Quaker State Corporation

views updated May 09 2018

Quaker State Corporation

255 East John Carpenter Freeway,
Irving, Texas 75062
U.S.A.
(972) 868-0400
Fax: (972) 868-0440
Web site: http://www.quakerstate.com

Public Company
Incorporated: 1931
Employees: 4,460
Sales: $1.2 billion (1996)
Stock Exchanges: New York Pacific
SICs: 2911 Petroleum Refining; 1222 Bituminous Coal-Underground; 6351 Surety Insurance; 7549 Automotive Services Not Elsewhere Classified

Quaker State Corporation is a leading producer and marketer of motor oil to international markets. The company also operates quick oil change centers, markets engine and fuel treatments, and manufactures and markets car wash products, car air fresheners, and automotive safety lighting equipment. Second in size to Pennzoil, Quaker State is engaged in what its dynamic CEO, Herbert Baum, characterizes as a guerilla war for the top ranking among U.S. motor oil companies.

19th-century Origins

Quaker State’s origins may be traced to the founding of Oil City, Pennsylvania, in the 19th century. Oil was first discovered there in 1859 by “Colonel” Edwin Drake, bringing instant prosperity to the region. As evidence of this growth, the census for Oil City registered 12 families in 1860; five years later, the town had a population of 6,000. Derricks were set up within a few feet of each other, and barges loaded with newly drilled oil rushed en masse from the oil fields down the Pioneer Run Creek, creating a traffic jam at Oil City on their way to the mouth of the Allegheny River. Such expansion and competition continued into the 20th century.

The name “Quaker State” was coined in 1912 when T. G. Phinny of Phinny Brothers Oil Company of Oil City used the name to distinguish his product from that of rival marketers. The following year Phinny answered a call from the Franklin Automobile Company of Syracuse, New York, for a quality motor oil that would meet its vehicles’ particular lubricating needs; until Quaker State, no oil product could successfully lubricate the Franklin cars.

In 1914 Franklin signed a contract with Phinny and Eastern Refining, securing an exclusive supply of Pennsylvania grade crude oil for its vehicles. Soon thereafter, through a 1915 advertisement in the Saturday Evening Post, Quaker State became a nationally known brand. The advertisement read: “The Franklin requirements were severe. Many oils were tested, but Quaker State alone met these requirements.” The notice then went on to explain Quaker State’s unique attributes, and asked Franklin owners to ask their nearest dealer for the product. It concluded: “Quaker State is certified and guaranteed to be the highest known quality oil suitable for every engine purpose. It prolongs the life of the motor. Will not burn before lubricating. Gives practically double mileage. Prevents engine overheating. Cuts oil bills.”

Company Formation in the 1920s

In 1924 the Eastern Refining Company purchased the Quaker State brand name and renamed itself the Quaker State Oil Refining Company. The Quaker State Corporation was formed seven years later on July 1, 1931, when Chicago stockbroker Charles Pape brought together 19 regional oil drillers, offering each company 55,000 shares in the new corporation they could form by merging their refining or marketing facilities to create a well-balanced company. The firms participating in the founding of Quaker State Corporation included the Eastern Refining Company, Sterling Oil Company of West Virginia, Ohio Valley Refining Company, Enterprise Oil Company Inc., Independent Refining Company, Lake Erie Lubricants Inc., Iron City Oil Company, Gallagher Bros. Inc., and Appaline Oil Company.

Quaker State’s first president was Harry Crawford, part owner of President Oil Company, and in his first year in this capacity, Quaker State ran up $6.8 million in sales. Its profit line represented a fine rate of return, and bode well for the company’s future.

In 1936 Quaker State signed an agreement with the Standard Oil Company to act as the company’s exclusive sales agents for the its oil products in 13 Midwestern states. The new partner would later put all Quaker State products in its gas stations throughout the United States. Also that year the company was listed on the New York Stock Exchange.

Quaker State’s original charter said nothing about drilling and production of oil products, and until 1944, Quaker State bought its supply of oil from independent producers. But in that year, increased wartime demand for energy use led the company to buy the Forest Oil Company’s crude oil drilling facilities situated around Bradford, Pennsylvania. Since that time, the company has drilled and produced around 20 percent of its oil supply.

