL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Expressed in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 24,894 $ 18,594
Receivables 232,491 234,282
Inventories
Crude oil and natural gas 15,620 20,883
Motor oil and refined products 189,942 184,027
Deferred income tax 19,587 19,479
Other current assets 75,366 117,449
------------- -------------
Total current assets 557,900 594,714
Property, plant and equipment, net 2,534,183 2,498,597
Marketable securities and other investments 931,694 945,995
Other assets 361,843 366,581
------------- -------------
TOTAL ASSETS $ 4,385,620 $ 4,405,887
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,381 $ 2,363
Accounts payable and accrued liabilities 223,678 363,249
Interest accrued 49,444 30,016
Other current liabilities 61,018 90,367
------------- -------------
Total current liabilities 335,521 485,995
Long-term debt, less current maturities
Exchangeable debentures 888,858 889,027
Other long-term debt 1,428,768 1,308,520
------------- -------------
Total long-term debt, less current maturities 2,317,626 2,197,547
Deferred income tax 291,072 288,677
Other liabilities 299,665 295,129
------------- -------------
TOTAL LIABILITIES 3,243,884 3,267,348
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 1,141,736 1,138,539
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,385,620 $ 4,405,887
============= =============
<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>
Three Months Ended
March 31
---------------------------------
1998 1997
----------- -----------
(Expressed in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,658 $ 57,551
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 73,362 62,568
Dry holes and impairments 5,033 2,416
Deferred income tax 2,149 19,569
Partnership distributions in excess of earnings 1,054 -
Non-cash and other nonoperating items 8,667 4,497
Change in operating assets and liabilities:
Accrued taxes (35,182) 10,673
Accounts payable and other accrued liabilities (81,608) 13,819
Other assets and liabilities (12,753) 3,161
----------- -----------
Net cash provided by (used in) operating activities (29,620) 174,254
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (133,637) (114,378)
Purchases of marketable securities and other investments (141,638) (131,210)
Proceeds from sales of marketable securities and other
investments 155,770 135,940
Proceeds from sales of assets 41,900 5,620
Other investing activities 3,813 (49,823)
----------- -----------
Net cash (used in) investing activities (73,792) (153,851)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayments) of notes payable, net 102,197 (19,596)
Debt and capital lease obligation repayments (343,589) (304,296)
Proceeds from issuance of debt 360,000 300,000
Dividends paid (11,899) (11,724)
Other financing activities 3,003 14,802
----------- -----------
Net cash provided by (used in) financing activities 109,712 (20,814)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,300 (411)
CASH AND CASH EQUIVALENTS, beginning of period 18,594 34,383
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 24,894 $ 33,972
=========== ===========
<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) 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 statements for
the fiscal year ended December 31, 1998.
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." The SOP is effective for fiscal years
beginning after December 15, 1998 and earlier adoption is
permitted. The adoption of the SOP 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." The SOP is effective for
financial statements for fiscal years beginning after December 15,
1998 and earlier adoption is permitted. Pennzoil is currently
evaluating the implementation of SOP No. 98-5.
(3) Proposed Spin-off of Downstream Operations and Merger of
Downstream Operations with Quaker State Corporation -
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 franchise operations (which generally includes
PPC and Jiffy Lube International, Inc. ("Jiffy Lube") and their
respective subsidiaries) from its exploration and production
operations and for the combination of the motor oil, refined
products and franchise operations with Quaker State.
<PAGE>
<PAGE> 6
PART I. FINANCIAL INFORMATION - continued
The transactions contemplated by the Merger Agreement are (1)
a pro rata distribution, 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 franchise operations of Jiffy Lube) to the
holders of Common Stock of Pennzoil (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 stockholders of Pennzoil.
Closing under the Merger Agreement is conditioned upon, among
other things, approval by Quaker State's stockholders, expiration
or termination of waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and receipt of a favorable tax
ruling from the Internal Revenue Service.
