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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, 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 June 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, July 31, 2002:

Common Stock, par value $0.10 per share, 80,707,033 shares.



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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                                          |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                    
|                                                  | Item 1. Financial Statements                                                                 
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME 
|                                                  |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEET                                    
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS                          
|                                                  |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  |                                                                                               | CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
|                                                  |                                                                                               | CONDENSED CONSOLIDATING BALANCE SHEET                                   
|                                                  |                                                                                               | CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS                         
|PART II. OTHER INFORMATION                       
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                                        
|INDEX TO EXHIBITS                                
|Computation of Ratio of Earnings to Fixed Charges



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




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

|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |         |  
|---------------------------------------------------------- | ------------------------------------------------------- | - | ------------------------------------------------- | ------- | ---------------- | - | ------- | ------- | ---- | - | --------- | ------- | - | - | --------- | ------- | -
|                                                           |                                                         |   | Three Months Ended                                |         | Six Months Ended
|                                                           |                                                         |   | June 30,                                          |         | June 30,        
|                                                           |                                                         |   |                                                   |         |                 
|                                                           |                                                         |   | 2002                                              |         | 2001             |   | 2002    |         | 2001
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |     
|                                                           |                                                         |   | (expressed in thousands except per share amounts)
|REVENUES                                                   |                                                         | $ | 590,434                                           |         |                  | $ | 601,001 |         |      | $ | 1,154,008 |         |   | $ | 1,167,064 |        
|COSTS AND EXPENSES                                         |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           | Cost of sales (excluding depreciation and amortization) |   |                                                   | 385,400 |                  |   |         | 426,840 |      |   |           | 758,352 |   |   |           | 816,713 |  
|                                                           | Selling, general and administrative                     |   |                                                   | 114,081 |                  |   |         | 124,470 |      |   |           | 226,794 |   |   |           | 233,012 |  
|                                                           | Depreciation and amortization                           |   |                                                   | 15,588  |                  |   |         | 30,938  |      |   |           | 31,189  |   |   |           | 55,634  |  
|                                                           | Taxes, other than income                                |   |                                                   | 4,121   |                  |   |         | 3,919   |      |   |           | 8,291   |   |   |           | 7,113   |  
|                                                           | Interest charges, net                                   |   |                                                   | 23,023  |                  |   |         | 24,165  |      |   |           | 45,855  |   |   |           | 48,877  |  
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAX |                                                         |   | 48,221                                            |         |                  |   | (9,331  | )       |      |   | 83,527    |         |   |   | 5,715     |        
|Income tax provision (benefit)                             |                                                         |   | 19,568                                            |         |                  |   | (6,448  | )       |      |   | 33,900    |         |   |   | 308       |        
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|INCOME (LOSS) FROM CONTINUING OPERATIONS                   |                                                         |   | 28,653                                            |         |                  |   | (2,883  | )       |      |   | 49,627    |         |   |   | 5,407     |        
|LOSS FROM DISCONTINUED OPERATIONS, net of tax              |                                                         |   |                                                  |         |                  |   | (2,465  | )       |      |   |          |         |   |   | (2,465    | )      
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|NET INCOME (LOSS)                                          |                                                         | $ | 28,653                                            |         |                  | $ | (5,348  | )       |      | $ | 49,627    |         |   | $ | 2,942     |        
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|BASIC EARNINGS (LOSS) PER SHARE                            |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           | Continuing operations                                   |   | $                                                 | 0.36    |                  |   | $       | (0.04   | )    |   | $         | 0.62    |   |   | $         | 0.07    |  
|                                                           | Discontinued operations                                 |   |                                                   |        |                  |   |         | (0.03   | )    |   |           |        |   |   |           | (0.03   | )
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           |                                                         | $ | 0.36                                              |         |                  | $ | (0.07   | )       |      | $ | 0.62      |         |   | $ | 0.04      |        
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|DILUTED EARNINGS (LOSS) PER SHARE                          |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           | Continuing operations                                   |   | $                                                 | 0.34    |                  |   | $       | (0.04   | )    |   | $         | 0.60    |   |   | $         | 0.07    |  
|                                                           | Discontinued operations                                 |   |                                                   |        |                  |   |         | (0.03   | )    |   |           |        |   |   |           | (0.03   | )
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           |                                                         | $ | 0.34                                              |         |                  | $ | (0.07   | )       |      | $ | 0.60      |         |   | $ | 0.04      |        
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|DIVIDENDS PER COMMON SHARE                                 |                                                         | $ | 0.0250                                            |         |                  | $ | 0.1875  |         |      | $ | 0.0500    |         |   | $ | 0.3750    |        
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|AVERAGE SHARES OUTSTANDING:                                |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           | BASIC                                                   |   |                                                   | 80,406  |                  |   |         | 79,107  |      |   |           | 80,110  |   |   |           | 78,971  |  
|                                                           | DILUTED                                                 |   |                                                   | 83,840  |                  |   |         | 79,107  |      |   |           | 82,668  |   |   |           | 79,693  |  
|END OF PERIOD SHARES OUTSTANDING                           |                                                         |   | 80,671                                            |         |                  |   | 79,261  |         |      |   | 80,671    |         |   |   | 79,261    |        
|NET INCOME (LOSS)                                          |                                                         | $ | 28,653                                            |         |                  | $ | (5,348  | )       |      | $ | 49,627    |         |   | $ | 2,942     |        
|Other comprehensive income (loss) net of tax:              |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           | Foreign currency translation adjustment                 |   |                                                   | (2,076  | )                |   |         | 315     |      |   |           | (3,839  | ) |   |           | (2,161  | )
|                                                           | Unrealized loss on investment in securities and other   |   |                                                   | (123    | )                |   |         | (175    | )    |   |           | (91     | ) |   |           | (144    | )
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        
|                                                           | Total other comprehensive income (loss)                 |   |                                                   | (2,199  | )                |   |         | 140     |      |   |           | (3,930  | ) |   |           | (2,305  | )
|COMPREHENSIVE INCOME (LOSS)                                |                                                         | $ | 26,454                                            |         |                  | $ | (5,208  | )       |      | $ | 45,697    |         |   | $ | 637       |        
|                                                           |                                                         |   |                                                   |         |                  |   |         |         |      |   |           |         |   |   |           |        

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

|                                                   |                                      |   |                          |         |              |   |           |         | 
|-------------------------------------------------- | ------------------------------------ | - | ------------------------ | ------- | ------------ | - | --------- | ------- | 
|                                                   |                                      |   | June 30,                 |         | December 31,
|                                                   |                                      |   | 2002                     |         | 2001        
|                                                   |                                      |   |                          |         |             
|                                                   |                                      |   | (unaudited)              |         |              |   |          
|                                                   |                                      |   | (expressed in thousands)
|ASSETS                                             |                                      |   |                          |         |              |   |           |        
|Current assets                                     |                                      |   |                          |         |              |   |           |        
|                                                   | Cash and cash equivalents            |   | $                        | 124,980 |              |   | $         | 86,412  | 
|                                                   | Receivables                          |   |                          | 286,471 |              |   |           | 269,515 | 
|                                                   | Inventories                          |   |                          | 200,098 |              |   |           | 199,641 | 
|                                                   | Other current assets                 |   |                          | 62,104  |              |   |           | 66,778  | 
|                                                   |                                      |   |                          |         |              |   |           |        
|Total current assets                               |                                      |   | 673,653                  |         |              |   | 622,346   |        
|Property, plant and equipment, net                 |                                      |   | 424,597                  |         |              |   | 438,981   |        
|Deferred income taxes                              |                                      |   | 238,541                  |         |              |   | 266,805   |        
|Goodwill                                           |                                      |   | 714,857                  |         |              |   | 714,939   |        
|Other intangibles                                  |                                      |   | 401,496                  |         |              |   | 401,261   |        
|Other assets                                       |                                      |   | 251,078                  |         |              |   | 251,985   |        
|                                                   |                                      |   |                          |         |              |   |           |        
|TOTAL ASSETS                                       |                                      | $ | 2,704,222                |         |              | $ | 2,696,317 |        
|                                                   |                                      |   |                          |         |              |   |           |        
|LIABILITIES AND SHAREHOLDERS EQUITY               |                                      |   |                          |         |              |   |           |        
|Current liabilities                                |                                      |   |                          |         |              |   |           |        
|                                                   | Current maturities of long-term debt |   | $                        | 94,564  |              |   | $         | 133,733 | 
|                                                   | Accounts payable                     |   |                          | 177,279 |              |   |           | 163,537 | 
|                                                   | Payroll accrued                      |   |                          | 20,650  |              |   |           | 14,058  | 
|                                                   | Other current liabilities            |   |                          | 147,432 |              |   |           | 141,936 | 
|                                                   |                                      |   |                          |         |              |   |           |        
|Total current liabilities                          |                                      |   | 439,925                  |         |              |   | 453,264   |        
|Total long-term debt, less current maturities      |                                      |   | 1,001,447                |         |              |   | 1,002,554 |        
|Capital lease obligations, less current maturities |                                      |   | 52,137                   |         |              |   | 55,329    |        
|Other liabilities                                  |                                      |   | 390,434                  |         |              |   | 420,619   |        
|                                                   |                                      |   |                          |         |              |   |           |        
|TOTAL LIABILITIES                                  |                                      |   | 1,883,943                |         |              |   | 1,931,766 |        
|                                                   |                                      |   |                          |         |              |   |           |        
|COMMITMENTS AND CONTINGENCIES                      |                                      |   |                          |         |              |   |           |        
|SHAREHOLDERS EQUITY                               |                                      |   | 820,279                  |         |              |   | 764,551   |        
|                                                   |                                      |   |                          |         |              |   |           |        
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY         |                                      | $ | 2,704,222                |         |              | $ | 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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PART I. FINANCIAL INFORMATION  continued