Wartime demand also led to the increased use of additives in Quaker State oil products. In 1940 the company introduced a motor oil with greater chemical stability, which it called Stabilized Quaker State Motor Oil. A year later, the company brought to the market Quaker State HD High Detergency Oil. After 1945 the growth of the U.S. car industry and the size of car engines themselves prompted innovations in oil products production. In 1954 Quaker State introduced an oil product with anti-wear, anti-rust, anti-corrosive, and high detergency ingredients.

By 1960, sales for Quaker State were on average surpassing the $50 million mark, representing an eightfold increase in the 30 years since the company was first established. Innovations during the 1960s included the introduction of Quaker State DeLuxe Motor Oil and Quaker Koat, an undercoating for cars. In 1964 Quaker State decided to diversify its business, and it purchased Truck-Lite Company, based in Falconer, New York, which made fancy lights fitted onto trucks, trailers, and tractors.

Expansion in the 1970s-80s

In 1970 sales for the company topped $120 million, with profits of $10.7 million. At this time, Quaker State expanded its production capacity to meet growing demand for its products. In 1972 it opened the Congo Refinery at Newell, West Virginia, which represented at the time the most modern, specialized lubricant refinery on the continent. Providing a company-wide increase of 75 percent in refining capacity, the Congo refinery allowed sales for Quaker State to reach $300 million in 1975.

Increasing government regulation of the company’s core motor oil and auto supply businesses prompted diversification yet again. In May 1976 the Valley Camp Coal Company, based in Cleveland, Ohio, was purchased for around $50 million, offering vast coal reserves in the eastern and western United States. Also during this time, Quaker State built its current headquarters on Elm Street in Oil City and bought three additional car parts suppliers: Corn Brothers of Smyrna, Georgia; National Oil Company of Newark, New Jersey; and Texstar Automotive Corporation, based in St. Louis, Missouri.

By the early 1980s, Quaker State had taken the big step of marketing its motor oil products across North America in such mass merchandise and discount outlets as Woolco and Kmart. Its products included air, gasoline, and oil filters as well as antifreeze, specialty oils for high-performance cars, fuel additives, exterior and interior coatings, hand cleaners, and cooling system and air conditioning products. Moving into mass merchandising caused much debate within the Quaker State boardroom. As Quentin Wood, chair of the oil products company, recalled in 1986: “finally everyone recognized that the ultimate choice was not to forsake the garage mechanics and auto dealers and service stations who had sold our products from the beginning, but to stay with them and move also into mass merchandising.” The move allowed Quaker State to double its market share of the North American motor oil market from ten percent in 1980 to 20 percent by mid-decade.

Quaker State also diversified its business by purchasing the Heritage Insurance Group in 1984 in return for 2.4 million shares of the motor oil company’s stock. Headquartered in Agoura Hills, California, Heritage sold life, health, and accident insurance to car owners.

In 1985 Quaker State purchased The Helen Mining Company, a coal producer headquartered in Homer City, Pennsylvania, and gained a 17-year contract to supply coal to a nearby utility plant. That year Quaker State also responded to the emerging environmental movement by replacing the traditional metal packaging of its retail motor oil products with resealable “Easy Flow” plastic containers which did not drip or leak, adding to consumer convenience. The container’s clear side stripe along the edge functioned as a measurement gauge.

Company Perspectives:

Quaker State Corporation commits its business reputation to the highest standards of ethical behavior. We are dedicated to the following core values: 1. Treating our employees and outside business associates with the utmost respect, fairness and courtesy… promoting equal opportunity for all. 2. Maintaining the highest possible moral and ethical standards and acting with honesty and integrity in everything we do. 3. Complying with all applicable laws and conducting ourselves as good citizens in the communities where we live and work around the world. 4. Protecting and preserving the environment and our natural resources now and for the long term. 5. Setting and achieving quality standards that will enhance our products, our services, and our corporate reputation. 6. Embracing change, pursuing innovation, and experimenting with new ideas to improve our business performance. 7. Undertaking only those projects and work practices that we can perform safely and in a competent and professional manner.

