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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 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 (I.R.S. Employer
incorporation or organization) Identification No.)
225 East John Carpenter Freeway
Irving, Texas 75062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 972-868-0400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
--------------------------------- ------------------------
Capital Stock, par value New York Stock Exchange
$1.00 per share Pacific Stock Exchange
Rights to Purchase Capital Stock, New York Stock Exchange
par value $1.00 per share Pacific Stock Exchange
6.625% Notes due 2005 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 14(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The registrant estimates that as of March 18, 1997 the aggregate market
value of the shares of its Capital Stock held by non-affiliates of the
registrant was more than $496,465,000.
As of March 18, 1997, there were 35,097,296 shares of Capital Stock of the
registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Quaker State's 1996 Annual Report to Stockholders are
incorporated by reference in Parts I and II of this annual report on Form 10-K.
Portions of the Proxy Statement for Quaker State's Annual Meeting of
Stockholders to be held on May 16, 1997 are incorporated by reference in Part
III of this annual report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
Quaker State Corporation ("Quaker State" or the "Company") is a leading
producer and marketer of branded and private label motor oils and other
lubricants. The Company also operates fast lube centers in certain areas of
the United States and Canada, markets automobile engine and fuel treatments,
manufactures and sells automobile polishes, car wash products, automotive air
fresheners and vehicular safety lighting equipment and operates a materials
handling facility in Canada.
The Company's Lubricants and Lubricant Services segment, through Quaker
State's Q Lube, Inc. ("Q Lube") subsidiary, operates fast lube centers which
offer consumers quick and economical oil changes and related services for
passenger vehicles (primarily under the name "Q Lube") and markets and
distributes major national brand, private label and proprietary brand
lubricants and other automotive aftermarket products primarily in the United
States, Canada and Mexico. The lubricant stocks used in the Company's
lubricants are blended with additives and packaged at manufacturing facilities
operated by the Company in the United States. Approximately 20% of the base
oil stocks used by the Company are produced at its Congo refinery in West
Virginia. The Lubricants and Lubricant Services segment also provides
collection, transportation and recycling services for used oil, antifreeze and
filters in certain regions of the United States.
The Company's subsidiary Truck-Lite Co., Inc. ("Truck-Lite") manufactures
safety lighting equipment for trucks and automobiles, which is sold to original
equipment manufacturers and replacement parts distributors.
Following the appointment of Herbert M. Baum as Chairman and Chief
Executive Officer in June 1993, the Company has taken initiatives to increase
its share of the branded motor oil market. These efforts have included
introducing new products and repositioning the Company's current product line,
extending the Company's existing brands, acquiring new brands, creating niche
markets for the Company's products, offering incentive programs and marketing
allowances to customers and independent distributors, and emphasizing the
Quaker State name through a new logo, contemporary packaging and increased
advertising.
Quaker State's goal is to continue the growth of its Lubricant and
Lubricant Services businesses and to strengthen further its position as a
leading North American motor oil company by capitalizing on the Company's brand
name, expanding its Q Lube operations, emphasizing its distribution, customer
service and technological capabilities and providing comprehensive lubricant
products and services, including the recycling of used oils and related
materials.
In September 1994, the Company acquired the Specialty Oil Companies
("Specialty") and Westland Oil Company, Inc. ("Westland"), which together have
provided the Company with a substantial private label motor oil business, two
additional blending and packaging facilities and a network of approximately 25
sales and distribution locations. This acquisition expanded the Company's
product range and distribution capabilities.
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In 1996, the Company formed a new Consumer Products segment, which is
comprised of Slick 50, Inc. ("Slick 50"), Blue Coral, Inc. ("Blue Coral"), and
Medo Industries, Inc. and its affiliated companies (collectively, "Medo"). In
July 1995, the Company acquired Slick 50, a producer of automotive engine
treatments and related automotive chemicals. In June 1996, the Company
acquired Blue Coral, a manufacturer and marketer of automobile appearance
products, commercial and industrial cleaning products and, through its Blue
Coral Systems division, commercial car wash products. In October 1996, the
Company acquired Medo. Medo is engaged in the design, manufacture and
marketing of air fresheners primarily for use in automobiles. The Company
plans to continue to expand its Consumer Products segment by internal growth
and by acquiring new companies which capitalize on the Company's strong sales,
distribution and customer service capabilities in the automotive aftermarket.
Quaker State believes that acquisitions will be an important aspect of its
corporate strategy. However, there can be no assurance that the Company will
be successful in finding other suitable acquisition or expansion opportunities.
The Company, a Delaware corporation formed in 1931, has its principal
executive offices at 225 E. John Carpenter Freeway, Irving, Texas 75062. Its
telephone number is (972) 868-0400. For further information about Quaker
State's business segments, see Lubricants and Lubricant Services, Truck-Lite,
and Consumer Products, below.
LUBRICANTS AND LUBRICANT SERVICES
Quaker State manufactures, markets and sells lubricants (primarily motor
oils for automobiles and trucks) and fuels. The lubricants include
transmission fluids, gear lubricants and greases for automobiles and trucks, as
well as specialty lubricants designed for other types of vehicles, such as
sport utility vehicles, marine craft, motorcycles and snowmobiles. The
lubricants are sold under the Quaker State brand name and certain private label
and proprietary brand names. The fuels sold by Quaker State include gasoline,
fuel oils (diesel fuel and heating oils) and kerosene. Quaker State also
purchases and resells automotive consumer products. The administrative offices
for the Lubricants and Lubricant Services segment are located in Irving, Texas
and Salt Lake City, Utah.
Quaker State also provides collection, transportation and recycling
services for used oil, antifreeze and used oil filters in certain regions of
the United States.
Manufacturing. Motor oils are made by blending additives with lubricant
stocks refined from crude oil. Quaker State's motor oils are made from
lubricant stocks produced at its Congo refinery located at Newell, West
Virginia or from lubricant stocks purchased from other refiners. During 1996,
20% of the lubricant stocks used by Quaker State were produced at the Congo
refinery and 80% were purchased from various suppliers. In addition,
approximately 80% of the Company's additives during 1996 were purchased from
one supplier. The Company believes that alternative sources of supply for
lubricant stocks and additives are readily available.
The Congo refinery is specially designed to maximize the production of
lubricant stocks from Pennsylvania Grade crude oil. Crude oil is available
from a large number of suppliers. Gasoline, fuel oils and kerosene account for
approximately 40% of the output (by volume) of the Congo refinery. The Company
is evaluating the possibility of a sale of the Congo refinery.
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Quaker State blends lubricant stocks with chemicals and/or additives to
produce motor oils, finished lubricants and related products at five blending
and packaging plants owned and operated by Quaker State and its subsidiaries in
Vicksburg, Mississippi; Newell, West Virginia; Shreveport, Louisiana; San
Antonio, Texas; and Carson, California.
Quaker State sells the majority of its branded motor oils (by volume) in
packages ranging in size from four ounces to 55 gallons; however, it sells a
significant amount in bulk. Packaged motor oils are sold primarily in one
quart plastic bottles. In the United States, the plastic bottles are made by
others to Quaker State's specifications. Quaker State also makes certain
plastic containers itself and purchases its other containers from a number of
suppliers. Greases and some specialty lubricants sold by Quaker State are
privately labeled and made by others to the Company's specifications.
Raw materials used in the manufacturing process, other than crude oil and
containers, consist primarily of lubricant stocks produced by other refiners,
chemicals, fuels and additives, which are available from a number of sources.
Availability of Pennsylvania Grade crude oil depends primarily on the price
which purchasers, including Quaker State, are willing to pay, which in turn
depends on the prevailing market prices for all types of crude oil. The
available supply of Pennsylvania Grade crude oil has been declining for some
time and is expected to continue to decline.
Quaker State contracts with operators of tank truck fleets to gather crude
oil produced in eastern Ohio and western Pennsylvania and transport it to the
Congo refinery or to a crude oil terminal and storage complex owned and
operated by Quaker State at Magnolia, Ohio. From there, crude oil flows
through a pipeline to the Congo refinery. Other crude oil is gathered by
regulated pipeline companies and barged to the Congo refinery.
