Pennzoil-Quaker State Company Reports Q4 and Full Year 1999 Results
7 February 2000
Pennzoil-Quaker State Company Reports Fourth Quarter and Full Year 1999 Results; Fourth Quarter Revenues Rise 77 Percent; Synergy Targets Exceeded; New Consumer Products Launched
HOUSTON, Feb. 4 -- Pennzoil-Quaker State Company
today announced fourth quarter 1999 net income before nonrecurring charges of
$6.7 million, or 8 cents per basic share, compared to net income of
$3.5 million, or 7 cents per basic share, in 1998.
Total revenue for the fourth quarter was $765.1 million, 76.7 percent
above the fourth quarter of 1998. The increase in total revenue was primarily
due to the acquisition of Quaker State Corporation on December 30, 1998.
Cash earnings, defined as recurring net income plus after-tax amortization
of goodwill, were $12.9 million, or 16 cents per share, during the fourth
quarter of 1999.
The fourth quarter 1999 results include nonrecurring after-tax charges of
$324.9 million, primarily related to the previously announced $292.8 million
after-tax write-down of the company's Rouseville, Pa. and Shreveport, La.
refineries. The remaining nonrecurring charges of $32.1 million are 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 $318.2 million, or $4.08 per basic share, for
the fourth quarter of 1999 compared to a net loss of $53.2 million, or $1.11
per basic share, in the fourth quarter of 1998.
For the full year 1999, net income was $38.2 million before nonrecurring
charges, or 49 cents per basic share, compared to net income of $13.1 million,
or 27 cents per basic share, in 1998.
Total revenue was $3.0 billion for the full year 1999, a 61.6 percent
increase compared to 1998. The year on year increase in total revenue was
primarily attributable to Quaker State Corporation.
Cash earnings for the full year 1999 were $65.6 million, or 84 cents per
share.
The full year 1999 results include nonrecurring after-tax charges of
$359.1 million, primarily related to the write-down of the company's
refineries taken during the fourth quarter. The remaining nonrecurring
charges for the full year of $66.3 million are primarily associated with the
company's merger with Quaker State Corporation. For the full year 1999,
Pennzoil-Quaker State Company reported a net loss of $320.9 million, or
$4.12 per basic share, compared to net loss of $45.9 million, or 96 cents per
basic share, for 1998.
"We made significant progress in 1999, our first year as a new public
company," said James L. Pate, chairman and chief executive officer of
Pennzoil-Quaker State Company. Pennzoil-Quaker State Company established
itself as a consumer products organization with outstanding growth prospects.
The company moved quickly to complete a smooth integration of Pennzoil
Company's marketing, manufacturing and fast lube businesses with Quaker State
Corporation and achieved substantial synergies and efficiencies. We exceeded
our synergy targets for the year, launched several new and exciting products
and recently announced our first acquisition."
Pennzoil-Quaker State Company president and chief operating officer James
J. Postl added, "We achieved what we set out to do during our first full year
as a combined company. We put together a top-notch consumer products team at
the senior management level and formulated an aggressive yet achievable five-
year plan. By moving forward with the divestiture of our Shreveport and
Rouseville refineries, we continued to sharpen the company's focus on its core
automotive consumer products business. We launched new products like Pennzoil
Roadside(TM) Rescue(R) and Pennzoil(R) Synthetic with Pennzane(R), and we will
add a new product category to our portfolio with the acquisition of Sagaz, the
leading marketer of seat covers in the U.S."
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. Immediately following the distribution, Pennzoil-
Quaker State Company acquired Quaker State Corporation, the second largest
domestic marketer of motor oil and a leading marketer of automotive consumer
products. Results from operations of Quaker State Corporation are not
included in Pennzoil-Quaker State Company's 1998 results, but are included in
1999 results.
Pennzoil-Quaker State Company expects to achieve annualized pretax merger-
related synergies and efficiencies of $105 million, by the end of 2000. When
the merger was announced in April 1998, management targeted cost savings of
approximately $34 million for the full year 1999 and $75 million for 2000,
with all of the savings to be realized on an annual basis in 2001 and beyond.
Approximately $55 million of pretax merger-related synergies were realized
in 1999, exceeding Pennzoil-Quaker State's target of $34 million. For the
full year 2000, the company expects incremental savings of $20 million.
Lubricants and Consumer Products
Lubricants and consumer products reported fourth quarter operating income
of $41.8 million excluding nonrecurring charges, a 98 percent increase
compared to $21.1 million the previous year. Including nonrecurring charges
resulting from one-time merger costs, reported operating income totaled
$13.9 million. Fourth quarter total revenue for lubricants and consumer
products was $450.1 million, 92.8 percent above the previous year's
$233.4 million.