Also in 1985, Quaker State moved into the car aftersales market, bringing new products and services to car owners. Acquiring 1.4 million shares of the Salt Lake City-based Minit-Lube Inc., Quaker State proposed to operate quick oil-change centers under the Minit-Lube brand name. Up to 14 different services would be offered at these outlets—including oil change, chassis lubrication, and fluid and filter replacements—all performed in under ten minutes. As Quentin Wood said of this expansion in 1986: “We’re working hard to take advantage of opportunities to leverage our brand name into a growing number of products and services. Quaker State intends to remain the market leader in motor oil, and intends to become a leader in other automotive products as well.”

The following year, Quaker State raised its profile by sponsoring its own stock car on the U.S. NASCAR racing circuit. It also began running year-round advertising spots during televised sports programs, also intended to boost its profile among motor oil users.

For all its mid-1980s expansion, however, Quaker State did not anticipate the recession at the end of the decade. A marked reduction in sales and profits began in 1989, and the year was regarded by Jack Corn, vice-chairman and CEO, as “difficult and disappointing.” While Quaker State purchased Sturdivant Life Insurance Company, to bolster the car insurance side of the corporation, and McQuik’s Oilube Inc., to complement its Minit-Lube chain of outlets, the company was hit hard by price cutting in the fast lube business nationwide. A $1.7 million Write-down of Minit Lube assets had to be made.

Reorganization: The 1990s and Beyond

Quaker State also announced in 1989 a reorganization of the company into five business units: Quaker State Oil Refining Corporation, Quaker State Minit Lube, Heritage Insurance Group, Truck-Lite Company, and an energy unit made up of The Valley Camp Coal Company and gas and oil development. Reorganization and cost cutting enabled Quaker State to boost sales in 1990 by 6.7 percent to just under $875 million, with profits up 65 percent to $19.5 million, despite a poor market for motor oil products in general and the decline of new car and truck purchases adversely affecting the fast lube business.

In January of that year, the company’s core petroleum business was spun off from the parent company, and given the name Quaker State Oil Refining Corporation. Four months later, Quaker State sold its McKean refinery and Emlenton wax plant for a profit of $5.4 million, relying more heavily on its Congo Refinery at Newell, West Virginia. Persistent problems with facilities at the company’s Valley Camp Coal Company operation, including a major roof fall, in addition to start-up problems at the Shrewsbury Mine, caused an operating loss of $4.1 million on the coal mining side of operations.

The recession also produced disappointments for Quaker State in 1991. In fact, oil drilling and production was the only profitable area in the company’s portfolio, and intense price wars between oil refiners during the late 1980s, especially after the Persian Gulf War began, eventually hit that part of the business. In 1991 the motor oil business produced 92 percent of operating profits for the company; all other sectors were either losing money or just barely profitable. Corn observed that “1991 as a year was a big disappointment. But we think we know what’s ailing the units where we didn’t do well and are correcting the problems.”

Nevertheless, the coal business continued in a slump, and during the summer of 1992, Quaker State announced that not only would it seek a buyer for the Valley Camp Coal Company, but also that the unprofitable Shrewsbury Coal Company was to be closed down. Corn announced his retirement. His duties were handled by Conrad A. Conrad until the following year, when Herbert M. Baum was recruited from the Campbell Soup Company to take over the positions of chairman and CEO. Charged with regaining Quaker State’s former leadership among U.S. motor oil companies, Baum proclaimed, “My top priority is to put a little power behind this brand.”

More than a little power was needed. Quaker State’s earnings had fallen by more than $50 million since 1986, to only $9.4 million in 1992, and sales had dropped by more than 25 percent, to $724 million. Baum’s strategy for gaining market share—which stood at about 13.5 percent—leaned heavily on marketing, including plans for outdoor advertising and attracting younger customers by advertising on MTV. Baum hired actor Burt Reynolds as a pitchman to raise the brand’s profile. “What we’re going to have is a very focused, but very expensive marketing program,” he stated.

The investment paid off after just a few months, as Quaker State’s net income for the quarter ending September 30, 1993, quadrupled over the previous year, to $3.98 million. Baum’s revitalization of the company included the corporate culture, which became visibly innovative and enthusiastic; indeed, the company began calling itself “The New Quaker State.” In February 1994, Baum introduced a new logo, calling it a “visible sign of the dynamic changes we are making at The New Quaker State.”

