Pennzoil-Quaker State Reports First Quarter 1999 Results
3 May 1999
Pennzoil-Quaker State Reports First Quarter 1999 Results
HOUSTON, May 3 -- Pennzoil-Quaker State Company
today announced first quarter 1999 net income before nonrecurring charges of
$7.6 million, or 10 cents per basic share, compared to recurring net income of
$0.6 million, or 1 cent per basic share, for the same period in 1998.
Nonrecurring after-tax charges in the first quarter of 1999 totaled
$9.8 million, or 13 cents per basic share, and were primarily associated with
the company's merger with Quaker State Corporation on December 30, 1998.
Including the nonrecurring charges, Pennzoil-Quaker State Company reported
a net loss of $2.2 million, or 3 cents per basic share, compared to net income
of $0.6 million, or 1 cent per basic share, in the first quarter of 1998.
First quarter 1999 total revenues were $723.9 million, a 63 percent
increase compared to last year's $443.4 million. The increase in revenues
primarily resulted from the acquisition of Quaker State Corporation. Lower
refined product sales, primarily due to lower fuels prices, partially offset
the year-on-year increase.
Formation of Pennzoil-Quaker State Company
Pennzoil-Quaker State Company includes the marketing, fast lube and
manufacturing operations of Pennzoil Company spun off on December 30, 1998 in
a tax-free distribution. Pennzoil Company shareholders received one share of
Pennzoil-Quaker State Company for each share of Pennzoil Company stock held.
Immediately following the distribution, Quaker State Corporation, the second
largest domestic marketer of motor oil and a leading marketer of automotive
consumer products, was acquired by Pennzoil-Quaker State Company in a merger
transaction. Quaker State Corporation shareholders received .8204 share in
the newly combined company for each share of Quaker State Corporation common
stock held. Results from operations of Quaker State Corporation are not
included in Pennzoil-Quaker State Company's 1998 results, but are included in
1999 results.
"The integration of Pennzoil and Quaker State is proceeding well and
according to plan. First quarter results show that the new Pennzoil-Quaker
State Company is off to a good start," said James L. Pate, chairman and chief
executive officer.
James J. Postl, chief operating officer, said, "Our objective is to be
consumers' first choice for automotive products that enhance the car and the
driving experience. Pennzoil-Quaker State Company has tremendous growth
potential, and by combining Pennzoil's marketing and fast oil change
businesses with Quaker State's, we expect to capture savings of between
$90 and $125 million by the end of the year 2000. We are on track to achieve
those savings."
Lubricants and Consumer Products
Lubricants and consumer products reported an excellent first quarter, with
recurring operating income of $46.6 million, a 128 percent increase compared
to $20.4 million last year. Including nonrecurring charges resulting from
one-time merger costs, reported operating income totaled $42.1 million. Year-
on-year, total revenue for lubricants and consumer products increased
115 percent, from $232.2 million to $498.9 million.
Year-on-year recurring operating income increased primarily because of the
acquisition of Quaker State Corporation. Higher lubricants and domestic
consumer products sales, combined with lower overall expenses, also
contributed significantly to the improvement.
Postl said, "Across the board, the first quarter was strong for lubricants
and consumer products. Our market shares were up, sales were up in every
division, and operating income exceeded our expectations."
Pennzoil(R) motor oil is now entering its 14th consecutive year as
America's number one selling motor oil with a trailing three month average
market share of 21.8 percent compared to 21.6 percent for the same period last
year. Quaker State(R) motor oil is firmly established as the number two
selling motor oil in the United States with a trailing three month average
market share of 15.9 percent, 1.5 market share points ahead of last year and
2.6 market share points ahead of the number three brand.
Branded motor oil sales increased significantly compared to last year,
with Pennzoil(R) motor oil sales increasing 4.6 percent, and Quaker State(R)
motor oil sales up 3.9 percent.
Other automotive consumer products divisions also enjoyed strong sales
increases. During the first quarter of 1999, Axius sales increased
21.3 percent, Medo sales increased 10.1 percent, Automotive Chemicals sales
increased 9.1 percent and Blue Coral/Slick-50/Rain-X sales increased
5.6 percent.