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

|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |         |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------- | ------------------------ | ------- | ---- | ------- | ------- | ------- | -
|                                                     |                                                                                             |                                                                   |         | Six Months Ended        
|                                                     |                                                                                             |                                                                   |         | June 30,                
|                                                     |                                                                                             |                                                                   |         |                         
|                                                     |                                                                                             |                                                                   |         | 2002                     |         | 2001
|                                                     |                                                                                             |                                                                   |         |                          |         |     
|                                                     |                                                                                             |                                                                   |         | (expressed in thousands)
|CASH FLOWS FROM OPERATING ACTIVITIES                 |                                                                                             |                                                                   |         |                          |         |      |         |        
|                                                     | Net income                                                                                  |                                                                   | $       | 49,627                   |         |      | $       | 2,942   |        
|                                                     | Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |                                                                   |         |                          |         |      |         |         |        
|                                                     |                                                                                             | Depreciation and amortization                                     |         |                          | 31,189  |      |         |         | 37,956  |  
|                                                     |                                                                                             | Amortization of goodwill                                          |         |                          |        |      |         |         | 12,286  |  
|                                                     |                                                                                             | Amortization of intangibles determined
to have an indefinite life |         |                          |        |      |         |         | 5,392   |  
|                                                     |                                                                                             | Deferred income tax                                               |         |                          | 32,566  |      |         |         | (1,292  | )
|                                                     |                                                                                             | Earnings in excess of distributions from
equity investees         |         |                          | (10,848 | )    |         |         | (3,819  | )
|                                                     |                                                                                             | Other non-cash items                                              |         |                          | 11,175  |      |         |         | 17,770  |  
|                                                     |                                                                                             | Loss from discontinued operations                                 |         |                          |        |      |         |         | 4,074   |  
|                                                     |                                                                                             | Changes in accounts receivable                                    |         |                          | (22,210 | )    |         |         | (63,995 | )
|                                                     |                                                                                             | Changes in inventories                                            |         |                          | (2,206  | )    |         |         | (32,055 | )
|                                                     |                                                                                             | Changes in accounts payable                                       |         |                          | 15,642  |      |         |         | (23,381 | )
|                                                     |                                                                                             | Changes in other operating assets and liabilities                 |         |                          | (11,358 | )    |         |         | (34,782 | )
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        
|                                                     | Net cash provided by (used in) operating activities                                         |                                                                   |         | 93,577                   |         |      |         | (78,904 | )      
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        
|CASH FLOWS USED IN INVESTING ACTIVITIES              |                                                                                             |                                                                   |         |                          |         |      |         |        
|                                                     | Capital expenditures                                                                        |                                                                   |         | (21,578                  | )       |      |         | (24,963 | )      
|                                                     | Acquisitions, net of cash acquired                                                          |                                                                   |         |                         |         |      |         | (700    | )      
|                                                     | Proceeds from sales of assets                                                               |                                                                   |         | 7,665                    |         |      |         | 9,592   |        
|                                                     | Other investing activities                                                                  |                                                                   |         | 3,440                    |         |      |         | 14,382  |        
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        
|                                                     | Net cash used in investing activities                                                       |                                                                   |         | (10,473                  | )       |      |         | (1,689  | )      
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        
|CASH FLOWS USED IN FINANCING ACTIVITIES              |                                                                                             |                                                                   |         |                          |         |      |         |        
|                                                     | Repayments of debt                                                                          |                                                                   |         | (39,695                  | )       |      |         | (38,629 | )      
|                                                     | Dividends paid                                                                              |                                                                   |         | (4,009                   | )       |      |         | (29,628 | )      
|                                                     | Other financing activities                                                                  |                                                                   |         | (832                     | )       |      |         |        |        
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        
|                                                     | Net cash used in financing activities                                                       |                                                                   |         | (44,536                  | )       |      |         | (68,257 | )      
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        
|NET CASH PROVIDED BY DISCONTINUED OPERATIONS         |                                                                                             |                                                                   |        |                          |         |      | 114,270 |        
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                             |                                                                   | 38,568  |                          |         |      | (34,580 | )      
|CASH AND CASH EQUIVALENTS, beginning of period       |                                                                                             |                                                                   | 86,412  |                          |         |      | 38,263  |        
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        
|CASH AND CASH EQUIVALENTS, end of period             |                                                                                             | $                                                                 | 124,980 |                          |         | $    | 3,683   |        
|                                                     |                                                                                             |                                                                   |         |                          |         |      |         |        

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 (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) 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 had decided to early
adopt SFAS 145 (see Note 7).

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PART I. FINANCIAL INFORMATION  continued

(3) Goodwill and Intangible Assets -

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

|                   |  |                     |           |              |  |             |          |   |  |   |           | 
|------------------ |  | ------------------- | --------- | ------------ |  | ----------- | -------- | - |  | - | --------- | 
|                   |  | As of June 30, 2002
|                   |  |                    
|                   |  |                     |           |              |  | Accumulated |          |   |  |  
|                   |  | Asset               |           | Amortization |  | Net        
|                   |  |                     |           |              |  |            
|Goodwill           |  | $                   | 845,486   |              |  | $           | (130,629 | ) |  | $ | 714,857   | 
|Tradenames (a)     |  |                     | 428,048   |              |  |             | (29,289  | ) |  |   | 398,759   | 
|Trademarks         |  |                     | 2,909     |              |  |             | (436     | ) |  |   | 2,473     | 
|Licensee agreement |  |                     | 394       |              |  |             | (130     | ) |  |   | 264       | 
|                   |  |                     |           |              |  |             |          |   |  |   |           | 
|Total              |  | $                   | 1,276,837 |              |  | $           | (160,484 | ) |  | $ | 1,116,353 | 
|                   |  |                     |           |              |  |             |          |   |  |   |           | 



---

|(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 six months ended June 30, 2002. In
accordance with the provisions of SFAS No. 142, the Company has performed the
required transitional impairment test 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s effective tax rate decreased primarily as a result of the
suspension of amortization of goodwill and intangibles determined to have an
indefinite life.

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PART I. FINANCIAL INFORMATION  continued

The effect of the adoption of SFAS No. 142 on the reported net income and
earnings per share for the three and six months ended June 30, 2001 is as
follows (expressed in thousands, except per share amounts):

|                                                                                           |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------ | ------------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                                                           |  | Three months ended June 30, |        | Six months ended June 30,
|                                                                                           |  |                             |        |                          
|                                                                                           |  | 2002                        |        | 2001                      |  | 2002 |        | 2001
|                                                                                           |  |                             |        |                           |  |      |        |     
|Reported net income                                                                        |  | $                           | 28,653 |                           |  | $    | (5,348 | )    |  | $ | 49,627 |  |  | $ | 2,942  | 
|Amortization of goodwill and intangibles
determined to have an indefinite life, net of tax |  |                             |       |                           |  |      | 7,052  |      |  |   |       |  |  |   | 14,237 | 
|                                                                                           |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|Net income, as adjusted                                                                    |  | $                           | 28,653 |                           |  | $    | 1,704  |      |  | $ | 49,627 |  |  | $ | 17,179 | 
|                                                                                           |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|Reported basic earnings per share                                                          |  | $                           | 0.36   |                           |  | $    | (0.07  | )    |  | $ | 0.62   |  |  | $ | 0.04   | 
|Amortization of goodwill and intangibles
determined to have an indefinite life, net of tax |  |                             |       |                           |  |      | 0.09   |      |  |   |       |  |  |   | 0.18   | 
|                                                                                           |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|Basic earnings per share, as adjusted                                                      |  | $                           | 0.36   |                           |  | $    | 0.02   |      |  | $ | 0.62   |  |  | $ | 0.22   | 
|                                                                                           |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|Reported diluted earnings per share                                                        |  | $                           | 0.34   |                           |  | $    | (0.07  | )    |  | $ | 0.60   |  |  | $ | 0.04   | 
|Amortization of goodwill and intangibles
determined to have an indefinite life, net of tax |  |                             |       |                           |  |      | 0.09   |      |  |   |       |  |  |   | 0.18   | 
|                                                                                           |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|Diluted earnings per share, as adjusted                                                    |  | $                           | 0.34   |                           |  | $    | 0.02   |      |  | $ | 0.60   |  |  | $ | 0.22   | 
|                                                                                           |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 

(4) 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 June 30, 2002, the fair market value of the swap of
$1.3 million was recorded in other assets. During the six months ended June
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 June 30, 2002,
the fair market value of the swaps of $1.7 million was recorded in other
assets.

At June 30, 2002, the Company had $6.0 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 $6.0 million of hedges
outstanding at June 30, 2002 will settle at various times throughout the third
quarter of 2002.

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PART I. FINANCIAL INFORMATION  continued

(5) 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 $72.1 million at June 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 six
months ended June 30, 2002 and 2001 on a 100% basis follows:

|                   |  |                            |         |                          |  |                          |         |      |  |   |         |  |  |   |         | 
|------------------ |  | -------------------------- | ------- | ------------------------ |  | ------------------------ | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                   |  | Three months ended June 30 |         | Six months ended June 30
|                   |  |                            |         |                         
|                   |  | 2002                       |         | 2001                     |  | 2002                     |         | 2001
|                   |  |                            |         |                          |  |                          |         |     
|                   |  |                            |         |                          |  | (Expressed in thousands) |         |      |  |  
|                   |  |                            |         |                          |  | (Unaudited)              |         |      |  |  
|Revenues           |  | $                          | 106,236 |                          |  | $                        | 100,081 |      |  | $ | 203,259 |  |  | $ | 222,269 | 
|Operating earnings |  |                            | 16,757  |                          |  |                          | 20,117  |      |  |   | 53,099  |  |  |   | 42,802  | 
|Net income         |  |                            | 7,362   |                          |  |                          | 10,048  |      |  |   | 34,200  |  |  |   | 22,430  | 

Effective January 1, 2002, Excel Paralubes changed its method of
accounting for planned major maintenance costs. Such costs, which were
previously accrued, will now be 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 ($0.05 per share). 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