(4) Debt -
During the three months ended March 31, 1998, certain owners
of Pennzoil's exchangeable debentures requested to exchange their
debentures for Chevron Corporation ("Chevron") common stock, in
accordance with the respective supplemental indentures, which
resulted in a decrease of $.2 million of outstanding exchangeable
debentures.
In December 1997, Pennzoil filed a registration statement on
Form S-4 with the Securities and Exchange Commission ("SEC")
proposing to issue up to $889.1 million principal amount of new
exchangeable senior debentures ("New Debentures") in exchange for a
portion of its 6 1/2% Exchangeable Senior Debentures (the "6 1/2%
Debentures") and the 4 3/4% Exchangeable Senior Debentures (the
"4 3/4% Debentures"). The New Debentures would have terms
substantially similar to the existing debentures except for the
maturity date, call date, coupon and the number of shares into
which the New Debentures are exchangeable. Pennzoil expects to be
able to commence the exchange offer in May 1998, and the offer
would be required to remain open for at least 20 business days.
The 6 1/2% Debentures and 4 3/4% 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. If
Pennzoil delivers Chevron common stock to satisfy an exchange,
Pennzoil records an ordinary gain on the sale of Chevron common
stock, limited to the face value of the related exchangeable
debentures and the associated debt issue cost. The face value of
exchangeable debentures and debt issue cost would be retired by
recording an extraordinary charge for the early extinguishment of
debt. Alternatively, should Pennzoil choose to pay cash to the
holders and retain the Chevron common stock, Pennzoil would record
an extraordinary charge for the extinguishment of debt. In
addition, Pennzoil would record an increase in the net unrealized
holding gain on the Chevron common stock to reflect current market
value which was previously capped under the exchange rights. This
would be reported as an increase in comprehensive income in
accordance with SFAS No. 130 (Reference is made to Note 6 of Notes
to Condensed Consolidated Financial Statements) and as a separate
component of shareholders' equity as required under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION - continued
(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.
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.
(6) 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 gains and losses on available-
for-sale securities and minimum pension liability.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net income for the quarter ended March 31, 1998 was $9.7
million, or $0.20 per share, compared to $57.6 million, or $1.23
per share for the same period in 1997. The decrease in operating
income was primarily due to lower realized natural gas and liquids
prices partially offset by higher results in the Motor Oil and
Refined Products segment.
Oil and Gas
Operating income from this segment was $30.8 million for the
quarter ended March 31, 1998, compared with $107.1 million for the
same period in 1997. The decrease in operating income was
primarily due to lower realized natural gas and liquids prices.
<PAGE>
<PAGE> 8
PART I. FINANCIAL INFORMATION - continued
Natural gas price realizations averaged $2.07 per thousand
cubic feet ("Mcf") for the three months ended March 31, 1998
compared to $2.77 per Mcf for the same period in 1997. Natural gas
volumes produced for sale for the three months ended March 31, 1998
were 499.5 million cubic feet ("MMcf") per day compared to 523.3
MMcf per day for the same period in 1997. Liquids prices averaged
$12.43 per barrel during the first quarter of 1998, compared to
$19.47 per barrel from the comparable period in 1997. Liquids
production volumes were 53.7 thousand barrels ("Mbbls") per day
for the three months ended March 31, 1998 compared to 53.6 Mbbls
per day for the same period in 1997.
Production volumes for the first quarter of 1998 were down
compared to the same period in 1997 primarily due to damage caused
by a third party vessel dragging its anchor across the Sea Robin
gathering pipeline connected to Pennzoil's West Cameron 580 block
in late January 1998. The damage caused Pennzoil to shut in
production on the block until the pipeline repairs were completed
during February 1998. Production comparisons were also negatively
impacted by Pennzoil's December 1997 sale of its 50% interest in
the Zama/Virgo joint venture in Canada.
Internationally, Pennzoil plans to drill eight exploration
wells in 1998 in Australia, Azerbaijan, Egypt and Venezuela.
