1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
X QUARTERLY REPORT UNDER SECTION 13 or 15(d)
- -------- OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994.
TRANSITION REPORT PURSUANT TO SECTION 13 OR
- -------- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission File Number 1-2677
QUAKER STATE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 25-0742820
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
255 Elm Street
Oil City, Pennsylvania 16301
(Address of Principal Executive Offices)
(Zip Code)
(814) 676-7676
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of November 1, 1994, 31,500,081 shares of Capital Stock, par value $1.00
per share, of the registrant were outstanding.
2
PART I.
FINANCIAL INFORMATION
3
CONSOLIDATED STATEMENT OF OPERATIONS
QUAKER STATE CORPORATION AND SUBSIDIARIES
QUARTER ENDED NINE MONTHS ENDED
9/30/94 9/30/93 9/30/94 9/30/93
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA, UNAUDITED)
REVENUES
Sales and operating revenues $184,427 $159,432 $528,097 $473,522
Other, net 1,589 3,180 4,682 7,209
- --------------------------------------------------------------------------------------------------------
186,016 162,612 532,779 480,731
COSTS AND EXPENSES
Cost of sales and operating costs 124,325 108,139 348,000 323,537
Selling, general and administrative 48,480 39,625 141,207 119,181
Depreciation, depletion and amortization 7,773 7,047 23,238 20,885
Interest 1,177 1,383 3,580 4,439
- --------------------------------------------------------------------------------------------------------
181,755 156,194 516,025 468,042
- --------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4,261 6,418 16,754 12,689
- --------------------------------------------------------------------------------------------------------
PROVISION FOR (BENEFIT FROM) INCOME TAXES
Current (1,350) 9,557 6,725 13,687
Deferred 1,689 (8,082) (1,260) (10,066)
- --------------------------------------------------------------------------------------------------------
339 1,475 5,465 3,621
- --------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 3,922 4,943 11,289 9,068
INCOME FROM DISCONTINUED INSURANCE
OPERATIONS, NET OF TAXES (NOTE 3) 1,099 (967) 4,384 2,692
GAIN ON SALE OF DISCONTINUED INSURANCE OPERATIONS,
NET OF TAXES 377 -- 377 --
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 5,398 $ 3,976 $ 16,050 $ 11,760
========================================================================================================
PER SHARE:
INCOME FROM CONTINUING OPERATIONS $.14 $.18 $.41 $.33
DISCONTINUED INSURANCE OPERATIONS .04 (.04) .16 .10
INCOME FROM SALE OF INSURANCE OPERATIONS .01 -- .01 --
- --------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $.19 $.14 $.58 $.43
========================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 27,390 27,285 27,438 27,215
========================================================================================================
CASH DIVIDENDS PAID PER SHARE $.10 $.10 $.30 $.50
========================================================================================================
4
CONSOLIDATED STATEMENT OF CASH FLOWS
QUAKER STATE CORPORATION AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1994 1993
- ----------------------------------------------------------------------------------------
(IN THOUSANDS, UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,050 $ 11,760
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 23,238 20,885
Deferred income taxes and investment tax credit 3,291 (2,446)
Gain on sale of discontinued insurance operations (377) --
Increase (decrease) from changes in:
Receivables (13,346) 2,026
Inventories (522) 7,754
Other current assets 4,770 6,960
Accounts payable (85) 3,504
Accrued liabilities 7,158 (21,184)
Other (13,744) (3,323)
Changes in discontinued insurance operations 4,089 11,339
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,522 37,275
- ----------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 2,409 6,952
Capital expenditures (22,481) (14,191)
Proceeds from sale of discontinued coal operation assets 1,690 --
Proceeds from sale of discontinued insurance operations,
net of discontinued operations cash 76,851 --