Domestic Sales. Quaker State sells motor oils and other lubricants to
retailers directly and through independent distributors. In addition, sales to
one customer by the Lubricants and Lubricant Services segment were material to
the segment.
Direct sales are made to national and regional chain stores, to fast lube
centers and to resellers and end users primarily in large metropolitan areas.
The resellers include wholesalers and retailers, and the end users include
industrial and commercial accounts and fleet customers.
As of December 31, 1996, there were 85 independent distributors selling
Quaker State products in all 50 states. Independent distributors resell to
service stations, retailers, automobile dealers, repair shops, fast lube
centers, automobile parts stores, retail food chains, fleet and commercial
customers and wholesale outlets.
Gasoline, fuel oils and kerosene are sold F.O.B. the Congo Refinery to
wholesalers located for the most part in Ohio, Pennsylvania and West Virginia.
Sales of automotive consumer products are made to the same entities to
which lubricant sales are made. The leading products sold by this segment,
other than lubricants, are oil, air and fuel filters.
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The Company also sells antifreeze, brake and power steering fluids, fuel
additives, spray lubricants and cleaners and automotive undercoatings.
Fast Lube Centers. Quaker State's Q Lube subsidiary is one of the largest
operators and franchisers of fast lube centers in the United States. Fast lube
centers are service outlets providing quick and inexpensive oil changes,
lubrication and related services and products for automobiles. Q Lube provides
oil changes and lubrication services to consumer vehicles and related products
and services such as air filters, breathers, PCVs, wipers, headlights, engine
treatments, coolant system drain and refill services, and automatic
transmission services. In January 1996, McQuik's Oilube, Inc., a former
subsidiary, was merged into Q Lube. Fast lube centers owned by Q Lube and its
franchisees are operated under the names Q Lube, McQuik's Oilube or Quaker
State Minit-Lube. Q Lube is expanding its service offerings in certain
locations to include coolant flushing, vacuuming, air-conditioning system
recharging and possibly other services.
Q Lube is one of Quaker State's largest outlets for Quaker State motor
oils. In 1991, Q Lube began to convert its company-operated fast lube centers
to the name Q Lube, featuring heightened Quaker State identification. Because
of the success of the conversions, Q Lube has been redesigning virtually all of
its company-operated centers to Q Lube identification and plans to complete the
conversion by the end of 1997. At the end of 1996, Q Lube owned 142 locations,
leased 290 locations, and licensed 55 franchisees to use the Q Lube name. Most
of the Q Lube locations are in 24 states primarily in the Western, Midwestern
and Southern United States.
Docks. A Quaker State subsidiary, Valley Camp Inc., operates a leased
bulk materials handling facility in Thunder Bay, Ontario.
Foreign and Export Sales. Quaker State's Canadian subsidiary, Quaker
State, Inc. ("QSI"), has been a marketer of Quaker State branded motor oils in
Canada for many years. Sales in Canada are made primarily through independent
distributors and fast lube centers under contract with QSI, but also directly
to customers. Quaker State believes that Quaker State motor oil is the largest
selling brand in Canada.
Quaker State sells branded motor oils in Japan through a Quaker State
subsidiary and in Mexico through a licensee. Quaker State believes that Quaker
State motor oil is one of the largest selling independent brands in Mexico.
Quaker State makes export sales of motor oils in 66 foreign countries
through independent distributors. The largest amount of export sales is made
in the Dominican Republic. During 1996, Quaker State also made a significant
part of its export sales to Guatemala, Ecuador, Poland, Sweden and Taiwan.
Small amounts of greases, gear lubricants and automotive consumer products
such as filters and chemicals are exported to certain foreign countries.
During the three years ended December 31, 1996, total revenues from
foreign operations, including export sales, were: 1996 - $77,368,000; 1995 -
$78,260,000; and 1994 - $68,661,000. The revenues for 1994 include Specialty
and Westland revenues from the time of acquisition. The largest component of
these revenues comes from Canada.
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During 1996, revenues from the Lubricant and Lubricant Services segment
comprised approximately 81% of the Company's total sales and operating revenues
from continuing operations. See, "Marketing by the Lubricants and Lubricant
Services and Consumer Products Segments" below for further information.
CONSUMER PRODUCTS
During 1996, the Company formed a new Consumer Products Segment, which is
comprised of Slick 50, Blue Coral and Medo.
Manufacturing. Slick 50 purchases motor oils, additives and chemicals and
contracts with an outside packager to blend these materials into finished
products in accordance with Slick 50's specifications. Blue Coral purchases
chemicals, waxes and cleaners from a variety of suppliers, and blends and
packages finished products in Cleveland, Ohio. Blue Coral owns its
manufacturing and headquarters facilities, and leases its distribution
facilities in Cleveland, Ohio. Slick 50 and Blue Coral have shared the Blue
Coral facilities in Cleveland, Ohio since the beginning of 1997.
Blue Coral Systems arranges for the bulk manufacturing of products which
it sells to commercial and industrial users from its leased headquarters
facility in Tucson, Arizona. Medo purchases paperboard, containers and
fragrances from a variety of suppliers, and manufactures and distributes
finished air fresheners at its leased Baltimore, Maryland facility. Raw
materials used in the Medo manufacturing process are generally available from
several suppliers. Medo leases its corporate headquarters in Tarrytown, New
York.
Domestic Sales. The Consumer Products segment accounted for 12% of the
Company's total consolidated revenues in 1996. In addition, sales to two
customers by the Consumer Products segment were material to that segment.
Foreign and Export Sales. Products are sold in approximately 75 foreign
countries, primarily through subsidiaries of Blue Coral and Slick 50,
independent distributors and a direct sales unit in Japan. Blue Coral sells
automotive appearance products into 30 foreign countries (excluding Canada,
Mexico, South America and the Caribbean), Slick 50 sells its engine treatment
and other products into 40 foreign countries, and Medo sells its products into
75 foreign countries. Slick 50 and Blue Coral operations lease their United
Kingdom headquarters facilities, and use third party contract manufacturers in
the United Kingdom to produce products such as appearance products, engine,
fuel and radiator additives. Blue Coral also leases warehouse space in the
United Kingdom and Singapore. Slick 50 leases office space in Monaco, which
serves as the primary headquarters of its international distribution outside
the United Kingdom, Canada, Mexico and South America. Slick 50's principal
foreign markets are the United Kingdom, Spain, France, Germany, Australia and
Asia. Blue Coral's major foreign markets are in countries in which it has
exclusive distributors, namely, France, Japan, Poland and Turkey. Medo
distributes all its branded products internationally through independent third
party distributors.
During the three years ended December 31, 1996, total revenues from
foreign operations, including export sales, were: 1996 - $12,543,000; 1995 -
$3,298,000; and 1994 - $0. The revenues from 1995 include Slick 50 revenues
from the date of acquisition and for 1996 include Blue Coral
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and Medo from the dates of acquisition. The largest component of these revenues
comes from the United Kingdom.
MARKETING BY THE LUBRICANTS AND LUBRICANT SERVICES AND CONSUMER PRODUCTS
SEGMENTS.
Quaker State's Lubricants and Lubricant Services and Consumer Products
segments aggressively market their products. In particular, these segments
rely heavily on media advertising to project the quality image of their
products and to maintain their respective competitive positions.
In addition to media advertising, total marketing costs include
sponsorship of automobile racing teams, participation in automotive trade shows
and distribution of promotional materials. Quaker State also provides
marketing allowances to its customers and has incentive programs for its direct
retail customers and independent distributors. All products are generally sold
through independent distributors to major national retailers, mass
merchandisers, and automotive chains. In addition, Medo sells products through
food and drugstore chains and Blue Coral Systems sells car appearance products
to commercial and industrial users such as car washes, primarily through its
sales staff.