(6) 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 June 30, 2002
|                                        |                |   |                                 
|                                        |                |   |                                  |         |          |   | Consumer      |         |            |   |             |        |               |   |        |        | Supply Chain |   | Corporate |        |  |   |        
|                                        |                |   | Lubricants                       |         | Products |   | International |         | Jiffy Lube |   | Investments |        | and
other (a) |   | Total 
|                                        |                |   |                                  |         |          |   |               |         |            |   |             |        |               |   |       
|Unaffiliated revenues                   |                | $ | 305,150                          |         |          | $ | 97,407        |         |            | $ | 58,657      |        |               | $ | 93,443 |        |              | $ | 36,730    |        |  | $ | (953    | )       |   | $ | 590,434 |        
|Intersegment revenues                   |                |   | 17,853                           |         |          |   | 5,477         |         |            |   | 84          |        |               |   | 19     |        |              |   | 34,488    |        |  |   | (57,921 | )       |   |   |        |        
|                                        |                |   |                                  |         |          |   |               |         |            |   |             |        |               |   |        |        |              |   |           |        |  |   |         |         |   |   |         |        
|                                        | Total revenues |   | $                                | 323,003 |          |   | $             | 102,884 |            |   | $           | 58,741 |               |   | $      | 93,462 |              |   | $         | 71,218 |  |   | $       | (58,874 | ) |   | $       | 590,434 | 
|Income before interest
and income taxes |                | $ | 52,103                           |         |          | $ | 12,678        |         |            | $ | 4,494       |        |               | $ | 9,077  |        |              | $ | 11,312    |        |  | $ | (18,420 | )       |   | $ | 71,244  |        
|Goodwill (b)                            |                | $ | 311,235                          |         |          | $ | 292,149       |         |            | $ | 40,095      |        |               | $ | 71,378 |        |              | $ |          |        |  | $ |        |         |   | $ | 714,857 |        
|Tradenames (c)                          |                | $ | 281,739                          |         |          | $ | 117,020       |         |            | $ |            |        |               | $ |       |        |              | $ |          |        |  | $ |        |         |   | $ | 398,759 |        

|                                            |                |   |                                  |         |          |   |               |         |            |   |             |        |               |   |        |        |              |   |           |        |  |   |         |         |   |   |         |         | 
|------------------------------------------- | -------------- | - | -------------------------------- | ------- | -------- | - | ------------- | ------- | ---------- | - | ----------- | ------ | ------------- | - | ------ | ------ | ------------ | - | --------- | ------ |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                            |                |   | Three months ended June 30, 2001
|                                            |                |   |                                 
|                                            |                |   |                                  |         |          |   | Consumer      |         |            |   |             |        |               |   |        |        | Supply Chain |   | Corporate |        |  |   |        
|                                            |                |   | Lubricants                       |         | Products |   | International |         | Jiffy Lube |   | Investments |        | and
other (a) |   | Total 
|                                            |                |   |                                  |         |          |   |               |         |            |   |             |        |               |   |       
|Unaffiliated revenues                       |                | $ | 316,525                          |         |          | $ | 96,391        |         |            | $ | 66,139      |        |               | $ | 88,458 |        |              | $ | 35,497    |        |  | $ | (2,009  | )       |   | $ | 601,001 |        
|Intersegment revenues                       |                |   | 14,835                           |         |          |   | 6,021         |         |            |   |            |        |               |   |       |        |              |   | 33,769    |        |  |   | (54,625 | )       |   |   |        |        
|                                            |                |   |                                  |         |          |   |               |         |            |   |             |        |               |   |        |        |              |   |           |        |  |   |         |         |   |   |         |        
|                                            | Total revenues |   | $                                | 331,360 |          |   | $             | 102,412 |            |   | $           | 66,139 |               |   | $      | 88,458 |              |   | $         | 69,266 |  |   | $       | (56,634 | ) |   | $       | 601,001 | 
|Income before interest
and income taxes (d) |                | $ | 32,739                           |         |          | $ | (1,497        | )       |            | $ | (12,969     | )      |               | $ | 4,531  |        |              | $ | 8,189     |        |  | $ | (16,159 | )       |   | $ | 14,834  |        

|                                        |                |   |                                |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |           | 
|--------------------------------------- | -------------- | - | ------------------------------ | ------- | -------- | - | ------------- | ------- | ---------- | - | --------------- | ------- | ------------- | - | ------- | ------- | ------------ | - | --------- | ------- |  | - | -------- | -------- | - | - | --------- | --------- | 
|                                        |                |   | Six months ended June 30, 2002
|                                        |                |   |                               
|                                        |                |   |                                |         |          |   | Consumer      |         |            |   |                 |         |               |   |         |         | Supply Chain |   | Corporate |         |  |   |         
|                                        |                |   | Lubricants                     |         | Products |   | International |         | Jiffy Lube |   | Investments (e) |         | and
other (a) |   | Total  
|                                        |                |   |                                |         |          |   |               |         |            |   |                 |         |               |   |        
|Unaffiliated revenues                   |                | $ | 595,431                        |         |          | $ | 180,623       |         |            | $ | 114,748         |         |               | $ | 183,949 |         |              | $ | 82,845    |         |  | $ | (3,588   | )        |   | $ | 1,154,008 |          
|Intersegment revenues                   |                |   | 35,075                         |         |          |   | 11,084        |         |            |   | 84              |         |               |   | 19      |         |              |   | 66,981    |         |  |   | (113,243 | )        |   |   |          |          
|                                        |                |   |                                |         |          |   |               |         |            |   |                 |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |          
|                                        | Total revenues |   | $                              | 630,506 |          |   | $             | 191,707 |            |   | $               | 114,832 |               |   | $       | 183,968 |              |   | $         | 149,826 |  |   | $        | (116,831 | ) |   | $         | 1,154,008 | 
|Income before interest
and income taxes |                | $ | 95,855                         |         |          | $ | 18,654        |         |            | $ | 7,950           |         |               | $ | 17,261  |         |              | $ | 27,836    |         |  | $ | (38,174  | )        |   | $ | 129,382   |          

|                                            |                |   |                                |         |          |   |               |         |            |   |             |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |           | 
|------------------------------------------- | -------------- | - | ------------------------------ | ------- | -------- | - | ------------- | ------- | ---------- | - | ----------- | ------- | ------------- | - | ------- | ------- | ------------ | - | --------- | ------- |  | - | -------- | -------- | - | - | --------- | --------- | 
|                                            |                |   | Six months ended June 30, 2001
|                                            |                |   |                               
|                                            |                |   |                                |         |          |   | Consumer      |         |            |   |             |         |               |   |         |         | Supply Chain |   | Corporate |         |  |   |         
|                                            |                |   | Lubricants                     |         | Products |   | International |         | Jiffy Lube |   | Investments |         | and
other (a) |   | Total  
|                                            |                |   |                                |         |          |   |               |         |            |   |             |         |               |   |        
|Unaffiliated revenues                       |                | $ | 619,546                        |         |          | $ | 176,063       |         |            | $ | 128,702     |         |               | $ | 172,222 |         |              | $ | 74,135    |         |  | $ | (3,604   | )        |   | $ | 1,167,064 |          
|Intersegment revenues                       |                |   | 30,818                         |         |          |   | 11,288        |         |            |   | 709         |         |               |   |        |         |              |   | 77,085    |         |  |   | (119,900 | )        |   |   |          |          
|                                            |                |   |                                |         |          |   |               |         |            |   |             |         |               |   |         |         |              |   |           |         |  |   |          |          |   |   |           |          
|                                            | Total revenues |   | $                              | 650,364 |          |   | $             | 187,351 |            |   | $           | 129,411 |               |   | $       | 172,222 |              |   | $         | 151,220 |  |   | $        | (123,504 | ) |   | $         | 1,167,064 | 
|Income before interest
and income taxes (d) |                | $ | 64,007                         |         |          | $ | 3,392         |         |            | $ | (11,811     | )       |               | $ | 9,504   |         |              | $ | 17,849    |         |  | $ | (28,349  | )        |   | $ | 54,592    |          



---

|(a) |  | Includes consolidating eliminations.                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | 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.
|   
|(c) |  | Tradenames at
December 31, 2001 were $281.7 million for lubricants and $117.0
million for consumer products.                                                            
|   
|(d) |  | Includes restructuring charges of $11.8 million for consumer products
and $16.7 million for international.                                                              
|   
|(e) |  | Includes $7.4 million equity income from Excel Paralubes for change in
accounting for planned major maintenance costs.                                                  

(7) Debt -

The Companys $348 million senior secured revolving credit facility
contains certain financial covenants, including debt/EBITDA ratios (leverage
ratios), an interest coverage ratio and a minimum net worth requirement, all
of which must be complied with at the end of a quarterly period. The Company
was in compliance with these covenants at June 30, 2002. There were no
outstanding borrowings under this facility at June 30, 2002.

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PART I. FINANCIAL INFORMATION  continued

Pennzoil-Quaker States Canadian subsidiary maintains a revolving credit
facility with Canadian banks, which provides for up to $9.4 million of
committed borrowings through October 2002. As of June 30, 2002 borrowings under the Companys Canadian facility
totaled $7.9 million and were classified as short-term debt.

A U.K. subsidiary of the Company maintains a revolving credit facility
that provides for borrowings up to $21.5 million through the earlier of
November 15, 2002 or thirty days following the closing date of the proposed
merger with Shell Oil Company as defined in Note 11. Outstanding borrowings
under the facility totaled $7.1 million at June 30, 2002 and were classified as
short-term debt.

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. During the six months ended June
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:

|                                                        |                      |   |                          |           |              |   |          |           | 
|------------------------------------------------------- | -------------------- | - | ------------------------ | --------- | ------------ | - | -------- | --------- | 
|                                                        |                      |   | June 30,                 |           | December 31,
|                                                        |                      |   | 2002                     |           | 2001        
|                                                        |                      |   |                          |           |             
|                                                        |                      |   | (expressed in thousands)
|7.375% Debentures due 2029, net of discount             |                      | $ | 398,205                  |           |              | $ | 398,172  |          
|10.0% Notes due 2008, net of discount                   |                      |   | 248,556                  |           |              |   | 248,476  |          
|6.750% Notes due 2009, net of discount                  |                      |   | 199,311                  |           |              |   | 199,260  |          
|9.40% Notes due 2002, at market value, net of discount  |                      |   | 71,050                   |           |              |   | 108,271  |          
|6.625% Notes due 2005, at market value, net of discount |                      |   | 101,476                  |           |              |   | 99,770   |          
|Pollution control bonds, net of discount                |                      |   | 50,564                   |           |              |   | 50,561   |          
|International debt facilities                           |                      |   | 22,978                   |           |              |   | 24,247   |          
|Other debt                                              |                      |   | 3,871                    |           |              |   | 7,530    |          
|                                                        |                      |   |                          |           |              |   |          |          
|                                                        | Total debt           |   |                          | 1,096,011 |              |   |          | 1,136,287 | 
|Less amounts classified as current maturities           |                      |   | (94,564                  | )         |              |   | (133,733 | )        
|                                                        |                      |   |                          |           |              |   |          |          
|                                                        | Total long-term debt |   | $                        | 1,001,447 |              |   | $        | 1,002,554 | 
|                                                        |                      |   |                          |           |              |   |          |          

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PART I. FINANCIAL INFORMATION  continued

