-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CH4KthqPrBK5eRC6cnGaj23wtwjCK6mHYBOKs1bFSU8Ij0CUYjuY3siOGRt5f3nl EGoJ03gxn7gz4/6pUhgmfw== 0000055458-99-000036.txt : 19991117 0000055458-99-000036.hdr.sgml : 19991117 ACCESSION NUMBER: 0000055458-99-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KERR MCGEE CORP CENTRAL INDEX KEY: 0000055458 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 730311467 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03939 FILM NUMBER: 99753075 BUSINESS ADDRESS: STREET 1: KERR MCGEE CTR STREET 2: 123 ROBERT S KERR CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 BUSINESS PHONE: 4052701313 MAIL ADDRESS: STREET 1: P O BOX 25861 CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 FORMER COMPANY: FORMER CONFORMED NAME: KERR MCGEE OIL INDUSTRIES INC DATE OF NAME CHANGE: 19671227 10-Q 1 SEPTEMBER 1999 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____ Commission File Number 1-3939 KERR-McGEE CORPORATION (Exact Name of Registrant as Specified in its Charter) A Delaware Corporation 73-0311467 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) Kerr-McGee Center, Oklahoma City, Oklahoma 73125 (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code (405) 270-1313 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 common stock, $1.00 par value, outstanding as of October 31, 1999: 86,466,032 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, (Millions of dollars, except per-share amounts) 1999 1998 1999 1998 ------------------------- ---------------------- Sales $752.5 $556.0 $1,895.6 $1,663.8 ------ ------ -------- -------- Costs and Expenses Costs and operating expenses 279.5 274.9 773.0 771.1 Selling, general and administrative expenses 41.1 72.8 156.3 180.0 Depreciation and depletion 159.2 152.9 447.5 427.1 Exploration, including dry holes and amortization of undeveloped leases 24.7 45.8 94.1 150.3 Taxes, other than income taxes 21.9 15.6 54.5 44.6 Merger costs - - 155.1 - Interest and debt expense 50.4 39.6 140.9 114.2 ------- ------- --------- -------- Total Costs and Expenses 576.8 601.6 1,821.4 1,687.3 ------- ------- --------- --------- 175.7 (45.6) 74.2 (23.5) Other Income (Loss) (14.2) (29.7) 13.8 13.3 ------- ------- --------- --------- Income (Loss) from Continuing Operations before Income Taxes 161.5 (75.3) 88.0 (10.2) Provision (Benefit) for Income Taxes 63.8 (7.8) 51.5 10.1 ------- ------- --------- --------- Income (Loss) from Continuing Operations 97.7 (67.5) 36.5 (20.3) Income from Discontinued Operations (net of provision for income taxes of $121.7 and $155.7 for the third quarter and the first nine months of 1998, respectively) - 217.9 - 277.4 Cumulative Effect of Change in Accounting Principle (net of benefit for income taxes of $2.2) - - (4.1) - ------- ------- --------- -------- Net Income $ 97.7 $150.4 $ 32.4 $ 257.1 ======= ====== ========= ========= Net Income (Loss) per Common Share Basic and Diluted Continuing operations $ 1.13 $ (.77) $ .42 $ (.23) Discontinued operations - 2.50 - 3.19 Cumulative effect of change in accounting principle - - (.05) - ------- ------- --------- -------- Total $ 1.13 $ 1.73 $ .37 $ 2.96 ======= ====== ========= ======== The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, December 31, (Millions of dollars) 1999 1998 ------------------------------- ASSETS Current Assets Cash $ 184.4 $ 121.0 Notes and accounts receivable 561.9 388.4 Inventories 265.2 247.1 Deposits and prepaid expenses 85.2 120.2 --------- --------- Total Current Assets 1,096.7 876.7 --------- --------- Property, Plant and Equipment 10,858.1 10,651.7 Less reserves for depreciation, depletion and amortization 6,795.7 6,498.9 --------- --------- 4,062.4 4,152.8 --------- --------- Investments and Other Assets 714.6 421.8 --------- --------- $5,873.7 $5,451.3 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 6.6 $ 35.8 Accounts payable 330.1 385.3 Long-term debt due within one year 120.1 235.6 Other current liabilities 370.0 393.3 --------- --------- Total Current Liabilities 826.8 1,050.0 --------- --------- Long-Term Debt 2,475.9 1,978.5 --------- --------- Deferred Credits and Reserves 1,126.8 1,077.3 --------- --------- Stockholders' Equity Common stock, par value $1 - 300,000,000 shares authorized, 93,474,191 shares issued at 9-30-99 and 93,378,069 shares issued at 12-31-98 93.5 93.4 Capital in excess of par value 1,284.3 1,282.2 Preferred stock purchase rights .5 .5 Retained earnings 506.1 527.0 Accumulated other comprehensive income (loss) 71.6 (36.0) Common shares in treasury, at cost - 7,010,790 shares at both 9-30-99 and 12-31-98 (387.8) (387.8) Deferred compensation (124.0) (133.8) --------- --------- Total Stockholders' Equity 1,444.2 1,345.5 --------- --------- $5,873.7 $5,451.3 ======== ======== The "successful efforts" method of accounting for oil and gas exploration and production activities has been followed in preparing this balance sheet. The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, (Millions of dollars) 1999 1998 ------------------------ Operating Activities Net income $ 32.4 $257.1 Adjustments to reconcile to net cash provided by operating activities - Depreciation, depletion and amortization 478.4 466.9 Dry hole costs 24.0 65.4 Deferred income taxes 21.2 7.6 Gain on sale of discontinued coal operations - (257.3) Gain on sale and retirement of