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 June 30, 1995.
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 of 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 July 31, 1995, 32,824,157 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 SIX MONTHS ENDED
6/30/95 6/30/94 6/30/95 6/30/94
-----------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data, unaudited)
REVENUES
Sales and operating revenues $ 257,698 $ 161,545 $ 497,231 $ 330,060
Other, net 1,814 807 5,609 2,073
-----------------------------------------------------------------------------------------------------------------------------
259,512 162,352 502,840 332,133
COSTS AND EXPENSES
Cost of sales and operating costs 182,888 110,587 354,136 220,516
Selling, general and administrative 59,696 42,071 115,711 90,857
Depreciation, depletion and amortization 7,692 5,003 14,570 10,004
Interest 1,582 1,128 3,118 2,403
Unusual item (Note 6) 15,800 -- 15,800 --
-----------------------------------------------------------------------------------------------------------------------------
267,658 158,789 503,335 323,780
-----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (8,146) 3,563 (495) 8,353
-----------------------------------------------------------------------------------------------------------------------------
PROVISION FOR (BENEFIT FROM) INCOME TAXES
Current (7,100) 2,685 (400) 6,000
Deferred 3,482 (587) 212 (1,317)
-----------------------------------------------------------------------------------------------------------------------------
(3,618) 2,098 (188) 4,683
-----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (4,528) 1,465 (307) 3,670
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES (NOTE 11) 1,303 3,604 2,678 6,982
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (3,225) $ 5,069 $ 2,371 $ 10,652
=============================================================================================================================
PER SHARE:
INCOME (LOSS) FROM CONTINUING OPERATIONS $(.14) $.05 $(.01) $.13
INCOME FROM DISCONTINUED OPERATIONS .04 .14 .09 .26
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $(.10) $.19 $ .08 $.39
=============================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 31,596 27,360 31,591 27,358
=============================================================================================================================
CASH DIVIDENDS PAID PER SHARE $.10 $.10 $.20 $.20
=============================================================================================================================
The accompanying notes are an integral part of the financial
statements.
4
CONSOLIDATED STATEMENT OF CASH FLOWS
Quaker State Corporation and Subsidiaries
For the six months ended June 30 1995 1994
----------------------------------------------------------------------------------------------------------------
(in thousands, unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,371 $ 10,652
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 19,289 15,465
Unusual item 15,800 --
Deferred income taxes and investment tax credit 1,861 (121)
Increase (decrease) from changes in:
Receivables (13,945) (6,336)
Inventories (1,988) (5,182)
Other current assets (268) (911)
Accounts payable 3,245 525
Accrued liabilities (7,924) 1,687
Other (16,195) (1,934)
Changes in discontinued insurance operations -- 5,224
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,246 19,069
----------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 3,175 1,544
Capital expenditures (16,189) (11,555)
Proceeds from sale of discontinued coal operation assets 412 1,568
Discontinued insurance operations
Proceeds from sale of bonds and securities -- 37,046
Purchase of bonds and securities -- (49,259)
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (12,602) (20,656)
----------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid (6,303) (5,457)
(Payments on) Proceeds from notes payable (34) 320
Payments on long-term debt (1,464) (137)
----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (7,801) (5,274)
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (18,157) (6,861)
Cash and cash equivalents at beginning of year:
Other than discontinued insurance operations 29,805 6,220
Discontinued insurance operations -- 9,408
----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents at beginning of year 29,805 15,628
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period:
Other than discontinued insurance operations 11,648 3,063
Discontinued insurance operations -- 5,704
----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,648 $ 8,767
================================================================================================================
The accompanying notes are an integral part of the financial statements.