In April, the Caspian International Petroleum Company began
drilling the KPS-2 well on the Karabakh prospect offshore
Azerbaijan in the Caspian Sea. Pennzoil holds a 30 percent
interest in Karabakh. A third well, KPS-3, will spud during the
second half of 1998 after the KPS-2 well has been completed.
Azerbaijan International Operating Company, in which Pennzoil
has a 4.8 percent carried interest, delivered its first oil
shipment to the Black Sea in March 1998 from the Azeri-Chirag-
Gunashli ("ACG") joint development area. The ACG joint development
area is estimated to contain nearly 5 billion barrels of crude oil.
At the end of the first quarter of 1998, daily crude oil production
was 36,000 barrels. Total daily production is expected to increase
to 75,000 barrels by year-end 1998. In January 1998, Pennzoil
received a $22.0 million installment payment as part of Pennzoil's
July 1996 sale of approximately half of its original interest in
the ACG joint development unit.
In Egypt, Pennzoil has five concessions covering 9.2 million
acres. Four blocks are located in the Gulf of Suez: North July
(100 percent Pennzoil), West Feiran (50 percent Pennzoil), Southwest
Gebel el-Zeit (87.5 percent Pennzoil) and Southeast Gulf of Suez
(50 percent Pennzoil). The fifth block, West Beni Suef (100 percent
Pennzoil), is located in Egypt's Western Desert. Pennzoil spud
its first well on North July in March 1998. Three additional
exploratory wells are planned for Egypt in 1998, including two at
Southwest Gebel el-Zeit and one at West Feiran. Pennzoil also began
a seismic program on West Beni Suef in early April 1998.
Pennzoil and its partners received approval from Petroleos de
Venezuela, S.A., the state oil company of Venezuela, to develop two
blocks in Lake Maracaibo during the first quarter of 1998.
Pennzoil holds a 60 percent working interest on block B2X-68/79 and
50 percent working interest on block B2X-70/80. Pennzoil's initial
share of daily production from these two blocks is estimated to be
approximately 4,000 barrels beginning in the second half of 1998.
These two blocks have remaining gross reserves of between 100 and
200 million barrels.
<PAGE>
<PAGE> 9
PART I. FINANCIAL INFORMATION - continued
Motor Oil & Refined Products
Operating income from this segment was $24.8 million for the
quarter ended March 31, 1998, compared with $13.0 million for the
same period in 1997. The increase in operating income was due to
higher motor oil volumes, fuels volumes and lube margins. In
addition, operating income at Excel Paralubes, a lube base oil
plant in which Pennzoil and Conoco Inc. are equal partners,
increased $6.6 million for the quarter ended March 31, 1998,
compared to the same period in 1997. The increase in income from
Excel Paralubes was primarily due to higher production volumes. As
a result of mechanical difficulties during startup, full production
was not reached at Excel Paralubes until near the end of the first
quarter of 1997. In addition, the upgrade of Pennzoil's
Shreveport, Louisiana refinery was not completed until April 1997.
The refinery upgrade substantially increased fuels production at
the facility and is responsible for the higher fuels volumes
experienced during the quarter ended March 31, 1998.
Franchise Operations
The franchise operations segment recorded operating income of
$4.7 million for the quarter ended March 31, 1998, compared with
$4.5 million for the same period in 1997. Systemwide sales for
the three months ended March 31, 1998 increased $13.1 million to
$191.8 million, compared with the first quarter of 1997.
Systemwide average ticket prices increased to $36.52 for the
quarter ended March 31, 1998, compared with $35.49 for the first
quarter of 1997. There were 1,537 lube centers (including 586
Jiffy Lube company operated centers) open as of March 31, 1998.
In 1998, Jiffy Lube plans to open approximately 120 centers.
As of March 31, 1998, there were 166 fast-oil change units open in
Sears Centers of which 134 are company operated.
Other
Other operating income for the quarter ended March 31, 1998
was $10.5 million, compared with $15.7 million for the same period
in 1997. Pennzoil's other income includes dividend income of
$10.9 million during the three months ended March 31, 1998 from its
investment in common stock of Chevron.
