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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-QQuarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

|                                         |  |                            
|---------------------------------------- |  | ---------------------------
|For the Quarter Ended September 30, 2002 |  | Commission File No. 1-14501

PENNZOIL-QUAKER STATE COMPANY

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of incorporation or organization) |  | 76-0200625
(I.R.S. Employer Identification No.)

Pennzoil Place, P.O. Box 2967
Houston, Texas 77252-2967
(Address of principal executive offices)

Registrants telephone number, including area code: (713) 546-4000

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 the past 90 days. Yes [X]. No [   ].

Number of shares of stock were outstanding, as of latest practicable date, September 30, 2002:

Common Stock, par value $0.10 per share, 80,752,740 shares.



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TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                    
|                                                  | Item 1. Financial Statements                                                                 
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                       
|                                                  | Item 1. Legal Proceedings                                                                    
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                                        
|CERTIFICATIONS                                   
|Computation of Ratio of Earnings to Fixed Charges



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PART I. FINANCIAL INFORMATION




Item 1. Financial
Statements

PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)

|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |           |  
|--------------------------------------------------- | ------------------------------------------------------------ | - | ------------------------------------------------- | ------- | ----------------- | - | ------- | ------- | ---- | - | --------- | --------- | - | - | --------- | --------- | -
|                                                    |                                                              |   | Three Months Ended                                |         | Nine Months Ended
|                                                    |                                                              |   | September 30,                                     |         | September 30,    
|                                                    |                                                              |   |                                                   |         |                  
|                                                    |                                                              |   | 2002                                              |         | 2001              |   | 2002    |         | 2001
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |     
|                                                    |                                                              |   | (expressed in thousands except per share amounts)
|REVENUES                                            |                                                              | $ | 564,671                                           |         |                   | $ | 593,350 |         |      | $ | 1,718,679 |           |   | $ | 1,760,414 |          
|COSTS AND EXPENSES                                  |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|                                                    | Cost of sales (excluding depreciation and amortization)      |   |                                                   | 369,244 |                   |   |         | 404,177 |      |   |           | 1,127,596 |   |   |           | 1,220,890 |  
|                                                    | Selling, general and administrative                          |   |                                                   | 110,762 |                   |   |         | 112,922 |      |   |           | 337,556   |   |   |           | 345,934   |  
|                                                    | Depreciation and amortization                                |   |                                                   | 19,201  |                   |   |         | 24,970  |      |   |           | 50,390    |   |   |           | 80,604    |  
|                                                    | Taxes, other than income                                     |   |                                                   | 4,300   |                   |   |         | 3,541   |      |   |           | 12,591    |   |   |           | 10,654    |  
|                                                    | Interest charges, net                                        |   |                                                   | 22,596  |                   |   |         | 22,659  |      |   |           | 68,451    |   |   |           | 71,536    |  
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX |                                                              |   | 38,568                                            |         |                   |   | 25,081  |         |      |   | 122,095   |           |   |   | 30,796    |          
|Income tax provision                                |                                                              |   | 11,974                                            |         |                   |   | 21,018  |         |      |   | 45,874    |           |   |   | 21,326    |          
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|INCOME FROM CONTINUING OPERATIONS                   |                                                              |   | 26,594                                            |         |                   |   | 4,063   |         |      |   | 76,221    |           |   |   | 9,470     |          
|LOSS FROM DISCONTINUED OPERATIONS, net of tax       |                                                              |   |                                                  |         |                   |   | (3,782  | )       |      |   |          |           |   |   | (6,247    | )        
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|NET INCOME                                          |                                                              | $ | 26,594                                            |         |                   | $ | 281     |         |      | $ | 76,221    |           |   | $ | 3,223     |          
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|DIVIDENDS PER COMMON SHARE                          |                                                              | $ |                                                  |         |                   | $ | 0.0250  |         |      | $ | 0.0500    |           |   | $ | 0.4000    |          
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|NET INCOME                                          |                                                              | $ | 26,594                                            |         |                   | $ | 281     |         |      | $ | 76,221    |           |   | $ | 3,223     |          
|Other comprehensive income (loss) net of tax:       |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|                                                    | Foreign currency translation adjustment                      |   |                                                   | (882    | )                 |   |         | 889     |      |   |           | (4,721    | ) |   |           | (1,272    | )
|                                                    | Unrealized gain (loss) on investment
in securities and other |   |                                                   |        |                   |   |         | 95      |      |   |           | (91       | ) |   |           | (49       | )
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|                                                    | Total other comprehensive income (loss)                      |   |                                                   | (882    | )                 |   |         | 984     |      |   |           | (4,812    | ) |   |           | (1,321    | )
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          
|COMPREHENSIVE INCOME                                |                                                              | $ | 25,712                                            |         |                   | $ | 1,265   |         |      | $ | 71,409    |           |   | $ | 1,902     |          
|                                                    |                                                              |   |                                                   |         |                   |   |         |         |      |   |           |           |   |   |           |          

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET

|                                                   |                                      |   |                          |         |              |   |           |         | 
|-------------------------------------------------- | ------------------------------------ | - | ------------------------ | ------- | ------------ | - | --------- | ------- | 
|                                                   |                                      |   | September 30,            |         | December 31,
|                                                   |                                      |   | 2002                     |         | 2001        
|                                                   |                                      |   |                          |         |             
|                                                   |                                      |   | (unaudited)              |         |              |   |          
|                                                   |                                      |   | (expressed in thousands)
|ASSETS                                             |                                      |   |                          |         |              |   |           |        
|Current assets                                     |                                      |   |                          |         |              |   |           |        
|                                                   | Cash and cash equivalents            |   | $                        | 56,166  |              |   | $         | 86,412  | 
|                                                   | Receivables                          |   |                          | 364,701 |              |   |           | 269,515 | 
|                                                   | Inventories                          |   |                          | 210,247 |              |   |           | 199,641 | 
|                                                   | Other current assets                 |   |                          | 60,267  |              |   |           | 66,778  | 
|                                                   |                                      |   |                          |         |              |   |           |        
|Total current assets                               |                                      |   | 691,381                  |         |              |   | 622,346   |        
|Property, plant and equipment, net                 |                                      |   | 418,607                  |         |              |   | 438,981   |        
|Deferred income taxes                              |                                      |   | 231,714                  |         |              |   | 266,805   |        
|Goodwill                                           |                                      |   | 709,907                  |         |              |   | 714,939   |        
|Other intangibles                                  |                                      |   | 401,580                  |         |              |   | 401,261   |        
|Other assets                                       |                                      |   | 253,798                  |         |              |   | 251,985   |        
|                                                   |                                      |   |                          |         |              |   |           |        
|TOTAL ASSETS                                       |                                      | $ | 2,706,987                |         |              | $ | 2,696,317 |        
|                                                   |                                      |   |                          |         |              |   |           |        
|LIABILITIES AND SHAREHOLDERS EQUITY               |                                      |   |                          |         |              |   |           |        
|Current liabilities                                |                                      |   |                          |         |              |   |           |        
|                                                   | Current maturities of long-term debt |   | $                        | 88,670  |              |   | $         | 133,733 | 
|                                                   | Accounts payable                     |   |                          | 156,708 |              |   |           | 163,537 | 
|                                                   | Payroll accrued                      |   |                          | 18,788  |              |   |           | 14,058  | 
|                                                   | Other current liabilities            |   |                          | 163,994 |              |   |           | 141,936 | 
|                                                   |                                      |   |                          |         |              |   |           |        
|Total current liabilities                          |                                      |   | 428,160                  |         |              |   | 453,264   |        
|Total long-term debt, less current maturities      |                                      |   | 1,005,518                |         |              |   | 1,002,554 |        
|Capital lease obligations, less current maturities |                                      |   | 50,540                   |         |              |   | 55,329    |        
|Other liabilities                                  |                                      |   | 372,844                  |         |              |   | 420,619   |        
|                                                   |                                      |   |                          |         |              |   |           |        
|TOTAL LIABILITIES                                  |                                      |   | 1,857,062                |         |              |   | 1,931,766 |        
|                                                   |                                      |   |                          |         |              |   |           |        
|COMMITMENTS AND CONTINGENCIES                      |                                      |   |                          |         |              |   |           |        
|SHAREHOLDERS EQUITY                               |                                      |   | 849,925                  |         |              |   | 764,551   |        
|                                                   |                                      |   |                          |         |              |   |           |        
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY         |                                      | $ | 2,706,987                |         |              | $ | 2,696,317 |        
|                                                   |                                      |   |                          |         |              |   |           |        

The accompanying notes are an integral part of these condensed consolidated
financial statements.

The Condensed Consolidated Balance Sheet as of December
31, 2001 has been derived from audited financial statements.

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PENNZOIL-QUAKER STATE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

|                                               |                                                                                             |                                                                   |         |                          |          |      |         |         |         |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------- | ------------------------ | -------- | ---- | ------- | ------- | ------- | -
|                                               |                                                                                             |                                                                   |         | Nine Months Ended       
|                                               |                                                                                             |                                                                   |         | September 30,           
|                                               |                                                                                             |                                                                   |         |                         
|                                               |                                                                                             |                                                                   |         | 2002                     |          | 2001
|                                               |                                                                                             |                                                                   |         |                          |          |     
|                                               |                                                                                             |                                                                   |         | (expressed in thousands)
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES |                                                                                             |                                                                   |         |                          |          |      |         |        
|                                               | Net income                                                                                  |                                                                   | $       | 76,221                   |          |      | $       | 3,223   |        
|                                               | Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |                                                                   |         |                          |          |      |         |         |        
|                                               |                                                                                             | Depreciation and amortization                                     |         |                          | 50,390   |      |         |         | 54,125  |  
|                                               |                                                                                             | Amortization of goodwill                                          |         |                          |         |      |         |         | 18,391  |  
|                                               |                                                                                             | Amortization of intangibles determined
to have an indefinite life |         |                          |         |      |         |         | 8,088   |  
|                                               |                                                                                             | Deferred income tax                                               |         |                          | 46,281   |      |         |         | 15,503  |  
|                                               |                                                                                             | Earnings in excess of distributions from
equity investees         |         |                          | (15,171  | )    |         |         | (6,413  | )
|                                               |                                                                                             | Other non-cash items                                              |         |                          | 14,466   |      |         |         | 22,248  |  
|                                               |                                                                                             | Loss from discontinued operations                                 |         |                          |         |      |         |         | 10,326  |  
|                                               |                                                                                             | Changes in accounts receivable                                    |         |                          | (102,378 | )    |         |         | (60,561 | )
|                                               |                                                                                             | Changes in inventories                                            |         |                          | (13,167  | )    |         |         | (42,174 | )
|                                               |                                                                                             | Changes in accounts payable                                       |         |                          | 1,392    |      |         |         | (20,360 | )
|                                               |                                                                                             | Changes in other operating assets and liabilities                 |         |                          | (21,195  | )    |         |         | (20,339 | )
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        
|                                               | Net cash provided by (used in) operating activities                                         |                                                                   |         | 36,839                   |          |      |         | (17,943 | )      
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        
|CASH FLOWS USED IN INVESTING ACTIVITIES        |                                                                                             |                                                                   |         |                          |          |      |         |        
|                                               | Capital expenditures                                                                        |                                                                   |         | (34,785                  | )        |      |         | (38,437 | )      
|                                               | Acquisitions, net of cash acquired                                                          |                                                                   |         |                         |          |      |         | (700    | )      
|                                               | Proceeds from sales of assets                                                               |                                                                   |         | 14,068                   |          |      |         | 12,454  |        
|                                               | Other investing activities                                                                  |                                                                   |         | 4,404                    |          |      |         | 4,634   |        
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        
|                                               | Net cash used in investing activities                                                       |                                                                   |         | (16,313                  | )        |      |         | (22,049 | )      
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        
|CASH FLOWS USED IN FINANCING ACTIVITIES        |                                                                                             |                                                                   |         |                          |          |      |         |        
|                                               | Repayments of debt                                                                          |                                                                   |         | (46,763                  | )        |      |         | (67,400 | )      
|                                               | Dividends paid                                                                              |                                                                   |         | (4,009                   | )        |      |         | (31,613 | )      
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        
|                                               | Net cash used in financing activities                                                       |                                                                   |         | (50,772                  | )        |      |         | (99,013 | )      
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        
|NET CASH PROVIDED BY DISCONTINUED OPERATIONS   |                                                                                             |                                                                   |        |                          |          |      | 101,324 |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS      |                                                                                             |                                                                   | (30,246 | )                        |          |      | (37,681 | )      
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                                             |                                                                   | 86,412  |                          |          |      | 38,263  |        
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        
|CASH AND CASH EQUIVALENTS, end of period       |                                                                                             | $                                                                 | 56,166  |                          |          | $    | 582     |        
|                                               |                                                                                             |                                                                   |         |                          |          |      |         |        

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1)  General -

The Managements Discussion and Analysis of Financial Condition and
Results of Operations which follows these notes contains additional information
on the results of operations and the financial position of Pennzoil-Quaker
State Company, a Delaware corporation (Pennzoil-Quaker State or the
Company). Those comments should be read in conjunction with these notes.
The Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2001 includes additional information about the Company, its operations, and its
financial position, and should be read in conjunction with this quarterly
report on Form 10-Q. The foregoing financial statements include only normal
recurring accruals and all adjustments which Pennzoil-Quaker State considers
necessary for a fair presentation.

In order to conform with the current year presentation, certain prior
period items have been reclassified in the condensed consolidated financial
statements in accordance with the issuance of Emerging Issues Task Force issue
01-9 entitled, Accounting for Consideration Given by a Vendor to a Customer or
a Reseller of the Vendors Products which addresses when sales incentives and
discounts should be recognized, as well as where the related revenues and
expenses should be classified in the financial statements.