Fast Lube Operations
Fast lube operations had $2.9 million of recurring operating income on
revenues of $121.1 million during the first quarter of 1999. Recurring
operating income during the first quarter last year was $4.7 million on
revenues of $80.7 million. Year-on-year, revenues increased 50 percent
primarily reflecting the addition of Quaker State's Q Lube operations.
First quarter 1999 nonrecurring charges of $2.8 million primarily resulted
from one-time merger costs. Reported operating income for fast lube
operations was $0.1 million for the first quarter of 1999.
The year-on-year decline in recurring operating income was primarily due
to increased expenses. During the fourth quarter of 1998, the fast lubes
segment was reorganized, new company store management was added, emphasis was
placed on comparable store sales increases, and new operating disciplines
designed to reduce costs and increase margins were implemented. As a result,
first quarter 1999 results reflect an improvement over the fourth quarter
1998. "We are beginning to see improvement in fast lube operations' results,
mostly because of our renewed focus on improving profitability through top
line growth and greater efficiency. First quarter results were not where we'd
like them to be, but the business is making good progress," said Postl.
Base Oil and Specialty Products
Base oil and specialty products reported a recurring operating loss of
$4.4 million compared to recurring operating income of $4.4 million in 1998.
Nonrecurring restructuring charges totaled $1.6 million for the first quarter
of 1999.
Including nonrecurring charges, base oil and specialty products reported
an operating loss of $6.0 million for the first quarter of 1999. Total
revenue for the quarter was $156.0 million, a decline of 18.6 percent compared
to the first quarter of 1998. Base oil and specialty products operating
expenses declined during the first quarter compared to last year; however,
these improvements were offset by weak refining margins.
Pennzoil-Quaker State Company is a leading worldwide automotive consumer
products company that markets Pennzoil(R) and Quaker State(R) brand motor
oils, the number one and number two selling motor oils in the United States.
Jiffy Lube, a wholly owned subsidiary of Pennzoil-Quaker State Company, is the
world's largest fast lube operator and franchiser. Pennzoil-Quaker State
Company also markets a complete line of automotive car care products including
Axius(TM) auto accessories, Blue Coral(R) and Classic(R) waxes and washes,
Black Magic(R) and Westley's(R) tire and wheel care products, Fix-A-Flat(R)
tire sealants, Medo(R) air fresheners, Rain-X(R) glass treatments, Gumout(R),
Snap(R) and The Outlaw(R) maintenance chemicals and Slick-50(R) engine
treatments.
The following are the unaudited results of operations for the quarter
ended March 31, 1999 compared with the same period in 1998.
Three Months Ended
March 31
1999 1998 (A)
(Expressed in thousands
except per share amounts)
REVENUES
Lubricants and Consumer Products $498,947 $232,247
Base Oil and Specialty Products 156,033 191,650
Fast Lube Operations 121,099 80,710
Other (906) (1,469)
Intersegment sales (51,292) (59,696)
Total revenues $723,881 $443,442
OPERATING INCOME
Lubricants and Consumer Products $42,078 $20,405
Base Oil and Specialty Products (5,978) 4,435
Fast Lube Operations 112 4,650
Other 3,529 (742)
Total operating income 39,741 28,748
Corporate administrative expenses 21,812 9,467
Interest charges, net 17,741 16,746
Income before income tax 188 2,535
Income tax provision 2,407 1,936
NET (LOSS) INCOME $(2,219) $599
BASIC AND DILUTED
EARNINGS (LOSS) PER SHARE $(0.03) $0.01
AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 77,648 47,847
END OF PERIOD SHARES OUTSTANDING - BASIC 77,697 47,847
(A) Excludes Quaker State Corporation results.
