Pennzoil-Quaker State Reports First Quarter 2000 Results
8 May 2000
Total Revenue & Loss Increases - New Cost Reduction Program to Save $40 Million
HOUSTON - Pennzoil-Quaker State Company today announced Q1 2000 recurring
net income of $7.3 million, or 9 cents per basic share, compared to recurring
net income of $8.8 million, or 11 cents per basic share, for the same period
in 1999.
Nonrecurring after-tax charges in the first quarter of 2000 totaled
$25.2 million, or 32 cents per basic share, and were primarily associated with
a fire that temporarily shut down the Shreveport, Louisiana refinery on
January 18, 2000 and costs related to a major general and administrative cost
reduction project. The after-tax charge to cover the cost of the general and
administrative cost reduction effort totaled $16.7 million.
As a result of the anticipated cost reductions, Pennzoil-Quaker State
Company expects to save approximately $40 million in annual pretax general and
administrative costs in 2001.
Including the nonrecurring charges, Pennzoil-Quaker State Company reported
a net loss of $17.9 million, or 23 cents per basic share, compared to a net
loss of $2.2 million, or 3 cents per basic share, in the first quarter of
1999.
First quarter 2000 total revenues were $779.9 million, an 11 percent
increase compared to last year's $704.1 million. The increase in total
revenues primarily reflects higher refined products prices partially offset by
lower Jiffy Lube revenues resulting from store sales.
James J. Postl, Pennzoil-Quaker State Company president and chief
operating officer said, "Although the first quarter results were affected by a
number of factors including a refinery fire and several base oil price
increases, core businesses performed well, and we made good progress on
several of our strategic initiatives. We completed the acquisition of four
companies, three international and one domestic; launched aggressive
advertising and promotional campaigns for our car care products and services;
put in place new cost reduction initiatives and completed the sale of one of
our refineries. We are on track to achieve both our plan and our vision."
Lubricants and Consumer Products
Lubricants and consumer products reported recurring operating income of
$48.1 million compared to $46.6 million in the first quarter last year.
Including nonrecurring charges resulting from one-time merger costs, reported
operating income totaled $46.7 million in the first quarter of 2000. Year-on-
year, total revenue for lubricants and consumer products increased two percent
to $488.4 million from $479.1 million.
Operating results were restrained by a lag in motor oil price increases to
retail versus five consecutive monthly increases in base oil cost. Motor oil
prices are expected to offset the recent base price increases by May.
Pennzoil(R) motor oil is America's number one selling motor oil with an
average market share of 22.4 percent compared to 21.8 percent for the same
period last year. Pennzoil(R) motor oil sales volume increased 1.1 percent in
the first quarter 2000. Quaker State(R) motor oil is firmly established as
the number two selling motor oil in the United States with an average market
share of 14.4 percent, nearly a full market share point ahead of the number
three competitor.
The company launched its newly formulated Pennzoil(R) conventional motor
oil in March 2000 with advertising during the NCAA men's basketball
tournament. The new formulation, tested in a double-length Sequence IIIE
test, provides compelling visual evidence of its ability to resist thickening
in severe service conditions versus its major competitors.
Pennzoil(R) Synthetic with Pennzane(R), a super lubricant developed for
and used by NASA in the space program, was introduced with a product
advertising campaign in February. Through the first quarter, Pennzoil(R)
Synthetic motor oil with Pennzane(R) has sold twice as much volume as the
company's previous synthetic brand Performax(R).
Consumer products had total revenue for the first quarter of
$87.3 million, an increase of 3.5 percent over the first quarter of 1999.
During the first quarter of 2000, Axius(R) auto accessories business unit
revenues increased 35.1 percent and automotive chemical business unit revenues
increased 42.0 percent.
Distribution of the new emergency fuel additive, Pennzoil Roadside(TM)
Rescue(R), which began with Wal-Mart in November 1999, expanded during the
first quarter of 2000 to Pep Boys, CSK, Auto Zone and other direct and
distributor channels, including major grocery and drugstore chains.
In addition, in early March, Pennzoil-Quaker State Company completed the
acquisition of Sagaz Industries, the leading manufacturer and marketer of
automobile seat covers and cushions in the United States and Canada. Sagaz
was absorbed into the company's Axius(R) auto accessories business unit in
Moorpark, California.
International had significantly improved operating results in the first
quarter. International operating income before nonrecurring charges were
$4.5 million compared to $2.3 million in 1999. These strong results reflect
improved sales in Canada, Asia and Europe. Total international revenue in the
first quarter 2000 was $57.0 million compared to $49.9 million last year.
Pennzoil-Quaker State Company acquired Auto Fashions, a 25-year-old
Australian automotive accessories firm in February 2000. Auto Fashions has
become a leader in the Australian automotive air freshener, sunshade and
comfort accessories market through innovative product development, major
licensing partnerships and retail and customer service expertise. In April,
Pennzoil-Quaker State Company announced the acquisition of two British
automotive consumer products companies, Airfresh UK Limited and Bluecol Brands
Limited, from U.K. based Armour Trust plc. Airfresh, based in Rugby, England,
is a leading manufacturer, marketer and distributor of air freshener and
fragrance products for the automotive aftermarket in the U.K. and France.
