Pennzoil-Quaker State Company Reports Second Quarter 2002 Results
HOUSTON, July 25 Pennzoil-Quaker State Company 36 cents per share. The second quarter 2002 results compare to a reported second quarter 2001 net loss of $5.3 million, or 7 cents per share. Excluding the $14.9 million of nonrecurring after-tax charges (detailed in last year's earnings release) and a $2.5 million loss from discontinued operations, second quarter 2001 recurring net income from continuing operations was $12.1 million, or 15 cents per share. There have been no nonrecurring charges in 2002. Second quarter 2002 revenue of $590.4 million was down 1.8 percent versus a year ago, due primarily to reduced sales of low margin and unbranded products.
For the first six months of 2002, net income was $49.6 million, or 62 cents per share versus reported net income of $2.9 million, or 4 cents per share for the first half of 2001. Excluding nonrecurring charges and discontinued operations from the mid-year 2001 results, recurring net income from continuing operations was $20.3 million or 26 cents per share. Second quarter and first half 2001 earnings reflect goodwill and other amortization expense of 9 cents and 18 cents per share, respectively. Year-to-date, revenue decreased 1.1 percent to $1.2 billion, reflecting lower revenues in the lubricants and international segments from reduced sales of low margin and unbranded products in those segments.
"We are pleased with the continued improvement and strong operating results across all of our business units," said Jim Postl, president and chief executive officer. "These results reflect the dramatic transformation that we have undertaken over the last three and a half years to focus on our core businesses, lower costs and enhance service to our customers."
Lubricants: Operating income for the Lubricant's segment was $52.1 million in the second quarter versus recurring operating income of $32.7 million last year. The year-over-year gain reflects an improvement in motor oil margins versus low levels experienced a year ago, as well as a 64 percent increase in premium motor oil volumes, combined with lower selling, general & administrative (S,G & A) and amortization expenses. Branded motor oil sales were up 3.3 percent during the quarter although dramatically reduced sales of unbranded and low margin products resulted in total lubricants revenue declining 2.5 percent to $323.0 million.
For the first six months of 2002, operating income increased 49.8 percent from last year's operating income excluding nonrecurring items. Year-to-date branded motor oil sales increased 3.0 percent, although total lubricants revenue was down 3.1 percent from a year ago, to $630.5 million, reflecting the factors identified above.
Pennzoil® and Quaker State® premium motor oils are leading brands in the U.S. passenger car motor oil market, holding a combined 35.6 percent market share over the last twelve months.
Consumer Products: The Company's Consumer Products segment improved its operating income 23.6 percent to $12.7 million versus recurring operating income of $10.3 million in the second quarter last year. The improvement reflects lower amortization expense in 2002. Revenues in the second quarter increased modestly year-over-year.
Year-to-date revenues increased 2.3 percent and recurring operating income increased 23.2 percent, respectively, from the same period results a year ago.
International: Pennzoil-Quaker State Company's International segment had operating income of $4.5 million in the second quarter 2002 compared to recurring operating income of $3.7 million in the second quarter of 2001. Second quarter revenue decreased 11.2 percent year-over-year to $58.7 million, primarily due to the scale back of low margin operations, facilities and distribution channels.
For the first six months of 2002, revenue decreased 11.3 percent and recurring operating income increased 62.2 percent, respectively, from a year ago.
Jiffy Lube International: Operating income for Jiffy Lube in the second quarter 2002 was $9.1 million, a 17.4 percent increase from recurring operating income last year. Comparable store sales were up 6.9 percent system wide in the quarter, with total system sales up 7.5 percent.
For the first six months of 2002, comparable store sales were up 6.6 percent, with total system sales up 7.9 percent and recurring operating income up 35.9 percent from a year ago. Year-to-date revenues increased 6.8 percent to $184 million.
Supply Chain Investments: Operating income for the Supply Chain Investment segment, which includes Pennzoil-Quaker State Company's partnership interest in the Excel Paralubes base oil processing facility, was $11.3 million in the second quarter compared to $8.2 million in 2001. The increase in operating income is due primarily to increased base oil production.
For the first six months of 2002, operating income increased 56.0 percent from a year ago. The year-over-year improvement in operating income reflects an 18.0 percent increase in base oil production and a $4.4 million after-tax change in turnaround expense accruals, partially offset by a 22.0 percent decline in base oil margins.
Balance Sheet & Cash Flow
Pennzoil-Quaker State Company has reduced its total debt and capitalized lease obligations (CLO) balances by $5.0 million and $43.1 million for the quarter and first half, respectively, continuing the significant progress in balance sheet improvement achieved in 2001.
