<PAGE> 1
===============================================================================
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 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ______________
Commission file number 1-2677
QUAKER STATE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 25-0742820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
255 Elm Street
Oil City, Pennsylvania 16301
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 814-676-7676
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Capital Stock, par value New York Stock Exchange
$1.00 per share Pacific Stock Exchange
</TABLE>
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 15(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. [ ]
The registrant estimates that as of March 15, 1994 the aggregate market
value of the shares of its Capital Stock held by non-affiliates of the
registrant was more than $371,000,000.
As of March 15, 1994, there were 27,244,224 shares of Capital Stock of the
registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Quaker State's 1994 Annual Report to Stockholders are
incorporated by reference into 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 12, 1994 are incorporated by reference into Part
III of this annual report on Form 10-K.
===============================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS.
Quaker State Corporation ("Quaker State"), a Delaware corporation formed in
1931, has its principal place of business at 255 Elm Street, Oil City,
Pennsylvania. Quaker State's principal business is the manufacture and sale of
brand name motor oils and lubricants and the sale of products and services in
the automotive aftermarket (see "Motor Oil Division" below). Quaker State's
business segments also include the production of natural gas and crude oil, fast
lube operations, insurance operations, the manufacture and sale of safety
lighting equipment and docking operations (see "Natural Gas Exploration and
Production Division," "Fast Lube Operations," "Insurance Operations,"
"Truck-Lite" and "Docking Operations" below). Quaker State is no longer engaged
in coal operations (see "Discontinued Coal Operations" below).
MOTOR OIL DIVISION
Quaker State manufactures and sells lubricants (primarily motor oils for
automobiles and trucks) and fuels. The lubricants include transmission fluids,
gear lubricants and greases as well as specialty lubricants designed for other
types of vehicles, such as marine craft, motorcycles and snowmobiles. All the
lubricants are sold under Quaker State's brand name. The fuels include gasoline,
fuel oils (diesel fuel and heating oils) and kerosene. Quaker State also
purchases and resells automotive consumer products.
The manufacture of the lubricants and fuels, the purchase and gathering of
crude oil and all marketing, sales, distribution and research and development
activities relating to the lubricants, fuels and automotive consumer products
are the responsibility of Quaker State's Motor Oil Division.
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 produced by other refiners and purchased. The Congo refinery is
specially designed to maximize the production of lubricant stocks for motor oils
from Pennsylvania Grade crude oil. Although it was built in 1971, the Congo
refinery remains one of the newest lubricant stock refineries in the United
States. Quaker State sold its crude oil refineries located at St. Mary's, West
Virginia and at Farmers Valley, Pennsylvania in December 1987 and May 1990,
respectively.
During the three years ended December 31, 1993, the number of barrels of
Pennsylvania Grade crude oil processed at the Congo refinery has been:
1993-3,710,000; 1992-3,743,000; and 1991-3,634,000. The Congo refinery operates
at near capacity. Most of the crude oil is purchased. Purchases are made from
numerous independent producers with whom, for the most part, Quaker State has
been doing business for many years. During 1993, Quaker State purchased crude
oil from approximately 1,550 producers, including one producer which accounted
for approximately 14.73% of the crude oil purchases. Purchases are made pursuant
to informal arrangements which may be terminated at any time or under joint
venture, operating, farm-out or similar agreements under which Quaker State has
the contractual right to purchase the crude oil if produced. During the three
years ended December 31, 1993, the weighted average price per barrel of crude
oil purchased by Quaker State has been: 1993-$16.17; 1992-$17.32 and
1991-$17.53. Some of the crude oil processed by Quaker State at the Congo
refinery is produced by Quaker State itself (see "Natural Gas Exploration and
Production Division-Crude Oil" below).
During 1993 and 1992, approximately 44% and 45%, respectively, of the
lubricant stocks used in Quaker State motor oils was produced at the Congo
refinery. Certain lubricant stocks produced at the Congo refinery are sold to
third parties.
The lubricant stocks produced by Quaker State are blended with additives to
produce motor oils at facilities at the Congo refinery or, after transportation
in bulk, at a blending and packaging plant owned and operated by Quaker State at
Vicksburg, Mississippi. The lubricant stocks produced by other refiners and
purchased by Quaker State are blended with additives to produce motor oils at a
blending and packaging plant owned and operated by Quaker State in Carson,
California (near Los Angeles), and to a limited extent at the
2
<PAGE> 3
Congo refinery and the Vicksburg plant. Quaker State also operated a leased
blending plant in St. Louis, Missouri until it was closed in December 1993.
Quaker State's Canadian motor oil subsidiary, Quaker State, Inc., owns and
operates a packaging plant in Burlington, Ontario (near Toronto). During 1993,
the Congo refinery supplied blended motor oils in bulk to satisfy the packaging
requirements of the Canadian subsidiary.
The majority of the motor oils sold by Quaker State is packaged; however, a
significant amount of the motor oils is also sold 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 at
facilities adjacent to the Congo refinery and the Vicksburg and Carson plants.
In Canada, the plastic bottles are made by Quaker State, Inc. at the Burlington,
Ontario facility.
Greases and some of the specialty lubricants are made for Quaker State by
others in accordance with specifications established by Quaker State.
Gasoline, fuel oils and kerosene, which account for approximately 65% of
the output of the Congo refinery, as well as wax, are unavoidable by-products of
the refining process for a motor oil manufacturer like Quaker State. In the case
of some of these products, some additional processing and blending is required.
Raw materials (exclusive of crude oil and containers), primarily the
lubricant stocks produced by other refiners, chemicals, fuels and additives, 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. In turn, the price depends on prevailing market conditions which
include the purchase price for non-Pennsylvania Grade crude oil. The available
supply of Pennsylvania Grade crude oil has been declining for some time and is
expected to continue to decline. Although Quaker State believes that an adequate
supply of Pennsylvania Grade crude oil will be available for the Congo refinery
for the near future, it is studying whether, should a shortage occur,
non-Pennsylvania grade crude oils are available for processing at the Congo
refinery and the amount of capital expenditures required for refinery
modifications, as well as other available alternatives.
Quaker State owns and operates a fleet of tank trucks to gather crude oil
produced in eastern Ohio and western Pennsylvania and transport it to the Congo
refinery or to a Quaker State owned and operated crude oil terminal and storage
complex 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 is one of the major branded motor oil sellers
in the United States. The motor oils and other lubricants are sold directly to
customers and through independent distributors.
As of December 31, 1993, approximately 170 full time employees were engaged
in the direct sales effort. Direct sales are made to national and regional chain
stores, to certain fast lube centers and to other 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, 1993, there were 120 independent distributors selling in
all 50 states. The 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. During the three years ended December 31, 1993, the independent
distributors accounted for the following percentages of Quaker State's total
branded motor oil sales revenues in the United States: 1993-35.3%; 1992-33.6%
and 1991-31%. The increased percentages represent primarily a transfer of
certain direct sales areas to independent distributors.
Distribution of motor oils and other lubricants to the resellers, end users
and independent distributors is made from the Congo refinery, the blending and
packaging plants and bulk storage and warehouse facilities owned or leased by
Quaker State. Distribution is made primarily by truck, including trucks owned
and operated by a Quaker State subsidiary which is an irregular route common
carrier operating throughout the United States. This unit primarily delivers
products in bulk.
3
<PAGE> 4
Gasoline, fuel oils and kerosene are sold to wholesalers located for the
most part in Ohio, Pennsylvania and West Virginia. Distribution is made
primarily by delivery F.O.B. at the Congo refinery.
Sales of the automotive consumer products are made to the same entities to
which lubricant sales are made. The leading products are oil, air and fuel
filters, but antifreeze, brake and power steering fluids, fuel additives, spray
lubricants and cleaners and automotive undercoatings are also sold.
Quaker State's U.S. branded motor oil market share has declined in recent
years and declined in 1993 as well. The branded motor oil sales volume decreased
each quarter of 1993 from the prior year's corresponding quarter except for the
fourth quarter when sales volume increased by 13% over the corresponding 1992
period. This increase was due in part to an aggressive consumer promotion from
August through November 1993 under which a $4.20 cash rebate was offered for
every case of Quaker State motor oil purchased by consumers during the promotion
period. In computing its market share percentage, Quaker State includes the
installed and packaged (do-it-yourself) markets.
Foreign and Export Sales. Quaker State, Inc. has sold Quaker State branded
motor oils in Canada for many years. Sales in Canada are made directly to
customers but primarily through independent distributors under contract with the
Canadian subsidiary. Canadian sales increased during 1993 as a result of
Canadian Tire Company, the largest marketer of motor oil in Canada, electing to
sell Quaker State motor oil alongside its own brand it formerly sold
exclusively. Quaker State believes that its motor oils are the largest selling
branded motor oil in Canada.
Sales of Quaker State branded motor oils are made in Japan by a Quaker
State subsidiary formed in 1990 and in Mexico by Comercial Importadora, a Quaker
State licensee. Quaker State believes that its motor oils are the largest
selling independent branded motor oil in Mexico.
Export sales of Quaker State branded motor oils are made by Quaker State in
57 foreign countries. These sales are made through independent distributors.
Export sales have increased significantly during the 1990's and efforts are
being made to further increase these sales. The country to which the largest
amount of export sales is made is the Dominican Republic. During 1993, a
significant part of the export sales was also made to Poland, Sweden, Guatemala
and Taiwan.
Small amounts of greases, gear lubes and automotive consumer products such
as filters and chemicals are exported to certain foreign countries.
During the three years ended December 31, 1993, total revenues from the
foreign operations, including the export sales, have been as follows:
1993-$55,436,000; 1992-$47,389,000 and 1991-$40,932,000. The largest component
of the revenues is attributable to Canada.
Marketing. Quaker State aggressively markets its brand name lubricants and
automotive consumer products. In particular, Quaker State relies heavily on
media advertising to project the quality image of its motor oils and other
products sold under its brand name and to maintain its competitive position.
In addition to media advertising, total marketing costs include sponsorship
of automobile racing teams, participation in consumer and special automotive
trade shows and distribution of point of sale materials. Quaker State also
provides marketing allowances to its customers and has incentive programs for
its direct retail customers and independent distributors. For 1993, total
marketing costs included the cost of the $4.20 cash rebate promotion.
Quaker State has trademark registrations in effect covering the use of its
brand name "Quaker State" and other product names, logos and designs utilized in
connection with the sale of its products. These registrations, which Quaker
State believes have been effective in preventing the use of the name "Quaker
State" and of the other trademarks by third parties in connection with the sale
of petroleum products, expire at various dates, but in each case may be renewed.
Operating Profit. During the three years ended December 31, 1993, the
operating profit for the Motor Oil Division (including the foreign operations)
has been: 1993-$17,484,000; 1992-$23,336,000 and 1991-$36,785,000. The operating
profit was lower during each quarter of 1993 than for the corresponding
4
<PAGE> 5
quarter of 1992. This resulted from lower motor oil sales volumes, increased
costs and a decline in the average price of gasoline and fuel oil.
NATURAL GAS EXPLORATION AND PRODUCTION DIVISION
Natural Gas--Quaker State owns interests in and explores for and develops
natural gas production properties, primarily in the Pennsylvania Grade crude oil
producing area (see "Natural Gas Exploration and Production Division--Crude Oil"
below). As of December 31, 1993, 1992 and 1991, Quaker State had 364, 334 and
302 net productive natural gas wells, respectively, and during the three years
ended December 31, 1993, Quaker State's net natural gas production has been:
1993-5,841,000 mcf; 1992-5,635,000 mcf. and 1991-4,610,000 mcf. Quaker State
acts as operator of most of the wells.
Substantially all the natural gas is sold, and during the three years ended
December 31, 1993, the weighted average price per mcf. received by Quaker State
for natural gas has been: 1993-$2.30; 1992-$2.26 and 1991-$2.35. Most natural
gas is sold directly to industrial customers or to brokers who resell to
industrial customers and is transported to these customers from producing areas
by common carrier pipelines. Traditionally, wellhead prices for gas produced in
the Appalachian Basin reflect the relative proximity of producing areas to large
eastern markets. As of December 31, 1993, Quaker State had 43,590,000 mcf. and
23,766,000 mcf. of developed and undeveloped natural gas reserves, respectively.
Capital expenditures for exploration and development of natural gas
production properties have been significant throughout the 1990's. The success
of these activities is reflected in the increased production shown above. During
1993, 30.8 net productive developmental and 7.5 net productive exploratory
natural gas wells were drilled.
The most extensive exploratory drilling has been in the Stagecoach Field in
south central New York and north central Pennsylvania where Quaker State has a
strong lease position. In January 1994, Quaker State completed an additional gas
feeder pipeline in the Stagecoach Field which should increase natural gas sales
from this area in 1994.
Crude Oil--Quaker State produces Pennsylvania Grade crude oil from its own
crude oil producing properties. The Pennsylvania Grade crude oil producing area
includes parts of southwestern New York, eastern Ohio, western Pennsylvania and
West Virginia on the western slopes of the Appalachian Mountains. As of December
31, 1993, 1992 and 1991, Quaker State had 1,208, 1,278 and 1,332 net productive
oil wells, respectively, and during the three years ended December 31, 1993
Quaker State's net crude oil production in barrels has been: 1993-423,000;
1992-438,000 and 1991-444,000. Quaker State also acts as operator of most of
these wells.
Quaker State has ceased all exploration for and development of oil wells in
New York and northwest Pennsylvania and presently only explores for and develops
oil wells elsewhere in the Pennsylvania Grade crude oil producing area on a
limited basis. During 1993, 7 net productive developmental oil wells were
drilled. As of December 31, 1993, Quaker State had 2,776,000 barrels and 30,000
barrels of developed and undeveloped Pennsylvania Grade crude oil reserves,
respectively.
During 1993, crude oil produced by Quaker State accounted for approximately
6.26% of the crude oil processed by the Congo refinery. For segment reporting
purposes, crude oil is sold by the Natural Gas Exploration and Production
Division to the Motor Oil Division at the same daily market price at which
Pennsylvania Grade crude oil is purchased by Quaker State. Certain crude oil
produced by Quaker State is sold to third parties.
Other--Quaker State also receives income from: (i) transporting third party
gas through gas gathering systems in which Quaker State has an ownership
interest, (ii) overhead fees for operating natural gas and oil wells for others
and (iii) timber sales from properties acquired by Quaker State in past years in
conjunction with oil and gas activities.
Operating Profit--During the three years ended December 31, 1993, the
operating profit for the Natural Gas Exploration and Production Division has
been: 1993-$3,103,000; 1992-$3,835,000 and 1991-$2,762,000.
5
<PAGE> 6
The decline in operating profit in 1993 was due almost entirely to additional
dry hole expense. Increased natural gas sales revenues were offset by decreased
crude oil sales revenues.
FAST LUBE OPERATIONS
Quaker State, through its subsidiaries Quaker State Minit-Lube, Inc.
("Quaker State Minit-Lube") and McQuik's Oilube, Inc. ("McQuik's"), is one of
the largest operators and franchisors of fast service automobile oil change and
lubrication centers (i.e., fast lube centers) in the United States. Quaker State
Minit-Lube was acquired in November 1985 and McQuik's in May 1989. The
administrative offices of Quaker State Minit-Lube and McQuik's are located in
Salt Lake City, Utah.
A typical fast lube center offers 14 services in approximately 15 minutes,
including changing the motor oil; replacing filters; lubricating the chassis;
adding, if necessary, fluids for the battery, brakes, power steering system,
transmission, differential and windshield washer; checking the air filter and
windshield wiper blades; checking the level of the antifreeze overflow
container; washing the windshield and checking the air pressure in the tires and
inflating the tires if necessary.
As of December 31, 1993, there were 421 Quaker State Minit-Lube and
McQuik's centers in the United States, of which 273 and 34 are owned or leased
and operated by Quaker State Minit-Lube and McQuik's, respectively, and of which
58 and 56 are operated by franchisees of Quaker State Minit-Lube and McQuik's,
respectively. The McQuik's centers do business under the McQuik's name but do
not compete directly with the Quaker State Minit-Lube centers because they are
in different locations.
The fast lube centers of Quaker State Minit-Lube and its franchisees are
located in 19 states primarily in the West, Midwest and Southeast. The fast lube
centers of McQuik's and its franchisees are located in 5 states but primarily in
Indiana and Ohio. There are also 25 fast lube centers in the Province of Ontario
which are owned and operated or franchised by a joint venture between Quaker
State Minit-Lube and another company.
Quaker State Minit-Lube and McQuik's together are one of Quaker State's
largest customers. Quaker State supplies most of the motor oils used and sold in
the Quaker State Minit-Lube and McQuik's centers, and these centers are the
largest users of Quaker State motor oils sold in bulk. For segment reporting
purposes, the Quaker State motor oils and other automotive consumer products,
such as filters, are sold by the Motor Oil Division to Quaker State Minit-Lube
and McQuik's at prices comparable to the prices the Motor Oil Division charges
to other customers.
During 1992, Quaker State Minit-Lube converted certain of its
company-operated fast lube centers to the name Q Lube, featuring heightened
Quaker State identification. In two test markets, sales volumes at stores
converted to Q Lube increased 23% over the previous year. The result of these
successful conversions was that Quaker State Minit-Lube determined to
re-identify virtually all its company-operated fast lube centers as Q Lube
centers. As of December 31, 1993, approximately 26% of the company-operated
centers were operated under the Q Lube name. Most of the remaining
company-operated centers will be converted over time. Consistent with these
conversions, effective January 1, 1994 Quaker State Minit-Lube changed its
corporate name to Q Lube, Inc. Quaker State believes the conversion to Q Lube
centers should contribute higher sales and profits in 1994. As a result of the
change of name, Quaker State Minit-Lube is hereinafter referred to in this
annual report as Q Lube, Inc.
Operating Profit. During the three years ended December 31, 1993, the
operating profit (loss) for the fast lube operations has been: 1993-$3,045,000;
1992-$1,958,000 and 1991-($1,113,000). The increase in operating profit for 1993
was attributable primarily to the result of disposition during the first quarter
by Q Lube, Inc. of 16 fast lube centers in unprofitable markets and reductions
in operating costs. The 1992 operating profit is before a one-time charge of
$3,200,000 for a reserve for the future replacement of signage and other assets
impaired by the planned conversion to Q Lube centers. The operating loss for
1991 has been the only operating loss for the fast lube operations and was
primarily attributable to lower car counts per store as a result of the economic
climate during 1991 and an environmental charge of $1,600,000.
6
<PAGE> 7
INSURANCE OPERATIONS
Quaker State is engaged in the insurance business through its subsidiary,
Heritage Insurance Group, Inc., which in turn is an insurance holding company
for members of the Heritage Insurance Group. The Heritage Insurance Group was
acquired by Quaker State in July 1984. The administrative offices of the
Heritage Insurance Group are located in Agoura Hills, California (near Los
Angeles).
The principal members of the Heritage Insurance Group are Heritage Life
Insurance Company ("Heritage Life") and Heritage Indemnity Company ("Heritage
Indemnity").
Heritage Life writes credit life insurance and credit accident and health
insurance coverages which are issued in connection with the purchase of
automobiles and other durable consumer goods. The credit policies insure
consumer debtors with the creditor as primary beneficiary. Credit life insurance
pays the balance of the consumer loan if the debtor should die, while credit
accident and health insurance provides for payment of a consumer's loan
installments during the time the consumer is disabled by sickness or accident.
Heritage Life, which commenced business in 1957, is licensed to do business in
the District of Columbia, Guam and every state except New York.
Heritage Indemnity Company writes specialty indemnity coverages primarily
for automobiles and consumer appliances. Service contract reimbursement
insurance is purchased by automobile dealers who are contractually obligated to
make repairs under extended warranty service contracts sold to purchasers by the
automobile dealers, and mechanical breakdown insurance is purchased by the
consumer to cover the cost of mechanical repairs. Heritage Indemnity, which
commenced business in 1981, is licensed to do business in the District of
Columbia and every state except New York and Connecticut. It operates in New
York as a surplus lines carrier.
Heritage Life and Heritage Indemnity use a general agency system whereby
independent salesmen are used to market the insurance products. As of December
31, 1993, Heritage Life and Heritage Indemnity were using approximately 90 and
80 general agents, respectively, throughout the United States. Many of the
general agents serve both companies.
The primary customers of the general agents are automobile dealerships,
many of which also sell Quaker State motor oils and automotive consumer
products. Sales of insurance products are made through licensed policy issuing
agents who are full-time employees of the automobile dealerships. Other
customers of the general agents are boat and motorcycle dealerships, appliance
and furniture stores and banks, savings and loan associations and other lending
institutions whose employees also act as policy issuing agents. In recent years,
increased emphasis has been placed on these customers so as to lessen the
dependence of the Heritage Insurance Group on the cyclical automobile sales
market.
Heritage Life and Heritage Indemnity also sell insurance to cover funeral
costs and homeowner's insurance, respectively. Heritage Indemnity expects to
receive claims in 1994 under homeowner's insurance policies as a result of the
January 1994 California earthquake; however, Heritage Indemnity reinsures most
of the liability under these policies.
The general agents supervise the policy issuing agents. The policy premiums
and commissions are generally paid at the time the insurance is sold.
During the three years ended December 31, 1993, direct premiums written by
the Heritage Insurance Group have been as follows: 1993-$137,144,000;
1992-$115,670,000 and 1991-$104,146,000.
During the three years ended December 31, 1993, direct premiums written by
Heritage Life represented 1993-59.7%; 1992-63.3% and 1991-60.3% of the total
direct premiums written.
For further information regarding the insurance operations, see Note 5 of
the Notes to Consolidated Financial Statements in Quaker State's 1993 Annual
Report to Stockholders and the Insurance Schedules filed as a part of this
annual report.
Operating Profit. During the three years ended December 31, 1993, the
operating profit for the insurance operations has been: 1993-$3,524,000;
1992-$6,130,000 and 1991-$3,012,000. During 1993, revenues from
7
<PAGE> 8
the insurance operations increased substantially. Premiums earned during each
quarter exceeded premiums earned during each corresponding quarter of the prior
year. Realized investment gains for each quarter increased as well. Total sales
during the third quarter of 1993 were a company record. The decline in operating
profit for 1993 is due primarily to the cost of settlement of litigation (see
"Wescal Litigation" under Item 3 of this annual report).
TRUCK-LITE
Quaker State's subsidiary, Truck-Lite Co., Inc. ("Truck-Lite"),
manufactures vehicular safety lighting equipment, which is sold to original
equipment manufacturers and through replacement parts distributors. Truck-Lite's
product line consists of custom designed safety and interior lights for
passenger cars, light trucks and vans; shock-mounted sealed beam headlamps and
sealed and bulb replaceable stop, turn and indicator lights for heavy-duty
trucks; and sealed wiring harness systems for heavy-duty truck trailers. The
administrative offices of Truck-Lite are located in Falconer, New York.
Truck-Lite's products for passenger cars, light trucks and vans are
generally manufactured in Falconer, New York. The products for the heavy-duty
trucks and truck trailers are generally manufactured in McElhattan, Pennsylvania
(near Lock Haven). The Falconer facilities are owned; the McElhattan facilities
are leased. Products for passenger cars, light trucks and vans are distributed
from the Falconer facility. Distribution centers for the products for heavy-duty
trucks and truck trailers are located in McElhattan and Sacramento, California.
These distribution centers are leased. Truck-Lite also manufactures and sells
specially designed heavy-duty lighting products in Europe through a subsidiary
formed for this purpose.
Prior to 1992, all of the Truck-Lite products were manufactured at the
Falconer facility. During 1990 and 1991, this facility was expanded to permit
construction of new and larger rear-deck lighting assemblies for certain
passenger vehicles and the heavy-duty truck and truck trailer operations were
transferred to McElhattan. Neither 1991 nor 1992 turned out to be good years for
Truck-Lite. In 1991, there was a sharp decline in sales to automakers during
part of the year as a result of the recession in the auto industry, there were
development and engineering expenses to prepare to manufacture the new rear-deck
lighting assemblies and there were costly start-up problems and delays at the
new heavy-duty plant. In 1992, automotive losses overwhelmed a strong showing by
the heavy-duty division. The automotive losses resulted from higher than
anticipated start-up costs associated with the new rear-deck lighting
assemblies, lower than anticipated shipments related to the start-up problems
and a write-off for unrecoverable development costs primarily associated with
the new assemblies.