For the full year 1999, lubricants and consumer products reported
operating income of $197.9 million excluding nonrecurring charges, a
108 percent increase compared to $95.2 million in 1998. Total revenue was
$1.9 billion, 97.5 percent above the previous year's $964.3 million.
Recurring operating income for the fourth quarter and full year 1999
increased compared to year earlier levels primarily because of the acquisition
of Quaker State Corporation. Increases in Pennzoil(R) motor oil volumes as
well as in sales at all of the company's strategic business units also
contributed to the year-on-year improvement.
Pennzoil(R) motor oil continues as America's number one selling motor oil
for the 14th consecutive year. Pennzoil(R) motor oil sales volume increased
1.4 percent in the fourth quarter of 1999 and 3.2 percent for the full year.
Quaker State(R) motor oil continued to strengthen its position as America's
number two selling motor oil with its fourth straight year of market share
growth. Pennzoil(R) and Quaker State(R) motor oils combined have in excess of
37 percent of the market.
During the fourth quarter of 1999, Pennzoil-Quaker State Company launched
Pennzoil(R) Synthetic with Pennzane(R), a super lubricant developed for and
used by NASA in the space program. Pennzane(R) is now a part of the
Pennzoil(R) brand's full line of synthetic and synthetic blend products.
Pennzoil-Quaker State Company launched an important new safety product,
Pennzoil Roadside(TM) Rescue(R), during the fourth quarter of 1999. Recently
named one of Business Week magazine's "Top Products of 1999," Pennzoil
Roadside(TM) Rescue(R) Emergency Fuel Additive helps motorists who have run
out of gas. Drivers simply pour the product into their vehicle's fuel tank
while the engine is still hot, restart it and get back on the road in minutes.
Developed by Pennzoil-Quaker State Company scientists and engineers, the new
product is packaged in convenient half-gallon containers that are easily and
safely stored in the trunk of a car. Each half-gallon of Rescue(R) provides
enough fuel for most vehicles to travel nearly 10 miles to a service station
for a fill-up.
Included in the Lubricants and Consumer Products segment, Pennzoil-Quaker
State Company's international division had significantly improved results in
1999. For the fourth quarter, the international division's earnings before
nonrecurring charges were $3.7 million compared to a $2.2 million loss in
1998. For the full year 1999, the international division's earnings on a
recurring basis were $14.0 million compared to a $7.4 million loss in 1998.
These strong results were primarily due to the economies of scale and cost
savings achieved as a result of the acquisition of Quaker State Corporation's
international business. Also contributing to the improved results were higher
margins and increased revenues across most markets, and organizational
restructuring in some markets that lowered infrastructure costs while
maintaining volume.
Pennzoil-Quaker State Company announced on February 2, 2000 that it has
made its first international acquisition. The company's wholly owned
subsidiary, Pennzoil-Quaker State Australia Company, has acquired Auto
Fashions, a 25-year-old Australian automotive accessories firm. Auto Fashions
is a leader in the Australian automotive air freshener, sunshade and comfort
accessories market.
Fast Lube Operations
Fast lube operations reported fourth quarter operating income of
$4.6 million excluding nonrecurring charges, compared to a $4.7 million loss
for the same period the previous year. Including nonrecurring charges
resulting from one-time merger costs, fast lube operations reported an
operating loss of $15.2 million for the fourth quarter. Fourth quarter total
revenue for fast lube operations was $93.2 million, up 16.3 percent compared
to $80.1 million in the fourth quarter 1998. The year-on-year increases in
fourth quarter recurring operating income and total revenue primarily reflect
the addition of Quaker State Corporation's Q Lube operations.
For the full year 1999, fast lube operations reported operating income of
$17.5 million excluding nonrecurring charges, a 64 percent increase compared
to $10.7 million in 1998. Total revenue for 1999 was $429.3 million, an
increase of 27.8 percent compared to $335.9 million in 1998. The increases in
1999 recurring operating income and total revenue, compared to 1998, primarily
reflect the addition of Quaker State Corporation's Q Lube operations.
Fast lube operations achieved record system wide sales of $1.1 billion in
1999, compared to $817.6 million the previous year. Same company store sales
rose 4.0 percent during the fourth quarter as the company continued its
initiative to increase car counts and ticket averages while reducing store-
level labor and operating expenses.
Base Oil and Specialty Products
Base oil and specialty products reported fourth quarter operating income
of $7.9 million, compared to an operating loss of $0.1 million in the fourth
quarter 1998. Total revenue for the quarter was $281.1 million, a 67 percent
increase from $167.9 million for the fourth quarter 1998.
Nonrecurring charges for base oil and specialty products totaled
$482.3 million for the fourth quarter of 1999. Including these nonrecurring
charges, base oil and specialty products reported an operating loss of
$474.4 million.
