UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1999
Commission file number 1-3939
KERR-MCGEE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 73-0311467
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
KERR-MCGEE CENTER, OKLAHOMA CITY, OKLAHOMA 73125
(Address of principal executive offices)
Registrant's telephone number, including area code: (405)270-1313
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------------------- ------------------------
Common Stock $1 Par Value New York Stock Exchange
Preferred Share Purchase Right
8-1/2% Sinking Fund Debentures,
Due June 1, 2006 New York Stock Exchange
7-1/2% Convertible Subordinated
Debentures Due May 15, 2014 New York Stock Exchange
5-1/2% Exchangeable Notes
Due August 2, 2004 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $4.2 billion as of February 29, 2000.
The number of shares of common stock outstanding as of February 29, 2000, was
94,135,511.
DOCUMENTS INCORPORATED BY REFERENCE
Specified sections of the Kerr-McGee Corporation 1999 Annual Report to
Stockholders, as described herein, are incorporated by reference in Parts I and
II of this Form 10-K. The definitive Proxy Statement for the 2000 Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1999, is incorporated by reference in Part
III of this Form 10-K.
KERR-McGEE CORPORATION
PART I
Items 1. and 2. Business and Properties
GENERAL DEVELOPMENT OF BUSINESS
Kerr-McGee Corporation, an energy and chemical company, had its
beginning in 1929 with the formation of Anderson & Kerr Drilling Company. The
company was incorporated in Delaware in 1932. With oil and gas exploration and
production as its base, the company has expanded into titanium dioxide pigment
manufacturing and marketing and minerals, mining and marketing. Kerr-McGee owns
a large inventory of natural resources that includes oil and gas reserves and
chemical and mineral deposits.
For a discussion of recent business developments, reference is made to
the "Kerr-McGee/Oryx Merger" section of Management's Discussion and Analysis in
the 1999 Annual Report to Stockholders, which discussion is incorporated by
reference in Item 7, and the Exploration and Production discussion included in
this Form 10-K. Additionally, business developments subsequent to year-end 1999
are discussed in Note 25 to the Consolidated Financial Statements in the 1999
Annual Report, which note is incorporated by reference in Item 8, and the
Exploration and Production and Chemicals discussions in this Form 10-K.
INDUSTRY SEGMENTS
For information as to business segments of the company, reference is
made to Note 24 to the Consolidated Financial Statements in the 1999 Annual
Report to Stockholders, which note is incorporated by reference in Item 8.
EXPLORATION AND PRODUCTION
Kerr-McGee Corporation manages oil and gas operations worldwide. The
company acquires leases and concessions and explores for, develops, produces and
markets crude oil and natural gas through its subsidiaries, Kerr-McGee Oil & Gas
Corporation, Kerr-McGee Oil and Gas Onshore LLC, Kerr-McGee Oil (U.K.) PLC,
Kerr-McGee North Sea (U.K.) Limited, Kerr-McGee Resources (U.K.) Limited,
Kerr-McGee China Petroleum Ltd. and various other subsidiaries.
The areas of Kerr-McGee's offshore oil and gas exploration and/or
production activities are the Gulf of Mexico, North Sea, Australia, Brazil,
China, Thailand and Gabon. Onshore exploration and/or production operations are
in the United States, Indonesia, the United Kingdom, Kazakhstan, Algeria,
Ecuador, and Yemen.
- -------------
Except as indicated under Items 1 through 3, 5 through 8 and 10 through
14, no other information appearing in either the company's 1999 Annual Report to
Stockholders or its 2000 Proxy Statement is deemed to be filed as part of this
annual report on Form 10-K.
The merger of Kerr-McGee Corporation and Oryx Energy Company was
completed on February 26, 1999. The merger created one of the largest U.S.-based
independent oil and gas exploration and production companies based upon
reserves. The combination resulted in significant additions to Kerr-McGee's core
exploration and production operations in the United States and the North Sea and
further contributed to the company's international exploration and production
efforts. All prior period amounts in this report have been restated to reflect
the combined company as though it had always been in existence.
Kerr-McGee's average daily oil production during 1999 was 196,900
barrels, an increase of 14% from 1998. Kerr-McGee's average oil price was $17.15
per barrel in 1999, compared with $12.52 per barrel for 1998.
During 1999, natural gas sales averaged 580 million cubic feet per day,
down 1% from 1998 sales. The 1999 average natural gas price was $2.35 per
thousand cubic feet, compared with $2.12 per thousand cubic feet for 1998.
Kerr-McGee continued to add to its worldwide acreage inventory in 1999.
Gross acreage at year-end 1999 was more than 43 million acres, an increase of 7%
compared with year-end 1998.
Costs Incurred, Results of Operations, Sales Prices, Production Costs and
- --------------------------------------------------------------------------------
Capitalized Costs
- -----------------
Reference is made to Notes 26, 27 and 28 to the Consolidated Financial
Statements in the 1999 Annual Report to Stockholders, which notes are
incorporated by reference in Item 8. These notes contain information on the
costs incurred in crude oil and natural gas activities for each of the past
three years; results of operations from crude oil and natural gas activities,
average sales prices per unit of crude oil and natural gas, and production costs
per barrel of oil equivalent (BOE) for each of the past three years; and
capitalized costs of crude oil and natural gas activities at December 31, 1999
and 1998.
Reserves
- --------
Kerr-McGee's estimated proved crude oil, condensate, natural gas
liquids and natural gas reserves at December 31, 1999, and the changes in net
quantities of such reserves for the three years then ended are shown in Note 29
to the Consolidated Financial Statements of the 1999 Annual Report to
Stockholders, which note is incorporated by reference in Item 8.
From time to time reports are filed with the United States Department
of Energy relating to the company's reserves. The reserves reported in the Notes
to Financial Statements are consistent with other filings pertaining to proved
net reserves. Minor differences in gas volumes occur due to different pressure
bases being required in the reports. However, the difference in estimates does
not exceed 5% of the total estimated reserves.
Undeveloped Acreage
- -------------------
As of December 31, 1999, the company had interests in undeveloped oil
and gas leases in the Gulf of Mexico, onshore United States, the United Kingdom
and Danish sectors of the North Sea and onshore and offshore in other
international areas as follows:
Gross Net
Location Acreage Acreage
- -------- ------- -------
United States -
Offshore 1,733,934 1,066,349
Onshore 886,304 494,069
---------- ----------
2,620,238 1,560,418
---------- ----------
North Sea 1,673,217 860,797
---------- ----------
Other international -
Yemen 9,879,761 4,724,346
Australia 8,175,232 3,642,818
Thailand 4,861,797 4,132,526
Brazil 3,877,510 1,388,137
Gabon 3,115,997 436,240
Kazakhstan 2,248,000 2,248,000
Algeria 1,878,587 1,878,587
China 733,901 345,824
Ecuador 484,326 242,163
---------- ----------
35,255,111 19,038,641
---------- ----------
Total 39,548,566 21,459,856
========== ==========
Developed Acreage
- -----------------
At December 31, 1999, the company had interests in developed oil and
gas acreage in the Gulf of Mexico, onshore United States, the United Kingdom
sector of the North Sea, and onshore and offshore in other international areas
as follows:
Gross Net
Location Acreage Acreage
- -------- --------- ---------
United States -
Offshore 672,118 319,138
Onshore 858,371 477,381
--------- ---------
1,530,489 796,519
--------- ---------
North Sea 451,674 105,209
--------- ---------
Other international -
Indonesia 1,724,629 517,389
Ecuador 494,210 247,105
China 78,332 19,191
Kazakhstan 1,000 1,000
--------- ---------
2,298,171 784,685
--------- ---------
Total 4,280,334 1,686,413
========= =========
Net Exploratory and Development Wells
- -------------------------------------
Domestic and international exploratory and development wells drilled
during the three years ended December 31, 1999, are as follows.
1999 1998 1997
---- ----- -----
Exploratory Wells - Net(1)
United States
Productive 1.70 3.40 6.65
Dry holes 2.15 6.73 5.65
---- ----- -----
3.85 10.13 12.30
---- ----- -----
North Sea
Dry holes .80 2.05 .40
---- ----- -----
Other international
Productive - 1.00 1.00
Dry holes .80 5.64 1.37
---- ----- -----
.80 6.64 2.37
---- ----- -----
Total 5.45 18.82 15.07
==== ===== =====
The above 1999 net well count does not include 5.77 successful net
wells (3.15 United States, 1.0 North Sea and 1.62 Other international) that were
drilled in 1999 but are currently suspended.
1999 1998 1997
----- ----- ------
Development Wells - Net(1)
United States
Productive 34.87 46.99 81.11
Dry holes 5.38 8.00 6.00
----- ----- ------
40.25 54.99 87.11
----- ----- ------
North Sea
Productive 9.31 10.77 5.55
Dry holes .51 - -
----- ----- ------
9.82 10.77 5.55
----- ----- ------
Other international
Productive 2.05 4.54 9.12
Dry holes - 1.00 1.00
----- ----- ------
2.05 5.54 10.12
----- ----- ------
Total 52.12 71.30 102.78
===== ===== ======
(1)Net Wells - The total of the company's fractional working interests in "gross
wells" expressed as the equivalent number of full-interest wells.
Gross and Net Wells
- -------------------
The number of productive oil and gas wells in which the company had an
interest at December 31, 1999, is shown in the following table. These wells
include 2,069 gross or 938.55 net wells associated with improved recovery
projects and 274 gross or 168.38 net wells that have multiple completions but
are included as single wells.
Gross Net
Location Wells Wells
- -------- ----- --------
Crude Oil
United States 2,514 1,273.21
North Sea 306 79.14
Ecuador 54 19.17
China 25 6.13
Kazakhstan 16 8.00
Indonesia 25 7.50
----- --------
2,940 1,393.15
----- --------
Natural Gas
United States 856 530.81
North Sea 45 3.48
----- --------
901 534.29
----- --------
Total 3,841 1,927.44
===== ========
Wells in Process of Drilling
- ----------------------------
At year-end 1999, the company had wells classified as temporarily
suspended or in the process of drilling as follows:
Gross Net
Wells Wells
----- -----
United States 32 13.54
North Sea 24 11.67
Indonesia 17 5.10
China 5 4.09
Ecuador 4 2.00
Australia 5 1.25
Kazakhstan 2 1.00
-- -----
Total 89 38.65
== =====
Crude Oil and Natural Gas Sales
- -------------------------------
The following table summarizes the sales of the company's crude oil and
natural gas production for the past three years:
(Millions) 1999 1998 1997
-------- ------ --------
Crude oil and condensate - barrels
United States 29.0 24.2 25.8
North Sea 38.4 31.8 30.5
Other international 5.4 6.8 6.6
-------- ------ --------
72.8 62.8 62.9
======== ====== ========
Crude oil and condensate
United States $ 483.2 $307.6 $ 472.8
North Sea 687.1 411.0 578.3
Other international 77.7 67.8 101.1
-------- ------ --------
$1,248.0 $786.4 $1,152.2
======== ====== ========
Natural gas - MCF
United States 191.0 197.3 235.2
North Sea 20.7 15.7 14.9
-------- ------ --------
211.7 213.0 250.1
======== ====== ========
Natural gas
United States $ 454.5 $413.2 $ 571.9
North Sea 43.8 38.7 36.4
-------- ------ --------
$ 498.3 $451.9 $ 608.3
======== ====== ========
Sales of Production
- -------------------
All of the company's crude oil and natural gas is sold at market
prices. Kerr-McGee has formed strategic alliances with several energy marketing
companies to sell substantially all of its domestic crude oil and natural gas
production. International crude oil and natural gas is sold both under contract
and through spot market sales in the geographic area of production.
Improved Recovery
- -----------------
The company continues to initiate and/or participate in improved
recovery projects where geological, engineering and economic conditions are
favorable. As of December 31, 1999, the company was participating in 39 active
improved recovery projects located principally in Texas, Oklahoma, New Mexico
and the United Kingdom sector of the North Sea. Most of the company's improved
recovery operations incorporate water injection.
Exploration and Development Activities
- --------------------------------------
Gulf of Mexico
Since 1947, the Gulf of Mexico has been a focal area for Kerr-McGee,
and represented 40% of Kerr-McGee's oil and gas production in 1999. The
company's scale of operations significantly increased during 1999 with the
merger of the Oryx assets. Kerr-McGee is now positioned as one of the largest
independent producers in the Gulf of Mexico and has significantly expanded its
deepwater exploration, exploitation and production activities.
This deepwater strategy has begun to yield results, with 10 successful
discovery and appraisal wells drilled in water depths greater than 600 feet in
1999. Discoveries for 1999 include the Kerr-McGee operated Nansen (50% K-M
interest), Boomvang (30%) and West Boomvang (30%) prospects, where plans call
for further appraisal drilling into 2000 followed by development drilling and
facility installation. First production from these fields is anticipated in the
first half of 2002. Discoveries were also made in Garden Banks blocks 200,
108/152 and 184. The Garden Banks 108/152 (45%) wells were completed in 1999 and
have begun production. Garden Banks 184 (50%) block is expected to be brought on
production in 2000 and Garden Banks 200 (25%) block should begin production by
the first quarter of 2001.
Also in 1999, Kerr-McGee added 241,473 net acres to its deepwater lease
inventory through federal lease sales. All of these leases are in water depths
greater than 600 feet. Additional acreage was also added through acquisitions
and trades. The aggressive exploration drilling program initiated in mid-1999 is
expected to continue, with anticipated drilling of 8 to 10 deepwater exploratory
wells in 2000.
During 1999, three new fields began production in the Gulf of Mexico. A
summary of these and other major producing fields is as follows:
Main Pass 162 (35%): First gas production from the Main Pass 162 Field
began in September 1999. This two-well platform development located in 91 feet
of water was producing approximately 14 million gross cubic feet of gas per day
at year-end.
Garden Banks 108 (45%): First production from this Kerr-McGee-operated
field began in December 1999. The field was developed with a single subsea well
tied back to the Kerr-McGee operated Garden Banks 65 Field. The well tested at a
gross production rate of 6.7 million cubic feet of gas per day, which was
constrained by facility capacity.
Garden Banks 152 (45%): This Kerr-McGee-operated block came on line
during December 1999 via a single subsea well tied back to the Garden Banks 65
Field. Initial production from this well was 20 million gross cubic feet of gas
per day.
Baldpate Field, Garden Banks 260 Area (50%): Average 1999 production
from the Baldpate Field, inclusive of the Penn State Field subsea satellite well
(50%), was 43,000 barrels of oil per day and 167 million cubic feet of gas per
day. At year-end there were seven platform wells and one subsea well producing
approximately 56,000 barrels of oil per day and 210 million cubic feet of gas
per day. Plans include drilling one additional platform well, which was
commenced in early 2000. The field is located in 1,690 feet of water and is
producing from an articulated compliant tower.
Neptune Field, Viosca Knoll 826 Area (50%): Average 1999 production
from the Neptune Field was 28,000 barrels of oil per day and 26 million cubic
feet of gas per day from the world's first production spar. Production was from
10 platform wells and two subsea wells. One of the subsea wells was drilled in
1999 and was producing 4,000 barrels of oil per day at year-end.
Pompano Field, Viosca Knoll 989 Area (25%): Average 1999 field
production was 45,700 barrels of oil per day and 56 million cubic feet of gas
per day. At year-end there were 29 platform and subsea wells contributing to the
production. Plans for a multiwell drilling program in early 2000 have been
approved.
Other significant development activities in the Gulf of Mexico include:
1) Garden Banks 184 Field (50%): The project is a one-well subsea
tieback with expected first production in the third quarter of
2000.
2) Conger Field, Garden Banks 215 (25%): This three-well subsea
development is currently under construction with anticipated
startup in the fourth quarter 2000.
3) Northwestern Field, Garden Banks 200 (25%): This two well
subsea tieback project is proceeding towards first production
expected by the first quarter of 2001.
U.S. Onshore
The Oryx merger in 1999 resulted in Kerr-McGee's re-entry in the U.S.
onshore environment with production operations in Texas, Oklahoma, New Mexico
and Louisiana. In 1999, company's the onshore average production rate was 18,600
barrels of oil per day and 170 million cubic feet of gas per day. At the end of
1999, the onshore reserve base represented 22% of Kerr-McGee's total worldwide
reserves.
Following is a summary of key U.S. onshore developments:
Indian Basin Field, Eddy County, New Mexico (55%): Four wells were
drilled and four workovers completed during 1999, resulting in an incremental
net production increase of 8.5 million cubic feet of gas per day. Kerr-McGee net
production from the total field was 22.3 million cubic feet of gas per day in
1999. Additional development is planned for 2000.
Double A Wells Field, Polk County, Texas (40%): The 3-D seismic data
acquired in 1999 was instrumental in generating 1999 drilling opportunities, as
well as providing an understanding of the geological framework for this field.
Two wells were completed during 1999 with a combined gross production rate of 16
million cubic feet of gas per day. Kerr-McGee's net production from the field
was 1,100 barrels of oil per day and 23 million cubic feet of gas per day. Field
development will continue during 2000.
South Texas Fields (80%): Eleven wells were completed during 1999, with
initial rates totaling 20 million cubic feet of gas per day net to Kerr-McGee.
Acquisition of 3-D seismic data covering 14,000 acres of leasehold in Starr
County began in January 2000. Kerr-McGee net production from the area is 600
barrels of oil per day and 29 million cubic feet of gas per day.
Mocane-Laverne Field, Harper and Beaver Counties, Oklahoma (60%): This
continues to be an area of active development for Kerr-McGee. The 1999
development program consisted of 17 wells to develop approximately 8.5 billion
cubic feet of net gas reserves. The field currently has a reserve-to-production
ratio of 12 years. Kerr-McGee's net production from the area is 15 million cubic
feet of gas per day.
North Sea
Kerr-McGee has been active in the North Sea area since 1976. As of
December 31, 1999, following the merger with Oryx, Kerr-McGee had interests in
27 United Kingdom producing fields. The company's average daily sales in the
North Sea increased by 22% from 1998 levels to 114,700 barrels of oil equivalent
per day. In 1999, North Sea production represented more than 52% of the
company's worldwide liquids production and 10% of its gas sales.
On January 18, 2000, the company completed the purchase of Repsol
S.A.'s upstream oil and gas operations in the United Kingdom sector of the North
Sea. The former Repsol properties are expected to add daily production of about
30,000 barrels of oil equivalent and proved reserves of 96 million barrels of
oil equivalent.
The company's North Sea exploration program consisted of six wells in
1999, including a discovery drilled on the South Leadon prospect. In addition,
seismic data was acquired over the Leadon area and over Kerr-McGee's Denmark
acreage.
Following is a summary of the company's four key developments in the
North Sea, which contribute approximately 60% of the region's total net
production. All four fields are operated by Kerr-McGee:
Janice Field, block 30/17a (50.9%): First production from Janice was
achieved in February 1999 with initial production rates exceeding expectations.
In 1999, the Janice field produced an average of 41,000 barrels of oil per day
and more than 5 million cubic feet of gas per day.
Ninian Field, blocks 3/3 and 3/8 (44.9%): Ninian Field consists of two
steel and one concrete jacket platforms producing from a combination of 82
producing and injection wells. Oil is exported to the Sullom Voe Terminal.
During 1999, the field produced an average of more than 42,000 barrels of oil
per day. In 1999, Ninian also achieved record low operating costs, which were
50% lower than those incurred in the early 1990s.
Murchison Field, block 211/19a (68.72%): Murchison Field production is
via a steel jacket platform with oil exported to the Sullom Voe Terminal and gas
exported to the St. Fergus Terminal. In 1999, Murchison produced more than
21,300 barrels of oil equivalent per day. A successful six-well, in-fill
drilling program was completed on Murchison in 1999.
Gryphon Field, block 9/18b (61.5%): Gryphon was the first field in the
North Sea to use a permanently moored floating production, storage and
offloading (FPSO) vessel. The company's interest in Gryphon increased from 46.5%
to 61.5% as a result of a 1999 asset swap. In 1999, the field production
averaged more than 20,400 barrels of oil per day.
Other International
In 1999, Kerr-McGee continued its exploration and production efforts by
strategically expanding into selected international areas. A summary of
developments follows:
Indonesia:
Jabung block (30%), Sumatra: This 1.7 million-acre block consists of
five proven oil and gas fields. Two fields are currently on production, while
the remaining fields are expected to commence production from late 2000 to 2002.
Production from the Jabung block averaged 10,300 gross barrels of oil per day in
1999.
Appraisal work on the Northeast Betara, North Betara and Gemah Fields
(30%) was completed in 1999. On January 7, 2000, the Indonesian government
approved development plans incorporating oil, gas, condensate and LPG from all
five fields. Several exploratory prospects are planned for 2000 in addition to
an active development drilling schedule.
China:
Liuhua 11-1 Field (24.5%), South China Sea: In production since 1996,
this field has been developed entirely with horizontal wells. Gross production
averaged 21,200 gross barrels of oil per day in 1999.
Block 04/36 (81.8%), Bohai Bay: Kerr-McGee acquired its pro rata share
of Murphy Petroleum's interest in the block and drilled the successful CFD
11-1-1 exploratory well during 1999. More than 280 feet of oil pay was
encountered over five zones. A second exploratory appraisal well was started in
late December. This well has encountered approximately 210 feet of oil pay in
the same formations. Plans for 2000 include further appraisal drilling and a 3-D
seismic survey.
Block 05/35 (50%), Bohai Bay: An exploratory well is planned for this
block during 2000 to test the same play concept on trend with Block 04/36.
Thailand:
Block W7/38 (85%), Andaman Sea: Kerr-McGee is the operator of this 4.9
million-acre block. Seismic evaluation work was completed in 1999.
Algeria:
Kerr-McGee has a 100% interest in 1.9 million acres in Blocks 210 and
235. Seismic data was acquired in 1999, and an exploratory well is planned for
late 2000.
Kazakhstan:
Arman JV (50%): The Arman Field lies along the eastern coastline of the
Caspian Sea approximately 300 kilometers north of Aktau. In 1999, gross
production averaged 4,400 barrels of oil per day.
Caspian Pipeline Consortium (1.75%): The Caspian Pipeline Consortium
Project consists of the construction of a pipeline from the Caspian Sea to the
Black Sea in order to increase the export capacity from western Kazakhstan. In
1999 pipeline installation and marine terminal construction commenced.
Completion is anticipated for mid to late 2001.
Mertvyi Kultuk (100%): The company-operated Mertvyi Kultuk block
contains approximately 2.25 million acres and is located in the Ust-Yurt Basin
along the northeastern shore of the Caspian Sea in Kazakhstan. The 1999
activities included civil construction and further 3-D seismic interpretation in
preparation for 2000 exploration drilling.
Gabon:
Anton and Astrid Marin Blocks (14%): Located offshore along the
southern coast of Gabon, the Anton Marin and Astrid Marin blocks total 3.1
million acres in water depths ranging from 6,000 feet to more than 10,000 feet.
Activities in 1999 included completion of a 3-D seismic program, initiation of
conceptual development and drilling efficiency studies. Exploration drilling is
expected to commence in late 2000.
Yemen:
Blocks 50 (47.5%) and 51 (43.8%): These exploration blocks cover nearly
10 million acres. In 1999, Kerr-McGee completed exploration commitments on both
blocks. Kerr-McGee expects to acquire additional seismic data on these blocks in
2000 to further evaluate potential prospective areas. Exploratory drilling is
anticipated in 2001.
Brazil:
Block BS-1 (40%), Santos Basin: Kerr-McGee, as operator, and Exxon have
farmed into this Petrobras concession. A 3-D seismic program is planned for 2000
with a well expected to be drilled in early 2001.
Block BM-S-3 (30%), Santos Basin: Kerr-McGee and its partners were
successful bidders on this National Petroleum Agency first bid round block in
June 1999. A 3-D seismic program is planned for 2000 with an exploratory well
proposed for 2001.
Ecuador:
Block 7 (494,000 acres): Coca-Payamina (23%), Gacela, Lobo, Jaguar and
Mono (all 50%) comprise Kerr-McGee's producing fields in this block. Production
averaged approximately 13,500 gross barrels of oil per day in 1999. Kerr-McGee
completed negotiations with the Ecuadorian government and signed an agreement on
March 23, 2000, to convert the previous service contract to a participation
contract. The participation contract is projected to become effective April 1.
The Kerr-McGee Coca-Payamino working interest will increase from 23% to 50%.
Block 21 (50%) (494,000 acres): Appraisal drilling of the Yuralpa
structure was completed in 1999, and a plan of development is anticipated to be
filed with the Ecuadorian government by mid-2000. Two additional exploration
wells are planned in 2000, which would complete the drilling commitment on this
block.
OCP Pipeline: Kerr-McGee is a member of a consortium that is evaluating
the installation of a new pipeline system planned in Ecuador. This pipeline
should increase the Ecuador production capacity by approximately 250,000 to
300,000 barrels of oil per day, allowing for the continued expansion of the
already active Oriente Basin.
Australia:
Bayu-Undan Field (11.2%): The Bayu-Undan gas-condensate field is
located in the Zone of Cooperation Area of the Timor Sea between Australia and
East Timor. During 1999, a development plan was approved by unit participants
and submitted for regulatory approval. Project sanction was received from
regulatory agencies in February 2000. First production is expected in late 2003.
NTP-54 (45%): Kerr-McGee is the operator of the 2.3 million acre block.
The 1999 activities included acquisition and interpretation of 2-D seismic data.
There are no well commitments on this block. Activities anticipated for 2000
include a second phase of seismic data acquisition.
WA 276-P, WA 277-P and WA 278-P (39%): Kerr-McGee operates these three
contiguous blocks comprising 1.8 million acres in the southern Bonaparte Basin.
The 1999 activities included acquisition and interpretation of 2-D seismic data.
Plans for 2000 are to drill four exploratory commitment wells on these three
blocks.
CHEMICALS
Kerr-McGee Corporation's chemical operations consist of two segments
(pigment and other) that produce and market inorganic industrial and specialty
chemicals, heavy minerals and forest products through its subsidiaries,
Kerr-McGee Chemical LLC, KMCC Western Australia Pty. Ltd., Kerr-McGee Pigments
GmbH & Co. KG, Kerr-McGee Pigments N.V. and Kerr-McGee Pigments Limited. Many of
these products are processed using proprietary technology developed by the
company.
Industrial chemicals include titanium dioxide pigment, synthetic
rutile, manganese products and sodium chlorate. Specialty chemicals are boron
trichloride and elemental boron. Heavy minerals produced are ilmenite, synthetic
and natural rutile, zircon and leucoxene. Forest products operations treat
railroad crossties and other hardwood products and provide wood-treating
services.
On February 14, 2000, the company reached definitive agreements, subject to
government approvals, with Kemira Oyj of Finland to purchase its titanium
dioxide pigment operations in Savannah, Georgia, and Botlek, the Netherlands for
$403 million. Both plants use Kerr-McGee's proprietary chloride technology, and
the Savannnah plant also produces titanium dioxide pigment by the sulfate
process.
Pigment
The company's primary chemical product is titanium dioxide pigment,
which is produced at four titanium dioxide (TiO2) plants located in the United
States, Australia, Germany and Belgium. The plants in Hamilton, Mississippi, and
Kwinana, Western Australia, manufacture TiO2 using the company's proprietary
chloride-process technology. The plants in Uerdingen, Germany, and Antwerp,
Belgium, produce TiO2 using the sulfate process.
The company's TiO2 plant at Hamilton, Mississippi, has a production
capacity of 188,000 tonnes per year. A plant expansion completed in the third
quarter of 1999 increased the facility's annual production capacity by 25% or
38,000 tonnes. The feedstock for the Hamilton plant is synthetic rutile from the
company's plant at Mobile, Alabama. The annual production capacity at Mobile is
200,000 tonnes.
The company also owns an 80% interest in TiO2 plants in Uerdingen,
Germany, and Antwerp, Belgium. The annual capacity for the Uerdingen plant is
100,000 tonnes and for the Antwerp plant is 30,000 tonnes.
The company owns a 50% interest in a joint venture that operates an
integrated TiO2 project located within 120 miles of Perth, Western Australia.
The project consists of a heavy-minerals mine and mill and facilities for
production of synthetic rutile and TiO2.
Heavy minerals are mined from 20,793 acres that are leased by the
Western Australia joint venture. The company's 50% interest in the property's
remaining in-place proven and probable reserves is 5.8 million tonnes of heavy
minerals containing 161 million tonnes of sand averaging 3.6% heavy minerals.
The valuable heavy minerals are composed of 4.4% rutile, 60.6% ilmenite, 3.3%
leucoxene and 10.9% zircon, with the remaining 20.8% of heavy minerals presently
having no value.
The heavy minerals are processed at the 675,000 tonne-per-year
separation mill. The recovered ilmenite is processed into synthetic rutile at an
adjoining synthetic rutile facility, which has a capacity of 195,000 tonnes per
year. The production from the synthetic rutile plant serves as feedstock for the
pigment plant in Kwinana, Western Australia. The annual production capacity of
the pigment plant in Kwinana, Western Australia, is 85,000 tonnes, in which the
company owns a 50% interest.
Information regarding heavy-mineral reserves, production and average
prices for the three years ended December 31, 1999, is presented in the
following table. Mineral reserves in this table represent the estimated
quantities of proved and probable ore that, under presently anticipated
conditions, may be profitably recovered and processed for the extraction of
their mineral content. Future production of these resources is dependent on many
factors, including market conditions and government regulations.