The year 1993 was another story. Strong orders for a variety of automotive
safety lights, better than expected replacement demand for heavy-duty truck
lights and manufacturing efficiencies resulted in improved sales and operating
results throughout the year.
During the three years ended December 31, 1993, Truck-Lite's operating
profit (loss) has been: 1993-$5,731,000; 1992-($3,665,000) and 1991-($323,000).
Total sales and operating profit for 1993 were company records.
In January 1993, Quaker State announced that it intended to offer
Truck-Lite for sale and this decision was reported in last year's annual report
on Form 10-K. Early in the second quarter of 1993, Quaker State decided to
continue to operate Truck-Lite as a manufacturer of vehicular lighting products
and ceased its efforts to sell Truck-Lite. The decision was based on a revised
view of Truck-Lite's prospects as well as management's conclusion that the value
of Truck-Lite was not fully reflected in the offers received.
DOCKING OPERATIONS
Quaker State's subsidiary, Valley Camp, Inc., operates iron ore pellet and
potash terminals and a bulk materials handling dock accessible to Lake Superior
at Thunder Bay, Ontario.
During the three years ended December 31, 1993, the operating profit of the
docks business has been: 1993-$1,138,000; 1992-$2,137,000 and 1991-$1,962,000.
The figures for 1991 and 1992 include the operating profit of a subsidiary
engaged in docking operations which was sold at the end of 1992.
8
<PAGE> 9
DISCONTINUED COAL OPERATIONS
From 1976 to 1992, Quaker State was engaged in coal operations through its
subsidiary, The Valley Camp Coal Company ("Valley Camp"), and Valley Camp's
subsidiaries. In December 1992, Valley Camp discontinued its coal operations
and, accordingly, its operating results were segregated and reported as
discontinued coal operations in Quaker State's 1992 Consolidated Statement of
Operations. As of December 31, 1992, assets held for sale related to the
discontinued coal operations of approximately $17,400,000 were classified in the
Quaker State Consolidated Balance Sheet as "other current assets".
The cessation of the coal operations continued throughout 1993. On February
11, 1993, Valley Camp's subsidiary, The Helen Mining Company ("Helen Mining"),
signed an agreement with Pennsylvania Electric Company and New York State
Electric and Gas Company which terminated the coal supply contract between Helen
Mining and the utilities for the utilities' Homer City Generating Station and
resulted in the announcement of the closure of the subsidiary's Homer City Mine.
Helen Mining supplied over 100,000 tons of stockpiled coal to the generating
station and, as a result of the termination of the coal supply contract, removed
its mining equipment for disposal. Another Valley Camp subsidiary, Donaldson
Mine Company, delivered 300,000 tons of coal to its customer and then ceased
operation of its Donaldson Mines on March 30, 1993. Reclamation work is in
process at the Homer City Mine and the Donaldson Mines. Finally, on September
16, 1993 the assets of Valley Camp's subsidiary, Valley Camp of Utah, Inc., were
sold for $3,175,000. The financial effects of terminating the Helen Mining coal
supply contract, closing and ceasing to operate the mines and the sale of the
Utah assets, including the estimated results of operations through the disposal
dates, were included in the loss on disposition of the coal operations provided
for in the fourth quarter of 1992. As a result of the 1993 transactions, as of
December 31, 1993 assets held for sale related to the discontinued coal
operations of approximately $4,400,000 remained classified in the Quaker State
Consolidated Balance Sheet as "other current assets".
As of December 31, 1992, Valley Camp and its subsidiaries had 555
employees. Hourly employees were covered by a pension plan of the United Mine
Workers of America. Salaried employees are covered by Quaker State's salaried
pension plan. As of December 31, 1993, Valley Camp and its subsidiaries had 17
employees.
For further information with respect to the discontinued coal operations,
see Notes 3 and 12 of the Notes to Consolidated Financial Statements contained
in Quaker State's 1993 Annual Report to Stockholders.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
Financial information as to Quaker State's operations by business segments
(i.e., Motor Oil Division, Natural Gas Exploration and Production Division, fast
lube operations, insurance operations, Truck-Lite and docking operations) is set
forth in the segment information table which appears on page 20 of Quaker
State's 1993 Annual Report to Stockholders as well as under the heading
"Management's Discussion and Analysis" which appears on pages 17 through 19 of
such Annual Report to Stockholders. This financial information is incorporated
in this item by reference.
Certain information (identifiable assets, capital expenditures and
depreciation, depletion and amortization) relating to the discontinued coal
operations is included in the segment information table and is incorporated in
this item by reference.
CAPITAL EXPENDITURES
During the three years ended December 31, 1993, total capital expenditures,
including capital expenditures of the discontinued coal operations, were as
follows: 1993-$29,760,000; 1992-$25,706,000 and 1991-$32,037,000. In 1993, 1992
and 1991, 36.6%, 38% and 35.9% of the capital expenditures, respectively, were
by the Natural Gas Exploration and Production Division and 38.5%, 29.3% and
26.8% of the capital expenditures, respectively, were by the Motor Oil Division.
The expenditures by the Natural Gas Exploration and Production Division were for
exploration for and development of natural gas production and in 1993 and 1992
construction of the additional gas feeder pipeline in the Stagecoach Field. In
the Motor Oil Division, an oxygenate injection system for gasoline was installed
at the Congo refinery and expenditures were incurred for
9
<PAGE> 10
a new one quart motor oil container in 1993, equipment for increased oil
dewaxing capacity was installed at the Congo refinery in 1992 and a gas
desulphurization unit was installed at the Congo refinery in 1991. Expenditures
by the fast lube operations increased from 13.6% of total capital expenditures
in 1992 to 18.6% in 1993 as a result of the conversion of Quaker State
Minit-Lube centers to Q Lube centers.
Capital expenditures for 1994 are estimated to be approximately
$37,000,000, of which approximately 28% is anticipated to be used for natural
gas development and approximately 26% for further fast lube store conversions.
ENVIRONMENTAL EXPENDITURES
Capital expenditures for pollution control facilities during the three
years ended December 31, 1993 included in the capital expenditures referred to
above were as follows: 1993-$1,823,000; 1992-$1,950,000 and 1991-$3,777,000.
Capital expenditures for pollution control facilities during 1994 are expected
to amount to approximately $4,800,000.
The capital expenditures for pollution control facilities in 1993 and 1992
included upgrading and replacing underground storage tanks in the fast lube
operations and in 1991 included installation of the gas desulphurization unit at
the Congo refinery. In all three years, expenditures were also made in
connection with new drilling in the Natural Gas Exploration and Production
Division. Anticipated expenditures in 1994 for pollution control facilities
include installation of a new isomerization unit and a platformer revamp at the
Congo refinery, expenditures related to new drilling in the Natural Gas
Exploration and Production Division, continued upgrading and replacement of
underground storage tanks in the fast lube operations and installation of air
emission monitoring equipment at the Truck-Lite facilities.
Quaker State and certain of its subsidiaries have received notices from the
United State Environmental Protection Agency and a similar state agency that
they may be responsible for response and cleanup costs with respect to certain
Superfund sites (see Item 3 of this annual report).
Quaker State sold its crude oil refinery at St. Mary's, West Virginia in
December 1987. The purchaser filed for bankruptcy in December 1988 and in August
1991 the bankruptcy trustee sold the refinery to a second purchaser. In
connection with this transaction, Quaker State provided certain indemnities with
respect to the environmental conditions at the refinery. In May 1990, Quaker
State sold its crude oil refinery at Farmers Valley, Pennsylvania and a wax
plant (formerly also a crude oil refinery) at Emlenton, Pennsylvania and
provided the purchaser with similar indemnities. Quaker State expects that it
will incur some expenditures related to these indemnities and also expects that
it will incur some expenditures for environmental conditions associated with its
discontinued coal operations.
For further information with respect to environmental expenditures, see the
information under the heading "Management's Discussion and Analysis", and Notes
1, 3 and 9 of the Notes to Consolidated Financial Statements, contained in
Quaker State's 1993 Annual Report to Stockholders.
CASH DIVIDENDS
Quaker State reduced the quarterly dividend on the Quaker State Capital
Stock payable on September 15, 1993 to $.10 per share. Quarterly dividends of
$.20 per share had been declared regularly since 1986. The reason for the
decrease was that Quaker State had paid out more in cash dividends than it had
earned after-tax in five of the preceding six calendar years. The dividends
declared by the Board of Directors payable December 15, 1993 and March 15, 1994
were also $.10 per share.
COMPETITION
The branded motor oil business is highly competitive. In the United States,
the major competitors of Quaker State are Pennzoil Company (Pennzoil), Ashland
Oil, Inc. (Valvoline), Texaco, Inc. (Havoline) and Burmah Castrol Limited
(Castrol). In foreign countries, Quaker State competes with foreign
manufacturers (including some that are government owned) as well as most of its
major competitors in the United States. Many of the competitors, particularly
the major integrated oil companies, have substantially greater finished
10
<PAGE> 11
motor oil capacities and financial resources than Quaker State. The principal
methods of competition are product quality, distribution capability, advertising
and sales promotion. Quaker State also competes with Pennzoil Company, Ashland
Oil, Inc. and Witco Chemical Corporation in the purchase of Pennsylvania Grade
crude oil.
The fast lube operations are also highly competitive. The major competitors
of Quaker State are Jiffy Lube International, Inc. (a subsidiary of Pennzoil)
and Ashland Oil, Inc. through its Valvoline Instant Oil Change centers. In
addition to competing with other fast lube centers, Quaker State's subsidiaries
Q Lube, Inc. and McQuik's compete with local automobile dealers, service
stations and garages. The principal methods of competition are quality of
service, price and sales promotion.
The Heritage Insurance Group competes with many stock and mutual insurance
companies, many of which offer more diversified insurance coverages. In
addition, some large lenders to the consumer market and some large automobile
manufacturers have established credit insurance subsidiaries. The principal
methods of competition are service to customers and agents, expertise in
tailoring insurance programs to the specific needs of clients and personal
involvement by key executives.
Truck-Lite competes with other independent manufacturers as well as with
companies owned by truck and automobile manufacturers. The principal methods of
competition are quality, price and technical innovation.
EMPLOYEES
As of December 31, 1993, Quaker State and its subsidiaries had 3,831
full-time employees (excluding employees of its discontinued coal operations) as
follows: Quaker State-1,056, Q Lube, Inc. and
McQuik's-1,966, the Heritage Insurance Group-180 and Truck-Lite-629. The 118
employees engaged in natural gas and crude oil production are included in the
number for Quaker State. The year-end 1993 total compares with 3,715 full-time
employees as of December 31, 1992 (excluding employees of its discontinued coal
operations). As of December 31, 1993, there were also 346 part-time employees,
of which 319 were employed by Q Lube, Inc. and McQuik's.
The principal unions are the Oil, Chemical and Atomic Workers International
Union ("OCAW") which represents employees at the Congo refinery and the
International Association of Machinists and Aerospace Workers which represents
Truck-Lite employees. The labor agreements with OCAW and the Truck-Lite union
expire in January 1996 and in June 1995, respectively. Other unions include the
International Brotherhood of Electrical Workers, which represents employees at
the blending and packaging plant at Vicksburg, Mississippi, and local unions of
the International Brotherhood of Teamsters which represent employees at a number
of locations.
Quaker State and its subsidiaries have non-contributory pension plans
covering substantially all of their employees. Plans covering salaried employees
provide pension benefits that are generally based on the employees' compensation
and length of service. Plans covering hourly employees provide benefits of
stated amounts for each year of service. Quaker State and certain of its
subsidiaries also provide substantially all retired salaried and hourly
employees with certain postretirement benefits, principally health care and life
insurance. For more information regarding pension and other postretirement
benefits, see Note 12 of the Notes to Consolidated Financial Statements
contained in Quaker State's 1993 Annual Report to Stockholders.
RESEARCH AND DEVELOPMENT
Research and development activities relate primarily to the Motor Oil
Division where continued improvement of Quaker State motor oils and other
lubricants and the development of new or improved automotive consumer products
are emphasized. Research and development personnel develop quality control
programs to assure the continuous production of high quality products and
provide extensive technical services in the manufacturing, packaging and sales
and marketing operations as well as to customers.
11
<PAGE> 12
In 1993, the complete Quaker State passenger car motor oil line was
reformulated to a new API category, SH/CD, to provide improved performance.
Although Quaker State believes research and development activities are
vitally important to its Motor Oil Division, the dollar amount expended on these
activities is not material. Research and development activities are also
important to Truck-Lite, although the amount expended on these activities is
also not material.
GOVERNMENT REGULATION
Environmental--Quaker State and certain of its subsidiaries are subject to
various Federal, state and local air, water, land use and waste management laws
and regulations. In particular, these laws and regulations affect the motor oil
manufacturing operations, the natural gas and crude oil producing activities and
the fast lube operations. In the motor oil manufacturing area, permits are
required for the discharge of water used in operations into navigable waters and
for certain hazardous waste activities. Air pollution regulations apply to
emissions from boilers. In the natural gas and crude oil producing activities,
the laws and regulations relate principally to the prohibited discharge of crude
oil into navigable waters, the disposal of wastes such as brine from drilling
operations and the cleanup and plugging of wells upon abandonment of producing
properties. In the fast lube operations, waste management regulations apply to
the disposition of used motor oil and other petroleum products.
Insurance--The Heritage Insurance Group, in common with the insurance
industry generally, is subject to regulation and supervision in all
jurisdictions in which its members are licensed to transact business. This
regulation and supervision is designed primarily to protect policyholders. The
method of insurance regulation varies from state to state, but generally,
regulation has been delegated to state insurance commissioners who are granted
broad administrative powers relating to the licensing of insurers and their
agents, the nature of and limitations on investments, approval of policy forms,
reserve requirements and trade practices. Many classes of insurance, including
most of the insurance offered by the Heritage Insurance Group, are subject to
premium rate regulations which require that premiums be reasonable, adequate and
not unfairly discriminatory. In certain states, minimum loss ratios required for
credit insurance indirectly limit the premiums that can be charged by an
insurer. Commissions are also often governed by state laws, with maximum
commission levels, commission structures and timing of payment subject to
regulation. In addition, certain state laws establish minimum statutory capital
and surplus requirements for insurance companies and restrict the amount of
dividends that can be paid by an insurance company without regulatory approval
(see Note 5 of the Notes to Consolidated Financial Statements in Quaker State's
1993 Annual Report to Stockholders).
Truck-Lite--Truck-Lite's products are subject to regulations of the Federal
Department of Transportation which govern the brightness, placement and physical
durability of lighting.
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 in this Item by reference
thereto.
ITEM 3. LEGAL PROCEEDINGS.
Congo Refinery Environmental Litigation. In December 1993, the United
States of America commenced a lawsuit against Quaker State in the United States
District Court for the Northern District of West Virginia. The Complaint
alleges, inter alia, that Quaker State has violated the federal Resource
Conservation and Recovery Act and the federal Clean Air Act at its Congo, West
Virginia refinery. The Complaint alleges that several units that are part of the
plant wastewater treatment system also receive hazardous waste and should
properly be characterized and permitted as hazardous waste surface impoundments.
Quaker State has contended that these units are tanks and are exempt from
federal hazardous waste regulation as part of a federally permitted wastewater
treatment system, and under other exemptions. If characterized as surface
impoundments, the United States alleges that the structures have not had interim
permit status since 1980, that Quaker State has violated various regulations
relating to testing, operation and closure of the structures
12
<PAGE> 13
and that Quaker State's management of the units has constituted improper
treatment and disposal of hazardous wastes at the Congo refinery at various
dates after 1990. The Complaint also alleges that Quaker State has failed to
provide proper notice to the United States Environmental Protection Agency (the
"USEPA") and failed to use proper emission controls and techniques during
asbestos removal operations at the Congo refinery during 1990, 1991 and 1992.
The Complaint requests injunctive relief and civil penalties not exceeding
$25,000 for each day of violation of the Resource Conservation and Recovery Act
and of the Clean Air Act. Quaker State intends to vigorously defend this lawsuit
but the ultimate outcome of the lawsuit cannot be predicted. For further
information with respect to this lawsuit, see the information under the heading
"Management's Discussion and Analysis", and Note 9 of the Notes to Consolidated
Financial Statements, contained in Quaker State's 1993 Annual Report to
Stockholders.
Superfund Matters. In December 1988, Q Lube, Inc. received a notice from
the USEPA pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, that Q Lube, Inc. might be a "potentially responsible
party" responsible for response and cleanup 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, Inc. and 34 other respondents entered into a
Consent Order under which the respondents agreed to fund the costs of the
cleanup of the surface of the contaminated property. The respondents have
advanced $10,000,000 toward these costs, of which Q Lube, Inc.'s share has
amounted to approximately $500,000. The respondents, in conjunction with the
USEPA, are continuing to investigate the extent of contamination at the property
and further remedial action by the respondents is contemplated. As of December
31, 1993, Q Lube, Inc. had an accrual of $1,700,000 for this matter.
Quaker State and certain of its subsidiaries have received similar notices
from the USEPA under the same legislation to the effect that each may be a
"potentially responsible party" responsible for cleanup costs with respect to a
waste disposal site identified by the USEPA. In addition, Quaker State has
received a similar notice from the California Department of Toxic Substances
Control (the "DTSC") under the same legislation as well as a California statute.
The USEPA and DTSC are conducting investigations regarding alleged releases or
threatened releases of hazardous substances from these sites and have contacted
all parties who may have arranged for the disposal, treatment or transportation
of hazardous substances to the sites.
For further information with respect to Superfund matters, see the
information under the heading "Management's Discussion and Analysis," and Note 9
of the Notes to Consolidated Financial Statements, contained in Quaker State's
1993 Annual Report to Stockholders.
Oil Express Litigation. In October 1990, Quaker State commenced an action
in the Circuit Court of the Eighteenth Judicial Circuit, Du Page County,
Illinois against Oil Express National, Inc. ("Oil Express") and certain of its
franchisees and principals. Oil Express is an operator and franchisor of fast
lube centers in Illinois, Indiana and Tennessee. The Complaint alleges breaches
of contract by the defendants in failing to repay certain loans made by Quaker
State and in failing to comply with their contractual obligations for the
purchase of Quaker State motor oils, and a conspiracy among the defendants to
induce breaches of their contracts with Quaker State. Quaker State is seeking
compensatory damages and lost profits in the amount of approximately $275,000
and punitive damages of $500,000.
In April 1992, Oil Express filed a counterclaim and a third party claim in
the proceeding against Quaker State and its subsidiary Q Lube, Inc. alleging
breach of and a conspiracy to breach an alleged marketing agreement to pay a
portion of the advertising and promotional expenses of Oil Express, breach of
and a conspiracy to breach an alleged agreement not to compete with Oil Express
or its franchisees in the fast lube business in the Chicago metropolitan area
and a conspiracy to damage a competitor. Oil Express seeks damages of $525,000
on the counts alleging breach of and a conspiracy to breach the alleged
marketing agreement and damages of $8,000,000 on the counts alleging breach of
and a conspiracy to breach the alleged agreement not to compete and seeks
compensatory and punitive damages of $18,000,000 on the count alleging a
conspiracy to damage a competitor.
In June 1992, Quaker State and Q Lube, Inc. filed motions to dismiss the
counterclaim and third party claim which were denied. The litigation has
progressed through discovery and will be tried before a jury. A late 1994 trial
date is anticipated. Quaker State has vigorously prosecuted its action against
the defendants and
13
<PAGE> 14
both Quaker State and Q Lube, Inc. have vigorously defended the counterclaim and
third party claim against them. Quaker State and Q Lube, Inc. believe that all
the claims against them are without merit and that the damages sought by Oil
Express are grossly exaggerated in the pleadings solely to provide the
defendants with leverage to defend Quaker State's action against the defendants.
Employment Litigation. In October 1993, Larry Tucker and 13 other former
salaried supervisory employees of Donaldson Mine Company, a subsidiary of Quaker
State's subsidiary The Valley Camp Coal Company ("Valley Camp"), instituted an
action in the Circuit Court of Kanawha County, West Virginia against Quaker
State, Valley Camp and Donaldson Mine Company. The suit alleges that each of the
plaintiffs had a verbal and/or written contract of employment with the
defendants which was breached by termination of the plaintiffs' employment, that
the defendants intentionally and unlawfully discriminated against the plaintiffs
because of their age in violation of state law, that the plaintiffs were not
paid their rightful compensation and earned fringe benefits at the time of
termination of employment and that the defendants breached an expressed and
implied covenant of good faith and fair dealing with respect to the plaintiffs.
Each plaintiff claims damages in the amount of $1,250,000 for loss of income and
benefits, impairment of earning capacity and emotional distress, $1,250,000 for
punitive damages and in addition the costs of a search for new employment,
attorneys fees and costs of suit. In March 1994, the plaintiffs filed a motion
to amend the Complaint to add similar claims on behalf of five additional
individuals. Quaker State, Valley Camp and Donaldson Mine Company intend to
vigorously defend this proceeding.
Quaker State is also a defendant in several other proceedings brought by
individual plaintiffs seeking damages as a result of termination of employment.
These proceedings are being vigorously defended as well.
Windfall Profit Tax Litigation. In prior annual reports on Form 10-K,
Quaker State has referred to this litigation under which the United States
Government sought payment by Quaker State of additional Federal windfall profit
taxes for the third and fourth quarters of 1983 on the ground that during the
period Quaker State was an integrated oil company instead of an independent
producer. In August 1991, the United States Claims Court held that Quaker State
was an integrated oil company and not an independent producer because it
qualified as a retailer during 1983, and in July 1992 the Claims Court entered
judgment for the Government against Quaker State in the amount of $456,851 for
each of the third and fourth quarters of 1983, plus interest. Quaker State then
appealed the decision of the Claims Court to the United States Court of Appeals
for the Federal Circuit. The appeal was argued during March 1993 and on June 2,
1993 the decision of the Claims Court was affirmed by the Court of Appeals. A
petition for rehearing by the Court of Appeals was denied. Had Quaker State been
successful in the appeal, Quaker State would have been entitled to file claims
for refund of Federal windfall profit taxes paid for the first and second
quarters of 1983 as well as for 1984 and 1985. As of December 31, 1992, Quaker
State had accrued for the Claims Court judgment and related interest in its
consolidated financial statements. The amount of the judgment and related
interest have been paid and this litigation has been concluded.
Wescal Litigation. In November 1989, Jerrald Axelrod and Theodore E. Dahl
doing business as Wescal Credit Insurance ("Wescal") commenced an action in the
Superior Court of California, County of Orange, against Heritage Life Insurance
Company ("Heritage"), a subsidiary of Quaker State's subsidiary The Heritage
Insurance Group, Inc., and against Quaker State. Quaker State was subsequently
dismissed from the suit. Wescal is engaged in the business of selling credit
life and disability insurance in connection with mortgages and other long term
loans. Heritage and Wescal entered into an agreement in 1984, under which Wescal
agreed to produce insurance business for Heritage in return for several forms of
compensation. The contract was subsequently amended in 1988, and notice of
termination of this agreement was given by Heritage in 1990. The Complaint in
this matter was amended six times and ultimately alleged breach by Heritage of
the 1984 agreement, as amended, by competing with Wescal, by failing to pay on a
timely basis commissions due Wescal, by failure to provide reports to Wescal,
and by failing to process credit life insurance business produced by Wescal. The
Complaint also alleged fraud, intentional interference with prospective economic
advantage, negligent interference with prospective economic advantage, and
conspiracy to interfere with contractual relations. Compensatory and punitive
damages in unspecified amounts were sought in the Complaint as amended. Heritage
denied the allegations of the amended Complaint. Trial before a jury commenced
in July 1993 and the jury returned a verdict in favor of Wescal and against
Heritage in the
14
<PAGE> 15
amount of $5,130,900 for breach of contract, $13,136,458 for intentional and
negligent interference with prospective economic advantage and for $1,000,000
for punitive damages. Pre-judgment interest of approximately $2,400,000 was
added to the verdict by the Court. Heritage filed motions for a new trial and
for judgment notwithstanding the verdict but the motions were denied. The
litigation was then settled and concluded by Heritage paying Wescal $6,500,000
in December 1993 and agreeing to pay an additional $3,450,000 to Wescal in
December 1994. The settlement was made without any admission by Heritage of any
liability on its part. For further information with respect to this litigation,
see Note 5 of the Notes to Consolidated Financial Statements contained in Quaker
State's 1993 Annual Report to Stockholders.