For the full year 1999, base oil and specialty products reported an
operating loss of $2.5 million excluding nonrecurring charges, compared to
operating income of $14.3 million in 1998. Total revenue for the year was
$879.8 million, a 16 percent increase from $759.4 million in 1998.
Lower results compared to 1998 were due to extremely low margins for all
products, as crude oil prices increased dramatically in 1999. Base oil and
fuel gross margins matched 15-year lows. Poor refinery margins cost the
company $19.2 million in the fourth quarter and $80.1 million for the full
year, as compared to the same periods of 1998. The low margins were partially
offset by cost reduction efforts in all areas, with operating expenses in 1999
reduced by $43.6 million from 1998 levels. Lower inventories from working
capital reduction and reorganization efforts also helped to offset higher
product costs.
During the fourth quarter of 1999, the company took a pretax write-down of
$480 million related to the anticipated sale of its refineries. The after-tax
write-down totaled $293 million, reducing Pennzoil-Quaker State Company's
equity from $1.3 billion to $1.0 billion. As a result, depreciation and
amortization expense will be reduced by approximately $17 million in 2000.
Pennzoil-Quaker State Company is a leading worldwide automotive consumer
products company, marketing over 1,300 products with 20 leading brands in over
50 countries. The company 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 company recently introduced Pennzoil Roadside(TM) Rescue(R)
Emergency Fuel Additive, a safe, conveniently packaged emergency fuel additive
that transports out-of-gas vehicles about 10 miles from the side of the road
to safety. Pennzoil Roadside(TM) Rescue(R) was named one of Business Week's
Best Products of 1999.
The following are the unaudited results of operations for the quarter and
twelve months ended December 31, 1999 compared with the same periods in 1998.
Three Months Ended Twelve Months Ended
December 31 December 31
1999 1998 (A) 1999 1998 (A)
(Expressed in thousands except per share amounts)
REVENUES
Lubricants and Consumer
Products $ 450,073 $ 233,421 $1,904,517 $ 964,336
Base Oil and Specialty
Products 281,097 167,898 879,806 759,415
Fast Lube Operations 93,221 80,149 429,252 335,890
Other (1,830) (6,488) (4,937) (10,376)
Intersegment sales (57,507) (42,106) (219,706) (199,127)
Total revenues $ 765,054 $ 432,874 $2,988,932 $1,850,138
OPERATING INCOME (LOSS)
Lubricants and Consumer
Products $ 13,870 $ (16,736) $152,567 $55,923
Base Oil and Specialty
Products 5,555 (79) (13,154) 16,003
Fast Lube Operations (15,239) (16,601) (16,435) (4,054)
Impairment of long-lived
assets (480,000) (29,613) (480,000) (29,613)
Other (1,792) (5,862) 3,366 (8,099)
Total operating income
(loss) (477,606) (68,891) (353,656) 30,160
Corporate administrative
expenses 23,105 12,381 81,134 44,422
Interest charges, net 21,623 18,552 80,588 69,943
Loss before income tax (522,334) (99,824) (515,378) (84,205)
Income tax benefit (204,064) (46,672) (194,447) (38,338)
NET LOSS $(318,270) $ (53,152) $ (320,931) $ (45,867)
BASIC AND DILUTED
LOSS PER SHARE $ (4.08) $ (1.11) $ (4.12) $ (0.96)
AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 78,094 48,494 77,850 48,009
END OF PERIOD SHARES
OUTSTANDING - BASIC 78,286 77,620 78,286 77,620
(A) Excludes Quaker State Corporation results.