(2)  Merger with Shell Oil Company -

On September 27, 2002, the U.S. Federal Trade Commission (FTC) gave
conditional approval of the proposed acquisition of Pennzoil-Quaker State by
Shell Oil Company, a Delaware corporation and a wholly owned member of the
Royal Dutch/Shell Group of companies, (Shell Oil). Under the terms of the
order with the FTC, Shell Oil has agreed that it will divest itself of
Pennzoil-Quaker States 50 percent ownership interest in Excel
Paralubes, a base oil processing facility that is owned and operated
by a joint venture between
Conoco Inc. and Pennzoil-Quaker State. As of October 1, 2002, Excel Paralubes
has been operated as a held separate joint venture by a third party appointed
by the FTC. In addition, the consent order froze Pennzoil-Quaker States
ability to increase Group II oil obtained through an existing agreement with
ExxonMobil Corp.

On October 1, 2002, Shell ND Company, a Delaware corporation and a wholly
owned subsidiary of Shell Oil was merged with and into Pennzoil-Quaker
State (the Merger), with the Company continuing as the surviving corporation.
As a result of the Merger, the Company is now a wholly owned subsidiary of
Shell Oil. Pursuant to the Merger, each share of the Companys common stock
outstanding immediately prior to the Merger was converted into the right to
receive $22.00 in cash, without interest. Approximately $1.8 billion was
required to pay the consideration for shares of the common stock pursuant to
the Merger.

In conjunction with the Merger, the Company incurred $7.2 million in
pretax acquisition costs through September 30, 2002. Upon the change of
control, the Company became obligated to make payments of approximately $216.3
million related to outstanding equity awards, including accelerated vesting of
options, bonuses, excise tax reimbursement, severance and deferred compensation
to certain current and former employees of the Company. Additionally, the
Company became obligated to pay approximately $13.5 million in merger related
investment banking fees. On October 1, 2002, a member of the
Royal Dutch/Shell
Group of Companies established an intercompany credit facility to provide the
necessary funds to make these payments. As of November 8, 2002, $194.2 million
of the estimated $216.3 million obligation had been paid.

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PART I. FINANCIAL INFORMATION  continued

(3)  New Accounting Standards -

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 requires entities to record the
fair value of a liability for legal obligations associated with the retirement
obligations of tangible long-lived assets in the period in which it is incurred
and the corresponding cost capitalized by increasing the carrying amount of the
related asset. The liability is accreted to the fair value at the time of
settlement over the useful life of the asset, and the capitalized cost is
depreciated over the useful life of the related asset. If the liability is
settled for an amount other than the recorded amount, a gain or loss is
recognized. The standard is effective for fiscal years beginning after June
15, 2002, with earlier application encouraged. The Company is currently
evaluating the impact of adopting SFAS No. 143 on its financial position and
results of operations.

In May 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds the automatic treatment of gains or losses from
extinguishment of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB Opinion No. 30, Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
As allowed under the provisions of SFAS 145, the Company has decided to early
adopt SFAS 145 relating to the extinguishment of debt (see Note 8).



|(4) |  | Goodwill and Other Intangible Assets 
|--- |  | --------------------------------------

At September 30, 2002 goodwill and other intangible assets consist
of the following (expressed in thousands):

|                   |  |                          |           |              |  |             |          |   |  |   |           | 
|------------------ |  | ------------------------ | --------- | ------------ |  | ----------- | -------- | - |  | - | --------- | 
|                   |  | As of September 30, 2002
|                   |  |                         
|                   |  |                          |           |              |  | Accumulated |          |   |  |  
|                   |  | Asset                    |           | Amortization |  | Net        
|                   |  |                          |           |              |  |            
|Goodwill           |  | $                        | 840,295   |              |  | $           | (130,388 | ) |  | $ | 709,907   | 
|Tradenames (a)     |  |                          | 431,155   |              |  |             | (32,333  | ) |  |   | 398,822   | 
|Trademarks         |  |                          | 2,951     |              |  |             | (454     | ) |  |   | 2,497     | 
|Licensee agreement |  |                          | 403       |              |  |             | (142     | ) |  |   | 261       | 
|                   |  |                          |           |              |  |             |          |   |  |   |           | 
|Total              |  | $                        | 1,274,804 |              |  | $           | (163,317 | ) |  | $ | 1,111,487 | 
|                   |  |                          |           |              |  |             |          |   |  |   |           | 



|(a) |  | Tradenames are not being amortized under SFAS No. 142. Tradenames are deemed to have an indefinite useful
life because they are expected to contribute to cash flows indefinitely. Therefore, tradenames would not be
amortized until their useful life is no longer indefinite. Tradenames are tested for impairment in
accordance with SFAS No. 142.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Estimated amortization expense for each of the years ended December 31,
2002 through 2006 is $83,000.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement modifies existing generally accepted accounting
principles related to the amortization and impairment of goodwill and other
intangible assets. Upon adoption of the new standard, goodwill and intangibles
determined to have an indefinite life will no longer be amortized. In
addition, goodwill must be assessed at least annually for impairment using a
fair-value based approach. Effective January 1, 2002, the Company adopted SFAS
No. 142. Accordingly, no amortization of goodwill or intangibles determined to
have an indefinite life was recognized in the accompanying consolidated
statement of operations for the three and nine months ended September 30, 2002.
In accordance with the provisions of SFAS No. 142, the Company has performed
the required transitional impairment test

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PART I. FINANCIAL INFORMATION  continued

of goodwill and intangibles determined to have an indefinite life and has
determined that no impairment loss should be recognized in the current period.

The Company sold a local U.K. non-core brand, and related goodwill of
approximately $4.0 million, during the third quarter of 2002.

The Companys effective tax rate decreased primarily as a result of the
suspension of amortization of goodwill and intangibles determined to have an
indefinite life. Income tax expense for the third quarter 2002 included a $2.2
million tax refund related to Quaker State Corporation previous year tax
returns.

The effect of the adoption of SFAS No. 142 on the reported net income for
the three and nine months ended September 30, 2001 is as follows (expressed in
thousands):

|                                                                                           |  |                                  |        |                                 |  |      |       |      |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------ |  | -------------------------------- | ------ | ------------------------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                                                                                           |  | Three months ended September 30, |        | Nine months ended September 30,
|                                                                                           |  |                                  |        |                                
|                                                                                           |  | 2002                             |        | 2001                            |  | 2002 |       | 2001
|                                                                                           |  |                                  |        |                                 |  |      |       |     
|Reported net income                                                                        |  | $                                | 26,594 |                                 |  | $    | 281   |      |  | $ | 76,221 |  |  | $ | 3,223  | 
|Amortization of goodwill and intangibles
determined to have an indefinite life,
net of tax |  |                                  |       |                                 |  |      | 7,064 |      |  |   |       |  |  |   | 21,301 | 
|                                                                                           |  |                                  |        |                                 |  |      |       |      |  |   |        |  |  |   |        | 
|Net income, as adjusted                                                                    |  | $                                | 26,594 |                                 |  | $    | 7,345 |      |  | $ | 76,221 |  |  | $ | 24,524 | 
|                                                                                           |  |                                  |        |                                 |  |      |       |      |  |   |        |  |  |   |        | 

(5)  Derivative Instruments -

At times, the Company has utilized swaps and forward contracts to manage
certain risks resulting from fluctuations in interest rates and foreign
currency exchange rates. In connection with the issuance of $150.0 million of
two-year fixed rate notes in December 2000, Pennzoil-Quaker State entered into
fixed-to-floating interest rate swaps to maintain its mix of variable rate
versus fixed rate debt. The Company designated the swaps as fair value hedges.
Under SFAS No. 133, changes in the fair value of the swaps are recognized
currently in earnings along with the offsetting changes in the fair value of
the associated debt. At September 30, 2002, the fair market value of the swap
of $0.5 million was recorded in other assets. During the nine months ended
September 30, 2002, the Company repurchased notes in the amount of $34.8
million and unwound the corresponding swap.

In connection with the acquisition of Quaker State Corporation in December
1998, Pennzoil-Quaker State assumed the obligation for $100 million of Quaker
States 6.625% Notes due 2005. In January 2002, the Company entered into
interest rate swaps relating to the 6.625% Notes due 2005 to adjust the mix of
variable rate and fixed rate debt. The swaps were designated as fair value
hedges and changes in the fair value are recognized in earnings along with the
offsetting changes in the fair value of the associated debt. At September 30,
2002, the fair market value of the swaps of $5.9 million was recorded in other
assets. In conjunction with the tender offer and repurchase of the 6.625%
Notes due 2005 described in Note 8, the interest rate swaps related thereto
were unwound on November 4, 2002.

At September 30, 2002, the Company had $3.0 million of Canadian dollar
foreign currency forward contracts to hedge the cash flow variability of U.S.
dollar purchases of inventory. The forward contracts are designated as cash
flow hedges of forecasted transactions. The forward contracts are recorded at
fair value as an asset or liability on the Companys balance sheet with the
effective portion of the gain or loss reported as a component of other
comprehensive income and will be reclassified into earnings in the same period
during which the transactions are settled. The $3.0 million of hedges
outstanding at September 30, 2002 were settled during October 2002.

In October 2002, the Company entered into treasury locks with a member of
the Royal Dutch/Shell Group of Companies in conjunction with the tender offer
described in Note 8. These treasury locks were settled in November 2002.

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

(6)  Summarized Financial Data of Excel Paralubes -

Pennzoil-Quaker States net investment in Excel Paralubes, a 50/50
partnership with Conoco Inc., is accounted for using the equity method and is
carried as a credit balance of $67.7 million at September 30, 2002 and $83.0
million at December 31, 2001. The credit balance is a result of cumulative
distributions in excess of earnings and is included in other liabilities on the
condensed consolidated balance sheet.

Summarized financial information for Excel Paralubes for the three and
nine months ended September 30, 2002 and 2001 on a 100% basis follows:

|                   |  |                                  |         |                                 |  |      |         |      |  |   |         |  |  |   |         | 
|------------------ |  | -------------------------------- | ------- | ------------------------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                   |  | Three months ended September 30, |         | Nine months ended September 30,
|                   |  |                                  |         |                                
|                   |  | 2002                             |         | 2001                            |  | 2002 |         | 2001
|                   |  |                                  |         |                                 |  |      |         |     
|                   |  | (Expressed in thousands)        
|                   |  | (Unaudited)                     
|Revenues           |  | $                                | 123,805 |                                 |  | $    | 122,542 |      |  | $ | 327,064 |  |  | $ | 344,811 | 
|Operating earnings |  |                                  | 21,262  |                                 |  |      | 29,918  |      |  |   | 74,361  |  |  |   | 72,720  | 
|Net income         |  |                                  | 11,989  |                                 |  |      | 20,188  |      |  |   | 46,189  |  |  |   | 42,618  | 

Effective January 1, 2002, Excel Paralubes changed its method of
accounting for planned major maintenance costs. Such costs, which were
previously accrued, are now expensed as incurred. Excel Paralubes management
believes that the new method is preferable as it results in the recognition of
such costs in the period they are incurred. The cumulative effect of this
accounting change was $14.9 million for Excel Paralubes.

Pennzoil-Quaker States share of the cumulative effect was $4.4 million
after-tax. The pro forma effect of the change in accounting principle would
not have been materially different than the reported results for the periods
presented.

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PART I. FINANCIAL INFORMATION  continued



|(7) |  | Segment Reporting 
|--- |  | -------------------

Information with respect to revenues, operating income and other data for the
Companys five operating segments is presented in the following tables
(expressed in thousands).