Discontinued insurance operations
Proceeds from sale of bonds and securities 47,781 40,423
Purchase of bonds and securities (60,513) (54,527)
Acquisition of businesses, net of cash acquired (28,366) --
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 17,371 (21,343)
- ----------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid (8,206) (13,585)
Proceeds from notes payable 303 373
Payments on long-term debt (17,194) (26,930)
- ----------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (25,097) (40,142)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 22,796 (24,210)
Cash and cash equivalents at beginning of year:
Other than discontinued insurance operations 6,220 34,146
Discontinued insurance operations 9,408 7,202
- ----------------------------------------------------------------------------------------
Total cash and cash equivalents at beginning of year 15,628 41,348
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period:
Other than discontinued insurance operations 38,424 11,710
Discontinued insurance operations -- 5,428
- ----------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,424 $ 17,138
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
5
CONSOLIDATED BALANCE SHEET
Quaker State Corporation and Subsidiaries
9/30/94 12/31/93*
- ---------------------------------------------------------------------------------------------
(in thousands except share data) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 38,424 $ 6,220
Accounts and notes receivable, less allowance of
$3,022 at 9/30/94 and $1,679 at 12/31/93. 105,579 56,818
- ---------------------------------------------------------------------------------------------
Inventories: (Note 2)
Crude oil 3,381 2,591
Finished and in-process petroleum products 44,349 23,225
Other 22,664 14,287
- ---------------------------------------------------------------------------------------------
Total inventories 70,394 40,103
- ---------------------------------------------------------------------------------------------
Deferred income taxes 15,084 18,375
Other current assets 12,495 17,468
- ---------------------------------------------------------------------------------------------
Total current assets 241,976 138,984
Property, plant, and equipment, net of accumulated depreciation
and depletion of $350,802 at 9/30/94 and $345,851 at 12/31/93. 244,896 225,828
Other assets 156,880 82,903
- ---------------------------------------------------------------------------------------------
Total assets other than insurance 643,752 447,715
Discontinued insurance assets -- 335,962
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $643,752 $783,677
=============================================================================================
LIABILITIES
Current Liabilities:
Accounts payable $ 65,004 $ 35,980
Accrued liabilities 81,552 67,339
Installments on long-term debt 3,419 262
- ---------------------------------------------------------------------------------------------
Total current liabilities 149,975 103,581
- ---------------------------------------------------------------------------------------------
Long-term debt, less debt payable within one year 70,453 51,188
Other long-term liabilities 170,631 179,054
- ---------------------------------------------------------------------------------------------
Total liabilities other than insurance 391,059 333,823
Discontinued insurance liabilities -- 261,104
- ---------------------------------------------------------------------------------------------
Commitments and contingencies (Note 4)
STOCKHOLDERS' EQUITY
Capital stock, $1.00 par value; authorized shares, 37,500,000;
issued shares, 31,492,383 at 9/30/94 and 27,250,818 at 12/31/93 31,492 27,251
Treasury stock, 7,698 shares, at cost (106) --
Additional capital 119,951 63,044
Retained earnings 104,722 98,877
Cumulative foreign currency translation adjustment (182) 75
Unearned compensation (Note 6) (3,184) (497)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 252,693 188,750
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $643,752 $783,677
- ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
*Amounts are from December 31, 1993 audited balance sheet and footnotes.