The Lubricant and Lubricant Services segment has U.S. and foreign trademark
registrations or applications in effect covering the use of its trademarks and
service marks Quaker State(R), Q Lube(R), Lubriguard(TM), Itasca(R) and other
product names, logos and designs utilized in connection with the sale of its
products. The Consumer Products segment has U.S. and foreign trademark
registrations or applications in effect covering the use of its trademarks and
service marks Slick 50(R), Blue Coral(R), Black Magic(TM), Westley's(R),
Polyglycoat(R), Bleche-Wite(R), Medo(R), leaf design(R), Ultra Norsk(R), and
Ozium(R). Quaker State believes that these registrations and applications are
important to the success of its marketing efforts and have been effective in
preventing use of the trademarks by others. The trademark registrations expire
at various dates, but in each case may be renewed.
Medo uses a number of trademarks of third parties pursuant to license
agreements which expire on various dates. These agreements are material to
Medo's business and Medo generally negotiates extensions as the agreements
expire.
In 1996, sales by the Lubricants and Lubricant Services and Consumer
Products segments to Wal*Mart and its affiliated companies exceeded 10% of
Quaker State's consolidated revenues.
TRUCK-LITE
Quaker State's Truck-Lite subsidiary manufactures vehicular safety
lighting equipment, which is sold to original equipment manufacturers and
replacement parts distributors. Truck-Lite's product line consists of custom
designed safety and interior lights for passenger cars, light trucks and vans;
sealed and bulb replaceable stop, turn and indicator lights for heavy-duty
trucks; and sealed wiring harness systems for heavy-duty truck trailers. Truck
Lite's administrative offices are located in an owned facility in Falconer,
New York.
Most of Truck-Lite's products for passenger cars, light trucks and vans
are manufactured in Falconer, New York. Heavy-duty truck and truck trailer
products are manufactured at leased facilities in Coudersport, McElhattan and
Wellsboro, Pennsylvania.
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Truck-Lite owns several trademark registrations for its Truck-Lite(R) mark
and several patents on a number of its products.
Products for passenger cars, light trucks and vans are distributed from
the Falconer facility. Products for heavy-duty trucks and truck trailers are
distributed from leased facilities in McElhattan, Pennsylvania and Sacramento,
California. Truck-Lite also manufactures specially designed heavy-duty
lighting products for sale in Europe through a subsidiary formed for this
purpose. Products are generally distributed directly to original equipment
manufacturers and distributors. Sales to one customer by Truck-Lite were
material to the segment.
Truck-Lite accounted for 7% of the Company's total consolidated revenues
in 1996.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
Financial information and certain information (identifiable assets, capital
expenditures and depreciation, depletion and amortization) for Quaker State's
operations by business segment (i.e., Lubricants and Lubricant Services,
Consumer Products and Truck-Lite) are set forth in the segment information which
appears on pages 20 and 21 of the Quaker State Annual Report for the period
ended December 31, 1996 ("1996 Annual Report") as well as under the heading
"Management's Discussion and Analysis" which appears on pages 18 through 20 of
the 1996 Annual Report. This financial information is incorporated in this item
by reference.
COMPETITION
Lubricants and Lubricant Services. The branded motor oil business is
highly competitive. The major competitors of Quaker State and their principal
brands of motor oil are Pennzoil Company (Pennzoil(R)), Ashland Oil, Inc.
(Valvoline(R)), Texaco, Inc. (Havoline(R)) and Burmah Castrol PLC (Castrol(R)).
The principal methods of competition in the branded motor oil business are
product quality, distribution capability, advertising and sales promotion.
Quaker State also competes with Pennzoil Company in the purchase of Pennsylvania
Grade crude oil. In the sale of private label lubricants, Quaker State competes
with Ashland, Inc. and a number of small blending and packaging companies. The
principal methods of competition are product quality and price. The fast lube
business is also highly competitive. The major competitors of Q Lube are Jiffy
Lube International, Inc. (a subsidiary of Pennzoil Company) and Ashland Oil,
Inc. through its Valvoline Instant Oil Change centers. In addition to competing
with other fast lube centers, Q Lube competes with local automobile dealers,
service stations and garages. The principal methods of competition are quality
of service, speed, location, warranty, price, convenience, reliability and sales
promotion. In the waste oil collection, transportation, management and
recycling business, Quaker State competes with Safety Kleen Corporation;
International Petroleum Corp.; First Recovery, Inc., a division of Ashland,
Inc.; and a number of regional waste oil haulers. The principal methods of
competition are price, location, quality, environmental indemnification and
reliability of service. In foreign countries, Quaker State competes with
foreign manufacturers (including some that are government-owned) and with its
major U.S. competitors. In Canada the primary methods of competition are price,
service, sales support programs, brand acceptance, and marketing programs.
Many of the competitors, particularly the major integrated oil companies, have
substantially greater finished motor oil capacities and financial resources
than Quaker State.
Consumer Products. The major competitors of Slick 50 and their principal
brands of engine additives and functional fluids are Ashland Oil, Inc.
(Valvoline TM8(TM) engine treatment), Howe Laboratories (Duralube(R) brand
engine treatment and fuel system cleaner), Turtle Wax (Lubricator
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2001(TM) engine treatment, and Sure Fire(TM) fuel treatment); Prestone Products
Corporation (Prestone(R) brand functional fluids); Nationwide Industries/Snap
Products (Snap(R) products); Octane Boost Corporation (104+ Octane Boost(R)
fuel system cleaner); Chevron Corporation (Pro-Gard(R) fuel system cleaner);
Pennzoil Products Company (Gumout(R) fuel system cleaner); and Castrol Limited
(fuel treatment). The car appearance products business is also highly
competitive. The major competitors of Blue Coral are Armor All Products
Corporation (Armor All(R) brand products), Turtle Wax, Inc. (Turtle Wax(R)
products), and First Brands (STP(R) Son of a Gun!(R) cleaners, Simoniz(R) waxes
and polishes). Blue Coral Systems, the industrial and commercial sales arm for
Blue Coral products, competes with the same companies as Blue Coral and with
Zep Manufacturing Company (Zep(R) brand products). The automotive air
freshener business is also highly competitive. The major competitor of Medo is
Car Freshner Corporation (Car-Freshner(R), Tree design(R)), and Medo competes
with many other smaller competitors, among them California Scents Corporation
(California Scents(R), Cool Jel(R), Spritzers(R) brands), and New Ideas
International, Inc. (New Ideas International(R), Filtermate(R), Scent Clip(R)).
The principal methods of competition for the Consumer Products segment are
price, quality, delivery, warranty terms, technical innovation, advertising and
sales promotion.
Slick 50's competitive factors internationally are price and product
performance. Blue Coral's primary competitors in the international arena are
its main United States competitors and Johansons and Holt. Blue Coral's
primary methods of competition internationally are price, product performance,
co-operative advertising support and services.
Truck-Lite. Truck-Lite operates generally in two markets, the heavy duty
truck and trailer market and the automotive passenger car market. Truck-Lite
competes with other independent manufacturers including Grote Industries, Inc.,
Peterson Manufacturing Co., Inc. and the Signal-Stat Division of Federal Mogul
Corporation, as well as with companies owned by truck and automobile
manufacturers. The principal methods of competition are brand awareness,
quality, performance, product availability, price and technical innovation.
RESEARCH AND DEVELOPMENT
Research and development activities in lubricants and lubricant services
are directed toward continued improvement of Quaker State motor oils, other
lubricants and engine additives and the development of new or improved
automotive consumer products. Research and development personnel develop
quality control programs to assure the continuous production of high quality
products and provide extensive technical services to the manufacturing,
packaging, sales and marketing operations as well as to customers. The amounts
spent on research and development by Quaker State during the three years ended
December 31, 1996 were not material.
ENVIRONMENTAL REGULATIONS AND EXPENDITURES
Quaker State and certain of its subsidiaries as well as its competitors
are subject to federal, state and local air, water, land use and waste
management laws and regulations. In particular, these laws and regulations
affect all manufacturing operations, distribution locations, collection of used
oil and other automotive fluids and fast lube operations.