assets (3.4) (3.8) Noncash items affecting net income 166.0 14.8 Other net cash used in operating activities (385.5) (198.1) ------- ------ Net Cash Provided by Operating Activities 333.1 352.6 ------- ------ Investing Activities Capital expenditures (387.6) (870.6) Acquisitions (65.9) (515.9) Proceeds from the sale of discontinued coal operations - 598.8 Proceeds from sale of assets 3.9 65.4 Other investing activities (10.2) 11.8 ------- ------ Net Cash Used in Investing Activities (459.8) (710.5) ------- ------ Financing Activities Issuance of long-term debt 999.5 626.3 Repayment of long-term debt (639.3) (92.7) Decrease in short-term borrowings (29.2) (25.0) Dividends paid (99.5) (64.4) Other financing activities (37.0) (20.0) ------- ------ Net Cash Provided by Financing Activities 194.5 424.2 ------- ------ Effects of Exchange Rate Changes on Cash and Cash Equivalents (4.4) - ------- ------ Net Increase in Cash and Cash Equivalents 63.4 66.3 Cash and Cash Equivalents at Beginning of Period 121.0 192.3 ------- ------ Cash and Cash Equivalents at End of Period $ 184.4 $258.6 ======= ====== The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 A. The condensed financial statements included herein have been prepared by the company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of management, include all adjustments, consisting only of normal recurring accruals, necessary to present fairly the resulting operations for the indicated periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. On February 26, 1999, the company completed the merger with Oryx Energy Company (Oryx). The merger was accounted for using the pooling of interests method of accounting for business combinations. Accordingly, the company's financial statements have been restated to include the combined business activities for the company and Oryx for all periods presented. Although the company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the company's latest annual report on Form 10-K and the Form 8-K/A dated February 26, 1999, and filed July 26, 1999. B. Effective January 1, 1999, the company adopted Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires costs of start-up activities to be expensed as incurred. Unamortized start-up costs at the beginning of the year were required to be recognized as a cumulative effect of a change in accounting principle. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS No. 133 establishes accounting and reporting standards that require derivative instruments to be recorded in the balance sheet as either an asset or liability and measured at fair value. Changes in the derivative's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires a company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. FAS No. 133 was to be effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued FAS No. 137, which deferred the effective date of FAS No. 133 until fiscal years beginning after June 15, 2000. The effect of adopting FAS No. 133 has not been determined but is not expected to have a material impact on the company's results of operations. C. Net cash provided by operating activities reflects cash payments for income taxes and interest as follows: Nine Months Ended September 30, (Millions of dollars) 1999 1998 -------------------- Income tax payments $ 74.8 $123.5 Less refunds received (60.0) (34.0) ------ ------- Net income tax payments $ 14.8 $ 89.5 ====== ======= Interest payments $121.4 $ 93.4 ====== ======= D. During the third quarter of 1999 and 1998, comprehensive income was $220.4 million and $152.4 million, respectively. For the nine months ended September 30, 1999 and 1998, comprehensive income was $139.9 million and $258.5 million, respectively. E. Investments in equity affiliates totaled $60.2 million at September 30, 1999, and $170.1 million at December 31, 1998. Equity income (loss) related to the investments is included in Other Income (Loss) in the Consolidated Statement of Income and totaled $4.1 million and $(24.6) million for the three months ended September 30, 1999 and 1998, respectively. For the first nine months of 1999, equity income (loss) totaled $11.2 million, compared with $(12.6) million for the same 1998 period. During the 1999 third quarter, the company's ownership percentage in Devon Energy Company, an equity affiliate, decreased as a result of Devon issuing additional common stock in its merger with PennzEnergy. The company's ownership percentage of approximately 20% was diluted to approximately 14% after the Devon merger. As a result, the company no longer accounts for its investment in Devon under the equity method. The difference between the company's carrying amount of the investment before the merger and the underlying net book value of the investment after the merger was $58.1 million, net of deferred taxes, and was reflected as an adjustment to retained earnings. The Devon equity securities are considered to be available for sale and are carried in the Consolidated Balance Sheet at fair value, which is based on quoted market price. At September 30, 1999, the fair value of the equity securities totaled $412.5 million compared with a cost of $208.8 million. The gross unrealized holding gain totaled $203.7 million. The unrealized holding gain, net of taxes, was $132.4 million at September 30, 1999, and was included as a