(Thousands of tonnes) 1999 1998 1997
- --------------------- ----- ----- -----
Proved and probable (demonstrated)
reserves 5,800 5,600 5,900
Production 199 209 212
Average market price (per tonne) $131 $124 $140
The company also owns a 25% equity interest in a TiO2 plant in Yanbu,
Saudi Arabia. The plant uses the company's proprietary chloride process in its
manufacturing process and has a total production capacity of 67,000 tonnes.
Other Products
Electrolytic Products - Facilities at the Hamilton, Mississippi,
complex include a sodium chlorate plant with a production capacity of 130,000
tonnes per year and a manganese metal plant that has an annual capacity of
11,000 tonnes.
The Henderson, Nevada, facilities include electrolytic cells and
processing equipment for the manufacture of manganese dioxide and a specialty
boron products plant. Annual production capacity for each product is as follows:
manganese dioxide - 26,500 tonnes; boron trichloride - 340,000 kilograms; and
elemental boron - 36,000 kilograms.
Forest Products - The principal forest product is treated railroad
crossties. Other products include crossing materials, bridge timbers and utility
poles. The company's six operating wood-preserving plants are located along
major railways in Madison, Illinois; Indianapolis, Indiana; Columbus,
Mississippi; Springfield, Missouri; The Dalles, Oregon; and Texarkana, Texas.
Marketing
Pigment - Titanium dioxide pigment is the world's preferred white
opacifier and is used primarily in coatings, plastics and paper. The company's
plant at Hamilton, Mississippi, primarily serves the Americas. Most of the
pigment production from the joint venture in Kwinana, Western Australia, is sold
in the Far East and Australia. The production from the Uerdingen, Germany, and
Antwerp, Belgium, operations is primarily sold in Europe. Kerr-McGee's annual
TiO2 sales represented about 10% of global consumption. World demand for
pigments is expected to increase at an average rate of 2.5 to 3% per year over
the next five years.
Other - Manganese dioxide is a major component of alkaline batteries.
The company's share of the North American manganese dioxide market is
approximately one-third. Demand is projected to grow 5% to 8% annually for the
next five years. The demand is driven by the need for alkaline batteries for
portable electronic devices.
Sodium chlorate is used in the environmentally preferred chlorine
dioxide process for bleaching pulp. Sodium chlorate demand in the United States
is expected to increase approximately 5% annually in the near term as the pulp
and paper industry continues the conversion to the chlorine dioxide process. The
company has about a 7% share of the U.S. market.
Manganese metal is used in aluminum, specialty and stainless steel
alloys. The primary use of manganese metal is for alloying aluminum can sheet.
The company supplies approximately 40% of the U.S. aluminum industry manganese
requirements.
Kerr-McGee is the largest producer of boron trichloride, which is used
to produce boron filament for sports equipment and composites for
high-performance aircraft, pharmaceuticals and semi-conductors.
The company's share of the U.S. railroad crosstie market is 33%.
Domestic crosstie demand is expected to remain relatively flat at about 13
million to 15 million ties per year.
OTHER
Research and Development
- ------------------------
The company's Technical Center in Oklahoma City performs research and
development in support of its existing businesses and in the pursuit of new
products and processes. These programs continue to concentrate on improvements
to chemical plant processes and products.
Employees
- ---------
On December 31, 1999, the company had 3,653 employees. Approximately
600, or 17% of these employees, were represented by chemical industry collective
bargaining agreements in Europe.
Competitive Conditions
- ----------------------
In the petroleum industry, competition exists from the initial process
of bidding for leases to the sale of crude oil and natural gas. Competitive
factors include finding and developing petroleum, producing crude oil and
natural gas efficiently, transporting the produced crude oil and natural gas,
and developing successful marketing strategies.
The titanium dioxide pigment business is very competitive. The number
of competitors in the industry has declined due to recent consolidations, a
trend that is expected to continue as companies owning chloride process
technology acquire operations that use the older sulfate technology. It is
expected that many of these sulfate plants will be converted to the chloride
technology. Worldwide, Kerr-McGee is one of only four companies that own
chloride technology to produce titanium dioxide pigment. Cost efficiencies and
product quality are key competitive factors in the titanium dioxide pigment
business.
It is not possible to predict the effect of future competition on
Kerr-McGee's operating and financial results.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL RESERVES
General
- -------
The company is subject to extensive regulation by federal, state, local
and foreign governments. The production and sale of crude oil and natural gas in
the United States are subject to regulation by federal and state authorities,
particularly with respect to allowable rates of production, offshore exploration
and production, and environmental matters. Stringent environmental-protection
laws and regulations apply to almost all of the company's operations. In
addition, there are special taxes that apply to the oil and gas industry.
Environmental Matters
- ---------------------
Federal, state and local laws and regulations relating to environmental
protection affect almost all company operations. During 1999, direct capital and
operating expenditures related to environmental protection and cleanup of
existing sites totaled $22 million. Additional expenditures totaling $121
million were charged to environmental reserves. While it is extremely difficult
to estimate the total direct and indirect costs to the company of government
environmental regulations, it is presently estimated that the direct capital and
operating expenditures and expenditures charged to reserves will be
approximately $145 million in 2000 and $120 million in 2001. Some expenditures
to reduce the occurrence of releases to the environment may result in increased
efficiency; however, most of these expenditures produce no significant increase
in production capacity, efficiency or revenue. Operation of pollution-control
equipment installed for these purposes usually entails additional expense.
Environmental laws and regulations 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 the Comprehensive
Environmental Response, Compensation, and Authority Act of 1980.
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 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; and
- the continually changing nature of environmental laws and regulations,
and the uncertainty inherent in legal matters.
The company believes that currently it 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.
Also see "Item 3. Legal Proceedings," which follows.
Item 3. Legal Proceedings
The company continues its efforts to decommission a facility in West
Chicago, Illinois, which processed thorium ores and was closed in 1973. For a
discussion of contingencies, including a detailed discussion of the West Chicago
matter, reference is made to the Environmental Matters section of Management's
Discussion and Analysis and Note 11 to the Consolidated Financial Statements in
the 1999 Annual Report to Stockholders, which are incorporated by reference in
Items 7 and 8, respectively.
Item 4. Submission of Matters to a Vote of Security Holders
None submitted during the fourth quarter of 1999.
Executive Officers of the Registrant
The following is a list of executive officers, their ages, and their
positions and offices as of March 1, 2000:
<TABLE>
<CAPTION>
Name Age Office
- ------------------- --- -------------------------------------------------------------------------------------
<S> <C> <C>
Luke R. Corbett 53 Chief Executive Officer since 1997. Chairman of the Board since May 1999 and from
1997 to February 1999. President and Chief Operating Officer from 1995 until 1997.
Tom J. McDaniel 61 Vice Chairman of the Board since 1997. Senior Vice President from 1986 until 1997.
Corporate Secretary from 1989 until 1997.
Robert M. Wohleber 49 Senior Vice President and Chief Financial Officer since December 1999. Prior to
joining the company in 1999, served as Executive Vice President and Chief Financial
Officer of Freeport-McMoran Exploration Company, President and Chief Executive
Officer of Freeport-McMoRan Sulfur and Senior Vice President of Freeport-McMoRan
Gold and Copper Corporation.
Kenneth W. Crouch 56 Senior Vice President since 1996. Senior Vice President, Worldwide Exploration and
Production operations since 1998. Senior Vice President, Exploration, Kerr-McGee
Oil & Gas Corporation from 1996 to 1998. Senior Vice President, North American and
International Exploration, Exploration and Production Division during 1996. Vice
President, Gulf of Mexico and International Exploration, Exploration and Production
Division from 1995 until 1996.
W. Peter Woodward 51 Senior Vice President since 1997. Senior Vice President for Kerr-McGee Chemical
since 1997. Senior Vice President Chemical Marketing for Kerr-McGee Chemical
Corporation from May 1996 until 1997. Director Pigment Business Management,
Kerr-McGee Chemical Corporation from 1993 until 1996.
Michael G. Webb 52 Senior Vice President for Strategic Planning since 1996. Senior Vice President since
1994. Senior Vice President, Exploration, Exploration and Production Division from
1994 until 1996.
Gregory F. Pilcher 39 Vice President and General Counsel since May 1999. Corporate Secretary since
September 1999. Deputy General Counsel for Business Transactions from 1998 to 1999.
Associate/Assistant General Counsel for Litigation and Civil Proceedings from 1996
to 1998.
George D. Christiansen 55 Vice President, Safety and Environmental Affairs since March 1998. Vice President,
Environmental Assessment and Remediation from 1996 to 1998. Vice President, Minerals
Exploration, Hydrology and Real Estate from 1994 to 1996.
Julius C. Hilburn 49 Vice President, Human Resources since 1996. Manager, Benefits Administration from
1992 until 1996.
Deborah A. Kitchens 43 Vice President and Controller since 1996. Controller, Exploration and Production
Division from 1992 until 1996.
J. Michael Rauh 50 Treasurer since 1996. Vice President since 1987. Controller from 1987 until 1996.
Jean B. Wallace 46 Vice President, General Administration since 1996. Vice President, Human Resources
from 1989 until 1996.
</TABLE>
There is no family relationship between any of the executive officers.
FORWARD-LOOKING INFORMATION
Statements in this Form 10-K regarding the company's or management's
intentions, beliefs or expectations are forward-looking statements within the
meaning of the Securities Litigation Reform Act. Future results and developments
discussed in these statements may be affected by numerous factors and 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 value 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. Actual results and developments may
differ materially from those expressed or implied in this Form 10-K.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information relative to the market in which the company's common stock
is traded, the high and low sales prices of the common stock by quarters for the
past two years, and the approximate number of holders of common stock is
furnished in Note 31 to the Consolidated Financial Statements in the 1999 Annual
Report to Stockholders, which note is incorporated by reference in Item 8.
Quarterly dividends declared totaled $1.80 per share for the years
1999, 1998 and 1997. Cash dividends have been paid continuously since 1941 and
totaled $138 million in 1999, $86 million in 1998 and $85 million in 1997.
Item 6. Selected Financial Data
Information regarding selected financial data required in this item is
presented in the schedule captioned "Six-Year Financial Summary" in the 1999
Annual Report to Stockholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
"Management's Discussion and Analysis" in the 1999 Annual Report to
Stockholders is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
For information required under this section, reference is made to the
"Market Risks" section of Management's Discussion and Analysis in the 1999
Annual Report to Stockholders, which discussion is incorporated by reference
above.
Item 8. Financial Statements and Supplementary Data
The following financial statements and supplementary data included in
the 1999 Annual Report to Stockholders are incorporated herein by reference:
Report of Independent Public Accountants
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
and Stockholders' Equity
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Financial Statements
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of directors -
For information required under this section, reference is made to
the "Director Information" section of the company's proxy
statement for 2000 made in connection with its Annual
Stockholders' Meeting to be held on May 9, 2000.
(b) Identification of executive officers -
The information required under this section is set forth in the
caption "Executive Officers of the Registrant" on pages 18 and 19
of this Form 10-K pursuant to Instruction 3 to Item 401(b) of
Regulation S-K and General Instruction G(3) to Form 10-K.
(c) Compliance with Section 16(a) of the 1934 Act -
For information required under this section, reference is made to
the "Section 16(a) Beneficial Ownership Reporting Compliance"
section of the company's proxy statement for 2000 made in
connection with its Annual Stockholders' Meeting to be held on May
9, 2000.
Item 11. Executive Compensation
For information required under this section, reference is made to the
"Executive Compensation and Other Information" section of the company's proxy
statement for 2000 made in connection with its Annual Stockholders' Meeting to
be held on May 9, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information required under this section, reference is made to the
"Security Ownership" portion of the "Director Information" section of the
company's proxy statement for 2000 made in connection with its Annual
Stockholders' Meeting to be held on May 9, 2000.
Item 13. Certain Relationships and Related Transactions
For information required under this section, reference is made to the
"Director Information" section of the company's proxy statement for 2000 made in
connection with its Annual Stockholders' Meeting to be held on May 9, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements -
The following consolidated financial statements of Kerr-McGee
Corporation and its subsidiary companies, included in the company's
1999 Annual Report to Stockholders, are incorporated by reference in
Item 8:
Reports of Independent Public Accountants
Consolidated Statement of Income for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statement of Comprehensive Income and Stockholders'
Equity for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheet at December 31, 1999 and 1998
Consolidated Statement of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Financial Statements
(a) 2. Financial Statement Schedules -
Report of Independent Public Accountants on Financial Statement
Schedule
Schedule II - Valuation Accounts and Reserves for the Years Ended
December 31, 1999, 1998 and 1997
Schedules I, III, IV and V are omitted as the subject matter thereof is
either not present or is not present in amounts sufficient to require
submission of the schedules in accordance with instructions contained
in Regulation S-X.
(a) 3. Exhibits -
The following documents are filed under Commission file number 1-3939
as a part of this report.
Exhibit No.
-----------
Exhibit No.
3.1 Restated Certificate of Incorporation of Kerr-McGee
Corporation, filed as Exhibit 3.1 to the report filed
on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
3.2 Bylaws of Kerr-McGee Corporation as approved February
26, 1999, filed as Exhibit 3.2 to the report filed on
Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
4.1 Amended and Restated Rights Agreement dated as of July
9, 1996, filed as Exhibit 1 to the report on Form 8-K
dated July 9, 1996, and incorporated herein by
reference.
4.2 Indenture dated as of June 1, 1976, between the company
and Citibank, N.A., as trustee, relating to the
company's 8-1/2% Sinking Fund Debentures due June 1,
2006, filed as Exhibit 2 to Form S-7, effective June
10, 1976, Registration No. 2-53878, and incorporated
herein by reference.
4.3 Indenture dated as of November 1, 1981, between the
company and United States Trust Company of New York, as
trustee, relating to the company's 7% Debentures due
November 1, 2011 filed as Exhibit 4 to Form S-16,
effective November 16, 1981, Registration No. 2-772987,
and incorporated herein by reference.
4.4 Indenture dated as of August 1, 1982, filed as Exhibit
4 to Form S-3, effective August 27, 1982, Registration
Statement No. 2-78952, and incorporated herein by
reference, and first supplement thereto dated May 7,
1996, between the company and Citibank, N.A., as
trustee, relating to the company's 6.625% notes due
October 15, 2007, and 7.125% debentures due October 15,
2027, filed as Exhibit 4.1 to the Current Report on
Form 8-K filed July 27, 1999, and incorporated herein
by reference.
4.5 The $325 million Credit Agreement dated as of December
4, 1996, providing for a five-year revolving credit
facility with a bullet maturity on the fifth
anniversary of the execution of the Credit Agreement,
filed as Exhibit 4.5 to the report filed on Form 10-K
for the year ended December 31, 1997, and incorporated
herein by reference.
4.6 The company agrees to furnish to the Securities and
Exchange Commission, upon request, copies of each of
the following instruments defining the rights of the
holders of certain long-term debt of the company: the
Note Agreement dated as of November 29, 1989, among the
Kerr-McGee Corporation Employee Stock Ownership Plan
Trust (the Trust) and several lenders, providing for a
loan guaranteed by the company of $125 million to the
Trust; the Amended and restated Credit Agreement dated
as of April 26, 1998, among Kerr-McGee Corporation,
Kerr-McGee Oil (U.K.) PLC, and several banks providing
for revolving credit of up to $150 million through
April 28, 2002; the Revolving Credit Agreement dated as
of March 6, 2000, between Kerr-McGee China Petroleum
Ltd., as borrower, and Kerr-McGee Corporation, as
guarantor, and several banks providing for revolving
credit of up to $100 million through March 3, 2003; the
$76 million Credit Agreement dated May 15, 1998,
between Kerr-McGee Resources (U.K.) Limited, Kerr-McGee
Andrew Limited, Kerr-McGee Dorset Limited and various
banks providing for revolving credit; the $100 million,
8% Note Agreement entered into by Oryx Energy Company
(Oryx) dated as of October 20, 1995, and due October
15, 2003; the $150 million, 8.375% Note Agreement
entered into by Oryx dated as of July 17, 1996, and due
July 15, 2004; the $150 million, 8-1/8% Note Agreement
entered into by Oryx dated as of October 20, 1995, and
due October 15, 2005; the $11 million, 9-1/4% Series A
Note Agreement entered into by Oryx and due January 2,
2002; the $2.2 million, 9-1/2% Series A Note Agreement
entered into by Oryx and due February 1, 2002; the $150
million, 10% Note Agreement entered into by Oryx dated
as of April 10, 1991, and due April 1, 2001; and the
$150 million variable interest rate Note Agreement
dated as of November 1, 1999, and due November 1, 2001.
The total amount of securities authorized under each of
such instruments does not exceed 10% of the total
assets of the company and its subsidiaries on a
consolidated basis.
4.7 Kerr-McGee Corporation Direct Purchase and Dividend
Reinvestment Plan filed on Form S-3 effective August
19, 1993, Registration No. 33-66112, and incorporated
herein by reference.
4.8 The $250 million Credit Agreement dated as of February
26, 1999, providing for a 364- day revolving credit
facility, filed as Exhibit 4.8 to the report filed on
Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
4.9 The $500 million Credit Agreement dated as of February
26, 1999, providing for a three-year revolving credit
facility with a bullet maturity on the third
anniversary of the execution of the Credit Agreement,
filed as Exhibit 4.9 to the report filed on Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference.
4.10 Indenture dated as of May 15, 1989, by and between Oryx
Energy Company and Texas Commerce Bank N.A., as
trustee, relating to Oryx's 7-1/2% Convertible
Subordinated Debentures due May 15, 2014, filed as
Exhibit 4.1 to Oryx's Form S-1, effective May 5, 1989,
Registration No. 33-28494, and incorporated herein by
reference and the First Supplemental Indenture among
Oryx Energy Company, Kerr-McGee Corporation and Chase
Bank of Texas, N.A., as trustee, dated as of February
26, 1999, and filed as Exhibit 4.1 to Form 8-K filed
March 11, 1999, and incorporated herein by reference.
4.11 Second Supplement to the August 1, 1982, Indenture
dated as of August 2, 1999, between the company and
Citibank, N.A., as trustee, relating to the company's
5-1/2% exchangeable notes due August 2, 2004.
10.1* Deferred Compensation Plan for Non-Employee Directors
as amended and restated effective October 1, 1990,
filed as Exhibit 10(1) to the report filed on Form 10-K
for the year ended December 31, 1990, and incorporated
herein by reference.
10.2* Kerr-McGee Corporation Stock Deferred Compensation
Plan for Non-Employee Directors as amended and restated
effective August 1, 1995, filed as Exhibit 10.2 to the
report filed on Form 10-K for the year ended December
31, 1995, and incorporated herein by reference.
10.3* Description of the company's Annual Incentive
Compensation Plan, filed as Exhibit 10.3 to the report
filed on Form 10-K for the year ended December 31,
1995, and incorporated herein by reference.
10.4* The Long Term Incentive Program as amended and
restated effective May 9, 1995, filed as Exhibit 10.5
on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference.
10.5* Benefits Restoration Plan as amended and restated
effective September 13, 1989, filed as Exhibit 10(6) to
the report on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference.
10.6* Kerr-McGee Corporation Executive Deferred Compensation
Plan as amended and restated effective January 1, 1996,
filed as Exhibit 10.6 to the report on Form 10-K for
the year ended December 31, 1995, and incorporated
herein by reference.
10.7* Kerr-McGee Corporation Supplemental Executive
Retirement Plan as amended and restated effective May
3, 1994, filed as Exhibit 10.8 on Form 10-K for the
year ended December 31, 1994, and incorporated herein
by reference.
10.8* The Kerr-McGee Corporation Annual Incentive
Compensation Plan effective January 1, 1998, filed as
Exhibit 10.3 on Form 10-Q for the quarter ended March
31, 1998, and incorporated herein by reference.
10.9* The Kerr-McGee Corporation 1998 Long Term Incentive
Plan effective January 1, 1998, filed as Exhibit 10.4
on Form 10-Q for the quarter ended March 31, 1998, and
incorporated herein by reference.
10.10* Amended and restated Agreement, restated as of
December 31, 1992, between the company and John C.
Linehan filed as Exhibit 10(10) on Form 10-K for the
year ended December 31, 1992, and incorporated herein
by reference.
10.11* Amended and restated Agreement, restated as of
December 31, 1992, between the company and Luke R.
Corbett filed as Exhibit 10(11) on Form 10-K for the
year ended December 31, 1992, and incorporated herein
by reference.
10.12* Amended and restated Agreement, restated as of December
31, 1992, between the company and Tom J. McDaniel filed
as Exhibit 10.13 on Form 10-K for the year ended
December 31, 1994, and incorporated herein by
reference.
10.13* Amended and restated Agreement, restated as of December
31, 1992, between the company and Kenneth W. Crouch
filed as Exhibit 10.12 on Form 10-K for the year ended
December 31, 1997, and incorporated herein by
reference.
10.14* Form of agreement, amended and restated as of December
31, 1992, between the company and certain executive
officers not named in the Summary Compensation Table
contained in the company's definitive Proxy Statement
for the 1998 Annual Meeting of Stockholders, filed as
Exhibit 10(14) on Form 10-K for the year ended December
31, 1992, and incorporated herein by reference.
10.15* Oryx Energy Company Executive Retirement Plan as
amended and restated as of January 1, 1995, filed as
Exhibit 10.6 on Form 10-K for the year ended December
31, 1995, and incorporated herein by reference;
Amendment No. one to the Executive Retirement Plan as
amended and restated effective January 1, 1995, filed
as Exhibit 10.6a on Form 10-K for the year ended
December 31, 1995, and incorporated herein by
reference; Amendment No. two to the Executive
Retirement Plan as amended and restated effective
January 1, 1995, filed as Exhibit 10.6b on Form 10-K
for the year ended December 31, 1996, and incorporated
herein by reference; Amendments No. three and four to
the Executive Retirement Plan as amended and restated
effective January 1, 1995, filed as Exhibit 10.6c on
Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference.
12 Computations of ratio of earnings to fixed charges.
13 1999 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27 Financial Data Schedule (electronic filing only).
*These exhibits relate to the compensation plans and arrangements of the
company.
(b) Reports on Form 8-K -
Current Report on Form 8-K filed January 19, 1999; February 26,
1999; March 11, 1999; April 30, 1999; May 12, 1999; June 4, 1999;
July 29, 1999; and October 15, 1999. Current report on Form 8-K/A
filed January 26, 1999; July 16, 1999; and July 26, 1999.
Report of Independent Public Accountant on Financial Statement Schedule
- -----------------------------------------------------------------------
To Kerr-McGee Corporation:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements included in
Kerr-McGee Corporation's 1999 Annual Report to Stockholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated February
25, 2000. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The Schedule of Valuation Accounts and Reserves is
the responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 25, 2000
SCHEDULE II
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
VALUATION ACCOUNTS AND RESERVES
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Profit and Other from End of
(Millions of dollars) of Year Loss Accounts Reserves Year
- --------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $ 14 $ 2 $ 1 $ - $ 17
Warehouse inventory obsolescence 4 1 - 1 4
----- ----- ---- ---- -----
Total $ 18 $ 3 $ 1 $ 1 $ 21
===== ===== ==== ==== =====
Year Ended December 31, 1998
Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $ 14 $ 1 $ - $ 1 $ 14
Warehouse inventory obsolescence 3 2 - 1 4
----- ----- ---- ---- -----
Total $ 17 $ 3 $ - $ 2 $ 18
===== ===== ==== ==== =====
Year Ended December 31, 1997
Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $ 13 $ 2 $ - $ 1 $ 14
Warehouse inventory obsolescence 3 1 1 3
----- ----- ---- ---- -----
Total $ 16 $ 3 $ - $ 2 $ 17
===== ===== ==== ==== =====
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: Luke R. Corbett*
-----------------------
Luke R. Corbett,
Chief Executive Officer
March 30, 2000 By: (Robert M. Wohleber)
- -------------- -----------------------
Date Robert M. Wohleber
Senior Vice President and
Chief Financial Officer
By: (Deborah A. Kitchens)
---------------------
Deborah A. Kitchens,
Vice President and Controller
and Chief Accounting Officer
* By his signature set forth below, Gregory F. Pilcher has signed this
Annual Report on Form 10-K as attorney-in-fact for the officer noted
above, pursuant to power of attorney filed with the Securities and
Exchange Commission.
By: (Gregory F. Pilcher)
--------------------
Gregory F. Pilcher
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated.
By: Luke R. Corbett*
-------------------------
Luke R. Corbett, Director
By: William E. Bradford*
-----------------------------
William E. Bradford, Director
By: Sylvia A. Earle*
-------------------------
Sylvia A. Earle, Director
By: David C. Genever-Watling*
----------------------------------
David C. Genever-Watling, Director
March 30, 2000 By: Martin C. Jischke*
- -------------- ---------------------------
Date Martin C. Jischke, Director
By: Tom J. McDaniel*
-------------------------
Tom J. McDaniel, Director
By: William C. Morris*
---------------------------
William C. Morris, Director
By: John J. Murphy*
------------------------
John J. Murphy, Director
By: Leroy C. Richie*
-------------------------
Leroy C. Richie, Director
By: Matthew R. Simmons*
----------------------------
Matthew R. Simmons, Director
By: Farah M. Walters*
--------------------------
Farah M. Walters, Director
By: Ian L. White-Thomson*
------------------------------
Ian L. White-Thomson, Director
*By his signature set forth below, Gregory F. Pilcher has signed this
Annual Report on Form 10-K as attorney-in-fact for the directors noted
above, pursuant to the powers of attorney filed with the Securities and
Exchange Commission.
By: (Gregory F. Pilcher)
--------------------
Gregory F. Pilcher
Exhibit 4.11
KERR-McGEE CORPORATION
to
CITIBANK, N.A.,
as Trustee
Second Supplemental Indenture
Dated August 2, 1999
Supplementing and Amending the Indenture
Dated as of August 1, 1982
THIS SECOND SUPPLEMENTAL INDENTURE, dated August 2, 1999
(hereinafter called the "Supplemental Indenture"), is between KERR-McGEE
CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), and
CITIBANK, N.A., a national banking association duly organized and existing under
the laws of the United States of America, as Trustee under the Indenture
referred to below (hereinafter called the "Trustee").
RECITALS
The Company and the Trustee are parties to an Indenture, dated
as of August 1, 1982, as amended (the "Indenture"), relating to the issuance
from time to time by the Company of its Securities on terms to be specified at
the time of issuance. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Indenture.
The Company has duly authorized the creation of a series of its
Securities denominated its "5-1/2% Exchangeable Notes Due August 2, 2004"
representing up to 9,954,000 of its "Debt Exchangeable for Common StockSM" (such
Securities being referred to herein as the "DECSSM"), the principal amount of
which is mandatorily exchangeable at Maturity into shares of Common Stock, par
value $0.10 per share (the "Devon Common Stock") of Devon Energy Corporation
("Devon"), or, at the option of the Company (under the circumstances described
herein), cash, in either case at the Exchange Rate (as defined herein) and/or
such other consideration as permitted or required by the terms of the DECS.
The Company has duly authorized the execution and delivery of
this Supplemental Indenture in order to provide for the issuance of the DECS.
The Company has requested the Trustee and the Trustee has agreed
to join with it in the execution and delivery of this Supplemental Indenture.
Section 901(f) of the Indenture provides that the Company,
acting pursuant to a Board Resolution, and the Trustee, at any time and from
time to time, may enter into an indenture supplemental to the Indenture to make
such provisions in regard to matters or questions arising under the Indenture
which shall not adversely affect the interests of any Holders of Securities.
The Company has determined that this Supplemental Indenture
complies with Section 901(f) and does not require the consent of any Holders of
Securities. On the basis of the foregoing, the Trustee has determined that
this Supplemental Indenture is in form satisfactory to it.
The Company has furnished the Trustee with an Officer's
Certificate and an Opinion of Counsel complying with the requirements of Section
905 of the Indenture, stating that the execution of this Supplemental Indenture
is authorized or permitted by the Indenture, and has delivered to the Trustee a
Board Resolution authorizing the execution and delivery of this Supplemental
Indenture, together with such other documents as may have been required by
Section 102 of the Indenture.
All things necessary to make this Supplemental Indenture a valid
agreement of the Company and the Trustee and a valid amendment of and supplement
to the Indenture have been done.
The entry into this Supplemental Indenture by the parties hereto
is in all respects authorized by the provisions of the Indenture.
The Company has duly authorized the execution and delivery of
this Supplemental Indenture, and all things necessary have been done to make the
DECS, when executed by the Company and authenticated and delivered hereunder and
duly issued by the Company, the valid obligations of the Company, and to make
this Supplemental Indenture a valid agreement of the Company, in accordance with
their and its terms.
NOW THEREFORE:
It is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the DECS, as follows:
I ARTICLE
I.1. SECTION Definitions.
For all purposes of the Indenture and this Supplemental
Indenture as they relate to the DECS, except as otherwise expressly provided or
unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article;
(1) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to the Indenture and this Supplemental Indenture as a whole
and not to any particular Article, Section or other subdivision; and
(1) capitalized terms used but not defined herein are used as
they are defined in the Indenture.
"Adjustment Event" has the meaning set forth in Section 2.04(b).
"Business Day" means any day that is not a Saturday, a Sunday or
a day on which the NYSE or banking institutions or trust companies in The City
of New York are authorized or obligated by law or executive order to close.