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 1993.
EXECUTIVE OFFICERS OF QUAKER STATE
The executive officers of Quaker State are set forth below:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- -----
<S> <C> <C>
Herbert M. Baum 57 Chairman of the Board and Chief Executive Officer of Quaker
State
Conrad A. Conrad 48 President and Chief Operating Officer of Quaker State
Homer M. Ellenburg 51 Executive Vice President of Quaker State and President and
Chief Operating Officer of the Motor Oil Division
Gerald W. Callahan 57 Vice President, General Counsel and Secretary of Quaker State
R. Scott Keefer 46 Vice President, Finance and Chief Financial Officer of Quaker
State
David A. Hogue 38 Controller of Quaker State
W. Roger McCauley 43 Treasurer of Quaker State
John F. Noel 49 Vice President, Chief Purchasing Officer of Quaker State
Donald E. Smith, Jr. 55 Vice President, Human Resources of Quaker State
Mary Ransford White 52 Vice President, Environmental and Government Affairs of Quaker
State
Charles F. Bechtel 49 Executive Vice President, Sales of the Motor Oil Division
Robert Cohen 57 Executive Vice President, Marketing of the Motor Oil Division
W. Scott Chickering 56 Vice President, Installed Motor Oil Business of the Motor Oil
Division
Edward E. Fleischer 63 Vice President, Refining and Manufacturing of the Motor Oil
Division
William C. LaFave 53 Vice President, Western Region Sales of the Motor Oil Division
William E. Marshall 52 Vice President, Northern Region Sales of the Motor Oil Division
Joseph J. McArdle 49 Vice President, Packaged Motor Oil Marketing of the Motor Oil
Division
Robert M. McConnell 40 Vice President, Southern Region Sales of the Motor Oil Division
Kevin J. Murphy 44 Vice President, National Accounts and New Business Development
of the Motor Oil Division
</TABLE>
Mr. Baum has been Chairman of the Board and Chief Executive Officer and a
Director of Quaker State since June 1993. He was Executive Vice President of
Campbell Soup Company from November 1989 to June 1993, President, Campbell North
and South America, Campbell Soup Company's largest operating division, from
January 1992 to June 1993 and Senior Vice President of Campbell Soup Company
from prior to 1989 to November 1989. The Motor Oil Division reports directly to
Mr. Baum.
Mr. Conrad has been President and Chief Operating Officer of Quaker State
since February 1990. He has been a Director of Quaker State since January 1988.
He was Vice President, Finance and Chief Financial Officer of Quaker State from
prior to 1989 to February 1990. The Natural Gas Exploration and Production
Division, the fast lube operations, the insurance operations and Truck-Lite
report directly to Mr. Conrad.
Mr. Ellenburg has been Executive Vice President of Quaker State since
August 1993. He was Vice President of Quaker State from prior to 1989 to August
1993 and has also been the President and Chief Operating Officer of the Motor
Oil Division since February 1990. He has been a Director of Quaker State since
December 1990. The Motor Oil Division is responsible for the manufacture of
Quaker State's lubricants
15
<PAGE> 16
and fuels, the purchase and gathering of crude oil and all marketing, sales,
distribution and research and development activities relating to Quaker State's
lubricants, fuels and automotive consumer products.
Mr. Callahan has been Vice President, General Counsel and Secretary of
Quaker State since June 1993; he was Vice President, Counsel and Corporate
Secretary of Quaker State from prior to 1989 to June 1993.
Mr. Keefer has been Vice President, Finance and Chief Financial Officer of
Quaker State since February 1990; he was also Treasurer of Quaker State from
prior to 1989 through May 1992.
Mr. Hogue has been Controller of Quaker State since May 1992. He was
Corporate Accounting Manager of Quaker State from April 1991 to May 1992 and
Manager of Reporting Accounting of Quaker State from prior to 1989 to April
1991.
Mr. McCauley has been Treasurer of Quaker State since May 1992. He was
Assistant Treasurer of Quaker State from January 1989 to May 1992.
Mr. Noel has been Vice President, Chief Purchasing Officer of Quaker State
since January 1994. He was Marketing Director, Specialty Products of the Motor
Oil Division from September 1990 to January 1994 and General Manager, Blending
and Packaging of Quaker State from prior to 1989 to September 1990.
Mr. Smith has been Vice President, Human Resources of Quaker State since
December 1993. He was Director, Human Resources of Quaker State from prior to
1989 to December 1993.
Mrs. White has been Vice President, Environmental and Government Affairs of
Quaker State since August 1993. She was Corporate Environmental Director of
Quaker State from January 1991 to August 1993, Manager of Environmental Affairs
of Quaker State from January 1990 to January 1991 and Manager of Administration
Operations for the Natural Gas Exploration and Production Division from prior to
1989 to January 1990.
Mr. Bechtel has been Executive Vice President, Sales of the Motor Oil
Division since November 1993. He was President of Bechtel and Associates, a
sales consulting firm, from October 1992 to November 1993 and Executive Vice
President, Sales of 21st Century Foods, Inc. from September 1992 to November
1993. Before that, he was Executive Vice President and Chief Operating Officer
of Old Fashioned Kitchens, Inc. from August 1991 to September 1992, Executive
Vice President, Sales and Marketing of Slim-Fast Foods, Inc. and President of
the Powdered Drink Division of Slim-Fast Foods, Inc. from August 1989 to August
1991 and Vice President, New Business Development of Campbell Soup Company from
prior to 1989 to August 1989.
Mr. Cohen has been Executive Vice President, Marketing of the Motor Oil
Division since September 1993. He was President of Marketcom, Inc. and Senior
Managing Partner of Vendmark Ltd., an affiliate of Marketcom, Inc., from prior
to 1989 to September 1993.
Mr. Chickering has been Vice President, Installed Motor Oil Business of the
Motor Oil Division since January 1994. He was Vice President, Marketing Services
of the Motor Oil Division from August 1993 to January 1994, Vice President,
Marketing of the Motor Oil Division from May 1990 to August 1993, Vice
President, Southern Region of the Motor Oil Division from June 1989 to May 1990
and Sales Manager, Southwest Region of the Motor Oil Division from prior to 1989
to June 1989.
Mr. Fleischer has been Vice President, Refining and Manufacturing of the
Motor Oil Division since August 1993. He was Plant Manager of the Congo refinery
from August 1989 to August 1993 and Plant Manager of Quaker State's former
Farmers Valley refinery from prior to 1989 to August 1989.
Mr. LaFave has been Vice President, Western Region Sales of the Motor Oil
Division since January 1994. He was Manager, National Account Sales Coordination
of the Motor Oil Division from prior to 1989 to January 1994.
Mr. Marshall has been Vice President, Northern Region Sales of the Motor
Oil Division since December 1993. He was Executive Vice President, Sales of the
Motor Oil Division from January 1993 to
16
<PAGE> 17
December 1993, Vice President, Northern Region of the Motor Oil Division from
June 1989 to January 1993 and Vice President, Sales of Quaker State from prior
to 1989 to June 1989.
Mr. McArdle has been Vice President, Packaged Motor Oil Marketing of the
Motor Oil Division since January 1994. He was Director of Retail Sales
Development of the Motor Oil Division from September 1993 to January 1994, Vice
President, Advertising and Marketing of Pennzoil Products Company from November
1990 to September 1993 and Director of Marketing of Castrol, Inc. from prior to
1989 to November 1990.
Mr. McConnell has been Vice President, Southern Region Sales of the Motor
Oil Division since October 1990. He was Charlotte, North Carolina Regional
Manager of Hunter Engineering Company, a manufacturer of wheel service
equipment, from prior to 1989 to October 1990.
Mr. Murphy has been Vice President, National Accounts and New Business
Development of the Motor Oil Division since January 1994. He was Assistant to
the Executive Vice President, Sales of the Motor Oil Division from December 1993
to January 1994, owner of Marken, Inc., an operator of a retail grocery store,
from June 1989 to October 1993 and Director of Sales Planning of Campbell Soup
Company from prior to 1989 to June 1989.
There is no family relationship between any executive officer of Quaker
State and any Director or other executive officer of Quaker State.
The executive officers of Quaker State and of the Motor Oil Division are
elected annually by the Board of Directors immediately after each Annual Meeting
of Stockholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The 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
information required by this Item 5 insofar as market prices of Quaker State
Capital Stock are concerned appears under the caption "Quaker State (KSF) Market
Prices by Quarter" on page 36 of Quaker State's 1993 Annual Report to
Stockholders, insofar as dividends declared on the Quaker State Capital Stock
are concerned appears in Note 13 of the Notes to Consolidated Financial
Statements contained in Quaker State's 1993 Annual Report to Stockholders and
insofar as the number of holders of record of the Quaker State Capital Stock is
concerned appears under the caption "Five-Year Summary of Net Income and
Comparative Statistical Data" on page 21 of Quaker State's 1993 Annual Report to
Stockholders. All such information is incorporated in this annual report by
reference.
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 21 of
Quaker State's 1993 Annual Report to Stockholders and is incorporated in this
annual report by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Discussion and Analysis of Results of Operations and Financial
Condition required by this Item 7 appears on pages 17 through 19 of Quaker
State's 1993 Annual Report to Stockholders and is incorporated in this annual
report by reference.
17
<PAGE> 18
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, 1993, 1992 and 1991 required by this Item 8 appear on the pages
indicated in Quaker State's 1993 Annual Report to Stockholders and are
incorporated in this annual report by reference:
<TABLE>
<CAPTION>
PAGE(S) IN 1993
ANNUAL REPORT
FINANCIAL STATEMENTS AND RELATED REPORT TO STOCKHOLDERS
--------------------------------------- ---------------
<S> <C>
Report of Independent Certified Public Accountants, dated January 25,
1994................................................................ 36
Consolidated Statement of Operations for the years ended December 31,
1993, 1992 and 1991................................................. 22
Consolidated Statement of Cash Flows for the years ended December 31,
1993, 1992 and 1991................................................. 23
Consolidated Balance Sheet as of December 31, 1993 and 1992........... 24
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1993, 1992 and 1991.................................... 25
Notes to Consolidated Financial Statements............................ 26-35
Financial Results by Quarter.......................................... 35
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no such events and therefore this Item is not applicable.
PART III
ITEMS 10 THROUGH 13.
In accordance with the provisions of General Instruction G to Form 10-K,
the information required by Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) is not set forth in this annual report (except for the
information concerning "Executive Officers of Quaker State" which appears at the
end of Part I of this annual report) because prior to April 30, 1994 Quaker
State will file with the Commission a definitive Proxy Statement which involves
the election of Directors at its Annual Meeting of Stockholders to be held on
May 12, 1994, which Proxy Statement will contain such information. Such
information is incorporated in this annual report by reference, except for the
information required to be included in the Proxy Statement by paragraphs (i),
(k) and (l) of Item 402 of Regulation S-K.
18
<PAGE> 19
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, dated
January 25, 1994, appearing on pages 22 through 35 and on page 36,
respectively, of Quaker State's 1993 Annual Report to Stockholders are
incorporated in this annual report by reference (see Item 8 above).
(a)(2) FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules and related report listed below are
filed as part of this annual report:
<TABLE>
<CAPTION>
PAGE(S) IN THIS
FINANCIAL STATEMENT SCHEDULES AND RELATED REPORT ANNUAL REPORT
------------------------------------------------ ----------------
<S> <C>
Report of Independent Certified Public Accountants, dated January 25,
1994..................................................................... S-1
GENERAL:
- - ---------------------------------------------------------------------------
Schedule II--Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other than Related Parties for the years ended
December 31, 1993, 1992 and 1991......................................... S-2
Schedule V--Property, Plant and Equipment for the years ended December 31,
1993, 1992 and 1991...................................................... S-3
Schedule VI--Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment for the years ended December 31, 1993, 1992
and 1991................................................................. S-4
Schedule VIII--Valuation and Qualifying Accounts for the years ended
December 31, 1993, 1992 and 1991......................................... S-5
Schedule X--Supplementary Income Statement Information for the years ended
December 31, 1993, 1992 and 1991......................................... S-5
INSURANCE SCHEDULES:
- - ---------------------------------------------------------------------------
Schedule I--Summary of Insurance Investments--Other Than Investments in
Related Parties as of December 31, 1993.................................. S-6
Schedule V--Supplementary Insurance Information for the years ended
December 31, 1993, 1992 and 1991......................................... S-7
Schedule VI--Reinsurance for the years ended December 31, 1993, 1992 and
1991..................................................................... S-8
</TABLE>
All other financial statement schedules are omitted either because they are
not applicable or are not material, or the information required therein is
contained in the consolidated financial statements or notes thereto set forth in
Quaker State's 1993 Annual Report to Stockholders.
(a)(3) EXHIBITS:
The exhibits listed below are filed as a part of this annual report:
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------ --------
<S> <C>
3(i) Composite Certificate of Incorporation, filed as Exhibit 3(a) to Form 10-K for the
fiscal year ended December 31, 1987 and incorporated herein by reference.
3(ii) Bylaws, as amended June 8, 1993, filed herewith.
4(a) Credit Agreement, dated as of March 31, 1992, by and among Quaker State, certain
Banks and Pittsburgh National Bank, as Agent for the Banks (the "Credit
Agreement"), filed as Exhibit 19 to Form 10-Q for the fiscal quarter ended March
31, 1992 and incorporated herein by reference.
4(b) Amendment No. 1 to Credit Agreement, dated as of September 30, 1992, filed as
Exhibit 4(b) to Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.
4(c) Amendment No. 2 to Credit Agreement, dated as of August 16, 1993, filed herewith.
4(d) Composite Note Agreement, dated as of September 1, 1992, between Quaker State and
certain insurance companies, with respect to $50,000,000 8.73% Senior Notes Due
September 30, 2002 (the "Note Agreement"), filed as Exhibit 4 to Form 10-Q for the
fiscal quarter ended September 30, 1992 and incorporated herein by reference.
4(e) First Amendment to Note Agreements, dated as of December 31, 1992, filed as
Exhibit 4(d) to Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.
10(a) 1976 Stock Option Plan, as amended through April 30, 1987, filed as Exhibit 10(a)
to Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein
by reference.*
10(b) 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(c) 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(d) 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) Incentive Performance Plan, as amended on June 30, 1988, filed as Exhibit 10(e) to
Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by
reference.*
10(f) Management Incentive Plan, filed as Exhibit 10(f) to Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by reference.*
10(g) Long-Term Incentive Plan, filed as Exhibit 10(g) to Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by reference.*
10(h) Quaker State Corporation 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(i) Articles X and XI of the Quaker State Corporation 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(j) Articles X and XI of the Quaker State Corporation 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(k) Quaker State Corporation 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.*
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------ --------
<S> <C>
10(l) Employment Agreement, dated as of June 8, 1993, between Quaker State Corporation
and Herbert M. Baum, filed as Exhibit 10 to Form 10-Q for the fiscal quarter ended
June 30, 1993 and incorporated herein by reference.*
10(m) 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(n) Form of letter agreement entered into between Quaker State and each of its
directors regarding the retirement benefits provided by Quaker State to its
non-employee directors, filed herewith.
10(o) 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.
11 Statement re Computation of Per Share Earnings, filed herewith.
13 Those portions of the 1993 Annual Report to Stockholders which are expressly
incorporated in this annual report by reference, filed herewith.
22 List of subsidiaries of Quaker State Corporation, filed herewith.
24 Consent of Coopers & Lybrand, filed herewith.
25 Powers of Attorney, filed herewith.
</TABLE>
- - ---------
* 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,
255 Elm Street, Oil City, Pennsylvania 16301.
(B) REPORTS ON FORM 8-K:
No events which resulted in the filing of a current report on Form 8-K
occurred during the fourth quarter of 1993.
21
<PAGE> 22
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.
<TABLE>
<S> <C>
QUAKER STATE CORPORATION
/S/ HERBERT M. BAUM
By ___________________________________
Herbert M. Baum, Chairman
of the Board and Chief
Executive Officer
</TABLE>
Date: March 23, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Quaker State
in the capacities indicated on March 23, 1994.
<TABLE>
<S> <C>
/S/ HERBERT M. BAUM /S/ R. SCOTT KEEFER
------------------------------- ----------------------------------
Herbert M. Baum R. Scott Keefer
(Chairman of the Board and (Principal Financial Officer)
Chief Executive Officer)
/S/ CONRAD A. CONRAD /S/ DAVID A. HOGUE
------------------------------- ----------------------------------
Conrad A. Conrad David A. Hogue
(Director) (Principal Accounting Officer)
/S/ HOMER M. ELLENBURG
-------------------------------
Homer M. Ellenburg
(Director)
</TABLE>
Leonard M. Carroll,
Laurel Cutler,
C. Fred Fetterolf,
Thomas A. Gardner,
H. Bryce Jordan,
W. Craig McClelland,
Delbert J. McQuaide and
Raymond A. Ross, Jr.
/S/ GERALD W. CALLAHAN
By __________________________
Gerald W. Callahan,
Attorney-In-Fact
22
<PAGE> 23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To 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 1993 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 schedules listed in the index on
page 19 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Pittsburgh, Pennsylvania
January 25, 1994
S-1
<PAGE> 24
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE II. AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN E
COLUMN B -----------------------
---------- COLUMN D
COLUMN A BALANCE AT COLUMN C -------- BALANCE AT END OF
- - -------------------------------------- BEGINNING -------- AMOUNTS PERIOD
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED CURRENT NOT CURRENT
- - -------------------------------------- ---------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
H. M. Baum............................ -- $ 400(A) $400 -- --
==== ======== ======== ==== ====
</TABLE>
- - ---------
(A) One year promissory note with interest rate of 3.59%. Note repaid within 60
days of issuance.
S-2
<PAGE> 25
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE V. PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN B COLUMN E COLUMN F
------------ COLUMN C ------------ ---------
COLUMN A BALANCE AT ----------- COLUMN D OTHER BALANCE
- - -------------------------------- BEGINNING OF ADDITIONS ----------- CHANGES AT END OF
CLASSIFICATION PERIOD AT COST RETIREMENTS ADD (DEDUCT) PERIOD
- - -------------------------------- ------------ ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
December 31, 1993:
Motor Oil
Refining................... $ 95,998 $ 1,549 $ 94 $ -- $ 97,453
Marketing.................. 97,556 9,910 9,041 -- 98,425
Fast Lube....................... 115,188 5,522 2,394 -- 118,316
Natural gas E & P............... 207,906 10,890 7,854 -- 210,942
Truck-Lite...................... 31,711 1,884 -- -- 33,595
Docks........................... 12,943 5 -- -- 12,948
--------- --------- -------- ---------- --------
$561,302 $29,760 $ 19,383 $ $571,679
======== ======= ======== ========== ========
December 31, 1992:
Motor Oil
Refining................... $ 96,359 $ 1,140 $ 1,430 $ (71)(A) $ 95,998
Marketing.................. 101,678 6,383 10,505 -- 97,556
Fast Lube....................... 113,755 3,489 2,056 -- 115,188
Natural gas E & P............... 203,602 9,773 5,540 71(A) 207,906
Truck-Lite...................... 30,647 1,584 520 -- 31,711
Docks........................... 17,794 134 4,985 -- 12,943
Discontinued Coal Operations.... 154,986 3,203 147,173(B) (11,016)(B) --
-------- ------- -------- --------- --------
$718,821 $25,706 $172,209 $(11,016) $561,302
========= ======== ========= ========= ========
December 31, 1991:
Motor Oil
Refining................... $ 93,702 $ 3,671 $ 771 $ (243)(A) $ 96,359
Marketing.................. 107,485 4,915 11,231 509(A) 101,678
Fast Lube....................... 117,729 3,488 2,562 (4,900)(A)(C) 113,755
Natural gas E & P............... 202,471 11,488 10,357 -- 203,602
Truck-Lite...................... 27,767 2,910 30 -- 30,647
Docks........................... 17,818 58 35 (47)(A) 17,794
Discontinued Coal Operations.... 154,042 5,507 4,723 160(A) 154,986
-------- -------- --------- ---------- --------
$721,014 $32,037 $ 29,709 $ (4,521) $718,821
======== ======== ======== ========= ========
</TABLE>
- - ---------
(A) Interdivisional and/or intercompany transfers and adjustments.
(B) Includes the sale of certain coal assets of $33,178,000 at December 30,
1992. Assets of $113,995,000 were written off due to the classification of
coal as discontinued operations. Coal property of $11,016,000 at December
31, 1992 was transferred to other current assets on the Consolidated Balance
Sheet as assets held for sale. At December 31, 1993, $3,870,000 of coal
property is included in other current assets on the Consolidated Balance
Sheet as assets held for sale. See Note 3 of Notes to Consolidated Financial
Statements.
(C) Includes a reclassification of approximately $4,100,000 to intangible
assets.
The following table summarizes the years over which assets (other than oil
and gas producing properties and mineral lands) are generally depreciated:
<TABLE>
<S> <C>
Land improvements..................................................... 20 years
Buildings............................................................. 20 to 45 years
Refinery, marketing and fast lube equipment........................... 3 to 16 years
Dock properties....................................................... 5 to 20 years
Autos and trucks...................................................... 3 to 8 years
Office furniture and equipment........................................ 10 years
Fast lube rental properties and improvements.......................... 5 to 20 years
</TABLE>
S-3
<PAGE> 26
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE VI. ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN C COLUMN E
COLUMN B ---------- -------- COLUMN F
---------- ADDITIONS OTHER ----------
COLUMN A BALANCE AT CHARGED TO COLUMN D CHANGES BALANCE AT
- - ---------------------------------- BEGINNING COSTS AND ----------- ADD END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD
- - ---------------------------------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993:
Motor Oil
Refining........................ $ 68,703 $ 2,935 $ 88 $ -- $ 71,550
Marketing....................... 51,768 7,955 8,438 -- 51,285
Fast Lube......................... 25,304 4,913 973 -- 29,244
Natural gas E & P................. 156,493 9,578 5,910 -- 160,161
Truck-Lite........................ 18,356 2,496 22 -- 20,830
Docks............................. 12,743 38 -- -- 12,781
-------- ------- -------- ----- --------
$333,367 $27,915 $ 15,431 $ -- $345,851
======== ======= ======== ===== ========
DECEMBER 31, 1992:
Motor Oil
Refining........................ $ 67,006 $ 3,067 $ 1,299 $ (71)(A) $ 68,703
Marketing....................... 53,080 7,599 8,911 -- 51,768
Fast Lube......................... 18,043 4,632 571 3,200(B) 25,304
Natural gas E & P................. 151,287 9,210 4,075 71(A) 156,493
Truck-Lite........................ 16,205 2,404 253 -- 18,356
Docks............................. 16,831 879 4,967 -- 12,743
Discontinued Coal Operations...... 87,997 5,796 93,793(C) -- --
-------- ------- -------- ------ --------
$410,449 $33,587 $113,869 $3,200 $333,367
======== ======= ======== ====== ========
DECEMBER 31, 1991:
Motor Oil
Refining........................ $ 64,844 $ 2,991 $ 595 $ (234)(A) $ 67,006
Marketing....................... 53,762 8,419 9,191 90(A) 53,080
Fast Lube......................... 15,047 4,286 327 (963)(A)(D) 18,043
Natural gas E & P................. 151,659 8,699 9,188 117(A) 151,287
Truck-Lite........................ 14,067 2,257 47 (72)(A) 16,205
Docks............................. 15,931 900 -- -- 16,831
Discontinued Coal Operations...... 85,061 6,390 3,614 160(A) 87,997
-------- ------- -------- ----- --------
$400,371 $33,942 $ 22,962 $ (902) $410,449
======== ======= ======== ====== ========
</TABLE>
- - ---------
(A) Interdivisional and/or intercompany transfers and adjustments.
(B) Charge to accelerate depreciation for replacement of certain assets. See
Note 2 of Notes to Consolidated Financial Statements.