Cash flow provided from operations for the first six months of 2002 have increased $172.5 million versus last year's first half. As of June 30, 2002 cash and cash equivalents were $125.0 million, an increase of $38.6 million from December 31, 2001.
Over the last twelve months, Pennzoil-Quaker State Company has reduced its total debt and CLO balances by $85.8 million and has increased its cash and cash equivalents by $121.3 million.
Pending Acquisition by Shell Oil Company
On March 25, 2002, Pennzoil-Quaker State Company and Shell Oil Company, an affiliate of the Royal Dutch/Shell Group, entered into a definitive agreement under which Shell Oil Company will acquire Pennzoil-Quaker State Company at a price of $22.00 per share in cash. The transaction is subject to shareholder and regulatory approval.
The company's shareholder vote is scheduled for August 1, 2002. The proposed acquisition by Shell Oil Company must be approved by vote of a majority of outstanding shares of Pennzoil-Quaker State common stock. An abstention or failure to vote by a shareholder will have the same effect as a vote against the acquisition.
"We have made excellent progress on integration plans and continue to expect the transaction to be completed in the second half of this year," said Postl.
Pennzoil-Quaker State Company is a leading worldwide automotive consumer products company, marketing over 1,300 products with 20 leading brands in more than 90 countries. The company markets Pennzoil® and Quaker State® brand motor oils, the number one and number two selling motor oils in the United States. Jiffy Lube, a wholly owned subsidiary of Pennzoil-Quaker State Company, is the world's largest fast lube operator and franchiser.
Note: Certain statements contained in this release are forward-looking statements. Actual results may differ materially from those projected in forward-looking statements. Please see the company's Form 10-K for more information on the risks and uncertainties related to forward-looking statements.
With the pending transaction with Shell Oil Company, Pennzoil-Quaker State Company will not host a conference call this quarter. Any questions by investors and the media should be directed to the respective contacts listed below.
IMPORTANT LEGAL INFORMATION: Investors and security holders are urged to
read the proxy statement regarding the proposed transaction with Shell Oil
Company. The proxy statement has been filed with the U.S. Securities and
Exchange Commission by Pennzoil-Quaker State Company and security holders may
obtain a free copy of the proxy statement and other documents filed with the
SEC by Pennzoil-Quaker State Company at the SEC's web site at www.sec.gov .
The proxy statement, and other documents filed with the SEC by Pennzoil-Quaker
State Company, may also be obtained for free by directing a request to
Pennzoil-Quaker State Company at 700 Milam, Houston, Texas, 77002. Investors
may obtain a detailed list of names, affiliations and interests of
participants in the solicitation of proxies of Pennzoil-Quaker State Company's
stockholders to approve the transaction at the following address: 700 Milam,
Houston, Texas, 77002.
The following are the unaudited results of operations for the quarter and
six months ended June 30, 2002 compared with the same periods in 2001.
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
(Expressed in thousands except per share amounts)
REVENUES
Lubricants $323,003 $331,360 $630,506 $650,364
Consumer Products 102,884 102,412 191,707 187,351
International 58,741 66,139 114,832 129,411
Jiffy Lube 93,462 88,458 183,968 172,222
Supply Chain Investments 71,218 69,266 149,826 151,220
Other (953) (2,009) (3,588) (3,604)
Intersegment sales (57,921) (54,625) (113,243) (119,900)
Total revenues $590,434 $601,001 $1,154,008 $1,167,064
OPERATING INCOME (LOSS) (A)
Lubricants $52,103 $32,739 $95,855 $64,007
Consumer Products 12,678 (1,497) 18,654 3,392
International 4,494 (12,969) 7,950 (11,811)
Jiffy Lube 9,077 4,531 17,261 9,504
Supply Chain
Investments (B) 11,312 8,189 27,836 17,849
Other (1,342) (2,677) (3,038) (412)
Total operating income 88,322 28,316 164,518 82,529
Corporate administrative
expenses 17,078 13,482 35,136 27,937
Interest charges, net 23,023 24,165 45,855 48,877
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAX 48,221 (9,331) 83,527 5,715
Income tax provision
(benefit) 19,568 (6,448) 33,900 308
INCOME (LOSS) FROM
CONTINUING OPERATIONS 28,653 (2,883) 49,627 5,407
Discontinued Operations --- (2,465) --- (2,465)
NET INCOME (LOSS) $28,653 $(5,348) $49,627 $2,942
BASIC EARNINGS (LOSS) PER
SHARE
Continuing Operations $0.36 $(0.04) $0.62 $0.07
Discontinued Operations --- (0.03) --- (0.03)
TOTAL $0.36 $(0.07) $0.62 $0.04
DILUTED EARNINGS (LOSS)
PER SHARE
Continuing Operations $0.34 $(0.04) $0.60 $0.07
Discontinued Operations --- (0.03) --- (0.03)
TOTAL $0.34 $(0.07) $0.60 $0.04
AVERAGE SHARES OUTSTANDING
BASIC 80,406 79,107 80,110 78,971
DILUTED 83,840 79,107 82,668 79,693
END OF PERIOD SHARES
OUTSTANDING 80,671 79,261 80,671 79,261
(A) Operating income for the second quarter and six months ended June 30,
2001 includes $8.8 million and $17.7 million, respectively, in
amortization expense suspended in 2002 due to the adoption of
SFAS No. 142.