(8) Earnings Per Share -

Computations for basic and diluted earnings (loss) per share for the three
and six months ended June 30, 2002 and 2001 consist of the following:

|                                         |         |   |                                                   |       |                          |   |        |   |      |   |        |       |  |   |        |     | 
|---------------------------------------- | ------- | - | ------------------------------------------------- | ----- | ------------------------ | - | ------ | - | ---- | - | ------ | ----- |  | - | ------ | --- | 
|                                         |         |   | Three months ended June 30                        |       | Six months ended June 30
|                                         |         |   |                                                   |       |                         
|                                         |         |   | 2002                                              |       | 2001                     |   | 2002   |   | 2001
|                                         |         |   |                                                   |       |                          |   |        |   |     
|                                         |         |   | (expressed in thousands except per share amounts)
|Income (loss) from continuing operations |         | $ | 28,653                                            |       |                          | $ | (2,883 | ) |      | $ | 49,627 |       |  | $ | 5,407  |    
|Basic weighted average shares            |         |   | 80,406                                            |       |                          |   | 79,107 |   |      |   | 80,110 |       |  |   | 78,971 |    
|Effect of dilutive securities (a)        |         |   |                                                   |       |                          |   |        |   |      |   |        |       |  |   |        |    
|                                         | Options |   |                                                   | 2,665 |                          |   |        |  |      |   |        | 1,780 |  |   |        | 468 | 
|                                         | Awards  |   |                                                   | 769   |                          |   |        |  |      |   |        | 778   |  |   |        | 254 | 
|                                         |         |   |                                                   |       |                          |   |        |   |      |   |        |       |  |   |        |    
|Diluted weighted average shares          |         |   | 83,840                                            |       |                          |   | 79,107 |   |      |   | 82,668 |       |  |   | 79,693 |    
|                                         |         |   |                                                   |       |                          |   |        |   |      |   |        |       |  |   |        |    
|Basic earnings (loss) per share          |         | $ | 0.36                                              |       |                          | $ | (0.04  | ) |      | $ | 0.62   |       |  | $ | 0.07   |    
|                                         |         |   |                                                   |       |                          |   |        |   |      |   |        |       |  |   |        |    
|Diluted earnings (loss) per share        |         | $ | 0.34                                              |       |                          | $ | (0.04  | ) |      | $ | 0.60   |       |  | $ | 0.07   |    
|                                         |         |   |                                                   |       |                          |   |        |   |      |   |        |       |  |   |        |    



---

|(a) |  | A weighted average number of options to purchase 1.0 million shares of
common stock were outstanding for the three months ended June 30, 2002,
but were not included in the computation of diluted earnings per share
because the options exercise prices were greater than the average market
price of the common shares. A weighted average number of options to
purchase 9.1 million shares of common stock and awards of 729.8 thousand
shares of common stock were outstanding for the three months ended June
30, 2001, but were not included in the computation of diluted earnings per
share because these options and awards would have resulted in an
antidilutive per share amount. A weighted average number of options to
purchase 3.7 million and 6.9 million shares of common stock were
outstanding for the six months ended June 30, 2002 and 2001, but were not
included in the computation of diluted earnings per share because the
options exercise prices were greater than the average market price of the
common shares.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(9) Inventories -

Inventory components are summarized as follows:

|                                   |       |   |                          |         |              |   |         |         | 
|---------------------------------- | ----- | - | ------------------------ | ------- | ------------ | - | ------- | ------- | 
|                                   |       |   | June 30,                 |         | December 31,
|                                   |       |   | 2002                     |         | 2001        
|                                   |       |   |                          |         |             
|                                   |       |   | (expressed in thousands)
|                                   |       |   | (Unaudited)              |         |              |   |        
|Finished goods and work in process |       | $ | 168,978                  |         |              | $ | 163,241 |        
|Raw materials and supplies         |       |   | 31,120                   |         |              |   | 36,400  |        
|                                   |       |   |                          |         |              |   |         |        
|                                   | Total |   | $                        | 200,098 |              |   | $       | 199,641 | 
|                                   |       |   |                          |         |              |   |         |        

(10) Restructuring Charges -

In the second quarter of 2001, the Company recorded a $28.5 million pretax
charge to accrue the costs associated with a restructuring program to reduce
costs, streamline operations and position the Company to continue its long-term
growth plan. The charge was classified as a $6.0 million pretax charge to cost
of sales, a $16.0 million pretax charge to selling, general and administrative
expense and a $6.5 million pretax charge to depreciation and amortization and
related to two operating segments as follows: consumer products  $11.8 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 the end of 2001. The international segment

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PART I. FINANCIAL INFORMATION  continued

exited low margin operations, facilities and distribution channels. These charges primarily
included severance for approximately 362 administrative and operational
employees, as well as the accrual for the closure and consolidation of warehouses and office space. All of the
362 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.

Later in 2001 the Companys lubricants segment took steps to reduce
manufacturing and selling expense. In the aggregate, the 2001 cost reduction
plan included terminating approximately 670 administrative and operational
employees.

The remaining total severance accrual at June 30, 2002, which relates to
remaining payments due terminated employees, was $9.1 million recorded in other
current liabilities and $1.0 million recorded in other liabilities. Total
severance amounts paid and charged against the liability during the three
months ended June 30, 2002 were $3.9 million and during the six months ended
June 30, 2002 were $9.8 million.

(11) Proposed Merger with Shell Oil Company -

On March 25, 2002, Pennzoil-Quaker State Company and Shell Oil Company, a
wholly-owned member of the Royal Dutch/Shell Group, announced that the
companies have entered into a definitive agreement under which Shell Oil
Company will acquire Pennzoil-Quaker State Company at a price of $22.00 per
share in cash.

Pennzoil-Quaker State Company held a shareholders meeting on August 1,
2002 at which time shareholders approved the proposed merger with Shell Oil
Company. In addition, we have received most of the international regulatory
approvals, including approvals in Austria, Brazil, Canada, Denmark, Ireland and
the U.K. Work is continuing to obtain approval from the Federal Trade
Commission in the U.S.

(12) Commitments and Contingencies -

Upon the completion of the proposed merger with Shell Oil Company as
described in Note 11, the Company will be required to make payments of
approximately $214 million related to accelerated vesting of options, bonuses,
excise tax reimbursement, payments for deferred compensation to certain current
and former executive officers and investment banking fees which are payable
upon a change in control of the Company. Additionally, severance payments of
up to $42 million may become due under the Companys Executive Severance Plan
in the event plan participants employment is terminated within three years.
The Company anticipates that, upon completion of the merger, Shell Oil Company
will fund the necessary cash needed to make these payments.

The Company anticipates being in compliance with change of control or
similar provisions contained in its various debt instruments.

The Company must pay to Shell Oil Company a termination fee of $65 million
if the merger agreement is terminated under the circumstances described in the
Companys proxy statement filed with the U. S. Securities and Exchange
Commission on June 24, 2002.

Pennzoil-Quaker States directors have been 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

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PART I. FINANCIAL INFORMATION  continued

defendants derived unspecified personal financial benefits from the
acquisition at the expense of Pennzoil-Quaker States stockholders. The
petitions seek similar relief, including declaratory and
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.




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.

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 had decided to early
adopt SFAS 145 (see Note 7 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.

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.

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PART I. FINANCIAL INFORMATION  continued

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. There were no significant changes during
2002.

Restructuring Charges

In the second quarter of 2001, the Company recorded a $28.5 million pretax
charge to accrue the costs associated with a restructuring program to reduce
costs, streamline operations and position the Company to continue its long-term
growth plan. The charge was classified as a $6.0 million pretax charge to cost
of sales, a $16.0 million pretax charge to selling, general and administrative
expense and a $6.5 million pretax charge to depreciation and amortization and
related to two operating segments as follows: consumer products  $11.8 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 the end of 2001. The international segment exited low margin
operations, facilities and distribution channels. These charges primarily
included severance for approximately 362 administrative and operational
employees, as well as the accrual for the closure and consolidation of
warehouses and office space. All of the 362 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.

Later in 2001 the Companys lubricants segment took steps to reduce
manufacturing and selling expense. In the aggregate, the 2001 cost reduction
plan included terminating approximately 670 administrative and operational
employees.

The remaining total severance accrual at June 30, 2002, which relates to
remaining payments due terminated employees, was $9.1 million recorded in other
current liabilities and $1.0 million recorded in other liabilities. Total
severance amounts paid and charged against the liability during the three
months ended June 30, 2002 were $3.9 million and during the six months ended
June 30, 2002 were $9.8 million.

Results of Operations

Second Quarter 2002 compared with Second Quarter 2001

Net sales for Pennzoil-Quaker State were $583.5 million for the quarter
ended June 30, 2002, a decrease of $10.9 million, or approximately 1.8%, 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 June 30, 2002 was $28.6 million, or 36
cents per basic share. This compares with net loss from continuing operations
of $2.9 million, or 4 cents per basic share, for the quarter ended June 30,
2001. Results for the quarter ended June 30, 2001 include $7.1 million in
after-tax amortization expense suspended in 2002 (see Note 3 of Condensed
Consolidated Financial Statements) and $14.9 million in after-tax charges
primarily related to restructuring costs in the 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 second quarter 2002 operating
results.

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PART I. FINANCIAL INFORMATION  continued

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.

Lubricants. Net sales for the lubricants segment were $321.2 million for
the quarter ended June 30, 2002, compared to $329.2 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 $52.1 million for the quarter ended June 30, 2002, compared to
$32.7 million for the same period last year. The increase in operating income
is primarily due to improved motor oil margins, reduced selling expense 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 $1.9 million for the quarter ended June 30, 2002 compared to the quarter
ended June 30, 2001. These reductions were partially offset by an increase in
marketing and advertising expense of $0.9 million for the quarter ended June
30, 2002 compared to the same period last year.

Consumer Products. Net sales for the consumer products segment were $102.8
million for the quarter ended June 30, 2002, compared to $102.4 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 (loss) for this
segment was $12.7 million for the quarter ended June 30, 2002, compared to
$(1.5) million for the same period last year. The increase in operating income
is primarily due to the $11.8 million restructuring charges recorded in 2001.
Excluding these restructuring charges operating income increased $2.4 million.
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. Primarily as a result of
the Companys restructuring program in 2001 to reduce cost and streamline
operations, the consumer products segment reduced selling expense by $0.6
million in the quarter ended June 30, 2002 compared to the quarter ended June
30, 2001. These reductions were offset by an increase in marketing and
advertising expense of $1.1 million for the quarter ended June 30, 2002
compared to the same period last year.