"Closing Price" of any security on any date of determination
means (i) the closing sale price (or, if no closing price is reported, the last
reported sale price) of such security (regular way) on the NYSE on such date,
(ii) if such security is not listed for trading on the NYSE on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which such security is so listed, (iii) if such security
is not so listed on a United States national regional securities exchange, as
reported by the Nasdaq Stock Market, (iv) if such security is not so reported,
the last quoted bid price for such security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or (v) if
such security is not so quoted, the average of the mid-point of the last bid and
ask prices for such security from each of at least three nationally recognized
independent investment banking firms selected by the Company for such purpose.
"DECS" has the meaning set forth in the recitals to this
Supplemental Indenture.
"Devon Common Stock" has the meaning set forth in the recitals
to this Supplemental Indenture.
"Dilution Event" has the meaning set forth in Section 2.05(a)
(ii).
"Exchange Rate" means a rate equal to (a) if the Maturity Price
is greater than or equal to $39.16125 (the "Threshold Appreciation Price"),
0.84746 shares of Devon Common Stock per DECS, (b) if the Maturity Price is less
than the Threshold Appreciation Price but is greater than the Initial Price, a
fraction equal to (i) the Initial Price divided by (ii) the Maturity Price of
one share of Devon Common Stock per DECS (such fractional share being calculated
to the nearest 1/100,000th of a share or, if there is not a nearest 1/100,000th
of a share, to the next higher 1/100,000th of a share) and (c) if the Maturity
Price is less than or equal to the Initial Price, one share of Devon Common
Stock per DECS; provided, however, that the Exchange Rate is subject to
adjustment from time to time pursuant to Section 2.04(a).
"Initial Price" means $33.1875 per share of Devon Common Stock.
"Market Price" means, as of any date of determination, the
average Closing Price per share of Devon Common Stock for the 20 Trading Days
immediately prior to (but not including) the date of determination; provided,
however, that if there are not 20 Trading Days for the Devon Common Stock
occurring later than the 60th calendar day immediately prior to, but not
including, such date, the Market Price shall mean the market value per share of
Devon Common Stock as of such date as determined by a nationally recognized
investment banking firm retained for such purpose by the Company.
"Maturity" means the date on which the principal of a DECS
becomes due and payable as provided herein, whether at Stated Maturity or by
declaration of acceleration or otherwise.
"Maturity Price" means the average Closing Price per share of
Devon Common Stock on the 20 Trading Days immediately prior to (but not
including) the date of Maturity; provided, however, that if there are not 20
Trading Days for the Devon Common Stock occurring later than the 60th calendar
day immediately prior to, but not including, the date of Maturity, Maturity
Price means the market value per share of Devon Common Stock as of Maturity as
determined by a nationally recognized independent investment banking firm
retained for such purpose by the Company.
"NYSE" means the New York Stock Exchange, Inc.
"Ordinary Cash Dividend" has the meaning set forth in
subparagraph (b)(5) of Section 2.04.
"Reported Securities" has the meaning set forth in subparagraph
(b)(3) of Section 2.04.
"Share Components" means the ratios of shares of Devon Common
Stock per DECS specified in clauses (a), (b) and (c) of the definition of
"Exchange Rate" set forth in this Article.
"Threshold Appreciation Price" has the meaning specified in the
definition of "Exchange Rate" set forth in this Article.
"Trading Day" means a Business Day on which the security, the
Closing Price of which is being determined, (a) is not suspended from trading on
any national or regional securities exchange or association or over-the-counter
market at the close of business and (b) has traded at least once on the national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of such security.
"Transaction Value" means (a) for any cash received in any
Adjustment Event, the amount of cash received per share of Devon Common Stock,
(b) for any Reported Securities received in any Adjustment Event, an amount
equal to (x) the average Closing Price per security of such Reported Securities
for the 20 Trading Days immediately prior to (but not including) Maturity
multiplied by (y) the number of such Reported Securities (as adjusted pursuant
to subparagraph (b)(4) of Section 2.04) receive per share of Devon Common Stock
and (c) for any property received in any Adjustment Event other than cash or
such Reported Securities, an amount equal to the fair market value of the
property received per share of Devon Common Stock on the date such property is
received, as determined by a nationally recognized investment banking firm
retained for this purpose by the Company; provided, however, that in the case of
clause (b), (x) with respect to securities that are Reported Securities by
virtue of only clause (iv) of the definition of Reported Security, Transaction
Value with respect to any such Reported Security means the average of the
mid-point of the last bid and ask prices for such Reported Security as of
Maturity from each of at least three nationally recognized independent
investment banking firms retained for such purpose by the Company multiplied by
the number of such Reported Securities (as adjusted pursuant to subparagraph
(b)(4) of Section 2.04) received per share of Devon Common Stock and (y) with
respect to all other Reported Securities, if there are not 20 Trading Days for
any particular Reported Security occurring later than the 60th calendar day
immediately prior to, but not including, the date of Maturity, Transaction Value
with respect to such Reported Security means the market value per security of
such Reported Security as of Maturity as determined by a nationally recognized
investment banking firm retained for such purpose by the Company multiplied by
the number of such Reported Securities (as adjusted pursuant to subparagraph
(b)(4) of Section 2.04) received per share of Devon Common Stock. For purposes
of calculating the Transaction Value, any cash, Reported Securities or other
property receivable in any Adjustment Event shall be deemed to have been
received immediately prior to the close of business on the record date for such
Adjustment Event or, if there is no record date for such Adjustment Event,
immediately prior to the close of business on the effective date of such
Adjustment Event.
I.1. Section Effect of Headings.
The Article and Section headings herein are for convenience only
and shall not affect the construction hereof.
I.1. Section Successors and Assigns.
All covenants and agreements in this Supplemental Indenture by
the Company shall bind its successors and assigns, whether so expressed or not.
I.1. Section Separability.
In case any provision in this Supplemental Indenture or the DECS
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
I.1. Section Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Supplemental
Indenture by any of the provisions of the Trust Indenture Act of 1939, as
amended, such required provisions shall control.
I.1. Section Benefits of Supplemental Indenture.
Nothing in this Supplemental Indenture, expressed or implied,
shall give to any person, other than the parties hereto and their successors
hereunder, and the Holders of the DECS any benefit or any legal or equitable
right, remedy or claim under this Supplemental Indenture.
I.1. Section Application of Supplemental Indenture.
This Supplemental Indenture shall take effect on the date hereof,
and shall, except with respect to Section 1.09, apply only to the DECS. This
Supplemental Indenture shall have no effect on any other Securities, whether
originally issued prior to the date hereof or thereafter. If any provision of
this Supplemental Indenture is inconsistent with any provision of the
Indenture, then, to the extent permitted by the Indenture, the provision in this
Supplemental Indenture shall control.
I.1. SECTION Governing Law.
THIS SUPPLEMENTAL INDENTURE AND THE DECS SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND THIS SUPPLEMENTAL
INDENTURE AND EACH SUCH DECS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
Section 1.09. Section 301 of the Indenture is hereby amended as
follows:
(a) By amending Section 301 of the Indenture by deleting the
word "and" at the end of clause (12), by renumbering clause (13) of Section 301
as clause (14), and by inserting a new Section (13) as follows:
(13) the terms and conditions, if any, upon which the
Securities of the series may or shall be convertible into or exchangeable or
exercisable for or payable in, among other things, other securities,
instruments, contracts, currencies, commodities or other forms of property,
rights or interests or any combination of the foregoing; and
(b) By amending clause (c) of Section 601 by deleting the
word "and" at the end of clause (3), by replacing the period at the end of
clause (4) with "and", and by inserting as a new clause (5) as follows:
(5) the Trustee shall not at any time be under any
duty or responsibility to any Holder of a Security that may or shall be
convertible into or exchangeable or exercisable for or payable in, among other
things, other securities, instruments, contracts, currencies, commodities or
other forms of property, rights or interests or any combination of the
foregoing, (A) to make or cause to be made any adjustment of the amount of the,
among other things securities, instruments, contracts, currencies, commodities
or other forms of property, rights or interests or any combination of the
foregoing that may be issued, transferred or delivered to such Holder, or to
determine whether any facts exist which may require any such adjustment, or
with respect to the nature or extent of any such adjustment when made, or with
respect to any method employed in making the same, (B) to account for the
validity or value (or the kind or amount) of the, among other things,
securities, instruments, contracts, currencies, commodities or others forms of
property, rights or interests or any combination of the foregoing that may at
any time be issued, transferred or delivered to such Holder or (C) with respect
to the failure of the Company to issue, transfer or deliver any of the, among
other things, securities, instruments, contracts, currencies, commodities or
other forms of property, rights or interests or any combination of the foregoing
pursuant to the terms of such Security.
(c) By amending clause (i) of Section 902 by inserting after
the last comma at the end of such clause the following: "or change the terms or
conditions of any Securities so as to adversely affect the terms or conditions
upon which such Securities are convertible into or exchangeable or exercisable
for or payable in, among other things, other securities, instruments, contracts,
currencies, commodities or other forms of property, rights or interests or any
combination of the foregoing."
I ARTICLE
The DECS
I.1. Section Title and Terms.
There is hereby created under the Indenture a series of
Securities known and designated as the "51/2% Exchangeable Notes Due August 2,
2004" of the Company. The aggregate principal amount of DECS that may be
authenticated and delivered under this Indenture is limited to $330,348,375
million, except for DECS authenticated and delivered upon reregistration of,
transfer of, or in exchange for, or in lieu of, other DECS pursuant to Section
305, 306, 307, 904 and 1103 of the Indenture.
The Stated Maturity for payment of principal of the DECS shall
be August 2, 2004 and the DECS shall bear interest (computed on the basis of a
360-day year of twelve 30-day months) at the rate of 51/2% of the principal
amount per annum, from the date of original issuance or the most recent Interest
Payment Date to which interest has been paid or duly provided for, until the
principal amount thereof is exchanged at maturity pursuant to the terms of the
DECS. Interest on the DECS shall be payable quarterly in arrears on February 1,
May 1, August 1 and November 1 of each year, commencing November 1, 1999 (each,
an "Interest Payment Date"), to the persons in whose names the DECS (or any
predecessor securities) are registered at the close of business on the January
15, April 15, July 15 and October 15 immediately preceding such Interest Payment
Date, until the principal thereof is paid or made available for payment provided
that interest payable at Maturity shall be payable to the person to whom the
Devon Common Stock is deliverable.
The DECS shall be initially issued in the form of a Global
Security and the Depositary for the DECS shall be the Depository Trust Company,
New York, New York.
The DECS shall not be redeemable prior to their Stated Maturity
and shall not be subject to any sinking fund. The DECS are not subject to
payment prior to the date of Maturity at the option of the Holder.
The DECS shall be mandatorily exchangeable as provided in
Section 2.02.
The Company shall not be obligated to pay any additional amounts
on the DECS in respect of taxes, except as otherwise provided in Section 2.06
and 3.01.
The DECS shall be issuable in denominations of $1000 and any
amounts in excess thereof.
The DECS shall not be issued as Original Issue Discount
Securities.
The form of DECS attached hereto as Exhibit A is hereby adopted,
as a form of Securities of a series that consists of DECS. Certain terms of the
DECS are set forth in the form of the DECS.
With respect to the DECS only and for the benefit of only the
Holders thereof, the failure on the part of the Company to observe or perform
any of the covenants or agreements on the part of the Company in this Second
Supplemental Indenture not otherwise specified in Section 501 of the Indenture
shall be an additional Event of Default with respect to the DECS as if and, for
all purposes under the Indenture, to the same extent as if the same were
specified in paragraph (d) of such Section 501 of the Indenture.
I.1. Section Exchange at Maturity.
Subject to Section 2.04(b), at Maturity the principal amount of
each DECS shall be mandatorily exchanged by the Company into a number of shares
of Devon Common Stock at the Exchange Rate; provided, however, that, pursuant to
Section 2.03, no fraction of a share of Devon Common Stock shall be issued. The
Holders of the DECS shall be responsible for the payment of any and all
brokerage costs upon the subsequent sale of such shares. The Company may, at its
option, in lieu of delivering Devon Common Stock, deliver cash in an amount
(calculated to the nearest 1/100th of a dollar per DECS or, if there is not a
nearest 1/100th of a dollar, then to the next higher 1/100th of a dollar) equal
to the product of the number of shares of Devon Common Stock otherwise
deliverable in respect of such DECS on the date of Maturity, multiplied by the
Maturity Price; provided, however, that if such option is exercised, the Company
shall deliver cash with respect to all, but not less than all, of the Devon
Common Stock that would otherwise be deliverable. In determining the amount of
cash deliverable in exchange for the DECS in lieu of Devon Common Stock pursuant
to the prior sentence hereof, if more than one DECS shall be surrendered for
exchange at one time by the same Holder, the amount of cash which shall be
delivered upon exchange shall be computed on the basis of the aggregate number
of DECS so surrendered at Maturity.
I.1. Section No Fractional Shares.
If more than one DECS shall be surrendered for exchange pursuant
to Section 2.02 at one time by the same Holder, the number of full shares of
Devon Common Stock or Reported Securities which shall be delivered upon such
exchange, in whole or in part, as the case may be, shall be computed on the
basis of the aggregate number of DECS surrendered at Maturity. No fractional
shares or scrip representing fractional shares of Devon Common Stock or Reported
Securities shall be issued or delivered upon any exchange pursuant to Section
2.02 of any DECS. In lieu of any fractional share of Devon Common Stock or of
Reported Securities which, but for the immediately preceding sentence, would
otherwise be deliverable upon such exchange, the Company, through any applicable
Paying Agent, shall make a cash payment in respect of such fractional interest
in an amount equal to the value of such fractional share of Devon Common Stock
or Reported Security at the Maturity Price. The Company shall, upon such
exchange of any DECS, provide cash to any applicable Paying Agent in an amount
equal to the cash payable with respect to any fractional shares of Devon Common
Stock deliverable upon such exchange, and the Company shall retain such
fractional shares of Devon Common Stock.
I.1. Section Adjustment of Exchange Rate.
(a) Adjustment for Distributions, Reclassifications, etc. The
Exchange Rate shall be subject to adjustment from time to time as follows:
(i) If Devon shall:
(A) pay a stock dividend or make a distribution, in either case, with respect to
the Devon Common Stock in shares of such stock;
(A) subdivide or split the outstanding shares of Devon Common Stock into a
greater number of shares;
(A) combine the outstanding shares of Devon Common Stock into a smaller number
of shares; or
(A) issue by reclassification (other than a reclassification pursuant to
clause (ii), (iii), (iv) or (v) of the definition of Adjustment Event in
paragraph (b) of this Section) of shares of Devon Common Stock any shares of
common stock of Devon;
then, in any such event, the Exchange Rate shall be adjusted by
adjusting each of the Share Components of the Exchange Rate in
effect immediately prior to such event so that a holder of any
DECS shall be entitled to receive, upon exchange pursuant to
Section 2.02 of the principal amount of such DECS at Maturity,
the number of shares of Devon Common Stock (or, in the case of
a reclassification referred to in clause (D) of this sentence,
the number of shares of other common stock of Devon issued
pursuant thereto) which such holder of such DECS would have
owned or been entitled to receive immediately following such
event had such DECS been exchanged immediately prior to such
event or any record date with respect thereto. Each such
adjustment shall become effective at the opening of business on
the Business Day next following the record date for
determination of holders of Devon Common Stock entitled to
receive such dividend or distribution in the case of a dividend
or distribution and shall become effective immediately after
the effective date in the case of a subdivision, split,
combination or reclassification. Each such adjustment shall be
made successively.
(i) If Devon shall, after the date hereof, issue rights or
warrants to all holders of Devon Common Stock entitling them to subscribe for or
purchase shares of Devon Common Stock (other than rights to purchase Devon
Common Stock pursuant to a plan for the reinvestment of dividends) at a price
per share less than the Market Price of the Devon Common Stock on the Business
Day next following the record date for the determination of holders of shares of
Devon Common Stock entitled to receive such rights or warrants, then in each
case, the Exchange Rate shall be adjusted by multiplying each of the Share
Components of the Exchange Rate in effect on the record date for the
determination of holders of Devon Common Stock entitled to receive such rights
or warrants, by a fraction, of which the numerator shall be (A) the number of
shares of Devon Common Stock outstanding on such record date plus (B) the number
of additional shares of Devon Common Stock offered for subscription or purchase
pursuant to such rights or warrants, and of which the denominator shall be (x)
the number of shares of Devon Common Stock outstanding on such record date plus
(y) the number of additional shares of Devon Common Stock which the aggregate
offering price of the total number of shares of Devon Common Stock so offered
for subscription or purchase pursuant to such rights or warrants would purchase
at the Market Price of the Devon Common Stock on the Business Day next following
such record date, which number of additional shares shall be determined by
multiplying such total number of shares by the exercise price of such rights or
warrants and dividing the product so obtained by such Market Price of Devon
Common Stock. Such adjustment shall become effective at the opening of business
on the Business Day next following the record date for the determination of
holders of Devon Common Stock entitled to receive such rights or warrants. To
the extent that such rights or warrants expire prior to the Maturity of the DECS
and shares of Devon Common Stock are not delivered pursuant to such rights or
warrants prior to such expiration, the Exchange Rate shall be readjusted to the
Exchange Rate which would then be in effect had such adjustments for the
issuance of such rights or warrants been made upon the basis of delivery of only
the number of shares of Devon Common Stock actually delivered pursuant to such
rights or warrants. Each such adjustment shall be made successively.
(i) Any shares of Devon Common Stock issuable in payment
of a dividend shall be deemed to have been issued immediately prior to the close
of business on the record date for such dividend for purposes of calculating the
number of outstanding shares of Devon Common Stock under paragraph (a)(ii) of
this Section.
(i) All adjustments to the Exchange Rate will be calculated to
the nearest 1/100,000th of a share of Devon Common Stock (or, if there is not a
nearest 1/100,000th of a share of Devon Common Stock, to the next lower
1/100,000th of a share of Devon Common Stock). No adjustment in the Exchange
Rate shall be required unless such adjustment would require an increase or
decrease of at least one percent therein; provided, however, that any
adjustments which by reason of this paragraph (a)(iv) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. If an adjustment is made to the Exchange Rate pursuant to paragraphs
(a)(i) or (a)(ii) of this Section, an adjustment shall also be made to the
Maturity Price as such term is used throughout the definition of Exchange Rate
set forth in Section 1.01. The required adjustment to the Maturity Price shall
be made at Maturity by multiplying the original Maturity Price by the number or
fraction determined under paragraphs (a)(i) and/or (a)(ii) of this Section by
which the original Exchange Rate was multiplied to adjust such rate. In the case
of a reclassification of any shares of Devon Common Stock into any common stock
of Devon other than Devon Common Stock, such common stock shall be deemed to be
shares of Devon Common Stock solely to determine the Maturity Price and to apply
the Exchange Rate at Maturity. Each such adjustment to the Exchange Rate and the
Maturity Price shall be made successively.
(a) Other Adjustment Events. In the event of (i) any dividend
or distribution by Devon to all holders of Devon Common Stock of evidences of
its indebtedness or other assets (excluding any dividends or distributions
referred to in clause (A) of paragraph (a)(i) of this Section, any common shares
issued pursuant to a reclassification referred to in clause (D) of paragraph
(a)(i) of this Section and any Ordinary Cash Dividends (as defined below)) or
any issuance by Devon to all holders of Devon Common Stock of rights or warrants
to subscribe for or purchase any of its Securities (other than rights or
warrants referred to in paragraph (a)(ii) of this Section), (ii) any
consolidation or merger of Devon or any surviving entity or subsequent surviving
entity of Devon (a "Devon Successor") with or into another entity (other than a
merger or consolidation in which Devon is the continuing corporation and in
which the Devon Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of Devon
or another corporation), (iii) any sale, transfer, lease or conveyance to
another corporation of the property of Devon or any Devon Successor as an
entirety or substantially as an entirety, (iv) any statutory exchange of
securities of Devon or any Devon Successor with another corporation (other than
in connection with a merger or acquisition) or (v) any liquidation, dissolution
or winding up of Devon or any Devon Successor (any such event, an "Adjustment
Event"), the property receivable by Holders of DECS at Maturity shall be subject
to adjustment from time to time as follows:
(1) Each Holder of a DECS will receive at Maturity, in lieu of
or (in the case of an Adjustment Event described in clause (i) of this paragraph
(b)) in addition to, the shares of Devon Common Stock that it would otherwise
receive as required by Section 2.02, cash in an amount equal to (A) if the
Maturity Price is greater than or equal to the Threshold Appreciation Price,
0.84746 multiplied by the Transaction Value, (B) if the Maturity Price is less
than the Threshold Appreciation Price but is greater than the Initial Price, the
product of (x) the Initial Price divided by the Maturity Price multiplied by (y)
the Transaction Value and (C) if the Maturity Price is less than or equal to the
Initial Price, the Transaction Value.
(1) Following an Adjustment Event, the Maturity Price, as such
term is used in subparagraph (b)(1) above and throughout the definition of
Exchange Rate, shall be deemed to equal (A) if shares of Devon Common Stock are
outstanding at Maturity, subject to clause (B) below, the Maturity Price of
Devon Common Stock, as adjusted pursuant to the provisions of paragraph (a)(iv)
of this Section, plus the Transaction Value or (B) if shares of Devon Common
Stock are not outstanding at maturity (or if the Devon Common Stock, as a result
of an Adjustment Event, is not (i) listed on a United States national securities
exchange, (ii) reported on a United States national securities system subject to
last sale reporting or (iii) traded in the over-the-counter market and reported
on the National Quotation Bureau or similar organization, and for which bid and
ask prices are not available from at least three nationally recognized
investment banking firms), the Transaction Value.
(1) Notwithstanding the foregoing, with respect to any
securities received in an Adjustment Event that (A) are (i) listed on a United
States national securities exchange, (ii) reported on a United States national
securities system subject to last sale reporting, (iii) traded in the
over-the-counter market and reported on the National Quotation Bureau or similar
organization or (iv) for which bid and ask prices are available from at least
three nationally recognized investment banking firms and (B) are either (x)
perpetual equity securities or (y) non-perpetual equity or debt securities with
a stated maturity after the Stated Maturity ("Reported Securities"), the Company
may, at its option, in lieu of delivering the amount of cash deliverable in
respect of Reported Securities received in an Adjustment Event, as determined in
accordance with subparagraph (b)(1), deliver a number of such Reported
Securities with a value equal to such cash amount, as determined in accordance
with clause (b) of the definition of Transaction Value set forth in Section
1.01; provided, however, that (i) if such option is exercised, the Company shall
deliver Reported Securities in respect of all, but not less than all, cash
amounts that would otherwise be deliverable in respect of Reported Securities
received in an Adjustment Event, (ii) the Company may not exercise such option
if the Company has elected to deliver cash in lieu of Devon Common Stock, if
any, deliverable upon Maturity or if such Reported Securities have not yet been
delivered to the holders entitled thereto following such Adjustment Event or any
record date with respect thereto, and (iii) subject to clause (ii) of this
proviso, the Company must exercise such option if the Company does not elect to
deliver cash in lieu of Devon Common Stock, if any, deliverable upon Maturity.
If the Company elects to deliver Reported Securities, each Holder of a DECS will
be responsible for the payment of any and all brokerage and other transaction
costs upon the sale of such Reported Securities. If, following any Adjustment
Event, any Reported Security ceases to qualify as a Reported Security, then (x)
the Company may no longer elect to deliver such Reported Security in lieu of an
equivalent amount of cash and (y) notwithstanding clause (b) of the definition
of Transaction Value, the Transaction Value of such Reported Security shall mean
the fair market value of such Reported Security on the date such security ceases
to qualify as a Reported Security, as determined by a nationally recognized
investment banking firm retained for this purpose by the Company.
(1) The amount of cash and/or the kind and number of securities
into which the DECS shall be exchangeable after an Adjustment Event shall be
subject to adjustment following such Adjustment Event in the same manner and
upon the occurrence of the same type of events as described in paragraphs (a)
and (b) of this Section with respect to Devon Common Stock and Devon.
(1) For purposes of the foregoing, the term "Ordinary Cash
Dividend" means, with respect to any consecutive 365-day period, any dividend
with respect to Devon Common Stock paid in cash to the extent that the amount of
such dividend, together with the aggregate amount of all other dividends on
Devon Common Stock paid in cash during such 365-day period, does not exceed on a
per-share basis 10% of the average of the Closing Prices of Devon Common Stock
over such 365-day period. For purposes of this subparagraph (b)(5), any cash
dividend shall be deemed to be paid as of the record date for such cash
dividend.
I.1. Section Notice of Adjustment and Certain Other Events.
(a) Whenever the Exchange Rate is adjusted as herein provided or
an Adjustment Event occurs, the Company shall:
(i) forthwith compute the adjusted Exchange Rate (or
Transaction Value) in accordance with Section 2.04 and prepare a certificate
signed by an officer of the Company setting forth the adjusted Exchange Rate (or
Transaction Value), the method of calculation thereof in reasonable detail and
the facts requiring such adjustment and upon which such adjustment is based,
which certificate shall be conclusive, final and binding evidence of the
correctness of the adjustment, and file such certificate forthwith with the
Trustee; and
(i) within ten Business Days following the occurrence of an
event that permits or requires an adjustment to the Exchange Rate pursuant to
Section 2.04(a) (each, a "Dilution Event") or an Adjustment Event that permits
or requires a change in the consideration to be received by Holders pursuant to
Section 2.04(b) (or, in either case, if the Company is not aware of such
occurrence, as soon as practicable after becoming so aware), provide written
notice to the Trustee and to the Holders of the outstanding DECS of the
occurrence of such Dilution Event or Adjustment Event including a statement in
reasonable detail setting forth the method by which any adjustment to the
Exchange Rate or change in the consideration to be received by Holders of DECS
following the Adjustment Event was determined and setting forth the revised
Exchange Rate or consideration, as the case may be; provided, however, that in
respect of any adjustment of the Maturity Price, such notice need only disclose
the factor by which the Maturity Price is to be multiplied pursuant to Section
2.04(a)(iv) in order to determine which clause of the definition of the Exchange
Rate will apply at Maturity, it being understood that, until Maturity, the
Exchange Rate itself cannot be determined.
(a) In case at any time while any of the DECS are outstanding the
Company becomes aware that:
(i) Devon will declare a dividend (or any other
distribution) on or in respect of the Devon Common Stock to which Section 2.04
(a)(i) or (ii) shall apply (other than any cash dividends and distributions, if
any, paid from time to time by Devon that constitute Ordinary Cash Dividends);
(i) Devon will authorize the issuance to all holders of
Devon Common Stock of rights or warrants to subscribe for or purchase shares of
Devon Common Stock or of any other subscription rights or warrants;
(i) there will occur any conversion or reclassification of
Devon Common Stock (other than a subdivision or combination of outstanding
shares of such Devon Common Stock) or any consolidation, merger or
reorganization to which Devon is a party and for which approval of any
stockholders of Devon is required, or the sale or transfer of all or
substantially all of the assets of Devon; or
(i) there will occur the voluntary or involuntary
dissolution, liquidation or winding up of Devon;
then, if the Company becomes aware of the information described
in clause (x) and (y) below (other than the proposed merger
between Devon Delaware and PennzEnergy Corp. for the terms
disclosed on the date hereof) a reasonable amount of time in
advance of the delivery and filing requirements set forth in
this subparagraph (b), the Company shall cause to be delivered
to the Trustee and any applicable Paying Agent and filed at the
office or agency maintained for the purpose of exchange of DECS
at Maturity in the Borough of Manhattan, in The City of New
York by the Trustee (or any applicable Paying Agent), and shall
promptly cause to be mailed to the Holders of DECS at their
last addresses as they shall appear upon the registration books
of the Security Registrar, at least ten days before the date
hereinafter specified (or the earlier of the dates hereinafter
specified, in the event that more than one is specified), a
notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution or grant of
rights or warrants or, if a record is not to be taken, the date
as of which holders of Devon Common Stock of record to be
entitled to such dividend, distribution or grant of rights or
warrants are to be determined, or (y) the date, if known by the
Company, on which such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up is
expected to become effective. Following any Adjustment Event,
the provisions of this paragraph (b) shall apply with respect
to any Reported Securities in the same manner as with respect
to Devon and the Devon Common Stock.
(a) On or prior to the twenty-first Business Day preceding the
Stated Maturity of the DECS, the Company shall notify the Trustee and will
publish a notice in a daily newspaper of national circulation stating whether
the Company will deliver, in accordance with Section 2.02, shares of Devon
Common Stock or cash (and/or, in accordance with Section 2.04(b), cash or
Reported Securities) upon the mandatory exchange of the principal amount of the
DECS. The Trustee shall notify DTC of the form of consideration to be delivered
by the Company. After the close of business on the Business Day immediately
preceding the Stated Maturity of the DECS, the Company shall notify the Trustee
in writing of the number of shares of Devon Common Stock and/or Reported
Securities, or the amount of cash to be paid per DECS.
I.1. Section Taxes.
(a) The Company will pay any and all documentary, stamp,
transfer or similar taxes that may be payable in respect of the transfer and
delivery of Devon Common Stock (or Reported Securities) pursuant hereto;
provided, however, that the Company shall not be required to pay any such tax
which may be payable in respect of any transfer involved in the delivery of
Devon Common Stock (or Reported Securities) in a name other than that in which
the DECS so exchanged were registered, and no such transfer or delivery shall be
made unless and until the person requesting such transfer has paid to the
Company the amount of any such tax, or has established, to the satisfaction of
the Company, that such tax has been paid.