(C) Includes the sale of certain coal assets of $27,733,000 at December 30,
1992. Depreciation reserves of $66,060,000 were written off due to the
classification of coal as discontinued operations. See Note 3 of Notes to
Consolidated Financial Statements.
(D) Includes a reclassification of approximately $1,000,000 to intangible
assets.
S-4
<PAGE> 27
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ------------ COLUMN E
---------- ADDITIONS ----------
COLUMN A BALANCE AT CHARGED COLUMN D BALANCE AT
- - ----------------------------------------------- BEGINNING TO COSTS AND ---------- END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- - ----------------------------------------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and notes
receivable:
1993......................................... $1,406 $ 854 $ 581(A) $1,679
1992......................................... 1,400 1,220 1,214(A) 1,406
1991......................................... 1,600 1,024 1,224(A) 1,400
Amortization of intangible assets:
1993......................................... $9,082 $1,427 $ 918 $9,591
1992......................................... 8,043 1,911 872 9,082
1991......................................... 5,385 1,692 (966) 8,043
Deferred tax asset valuation allowance:
1993......................................... $2,989 -- $1,888 $1,101
1992......................................... -- 2,989 -- 2,989
</TABLE>
- - ---------
(A) Accounts and notes receivable written off during the year.
SCHEDULE X. SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN B
-------------------------------
COLUMN A
- - -------------------------------------------------------------- CHARGED TO COSTS & EXPENSES
ITEM 1993 1992 1991
- - -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maintenance and repairs....................................... $14,324 $14,736 $12,746
Taxes, other than payroll and income taxes.................... 7,683 7,775 7,712
Advertising costs............................................. 71,473 67,971 57,396
</TABLE>
S-5
<PAGE> 28
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE I. SUMMARY OF INSURANCE INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN D
---------------
COLUMN A COLUMN B COLUMN C AMOUNT AT WHICH
- - ------------------------------------------------------ -------- --------- SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- - ------------------------------------------------------ -------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government agencies
and authorities................................ $ 51,832 $ 52,193 $ 51,832
States, municipalities and political
subdivisions................................... 59,986 65,023 59,986
All other corporate bonds........................ 8,118 8,095 8,118
-------- -------- --------
Total fixed maturities...................... $119,936 $125,311 $119,936
-------- ======== --------
Equity securities:
Common stocks:
Public utilities................................. 3,249 4,025 4,025
Banks, trust and insurance companies............. 1,064 1,109 1,109
Industrial, miscellaneous and all other.......... 4,927 5,133 5,133
Nonredeemable preferred stocks...................... 16,747 17,846 17,846
-------- -------- --------
Total equity securities..................... $ 25,987 $ 28,113 $ 28,113
-------- ======== --------
Real estate........................................... 3,668 3,668
Short-term investments................................ 33,729 33,729
-------- --------
Total investments........................... $183,320 $185,446
======== ========
</TABLE>
S-6
<PAGE> 29
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE V. SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN C
------------- COLUMN E COLUMN H
COLUMN B FUTURE POLICY ------------ -----------------
--------------- BENEFITS, COLUMN D OTHER POLICY COLUMN F COLUMN G BENEFITS, CLAIMS,
COLUMN A DEFERRED POLICY LOSSES, ---------- CLAIMS AND --------- -------------- LOSSES AND
- - ---------------------- ACQUISITION CLAIMS AND UNEARNED BENEFITS PREMIUM NET INVESTMENT SETTLEMENT
SEGMENT COSTS LOSS EXPENSES PREMIUMS PAYABLE REVENUE INCOME(1) EXPENSES
- - ---------------------- --------------- ------------- ---------- ------------ --------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Life insurance........ $28,724 -- $ 56,722 $ 3,655 $30,725 $ 3,311 $10,644
Accident and health
insurance........... 27,661 -- 53,046 18,453 30,460 3,033 14,933
Mechanical breakdown
insurance........... 3,620 -- 98,762 6,665 32,751 5,491 26,412
Other................. -- -- -- -- -- 49 --
------- ----- -------- -------- ------- -------- -------
Totals............ $60,005 -- $208,530 $28,773 $93,756 $11,884 $51,989
======= ===== ======== ======== ======= ======== =======
YEAR ENDED DECEMBER 31, 1992:
Life insurance........ $28,691 -- $ 45,537 $ 1,954 $29,195 $ 3,771 $ 9,564
Accident and health
insurance........... 27,699 -- 47,380 13,045 30,340 3,088 16,386
Mechanical breakdown
insurance........... 3,239 -- 80,035 3,885 26,975 5,235 20,973
Other................. -- -- -- -- -- 119 --
------- ----- -------- -------- ------- -------- -------
Totals............ $59,629 -- $172,952 $18,884 $86,510 $12,213 $46,923
======= ===== ======== ======== ======= ======== =======
YEAR ENDED DECEMBER 31, 1991:
Life insurance........ $28,331 -- $ 48,032 $ 2,350 $29,983 $ 3,688 $10,493
Accident and health
insurance........... 29,966 -- 50,466 13,057 26,573 3,839 16,390
Mechanical breakdown
insurance........... 2,366 -- 71,263 3,579 23,007 4,649 19,917
Other................. -- -- -- -- -- 179 --
------- ----- -------- -------- ------- -------- -------
Totals............ $60,663 -- $169,761 $18,986 $79,563 $12,355 $46,800
======= ===== ======== ======== ======= ======== =======
<CAPTION>
COLUMN I
---------------
AMORTIZATION OF COLUMN J COLUMN K
COLUMN A DEFERRED POLICY --------------- ----------
- - ---------------------- ACQUISITION OTHER OPERATING PREMIUMS
SEGMENT COSTS EXPENSES(1) WRITTEN
- - ---------------------- --------------- --------------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Life insurance........ $21,041 $ 8,950 $ 36,053
Accident and health
insurance........... 17,253 8,318 32,680
Mechanical breakdown
insurance........... 4,273 1,052 40,613
Other................. 9,137(2) 5,728 --
------- ------- --------
Totals............ $51,704 $24,048 $109,346
======= ======= ========
YEAR ENDED DECEMBER 31, 1992:
Life insurance........ $18,975 $ 4,558 $ 29,618
Accident and health
insurance........... 16,363 3,638 27,255
Mechanical breakdown
insurance........... 4,355 1,237 34,137
Other................. 7,189(2) 5,795 --
------- ------- --------
Totals............ $46,882 $15,228 $ 91,010
======= ======= ========
YEAR ENDED DECEMBER 31, 1991:
Life insurance........ $17,772 $ 4,335 $ 28,801
Accident and health
insurance........... 14,738 4,512 18,618
Mechanical breakdown
insurance........... 3,007 883 35,094
Other................. 7,555(2) 4,851 --
------- ------- --------
Totals............ $43,072 $14,581 $ 82,513
======= ======= ========
</TABLE>
- - ---------
(1) The allocation of net investment income and other operating expenses for
life and accident and health insurance is based on their respective pro-rata
percent of unearned premium reserves. Net investment income and other
operating expenses for mechanical breakdown insurance and other are based on
actual amounts. Net investment income excludes intercompany interest on loan
to Quaker State.
(2) Represents policy acquisition costs expensed when incurred.
Note: Premiums written do not agree with premium revenue on the income statement
due to income recognition policy. See Note 1 of Notes to Consolidated
Financial Statements. Additionally, effective January 1, 1993, the company
adopted Statement of Financial Accounting Standard No. 113, "Accounting
for Reinsurance of Short-Duration and Long-Duration Contracts." See
Note 5 of Notes to Consolidated Financial Statements.
S-7
<PAGE> 30
QUAKER STATE CORPORATION AND SUBSIDIARIES
SCHEDULE VI. REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN D COLUMN F
COLUMN C --------- ----------
COLUMN B ---------- ASSUMED PERCENTAGE
---------- CEDED TO FROM COLUMN E OF AMOUNT
GROSS OTHER OTHER ---------- ASSUMED TO
COLUMN A AMOUNT COMPANIES COMPANIES NET AMOUNT NET
- - ------------------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Life insurance in force........ $4,598,380 $1,679,437 $715,715 $3,634,658 19.7%
========== ========== ========= ==========
Life insurance premiums........ $ 40,024 $ 4,187 $ 216 $ 36,053 0.6%
Accident and health insurance
premiums..................... 41,877 19,593 10,396 32,680 31.8%
Mechanical breakdown insurance
premiums..................... 55,243 14,625 (5 ) 40,613 --
---------- ---------- --------- ----------
Totals............... $ 137,144 $ 38,405 $ 10,607 $ 109,346(A) 9.7%
========== ========== ========= ==========
YEAR ENDED DECEMBER 31, 1992:
Life insurance in force........ $4,316,917 $1,722,747 $470,619 $3,064,789 15.4%
========== ========== ========= ==========
Life insurance premiums........ $ 33,372 $ 11,781 $ 8,027 $ 29,618 27.1%
Accident and health insurance
premiums..................... 39,816 26,509 13,948 27,255 51.2%
Mechanical breakdown insurance
premiums..................... 42,482 8,329 (16 ) 34,137 --
---------- ---------- --------- ----------
Totals............... $ 115,670 $ 46,619 $ 21,959 $ 91,010(A) 24.1%
========== ========== ========= ==========
YEAR ENDED DECEMBER 31, 1991:
Life insurance in force........ $4,507,927 $1,956,430 $506,744 $3,058,241 16.6%
========== ========== ========= ==========
Life insurance premiums........ $ 33,063 $ 12,679 $ 8,417 $ 28,801 29.2%
Accident and health insurance
premiums..................... 29,786 15,193 4,025 18,618 21.6%
Mechanical breakdown insurance
premiums..................... 41,297 6,864 661 35,094 1.9%
---------- ---------- --------- ----------
Totals............... $ 104,146 $ 34,736 $ 13,103 $ 82,513(A) 15.9%
========== ========== ========= ==========
</TABLE>
- - ---------
(A) Amount does not agree with income statement due to the income recognition
policy. See Note 1 of Notes to Consolidated Financial Statements.
Note: Prior year ceded and assumed accident and health insurance premiums have
been restated to eliminate the effect of reinsurance transactions with one
reinsurer with no impact to earned premiums.
S-8
<PAGE> 31
FORM 10-K
Quaker State Corporation
EXHIBIT INDEX
The following exhibits are required to be filed with this annual report
on Form 10-K. Exhibits are incorporated herein by reference to other documents
pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, as amended,
as indicated in the index. Exhibits not incorporated herein by reference follow
this index.
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C>
3(i) Composite Certificate of Incorporation, filed as Exhibit 3(a) to Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference.
3(ii) Bylaws, as amended June 8, 1993, filed herewith.
4(a) Credit Agreement, dated as of March 31, 1992, by and among Quaker State, certain Banks and Pittsburgh National Bank,
as Agent for the Banks (the "Credit Agreement"), filed as Exhibit 19 to Form 10-Q for the fiscal quarter ended March
31, 1992 and incorporated herein by reference.
4(b) Amendment No. 1 to Credit Agreement, dated as of September 30, 1992, filed as Exhibit 4(b) to Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by reference.
4(c) Amendment No. 2 to Credit Agreement, dated as of August 16, 1993, filed herewith.
4(d) Composite Note Agreement, dated as of September 1, 1992, between Quaker State and certain insurance companies, with
respect to $50,000,000 8.73% Senior Notes Due September 30, 2002 (the "Note Agreement"), filed as Exhibit 4 to Form
10-Q for the fiscal quarter ended September 30, 1992 and incorporated herein by reference.
4(e) First Amendment to Note Agreements, dated as of December 31, 1992, filed as Exhibit 4(d) to Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by reference.
10(a) 1976 Stock Option Plan, as amended through April 30, 1987, filed as Exhibit 10(a) to Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by reference.*
10(b) 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.*
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C>
10(c) 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(d) 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) Incentive Performance Plan, as amended on June 30, 1988, filed as Exhibit 10(e) to Form 10-K for the fiscal year
ended December 31, 1988 and incorporated herein by reference.*
10(f) Management Incentive Plan, filed as Exhibit 10(f) to Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.*
10(g) Long-Term Incentive Plan, filed as Exhibit 10(g) to Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.*
10(h) Quaker State Corporation 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(i) Articles X and XI of the Quaker State Corporation Salaried Pension Plan, as Amended and Restated Effective July 1,
1989, for Quaker State Corporation 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(j) Articles X and XI of the Quaker State Corporation Hourly Pension Plan, as Amended and Restated Effective July 1,
1989, for Quaker State Corporation 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(k) 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(1) Employment Agreement, dated as of June 8, 1993, between Quaker State Corporation and Herbert M. Baum, filed as
Exhibit 10 to Form 10-Q for the fiscal quarter ended June 30, 1993 and incorporated herein by reference.*
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C>
10(m) 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(n) Form of letter agreement entered into between Quaker State and each of its directors regarding the retirement
benefits provided by Quaker State to its non-employee directors, filed herewith.
10(o) 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.
11 Statement re Computation of Per Share Earnings, filed herewith.
13 Those portions of the 1993 Annual Report to Stockholders which are expressly incorporated in this annual report
by reference, filed herewith.
22 List of subsidiaries of Quaker State Corporation, filed herewith.
24 Consent of Coopers & Lybrand, filed herewith.
25 Powers of Attorney, filed herewith.
</TABLE>
- - ----------------
* Management contract or compensatory plan, contract or arrangement required to
be filed by Item 601(b)(10)(iii) of Regulation S-K.
<PAGE> 1
EXHIBIT 3(ii)
QUAKER STATE CORPORATION
BYLAWS
AMENDED TO AND INCLUDING JUNE 8, 1993
********
OFFICES
1. The principal office shall be in the City of Wilmington, County of New
Castle, State of Delaware, and the name of the resident agent in charge thereof
is The Corporation Trust Company.
2. The Corporation may also have an office in the City of Oil City, State
of Pennsylvania, and also offices at such other places as the Board of
Directors may from time to time appoint or the business of the corporation may
require.
SEAL
3. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
STOCKHOLDERS' MEETINGS
4. Meetings of stockholders shall be held at such place as may be
designated by the Board of Directors an set forth in the written notice to
stockholders entitled to vote thereat, and if no meeting place is designated by
the Board of Directors, such meeting shall be held at the principal office of
the corporation in Oil City, Pennsylvania.
5. An annual meeting of stockholders, after the year 1931, shall be held
on the 2nd Thursday of May in each year if not a legal holiday, and if a legal
holiday, then on the next secular day following, at one o'clock P.M., when they
shall elect by a plurality vote, by ballot, a board of directors and transact
such other business as may properly be brought before the meeting.
6. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person, or represented by proxy,
<PAGE> 2
-2-
shall be requisite and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
law, by the certificates of incorporation or by these bylaws. If, however,
such majority shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person, or
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite amount of
voting stock shall be present. At such adjourned meeting at which the
requisite amount of voting stock shall be represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
7. At any meeting of the stockholders every stockholder having the right
to vote shall be entitle to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not
more than three years prior to said meeting, unless said instrument provides
for a longer period. Each stockholder shall have one vote for each share of
stock having voting power, registered in his name on the books of the
corporation, and except where the transfer books of the corporation shall have
been closed or a date shall have been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be
voted on at any election for directors which shall have been transferred on the
books of the corporation within twenty days next preceding such election of
directors.
8. Written notice of the annual meeting shall be mailed to each
stockholder entitled to vote thereat at such address as appears on the stock
book of the corporation, at least ten days prior to the meeting.
9. A complete list of stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the residence of each, and the
number of voting shares held by each, shall be prepared by the secretary and
filed in the office where the election is to he held, at
<PAGE> 3
-3-
least ten days before every election, and shall at all times, during the usual
hours for business, and during the whole time of said election, be open to the
examination of any stockholder.
10. Special Meetings of the stockholders for any purpose, or purposes,
unless otherwise prescribed by statute, may be called by the president, and
shall be called by the president or secretary at the request in writing of a
majority of the board of directors. Such request shall state the purpose or
purposes of the proposed meeting.
11. Business transacted at all special meeting shall be confined to the
objects stated in the call.
12. Written notice of a special meeting of stockholders, stating the time
and place and object thereof, shall be mailed, postage prepaid, at least five
days before such meeting, to each stockholder entitled to vote thereat at such
address as appears on the books of the corporation.
DIRECTORS
13. The property and business of this corporation shall be managed by its
Board of Directors, eleven in number. They shall be elected at the Annual
Meeting of Stockholders and each director shall be elected to serve until his
successor shall be elected and shall qualify. Beginning no latter than one
year from the time initially elected to serve, a director shall own at least
1,000 shares of the corporation's capital stock at all times while serving as a
director.
14. The directors may hold their meetings and have one or more offices,
and keep the books of the corporation, except the original or duplicate stock
ledger, outside of Delaware, at the office of the corporation in the City of
Oil City or at such other places as they may from time to time determine.
15. If the office of any director or directors becomes or is vacant by
reason of death, resignation, retirement, disqualification, or removal
<PAGE> 4
-4-
from office, a newly created directorship resulting from any increase in the
authorized number of directors, or otherwise, the remaining directors, though
less than a quorum, may choose a successor or successors, who shall hold office
until the next annual election or until a successor or successors have been
duly elected, unless sooner displaced.
16. The Board of Directors may acquire properties, securities, stocks,
bonds or obligations of other corporations or individuals and exchange the
securities, stocks, bonds or obligations of this corporation for the property,
securities, stocks, bonds or obligations to be acquired and may authorize,
execute, negotiate and sell bonds, notes, debentures and other obligations of
this corporation and may secure the same mortgage or pledge of the properties
or securities of this corporation or the property or securities which this
corporation owns or holds in or of other corporations, or may negotiate and
sell common shares of this corporation, all for the purposes of making such
exchange or providing additional working capital, the rehabilitation of plants
and property, the retirement of the obligations of this corporation or the
obligations of other corporations of whose voting shares this corporation own
the control, or for any other corporate purpose, from time to time.
17. In addition to the powers and authorities by these bylaws expressly
conferred upon it, the board of directors may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
COMMITTEES OF DIRECTORS
18. There shall be and hereby is constituted an executive committee which
shall at all times be comprised of such members of the Board of Directors and
such officers of the corporation as may be from time to
<PAGE> 5
-5-
time appointed to it by the Board of Directors, and such committee shall have
and may exercise such powers in and control of the general management of the
business and affairs of this corporation as may be from time to time conferred
upon or delegated to it by the Board of Directors. A majority of the executive
committee shall constitute a quorum for the transaction of business and the
affirmative vote of not less than a majority of the members of the committee
present at any meeting shall be required to authorize any act.
19. The board of directors may, by resolution or resolutions passed by a
majority of the whole board, designate one or more committees, each committee
to constitute of two or more of the directors of the corporation, which, to the
extent provided in said resolution or resolutions, shall have and may exercise
the powers of the board of directors in the management of the business and
affairs of the corporation, and may have power to authorize the seal of the
corporation to be affixed to all papers which may require it. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors.
20. The committee shall keep regular minutes of their proceedings and
report the same to the board, at each regular or special meeting of the board.
COMPENSATION OF DIRECTORS
21. The corporation may pay compensation to its directors for their
services, as determined from time to time by resolution adopted by the board of
directors.
22. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
<PAGE> 6
-6-
MEETINGS OF THE BOARD
23. The newly elected board shall meet at the office of the corporation in
Oil City, Pa. immediately following the annual meeting of stockholders, for the
purpose of organization or otherwise, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting; provided a majority of the whole board shall be present; or they may
meet at such place and time as shall be fixed by the consent in writing of all
the directors. The first meeting of the Board of Directors shall be held July
1, 1931 at 1:00 o'clock P.M. in Room 557 in the Chambers Building in Oil City,
Pa. of which no notice shall be necessary.
24. No less than eight regular meetings of the board shall be held each
fiscal year upon five day's notice, either by mail or electronic transmission,
at such time and place either within or without the State of Delaware which
shall from time to time be determined by the board, but unless otherwise so
determined shall be at the office of the corporation at Oil City, Pennsylvania.
25. Special meetings of the board may be called upon the request of four
directors or the chief executive officer (or the president if there is no
chief executive officer) upon three day's written notice, either by mail or
electronic transmission.
26. At all meetings of the board a majority of the elected directors shall
be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum, shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation or by these bylaws.
OFFICERS
27. The officers of the corporation shall be chosen by the directors and
shall be a president, vice present, secretary and
<PAGE> 7
-7-
treasurer. The board of directors may also choose a chairman of the board,
chief executive officer, vice-chairman, additional vice presidents, assistant
secretaries and assistant treasurers. The secretary and treasurer may be the
same person, and the vice presidents may hold at the same time the office of
secretary and treasurer.
28. The board of directors, at its first meeting after each annual meeting
of stockholders shall choose a president and vice president from their own
number, and a secretary and treasurer who need not be members of the board.
29. The board may appoint such other officers and agents as it shall deem
necessary, who shall hold their office for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
board.
30. The salaries of all officers and agents of the corporation shall be
fixed by committee appointed by the board of directors.
31. The officers of the corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the board of directors may be removed after cause shown at any
time by the affirmative vote of two-thirds of the whole board of directors. If
the office of any officer or officers becomes vacant for any reason, the
vacancy shall be filled by the affirmative vote of a majority of the whole
board of directors.
CHAIRMAN OF THE BOARD
32. The chairman of the board shall preside at all meetings of the
stockholders and directors and he shall have such duties as may be designated
by the board of directors. The board may elect vice-chairmen, who shall
perform such duties as the board of directors, chairman, or chief executive
officer shall prescribe.
<PAGE> 8
-8-
CHIEF EXECUTIVE OFFICER
33. The chief executive officer shall be primarily responsible for the
management of the corporation and may also hold the office of chairman of the
board or president. The chief executive officer shall execute bonds,
mortgages, and other contracts. The chief executive officer may delegate this
authority to promote the orderly operation of business of the corporation.
PRESIDENT
34. The president unless limited or restricted by the board, shall have
the general powers and duties usually vested in the office of the president of
a corporation. In the absence of the chairman of the board, a vice-chairman,
and the chief executive officer, the president shall preside at the
Stockholders Meeting and at meetings of the Board of Directors.
VICE PRESIDENTS
35. The vice presidents shall perform such duties as the Board of
Directors or chief executive officer shall prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
36. The secretary shall attend all sessions of the Board of Directors and
all meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose; and shall perform like
duties for the standing committees when required. The secretary shall give or
cause to be given, notice of all meetings of the stockholders and the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or chief executive officer. The secretary shall be under
the supervision of the chief executive officer and shall keep in safe custody
the seal of the corporation and affix the same to any instrument requiring it.
When so affixed it shall be attested by the signature of the secretary, the
treasurer, or an assistant secretary.
37. The assistant secretaries shall, in the absence or disability of the
secretary, perform the duties and exercise the powers of the secretary and
shall perform such other duties as the Board of Directors shall prescribe.
<PAGE> 9
-9-
THE TREASURER AND ASSISTANT TREASURERS
38. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
39. The treasurer shall disburse the funds of the corporation as may be
ordered by the board, taking proper vouchers for such disbursements, and shall
render to the president and directors, at the regular meetings of the board, or
whenever they may require it, an account of all his transactions as treasurer
and of the financial condition of the corporation.
40. The treasurer shall give the corporation a bond if required by the
Board of Directors in a sum, and with one or more sureties satisfactory to the
board, for the faithful performance of the duties of that office, and for the
restoration to the corporation, in case of death, resignations, retirement or
removal from office, of all books, papers, vouchers, money and other property
of whatever kind, in the possession or under the control of the treasurer,
belonging to the corporation.
41. The assistant treasurers, shall in the absence or disability of the
treasurer, perform the duties and exercise the powers of the treasurer, and
shall perform such other duties as the Board of Directors shall prescribe.
DUTIES OF OFFICERS MAY BE DELEGATED
42. In the case of the absence of any officer of the corporation, or for
any other reason that the board may deem sufficient, the board may delegate,
for the time being, the powers and duties or any of them, of such officer to
any other officer, or to any director, provided a majority of the entire board
concurs therein.
<PAGE> 10
-10-
CERTIFICATES OF STOCK
43. The certificate of stock of the corporation shall be numbered and
shall be entered in the books of the corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by the
chief executive officer or the president and also by the treasurer or the
assistant treasurer.