Net interest expense for the quarter ended March 31, 1998
increased $4.8 million from the same period in 1997 primarily due
to lower capitalized interest.
Capital Resources and Liquidity
Cash Flow. As of March 31, 1998, Pennzoil had cash and cash
equivalents of $24.9 million. During the three months ended March
31, 1998, Pennzoil's cash and cash equivalents increased $6.3
million. Cash flows used in operating activities totaled $29.6
million during the first quarter of 1998.
Debt Instruments and Repayments. Through the three months
ended March 31, 1998, certain owners of Pennzoil's exchangeable
debentures requested to exchange their debentures for Chevron
common stock, in accordance with the respective supplemental
indentures, which resulted in a decrease of $.2 million of
outstanding exchangeable debentures.
Borrowings under Pennzoil's commercial paper and variable-
rate credit arrangements totaled $449.7 million as of March 31,
1998, all of which has been classified as long-term debt.
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION - continued
Year 2000
Pennzoil has begun the process of identifying, evaluating
and implementing new operating computer systems necessary to
address potential year 2000 compliance issues. Many of Pennzoil's
operating and financial systems are already compliant. Pennzoil's
remaining operating and financial systems are scheduled for
compliance in phases and will be compliant by the year 2000.
Pennzoil is communicating with software vendors, business partners
and others with which it conducts business to provide written
assurances that their systems will be year 2000 compliant. The
total future cost associated with potential year 2000 compliance
issues has not been determined, but is not expected to have a
material adverse effect on the consolidated financial position or
results of operations of Pennzoil.
<PAGE>
<PAGE> 11
PART I. FINANCIAL INFORMATION - continued
<TABLE>
(UNAUDITED)
The following tables show revenues and operating income by segment,
other components of income and operating data.
<CAPTION>
Three Months Ended
March 31
----------------------------
1998 1997
----------- -----------
(Dollar amounts expressed
in thousands)
<S> <C> <C>
REVENUES
Oil and Gas $ 161,029 $ 226,741
Motor Oil & Refined Products 372,896 432,952
Franchise Operations 80,710 75,150
Other 9,867 11,470
Intersegment sales (78,692) (97,313)
----------- -----------
Total revenues $ 545,810 $ 649,000
----------- -----------
OPERATING INCOME
Oil and Gas $ 30,815 $ 107,179
Motor Oil & Refined Products 24,840 13,048
Franchise Operations 4,650 4,496
Other 10,434 15,665
----------- -----------
Total operating income 70,739 140,388
Corporate administrative expenses 16,901 13,082
Interest charges, net 41,880 37,118
----------- -----------
Income before income tax 11,958 90,188
Income tax provision 2,300 32,637
----------- -----------
NET INCOME $ 9,658 $ 57,551
=========== ===========
RATIO OF EARNINGS TO FIXED CHARGES 1.20 2.69
=========== ===========
</TABLE>
<PAGE>
<PAGE> 12
PART I. FINANCIAL INFORMATION - continued
<TABLE>
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING DATA
- --------------
OIL AND GAS
Net production
Crude oil, condensate and natural
gas liquids (barrels per day) 53,676 53,632
Natural gas produced for sale (Mcf per day) 499,505 523,348
Weighted average prices
Crude oil, condensate and natural
gas liquids (per barrel) $ 12.43 $ 19.47
Natural gas (per Mcf) $ 2.07 $ 2.77
MOTOR OIL & REFINED PRODUCTS
Sales (barrels per day)
Gasoline and naphtha 23,171 20,020
Distillates and gas oils 25,542 26,377
Lubricating oil and other specialty products <F1> 24,583 25,916
Residual fuel oils 1,643 3,513
----------- -----------
Total sales (barrels per day) 74,939 75,826
=========== ===========
Raw materials processed (barrels per day) <F2> 71,094 63,909
Refining capacity (barrels per day) <F2> 80,300 76,000
FRANCHISE OPERATIONS
Domestic systemwide sales (in thousands) $ 191,847 $ 178,705
Same center sales (in thousands) $ 181,144 $ 177,679
Centers open (U.S.) 1,537 1,419
<FN>
<F1> Excludes sales from Pennzoil's Penreco ownership in 1998. Pennzoil
recorded Penreco's sales through September 30,1997.