6
OTHER FINANCIAL INFORMATION
Quaker State Corporation and Subsidiaries
The sales and operating revenues and contributions to income from continuing
operations, by industry segment, are as follows:
- -----------------------------------------------------------------------------------------------------------
QUARTER ENDED NINE MONTHS ENDED
9/30/94 9/30/93 9/30/94 9/30/93
- -----------------------------------------------------------------------------------------------------------
(in thousands, unaudited)
SALES AND OPERATING REVENUE
Motor oil $131,005 $113,952 $366,052 $332,827
Fast lube 30,470 26,524 84,596 77,558
Natural gas E&P 6,054 5,660 21,657 19,268
Truck-Lite 24,281 19,139 75,499 60,898
Docks 754 739 2,201 2,149
Intersegment sales (8,137) (6,582) (21,908) (19,178)
- -----------------------------------------------------------------------------------------------------------
Total sales and operating revenue $184,427 $159,432 $528,097 $473,522
===========================================================================================================
OPERATING PROFIT (LOSS)
Motor oil $ 4,702 $ 5,319 $ 12,970 $ 14,706
Fast lube 1,741 1,729 4,520 2,687
Natural gas E&P 60 (169) 4,200 2,858
Truck-Lite 2,680 1,207 10,114 4,775
Docks 306 296 775 856
- -----------------------------------------------------------------------------------------------------------
Total operating profit from continuing operations 9,489 8,382 32,579 25,882
Corporate income 788 1,651 2,041 2,461
Interest expense (1,125) (1,301) (3,443) (4,190)
Corporate expenses (4,891) (2,314) (14,423) (11,464)
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes $ 4,261 $ 6,418 $ 16,754 $ 12,689
===========================================================================================================
The accompanying notes are an integral part of the financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
1. In the opinion of management of Quaker State Corporation (the company), the
accompanying financial statements include all adjustments which are
necessary to a fair statement of the results for such periods. All of these
adjustments are of a normal recurring nature. These statements should be read
in conjunction with the financial statements included as a part of the 1993
annual report on Form 10-K.
2. Inventories are stated at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis for all crude oil, the majority of
company refined petroleum and vehicular lighting products; and on the
first-in, first-out (FIFO) basis for other inventories. The reserve to
reduce the carrying value of inventories from FIFO basis to LIFO basis
amounted to $21,760,000 at September 30, 1994, and $19,090,000 at
December 31, 1993.
3. On August 31, 1994, the company completed the sale of all of the stock of its
wholly owned subsidary, Heritage Insurance Group, Inc., to General Electric
Capital Corporation for approximately $85,000,000 with net proceeds of
$82,000,000 paid at the time of closing after satisfaction of certain
intercompany obligations. Accordingly, the operating results of the insurance
business, including the gain on the sale, have been segregated and reported
as a discontinued operation in the accompanying Consolidated Statement of
Operations for the period ending September 30, 1994. Prior year and prior
period financial statements have been reclassified to conform to the current
period presentation.
The insurance operations sales and operating revenues for two months of
the third quarter and eight months of 1994 were $24,724,000 and $87,451,000
compared to the third quarter and nine months of 1993 which were $32,981,000
and $93,785,000.
4. In December 1993, the United States of America commenced a lawsuit against
the company in the U.S. District Court for Northern West Virginia. The
complaint alleges the company violated the federal Resource Conservation and
Recovery Act and the federal Clean Air Act at the Congo refinery on various
dates starting in 1980 and seeks civil penalties as allowable under federal
law not to exceed $25,000 per day for each violation. The company intends to
vigorously defend itself in this lawsuit. However, the ultimate outcome of
this litigation cannot presently be determined. A provision of $1,000,000 was
established in the first quarter for costs associated with the pending
litigation.
In addition, the company has received notices from the EPA and others
that it is a "potentially responsible party" relative to certain waste
disposal sites identified by the EPA and may be required to share in the cost
of cleanup. The company has accrued for all matters which are probable and
can be reasonably estimated.
Contingent liabilities of an indeterminate amount exist in connection
with suits and claims arising in the ordinary course of business.
In April 1994, three purported class actions were commenced in the
Federal District Court for the Western District of Pennsylvania against Witco
Corporation, Quaker State Corporation and Pennzoil Company. The complaints
allege violations of Section 1 of the Sherman Act. The company believes there
is no basis for the allegations in the complaints and intends to defend these
matters vigorously.
In the opinion of management, all matters discussed above are adequately
accrued for or covered by insurance or, if not so provided for, are without
merit or the disposition is not anticipated to have a material effect on the
company's financial position; however, one or more of these matters could
have a material effect on future quarterly or annual results of operations
when resolved.