International. Net sales for the international segment were $58.6
million for the quarter ended June 30, 2002, compared to $66.2 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 $4.5
million for the quarter ended June 30, 2002, compared to $(13.0) million for
the same period last year. The increase in operating income was primarily due
to $16.7 million restructuring charges recorded in 2001. Excluding the
restructuring charges, operating income increased $0.8 million. The increase
in operating income was primarily due to lower selling, general and
administrative expense and lower depreciation and amortization expense. The
lower selling, general and administrative expense is partially the result of
restructuring activities completed in late 2001.

Jiffy Lube.Net sales for this segment were $91.2 million for the
quarter ended June 30, 2002, compared to net sales of $86.8 million for the
same period in 2001. Other income for this segment for the quarter ended June
30, 2002 was $2.3 million, compared to $1.6 million for the same period in
2001. Operating income from this segment for the quarter ended June 30, 2002
was $9.1 million, compared to $4.5 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.

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PART I. FINANCIAL INFORMATION  continued

Supply Chain Investments. Net sales for this segment were $67.5 million
for the quarter ended June 30, 2002, compared to net sales of $64.2 million for
the same period in 2001. Other income for this segment for the quarter ended June 30, 2002, was $3.7 million
compared to $5.0 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 June 30, 2002 was $11.3 million compared
to operating income of $8.2 million for the same period in 2001. The increase
in operating income reflects increased base oil production partially offset by
lower base oil margins.

Six Months Ended June 30, 2002 compared with Six Months Ended June 30,
2001

Net sales for Pennzoil-Quaker State were $1,132.2 million for the six
months ended June 30, 2002, a decrease of $20.8 million, or approximately 1.8%
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 six months ended June 30, 2002 was $49.6 million, or 62
cents per basic share. This compares with net income from continuing
operations of $5.4 million, or 7 cents per basic share, for the six months
ended June 30, 2001. Results for the six months ended June 30, 2001 include
$14.2 million in after-tax amortization expense suspended in 2002 (see Note 3
of Condensed Consolidated Financial Statements) and $14.9 million in after-tax
charges primarily related to restructuring costs in the consumer products and
international segments. The increase reflects a combination of improved
marketplace factors, normalized motor oil margins and a change in turnaround
expense accruals of $4.4 million after-tax. 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.

Lubricants. Net sales for the lubricants segment were $628.0 million for
the six months ended June 30, 2002, compared to $646.6 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 $95.8 million for the six months ended June 30,
2002, compared to $64.0 million for the same period last year. The increase in
operating income is primarily due to improved motor oil margins, lower selling
expense and the $7.7 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 $4.1 million for the six months ended June
30, 2002 compared to the six months ended June 30, 2001. These reductions were
partially offset by an increase in marketing and advertising expense of $3.2
million for the six months ended June 30, 2002 compared to the same period last
year.

Consumer Products. Net sales for the consumer products segment were $191.6
million for the six months ended June 30, 2002, compared to $187.3 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 $18.7 million for the six months ended June 30, 2002, compared to
$3.4 million for the same period last year. The increase in operating income
is primarily due to $11.8 million restructuring charges recorded in 2001.
Excluding these restructuring charges operating income increased $3.5 million.
The increase in operating income was primarily due to $6.0 million suspension
of the amortization of goodwill and intangibles determined to have an
indefinite life as the

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PART I. FINANCIAL INFORMATION  continued

result of new accounting standards partially offset by
lower margins on fashion and accessory products. Primarily as a result of the
Companys restructuring program in 2001 to reduce cost and streamline
operations, the consumer products segment reduced selling expense by $0.9
million in the six months ended June 30, 2002 compared to the six months ended June 30,
2001. These reductions were offset by an increase in marketing and advertising
expense of $3.8 million for the six months ended June 30, 2002 compared to the
same period last year.

International. Net sales for the international segment were $114.5
million for the six months ended June 30, 2002, compared to $129.3 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 (loss) for this segment was $8.0
million for the six months ended June 30, 2002, compared to $(11.8) 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, income for the six months ended June 30, 2002 was $3.1
million above the same period last year. The increase in income was due to
lower selling, general and administrative expenses and higher margins partially
offset by lower volumes. The lower selling, general and administrative expense
is primarily the result of restructuring activities completed in late 2001.

Jiffy Lube.Net sales for this segment were $178.7 million for the six
months ended June 30, 2002, compared to net sales of $169.5 million for the
same period in 2001. Other income for this segment for the six months ended
June 30, 2002 was $5.3 million, compared to $2.7 million for the same period in
2001. Operating income from this segment for the six months ended June 30,
2002 was $17.3 million, compared to $9.5 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 $3.4 million from suspension of the
amortization of goodwill.

Supply Chain Investments. Net sales for this segment were $132.6 million
for the six months ended June 30, 2002, compared to net sales of $140.0 million
for the same period in 2001. Other income for this segment for the six months
ended June 30, 2002, was $17.2 million compared to $11.2 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 six months ended June
30, 2002 was $27.8 million compared to operating income of $17.8 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 June 30, 2002, Pennzoil-Quaker State had cash and cash
equivalents of $125.0 million. During the six months ended June 30, 2002, cash
and cash equivalents increased $38.6 million. The increase in cash is due to
improved earnings and reduced dividends partially offset by an increase in
working capital.

Liquidity. The Companys ability to satisfy its debt obligations and to
pay principal and interest on its debt, fund existing working capital and make
capital expenditures will depend upon its future performance, which is subject
to general economic conditions and other factors, some of which are beyond its
control. Based on current and anticipated levels of operations and conditions
in our markets, the Company believes that cash on hand plus cash flow from
operations will be adequate for

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PART I. FINANCIAL INFORMATION  continued

the foreseeable future to make required
payments of principal and interest on debt, and fund existing working capital
and capital expenditure requirements. In addition, the Company has sufficient
availability under its credit facilities to fund existing working capital needs
and capital expenditures if necessary. In the event of cash flow constraints, capital expenditures
could be postponed to fund other obligations if required. Beginning in the
third quarter of 2001, the Company reduced its dividend to the equivalent of
$0.10 per share annually.

Upon the completion of the proposed merger with Shell Oil Company as
described in Note 11 of Condensed Consolidated Financial Statements, the
Company will be required to make payments of approximately $214 million related
to accelerated vesting of options, bonuses, excise tax reimbursement, payments
for deferred compensation to certain current and former executive officers and
investment banking fees which are payable upon a change in control of the
Company. Additionally, severance payments of up to $42 million may become due
under the Companys Executive Severance Plan in the event plan participants
employment is terminated within three years. The Company anticipates that,
upon completion of the merger, Shell Oil Company will fund the necessary cash
needed to make these payments.

The Company must pay to Shell Oil Company a termination fee of $65 million
if the merger agreement is terminated under the circumstances described in the
Companys proxy statement filed with the U. S. Securities and Exchange
Commission on June 24, 2002.

Debt Instruments and Repayments. Pennzoil-Quaker State entered into a new
$348 million senior secured revolving credit facility on November 2, 2001.
Under the facility, $325 million is available on a revolving basis until
November 2, 2004 and $23 million is available on a revolving basis until
November 1, 2002. There were no outstanding borrowings under this facility as
of June 30, 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.

The Companys $348 million senior secured revolving credit facility
contains certain financial covenants, including debt/EBITDA ratios (leverage
ratios), an interest coverage ratio and a minimum net worth requirement, all
of which must be complied with at the end of a quarterly period. The Company
was in compliance with these covenants at June 30, 2002.

Pennzoil-Quaker States Canadian subsidiary maintains a revolving credit
facility with Canadian banks, which provides for up to $9.4 million of
committed borrowings through October 2002. As of June 30, 2002 borrowings under
the Companys Canadian facility totaled $7.9 million and were classified as
short-term debt.

A U.K. subsidiary of the Company maintains a revolving credit facility
that provides for borrowings up to $21.5 million through the earlier of
November 15, 2002 or thirty days following the closing date of the proposed
merger with Shell Oil Company as defined in Note 11. Outstanding borrowings
under the facility totaled $7.1 million at June 30, 2002 and were classified as
short-term debt.

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. During the six months
ended June 30, 2002, the Company chose to purchase and retire $34.8 million

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PART I. FINANCIAL INFORMATION  continued

face amount of these notes. As of June 30, 2002, the carrying amount of $71.1
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 debt.

Accounts Receivable. Pennzoil-Quaker State, through its wholly owned
subsidiary Pennzoil Receivables Company (PRC), sells certain of its accounts
receivable to a third party purchaser. PRC 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 through October 14, 2002. The Companys
net accounts receivable sold under its receivable sales facility totaled $110.0
million at June 30, 2002 and December 31, 2001. As of July 31, 2002 there were
no accounts receivable sold under this facility.

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 June 30, 2002, the Company sold a total of $235.8 million
of notes receivable under this agreement, of which $133.8 million were
outstanding to the third party purchaser at June 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 six months ended June 30, 2002, the Company repurchased notes in the
amount of $34.8 million and unwound the corresponding swap. At June 30, 2002,
the fair market value of the swap of $1.3 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 June 30, 2002, the fair market value of the swap of $1.7 million was
recorded in other assets.

Pennzoil-Quaker State enters into forward exchange contracts and options
to minimize the impact of foreign currency fluctuations on the results of
operations. At June 30, 2002, the Company had $6.0 million of Canadian dollar
foreign currency forward contracts to hedge the cash flow variability of U.S.
dollar purchases of inventory. The $6.0 million of hedges outstanding at June
30, 2002 will settle at various times throughout the third quarter of 2002.

Forward-Looking Statements  Safe Harbor Provisions

This quarterly report on Form 10-Q of Pennzoil-Quaker State for the
quarter ended June 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.

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PART I. FINANCIAL INFORMATION  continued

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  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 June 30, 2002 and December 31, 2001 and for the quarters and six
months ended June 30, 2002 and 2001.