(a) The parties hereto hereby agree, and each Holder of a DECS by
its purchase of a DECS hereby agrees:
(i) to treat, for U.S. federal income tax purposes, each DECS
as a forward purchase contract to purchase Devon Common Stock at Maturity
(including as a result of acceleration or otherwise) (the "forward purchase
contract characterization"), under the terms of which contract (a) at the time
of issuance of the DECS the Holder deposits irrevocably with the Company a fixed
amount of cash equal to the purchase price of the DECS to assure the fulfillment
of the Holder's purchase obligation described in clause (c) below, which deposit
will unconditionally and irrevocably be applied at Maturity to satisfy such
obligation, (b) until Maturity the Company will be obligated to pay interest on
such deposit at a rate equal to the stated rate of interest on the DECS as
compensation to the Holder for the Company's use of such cash deposit during the
term of the DECS, and (c) at Maturity such cash deposit unconditionally and
irrevocably will be applied by the Company in full satisfaction of the Holder's
obligation under the forward purchase contract, and the Company will deliver to
the Holder the number of shares of Devon Common Stock that the Holder is
entitled to receive at the time pursuant to the terms of the DECS (subject to
the Company's right to deliver cash in lieu of the shares of Devon Common
Stock);
(i) to treat, consistent with the above characterization,
(x) amounts paid to the Company in respect of the original issue of a DECS as
allocable in their entirety to the amount of the cash deposit attributable to
such DECS, and (y) amounts denominated as interest that are payable with respect
to the DECS as interest payable on the amount of such deposit, includible
annually in the income of the Holder as interest income in accordance with its
method of accounting; and
(i) to file all U.S. federal, state and local income and
franchise tax returns consistent with the forward purchase contract
characterization (unless required otherwise by an applicable taxing authority).
I.1. Section Delivery of Securities upon Maturity.
All Devon Common Stock and Reported Securities deliverable to
Holders upon the Maturity of the DECS shall be delivered to such Holders,
whenever practicable, in such manner (such as by book-entry transfer) so as to
assure same-day transfer of such securities to Holders and otherwise in the
manner customary at such time for delivery of such securities and securities of
the same type.
I ARTICLE
Covenants
I.1. Section Shares Free and Clear; No Rights in the Stock.
With respect to the DECS only and for the benefit of only the
Holders thereof, the Company covenants and warrants that upon exchange of a DECS
at Maturity pursuant to the Indenture and this Supplemental Indenture, the
Holder of a DECS shall receive valid title to the Devon Common Stock (and, in
the event an Adjustment Event has occurred, the Reported Securities, if Reported
Securities are delivered) for which such DECS is at such time exchangeable
pursuant to this Indenture, free and clear any and all liens, claims, charges
and encumbrances whatsoever, except to the extent such liens, claims, charges
and encumbrances as may have been placed on any Devon Energy Common Stock by the
prior owner thereof, prior to the time such Devon Energy Common Stock was
acquired by the Company, or are caused by the Holders. In addition, the Company
further warrants that any Devon Common Stock (and Reported Securities) so
delivered in exchange for DECS hereunder shall be free of any transfer
restrictions (other than such as are solely attributable to any Holder's status
as an affiliate of Devon or the issuer of such Reported Securities). Except as
provided in Section 2.06(a), the Company shall pay all taxes and charges with
respect to the delivery of Devon Common Stock (and Reported Securities)
delivered in exchange for DECS hereunder. Until such time, if any, as the
Company shall deliver shares of Devon Common Stock to Holders of the DECS at
Maturity, the Holders shall not be entitled to any rights with respect to the
Devon Common Stock (including, without limitation, voting rights and the rights
to receive any dividends or other distributions in respect thereof.
I.1. Section Discharge of Indenture.
With respect to the DECS only and for the benefit of only the
Holders thereof, Article Four of the Indenture is amended to read in its
entirety as follows:
(a) If at any time (i) the Company shall have delivered to the
Trustee for cancellation all of the DECS theretofore authenticated
and delivered (other than (1) any DECS which shall have been
destroyed, lost or stolen and which shall have been replaced or paid
as provided in Section 306 and (2) DECS for whose payment money has
theretofore been deposited in trust and thereafter repaid to the
Company as provided in Section 1003) or (ii) all DECS not
theretofore delivered to the Trustee for cancellation shall have
become due and payable, and the Company shall deposit with the
Trustee in trust the number of shares of Devon Energy Common Stock
(and/or Reported Securities) or the entire amount of money in
Dollars sufficient to pay all DECS not theretofore delivered to the
Trustee for cancellation, including principal and interest due, in
accordance with the terms of such DECS, and if in either case the
Company shall also pay or cause to be paid all other the sums
payable hereunder by the Company, then this Second Supplemental
Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of such
DECS herein expressly provided for and rights to receive payments of
principal of, and interest on, the DECS with respect to the DECS),
and the Trustee, on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel and at the cost and
expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture.
I ARTICLE
Miscellaneous
I.1. Section Confirmation of Indenture.
The Indenture, as supplemented and amended by this Supplemental
Indenture and all other indentures supplemental thereto, is in all respects
ratified and confirmed, and the Indenture, this Supplemental Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
I.1. Section Concerning the Trustee.
The Trustee assumes no duties, responsibilities or liabilities
by reason of this Supplemental Indenture other than as set forth in the
Indenture.
The recitals contained herein shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for the correctness of
same, except for the recital indicating the Trustee's approval of the form of
this Second Supplemental Indenture. The Trustee makes no representation as to
the validity of this Second Supplemental Indenture.
The Trustee accepts the trust created by the Indenture, as
supplemented by this Second Supplemental Indenture, and agrees to perform the
same upon the terms and conditions in the Indenture, as supplemented by this
Second Supplemental Indenture.
I.1. Section Payment of Principal.
Each reference in the Indenture to the payment by the Company of
the principal of any Security (or words of like import) shall be deemed, for
purposes of the DECS only, to mean the delivery of the Devon Common Stock (or,
at the Company's option, the cash equivalent thereof) at the time, rate and
manner set forth herein.
This Supplemental Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
KERR-McGEE CORPORATION
By:________________________
Name:
Title:
[CORPORATE SEAL]
Attest: _______________________
Name:
Title:
CITIBANK, N.A.,
as Trustee
By: _______________________
Name:
Title:
Attest: _______________________
Name:
Title:
STATE OF OKLAHOMA )
) SS.:
COUNTY OF OKLAHOMA )
On the ____ day of ___________, 1999, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that she/he is the ____________ of KERR-McGEE CORPORATION, one of the
corporations described in and which executed the foregoing instrument; that
she/he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that she signed her/his name thereto
by like authority.
----------------------
Notary Public
SEAL
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of __________, 1999, before me personally came
____________, to me known, who, being by me duly sworn, did depose and say that
she/he is the _________ of CITIBANK, N.A., one of the corporations described in
and which executed the foregoing instrument; that she/he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that she/he signed her/his name thereto by like authority.
-----------------------
Notary Public
SEAL
EXHIBIT A
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART
FOR THE INDIVIDUAL DEBT SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
This Note is a Global Note within the meaning of the Indenture hereinafter
referred to and is registered in the name of a Depositary or a nominee thereof.
This DECS may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary, unless and until
this Note is exchanged whole or in part for DECS in definitive form.
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Company or the
Trustee (each as hereafter defined) for registration of transfer, exchange, or
payment, and any certificate issued is registered in the name of Cede & Co. or
in such other name as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or such other entity as is requested by an
authorized representative DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
NO. D-3 CUSIP NO. 492386305
$43,088,925
KERR-McGEE CORPORATION
1,298,348 DECS SM
(Debt Exchangeable for Common Stock SM)
5-1/2% Exchangeable Note Due August 2, 2004
(Subject to Exchange at Maturity into Shares of Common Stock,
Par Value $.10 Per Share, of Devon Energy Corporation)
KERR-McGEE CORPORATION, a Delaware corporation (hereinafter
called the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to CEDE & CO. or registered assigns, on August 2, 2004 a number of shares of
Common Stock, par value $.10 per share (the "Devon Common Stock"), of Devon
Energy Corporation ("Devon") (or, at the Company's option, the cash equivalent
thereof and/or such other consideration as permitted or required by the terms of
the DECS) at the Exchange Rate (as defined herein), and to pay interest
(computed on the basis of a 360-day year of twelve 30-day months) on such
principal amount from the date of original issuance or from the most recent
Interest Payment Date (as defined below) to which interest has been paid or duly
provided for, quarterly on February 1, May 1, August 1 and November 1 of each
year (each, an "Interest Payment Date" and, collectively, the "Interest Payment
Dates"), commencing November 1, 1999, at the rate per annum specified in the
title of this note, until Maturity. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in said
Indenture, be paid to the person in whose name this DECS (or the DECS in
exchange or substitution for which this DECS was issued) is registered at the
close of business on the Regular Record Date (as defined below) for interest
payable on such Interest Payment Date. The "Regular Record Date" for any
interest payment is the close of business on the January 15, April 15, July 15
and October 15 immediately preceding the relevant Interest Payment Date, whether
or not a Business Day (as defined below), provided that interest payable at
Maturity shall be payable to the person to whom the Devon Common Stock is
deliverable. In any case where such Interest Payment Date shall not be a
Business Day, then (notwithstanding any other provision of said Indenture or
this DECS) payment of such interest need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on such Interest Payment Date, and, if such payment is so made, no interest
shall accrue for the period from and after such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the registered Holder on such Regular Record Date, and may be paid to
the person in whose name this DECS (or the DECS in exchange or substitution for
which this DECS was issued) is registered at the close of business on a record
date for the payment of such interest to be fixed by the Trustee for the DECS,
notice whereof shall be given to Holders of the DECS not less than ten days
prior to such record date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
DECS may be listed and not deemed impracticable by the Trustee, and upon such
notice as may be required by such exchange.
At Maturity, the principal amount of this DECS will be
mandatorily exchanged into a number of shares of Devon Common Stock, at the
Exchange Rate. The "Exchange Rate" is equal to (a) if the Maturity Price (as
defined below) is greater than or equal to $39.16125 (the "Threshold
Appreciation Price"), 0.84746 shares of Devon Common Stock per DECS, (b) if the
Maturity Price is less than the Threshold Appreciation Price but is greater than
$33.1875 (the "Initial Price"), a fraction equal to the Initial Price divided by
the Maturity Price of one share of Devon Common Stock per DECS (such fractional
share being calculated to the nearest 1/100,000th of a share or, if there is not
a nearest 1/100,000th of a share, to the next higher 1/100,000th of a share) and
(c) if the Maturity Price is less than or equal to the Initial Price, one share
of Devon Common Stock per DECS. Any shares of Devon Common Stock delivered by
the Company to the Holders of the DECS that are not affiliated with Devon shall
be free of any transfer restrictions except to the extent any transfer
restrictions are caused by the Holders of DECS, and the holders of DECS will be
responsible for the payment of any and all brokerage costs upon the subsequent
sale of such shares. No fractional shares of Devon Common Stock will be issued
at Maturity as provided in the Indenture.
The Company may at its option, in lieu of delivering shares of
Devon Common Stock, deliver cash in an amount equal to the value of such number
of shares of Devon Common Stock at the Maturity Price as provided in the
Indenture; provided, however, that if such option is exercised, the Company
shall deliver cash with respect to all, but not less than all, of the shares of
Devon Common Stock that would otherwise be deliverable.
Notwithstanding the foregoing, (i) in the case of certain
dilution events, the Exchange Rate will be subject to adjustment and (ii) in the
case of certain adjustment events, the consideration received by Holders of DECS
at Maturity will be shares of Devon Common Stock, other securities and/or cash,
each as provided in the Indenture.
The "Maturity Price" is defined as the average Closing Price per
share of Devon Common Stock on the 20 Trading Days immediately prior to (but not
including) the date of Maturity or, under certain circumstances as provided in
the Indenture, the market value per share of Devon Common Stock as of the date
of Maturity as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Company. The "Closing Price" of
any security on any date of determination means (i) the closing sale price (or,
if no closing sale price is reported, the last reported sale price) of such
security (regular way) on the New York Stock Exchange (the "NYSE") on such date,
(ii) if such security is not listed for trading on the NYSE on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which such security is so listed, (iii) if such security
is not so listed on a United States national or regional securities exchange, as
reported by the Nasdaq Stock Market, (iv) if such security is not so reported,
the last quoted bid price for such security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization or (v) if such
security is not so quoted, the average of the mid-point of the last bid and ask
prices for such security from each of at least three nationally recognized
investment banking firms selected for this purpose by the Company. A "Trading
Day" is defined as a Business Day on which the security the Closing Price of
which is being determined (i) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter market at the
close of business and (ii) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of such security. "Business Day" means any day
that is not a Saturday, a Sunday or a day on which the NYSE, banking
institutions or trust companies in The City of New York, New York are authorized
or obligated by law or executive order to close.
Interest on this DECS will be payable, and delivery of Devon
Common Stock (or, at the Company's option, the cash equivalent of such Devon
Common Stock and/or such other consideration as permitted or required herein and
in the Indenture) in exchange for the principal amount of this DECS at Maturity
will be made upon surrender of this DECS, at the office or agency of the Company
maintained for that purpose in the City of New York, New York, and payment of
interest on (and, if the Company elects not to deliver Devon Common Stock and/or
other Reported Securities upon exchange at Maturity, the cash equivalent thereof
payable upon exchange for the principal amount of) this DECS will be made in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
at the option of the Company payment of interest may be made by check mailed to
the persons in whose names the DECS are registered on the Regular Record Date
with respect to the relevant Interest Payment Date. Initially, such office shall
be the principal corporate trust office of the Trustee in New York City, which
is located at 111 Wall Street, 5th Floor, New York, New York 10005.
Reference is hereby made to the further provisions of this DECS
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as of set forth at this place.
Unless the certificate of authentication hereon has been
executed by manual signature by the Trustee referred to on the reverse hereof,
this DECS shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
"DECS" and "Debt Exchangeable for Common Stock" are service
marks of Salomon Smith Barney Inc.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal by the manual or facsimile signatures of
its officers thereunto duly authorized.
KERR-McGEE CORPORATION
By:________________________
Attest:
By:________________________
Dated: August 9, 1999
[CORPORATE SEAL]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the series of Debt Securities issued under the within mentioned
Indenture.
Date of Authentication:
CITIBANK, N.A.,
as Trustee
By:______________________
Authorized Signatory
[Reverse of DECS]
KERR-McGEE CORPORATION
5-1/2% Exchangeable Note Due August 2, 2004
(Subject to Exchange at Maturity into Shares of Common Stock,
Par Value $.10 Per Share, of Devon Energy Corporation)
This DECS is one of a duly authorized issue of notes of the
Company of the series designated 5-1/2% Exchangeable Notes due August 2, 2004,
(herein called the "DECS"), limited in aggregate principal amount to
$330,348,375 issued and to be issued under an Indenture dated as of August 1,
1982, between the Company and Citibank, N.A., as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), as
supplemented by the First Supplemental Indenture dated a of May 7, 1996 and the
Second Supplemental Indenture thereto dated August 2, 1999 (said Indenture, as
so supplemented, herein and as it may be further supplemented from time to time,
called the "Indenture"), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Trustee and the Holders of the DECS, and of the terms upon which
the DECS are, and are to be, authenticated and delivered.
The DECS may not be redeemed prior to Stated Maturity and are
not entitled to the benefit of any sinking fund.
The provisions contained in the Indenture for defeasance of the
Company's obligations and discharge of the entire principal of all the
Securities of any series upon compliance by the Company with certain conditions
set forth therein will not be applicable to the DECS. Certain other provisions
contained in the Indenture pertaining to satisfaction and discharge of the
Indenture upon deposit of funds with the Trustee shall apply to the DECS in the
manner set forth in the Second Supplemental Indenture referred to above.
If an Event of Default with respect to the DECS, as defined in
the Indenture, shall occur and be continuing, the principal of all DECS may be
declared due and payable and therefore will result in the mandatory exchange of
the principal amount thereof for Devon Common Stock (or, at the Company's
option, cash and/or such other consideration as permitted or required herein),
all in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company with respect to the DECS and the rights of the
Holders of each series of the DECS under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding DECS of the series to
be affected thereby. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the DECS of
any series at the time Outstanding, on behalf of the Holders of all the DECS of
such series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences
with respect to such series. Any such consent or waiver by the Holder of this
DECS shall be conclusive and binding upon such Holder and upon all future
Holders of this DECS and of any DECS issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this DECS.
Holders of DECS may not enforce their rights pursuant to the
Indenture or the DECS except as provided in the Indenture. No reference herein
to the Indenture and no provision of this DECS or of the Indenture shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and interest on this DECS at the times, place, and rate,
and in the manner herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, this DECS is transferable on the Security Register of the
Company, upon surrender of this DECS for registration of transfer at the office
of the Company maintained for such purpose in the Borough of Manhattan, the City
and State of New York, duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed, by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new DECS of like aggregate principal amount
of such denominations as are authorized for DECS and of a like Stated Maturity
and with like terms and conditions will be issued in the name of the designated
transferee or transferees.
The DECS are issuable in registered form without coupons, in
denominations of $1,000 and any amounts in excess thereof. As provided in the
Indenture and subject to certain limitations therein set forth, DECS are
exchangeable for other DECS of like aggregate principal amount and of a like
Stated Maturity and with like terms and conditions, as requested by the Holder
surrendering the same.
No service charge shall be made for any registration of transfer
or exchange of DECS, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this DECS is registered as the owner
hereof for all purposes, whether or not this DECS be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this DECS which are defined in the Indenture
shall have the meanings assigned to them therein.
THIS DECS SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-------------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of the within DECS, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM - as tenants in common -
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT
___________Custodian___________
(Cust) (Minor)
Under Uniform Gifts to Minors Act
_________________________________
(State)
Additional abbreviations may also be used though
not in the above list
----------------------
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________
(Name and Address of Assignee, including zip code,
must be printed or typewritten)
the within DECS, and all rights thereunder, hereby irrevocably constituting and
appointing Attorney to transfer said DECS on the books of the Company, with full
power of substitution in the premises.
Dated:
Signature
NOTICE: The signature to this assignment must correspond with
the name as it appears upon the face of the within DECS in every particular,
without alteration or enlargement or any change whatever.
EXHIBIT 12
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
<CAPTION>
(Millions of dollars) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) from
continuing operations $146 $(345) $351 $358 $110
Add -
Provision (benefit) for
income taxes 111 (175) 184 225 (42)
Interest expense 190 157 141 145 193
Rental expense representative of interest factor 14 12 13 10 18
---- ----- ---- ---- ----
Earnings $461 $(351) $689 $738 $279
==== ===== ==== ==== ====
Fixed Charges -
Interest expense $190 $157 $141 $145 $193
Rental expense representative of interest factor 14 12 13 10 18
Interest capitalized 9 28 24 25 21
---- ----- ---- ---- ----
Total fixed charges $213 $ 197 $178 $180 $232
==== ===== ==== ==== ====
Ratio of earnings to fixed
charges 2.2 - (1) 3.9 4.1 1.2
==== ===== ==== ==== ====
</TABLE>
(1)Earnings were inadequate to cover fixed charges by $548 million in 1998.
FINANCIAL REVIEW Kerr-McGee Corporation
Contents
Management's Discussion and Analysis.......................14
Kerr-McGee/Oryx Merger...................................14
Operating Environment and Outlook........................14
Results of Consolidated Operations.......................15
Segment Operations.......................................17
Financial Condition......................................18
Market Risks.............................................19
Environmental Matters....................................20
New Accounting Standards.................................21
Year 2000 Readiness......................................22
Cautionary Statement Concerning
Forward-Looking Statements...............................22
Responsibility for Financial Reporting.....................22
Report of Independent Public Accountants...................23
Consolidated Statement of Income...........................24
Consolidated Statement of Comprehensive Income
and Stockholders' Equity.................................25
Consolidated Balance Sheet.................................26
Consolidated Statement of Cash Flows.......................27
Notes to Financial Statements..............................28
1. The Company and Significant Accounting Policies......28
2. Cash Flow Information................................30
3. Inventories..........................................30
4. Deferred Charges.....................................30
5. Investments - Equity Affiliates......................31
6. Investments - Other Assets...........................31
7. Property, Plant and Equipment........................31
8. Debt.................................................32
9. Accrued Liabilities..................................33
10. Common Stock.........................................33
11. Contingencies........................................34
12. Income Taxes.........................................35
13. Taxes, Other than Income Taxes.......................36
14. Deferred Credits and Reserves - Other................36
15. Discontinued Operations..............................36
16. Other Income.........................................37
17. Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of...........................37
18. Financial Instruments and Hedging Activities.........38
19. Employee Benefit Plans...............................40
20. Employee Stock Ownership Plan........................42
21. Employee Stock Option Plans..........................43
22. Merger and Restructuring Charges.....................44
23. Merger with Oryx Energy Company......................45
24. Reporting by Business Segments
and Geographic Locations...........................46
25. Subsequent Events....................................48
26. Costs Incurred in Crude Oil and
Natural Gas Activities.............................48
27. Results of Operations from Crude Oil
and Natural Gas Activities.........................49
28. Capitalized Costs of Crude Oil and
Natural Gas Activities.............................50
29. Crude Oil, Condensate, Natural Gas Liquids
and Natural Gas Net Reserves (Unaudited)...........51
30. Standardized Measure of and Reconciliation
of Changes in Discounted Future
Net Cash Flows (Unaudited).........................52
31. Quarterly Financial Information (Unaudited)..........53
Six-Year Financial Summary.................................54
Six-Year Operating Summary.................................55
Financial Review
Management's Discussion and Analysis
Kerr-McGee/Oryx Merger
On February 26, 1999, the merger between Kerr-McGee and Oryx was completed.
Oryx was a worldwide independent oil and gas exploration and production company.
Its operations have been merged into and reported with Kerr-McGee's exploration
and production segment. All references to the "company" refer to the merged
entity.
Under the merger agreement, each outstanding share of Oryx common stock was
effectively converted into the right to receive 0.369 shares of newly issued
Kerr-McGee common stock. The merger qualified as a tax-free exchange to Oryx's
shareholders and has been accounted for as a pooling of interests. Accordingly,
results of operations, financial position and cash flows for all prior periods
have been restated to reflect the combined company as though it had always been
in existence. The merger with Oryx was the largest transaction in
Kerr-McGee's history. The company has successfully incorporated the assets,
staffs and operations of the two companies and met the projected annualized
level of $100 million of pretax synergy savings.
Operating Environment and Outlook
Based on proved reserves at December 31, 1999, the company is one of the
largest independent, nonintegrated oil and gas exploration and production
companies based in the United States.
In the first two months of 2000, oil prices are in the $27 to $30
per-barrel range, the highest level in a decade. Oil prices have risen steadily
from the spring of 1999 when OPEC took steps to reduce supplies. OPEC's actions,
combined with higher consumption due to a robust economy, have resulted in
historically low levels of crude oil inventories. OPEC is scheduled to meet in
late March 2000, and many experts forecast that these producers will boost
production in order to prevent product shortages which will result in lower
prices. Management recognizes these risks to commodity pricing and believes
prices will average between $22 and $25 per barrel in 2000.
In early 2000, natural gas prices are in the $2.50 to $2.80 per million BTU
range, and those levels continue in the near-term futures markets. Natural gas
consumption in the U.S. has continued to grow, currently representing
approximately 25% of the nation's fuel needs. In 1998 and 1999, the U.S.
experienced a downturn in drilling in the shallow Gulf of Mexico and onshore
United States. The company and others have made significant discoveries in the
deepwater Gulf of Mexico; however, these projects require long startup times.
The increasing need for this environmentally friendly fuel for power generation,
coupled with slow supply development, should contribute to strengthening prices.
Management believes prices are stable at their current levels and may increase
when the market recognizes more of the risks associated with increasing natural
gas supply.
On February 14, 2000, the company reached agreements (subject to customary
conditions and governmental approvals) with Kemira Oyj of Finland to purchase
its pigment operations in Savannah, Georgia, and Botlek, the Netherlands. The
two plants have combined capacity of 201,000 tonnes per year, which will
increase Kerr-McGee's total equity pigment capacity by 60% to 535,000 tonnes per
year. After the transaction is completed, the company will rank as the world's
third-largest producer and marketer of pigment with about 16% of the world
market. During 1998, the company introduced a new universal grade of pigment,
which currently represents nearly 30% of the company's U.S. pigment production.
A new grade of pigment for the industrial-coatings market will go into
commercial production in the first half of 2000. Management believes that
pigment consumption will increase by 2.5% to 3% annually during the next five
years. The company is undertaking cost-reduction programs at its non-U.S.
pigment facilities similar to a program that was implemented in 1999 at the U.S.
plant where significant cost reductions have been achieved.
Results of Consolidated Operations
Net income (loss) and per-share amounts for each of the three years in the
period ended December 31, 1999, were as follows:
(Millions of dollars, except per-share amounts) 1999 1998 1997
- ----------------------------------------------- ---- ---- ----
Net income (loss) $142 $(68) $382
Income (loss) from continuing operations
excluding special items 296 (24) 343
Net income (loss) per share -
Net income (loss) -
Basic 1.64 (.78) 4.40
Diluted 1.64 (.78) 4.38
Income (loss) from continuing operations
excluding special items -
Basic 3.42 (.28) 3.95
Diluted 3.42 (.28) 3.93
Net income (loss) was impacted by a number of special items in each of the
years. In 1999, special items were both operating and nonoperating and were
associated principally with the Oryx merger and transition and with pending and
settled litigation matters. The 1998 special items related primarily to
impairment write-downs reflecting the then current market value of certain of
the company's oil and gas producing fields and certain chemical facilities.
Other 1998 special items were principally nonoperating and reduced net income by
$22 million. In 1997, special items were principally nonoperating and increased
net income by $8 million. These special items affect comparability between the
periods and are shown on an after-tax basis in the following table, which
reconciles income (loss) from continuing operations excluding special items to
net income (loss):
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Income (loss) from continuing
operations excluding special items $296 $(24) $343
---- ---- ----
Special items, net of taxes -
Asset impairment -- (299) --
Merger costs (116) -- --
Equity affiliate's full-cost
ceiling write-down -- (27) --
Net provision for environmental
remediation and restoration of
inactive sites -- (26) (13)
Restructuring (1) (25) (1)
Pending/settled litigation (20) -- (1)
Transition costs (14) -- --
Settlement of prior years' income taxes 1 41 --
Settlements with insurance carriers -- 8 8
Effect of U.K. tax-rate change -- 8 --
Gains on the sales of equity securities -- -- 12
Other, net -- (1) 3
---- ---- ----
Total (150) (321) 8
---- ---- ----
Discontinued operations, net of taxes -- 277 33
Extraordinary charge, net of taxes -- -- (2)
Change in accounting principle, net of taxes (4) -- --
---- ---- ----
Net income (loss) $142 $(68) $382
==== ==== ====
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 1999 were required to be recognized as a cumulative
effect of a change in accounting principle, which decreased 1999 after-tax
income by $4 million.
The company sold its coal operations in 1998, resulting in an after-tax
gain of $257 million. All amounts related to coal are shown in the Consolidated
Statement of Income as discontinued operations.
In 1997, the company recognized an extraordinary loss of $2 million (net of
$1 million of income taxes) from the write-off of unamortized debt issuance
costs. These costs related to a $500 million credit facility that was replaced
with a five-year, $500 million revolving credit agreement.
Income from continuing operations excluding special items for 1999
increased $320 million from 1998. This primarily resulted from a $343 million
increase in exploration and production after-tax operating profit excluding
special items, which was partially offset by a $29 million increase in net
interest expense. In 1998, income (loss) from continuing operations excluding
special items declined $367 million from the prior year, due primarily to a $368
million decline in exploration and production after-tax operating profit
excluding special items, which was partially offset by a $20 million increase in
chemical results.
Sales from continuing operations were $2.7 billion in 1999, $2.2 billion in
1998 and $2.6 billion in 1997. Sales for 1999 were higher than in 1998 due to
higher average sales prices for oil and natural gas (37% and 11% increases,
respectively), a 16% increase in oil volumes sold and an increase in titanium
dioxide pigment sales volumes (mainly due to a full year of production from the
company's European pigment operations, compared to nine months in 1998),
partially offset by lower electrolytic and forest products sales volumes and
lower European pigment sales prices. Sales in 1998 were lower than 1997
primarily due to declines in 1998 average sales prices for oil and natural gas,
of 32% and 13%, respectively. In addition, natural gas volume decreases were
partially offset by increased sales volumes and prices for pigment. The volume
decreases in natural gas sales were primarily the result of damages to and
repair times for pipeline systems, hurricane downtimes and normal production
declines. Volume increases in pigment sales relate to the March 1998 purchase of
the European pigment operations and the expansion of the pigment facility in
Hamilton, Mississippi.
Costs and operating expenses totaled $1.1 billion in both 1999 and 1998 and
$1 billion in 1997. The 1998 amount was higher than the prior year principally
due to costs of the acquired European pigment operations and higher per-unit
costs at the U.S. pigment and synthetic rutile facilities. This was partially
offset by the absence of costs of natural gas purchased for resale.