(more)
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
5. The effective income tax rate for continuing operations was lowered to 33%
for the nine months ended September 30, 1994 from 41% for the six months
ended June 30, 1994 due to a reduction in the estimated state tax rate and
additional available foreign and other tax credits and other changes in
estimates. This reduction in the year-to-date rate caused the effective
tax rate for continuing operations for the quarter ending September 30,
1994 to be reduced to 8%. The 1994 nine month effective tax rate of 33% for
continuing operations is higher than the 1993 restated effective tax rate
of 21% due to higher income, an enacted federal rate change in 1993 that
increased the value of deferred tax assets in 1993, 1993 net adjustments
to valuation allowance and other 1993 credits.
6. On May 12, 1994 the company's stockholders approved the 1994 Stock Incentive
Plan. The number of shares which may be issued under this plan is 1,250,000
and the plan includes stock options, alternative stock appreciation rights,
cash payment rights, restricted shares, performance shares and other share
awards. In 1994, 225,800 restricted performance shares were granted under
this plan to key employees subject to forfeiture if certain three year
performance goals are not met. As a result of the grant of these restricted
shares, the company recorded $3,109,000 as unearned compensation in the
equity section of the Consolidated Balance Sheet. This unearned compensation
is being amortized on a straight line basis as compensation expense over the
performance cycle period.
7. On September 30, 1994 the company acquired all the stock of Westland Oil
Company, Inc. (Westland) and the Specialty Oil Companies (Specialty) of
Shreveport, Louisiana. The purchase price of Westland was 4,000,000 shares of
common stock valued at $57,750,000 under a negotiated Stock Purchase
Agreement. Specialty was acquired by a negotiated Agreement and Plan of
Merger for a consideration of $19,500,000 paid in cash at the time of
closing. The company also purchased certain related equipment assets
for approximately $1,500,000. In addition, the company assumed
approximately $42,000,000 in indebtedness of the acquired companies
(of which approximately $22,000,000 was satisfied by Quaker State at the
time of closing).
The Agreement for Purchase and Sale also provides for the purchase by
Quaker State of certain real property used in the acquired companies'
operations, for $9,000,000 at a later date.
Westland and Specialty are engaged in the sale and distribution of motor
oils, lubricants, greases and antifreeze, the blending, packaging, sale and
distribution of private label and branded lubricants, antifreeze and greases
and the collection and transportation of used motor oil.
The source of funds used for the acquisition was the proceeds of the sale
of Quaker State's former subsidiary, Heritage Insurance Group, Inc., which
disposition was concluded on August 31, 1994.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of Westland and Specialty will be included
in the accompanying consolidated financial statements from the date of
acquisition.
The purchase price allocation to assets and liabilities is preliminary.
The acquisition has resulted in a preliminary excess of purchase price over
fair value of assets of approximately $72,000,000 recorded on the
Consolidated Balance Sheet at September 30, 1994.
The unaudited Consolidated Results of Operations are on a pro forma basis
as though Westland and Specialty had been acquired as of the beginning of the
periods presented, after including the impact of adjustments, such as
amortization of goodwill, and related tax effects. The discontinued insurance
operations have also been excluded.
(more)
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
The pro forma results are not necessarily indicative of what actually would
have occured if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from the
combined operations.
Nine Months Ended
---------------------
1994 1993
---- ----
(Unaudited) (Unaudited)
(Dollars in thousands except per share amounts)
Revenue $769,197 $683,924
Net Income from
continuing operations $ 14,796 $ 11,811
Net Income per share,
from continuing operations $ .47 $ .38
10
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
The consolidated financial statements and related notes including
information about Quaker State Corporation's (the company) operations in
different segments included in this Form 10-Q should be read as an integral
part of this review.