TRANSFERS OF STOCK
44. Transfers of stock shall be made on the books of the corporation only
by the person named in the certificate or by attorney, lawfully constituted in
writing, and upon surrender of the certificate therefor. The corporation may
have one or more transfer agents and one or more registrars for the transfers
of its stock as may be from time to time designated and constituted by the
board of directors.
CLOSING OF TRANSFER BOOKS
45. The board of directors shall have power to close the stock transfer
books of the corporation for a period not exceeding sixty days preceding the
date of any meeting of stockholders or the date for payment of any dividend or
the date for the allotment of rights or the date when any change or conversion
or exchange of capital stock shall go into effect; provided, however, that in
lieu of closing the stock transfer books as aforesaid, the board of directors
may fix in advance a date, not exceeding sixty days preceding the date of any
meeting of stockholders or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, or entitled to receive payment of any such dividend, or to any
such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, and in such case such
stockholders, and only such stockholders as shall be stockholders of record on
the date so fixed,
<PAGE> 11
-11-
shall be entitled to such notice of, and to vote at, such meeting, or to
receive payment of such dividends, or to receive such allotment of rights, or
to exercise such rights, as they case may be, notwithstanding any transfer of
any stock on the books of the corporation after any such record date fixed as
aforesaid.
REGISTERED STOCKHOLDERS
46. The corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have
express or other notice thereof, save as expressly provided by the laws of
Delaware.
LOST CERTIFICATE
47. Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit or affirmation of that fact and advertise the
same in such manner as the board of directors may require, and the board of
directors may, in its discretion, require the owner of the lost or destroyed
certificate, or his legal representative, to give the corporation a bond,
sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss of any such certificate. A new
certificate of the same tenor and for the same number of shares as the one
alleged to be lost or destroyed may be issued without requiring any bond when,
in the judgment of the directors, it is proper so to do.
CHECKS
48. All checks or demands for money and notes of this corporation
shall be signed by such officer or officers or such other person or persons as
the board or directors may from time to time designate.
<PAGE> 12
-12-
FISCAL YEAR
49. The fiscal year shall begin the first day of January in each year.
DIVIDENDS
50. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock.
51. Before payment of any dividend there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve in the manner
in which it was created.
DIRECTORS' ANNUAL STATEMENT
52. The board of directors shall present at each annual meeting,
and when called for by vote of the stockholders at any special meeting of the
stockholders, a full and clear statement of the business and condition of the
corporation.
NOTICES
53. Whenever under the provisions of these by-laws notice is required
to be given to any director, officer or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail, by
depositing the same in the post office or letter box, in a post-paid sealed
wrapper, addressed to such stockholder, officer or director at
<PAGE> 13
-13-
such address as appears on the books of the corporation, or, in default of
other address, to such director, officer or stockholder at the General Post
Office in the City of Wilmington, Delaware, and such notice shall be deemed to
be given at the time when the same shall be thus mailed. Such notice may be
given by prepaid telegram to any director, officer, or stockholder.
54. Any stockholder, director, or officer may waive any notice
required to be given under these by-laws.
AMENDMENTS
55. These by-laws may be altered or amended or repealed by the
affirmative vote of a majority of the stock issued and outstanding and entitled
to vote thereat, at any regular or special meeting of the stockholders, if
notice of the proposed alteration or amendment or repeal be contained in the
Notice of the Meeting, or by the affirmative vote of a majority of the Board of
Directors at any regular or special meeting of the board, if notice of the
proposed alteration or amendment be contained in the Notice of Meeting.
BUSINESS COMBINATIONS
56. Pursuant to authority granted in subsection (b)(2) of Section
203 of subchapter VI, Chapter 1, Title 8 of the Delaware Code Relating to the
General Corporate Law, the Board of Directors elects not to be governed by the
aforesaid Section 203 entitled "Business Combinations with Interested
Stockholders."
<PAGE> 1
EXHIBIT 4(c)
AMENDMENT NO. 2 TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT ("Amendment No. 2") dated as
of August 16, 1993 by and among Quaker State Corporation, a Delaware
corporation (the "Borrower"), the Banks party to the Credit Agreement (as
hereinafter defined) and PNC Bank, National Association (formerly Pittsburgh
National Bank), a national banking association, as agent for the Banks (the
"Agent");
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Credit
Agreement, dated as of March 31, 1992, pursuant to which the Banks agreed to
make revolving credit loans to the Borrower not to exceed $45,000,000, all on
the terms and conditions set forth therein, as amended by that certain
Amendment No. 1 to Credit Agreement dated as of September 30, 1992 (the "Credit
Agreement");
WHEREAS, Marine Bank, one of the Banks under the Credit Agreement, is
now part of PNC Bank, National Association, and PNC Bank, National Association
has assumed all obligations of Marine Bank under the Credit Agreement; and
WHEREAS, the Borrower, the Banks and the Agent hereby desire to amend
the Credit Agreement as hereinafter provided.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally
bound hereby, covenant and agree as follows:
1. Definitions.
Defined terms used herein unless otherwise defined herein shall have
the meanings ascribed to them in the Credit Agreement.
2. Amendment of Credit Agreement.
The parties hereto do hereby modify and amend the Credit Agreement as
follows:
A. Article I, Section 1.01 [Certain Definitions, p.8] is hereby
amended as follows:
(i) The definition of "Expiration Date" is hereby amended and
restated to read as follows:
<PAGE> 2
Expiration Date shall mean, with respect to the Commitments,
June 30, 1996 or such later date determined pursuant to
Section 2.08 hereof.
2. Conditions of Effectiveness. The effectiveness of this
Amendment No. 2 is expressly conditioned upon: (i) the Agent's receipt of
counterparts of this Amendment No. 2 duly executed by the Borrower and each of
the Banks; (ii) the Agent's receipt of a certificate signed by the Secretary or
Assistant Secretary of the Borrower, dated as of a date satisfactory to the
agent, certifying as to all action taken by the Borrower to authorize the
execution, delivery and performance of this Amendment No. 2; and (ii) the
Agent's receipt of a Revolving Credit Note in the form of Exhibit A hereto to
replace the Revolving Credit Notes payable to Pittsburgh National Bank and
Marine Bank dated March 31, 1992.
3. Miscellaneous:
A. Except as expressly modified and amended by this Amendment
No. 2, the Credit Agreement and the other Loan Documents are hereby ratified
and confirmed and shall remain in full force and effect.
B. The Borrower affirms the representations and warranties
made by it to the Banks in Article V of the Credit Agreement as of the date
hereof (except representations and warranties which expressly relate to an
earlier date or time, which representations and warranties shall be true and
correct on and as of the specific dates or times referred to therein). The
Borrower represents and warrants to the Banks that no Event of Default or
Potential Default has occurred and is continuing, and the execution and
performance of this Amendment No. 2 shall not give rise to an Event of Default
or Potential Default.
4. Counterparts: This Amendment No. 2 may be executed by
different parties hereto in any number of separate counterparts, each of which,
when so executed and delivered shall be an original and all of such
counterparts shall together constitute one and the same instrument.
5. Governing Law: This Amendment No. 2 shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Pennsylvania.
[INTENTIONALLY BLANK]
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto by their officers duly
authorized, have executed this Amendment No. 2 as of the day and year first
above written.
BORROWER:
QUAKER STATE CORPORATION
By: /s/ R. Scott Keefer
------------------------
R. Scott Keefer
Vice President, Finance and
Chief financial Officer
BANKS:
PNC BANK, National Association
Individually and as Agent
By:
------------------------
Louis R. Cestello
Commercial Banking Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
------------------------
Caroline R. Shapiro
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
------------------------
Edward R. Say
Vice President
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto by their officers duly
authorized, have executed this Amendment No. 2 as of the day and year first
above written.
BORROWER:
QUAKER STATE CORPORATION
By:
------------------------
R. Scott Keefer
Vice President, Finance and
Chief financial Officer
BANKS:
PNC BANK, National Association
Individually and as Agent
By: /s/ Louis R. Cestello
------------------------
Louis R. Cestello
Commercial Banking Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
------------------------
Caroline R. Shapiro
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
------------------------
Edward R. Say
Vice President
- 3 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto by their officers duly
authorized, have executed this Amendment No. 2 as of the day and year first
above written.
BORROWER:
QUAKER STATE CORPORATION
By:
-----------------------
R. Scott Keefer
Vice President, Finance and
Chief financial Officer
BANKS:
PNC BANK, National Association
Individually and as Agent
By:
------------------------
Louis R. Cestello
Commercial Banking Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Caroline R. Shapiro
------------------------
Caroline R. Shapiro
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
-----------------------
Edward R. Say
Vice President
- 3 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto by their officers duly
authorized, have executed this Amendment No. 2 as of the day and year first
above written.
BORROWER:
QUAKER STATE CORPORATION
By:
-----------------------
R. Scott Keefer
Vice President, Finance and
Chief financial Officer
BANKS:
PNC BANK, National Association
Individually and as Agent
By:
-----------------------
Louis R. Cestello
Commercial Banking Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
-----------------------
Caroline R. Shapiro
Vice President
INTEGRA NATIONAL BANK/NORTH
By: /s/ Edward R. Say
-----------------------
Edward R. Say
Vice President
- 3 -
<PAGE> 7
EXHIBIT A
REVOLVING CREDIT NOTE
$25,000,000 Pittsburgh, Pennsylvania
March 31, 1992
FOR VALUE RECEIVED, the undersigned, QUAKER STATE CORPORATION, a
Delaware corporation (herein called the "Borrower"), hereby promises to pay to
the order of PNC BANK, NATIONAL ASSOCIATION, a national banking association
(the "Bank") the lesser of (i) the principal sum of Twenty Five Million U.S.
Dollars (U.S. $25,000,000), or (ii) the aggregate unpaid principal balance of
all revolving credit loans (the "Loans") made by the Bank to the Borrower
pursuant to Section 2.01 of the Revolving Credit Agreement dated as of March
31, 1992, among the Borrower and the Banks (as therein defined) and Pittsburgh
National bank, as Agent for the Banks (the "Credit Agreement"), payable on the
Expiration Date.
The Borrower shall pay interest on the unpaid principal balance hereof
from time to time outstanding from the date hereof at the rate or rates per
annum specified by the Borrower pursuant to Section 3.01 of, or as otherwise
provided in, the Credit Agreement.
Upon the occurrence and during the continuation of an Event of
Default, the Borrower shall pay interest on the entire principal amount of the
then outstanding Loans evidenced by this Revolving Credit Note (the "Note") at a
rate per annum (based on a year of 360 days and actual days lapsed) equal to
three percent (3%) per annum above the rate of interest otherwise applicable
with respect to such Loans. Such interest rate will accrue before and after any
judgment has been entered.
Subject to the provisions of the Credit Agreement, interest on this
Note will be payable in arrears (i) on the portion of the Loans evidenced
hereby to which the reference Rate Option applies on the last Business Day of
June, September, December and March after the date hereof and on the Expiration
Date or upon acceleration of this Note, and (ii) on any portion of the Loans
evidenced hereby to which the CD Rate Option or the Euro-Rate Option applies,
on the last day of each applicable CD Rate Interest Period or Euro-Rate
Interest Period, as the case may be; Provided, if any such CD Rate Interest
Period is longer than 90 days, also on the 90th day of such CD Rate Interest
Period and if any such Euro-Rate Interest Period is longer than three months,
also on the last day of every third month during such period.
<PAGE> 8
If any payment or action to be made or taken hereunder shall be stated
to be or become due on a day which is not a Business Day, such payment or
action shall be made or taken on the next following Business Day (unless in the
case of either the CD Rate Portion or the Euro-Rate Portion such Business Day
falls in the next calendar month, in which case the payment or action shall be
made on the next preceding Business Day) and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment
or action.
Subject to the provisions of the Credit Agreement, payments of both
principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the office of PNC Bank, National Association located
at Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania 15265, in lawful
money of the United State of America in immediately available funds.
This Note is the Revolving Credit Note referred to in, and is entitled
to the benefits of, the Credit Agreement and other Loan Documents, including
the representations, warranties, covenants and conditions contained or granted
therein. The Credit Agreement among other things contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayment, in certain circumstances, on account of principal
hereof prior to maturity upon the terms and conditions therein specified.
All capitalized terms used herein shall, unless otherwise defined
herein, have the same meanings assigned to each term in the Credit Agreement.
Except as otherwise provided in the Credit Agreement, the Borrower
waives presentment, demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Credit Agreement.
This Note shall bind the Borrower and its successors and assigns, and
the benefits hereof shall inure to the benefit of the Bank and its successors
and assigns. All references herein to the Borrower and the Bank shall be deemed
to apply to the Borrower and the Bank, respectively, and their respective
successors and assigns.
This Note and any other documents delivered in connection herewith and
the rights and obligations of the parties hereto and thereto shall for all
purposes be governed by and construed and enforced in accordance with the
substantive law of the Commonwealth of Pennsylvania without giving effect to
its principles of conflict of laws.
-2-
<PAGE> 9
Intending to be legally bound, the Borrower has executed, issued and
delivered this Note on the date and year set forth at the beginning with the
intention that it be a sealed instrument.
QUAKER STATE CORPORATION
By:
---------------------
Title:
------------------
[SEAL]
-3-
<PAGE> 1
EXHIBIT 10(n)
[Quaker State Logo]
February 27, 1994
Dear :
The purpose of this letter is to set forth in a written agreement between
you and Quaker State Corporation ("Quaker State") the understanding concerning
the retirement benefit provided Directors of this Corporation which was
initiated by resolution of the Board of Directors of Quaker State Corporation
(the "Board") on June 25, 1986, as amended.
In consideration of (i) your past service as a Board member, (ii) future
service as a Board member, and (iii) your agreement to provide consulting
services, Quaker State will provide to you the following benefit: If you have
served a minimum of ten years as a member of the Board at the time of
completion of your service, and based upon your agreement to remain available
for consultation, Quaker State will pay you annually for the duration of your
life a "Payment" equal in amount to the retainer paid by Quaker State to
non-employee Directors effective on the date your Board service terminates for
whatever reason. In the event you were age 60 or older when beginning your
service on the Board, and have served for five years at the time your Board
service terminates for whatever reason, you shall be entitled upon termination
of your Board service to the full Payment. If you were under age 60 when
beginning your services on the Board, but have served for five but less than
ten years when your Board service terminates for whatever reason, you shall be
entitled to a pro rata share of the Payment based upon the relationship of
years served to ten. You shall be entitled to such Payment even though your
health prevents you from being available for consultation, providing you make
yourself available whenever your health permits. If for reasons other than
health you are not available for consultation during any particular year,
you shall be entitled to the Payment in future years upon your availability.
You shall receive during May of each year after your Board service
terminates a nonrefundable Payment for the following twelve month period (May
15 through May 14). Also, if your services to the Board should cease prior to
May of any year, you shall receive a prorated Payment for the months beginning
from the termination to the following May 14, provided you have not previously
received a retainer covering that period.
In the event of a "change in control" of Quaker State Corporation, you
shall be entitled to the full Payment provided in this agreement upon the
discontinuation of your services as a Director if you have served a minimum of
five years as a Director. A "change in control" shall mean the occurrence of
any
<PAGE> 2
February 27, 1994
Page 2
one of the following events: (i) the ownership by any person and affiliates of
more than 30% of the voting power of Quaker State unless such ownership is
approved by a two-thirds vote of Continuing Directors; (ii) the commencement of
a public tender offer unless approved by a two-thirds vote of Continuing
Directors; and (iii) less than 51% of the Board members shall be Continuing
Directors. "Continuing Director" shall mean a Director of Quaker State who
either (i) was a Director on November 29, 1990 or (ii) is an individual whose
nomination or election as a Director was approved by a vote of at least
two-thirds of the Directors of Quaker State then still in office who were
Continuing Directors.
By execution of this letter, you agree to be available after leaving
the Board for consultation to Quaker State concerning the business of Quaker
State and its subsidiaries, on reasonable prior notice, by telephone or in
person. Your services shall not be required for more than ten hours of
consultation in any calendar month nor will you be required in fulfilling your
consultation obligation to travel outside the city of your then current
residence on more than six occasions per year. Travel expenses shall be
reimbursed by Quaker State.
This letter agreement shall be governed by the laws of the Commonwealth
of Pennsylvania. If the above terms are acceptable to you, please sign below.
This will confirm the mutual intent of you and Quaker State to be legally bound.
Very truly yours,
QUAKER STATE CORPORATION
/s/ Herbert M. Baum
Herbert M. Baum, Chairman
and Chief Executive Officer
GWC:HMB:br
Agreed this_____day of_______________ 1994.
- - --------------------------
(Signature)
<PAGE> 1
EXHIBIT 11
QUAKER STATE CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
------- -------- -------
<S> <C> <C> <C> <C>
1. Net income (loss)...................................... $13,702 $(93,848) $22,709
------- -------- -------
------- -------- -------
2. Average number of shares of capital stock
outstanding............................................ 27,203 27,152 27,129
3. Shares issuable upon exercise of dilutive stock options
outstanding during the year, based on average market
prices................................................. 31 32 38
4. Shares issuable upon exercise of dilutive stock options
outstanding during the year, based on higher of average
or year-end prices..................................... 49 33 44
5. Average number of capital and capital equivalent shares
outstanding (2 + 3).................................... 27,234 27,184 27,167
------- -------- -------
------- -------- -------
6. Average number of capital shares outstanding, assuming
a full dilution (2 + 4)................................ 27,252 27,185 27,173
------- -------- -------
------- -------- -------
7. Net income (loss) per capital and equivalent share
(1 divided by 5)....................................... $ .50 $ (3.45) $ .84
------- -------- -------
------- -------- -------
8. Net income (loss) per capital share, assuming full
dilution
(1 divided by 6)....................................... $ .50 $ (3.45) $ .84
------- -------- -------
------- -------- -------
</TABLE>
<PAGE> 1
EXHIBIT 13
Financial
MANAGEMENT'S DISCUSSION AND ANALYSIS
The consolidated financial statements and related notes (pages 22 to 35) and
information about the company's operations in different segments included on
page 20 should be read as an integral part of this review.
CONSOLIDATED REVIEW OF OPERATIONS
Quaker State reported net income of $13,702,000, or $.50 per share, in 1993
compared to a net loss of $93,848,000, or $3.45 loss per share, for 1992. The
1992 loss included several accounting adjustments totalling $102,300,000 which
are discussed below. Net income in 1991 was $22,709,000, or $.84 per share, and
included $7,170,000, or $.26 per share, the cumulative effect of adopting the
Financial Accounting Standards Board (FASB) Standard No. 96.
Income from continuing operations in 1993 of $13,702,000, or $.50 per share,
improved 46% over the 1992 total of $9,393,000, or $.35 per share. This
increase resulted primarily from a $9,396,000 improvement in operating profits
at the company's vehicular lighting subsidiary, Truck-Lite Company, Inc., which
experienced significant sales volume increases along with reduced operating
costs. In addition, fast lube operating profits improved $4,287,000 primarily
because 1992 results included a charge of $3,200,000 related to future Q Lube
company store conversions. Higher corporate interest income also contributed to
the improved 1993 results. These improvements were partially offset by
operating profit declines in the motor oil and insurance segments. Increased
promotion and advertising costs, a change in product sales mix and decreased
motor oil volume negatively affected motor oil results. A litigation
settlement at Heritage Insurance Group was partially offset by additional
realized investment gains. Increased income taxes also negatively impacted 1993
income from continuing operations.
The 1992 income from continuing operations declined 38% when compared to
1991 income of $15,130,000, or $.56 per share. This decrease resulted from
lower 1992 refinery margins and increased advertising and promotion costs in
the motor oil segment combined with increased manufacturing costs and
unrecoverable development costs at Truck-Lite, partially offset by improved
results in the insurance segment.
Sales, operating and insurance revenues from continuing operations for 1993
were $759,166,000 compared to $724,392,000 in 1992 and $700,080,000 in 1991.
Increased sales, based on higher volumes, were recorded in 1993 and 1992 at
Truck-Lite Company, Inc., and Heritage Insurance Group. An increase in the
number of cars serviced and higher average ticket prices in 1992 raised fast
lube revenues above 1991.
The accounting adjustments included in the 1992 net loss and their financial
impact were:
o In December 1992, the company discontinued its coal operations.
Accordingly, its operating results were segregated and reported as discontinued
coal operations. A charge for the estimated loss on disposal of the coal
operations of $37,700,000, net of income tax benefits of $22,700,000, was
included in income from discontinued coal operations. (See Note 3 of Notes to
Consolidated Financial Statements.)
o Quaker State adopted FASB Standard No. 106, "Employers' Accounting For
Postretirement Benefits Other Than Pensions," and Standard No. 109, "Accounting
For Income Taxes," and recognized, as a cumulative effect as of January 1,
1992, the full amount of its estimated accumulated postretirement benefits
obligation of $62,600,000, net of income tax benefits of $40,100,000. (See
Notes 11 and 12 of Notes to Consolidated Financial Statements.)
o The company's fast lube subsidiary, Q Lube, Inc., recorded a charge of
$2,000,000, net of income taxes of $1,200,000, to reserve for future
replacement of signage and other assets impaired by the planned conversion of
existing Minit-Lube stores to Q Lube facilities.
MOTOR OIL
Operating profits in the motor oil segment were $17,484,000 in 1993 compared to
$23,336,000 in 1992, or a 25% decline. Several items contributed to the decline
including: a 7% increase in promotion and advertising expenses, an 11% increase
in freight costs related to a shift in the product sales mix to reflect a
higher percentage of bulk motor oil sales, approximately $1,400,000 of LIFO
inventory costs resulting from reduced inventory levels, an 8% drop in the
average price of gasoline and fuel oil, a 2% decline in 1993 motor oil sales
volume, and a charge of approximately $750,000 to close the St. Louis blending
and warehouse facility.
Revenues were $439,283,000 in 1993 compared to $441,005,000 in 1992. Slight
increases in lube stock volume and automotive consumer product sales were
offset by declines in the sale of gasoline, fuel oil, and excess crude oil.
In 1992, operating profits declined 37% to $23,336,000 from $36,785,000 in
1991 because of lower refining margins and increased advertising and promotion
costs. Refinery margins were negatively affected by a 20% decrease in average
lube stock prices, a 6% decrease in average gasoline and fuel oil prices and a
7% increase in refinery operating costs. These items were partially offset by a
4% decrease in the average cost of crude oil delivered to the refinery.
Advertising and promotion expenses, primarily related to brand motor oil,
increased 20% over 1991. Also included in the 1992 operating results is
$1,620,000 of additional expense related to implementing FASB Standard No. 106.
Total motor oil revenues decreased $3,007,000 in 1992 from $444,012,000 in
1991 due to lower excess crude oil sales and reduced lube stock, gasoline and
fuel oil prices partially offset by a small brand motor oil volume increase.
17
<PAGE> 2
FAST LUBE
This segment reported a 1993 operating profit of $3,045,000 compared to an
operating loss of $1,242,000 in 1992. The 1992 loss included an unusual charge
of $3,200,000 representing the impairment of certain assets as a result of the
planned conversion of existing Minit-Lube stores to Q Lube. Excluding the
unusual item, operating profits were $1,958,000 in 1992. Revenues of
$105,361,000 in 1993 were flat when compared to $104,398,000 in 1992 as total
cars serviced and average ticket price remained about the same as 1992. The
company's disposal of sixteen stores in unprofitable markets in the first
quarter of 1993 and reduced operating expenses account for the improved 1993
operating profits.
The 1992 operating profit of $1,958,000, excluding the unusual charge of
$3,200,000, compared to an operating loss of $1,113,000 in 1991. Revenues
increased 6% in 1992 from $98,508,000 in 1991. The increase in sales and the
improvement in operating profits in 1992 resulted from a 3% increase in total
cars serviced combined with a 4% increase in the average ticket price. The 1991
results also include an accrual of $1,600,000 representing the estimated cost
for an environmental matter.
