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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 March 31, 1996.
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.)
225 East John Carpenter Freeway
Irving, Texas 75062
(Address of Principal Executive Offices)
(Zip Code)
(214)868-0400
(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 April 30, 1996, 32,885,694 shares of Capital Stock, par value
$1.00 per share, of the registrant were outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quaker State Corporation and Subsidiaries
Quarter ended March 31 1996 1995
- --------------------------------------------------------------------------------------
(in thousands except per share data, unaudited)
REVENUES
Sales and operating revenues $ 278,781 $ 239,533
Other, net 2,026 3,795
- --------------------------------------------------------------------------------------
TOTAL REVENUES 280,807 243,328
COSTS AND EXPENSES
Cost of sales and operating costs 187,112 171,078
Selling, general and administrative 73,672 56,015
Depreciation and amortization 8,399 6,878
Interest 2,168 1,536
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TOTAL COSTS AND EXPENSES 271,351 235,507
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Pretax income from continuing operations 9,456 7,821
Provision for income taxes 3,750 3,600
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Income from continuing operations 5,706 4,221
Income from discontinued operations - 1,375
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NET INCOME $ 5,706 $ 5,596
======================================================================================
PER SHARE:
Income from continuing operations $ 0.17 $ 0.13
Income from discontinued operations - 0.05
- --------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.17 $ 0.18
======================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 32,896 31,586
======================================================================================
DIVIDENDS PAID PER SHARE $ 0.10 $ 0.10
======================================================================================
The accompanying notes are an integral part of the financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quaker State Corporation and Subsidiaries
Quarter ended March 31 1996 1995
- ---------------------------------------------------------------------------------------
(in thousands, unaudited)
NET CASH USED IN OPERATING ACTIVITIES $ (988) $ (8,171)
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CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 37 2,239
Capital expenditures (16,752) (7,013)
Other, net (1,827) -
- ---------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (18,542) (4,774)
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CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid (3,284) (3,149)
Proceeds from long-term debt 175 404
Payments on long-term debt (3,087) (883)
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NET CASH USED IN FINANCING ACTIVITIES (6,196) (3,628)
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Net decrease in cash and cash equivalents (25,726) (16,573)
Cash and cash equivalents at beginning of period 30,659 29,805
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,933 $ 13,232
=======================================================================================
The accompanying notes are an integral part of the financial statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
Quaker State Corporation and Subsidiaries
3/31/96 12/31/95
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(in thousands except share data) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 4,933 $ 30,659
Accounts and notes receivable, net 155,676 129,267
Inventories 86,387 80,284
Other current assets 41,403 36,796
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Total current assets 288,399 277,006
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Property, plant and equipment, net of accumulated
depreciation of $217,652 and $210,851 211,974 203,259
Other assets 232,788 236,758
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TOTAL ASSETS $ 733,161 $ 717,023
======================================================================================================
LIABILITIES
Current liabilities:
Accounts payable $ 71,967 $ 53,465
Accrued liabilities 85,142 84,225
Installments on long-term debt 7,207 7,243
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Total current liabilities 164,316 144,933
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Long-term debt, less current installments 115,643 118,519
Other long-term liabilities 178,185 181,416
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Total liabilities 458,144 444,868
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STOCKHOLDERS' EQUITY
Capital stock, $1.00 par value; authorized shares, 95,000,000;
issued shares, 32,858,094 at 3/31/96 and
32,824,157 at 12/31/95 32,858 32,824
Additional capital 139,512 139,068
Retained earnings 105,827 103,519
Other, net (3,180) (3,256)
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Total stockholders' equity 275,017 272,155
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 733,161 $ 717,023
======================================================================================================
The accompanying notes are an integral part of the financial statements.
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SEGMENT INFORMATION
Quaker State Corporation and Subsidiaries
Sales and operating revenues and contribution
to income from continuing operations by industry segment:
- ------------------------------------------------------------------------------------
Quarter ended March 31 1996 1995
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(in thousands, unaudited)
OPERATING REVENUES
Lubricant and Lubricant Services $ 254,522 $ 213,077
Truck-Lite 23,530 25,683
Docks 729 773
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Total sales and operating revenues $ 278,781 $ 239,533
====================================================================================
OPERATING PROFITS
Lubricant and Lubricant Services $ 14,480 $ 8,009
Truck-Lite 2,010 3,779
Docks 181 205
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TOTAL OPERATING PROFITS 16,671 11,993
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Interest expense (2,168) (1,536)
Corporate other income 751 1,640
General corporate expense (5,798) (4,276)
- ------------------------------------------------------------------------------------
PRETAX INCOME $ 9,456 $ 7,821
====================================================================================
The accompanying notes are an integral part of the financial statements.
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NOTES TO CONDENSED 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 for a fair statement of the results for such periods. All of
these adjustments are of a normal recurring nature. The December 31, 1995
condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principals. These statements should be read
in conjunction with the financial statements included as part of the 1995
Annual Report on Form 10-K.