--------
Quaker State Corporation reported third quarter net income of $5,398,000,
or $.19 per share compared to $3,976,000, or $.14 per share, in the same
quarter last year. Nine month net income was $16,050,000, or $.58 per share,
versus $11,760,000, or $.43 per share in 1993. Sales and operating revenues
from continuing operations in 1994 were $184,427,000 and $528,097,000 for the
quarter and nine months compared to $159,432,000 and $473,522,000 for the same
periods last year. Operating profits from continuing operations in 1994
increased 13%, to $9,489,000 in the third quarter and 26%, to $32,579,000, for
the nine months ended September 30, 1994. Income from continuing operations in
the third quarter was down 21% to $3,922,000 as a result of higher corporate
expenses. The nine month revenue, operating profit and net income improvements
are based primarily on sales volume increases.
On August 31, 1994 the company completed the sale of all of the stock of
its wholly owned subsidiary, Heritage Insurance Group, Inc., to General
Electric Capital Corporation for approximately $82,000,000 after satisfaction
of certain intercompany obligations. Accordingly, the insurance operations
have been accounted for as a discontinued operation in the Consolidated
Statement of Operations for the period ending September 30, 1994. Prior year
and prior period financial statements have been reclassified to conform to this
presentation. (Refer to Note 3.)
On September 30, 1994 the company completed the acquisition of Westland
Oil Company, Inc. and the Specialty Oil Companies, all of Shreveport,
Louisiana. The purchase price of the acquisition was 4,000,000 shares of
common stock valued at $57,750,000 and cash consideration of $19,500,000. The
company also assumed approximately $42,000,000 in indebtedness of the acquired
companies. In addition, the company also purchased certain related equipment
for $1,541,000 and the company agreed to purchase certain real property used in
the acquired companies' operations for $9,000,000 at a later date. Funds used
for the acquisition were the proceeds from the sale of Heritage Insurance
Group, Inc. which disposition was completed on August 31, 1994. The
acquisition was accounted for under the purchase method and, accordingly, the
Consolidated Balance Sheet for September 30, 1994 includes the assets and
liabilities related to this acquisition. The purchase price allocation to
assets and liabilities is preliminary as of September 30, 1994. Further
details of the transaction, including pro forma consolidated results of
operations, are provided in Note 7 of Notes to Consolidated Financial
Statements.
11
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
In the quarter and nine months ending September 30, 1994, the motor oil
division operating profits declined 12% to $4,702,000 and $12,970,000 while
revenues in these periods increased 15% and 10% to $131,005,000 and
$366,052,000. Branded motor oil sales volume increased 16% in the third
quarter and 10% for the nine months to primarily account for the revenue
increases. Third quarter and year-to-date automotive consumer product sales
were up 25%. Other third quarter variances that impacted sales included:
gasoline, fuel oil and kerosene sales volume down 20%, refinery lube stock
sales volume down 39% and average lube stock sales prices up 25%. Operating
profit declines in the third quarter and nine months resulted from increases in
expenses of approximately $5,500,000 and $16,900,000 for marketing expenses,
higher selling expenses geared towards developing additional sales volume and
higher freight from additional volume. Additionally, during the third quarter
of 1993 certain inventory quantities were reduced resulting in liquidations of
LIFO inventories. The effect of these liquidations was a decrease in operating
profit of $600,000 for the quarter and nine months ended September 30, 1993.
Nine-month results also include expenses of approximately $1,500,000 associated
with the December 1993 lawsuit filed against the company for alleged
environmental violations at the Congo refinery. (Refer to Note 4.) Operating
profit has been negatively impacted by a shift to more bulk sales where the
gross profit margin is lower. Increases since January 1, 1994 for the cost of
packaging and additives also had a negative impact on operating profits. A
price increase for branded motor oil products effective September 1 should
improve branded motor oil gross profit margins for the remainder of 1994.
Starting in the fourth quarter of 1994, the operating results generated by the
purchase of Westland Oil Company, Inc. and the Specialty Oil Companies will be
included in the motor oil business segment.
The fast lube segment reported third quarter operating profits of
$1,741,000 on sales and operating revenues of $30,470,000 compared to profits
of $1,729,000 on revenues of $26,524,000 last year. Year-to-date operating
profits were $4,520,000 on revenues of $84,596,000 compared to profits of
$2,687,000 on revenues of $77,558,000 last year. Car counts in 1994 increased
10% and 8% for the three and nine months ended September 30. Third quarter and
year-to-date advertising expenses have increased $323,000 and $776,000 while
third quarter employee benefit expenses are up approximately $243,000.