NATURAL GAS EXPLORATION AND PRODUCTION
Operating profits of $3,103,000 on revenues of $25,313,000 in 1993 compared to
operating profits of $3,835,000 on revenues of $25,507,000 in 1992. The 19%
decline in operating profits relates primarily to additional dry hole expense
of approximately $700,000 in 1993 resulting from an increase in exploratory
drilling. In 1993, natural gas volume and average sales price increased 3% and
2%, versus 1992, while crude oil volume and average sales price declined 4% and
8%. In January 1994, the Stagecoach natural gas pipeline extension was
completed and placed in operation and is expected to increase the 1994 volume
of natural gas transported to market by 15% to 20%.
Operating profits of $3,835,000 in 1992 improved 39% from $2,762,000 in 1991
because natural gas sales volume increased 23%. The higher natural gas volume
also accounted for a 5% increase in revenues to $25,507,000 in 1992 from
$24,265,000 in 1991. The average sales price for a barrel of crude oil
decreased 2% and the average natural gas price decreased 4% in 1992.
INSURANCE
Operating profits of $3,524,000 in 1993 were 43% below the 1992 total of
$6,130,000. This decrease resulted from a charge of $9,950,000 to settle a
lawsuit on appeal and was partially offset by increased realized investment
gains of $7,060,000 and improved operating results. (See Note 5 of Notes to
Consolidated Financial Statements.) The company also recorded a 1993 charge of
$1,500,000 for unrecoverable deferred policy acquisition costs as a result of
declining investment yields.
Revenues in the insurance segment were $131,265,000 in 1993 or 14% higher
than revenues of $115,163,000 in 1992. Earned premiums were $93,756,000 in
1993, an 8% increase over 1992 and primarily resulted from a 32% increase in
casualty business earned premiums. Realized investment gains were $9,345,000
compared to $2,285,000 in 1992 and other income of $15,845,000 was 18% higher
than last year and resulted from higher service contract fees earned in the
warranty business.
Operating profits more than doubled in 1992 to $6,130,000 compared to
$3,012,000 in 1991. Insurance revenues increased 7%, from $107,465,000 in 1991,
based primarily on improvements in earned premiums in the casualty and life
businesses of 14% and 5%, respectively. Improved loss experience in credit life
insurance and special indemnity policies contributed to reducing expenses as a
percentage of earned premiums. These improvements were partially offset by a
23% ($696,000) reduction in realized investment gains.
TRUCK-LITE
The vehicular safety lighting subsidiary recorded an operating profit of
$5,731,000 in 1993 compared to a loss of $3,665,000 in 1992. Revenues increased
26% to $80,776,000 from $63,878,000 in 1992 primarily resulting from volume
increases in both the automotive and heavy-duty truck businesses. These volume
improvements combined with manufacturing efficiencies and a 22% reduction in
selling, general and administrative expenses account for the operating profit
improvement. The 1992 operating loss included a $1,600,000 write-off of
unrecoverable development costs.
In 1992, revenues at Truck-Lite increased 28% to $63,878,000, from
$49,896,000 while operating losses increased to $3,665,000, in 1992 from
$323,000 in 1991. This increased loss occurred entirely in the automotive
division as a result of manufacturing problems and the write-off for
unrecoverable development costs. Revenue improvements were recorded in the
automotive and heavy-duty businesses of 53% and 16%, respectively.
DOCKS
Operating profits at the dock operation were $1,138,000 on revenues of
$2,955,000 in 1993 compared to operating profit of $2,137,000 on revenues of
$5,319,000 in 1992. The sale of the domestic dock operations in December 1992
contributed to the decline in 1993 revenues and operating profits. In addition,
a new long-term contract at the Canadian dock operation reduced revenues and
operating profits in 1993.
Revenues and operating profits in 1992 were approximately the same as 1991.
There were no significant changes in dock operations throughout those two
periods.
CORPORATE
Corporate income of $2,730,000 in 1993 includes $1,484,000 of interest income
related to the supplemental payments from the December 30, 1992 sale of certain
coal assets. (See Note 3 of Notes to Consolidated Financial Statements.) Also
included is $1,120,000 of interest income related to an income tax refund
received in 1993. Corporate expenses of $15,193,000 did not change
significantly from the prior two years.
18
<PAGE> 3
Interest expense for 1993 remained relatively constant with 1992, as an
increase in the average interest rates in 1993 was offset by lower total debt.
Interest expense was higher in 1992 than in 1991 primarily due to higher
average borrowings.
The company's effective tax rate for continuing operations in 1993 increased
to 15% from 7% in 1992 primarily due to higher earnings. In 1992 the effective
tax rate declined to 7% from 34% in 1991 primarily due to lower earnings and
additional tax credits. (See Note 11 of Notes to Consolidated Financial
Statements.)
LIQUIDITY AND FINANCIAL CONDITION
Cash flow from operations was $47,235,000 in 1993 compared to $31,825,000 in
1992 and $43,394,000 in 1991. The increase in cash flow from operations in 1993
resulted from higher income from continuing operations, reductions in working
capital requirements and changes in the insurance operations. Net cash used by
discontinued coal activities in 1993 was approximately $10,000,000, and it is
expected that additional cash will be required in 1994 for these activities.
Investing activities used $28,912,000 in 1993. Capital expenditures were
$29,760,000 in 1993 with 39% spent by motor oil, 37% spent by natural gas
exploration and production, and 19% spent by fast lube. Proceeds from the sale
of assets generated $8,002,000 with the sale of coal assets totalling
$6,261,000. Investment activity at the Heritage Insurance Group used net cash
of $7,154,000 on a higher level of investment trading. Capital expenditures for
1994 are anticipated to be $37,000,000 with 28% earmarked for further
development of natural gas production properties and 26% allocated to fast lube
to convert to new Q Lube stores.
Financing activities required $44,043,000 which included dividends of
$16,310,000, down from $21,720,000 in 1992 as a result of the reduction in
dividends per share from 20 cents to 10 cents commencing with the third quarter
dividend. Long-term debt was reduced by $27,956,000 with the proceeds received
from the closure of the coal business in 1992 and 1993. Total debt at December
31, 1993, was $51,450,000 compared to $79,183,000 at December 31, 1992, with a
debt to capital ratio of 21.4% and 29.3%. The company currently has $62,000,000
of unused lines of credit.
Working capital, exclusive of insurance operations, at December 31, 1993,
stood at $35,403,000 with a ratio of current assets to current liabilities of
1.34 to 1 compared to $74,911,000 and 1.57 to 1 at December 31, 1992.
In May 1993, the FASB issued Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which addresses the accounting and
reporting for investments in equity securities that have readily determinable
values and for investments in debt securities. This Standard must be
implemented in the first quarter of 1994 and the company estimates the
cumulative effect of this Standard will not have a material impact on its
financial position and results of operations.
OTHER FINANCIAL INFORMATION
Stockholders' equity at December 31, 1993, was $188,750,000, or $6.93 per
share, compared to $191,194,000, or $7.04 per share, at December 31, 1992. The
market price of capital stock was $13.375 per share at December 31, 1993. The
net deferred tax asset recorded on the balance sheet at December 31, 1993, of
$57,008,000, will be realized either through the carryback provisions of the
tax law or recovered in the future through existing levels of taxable income
from continuing operations.
During 1993, the effect of inflation had a minor impact on the company's
results of operations and the carrying value of its assets and liabilities.
Historically, the company has been able to meet the effects of inflation
through increased productivity, adjustments to selling prices and cost
controls.
Federal, state, and local environmental laws continue to have an impact on
the company's operations. Compliance with such laws has been accomplished
without a material effect on the company's financial position and results of
operations.
In December 1993, the United States of America 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 Clean Air Act at the Congo refinery on
various dates starting in 1980 and seeks civil penalties as allowable under law
not to exceed $25,000 per day for each violation. The company intends to
vigorously defend this lawsuit. However, the ultimate outcome of this
litigation cannot presently be determined.
In addition, the company has been notified that it is a named or potentially
responsible party in a number of government and private actions associated with
environmental matters. The company anticipates some liability for long-term
remediation or reclamation at formerly owned facilities including three
refineries and various coal operations.
While it is impossible at this time to determine with certainty the ultimate
outcome of all environmental matters, the company has accrued for all items
which are probable and can be reasonably estimated, and does not expect any
material adverse effect on its financial position. However, it is possible that
one or more of these matters may be decided against the company and could have
a material impact on results of operations in that period.
It is the company's strategy to be a world-class marketer of quality
lubricants and lubricant services, to build and enhance lubricant services
business, and to seek new lubricant businesses. The company will selectively
expand globally and opportunistically exit non-core businesses.
19
<PAGE> 4
SEGMENT INFORMATION
The company's operations are organized into six segments. Although the company
renamed the motor oil and natural gas exploration and production segments in
1993, the operations included in these segments have not changed. In prior
years the other segment included Truck-Lite Company, Inc., and dock operations.
In 1993, the company has shown these operations as two separate business
segments.
The motor oil segment produces and markets lubricants and also sells related
petroleum and automotive aftermarket products primarily to distributors and
national and regional retailers. The fast lube segment is the fast service
automobile oil change and lubrication business operated through company owned
and franchised centers. The natural gas exploration and production segment
(Natural gas E&P) owns interests in, explores for, develops and operates
natural gas and crude oil properties. The insurance segment, through Heritage
Insurance Group, engages in the business of credit life, accident and health
and special indemnity insurance. Truck-Lite manufactures and sells automotive
and heavy-duty truck safety lighting. The dock operations is a bulk material
handling dock accessible to Lake Superior at Thunder Bay, Ontario, Canada.
Operating profit is total segment revenues less segment expenses. Corporate
income and expenses are those which are not directly related to the company's
segments. Corporate assets consist principally of deferred tax assets, cash and
cash equivalents and assets not identifiable with the operations of a segment.
Intersegment sales are at market. The intersegment eliminations reflect an
intercompany loan and related interest at 9%.
The following segment information excludes the discontinued coal
operations' revenues and operating profits. (See Note 3 of Notes to
Consolidated Financial Statements.)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Motor oil
Lubricants $334,771 $327,872 $321,164
Fuels 48,351 53,651 56,198
Other 56,161 59,482 66,650
- - ----------------------------------------------------------------------
Total motor oil 439,283 441,005 444,012
Fast lube 105,361 104,398 98,508
Natural gas E&P 25,313 25,507 24,265
Insurance 131,265 115,163 107,465
Truck-Lite 80,776 63,878 49,896
Docks 2,955 5,319 5,551
INTERSEGMENT SALES (25,787) (30,878) (29,617)
- - ----------------------------------------------------------------------
$759,166 $724,392 $700,080
======================================================================
</TABLE>
The amounts for intersegment eliminations included in revenues are as follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Motor oil $ 21,290 $ 21,950 $ 20,354
Natural gas E&P 4,062 8,205 8,528
Insurance 435 723 735
- - ----------------------------------------------------------------------
$ 25,787 $ 30,878 $ 29,617
======================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING PROFITS
Motor oil $ 17,484 $ 23,336 $ 36,785
- - ----------------------------------------------------------------------
Fast lube 3,045 1,958 (1,113)
Unusual item (Note 2) -- (3,200) --
- - ----------------------------------------------------------------------
3,045 (1,242) (1,113)
- - ----------------------------------------------------------------------
Natural gas E&P 3,103 3,835 2,762
Insurance 3,524 6,130 3,012
Truck-Lite 5,731 (3,665) (323)
Docks 1,138 2,137 1,962
Intersegment eliminations (435) (723) (735)
- - ----------------------------------------------------------------------
Total operating profits 33,590 29,808 42,350
- - ----------------------------------------------------------------------
Corporate income 2,730 187 192
Interest expense (5,410) (5,005) (4,037)
Corporate expenses (15,193) (15,570) (16,310)
Intersegment eliminations 435 723 735
- - ----------------------------------------------------------------------
Income from continuing
operations before
income taxes $ 16,152 $ 10,143 $ 22,930
======================================================================
IDENTIFIABLE ASSETS
Motor oil $144,687 $151,348 $153,075
Fast lube 114,703 122,692 128,326
Natural gas E&P 47,872 49,300 57,135
Insurance 338,962 289,012 282,581
Truck-Lite 33,433 37,501 40,161
Docks 2,112 3,438 4,395
Discontinued coal operations 6,345 23,482 89,471
Intersegment eliminations (4,000) (6,000) (9,000)
- - ----------------------------------------------------------------------
684,114 670,773 746,144
Corporate 99,563 122,047 5,352
- - ----------------------------------------------------------------------
$783,677 $792,820 $751,496
======================================================================
CAPITAL EXPENDITURES
Motor oil $ 11,459 $ 7,523 $ 8,586
Fast lube 5,522 3,489 3,488
Natural gas E&P 10,890 9,773 11,488
Truck-Lite 1,884 1,583 2,910
Docks 5 135 58
Discontinued coal operations -- 3,203 5,507
- - ----------------------------------------------------------------------
$ 29,760 $ 25,706 $ 32,037
======================================================================
DEPRECIATION, DEPLETION AND AMORTIZATION
Motor oil $ 10,767 $ 10,680 $ 11,410
Fast lube 5,879 6,109 5,595
Natural gas E&P 9,578 9,210 8,685
Truck-Lite 2,496 2,393 2,226
Docks 38 895 931
Discontinued coal operations -- 5,796 6,404
- - ----------------------------------------------------------------------
$ 28,758 $ 35,083 $ 35,251
======================================================================
</TABLE>
20
<PAGE> 5
FIVE-YEAR SUMMARY OF NET INCOME AND COMPARATIVE STATISTICAL DATA
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991 1990 1989
- - ----------------------------------------------------------------------------------------------------------------------------
(in thousands except per share and statistical data)
<S> <C> <C> <C> <C> <C>
REVENUES
Sales and operating revenues $628,336 $609,952 $593,350 $665,064 $630,795
Insurance revenues 130,830 114,440 106,730 95,320 84,575
- - ----------------------------------------------------------------------------------------------------------------------------
759,166 724,392 700,080 760,384 715,370
Other, net 8,292 6,308 6,412 8,627 8,254
- - ----------------------------------------------------------------------------------------------------------------------------
767,458 730,700 706,492 769,011 723,624
- - ----------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales and operating costs 429,453 411,851 402,595 471,483 454,849
Insurance contract and benefit costs 103,693 93,805 89,872 78,605 69,506
Selling, general and administrative 184,115 177,629 157,681 158,122 151,897
Depreciation, depletion and amortization 28,758 29,287 28,847 29,769 30,979
Interest 5,287 4,785 4,567 5,172 8,383
Unusual items -- 3,200a -- (5,398)d --
- - ----------------------------------------------------------------------------------------------------------------------------
751,306 720,557 683,562 737,753 715,614
- - ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 16,152 10,143 22,930 31,258 8,010
PROVISION FOR INCOME TAXES 2,450 750 7,800 9,500 500
- - ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 13,702 9,393 15,130 21,758 7,510
INCOME (LOSS) FROM DISCONTINUED COAL OPERATIONS (c) -- (40,641) 409 (2,201) 4,332e
- - ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 13,702 (31,248) 15,539 19,557 11,842
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (b) -- (62,600) 7,170 -- --
- - ----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 13,702 $(93,848) $ 22,709 $ 19,557 $ 11,842
============================================================================================================================
Per share:
Income from continuing operations before
cumulative effect of accounting changes $ .50 $ .35 $ .56 $ .80 $ .28
Income (loss) from discontinued coal operations (c) -- (1.50) .02 (.08) .16e
Cumulative effect of accounting changes (b) -- (2.30) .26 -- --
- - ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .50 $ (3.45) $ .84 $ .72 $ .44
- - ----------------------------------------------------------------------------------------------------------------------------
Dividends:
Cash per share $ .60 $ .80 $ .80 $ .80 $ .80
Amount 16,310 21,720 21,704 21,700 21,550
Capital expenditures 30,815 25,706 32,037 40,178 40,789
Working capital (exclusive of insurance operations) 35,403 74,911 43,041 41,311 76,683
Total assets 783,677 792,820 751,496 757,229 764,716
Total debt (exclusive of insurance operations) 51,450 79,183 88,924 72,146 102,206
Insurance liabilities 261,104 212,663 208,605 204,788 179,585
Stockholders' equity 188,750 191,194 307,790 304,511 308,200
Book value per share 6.93 7.04 11.34 11.23 11.36
============================================================================================================================
Number of stockholders of record 12,147 12,606 12,308 12,172 12,035
Weighted average capital and
equivalent shares outstanding 27,234,000 27,184,000 27,167,000 27,155,000 27,128,000
============================================================================================================================
</TABLE>
a. Charge for assets to be replaced by future conversion of Minit-Lube stores
to Q Lube facilities. See Note 2 of Notes to Consolidated Financial
Statements.
b. Cumulative effect of implementing Statement of Financial Accounting Standard
No. 106, "Employers' Accounting For Postretirement Benefits Other Than
Pensions" and Standard No. 109, "Accounting For Income Taxes" in 1992 and
Standard No. 96, "Accounting For Income Taxes" in 1991. See Notes 11 and 12
of Notes to Consolidated Financial Statements.
c. In the fourth quarter of 1992 the company decided to exit the coal business
and report it as a discontinued operation. See Note 3 of Notes to
Consolidated Financial Statements.
d. Gain on the sale of the McKean and Emlenton facilities.
e. Includes net gain of $5,975 ($.22 Per share) on termination of a coal supply
agreement.
21
<PAGE> 6
CONSOLIDATED STATEMENT OF OPERATIONS
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C>
REVENUES
Sales and operating revenues $628,336 $609,952 $593,350
Insurance revenues (Note 5) 130,830 114,440 106,730
- - ------------------------------------------------------------------------------------------------------------------
759,166 724,392 700,080
Other, net 8,292 6,308 6,412
- - ------------------------------------------------------------------------------------------------------------------
767,458 730,700 706,492
- - ------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales and operating costs 429,453 411,851 402,595
Insurance contract and benefit costs (Note 5) 103,693 93,805 89,872
Selling, general and administrative 184,115 177,629 157,681
Depreciation, depletion and amortization 28,758 29,287 28,847
Interest 5,287 4,785 4,567
Unusual item (Note 2) -- 3,200 --
- - ------------------------------------------------------------------------------------------------------------------
751,306 720,557 683,562
- - ------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 16,152 10,143 22,930
- - ------------------------------------------------------------------------------------------------------------------
PROVISION FOR (BENEFIT FROM) INCOME TAXES (NOTE 11)
Current 14,750 6,350 12,800
Deferred (12,300) (5,600) (5,000)
- - ------------------------------------------------------------------------------------------------------------------
2,450 750 7,800
- - ------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 13,702 9,393 15,130
- - ------------------------------------------------------------------------------------------------------------------
DISCONTINUED COAL OPERATIONS (NOTE 3)
Income (loss) from operations, net of taxes -- (2,941) 409
Loss on disposition, net of taxes -- (37,700) --
- - ------------------------------------------------------------------------------------------------------------------
-- (40,641) 409
- - ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 13,702 (31,248) 15,539
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (NOTES 11 AND 12) -- (62,600) 7,170
- - ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 13,702 $(93,848) $ 22,709
==================================================================================================================
PER SHARE:
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES $ .50 $ .35 $ .56
INCOME (LOSS) FROM DISCONTINUED COAL OPERATIONS -- (1.50) .02
CUMULATIVE EFFECT OF ACCOUNTING CHANGES -- (2.30) .26
- - ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ .50 $ (3.45) $ .84
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 13,702 $ (93,848) $ 22,709
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 28,758 35,083 35,251
Deferred income taxes and investment tax credit 3,380 (4,900) (7,725)
Postretirement benefits other than pensions 2,810 5,600 --
Unusual items--noncurrent -- 3,200 --
Loss on disposition of discontinued coal operations -- 37,700 --
Cumulative effect of changes in accounting principles -- 62,600 (7,170)
Increase (decrease) from changes in:
Receivables 4,274 (5,711) 11,958
Inventories 12,036 (2,958) (9,934)
Other current assets 2,265 8,304 4,314
Accounts payable 3,267 (5,453) (9,326)
Accrued liabilities (25,028) (17,753) 4,264
Other (8,621) 7,694 (9,716)
Increase (decrease) from changes in insurance operations:
Realized investment gains (9,345) (2,285) (2,981)
Deferred policy acquisition costs (376) 1,034 5,786
Unearned premiums 11,867 3,191 5,435
Other 8,246 327 529
- - -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 47,235 31,825 43,394
- - -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 1,741 6,806 7,207
Capital expenditures, including acquisitions (29,760) (25,706) (32,037)
Proceeds from sale of bonds and securities 105,052 41,520 61,855
Purchase of bonds and securities (112,206) (46,786) (72,473)
Proceeds from sale of coal assets 6,261 47,929 --
- - -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (28,912) 23,763 (35,448)
- - -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (16,310) (21,720) (21,704)
Proceeds from long-term debt 223 93,918 27,528
Payments on long-term debt (27,956) (101,535) (10,750)
- - -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (44,043) (29,337) (4,926)
- - -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (25,720) 26,251 3,020
- - -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year:
Other than insurance 34,146 9,305 6,132
Insurance 7,202 5,792 5,945
- - -----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents at beginning of year 41,348 15,097 12,077
- - -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year:
Other than insurance 6,220 34,146 9,305
Insurance 9,408 7,202 5,792
- - -----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents at end of year $ 15,628 $ 41,348 $ 15,097
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 8
CONSOLIDATED BALANCE SHEET
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31 1993 1992
- - ----------------------------------------------------------------------------------------------------------
(in thousands except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,220 $ 34,146
Accounts and notes receivable, less allowance of
$1,679 in 1993 and $1,406 in 1992 56,818 60,613
Inventories (Note 4) 40,103 52,139
Deferred income taxes (Note 11) 18,375 31,668
Other current assets 17,468 26,879
- - ---------------------------------------------------------------------------------------------------------
Total current assets 138,984 205,445
- - ---------------------------------------------------------------------------------------------------------
Property, plant and equipment, net of accumulated
depreciation and depletion (Note 6) 225,828 227,935
Other assets 82,903 75,428
- - ---------------------------------------------------------------------------------------------------------
Total assets other than insurance 447,715 508,808
- - ---------------------------------------------------------------------------------------------------------
Insurance assets (Note 5)
Investments 185,446 169,021
Cash 9,408 7,202
Premiums and other receivables 59,310 29,178
Deferred insurance acquisition costs 60,005 59,629
Other assets 21,793 18,982
- - ---------------------------------------------------------------------------------------------------------
Total insurance assets 335,962 284,012
- - ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $783,677 $792,820
=========================================================================================================
LIABILITIES
Current liabilities:
Accounts payable $ 35,980 $ 32,713
Accrued liabilities (Note 7) 67,339 92,367
Debt payable within one year 262 5,454
- - ---------------------------------------------------------------------------------------------------------
Total current liabilities 103,581 130,534
- - ---------------------------------------------------------------------------------------------------------
Long-term debt, less debt payable within one year (Note 8) 51,188 73,729
Other long-term liabilities 179,054 184,700
- - ---------------------------------------------------------------------------------------------------------
Total liabilities other than insurance 333,823 388,963
- - ---------------------------------------------------------------------------------------------------------
Insurance liabilities (Note 5)
Unearned premiums 208,530 172,952
Policy claims 28,773 18,884
Due to reinsurance companies 6,897 9,266
Other liabilities 16,904 11,561
- - ---------------------------------------------------------------------------------------------------------
Total insurance liabilities 261,104 212,663
- - ---------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 5 and 9)
STOCKHOLDERS' EQUITY
Capital stock $1.00 par value; authorized shares, 37,500,000;
issued shares, 27,250,818 in 1993 and 27,151,855 in 1992 (Note 10) 27,251 27,152
Additional capital 63,044 62,004
Retained earnings (Note 8) 98,877 101,635
Cumulative foreign currency translation adjustment 75 403
Unearned compensation (Note 10) (497) --
- - ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 188,750 191,194
- - ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $783,677 $792,820
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 9
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
Capital Additional Retained
(in thousands except shares and per share data) Stock Capital Earnings
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1990 $27,125 $61,685 $214,396
- - ---------------------------------------------------------------------------------------------
Net income 22,709
Cash dividends ($.80 per share) (21,704)
19,850 shares of capital stock issued under
Stock Option Plan (Note 10) 20 236
Net changes in unrealized gains and losses on
marketable equity securities of Heritage
Insurance Group (Note 5) 1,746
Change in foreign currency translation
- - ---------------------------------------------------------------------------------------------
Balance, December 31, 1991 27,145 61,921 217,147
- - ---------------------------------------------------------------------------------------------
Net loss (93,848)
Cash dividends ($.80 per share) (21,720)
7,183 shares of capital stock issued under
Stock Option Plan (Note 10) 7 83
Net changes in unrealized gains and losses on
marketable equity securities of Heritage
Insurance Group (Note 5) 56
Change in foreign currency translation
- - ---------------------------------------------------------------------------------------------
Balance, December 31, 1992 27,152 62,004 101,635
- - ---------------------------------------------------------------------------------------------
Net income 13,702
Cash dividends ($.60 per share) (16,310)
98,963 shares of capital stock issued under
Stock Option Plan and employment
contract (Note 10) 99 1,040
Net changes in unrealized gains and losses on
marketable equity securities of Heritage
Insurance Group (Note 5) (150)
Change in foreign currency translation
- - ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 $27,251 $63,044 $ 98,877
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Foreign
Currency
Translation Unearned
(in thousands except shares and per share data) Adjustment Compensation Total
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1990 $1,305 -- $304,511
- - ---------------------------------------------------------------------------------------------------
Net income 22,709
Cash dividends ($.80 per share) (21,704)
19,850 shares of capital stock issued under
Stock Option Plan (Note 10) 256
Net changes in unrealized gains and losses on
marketable equity securities of Heritage
Insurance Group (Note 5) 1,746
Change in foreign currency translation 272 272
- - ---------------------------------------------------------------------------------------------------
Balance, December 31, 1991 1,577 -- 307,790
- - ---------------------------------------------------------------------------------------------------
Net loss (93,848)
Cash dividends ($.80 per share) (21,720)
7,183 shares of capital stock issued under
Stock Option Plan (Note 10) 90
Net changes in unrealized gains and losses on
marketable equity securities of Heritage
Insurance Group (Note 5) 56
Change in foreign currency translation (1,174) (1,174)
- - ---------------------------------------------------------------------------------------------------
Balance, december 31, 1992 403 -- 191,194
- - ---------------------------------------------------------------------------------------------------
Net income 13,702
Cash dividends ($.60 per share) (16,310)
98,963 shares of capital stock issued under
Stock Option Plan and employment
contract (Note 10) (497) 642
Net changes in unrealized gains and losses on
marketable equity securities of Heritage
Insurance Group (Note 5) (150)
Change in foreign currency translation (328) (328)
- - ---------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 $ 75 $(497) $188,750
===================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Quaker State Corporation and all of its subsidiaries more than 50%
owned (the company). Intercompany accounts and transactions are eliminated. In
accordance with insurance industry practice, the assets and liabilities for the
insurance operations have not been classified as current or noncurrent.