component of Accumulated Other Comprehensive Income (Loss). F. Income (loss) from continuing operations for purposes of computing both basic and diluted earnings per share was $97.7 million and $(67.5) million for the three months ended September 30, 1999 and 1998, respectively, and $36.5 million and $(20.3) million for the nine months ended September 30, 1999 and 1998, respectively. A reconciliation of the average shares outstanding used to compute basic earnings per share to the shares used to compute diluted earnings per share for both periods is presented below:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 --------------------------- --------------------------- Averages shares outstanding - basic 86,430,933 86,839,528 86,393,940 86,794,308 Dilutive effect of stock options 193,371 - 50,147 - Dilutive effect of debentures * - - - - ---------- ---------- ---------- ---------- Average shares outstanding assuming dilution 86,624,304 86,839,528 86,444,087 86,794,308 ========== ========== ========== ==========
*The company has reserved 1,886,121 shares of common stock for issuance to the owners of its 7 1/2% Convertible Subordinated Debentures due 2014 (Debentures). The Debentures were not included in the computation of diluted shares since they have an antidilutive effect for all periods presented. G. CONTINGENCIES WEST CHICAGO - In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation, closed the facility at West Chicago, Illinois, that processed thorium ores. Kerr-McGee Chemical Corporation now operates as Kerr-McGee Chemical LLC (Chemical). Operations resulted in some low-level radioactive contamination at the site and, in 1979, Chemical filed a plan with the Nuclear Regulatory Commission (NRC) to decommission the facility. The NRC transferred jurisdiction of this site to the State of Illinois (the State) in 1990. Following is the current status of various matters associated with the West Chicago site. Closed Facility - In 1994, Chemical, the City of West Chicago (the City) and the State reached agreement on the initial phase of the decommissioning plan for the closed West Chicago facility, and Chemical began shipping material from the site to a licensed permanent disposal facility. In February 1997, Chemical executed an agreement with the City as to the terms and conditions for completing the final phase of decommissioning work. The State has indicated approval of this agreement and has issued license amendments authorizing much of the work. Chemical expects most of the work to be completed within five years. In 1992, the State enacted legislation imposing an annual storage fee equal to $2 per cubic foot of byproduct material located at the closed facility. The storage fee cannot exceed $26 million per year, and any storage fee payments must be reimbursed to Chemical as decommissioning costs are incurred. Chemical has been fully reimbursed for all storage fees paid pursuant to this legislation. In June 1997, the legislation was amended to provide that future storage fee obligations are to be offset against decommissioning costs incurred but not yet reimbursed. Offsite Areas - The U.S. Environmental Protection Agency (EPA) has listed four areas in the vicinity of the West Chicago facility on the National Priority List that the EPA promulgates under authority of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and has designated Chemical as a potentially responsible party in these four areas. Two of the four areas are presently being studied to determine the extent of contamination and the nature of any remedy. These two are known as the Sewage Treatment Plant and Kress Creek. The EPA previously issued unilateral administrative orders for the other two areas (known as the residential areas and Reed-Keppler Park), which require Chemical to conduct removal actions to excavate contaminated soils and ship the soils elsewhere for disposal. Without waiving any of its rights or defenses, Chemical has begun the cleanup of the two areas for which unilateral administrative orders have been issued. Judicial Proceedings - In December 1996, a lawsuit was filed against the company and Chemical in Illinois state court on behalf of a purported class of present and former West Chicago residents. The lawsuit seeks damages for alleged diminution in property values and the establishment of a medical monitoring fund to benefit those allegedly exposed to thorium wastes originating from the former facility. The case was removed to federal court and is being vigorously defended. Government Reimbursement - Pursuant to Title X of the Energy Policy Act of 1992 (Title X), the U. S. Department of Energy is obligated to reimburse Chemical for certain decommissioning and cleanup costs in recognition of the fact that much of the facility's production was dedicated to United States government contracts. Title X was amended in 1998 to increase the amount authorized to $140 million plus inflation adjustments. Through October 31, 1999, Chemical has been reimbursed approximately $69 million under Title X. These reimbursements are provided by congressional appropriations. OTHER MATTERS The company's current and former operations involve management of regulated materials and are subject to various environmental laws and regulations. These laws and regulations will obligate the company to clean