Capital expenditures for environmental control facilities during 1996 were
approximately $1.9 million and capital expenditures for pollution control
facilities during 1997 are expected to amount to approximately $10.0 million.
This forward looking statement is contingent upon competitive pricing
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and market availability of materials needed to complete the environmental and
pollution control facilities.
The capital expenditures for environmental control facilities in 1996 were
primarily made for upgrading and replacing underground storage tanks in Q
Lube's operations, upgrading bulk oil storage facilities at Company operated
facilities, and construction of two boiler stack extensions at the Congo
refinery. Anticipated expenditures in 1997 for environmental control
facilities include expenditures for wastewater treatment and air pollution
controls at the Congo refinery, continued upgrading and replacement of
underground storage tanks in the Q Lube operations and upgrading of bulk oil
storage facilities.
Quaker State and certain of its subsidiaries have received notices from
the United States Environmental Protection Agency (the "USEPA") and similar
state agencies that they may be responsible under federal and/or state
Superfund laws for response and clean-up costs (see Item 3 of this annual
report).
Quaker State expects that it will incur some expenditures related to
environmental indemnities for previously discontinued operations.
For further information with respect to environmental expenditures, see
the information under the heading "Management's Discussion and Analysis", and
Notes 1, 10 and 11 of the Notes to Consolidated Financial Statements, contained
in Quaker State's 1996 Annual Report.
EMPLOYEES
As of December 31, 1996, Quaker State and its subsidiaries had 6,002
employees, of whom 5,598 were full-time employees and 404 were temporary and
part-time employees.
Approximately 6.5% of the Company's full-time employees are represented by
various labor unions. Collective bargaining agreements are in effect with all
of the unions.
ITEM 2. PROPERTIES.
Information with respect to the location and general character of the
materially important principal properties of Quaker State and its subsidiaries,
identified by the business segments utilizing such properties, is included in
Item 1 of this annual report and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
Congo Refinery Environmental Litigation. In December 1993, the United
States commenced a lawsuit against Quaker State in the United States District
Court for the Northern District of West Virginia (the "Court"). The Amended
Complaint alleged, among other things, that Quaker State had violated the
federal Resource Conservation and Recovery Act ("RCRA") and the federal Clean
Air Act at its Congo, West Virginia refinery. The Amended Complaint requested
injunctive relief and civil penalties not exceeding $25,000 for each day of
violation of RCRA and the Clean Air Act. Quaker State disclosed that a
tentative settlement was reached in this matter in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1996. On November 12, 1996, a proposed
consent decree was lodged with the Court. On February 10, 1997 the consent
decree was entered by the Court and the
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lawsuit was dismissed. As part of the consent decree, Quaker State has agreed
to a $2.9 million civil penalty assessment, which will be satisfied by
supplemental environmental projects valued at approximately $1.2 million and a
payment of approximately $1.7 million. The Company has paid the cash portion
of the civil penalty and begun work towards compliance with the consent decree
at the Congo, West Virginia refinery.
Petrochem/Ekotek Superfund Site. In December 1988, Q Lube received a
notice from the USEPA pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), identifying Q Lube as a
potentially responsible party ("PRP") for response and clean-up costs with
respect to a waste disposal site known as the Petrochem/Ekotek Superfund Site
in Salt Lake City, Utah. In August 1989, Q Lube and 34 other respondents
entered into a Consent Order under which they agreed to fund the costs to
clean-up the surface of the contaminated property. The respondents have
advanced $10,000,000 toward these costs, of which Q Lube's share to date has
amounted to approximately $600,000. A comprehensive remedial investigation and
feasibility study of this site has been completed, and the USEPA has issued its
record of decision ("ROD") containing the plan for further remediation. On
January 31, 1997, the PRP group of which Q Lube is a member received a special
notice letter offering the opportunity to negotiate a settlement with the USEPA
to perform remedial design/remedial action activities at the Ekotek Superfund
Site to implement the ROD.
For further information with respect to CERCLA matters, see the
information under the heading "Management's Discussion and Analysis," and Note
11 of the Notes to Consolidated Financial Statements, contained in the 1996
Annual Report.
Slick 50. The Federal Trade Commission filed an administrative proceeding
on July 16, 1996 seeking an order that Quaker State Slick 50, Inc. ("Slick 50"),
a subsidiary of the Company, and several Slick 50 subsidiaries cease and desist
from making certain product claims and refrain from making other product claims
without adequate substantiation. The respondents in the FTC proceeding and
Quaker State in some instances were later named as defendants in nine lawsuits
filed on behalf of purported classes of purchasers of Slick 50(R) engine
treatment alleging that false, misleading, deceptive and/or unsubstantiated
advertising claims were made for Slick 50(R) engine treatment. The
representative plaintiffs in such actions, the date of filing and the court in
which each suit is pending are, respectively:
a) Torres, July 18, 1996, the District Court for Harris County, Texas;
b) Lombardi, July 19, 1996, U.S. District Court for the Eastern District
of New York;
c) Weiss, July 23, 1996, U.S. District Court for the Southern District of
New York;
d) Hargett, September 24, 1996, U.S. District Court for the Northern
District of Alabama;
e) Kerksieck, October 11, 1996, the Superior Court for San Francisco
County, California;
f) Davis, November 18, 1996, U.S. District Court for the Northern District
of Alabama;
g) Hammack, December 19, 1996, the Circuit Court of Franklin County,
Alabama;
h) Mayo, February 5, 1997, Circuit Court of Cook County, Illinois; and
i) Garza, March 14, 1997, District Court of Hidalgo County, Texas.
11
12
The complaints allege claims in various combinations for fraud, deceit,
negligent misrepresentation, and violation of certain state consumer protection
laws and seek compensatory and punitive damages, imposition of a constructive
trust, restitution and injunctive relief, attorneys' fees, court costs and
interest on behalf of the purported classes. In another proceeding filed by
Henri Carnal on December 20, 1996 in the Superior Court for San Francisco
County, California, injunctive relief and restitution are sought for alleged
deceptive marketing practices pursuant to the California Business and
Professions Code. The Company is vigorously defending all of these lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
EXECUTIVE OFFICERS OF QUAKER STATE
The following table lists the names, period of service with the Company,
ages and positions held with Quaker State of all executive officers of Quaker
State as of March 18, 1997. There are no family relationships between any
executive officer or Director of Quaker State and any other Director or
executive officer of Quaker State. The executive officers serve at the
discretion of the Board of Directors and are elected annually by the Board of
Directors immediately after each Annual Meeting of Stockholders.
With Company
Name Since Position
- ------------ ------------ ------------------------------------------
John D. Barr 1995 Director since October 1995; President and
Chief Operating Officer since July 1995; Senior
Vice President of Ashland, Inc. and President of
its subsidiary The Valvoline Company
(manufacturer of motor oils and lubricants) from
March 1987 to July 1995; age 49.
Herbert M. Baum 1993 Chairman and Chief Executive Officer since June
1993; President of Quaker State from September
1994 to July 1995; Executive Vice President of
Campbell Soup Company (manufacturer of food
products) from November 1989 to June 1993, and
President, Campbell North and South America from
January 1992 to June 1993; Director of Dial
Corporation, Meredith Corporation and Whitman
Corporation; age 60.
Charles F. Bechtel 1993 Vice President of Quaker State, and President,
Quaker State Lubricants since November 1996;
Senior Vice President, Sales, Lubricants and
Lubricant Services Division (formerly Motor Oil
Division) from October 1995 to October 1996;
Executive Vice President, Sales and Marketing,
Motor Oil Division from November 1994 to October
1995; Executive Vice President, Sales, Motor Oil
Division from November 1993 to November 1994;
President, Bechtel and Associates (sales
consulting firm), from October 1992 to November
1993; Executive Vice President, Sales of 21st
Century Foods, Inc. from
12
13
September 1992 to November 1993; and Executive
Vice President and Chief Operating Officer of Old
Fashioned Kitchens, Inc. from August 1991 to
September 1992; age 52.