Following are general and administrative expenses for 1999, 1998 and 1997:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
General and administrative expenses
excluding special items $186 $204 $194
---- ---- ----
Special items -
Net provision for environmental
remediation and restoration of
inactive sites -- 41 20
Restructuring -- 36 2
Pending/settled litigation 30 -- 2
Transition costs associated with
the Oryx merger 22 -- --
Other, net -- (3) 3
---- ---- ----
Total 52 74 27
---- ---- ----
General and administrative expenses $238 $278 $221
==== ==== ====
The decrease in 1999 general and administrative expense compared with 1998
resulted from the synergies realized through the merger, principally by the
exploration and production segment. The estimated general and administrative
synergies of approximately $35 million were partially offset by slightly higher
chemical costs and higher corporate charges primarily due to higher costs
associated with improved employee benefit plans. The provision for pending or
settled litigation is principally related to facilities or properties no longer
operated or owned by the company. Transition costs were those associated with
ongoing business during the time of the merger, which will not re-occur in 2000.
The increase in 1998 over 1997 general and administrative expenses excluding
special items primarily resulted from additional costs related to the company's
European pigment operations. Net provisions for environmental remediation and
restoration of inactive sites primarily represented additional provisions
established for the removal of low-level radioactive materials from the
company's inactive facility and offsite areas in West Chicago, Illinois.
Restructuring charges were for a 1998 voluntary severance program for the former
Oryx U.S. operations, a work process review and organizational restructuring of
several groups, the 1996-1997 relocation of part of the exploration and
production unit to Houston, Texas, and severance associated with the divestiture
program and the merger of certain of the company's North American onshore
properties into Devon Energy Corporation (Devon) effective December 31, 1996.
Asset impairments totaled $446 million in 1998 (see Note 17). Of this
amount, $389 million were for write-downs associated with certain oil and gas
fields located in the North Sea, China and United States. Asset impairment of
$57 million was also recognized for certain chemical facilities in Idaho and
Alabama. The impairments were recorded because these assets were no longer
expected to recover their net book values through future cash flows.
Exploration costs for 1999, 1998 and 1997 were $140 million, $215 million
and $139 million, respectively. The decrease for 1999 resulted from lower dry
hole costs principally in the Gulf of Mexico, Kazakhstan and China, lower costs
of geophysical projects primarily in the United States onshore area and lower
exploration district expense in the United States, the North Sea and China. The
primary reasons for the 1998 increase over the prior year were higher dry hole
costs in the Gulf of Mexico, Kazakhstan, Thailand and onshore United States,
higher undeveloped leasehold amortization in the Gulf of Mexico, higher
geophysical expenses related to the Gulf of Mexico and higher district expense
in China, the North Sea and Gulf of Mexico, partially offset by lower dry hole
costs in China.
Taxes, other than income taxes, were $85 million in 1999, $53 million in
1998 and $103 million in 1997. The 1999 and 1998 variances from the prior year
were both due principally to severance taxes, a direct result of changes in oil
and gas prices.
Merger costs totaling $163 million were recognized in 1999 and represent
costs incurred in connection with the Oryx merger, which have no future benefit
to the combined operations. The major items included are severance and
associated benefit plan adjustments; lease cancellation costs; transfer fees for
seismic data; investment bankers, lawyers and accountants fees; and the
write-off of duplicate computer systems and fixtures (see Note 22).
Interest and debt expense totaled $190 million in 1999, $157 million in
1998 and $141 million in 1997. The 1999 increase resulted from lower capitalized
interest and higher borrowings related to the costs of the merger. Borrowings
increased in 1998 due to the acquisitions of European chemical operations and
North Sea oil and gas assets, partially offset by the proceeds from the sale of
the coal assets.
Other income was as follows for each of the years in the three-year period
ended December 31, 1999:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Other income excluding special items $ 39 $ 36 $ 43
---- ---- ----
Special items -
Interest income from settlement
of prior years' income taxes 1 19 --
Settlements with insurance carriers -- 12 12
Equity affiliate's full-cost ceiling
write-down -- (27) --
Gains on the sale of nonstrategic
oil and gas properties -- 2 2
Gains on sales of equity securities -- -- 18
Other, net -- 1 7
---- ---- ----
Total 1 7 39
---- ---- ----
Other income $ 40 $ 43 $ 82
==== ==== ====
The increase in 1999 other income excluding special items compared with
1998 was due primarily to higher foreign currency gains, partially offset by
lower interest income. Lower equity earnings from unconsolidated affiliates were
the primary reason for the decline in 1998 other income excluding special items,
compared with the prior year. Equity earnings from the company's investment in
Devon were impacted by lower oil and gas prices and decreased $14 million for
1998 compared with 1997.
Segment Operations
Operating profit (loss) from each of the company's segments is summarized
in the following table:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Operating profit excluding special items -
Exploration and production $562 $ 62 $597
---- ----- ----
Chemicals -
Pigment 113 89 49
Other 15 26 35
---- ----- ----
Total Chemicals 128 115 84
---- ----- ----
Total 690 177 681
Special items (21) (482) (5)
---- ----- ----
Operating profit (loss) $669 $(305) $676
==== ===== ====
Exploration and Production
Exploration and production sales, operating profit (loss) and production
and sales statistics are shown in the following table:
(Millions of dollars, except per-unit amounts) 1999 1998 1997
- ---------------------------------------------- ------ ------ ------
Sales $1,770 $1,267 $1,845
====== ====== ======
Operating profit excluding special items $ 562 $ 62 $ 597
Special items (20) (423) (2)
------ ------ ------
Operating profit (loss) $ 542 $ (361) $ 595
====== ====== ======
Net crude oil and condensate produced
(thousands of barrels per day) 197 172 172
Average price of crude oil sold
(per barrel) $17.15 $12.52 $18.32
Natural gas sold (MMCF per day) 580 584 685
Average price of natural gas sold
(per MCF) $ 2.35 $ 2.12 $ 2.43
Special items in 1999 are transition costs associated with the work
necessary to accomplish the Oryx merger. Asset impairment for certain oil and
gas fields in the North Sea, China and the United States totaled $389 million in
1998 and is reflected in special items. Also in 1998, a $34 million
restructuring reserve is shown as a special item. This amount was provided
primarily for a voluntary severance program for employees of former Oryx U.S.
operations. Special items in 1997 consisted primarily of additional costs for
the segment's restructuring and relocation to Houston, Texas.
Chemicals
Chemical sales and operating profit are shown in the following table:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Sales -
Pigment $700 $640 $470
Other 226 293 290
---- ---- ----
Total $926 $933 $760
==== ==== ====
Operating profit excluding special items -
Pigment $113 $ 89 $ 49
Other 15 26 35
---- ---- ----
128 115 84
Special items -
Pigment -- (33) --
Other (1) (26) (3)
---- ---- ----
Operating profit $127 $ 56 $ 81
==== ==== ====
Severance charges of $1 million and $2 million were recorded as special
items in 1999 and 1998, respectively. Also included in 1998 special charges are
asset impairments totaling $57 million for noncore chemical assets in Alabama
and Idaho. Special items in 1997 were primarily for the write-off of obsolete
equipment.
Pigment - The increase in 1999 titanium dioxide pigment sales from the
prior year was due principally to increased volumes in Europe as a result of a
full year of sales after the company's acquisition at the end of March 1998 of
the European pigment operations, partially offset by lower European pigment
prices. Operating profit excluding special items increased in 1999 due to the
higher sales in Europe and lower U.S. per-unit production costs. Pigment prices
increased throughout 1998. This improvement in pricing, along with the company's
acquisition of the European pigment operations and a full year's production from
a 27, 000 tonne-per-year expansion of the company's Hamilton, Mississippi, plant
were the primary reasons for the $170 million increase in pigment sales in 1998.
These sales increases were partially offset by higher per-unit production costs
resulting in a $ 40 million increase in operating profit excluding special
items.
Other - Other chemical sales were lower in 1999 as compared with 1998
principally due to lower forest products sales volumes, the company's withdrawal
from the ammonium perchlorate business in 1998 and lower vanadium sales volumes.
The decline in sales was the major reason for lower operating profit in 1999.
The decline in 1998 operating profit from 1997 resulted primarily from the
withdrawal from the ammonium perchlorate business in 1998 and higher sodium
chlorate per-unit production costs.
Financial Condition
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Current ratio 1.4 0.8 1.0
Total debt $2,525 $2,250 $1,766
Total debt less cash 2,258 2,129 1,574
Stockholders' equity $1,492 $1,346 $1,558
Total debt less cash to total capitalization 60% 61% 50%
Floating-rate debt to total debt 38 33 15
Cash Flow
Net cash provided by operating activities was $713 million in 1999,
compared with $385 million in 1998 and $1.1 billion in 1997. The rebound in
crude oil prices and the resulting impact on net income were the primary reasons
for the 1999 increase in net cash provided by operating activities and more than
offset the reduction in cash from the costs of the merger.
Cash used in 1999 investing activities was primarily for $543 million of
capital expenditures and $33 million of unsuccessful exploratory well costs.
Additionally, the company invested in several oil and gas property acquisitions
totaling $78 million, including the buy-out of the limited partners of Sun
Energy Partners, L.P. Net other investing activities used $8 million of cash.
Dividends increased to $138 million in 1999 with the additional Kerr-McGee
shares outstanding after the merger. These quarterly dividend payments of $.45
per share and the net cash used in investing activities were in excess of net
cash provided by operating activities. To supplement this shortfall, borrowings
and other financings increased by a net amount of $238 million, with a net
result of $146 million increase in cash.
The decrease in 1998 net cash provided by operating activities resulted
primarily from the low crude oil price environment, which contributed to the net
loss and from increased working capital and other changes that used cash from
operating activities. Net cash provided by operating activities was reduced by
taxes paid related to the sale of the discontinued coal operations of $115
million.
In 1998, proceeds of approximately $600 million were received from the sale
of the company's discontinued coal operations, $150 million from the sale of the
marginal exploration and production properties and the ammonium perchlorate
operations and $20 million from other investing activities. These sources of
cash from investing activities and net proceeds from debt issuances of $481
million were used for capital expenditures of $981 million, acquisitions of the
Gulf Canada North Sea assets and the European titanium dioxide pigment
facilities totaling $518 million and dry hole costs of $92 million.
The company's Board of Directors authorized a stock purchase program in
1998. A total of 580,000 shares ($25 million) was purchased before the program
was cancelled because of the company's merger.
Liquidity
At year-end 1999, total debt outstanding was $2.5 billion. The percentage
of total debt less cash to total capitalization was 60% at December 31, 1999;
61% at December 31, 1998; and 50% at year-end 1997. The slight improvement at
year-end 1999 resulted from the impact of the equity increase from 1999 net
income on total capitalization. The impact of increased borrowings in 1998
accounted for the increase in the 1998 percentage. Borrowings increased because
the level of the capital expenditure program and the two 1998 acquisitions were,
in total, in excess of the proceeds from the sale of the coal operations.
Significant 1999 debt transactions included issuance of $327 million 5-1/2%
debt exchangeable for common stock of Devon due August 2, 2004. (The company
owns 9,954,000 shares of outstanding Devon common stock.) In addition, $150
million floating rate notes due 2001 were issued in November to institutional
investors with interest payable quarterly at three-month LIBOR plus 0.5%.
The company believes it has the ability to provide for its operational
needs and its long- and short-term capital programs through its operating cash
flow, borrowing capacity and ability to raise capital. At December 31, 1999, the
company had unused lines of credit and revolving credit agreements totaling
$1.4 billion. Of this amount, $835 million and $400 million could be used to
support the commercial paper borrowings of Kerr-McGee Credit LLC and Kerr-McGee
Oil (U.K.) PLC, respectively, both wholly owned subsidiaries. Outstanding
revolving credit borrowings at year-end 1999 totaled $85 million at varying
rates of interest.
On February 26, 1999, the date of the merger, the company signed two
revolving credit facilities replacing $75 million of a Kerr-McGee Oil (U.K.) PLC
revolving credit facility and Oryx's $500 million, five-year revolving credit
facility entered into October 20, 1997. The two agreements consist of a
three-year, $500 million facility and a 364-day, $250 million facility.
One-third of the borrowings under each of the agreements can be drawn by foreign
subsidiaries. The borrowings can be made in British pound sterling, euros or
other local European currencies. Interest for each of the revolving credit
facilities is payable at varying rates. Effective February 25, 2000, the 364-day
facility was renewed and increased to $350 million.
At December 31, 1999, the company classified $793 million of its short-term
obligations as long-term debt. Final settlement of these obligations, consisting
of revolving credit borrowings and commercial paper, is not expected to occur in
2000. The company has the intent and the ability, as evidenced by committed
credit arrangements, to refinance this debt on a long-term basis. The company's
practice has been to continually refinance its commercial paper, while
maintaining levels believed to be appropriate.
The company increased its shelf registration with the Securities and
Exchange Commission in January 2000 to offer up to $1.5 billion of debt
securities, preferred stock, common stock or warrants. In February 2000, under
this registration, the company issued 7.5 million shares of its common stock and
$600 million of 5-1/4% convertible subordinated debentures due 2010, generating
nearly $1 billion in net proceeds to the company. These proceeds will be used to
redeem the short-term floating rate debt used for the $555 million acquisition
of Repsol S.A.'s North Sea oil and gas operations in January 2000, the pending
$403 million acquisition of Kemira Oyj's U.S. and Dutch titanium dioxide pigment
operations and/or reduction of other debt.
In connection with these first quarter transactions and offerings, rating
agencies confirmed the company's debt ratings. The ratings are "BBB+," "Baa1"
and "BBB" for senior unsecured debt. See Note 8 for a discussion of the
company's debt at year-end 1999.
The company finances capital expenditures through internally generated
funds and various borrowings. Cash capital expenditures were $543 million in
1999, $981 million in 1998 and $836 million in 1997, a total of $2.4 billion.
During this same three-year period, $2.9 billion of net cash was provided by
operating activities (exclusive of working capital and other changes), which
exceeded cash capital expenditures and dividends paid during the periods by
approximately $200 million.
Management anticipates that 2000 cash capital requirements, currently
estimated at $675 million, and the capital expenditures programs for the next
several years can continue to be provided through internally generated funds and
selective borrowings.
Market Risks
The company is exposed to a variety of market risks, including the effects
of movements in foreign currency exchange rates, interest rates and certain
commodity prices. The company addresses its risks through a controlled program
of risk management that includes the use of derivative financial instruments.
The company does not hold or issue derivative financial instruments for trading
purposes. See Notes 1 and 18 for additional discussions of the company's
financial instruments and hedging activities.
Foreign Currency Exchange
The U.S. dollar is the functional currency for the company's international
operations, except for its European chemical operations. It is the company's
intent to hedge a portion of its monetary assets and liabilities denominated in
foreign currencies. Periodically, the company purchases foreign currency forward
contracts to provide funds for operating and capital expenditure requirements
that will be denominated in foreign currencies, primarily Australian dollars and
British pound sterling. These contracts generally have durations of less than
three years. The company also enters into forward contracts to hedge the sale of
various foreign currencies, principally generated from accounts receivable for
titanium dioxide pigment sales denominated in foreign currencies. These
contracts are principally for European currencies and generally have durations
of less than a year. Since these contracts qualify as hedges and correlate to
currency movements, any gains or losses resulting from exchange rate changes are
deferred and recognized as adjustments of the hedged transaction when it is
settled in cash.
Following are the notional amounts at the contract exchange rates,
weighted-average contractual exchange rates and estimated fair value by contract
maturity for open contracts at year-end 1999 and 1998 to purchase (sell) foreign
currencies. All amounts are U.S. dollar equivalents.
<TABLE>
<CAPTION>
Notional Weighted-Average Estimated Fair
(Millions of dollars, except average contract rate) Amount Contract Rate Value
- --------------------------------------------------------- -------- ---------------- --------------
<S> <C> <C> <C>
Open contracts at December 31, 1999 -
Maturing in 2000 -
Australian dollar $48 .6306 $50
French franc (1) 6.2908 (1)
British pound sterling (1) .6187 (1)
Italian lira (1) 1839.8282 (1)
New Zealand dollar (1) 1.9775 (1)
Japanese yen (1) 102.4479 (1)
Maturing in 2001 -
Australian dollar 32 .6499 32
Maturing in 2002 -
Australian dollar 16 .6538 16
Open contracts at December 31, 1998 -
Maturing in 1999 -
Australian dollar 56 .7117 48
German mark (1) 1.6745 (1)
British pound sterling 41 1.6355 42
Maturing in 2000 -
Australian dollar 21 .6145 21
</TABLE>
Interest Rates
The company's exposure to changes in interest rates relates primarily to
long-term debt obligations. The company has participated in various interest
rate hedging arrangements to help manage the floating-rate portion of its debt.
There were no interest rate hedging contracts entered into during 1999 or 1998.
At December 31, 1998, all interest rate hedging contracts had expired.
The table below presents principal amounts and related weighted-average
interest rates by maturity date for the company's long-term debt obligations
outstanding at year-end 1999. All borrowings are in U.S. dollars.
<TABLE>
<CAPTION>
There- Fair Value
(Millions of dollars) 2000 2001 2002 2003 2004 after Total 12/31/99
- --------------------- ---- ---- ---- ---- ---- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-rate debt -
Principal amount $20 $174 $33 $116 $491 $739 $1,573 $1,612
Weighted-average
interest rate 8.54% 9.78% 8.85% 8.04% 6.45% 7.28% 7.40%
Variable-rate debt -
Principal amount -- $416 $467 $60 -- -- $943 $943
Weighted-average
interest rate -- 6.74% 6.70% 6.37% -- -- 6.69%
</TABLE>
At December 31, 1998, long-term debt included fixed-rate debt of $1,497
million (fair value - $1,648 million) with a weighted-average interest rate of
8.17% and $717 million of variable-rate debt, which approximated fair value,
with a weighted-average interest rate of 5.92%.
Commodity Prices
The company periodically uses commodity futures and collar contracts to
hedge a portion of its crude oil and natural gas sales and natural gas purchased
for operations in order to minimize the price risks associated with the
production and marketing of crude oil and natural gas. Since the contracts
qualify as hedges and correlate to price movements of crude oil and natural gas,
any gain or loss from these contracts is deferred and recognized as part of the
hedged transaction.
The company did not enter into any hedging arrangements in 1999 and settled
all open 1998 contracts during the year. At December 31, 1998, the company had
open crude oil collar contracts that hedged 4% of its 1999 worldwide crude oil
sales volumes at an average floor price of $15.85 per barrel and an average
ceiling price of $17.35 per barrel. Also at December 31, 1998, the company had
collar arrangements that hedged 21% of its 1999 worldwide natural gas sales
volumes at an average floor price of $2.29 per MMBtu and an average ceiling
price of $2.47 per MMBtu. The aggregate carrying value of these contracts at
December 31, 1998, was $7 million, and the aggregate fair value, based on quotes
from brokers, was approximately $22 million.
Environmental Matters
The company's operations are subject to various environmental laws and
regulations. Under these laws, the company is or may be required to remove or
mitigate the effects on the environment of the disposal or release of certain
chemical, petroleum or low-level radioactive substances at various sites,
including sites that have been designated Superfund sites by the U.S.
Environmental Protection Agency (EPA) pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as
amended. At December 31, 1999, the company had received notices that it has been
named a potentially responsible party (PRP) with respect to 17 existing EPA
Superfund sites that require remediation and may share liability at certain of
these sites with approximately 300 other PRPs. In addition, the company and/or
its subsidiaries have executed consent orders, operate under a license or have
reached agreements to perform or have performed remediation or remedial
investigations and feasibility studies on sites not included as EPA Superfund
sites.
The company does not consider the number of sites for which it has been
named a PRP to be a relevant measure of liability. The company is uncertain as
to its involvement in many of the sites because of continually changing
environmental laws and regulations; the nature of the company's businesses; the
large number of other PRPs; the present state of the law, which imposes joint
and several liability on all PRPs under CERCLA; and pending legal proceedings.
Therefore, the company is unable to reliably estimate the potential liability
and the timing of future expenditures that may arise from many of these
environmental sites. Reserves have been established for the remediation and
restoration of active and inactive sites where it is probable that future costs
will be incurred and the liability is estimable. In 1999, $85 million was added
to the reserve for active and inactive sites. At December 31, 1999, the
company's reserve for these sites totaled $204 million. In addition, at year
- -end 1999, the company had a reserve of $257 million for the future costs of the
abandonment and removal of offshore well and production facilities at the end of
their productive lives. In the Consolidated Balance Sheet, $391 million of the
total reserve is classified as a deferred credit, and the remaining $70 million
is included in current liabilities.
Expenditures for the environmental protection and cleanup of existing sites
for each of the last three years and for the three-year period ended December
31, 1999, are as follows:
(Millions of dollars) 1999 1998 1997 Total
- --------------------- ---- ---- ---- -----
Charges to environmental reserves $121 $109 $ 96 $326
Recurring expenses 17 13 20 50
Capital expenditures 5 24 17 46
Total $143 $146 $133 $422
The company has not recorded in the financial statements potential
reimbursements from governmental agencies or other third parties, except for
amounts due from the U.S. government under Title X of the Energy Policy Act of
1992 (see Notes 11 and 14). The following table reflects the company's portion
of the known estimated costs of investigation and/or remediation that is
probable and estimable. The table includes all EPA Superfund sites where the
company has been notified it is a PRP under CERCLA and other sites for which the
company believes it had some ongoing financial involvement in investigation
and/or remediation at year-end 1999.
<TABLE>
<CAPTION>
Total Known Total
Estimated Expenditures
Cost Through 1999
----------- ------------
Location of Site Stage of Investigation/Remediation (Millions of dollars)
- ---------------- ---------------------------------- ---------------------
<S> <C> <C> <C>
EPA Superfund sites
Milwaukee, Wis. Executed consent decree to remediate the site of
a former wood-treating facility. Awaiting approval
of proposed remedy; installed and operating a free-
product recovery system. $ 15 $ 9
West Chicago, Ill., four sites Began cleanup of first site in 1995. Cleanup of second
outside the facility site began in 1997, and removal work neared completion
at end of 1999. Two sites are under study (see Note 11). 85 82
12 sites individually immaterial Various stages of investigation/remediation. 47 40
---- ----
147 131
---- ----
Non-EPA Superfund sites under
consent order, license or agreement
West Chicago, Ill., facility Decommissioning is in progress under State of Illinois
supervision (see Note 11). Began shipments to a
permanent disposal facility in 1994. 385 263
Cleveland/Cushing, Okla. Began cleanup in 1996. 75 61
Henderson, Nev. Entered consent agreement in 1999. 47 16
---- ----
507 340
---- ----
Non-EPA Superfund sites
individually immaterial Various stages of investigation/remediation. 220 199
---- ----
Total for all sites $874 $670
==== ====
</TABLE>
Management believes adequate reserves have been provided for environmental
and all other known contingencies. However, it is possible that additional
reserves could be required in the future due to the previously noted
uncertainties.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative and Hedging Activities." The statement requires
recording all derivative instruments as assets or liabilities, measured at fair
value. The standard is effective for fiscal years beginning after June 15, 2000.
The company is currently evaluating the impact the standard will have on income
from continuing operations; however, management believes it will not be material
due to the limited amount of derivative and hedging activities in which the
company currently engages.
Year 2000 Readiness
In 1996, the company established a formal Year 2000 Program (Program) and
expanded the Program to include Oryx systems at the time of the merger in
February 1999. The Program was to assess and correct Year 2000 problems in both
information technology and noninformation technology systems. The Program was
organized into two major areas: Business Systems and Facilities Integrity.
Business Systems included replacement applications such as purchasing,
inventory, engineering, financial, human resources, etc. Facilities Integrity
encompassed telecommunications, plant process controls, instrumentation and
embedded chip systems as well as an assessment of third-party Year 2000
readiness. An integral part of the Program was communication with third parties
to assess the extent and status of their Year 2000 efforts. The company
contacted key suppliers, customers and partners requesting information regarding
Year 2000 readiness.
No significant Year 2000 failures or events occurred within the company
during the 1999 year-end rollover or during the first two months of 2000. It is
believed the readiness of key third-party suppliers and partners has been
validated and there will be no future material impact on the company due to Year
2000 problems. While there have been a few Year 2000 problems related to
vendor-supplied items, none was considered significant to business operations.
There are no significant, ongoing Year 2000 contingencies related to major
customers or vendors. Company spending patterns have not been materially
affected by Year 2000 remediation. Even though some information technology
projects were postponed, none was considered significant.
As of December 31, 1999, total Program expenditures for the merged
company's Year 2000 activities were approximately $53 million from inception to
completion, which is not material to the company's consolidated results of
operations, financial position or cash flows. The total cost of the Program was
in line with the company's original estimate. Program expenditures were provided
through internally generated funds. No further significant expenditures are
expected for Year 2000 activities.
Cautionary Statement Concerning Forward-Looking Statements
Statements in this Financial Review regarding the company's or
management's intentions, beliefs or expectations are forward-looking statements
within the meaning of the Securities Litigation Reform Act. Future results and
developments discussed in these statements may be affected by numerous factors
and 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 value 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. Actual results and developments may
differ materially from those expressed or implied in this Financial Review.
Responsibility for Financial Reporting
The company's management is responsible for the integrity and objectivity
of the financial data contained in the financial statements. These financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances and, where necessary, reflect
informed judgments and estimates of the effects of certain events and
transactions based on currently available information at the date the financial
statements were prepared.
The company's management depends on the company's system of internal
accounting controls to assure itself of the reliability of the financial
statements. The internal control system is designed to provide reasonable
assurance, at appropriate cost, that assets are safeguarded and transactions are
executed in accordance with management's authorizations and are recorded
properly to permit the preparation of financial statements in accordance with
generally accepted accounting principles. Periodic reviews are made of internal
controls by the company's staff of internal auditors, and corrective action is
taken if needed.
The Board of Directors reviews and monitors financial statements through
its audit committee, which is composed solely of directors who are not officers
or employees of the company. The audit committee meets regularly with the
independent public accountants, internal auditors and management to review
internal accounting controls, auditing and financial reporting matters.
The independent public accountants are engaged to provide an objective and
independent review of the company's financial statements and to express an
opinion thereon. Their audits are conducted in accordance with generally
accepted auditing standards, and their report is included on the following
page.