up various sites at which petroleum, chemicals, low-level radioactive substances or other regulated materials have been disposed of or released. Some of these sites have been designated Superfund sites by the EPA pursuant to CERCLA. The company is also a party to legal proceedings involving environmental matters pending in various courts and agencies. In addition, the company and/or its subsidiaries are also parties to a number of other legal proceedings pending in various courts or agencies in which the company and/or its subsidiaries appear as plaintiff or defendant. The company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. It is not possible for the company to reliably estimate the amount and timing of all future expenditures related to environmental and legal matters because of the difficulty of predicting cleanup requirements and estimating cleanup costs, the uncertainty in quantifying liability under environmental laws that impose joint and several liability on all potentially responsible parties, the continually changing nature of environmental laws and regulations, and the uncertainty inherent in legal matters. As of September 30, 1999, the company has recorded reserves totaling $201 million for cleaning up and remediating environmental sites, reflecting the reasonably estimable costs for addressing these sites. This includes $139 million for the former West Chicago facility, the residential areas and Reed-Keppler Park. Management believes, after consultation with general counsel, that currently the company has reserved adequately for contingencies. However, additions to the reserves may be required as additional information is obtained that enables the company to better estimate its liability, including any liability at sites now being studied, though management cannot now reliably estimate the amount of any future additions to the reserves. Historical expenditures at all sites from inception through September 30, 1999 total $628 million. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Comparison of 1999 Results with 1998 Results CONSOLIDATED OPERATIONS Third-quarter 1999 net income totaled $97.7 million, compared with $150.4 million for the same 1998 period. Income from continuing operations for the 1999 third quarter totaled $97.7 million, compared with a 1998 third-quarter loss from continuing operations of $67.5 million. Net income for the first nine months of 1999 totaled $32.4 million, compared with net income of $257.1 million for the same 1998 period. For the first nine months of 1999, income from continuing operations totaled $36.5 million, compared with a loss from continuing operations of $20.3 million a year earlier. Operating profit for the 1999 third quarter was $239.1 million, compared with $11.1 million in the same 1998 quarter. Operating profit for the first nine months of 1999 was $422.9 million, compared with $139.4 million for the same 1998 period. The improved results for both 1999 periods reflect higher crude oil and natural gas sales prices, higher crude oil sales volumes, lower exploration expense and the 1998 restructuring reserve. Partially offsetting for both periods were higher depreciation and depletion expense and higher exploration and production operating expense. Other expense for the third quarter of 1999 totaled $77.6 million, compared with $86.4 million for the 1998 quarter. The decrease was due primarily to a 1998 write-down taken by the company's then-equity affiliate and a lower foreign currency transaction loss, partially offset by higher net interest expense and higher litigation and employee benefits accruals. Other expense for the first nine months of 1999 was $334.9 million, compared with $149.6 million for the 1998 period. This increase was due primarily to merger costs, higher net interest expense, lower insurance claims settlements and higher litigation and employee benefits accruals, partially offset by a 1998 write-down by the company's then-equity affiliate and foreign currency transaction gains compared with 1998 losses. The income tax provision was $63.8 million for the 1999 third quarter, compared with a tax benefit of $7.8 million for the 1998 period. The benefit for the 1998 third quarter included $6.5 million relating to the enactment of a lower tax rate in the United Kingdom and an $11.1 million benefit from the 1998 restructuring reserve. The increase in the 1999 third quarter was primarily due to higher pretax income. The income tax provision was $51.5 million for the first nine months of 1999, compared with $10.1 million for the 1998 period. The provision for the first nine months of 1999 included a $44.6 million tax benefit related to the $155.1 million in merger costs. The provision for income taxes for the nine months ended September 30, 1998, included tax benefits of $11.1 million resulting from an income tax settlement, $11.1 million from the 1998 restructuring reserve and $6.5 million from the United Kingdom tax rate change. The increase in 1999 was due to higher pretax income, partially offset by lower effective tax rates. SEGMENT OPERATIONS Following is a summary of sales and operating profit and a discussion of major factors influencing the results of each of the company's business segments for the third quarter and first nine months of 1999, compared with the same periods last year.