During 1994 Quaker State sold its Heritage Insurance Group to GE Capital for $85 million and purchased Specialty Oil Corp. for $90 million. Specialty Oil was expected to add $350 million to Quaker State’s annual revenues. Also that year, Quaker State introduced a co-branded Visa card, a no-fee card with a one percent rebate on all purchases that was awarded in the form of coupons for free oil changes and motor oil. At year’s end, Quaker State’s profits had risen 37 percent to $18.8 million, and sales had risen twenty percent to $755.3 million. Market share had increased to 14.3 percent.

In early 1995, Quaker State announced even greater changes: a restructuring to consolidate operations from recent acquisitions and a move from its headquarters in Oil City, Pennsylvania to Dallas, Texas. Quaker State also announced that it would sell its natural gas operation in order to focus on lubricants. In October 1995 the company sold a $100 million, ten-year bond issue.

In 1996 Quaker State reached agreements to purchase Blue Coral, Inc., a maker of car cleaning products; Quaker Supreme Chemical Corporation, a maker of automotive chemicals and lubricants; and Medo Company, a maker of automobile air-fresheners. In July of that year, the Federal Trade Commission alleged that Quaker State’s advertising claims for its Slick 50 lubricant were overstated and unsubstantiated. The ads maintained that Slick 50 extended the life of an engine, among other benefits. The company agreed to avoid such claims in the future and to offer Slick 50 customers at least $10 million in rebates. Quaker State posted 1996 revenues of $1.2 billion, up from $1 billion the year before, and net income of $13.7 million, up from $12.1 million in 1995.

Not satisfied with its remarkable turnaround, in 1997 Quaker State was continuing its aggressive push to surpass Pennzoil as the leading U.S. motor oil company. Reflecting on the changes he had effected, Baum stated: “Probably 30 days after I arrived, it occurred to me that Quaker State was making $600 million in sales and making one percent after tax. If I had known how bad it was,” he joked, “I would have stayed at Campbell Soup.” He then reiterated his credo: “There is no other primary motor oil company other than Quaker State. Everybody else is bigger and has deeper pockets. So, we see ourselves as guerilla fighters.”

Principal Subsidiaries

Blue Coral, Inc.; Blue Coral International, Limited; Blue Coral Systems, Inc.; Medo Industries, Inc.; Q Lube, Inc.; Quaker State, Inc.; Quaker State Japan Co., Ltd.; Quaker State Lubricants; Truck-Lite Company, Inc.; Valley Camp, Inc.

Quaker State Corporation

views updated May 17 2018

Quaker State Corporation

P.O. Box 989
255 Elm Street
Oil City, Pennsylvania 16301
U.S.A.
(814) 676-7676
Fax: (814) 676-7030

Public Company
Incorporated: 1931
Employees: 4460
Sales: $813.6 million (1991)
Stock Exchanges: New York Pacific
SICs: 2911 Petroleum Refining; 1222 Bituminous Coal-Underground; 6351 Surety Insurance; 7549 Automotive Services Nec.

Quaker State Corporation is an independent refiner and marketer of Pennsylvania grade motor oil. It produces, refines, and markets petroleum and associated products to international markets. It also operates coal mining, gas drilling, and production facilities, truck and car lighting equipment companies, and insurance and quick oil change centers. Quaker State oil products are derived from a field on the western slope of the Appalachian mountains, comprising parts of western Pennsylvania, West Virginia, eastern Ohio, and southwestern New York. There are 1,300 wells of varying sizes throughout the region, producing 450,000 barrels of oil in total, as well as four refineries, allowing for easy access and keeping transportation costs low. Quaker State also operates 302 gas wells in the Pennsylvania area. Pennsylvania crude oil, generally free of sulphur, tar, asphalt, and other impurities, is noted for its stable paraffin base, particularly useful in engines running at higher than normal temperatures. Furthermore, Quaker State oil products have traditionally commanded a premium in price over other brands.

Quaker State’s origins may be traced to the founding of Oil City, Pennsylvania, in the nineteenth century. Oil was first discovered there in 1859 by “Colonel” Edwin Drake, bringing instant prosperity to the region. As evidence of this growth, the census for Oil City registered 12 families in 1860; five years later, the town had a population of 6,000. Derricks were set up within a few feet of each other, and barges loaded with newly-drilled oil rushed en masse from the oil fields down the Pioneer Run Creek, creating a traffic jam at Oil City on their way to the mouth of the Allegheny River. Such expansion and competition continued into the twentieth century.