|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |           | 
|------------------------------------------------- | -------------- | - | ------------------------------------- | ------- | -------- | - | ------------- | ------- | ---------- | - | --------------- | ------- | ------------- | - | ------- | ------- | ------------ | - | --------- | ------- |  | - | -------- | -------- | - | - | --------- | --------- | 
|                                                  |                |   | Three months ended September 30, 2002
|                                                  |                |   |                                      
|                                                  |                |   |                                       |         |          |   | Consumer      |         |            |   |                 |         |               |   |         |         | Supply Chain |   | Corporate |         |  |   |         
|                                                  |                |   | Lubricants                            |         | Products |   | International |         | Jiffy Lube |   | Investments     |         | and other (a) |   | Total  
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |        
|Unaffiliated revenues (b)                         |                | $ | 286,522                               |         |          | $ | 83,370        |         |            | $ | 57,874          |         |               | $ | 94,383  |         |              | $ | 34,311    |         |  | $ | 8,211    |          |   | $ | 564,671   |          
|Intersegment revenues                             |                |   | 18,178                                |         |          |   | 5,051         |         |            |   | 100             |         |               |   |        |         |              |   | 43,158    |         |  |   | (66,487  | )        |   |   |          |          
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |          
|                                                  | Total revenues |   | $                                     | 304,700 |          |   | $             | 88,421  |            |   | $               | 57,974  |               |   | $       | 94,383  |              |   | $         | 77,469  |  |   | $        | (58,276  | ) |   | $         | 564,671   | 
|Income before interest
and income taxes (b)(c)    |                | $ | 44,465                                |         |          | $ | 8,225         |         |            | $ | 2,543           |         |               | $ | 9,051   |         |              | $ | 13,806    |         |  | $ | (16,926  | )        |   | $ | 61,164    |          
|Goodwill (d)                                      |                | $ | 311,235                               |         |          | $ | 292,149       |         |            | $ | 35,357          |         |               | $ | 71,166  |         |              | $ |          |         |  | $ |         |          |   | $ | 709,907   |          
|Tradenames (e)                                    |                | $ | 281,802                               |         |          | $ | 117,020       |         |            | $ |                |         |               | $ |        |         |              | $ |          |         |  | $ |         |          |   | $ | 398,822   |          
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |           | 
|                                                  |                |   | Three months ended September 30, 2001
|                                                  |                |   |                                      
|                                                  |                |   |                                       |         |          |   | Consumer      |         |            |   |                 |         |               |   |         |         | Supply Chain |   | Corporate |         |  |   |         
|                                                  |                |   | Lubricants                            |         | Products |   | International |         | Jiffy Lube |   | Investments     |         | and other (a) |   | Total  
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |        
|Unaffiliated revenues                             |                | $ | 309,327                               |         |          | $ | 80,972        |         |            | $ | 63,421          |         |               | $ | 88,210  |         |              | $ | 53,025    |         |  | $ | (1,605   | )        |   | $ | 593,350   |          
|Intersegment revenues                             |                |   | 15,497                                |         |          |   | 3,994         |         |            |   |                |         |               |   |        |         |              |   | 39,173    |         |  |   | (58,664  | )        |   |   |          |          
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |          
|                                                  | Total revenues |   | $                                     | 324,824 |          |   | $             | 84,966  |            |   | $               | 63,421  |               |   | $       | 88,210  |              |   | $         | 92,198  |  |   | $        | (60,269  | ) |   | $         | 593,350   | 
|Income before interest
and income taxes (f)       |                | $ | 31,982                                |         |          | $ | 6,086         |         |            | $ | 5,144           |         |               | $ | 6,416   |         |              | $ | 15,360    |         |  | $ | (17,248  | )        |   | $ | 47,740    |          
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |           | 
|                                                  |                |   | Nine months ended September 30, 2002 
|                                                  |                |   |                                      
|                                                  |                |   |                                       |         |          |   | Consumer      |         |            |   |                 |         |               |   |         |         | Supply Chain |   | Corporate |         |  |   |         
|                                                  |                |   | Lubricants                            |         | Products |   | International |         | Jiffy Lube |   | Investments
(g) |         | and other (a) |   | Total  
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |        
|Unaffiliated revenues (b)                         |                | $ | 881,953                               |         |          | $ | 263,993       |         |            | $ | 172,622         |         |               | $ | 278,332 |         |              | $ | 117,156   |         |  | $ | 4,623    |          |   | $ | 1,718,679 |          
|Intersegment revenues                             |                |   | 53,253                                |         |          |   | 16,135        |         |            |   | 184             |         |               |   | 19      |         |              |   | 110,139   |         |  |   | (179,730 | )        |   |   |          |          
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |          
|                                                  | Total revenues |   | $                                     | 935,206 |          |   | $             | 280,128 |            |   | $               | 172,806 |               |   | $       | 278,351 |              |   | $         | 227,295 |  |   | $        | (175,107 | ) |   | $         | 1,718,679 | 
|Income before interest
and income taxes (b)(c)(g) |                | $ | 140,320                               |         |          | $ | 26,879        |         |            | $ | 10,493          |         |               | $ | 26,312  |         |              | $ | 41,642    |         |  | $ | (55,100  | )        |   | $ | 190,546   |          
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |           | 
|                                                  |                |   | Nine months ended September 30, 2001 
|                                                  |                |   |                                      
|                                                  |                |   |                                       |         |          |   | Consumer      |         |            |   |                 |         |               |   |         |         | Supply Chain |   | Corporate |         |  |   |         
|                                                  |                |   | Lubricants                            |         | Products |   | International |         | Jiffy Lube |   | Investments     |         | and other (a) |   | Total  
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |        
|Unaffiliated revenues                             |                | $ | 928,873                               |         |          | $ | 257,036       |         |            | $ | 192,123         |         |               | $ | 260,432 |         |              | $ | 127,159   |         |  | $ | (5,209   | )        |   | $ | 1,760,414 |          
|Intersegment revenues                             |                |   | 46,315                                |         |          |   | 15,282        |         |            |   | 709             |         |               |   |        |         |              |   | 116,258   |         |  |   | (178,564 | )        |   |   |          |          
|                                                  |                |   |                                       |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |          
|                                                  | Total revenues |   | $                                     | 975,188 |          |   | $             | 272,318 |            |   | $               | 192,832 |               |   | $       | 260,432 |              |   | $         | 243,417 |  |   | $        | (183,773 | ) |   | $         | 1,760,414 | 
|Income before interest
and income taxes (h)       |                | $ | 95,989                                |         |          | $ | 9,478         |         |            | $ | (6,667          | )       |               | $ | 15,920  |         |              | $ | 33,209    |         |  | $ | (45,597  | )        |   | $ | 102,332   |          



|(a) |  | Includes consolidating eliminations.                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Corporate and other includes $4.9 million proceeds related to settlements
reached with a number of insurance companies regarding previous years
environmental coverage.                                                                                            
|   
|(c) |  | International includes $4.9 million in restructuring reserve reversals
(see Note 10) and corporate and other includes $6.7 million in Shell
acquisition charges for the three months ended and $7.2 million in Shell
acquisition charges for the nine months ended.
|   
|(d) |  | Goodwill at December 31, 2001 was $311.2 million for lubricants, $292.1 million for consumer products, $39.3 million for international
and $72.3 million for Jiffy Lube (See Note 4).                                                                              
|   
|(e) |  | Tradenames at December 31, 2001 were $281.7 million for lubricants and $117.0 million for consumer products.                                                                                                                                                       
|   
|(f) |  | Includes restructuring charges of $6.0 million for lubricants and $0.5 million for consumer products.                                                                                                                                                              
|   
|(g) |  | Supply chain investments includes $7.4 million equity income from Excel Paralubes for change in accounting for planned major
maintenance costs.                                                                                                                    
|   
|(h) |  | Includes restructuring charges of $6.0 million for lubricants, $12.3
million for consumer products and $16.7 million for international.                                                                                                                            

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PART I. FINANCIAL INFORMATION  continued

(8)  Debt -

The Companys $348 million senior secured revolving credit facility was
terminated on October 1, 2002.

Pennzoil-Quaker States Canadian subsidiary maintained a revolving credit
facility with Canadian banks, which provided for up to $9.0 million of
committed borrowings. As of September 30, 2002 borrowings under the Companys
Canadian facility totaled $7.6 million and were classified as short-term debt.
The Company repaid and terminated the facility on October 28, 2002.

A U.K. subsidiary of the Company maintained a revolving credit facility
that provided for borrowings up to $22.0 million. Outstanding borrowings under
the facility totaled $3.0 million at September 30, 2002 and were classified as
short-term debt. The Company repaid and terminated the facility on October 31,
2002.

In December 2000, Pennzoil-Quaker State issued $150.0 million of 8.65%
Notes due 2002. Net proceeds of $149.1 million were used to reduce the
Companys commercial paper borrowings. The terms of the notes provide that, in
the event a rating on Pennzoil-Quaker States senior unsecured debt falls and
remains below investment grade, the coupon on the notes increases 0.75% to
9.40% and each noteholder has the option, at any time on or after June 1, 2001,
to require the Company to purchase its note at 100% of the principal amount
thereof plus accrued and unpaid interest on or after June 1, 2001. During 2001,
Standard and Poors, Moodys and Fitch lowered the senior unsecured debt rating
for the Companys debt below investment grade. To date, amounts put to the
Company for repurchase have been immaterial. In October 2002, Standard and
Poors, Moodys and Fitch raised the Companys senior unsecured debt rating to
investment grade; therefore, the coupon on the notes decreased to 8.65%. In
addition, debt covenants associated with the 10.0% Notes due 2008 were lifted.
During the nine months ended September 30, 2002, the Company chose to purchase
and retire $34.8 million face amount of these notes and pretax charges of $1.5
million were recognized in other income.

Debt outstanding is as follows:

|                                              |                      |   |                          |           |              |   |          |           | 
|--------------------------------------------- | -------------------- | - | ------------------------ | --------- | ------------ | - | -------- | --------- | 
|                                              |                      |   | September 30,            |           | December 31,
|                                              |                      |   | 2002                     |           | 2001        
|                                              |                      |   |                          |           |             
|                                              |                      |   | (expressed in thousands)
|7.375% Debentures due 2029, net of discount   |                      | $ | 398,222                  |           |              | $ | 398,172  |          
|10.0% Notes due 2008, net of discount         |                      |   | 248,604                  |           |              |   | 248,476  |          
|6.750% Notes due 2009, net of discount        |                      |   | 199,337                  |           |              |   | 199,260  |          
|8.65% Notes due 2002, net of discount         |                      |   | 70,305                   |           |              |   | 108,271  |          
|6.625% Notes due 2005, net of discount        |                      |   | 105,704                  |           |              |   | 99,770   |          
|Pollution control bonds, net of discount      |                      |   | 50,565                   |           |              |   | 50,561   |          
|International debt facilities                 |                      |   | 17,846                   |           |              |   | 24,247   |          
|Other debt                                    |                      |   | 3,605                    |           |              |   | 7,530    |          
|                                              |                      |   |                          |           |              |   |          |          
|                                              | Total debt           |   |                          | 1,094,188 |              |   |          | 1,136,287 | 
|Less amounts classified as current maturities |                      |   | (88,670                  | )         |              |   | (133,733 | )        
|                                              |                      |   |                          |           |              |   |          |          
|                                              | Total long-term debt |   | $                        | 1,005,518 |              |   | $        | 1,002,554 | 
|                                              |                      |   |                          |           |              |   |          |          

On October 2,
2002, Pennzoil-Quaker State commenced a tender offer for its 7.375%
Debentures due 2029, 6.75% Notes due 2009, 10% Senior Notes,
Series B, due 2008 and
6.625% Notes due 2005. On October 31, 2002 the Company announced its
acceptance for payment, in accordance with the terms of the tender offer, all
7.375% Notes due 2029, 6.75% Notes due 2009, and 6.625% Notes due 2005
that were validly tendered prior to the expiration time, of midnight, New York
time, on October 30, 2002. Settlement occurred on November 1, 2002 at
redemption prices of 123% for the 7.375% Debentures due 2029, 116% for the
6.75% Notes due 2009 and 111% for the 6.625% Notes due 2005 in
addition to

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PART I. FINANCIAL INFORMATION  continued

accrued and unpaid interest. The tender offer for
the 10% Senior Notes, Series B, due 2008, which was amended on October 17,
2002, expired on October 31, 2002. The Company was not required to purchase and did not purchase, any
of the 10% Senior Notes, Series B, due 2008 tendered, as less than 90% of the notes outstanding
were validly tendered on or prior to the expiration date.

On November 1, 2002 the Company announced that Shell Oil Company would be
purchasing shares of the Companys capital stock, the proceeds of which will be
used to redeem 35% of the outstanding 10% Senior Notes, Series B, due 2008 at a redemption price
of 110% of the principal amount thereof. The Company will pay accrued and
unpaid interest up to, but not including, the redemption date on each $1,000
principal amount of 10% notes redeemed. The redemption date is December 2,
2002.

The Company has commenced the process to redeem all variable rate
pollution control bonds issued by three authorities. Issuances by the
Industrial Development Board of the Parish of Caddo, Inc. totaling $33.1
million were redeemed on November 1, 2002. Issuances by the Venango Industrial
Development Authority and Butler County Industrial Development Authority of
$3.4 million and $2.3 million, respectively, will be redeemed on December 4,
2002.

Funds used to tender for the Notes and Debentures and redeem the pollution
control bonds were or will be obtained from intercompany debt facilities in
place with members of the Royal Dutch/Shell Group of Companies.

(9)  Inventories -

Inventory components are summarized as follows:

|                                   |       |   |                          |         |              |   |         |         | 
|---------------------------------- | ----- | - | ------------------------ | ------- | ------------ | - | ------- | ------- | 
|                                   |       |   | September 30,            |         | December 31,
|                                   |       |   | 2002                     |         | 2001        
|                                   |       |   |                          |         |             
|                                   |       |   | (expressed in thousands)
|Finished goods and work in process |       | $ | 179,351                  |         |              | $ | 163,241 |        
|Raw materials and supplies         |       |   | 30,896                   |         |              |   | 36,400  |        
|                                   |       |   |                          |         |              |   |         |        
|                                   | Total |   | $                        | 210,247 |              |   | $       | 199,641 | 
|                                   |       |   |                          |         |              |   |         |        

(10)  Restructuring Charges -

In the third quarter of 2001, the Company recorded a $6.5 million pretax
charge to selling, general and administrative expense to accrue additional
costs associated with the restructuring program which related to two operating
segments as follows: lubricants  $6.0 million and consumer products  $0.5
million. These charges primarily included severance for approximately 77
administrative and operational employees. All of the 77 employees have been
terminated or notified of a termination date. The severance payments for the
former employees are expected to be paid out over a minimum period of two
months with a maximum period of up to two years.

During the nine months ended September 30, 2001, the Company recorded
$35.0 million in pretax charges to accrue the costs associated with
restructuring programs to reduce costs, streamline operations and position the
Company to continue its long-term growth plan. The charge was classified as
$6.0 million pretax charge to cost of sales, a $22.5 million pretax charge to
selling, general and administrative expense and a $6.5 million pretax charge to
depreciation and amortization and related to three operating segments as
follows: lubricants  $6.0; consumer products  $12.3 million; and
international  $16.7 million. Included in the $16.7 million of international
charges were charges of $6.5 million associated with the impairment of
goodwill. The consumer products segment consolidated the management and
administration of its two marketing groups into one organization in Houston at

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PART I. FINANCIAL INFORMATION  continued

the end of 2001. The international segment exited low margin operations,
facilities and distribution channels. These charges primarily included
severance for approximately 439 administrative and operational employees, as
well as the accrual for the closure and consolidation of warehouses and office
space. All of the 439 employees have been terminated or notified of a
termination date. The severance payments for the former employees are expected
to be paid out over a minimum period of two months with a maximum period of up
to two years.

During 2001, the Company recorded a total of $77.1 million in pretax
charges to accrue the costs associated with restructuring programs to reduce
costs, streamline operations and position the Company to continue its long-term
growth plan.

During the third quarter 2002, the international segment reversed $4.9
million in restructuring charges as the result of managements decision to
cancel certain aspects of the related restructuring plan. The
reversal was credited against the income statement line items
originally charged.

The remaining total severance accrual at September 30, 2002, which relates
to remaining payments due terminated employees, was $3.1 million recorded in
other current liabilities. Total severance amounts paid and charged against
the liability during the three months ended September 30, 2002 were $7.0
million and during the nine months ended September 30, 2002 were $16.8 million.




Item 2. Managements Discussion and Analysis of Financial Condition      and Results of Operations

Pennzoil-Quaker States operations are conducted primarily through the
following five segments: (1) lubricants, (2) consumer products, (3)
international, (4) Jiffy Lube and (5) supply chain investments.

