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.
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars, except per-share amounts) 1999 1998 1999 1998
------------------------- ----------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
September 30, December 31,
(Millions of dollars) 1999 1998
-------------------------------
<S> <C> <C>
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.
</TABLE>
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
(Millions of dollars) 1999 1998
------------------------
<S> <C> <C>
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.
</TABLE>
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
*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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 1999 1998 1999 1998
----------------------- -------------------------
<S> <C> <C> <C> <C>
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
====== ====== ======== ========
</TABLE>
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.
<TABLE>
<CAPTION>
Three Months Ended % Nine Months Ended %
September 30, Increase September 30, Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 184400 0
<SECURITIES> 0 0
<RECEIVABLES> 561900 0
<ALLOWANCES> 0 0
<INVENTORY> 265200 0
<CURRENT-ASSETS> 1096700 0
<PP&E> 10858100 0
<DEPRECIATION> 6795700 0
<TOTAL-ASSETS> 5873700 0
<CURRENT-LIABILITIES> 826800 0
<BONDS> 0 0
0 0
0 0
<COMMON> 93500 0
<OTHER-SE> 1350700 0
<TOTAL-LIABILITY-AND-EQUITY> 5873700 0
<SALES> 1895600 1663800<F1>
<TOTAL-REVENUES> 1895600 1663800<F1>
<CGS> 773000 771100<F1>
<TOTAL-COSTS> 1821400 1687300<F1>
<OTHER-EXPENSES> (13800) (13300)<F1>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 140900 114200<F1>
<INCOME-PRETAX> 88000 (10200)<F1>
<INCOME-TAX> 51500 10100<F1>
<INCOME-CONTINUING> 36500 (20300)<F1>
<DISCONTINUED> 0 277400<F1>
<EXTRAORDINARY> 0 0
<CHANGES> (4100) 0
<NET-INCOME> 32400 257100<F1>
<EPS-BASIC> .37 2.96<F1>
<EPS-DILUTED> .37 2.96<F1>
<FN>
<F1>Amount restated as the result of the merger with Oryx Energy Company accounted
for using the pooling of interests method of accounting.
</FN>
</TABLE>