`
Operating profits for the third quarter and first nine months of 1994 at
the natural gas exploration and production business were $60,000 and $4,200,000
compared to a third quarter operating loss of $169,000 and year-to-date
operating profit of $2,858,000 in 1993. Revenues increased 7% to $6,054,000 in
the third quarter
12
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
while year-to-date revenues of $21,657,000 increased 12% over 1993. Natural
gas sales volume increased 20% for the quarter and nine months ended September
30 and included deliveries made through the new Stagecoach pipeline. Natural
gas year-to-date average sales prices were up 4% per MCF but third quarter
average prices dropped 6% per MCF. Natural gas prices are expected to decline
throughout the fourth quarter resulting in a deterioration of operating results
in this business segment for the remainder of 1994. Third quarter and
year-to-date crude oil sales volumes were down 19% and 14% while year-to-date
average sales prices were off 14% per barrel. Nine-month depreciation and
depletion expense has increased $1,219,000 due to changes in crude oil reserve
estimates and increased natural gas production.
Truck-Lite operating profits in 1994 of $2,680,000 and $10,114,000
increased 122% and 112% over the third quarter and first nine months of 1993.
Revenues were up 27% for the quarter to $24,281,000 and 24% for the nine months
to $75,499,000. Automotive and original equipment truck trailer lighting sales
volume is 19% and 17% ahead of the same periods last year. This combined with
the sale of higher priced products accounts for the increased operating
profits and revenues. Selling, general and administrative expenses are up
13% for the nine months and include a third quarter charge of $500,000 for
additional employee costs.
Corporate interest expense of $3,443,000 for the first nine months of 1994
is down 18% from last year due to lower average debt in 1994. Corporate
expenses of $14,423,000 through September 30, 1994 are up 26% primarily due to
higher postretirement, performance incentive and legal expenses and reduced
expenses in the third quarter of 1993 of approximately $1,600,000 to adjust
employee benefit reserves.
Income, net of taxes, from discontinued insurance operations in the third
quarter was $1,476,000, or $.05 per share, compared to a loss of $967,000, or
$.04 per share, in 1993. The third quarter results include a gain from the
sale of the business of $377,000, or $.01 per share. Year-to-date income was
$4,761,000 or $.17 per share, compared to $2,692,000 or $.10 per share last
year. The 1993 third quarter and nine month insurance income includes a
$5,000,000 pre-tax charge to reserve for an estimate of probable liability
related to an adverse California jury decision. This lawsuit was settled in
the fourth quarter of 1993.
13
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
The effective income tax rate for continuing operations was lowered to 33%
for the nine months ended September 30, 1994 from 41% for the six months ended
June 30, 1994 due to a reduction in the estimated state tax rate and additional
available foreign and other tax credits. This change resulted in an 8%
effective tax rate for the quarter ended September 30, 1994.
Cash provided by operations for the first nine months of 1994 was
$30,522,000 compared to $37,275,000 in 1993. This decrease resulted primarily
from reduced cash from the discontinued insurance operations and additional
cash used by coal activities. Cash used by coal activities was $12,601,000 in
the first nine months. Investing activities included proceeds from the sale of
the discontinued insurance operations, net of discontinued operations' cash, of
$76,851,000. Cash proceeds from investing activities also included the sale of
property and equipment of $4,099,000 of which $1,690,000 related to the
discontinued coal operations, and proceeds from the sale of discontinued
insurance company bonds and securities of $47,781,000. Cash used in investing
activities included acquisition of businesses, net of cash acquired, of
$28,366,000, capital expenditures of $22,481,000, and disbursements to purchase
insurance company bonds and securities of $60,513,000. Cash used in financing
activities was $25,097,000 and included payments of $17,194,000 to primarily
pay Specialty Oil Company debt at the time of aquisition and $8,206,000 paid for
dividends.