Recent Developments

On September 27, 2002, the U.S. Federal Trade Commission (FTC) gave
conditional approval of the proposed acquisition of Pennzoil-Quaker State by
Shell Oil. Under the terms of the
order with the FTC, Shell Oil has agreed that it will divest itself of
Pennzoil-Quaker States 50 percent ownership interest in Excel
Paralubes, a base oil processing

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PART I. FINANCIAL INFORMATION  continued

facility that is owned and operated by a joint venture between Conoco Inc. and Pennzoil-Quaker
State. As of October 1, 2002, Excel Paralubes has been operated as a held
separate joint venture by a third party appointed by the FTC. In addition, the
consent order froze Pennzoil-Quaker States ability to increase Group II oil
obtained through an existing agreement with ExxonMobil Corp. Management does
not expect any adverse effect as a result of the FTC consent order.

On October 1, 2002, Shell ND Company, a Delaware corporation and a wholly
owned subsidiary of Shell Oil was merged with and into Pennzoil-Quaker
State (the Merger), with the Company continuing as the surviving corporation.
As a result of the Merger, the Company is now a wholly owned subsidiary of
Shell Oil. Pursuant to the Merger, each share of the Companys common stock
outstanding immediately prior to the Merger was converted into the right to
receive $22.00 in cash, without interest. Approximately $1.8 billion was
required to pay the consideration for shares of the common stock pursuant to
the Merger.

In conjunction with the Merger, the Company incurred $7.2 million in
pretax acquisition costs through September 30, 2002. Upon the change of
control, the Company became obligated to make payments of approximately $216.3
million related to outstanding equity awards, including accelerated vesting of
options, bonuses, excise tax reimbursement, severance and deferred compensation
to certain current and former employees of the Company. Additionally, the
Company became obligated to pay approximately $13.5 million in merger related
investment banking fees. On October 1, 2002, a member of the Royal Dutch/Shell
Group of Companies established an intercompany credit facility to provide the
necessary funds to make these payments. As of November 8, 2002, $194.2 million
of the estimated $216.3 million obligation had been paid.

New Accounting Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 requires entities to record the
fair value of a liability for legal obligations associated with the retirement
obligations of tangible long-lived assets in the period in which it is incurred
and the corresponding cost capitalized by increasing the carrying amount of the
related asset. The liability is accreted to the fair value at the time of
settlement over the useful life of the asset, and the capitalized cost is
depreciated over the useful life of the related asset. If the liability is
settled for an amount other than the recorded amount, a gain or loss is
recognized. The standard is effective for fiscal years beginning after June
15, 2002, with earlier application encouraged. The Company is currently
evaluating the impact of adopting SFAS No. 143 on its financial position and
results of operations.

In May 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds the automatic treatment of gains or losses from
extinguishment of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB Opinion No. 30, Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
As allowed under the provisions of SFAS 145, the Company has decided to early
adopt SFAS 145 relating to extinguishment of debt (see Note 8 of Notes to
Condensed Consolidated Financial Statements).

Critical Accounting Policies

A summary of the Companys critical accounting policies is presented
beginning on page 27 of our 2001 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 12, 2002.

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PART I. FINANCIAL INFORMATION  continued

Pension Plan Obligations

The Company accounts for its qualified defined benefit pension plans and
Supplemental Executive Benefit Plan in accordance with Statement of Financial
Accounting Standards (SFAS) No. 87, Employers Accounting for Pensions,
which requires that amounts recognized in the financial statements be
determined on an actuarial basis. SFAS No. 87 requires that experience gains
and losses, including the effects of the performance of the plan assets and
changes in pension liability discount rates on the Companys computation of
pension expense (income) be amortized over future periods to the extent that
these fall outside a defined threshold under SFAS No. 87.

The most significant elements in determining the Companys pension expense
(income) in accordance with SFAS No. 87 are the expected return on plan assets
and the discount rate to be used to calculate the present value of plan
liabilities. Differences in expected returns and the actual return on plan
assets and changes in the discount rate, as well as changes in actuarial
assumptions and experience, may materially affect the pension expense (income)
year to year.

On September 30, 2002, the Pennzoil-Quaker State Company Employees
Retirement Plan was amended to provide for the payment of certain supplemental
pension benefits to approximately twenty plan participants. This plan
amendment increased the actuarial present value of accumulated plan benefits by
approximately $9 million.

Environmental Matters

A summary of the Companys environmental matters is presented beginning on
page 8 of our 2001 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 12, 2002. There were no significant changes
during 2002.

Legal Proceedings

A summary of the Companys legal proceedings is presented beginning on
page 9 of our 2001 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 12, 2002. See Part II, Item 1 Legal Proceedings
for additional information.

Restructuring Charges

In the third quarter of 2001, the Company recorded a $6.5 million pretax
charge to selling, general and administrative expense to accrue additional
costs associated with the restructuring program which related to two operating
segments as follows: lubricants  $6.0 million and consumer products  $0.5
million. These charges primarily included severance for approximately 77
administrative and operational employees. All of the 77 employees have been
terminated or notified of a termination date. The severance payments for the
former employees are expected to be paid out over a minimum period of two
months with a maximum period of up to two years.

During the nine months ended September 30, 2001, the Company recorded
$35.0 million in pretax charges to accrue the costs associated with
restructuring programs to reduce costs, streamline operations and position the
Company to continue its long-term growth plan. The charge was classified as
$6.0 million pretax charge to cost of sales, a $22.5 million pretax charge to
selling, general and administrative expense and a $6.5 million pretax charge to
depreciation and amortization and related to three operating segments as
follows: lubricants  $6.0; consumer products  $12.3 million; and
international  $16.7 million. Included in the $16.7 million of international
charges were charges of

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PART I. FINANCIAL INFORMATION  continued

$6.5 million associated with the impairment of goodwill. The consumer
products segment consolidated the management and administration of its two
marketing groups into one organization in Houston at the end of 2001. The
international segment exited low margin operations, facilities and distribution
channels. These charges primarily included severance for approximately 439
administrative and operational employees, as well as the accrual for the
closure and consolidation of warehouses and office space. All of the 439
employees have been terminated or notified of a termination date. The severance
payments for the former employees are expected to be paid out over a minimum
period of two months with a maximum period of up to two years.

During 2001, the Company recorded a total of $77.1 million in pretax
charges to accrue the costs associated with restructuring programs to reduce
costs, streamline operations and position the Company to continue its long-term
growth plan.

During the third quarter 2002, the international segment reversed $4.9
million in restructuring charges as the result of managements decision to
cancel certain aspects of the related restructuring plan. The
reversal was credited against the income statement line items
originally charged.

The remaining total severance accrual at September 30, 2002, which relates
to remaining payments due terminated employees, was $3.1 million recorded in
other current liabilities. Total severance amounts paid and charged against
the liability during the three months ended September 30, 2002 were $7.0
million and during the nine months ended September 30, 2002 were $16.8 million.

Results of Operations

Third Quarter 2002 compared with Third Quarter 2001

Net sales for Pennzoil-Quaker State were $547.4 million for the quarter
ended September 30, 2002, a decrease of $33.5 million, or approximately 5.8%,
from the same period in 2001. The decrease was primarily a result of reduced
sales of low margin and unbranded products.

Net income for the quarter ended September 30, 2002 was $26.6 million.
This compares with net income from continuing operations of $4.1 million for
the quarter ended September 30, 2001. Results for the quarter ended September
30, 2002 include $3.4 million after-tax proceeds related to settlements reached
with a number of insurance companies regarding previous years environmental
coverage and $3.4 million after-tax reversal of restructuring reserve partially
offset by $4.6 million after-tax Shell acquisition costs. Results for the
quarter ended September 30, 2001 include $7.1 million in after-tax amortization
expense suspended in 2002 (see Note 3 of Condensed Consolidated Financial
Statements) and $6.8 million in pretax charges primarily related to
restructuring costs in the lubricants and consumer products segments. The
increase reflects a combination of improved marketplace factors and normalized
motor oil margins. In addition, benefits from an overall lower cost structure
as a result of the restructuring activities completed in 2001 and
lower effective tax rate are reflected in
the third quarter 2002 operating results.

The Companys effective tax rate decreased primarily as a result of the
suspension of amortization of goodwill and intangibles determined to have an
indefinite life. Income tax expense for the third quarter 2002 included a $2.2
million tax refund related to Quaker State Corporation previous year tax
returns.

Lubricants. Net sales for the lubricants segment were $303.0 million for
the quarter ended September 30, 2002, compared to $322.9 million for the same
period last year. The decrease in net sales is primarily a result of lower
sales volumes associated with non-branded, low margin products. Operating
income for this segment was $44.5 million for the quarter ended September 30,
2002, compared to $32.0 million for the same period last year. The increase in
operating income is primarily due to improved motor oil margins, reduced
selling expense, the $6.0 million restructuring charges

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PART I. FINANCIAL INFORMATION  continued

recorded in 2001 and the $3.8 million suspension of amortization of
goodwill and intangibles determined to have an indefinite life as the result of
new accounting standards. Primarily as a result of the Companys restructuring
program in 2001 to reduce cost and streamline operations, the lubricants
segment reduced selling expense by $2.0 million for the quarter ended September
30, 2002 compared to the quarter ended September 30, 2001. In addition, the
segment also reduced marketing and advertising expense by $1.3 million for the
quarter ended September 30, 2002 compared to the same period last year.

Consumer Products. Net sales for the consumer products segment were $88.3
million for the quarter ended September 30, 2002, compared to $84.9 million for
the same period last year. The increase in net sales is primarily due to
higher sales of chemicals and appearance products. Operating income for this
segment was $8.2 million for the quarter ended September 30, 2002, compared to
$6.1 million for the same period last year. The increase in operating income
was primarily due to $2.9 million from suspension of the amortization of
goodwill and intangibles determined to have an indefinite life as the result of
new accounting standards partially offset by lower margins on fashion and
accessory products.

International. Net sales for the international segment were $57.9
million for the quarter ended September 30, 2002, compared to $63.3 million for
the same period last year. The decrease in net sales is primarily due to
restructuring actions to scale back low margin operations, facilities and
distribution channels. Operating income for this segment was $2.5 million for
the quarter ended September 30, 2002, compared to $5.1 million for the same
period last year. The decrease in operating income was primarily due to a $2.9
million loss resulting from the sale of a local non-core brand in the U.K. and charges
associated with operations in Canada and Mexico during the month of September,
and lower volumes, partially offset by lower selling, general and
administrative expenses and a $4.9 million reversal of restructuring reserves
(See Note 10). The lower selling, general and administrative expenses were
primarily due to restructuring actions taken during late 2001.

Jiffy Lube.Net sales for this segment were $92.7 million for the
quarter ended September 30, 2002, compared to net sales of $86.3 million for
the same period in 2001. Other income for this segment for the quarter ended
September 30, 2002 was $1.7 million, compared to $1.9 million for the same
period in 2001. Operating income from this segment for the quarter ended
September 30, 2002 was $9.1 million, compared to $6.4 million for the same
period in 2001. The increase in operating income is primarily due to higher
comparable sales in company-operated centers in 2002 and $1.7 million from
suspension of the amortization of goodwill.

Supply Chain Investments. Net sales for this segment were $71.9 million
for the quarter ended September 30, 2002, compared to net sales of $82.0
million for the same period in 2001. Other income for this segment for the
quarter ended September 30, 2002, was $5.6 million compared to $10.2 million
for the same period in 2001. Income from the Excel Paralubes 50/50 partnership
with Conoco Inc., which is recorded using the equity method of accounting, is
included in other income. Operating income from this segment for the period
ended September 30, 2002 was $13.8 million compared to operating income of
$15.4 million for the same period in 2001. The decrease in operating income
reflects lower base oil margins as a result of higher feedstock cost, partially
offset by higher base oil production.

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PART I. FINANCIAL INFORMATION  continued

Nine Months Ended September 30, 2002 compared with Nine Months Ended      September 30,
2001

Net sales for Pennzoil-Quaker State were $1,679.7 million for the nine
months ended September 30, 2002, a decrease of $54.2 million, or approximately
3.1% from the same period in 2001. The decrease was primarily a result of
reduced sales of low margin and unbranded products.

Net income for the nine months ended September 30, 2002 was $76.2 million.
This compares with net income from continuing operations of $9.5 million for
the nine months ended September 30, 2001. Results for the nine months ended
September 30, 2002 include $3.4 million after-tax proceeds related to
settlements reached with a number of insurance companies regarding previous
years environmental coverage, $3.4 million after-tax reversal of restructuring
reserve and $4.4 million after-tax change in turnaround expense partially
offset by $4.8 million after-tax Shell acquisition costs. Results for the nine
months ended September 30, 2001 include $21.3 million in after-tax amortization
expense suspended in 2002 (see Note 3 of Condensed Consolidated Financial
Statements) and $27.0 million in after-tax charges primarily related to
restructuring costs in the lubricants, consumer products and international
segments. The increase reflects a combination of improved marketplace factors
and normalized motor oil margins. In addition, benefits from an overall lower
cost structure as a result of the restructuring activities completed in 2001
are reflected in the first quarter 2002 operating results.

The Companys effective tax rate decreased primarily as a result of the
suspension of amortization of goodwill and intangibles determined to have an
indefinite life. Income tax expense for the third quarter 2002 included a $2.2
million tax refund related to Quaker State Corporation previous year tax
returns.

Lubricants. Net sales for the lubricants segment were $931.0 million for
the nine months ended September 30, 2002, compared to $969.5 million for the
same period last year. The decrease in net sales is primarily a result of
lower sales volumes associated with non-branded, low margin products.
Operating income for this segment was $140.3 million for the nine months ended
September 30, 2002, compared to $96.0 million for the same period last year.
The increase in operating income is primarily due to improved motor oil
margins, lower selling expense, the $6.0 million restructuring charges recorded
in 2001 and the $11.4 million suspension of amortization of goodwill and
intangibles determined to have an indefinite life as the result of new
accounting standards. Primarily as a result of the Companys restructuring
program in 2001 to reduce cost and streamline operations, the lubricants
segment reduced selling expense by $6.1 million for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001. These
reductions were partially offset by an increase in marketing and advertising
expense of $1.9 million for the nine months ended September 30, 2002 compared
to the same period last year.