<F2> Includes Pennzoil's 50% ownership in Excel Paralubes.
<FN>
</TABLE>
<PAGE>
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
3 By-laws of Pennzoil Company, as amended through May 7, 1998.
12 Computation of Ratio of Earnings to Fixed Charges for the three
months ended March 31, 1998 and 1997.
27 Financial Data Schedule
(b) Reports -
Pennzoil filed the following Current Reports on Form 8-K with
the Securities and Exchange Commission:
Date of Report Items Reported
March 12, 1998 Pennzoil's amendment of its By-laws as
of March 12, 1998.
April 20, 1998 Information relating to the Agreement
and Plan of Merger dated as of April
14, 1998 among Pennzoil Company, Pennzoil Products
Company, Downstream Merger Company and Quaker
State Corporation. The Form 8-K included as
exhibits a press release dated April 15, 1998
issued by Pennzoil Company and Quaker State
Corporation and a copy of the Agreement and Plan
of Merger. See Note 3 of Notes to Condensed
Consolidated Financial Statements.
April 17, 1998 Pennzoil's amendment dated April 17,
1998 to its Rights Agreements.
<PAGE>
<PAGE> 14
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
May 13, 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 twelve. 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.
May 7, 1998
<TABLE>
EXHIBIT 12
PENNZOIL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
For the three months ended
March 31,
----------------------------------
1998 1997
------------- -------------
(Dollar amounts expressed in thousands)
<S> <C> <C>
Net income $ 9,658 $ 57,551
Income tax provision
Federal and foreign 2,320 29,197
State (20) 3,440
------------- -------------
Total income tax provision 2,300 32,637
Interest charges 48,346 42,730
------------- -------------
Income before income tax provision and interest charges $ 60,304 $ 132,918
============= =============
Fixed charges $ 50,377 $ 49,355
============= =============
Ratio of earnings to fixed charges 1.20 2.69
============= =============
<CAPTION>
DETAIL OF INTEREST AND FIXED CHARGES
For the three months ended
March 31,
----------------------------------
1998 1997
------------- -------------
(Expressed in thousands)
<S> <C> <C>
Interest charges per Consolidated Statement of Income
which includes amortization of debt discount, expense and premium $ 43,911 $ 43,743
Add: portion of rental expense representative of interest factor <F1> 6,466 5,612
------------- -------------
Total fixed charges $ 50,377 $ 49,355
Less: interest capitalized per Consolidated Statement of Income 2,031 6,625
------------- -------------
Total interest charges $ 48,346 $ 42,730
============= =============
<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 March 31, 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 May 7, 1998
12 Computation of Ratio of Earnings to Fixed Charges for the three
months ended March 31, 1998 and 1997.
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 24,894
<SECURITIES> 0
<RECEIVABLES> 250,864
<ALLOWANCES> 18,373
<INVENTORY> 205,562
<CURRENT-ASSETS> 557,900
<PP&E> 6,174,100
<DEPRECIATION> 3,639,917
<TOTAL-ASSETS> 4,385,620
<CURRENT-LIABILITIES> 335,521
<BONDS> 2,384,520
<COMMON> 43,507
0
0
<OTHER-SE> 1,098,229
<TOTAL-LIABILITY-AND-EQUITY> 4,385,620
<SALES> 511,007
<TOTAL-REVENUES> 545,810
<CGS> 307,782
<TOTAL-COSTS> 320,457
<OTHER-EXPENSES> 84,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,880
<INCOME-PRETAX> 11,958
<INCOME-TAX> 2,300
<INCOME-CONTINUING> 9,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,658
<EPS-PRIMARY> .20<F1>
<EPS-DILUTED> .20
<FN>
<F1> Reflects basic earnings per share.
</FN>
</TABLE>