5
CONSOLIDATED BALANCE SHEET
Quaker State Corporation and Subsidiaries
6/30/95 12/31/94*
---------------------------------------------------------------------------------------------------------------------------
(in thousands except share data) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 11,648 $ 29,805
Accounts and notes receivable, less allowance of
$3,049 at 6/30/95 and $2,185 at 12/31/94. 104,920 91,858
---------------------------------------------------------------------------------------------------------------------------
Inventories: (Note 2)
Crude oil 1,816 976
Finished and in-process petroleum products 45,533 49,252
Other 27,797 22,862
---------------------------------------------------------------------------------------------------------------------------
Total inventories 75,146 73,090
---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 9,929 11,790
Other current assets 11,637 11,708
Discontinued operation assets (Note 11) 48,052 3,889
---------------------------------------------------------------------------------------------------------------------------
Total current assets 261,332 222,140
Property, plant, and equipment, net of accumulated depreciation
and depletion of $202,126 at 6/30/95 and $190,986 at 12/31/94. 199,962 199,983
Discontinued operation assets (Note 11) -- 48,257
Other assets 170,401 159,638
---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 631,695 $630,018
===========================================================================================================================
LIABILITIES
Current Liabilities:
Accounts payable $ 61,711 $ 58,500
Accrued liabilities 66,363 58,487
Installments on long-term debt 3,314 3,714
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 131,388 120,701
---------------------------------------------------------------------------------------------------------------------------
Long-term debt, less debt payable within one year 68,471 69,535
Other long-term liabilities 183,456 187,932
---------------------------------------------------------------------------------------------------------------------------
Total liabilities 383,315 378,168
---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 3)
STOCKHOLDERS' EQUITY
Capital stock, $1.00 par value; authorized shares, 95,000,000;
issued shares, 31,513,968 at 6/30/95 and 31,517,305 at 12/31/94 31,514 31,517
Treasury stock, at cost, 49,786 shares at 6/30/95 and 33,498 shares at 12/31/94 (690) (467)
Additional capital 120,757 120,131
Retained earnings 100,354 104,286
Cumulative foreign currency translation adjustment (488) (709)
Unearned compensation (3,067) (2,908)
---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 248,380 251,850
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 631,695 $630,018
===========================================================================================================================
<FN>
*Amounts are from December 31, 1994 audited balance sheet and footnotes.
The accompanying notes are an integral part of the financial statements.
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 SIX MONTHS ENDED
6/30/95 6/30/94 6/30/95 6/30/94
----------------------------------------------------------------------------------------------------------------------------------
(in thousands, unaudited)
SALES AND OPERATING REVENUE
Motor oil $ 208,493 $ 112,366 $ 399,577 $ 235,047
Fast lube 31,550 27,967 60,264 54,126
Truck-Lite 23,934 26,558 49,617 51,218
Docks 889 754 1,662 1,447
Intersegment sales (7,168) (6,100) (13,889) (11,778)
----------------------------------------------------------------------------------------------------------------------------------
Total sales and operating revenue $ 257,698 $ 161,545 $ 497,231 $ 330,060
==================================================================================================================================
OPERATING PROFIT (LOSS)
Motor oil $ 6,700 $ 3,064 $ 12,874 $ 8,268
Fast lube 2,481 1,478 4,140 2,779
Truck-Lite 3,581 4,570 7,343 7,434
Docks 276 250 481 469
----------------------------------------------------------------------------------------------------------------------------------
Total operating profit from continuing operations 13,038 9,362 24,838 18,950
Corporate income 937 732 2,577 1,253
Interest expense (1,510) (1,159) (3,023) (2,318)
Corporate expenses (4,811) (5,372) (9,087) (9,532)
Unusual item* (15,800) -- (15,800) --
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes $ (8,146) $ 3,563 $ (495) $ 8,353
==================================================================================================================================
<FN>
*The restructuring charge of $15,800 includes $9,280 that relates
to Motor oil.
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 1994 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 $22,255,000 at June 30, 1995,
and $20,267,000 at December 31, 1994.
In the second quarter of 1995 certain inventory quantities were reduced
resulting in liquidations of LIFO inventory. The effect of these
liquidations was an increase in net income of $900,000, or $.03 per
share.
3. In December 1993, the United States commenced a lawsuit against the
company in the U.S.District Court for Northern District of 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 not to exceed $25,000 per day for each violation. The
company intends to vigorously defend this lawsuit. However, the
ultimate outcome of this litigation cannot presently be determined.
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.
In April 1994, purported class actions were commenced in the U.S.
District Court for the Western District of Pennsylvania against
the company and two other oil companies. The complaints allege
violations of Section 1 of the Sherman Act. In July 1995, the United
States District Court certified the proceeding as a class action and
denied the defendants' motion for summary judgment. The company
believes there is no basis for the allegations in the complaint and
intends to defend the matter vigorously.
Contingent liabilities of an indeterminate amount exist in
connection with suits and claims arising in the ordinary course of
business.
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.