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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 JUNE 30, 2002

|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |         |  
|---------------------------------------------- | ------------------------------------------------- | - | ------------------------ | ------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------ | - | - | ------- | ------- | ------------ | - | ------- | ------- | -
|                                               |                                                   |   | Parent Only              |         |            |   |                |         |              |   |         |        |   |   |         |         | Consolidated
|                                               |                                                   |   | Pennzoil-                |         |            |   |                |         |              |   |         |        |   |   |         |         | Pennzoil-   
|                                               |                                                   |   | Quaker State             |         |            |   |                |         |              |   |         |        |   |   |         |         | Quaker State
|                                               |                                                   |   | Company                  |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |        
|                                               |                                                   |   | (expressed in thousands)
|                                               |                                                   |   | (unaudited)             
|REVENUES                                       |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                               | Net sales                                         |   | $                        | 375,887 |            |   | $              | 175,456 |              |   | $       | 58,392 |   |   | $       | (26,236 | )            |   | $       | 583,499 |  
|                                               | Other income, net                                 |   |                          | (1,886  | )          |   |                | 2,192   |              |   |         | 6,683  |   |   |         | (54     | )            |   |         | 6,935   |  
|                                               | Equity in earnings of
unconsolidated subsidiaries |   |                          | 22,070  |            |   |                | 399     |              |   |         |       |   |   |         | (22,469 | )            |   |         |        |  
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                               |                                                   |   | 396,071                  |         |            |   | 178,047        |         |              |   | 65,075  |        |   |   | (48,759 | )       |              |   | 590,434 |        
|COSTS AND EXPENSES                             |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                               | Cost of sales                                     |   |                          | 252,011 |            |   |                | 118,419 |              |   |         | 41,206 |   |   |         | (26,236 | )            |   |         | 385,400 |  
|                                               | Selling, general and administrative               |   |                          | 78,573  |            |   |                | 24,646  |              |   |         | 10,916 |   |   |         | (54     | )            |   |         | 114,081 |  
|                                               | Depreciation and amortization                     |   |                          | 9,044   |            |   |                | 5,272   |              |   |         | 1,272  |   |   |         |        |              |   |         | 15,588  |  
|                                               | Taxes, other than income                          |   |                          | 1,819   |            |   |                | 1,479   |              |   |         | 823    |   |   |         |        |              |   |         | 4,121   |  
|                                               | Interest charges                                  |   |                          | 19,519  |            |   |                | 1,664   |              |   |         | 1,840  |   |   |         |        |              |   |         | 23,023  |  
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|INCOME BEFORE INCOME TAX                       |                                                   |   | 35,105                   |         |            |   | 26,567         |         |              |   | 9,018   |        |   |   | (22,469 | )       |              |   | 48,221  |        
|Income tax provision                           |                                                   |   | 6,452                    |         |            |   | 9,231          |         |              |   | 3,885   |        |   |   |        |         |              |   | 19,568  |        
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|NET INCOME                                     |                                                   | $ | 28,653                   |         |            | $ | 17,336         |         |              | $ | 5,133   |        |   | $ | (22,469 | )       |              | $ | 28,653  |        
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|NET INCOME                                     |                                                   | $ | 28,653                   |         |            | $ | 17,336         |         |              | $ | 5,133   |        |   | $ | (22,469 | )       |              | $ | 28,653  |        
|Other comprehensive income (loss), net of tax: |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                               | Foreign currency translation adjustment           |   |                          |        |            |   |                | 2,535   |              |   |         | (4,611 | ) |   |         |        |              |   |         | (2,076  | )
|                                               | Unrealized loss on
investment in securities       |   |                          |        |            |   |                |        |              |   |         | (123   | ) |   |         |        |              |   |         | (123    | )
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        
|                                               | Total other comprehensive income (loss)           |   |                          |        |            |   |                | 2,535   |              |   |         | (4,734 | ) |   |         |        |              |   |         | (2,199  | )
|COMPREHENSIVE INCOME                           |                                                   | $ | 28,653                   |         |            | $ | 19,871         |         |              | $ | 399     |        |   | $ | (22,469 | )       |              | $ | 26,454  |        
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |        |   |   |         |         |              |   |         |        

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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 SIX MONTHS ENDED JUNE 30, 2002

|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |           |  
|---------------------------------------------- | ------------------------------------------------- | - | ------------------------ | ------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------- | - | - | -------- | ------- | ------------ | - | --------- | --------- | -
|                                               |                                                   |   | Parent Only              |         |            |   |                |         |              |   |         |         |   |   |          |         | Consolidated
|                                               |                                                   |   | Pennzoil-                |         |            |   |                |         |              |   |         |         |   |   |          |         | Pennzoil-   
|                                               |                                                   |   | Quaker State             |         |            |   |                |         |              |   |         |         |   |   |          |         | Quaker State
|                                               |                                                   |   | Company                  |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |        
|                                               |                                                   |   | (expressed in thousands)
|                                               |                                                   |   | (unaudited)             
|REVENUES                                       |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                               | Net sales                                         |   | $                        | 733,984 |            |   | $              | 337,007 |              |   | $       | 153,862 |   |   | $        | (92,634 | )            |   | $         | 1,132,219 |  
|                                               | Other income, net                                 |   |                          | (5,507  | )          |   |                | 4,933   |              |   |         | 23,033  |   |   |          | (670    | )            |   |           | 21,789    |  
|                                               | Equity in earnings of
unconsolidated subsidiaries |   |                          | 44,337  |            |   |                | 550     |              |   |         |        |   |   |          | (44,887 | )            |   |           |          |  
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                               |                                                   |   | 772,814                  |         |            |   | 342,490        |         |              |   | 176,895 |         |   |   | (138,191 | )       |              |   | 1,154,008 |          
|COSTS AND EXPENSES                             |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                               | Cost of sales                                     |   |                          | 499,427 |            |   |                | 230,549 |              |   |         | 121,010 |   |   |          | (92,634 | )            |   |           | 758,352   |  
|                                               | Selling, general and administrative               |   |                          | 156,817 |            |   |                | 49,705  |              |   |         | 20,942  |   |   |          | (670    | )            |   |           | 226,794   |  
|                                               | Depreciation and amortization                     |   |                          | 17,957  |            |   |                | 10,669  |              |   |         | 2,563   |   |   |          |        |              |   |           | 31,189    |  
|                                               | Taxes, other than income                          |   |                          | 3,675   |            |   |                | 3,069   |              |   |         | 1,547   |   |   |          |        |              |   |           | 8,291     |  
|                                               | Interest charges                                  |   |                          | 37,922  |            |   |                | 3,647   |              |   |         | 4,286   |   |   |          |        |              |   |           | 45,855    |  
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|INCOME BEFORE INCOME TAX                       |                                                   |   | 57,016                   |         |            |   | 44,851         |         |              |   | 26,547  |         |   |   | (44,887  | )       |              |   | 83,527    |          
|Income tax provision                           |                                                   |   | 7,389                    |         |            |   | 15,662         |         |              |   | 10,849  |         |   |   |         |         |              |   | 33,900    |          
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|NET INCOME                                     |                                                   | $ | 49,627                   |         |            | $ | 29,189         |         |              | $ | 15,698  |         |   | $ | (44,887  | )       |              | $ | 49,627    |          
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|NET INCOME                                     |                                                   | $ | 49,627                   |         |            | $ | 29,189         |         |              | $ | 15,698  |         |   | $ | (44,887  | )       |              | $ | 49,627    |          
|Other comprehensive income (loss), net of tax: |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                               | Foreign currency translation adjustment           |   |                          |        |            |   |                | 2,675   |              |   |         | (6,514  | ) |   |          |        |              |   |           | (3,839    | )
|                                               | Unrealized loss on
investment in securities       |   |                          |        |            |   |                |        |              |   |         | (91     | ) |   |          |        |              |   |           | (91       | )
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          
|                                               | Total other comprehensive income (loss)           |   |                          |        |            |   |                | 2,675   |              |   |         | (6,605  | ) |   |          |        |              |   |           | (3,930    | )
|COMPREHENSIVE INCOME                           |                                                   | $ | 49,627                   |         |            | $ | 31,864         |         |              | $ | 9,093   |         |   | $ | (44,887  | )       |              | $ | 45,697    |          
|                                               |                                                   |   |                          |         |            |   |                |         |              |   |         |         |   |   |          |         |              |   |           |          

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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 JUNE 30, 2001

|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |         |  
|---------------------------------------------- | ---------------------------------------------------------- | - | ------------------------ | ------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------ | - | - | ------ | ------- | ------------ | - | ------- | ------- | -
|                                               |                                                            |   | Parent Only              |         |            |   |                |         |              |   |         |        |   |   |        |         | Consolidated
|                                               |                                                            |   | Pennzoil-                |         |            |   |                |         |              |   |         |        |   |   |        |         | Pennzoil-   
|                                               |                                                            |   | Quaker State             |         |            |   |                |         |              |   |         |        |   |   |        |         | Quaker State
|                                               |                                                            |   | Company                  |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |        
|                                               |                                                            |   | (expressed in thousands)
|                                               |                                                            |   | (unaudited)             
|
|REVENUES                                       |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|                                               | Net sales                                                  |   | $                        | 369,358 |            |   | $              | 175,928 |              |   | $       | 65,416 |   |   | $      | (16,341 | )            |   | $       | 594,361 |  
|                                               | Other income, net                                          |   |                          | (1,893  | )          |   |                | 1,391   |              |   |         | 6,642  |   |   |        | 500     |              |   |         | 6,640   |  
|                                               | Equity in earnings (losses) of
unconsolidated subsidiaries |   |                          | 8,481   |            |   |                | (17,532 | )            |   |         |       |   |   |        | 9,051   |              |   |         |        |  
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|                                               |                                                            |   | 375,946                  |         |            |   | 159,787        |         |              |   | 72,058  |        |   |   | (6,790 | )       |              |   | 601,001 |        
|COSTS AND EXPENSES                             |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|                                               | Cost of sales                                              |   |                          | 267,839 |            |   |                | 122,747 |              |   |         | 52,595 |   |   |        | (16,341 | )            |   |         | 426,840 |  
|                                               | Selling, general and administrative                        |   |                          | 83,270  |            |   |                | 23,943  |              |   |         | 16,757 |   |   |        | 500     |              |   |         | 124,470 |  
|                                               | Depreciation and amortization                              |   |                          | 12,452  |            |   |                | 9,446   |              |   |         | 9,040  |   |   |        |        |              |   |         | 30,938  |  
|                                               | Taxes, other than income                                   |   |                          | 1,623   |            |   |                | 1,314   |              |   |         | 982    |   |   |        |        |              |   |         | 3,919   |  
|                                               | Interest charges                                           |   |                          | 19,642  |            |   |                | 1,869   |              |   |         | 2,654  |   |   |        |        |              |   |         | 24,165  |  
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|INCOME BEFORE INCOME TAX                       |                                                            |   | (8,880                   | )       |            |   | 468            |         |              |   | (9,970  | )      |   |   | 9,051  |         |              |   | (9,331  | )      
|Income tax provision                           |                                                            |   | (5,997                   | )       |            |   |               |         |              |   | (451    | )      |   |   |       |         |              |   | (6,448  | )      
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|INCOME (LOSS) FROM CONTINUING
OPERATIONS       |                                                            |   | (2,883                   | )       |            |   | 468            |         |              |   | (9,519  | )      |   |   | 9,051  |         |              |   | (2,883  | )      
|LOSS FROM DISCONTINUED
OPERATIONS, net of tax  |                                                            |   |                         |         |            |   |               |         |              |   | (2,465  | )      |   |   |       |         |              |   | (2,465  | )      
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|NET INCOME (LOSS)                              |                                                            | $ | (2,883                   | )       |            | $ | 468            |         |              | $ | (11,984 | )      |   | $ | 9,051  |         |              | $ | (5,348  | )      
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|NET INCOME (LOSS)                              |                                                            | $ | (2,883                   | )       |            | $ | 468            |         |              | $ | (11,984 | )      |   | $ | 9,051  |         |              | $ | (5,348  | )      
|Other comprehensive income (loss), net of tax: |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|                                               | Foreign currency translation adjustment                    |   |                          |        |            |   |                | 146     |              |   |         | 169    |   |   |        |        |              |   |         | 315     |  
|                                               | Unrealized loss on
investment in securities                |   |                          |        |            |   |                |        |              |   |         | (175   | ) |   |        |        |              |   |         | (175    | )
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        
|                                               | Total other comprehensive income (loss)                    |   |                          |        |            |   |                | 146     |              |   |         | (6     | ) |   |        |        |              |   |         | 140     |  
|COMPREHENSIVE INCOME (LOSS)                    |                                                            | $ | (2,883                   | )       |            | $ | 614            |         |              | $ | (11,990 | )      |   | $ | 9,051  |         |              | $ | (5,208  | )      
|                                               |                                                            |   |                          |         |            |   |                |         |              |   |         |        |   |   |        |         |              |   |         |        