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Kerr-McGee Corporation:
We have audited the accompanying consolidated balance sheet of Kerr-McGee
Corporation (a Delaware corporation) and subsidiary companies as of December 31,
1999 and 1998, and the related consolidated statements of income, comprehensive
income and stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Oryx Energy Company in 1998 or 1997, which was merged
into the company during 1999 in a transaction accounted for as a pooling of
interests, as discussed in Note 1. Such statements are included in the
consolidated financial statements of Kerr-McGee Corporation and reflect total
assets and total revenues of 36 percent and 37 percent in 1998, respectively,
and total revenues of 47 percent in 1997, of the related consolidated totals,
after restatement to reflect certain adjustments necessary to conform accounting
policies and presentation as set forth in Note 23. The financial statements of
Oryx Energy Company prior to those adjustments were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
the amounts included for Oryx Energy Company, is based solely on the report of
the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Kerr-McGee Corporation and subsidiary companies as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Oklahoma City, Oklahoma,
February 25, 2000 ARTHUR ANDERSEN LLP
Report of Independent Accountants
To the Shareholders and Board of Directors, Oryx Energy Company:
In our opinion, the accompanying consolidated balance sheets of Oryx Energy
Company and its Subsidiaries and the related consolidated statements of income,
cash flows and changes in shareholders' equity (not presented separately herein)
present fairly, in all material respects, the consolidated financial position of
Oryx Energy Company and its Subsidiaries as of December 31, 1998 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements in accordance with auditing
standards generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 26, 1999
Consolidated Statement of Income
<TABLE>
<CAPTION>
(Millions of dollars, except per-share amounts 1999 1998 1997
- ---------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Sales $2,696 $2,200 $2,605
------ ------ ------
Costs and Expenses
Costs and operating expenses 1,056 1,053 1,003
General and administrative expenses 238 278 221
Depreciation and depletion 607 561 545
Asset impairment -- 446 --
Exploration, including dry holes and amortization of undeveloped leases 140 215 139
Taxes, other than income taxes 85 53 103
Merger costs 163 -- --
Interest and debt expense 190 157 141
------ ------ ------
Total Costs and Expenses 2,479 2,763 2,152
------ ------ ------
217 (563) 453
Other Income 40 43 82
------ ------ ------
Income (Loss) from Continuing Operations before Income Taxes,
Extraordinary Charge and Change in Accounting Principle 257 (520) 535
Taxes on Income (111) 175 (184)
------ ------ ------
Income (Loss) from Continuing Operations before Extraordinary
Charge and Change in Accounting Principle 146 (345) 351
Income from Discontinued Operations, net of taxes of
$156 in 1998 and $12 in 1997 -- 277 33
------ ------ ------
Income (Loss) before Extraordinary Charge and Change
in Accounting principle 146 (68) 384
Extraordinary Charge, net of taxes of $1 -- -- (2)
Cumulative Effect of Change in Accounting Principle,
net of taxes (4) -- --
------ ------ ------
Net Income (Loss) $ 142 $ (68) $ 382
====== ====== ======
Net Income (Loss) per Common Share
Basic -
Continuing operations $ 1.69 $(3.98) $ 4.04
Discontinued operations -- 3.20 .38
Extraordinary charge -- -- (.02)
Cumulative effect of accounting change (.05) -- --
------ ------ ------
Net income (loss) $ 1.64 $ (.78) $ 4.40
====== ====== ======
Diluted -
Continuing operations $ 1.69 $(3.98) $ 4.02
Discontinued operations -- 3.20 .38
Extraordinary charge -- -- (.02)
Cumulative effect of accounting change (.05) -- --
------ ------ ------
Net income (loss) $ 1.64 $ (.78) $ 4.38
====== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
Consolidated Statement of Comprehensive Income and Stockholders' Equity
<TABLE>
<CAPTION>
Accumu-
lated
Other
Compre- Compre- Total
hensive Capital in hensive Deferred Stock-
Income Common Excess of Retained Income Treasury Compensation holders'
(Millions of dollars) (Loss) Stock Par Value Earnings (Loss) Stock and Other Equity
- --------------------- ------- ------ ---------- -------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $93 $1,241 $436 $(12) $(306) $(173) $1,279
Net income $382 -- -- 382 -- -- -- 382
Unrealized gains on securities,
net of $1 income tax 2 -- -- -- 2 -- -- 2
Realized gains on securities,
net of $6 income tax (12) -- -- -- (12) -- -- (12)
Appreciation of securities
donated, net of $1
income tax (2) -- -- -- (2) -- -- (2)
Minimum pension liability
adjustment (5) -- -- -- (5) -- -- (5)
Shares issued -- -- 33 -- -- -- -- 33
Shares acquired -- -- -- -- -- (57) -- (57)
Dividends declared
($1.80 per share) -- -- -- (86) -- -- -- (86)
Other -- -- -- (1) -- -- 25 24
---- --- ------ ---- ---- ----- ----- ------
Total $365
====
Balance December 31, 1997 93 1,274 731 (29) (363) (148) 1,558
Net loss $(68) -- -- (68) -- -- -- (68)
Foreign currency translation
adjustment (5) -- -- -- (5) -- -- (5)
Minimum pension liability
adjustment (2) -- -- -- (2) -- -- (2)
Shares issued -- -- 8 -- -- -- -- 8
Shares acquired -- -- -- -- -- (25) -- (25)
Dividends declared
($1.80 per share) -- -- -- (86) -- -- -- (86)
Effect of equity affiliate's
merger -- -- -- (51) -- -- -- (51)
Other -- -- -- 1 -- -- 16 17
---- --- ------ ---- ---- ----- ----- ------
Total $(75)
====
Balance December 31, 1998 93 1,282 527 (36) (388) (132) 1,346
Net income $142 -- -- 142 -- -- -- 142
Unrealized gains on securities,
net of $42 income tax 79 -- -- -- 79 -- -- 79
Foreign currency translation
adjustment (23) -- -- -- (23) -- -- (23)
Minimum pension liability
adjustment 25 -- -- -- 25 -- -- 25
Shares issued -- -- 2 -- -- -- -- 2
Dividends declared
($1.80 per share) -- -- -- (156) -- -- -- (156)
Effect of equity affiliate's
merger -- -- -- 63 -- -- -- 63
Other -- -- -- -- -- -- 14 14
---- --- ------ ---- ---- ----- ----- ------
Total $223
====
Balance December 31, 1999 $93 $1,284 $576 $ 45 $(388) $(118) $1,492
=== ====== ==== ==== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of this statement.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998
- --------------------- ------ ------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 267 $ 121
Accounts receivable, net of allowance for doubtful
accounts of $8 in 1999 and $5 in 1998 501 389
Inventories 281 247
Deposits, prepaid expenses and other 112 120
------ ------
Total Current Assets 1,161 877
Investments
Equity affiliates 59 170
Other assets 467 87
Property, Plant and Equipment - Net 4,085 4,153
Deferred Charges 127 164
------ ------
Total Assets $5,899 $5,451
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 404 $ 385
Short-term borrowings 9 36
Long-term debt due within one year 20 236
Taxes on income 70 48
Taxes, other than income taxes 40 11
Accrued liabilities 297 334
------ ------
Total Current Liabilities 840 1,050
------ ------
Long-Term Debt 2,496 1,978
------ ------
Deferred Credits and Reserves
Income taxes 401 329
Other 670 748
------ ------
Total Deferred Credits and Reserves 1,071 1,077
------ ------
Stockholders' Equity
Common stock, par value $1.00 - 300,000,000 shares authorized,
93,494,186 shares issued in 1999 and 93,378,069 shares
issued in 1998 93 93
Capital in excess of par value 1,284 1,282
Preferred stock purchase rights 1 1
Retained earnings 576 527
Accumulated other comprehensive income (loss) 45 (36)
Common stock in treasury, at cost - 7,010,790 shares
in both 1999 and 1998 (388) (388)
Deferred compensation (119) (133)
------ ------
Total Stockholders' Equity 1,492 1,346
------ ------
Total Liabilities and Stockholders' Equity $5,899 $5,451
====== ======
</TABLE>
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 balance sheet.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997
- --------------------- ----- ----- -----
<S> <C> <C> <C>
Cash Flow from Operating Activities
Net income (loss) $ 142 $ (68) $ 382
Adjustments to reconcile to net cash provided by operating activities -
Depreciation, depletion and amortization 648 615 593
Deferred income taxes -- (98) 31
Dry hole cost 43 100 53
Merger and transition costs 131 -- --
Asset impairment -- 446 --
Provision for environmental remediation and restoration of inactive sites -- 41 20
Gain on sale of coal operations, net of income taxes -- (257) --
Gain on sale of exploration and production properties (2) (20) (3)
Realized gain on available-for-sale securities -- -- (18)
Retirements and (gain) loss on sale of other assets (1) 13 (4)
Noncash items affecting net income 67 13 23
Changes in current assets and liabilities and other, net of effects
of operations acquired and sold -
(Increase) decrease in accounts receivable (56) 164 139
(Increase) decrease in inventories (34) (54) 40
(Increase) decrease in deposits and prepaids 10 (92) 17
Decrease in accounts payable and accrued liabilities (198) (103) (53)
Increase (decrease) in taxes payable 92 (165) 66
Other (129) (150) (189)
------ ----- ------
Net cash provided by operating activities 713 385 1,097
------ ----- ------
Cash Flow from Investing Activities
Capital expenditures (543) (981) (836)
Cash dry hole cost (33) (92) (52)
Acquisitions (78) (518) --
Purchase of long-term investments (39) (3) (12)
Proceeds from sale of long-term investments 27 12 13
Proceeds from sale of discontinued operations -- 599 --
Proceeds from sale of chemical and exploration and production properties 4 150 17
Proceeds from sale of available-for-sale securities -- -- 21
Proceeds from sale of other assets -- 11 17
------ ----- ------
Net cash used in investing activities (662) (822) (832)
------ ----- ------
Cash Flow from Financing Activities
Issuance of long-term debt 1,084 563 390
Issuance of common stock 4 6 28
Increase (decrease) in short-term borrowings (27) 11 (12)
Repayment of long-term debt (782) (93) (464)
Dividends paid (138) (86) (85)
Lease buyout (41) -- --
Treasury stock purchased -- (25) (60)
------ ----- ------
Net cash provided by (used in) financing activities 100 376 (203)
------ ----- ------
Effects of Exchange Rate Changes on Cash and Cash Equivalents (5) (10) --
------ ----- ------
Net Increase (Decrease) in Cash and Cash Equivalents 146 (71) 62
Cash and Cash Equivalents at Beginning of Year 121 192 130
------ ----- ------
Cash and Cash Equivalents at End of Year $ 267 $ 121 $ 192
====== ===== ======
</TABLE>
The accompanying notes are an integral part of this statement.
Notes to Financial Statements
1. The Company and Significant Accounting Policies
Kerr-McGee is an energy and chemical company with worldwide operations. It
explores for, develops, produces and markets crude oil and natural gas, and its
chemical operations primarily produce and market titanium dioxide pigment. The
exploration and production unit produces and explores for oil and gas in the
United States, the United Kingdom sector of the North Sea, Indonesia, China,
Kazakhstan and Ecuador. Exploration efforts are also extended to Australia,
Algeria, Brazil, Gabon, Thailand, Yemen and the Danish sector of the North Sea.
The chemical unit has operations in the United States, Australia, Germany and
Belgium.
On February 26, 1999, the merger between Kerr-McGee and Oryx Energy Company
(Oryx) was completed. Oryx was a worldwide independent oil and gas exploration
and production company. Under the merger agreement, each outstanding share of
Oryx common stock was effectively converted into the right to receive 0.369
shares of newly issued Kerr-McGee common stock. The merger qualified as a
tax-free exchange to Oryx's shareholders and has been accounted for as a pooling
of interests. In the aggregate, Kerr-McGee issued approximately 39 million
shares of Kerr-McGee common stock, bringing the total shares outstanding to
approximately 86 million. Kerr-McGee's consolidated financial statements have
been restated for periods prior to the merger to include the operations of Oryx,
adjusted to conform to Kerr-McGee's accounting policies and presentation.
Basis of Presentation
The consolidated financial statements include the accounts of all
subsidiary companies that are more than 50% owned and the proportionate share of
joint ventures in which the company has an undivided interest. Investments in
affiliated companies that are 20% to 50% owned are carried as Investments -
Equity affiliates in the Consolidated Balance Sheet at cost adjusted for equity
in undistributed earnings. Except for dividends and changes in ownership
interest, changes in equity in undistributed earnings are included in the
Consolidated Statement of Income. All material intercompany transactions have
been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates as additional
information becomes known.
Foreign Currencies
The U.S. dollar is considered the functional currency for each of the
company's international operations, except for its European chemical operations.
Foreign currency transaction gains or losses are recognized in the period
incurred. The company recorded net foreign currency transaction gains of $11
million in 1999. The net foreign currency transaction gains and losses in 1998
and 1997 were immaterial.
The euro is the functional currency for the European chemical operations.
Translation adjustments resulting from translating the functional currency
financial statements into U.S. dollar equivalents are reported separately in
Accumulated Other Comprehensive Income (Loss) in the Consolidated Statement of
Comprehensive Income and Stockholders' Equity.
Net Income (Loss) per Common Share
Basic net income (loss) per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted net income per share is
computed by dividing net income by the weighted-average number of common shares
and common stock equivalents outstanding for the period.
The weighted-average number of shares used to compute basic net income
(loss) per share was 86,414,373 in 1999, 86,688,026 in 1998 and 86,756,138 in
1997. After adding the dilutive effect of the conversion of options to the
weighted-average number of shares outstanding, the shares used to compute
diluted net income per share were 86,497,207 in 1999 and 87,113,906 in 1997.
There was no dilution for 1998 since the company incurred a loss from continuing
operations.
Not included in the calculation of the denominator for diluted net income
per share were 2,063,079 and 494,063 employee stock options outstanding at
year-end 1999 and 1997, respectively. The inclusion of these options would have
been antidilutive since they were not "in the money" at the end of the
respective years.
The company has reserved 1,791,646 shares of common stock for issuance to
the owners of its 7-1/2% Convertible Subordinated Debentures due 2014
(Debentures). The Debentures are convertible into the company's common stock at
any time prior to maturity at $106.03 per share of common stock. The conversion
of the Debentures was not considered for purposes of calculating income (loss)
per share, as the impact would have been antidilutive to net income (loss) per
share for the periods presented.
Cash Equivalents
The company considers all investments with a maturity of three months or
less to be cash equivalents. Cash equivalents totaling $156 million in 1999 and
$58 million in 1998 were comprised of time deposits, certificates of deposit and
U.S. government securities.
Inventories
The costs of the company's product inventories are determined by the
first-in, first-out (FIFO) method. Inventory carrying values include material
costs, labor and the associated indirect manufacturing expenses. Materials and
supplies are valued at average cost.
Property, Plant and Equipment
Oil and Gas - Exploration expenses, including geological and geophysical
costs, rentals and exploratory dry holes, are charged against income as
incurred. Costs of successful wells and related production equipment and
developmental dry holes are capitalized and amortized by field using the
unit-of-production method as the oil and gas are produced.
Undeveloped acreage costs are capitalized and amortized at rates that
provide full amortization on abandonment of unproductive leases. Costs of
abandoned leases are charged to the accumulated amortization accounts, and costs
of productive leases are transferred to the developed property accounts.
Other - Property, plant and equipment is stated at cost less reserves for
depreciation, depletion and amortization. Maintenance and repairs are expensed
as incurred, except that costs of replacements or renewals that improve or
extend the lives of existing properties are capitalized. Costs of nonproducing
mineral acreage surrendered or otherwise disposed of are charged to expense at
the time of disposition.
Depreciation and Depletion - Property, plant and equipment is depreciated
or depleted over its estimated life by the unit-of-production or the
straight-line method. Capitalized exploratory drilling and development costs are
amortized using the unit-of-production method based on total estimated proved
developed oil and gas reserves. Amortization of producing leasehold, platform
costs and acquisition costs of proved properties is based on the
unit-of-production method using total estimated proved reserves. In arriving at
rates under the unit-of-production method, the quantities of recoverable oil,
gas and other minerals are established based on estimates made by the company's
geologists and engineers.
Retirements and Sales - The costs and related depreciation, depletion and
amortization reserves are removed from the respective accounts upon retirement
or sale of property, plant and equipment. The resulting gain or loss is included
in other income.
Interest Capitalized - The company capitalizes interest costs on major
projects that require a considerable length of time to complete. Interest
capitalized in 1999, 1998 and 1997 was $9 million, $28 million and $24 million,
respectively.
Impairment of Long-Lived Assets
Proved oil and gas properties are reviewed for impairment on a
field-by-field basis when facts and circumstances indicate that their carrying
amounts may not be recoverable. In performing this review, future cash flows are
estimated by applying estimated future oil and gas prices to estimated future
production, less estimated future expenditures to develop and produce the
reserves. If the sum of these estimated future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the property, an
impairment loss is recognized for the excess of the carrying amount over the
estimated fair value of the property.
Other assets are reviewed for impairment by asset group for which the
lowest level of independent cash flows can be identified and impaired in the
same manner as proved oil and gas properties.
Revenue Recognition
Except for natural gas sales and most crude oil, revenue is recognized when
title passes to the customer. Natural gas revenues and gas-balancing
arrangements with partners in natural gas wells are recognized when the gas is
produced using the entitlements method of accounting and are based on the
company's net working interests. At December 31, 1999 and 1998, both the
quantity and dollar amount of gas balancing arrangements were immaterial. Crude
oil sales are recognized when produced using the entitlements method if a
contract exists for the sale of the production.
Lease Commitments
The company utilizes various leased properties in its operations,
principally for office space and production facilities. Lease rental expense was
$41 million in 1999, $37 million in 1998 and $39 million in 1997.
The aggregate minimum annual rentals under noncancelable leases in effect
on December 31, 1999, totaled $92 million, of which $20 million is due in 2000,
$21 million in 2001, $24 million in the period 2002 through 2004 and $27 million
thereafter.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences
of differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements.
Site Dismantlement, Remediation and Restoration Costs
The company provides for the estimated costs at current prices of the
dismantlement and removal of oil and gas production and related facilities. Such
costs are accumulated over the estimated lives of the facilities by the use of
the unit-of-production method. As sites of environmental concern are identified,
the company assesses the existing conditions, claims and assertions, generally
related to former operations, and records an estimated undiscounted liability
when environmental assessments and/or remedial efforts are probable and the
associated costs can be reasonably estimated.
Employee Stock Option Plans
The company accounts for its employee stock option plans using the
intrinsic value method in accordance with Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees."
Futures, Forward and Option Contracts
The company hedges a portion of its monetary assets, liabilities and
commitments denominated in foreign currencies. Periodically, the company
purchases foreign currency forward contracts to provide funds for operating and
capital expenditure requirements that will be denominated in foreign currencies
and sells foreign currency forward contracts to convert receivables that will be
paid in foreign currencies to U.S. dollars. Since these contracts qualify as
hedges and correlate to currency movements, any gain or loss resulting from
market changes is offset by gains or losses on the hedged receivable, capital
item or operating cost.
From time to time the company enters into arrangements to hedge the impact
of price fluctuations on anticipated crude oil and natural gas sales. Gains or
losses on hedging activities are recognized in oil and gas revenues in the
period in which the hedged production is sold.
The company periodically enters into interest rate hedging agreements to
alter the floating rate portion of its underlying debt portfolio. Advance
proceeds received under the agreements are included in deferred credits and are
amortized as offsets to interest and debt expense over the relevant periods. The
differentials paid or received during the terms of such agreements are accrued
as interest rates change and are recorded as adjustments to interest and debt
expense.
2. Cash Flow Information
Net cash provided by operating activities reflects cash payments for income
taxes and interest as follows:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Income tax payments $111 $151 $ 89
Less refunds received (85) (40) (37)
---- ---- ----
Net income tax payments $ 26 $111 $ 52
==== ==== ====
Interest payments $191 $180 $163
==== ==== ====
Noncash transactions not reflected in the Consolidated Statement of Cash
Flows include capital expenditures for which payment will be made in the
subsequent year totaling $28 million, $43 million and $19 million at year-end
1999, 1998 and 1997, respectively; the revaluation in 1999 to fair value of
stock owned in a company previously accounted for using the equity method of
accounting and the revaluation to fair value of the debt that is exchangeable
into the stock of the investee; transactions during 1997 associated with the
assignments of interest of certain North Sea oil and gas properties; the
revaluation of certain other investments to fair value; and transactions
affecting deferred compensation associated with the Employee Stock Ownership
Plan in each of the three years (see Notes 18 and 20).
3. Inventories
Major categories of inventories at year-end 1999 and 1998 are:
(Millions of dollars) 1999 1998
- --------------------- ---- ----
Chemicals and other products $212 $185
Materials and supplies 67 53
Crude oil 2 9
---- ----
Total $281 $247
==== ====
4. Deferred Charges
Deferred charges are as follows at year-end 1999 and 1998:
(Millions of dollars) 1999 1998
- --------------------- ---- ----
Pension plan prepayments $ 79 $101
Unamortized debt issue costs 18 8
Amounts pending recovery from third parties 10 8
Intangible assets 6 8
Nonqualified pension plan deposits -- 10
Preoperating and startup costs -- 6
Other 14 23
---- ----
Total $127 $164
==== ====
Effective January 1, 1999, the company began expensing the cost of start-up
activities in accordance with Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities." The $6 million of unamortized costs at the end of
1998 was recognized in 1999 as the cumulative effect of a change in accounting
principle ($4 million after taxes).
5. Investments - Equity Affiliates
At December 31, 1999 and 1998, investments in equity affiliates are as
follows:
(Millions of dollars) 1999 1998
- --------------------- ---- ----
Devon Energy Corporation $-- $108
Javelina Company 27 30
National Titanium Dioxide Company Limited 18 18
Other 14 14
--- ----
Total $59 $170
=== ====
The company holds 9,954,000 shares of Devon common stock, a publicly traded
oil and gas exploration and production company. The company accounted for this
investment using the equity method until 1999 when its ownership interest of
approximately 20% fell to approximately 12% as a result of Devon issuing
additional common stock in its merger with a third party. 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 $63 million,
net of deferred tax, and was reflected as a 1999 increase to retained earnings.
The company's investment in Devon is now accounted for at market value (see
Notes 6 and 18).
Javelina Company and National Titanium Dioxide Company Limited represent
the company's investment of 40% and 25%, respectively, in nonexploration and
production joint ventures or partnerships.
Following are financial summaries of the company's equity affiliates. Due
to immateriality, investments shown as Other in the preceding table have been
excluded from the information below.
(Millions of dollars) 1999 1998 1997
Results of operations -
Net sales(1) $256 $ 593 $570
Net income (loss)(2) 33 (41) 105
Financial position -
Current assets 125 222
Property, plant and equipment - net 234 1,334
Total assets 361 1,582
Current liabilities 91 170
Total liabilities 144 844
Stockholders' equity 217 738
(1) Includes net sales to the company of $2 million and $26 million for 1998 and
1997, respectively. There were no sales to the company in 1999.
(2) The 1998 loss includes a full-cost write-down recorded by Devon. The
company's proportionate share of the write-down was $27 million.
6. Investments - Other Assets
Investments in other assets consist of the following at December 31, 1999
and 1998:
(Millions of dollars) 1999 1998
- --------------------- ---- ----
Devon Energy Corporation common stock(1) $327 $ --
Long-term receivables, net of $9 allowance
for doubtful notes in both 1999 and 1998 105 41
Net deferred tax asset 12 17
U.S. government obligations 11 17
Patents 7 6
Other 5 6
---- ----
Total $467 $ 87
==== ====
(1) See Notes 5 and 18.
7. Property, Plant and Equipment
Fixed assets and related reserves at December 31, 1999 and 1998, are as
follows:
<TABLE>
<CAPTION>
Reserves for
Depreciation and
Gross Property Depletion Net Property
--------------- ---------------- --------------
(Millions of dollars) 1999 1998 1999 1998 1999 1998
- --------------------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Exploration and production $ 9,689 $ 9,359 $6,245 $5,837 $3,444 $3,522
Chemicals 1,224 1,162 640 588 584 574
Other 136 130 79 73 57 57
------- ------- ------ ------ ------ ------
Total $11,049 $10,651 $6,964 $6,498 $4,085 $4,153
======= ======= ====== ====== ====== ======
</TABLE>
8. Debt
Lines of Credit and Short-Term Borrowings
At year-end 1999, the company had available unused bank lines of credit and
revolving credit facilities of $1,373 million. Of this amount, $835 million and
$400 million can be used to support commercial paper borrowing arrangements of
Kerr-McGee Credit LLC and Kerr-McGee Oil (U.K.) PLC, respectively.
The company has arrangements to maintain compensating balances with certain
banks that provide credit. At year-end 1999, the aggregate amount of such
compensating balances was immaterial, and the company was not legally restricted
from withdrawing all or a portion of such balances at any time during the year.
Short-term borrowings at year-end 1999 consisted of notes payable totaling
$9 million (4.88% average interest rate). The notes are denominated in foreign
currency and represent approximately 361 million Belgian francs. Short-term
borrowings outstanding at year-end 1998 were made up of commercial paper
totaling $28 million (6.37% average effective interest rate) and notes payable
totaling $8 million (3.63% average interest rate) or 281 million Belgian francs.
Long-Term Debt
The company's policy is to classify certain borrowings under revolving
credit facilities and commercial paper as long-term debt since the company has
the ability under certain revolving credit agreements and the intent to maintain
these obligations for longer than one year. At year-end 1999 and 1998, debt
totaling $793 million and $717 million, respectively, was classified as
long-term consistent with this policy.
Long-term debt consisted of the following at year-end 1999 and 1998.
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998
- --------------------- ------ ------
<S> <C> <C>
Debentures -
7-1/2% Convertible subordinated debentures, $10 due annually May 15, 2000
through 2013 and $50 due May 15, 2014 $ 190 $ 200
7.125% Debentures due October 15, 2027 (7.01% effective rate) 150 150
7% Debentures due November 1, 2011, net of unamortized debt discount of
$103 in 1999 and $105 in 1998 (14.25% effective rate) 147 145
5-1/2% Exchangeable notes due August 2, 2004 327 --
8-1/2% Sinking fund debentures due June 1, 2006 -- 11
Notes payable -
10% Notes due April 1, 2001 150 250
6.625% Notes due October 15, 2007 (6.54% effective rate) 150 150
8.375% Notes due July 15, 2004 150 150
8.125% Notes due October 15, 2005 150 150
8% Notes due October 15, 2003 100 100
9.5% Notes due November 1, 1999 -- 100
Variable interest rate revolving credit agreements with banks (6.34% average rate
at December 31, 1999), $25 due December 4, 2001 and $60 due March 6, 2003 85 598
Variable interest rate notes due November 1, 2001 (6.7% effective rate) 150 --
Medium-Term Notes (9.29% average effective interest rate at
December 31, 1999), $11 due January 2, 2002 and $2 due February 1, 2002 13 28
Commercial paper (6.76% average effective interest rate at December 31, 1999) 612 119
Euro Commercial paper (6.54% average effective interest rate at December 31, 1999 96 --
Guaranteed Debt of Employee Stock Ownership Plan 9.61% Notes due in installments
through January 2, 2005 43 49
Other 3 14
------ ------
2,516 2,214
Long-term debt due within one year (20) (236)
------ ------
Total $2,496 $1,978
====== ======
</TABLE>
Maturities of long-term debt due after December 31, 1999, are $20 million
in 2000, $590 million in 2001, $500 million in 2002, $176 million in 2003, $491
million in 2004 and $739 million thereafter.
Certain of the company's long-term debt agreements contain restrictive
covenants, including a minimum tangible net worth requirement and a minimum cash
flow to fixed charge ratio. At December 31, 1999, the company was in compliance
with its debt covenants.
Additional information regarding the major changes in debt during the
periods and unused commitments for financing is included in the Financial
Condition section in Management's Discussion and Analysis.
9. Accrued Liabilities
Accrued liabilities at year-end 1999 and 1998 are as follows:
(Millions of dollars) 1999 1998
- --------------------- ---- ----
Interest payable $ 72 $ 71
Current environmental reserves 70 83
Employee-related costs and benefits 66 59
Royalties payable 22 14
Merger reserve(1) 20 --
Litigation reserves 18 --
Drilling and operating costs 15 67
Restructuring reserve(1) -- 20
Other 14 20
---- ----
Total $297 $334
==== ====
(1) See Note 22.
10. Common Stock
Changes in common stock issued and treasury stock held for 1999, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
(Thousands of shares) Common Stock Treasury Stock
- --------------------- ------------ --------------
<S> <C> <C>
Balance December 31, 1996 92,601 5,569
Exercise of stock options and stock appreciation rights 627 --
Issuance of shares for achievement awards -- (2)
Stock purchase program -- 867
------ -----
Balance December 31, 1997 93,228 6,434
Exercise of stock options and stock appreciation rights 150 --
Issuance of shares for achievement awards -- (3)
Stock purchase program -- 580
------ -----
Balance December 31, 1998 93,378 7,011
Exercise of stock options and stock appreciation rights 112 --
Issuance of restricted stock 4 --
------ -----
Balance December 31, 1999 93,494 7,011
====== =====
</TABLE>
The company has 40 million shares of preferred stock without par value
authorized, and none is issued.
There are 1,107,692 shares of the company's common stock registered in the
name of a wholly owned subsidiary of the company. These shares are not included
in the number of shares shown in the preceding table or in the Consolidated
Balance Sheet. These shares are not entitled to be voted.
In mid-1998, the Board of Directors authorized management to purchase up to
$300 million of company common stock over the following three years. A total of
580,000 shares was acquired at a cost of $25 million before this stock purchase
program was cancelled because of the merger with Oryx. The 1995 stock purchase
program was completed in 1997 with a total of 4,829,000 shares of the company's
stock acquired in open-market transactions at a cost of $300 million.
The company has granted restricted common shares to certain key employees
under the 1998 Long-Term Incentive Plan. Shares are awarded in the name of the
employee, who has all the rights of a shareholder, subject to certain
restrictions on transferability and a risk of forfeiture. The forfeiture
provisions on the 1999 awards expire on December 1, 2003.
The company has had a stockholders-rights plan since 1986. The current
rights plan is dated July 6, 1996, and replaced the previous plan prior to its
expiration. Rights were distributed under the original plan as a dividend at the
rate of one right for each share of the company's common stock. Generally, the
rights become exercisable the earlier of 10 days after a public announcement
that a person or group has acquired, or a tender offer has been made for, 15% or
more of the company's then-outstanding stock. If either of these events occurs,
each right would entitle the holder (other than a holder owning more than 15% of
the outstanding stock) to buy the number of shares of the company's common stock
having a market value two times the exercise price. The exercise price is $215.
Generally, the rights may be redeemed at $.01 per right until a person or group
has acquired 15% or more of the company's stock. The rights expire in July
2006.
11. 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 four 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 is conducting the cleanup of the two areas for which
unilateral administrative orders have been issued. Cleanup at one of the sites
is nearly complete.
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 January 31, 2000,
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 December 31, 1999, the company has recorded reserves totaling $204
million for cleaning up and remediating environmental sites, reflecting the
reasonably estimable costs for addressing these sites. This includes $125
million for the West Chicago sites. 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 December 31, 1999,
total $670 million.
12. Income Taxes
The taxation of a company that has operations in several countries involves
many complex variables, such as differing tax structures from country to country
and the effect on U.S. taxation of international earnings. These complexities do
not permit meaningful comparisons between the U.S. and international components
of income before income taxes and the provision for income taxes, and
disclosures of these components do not provide reliable indicators of
relationships in future periods. Income (loss) from continuing operations before
income taxes and extraordinary charge is composed of the following:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
United States $(30) $(345) $252
International 287 (175) 283
---- ---- ----
Total $257 $(520) $535
==== ===== ====
The corporate tax rate in the United Kingdom decreased to 30% from 31%
effective April 1, 1999, and decreased to 31% from 33% effective April 1, 1997.
The deferred income tax liability balance was adjusted to reflect the revised
rates, which decreased the international deferred provision for income taxes by
$10 million in 1998 and $13 million in 1997. The 1999, 1998 and 1997 taxes on
income from continuing operations are summarized below:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
U.S. Federal -
Current $(38) $(159) $ 2
Deferred 38 20 84
---- ----- ----
-- (139) 86
---- ----- ----
International -
Current 147 18 146
Deferred (37) (55) (52)
---- ----- ----
110 (37) 94
---- ----- ----
State 1 1 4
---- ----- ----
Total $111 $(175) $184
==== ===== ====
At December 31, 1999, the company had foreign operating loss carryforwards
totaling $117 million - $9 million that expire in 2001, $8 million that expire
in 2003, $15 million that expire in 2004 and $85 million that have no expiration
date. Realization of these operating loss carryforwards is dependent on
generating sufficient taxable income.
The net deferred tax asset, classified as Investments - Other assets in the
Consolidated Balance Sheet, represents the net deferred taxes in certain foreign
jurisdictions. Although realization is not assured, the company believes it is
more likely than not that all of the net deferred tax asset will be realized.