Three Months Ended Nine Months Ended September 30, September 30, (Millions of dollars) 1999 1998 1999 1998 ----------------------- ------------------------- Sales Exploration and production $510.2 $305.7 $1,215.8 $ 969.3 Chemicals 242.3 250.3 679.6 694.3 ------ ------ -------- -------- 752.5 556.0 1,895.4 1,663.6 All other - - .2 .2 ------ ------ -------- -------- Total Sales $752.5 $556.0 $1,895.6 $1,663.8 ====== ====== ======== ======== Operating Profit (Loss) Exploration and production 209.5 (18.0) $ 331.3 53.6 Chemicals 29.6 29.1 91.6 85.8 ------ ------ -------- -------- Total Operating Profit 239.1 11.1 422.9 139.4 Other Expense (77.6) (86.4) (334.9) (149.6) ------ ------ -------- -------- Income (Loss) from Continuing Operations before Income Taxes 161.5 (75.3) 88.0 (10.2) Provision (Benefit) for Income Taxes 63.8 (7.8) 51.5 10.1 ------ ------ -------- -------- Income (Loss) from Continuing Operations 97.7 (67.5) 36.5 (20.3) Discontinued Operations, Net of Income Taxes - 217.9 - 277.4 Cumulative Effect of a Change in Accounting Principle, Net of Income Taxes - - (4.1) - ------ ------ -------- -------- Net Income $ 97.7 $150.4 $ 32.4 $ 257.1 ====== ====== ======== ========
Exploration and Production - Third quarter 1999 operating profit was $209.5 million, compared with an operating loss of $18 million for the same 1998 quarter. Operating profit for the first nine months of 1999 and 1998 was $331.3 million and $53.6 million, respectively. Operating profit in both 1999 periods was higher due primarily to higher crude oil and natural gas sales prices, higher crude oil sales volumes, lower exploration expense and the 1998 restructuring reserve, partially offset by higher depreciation and depletion expense and higher operating expense. Revenues were $510.2 million and $305.7 million for the three months ended September 30, 1999 and 1998, respectively, and $1,215.8 million and $969.3 million for the first nine months of 1999 and 1998, respectively. The following table shows the company's average crude oil and natural gas sales prices and volumes for both the third quarter and first nine months of 1999 and 1998.