Consumer Products. Net sales for the consumer products segment were $279.9
million for the nine months ended September 30, 2002, compared to $272.3
million for the same period last year. The increase in net sales is primarily
due to higher sales of chemicals and appearance products. Operating income for
this segment was $26.9 million for the nine months ended September 30, 2002,
compared to $9.5 million for the same period last year. The increase in
operating income is primarily due to $12.3 million restructuring charges
recorded in 2001. Excluding these restructuring charges operating income
increased $5.1 million. The increase in operating income was primarily due to
$8.9 million suspension of the amortization of goodwill and intangibles
determined to have an indefinite life as the result of new accounting standards
partially offset by lower margins on fashion and accessory products.

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PART I. FINANCIAL INFORMATION  continued

International. Net sales for the international segment were $172.3
million for the nine months ended September 30, 2002, compared to $192.6
million for the same period last year. The decrease in net sales is primarily
due to restructuring actions to scale back low margin operations, facilities
and distribution channels. Operating income (loss) for this segment was $10.5
million for the nine months ended September 30, 2002, compared to $(6.7)
million for the same period last year. The increase in operating income was
primarily due to $16.7 million of restructuring charges recorded in 2001.
Excluding restructuring charges recorded in 2001, income for the nine months
ended September 30, 2002 was $0.5 million above the same period last year. The
increase in income was primarily due to lower selling, general and
administrative expenses, higher margins and $4.9 million reversal of
restructuring reserves partially offset by lower volumes and $2.9 million loss
resulting from the sale of a local non-core brand in the U.K. and charges
associated with operations in Canada and Mexico during the month of September.
The lower selling, general and administrative expense is primarily the result
of restructuring activities completed during 2001.

Jiffy Lube.Net sales for this segment were $271.4 million for the nine
months ended September 30, 2002, compared to net sales of $255.8 million for
the same period in 2001. Other income for this segment for the nine months
ended September 30, 2002 was $7.0 million, compared to $4.6 million for the
same period in 2001. Operating income from this segment for the nine months
ended September 30, 2002 was $26.3 million, compared to $15.9 million for the
same period in 2001. The increase in operating income is primarily due to
higher comparable sales in company-operated centers in 2002 and $5.2 million
from suspension of the amortization of goodwill.

Supply Chain Investments. Net sales for this segment were $204.5 million
for the nine months ended September 30, 2002, compared to net sales of $222.0
million for the same period in 2001. Other income for this segment for the nine
months ended September 30, 2002, was $22.8 million compared to $21.4 million
for the same period in 2001. Income from the Excel Paralubes 50/50 partnership
with Conoco Inc., which is recorded using the equity method of accounting, is
included in other income. Operating income from this segment for the nine
months ended September 30, 2002 was $41.6 million compared to operating income
of $33.2 million for the same period in 2001. The increase in operating income
reflects increased base oil production and a $7.4 million pretax change in
turnaround expense accruals (see Note 5 of Condensed Consolidated Financial
Statements), partially offset by lower base oil margins.

Capital Resources and Liquidity

Cash Flow.As of September 30, 2002, Pennzoil-Quaker State had cash and
cash equivalents of $56.2 million. During the nine months ended September 30,
2002, cash and cash equivalents decreased $30.2 million.

Liquidity.Effective October 1, 2002, the Company has sufficient
availability under its intercompany credit facilities with members of the Royal
Dutch/Shell Group of Companies to fund existing working capital needs and
capital expenditures as necessary.

Debt Instruments and Repayments.Pennzoil-Quaker State entered into a $348
million senior secured revolving credit facility on November 2, 2001. There
were no outstanding borrowings under this facility as of September 30, 2002.
The Company terminated the facility on October 1, 2002.

On November 2, 2001, the Company issued $250.0 million of 10% Senior Notes
due 2008. Net proceeds of $242.8 million were used to pay down all outstanding
revolving credit borrowings under the Companys previous revolving credit
facility and increase cash on hand.

Pennzoil-Quaker States Canadian subsidiary maintained a revolving credit
facility with Canadian banks, which provided for up to $9.0 million of
committed borrowings. As of September 30,

Page 18Table of ContentsPART I. FINANCIAL INFORMATION  continued2002 borrowings under the Companys Canadian facility totaled $7.6 million
and were classified as short-term debt. The Company repaid and terminated the
facility on October 28, 2002.A U.K. subsidiary of the Company maintained a revolving credit facility
that provided for borrowings up to $22.0 million. Outstanding borrowings under
the facility totaled $3.0 million at September 30, 2002 and were classified as
short-term debt. The Company repaid and terminated the facility on October 31,
2002.On October 2,
2002, Pennzoil-Quaker State commenced a tender offer for its 7.375%
Debentures due 2029, 6.75% Notes due 2009, 10% Senior Notes,
Series B, due 2008 and
6.625% Notes due 2005. On October 31, 2002 the Company announced its
acceptance for payment, in accordance with the terms of the tender offer, all
7.375% Notes due 2029, 6.75% Notes due 2009, and 6.625% Notes due 2005
that were validly tendered prior to the expiration time, of midnight, New York
time, on October 30, 2002. Settlement occurred on November 1, 2002 at
redemption prices of 123% for the 7.375% Debentures due 2029, 116% for the
6.75% Notes due 2009 and 111% for the 6.625% Notes due 2005 in addition to
accrued and unpaid interest. The tender offer for the 10% Senior Notes,
Series B, due 2008, which was amended on October 17, 2002,
expired on October 31, 2002. The Company was not required to purchase and did not purchase, any
of the 10% Senior Notes,
Series B, due 2008 tendered, as less than 90% of the notes outstanding
were validly tendered on or prior to the expiration date.On November 1, 2002 the Company announced that Shell Oil Company would be
purchasing shares of the Companys capital stock, the proceeds of which will be
used to redeem 35% of the outstanding 10% Senior Notes,
Series B, due 2008 at a redemption price
of 110% of the principal amount thereof. The Company will pay accrued and
unpaid interest up to, but not including, the redemption date on each $1,000
principal amount of 10% notes redeemed. The redemption date is December 2,
2002.The Company has commenced the process to redeem all variable rate
pollution control bonds issued by three authorities. Issuances by the
Industrial Development Board of the Parish of Caddo, Inc. totaling $33.1
million were redeemed on November 1, 2002. Issuances by the Venango Industrial
Development Authority and Butler County Industrial Development Authority of
$3.4 million and $2.3 million, respectively, will be redeemed on December 4,
2002.Funds used to tender for the Notes and Debentures and redeem the pollution
control bonds were or will be obtained from intercompany debt facilities in
place with members of the Royal Dutch/Shell Group of Companies.In December 2000, Pennzoil-Quaker State issued $150.0 million of 8.65%
Notes due 2002. Net proceeds of $149.1 million were used to reduce the
Companys commercial paper borrowings. The terms of the notes provide that, in
the event a rating on Pennzoil-Quaker States senior unsecured debt falls and
remains below investment grade, the coupon on the notes increases 0.75% to
9.40% and each noteholder has the option, at any time on or after June 1, 2001,
to require the Company to purchase its note at 100% of the principal amount
thereof plus accrued and unpaid interest on or after June 1, 2001. During 2001,
Standard and Poors, Moodys and Fitch lowered the senior unsecured debt rating
for the Companys debt below investment grade. The notes, which are carried at
fair market value due to the interest rate swaps discussed in Note 4, are
currently trading above 100% face value plus accrued interest. To date, amounts
put to the Company for repurchase have been immaterial. In October 2002,
Standard and Poors, Moodys and Fitch raised the Companys senior unsecured
debt rating to investment grade; therefore, the coupon on the notes decreased
to 8.65%. In addition, debt covenants associated with the 10.0% Notes due 2008
were lifted. During the nine months ended September 30, 2002, the Company
chose to purchase and retire $34.8 million face amount of these notes. As of
September 30, 2002, the carrying amount of $70.3 million of indebtedness under
Pennzoil-Quaker States 9.40% Notes due in 2002 (formerly 8.65% Notes due in
2002) has been classified as short-term debtAccounts Receivable. Pennzoil-Quaker State, through its wholly owned
subsidiary Pennzoil Receivables Company (PRC), sold certain of its accounts
receivable to a third party purchaser. PRCPage 19Table of Contents

PART I. FINANCIAL INFORMATION  continued

is a special limited purpose corporation and the assets of PRC are
available solely to satisfy the claims of its own creditors and not those of
Pennzoil-Quaker State or its affiliates. The Company renewed the receivable
sales facility in April 2002 to provide for ongoing sales of up to $110.0
million . As of September 30, 2002 there were no accounts receivable sold
under this facility. The Company terminated the facility in October 2002.

The Company maintains a lube center receivable purchase and sale
agreement, which provides for the sale of certain notes receivable up to $275.0
million, through a wholly owned subsidiary, Pennzoil Lube Center Acceptance
Corporation (PLCAC). The assets of PLCAC are available solely to satisfy the
claims of its own creditors and not those of Pennzoil-Quaker State or its
affiliates. Through September 30, 2002, the Company sold a total of $246.3
million of notes receivable under this agreement, of which $128.4 million were
outstanding to the third party purchaser at September 30, 2002. Through
December 31, 2001, the Company sold a total of $233.3 million of notes
receivable under this agreement, of which $145.5 million were outstanding to
the third party purchaser at December 31, 2001.

Hedging Activities

In connection with the issuance of $150.0 million of two-year fixed rate
notes in December 2000, Pennzoil-Quaker State entered into fixed-to-floating
interest rate swap to maintain its mix of variable rate versus fixed rate debt.
During the nine months ended September 30, 2002, the Company repurchased notes in
the amount of $34.8 million and unwound the corresponding swap. At September
30, 2002, the fair market value of the swap of $0.5 million was recorded in
other assets.

In January 2002, the Company entered into interest rate swaps relating to
the 6.625% Notes due 2005 to adjust the mix of variable rate and fixed rate
debt. At September 30, 2002, the fair market value of the swap of $5.9 million
was recorded in other assets. In conjunction with the tender offer and
repurchase of the 6.625% Notes due 2005, the interest rate swaps related
thereto were unwound on November 4, 2002.

Pennzoil-Quaker State enters into forward exchange contracts and options
to minimize the impact of foreign currency fluctuations on the results of
operations. At September 30, 2002, the Company had $3.0 million of Canadian
dollar foreign currency forward contracts to hedge the cash flow variability of
U.S. dollar purchases of inventory. The $3.0 million of hedges outstanding at
September 30, 2002 were settled during October 2002.

In October 2002, the Company entered into treasury locks with a member of
the Royal Dutch/Shell Group of Companies in conjunction with the tender offer
described in Note 8. The treasury locks were settled in November 2002.

Forward-Looking Statements  Safe Harbor Provisions

This quarterly report on Form 10-Q of Pennzoil-Quaker State for the
quarter ended September 30, 2002 contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. To the extent that
such statements are not recitations of historical fact, such statements
constitute forward-looking statements, which, by definition, involve risks and
uncertainties. Where, in any forward-looking statements, Pennzoil-Quaker State
expresses an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.

The factors described in Pennzoil-Quaker States latest annual report on
Form 10-K under the caption Managements Discussion and Analysis of Financial
Condition and Results of Operations

Page 20Table of Contents

PART I. FINANCIAL INFORMATION  continued

 Risk Factors and the following are factors that could cause actual
results or events to differ materially from those anticipated, and include but
are not limited to: general economic, financial and business conditions; energy
prices; unanticipated environmental liabilities; changes in and compliance with
governmental regulations; changes in tax laws; and the cost and effects of
legal proceedings.

Guarantor Condensed Consolidating Financial Statements

In November 2001, Pennzoil-Quaker State issued $250 million of Senior
Notes due in 2008. Certain of the Companys direct and indirect wholly owned
subsidiaries (the Guarantors) fully and unconditionally guarantee the notes
and the related credit facility of Pennzoil-Quaker State and all guarantees are
joint and several.

The following are condensed consolidating financial statements which
present, in separate columns: Pennzoil-Quaker State Company carrying its
investment in subsidiaries under the equity method (the Parent); the
subsidiary Guarantors on a combined, or where appropriate, consolidated basis,
carrying its investment in the subsidiary non-guarantors under the equity
method; and the remaining subsidiaries (the Non-Guarantors) on a consolidated
basis. Additional columns present eliminating adjustments and consolidated
totals as of September 30, 2002 and December 31, 2001 and for the quarters and
nine months ended September 30, 2002 and 2001.