Deferred tax liabilities and assets at December 31, 1999 and 1998, are composed
of the following:
(Millions of dollars) 1999 1998
- --------------------- ---- ----
Net deferred tax liabilities -
Accelerated depreciation $564 $593
Exploration and development 34 69
Undistributed earnings of foreign subsidiaries 28 28
Postretirement benefits (86) (86)
AMT credit carryforward (60) (60)
Foreign operating loss carryforward (35) (28)
Dismantlement, remediation, restoration
and other reserves (30) (79)
Other (14) (108)
---- ----
401 329
---- ----
Net deferred tax asset -
Accelerated depreciation 5 5
Foreign operating loss carryforward (13) (14)
Other (4) (8)
---- ----
(12) (17)
---- ----
Total $389 $312
==== ====
In the following table, the U.S. Federal income tax rate is reconciled to
the company's effective tax rates for income (loss) from continuing operations
as reflected in the Consolidated Statement of Income.
1999 1998 1997
---- ---- ----
U.S. statutory rate 35.0% (35.0)% 35.0%
Increases (decreases) resulting from -
Taxation of foreign operations 4.8 9.6 3.9
Adjustment of prior years' accruals -- (.4) (.8)
Refunds of prior years' income taxes -- (5.6) --
Adjustment of deferred tax balances
due to tax rate changes -- (2.0) (2.4)
Other - net 3.3 (.2) (1.3)
---- ----- ----
Total 43.1% (33.6)% 34.4%
==== ===== ====
The Internal Revenue Service has examined the Kerr-McGee Corporation and
subsidiaries' pre-merger Federal income tax returns for all years through 1994,
and the years have been closed through 1994. The Oryx income tax returns have
been examined through 1997, and the years have been closed through 1978. The
company believes that it has made adequate provision for income taxes that may
become payable with respect to open tax years.
13. Taxes, Other than Income Taxes
Taxes, other than income taxes, as shown in the Consolidated Statement of
Income for the years ended December 31, 1999, 1998 and 1997, are composed of the
following:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Production/severance $52 $26 $ 74
Payroll 19 12 11
Property 11 14 15
Other 3 1 3
--- --- ----
Total $85 $53 $103
=== === ====
14. Deferred Credits and Reserves - Other
Other deferred credits and reserves consist of the following at year-end
1999 and 1998:
(Millions of dollars) 1999 1998
- --------------------- ---- ----
Reserves for site dismantlement,
remediation and restoration $391 $376
Postretirement benefit obligations 186 269
Minority interest in subsidiary companies 23 39
Other 70 64
---- ----
Total $670 $748
==== ====
The company provided for environmental remediation and restoration of
former plant sites, net of authorized reimbursements, during each of the years
1999, 1998 and 1997 as follows:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Provision, net of authorized reimbursements $ 3 $47 $18
Reimbursements received 15 14 12
Reimbursements accrued 67 -- --
The reimbursements, which pertain to the former facility in West Chicago,
Illinois, are authorized pursuant to Title X of the Energy Policy Act of 1992
(see Note 11).
15. Discontinued Operations
The company exited the coal business in 1998 with the sales of its mining
operations at Galatia, Illinois, and Kerr-McGee Coal Corporation, which held
Jacobs Ranch Mine in Wyoming. The cash sales resulted in proceeds of
approximately $600 million. The 1998 gain on the sale was $257 million ($2.97
per share), net of $149 million for income taxes. The income from operations of
the discontinued coal business totaled $20 million ($.23 per share), net of $7
million for income taxes, in 1998 and $33 million ($.38 per share), net of $12
million in income taxes, in 1997. Revenues applicable to the discontinued
operations totaled $174 million in 1998 and $323 million in 1997.
16. Other Income
Other income was as follows during each of the years in the three-year
period ended December 31, 1999:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Income (loss) from unconsolidated affiliates $16 $(12) $32
Interest 14 38 14
Gain (loss) on foreign currency exchange 11 (2) 1
Gain on sale of assets 3 7 6
Settlements with insurance carriers -- 12 12
Gain on sale of available-for-sale securities -- -- 18
Other (4) -- (1)
--- ---- ---
Total $40 $ 43 $82
=== ==== ===
17. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Assets to Be Held and Used
At year-end 1998, certain oil and gas fields located in the North Sea,
China and the United States and two U.S. chemical plants were deemed to be
impaired because the assets were no longer expected to recover their net book
values through future cash flows. Expectations of future cash flows were lower
than those previously forecasted primarily as a result of weakness in crude oil,
natural gas and certain chemical product prices at the end of 1998. Downward
reserve revisions were also deemed necessary for certain fields. The impairment
loss was determined based on the difference between the carrying value of the
assets and the present value of future cash flows or market value, when
appropriate. There was no impairment loss recognized in 1999 or 1997.
Following is the impairment loss for assets held and used by segment for
the year ended December 31, 1998:
(Millions of dollars) 1998
- --------------------- ----
Exploration and production $389
Chemicals - pigment 32
Chemicals - other 25
----
Total $446
====
Assets to Be Disposed Of
The company withdrew from the ammonium perchlorate business in 1998. The
carrying value of these assets was approximately $9 million. The gain on the
sale was immaterial.
During 1997, the company's exploration and production operating unit
completed a program to divest a number of crude oil and natural gas producing
properties considered to be nonstrategic. Most of these properties were located
onshore in the United States; however, some were located in the Gulf of Mexico,
Canada and the North Sea. Net gains recognized on the sales of properties
included in the divestiture program totaled $6 million in 1997. The divestiture
program properties did not constitute a material portion of the company's oil
and gas production or cash flows from operations for 1997.
Following are the sales and pretax income included in the Consolidated
Statement of Income in 1998 and 1997 for assets sold during the two-year period
ended December 31, 1998. Any impairment loss is included in the pretax income
amounts. The company had no material assets held for disposal at year-end 1999
or 1998.
(Millions of dollars) 1998 1997
Sales -
Chemicals - other $11 $30
Income -
Chemicals - other -- 3
18. Financial Instruments and Hedging Activities
Investments in Certain Debt and Equity Securities
The company has certain investments that are considered to be available for
sale. The company also has debt that is exchangeable into equity securities of
an investee that are considered available for sale. These financial instruments
are carried in the Consolidated Balance Sheet at fair value, which is based on
quoted market prices. The company had no securities classified as held to
maturity or trading at December 31, 1999 and 1998. At December 31, 1999 and
1998, available-for-sale securities for which fair value can be determined are
as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
Gross Gross
Fair Unrealized Fair Unrealized
Value Cost Holding Gains Value Cost Holding Gains
----- ---- ------------- ----- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Equity securities $327 $209 $118 $-- $-- $--
U.S. government obligations -
Maturing within one year 5 5 -- 13 13 --
Maturing between one year and four years 11 11 -- 17 17 --
Exchangeable debt 327 330 3 -- -- --
---- ---
Total $121 $--
==== ===
</TABLE>
The equity securities represent the company's investment in Devon common
stock that is no longer accounted for under the equity method of accounting (see
Note 5). The securities are carried in the Consolidated Balance Sheet as
Investments - Other assets. U.S. government obligations are carried as Current
Assets or as Investments - Other assets, depending on their maturities.
The exchangeable debt represents 5-1/2% notes exchangeable into common
stock (DECS) of Devon held by the company. The notes are due August 2, 2004, and
holders of the notes will receive between .84746 and one common share of Devon
per DECS, depending on the average trading price of Devon's common stock at that
time, or the cash equivalent of such common stock. The DECS are carried at fair
value in the Consolidated Balance Sheet as Long-Term Debt (see Note 8).
The change in unrealized holding gains, net of income taxes, as shown in
accumulated other comprehensive income for the years ended December 31, 1999,
1998 and 1997, is as follows:
(Millions of dollars) 1999 1998 1997
- --------------------- ---- ---- ----
Beginning balance - $-- $-- $12
Net unrealized holding gains 79 -- 2
Net realized gains -- -- (12)
Net appreciation of donated securities -- -- (2)
--- --- ---
Ending balance $79 $-- $--
=== === ===
During 1997, the company sold available-for-sale equity securities.
Proceeds from the sales totaled $21 million in 1997. The average cost of the
securities was used in the determination of the realized gains, which totaled
$18 million before income taxes in 1997. Also during 1997, the company donated a
portion of its available-for-sale equity securities to Kerr-McGee Foundation
Corporation, a tax-exempt entity whose purpose is to contribute to
not-for-profit organizations. The fair value of these donated shares totaled $3
million in 1997, which included appreciation of $3 million before income taxes.
Financial Instruments for Other than Trading Purposes
In addition to the financial instruments previously discussed, the company
holds or issues financial instruments for other than trading purposes. At
December 31, 1999 and 1998, the carrying amount and estimated fair value of
these instruments for which fair value can be determined are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
Carrying Fair Carrying Fair
(Millions of dollars) Amount Value Amount Value
- --------------------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 267 $ 267 $ 121 $ 121
Long-term notes receivable 26 23 9 9
Long-term receivables 72 60 -- --
Contracts to sell foreign currencies -- 5 -- 2
Contracts to purchase foreign currencies -- 98 -- 111
Oil and gas price hedging contracts -- -- 7 22
Short-term borrowings 9 9 36 36
Long-term debt, excluding DECS 2,189 2,228 2,214 2,365
</TABLE>
The carrying amount of cash and cash equivalents approximates fair value of
those instruments due to their short maturity. The fair value of notes
receivable is based on discounted cash flows or the fair value of the note's
collateral. The fair value of long-term receivables is based on discounted cash
flows. The fair value of the company's short-term and long-term debt is based on
the quoted market prices for the same or similar debt issues or on the current
rates offered to the company for debt with the same remaining maturity. The fair
value of foreign currency forward contracts represents the aggregate replacement
cost based on financial institutions' quotes.
Hedging Activities
Most of the company's foreign currency contracts are hedges principally for
chemical's accounts receivable generated from titanium dioxide pigment sales
denominated in foreign currencies, the operating costs and capital expenditures
of international pigment operations, and the operating costs and capital
expenditures of U.K. oil and gas operations. The purpose of these foreign
currency hedging activities is to protect the company from the risk that the
functional currency amounts from sales to foreign customers and purchases from
foreign suppliers could be adversely affected by changes in foreign currency
exchange rates. The company recognized net foreign currency hedging losses of $5
million in 1999 and net foreign currency hedging gains of $4 million in 1997.
The net foreign currency hedging loss recognized in 1998 was immaterial.
Net unrealized gains on foreign currency contracts totaled $2 million at
year-end 1999. Net unrealized losses on foreign currency contracts totaled $7
million at year-end 1998 and $13 million at year-end 1997. The company's foreign
currency contract positions at year-end 1999 and 1998 were as follows:
December 31, 1999 -
- Contracts maturing January 2000 through December 2002 to purchase $150
million Australian for $96 million
- Contracts maturing January through March 2000 to sell various foreign
currencies (principally European) for $5 million
December 31, 1998 -
- Contracts maturing January 1999 through December 2000 to purchase $113
million Australian for $77 million and 25 million British pound sterling for $40
million
- Contracts maturing January through March 1999 to sell various foreign
currencies (principally European) for $2 million
The company has periodically used oil or natural gas futures or collar
contracts to reduce the effect of the price volatility of crude oil and natural
gas. The futures contracts permitted settlement by delivery of commodities.
The company did not enter into any hedging arrangements in 1999 and settled
all open 1998 contracts during the year. Net hedging gains recognized in 1999
totaled $28 million. The effect of the gains was to increase the company's 1999
average gross margin for crude oil and natural gas by $.11 per barrel and $.09
per MCF, respectively.
During 1998, the company entered into hedging arrangements for 7 million
barrels of crude oil and 61 billion cubic feet of natural gas representing
approximately 11% and 29% of its worldwide crude oil and natural gas sales
volumes, respectively. Net hedging gains recognized in 1998 totaled $45 million.
The effect of the gains was to increase the company's 1998 average gross margin
for crude oil and natural gas by $.55 per barrel and $.05 per MCF, respectively.
At year-end 1998, open crude oil and natural gas contracts had an aggregate
value of $7 million, and the unrecognized gain on the contracts totaled $15
million.
During 1997, the company entered into hedging arrangements for 12 million
barrels of crude oil and 75 billion cubic feet of natural gas representing
approximately 18% and 30% of its worldwide crude oil and natural gas sales
volumes, respectively. Net hedging losses recognized in 1997 totaled $27
million. The effect of the losses was to reduce the company's 1997 average gross
margin for crude oil and natural gas by $.10 per barrel and $.08 per MCF,
respectively. At year-end 1997, open crude oil and natural gas contracts had an
aggregate value of $2 million, and the unrecognized loss on these contracts
totaled $7 million.
Contract amounts do not quantify risk or represent assets or liabilities of
the company but are used in the calculation of cash settlements under the
contracts. These financial instruments limit the company's market risks, are
with major financial institutions, expose the company to credit risks and at
times may be concentrated with certain institutions or groups of institutions.
However, the credit worthiness of these institutions is subject to continuing
review, and full performance is anticipated. Additional information regarding
market risk is included in Management's Discussion and Analysis.
Year-end hedge positions and activities during a particular year are not
necessarily indicative of future activities and results
19. Employee Benefit Plans
The company has both noncontributory and contributory defined-benefit
retirement plans and company-sponsored contributory postretirement plans for
health care and life insurance. Most employees are covered under the company's
retirement plans, and substantially all U.S. employees may become eligible for
the postretirement benefits if they reach retirement age while working for the
company. Following are the changes in the benefit obligations during the past
two years:
<TABLE>
<CAPTION>
Postretirement Health
Retirement Plans and Life Plans
------------------ ---------------------
(Millions of dollars) 1999 1998 1999 1998
- --------------------- ------ ------ ---- ----
<S> <C> <C> <C> <C>
Benefit obligation, beginning of year $1,027 $ 976 $217 $209
Service cost 15 16 1 3
Interest cost 69 66 9 13
Plan amendments 70 38 4 1
Net actuarial loss (gain) (15) 15 (2) 8
Acquisitions -- 6 -- --
Assumption changes (50) -- -- --
Changes resulting from plan mergers 14 -- (7) --
Dispositions, curtailments, settlements 21 5 -- (2)
Benefits paid (174) (95) (7) (15)
------ --- ---- ----
Benefit obligation, end of year $ 977 $1,027 $215 $217
====== ====== ==== ====
</TABLE>
The benefit amount that can be covered by the retirement plans that qualify
under the Employee Retirement Income Security Act of 1974 (ERISA) is limited by
both ERISA and the Internal Revenue Code. Therefore, the company has unfunded
supplemental plans designed to maintain benefits for all employees at the plan
formula level and to provide senior executives with benefits equal to a
specified percentage of their final average compensation. The benefit obligation
for the unfunded retirement plans was $42 million and $109 million at December
31, 1999 and 1998, respectively. Although not considered plan assets, a grantor
trust was established from which payments for certain of these supplemental
plans are made. The trust had a balance of $5 million at year-end 1999 and $10
million at year-end 1998. The postretirement plans are also unfunded.
Following are the changes in the fair value of plan assets during the past
two years and the reconciliation of the plans' funded status to the amounts
recognized in the financial statements at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Postretirement Health
Retirement Plans and Life Plans
------------------ ---------------------
(Millions of dollars) 1999 1998 1999 1998
- --------------------- ------ ------ ----- -----
<S> <C> <C> <C> <C>
Fair value of plan assets, beginning of year $1,404 $1,138 $ -- $ --
Actual return on plan assets 381 351 -- --
Employer contribution 35 10 -- --
Changes resulting from plan mergers 7 -- -- --
Benefits paid (174) (95) -- --
------ ------ ----- -----
Fair value of plan assets, end of year 1,653 1,404 -- --
Benefit obligation (977) (1,027) (215) (217)
------ ------ ----- -----
Funded status of plans - over (under) 676 377 (215) (217)
Amounts not recognized in the Consolidated Balance Sheet-
Transition asset (6) (13) -- --
Prior service costs 86 33 5 --
Net actuarial loss (gain) (704) (366) 11 18
------ ------ ----- -----
Prepaid expense (accrued liability) $ 52 $ 31 $(199) $(199)
====== ====== ===== =====
</TABLE>
Following is the classification of the amounts recognized in the
Consolidated Balance Sheet at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Postretirement Health
Retirement Plans and Life Plans
---------------- ---------------------
(Millions of dollars) 1999 1998 1999 1998
- --------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Prepaid benefits expense $ 79 $ 102 $ -- $ --
Accrued benefit liability (39) (109) (199) (199)
Additional minimum liability -
Intangible asset 6 7 -- --
Accumulated other comprehensive income 6 31 -- --
---- ----- ----- -----
Total $ 52 $ 31 $(199) $(199)
==== ===== ===== =====
</TABLE>
Total costs recognized for employee retirement and postretirement benefit
plans for each of the years ended December 31, 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
Retirement Plans Postretirement Health and Life Plans
---------------- ------------------------------------
(Millions of dollars) 1999 1998 1997 1999 1998 1997
- --------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net periodic cost -
Service cost $ 15 $ 16 $ 15 $ 1 $ 3 $ 2
Interest cost 69 66 64 9 13 15
Expected return on plan assets (98) (94) (84) -- -- --
Net amortization -
Transition asset (6) (8) (8) -- -- --
Prior service cost 12 3 2 -- -- --
Net actuarial loss (gain) (3) 1 1 -- (1) --
---- ---- ---- --- --- ---
(11) (16) (10) 10 15 17
Dispositions, curtailments, settlements 29 26 6 -- (1) --
---- ---- ---- --- --- ---
Total $ 18 $ 10 $ (4) $10 $14 $17
==== ==== ==== === === ===
</TABLE>
The following assumptions were used in estimating the actuarial present
value of the plans' benefit obligations and net periodic expense:
1999 1998 1997
--------- ------- -------
Discount rate 5.50-7.75% 6.75% 6.5-7.0%
Expected return on plan assets 6.25-9.5 9.0-9.5 9.0-9.5
Rate of compensation increases 3.0-5.0 4.0-5.0 4.0-5.0
The health care cost trend rates used to determine the year-end 1999
postretirement benefit obligation were 7.5% in 2000, gradually declining to 5%
in the year 2010 and thereafter. A 1% increase in the assumed health care cost
trend rate for each future year would increase the postretirement benefit
obligation at December 31, 1999, by $14 million and increase the aggregate of
the service and interest cost components of net periodic postretirement expense
for 1999 by $1 million. A 1% decrease in the trend rate for each future year
would reduce the benefit obligation at year-end 1999 by $14 million. It was not
practical to calculate the effect of the percent decrease on net periodic
expense in the health care cost trend rate.
20. Employee Stock Ownership Plan
In 1989, the company's Board of Directors approved a leveraged Employee
Stock Ownership Plan (ESOP) into which is paid the company's matching
contribution for the employees' contributions to the Kerr-McGee Corporation
Savings Investment Plan (SIP). Most of the company's employees are eligible to
participate in both the ESOP and the SIP. Although the ESOP and the SIP are
separate plans, matching contributions to the ESOP are contingent upon
participants' contributions to the SIP.
In 1989, the ESOP trust borrowed $125 million from a group of lending
institutions and used the proceeds to purchase approximately 3 million shares of
the company's treasury stock. The company used the $125 million in proceeds from
the sale of the stock to acquire shares of its common stock in open-market and
privately negotiated transactions. In 1996, a portion of the third-party
borrowings was replaced with a note payable to the company (sponsor financing).
The third-party borrowings are guaranteed by the company and are reflected in
the Consolidated Balance Sheet as Long-Term Debt, while the sponsor financing
does not appear in the company's balance sheet.
The Oryx Capital Accumulation Plan (CAP) was a combined stock bonus and
leveraged employee stock ownership plan available to substantially all U.S.
employees of the former Oryx operations. On August 1, 1989, Oryx privately
placed $110 million of notes pursuant to the provisions of the CAP. Oryx loaned
the proceeds to the CAP, which used the funds to purchase Oryx common stock that
was placed in a trust. This loan was sponsor financing and does not appear in
the accompanying balance sheet.
During 1999, the company merged the Oryx CAP into the ESOP and SIP. As a
result, a total of 159,000 and 294,000 shares was transferred from the CAP into
the ESOP and SIP, respectively. The company stock owned by the ESOP trust is
held in a loan suspense account. Deferred compensation, representing the
unallocated ESOP shares, is reflected as a reduction of stockholders' equity.
The company's matching contribution and dividends on the shares held by the
ESOP trust are used to repay the loan, and stock is released from the loan
suspense account as the principal and interest are paid. The expense is
recognized and stock is then allocated to participants' accounts at market value
as the participants' contributions are made to the SIP. Long-term debt is
reduced as payments are made on the third-party financing. Dividends paid on the
common stock held in participants' accounts are also used to repay the loans,
and stock with a market value equal to the amount of dividends is allocated to
participants' accounts.
Shares of stock allocated to the ESOP participants' accounts and in the
loan suspense account are as follows:
(Thousands of shares) 1999 1998
--------------------- ----- -----
Participants' accounts 1,357 1,398
Loan suspense account 1,380 1,610
The shares allocated to ESOP participants at December 31, 1999, included
approximately 51,000 shares released in January 2000, and at December 31, 1998,
included approximately 52,000 shares released in January 1999.
All ESOP shares are considered outstanding for net income per-share
calculations. Dividends on ESOP shares are charged to retained earnings.
Compensation expense is recognized using the cost method and is reduced for
dividends paid on the unallocated ESOP shares. The company recognized ESOP and
CAP-related expense of $14 million, $17 million and $13 million in 1999, 1998
and 1997, respectively. These amounts include interest expense incurred on the
third-party ESOP debt of $4 million in 1999 and $5 million in both 1998 and
1997. The company contributed $18 million, $16 million and $12 million to the
ESOP and CAP in 1999, 1998 and 1997, respectively. The cash contributions are
net of $4 million for the dividends paid on the company stock held by the ESOP
trust in each of the years 1999, 1998 and 1997.
21. Employee Stock Option Plans
The 1998 Long Term Incentive Plan (1998 Plan) authorizes the issuance of
shares of the company's common stock any time prior to December 31, 2007, in the
form of stock options, restricted stock or long-term performance awards. The
options may be accompanied by stock appreciation rights. A total of 2,300,000
shares of the company's common stock is authorized to be issued under the 1998
Plan.
In January 1998, the Board of Directors approved a broad-based stock option
plan (BSOP) that provides for the granting of options to purchase the company's
common stock to all full-time employees, except officers. A total of 1,500,000
shares of common stock is authorized to be issued under the BSOP.
The 1987 Long Term Incentive Program (1987 Program) authorized the issuance
of shares of the company's stock over a 15-year period in the form of stock
options, restricted stock or long-term performance awards. The 1987 Program was
terminated when the stockholders approved the 1998 Plan. No options could be
granted under the 1987 Program after that time, although options and any
accompanying stock appreciation rights outstanding may be exercised prior to
their respective expiration dates.
The company's employee stock options are fixed-price options granted at the
fair market value of the underlying common stock on the date of the grant.
Generally, one-third of each grant vests and becomes exercisable over a
three-year period immediately following the grant date and expires 10 years
after the grant date.
In connection with the merger with Oryx (see Note 1), outstanding stock
options under the stock option plans maintained by Oryx were assumed by the
company. Stock option transactions summarized below include amounts for the 1998
Plan, the BSOP, the 1987 Program and the Oryx plans using the merger exchange
rate of 0.369 for each Oryx share under option.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- --------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Price Exercise Price
Options per Option Options per Option Options per Option
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 2,783,482 $58.77 2,050,671 $56.84 2,241,136 $54.06
Options granted 377,000 46.53 1,105,043 61.97 481,213 68.04
Options exercised (110,521) 42.20 (127,576) 44.34 (580,605) 50.49
Options surrendered upon exercise
of stock appreciation rights (14,000) 45.25 (4,000) 38.06 (5,000) 32.38
Options forfeited (45,929) 60.73 (24,928) 60.26 (6,703) 57.46
Options expired (166,698) 72.95 (215,728) 65.65 (79,370) 93.43
--------- --------- ---------
Outstanding, end of year 2,823,334 56.78 2,783,482 58.77 2,050,671 56.84
========= ========= =========
Exercisable, end of year 2,003,138 57.63 1,497,753 55.38 1,249,055 53.96
========= ========= =========
</TABLE>
The following table summarizes information about stock options issued under
the plans described above that are outstanding and exercisable at December 31,
1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------- ----------------------------
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Prices Remaining Contractual Exercise Price Exercise Price
Options per Option Life (years) per Option Options per Option
- --------- --------------- --------------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
142,883 $ 30.00-$ 39.99 2.8 $ 35.01 142,883 $ 35.01
625,172 40.00- 49.99 5.0 43.98 430,172 45.69
1,035,573 50.00- 59.99 7.1 57.00 499,851 56.33
803,023 60.00- 69.99 4.7 65.87 752,886 65.93
212,639 70.00- 79.99 5.0 72.69 173,302 72.51
2,679 90.00- 99.99 .9 97.56 2,679 97.56
1,365 110.00- 120.00 .1 119.58 1,365 119.58
- --------- ---------
2,823,334 30.00- 120.00 5.5 56.78 2,003,138 57.63
========= =========
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," prescribes a fair-value method of accounting for
employee stock options under which compensation expense is measured based on the
estimated fair value of stock options at the grant date and recognized over the
period that the options vest. The company, however, chooses to account for its
stock option plans under the optional intrinsic value method of APB No. 25,
"Accounting for Stock Issued to Employees," whereby no compensation expense is
recognized for fixed-price stock options. Compensation cost for stock
appreciation rights, which is recognized under both accounting methods, was
immaterial for 1999, 1998 and 1997.
Had compensation expense been determined in accordance with SFAS No. 123,
the resulting compensation expense would have affected net income and per-share
amounts as shown in the following table. These amounts may not be representative
of future compensation expense using the fair-value method of accounting for
employee stock options as the number of options granted in a particular year may
not be indicative of the number of options granted in future years, and the
fair-value method of accounting has not been applied to options granted prior to
January 1, 1995.
(Millions of dollars, except per-share amounts) 1999 1998 1997
- ----------------------------------------------- ---- ---- ----
Net income (loss) -
As reported $142 $(68) $382
Pro forma 136 (76) 376
Net income (loss) per share -
Basic -
As reported 1.64 (.78) 4.40
Pro forma 1.57 (.88) 4.34
Diluted -
As reported 1.64 (.78) 4.38
Pro forma 1.57 (.88) 4.32
The fair value of each option granted in 1999, 1998 and 1997 was estimated
as of the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions. The use of ranges in prior years was
necessitated by the Oryx merger.
<TABLE>
<CAPTION>
Assumptions
-------------------------------------------------------------------
Weighted Average
Risk-Free Expected Expected Life Expected Fair Value of
Interest Rate Dividend Yield (years) Volatility Options Granted
------------- -------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 5.4% 3.1% 5.8 25.2% $11.33
1998 5.0 - 5.4 0 - 3.0 5.8 - 10 17.3 - 30.3 $9.78 - 11.20
1997 6.3 - 7.0 0 - 3.1 5.8 - 10 17.5 - 30.8 11.65 - 14.37
</TABLE>
22. Merger and Restructuring Charges
In 1999, the company recorded an accrual of $163 million for items
associated with the Oryx merger. Included in this charge were transaction costs,
severance and other employee-related costs, contract termination costs, lease
cancellations, write-off of redundant systems and equipment and other
merger-related costs. The merger resulted in approximately 550 employees being
terminated during 1999 under an involuntary termination program.
Oryx initiated a voluntary severance program in 1998, prior to the
agreement to merge with Kerr-McGee, for its U.S. operations. The company also
completed a work process review during 1998 which resulted in the elimination of
nonessential work processes, organizational restructuring and employee
reductions in both the operating and staff units. The programs resulted in the
notification of approximately 260 employees that their positions would be
eliminated.
During the three-year period ended December 31, 1999, the company accrued a
total of $206 million for the cost of special termination benefits for retiring
employees to be paid from retirement plan assets, future compensation,
relocation, transaction costs related to the merger, lease cancellation and
outplacement.
The merger reserve at December 31, 1999, includes $16 million for costs
associated with an office lease obligation that has no economic benefit to the
company but will be paid through the cancellation date in 2001 and the remaining
severance costs, which are expected to be paid and charged to the reserve during
2000. The accruals, expenditures and reserve balances are set forth below:
Merger Restructuring
Reserve Reserve
------- -------------
(Millions of dollars) 1999 1999 1998
- --------------------- ------- ---- ----
Beginning balance $ -- $ 20 $ 12
Accruals 163 1 40
Benefits to be paid from
employee benefit plans (31) -- (23)
Payments (126) (15) (9)
Transfer to merger reserve from
restructuring reserve and
other accrued liabilities(1) 14 (6) --
----- ---- ----
Ending balance $ 20 $ -- $ 20
===== ==== ====
(1) In a prior Oryx reduction in force, a $6 million reserve was
established for lease cancellation costs on a portion of the Dallas, Texas,
office space. Additionally, Oryx had planned to cancel the remainder of
the lease and had established an accrued liability of $8 million. These
liabilities were combined with the 1999 merger reserve since Kerr-McGee
also plans to cancel the lease at the date of the first option to cancel.
23. Merger with Oryx Energy Company
On February 26, 1999, the merger between Kerr-McGee and Oryx was completed.