PENNZOIL - QUAKER STATE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
1999 1998
(Expressed in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 219,343 $ 14,899
Receivables 376,934 291,997
Inventories
Crude oil 13,457 6,911
Petroleum Products 303,394 299,601
Materials and supplies 12,996 12,422
Deferred income taxes 47,413 47,413
Other current assets 66,405 63,328
Total current assets 1,039,942 736,571
Net, property, plant, and equipment 1,013,797 1,032,076
Deferred income taxes 34,693 36,614
Goodwill 1,092,799 1,104,353
Other assets 209,068 235,380
TOTAL ASSETS $3,390,299 $3,144,994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term
debt $ 1,338 $ 1,283
Accounts payable and accrued
liabilities 266,610 245,721
Payroll accrued 28,661 18,734
Other current liabilities 126,480 147,609
Total current liabilities 423,089 413,347
Other long-term debt, less current
maturities 1,281,329 1,026,054
Capital lease obligations 72,508 74,464
Other liabilities 276,033 280,922
TOTAL LIABILITIES 2,052,959 1,794,787
SHAREHOLDERS' EQUITY 1,337,340 1,350,207
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $3,390,299 $3,144,994
PENNZOIL - QUAKER STATE COMPANY
CASH FLOW FROM OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
1999 1998(A)
(Expressed in thousands)
Description
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,219) $599
Adjustments to net income
Depreciation and amortization 33,514 17,764
Deferred income tax 1,815 5,840
Partnership distributions in excess of
(less than) earnings (980) 1,054
Non-cash items and other non-operating items 2,963 6,748
Changes in assets and liabilities (87,264) (45,341)
NET CASH FROM OPERATING ACTIVITIES (52,171) (13,336)
CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES:
Capital expenditures (11,343) (16,370)
Net debt increase 253,514 12,096
Proceeds from the sales of assets 30,479 11,200
Dividends paid (14,560) ---
Other (1,475) 7,267
Total Cash Flow 204,444 857
Beginning Balance 14,899 9,132
Ending Balance $219,343 $9,989
(A) Excludes Quaker State Corporation results.
PENNZOIL - QUAKER STATE COMPANY
OPERATING HIGHLIGHTS
(UNAUDITED)
Three Months Ended
March 31
1999 1998(A)
OPERATING DATA
LUBRICANTS AND CONSUMER PRODUCTS
Total revenues (in thousands):
Lubricants $ 355,904 $ 191,608
Consumer Products 93,100 12,979
International 49,943 27,660
Total revenues $ 498,947 $ 232,247
Operating income (excludes unallocated division overhead) (in thousands):
Lubricants $ 36,538 $ 24,687
Consumer Products 10,386 2,551
International 1,633 (1,652)
Total operating income $ 48,557 $ 25,586
FAST LUBE OPERATIONS
Domestic systemwide sales
(in thousands) $ 259,048 $ 191,847
Same center sales Jiffy Lube
(in thousands) $ 193,503 $ 190,447
Centers open 2,127 1,537
(A) Excludes Quaker State Corporation statistics.
PENNZOIL - QUAKER STATE COMPANY
OPERATING HIGHLIGHTS
(UNAUDITED)
Three Months Ended
March 31
1999 1998 (A)
OPERATING DATA
BASE OIL AND SPECIALTY PRODUCTS
Raw materials processed (barrels per day) 60,983 71,143
Refining capacity (barrels per day) 76,000 76,000
Refiner's margin ($ per barrel) $7.80 $8.00
Operating costs ($ per barrel) $5.82 $5.78
Depreciation ($ per barrel) $1.35 $1.12
Refinery Feedstocks:
Paraffinic Crude Oil 70% 71%
Naphthenic Crude Oil 8% 7%
Other Feedstocks and Blendstocks 22% 22%
Refinery Yields:
Gasolines 29% 30%
Distillates 31% 33%
Lube Base Stocks 25% 23%
Waxes 3% 3%
Other Products 12% 11%
Market Data
WTI Crude Oil $13.06 $15.92
3-2-1 crack spread ($ per barrel) (B) $1.41 $2.57
Base oil gross margin ($ per barrel) (C) $19.03 $20.29
(A) Excludes Quaker State Corporation statistics.
(B) Regular unleaded gasoline and low sulphur diesel vs. WTI crude oil.
(C) Exxon 100N posting vs WTI crude oil.