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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 SIX MONTHS ENDED JUNE 30, 2001

|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |           |  
|--------------------------------------------- | ---------------------------------------------------------- | - | ------------------------ | ------- | ---------- | - | -------------- | ------- | ------------ | - | ------- | ------- | - | - | ------- | ------- | ------------ | - | --------- | --------- | -
|                                              |                                                            |   | Parent Only              |         |            |   |                |         |              |   |         |         |   |   |         |         | Consolidated
|                                              |                                                            |   | Pennzoil-                |         |            |   |                |         |              |   |         |         |   |   |         |         | Pennzoil-   
|                                              |                                                            |   | Quaker State             |         |            |   |                |         |              |   |         |         |   |   |         |         | Quaker State
|                                              |                                                            |   | Company                  |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Company
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |        
|                                              |                                                            |   | (expressed in thousands)
|                                              |                                                            |   | (unaudited)             
|REVENUES                                      |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|                                              | Net sales                                                  |   | $                        | 724,555 |            |   | $              | 331,926 |              |   | $       | 173,922 |   |   | $       | (77,424 | )            |   | $         | 1,152,979 |  
|                                              | Other income, net                                          |   |                          | (3,548  | )          |   |                | 2,496   |              |   |         | 18,198  |   |   |         | (3,061  | )            |   |           | 14,085    |  
|                                              | Equity in earnings (losses) of
unconsolidated subsidiaries |   |                          | 31,839  |            |   |                | (19,230 | )            |   |         |        |   |   |         | (12,609 | )            |   |           |          |  
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|                                              |                                                            |   | 752,846                  |         |            |   | 315,192        |         |              |   | 192,120 |         |   |   | (93,094 | )       |              |   | 1,167,064 |          
|COSTS AND EXPENSES                            |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|                                              | Cost of sales                                              |   |                          | 523,626 |            |   |                | 227,218 |              |   |         | 143,293 |   |   |         | (77,424 | )            |   |           | 816,713   |  
|                                              | Selling, general and administrative                        |   |                          | 155,911 |            |   |                | 51,338  |              |   |         | 28,824  |   |   |         | (3,061  | )            |   |           | 233,012   |  
|                                              | Depreciation and amortization                              |   |                          | 24,886  |            |   |                | 18,996  |              |   |         | 11,752  |   |   |         |        |              |   |           | 55,634    |  
|                                              | Taxes, other than income                                   |   |                          | 3,134   |            |   |                | 2,545   |              |   |         | 1,434   |   |   |         |        |              |   |           | 7,113     |  
|                                              | Interest charges                                           |   |                          | 40,025  |            |   |                | 3,867   |              |   |         | 4,985   |   |   |         |        |              |   |           | 48,877    |  
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|INCOME BEFORE INCOME TAX                      |                                                            |   | 5,264                    |         |            |   | 11,228         |         |              |   | 1,832   |         |   |   | (12,609 | )       |              |   | 5,715     |          
|Income tax provision                          |                                                            |   | (143                     | )       |            |   | 734            |         |              |   | (283    | )       |   |   |        |         |              |   | 308       |          
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|INCOME (LOSS) FROM CONTINUING
OPERATIONS      |                                                            |   | 5,407                    |         |            |   | 10,494         |         |              |   | 2,115   |         |   |   | (12,609 | )       |              |   | 5,407     |          
|LOSS FROM DISCONTINUED
OPERATIONS, net of tax |                                                            |   |                         |         |            |   |               |         |              |   | (2,465  | )       |   |   |        |         |              |   | (2,465    | )        
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|NET INCOME (LOSS)                             |                                                            | $ | 5,407                    |         |            | $ | 10,494         |         |              | $ | (350    | )       |   | $ | (12,609 | )       |              | $ | 2,942     |          
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|NET INCOME (LOSS)                             |                                                            | $ | 5,407                    |         |            | $ | 10,494         |         |              | $ | (350    | )       |   | $ | (12,609 | )       |              | $ | 2,942     |          
|Other comprehensive loss, net of tax:         |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|                                              | Foreign currency translation adjustment                    |   |                          |        |            |   |                | (477    | )            |   |         | (1,684  | ) |   |         |        |              |   |           | (2,161    | )
|                                              | Unrealized loss on
investment in securities                |   |                          |        |            |   |                |        |              |   |         | (144    | ) |   |         |        |              |   |           | (144      | )
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          
|                                              | Total other comprehensive loss                             |   |                          |        |            |   |                | (477    | )            |   |         | (1,828  | ) |   |         |        |              |   |           | (2,305    | )
|COMPREHENSIVE INCOME (LOSS)                   |                                                            | $ | 5,407                    |         |            | $ | 10,017         |         |              | $ | (2,178  | )       |   | $ | (12,609 | )       |              | $ | 637       |          
|                                              |                                                            |   |                          |         |            |   |                |         |              |   |         |         |   |   |         |         |              |   |           |          

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##### Table of Contents



PART I. FINANCIAL INFORMATION  continued




PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 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            |           | $                        | 102,834   |            |           | $              | 6,852   |              |         | $       | 15,294   |            |            | $ |           |              |           | $ | 124,980 | 
|                                              |                      |        | Receivables                          |           |                          | 40,972    |            |           |                | 83,103  |              |         |         | 162,147  |            |            |   | 249        |              |           |   | 286,471 | 
|                                              |                      |        | Accounts receivable affiliated       |           |                          | 3,199,562 |            |           |                | 825,020 |              |         |         | 34,576   |            |            |   | (4,059,158 | )            |           |   |        | 
|                                              |                      |        | Inventories                          |           |                          | 115,384   |            |           |                | 58,919  |              |         |         | 25,795   |            |            |   |           |              |           |   | 200,098 | 
|                                              |                      |        | Other current assets                 |           |                          | 8,547     |            |           |                | 11,216  |              |         |         | 11,000   |            |            |   | 31,341     |              |           |   | 62,104  | 
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|Total current assets                          |                      |        | 3,467,299                            |           |                          |           | 985,110    |           |                |         | 248,812      |         |         |          | (4,027,568 | )          |   |            | 673,653      |          
|Property, plant and equipment, net            |                      |        | 183,170                              |           |                          |           | 213,521    |           |                |         | 27,906       |         |         |          |           |            |   |            | 424,597      |          
|Investment in consolidated subsidiaries       |                      |        | 1,020,454                            |           |                          |           | 43,950     |           |                |         | 161,938      |         |         |          | (1,226,342 | )          |   |            |             |          
|Investment in unconsolidated subsidiaries     |                      |        | 2,410                                |           |                          |           |           |           |                |         | 2,955        |         |         |          |           |            |   |            | 5,365        |          
|Deferred income taxes                         |                      |        |                                     |           |                          |           |           |           |                |         |             |         |         |          | 238,541    |            |   |            | 238,541      |          
|Goodwill                                      |                      |        | 350,490                              |           |                          |           | 317,317    |           |                |         | 47,050       |         |         |          |           |            |   |            | 714,857      |          
|Other intangibles                             |                      |        | 281,946                              |           |                          |           | 117,044    |           |                |         | 2,506        |         |         |          |           |            |   |            | 401,496      |          
|Other assets                                  |                      |        | 187,821                              |           |                          |           | 43,853     |           |                |         | 14,039       |         |         |          |           |            |   |            | 245,713      |          
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|TOTAL ASSETS                                  |                      | $      | 5,493,590                            |           |                          | $         | 1,720,795  |           |                | $       | 505,206      |         |         | $        | (5,015,369 | )          |   | $          | 2,704,222    |          
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|LIABILITIES
ANDSHAREHOLDERS EQUITY           |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|Current liabilities                           |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|                                              |                      |        | Current maturities of long-term debt |           | $                        | 71,225    |            |           | $              | 357     |              |         | $       | 22,982   |            |            | $ |           |              |           | $ | 94,564  | 
|                                              |                      |        | Accounts payable                     |           |                          | 111,500   |            |           |                | 39,987  |              |         |         | 23,818   |            |            |   | 1,974      |              |           |   | 177,279 | 
|                                              |                      |        | Accounts payable affiliated          |           |                          | 3,486,243 |            |           |                | 971,701 |              |         |         | (421,147 | )          |            |   | (4,036,797 | )            |           |   |        | 
|                                              |                      |        | Payroll accrued                      |           |                          | 13,075    |            |           |                | 6,983   |              |         |         | 592      |            |            |   |           |              |           |   | 20,650  | 
|                                              |                      |        | Other current liabilities            |           |                          | 73,849    |            |           |                | 51,752  |              |         |         | 21,582   |            |            |   | 249        |              |           |   | 147,432 | 
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|Total current liabilities                     |                      |        | 3,755,892                            |           |                          |           | 1,070,780  |           |                |         | (352,173     | )       |         |          | (4,034,574 | )          |   |            | 439,925      |          
|Total long-term debt, less current maturities |                      |        | 998,385                              |           |                          |           | 2,880      |           |                |         | 182          |         |         |          |           |            |   |            | 1,001,447    |          
|Long-term debt affiliated                     |                      |        | 8,000                                |           |                          |           | (23,947    | )         |                |         | 15,947       |         |         |          |           |            |   |            |             |          
|Deferred income taxes                         |                      |        | (328,928                             | )         |                          |           | 26,861     |           |                |         | 32,185       |         |         |          | 269,882    |            |   |            |             |          
|Capital lease obligations                     |                      |        |                                     |           |                          |           | 50,561     |           |                |         | 1,576        |         |         |          |           |            |   |            | 52,137       |          
|Investment in unconsolidated subsidiaries     |                      |        |                                     |           |                          |           |           |           |                |         | 72,105       |         |         |          |           |            |   |            | 72,105       |          
|Other liabilities                             |                      |        | 225,337                              |           |                          |           | 12,445     |           |                |         | 80,547       |         |         |          |           |            |   |            | 318,329      |          
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|TOTAL LIABILITIES                             |                      |        | 4,658,686                            |           |                          |           | 1,139,580  |           |                |         | (149,631     | )       |         |          | (3,764,692 | )          |   |            | 1,883,943    |          
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|SHAREHOLDERS EQUITY                          |                      |        | 834,904                              |           |                          |           | 581,215    |           |                |         | 654,837      |         |         |          | (1,250,677 | )          |   |            | 820,279      |          
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|TOTAL LIABILITIES AND                         |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          
|                                              | SHAREHOLDERS EQUITY |        | $                                    | 5,493,590 |                          |           | $          | 1,720,795 |                |         | $            | 505,206 |         |          | $          | (5,015,369 | ) |            | $            | 2,704,222 |  
|                                              |                      |        |                                      |           |                          |           |            |           |                |         |              |         |         |          |            |            |   |            |              |          