Conrad A. Conrad 1974 Director since January 1988; Vice Chairman of
Quaker State since September 1994; Chief
Financial Officer of Quaker State since July
1995; Chief Administrative Officer of Quaker
State from September 1994 to July 1995; President
and Chief Operating Officer of Quaker State from
February 1990 to September 1994; age 51.
Paul E. Konney 1994 Senior Vice President, General Counsel and
Secretary since July 1996; Vice President and
General Counsel from September 1994 to July 1996
and Secretary since January 1995; private
practice of law from July 1993 to September 1994;
Senior Vice President-General Counsel and
Secretary of Tambrands Inc. from April 1989 to
July 1993; age 52.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Quaker State capital stock is listed on the New York Stock Exchange and
the Pacific Stock Exchange and trades under the trading symbol KSF. The market
prices of Quaker State capital stock appear under the caption "Quaker State
(KSF) Market Prices by Quarter" on page 37 of the 1996 Annual Report. Dividend
information appears in Note 16 of the Notes to Consolidated Financial
Statements contained in the 1996 Annual Report. All such information is
incorporated in this annual report by reference. As of March 18, 1996, there
were 9,066 holders of record of Quaker State's capital stock.
RECENT SALES OF UNREGISTERED SECURITIES. Set forth below is information
regarding all securities of Quaker State sold by Quaker State within the past
three years which were not registered under the Securities Act of 1933, as
amended (the "Act"). All references in the chart to "Quaker State Shares" mean
Quaker State Capital Stock, par value $1.00 per share.
13
14
DATE OF NUMBER OF QUAKER
SALE STATE SHARES DESCRIPTION OF TRANSACTION INCLUDING PARTIES AND CONSIDERATION
- ------------ -------------------- --------------------------------------------------------------
9/30/94 4,000,000 Quaker State Shares were exchanged in connection with the
acquisition of shares of Westland from the Westland
shareholders. The total value of the Quaker State Shares
upon issuance was $57.8 million. The exemption from
registration relied upon was Section 4(2) of the Act.
7/11/95 1,260,403 Quaker State Shares and other Quaker State equity rights were
exchanged in connection with the acquisition of shares of
Slick 50 from the Slick 50, Inc. I stockholders. The total
value of the Quaker State Shares upon issuance was $19.5
million. The Quaker State equity rights had no ascertainable
value upon issuance. The exemption from registration relied
upon was Section 4(2) or Regulation D, Rule 506 under the
Act.* In accordance with such exemption, Quaker State
reasonably believed all of the Slick 50, Inc. I stockholders
were "accredited investors," as defined in Regulation D, Rule
501(a), of the Act or constituted, collectively, no more than
35 non-accredited investors.
6/30/96 2,956,328 Quaker State Shares were exchanged in connection with the
acquisition of shares of Blue Coral, Inc. from the Blue Coral
stockholders. The total value of the Quaker State Shares upon
issuance was $43.5 million. The exemption from registration
relied upon was Section 4(2) or Regulation D, Rule 506 under
the Act.* In accordance with such exemption, Quaker State
reasonably believed that all of the Blue Coral, Inc.
stockholders were "accredited investors," as defined in
Regulation D, Rule 501(a), of the Act.
12/10/96 354,374 Quaker State Shares were exchanged in connection with the
relinquishment of certain Quaker State equity rights held by
the former Slick 50, Inc. I stockholders. The total value of
the Quaker State Shares upon issuance was $6.0 million. The
exemption from registration relied upon was Section 3(a)(9)
of the Act.* In accordance with such exemption, the former
Slick 50, Inc. I stockholders were existing security holders
of Quaker State who exchanged securities of Quaker State for
Quaker State Shares and did not pay any additional
consideration for such Quaker State Shares. No commission or
other remuneration was paid or given directly or indirectly
for soliciting such exchange.
* On December 23, 1996 a Form S-3 registration statement was declared
effective which registered 2,024,989 shares of restricted stock for resale
through April 22, 1997. These shares included all shares held by the former
Slick 50, Inc. I shareholders and shares held by certain former shareholders of
Blue Coral, Inc.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item 6 appears under the caption
"Five-Year Summary of Net Income and Comparative Statistical Data" on page 22
of the 1996 Annual Report and is incorporated in this annual report by
reference.
14
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Discussion and Analysis of Financial Condition and Results of
Operations required by this Item 7 appears on pages 18 through 20 of the 1996
Annual Report and is incorporated in this annual report by reference.
From time to time, the Company may make statements which constitute or
contain "forward-looking" information as that term is defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules, regulations and releases. The Company cautions
investors that any such forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements. The following are some of the
factors that could cause actual results to differ materially from estimates
contained in the Company's forward-looking statements:
o The pattern of the Company's sales, including variations in
sales volume within periods and sales to significant customers, which
makes forward-looking statements about sales and earnings difficult
and may result in variance of actual results from those contained in
statements made at any time prior to any given period's close;
o The Company's ability to develop, produce and market new and
innovative products and services on which future operating results
depend. There are a number of risks inherent in these activities,
including technological changes, manufacturing facility
capacity, availability of raw materials and critical manufacturing
equipment, changing customer needs and competitive reactions;
o Vigorous competition within the Company's product markets,
including pricing and promotional, advertising or other activities in
order to preserve or gain market share in any segment, the timing of
which cannot be foreseen;
o Global or regional economic factors and potential changes in laws and
regulations affecting the Company's various businesses in over 75
countries around the world, including, changes in product mix,
currency exchange rate fluctuations, changes in monetary policy and
tariffs, and federal, state and international laws regulating the
environment, which could impact the Company's financial condition and
results of operation;
o The market price of the Company's Capital Stock or other securities,
which could be subject to fluctuation in response to quarterly
variations in operating results, changes in analysts' earnings
estimates, market conditions, press releases issued by the Company,
and general economic conditions and other factors external to the
Company, thereby affecting the availability of capital to the Company;
o The impact of unusual items resulting from ongoing evaluations
of business strategies, asset valuations and organizational
structures;
o The costs and effects associated with legal or administrative
proceedings and any required remedial action, anticipated or
unanticipated;
o Real estate prices and the Company's ability to negotiate effectively
based on competitive factors, which could cause the number of new Q
Lube facilities to differ from the number projected and could affect
expenses in other segments; and
o Significant competitive pricing pressures and intense competition for
qualified, skilled employees, which could affect profitability,
productivity and/or expenses.
15
16
ITEM 8. FINANCIAL STATEMENTS.
The following financial statements and related report on the consolidated
financial statements of Quaker State and its subsidiaries for the years ended
December 31, 1996, 1995 and 1994 required by this Item 8 appear on the pages
indicated in the 1996 Annual Report and are incorporated in this annual report
by reference:
PAGE(S) IN 1996
FINANCIAL STATEMENTS AND RELATED REPORT ANNUAL REPORT
---------------------------------------------------- -------------
Consolidated Statement of Income for the
years ended December 31, 1996, 1995 and 1994 23
Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 24
Consolidated Balance Sheet as of December 31, 1996
and 1995 25
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 26
Notes to Consolidated Financial Statements 27
Financial Results by Quarter 35
Report of Independent Certified Public
Accountants, dated January 28, 1997 36
The supplementary financial information required by this Item 8 appears in
Note 16 of the Notes to Consolidated Financial Statements contained in the 1996
Annual Report and is incorporated in this annual report by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10 THROUGH 13.
Information concerning the executive officers of Quaker State appears at
the end of Part I of this annual report. In accordance with the provisions of
General Instruction G to Form 10-K, the other information required by Item 10
(Directors and Executive Officers of the Registrant) and the information
required by Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships
and Related Transactions) is incorporated in this annual report by reference
from the definitive Proxy Statement to be filed by Quaker State pursuant to
Regulation 14A no later than April 30, 1996 (except for the information
required to be included in such Proxy Statement by paragraphs (i), (k) and (l)
of Item 402 of Regulation S-K).
16
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS:
The consolidated financial statements of Quaker State and its subsidiaries,
together with the report of Coopers & Lybrand L.L.P. dated January 28, 1997,
appearing on pages 23 through 35 and on page 36, respectively, of the 1996
Annual Report are incorporated in this annual report by reference (see Item 8
above).