As of January 1, 1996, the company began reporting Q Lube results as a
component of its core lubricant and lubricant services businesses. Prior
to that, Q Lube had been reported as a separate segment.
2. The effective tax rate of 40% for continuing operations is higher than the
35% federal rate due to the added impact of state and foreign taxes and
nondeductible intangible asset amortization.
3. 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. Effective
January 1, 1996, the company adopted the provisions of this accounting
standard. There was no significant impact on the financial statements, as
a result of adopting this accounting standard.
4. The following schedule is prepared on a pro forma basis as though Slick 50
had been acquired and the company's Natural Gas Exploration and Production
Division had been sold as of the beginning of 1995, after including the
impact of adjustments, such as amortization of intangible assets,
intercompany sales elimination and related tax effects.
For the quarter ended March 31, 1995 (in thousands except per share data)
- --------------------------------------------------------------------------------
Revenues $260,813
Income from continuing operations $ 4,716
Income per share from continuing operations $ .14
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The pro forma results are not necessarily indicative of what would have
occurred if the acquisition and disposition had been in effect for the
periods presented. In addition, they are not intended to be a projection
of future results.
5. 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 $20.8 million at March 31, 1996 and $18.9 million at December
31, 1995. Inventories consist of:
(in thousands) 3/31/96 12/31/95
- --------------------------------------------------------------------------------
Crude Oil $ 4,190 $ 4,718
Finished and in-process petroleum products 58,409 51,658
Other 23,788 23,908
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Total $ 86,387 $ 80,284
================================================================================
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries (unaudited)
6. In December 1993, the United States commenced a lawsuit against the company
in the U.S. District Court for the 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 is involved in settlement
discussions on this matter.
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 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.
7. On April 17, 1996, the company replaced its $45 million line of credit with
a $90 million Credit Agreement. The Credit Agreement provides for loans from
time to time not in excess of $90 million outstanding at any time, and
provides for various interest rate elections by the company. The Credit
Agreement expires April 17, 2001.
8. On April 24, 1996, the company announced it had a preliminary agreement to
acquire Blue Coral, Inc. (Blue Coral) for a combination of cash and stock
and the assumption of certain debt. Blue Coral is a leading manufacturer,
marketer and distributor of high quality automotive appearance products.
The transaction, valued in excess of $100 million, is expected to close in
the second quarter of 1996 subject to the execution of a definitive
agreement and completion of customary closing conditions including normal
regulatory approvals.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The condensed consolidated financial statements, segment information and
related notes for Quaker State Corporation (the company) included in this Form
10-Q, should be read as an integral part of this analysis.
The company reported net income of $5.7 million or $.17 per share for the
quarter ended March 31, 1996, compared to net income of $5.6 million or $.18
per share for the quarter ended March 31, 1995. The quarter ended March 31,
1995 included $1.4 million, or $.05 per share, of income from the discontinued
Natural Gas Exploration and Production Division. The weighted average shares
of capital stock outstanding for the quarter ended March 31, 1996 increased
over 1,300,000 shares compared to the quarter ended March 31, 1995, primarily
as a result of issuing shares in connection with the acquisition of Slick 50,
Inc. (Slick 50) in July 1995. Sales and operating revenues from continuing
operations were $278.8 million for the quarter ended March 1, 1996, up $39.3
million from $239.5 million for the quarter ended March 31, 1995. Sales and
operating revenues include $24.3 million from Slick 50 for the quarter ended
March 31, 1996. Operating profit from continuing operations for the quarter
ended March 31, 1996, increased 39% to $16.7 million from $12 million for the
quarter ended March 31, 1995.
Lubricant and lubricant services operating profit was $14.5 million for the
quarter ended March 31, 1996, up 81% compared to $8 million for the quarter
ended March 31, 1995. Revenues for the quarter ended March 31, 1996 were
$254.5 million, up $41.5 million from $213 million for the quarter ended March
31, 1995. Branded and private label motor oil sales volumes increased 4% and
18%, respectively, for the quarter ended March 31, 1996. Refinery product
margins improved as a result of higher sales prices for base stocks, gasoline
and fuel oil. Car counts were up 8% and the average ticket price was up 5% at
the company's Q Lube operations. As of January 1, 1996, the company began
reporting Q Lube results as a component of its core lubricant and lubricant
services businesses. Prior to that, Q Lube had been reported as a separate
segment.
Truck-Lite operating profit for the quarter ended March 31, 1996 was $2
million, down 47% compared to $3.8 million for the quarter ended March 31,
1995. Revenues were down $2.2 million to $23.5 million from $25.7 million for
the quarter ended March 31, 1995. Truck-Lite continues to suffer from
softening of the overall automotive and truck markets.