The name “Quaker State” was coined in 1912 when T. G. Phinny of Phinny Brothers Oil Company of Oil City used the name to distinguish his product from that of rival marketers. The following year Phinny answered a call from the Franklin Automobile Company of Syracuse, New York, for a quality motor oil that would meet its vehicles particular lubricating needs; until Quaker State, no oil product could successfully lubricate the Franklin cars.

In 1914 Franklin signed a contract with Phinny and Eastern Refining, securing an exclusive supply of Pennsylvania grade crude oil for its vehicles. Soon thereafter, through a 1915 advertisement in the Saturday Evening Post, Quaker State became a nationally known brand. The advertisement read: ’ The Franklin requirements were severe. Many oils were tested, but Quaker State alone met these requirements.” The notice then went on to explain Quaker State’s unique attributes, and asked Franklin owners to ask their nearest dealer for the product. It concluded: “Quaker State is certified and guaranteed to be the highest known quality oil suitable for every engine purpose. It prolongs the life of the motor. Will not burn before lubricating. Gives practically double mileage. Prevents engine overheating. Cuts oil bills.”

In 1924, the Eastern Refining Company purchased the Quaker State brand name, and renamed itself the Quaker State Oil Refining Company. The Quaker State Corporation was formed seven years later on July 1, 1931, when Chicago stockbroker Charles Pape brought together 19 regional oil drillers, offering each company 55,000 shares in the new corporation they could form by merging their refining or marketing facilities to create a well balanced company. The firms participating in the founding of Quaker State Corporation included the Eastern Refining Company, Sterling Oil Company of West Virginia, Ohio Valley Refining Company, Enterprise Oil Company Inc., Independent Refining Company, Lake Erie Lubricants Inc., Iron City Oil Company, Gallagher Bros. Inc., and Appaline Oil Company.

Quaker State’s first president was Harry Crawford, part owner of President Oil Company, and in his first year in this capacity, Quaker State ran up $6.8 million in sales. Its profit line of $1.7 represented a fine rate of return, and bode well for the company’s future.

In 1936, Quaker State signed an agreement with the Standard Oil Company, today called Amoco, to act as the company’s exclusive sales agents for the its oil products in 13 midwestern states. The new partner would later put all Quaker State products in its gas stations throughout the United States. Also that year the company was listed on the New York stock exchange, denoted by the trading symbol KSF, which remains in use to this day.

Wartime demand led to the increased use of additives in Quaker State oil products. In 1940, the company introduced a motor oil with greater chemical stability, which it called Stabilized Quaker State Motor Oil. A year later, the company brought to the market Quaker State HD High Detergency Oil. After 1945, the growth of the U.S. car industry and the size of car engines themselves prompted innovations in oil products production. In 1954, Quaker State introduced an oil product with anti-wear, anti-rust, anti-corrosive and high detergency ingredients.

By 1960, sales for Quaker State were on average surpassing the $50 million mark, representing an eightfold rise on sales in the thirty years since the company was first established. Innovations during the 1960s included the introduction of Quaker State DeLuxe Motor Oil and Quaker Koat, an undercoating for cars. In 1964, Quaker State decided to diversify its business, and it purchased Truck-Lite Company, based in Falconer, New York, which made fancy lights fitted onto trucks, trailers, and tractors.

In 1970, sales for the company topped $120 million, with profits posted at $10.7 million. At this time, Quaker State expanded its production capacity to meet growing demand for its products. It opened the Congo Refinery at Newell, West Virginia, in 1972, which represented at the time the most modern, specialized, lubricant refinery on the continent. Providing a company-wide increase of 75 percent in refining capacity, the Congo refinery allowed sales for Quaker State to reach $300 million in 1975.

Increasing government regulation of the company’s core motor oil and auto supply businesses prompted diversification yet again. In May 1976, the Valley Camp Coal Company, based in Cleveland, Ohio, was purchased for around $50 million, offering vast coal reserves in eastern and western U.S. regions. Also during this time, Quaker State built its current headquarters on Elm Street in Oil City and bought three additional car parts suppliers: Corn Brothers of Smyrna, Georgia; National Oil Company of Newark, New Jersey; and Texstar Automotive Corporation, based in St. Louis, Missouri.