PENNZOIL - QUAKER STATE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, December 31,
1999 1998
(Unaudited)
(Expressed in Thousands)
ASSETS
Current assets
Cash and cash equivalents $ 20,155 $ 14,899
Receivables 312,320 291,997
Inventories 298,202 306,512
Materials and Supplies 11,063 12,422
Deferred income taxes --- 47,413
Other current assets 44,298 63,328
Total current assets 686,038 736,571
Net, property, plant and equipment 502,101 1,032,076
Deferred income taxes 272,677 36,614
Goodwill 1,065,143 1,104,353
Other assets 207,262 235,380
TOTAL ASSETS $ 2,733,221 $ 3,144,994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,080 $ 1,283
Accounts payable 210,700 245,721
Payroll accrued 28,328 18,734
Other current liabilities 129,295 147,609
Total current liabilities 369,403 413,347
Long-term debt less current maturities 1,026,153 1,026,054
Capital lease obligations 68,786 74,464
Other liabilities 319,011 280,922
TOTAL LIABILITIES 1,783,353 1,794,787
SHAREHOLDERS' EQUITY 949,868 1,350,207
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,733,221 $ 3,144,994
PENNZOIL - QUAKER STATE COMPANY
CASH FLOW FROM OPERATIONS
(UNAUDITED)
Three Months Ended Twelve Months Ended
December 31 December 31
1999 1998 (A) 1999 1998 (A)
(Expressed in thousands)
Description
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(318,270) $(53,152) $(320,931) $(45,867)
Adjustments to net loss
Depreciation and
amortization 39,235 20,881 134,761 77,210
Impairment of long-lived
assets 480,000 29,613 480,000 29,613
Deferred income tax
(benefit) (204,325) (59,235) (197,574) (38,814)
Partnership distributions
in excess of earnings 9,946 18,978 12,046 27,834
Non-cash items and other
non-operating items 37,701 63,204 52,108 75,442
Changes in assets and
liabilities (47,124) (119,104) (102,059) (221,605)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,837) (98,815) 58,351 (96,187)
CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES:
Capital expenditures (27,719) (44,991) (78,114) (88,340)
Payment of intercompany
indebtedness to affiliate --- (369,962) --- (369,962)
Net debt increase
(decrease) 35,325 507,749 (5,289) 519,083
Proceeds from the sales
of assets 10,301 8,557 105,815 26,539
Dividends paid (14,628) --- (58,375) ---
Other 619 5,718 (17,132) 14,634
Total Cash Flow 1,061 8,256 5,256 5,767
Beginning Balance 19,094 6,643 14,899 9,132
Ending Balance $ 20,155 $ 14,899 $ 20,155 $ 14,899
(A) Excludes Quaker State Corporation results.
PENNZOIL - QUAKER STATE COMPANY
OPERATING HIGHLIGHTS
(UNAUDITED)
Three Months Ended Twelve Months Ended
December 31 December 31
1999 1998 (A) 1999 1998 (A)
OPERATING DATA
LUBRICANTS AND CONSUMER PRODUCTS
Total revenues (in thousands):
Lubricants $328,662 $196,541 $1,382,702 $795,567
Consumer Products 70,566 11,394 309,346 55,599
International 53,433 25,799 215,123 113,056
Eliminations & Other (2,588) (313) (2,654) 114
Total revenues $450,073 $233,421 $1,904,517 $964,336
Operating income
(excludes unallocated division overhead)
(in thousands):
Lubricants $ 8,404 $ 20,906 $ 118,976 $102,286
Consumer Products 6,564 (27,250) 39,693 (19,729)
International 2,779 (8,465) 11,877 (13,722)
Total operating income $ 17,747 $(14,809) $ 170,546 $ 68,835
FAST LUBE OPERATIONS
Domestic systemwide sales
(in thousands) $291,138 $207,175 $1,100,524 $817,578
Same center sales Jiffy Lube
(in thousands) $212,011 $204,163 $ 829,029 $806,770
Centers open 2,144 1,588 2,144 1,588
(A)Excludes Quaker State Corporation statistics.
PENNZOIL - QUAKER STATE COMPANY
OPERATING HIGHLIGHTS
(UNAUDITED)
Three Months Ended Twelve Months Ended
December 31 December 31
1999 1998 (A) 1999 1998 (A)
OPERATING DATA
BASE OIL AND SPECIALTY PRODUCTS (B)
Raw materials processed
(barrels per day) 77,017 72,957 72,179 72,276
Refining capacity
(barrels per day) 76,000 76,000 76,000 76,000
Refiner's margin ($ per barrel) $4.96 $7.03 $5.39 $7.82
Operating costs ($ per barrel) $4.06 $5.65 $4.44 $5.77
Depreciation ($ per barrel) $0.68 $1.01 $1.03 $1.08
Refinery Feedstocks:
Paraffinic Crude Oil 61% 67% 64% 67%
Naphthenic Crude Oil 7% 6% 7% 7%
Other Feedstocks and Blendstocks 32% 27% 29% 26%
Refinery Yields:
Gasolines 27% 28% 27% 29%
Distillates 31% 31% 32% 31%
Lube Base Stocks 25% 27% 26% 26%
Waxes 2% 2% 2% 2%
Other Products 15% 12% 13% 12%
Market Data:
WTI Crude Oil $24.52 $12.92 $19.23 $14.43
3-2-1 crack spread
($ per barrel) (C) $1.93 $1.70 $1.94 $2.62
Base oil gross margin
($ per barrel) (D) $15.12 $20.29 $16.30 $19.87
(A) Excludes Quaker State Corporation statistics.
(B) Includes Pennzoil-Quaker State's 50% ownership in Excel Paralubes.
(C) Regular unleaded gasoline and low sulphur diesel vs. WTI crude oil.
(D) Exxon 100N posting vs WTI crude oil.