Three Months Ended % Nine Months Ended % September 30, Increase September 30, Increase 1999 1998 (Decrease) 1999 1998 (Decrease) ----------------------------------- ------------------------------------ Crude oil sales (thousands of bbls/day) Domestic Offshore 63.4 37.9 67 58.4 42.1 39 Onshore 18.5 22.8 (19) 18.6 24.5 (24) North Sea 108.1 91.1 19 107.4 85.4 26 Other International 15.2 20.7 (27) 15.6 19.3 (19) ----- ----- ----- ----- Total 205.2 172.5 19 200.0 171.3 17 ===== ===== ===== ===== Average crude oil sales price (per barrel) Domestic Offshore $18.21 $11.19 63 $14.31 $12.33 16 Onshore 20.25 12.20 66 15.80 13.11 21 North Sea 20.51 12.28 67 15.92 12.89 24 Other International 16.03 9.27 73 12.55 10.24 23 Average $19.57 $12.16 61 $15.28 $12.91 18 Natural gas sold (MMCF/day) Domestic Offshore 345 314 10 356 324 10 Onshore 171 220 (22) 167 221 (24) North Sea 50 40 25 50 45 11 ----- ----- ----- ----- Total 566 574 (1) 573 590 (3) ===== ===== ===== ===== Average natural gas sales price (per MCF) Domestic Offshore $2.63 $1.96 34 $2.16 $2.09 3 Onshore 2.69 1.89 42 2.17 2.03 7 North Sea 1.70 2.18 (22) 2.18 2.44 (11) Average $2.64 $2.01 31 $2.28 $2.13 7
Chemicals - Third-quarter 1999 operating profit was $29.6 million on revenues of $242.3 million, compared with operating profit of $29.1 million on revenues of $250.3 million for the same 1998 period. For the first nine months of 1999 and 1998, operating profit was $91.6 million and $85.8 million, respectively, on revenues of $679.6 million and $694.3 million, respectively. Revenues for the 1999 third quarter declined primarily due to lower pigment and electrolytic products sales prices and lower forest products sales volumes, partially offset by higher pigment sales volumes. Revenues for the first nine months of 1999 decreased due to lower European pigment sales prices, lower forest products sales volumes and lower electrolytic products sales prices and volumes, partially offset by higher domestic pigment sales prices. Operating profit for both 1999 periods increased primarily due to lower operating expense for the domestic pigment operations partially offset by lower revenues. Financial Condition At September 30, 1999, the company's net working capital position was $269.9 million, compared with a negative $173.3 million at December 31, 1998. The current ratio was 1.3 to 1 at September 30, 1999, compared with .8 to 1 at December 31, 1998. The company's percentage of net debt (debt less cash) to capitalization was 62% at September 30, 1999, compared with 61% at December 31, 1998. On November 1, 1999, the company issued $150 million variable interest rate notes due November 1, 2001. The interest rate will adjust quarterly based on the three-month LIBOR plus 0.50%. The proceeds received by the company will be used for general corporate purposes, including repayment of outstanding commercial paper. The company had unused lines of credit and revolving credit facilities of $1,505.9 million at September 30, 1999. Of this amount, $835 million and $150 million can be used to support commercial paper borrowings of Kerr-McGee Credit LLC and Kerr-McGee Oil (U.K.) PLC, respectively. Cash capital expenditures for the first nine months of 1999 totaled $387.6 million, compared with $870.6 million for the same period last year. Exploration and production expenditures, principally in the Gulf of Mexico and U.K. North Sea, were 83% of the 1999 total. Chemical and other expenditures were 17% of the 1999 amount. Management anticipates that the cash requirements for the next several years can be provided through internally generated funds and selective borrowings. Year 2000 Readiness Disclosure In 1996, the company established a formal Year 2000 Program (Program) to assess and correct Year 2000 problems in both information technology and non-information technology systems. The Program is organized into two major areas: Business Systems and Facilities Integrity. Business Systems include replacement and upgrade of computer hardware and software, including major business applications such as purchasing, inventory, engineering, financial, human resources, etc. Facilities Integrity encompasses telecommunications, plant process controls, instrumentation and embedded chip systems as well as an assessment of third-party Year 2000 readiness. The Program is generally divided into the following phases: o Identification, evaluation and prioritization of systems that need to be modified or replaced. o Remediation work to modify existing systems or install new systems. o Testing and validation of the systems and applications. o Contingency planning. An integral part of the Program is communication with third parties to assess the extent and status of their Year 2000 efforts. Formal communications have been ongoing with critical suppliers to determine whether their operations and/or the products and services provided to the company will be Year 2000 ready. In addition, the company has contacted key customers and partners requesting information regarding their Year 2000 readiness. The company continues to evaluate responses and make additional inquiries as needed. The company has developed contingency plans to address potential failure of critical systems and/or critical suppliers. These plans may include items such as activating manual systems, placing operations on standby and other procedures to accommodate significant disruptions that could be caused by system failures. When appropriate, alternative providers are being identified in the event that certain critical suppliers are unable to provide an acceptable level of service to the company. Contingency plans that address business critical areas were completed in the third quarter of 1999. As of September 30, 1999, 100% of the pre-merger work on the Business Systems