For the quarter ended March 31, 1996, corporate income was $751,000 compared to
$1.6 million for the quarter ended March 31, 1995. The decrease is primarily
due to additional royalty income received in 1995. Interest expense increased
for the quarter ended March 31, 1996 as a result of the issuance of $100
million of Notes in October 1995. Corporate expenses increased to $5.8 million
from $4.3 million for the quarter ended March 31, 1995, due to the increased
benefit and lease costs and higher than expected transition costs.
The effective tax rate of 40% for continuing operations is higher than the 35%
federal rate due to the added impact of state and foreign taxes and
nondeductible intangible asset amortization.
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Management's Discussion and Analysis of Results of Operations and Financial
Condition, continued
The company has a preliminary agreement to acquire Blue Coral, Inc. (Blue
Coral) for a combination of cash and stock and the assumption of certain debt.
Blue Coral is a leading manufacturer, marketer and distributor of high quality
automotive appearance products. The transaction, valued in excess of $100
million, is expected to close in the second quarter of 1996 subject to the
execution of a definitive agreement and completion of customary closing
conditions including normal regulatory approvals.
On April 17, 1996, the company replaced its $45 million line of credit with a
$90 million Credit Agreement. The Credit Agreement provides for loans from time
to time not in excess of $90 million outstanding at any time, and provides for
various interest rate elections by the company. The Credit Agreement expires
April 17, 2001.
Cash and cash equivalents decreased by $25.7 million over the quarter ended
March 31, 1996. The decrease was comprised of $1 million net cash used in
operations, $18.5 million net cash used in investing activities and $6.2
million net cash used in financing activities. Cash used in operations was
impacted by additional working capital requirements and cash paid in connection
with the 1995 restructuring program.
Cash used in investing activities of $18.5 million was primarily due to $16.8
million of capital expenditures. Cash used in financing activities of $6.2
million was primarily due to $3.3 million payment of dividends and $3 million
of debt payments.
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 company adopted this
standard effective January 1, 1996. There was no significant impact on the
company's financial statements.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In its annual report on Form 10-K for the year ending December 31, 1995, Quaker
State Corporation ("Quaker State") reported that, in April 1994, Lazy Oil, Inc.
commenced a class action in the Federal 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, conspired and combined to fix, lower, maintain,
and stabilize the price of Pennsylvania grade crude oil purchased from the
plaintiffs and others. In December 1995, the plaintiffs and Quaker State entered
into a Settlement Agreement compromising and settling all claims against Quaker
State in the class action. Pursuant to the Settlement Agreement, Quaker State
has paid $4,400,000 into a settlement fund, subject to return of up to
$2,400,000 if at any time before a jury is impaneled another defendant reaches a
more favorable settlement with the plaintiffs. A hearing on preliminary
approval by the Court of the settlement was held in March 1996, and a final
hearing on approval of the settlement is scheduled to be held in June 1996.
Item 5. Other information
On April 24, 1996, Quaker State announced that it had reached preliminary
agreement to acquire Blue Coral, Inc., a manufacturer, marketer and distributor
of automotive appearance products. The consideration for the acquisition will
be a combination of cash, stock, and assumption by Quaker State of certain
outstanding indebtedness of Blue Coral, Inc. Completion of the transaction is
subject to the execution of definitive agreements and satisfaction of certain
closing conditions, including normal regulatory approvals.
In April 1996, Quaker State entered into a Credit Agreement with a group of
Banks including Morgan Guaranty Trust Company of New York as agent for the
Banks. The Credit Agreement provides for loans from time to time not in excess
of $90 million outstanding at any time, and provides for various interest rate
elections by Quaker State. The Credit Agreement has an expiration date of
April 17, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) 2. Press Release dated April 24, 1996, concerning acquisition of
Blue Coral, Inc., filed herewith.
10. $90 million Credit Agreement dated as of April 17, 1996, among
Quaker State, the Banks listed therein and Morgan Guaranty Trust
Company of New York, as agent for the Banks, filed herewith.
11. Computation of net income per share for the quarters ending March
31, 1996 and March 31, 1995, filed herewith.
27. Financial Data Schedule, filed herewith.
(b) No current reports on Form 8-K were filed by Quaker State during the
quarter ending March 31, 1996.
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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 5/14/96 By /s/ Herbert M. Baum
----------------- -----------------------------------
Herbert M. Baum
Chairman of the Board and
Chief Executive Officer
Date 5/14/96 By /s/ C. A. Conrad
----------------- -----------------------------------
Conrad A. Conrad
Vice Chairman and
Chief Financial Officer
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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. Press Release dated April 24, 1996 concerning the acquisition
of Blue Coral, Inc., filed herewith.
10. $90 million Credit Agreement dated as of April 17, 1996, among
Quaker State Corporation, the Banks listed therein and Morgan
Guaranty Trust Company of New York, as agent for the Banks,
filed herewith.
11. Computation of Net Income Per Share for the quarters ended
March 31, 1996 and 1995, filed herewith.
27. Financial Data Schedule, filed herewith.
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