(a)(2) FINANCIAL STATEMENT SCHEDULES:
The financial statement schedule and related report listed below are filed as
part of this annual report:
PAGE IN THIS
FINANCIAL STATEMENT SCHEDULE AND RELATED REPORT ANNUAL REPORT
----------------------------------------------- -------------
Report of Independent Certified Public
Accountants, dated January 28, 1997 S-1
Schedule II -- Valuation and Qualifying
Accounts for the years ended December 31,
1996, 1995 and 1994 S-2
All other financial statement schedules are omitted because they either
are not applicable or are not material, or because the information required
therein is contained in the consolidated financial statements or notes thereto
set forth in the 1996 Annual Report.
(a)(3) EXHIBITS:
The exhibits listed below are filed as a part of this annual report:
EXHIBIT
NO DOCUMENT
- ------- --------
2(a) Asset Purchase Agreement by and among the Company, BC Acquisition
Corporation, Blue Coral, Inc. and the Blue Coral Stockholders dated
as of June 7, 1996, with list of omitted schedules and exhibits
(filed as Exhibit 2 to the Company's Current Report on Form 8-K
dated June 28, 1996 and incorporated herein by reference).
2(a)(i) Purchase Agreement dated December 12, 1996, among the Company, Blue
Coral, Inc., Sheldon Adelman, Joel Adelman and the Trust, with
exhibits (filed as Exhibit 99.3 to the Company's Current Report on
Form 8-K dated December 12, 1996 and incorporated herein by
reference).
17
18
2(b) Stock Purchase Agreement by and among the Company and the Medo
Shareholders, dated as of August 30, 1996, with list of omitted
schedules and exhibits (filed as Exhibit 2(a) to the Company's
Current Report on Form 8-K dated October 2, 1996 and incorporated
herein by reference).
2(b)(i) Amendment No. 1 to Stock Purchase Agreement dated as of October 2,
1996 (filed as Exhibit 2(b) to the Company's Current Report on Form
8-K dated October 2, 1996 and incorporated herein by reference).
3(i) Composite Certificate of Incorporation of the Company (filed as
Exhibit 3(i) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by reference).
3(ii) Bylaws of the Company, as amended to July 25, 1996 (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
4(a) Rights Agreement, dated as of September 28, 1995, between the
Company and Mellon Securities Trust Company, as Rights Agent (filed
as Exhibit 1 to the Company's Current Report on Form 8-K dated
October 20, 1995 and incorporated herein by reference).
4(b) Escrow Agreement among the Company and the former Slick 50, Inc.
Shareholders dated November 14, 1996 (filed herewith).
4(c) Escrow Agreement among the Company and the Blue Coral Stockholders,
dated as of June 28, 1996 (filed as Exhibit 4 to the Company's
Current Report on Form 8-K dated June 28, 1996 and incorporated
herein by reference).
4(c)(i) Purchase Agreement dated December 12, 1996, among the Company, Blue
Coral, Adelman, Joel Adelman and the Trust, with exhibits (filed as
Exhibit 99.3 to the Company's Current Report on Form 8-K dated
December 12, 1996 and incorporated herein by reference).
4(d) Form of Indenture between Quaker State and Chemical Bank, as
Trustee, related to $100,000,000 of 6.625% Notes due 2005 (filed as
Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
4(e) Amended and restated $140 million Credit Agreement, dated April 17,
1996 and amended and restated September 27, 1996, between Quaker
State and Morgan Guaranty Trust Company of New York, as agent, with
a list of omitted schedules and exhibits (filed as Exhibit 4(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).
18
19
4(f) $165 million Credit Agreement between Quaker State and Texas
Commerce Bank National Association, as Agent, dated as of September
30, 1996, with a list of omitted schedules and exhibits (filed as
Exhibit 4(c) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
10(a) 1986 Stock Option Plan, as amended through April 30, 1987 (filed as
Exhibit 10(b) to Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference).*
10(a)(i) Resolution, adopted on February 27, 1992 by the Board of Directors
of Quaker State, amending Section 5(D) of the 1986 Stock Option
Plan (filed as Exhibit 10(c) to Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference).*
10(a)(ii) Third Amendment to the 1986 Stock Option Plan, dated October 24,
1996 (filed as Exhibit 10(c) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and incorporated
herein by reference).
10(b) 1994 Non-Employee Directors' Stock Option Plan (filed as Exhibit
10(d) to Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).*
10(b)(i) First Amendment to the 1994 Non-Employee Director's Stock Option
Plan, dated October 24, 1996 (filed as Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).*
10(c) 1994 Stock Incentive Plan (filed as Exhibit 10(e) to Form 10-K for
the fiscal year ended December 31, 1994 and incorporated herein by
reference).*
10(c)(i) First Amendment to the 1994 Stock Incentive Plan, dated October 24,
1996 (filed as Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and incorporated
herein by reference).*
10(d) 1996 Directors' Fee Plan, as amended and restated October 24, 1996
to be effective January 1, 1997 (filed as Exhibit 10(e) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).*
10(e) Forms of Split Dollar Life Insurance Agreement and related
Collateral Assignment Agreement (filed as Exhibit 10(c) to Form
10-K for the fiscal year ended December 31, 1987 and incorporated
herein by reference).*
10(e)(i) First Amendment to Split Dollar Life Insurance Agreement (filed as
Exhibit 10(g) to Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).*
19
20
10(f) Annual Incentive Bonus Plan, as amended and restated effective
January 1, 1995 (filed as Exhibit 10(a) to Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).*
10(g) Quaker State Amended and Restated Severance Plan, effective
September 30, 1988 (filed as Exhibit 28.1 to Form 8-K filed on
October 17, 1988 and incorporated herein by reference).*
10(h) Articles X and XI of the Quaker State Salaried Pension Plan, as
Amended and Restated effective July 1, 1989 for Quaker State and
certain of its subsidiaries (filed as Exhibit 28(b) to Form 10-K
for the fiscal year ended December 31, 1991 and incorporated herein
by reference).*
10(i) Articles X and XI of the Quaker State Hourly Pension Plan, as
Amended and Restated effective July 1, 1989 for Quaker State and
certain of its subsidiaries (filed as Exhibit 28(e) to Form 10-K
for the fiscal year ended December 31, 1991 and incorporated herein
by reference).*
10(j) Quaker State Supplemental Excess Retirement Plan (filed as Exhibit
10(k) to Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).*
10(k) Employment Agreement, dated as of August 1, 1994, between Quaker
State Corporation and Herbert M. Baum (filed as Exhibit 10(a) to
Form 10-Q for the fiscal quarter ended September 30, 1994 and
incorporated herein by reference).*
10(k)(i) Amendment to Employment Agreement with Herbert M. Baum dated May
10, 1996 (filed as Exhibit 10(a) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference).*
10(k)(ii) Second Amendment to Employment Agreement with Herbert M. Baum dated
March 20, 1997 (filed herewith).*
10(l) Employment Agreement, dated as of September 30, 1994, between
Quaker State Corporation and L. David Myatt (filed as Exhibit 10(b)
to Form 10-Q for the quarter ended September 30, 1994 and
incorporated herein by reference).*
10(m) Letter, dated as of June 5, 1995, between Quaker State and John D.
Barr (filed as Exhibit 10(m) to the 1995 Form 10-K and incorporated
herein by reference).*
10(n) Letter Agreement, dated February 28, 1996, between Quaker State and
John D. Barr (filed as Exhibit 10(n) to the Form 10-K for the
fiscal year ended December 31, 1995 and incorporated herein by
reference).*
10(o) Letter Agreement, dated March 4, 1996, between Quaker State and
Charles F. Bechtel (filed as Exhibit 10(o) to the Form 10-K for the
fiscal year ended December 31, 1995 and incorporated herein by
reference).*
20
21
10(p) Employment contract dated June 28, 1996 between Sheldon G. Adelman
and Quaker State Corporation (filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
and incorporated herein by reference).*
10(p)(i) Purchase Agreement dated December 12, 1996, among the Company, Blue
Coral, Adelman, Joel Adelman and the Trust, with exhibits (filed as
Exhibit 99.3 to the Company's Current Report on Form 8-K dated
December 12, 1996 and incorporated herein by reference).