4. The effective tax rate of 38% for continuing operations is higher than
the 35% federal rate due to the added impact of state and foreign
taxes. The effective tax rate for continuing operations of 38% is lower
than the 1994 rate of 56% due to lower income from continuing
operations, a reduction in the estimated state tax rate, and other
changes in estimates.
(more)
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
5. On July 11, 1995, Quaker State completed the acquisition of all
the stock of Slick 50 through the merger of Slick 50 into a wholly owned
subsidiary of Quaker State named Quaker State--Slick 50, Inc. The
consideration given in the acquisition included payment of
approximately $22,000,000 in cash and the issuance of 1,260,403 shares
of Quaker State capital stock. In addition, the company paid
approximately $11,000,000 to satisfy certain Slick 50 indebtedness
outstanding prior to the closing. Under the terms of the Merger
Agreement, additional consideration may be payable by Quaker State for
Slick 50 stock depending upon the merged company's performance during
the fiscal years ending December 31, 1996, 1997 and 1998 but subject to
offset for indemnification obligations of Slick 50 stockholders under
the Merger Agreement.
The source of funds used for cash consideration in the transaction
and the payment of Slick 50 indebtedness was borrowing under Quaker
State's $45,000,000 Revolving Credit Agreement.
The acquisition will be accounted for under the purchase method.
6. On April 28, 1995 the company announced plans to restructure its
organization to integrate recent acquisitions, consolidate management
and administrative activities, and move its corporate headquarters and
Motor Oil Division to the Dallas, Texas area. The company plans to
complete the move by the first quarter of 1996. The pre-tax costs and
expenses associated with the restructuring and relocating the workforce
and closing the headquarters facility in Oil City, Pennsylvania and its
administrative unit in Shreveport, Louisiana will approximate
$25,000,000. A charge of $15,800,000 was recorded in the second quarter,
of which $9,280,000 related directly to the Motor Oil Division. The
after tax restructuring charge recorded in the quarter was $9,490,000.
The remainder will be expensed as incurred.
7. On April 28, 1995 the company announced that the Board of Directors
approved a $25,000,000 development project for the Red River port in
Shreveport, Louisiana, which will become the company's manufacturing and
technical headquarters.
8. The following schedule is prepared on a pro forma basis as though
Specialty and Westland had been acquired as of the beginning of 1994,
after including the impact of adjustments, such as amortization of
intangible assets, intercompany sales elimination and related tax
effects.
For the quarter ended and six months ended June 30, 1994
------------------------------------------------------------------------------------------------------------
(in thousands except per share data, unaudited)
------------------------------------------------------------------------------------------------------------
For the quarter ended For the Six months ended
6/30/94 6/30/94
-------------------------------------------------------
REVENUES $248,726 $483,979
Income from continuing operations (Note 11) $ 4,328 $ 6,520
Income per share from continuing operations $ 0.14 $ 0.21
-------------------------------------------------------
(more)
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the 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 combining the operations.
9. In March 1995, the Financial Accounting Standards Board issued Standard
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used
and for long-lived assets and certain identifiable intangibles to be
disposed of. The new Standard must be implemented in 1996. The company
is currently evaluating what effect, if any, this Standard will have on
its financial position and results of operations.
10. On May 25, 1995 the company's stockholders approved the Amendment of
Quaker State's Certificate of Incorporation to increase the authorized
number of shares of Quaker State's capital stock from 37,500,000 to
95,000,000 shares.
11. On July 26, 1995 Quaker State signed a definitive agreement to sell
most of the assets of its Natural Gas Exploration and Production
Division to Belden & Blake Corporation of Canton, Ohio for a purchase
price of $56,000,000 subject to certain possible adjustments.
Accordingly, the operating results of Natural Gas Exploration and
Production have been reported as a discontinued operations in the
accompanying Consolidated Statement of Operations for the period ending
June 30, 1995. Prior year and prior period financial statements have
been reclassified to conform to the current period presentation.
Completion of the transaction occured on August 9, 1995. The company
expects to record a gain from the sale of these assets which will be
reported under discontinued operations in the third quarter.