(B) Operating income for Supply Chain Investments includes partnership
income accounted for using the equity method.
PENNZOIL-QUAKER STATE COMPANY
OPERATING HIGHLIGHTS
(UNAUDITED)
Three Months Ended % Six Months Ended %
June 30 Change June 30 Change
2002 2001 2002 2001
LUBRICANTS
Recurring revenues
(in thousands) $323,003 $331,360 -2.5% $630,506 $650,364 -3.1%
Recurring
operating income
(in thousands) $52,103 $32,739 59.1% $95,855 $64,007 49.8%
CONSUMER PRODUCTS
Recurring revenues
(in thousands) $102,884 $102,412 0.5% $191,707 $187,351 2.3%
Recurring
operating income
(in thousands) $12,678 $10,254 23.6% $18,654 $15,143 23.2%
INTERNATIONAL
Recurring revenues
(in thousands) $58,741 $66,139 -11.2% $114,832 $129,411 -11.3%
Recurring
operating income
(in thousands) $4,494 $3,742 20.1% $7,950 $4,900 62.2%
JIFFY LUBE
Domestic
systemwide sales
(in thousands) $344,447 $320,396 7.5% $672,011 $622,999 7.9%
Same center sales
Jiffy Lube
(in thousands) $340,374 $318,284 6.9% $660,000 $618,884 6.6%
Systemwide
centers open 2,175 2,146 1.4% 2,175 2,146 1.4%
SUPPLY CHAIN INVESTMENTS
Base oil
production
(bbls per day) 9,834 7,261 35.4% 9,694 8,216 18.0%
Average base
oil margin
($ per bbl) $17.90 $25.62 -30.1% $19.72 $25.27 -22.0%
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, December 31,
2002 2001
(unaudited)
(expressed in thousands)
ASSETS
Current assets
Cash and cash equivalents $124,980 $86,412
Receivables 286,471 269,515
Inventories 200,098 199,641
Other current assets 62,104 66,778
Total current assets 673,653 622,346
Net, property, plant and equipment 424,597 438,981
Deferred income taxes 238,541 266,805
Goodwill 714,857 714,939
Other intangibles 401,496 401,261
Other assets 251,078 251,985
TOTAL ASSETS $2,704,222 $2,696,317
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $94,564 $133,733
Accounts payable 177,279 163,537
Payroll accrued 20,650 14,058
Other current liabilities 147,432 141,936
Total current liabilities 439,925 453,264
Long-term debt less current maturities 1,001,447 1,002,554
Capital lease obligations 52,137 55,329
Other liabilities 390,434 420,619
TOTAL LIABILITIES 1,883,943 1,931,766
SHAREHOLDERS' EQUITY 820,279 764,551
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,704,222 $2,696,317
PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED CASH FLOW FROM OPERATIONS
(UNAUDITED)
Six Months Ended
June 30
2002 2001
(expressed in thousands)
Description
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $49,627 $2,942
Adjustments to net income
Depreciation and amortization 31,189 55,634
Deferred income tax 32,566 (1,292)
Partnership distributions less
than earnings (10,848) (3,819)
Loss from discontinued operations --- 4,074
Changes in assets and liabilities
and noncash items, net (8,957) (136,443)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 93,577 (78,904)
CASH FLOWS FROM INVESTING AND
FINANCING ACTIVITIES:
Capital expenditures (21,578) (24,963)
Acquisitions --- (700)
Net debt decrease (39,695) (38,629)
Proceeds from the sales of assets 7,665 9,592
Dividends paid (4,009) (29,628)
Other 2,608 14,382
NET CASH USED IN INVESTING AND
FINANCING ACTIVITIES (55,009) (69,946)
NET CASH PROVIDED BY DISCONTINUED
OPERATIONS --- 114,270
Total Cash Flow 38,568 (34,580)
Beginning Balance 86,412 38,263
Ending Balance $124,980 $3,683