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PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002

|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |         |  
|------------------------------------- | ------------------------------------------------------- | - | ------------------------ | ------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------ | - | - | ------- | ------- | ------------ | - | ------- | ------- | -
|                                      |                                                         |   | Parent Only              |         |            |   |                |         |              |   |         |        |   |   |         |         | Consolidated
|                                      |                                                         |   | Pennzoil-                |         |            |   |                |         |              |   |         |        |   |   |         |         | Pennzoil-   
|                                      |                                                         |   | Quaker State             |         |            |   |                |         |              |   |         |        |   |   |         |         | Quaker State
|                                      |                                                         |   | Company                  |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |        
|                                      |                                                         |   | (expressed in thousands)
|                                      |                                                         |   | (unaudited)             
|REVENUES                              |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                      | Net sales                                               |   | $                        | 351,477 |            |   | $              | 164,535 |              |   | $       | 58,072 |   |   | $       | (26,636 | )            |   | $       | 547,448 |  
|                                      | Other income, net                                       |   |                          | 7,084   |            |   |                | 4,258   |              |   |         | 5,502  |   |   |         | 379     |              |   |         | 17,223  |  
|                                      | Equity in earnings of
consolidated subsidiaries         |   |                          | 7,283   |            |   |                | (3,691  | )            |   |         |       |   |   |         | (3,592  | )            |   |         |        |  
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                      |                                                         |   | 365,844                  |         |            |   | 165,102        |         |              |   | 63,574  |        |   |   | (29,849 | )       |              |   | 564,671 |        
|COSTS AND EXPENSES                    |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                      | Cost of sales (excluding
depreciation and amortization) |   |                          | 242,214 |            |   |                | 111,242 |              |   |         | 42,424 |   |   |         | (26,636 | )            |   |         | 369,244 |  
|                                      | Selling, general and administrative                     |   |                          | 59,264  |            |   |                | 41,054  |              |   |         | 10,065 |   |   |         | 379     |              |   |         | 110,762 |  
|                                      | Depreciation and amortization                           |   |                          | 9,237   |            |   |                | 5,836   |              |   |         | 4,128  |   |   |         |        |              |   |         | 19,201  |  
|                                      | Taxes, other than income                                |   |                          | 1,865   |            |   |                | 1,661   |              |   |         | 774    |   |   |         |        |              |   |         | 4,300   |  
|                                      | Interest charges                                        |   |                          | 18,883  |            |   |                | 1,633   |              |   |         | 2,080  |   |   |         |        |              |   |         | 22,596  |  
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|INCOME BEFORE INCOME TAX              |                                                         |   | 34,381                   |         |            |   | 3,676          |         |              |   | 4,103   |        |   |   | (3,592  | )       |              |   | 38,568  |        
|Income tax provision                  |                                                         |   | 7,787                    |         |            |   | 1,838          |         |              |   | 2,349   |        |   |   |        |         |              |   | 11,974  |        
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|NET INCOME                            |                                                         | $ | 26,594                   |         |            | $ | 1,838          |         |              | $ | 1,754   |        |   | $ | (3,592  | )       |              | $ | 26,594  |        
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|NET INCOME                            |                                                         | $ | 26,594                   |         |            | $ | 1,838          |         |              | $ | 1,754   |        |   | $ | (3,592  | )       |              | $ | 26,594  |        
|Other comprehensive loss, net of tax: |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                      | Foreign currency translation adjustment                 |   |                          |        |            |   |                | (127    | )            |   |         | (755   | ) |   |         |        |              |   |         | (882    | )
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                      | Total other comprehensive loss                          |   |                          |        |            |   |                | (127    | )            |   |         | (755   | ) |   |         |        |              |   |         | (882    | )
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|COMPREHENSIVE INCOME                  |                                                         | $ | 26,594                   |         |            | $ | 1,711          |         |              | $ | 999     |        |   | $ | (3,592  | )       |              | $ | 25,712  |        
|                                      |                                                         |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

|                                               |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |           |  
|---------------------------------------------- | ------------------------------------------------------- | - | ------------------------ | --------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------- | - | - | -------- | -------- | ------------ | - | --------- | --------- | -
|                                               |                                                         |   | Parent Only              |           |            |   |                |         |              |   |         |         |   |   |          |          | Consolidated
|                                               |                                                         |   | Pennzoil-                |           |            |   |                |         |              |   |         |         |   |   |          |          | Pennzoil-   
|                                               |                                                         |   | Quaker State             |           |            |   |                |         |              |   |         |         |   |   |          |          | Quaker State
|                                               |                                                         |   | Company                  |           | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                               |                                                         |   |                          |           |            |   |                |         |              |   |        
|                                               |                                                         |   | (expressed in thousands)
|                                               |                                                         |   | (unaudited)             
|REVENUES                                       |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|                                               | Net sales                                               |   | $                        | 1,085,461 |            |   | $              | 501,542 |              |   | $       | 211,934 |   |   | $        | (119,270 | )            |   | $         | 1,679,667 |  
|                                               | Other income, net                                       |   |                          | 1,577     |            |   |                | 9,191   |              |   |         | 28,535  |   |   |          | (291     | )            |   |           | 39,012    |  
|                                               | Equity in earnings of
consolidated subsidiaries         |   |                          | 51,620    |            |   |                | (3,141  | )            |   |         |        |   |   |          | (48,479  | )            |   |           |          |  
|                                               |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|                                               |                                                         |   | 1,138,658                |           |            |   | 507,592        |         |              |   | 240,469 |         |   |   | (168,040 | )        |              |   | 1,718,679 |          
|COSTS AND EXPENSES                             |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|                                               | Cost of sales (excluding
depreciation and amortization) |   |                          | 741,641   |            |   |                | 341,791 |              |   |         | 163,434 |   |   |          | (119,270 | )            |   |           | 1,127,596 |  
|                                               | Selling, general and administrative                     |   |                          | 216,081   |            |   |                | 90,759  |              |   |         | 31,007  |   |   |          | (291     | )            |   |           | 337,556   |  
|                                               | Depreciation and amortization                           |   |                          | 27,194    |            |   |                | 16,505  |              |   |         | 6,691   |   |   |          |         |              |   |           | 50,390    |  
|                                               | Taxes, other than income                                |   |                          | 5,540     |            |   |                | 4,730   |              |   |         | 2,321   |   |   |          |         |              |   |           | 12,591    |  
|                                               | Interest charges                                        |   |                          | 56,805    |            |   |                | 5,280   |              |   |         | 6,366   |   |   |          |         |              |   |           | 68,451    |  
|                                               |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|INCOME BEFORE INCOME TAX                       |                                                         |   | 91,397                   |           |            |   | 48,527         |         |              |   | 30,650  |         |   |   | (48,479  | )        |              |   | 122,095   |          
|Income tax provision                           |                                                         |   | 15,176                   |           |            |   | 17,500         |         |              |   | 13,198  |         |   |   |         |          |              |   | 45,874    |          
|                                               |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|NET INCOME                                     |                                                         | $ | 76,221                   |           |            | $ | 31,027         |         |              | $ | 17,452  |         |   | $ | (48,479  | )        |              | $ | 76,221    |          
|                                               |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|NET INCOME                                     |                                                         | $ | 76,221                   |           |            | $ | 31,027         |         |              | $ | 17,452  |         |   | $ | (48,479  | )        |              | $ | 76,221    |          
|Other comprehensive income (loss), net of tax: |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|                                               | Foreign currency translation adjustment                 |   |                          |          |            |   |                | 2,548   |              |   |         | (7,269  | ) |   |          |         |              |   |           | (4,721    | )
|                                               | Unrealized loss on
investment in securities             |   |                          |          |            |   |                |        |              |   |         | (91     | ) |   |          |         |              |   |           | (91       | )
|                                               |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          
|                                               | Total other comprehensive income (loss)                 |   |                          |          |            |   |                | 2,548   |              |   |         | (7,360  | ) |   |          |         |              |   |           | (4,812    | )
|COMPREHENSIVE INCOME                           |                                                         | $ | 76,221                   |           |            | $ | 33,575         |         |              | $ | 10,092  |         |   | $ | (48,479  | )        |              | $ | 71,409    |          
|                                               |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |          |              |   |           |          

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001

|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |         | 
|---------------------------------------------- | -------------------------------------------------------- | - | ------------------------ | ------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------ |  | - | ------- | ------- | ------------ | - | ------- | ------- | 
|                                               |                                                          |   | Parent Only              |         |            |   |                |         |              |   |         |        |  |   |         |         | Consolidated
|                                               |                                                          |   | Pennzoil-                |         |            |   |                |         |              |   |         |        |  |   |         |         | Pennzoil-   
|                                               |                                                          |   | Quaker State             |         |            |   |                |         |              |   |         |        |  |   |         |         | Quaker State
|                                               |                                                          |   | Company                  |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |        
|                                               |                                                          |   | (expressed in thousands)
|                                               |                                                          |   | (unaudited)             
|REVENUES                                       |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|                                               | Net sales                                                |   | $                        | 375,571 |            |   | $              | 155,454 |              |   | $       | 63,472 |  |   | $       | (13,560 | )            |   | $       | 580,937 | 
|                                               | Other income, net                                        |   |                          | (1,884  | )          |   |                | 1,898   |              |   |         | 12,733 |  |   |         | (334    | )            |   |         | 12,413  | 
|                                               | Equity in earnings of
consolidated subsidiaries          |   |                          | 30,265  |            |   |                | 480     |              |   |         |       |  |   |         | (30,745 | )            |   |         |        | 
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|                                               |                                                          |   | 403,952                  |         |            |   | 157,832        |         |              |   | 76,205  |        |  |   | (44,639 | )       |              |   | 593,350 |        
|COSTS AND EXPENSES                             |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|                                               | Costs of sales (excluding
depreciation and amortization) |   |                          | 268,195 |            |   |                | 104,727 |              |   |         | 44,815 |  |   |         | (13,560 | )            |   |         | 404,177 | 
|                                               | Selling, general and administrative                      |   |                          | 78,527  |            |   |                | 24,377  |              |   |         | 10,352 |  |   |         | (334    | )            |   |         | 112,922 | 
|                                               | Depreciation and amortization                            |   |                          | 12,646  |            |   |                | 9,647   |              |   |         | 2,677  |  |   |         |        |              |   |         | 24,970  | 
|                                               | Taxes, other than income                                 |   |                          | 1,409   |            |   |                | 1,283   |              |   |         | 849    |  |   |         |        |              |   |         | 3,541   | 
|                                               | Interest charges                                         |   |                          | 18,769  |            |   |                | 1,909   |              |   |         | 1,981  |  |   |         |        |              |   |         | 22,659  | 
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|INCOME BEFORE INCOME TAX                       |                                                          |   | 24,406                   |         |            |   | 15,889         |         |              |   | 15,531  |        |  |   | (30,745 | )       |              |   | 25,081  |        
|Income tax provision                           |                                                          |   | 20,343                   |         |            |   |               |         |              |   | 675     |        |  |   |        |         |              |   | 21,018  |        
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|INCOME FROM CONTINUING
OPERATIONS              |                                                          |   | 4,063                    |         |            |   | 15,889         |         |              |   | 14,856  |        |  |   | (30,745 | )       |              |   | 4,063   |        
|LOSS FROM DISCONTINUED
OPERATIONS, net of tax  |                                                          |   |                         |         |            |   |               |         |              |   | (3,782  | )      |  |   |        |         |              |   | (3,782  | )      
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|NET INCOME                                     |                                                          | $ | 4,063                    |         |            | $ | 15,889         |         |              | $ | 11,074  |        |  | $ | (30,745 | )       |              | $ | 281     |        
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|NET INCOME                                     |                                                          | $ | 4,063                    |         |            | $ | 15,889         |         |              | $ | 11,074  |        |  | $ | (30,745 | )       |              | $ | 281     |        
|Other comprehensive income (loss), net of tax: |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|                                               | Foreign currency translation adjustment                  |   |                          |        |            |   |                | (441    | )            |   |         | 1,330  |  |   |         |        |              |   |         | 889     | 
|                                               | Unrealized gain on
investment in securities              |   |                          |        |            |   |                |        |              |   |         | 95     |  |   |         |        |              |   |         | 95      | 
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        
|                                               | Total other comprehensive income (loss)                  |   |                          |        |            |   |                | (441    | )            |   |         | 1,425  |  |   |         |        |              |   |         | 984     | 
|COMPREHENSIVE INCOME                           |                                                          | $ | 4,063                    |         |            | $ | 15,448         |         |              | $ | 12,499  |        |  | $ | (30,745 | )       |              | $ | 1,265   |        
|                                               |                                                          |   |                          |         |            |   |                |         |              |   |         |        |  |   |         |         |              |   |         |        

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |           |  
|--------------------------------------------- | ------------------------------------------------------- | - | ------------------------ | --------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------- | - | - | -------- | ------- | ------------ | - | --------- | --------- | -
|                                              |                                                         |   | Parent Only              |           |            |   |                |         |              |   |         |         |   |   |          |         | Consolidated
|                                              |                                                         |   | Pennzoil-                |           |            |   |                |         |              |   |         |         |   |   |          |         | Pennzoil-   
|                                              |                                                         |   | Quaker State             |           |            |   |                |         |              |   |         |         |   |   |          |         | Quaker State
|                                              |                                                         |   | Company                  |           | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |        
|                                              |                                                         |   | (expressed in thousands)
|                                              |                                                         |   | (unaudited)             
|REVENUES                                      |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                              | Net sales                                               |   | $                        | 1,100,126 |            |   | $              | 487,380 |              |   | $       | 237,394 |   |   | $        | (90,984 | )            |   | $         | 1,733,916 |  
|                                              | Other income, net                                       |   |                          | (5,432    | )          |   |                | 4,394   |              |   |         | 30,931  |   |   |          | (3,395  | )            |   |           | 26,498    |  
|                                              | Equity in earnings of
consolidated subsidiaries         |   |                          | 62,104    |            |   |                | (18,750 | )            |   |         |        |   |   |          | (43,354 | )            |   |           |          |  
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                              |                                                         |   | 1,156,798                |           |            |   | 473,024        |         |              |   | 268,325 |         |   |   | (137,733 | )       |              |   | 1,760,414 |          
|COSTS AND EXPENSES                            |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                              | Cost of sales (excluding
depreciation and amortization) |   |                          | 791,821   |            |   |                | 331,945 |              |   |         | 188,108 |   |   |          | (90,984 | )            |   |           | 1,220,890 |  
|                                              | Selling, general and administrative                     |   |                          | 234,438   |            |   |                | 75,715  |              |   |         | 39,176  |   |   |          | (3,395  | )            |   |           | 345,934   |  
|                                              | Depreciation and amortization                           |   |                          | 37,532    |            |   |                | 28,643  |              |   |         | 14,429  |   |   |          |        |              |   |           | 80,604    |  
|                                              | Taxes, other than income                                |   |                          | 4,543     |            |   |                | 3,828   |              |   |         | 2,283   |   |   |          |        |              |   |           | 10,654    |  
|                                              | Interest charges                                        |   |                          | 58,794    |            |   |                | 5,776   |              |   |         | 6,966   |   |   |          |        |              |   |           | 71,536    |  
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|INCOME BEFORE INCOME TAX                      |                                                         |   | 29,670                   |           |            |   | 27,117         |         |              |   | 17,363  |         |   |   | (43,354  | )       |              |   | 30,796    |          
|Income tax provision                          |                                                         |   | 20,200                   |           |            |   | 734            |         |              |   | 392     |         |   |   |         |         |              |   | 21,326    |          
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|INCOME FROM CONTINUING
OPERATIONS             |                                                         |   | 9,470                    |           |            |   | 26,383         |         |              |   | 16,971  |         |   |   | (43,354  | )       |              |   | 9,470     |          
|LOSS FROM DISCONTINUED
OPERATIONS, net of tax |                                                         |   |                         |           |            |   |               |         |              |   | (6,247  | )       |   |   |         |         |              |   | (6,247    | )        
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|NET INCOME                                    |                                                         | $ | 9,470                    |           |            | $ | 26,383         |         |              | $ | 10,724  |         |   | $ | (43,354  | )       |              | $ | 3,223     |          
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|NET INCOME                                    |                                                         | $ | 9,470                    |           |            | $ | 26,383         |         |              | $ | 10,724  |         |   | $ | (43,354  | )       |              | $ | 3,223     |          
|Other comprehensive loss, net of tax:         |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                              | Foreign currency translation adjustment                 |   |                          |          |            |   |                | (918    | )            |   |         | (354    | ) |   |          |        |              |   |           | (1,272    | )
|                                              | Unrealized loss on
investment in securities             |   |                          |          |            |   |                |        |              |   |         | (49     | ) |   |          |        |              |   |           | (49       | )
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                              | Total other comprehensive loss                          |   |                          |          |            |   |                | (918    | )            |   |         | (403    | ) |   |          |        |              |   |           | (1,321    | )
|COMPREHENSIVE INCOME                          |                                                         | $ | 9,470                    |           |            | $ | 25,465         |         |              | $ | 10,321  |         |   | $ | (43,354  | )       |              | $ | 1,902     |          
|                                              |                                                         |   |                          |           |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2002