On October 27, 1994 the Board of Directors of the company authorized a
quarterly dividend of 10 cents per share payable December 15 to shareholders of
record as of November 15, 1994.
14
PART II.
OTHER INFORMATION
15
PART II
OTHER INFORMATION
QUAKER STATE CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
4(a). Amendment No. 3 to Credit Agreement, dated as of August 1, 1994, by
and among Quaker State Corporation, certain Banks, and PNC Bank,
National Association, as Agent for the Banks, filed herewith.
4(b). Amendment No. 4 to Credit Agreement, dated as of September 30,
1994, by and among Quaker State Corporation, certain Banks, and
PNC Bank, National Association, as Agent for the Banks, filed
herewith.
4(c). Second Amendment to Note Agreements, dated as of September 30,
1994, between Quaker State Corporation and certain insurance
companies, filed herewith.
10(a). Employment Agreement, dated as of August 1, 1994, between Quaker
State Corporation and Herbert M. Baum, filed herewith.
10(b). Employment Agreement, dated as of September 30, 1994, between
Quaker State Corporation and L. David Myatt, filed herewith.
11. Computation of Net Income Per Share for the quarters and nine
month periods ended September 30, 1994 and 1993, filed herewith.
27. Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K:
A report on Form 8-K was filed by Quaker State on September 15, 1994.
The report disclosed under Item 2 that on August 31, 1994, Quaker
State completed the sale of all of the stock of its wholly owned
subsidiary, Heritage Insurance Group, Inc., to General Electric
Capital Corporation. Filed with this report were a Pro Forma
Consolidated Statement of Operations of Quaker State Corporation and
Subsidiaries for the fiscal year ending December 31, 1993 and a Pro
Forma Consolidated Balance Sheet of Quaker State Corporation and
Subsidiaries at June 30, 1994.
A report on Form 8-K was filed by Quaker State on October 14, 1994.
The report disclosed under Item 2 that on September 30, 1994, Quaker
State completed the acquisition of all of the capital stock of
Westland Oil Company, Inc. and the acquisition by merger of the
Specialty Oil Companies. The financial statements and pro forma
financial information required by Item 7 of Form 8-K with respect to
these acquisitions will be filed as soon as practicable but in any event
not later than 60 days following the required filing date for that
report on Form 8-K.
16
QUAKER STATE CORPORATION AND SUBSIDIARIES
SIGNATURES
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.
QUAKER STATE CORPORATION
(Registrant)
Date 11/10/94 By Herbert M. Baum
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Herbert M. Baum
Chairman of the Board,
President and
Chief Executive Officer
Date 11/10/94 By R. Scott Keefer
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R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
17
QUAKER STATE CORPORATION
EXHIBIT LIST
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The following Exhibits are required to be filed with this quarterly report
on Form 10-Q.
Exhibit No. and Document
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4(a). Amendment No. 3 to Credit Agreement, dated as of August 1, 1994, by and
among Quaker State Corporation, certain Banks, and PNC Bank,
National Association, as Agent for the Banks, filed herewith.
4(b). Amendment No. 4 to Credit Agreement, dated as of September 30, 1994, by
and among Quaker State Corporation, certain Banks, and PNC Bank,
National Association, as Agent for the Banks, filed herewith.
4(c). Second Amendment to Note Agreements, dated as of September 30, 1994,
between Quaker State Corporation and certain insurance companies, filed
herewith.
10(a). Employment Agreement, dated as of August 1, 1994, between Quaker State
Corporation and Herbert M. Baum, filed herewith.
10(b). Employment Agreement, dated as of September 30, 1994, between Quaker
State Corporation and L. David Myatt, filed herewith.
11. Computation of Net Income Per Share for the quarters and nine month
periods ended September 30, 1994 and 1993, filed herewith.
27. Financial Data Schedule, filed herewith.