Bluecol, based in Basingstoke, England, manufactures, markets and distributes
branded antifreeze, glass-cleaning products, rust treatments, cooling system
treatments and exterior appearance products for the U.K. automotive
aftermarket. Bluecol is the leading branded retail packaged antifreeze in the
U.K. with a market share of 20 percent. Other leading U.K. brands within the
Bluecol family include Nilco(R), Jenolite(R), Bars(R), Lacro(R) and Wizard(R)
car care products.
Jiffy Lube
Jiffy Lube had $3.7 million of recurring operating income in the first
quarter 2000 compared to $2.9 million last year. Year-on-year total revenue
for Jiffy Lube declined 29.8 percent from $121.1 million to $85.0 million.
The improvement in operating income was primarily due to higher comparable
sales in franchise and company centers of 5.8 percent. The decrease in
revenues for the first quarter 2000 was due to the annualized effect of the
1999 sale of company-operated centers to franchisees to resolve territorial
conflicts associated with the Jiffy Lube/Q Lube integration.
First quarter 2000 nonrecurring charges of $0.5 million primarily resulted
from one-time merger costs. Reported operating income for Jiffy Lube was
$3.2 million for the first quarter of 2000.
During the quarter, Jiffy Lube International launched new national radio
and television advertising and completed conversion of two model stores of the
future reflecting work done with Faith Popcorn, the well-known futurist.
Base Oil and Specialty Products
Base oil and specialty products reported recurring operating income of
$1.3 million compared to a recurring operating loss of $2.5 million in 1999.
Recurring operating income increased $3.8 million versus first quarter 1999,
primarily due to improved operations from Excel Paralubes, a 50 percent owned
joint venture with Conoco Inc. Nonrecurring charges totaled $13.4 million for
the first quarter of 2000, including $13.0 million from a fire that shut down
operations for several weeks at the Shreveport Refinery.
Including nonrecurring charges, base oil and specialty products reported
an operating loss of $12.1 million for the first quarter of 2000. Total
revenue for the quarter was $269.9 million, an increase of 73 percent compared
to the first quarter of 1999, due to higher commodity prices for fuels and
lubricants.
On April 7 the company completed the sale of its Rouseville refinery and
related assets to Calumet Lubricants Company, LP. Calumet purchased
Rouseville Plant number one, which includes a hydrotreater, deresining unit,
deoiling unit, filtration unit, laboratory and office buildings, utilities,
and warehouse/blending facilities. The sale included Pennzoil-Quaker State
Company's share of its Bareco(R) partnership with Baker Petrolite, a division
of Baker Hughes . Also included in the sale agreement were several
related assets, including Pennzoil-Quaker State Company's Reno, Pennsylvania
packaging plant and its crude oil gathering and trucking operations in Utah.
No gain or loss is expected from the sale.
Additionally, on April 24, the company announced that it is exiting from
the low margin, highly volatile and working capital intensive retail fuels
business. The withdrawal will be completed early in the fourth quarter 2000.
Pennzoil-Quaker State Company is a leading worldwide automotive consumer
products company, marketing over 1,300 products with 20 leading brands in more
than 50 countries. The company markets Pennzoil(R) and Quaker State(R) 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. Pennzoil-
Quaker State Company also markets a complete line of automotive car care
products including Axius(R) auto accessories, Blue Coral(R) and Classic(R)
waxes and washes, Black Magic(R) and Westley's(R) tire and wheel care
products, Fix-A-Flat(R) tire sealants, Medo(R) air fresheners, Rain-X(R) glass
treatments, Gumout(R), Snap(R) and The Outlaw(R) maintenance chemicals and
Slick 50(R) engine treatments. The company recently introduced Pennzoil
Roadside(TM) Rescue(R) Emergency Fuel Additive, a safe, conveniently packaged
emergency fuel additive that transports out-of-gas vehicles about 10 miles
from the side of the road to safety. Pennzoil Roadside(TM) Rescue(R) was
named one of Business Week's Best Products of 1999.
The following are the unaudited results of operations for the quarter
ended March 31, 2000 compared with the same period in 1999.