projects had been completed. Most of these projects were system replacements to improve business functionality and were not undertaken solely because of Year 2000 issues. As a result of the merger with Oryx, Year 2000 Programs for both companies were combined. Most of the Oryx business systems have been replaced with Year 2000 compliant systems already in place at Kerr-McGee. The remaining business systems are being tested for Year 2000 readiness and modified as required. All critical Business System projects for the merged company had been completed by September 30, 1999. There are, however, still some Year 2000 related Business System projects ongoing with final completion expected before year end 1999. As of September 30, 1999, all critical activities associated with Facilities Integrity had been completed, including additional activities resulting from the merger. However, some ongoing work in areas of contingency planning, third-party communications, auditing and year-end communication response planning is expected to continue through the end of 1999. Total Program expenditures for the merged company's Year 2000 activities are approximately $50 million from inception through September 30, 1999. Expenditures for the third quarter of 1999 were approximately $1.5 million. The total cost to achieve Year 2000 readiness is estimated to be $51 million for the entire 3 1/2 year Program, which is not material to the company's consolidated results of operations, financial position or cash flows. Program expenditures are provided through internally generated funds. The failure to correct a material Year 2000 problem could result in disruption to some aspects of the company's normal business activities or operations. Such failures could have a material adverse effect on the company's results of operations and cash flows in a particular quarter or annual period. Management believes that the Program is comprehensive and reduces Year 2000 risks associated with internal systems to a manageable level. Regardless of management's efforts to assess and verify readiness, there can be no assurance that all entities with which the company does business will be Year 2000 compliant. Contingency plans are being developed to address these concerns. However, failure by a third party to remediate Year 2000 issues in a timely manner could have a material adverse effect on the company's results of operations and cash flows in a particular quarter or annual period. Failure of a critical operating or safety system, or the failure of a key third-party supplier, partner or customer, are believed to be the most reasonably likely worst-case scenarios that could impact the company. Forward-Looking Information Statements in this report as to the company's or management's intentions, beliefs or expectations for the future are "forward-looking statements" within the meaning of the Securities Litigation Reform Act. Statements that describe the company's Year 2000 readiness also contain a number of forward-looking statements. Such statements may be affected by various factors and are subject to numerous risks such as the accuracy of the assumptions that underlie the statements, the success of the oil and gas exploration and production program, drilling risks, the market price of Kerr-McGee's products, uncertainties in interpreting engineering data, demand for consumer products for which Kerr-McGee's businesses supply raw materials, general economic conditions and other factors and risks discussed in the company's SEC filings, including Forms 10-K, 10-Q and 8-K/A. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - Exhibit No. 4.6 The company agrees to furnish the Securities and Exchange Commission, upon request, a copy of the Offering Memorandum dated November 1, 1999, relating to the company's variable interest rate notes due November 1, 2001. 27.0 Financial Data Schedule (b) Reports on Form 8-K Current Report on Form 8-K/A dated February 26, 1999, and filed July 16, 1999, for purposes of reporting, under Item 5 and 7, certain information pertaining to the merger between the company and Oryx Energy Company, supplemental financial statements for the three years ended December 31, 1998, and exhibits. Current Report on Form 8-K/A dated February 26, 1999, and filed July 26, 1999, for purposes of reporting, under Item 5 and 7, certain information pertaining to the merger between the company and Oryx Energy Company, supplemental financial statements for the three years ended December 31, 1998, and exhibits. Current Report on Form 8-K dated July 27, 1999, and filed July 28, 1999, for purposes of reporting, under Items 5 and 7, certain information pertaining to the company's offering of five-year notes in the form of Debt Exchangeable for Common Stock (DECS). 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. KERR-McGEE CORPORATION Date November 12, 1999 By: (Deborah A. Kitchens) ----------------- ------------------------------------- Deborah A. Kitchens Vice President and Controller and Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at September 30, 1999 and the Consolidated Statement of Income for the periods ending September 30, 1999 and 1998, and is qualified in its entirety by reference to such Form 10-Q. 1000 9-MOS 9-MOS DEC-31-1999 DEC-31-1998 SEP-30-1999 SEP-30-1998 184400 0 0 0 561900 0 0 0 265200 0 1096700 0 10858100 0 6795700 0 5873700 0 826800 0 0 0 0 0 0 0 93500 0 1350700 0 5873700 0 1895600 1663800 1895600 1663800 773000 771100 1821400 1687300 (13800) (13300) 0 0 140900 114200 88000 (10200) 51500 10100 36500 (20300) 0 277400 0 0 (4100) 0 32400 257100 .37 2.96 .37 2.96 Amount restated as the result of the merger with Oryx Energy Company accounted for using the pooling of interests method of accounting.
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