B. INVENTORIES: 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 for
other inventories on the first-in, first-out (FIFO) basis.
C. PROPERTY, PLANT AND EQUIPMENT, AT COST: Costs of buildings and equipment,
other than natural gas and crude oil producing properties, are charged against
income over their estimated useful lives, using the straight-line method of
depreciation. Repairs and maintenance, which are not considered betterments and
do not extend the useful life of property, are charged to expense as incurred.
When property, plant and equipment are retired or otherwise disposed of, the
asset and accumulated depreciation are removed from the accounts and the
resulting profit or loss is reflected in income.
Costs of natural gas and crude oil producing properties are accounted for
under the successful efforts method. Lease acquisition costs are capitalized
and amortized by the unit of production method based on proved reserves, and
equipment and intangible drilling costs are capitalized and amortized by the
unit of production method based on proved developed reserves. An additional
provision for depreciation and depletion is provided if the net capitalized
costs of production properties exceed the discounted future net revenues for
natural gas and crude oil reserves on a company-wide basis, using year-end
prices and an annual discount rate of 10%.
Costs of individual natural gas and crude oil wells determined to be
uneconomical are charged to the allowance for accumulated depreciation and
depletion when abandoned, with no gain or loss being recognized until the
property group is abandoned. Exploratory costs associated with dry holes,
geological and geophysical costs and annual delay rentals are charged to
expense.
Estimated costs of future dismantlement, restoration, reclamation and
abandonment of natural gas and crude oil producing properties are accrued
through a charge to operations on a unit of production basis.
The company capitalizes interest cost as a part of constructing major
facilities. Interest cost capitalized in 1993, 1992 and 1991 was not material.
D. INSURANCE COMPANY ACCOUNTING POLICIES: Investments in fixed maturities,
consisting of bonds, are carried at amortized cost. Equity securities,
including common and nonredeemable preferred stocks, are carried at market
value, with the change in net unrealized appreciation/depreciation, net of
related deferred taxes, credited or charged directly to stockholders' equity.
The cost of securities sold is determined by the average cost method.
Credit life, accident and health, and special indemnity insurance premiums
are earned and recognized over the life of the policy with the portion
applicable to the unexpired terms of the policies in force recorded as unearned
premium reserves.
Reserves are provided for reported claims, claims incurred but not reported
and claim settlement expenses at each balance sheet date. Such reserves are
based on estimates which are periodically reviewed and evaluated in light of
emerging claim experience and existing circumstances. Any changes in estimates
resulting from this review process are reflected in current earnings.
Policy acquisition costs, consisting of commissions and premium taxes, are
deferred and amortized as the related premiums are earned.
Heritage considers anticipated investment income in determining if a
premium deficiency exists on short duration contracts.
Assets and liabilities related to reinsurance contracts where the
company has not been relieved of the primary obligation to its policyholders
are reported separately on the Consolidated Balance Sheet in accordance with
Statement of Financial Accounting Standards No. 113, "Accounting for
Reinsurance of Short-Duration and Long-Duration Contracts" (see Note 5).
E. INCOME TAXES AND INVESTMENT CREDIT: The company uses the liability method of
accounting for income taxes. The company accounts for investment credit on the
deferral method which recognizes the investment credit as a reduction of the
provision for income taxes over the life of the related assets.
F. EARNINGS PER SHARE: Earnings per share is based on the weighted average
number of shares of capital stock outstanding and capital stock equivalents
which would arise from the exercise of stock options.
G. PRE-OPENING COSTS: Costs associated with the opening of new fast service
automobile lubrication centers are expensed as incurred.
H. CASH EQUIVALENTS: Other than insurance company investments the company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
26
<PAGE> 11
I. FOREIGN CURRENCY TRANSLATION: For all foreign operations the functional
currency is the local currency. The assets and liabilities for the company's
foreign operations are translated into U.S. dollars using current exchange
rates. Income statement items are translated at average exchange rates
prevailing during the period. Exchange gains or losses are not material.
J. ENVIRONMENTAL EXPENDITURES: Costs in connection with compliance and
monitoring of compliance with existing environmental regulations as it relates
to ongoing operations are expensed or capitalized as appropriate. Costs
associated with remediation efforts resulting from prior activities are
recorded no later than at the completion of an environmental site evaluation. A
liability is recorded earlier if it is probable that a liability exists and a
cost can be reasonably estimated. All cleanup estimates are based on current
technology and assessments of the probability of potential insurance or other
third party recoveries are made independently of the liability assessment.
Environmental costs are capitalized only if they extend the life, increase the
capacity, or improve the safety or efficiency of the property.
2. UNUSUAL ITEMS:
In the fourth quarter of 1992, the company's fast lube subsidiary, Q Lube,
Inc., recorded a pretax charge of $3,200,000 to reserve for the future
replacement of signage and other assets impaired by the planned conversion of
existing Minit-Lube stores to Q Lube facilities.
3. DISCONTINUED COAL OPERATIONS:
In December 1992, the company discontinued its coal operations. The operating
results of the coal business are segregated and reported as a discontinued
operation in the accompanying Consolidated Statement of Operations.
As a result of the decision to discontinue the coal operations, the company
recorded an estimated loss on disposal of $37,700,000 in 1992, which is net of
income tax benefits of $22,700,000, and includes the gain on sale of assets
discussed below, the write-down of property, plant and equipment and other
assets to estimated net realizable value, closure expenses, pension and
postretirement curtailment gains (see Note 12) and the estimated loss from
operations through date of disposal. In addition, the estimated loss on
disposal included a pretax charge of $24,000,000 representing the estimated
health care and death benefit liability imposed on the company as a result of
the Coal Industry Retiree Health Benefit Act of 1992.
The loss on disposition of the coal operations included a pretax gain of
approximately $4,100,000 as a result of the sale of certain coal assets to
various subsidiaries of Arch Mineral Corporation in December 1992, for
approximately $47,900,000 in cash, the assumption by the purchasers of certain
liabilities and a semi-annual supplemental payment to be received from 1994
through 2013. Amounts in excess of the minimum semi-annual supplemental payment
may be received subject to the delivery requirements of a long-term coal sales
agreement of the purchaser. The gain includes $18,800,000 representing the
present value of the minimum semi-annual supplemental payments. In connection
with the sale, the Donaldson Mine Company used the proceeds from the sale to
repay approximately $19,500,000 of collateralized notes related to this
operation.
The cessation of the coal operations continued throughout 1993. Sales and
operating revenues were $15,933,000 in 1993. In February 1993, the company
terminated its coal supply agreement at The Helen Mining Company which resulted
in the announcement of the closure of the operation. In addition, the Donaldson
Mine Company ceased operation in March 1993, and the assets of Valley Camp of
Utah, Inc., were sold in September 1993. The financial effects of terminating
the Helen contract, closing the mines, the estimated results of operations
through disposal date and the sale of Valley Camp of Utah, Inc., assets were
provided for in the loss on disposition of coal operations in December 1992,
discussed above. No adjustments to the 1992 estimated loss on disposition were
required as a result of 1993 activity.
The Condensed Statement of Operations relating to the discontinued coal
operations for the years ended December 31, 1992 and 1991, are presented below:
<TABLE>
<CAPTION>
- - --------------------------------------------------
(in thousands) 1992 1991
- - --------------------------------------------------
<S> <C> <C>
Revenues $ 95,140 $ 115,183
Costs and expenses (102,181) (118,199)
- - ---------------------------------------------------
Loss before income taxes (7,041) (3,016)
Income tax benefit 4,100 3,425
- - --------------------------------------------------
Net income (loss) $ (2,941) $ 409
- - --------------------------------------------------
</TABLE>
The effective tax rates for discontinued operations differ from the federal
statutory rate due primarily to percentage depletion, the amortization of
deferred investment tax credits and state income taxes.
The assets and liabilities relating to the discontinued coal operations have
not been segregated in the Consolidated Balance Sheet as of December 31, 1993
and 1992. At December 31, 1993 and 1992, assets held for sale of approximately
$4,400,000 and $17,400,000, respectively, related to the discontinued coal
operations are classified as other current assets in the Consolidated Balance
Sheet and consist of the estimated net realizable value of property, plant, and
equipment, mine supplies and coal inventories. Other assets and liabilities at
December 31, 1993 and 1992, related to the discontinued coal operations include
receivables, reclamation and closure reserves, workers' compensation and black
lung liabilities and the health care and death benefit liabilities.
27
<PAGE> 12
4. INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------
(in thousands) 1993 1992
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Crude Oil $ 2,591 $ 1,226
Finished and in-process
petroleum products 23,225 34,443
Other 14,287 16,470
- - ----------------------------------------------------------------------------------
$40,103 $52,139
==================================================================================
</TABLE>
The reserve to reduce the carrying value of inventories from current costs to
the LIFO basis amounted to $19,090,000 in 1993 and $24,026,000 in 1992.
At December 31, 1993 and 1992, $19,883,000 and $26,538,000, respectively, of
inventories were valued on the LIFO basis.
During 1993, 1992 and 1991 certain inventory quantities were reduced
resulting in liquidations of LIFO inventory. The effect of these liquidations
was a decrease in net income of $900,000, or $.03 per share, in 1993 and an
increase in net income of $400,000, or $.01 per share, and $600,000, or $.02
per share, for 1992 and 1991, respectively.
5. HERITAGE INSURANCE GROUP:
Heritage is an insurance holding company principally engaged through its
subsidiaries in the business of credit life, accident and health, and special
indemnity insurance closely associated with automobile sales.
Heritage's condensed income statements for the years ended December 31, 1993,
1992 and 1991 are presented below:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums $ 93,756 $ 86,510 $ 79,563
Net investment income (a) 11,884 12,213 12,355
Realized investment gains (b) 9,345 2,285 2,981
Other, net 15,845 13,432 11,831
- - ----------------------------------------------------------------------------------------------------------
Total revenue 130,830 114,440 106,730
Policy and contract benefit expenses (51,989) (46,923) (46,800)
Amortization of deferred policy acquisition costs (51,704) (46,882) (43,072)
General and administrative costs (24,048) (15,228) (14,581)
- - ----------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 3,089 5,407 2,277
Benefit from (provision for) income taxes 286 (569) 230
- - ----------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 3,375 4,838 2,507
Cumulative effect of accounting change (Note 11) -- -- (1,296)
- - ----------------------------------------------------------------------------------------------------------
Net income $ 3,375 $ 4,838 $ 1,211
==========================================================================================================
(a)Excludes intercompany interest of $ 435 $ 723 $ 735
==========================================================================================================
(b)Realized investment gains:
Fixed maturities $ 6,270 $ 631 $ 2,342
Equity securities 3,075 1,654 639
- - ----------------------------------------------------------------------------------------------------------
$ 9,345 $ 2,285 $ 2,981
==========================================================================================================
Change in unrealized appreciation/depreciation:
Fixed maturities $(1,528) $501 $5,323
Equity securities (234) 84 2,481
==========================================================================================================
</TABLE>
At December 31, 1993, $1,361,000 of net unrealized appreciation, net of
$765,000 of deferred taxes, was included in stockholders' equity.
The 1993 increase in general and administrative costs resulted from a charge
for $9,950,000 to settle a litigation matter. On July 30, 1993, an Orange
County, California Superior court jury verdict was rendered against the
Heritage Life Insurance Company, a subsidiary of Heritage Insurance Group. The
company recorded a $5,000,000 charge in the third quarter to reflect its best
estimate of probable loss for this matter.
Subsequent negotiations between the company and the plaintiff resulted in a
settlement agreement on December 30, 1993, in the amount of $9,950,000, of
which $6,500,000 was paid upon settlement with the remainder due December 31,
1994. The company recorded an additional charge of $4,950,000 in the fourth
quarter for this settlement.
28
<PAGE> 13
Investments included in "Insurance assets" in the Consolidated Balance Sheet
consist of the following:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed Maturities:
Bonds (market value is $125,311 in 1993 and $134,953 in 1992) $119,936 $128,050
Equity Securities:
Nonredeemable preferred stocks (cost is $16,747 in 1993 and
$17,710 in 1992) 17,846 18,360
Common stock (cost is $9,240 in 1993 and $8,511 in 1992) 10,267 10,221
Short-term investments, at cost, which approximates market 33,729 8,608
Other 3,668 3,782
- - -----------------------------------------------------------------------------------------------------------
$185,446 $169,021
===========================================================================================================
</TABLE>
Bonds and short-term investments with a carrying value of $7,401,000 and
$7,633,000 were on deposit with regulatory authorities at December 31, 1993 and
1992, respectively.
Heritage has various reinsurance agreements whereby it cedes certain risks
to reinsurers in order to limit maximum losses for policies underwritten.
Heritage also assumes insurance from various companies.
Heritage has ceded $1,679,437,000 and assumed $715,715,000 of life insurance
in force at December 31, 1993. Ceded reinsurance premiums amounted to
$38,405,000, $46,619,000 and $34,736,000 for the years ended December 31, 1993,
1992, and 1991, respectively. Heritage received $10,607,000, $21,959,000, and
$13,103,000 of premiums for business assumed for the years ended December 31,
1993, 1992 and 1991, respectively.
A contingent liability exists with respect to reinsurance which would become
a liability of Heritage to the extent that the reinsuring companies may be
unable to meet their obligations under the reinsurance contracts. At December
31, 1993, Heritage has funds withheld from the reinsurers or investments held
in trust equal to the contingent liability that could arise if the reinsuring
companies are unable to meet their obligations under the reinsurance contracts.
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standard No. 113, "Accounting for Reinsurance of Short-Duration and
Long-Duration Contracts." This statement requires that assets and liabilities
related to reinsurance contracts where the company is not relieved of the
primary obligation to its policyholder be reported separately on the balance
sheet. Previously these items were reported as a net amount. As a result of
implementing this Standard, insurance assets and liabilities were increased by
$24,896,000 at January 1, 1993, and $23,711,000 at December 31, 1993. Prior
period balance sheet amounts were not restated and there was no impact on net
income.
The effect of reinsurance contracts on the Consolidated Statement of
Operations for premiums written and earned for 1993 are as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
(in thousands) Written Earned
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Direct premiums $137,144 $122,840
Assumed premiums 10,607 10,502
Ceded premiums (38,405) (39,586)
- - -------------------------------------------------------------------------------------------------
Net premiums $109,346 $ 93,756
=================================================================================================
</TABLE>
Recoveries of policy and contract benefit expense recognized under
reinsurance contracts for 1993 was $18,967,000.
The regulations of various states in which the insurance subsidiaries are
admitted to do business restrict the amount of dividends that may be paid
without obtaining the approval of the regulators and impose minimum statutory
capital requirements. Under the most restrictive regulations at December 31,
1993, the amount of retained earnings available for dividends to Quaker State
without such approval was approximately $6,148,000 and the minimum statutory
capital stock and surplus requirements were approximately $7,500,000.
Net income and capital stock and surplus for Heritages life and indemnity
companies, as computed on a statutory basis, were as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
Life company $(4,701) $ (1,456) $1,143
=============================================================================================================
Indemnity company $ 8,122 $ 6,148 $5,516
=============================================================================================================
Capital stock and surplus:
Life company $22,391 $ 20,344
=============================================================================================================
Indemnity company $23,571 $ 19,359
=============================================================================================================
</TABLE>
29
<PAGE> 14
In May 1993, the Financial Accounting Standards Board (FASB) issued Standard
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
which addresses the accounting and reporting for investments in equity
securities that have readily determinable values and for investments in debt
securities. This Standard must be implemented in the first quarter of 1994 and
the company estimates the cumulative effect of this Standard will not have a
material impact on its financial position and results of operations.
6. PROPERTY, PLANT AND EQUIPMENT:
Major classes of property, including land and construction work in progress of
$49,652,000 in 1993 and $41,707,000 in 1992 are:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
(in thousands) 1993 1992
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
MOTOR OIL:
Refining $ 97,453 $ 95,998
Marketing 98,425 97,556
FAST LUBE 118,316 115,188
NATURAL GAS EXPLORATION AND PRODUCTION 210,942 207,906
TRUCK-LITE 33,595 31,711
DOCKS 12,948 12,943
- - -----------------------------------------------------------------------------------------------------
571,679 561,302
Less: accumulated depreciation and depletion 345,851 333,367
- - -----------------------------------------------------------------------------------------------------
$225,828 $227,935
=====================================================================================================
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities include workers' compensation and health self insurance,
advertising accruals, accrued royalties and mine reclamation of $6,888,000,
$9,255,000, $7,013,000, and $1,998,000, respectively, at December 31, 1993 and
$9,396,000, $6,356,000, $6,814,000, and $9,009,000, respectively, at December
31, 1992.
8. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS:
Long-term debt consists of:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
(in thousands) 1993 1992
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior Notes due 2002 (a) $50,000 $50,000
Revolving credit loan dated March 31, 1992 (b) -- 14,000
9% Sinking Fund Debentures -- 8,750
Others, 3% to 10.25%, due in various installments to 2005 1,450 6,433
- - -----------------------------------------------------------------------------------------------------
51,450 79,183
Less payments due within one year 262 5,454
- - -----------------------------------------------------------------------------------------------------
$51,188 $73,729
=====================================================================================================
</TABLE>
(a) On September 30, 1992, the company issued $50,000,000 of Senior Notes, due
September 30, 2002. The notes have a fixed interest rate of 8.73%, are
subject to an early prepayment premium and do not require payment on
principal until maturity. Fair value of these notes at December 31, 1993,
is approximately $55,000,000.
(b) This agreement provides for a $45,000,000 revolving line of credit until
June 30, 1996, with annual extensions available at the option of the
lenders, and has a variable interest rate based, at the option of the
company, upon prime, LIBOR or CD rates for one, two, three or six month
periods. The annual commitment fee is 1/4 of one percent of the average
daily unborrowed funds.
At December 31, 1993, the company had unused bank lines of credit
aggregating $62,000,000 providing for borrowings at various rates.
The debt agreements contain various restrictions pertaining to tangible net
worth, financial ratios, and dividends. Under the most restrictive of these
provisions, approximately $30,000,000 of consolidated retained earnings at
December 31, 1993, was free of any restrictions as to payment of cash
dividends.
The aggregate long-term debt maturing in the next five years is
approximately as follows: 1994--$262,000; 1995--$381,000; 1996- $147,000;
1997--$132,000; 1998--$136,000.
The fair value of financial instruments does not materially differ from the
value reflected on the financial statements except as stated above in (a) and
in Note 5. The fair value of the instruments was based upon quoted market
prices of the same or similar instruments or on a discounted basis using the
rates available to the company for instruments of the same remaining maturity.
30
<PAGE> 15
9. COMMITMENTS AND CONTINGENCIES:
The company has operating leases for continuing operations in effect for
equipment and facilities with initial terms ranging from 2 to 20 years, with
renewal options generally being available. Future minimum annual rentals, net
of estimated sublease rentals under operating leases of $14,900,000, during
each of the next five years are: 1994--$12,100,000; 1995--$11,700,000;
1996--$10,900,000; 1997--$10,100,000; 1998--$8,700,000 and thereafter
$49,100,000.
Rental expense for continuing operations amounted to approximately
$16,400,000 for 1993, $16,600,000 for 1992 and $15,600,000 for 1991, net of
sublease rentals of approximately $3,900,000 for 1993, $3,600,000 for 1992 and
$3,700,000 for 1991.
Rental expense for discontinued coal operations amounted to approximately
$4,000,000 in 1992 and $4,500,000 in 1991.
In December 1993, the United States of America commenced a lawsuit against
the company in the U.S. District Court for Northern West Virginia. The
complaint alleges the company violated the federal Resource Conservation and
Recovery Act and the federal Clean Air Act at the Congo refinery on various
dates starting in 1980 and seeks civil penalties as allowable under federal law
not to exceed $25,000 per day for each violation. The company intends to
vigorously defend itself in this lawsuit. However, the ultimate outcome of this
litigation cannot presently be determined. Accordingly, no provision or
liability, if any, that may result from this matter has been made in the
financial statements.
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.
10. STOCK OPTIONS AND MANAGEMENT COMPENSATION:
Under the 1976 and 1986 Stock Option Plans 122,013 shares of capital stock are
available for grant.
Under these plans options have been granted to employees to purchase capital
stock at a price no less than 100% of the market value on the date of grant.
Options granted may not be exercised for at least six months from the date of
grant and substantially all options must be exercised within ten years of the
date granted.
Options issued prior to December 31, 1991, also provide for stock
appreciation rights (SAR's), which is an alternate form of settlement on an
option because it gives an optionee the right, subject to certain conditions,
to surrender an option or portion of an option and receive cash and/or shares
of capital stock of the company, having a value equal to the appreciation on
such option or portion thereof. The change in appreciation of the optioned
shares most likely to be surrendered for SAR's results in a charge or credit to
income as applicable.
Information with respect to shares under option during 1993, 1992, and 1991
is summarized below:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
1993 1992 1991
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding stock options at the beginning of year 1,073,414 911,094 787,034
Options granted during the year:
1993,$13.625, $13.75 and $12.625 per share;
1992, $12.4375 per share;
1991, $13.3125 per share 158,200 245,250 269,000
Options exercised at $9.4375 to $12.4375 (8,963) (7,183) (19,850)
Options surrendered upon exercise of SAR's (24,287) (30,567) (63,650)
Options lapsed and cancelled (74,460) (45,180) (61,440)
- - ------------------------------------------------------------------------------------------------
Outstanding stock options at end of year 1,123,904 1,073,414 911,094
================================================================================================
</TABLE>
The options outstanding at the end of 1993 were exercisable at $9.4375 to
$27.00 per share except for 5,000 which will become exercisable on April 28,
1994, at $13.75 and 103,200 which become exercisable on June 16, 1994 at
$12.625 per share.