Three Months Ended
March 31
2000 1999
(Expressed in thousands
except per share amounts)
REVENUES
Lubricants and Consumer Products $ 488,405 $ 479,128
Jiffy Lube 85,037 121,099
Base Oil and Specialty Products 269,910 156,033
Other 2,737 (906)
Intersegment sales (66,177) (51,292)
Total revenues $ 779,912 $ 704,062
OPERATING INCOME
Lubricants and Consumer Products $ 46,693 $ 42,078
Jiffy Lube 3,249 112
Base Oil and Specialty Products (12,079) (5,978)
Other (1,323) 3,529
Total operating income 36,540 39,741
Corporate administrative expenses 52,066 21,812
Interest charges, net 21,641 17,741
Income (loss) before income tax (37,167) 188
Income tax provision (benefit) (19,259) 2,407
NET LOSS $ (17,908) $ (2,219)
BASIC AND DILUTED LOSS PER SHARE $ (0.23) $ (0.03)
AVERAGE SHARES OUTSTANDING BASIC AND DILUTED 78,216 77,648
END OF PERIOD SHARES OUTSTANDING - BASIC 78,318 77,697
PENNZOIL - QUAKER STATE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
2000 1999
(Expressed in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 32,190 $ 20,155
Receivables 385,206 312,320
Inventories 338,051 298,202
Materials and supplies 10,765 11,063
Other current assets 33,847 44,298
Total current assets 800,059 686,038
Property, plant and equipment, net 500,817 502,101
Deferred income taxes 291,390 272,677
Goodwill 1,097,955 1,065,143
Other assets 213,850 207,262
TOTAL ASSETS $ 2,904,071 $ 2,733,221
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,900 $ 1,080
Accounts payable and accrued liabilities 200,584 210,700
Payroll accrued 36,115 28,328
Other current liabilities 163,723 129,295
Total current liabilities 403,322 369,403
Other long-term debt, less current maturities 1,191,415 1,026,153
Capital lease obligations 66,603 68,786
Other liabilities 323,131 319,011
TOTAL LIABILITIES 1,984,471 1,783,353
SHAREHOLDERS' EQUITY 919,600 949,868
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,904,071 $ 2,733,221
PENNZOIL - QUAKER STATE COMPANY
CASH FLOW FROM OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
2000 1999
(Expressed in thousands)
Description
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,908) $ (2,219)
Adjustments to net loss
Depreciation and amortization 25,860 33,514
Deferred income tax (18,914) 1,815
Partnership distributions less than
earnings (3,465) (980)
Non-cash items and other non-operating items 16,229 2,963
Changes in assets and liabilities (68,611) (87,264)
NET CASH USED IN OPERATING ACTIVITIES (66,809) (52,171)
CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES:
Capital expenditures (10,491) (11,343)
Acquisitions (64,941) ---
Net debt increase 166,137 253,514
Proceeds from the sales of assets 3,707 30,479
Dividends paid (14,581) (14,560)
Other (987) (1,475)
Total Cash Flow 12,035 204,444
Beginning Balance 20,155 14,899
Ending Balance $ 32,190 $ 219,343
PENNZOIL - QUAKER STATE COMPANY
OPERATING HIGHLIGHTS
(UNAUDITED)
Three Months Ended
March 31
2000 1999
OPERATING DATA
LUBRICANTS AND CONSUMER PRODUCTS
Total revenues (in thousands):
Lubricants $ 346,462 $ 344,860
Consumer Products 87,283 84,295
International 56,973 49,943
Eliminations & Other (2,313) 30
Total revenues $ 488,405 $ 479,128
Operating income (excludes unallocated
division overhead) (in thousands):
Lubricants $ 40,098 $ 40,045
Consumer Products 15,162 11,137
International 4,467 1,633
Total operating income $ 59,727 $ 52,815
JIFFY LUBE (includes franchisees)
Domestic systemwide sales (in thousands) $ 279,459 $ 259,048
Comparable store sales (in thousands) $ 258,794 $ 244,671
Centers open 2,161 2,127
PENNZOIL - QUAKER STATE COMPANY - CONTINUED
OPERATING HIGHLIGHTS
(UNAUDITED)
Three Months Ended
March 31
2000 1999
OPERATING DATA
BASE OIL AND SPECIALTY PRODUCTS (A)
Raw materials processed (barrels per day) 49,683 60,983
Refining capacity (barrels per day) (B) 65,700 76,000
Refiner's margin ($ per barrel) $6.31 $7.46
Operating costs ($ per barrel) $8.39 $5.82
Depreciation ($ per barrel) $0.48 $1.35
Refinery Feedstocks:
Paraffinic Crude Oil (B) 46% 70%
Naphthenic Crude Oil 8% 8%
Other Feedstocks 46% 22%
Refinery Yields:
Gasolines 21% 29%
Distillates 31% 31%
Lube Base Stocks 31% 25%
Waxes 2% 3%
Other Products 15% 12%
Market Data:
WTI Crude Oil $28.74 $13.06
3-2-1 crack spread ($ per barrel) (C) $3.79 $1.41
Base oil gross margin ($ per barrel) (D) $17.72 $19.03
(A) Includes Pennzoil-Quaker State's 50% ownership in Excel Paralubes.
(B) Rouseville, PA refinery stopped processing crude oil on
February 2, 2000.
(C) Regular unleaded gasoline and low sulphur diesel vs. WTI crude oil.
(D) Exxon 100N posting vs. WTI crude oil.