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 a 1995 second quarter net loss of
$3,225,000, or $.10 per share, compared to net income of $5,069,000, or $.19
per share, last year. Six month net income was $2,371,000, or $.08 per share,
compared to $10,652,000, or $.39 per share, in 1994. The weighted average
shares of capital stock outstanding for the period ending June 30, 1995
increased over 4,000,000 shares versus 1994, primarily as the result of issuing
additional shares in the third quarter of 1994 for the acquisition of the
Specialty and Westland companies. Sales and operating revenues from continuing
operations were $257,698,000 and $497,231,000 for the second quarter and six
months of 1995 compared to $161,545,000 and $330,060,000 for these periods in
1994. The 1995 revenues included $88,010,000 and $164,596,000 of additional
sales for the second quarter and six months from the Specialty and Westland
companies that were acquired in the third quarter of 1994. The 1995 second
quarter and six months expenses include a pretax restructuring charge of
$15,800,000 related to its announced relocation to the Dallas, Texas area.
Total costs under the restructuring plan are estimated to be
$25,000,000 with the remainder of such costs to be expensed as incurred. This
charge accounted for the pretax loss from continuing operations of $8,146,000
and $495,000 for the second quarter and six months of 1995. Operating profits
from continuing operations, excluding restructuring charges, in 1995 increased
39%, to $13,038,000, in the second quarter and 31%, to $24,838,000 for the
six months reflecting higher sales for branded motor oil and improved Q Lube
operating results.
On May 25, 1995, the company and Belden & Blake Corporation signed a
letter of intent for Belden & Blake Corporation to acquire most of the assets
of the company's Natural Gas Exploration & Production Division (E&P). As a
result, the E&P operations have been accounted for as a discontinued operation
on the Consolidated Statement of Operations for the period ending June 30, 1995
and its operating results have been segregated and reported as a discontinued
operation. Prior year and prior period financial statements have been
reclassified to conform to this presentation. Income from discontinued
operations in 1994 also include the insurance operations which were
discontinued last year. Income from discontinued operations was $1,303,000, or
$.04 per share, and $2,678,000, or $.09 per share, for the second quarter and
first six months of 1995 compared to $3,604,000, or $.14 per share, and
$6,982,000, or $.26 per share, last year.
Motor Oil Division operating profits, excluding restructuring charges of
$9,280,000, were $6,700,000 and $12,874,000 for the second quarter and first
six months of 1995 compared to $3,064,000 and $8,268,000 last year. Revenues
of $208,493,000 and $399,577,000 in these periods increased 86% and 70% over
1994 and included the 1995 sales from the Specialty and Westland companies that
were purchased in the third quarter of 1994. Operating profits improved as a
result of a 14% second quarter and 2%
11
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
-----
year-to-date increase in branded motor oil sales volume. In addition, refinery
product margins improved as a result of higher sales prices for base stocks,
gasoline and fuel oil. Operating results also include $1,500,000 of LIFO
inventory profits recorded in the second quarter as a result of liquidating
certain inventory quantities. In the division's private label and industrial
lubricants business, operating results improved in the second quarter as first
quarter sales price increases partially offset the impact of higher material
costs.
Q Lube reported second quarter operating profits of $2,481,000 on sales
and operating revenues of $31,550,000 compared to profits of $1,478,000 on
revenues of $27,967,000 last year. Six month operating profits were $4,140,000
on sales and operating revenues of $60,264,000 compared to profits of
$2,779,000 on revenues of $54,126,000 in 1994. Year-to-date car counts in 1995
increased 6% and average per car sales were up 5% to account for the revenue
and operating result improvements. Higher advertising, depreciation and
amortization expenses resulting from the conversion of the fast lube outlets to
the new Q Lube format partially offset the improvement in operating results.
This conversion will continue in 1995 with approximately 100 additional stores
expected to be completed by the end of the year.
Truck-Lite operating profits in the second quarter and six months of 1995
were $3,581,000 and $7,343,000 compared to $4,570,000 and $7,434,000 in 1994.
Revenues were down 10% to $23,934,000 in the second quarter and down 3% to
$49,617,000 for the six months. Lower sales volume and negative product mix
adversely affected operating results. Automotive sales slowed down in the
second quarter as the overall car market has softened. Management was able to
reduce year-to-date operating expenses by approximately $1,500,000 to
partially offset the slowdown in the business.
Year-to-date corporate income of $2,577,000 compared to $1,253,000 and
included approximately $1,000,000 of additional royalty payments received for
coal deliveries made by the purchaser of a long-term coal sales agreement. Six
month interest expense in 1995 increased 30% to $3,023,000 as a result of debt
assumed in the acquisition of Westland Oil Company, Inc. in the third quarter
of 1994. Corporate expenses in 1995 were $4,811,000 and $9,087,000 for the
quarter and six months compared to $5,372,000 and $9,532,000 last year. Lower
salary and benefit expenses account for the reductions in corporate expenses.