During the second quarter of 1993, the company entered into a three year
employment contract with Herbert M. Baum who was named Chairman and Chief
Executive Officer. The contract provides for annual compensation, a signing
bonus, stock award grants and stock option grants. In connection with the stock
award grant, the company issued 90,000 shares of capital stock, at no cost, of
which 55,000 shares are subject to restrictions that expire at various dates
through August 1998. Compensation expense on the restricted shares will be
charged to earnings over the employment contract term and have been recorded as
unearned compensation of $497,000 at December 31, 1993 on the Consolidated
Balance Sheet. In 1993, the company recognized $532,000 as compensation expense
for these stock grants and $1,049,000 for all other provisions of this
employment contract. The stock option grant provides for the purchase of
270,000 shares of capital stock of which 50,000
31
<PAGE> 16
shares, exercisable at $13.625 per share at various dates through June, 1998,
were granted under the 1986 Stock Option Plan. The remaining 220,000 shares
were registered in 1993 and are exercisable at various prices, no less than
market value on the date of grant ($11.625 to $17.9375 per share), at various
dates. These options expire at various dates through June 2005.
At December 31, 1993, 1992 and 1991, 1,465,917, 1,285,120 and 1,301,003
shares of capital stock, respectively, were reserved for options outstanding
and for options which may be granted in the future.
In December 1993, the company's Board of Directors adopted the 1994 Stock
Incentive Plan, subject to stockholders' approval. The number of shares which
may be issued under this plan is 1,250,000 and the plan includes stock options,
alternative stock appreciation rights, cash payment rights, restricted shares,
performance shares and other share awards.
11. INCOME TAXES:
Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." This statement
requires a liability approach for measuring deferred taxes based on temporary
differences between the financial statement and tax basis of assets and
liabilities existing at each balance sheet date using enacted tax rates for
years which taxes are expected to be paid or recovered. The cumulative effect
of the accounting change was not material.
Effective January 1, 1991, the company had adopted Statement of Financial
Accounting Standard No. 96, "Accounting for Income Taxes." The cumulative
effect of this accounting change on years prior to 1991 resulted in an increase
in net income of $7,170,000, or $.26 per share. The effect of this change on
1991 income before the cumulative effect of the accounting change was not
material.
Income before income taxes from continuing operations consists of:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $15,098 $ 8,102 $20,952
Foreign 1,054 2,041 1,978
- - -----------------------------------------------------------------------------------------------------------
$16,152 $10,143 $22,930
===========================================================================================================
</TABLE>
The components of the provision for income taxes from continuing operations
are as follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $11,050 $ 2,650 $ 8,800
State 2,350 1,400 1,500
Foreign 1,350 2,300 2,500
Deferred:
Federal (9,500) (3,100) (3,900)
State (1,900) (700) 800
Foreign -- (600) (500)
Tax credits amortized (900) (1,200) (1,400)
- - -----------------------------------------------------------------------------------------------------------
$ 2,450 $ 750 $ 7,800
===========================================================================================================
</TABLE>
The 1993 tax provision benefited from: an adjustment of $1,200,000 to
deferred taxes for the enacted U.S. tax rate changes and an adjustment to the
beginning of the year valuation allowance of $1,400,000 due to a change in the
circumstances to recognize the realizability of deferred tax assets in future
years.
A reconciliation from the federal statutory tax rate to the effective tax
rate for continuing operations follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
% of pretax income 1993 1992 1991
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0 34.0 34.0
Add (deduct) the tax effect of:
Tax exempt interest (7.3) (10.7) (3.2)
Dividends received deduction (2.3) (3.9) (1.2)
Investment credit (3.9) (7.8) (4.0)
Net adjustments to valuation allowance (8.5) -- --
Enacted rate change (7.4) -- --
Other tax credits (8.9) (13.0) (2.9)
State and foreign income taxes 11.7 3.2 8.2
OTHER, NET 6.8 5.6 3.1
- - -----------------------------------------------------------------------------------------------------------
Effective tax rate 15.2 7.4 34.0
===========================================================================================================
</TABLE>
32
<PAGE> 17
The deferred tax assets and liabilities as of December 31, 1993 and 1992, are
as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
1993 1992
- - -------------------------------------------------------------------------------------------------------------
DEFERRED TAX DEFERRED TAX Deferred Tax Deferred Tax
(in thousands) ASSETS LIABILITIES Assets Liabilities
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation, depletion and amortization -- $26,572 -- $30,106
Employee benefits $ 56,387 -- $ 59,306 --
Coal loss provision 6,604 -- 17,344 --
Insurance policy reserves 31,795 -- 26,525 --
Deferred policy acquisition costs -- 20,402 -- 20,543
Due from reinsurers -- 11,267 -- 9,336
Other 29,155 7,591 26,773 6,587
- - -------------------------------------------------------------------------------------------------------------
123,941 65,832 129,948 66,572
- - -------------------------------------------------------------------------------------------------------------
VALUATION ALLOWANCE 1,101 -- 2,989 --
- - -------------------------------------------------------------------------------------------------------------
$122,840 $65,832 $126,959 $66,572
=============================================================================================================
</TABLE>
Deferred investment tax credit amounted to $900,000 and $1,800,000 at
December 31, 1993 and 1992, respectively.
12. EMPLOYEE RETIREMENT AND BENEFIT PLANS:
The company has noncontributory pension plans covering substantially all of its
employees. Plans covering salaried employees provide pension benefits that are
generally based on the employees' compensation and length of service. Plans
covering hourly employees provide benefits of stated amounts for each year of
service. The company's funding policy is based on an actuarially determined
cost method allowable under statutory regulations.
Net pension cost for 1993, 1992, and 1991 is summarized below:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the period $ 3,130 $ 3,996 $ 3,664
Interest cost 8,840 8,584 8,569
Actual return on assets (13,371) (11,850) (14,000)
Net amortization and deferral 1,325 (280) 2,127
- - ------------------------------------------------------------------------------------------------------------
Total pension cost (income) (76) 450 360
Less: pension income of discountinued operations -- (945) (710)
- - ------------------------------------------------------------------------------------------------------------
Pension cost (income) of continuing operations $ (76) $ 1,395 $ 1,070
============================================================================================================
</TABLE>
The funded status of the plan is reconciled to prepaid pension cost at December
31, 1993 and 1992, as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily investments in IPG insurance
contracts and pooled separate accounts $135,807 $130,815
- - ------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation, including vested benefits of:
1993--$112,052; 1992--$105,141 120,001 108,065
Effect of future salary increases 12,681 13,524
- - ------------------------------------------------------------------------------------------------------------
Projected benefit obligation 132,682 121,589
- - ------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligations 3,125 9,226
Unrecognized net loss 18,035 12,405
Unrecognized transition asset (12,737) (14,208)
- - ------------------------------------------------------------------------------------------------------------
Prepaid pension cost $ 8,423 $ 7,423
============================================================================================================
</TABLE>
33
<PAGE> 18
Significant assumptions used in determining net pension cost and related
pension obligations are:
<TABLE>
<CAPTION>
- - ------------------------------------------------------
December 31, 1993 1992 1991
- - ------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7% 7 1/2% 7%
Rate of increase in
compensation levels 4 1/2% 4 1/2% 3 3/4%
Expected long-term
rate of return on assets 9% 9% 9%
======================================================
</TABLE>
Former hourly employees of the discontinued coal operations are covered by a
pension plan of the United Mine Workers of America (UMWA). Former salaried coal
employees are covered by the company's pension plan. Payments made to the plan
administered by the UMWA were based on hours worked and were $526,000,
$4,153,000 and $4,165,000 for 1993, 1992, and 1991, respectively. As a result
of the company's decision to discontinue coal operations in 1992 (see Note 3),
the company will withdraw from the UMWA plan resulting in an estimated
withdrawal liability of approximately $11,000,000. In addition, in 1992 the
company recognized a $4,519,000 pension curtailment gain related to the
salaried coal employees. The withdrawal liability and the curtailment gain are
reflected in the 1992 Consolidated Statement of Operations as a component of
the loss on disposition related to the discontinued coal operations.
The company has certain defined contribution plans including a Thrift and
Stock Purchase Plan and an Employee Stock Ownership Plan. The 1993 and 1992
cost of these plans was $1,100,000 per year and in 1991 the cost was
$3,300,000.
In addition to providing pension benefits, Quaker State and certain of its
subsidiaries provide health care and life insurance benefits for active and
retired employees. These plans are unfunded, and the company retains the right
to modify or eliminate these benefits.
Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This Standard requires the accrual method of accounting
for postretirement health care and life insurance benefits based on actuarially
determined costs to be recognized over the period the employee provides
services to the company.
As of January 1, 1992, the company recognized the full amount of its
estimated accumulated postretirement benefit obligation on that date, which
represents the present value of the estimated future benefits payable to
current retirees and a pro rata portion of the estimated benefits payable to
eligible active employees after retirement. The accounting change resulted in a
one-time charge to 1992 earnings of approximately $62,600,000, net of taxes of
$40,100,000, or $2.30 per share. Postretirement benefit expense other than
pension, increased approximately $5,600,000 ($3,400,000 after tax, $.13 per
share) due to the application of this new rule of which approximately
$3,600,000 ($2,200,000 after tax, $.08 per share) related to discontinued coal
operations.
The components of periodic expense for postretirement benefits in 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
(in thousands) 1993 1992
- - ----------------------------------------------------------------
<S> <C> <C>
Service costs of benefits earned $ 947 $ 1,865
Interest cost on liability 7,300 8,485
Amortization of gain (240) --
- - ----------------------------------------------------------------
Net periodic postretirement
benefit cost 8,007 10,350
- - ----------------------------------------------------------------
Less: discontinued coal
operations cost -- 6,344
- - ----------------------------------------------------------------
Continuing operations cost $8,007 $ 4,006
================================================================
</TABLE>
In 1991, postretirement benefit costs of $4,940,000 were charged to expense
as paid.
The accumulated postretirement benefit obligation (APBO) at December 31,
1993 and 1992, is summarized below:
<TABLE>
<CAPTION>
- - ------------------------------------------------------
(in thousands) 1993 1992
- - ------------------------------------------------------
<S> <C> <C>
Retirees $74,803 $67,345
Fully eligible active
participants 6,667 15,119
Other active participants 13,035 9,628
- - ------------------------------------------------------
APBO 94,505 92,092
Unrecognized net gain (875) --
Less: current portion 5,000 5,000
- - ------------------------------------------------------
Long-term portion $88,630 $87,092
======================================================
</TABLE>
As a result of the company's decision during 1992 to discontinue its coal
operations (see Note 3), it recognized in 1992 a $16,206,000 curtailment gain
related to its postretirement benefit plans other than pension plans. This
curtailment gain is reflected in the 1992 Consolidated Statement of Operations
as a component of the loss on disposition related to the discontinued coal
operations.
For measurement purposes, an 11% annual rate of increase in the per capita
claims cost was assumed for 1994, declining gradually to 5% by the year 2002
and thereafter. The discount rate used to determine the APBO was 7.5% and 8.5%
at December 31, 1993 and 1992, respectively, and the assumed long-term rate of
compensation increase was 5% and 5.5%, respectively.
The health care cost trend rate assumption has a significant effect on the
APBO and net periodic benefit costs. A 1% increase in the trend rate for health
care costs would have increased the APBO by 14% and service and interest costs
by 13%.
In 1993, the company adopted Statement of Financial Accounting Standard No.
112, "Employers' Accounting for Postemployment Benefits." This Standard
requires the cost of benefits provided to former or inactive employees, after
employment and before retirement, be recognized on the accrual basis of
accounting. The cumulative effect of this accounting change was not material.
34
<PAGE> 19
13. FINANCIAL RESULTS BY QUARTER:
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended March 31 June 30
- - ------------------------------------ -------------------------- ---------------------------
(in thousands except per share data) 1993 1992 1993 1992
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (a) $179,802 $173,447 $195,092 $189,717
Gross profit (a)(b)(c)(d) 52,272 52,863 58,117 58,228
Income from continuing
operations (a)(f)(g) 3,403 1,143 4,381 4,022
Loss from discontinued
coal operations -- (718) -- (829)
Income (loss) before cumulative
effect of accounting changes 3,403 425 4,381 3,193
Cumulative effect of accounting
changes (e) -- (62,600) -- --
Net income (loss) $ 3,403 $ (62,175) $ 4,381 $ 3,193
================================================================================================================
PER SHARE:
Income from continuing operations $ .13 $ .04 $ .16 $ .15
Loss from discontinued coal operations -- (.03) -- (.03)
Income (loss) before cumulative effect
of accounting changes .13 .01 .16 .12
Cumulative effect of accounting changes -- (2.30) -- --
Net income (loss) .13 (2.29) .16 .12
Dividends .20 .20 .20 .20
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended September 30 December 31
- - ------------------------------------ -------------------------- ---------------------------
(in thousands except per share data) 1993 1992 1993 1992
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (a) $192,413 $187,232 $191,859 $173,996
Gross profit (a)(b)(c)(d) 57,876 55,095 57,755 49,350
Income from continuing
operations (a)(f)(g) 3,976 2,560 1,942 1,668
Loss from discontinued
coal operations -- (1,665) -- (37,429)
Income (loss) before cumulative
effect of accounting changes 3,976 895 1,942 (35,761)
Cumulative effect of accounting
changes (e) -- -- -- --
Net income (loss) $ 3,976 $ 895 $ 1,942 $ (35,761)
- - ----------------------------------------------------------------------------------------------------------------
PER SHARE:
Income from continuing operations $ .14 $ .10 $ .07 $ .06
Loss from discontinued coal operations -- (.06) -- (1.38)
Income (loss) before cumulative effect
of accounting changes .14 .04 .07 (1.32)
Cumulative effect of accounting changes -- -- -- --
Net income (loss) .14 .04 .07 (1.32)
Dividends .10 .20 .10 .20
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In the fourth quarter of 1992, the company decided to exit the coal
business and report it as a discontinued operation. Amounts exclude coal
activities which are reported as loss from discontinued coal operations
(see Note 3).
(b) Gross profit equals total sales and operating revenues and insurance
revenues less cost of sales and operating costs (excluding depreciation,
depletion and amortization), insurance contract and benefit costs and
unusual items.
(c) Gross profit for the third and fourth quarters of 1993 was impacted
negatively by the effect of LIFO liquidations of approximately $600,000 and
$800,000, respectively, while the fourth quarter of 1992 was impacted
favorably by $700,000.
(d) Includes a 1992 fourth quarter charge of $3,200,000 for assets to be
replaced by future conversion of Minit-Lube stores to Q Lube facilities
(see Note 2).
(e) Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standard No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and Standard No. 109 "Accounting For Income
Taxes" (see Notes 11 and 12).
(f) Income from continuing operations in the third quarter of 1993 was
positively impacted by a one time benefit of $1,200,000 related to the
change in U.S. corporate tax rate. Income from continuing operations in the
fourth quarter of 1993 and 1992 was impacted positively by a change of
$1,300,000 and $1,900,000, respectively, in the estimated taxes, resulting
from a lower tax rate due to valuation allowance adjustments in 1993 and
lower earnings in 1993 and 1992.
(g) Income from continuing operations in the third quarter of 1993 was
negatively impacted by $3,300,000 after tax charge for a litigation matter
at the Heritage Insurance Group (see Note 5). In the fourth quarter of 1993
an additional after tax charge of $3,300,000 was recorded to settle the
litigation matter and an after tax charge of $1,000,000 was recorded to
write down deferred policy acquisition costs. These fourth quarter charges
were partially offset by realized investment gains of $5,500,000
($3,600,000 after tax).
14. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PAID DURING THE YEAR FOR:
Interest, net of amounts capitalized $ 5,717 $ 6,126 $ 6,775
Income taxes 9,714 14,581 11,671
=========================================================================================================
NONCASH INVESTING ACTIVITIES:
Supplemental receivable (Note 3) -- $18,800 --
Preferred stock -- 10,000 --
=========================================================================================================
</TABLE>
In 1992, as a result of the bankruptcy of the purchaser of the McKean and
Emlenton plants, the company eliminated preferred stock and deferred income,
associated with the sale, from the Consolidated Balance Sheet.
15. SEGMENT INFORMATION:
Segment information on the company's operations in different segments is
contained on page 20 of this report.
35
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Stockholders
Quaker State Corporation:
We have audited the accompanying consolidated balance sheets of Quaker State
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Quaker State
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes 11 and 12 of Notes to Consolidated Financial
Statements, the company changed its method of accounting for postretirement
benefits other than pensions in 1992 and accounting for income taxes in 1992
and 1991.
/s/ COOPERS & LYBRAND
600 Grant Street
Pittsburgh, Pennsylvania
January 25, 1994
QUAKER STATE (KSF) MARKET PRICES BY QUARTER
<TABLE>
<CAPTION>
1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter High 13 15 1/8 12 7/8
Low 11 1/8 12 7/8 9 3/4
Close 12 1/8 12 7/8 12 1/4
- - ---------------------------------------------------------------------------------------------------------------
Second Quarter High 12 7/8 14 3/4 12 1/2
Low 11 1/4 12 1/4 10 1/2
Close 11 3/4 13 5/8 11
- - ---------------------------------------------------------------------------------------------------------------
Third Quarter High 14 1/4 15 13 5/8
Low 11 3/4 10 1/2 11 1/8
Close 13 7/8 11 1/2 13 5/8
- - ---------------------------------------------------------------------------------------------------------------
Fourth Quarter High 15 12 1/2 15 3/4
Low 12 1/8 10 5/8 11 7/8
Close 13 3/8 11 1/2 13
===============================================================================================================
</TABLE>
36
<PAGE> 1
QUAKER STATE CORPORATION EXHIBIT 22
Subsidiaries
All of the following subsidiaries are 100% owned by Quaker State Corporation
unless otherwise indicated:
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
------------------ -------------
<S> <C>
Fort William Coal Dock Company, Ltd. Ontario
Green Shield, Inc. Delaware
Heritage Insurance Group, Inc. Delaware
Heritage Life Insurance Company (1) Arizona
Aloha Life Insurance Company (2) Arizona
First Westwood National Corporation (3) Nevada
Westwood Life Insurance Company (4) Arizona
Heritage Indemnity Company (1) California
Heritage Mechanical Breakdown Corporation (5) Delaware
Westwood Warranty Corporation (6) Delaware
Westwood Indemnity Company (7) Arizona
Heritage Management Corporation (1) California
Heritage Warranty Corporation (8) Delaware
The Westlake Insurance Group, (Bermuda) Limited (1) Turks and Caicos
Westlake Insurance Company, Ltd.(9) Bermuda
QS Holding Company Delaware
Quaker Oil Corporation Texas
Quaker State, Inc. Canada
Quaker State Investment Corporation Delaware
Freedom Freightways, Inc. (10) Missouri
McQuik's Oilube, Inc. (10) Delaware
QSE&P, Inc. (10) Delaware
Q Lube, Inc. (10) Delaware
Quaker State Minit-Lube Canada, Inc. (11) Ontario
Minit-Lube Ontario, Inc. (12) Ontario
Automotive Lube Shop Limited (13) Ontario
Lubeco, Inc. (11) Delaware
Quaker State Oil Refining Corporation (10) Delaware
Quaker State Western Corporation (10) Delaware
The Valley Camp Coal Company (10) Delaware
Donaldson Mine Company (14) West Virginia
Kelley's Creek and Northwestern Railroad Company (14) West Virginia
Valley Camp Investment Company (14) Delaware
Elm Grove Coal Company (15) West Virginia
Valley Camp Coal Sales Company (15) Ohio
The Helen Mining Company (15) Pennsylvania
Kanawha and Hocking Coal and Coke Company (15) West Virginia
Shrewsbury Coal Company (15) West Virginia
Valley Camp of Utah, Inc. (15) Utah
Truck-Lite Co., Inc. (10) New York
T-L Automotive Industries, Inc. (16) Delaware
Truck-Lite International, Inc. (16) Delaware
Valley Camp, Inc. (10) Canada
Quaker State Japan Co., Ltd. Japan
Quaker State Oil Refining Corporation, B.V. Holland
</TABLE>
<PAGE> 2
(1) 100% owned by Heritage Insurance Group, Inc.
(2) 67% owned by Heritage Life Insurance Company
(3) 50% owned by Heritage Life Insurance Company
(4) 100% owned by First Westwood National Corporation
(5) 67% owned by Heritage Indemnity Company
(6) 100% owned by Heritage Indemnity Company
(7) 100% owned by Westwood Warranty Corporation
(8) 100% owned by Heritage Management Corporation
(9) 100% owned by The Westlake Insurance Group, Limited
(10) 100% owned by Quaker State Investment Corporation
(11) 100% owned by Q Lube, Inc.
(12) 50% owned by Quaker State Minit-Lube Canada, Inc.
(13) 100% owned by Minit-Lube Ontario, Inc.
(14) 100% owned by The Valley Camp Coal Company
(15) 100% owned by Valley Camp Investment Company
(16) 100% owned by Truck-Lite Co., Inc.
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
We consent to the incorporation by reference of our reports, dated
January 25, 1994, on our audits of the consolidated financial statements and
financial statement schedules of Quaker State Corporation and Subsidiaries as
of December 31, 1993 and 1992, and for the three years in the period ended
December 31, 1993, which reports are incorporated by reference or
included in this annual report on Form 10-K, and in the following documents:
1. Registration Statement No. 33-20416 on Form S-8 for the Quaker State
Corporation Thrift and Stock Purchase Plan, filed under the Securities Act
of 1933, as amended, and the Prospectus used in connection with such
Registration Statement;
2. Registration Statements No. 2-56158, No. 2-85634 and No. 33-7163 on Form
S-8 for the 1976 Stock Option Plan and the 1986 Stock Option Plan of
Quaker State Corporation, filed under the Securities Act of 1933, as
amended, and the Prospectus used in connection with such Registration
Statements; and
3. Registration Statement No. 33-65862 on Form S-8 for the Baum Employment
Agreement, filed under the Securities Act of 1933.
We also consent to the reference to our firm under the caption "Experts" in
the Prospectuses used in connection with Registration Statement Nos. 33-20416,
2-56158, 2-85634, 33-7163 and 33-65862 solely as it relates to the current
financial statements being incorporated by reference.
/s/ Coopers & Lybrand
COOPERS & LYBRAND
Pittsburgh, Pennsylvania
March 22, 1994
<PAGE> 1
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of
Quaker State Corporation, and any and all amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as the undersigned might or could do in
person and hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
March 23, 1994 /s/ Raymond A. Ross, Jr.
------------------------
Raymond A. Ross, Jr.
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of
Quaker State Corporation, and any and all amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as the undersigned might or could do in
person and hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
March 23, 1994 /s/ C. Frederick Fetterolf
--------------------------
C. Frederick Fetterolf
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of
Quaker State Corporation, and any and all amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitutes, may lawfully do or cause to be done
by virtue hereof.
March 23, 1994 /s/ Laurel Cutler
-----------------
Laurel Cutler
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of
Quaker State Corporation, and any and all amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitutes, may lawfully do or cause to be
done by virtue hereof.
March 23, 1994 /s/ W. Craig McClelland
-----------------------
W. Craig McClelland
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of Quaker
State Corporation, and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as the undersigned might or could do in person and hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
March 23, 1994 /s/ Thomas A. Gardner
--------------------
Thomas A. Gardner
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of Quaker
State Corporation, and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as the undersigned might or could do in person and hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
March 23, 1994 /s/ Delbert J. McQuaide
-----------------------
Delbert J. McQuaide
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of Quaker
State Corporation, and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as the undersigned might or could do in person and hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
March 23, 1994 /s/ H. Bryce Jordan
-------------------
H. Bryce Jordan
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Herbert M. Baum, Conrad A. Conrad and Gerald W. Callahan, and each of
them, the undersigned's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the undersigned and in the
undersigned's name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 of Quaker
State Corporation, and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as the undersigned might or could do in person and hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
March 23, 1994 /s/ Leonard M. Carroll
----------------------
Leonard M. Carroll