|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |   |         | 
|--------------------------------------------- | ------ | ------------------------------------ | --------- | ------------------------ | --------- | ---------- | --------- | -------------- | --------- | ------------ | -------- | ------- | -------- | - | ---------- | - | ---------- | ------------ | --------- | - | ------- | 
|                                              |        |                                      |           | Parent Only              |           |            |           |                |           |              |          |         |          |   |            |   |            | Consolidated
|                                              |        |                                      |           | Pennzoil-                |           |            |           |                |           |              |          |         |          |   |            |   |            | Pennzoil-   
|                                              |        |                                      |           | Quaker State             |           |            |           |                |           |              |          |         |          |   |            |   |            | Quaker State
|                                              |        |                                      |           | Company                  |           | Guarantors |           | Non-Guarantors |           | Eliminations |          | Company
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |        
|                                              |        |                                      |           | (expressed in thousands)
|                                              |        |                                      |           | (unaudited)             
|                                              | ASSETS |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|Current assets                                |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|                                              |        | Cash and cash equivalents            |           | $                        | 41,169    |            |           | $              | (1,274    | )            |          | $       | 16,271   |   |            | $ |           |              |           | $ | 56,166  | 
|                                              |        | Receivables                          |           |                          | 41,047    |            |           |                | 97,346    |              |          |         | 226,308  |   |            |   |           |              |           |   | 364,701 | 
|                                              |        | Accounts receivable affiliated       |           |                          | 3,328,532 |            |           |                | 887,181   |              |          |         | 34,619   |   |            |   | (4,250,332 | )            |           |   |        | 
|                                              |        | Inventories                          |           |                          | 125,874   |            |           |                | 57,392    |              |          |         | 26,981   |   |            |   |           |              |           |   | 210,247 | 
|                                              |        | Other current assets                 |           |                          | 7,892     |            |           |                | 15,923    |              |          |         | 9,761    |   |            |   | 26,691     |              |           |   | 60,267  | 
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|Total current assets                          |        |                                      | 3,544,514 |                          |           |            | 1,056,568 |                |           |              | 313,940  |         |          |   | (4,223,641 | ) |            |              | 691,381   |  
|Property, plant and equipment, net            |        |                                      | 181,533   |                          |           |            | 210,413   |                |           |              | 26,661   |         |          |   |           |   |            |              | 418,607   |  
|Investment in consolidated subsidiaries       |        |                                      | 1,027,378 |                          |           |            | 40,888    |                |           |              | 161,874  |         |          |   | (1,230,140 | ) |            |              |          |  
|Investment in unconsolidated subsidiaries     |        |                                      | 2,485     |                          |           |            |          |                |           |              | 1,696    |         |          |   |           |   |            |              | 4,181     |  
|Deferred income taxes                         |        |                                      |          |                          |           |            |          |                |           |              |         |         |          |   | 231,714    |   |            |              | 231,714   |  
|Goodwill                                      |        |                                      | 350,490   |                          |           |            | 317,105   |                |           |              | 42,312   |         |          |   |           |   |            |              | 709,907   |  
|Other intangibles                             |        |                                      | 282,044   |                          |           |            | 117,044   |                |           |              | 2,492    |         |          |   |           |   |            |              | 401,580   |  
|Other assets                                  |        |                                      | 279,936   |                          |           |            | 42,678    |                |           |              | (72,997  | )       |          |   |           |   |            |              | 249,617   |  
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|TOTAL ASSETS                                  |        | $                                    | 5,668,380 |                          |           | $          | 1,784,696 |                |           | $            | 475,978  |         |          | $ | (5,222,067 | ) |            | $            | 2,706,987 |  
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY          |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|Current liabilities                           |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|                                              |        | Current maturities of long-term debt |           | $                        | 70,465    |            |           | $              | 359       |              |          | $       | 17,846   |   |            | $ |           |              |           | $ | 88,670  | 
|                                              |        | Accounts payable                     |           |                          | 103,646   |            |           |                | 62,728    |              |          |         | (7,760   | ) |            |   | (1,906     | )            |           |   | 156,708 | 
|                                              |        | Accounts payable affiliated          |           |                          | 3,613,069 |            |           |                | 1,025,163 |              |          |         | (414,142 | ) |            |   | (4,224,090 | )            |           |   |        | 
|                                              |        | Payroll accrued                      |           |                          | 10,459    |            |           |                | 7,521     |              |          |         | 808      |   |            |   |           |              |           |   | 18,788  | 
|                                              |        | Other current liabilities            |           |                          | 102,935   |            |           |                | 38,642    |              |          |         | 22,417   |   |            |   |           |              |           |   | 163,994 | 
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|Total current liabilities                     |        |                                      | 3,900,574 |                          |           |            | 1,134,413 |                |           |              | (380,831 | )       |          |   | (4,225,996 | ) |            |              | 428,160   |  
|Total long-term debt, less current maturities |        |                                      | 1,002,722 |                          |           |            | 2,796     |                |           |              |         |         |          |   |           |   |            |              | 1,005,518 |  
|Long-term debt affiliated                     |        |                                      | 8,000     |                          |           |            | (23,422   | )              |           |              | 15,422   |         |          |   |           |   |            |              |          |  
|Deferred income taxes                         |        |                                      | (319,431  | )                        |           |            | 27,229    |                |           |              | 33,798   |         |          |   | 258,404    |   |            |              |          |  
|Capital lease obligations                     |        |                                      |          |                          |           |            | 49,045    |                |           |              | 1,495    |         |          |   |           |   |            |              | 50,540    |  
|Investment in unconsolidated subsidiaries     |        |                                      |          |                          |           |            |          |                |           |              | 67,719   |         |          |   |           |   |            |              | 67,719    |  
|Other liabilities                             |        |                                      | 211,444   |                          |           |            | 11,802    |                |           |              | 81,879   |         |          |   |           |   |            |              | 305,125   |  
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|TOTAL LIABILITIES                             |        |                                      | 4,803,309 |                          |           |            | 1,201,863 |                |           |              | (180,518 | )       |          |   | (3,967,592 | ) |            |              | 1,857,062 |  
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|SHAREHOLDERS EQUITY                          |        |                                      | 865,071   |                          |           |            | 582,833   |                |           |              | 656,496  |         |          |   | (1,254,475 | ) |            |              | 849,925   |  
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  
|TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY    |        | $                                    | 5,668,380 |                          |           | $          | 1,784,696 |                |           | $            | 475,978  |         |          | $ | (5,222,067 | ) |            | $            | 2,706,987 |  
|                                              |        |                                      |           |                          |           |            |           |                |           |              |          |         |          |   |            |   |            |              |           |  

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001

|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |   |         | 
|--------------------------------------------- | ------ | ------------------------------------ | --------- | ------------------------ | --------- | ---------- | --------- | -------------- | ------- | ------------ | -------- | ------- | -------- | - | ---------- | - | ---------- | ------------ | --------- | - | ------- | 
|                                              |        |                                      |           | Parent Only              |           |            |           |                |         |              |          |         |          |   |            |   |            | Consolidated
|                                              |        |                                      |           | Pennzoil-                |           |            |           |                |         |              |          |         |          |   |            |   |            | Pennzoil-   
|                                              |        |                                      |           | Quaker State             |           |            |           |                |         |              |          |         |          |   |            |   |            | Quaker State
|                                              |        |                                      |           | Company                  |           | Guarantors |           | Non-Guarantors |         | Eliminations |          | Company
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |        
|                                              |        |                                      |           | (expressed in thousands)
|                                              |        |                                      |           | (audited)               
|                                              | ASSETS |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|Current assets                                |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|                                              |        | Cash and cash equivalents            |           | $                        | 77,481    |            |           | $              | (3,837  | )            |          | $       | 12,768   |   |            | $ |           |              |           | $ | 86,412  | 
|                                              |        | Receivables                          |           |                          | 8,400     |            |           |                | 90,835  |              |          |         | 170,280  |   |            |   |           |              |           |   | 269,515 | 
|                                              |        | Accounts receivable affiliated       |           |                          | 2,880,055 |            |           |                | 691,811 |              |          |         | 36,233   |   |            |   | (3,608,099 | )            |           |   |        | 
|                                              |        | Inventories                          |           |                          | 100,334   |            |           |                | 74,055  |              |          |         | 25,252   |   |            |   |           |              |           |   | 199,641 | 
|                                              |        | Other current assets                 |           |                          | 12,987    |            |           |                | 14,143  |              |          |         | 4,162    |   |            |   | 35,486     |              |           |   | 66,778  | 
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|Total current assets                          |        |                                      | 3,079,257 |                          |           |            | 867,007   |                |         |              | 248,695  |         |          |   | (3,572,613 | ) |            |              | 622,346   |  
|Property, plant and equipment, net            |        |                                      | 183,156   |                          |           |            | 226,774   |                |         |              | 29,051   |         |          |   |           |   |            |              | 438,981   |  
|Investment in consolidated subsidiaries       |        |                                      | 991,079   |                          |           |            | 42,113    |                |         |              | 161,874  |         |          |   | (1,195,066 | ) |            |              |          |  
|Investment in unconsolidated subsidiaries     |        |                                      | 2,578     |                          |           |            |          |                |         |              | 3,071    |         |          |   |           |   |            |              | 5,649     |  
|Deferred income taxes                         |        |                                      |          |                          |           |            |          |                |         |              |         |         |          |   | 266,805    |   |            |              | 266,805   |  
|Goodwill                                      |        |                                      | 350,480   |                          |           |            | 318,286   |                |         |              | 46,173   |         |          |   |           |   |            |              | 714,939   |  
|Other intangibles                             |        |                                      | 281,750   |                          |           |            | 117,032   |                |         |              | 2,479    |         |          |   |           |   |            |              | 401,261   |  
|Other assets                                  |        |                                      | 201,578   |                          |           |            | 46,748    |                |         |              | (1,990   | )       |          |   |           |   |            |              | 246,336   |  
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|TOTAL ASSETS                                  |        | $                                    | 5,089,878 |                          |           | $          | 1,617,960 |                |         | $            | 489,353  |         |          | $ | (4,500,874 | ) |            | $            | 2,696,317 |  
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY          |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|Current liabilities                           |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|                                              |        | Current maturities of long-term debt |           | $                        | 108,505   |            |           | $              | 516     |              |          | $       | 24,712   |   |            | $ |           |              |           | $ | 133,733 | 
|                                              |        | Accounts payable                     |           |                          | 108,129   |            |           |                | 44,973  |              |          |         | 12,923   |   |            |   | (2,488     | )            |           |   | 163,537 | 
|                                              |        | Accounts payable affiliated          |           |                          | 3,116,229 |            |           |                | 884,656 |              |          |         | (419,611 | ) |            |   | (3,581,274 | )            |           |   |        | 
|                                              |        | Payroll accrued                      |           |                          | 7,849     |            |           |                | 5,669   |              |          |         | 540      |   |            |   |           |              |           |   | 14,058  | 
|                                              |        | Other current liabilities            |           |                          | 65,511    |            |           |                | 57,760  |              |          |         | 18,665   |   |            |   |           |              |           |   | 141,936 | 
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|Total current liabilities                     |        |                                      | 3,406,223 |                          |           |            | 993,574   |                |         |              | (362,771 | )       |          |   | (3,583,762 | ) |            |              | 453,264   |  
|Total long-term debt, less current maturities |        |                                      | 996,604   |                          |           |            | 5,757     |                |         |              | 193      |         |          |   |           |   |            |              | 1,002,554 |  
|Long-term debt affiliated                     |        |                                      | 8,000     |                          |           |            | (23,423   | )              |         |              | 15,423   |         |          |   |           |   |            |              |          |  
|Deferred income taxes                         |        |                                      | (338,093  | )                        |           |            | 8,771     |                |         |              | 27,031   |         |          |   | 302,291    |   |            |              |          |  
|Capital lease obligations                     |        |                                      |          |                          |           |            | 53,779    |                |         |              | 1,550    |         |          |   |           |   |            |              | 55,329    |  
|Investment in unconsolidated subsidiaries     |        |                                      |          |                          |           |            |          |                |         |              | 83,005   |         |          |   |           |   |            |              | 83,005    |  
|Other liabilities                             |        |                                      | 242,259   |                          |           |            | 14,271    |                |         |              | 81,084   |         |          |   |           |   |            |              | 337,614   |  
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|TOTAL LIABILITIES                             |        |                                      | 4,314,993 |                          |           |            | 1,052,729 |                |         |              | (154,485 | )       |          |   | (3,281,471 | ) |            |              | 1,931,766 |  
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|COMMITMENTS AND CONTINGENCIES                 |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|SHAREHOLDERS EQUITY                          |        |                                      | 774,885   |                          |           |            | 565,231   |                |         |              | 643,838  |         |          |   | (1,219,403 | ) |            |              | 764,551   |  
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  
|TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY    |        | $                                    | 5,089,878 |                          |           | $          | 1,617,960 |                |         | $            | 489,353  |         |          | $ | (4,500,874 | ) |            | $            | 2,696,317 |  
|                                              |        |                                      |           |                          |           |            |           |                |         |              |          |         |          |   |            |   |            |              |           |  