An unusual charge for $15,800,000 was recorded in the second quarter to
reserve for severance costs, employee benefit expenses and the write-off of
assets related to the company's relocation to the Dallas, Texas area.
Approximately $9,280,000 of this charge relates to the Motor Oil Division.
The effective tax rate of 38% for continuing operations is higher than
the 35% federal rate due to the added impact of state and foreign taxes. The
effective tax rate for continuing operations of 38% is lower than the 1994 rate
of 56% due to lower income from continuing operations, a reduction in the
estimated state tax rate, and other changes in estimates.
12
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
-----
Cash provided by operations for the first six months of 1995 was
$2,246,000 compared to $19,069,000 in 1994. This decrease resulted from
additional working capital requirements and the loss of operating cash flows
from the insurance operations which were sold in the third quarter of 1994.
Cash used by discontinued coal activities in 1995 was $5,757,000 compared to
$8,868,000 last year. Cash used by investing activities included capital
expenditures of $16,189,000 and proceeds from the sale of property and
equipment of $3,587,000, of which $412,000 related to the discontinued coal
operations. Cash used in financing activities was $7,801,000 and included
$6,303,000 paid for dividends and $1,464,000 paid on long-term debt, primarily
related to the Westland subsidiary acquired in 1994.
On April 28, 1995, the company announced that the Board of Directors
approved a $25,000,000 development project for the Red River port in
Shreveport, Louisiana which will become the company's lubricants manaufacturing
and technical headquarters.
On May 25, 1995 the company's stockholders approved an amendment to the
company's Certificate of Incorporation to increase the authorized number of
shares of Quaker State's capital stock from 37,500,000 to 95,000,000 shares.
On July 11, 1995, the company completed an Agreement and Plan of Merger
to acquire Slick 50, Inc. (Slick 50), by merger into a newly formed wholly-owned
subsidiary of the company. The merger consideration included the payment of
approximately $22,000,000 in cash and the issuance of 1,260,000 shares of
Quaker State capital stock. In addition, the company paid approximately
$11,000,000 to satisfy certain Slick 50 indebtedness outstanding prior to the
closing. The operating results of Slick 50 will be reported as part of the
Motor Oil Division business segment from the date of acquisition. (Refer to
Note 5.)
On July 26, 1995 the company signed a definitive agreement to sell
certain assets of its Natural Gas Exploration and Production Division to
Belden & Blake Corporation of Canton Ohio for a purchase price of $56,000,000
subject to certain possible adjustments. Completion of this transaction
occurred on August 9, 1995. The company expects to record a gain from the sale
of these assets which will be reported under discontinued operations in the
third quarter. (Refer to Note 11.) The company is in the process of selling
the remaining Natural Gas Exploration and Production Division assets.
On July 27, 1995 the Board of Directors of the company declared a
quarterly dividend of 10 cents per share payable September 15 to shareholders
of record as of August 15, 1995.
In March 1995, the Financial Accounting Standards Board issued Standard
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The new Standard must be
implemented in 1996. The company is currently evaluating what effect, if any,
this Standard will have on its financial position and results of operations.
13
PART II.
OTHER INFORMATION
QUAKER STATE CORPORATION AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
-----------------
In its annual report on Form 10-K for the year ended December 31, 1994,
Quaker State reported that in April 1994 Lazy Oil, Inc., a Pennsylvania
corporation, commenced a class action in the United States District Court for
the Western District of Pennsylvania against Witco Corporation, Quaker State
and Pennzoil Company. Three similar actions were subsequently commenced and
were consolidated with the original action. The consolidated amended complaint
alleges violations of Section 1 of the Sherman Act, based upon an allegation
that the defendants, since at least January 1, 1981, combined and conspired to
fix, lower, maintain and stabilize the purchase price of Pennsylvania Grade
crude oil purchased from the plaintiffs and others. In July 1995, the United
States District Court certified the proceeding as a class action and denied the
defendants' motion for summary judgement, without prejudice to renewal after
the close of discovery. Discovery in this proceeding is continuing.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------------------------------------------------
On May 25, 1995, Quaker State held its Annual Meeting of Stockholders,
at which three items were submitted to a vote of security holders. The first
item voted upon was the election of directors, and the following individuals
were elected as directors, with the following votes for or withheld from each:
Name Votes For Votes Withheld
---- --------- --------------
Herbert M. Baum 27,165,534 748,498
Leonard M. Carroll 27,136,850 777,242
Conrad A. Conrad 27,187,346 726,686
Laurel Cutler 27,150,456 763,576
C. Frederick Fetterolf 27,151,087 762,945
Thomas A. Gardner 27,147,499 766,533
F. William Grube 27,187,781 726,251
Forrest R. Haselton 27,140,948 773,084
Delbert J. McQuaide 27,185,670 728,362
L. David Myatt 27,189,938 724,094
Raymond A. Ross, Jr. 27,177,980 736,052
Lorne R. Waxlax 27,155,370 758,662
The second matter submitted to a vote of security holders was approval
of the Amendment of Quaker State's Certificate of Incorporation to increase the
authorized number of shares of Quaker State's capital stock from 37,500,000 to
95,000,000 shares.