10(q) Form of Indemnification and Insurance Agreement entered into
between Quaker State and each of its directors (filed as Exhibit
10(g) to Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
10(r) Form of letter agreement entered into between Quaker State and each
of its non-employee directors regarding the retirement benefits
provided by Quaker State to its non-employee directors (filed as
Exhibit 10(n) to Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference).
10(s) Outside Directors' Group Life Plan (filed as Exhibit 10(d) to Form
10-K for the fiscal year ended December 31, 1986 and incorporated
herein by reference).
10(t) Form of Employment Continuation Agreement entered into between
Quaker State and certain of its executive officers (filed as
Exhibit 10(p) to the Form 10-K for the fiscal year ended December
31, 1996 and incorporated herein by reference).*
11 Statement re Computation of Per Share Earnings (filed herewith).
13 Those portions of the 1996 Annual Report which are expressly
incorporated in this annual report by reference (filed herewith).
21 List of subsidiaries of Quaker State Corporation (filed herewith).
23 Consent of Coopers & Lybrand L.L.P. (filed herewith).
24 Powers of Attorney (filed as part of Signature Page).
27 Financial Data Schedule (filed herewith).
- --------
* Management contract or compensatory plan, contract or
arrangement required to be filed by Item 601(b)(10)(iii) of
Regulation S-K.
Quaker State agrees to furnish to the Commission upon request copies of
all instruments not listed above which define the rights of holders of
long-term debt of Quaker State and its subsidiaries.
Copies of the above exhibits are available at a cost of $.20 per page to
any stockholder upon written request to the Secretary, Quaker State
Corporation, 225 E. John Carpenter Freeway, Irving, Texas 75062.
21
22
(b) REPORTS ON FORM 8-K:
A current report on Form 8-K was filed by the Company on October 10, 1996 and
amended on December 17, 1996. Quaker State reported under Item 2 the
completion of the acquisition of Medo Industries, Inc., and its affiliated
companies ("Medo"). The initial report included financial statements for Medo.
The pro forma financial information related to the acquisition of Medo was
included in the amendment filed on December 17, 1996.
A current report on Form 8-K was filed on November 12, 1996. The Company
reported under Item 5 an updated description of the Company's Capital Stock,
$1.00 par value per share, containing the information required by Item 202 of
Regulation S-K.
A current report on Form 8-K was filed on November 15, 1996. The Company
reported under Item 5 updated information concerning the proposed resolution
of the Congo litigation which was previously reported in the report on Form
10-K for the year 1995 and in the report on Form 10-Q for the quarter ended
June 30, 1996.
A current report on Form 8-K was filed on December 20, 1996. Under Item 5, the
Company reported information related to expected 1996 earnings per share, the
reorganization of the Company's operations into strategic business units,
several officer changes and the completion of a transaction with the former
Blue Coral shareholders.
22
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Quaker State has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
QUAKER STATE CORPORATION
By: /s/ Herbert M. Baum
--------------------------------------
Herbert M. Baum, Chairman of the Board
and Chief Executive Officer
Date: March 25, 1997
POWER OF ATTORNEY
We, the undersigned officers and directors of Quaker State Corporation,
hereby severally constitute Conrad A. Conrad and Paul E. Konney and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below
the report on Form 10-K filed herewith and any and all amendments to said
report, and generally to do all such things in our name and behalf in our
capacities as officers and directors to enable Quaker State Corporation to
comply with the provisions of the Securities Exchange Act of 1934, as amended,
and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said report and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report and Power of Attorney have been signed by the following persons in the
capacities and on the date indicated.
Name Title Date
- ------------------------------------ -------------------------------- -------
/s/ Herbert M. Baum Chairman of the Board, Chief 3/25/97
- ------------------------------------
(Herbert M. Baum) Executive Officer and Director
(Principal Executive Officer)
/s/ Conrad A. Conrad Vice Chairman, Chief Financial 3/25/97
- ------------------------------------
(Conrad A. Conrad) Officer and Director (Principal
Financial Officer)
/s/ Keith S. Krzeminski Controller (Principal Accounting 3/25/97
- ------------------------------------ Officer)
(Keith S. Krzeminski)
23
24
/s/ John D. Barr Director 3/25/97
- ------------------------------------
(John D. Barr)
/s/ Leonard M. Carroll Director 3/25/97
- ------------------------------------
(Leonard M. Carroll)
/s/ Laurel Cutler Director 3/25/97
- ------------------------------------
(Laurel Cutler)
/s/ C. Frederick Fetterolf Director 3/25/97
- ------------------------------------
(C. Frederick Fetterolf)
/s/ Thomas A. Gardner Director 3/25/97
- ------------------------------------
(Thomas A. Gardner)
/s/ F. William Grube Director 3/25/97
- ------------------------------------
(F. William Grube)
/s/ Forrest R. Haselton Director 3/25/97
- ------------------------------------
(Forrest R. Haselton)
/s/ L. David Myatt Director 3/25/97
- ------------------------------------
(L. David Myatt)
/s/ Raymond A. Ross, Jr. Director 3/25/97
- ------------------------------------
(Raymond A. Ross, Jr.)
/s/ Lorne R. Waxlax Director 3/25/97
- ------------------------------------
(Lorne R. Waxlax)
24
25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Quaker State Corporation:
Our report on the consolidated financial statements of Quaker State
Corporation and Subsidiaries has been incorporated by reference in this Form
10-K from page 36 of the 1996 Annual Report to Stockholders of Quaker State
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page 17 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Dallas, Texas
January 28, 1997
S-1
26
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
Column A Column B Column C Column D Column E
- ------------------------------------------- ---------------- ----------------- ------------- -------------
Additions
Balance at charged to Balance at
Beginning costs and End of
Description of Period expenses Deductions Period
- ------------------------------------------- ---------------- ----------------- ------------- -------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND NOTES RECEIVABLE:
1996....................................... $ 3,507 $ 2,389(A) $1,724(B) $ 4,172(C)
1995....................................... 2,185 2,970(A) 1,648(B) 3,507(C)
1994....................................... 1,679 1,188(A) 682(B) 2,185
AMORTIZATION OF INTANGIBLE ASSETS:
1996....................................... $14,764 $12,159(D) $ 238 $26,685
1995....................................... 9,442 5,883 561 14,764
1994....................................... 10,300 2,650 3,508(E) 9,442
DEFERRED TAX ASSET VALUATION ALLOWANCE:
1996....................................... $ 460 - $ 138 $ 322
1995....................................... 539 - 79 460
1994....................................... 1,101 - 562 539
(A) Includes $1.6 million, $1.5 million and $380,000 of additions due to
business acquisitions in 1996, 1995 and 1994, respectively.
(B) Accounts and notes receivable written off during the year.
(C) Includes $12,000 related to the discontinued exploration and production
business.
(D) Includes $402,000 related to business acquisitions.
(E) Includes $3.5 million of amortization related to the discontinued insurance
business.
S-2
27
EXHIBIT INDEX
TO 1996 FORM 10-K
QUAKER STATE CORPORATION
EXHIBIT
NO DOCUMENT
- ------- --------
2(a) Asset Purchase Agreement by and among the Company, BC Acquisition
Corporation, Blue Coral, Inc. and the Blue Coral Stockholders dated
as of June 7, 1996, with list of omitted schedules and exhibits
(filed as Exhibit 2 to the Company's Current Report on Form 8-K
dated June 28, 1996 and incorporated herein by reference).
2(a)(i) Purchase Agreement dated December 12, 1996, among the Company, Blue
Coral, Inc., Sheldon Adelman, Joel Adelman and the Trust, with
exhibits (filed as Exhibit 99.3 to the Company's Current Report on
Form 8-K dated December 12, 1996 and incorporated herein by
reference).