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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 SIX MONTHS ENDED JUNE 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 |                                                     | $                        | 74,404       |         |            | $      | 12,127         |        |              | $      | 7,046   |        |   | $ |  |   |              | $       | 93,577  |        
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                               | Capital Expenditures                      |                                                     |                          | (12,357      | )       |            |        | (8,167         | )      |              |        | (1,054  | )      |   |   |  |   |              |         | (21,578 | )      
|                                               | Proceeds from sales of assets             |                                                     |                          | 355          |         |            |        | 7,121          |        |              |        | 189     |        |   |   |  |   |              |         | 7,665   |        
|                                               | Other investing activities                |                                                     |                          | 2,714        |         |            |        | 2,667          |        |              |        | (1,941  | )      |   |   |  |   |              |         | 3,440   |        
|                                               |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                               |                                           | Net cash provided by (used in) investing activities |                          |              | (9,288  | )          |        |                | 1,621  |              |        |         | (2,806 | ) |   |   |  |              |         |         | (10,473 | )
|                                               |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|CASH FLOWS USED IN FINANCING ACTIVITIES        |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                               | Repayments of debt                        |                                                     |                          | (34,922      | )       |            |        | (3,059         | )      |              |        | (1,714  | )      |   |   |  |   |              |         | (39,695 | )      
|                                               | Dividends paid                            |                                                     |                          | (4,009       | )       |            |        |               |        |              |        |        |        |   |   |  |   |              |         | (4,009  | )      
|                                               | Other financing activities                |                                                     |                          | (832         | )       |            |        |               |        |              |        |        |        |   |   |  |   |              |         | (832    | )      
|                                               |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|                                               |                                           | Net cash used in financing activities               |                          |              | (39,763 | )          |        |                | (3,059 | )            |        |         | (1,714 | ) |   |   |  |              |         |         | (44,536 | )
|                                               |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|NET INCREASE IN CASH AND CASH EQUIVALENTS      |                                           |                                                     | 25,353                   |              |         |            | 10,689 |                |        |              | 2,526  |         |        |   |  |   |   |              | 38,568  |        
|CASH AND CASH EQUIVALENTS, beginning of period |                                           |                                                     | 77,481                   |              |         |            | (3,837 | )              |        |              | 12,768 |         |        |   |  |   |   |              | 86,412  |        
|                                               |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        
|CASH AND CASH EQUIVALENTS, end of period       |                                           | $                                                   | 102,834                  |              |         | $          | 6,852  |                |        | $            | 15,294 |         |        | $ |  |   |   | $            | 124,980 |        
|                                               |                                           |                                                     |                          |              |         |            |        |                |        |              |        |         |        |   |   |   |   |              |         |        

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PART I. FINANCIAL INFORMATION  continued

PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 |                                                     | $      | 38,155                   |         |            | $       | (14,308        | )     |              | $       | (102,751 | )      |   | $ |  |   |              | $       | (78,904 | )      
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|                                               | Capital Expenditures                                |                                                     |        | (17,321                  | )       |            |         | (3,486         | )     |              |         | (4,156   | )      |   |   |  |   |              |         | (24,963 | )      
|                                               | Acquisitions, net of cash acquired                  |                                                     |        |                         |         |            |         |               |       |              |         | (700     | )      |   |   |  |   |              |         | (700    | )      
|                                               | Proceeds from sales of assets                       |                                                     |        | 5,487                    |         |            |         | 4,069          |       |              |         | 36       |        |   |   |  |   |              |         | 9,592   |        
|                                               | Other investing activities                          |                                                     |        | 13,075                   |         |            |         | 2,171          |       |              |         | (864     | )      |   |   |  |   |              |         | 14,382  |        
|                                               |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|                                               |                                                     | Net cash provided by (used in) investing activities |        |                          | 1,241   |            |         |                | 2,754 |              |         |          | (5,684 | ) |   |   |  |              |         |         | (1,689  | )
|                                               |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|CASH FLOWS USED IN FINANCING ACTIVITIES        |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|                                               | Net proceeds from (repayments of) debt              |                                                     |        | (34,728                  | )       |            |         | (826           | )     |              |         | (3,075   | )      |   |   |  |   |              |         | (38,629 | )      
|                                               | Dividends paid                                      |                                                     |        | (29,628                  | )       |            |         |               |       |              |         |         |        |   |   |  |   |              |         | (29,628 | )      
|                                               |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|                                               |                                                     | Net cash used in financing activities               |        |                          | (64,356 | )          |         |                | (826  | )            |         |          | (3,075 | ) |   |   |  |              |         |         | (68,257 | )
|                                               |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|CASH PROVIDED BY DISCONTINUED OPERATIONS       |                                                     |                                                     |       |                          |         |            |        |                |       |              | 114,270 |          |        |   |  |   |   |              | 114,270 |        
|NET INCREASE (DECREASE) IN CASH                |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|                                               | AND CASH EQUIVALENTS                                |                                                     |        | (24,960                  | )       |            |         | (12,380        | )     |              |         | 2,760    |        |   |   |  |   |              |         | (34,580 | )      
|CASH AND CASH EQUIVALENTS, beginning of period |                                                     |                                                     | 18,777 |                          |         |            | 1,745   |                |       |              | 17,741  |          |        |   |  |   |   |              | 38,263  |        
|                                               |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        
|CASH AND CASH EQUIVALENTS, end of period       |                                                     | $                                                   | (6,183 | )                        |         | $          | (10,635 | )              |       | $            | 20,501  |          |        | $ |  |   |   | $            | 3,683   |        
|                                               |                                                     |                                                     |        |                          |         |            |         |                |       |              |         |          |        |   |   |   |   |              |         |        

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PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders



|(a) |  | Annual Meeting of Shareholders
|--- |  | ------------------------------
|   
|    |  | August 1, 2002                



|(b) |  | 
|--- |  | 

|                                                                                        |                     |     |            |            |  |          |         |         |  |           |   |           |  |  |         |   |  |  |        |   | 
|--------------------------------------------------------------------------------------- | ------------------- | --- | ---------- | ---------- |  | -------- | ------- | ------- |  | --------- | - | --------- |  |  | ------- | - |  |  | ------ | - | 
|                                                                                        |                     |     |            |            |  |          |         |         |  |           |   |           |  |  |         |   |  |  | Broker
|                                                                                        |                     | For |            | Against    |  | Withheld |         | Abstain |  | Non-Votes
|                                                                                        |                     |     |            |            |  |          |         |         |  |          
|Election of Directors                                                                   |                     |     |            |            |  |          |         |         |  |           |   |           |  |  |         |   |  |  |        |  
|                                                                                        | Forrest R. Haselton |     |            | 68,813,046 |  |          |         |        |  |           |   | 1,524,361 |  |  |         |  |  |  |        |  | 
|                                                                                        | Berdon Lawrence     |     |            | 68,815,808 |  |          |         |        |  |           |   | 1,521,599 |  |  |         |  |  |  |        |  | 
|                                                                                        | Brent Scowcoft      |     |            | 68,771,467 |  |          |         |        |  |           |   | 1,565,940 |  |  |         |  |  |  |        |  | 
|Approval of Agreement and Plan
of Merger, dated March 25, 2002
with Shell Oil Company   |                     |     | 53,451,058 |            |  |          | 404,408 |         |  |           |  |           |  |  | 108,536 |   |  |  |       |  
|Approval of Appointment
of PricewaterhouseCoopers LLP
As Independent Public
Accountants |                     |     | 68,639,070 |            |  |          | 901,923 |         |  |           |  |           |  |  | 796,414 |   |  |  |       |  






Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits -
|--- |  | ----------



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



|(b) |  | Reports -
|--- |  | ---------

During the second 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                                                                                                                                                      
|               |  |                                                                                                                                                                     
|April 2, 2002  |  | Amended information related to Pennzoil-Quaker
States Agreement and Plan of merger with Shell
Oil Company, Shell ND Company and a wholly
owned subsidiary of Shell.

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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/N Michael J. Maratea                          
| |  |                                                 
| |  | Michael J. Maratea
Vice President and Controller

August 12, 2002





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INDEX TO EXHIBITS

|        |  |                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                   
|No.     |  | Description                                                                                       
|        |  |                                                                                                   
|12      |  | Computation of Ratio of Earnings to Fixed Charges for
the six months ended June 30, 2002 and 2001.