By the early 1980s, Quaker State had taken the big step of marketing its motor oil products across North America in such mass merchandise and discount outlets as Woolco and K-Mart. Its products included air, gasoline, and oil filters as well as antifreeze, specialty oils for high-performance cars, fuel additives, exterior and interior coatings, hand cleaners, and cooling system and air conditioning products. Moving into mass merchandising caused much debate within the Quaker State boardroom. As Quentin Wood, chair of the oil products company, recalled in 1986: “... finally everyone recognized that the ultimate choice was not to forsake the garage mechanics and auto dealers and service stations who had sold our products from the beginning, but to stay with them and move also into mass merchandising.” The move allowed Quaker State to double its market share of the North American motor oil market from ten percent in 1980 to 20 percent by mid-decade.

In 1985, Quaker State purchased The Helen Mining Company, a coal producer headquartered in Homer City, Pennsylvania, and gained a 17-year contract to supply coal to a nearby utility plant. That year Quaker State also responded to the emerging environmental movement by replacing the traditional metal packaging of its retail motor oil products with resealable “Easy Flow” plastic containers which did not drip or leak, adding to consumer convenience. The container’s clear side stripe along the edge functioned as a measurement gauge.

The following year, Quaker State raised its profile by sponsoring for the first time its own stock car on the U.S. NASCAR racing circuit. It also began running year-round advertising spots during televised sports programs, also intended to boost its profile among motor oil users.

For all its mid-1980s expansion, however, Quaker State did not anticipate the recession at the end of the decade. A marked reduction in sales and profits began in 1989, and the year was regarded by Jack Corn, vice chairperson and CEO, as “difficult and disappointing.” While Quaker State purchased Sturdivant Life Insurance Company, to bolster the car insurance side of the corporation, and McQuik’s Oilube Inc., to complement its Minit-Lube chain of outlets, the company was hit hard by price cutting in the fast lube business nationwide. A $1.7 million write-down of Minit Lube assets had to be made.

Quaker State also announced in 1989 a reorganization of the company to make five business units: Quaker State Oil Refining Corporation, Quaker State Minit Lube, Heritage Insurance Group, Truck-Lite Company, and an energy unit made up of The Valley Camp Coal Company and gas and oil development. Reorganization and costcutting enabled Quaker State to boost sales in 1990 by 6.7 percent to just under $875 million, and profits up 65 percent to $19.5 million, despite a poor market for motor oil products in general and the decline of new car and truck purchases adversely affecting the fast lube business.

The recession also produced disappointments for Quaker State in 1991. In fact, oil drilling and production was the only profitable area in the company’s portfolio, and intense price wars between oil refiners during the late 1980s, especially after the Persian Gulf War began, eventually hit that part of the business. In 1991, the motor oil business produced 92 percent of operating profits for the company; all other sectors were either losing money or just barely profitable. Corn observed that “1991 as a year was a big disappointment. But we think we know what’s ailing the units where we didn’t do well and are correcting the problems.” Nevertheless, the coal business has continued in a slump, and during the summer of 1992, Quaker State announced that not only would it seek a buyer for the Valley Camp Coal Company, but also that the unprofitable Shrewsbury Coal Company was to be closed down.

Regarding its future, Quaker State has proven willing and able to make all the cost-cutting and reorganizational measures necessary to survive the recession of the early 1990s. While this will serve as an advantage to the company, it will probably be a long time before Quaker State achieves sales as posted during the 1980s. A low debt load will allow it to expand, but growth will likely be organic for the most part. Meanwhile, Quaker State will continue to take full advantage of its brand name and its reputation for quality products in the next century.

Principal Subsidiaries

Quaker State Oil Refining Corp; Quaker State Minit Lube Inc.; The Valley Camp Coal Company; Heritage Insurance Group; Sturdivant Life Insurance Company; Truck-Lite Company Inc.; QS E&P, Inc.; Valley Camp Inc.; Great Lakes Coal and Dock Company; Quaker State Japan Co. Ltd.