2(b) Stock Purchase Agreement by and among the Company, and the Medo
Shareholders, dated as of August 30, 1996, with list of omitted
schedules and exhibits (filed as Exhibit 2(a) to the Company's
Current Report on Form 8-K dated October 2, 1996 and incorporated
herein by reference).
2(b)(i) Amendment No. 1 to Stock Purchase Agreement dated as of October 2,
1996 (filed as Exhibit 2(b) to the Company's Current Report on Form
8-K dated October 2, 1996 and incorporated herein by reference).
3(i) Composite Certificate of Incorporation of the Company (filed as
Exhibit 3(i) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by reference).
3(ii) Bylaws of the Company, as amended to July 25, 1996 (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
4(a) Rights Agreement, dated as of September 28, 1995, between the
Company and Mellon Securities Trust Company, as Rights Agent (filed
as Exhibit 1 to the Company's Current Report on Form 8-K dated
October 20, 1995 and incorporated herein by reference).
4(b) Escrow Agreement among the Company and the former Slick 50, Inc.
Shareholders dated November 14, 1996 (filed herewith).
4(c) Escrow Agreement among the Company and the Blue Coral
Stockholders, dated
28
as of June 28, 1996 (filed as Exhibit 4 to the Company's Current
Report on Form 8-K dated June 28, 1996 and incorporated herein by
reference).
4(c)(i) Purchase Agreement dated December 12, 1996, among the Company, Blue
Coral, Adelman, Joel Adelman and the Trust, with exhibits (filed as
Exhibit 99.3 to the Company's Current Report on Form 8-K dated
December 12, 1996 and incorporated herein by reference).
4(d) Form of Indenture between Quaker State and Chemical Bank, as
Trustee, related to $100,000,000 of 6.625% Notes due 2005 (filed as
Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
4(e) Amended and restated $140 million Credit Agreement, dated April 17,
1996 and amended and restated September 27, 1996, between Quaker
State and Morgan Guaranty Trust Company of New York, as agent, with
a list of omitted schedules and exhibits (filed as Exhibit 4(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).
4(f) $165 million Credit Agreement between Quaker State and Texas
Commerce Bank National Association, as Agent, dated as of September
30, 1996, with a list of omitted schedules and exhibits (filed as
Exhibit 4(c) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
10(a) 1986 Stock Option Plan, as amended through April 30, 1987 (filed as
Exhibit 10(b) to Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference).*
10(a)(i) Resolution, adopted on February 27, 1992 by the Board of Directors
of Quaker State, amending Section 5(D) of the 1986 Stock Option
Plan (filed as Exhibit 10(c) to Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference).*
10(a)(ii) Third Amendment to the 1986 Stock Option Plan, dated October 24,
1996 (filed as Exhibit 10(c) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and incorporated
herein by reference).*
29
10(b) 1994 Non-Employee Directors' Stock Option Plan (filed as Exhibit
10(d) to Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).*
10(b)(i) First Amendment to the 1994 Non-Employee Director's Stock Option
Plan, dated October 24, 1996 (filed as Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).*
10(c) 1994 Stock Incentive Plan (filed as Exhibit 10(e) to Form 10-K for
the fiscal year ended December 31, 1994 and incorporated herein by
reference).*
10(c)(i) First Amendment to the 1994 Stock Incentive Plan, dated October 24,
1996 (filed as Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and incorporated
herein by reference).*
10(d) 1996 Directors' Fee Plan, as amended and restated October 24, 1996
to be effective January 1, 1997 (filed as Exhibit 10(e) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).*
10(e) Forms of Split Dollar Life Insurance Agreement and related
Collateral Assignment Agreement (filed as Exhibit 10(c) to Form
10-K for the fiscal year ended December 31, 1987 and incorporated
herein by reference).*
10(e)(i) First Amendment to Split Dollar Life Insurance Agreement (filed as
Exhibit 10(g) to Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).*
10(f) Annual Incentive Bonus Plan, as amended and restated effective
January 1, 1995 (filed as Exhibit 10(a) to Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).*
10(g) Quaker State Amended and Restated Severance Plan, effective
September 30, 1988 (filed as Exhibit 28.1 to Form 8-K filed on
October 17, 1988 and incorporated herein by reference).*
10(h) Articles X and XI of the Quaker State Salaried Pension Plan, as
Amended and Restated effective July 1, 1989 for Quaker State and
certain of its subsidiaries (filed as Exhibit 28(b) to Form 10-K
for the fiscal year ended December 31, 1991 and incorporated herein
by reference).*
10(i) Articles X and XI of the Quaker State Hourly Pension Plan, as
Amended and Restated effective July 1, 1989 for Quaker State and
certain of its subsidiaries (filed as Exhibit 28(e) to Form 10-K
for the fiscal year ended December 31, 1991 and incorporated herein
by reference).*
30
10(j) Quaker State Supplemental Excess Retirement Plan (filed as Exhibit
10(k) to Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).*
10(k) Employment Agreement, dated as of August 1, 1994, between Quaker
State Corporation and Herbert M. Baum (filed as Exhibit 10(a) to
Form 10-Q for the fiscal quarter ended September 30, 1994 and
incorporated herein by reference).*
10(k)(i) Amendment to Employment Agreement with Herbert M. Baum dated May
10, 1996 (filed as Exhibit 10(a) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference).*
10(k)(ii) Second Amendment to Employment Agreement with Herbert M. Baum dated
March 20, 1997 (filed herewith).*
10(l) Employment Agreement, dated as of September 30, 1994, between
Quaker State Corporation and L. David Myatt (filed as Exhibit 10(b)
to Form 10-Q for the quarter ended September 30, 1994 and
incorporated herein by reference).*
10(m) Letter, dated as of June 5, 1995, between Quaker State and John D.
Barr (filed as Exhibit 10(m) to the 1995 Form 10-K and incorporated
herein by reference).*
10(n) Letter Agreement, dated February 28, 1996, between Quaker State and
John D. Barr (filed as Exhibit 10(n) to the Form 10-K for the
fiscal year ended December 31, 1995 and incorporated herein by
reference).*
10(o) Letter Agreement, dated March 4, 1996, between Quaker State and
Charles F. Bechtel (filed as Exhibit 10(o) to the Form 10-K for the
fiscal year ended December 31, 1995 and incorporated herein by
reference).*
10(p) Employment contract dated June 28, 1996 between Sheldon G. Adelman
and Quaker State Corporation (filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
and incorporated herein by reference).*
10(p)(i) Purchase Agreement dated December 12, 1996, among the Company, Blue
Coral, Adelman, Joel Adelman and the Trust, with exhibits (filed as
Exhibit 99.3 to the Company's Current Report on Form 8-K dated
December 12, 1996 and incorporated herein by reference). *
10(q) Form of Indemnification and Insurance Agreement entered into
between Quaker State and each of its directors (filed as Exhibit
10(g) to Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
31
10(r) Form of letter agreement entered into between Quaker State and each
of its non-employee directors regarding the retirement benefits
provided by Quaker State to its non-employee directors (filed as
Exhibit 10(n) to Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference).
10(s) Outside Directors' Group Life Plan (filed as Exhibit 10(d) to Form
10-K for the fiscal year ended December 31, 1986 and incorporated
herein by reference).
10(t) Form of Employment Continuation Agreement entered into between
Quaker State and certain of its executive officers (filed as
Exhibit 10(p) to the Form 10-K for the fiscal year ended December
31, 1996 and incorporated herein by reference).*
11 Statement re Computation of Per Share Earnings (filed herewith).
13 Those portions of the 1996 Annual Report which are expressly
incorporated in this annual report by reference (filed herewith).
21 List of subsidiaries of Quaker State Corporation (filed herewith).
23 Consent of Coopers & Lybrand L.L.P. (filed herewith).
24 Powers of Attorney (filed as part of Signature Page).
27 Financial Data Schedule (filed herewith).
- --------
* Management contract or compensatory plan, contract or arrangement
required to be filed by Item 601(b)(10)(iii) of Regulation S-K.