14
On this second matter, 22,927,640 shares were voted for the proposition,
4,748,952 shares were voted against and 237,440 shares abstained.
The third matter submitted to a vote of security holders was the
ratification of the appointment of the firm of Coopers and Lybrand L.L.P. as
Quaker State's independent auditors for the fiscal year ending December 31,
1995. On this third matter, 27,643,152 shares were voted for the proposition,
162,157 shares were voted against and 108,723 shares abstained.
Item 5. Other Information.
------------------
On July 26, 1995, Quaker State signed a definitive agreement to sell
most of the assets of its Natural Gas Exploration and Production Division to
Belden & Blake Corporation of Canton, Ohio for a purchase price of
approximately $56,000,000 subject to certain adjustments. The purchase price
was determined in arms length negotiations. This transaction was completed on
August 9, 1995. The sale included interests in approximately 1,460 producing
oil and gas wells in New York, Ohio, Pennsylvania and West Virginia,
approximately 250,000 leasehold acres and approximately 250 miles of gas
gathering lines. There is no material relationship between Quaker State and
Belden & Blake Corporation, other than purchases by Quaker State of crude oil
in the ordinary course of business.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) 2. Asset Purchase Agreement dated July 26, 1995 among
Quaker State Corporation, QSE & P, Inc. and Belden & Blake
Corporation, filed herewith.
3(i). Composite Certificate of Incorporation, as amended
effective July 3, 1995, filed herewith.
4. Amendment No. 5 to Credit Agreement, dated as of July 7,
1995, by and among Quaker State, certain Banks and PNC Bank, as
agent for the Banks, filed herewith.
11. Computation of Net Income per Share for the quarters and
six months ended June 30, 1995 and 1994, filed herewith.
27. Financial Data Schedule, filed herewith.
(b) No reports on Form 8-K were filed by Quaker State during
the quarter ending June 30, 1995. A current report on Form 8-K was
filed by Quaker State on July 24, 1995. The report disclosed under
Item 2 that on July 11, 1995, Quaker State completed the
acquisition of Slick 50, Inc. I by merger into a newly formed,
wholly owned subsidiary of Quaker State. No financial statements
were included with this report on Form 8-K, and the required
financial statements and pro forma financial information will be
filed no later than 60 days following the required filing date for
this report on Form 8-K.
15
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 8/11/95 By /s/ Herbert M. Baum
---------------- ----------------------------------
Herbert M. Baum
Chairman of the Board and
Chief Executive Officer
Date 8/11/95 By /s/ C. A. Conrad
---------------- ----------------------------------
C. A. Conrad
Vice Chairman and
Chief Financial Officer
16
QUAKER STATE CORPORATION
EXHIBIT LIST
------------
The following exhibits are required to be filed with this quarterly
report on Form 10-Q.
Exhibit No. and Document
------------------------
2. Asset Purchase Agreement dated July 26, 1995 among Quaker
State Corporation, QSE & P, Inc. and Belden & Blake
Corporation, filed herewith.
3(i). Composite Certificate of Incorporation, as amended effective
July 3, 1995, filed herewith.
4. Amendment No. 5 to Credit Agreement, dated as of July 7, 1995,
by and among Quaker State, certain Banks and PNC Bank, as
agent for the Banks, filed herewith.
11. Computation of Net Income per Share for the quarters and six
months ended June 30, 1995 and 1994, filed herewith.
27. Financial Data Schedule, filed herewith.