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |         |         |  
|---------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------- | ------------------------ | ------- | ---------- | ------ | -------------- | ------ | ------------ | ------ | ------- | ------ | - | - | - | - | ------------ | ------- | ------- | ------- | -
|                                                     |                                           |                                                     |         | Parent Only              |         |            |        |                |        |              |        |         |        |   |   |   |   | Consolidated
|                                                     |                                           |                                                     |         | Pennzoil-                |         |            |        |                |        |              |        |         |        |   |   |   |   | Pennzoil-   
|                                                     |                                           |                                                     |         | Quaker State             |         |            |        |                |        |              |        |         |        |   |   |   |   | Quaker State
|                                                     |                                           |                                                     |         | Company                  |         | Guarantors |        | Non-Guarantors |        | Eliminations |        | Company
|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |        
|                                                     |                                           |                                                     |         | (expressed in thousands)
|                                                     |                                           |                                                     |         | (unaudited)             
|CASH FLOWS FROM OPERATING ACTIVITIES                 |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                                     | Net cash provided by operating activities |                                                     | $       | 16,872                   |         |            | $      | 5,877          |        |              | $      | 14,090  |        |   | $ |  |   |              | $       | 36,839  |        
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES       |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                                     | Capital Expenditures                      |                                                     |         | (19,834                  | )       |            |        | (13,323        | )      |              |        | (1,628  | )      |   |   |  |   |              |         | (34,785 | )      
|                                                     | Proceeds from sales of assets             |                                                     |         | 1,636                    |         |            |        | 10,719         |        |              |        | 1,713   |        |   |   |  |   |              |         | 14,068  |        
|                                                     | Other investing activities                |                                                     |         | 3,945                    |         |            |        | 4,008          |        |              |        | (3,549  | )      |   |   |  |   |              |         | 4,404   |        
|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                                     |                                           | Net cash provided by (used in) investing
activities |         |                          | (14,253 | )          |        |                | 1,404  |              |        |         | (3,464 | ) |   |   |  |              |         |         | (16,313 | )
|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|CASH FLOWS USED IN FINANCING ACTIVITIES              |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                                     | Repayments of debt                        |                                                     |         | (34,922                  | )       |            |        | (4,718         | )      |              |        | (7,123  | )      |   |   |  |   |              |         | (46,763 | )      
|                                                     | Dividends paid                            |                                                     |         | (4,009                   | )       |            |        |               |        |              |        |        |        |   |   |  |   |              |         | (4,009  | )      
|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                                     |                                           | Net cash used in financing activities               |         |                          | (38,931 | )          |        |                | (4,718 | )            |        |         | (7,123 | ) |   |   |  |              |         |         | (50,772 | )
|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS |                                           |                                                     | (36,312 | )                        |         |            | 2,563  |                |        |              | 3,503  |         |        |   |  |   |   |              | (30,246 | )      
|CASH AND CASH EQUIVALENTS, beginning of period       |                                           |                                                     | 77,481  |                          |         |            | (3,837 | )              |        |              | 12,768 |         |        |   |  |   |   |              | 86,412  |        
|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|CASH AND CASH EQUIVALENTS, end of period             |                                           | $                                                   | 41,169  |                          |         | $          | (1,274 | )              |        | $            | 16,271 |         |        | $ |  |   |   | $            | 56,166  |        
|                                                     |                                           |                                                     |         |                          |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |         |         |  
|---------------------------------------------- | --------------------------------------------------- | ------------------------------------- | ------- | ------------------------ | ------- | ---------- | ------ | -------------- | ------ | ------------ | ------- | ------- | ------- | - | - | - | - | ------------ | ------- | ------- | ------- | -
|                                               |                                                     |                                       |         | Parent Only              |         |            |        |                |        |              |         |         |         |   |   |   |   | Consolidated
|                                               |                                                     |                                       |         | Pennzoil-                |         |            |        |                |        |              |         |         |         |   |   |   |   | Pennzoil-   
|                                               |                                                     |                                       |         | Quaker State             |         |            |        |                |        |              |         |         |         |   |   |   |   | Quaker State
|                                               |                                                     |                                       |         | Company                  |         | Guarantors |        | Non-Guarantors |        | Eliminations |         | Company
|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |        
|                                               |                                                     |                                       |         | (expressed in thousands)
|                                               |                                                     |                                       |         | (unaudited)             
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|                                               | Net cash provided by (used in) operating activities |                                       | $       | 74,763                   |         |            | $      | (3,897         | )      |              | $       | (88,809 | )       |   | $ |  |   |              | $       | (17,943 | )      
|CASH FLOWS USED IN INVESTING ACTIVITIES        |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|                                               | Capital Expenditures                                |                                       |         | (24,236                  | )       |            |        | (8,719         | )      |              |         | (5,482  | )       |   |   |  |   |              |         | (38,437 | )      
|                                               | Acquisitions, net of cash acquired                  |                                       |         |                         |         |            |        |               |        |              |         | (700    | )       |   |   |  |   |              |         | (700    | )      
|                                               | Proceeds from sales of assets                       |                                       |         | 6,245                    |         |            |        | 5,144          |        |              |         | 1,065   |         |   |   |  |   |              |         | 12,454  |        
|                                               | Other investing activities                          |                                       |         | 7,369                    |         |            |        | 3,447          |        |              |         | (6,182  | )       |   |   |  |   |              |         | 4,634   |        
|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|                                               |                                                     | Net cash used in investing activities |         |                          | (10,622 | )          |        |                | (128   | )            |         |         | (11,299 | ) |   |   |  |              |         |         | (22,049 | )
|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|CASH FLOWS USED IN FINANCING ACTIVITIES        |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|                                               | Net proceeds from (repayments of) debt              |                                       |         | (57,683                  | )       |            |        | (2,274         | )      |              |         | (7,443  | )       |   |   |  |   |              |         | (67,400 | )      
|                                               | Dividends paid                                      |                                       |         | (31,613                  | )       |            |        |               |        |              |         |        |         |   |   |  |   |              |         | (31,613 | )      
|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|                                               |                                                     | Net cash used in financing activities |         |                          | (89,296 | )          |        |                | (2,274 | )            |         |         | (7,443  | ) |   |   |  |              |         |         | (99,013 | )
|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|CASH PROVIDED BY DISCONTINUED OPERATIONS       |                                                     |                                       |        |                          |         |            |       |                |        |              | 101,324 |         |         |   |  |   |   |              | 101,324 |        
|NET DECREASE IN CASH
AND CASH EQUIVALENTS      |                                                     |                                       | (25,155 | )                        |         |            | (6,299 | )              |        |              | (6,227  | )       |         |   |  |   |   |              | (37,681 | )      
|CASH AND CASH EQUIVALENTS, beginning of period |                                                     |                                       | 18,777  |                          |         |            | 1,745  |                |        |              | 17,741  |         |         |   |  |   |   |              | 38,263  |        
|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        
|CASH AND CASH EQUIVALENTS, end of period       |                                                     | $                                     | (6,378  | )                        |         | $          | (4,554 | )              |        | $            | 11,514  |         |         | $ |  |   |   | $            | 582     |        
|                                               |                                                     |                                       |         |                          |         |            |        |                |        |              |         |         |         |   |   |   |   |              |         |        




Item 4. Controls and Procedures

Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of
Pennzoil-Quaker State Companys management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operations of our disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of these disclosure controls and procedures were
effective. No significant changes occurred in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.

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##### Table of Contents






PART II. OTHER INFORMATION




Item 1. Legal Proceedings

(a)  Havens v. Pate, et al.Pennzoil-Quaker States directors were named
as defendants in two lawsuits filed on March 28, 2002 and April 4, 2002 in the
District Court of Harris County, Texas by two purported Pennzoil-Quaker State
stockholders. The petitions seek class certification on behalf of the holders
of Pennzoil-Quaker States stock and are styled John F. Havens v. James Pate,
et al.and Howard Lasker v. James L. Pate, et al.The petitions in the
stockholder actions alleged that the directors breached their fiduciary duties
in connection with the proposed sale of Pennzoil-Quaker State to Shell Oil
Company at a price alleged to be grossly inadequate and unfair. The petitions
further alleged that the defendants derived unspecified personal financial
benefits from the acquisition at the expense of Pennzoil-Quaker States
stockholders. The petitions sought injunctive relief barring defendants from
breaching their fiduciary duties to the plaintiffs and the putative class
members; seeking to enjoin the defendants from consummating the acquisition of
Pennzoil-Quaker State by Shell Oil Company, and requiring defendants to
implement a sale or auction of Pennzoil-Quaker State. At a hearing held on
July 18, 2002, the plaintiffs motion for injunctive relief was denied. On
September 23, plaintiffs amended their petition to add a third plaintiff and
now seek unspecified monetary damages. Plaintiffs motion for class
certification is pending and trial is set for April 21, 2003.

(b)  IQ Products. A lawsuit filed in June 1998 by IQ Products Company in
the United States District Court for the Southern District of Texas, Houston
Division, claims Snap Products, Inc. and the Company, which purchased certain
Snap Products, Inc. assets in 1997, violated the Lanham Act in connection with
the manufacture and sale of a prior formulation for Fix-a-Flat® tire sealant
and inflator. The plaintiff claims that Snap Products and the Company (i)
should have labeled the products as flammable, as allegedly required by the
Federal Hazardous Substances Act, and (ii) incorrectly advertised and labeled
the product as containing a non-explosive formula. Plaintiffs complaint
seeks unspecified damages. In July 2001, the court granted defendants motion
for summary judgment, dismissing all of Plaintiffs claims. Plaintiff appealed
the courts dismissal, but its judgment was affirmed in all respects by the
United States Court of Appeals for the Fifth Circuit on September 23, 2002.

In January 2001, the plaintiff in the IQ Products litigation filed a
second lawsuit against the Company in the United States District Court for the
Southern District of Texas, Houston Division, claiming that the Company has
violated federal and Texas antitrust law in marketing its tire inflation and
sealer products. The plaintiff seeks approximately $10 million in actual
damages, plus attorneys fees and interest. Any actual damages awarded for
alleged federal antitrust violations would be automatically trebled. The
Company is contesting this action vigorously.

(c)  Environmental Protection Agency Matters.As a result of informal
negotiations with the EPA and the Department of Justice, Pennzoil-Quaker State
has reached an agreement to resolve disputed issues arising under the Clear Air
Act, the Clean Water Act, and the Resource Conservation and Recovery Act in
connection with Pennzoil Quaker States former operation of a refinery in
Shreveport, Louisiana by paying a civil penalty of $495,000. No formal
proceedings were initiated against Pennzoil-Quaker State with respect to the
disputed issues.

As a result of informal negotiations with local, state, and federal
authorities, Jiffy Lube International, Inc., a subsidiary of the Company, has
reached an agreement to resolve allegations of violations of environmental laws
at a fast oil change service center in Alexandria, Virginia

Page 30Table of Contents

PART II. OTHER INFORMATION

owned and operation by Jiffy Lube by paying a civil penalty of $681,000.
No formal proceedings were initiated regarding these allegations.




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits -

|   |  |                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------
|12 |  | Computation of Ratio of Earnings to Fixed Charges for
the nine months ended September 30, 2002 and 2001.

(b)  Reports -

During the third quarter of 2002, Pennzoil-Quaker State filed the
following Current Reports on Form 8-K with the Securities and Exchange
Commission:

|                   |  |                                                                                                                                                                            
|------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report     |  | Items Reported                                                                                                                                                             
|                   |  |                                                                                                                                                                            
|August 13, 2002    |  | Oaths and Certifications of Principal Executive Officer and
Principal Financial Officer for the Companys Quarterly Report on form
10-Q for the quarter ended June 30, 2002
|                   |  |                                                                                                                                                                            
|September 30, 2002 |  | Pennzoil-Quaker State Company announcing that the FTC
has cleared Shell Oil Companys acquisition of Pennzoil-Quaker State
Company                                         

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##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                  |  |                                                     
|----------------- |  | ----------------------------------------------------
|                  |  | PENNZOIL-QUAKER STATE COMPANY
Registrant            
|                  |  |                                                     
|                  |  | /s/ Michael J. Maratea
Michael J. Maratea
Controller
|                  |  |                                                     
|November 12, 2002 |  |                                                     

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##### Table of Contents






CERTIFICATIONS

I, D.J. Pirret, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Pennzoil-Quaker State
Company;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |                                    
|----------------------- |  | -----------------------------------
|Date: November 12, 2002 |  | /s/ D.J. Pirret                    
|                        |  |                                    
|                        |  | D.J. Pirret
Chief Executive Officer

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##### Table of Contents



I, D.J. Palmer, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Pennzoil-Quaker State
Company;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |                                    
|----------------------- |  | -----------------------------------
|Date: November 12, 2002 |  | /s/ D.J. Palmer                    
|                        |  |                                    
|                        |  | D.J. Palmer
Chief Financial Officer

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INDEX TO EXHIBITS

|        |  |                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                         
|NUMBER  |  | DESCRIPTION                                                                                             
|        |  |                                                                                                         
|12      |  | Computation of Ratio of Earnings to Fixed Charges for
the nine months ended September 30, 2002 and 2001.