The following table provides a reconciliation of sales reported by Kerr-McGee to
the combined amounts presented in the Consolidated Statement of Income:
(Millions of dollars) 1999 1998 1997
- --------------------- ------ ------ ------
Sales -
Pre-Merger -
Kerr-McGee $ 199 $1,396 $1,388
Oryx 103 820 1,197
Merger reclassifications -- (16) 20
Post-Merger 2,394 -- --
------ ------ ------
Total $2,696 $2,200 $2,605
====== ====== ======
Merger reclassifications primarily represent the reclassification of Oryx's
other income to Kerr-McGee's presentation.
The following table provides a reconciliation of net income reported by
Kerr-McGee to the combined amounts presented for the three years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Income (Loss)
From Continuing Discontinued Extraordinary Accounting
Operations Operations Charge Change Net Income
(Millions of dollars) (net of taxes) (net of taxes) (net of taxes) (net of taxes) (Loss)
- --------------------- -------------- -------------- -------------- -------------- ------
<S> <C> <C> <C> <C> <C>
1999 -
Pre-Merger -
Kerr-McGee $ 6 $ -- $-- $(4) $ 2
Oryx (14) -- -- -- (14)
Post-Merger 154 -- -- -- 154
----- ---- --- --- ----
Total $ 146 $ -- $-- $(4) $142
===== ==== === === ====
1998 -
Pre-Merger -
Kerr-McGee $(227) $277 $-- $-- $ 50
Oryx (95) -- -- -- (95)
Merger adjustments (23) -- -- -- (23)
----- ---- --- --- ----
Total $(345) $277 $-- $-- $(68)
===== ==== === === ====
1997 -
Pre-Merger -
Kerr-McGee $ 161 $ 33 $-- $-- $ 194
Oryx 172 -- (2) -- 170
Merger adjustments 18 -- -- -- 18
----- ---- --- --- -----
Total $ 351 $ 33 $(2) $-- $ 382
===== ==== === === =====
</TABLE>
The merger adjustments were to conform accounting policy changes primarily
related to the following: (1) accounting for postretirement benefits other than
pensions; (2) different methods for recognizing Petroleum Revenue Tax for U.K.
operations; and (3) different methods of providing for nonproducing leasehold
cost impairments.
24. Reporting by Business Segments and Geographic Locations
The company has three reportable segments: oil and gas exploration and
production and manufacturing and marketing of titanium dioxide pigment and other
chemicals. The exploration and production unit produces and explores for oil and
gas in the United States, United Kingdom sector of the North Sea, Indonesia,
China, Kazakhstan and Ecuador. Exploration efforts are also extended to
Australia, Algeria, Brazil, Gabon, Thailand, Yemen and the Danish sector of the
North Sea. The chemical unit primarily produces and markets titanium dioxide
pigment and has operations in the United States, Australia, Germany and Belgium.
Other chemicals include the company's electrolytic manufacturing and marketing
operations and forest products treatment business. All of these operations are
in the United States.
Crude oil sales to an individually significant customer totaled $420
million in 1999. There were no individually significant customers in 1998 or
1997. Sales to subsidiary companies are eliminated as described in Note 1.
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997
- --------------------- ------ ------ ------
<S> <C> <C> <C>
Sales -
Exploration and production $1,770 $1,267 $1,845
------ ------ ------
Chemicals -
Pigment 700 640 470
Other 226 293 290
------ ------ ------
Total Chemicals 926 933 760
------ ------ ------
Total $2,696 $2,200 $2,605
====== ====== ======
Operating profit (loss)(1) -
Exploration and production $ 542 $(361) $ 595
------ ----- ------
Chemicals -
Pigment 113 56 49
Other 14 -- 32
------ ------ ------
Total Chemicals 127 56 81
------ ------ ------
Total $ 669 $ (305) $ 676
====== ====== ======
Net operating profit (loss)(1) -
Exploration and production $ 338 $ (266) $ 375
------ ------ ------
Chemicals -
Pigment 73 35 31
Other 9 -- 21
------ ------ ------
Total Chemicals 82 35 52
------ ------ ------
Total 420 (231) 427
Net interest expense(1) (117) (77) (84)
Net nonoperating income (expense)(1) (157) (37) 8
Income from discontinued operations, net of taxes -- 277 33
Extraordinary charge, net of taxes -- -- (2)
Cumulative effect of change in accounting principle,
net of taxes (4) -- --
------ ------ ------
Net income (loss) $ 142 $ (68) $ 382
====== ====== ======
Depreciation, depletion and amortization -
Exploration and production $ 578 $ 527 $ 508
------ ------ ------
Chemicals -
Pigment 45 49 34
Other 18 19 21
------ ------ ------
Total Chemicals 63 68 55
------ ------ ------
Other 7 6 5
Discontinued operations -- 14 25
------ ------ ------
Total $ 648 $ 615 $ 593
====== ====== ======
</TABLE>
(1) Includes special items. Refer to Management's Discussion and Analysis.
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997
- --------------------- ------ ------ ------
<S> <C> <C> <C>
Cash capital expenditures -
Exploration and production $ 447 $ 871 $ 708
------ ------ ------
Chemicals -
Pigment 76 69 64
Other 14 23 27
------ ------ ------
Total Chemicals 90 92 91
------ ------ ------
Other 6 8 10
Discontinued operations -- 10 27
------ ------ ------
Total 543 981 836
------ ------ ------
Cash exploration expenses -
Exploration and production -
Dry hole costs 43 100 53
Amortization of undeveloped leases 41 40 23
Other 56 75 63
------ ------ ------
Total exploration expenses 140 215 139
Less - Amortization of leases and
other noncash expenses (51) (42) (23)
------ ------ ------
Total cash exploration expenses 89 173 116
------ ------ ------
Total cash capital expenditures
and cash exploration expenses $ 632 $1,154 $ 952
====== ====== ======
Identifiable assets -
Exploration and production $4,013 $4,083 $3,924
------ ------ ------
Chemicals -
Pigment(1) 921 863 601
Other 229 235 274
------ ------ ------
Total Chemicals 1,150 1,098 875
------ ------ ------
Total 5,163 5,181 4,799
Corporate and other assets 736 270 270
Discontinued operations -- -- 270
------ ------ ------
Total $5,899 $5,451 $5,339
====== ====== ======
Sales -
U.S. operations $1,471 $1,311 $1,635
------ ------ ------
International operations -
North Sea - exploration and production 752 472 644
Other - exploration and production 78 67 105
Europe - pigment 210 163 --
Australia - pigment 185 178 185
Other - pigment -- 9 36
------ ------ ------
1,225 889 970
------ ------ ------
Total $2,696 $2,200 $2,605
====== ====== ======
Operating profit (loss)(2) -
U.S. operations $ 364 $ (116) $ 400
------ ------ ------
International operations -
North Sea - exploration and production 270 (146) 85
Other - exploration and production -- (85) 178
Australia - pigment 21 19 13
Europe - pigment 14 23 --
------ ------ ------
305 (189) 276
------ ------ ------
Total $ 669 $ (305) $ 676
====== ====== ======
</TABLE>
(1) Includes net deferred tax asset of $12 million, $17 million and $22 million
at December 31, 1999, 1998 and 1997, respectively (see Note 12).
(2) Includes special items. Refer to Management's Discussion and Analysis.
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997
- --------------------- ------ ------ ------
<S> <C> <C> <C>
Net property, plant and equipment -
U.S. operations $2,106 $2,095 $2,382
------ ------ ------
International operations -
North Sea - exploration and production 1,547 1,617 1,101
Other - exploration and production 219 213 303
Australia - pigment 132 129 133
Europe - pigment 81 99 --
------ ------ ------
1,979 2,058 1,537
------ ------ ------
Total $4,085 $4,153 $3,919
====== ====== ======
</TABLE>
25. Subsequent Events
On January 18, 2000, the company completed the purchase of Repsol S.A.'s
upstream oil and gas operations in the United Kingdom sector of the North Sea
for $555 million. The cash transaction was financed initially through transition
financing, which will be replaced with the permanent financing discussed below.
Additionally, on February 14, 2000, the company reached definitive agreements
with Kemira Oyj of Finland to purchase its titanium dioxide pigment operations
in Savannah, Georgia, and Boltek, the Netherlands, for $403 million.
To provide financing for these two acquisitions, the company completed in
February a public offering of 7.5 million shares of its common stock at $50.0625
per share and a separate offering of $600 million of 5-1/4%, 10-year convertible
subordinated debentures. The conversion price of the debentures is $61.0763.
26. Costs Incurred in Crude Oil and Natural Gas Activities
Total expenditures, both capitalized and expensed, for crude oil and
natural gas property acquisition, exploration and development activities for the
three years ended December 31, 1999, are reflected in the following table:
Property
Acquisition Exploration Development
(Millions of dollars) Costs(1) Costs(2) Costs(3)
- --------------------- ----------- ----------- -----------
1999 -
United States $ 81 $ 92 $224
North Sea 30 18 106
Other international 8 32 9
---- ---- ----
Total $119 $142 $339
==== ==== ====
1998 -
United States $117 $136 $347
North Sea 423 38 311
Other international 5 75 29
---- ---- ----
Total $545 $249 $687
==== ==== ====
1997 -
United States $ 70 $110 $360
North Sea 2 18 146
Other international 2 61 50
---- ---- ----
Total $ 74 $189 $556
==== ==== ====
(1) Includes $49 million, $280 million and $11 million applicable to purchases
of reserves in place in 1999, 1998 and 1997, respectively.
(2) Exploration costs include delay rentals, exploratory dry holes, dry hole and
bottom hole contributions, geological and geophysical costs, costs of
carrying and retaining properties and capital expenditures, such as costs of
drilling and equipping successful exploratory wells.
(3) Development costs include costs incurred to obtain access to proved reserves
(surveying, clearing ground, building roads), to drill and equip
development wells, and to acquire, construct and install production
facilities and improved recovery systems. Development costs also include
costs of developmental dry holes.
27. Results of Operations from Crude Oil and Natural Gas Activities
The results of operations from crude oil and natural gas activities for the
three years ended December 31, 1999, consist of the following:
<TABLE>
<CAPTION>
Results of
Production Other Depreciation Income Tax Operations,
Gross (Lifting) Related Exploration and Depletion Asset Expenses Producing
(Millions of dollars) Revenues Costs Costs(1) Expenses Expenses Impairment (Benefits) Activities
- --------------------- -------- ---------- -------- ------------ ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 -
United States $ 938 $178 $ 73 $ 97 $316 $ -- $ 96 $ 178
North Sea 731 231 22 22 205 -- 99 152
Other international 77 23 18 21 15 -- 2 (2)
------ ---- ---- ---- ---- ---- ----- -----
Total crude oil and
natural gas activities 1,746 432 113 140 536 -- 197 328
Other(2) 24 6 -- -- 1 -- 7 10
-- ------ ---- ---- ---- ---- ---- ----- -----
Total $1,770 $438 $113 $140 $537 $ -- $ 204 $ 338
====== ==== ==== ==== ==== ==== ===== =====
1998 -
United States $ 721 $184 $126 $141 $285 $114 $ (36) $ (93)
North Sea 450 195 7 21 170 160 (20) (83)
Other international 67 12 9 52 31 115 (45) (107)
------ ---- ---- ---- ---- ---- ----- -----
Total crude oil and
natural gas activities 1,238 391 142 214 486 389 (101) (283)
Other(2) 29 5 1 -- -- -- 6 17
-- ------ ---- ---- ---- ---- ---- ----- -----
Total $1,267 $396 $143 $214 $486 $389 $ (95) $(266)
====== ==== ==== ==== ==== ==== ===== =====
1997 -
United States $1,045 $211 $101 $ 82 $316 $ -- $ 120 $ 215
North Sea 615 207 11 19 140 -- 94 144
Other international 101 29 12 36 29 -- (6) 1
------ ---- ---- ---- ---- ---- ----- ------
Total crude oil and
natural gas activities 1,761 447 124 137 485 -- 208 360
Other(2) 84 55 2 -- -- -- 12 15
-- ------ ---- ---- ---- ---- ---- ----- ------
Total $1,845 $502 $126 $137 $485 $ -- $ 220 $ 375
====== ==== ==== ==== ==== ==== ===== ======
</TABLE>
(1) Includes transition and restructuring charges of $20 million, $34 million
and $2 million in 1999, 1998 and 1997, respectively (see Note 22).
(2) Includes gas marketing, gas processing plants, pipelines and other items
that do not fit the definition of crude oil and natural gas activities but have
been included above to reconcile to the segment presentations.
The table below presents the company's average per-unit sales price of
crude oil and natural gas and production costs per barrel of oil equivalent for
each of the past three years. Natural gas production has been converted to a
barrel of oil equivalent based on approximate relative heating value (6 MCF
equals 1 barrel).
1999 1998 1997
------ ------ ------
Average sales price -
Crude oil (per barrel) -
United States $16.70 $12.73 $18.34
North Sea 17.88 12.93 18.93
Other international 14.34 9.90 15.36
Average 17.15 12.52 18.32
Natural gas (per MCF) -
United States 2.38 2.09 2.43
North Sea 2.12 2.46 2.44
Average 2.35 2.12 2.43
Production costs -
(Per barrel of oil equivalent)
United States 2.92 3.23 3.25
North Sea 5.57 5.62 6.25
Other international 4.32 1.78 4.33
Average 4.01 3.97 4.27
28. Capitalized Costs of Crude Oil and Natural Gas Activities>
Capitalized costs of crude oil and natural gas activities and the related
reserves for depreciation, depletion and amortization at the end of 1999 and
1998 are set forth in the table below.
(Millions of dollars) 1999 1998
- --------------------- ------ ------
Capitalized costs -
Proved properties $9,153 $8,701
Unproved properties 438 583
Other 98 75
------ ------
Total 9,689 9,359
------ ------
Reserves for depreciation, depletion and amortization -
Proved properties 6,100 5,734
Unproved properties 102 69
Other 43 34
------ ------
Total 6,245 5,837
------ ------
Net capitalized costs $3,444 $3,522
====== ======
29. Crude Oil, Condensate, Natural Gas Liquids and Natural Gas Net Reserves
(Unaudited)
The estimates of proved reserves have been prepared by the company's
geologists and engineers in accordance with the Securities and Exchange
Commission definitions. Such estimates include reserves on certain properties
that are partially undeveloped and reserves that may be obtained in the future
by improved recovery operations now in operation or for which successful testing
has been demonstrated. The company has no proved reserves attributable to
long-term supply agreements with governments or consolidated subsidiaries in
which there are significant minority interests.
The following table summarizes the changes in the estimated quantities of
the company's crude oil, condensate, natural gas liquids and natural gas
reserves for the three years ended December 31, 1999.
<TABLE>
<CAPTION>
Crude Oil, Condensate and
Natural Gas Liquids Natural Gas
(Millions of barrels) (Billions of cubic feet)
--------------------------------- -------------------------------------
Other Other
United North Interna- United North Interna-
States Sea tional Total States(1) Sea tional Total
------ ----- -------- ----- --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped reserves -
Balance December 31, 1996(2) 251 211 101 563 1,481 197 39 1,717
Revisions of previous estimates 12 11 1 24 1 22 3 26
Purchases of reserves in place 5 -- -- 5 19 -- -- 19
Sales of reserves in place -- (1) -- (1) (30) -- -- (30)
Extensions, discoveries and other additions 28 1 9 38 227 -- 214 441
Production (26) (30) (7) (63) (235) (16) -- (251)
--- --- --- --- ----- --- --- -----
Balance December 31, 1997 270 192 104 566 1,463 203 256 1,922
Revisions of previous estimates 6 6 (15) (3) (4) 7 13 16
Purchases of reserves in place -- 45 -- 45 4 46 -- 50
Sales of reserves in place (13) -- -- (13) (88) -- -- (88)
Extensions, discoveries and other additions 14 9 21 44 129 3 103 235
Production (24) (32) (7) (63) (197) (17) -- (214)
--- --- --- --- ----- --- --- ----
Balance December 31, 1998 253 220 103 576 1,307 242 372 1,921
Revisions of previous estimates 5 14 1 20 14 9 5 28
Purchases of reserves in place 4 7 -- 11 18 36 -- 54
Sales of reserves in place (1) (5) -- (6) (1) -- -- (1)
Extensions, discoveries and other additions 1 34 13 48 101 2 138 241
Production (29) (38) (5) (72) (191) (23) -- (214)
--- --- --- --- ----- --- --- ------
Balance December 31, 1999 233 232 112 577 1,248 266 515 2,029
=== ==== === === === === ===== === === =====
Proved developed reserves -
December 31, 1997 166 115 55 336 919 161 -- 1,080
December 31, 1998 148 141 38 327 812 163 -- 975
December 31, 1999 166 167 32 365 837 157 -- 994
</TABLE>
(1) 1998 and 1997 U.S. gas volumes have been restated to be consistent with the
current year's presentation.
(2) Includes 1 million barrels of oil and 3 billion cubic feet of natural gas
held for sale at December 31, 1996 (see Note 17).
The following presents the company's barrel of oil equivalent proved
developed and undeveloped reserves based on approximate relative heating value
(6 MCF equals 1 barrel)
United North Other
(Millions of equivalent barrels) States(1) Sea International Total
- -------------------------------- --------- --- ------------- -----
December 31, 1997 514 226 147 887
December 31, 1998 471 260 165 896
December 31, 1999 441 276 198 915
(1) 1998 and 1997 U.S. gas volumes have been restated to be consistent with the
current year's presentation.
30. Standardized Measure of and Reconciliation of Changes in Discounted Future
Net Cash Flows (Unaudited)
The standardized measure of future net cash flows presented in the
following table was computed using year-end prices and costs and a 10% discount
factor. The future income tax expense was computed by applying the appropriate
year-end statutory rates, with consideration of future tax rates already
legislated, to the future pre-tax net cash flows less the tax basis of the
properties involved. However, the company cautions that actual future net cash
flows may vary considerably from these estimates. Although the company's
estimates of total reserves, development costs and production rates were based
on the best information available, the development and production of the oil and
gas reserves may not occur in the periods assumed. Actual prices realized and
costs incurred may vary significantly from those used. Therefore, such estimated
future net cash flow computations should not be considered to represent the
company's estimate of the expected revenues or the current value of existing
proved reserves.
<TABLE>
<CAPTION>
Standardized
Future Measure of
Future Development 10% Discounted
Cash and Production Future Future Net Annual Future Net
(Millions of dollars) Inflows Costs Income Taxes Cash Flows Discount Cash Flows
- --------------------- ------- -------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999 -
United States $ 7,928 $3,332 $1,398 $3,198 $1,343 $1,855
North Sea 6,146 2,608 1,245 2,293 665 1,628
Other international 3,693 1,665 783 1,245 717 528
------- ------ ------ ------ ------ ------
Total $17,767 $7,605 $3,426 $6,736 $2,725 $4,011
======= ====== ====== ====== ====== ======
1998 -
United States $ 4,780 $2,108 $ 718 $1,954 $ 713 $1,241
North Sea 3,121 2,474 82 565 160 405
Other international 1,499 977 181 341 264 77
------- ------ ------ ------ ------ ------
Total $ 9,400 $5,559 $ 981 $2,860 $1,137 $1,723
======= ====== ====== ====== ====== ======
1997 -
United States $ 8,006 $2,936 $1,584 $3,486 $1,310 $2,176
North Sea 4,026 2,678 282 1,066 356 710
Other international 2,291 1,471 236 584 283 301
------- ------ ------ ------ ------ ------
Total $14,323 $7,085 $2,102 $5,136 $1,949 $3,187
======= ====== ====== ====== ====== ======
</TABLE>
The changes in the standardized measure of future net cash flows are
presented below for each of the past three years:
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997
- --------------------- ------ ------- -------
<S> <C> <C> <C>
Net change in sales, transfer prices and production costs $4,310 $(2,156) $(3,704)
Changes in estimated future development costs (318) (377) (283)
Sales and transfers less production costs (1,314) (847) (1,314)
Purchases of reserves in place 117 159 26
Changes due to extensions, discoveries, etc 592 173 478
Changes due to revisions in quantity estimates 272 43 81
Changes due to sales of reserves in place (104) (107) (9)
Current period development costs 339 687 556
Accretion of discount 231 437 759
Changes in income taxes (1,414) 693 1,242
Timing and other (423) (169) 37
------ ------- -------
Net change 2,288 (1,464) (2,131)
Total at beginning of year 1,723 3,187 5,318
------ ------- -------
Total at end of year $4,011 $ 1,723 $ 3,187
====== ======= =======
</TABLE>
31. Quarterly Financial Information (Unaudited)
A summary of quarterly consolidated results for 1999 and 1998 is presented
below. In periods in which there was a loss from continuing operations, the
conversion of stock options was not assumed since the loss per-share amount
would have been lower. Therefore, the quarterly per-share amounts may not add to
the annual amounts. Refer to Management's Discussion and Analysis for
information about special items.
<TABLE>
<CAPTION>
Diluted Income (Loss)
per Common Share
Income -----------------------
(Loss) from Net
(Millions of dollars, Operating Continuing Income Continuing Net
except per-share amounts) Sales Profit (Loss) Operations (Loss) Operations Income
- ------------------------- ------ ------------- ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
1999 Quarter Ended -
March 31 $ 486 $ 49 $(107) $(111) $(1.23) $(1.28)
June 30 657 135 45 45 .52 .52
September 30 753 239 98 98 1.13 1.13
December 31 800 246 110 110 1.27 1.27
------ ----- ----- ----- ------ ------
Total $2,696 $ 669 $ 146 $ 142 $ 1.69 $ 1.64
====== ===== ===== ===== ====== ======
1998 Quarter Ended -
March 31 $ 507 $ 55 $ 16 $ 24 $ .18 $ .27
June 30 601 73 32 83 .36 .95
September 30 556 11 (68) 150 (.77) 1.73
December 31 536 (444) (325) (325) (3.75) (3.74)
------ ----- ----- ----- ------ ------
Total $2,200 $(305) $(345) $ (68) $(3.98) $ (.78)
====== ===== ===== ===== ====== ======
</TABLE>
The company's common stock is listed for trading on the New York Stock
Exchange and at year-end 1999 was held by approximately 32,000 Kerr-McGee
stockholders of record and Oryx owners who have not yet exchanged their stock.
The ranges of market prices and dividends declared during the last two years for
Kerr-McGee Corporation are as follows:
Market Prices
--------------------------------------
Dividends
1999 1998 per Share
----------------- ----------------- ------------
High Low High Low 1999 1998
------- ------- ------- ------- ----- -----
Quarter Ended -
March 31 41-7/16 28-1/2 73-3/16 55-7/8 $.45 $.45
June 30 52-1/8 32-1/2 70-1/4 56-5/8 .45 .45
September 30 60-1/16 49-5/16 60-1/2 38 .45 .45
December 31 62 52 47-9/16 36-3/16 .45 .45
Six-Year Financial Summary
<TABLE>
<CAPTION>
(Millions of dollars, except per-share amounts) 1999 1998 1997 1996 1995 1994
- ----------------------------------------------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Summary of Net Income (Loss)
Sales $2,696 $2,200 $2,605 $2,740 $2,419 $ 2,359
------ ------ ------ ------ ------ -------
Costs and operating expenses 2,289 2,606 2,011 2,122 2,305 2,185
Interest and debt expense 190 157 141 145 193 211
------ ------ ------ ------ ------ -------
Total costs and expenses 2,479 2,763 2,152 2,267 2,498 2,396
------ ------ ------ ------ ------ -------
217 (563) 453 473 (79) (37)
Other income 40 43 82 110 147 15
Taxes on income (111) 175 (184) (225) 42 (9)
------ ------ ------ ------ ------ -------
Income (loss) from continuing operations 146 (345) 351 358 110 (31)
Income from discontinued operations -- 277 33 56 27 55
Extraordinary charge -- -- (2) -- (23) (12)
Cumulative effect of change in accounting principle (4) -- -- -- -- (948)
------ ------ ------ ------ ------ -------
Net income (loss) $ 142 $ (68) $ 382 $ 414 $ 114 $ (936)
====== ====== ====== ====== ====== =======
Common Stock Information, per Share
Diluted net income (loss) -
Continuing operations $ 1.69 $(3.98) $ 4.02 $ 4.05 $ 1.23 $ (.36)
Discontinued operations -- 3.20 .38 .63 .30 .63
Extraordinary charge -- -- (.02) -- (.26) (.14)
Cumulative effect of accounting change (.05) -- -- -- -- (10.82)
------ ------ ------ ------ ------ -------
Net income (loss) $ 1.64 $ (.78) $ 4.38 $ 4.68 $ 1.27 $(10.69)
====== ====== ====== ====== ====== =======
Dividends declared $ 1.80 $ 1.80 $ 1.80 $ 1.64 $ 1.55 $ 1.52
Stockholders' equity 17.19 15.58 17.88 14.59 12.47 12.33
Market high for the year 62.00 73.19 75.00 74.13 64.00 51.00
Market low for the year 28.50 36.19 55.50 55.75 44.00 40.00
Market price at year-end $62.00 $38.25 $63.31 $72.00 63.50 $ 46.25
Shares outstanding at year-end (thousands) 86,483 86,367 86,794 87,032 89,613 90,143
Balance Sheet Information
Working capital $ 321 $ (173) $ -- $ 161 $ (106) $ (254)
Property, plant and equipment - net 4,085 4,153 3,919 3,693 3,807 4,497
Total assets 5,899 5,451 5,339 5,194 5,006 5,918
Long-term debt 2,496 1,978 1,736 1,809 1,683 2,219
Total debt 2,525 2,250 1,766 1,849 1,938 2,704
Total debt less cash 2,258 2,129 1,574 1,719 1,831 2,612
Stockholders' equity 1,492 1,346 1,558 1,279 1,124 1,112
Cash Flow Information
Net cash provided by operating activities 713 385 1,097 1,169 728 678
Cash capital expenditures 543 981 836 875 745 611
Dividends paid 138 86 85 83 79 79
Treasury stock purchased $ -- $ 25 $ 60 $ 195 $ 45 $ --
Ratios and Percentage
Current ratio 1.4 .8 1.0 1.2 .9 .8
Average price/earnings ratio 27.6 NM 14.9 13.9 42.5 NM
Total debt less cash to total capitalization 60% 61% 50% 57% 62% 70%
Employees
Total wages and benefits $ 327 $ 359 $ 367 $ 367 $ 402 $ 422
Number of employees at year-end 3,653 4,400 4,792 4,827 5,176 6,724
</TABLE>
Six-Year Operating Summary
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production
Net production of crude oil and condensate -
(thousands of barrels per day)
United States 79.3 66.2 70.6 73.8 74.8 73.4
North Sea 102.9 87.4 83.3 86.5 91.9 88.7
Other international 14.7 18.4 18.1 16.8 17.4 26.4
------ ------ ------ ------ ------ ------
Total 196.9 172.0 172.0 177.1 184.1 188.5
====== ====== ====== ====== ====== ======
Average price of crude oil sold (per barrel) -
United States $16.70 $12.73 $18.34 $19.45 $15.73 $14.25
North Sea 17.88 12.93 18.93 19.60 16.56 15.33
Other international 14.34 9.90 15.36 15.85 14.70 14.58
Average $17.15 $12.52 $18.32 $19.18 $16.05 $14.80
Natural gas sales (MMCF per day) 580 584 685 781 809 872
Average price of natural gas sold (per MCF) $ 2.35 $ 2.12 $ 2.43 $ 2.10 $ 1.63 $ 1.82
Net exploratory wells drilled -
Productive 1.70 4.40 7.65 6.91 4.71 11.61
Dry 3.75 14.42 7.42 5.52 11.16 13.47
------ ------ ------ ------ ------ ------
Total 5.45 18.82 15.07 12.43 15.87 25.08
====== ====== ====== ====== ====== ======
Net development wells drilled -
Productive 46.23 62.30 95.78 143.33 135.86 69.27
Dry 5.89 9.00 7.00 13.04 11.95 9.63
------ ------ ------ ------ ------ ------
Total 52.12 71.30 102.78 156.37 147.81 78.90
====== ====== ====== ====== ====== ======
Undeveloped net acreage (thousands) -
United States 1,560 1,487 1,353 1,099 1,280 1,415
North Sea 861 908 523 560 570 629
Other international 19,039 14,716 14,630 4,556 4,031 7,494
------ ------ ------ ------ ------ ------
Total 21,460 17,111 16,506 6,215 5,881 9,538
====== ====== ====== ====== ====== ======
Developed net acreage (thousands) -
United States 796 810 830 871 1,190 1,270
North Sea 105 115 70 79 58 68
Other international 785 612 201 198 207 1,015
------ ------ ------ ------ ------ ------
Total 1,686 1,537 1,101 1,148 1,455 2,353
====== ====== ====== ====== ====== ======
Estimated proved reserves
(millions of equivalent barrels) 915 896 886 849 864 1,059
Chemicals
Industrial and specialty chemical sales
(thousands of tonnes) 518 481 443 405 404 346
</TABLE>
Stockholder and Investor Information
Stock Exchange Listing
Kerr-McGee (KMG) common stock is listed on the New York Stock Exchange and also
is traded on the Boston, Chicago, Pacific and Philadelphia stock exchanges.
Stockholder Assistance
Contact UMB Bank, N.A., of Kansas City, Missouri, toll-free at (877) 860-5820 or
(800) 884-4225 for assistance with:
- - Direct deposit of cash dividends
- - Direct stock purchase and dividend reinvestment plan
- - Transfer of stock certificates
- - Replacement of lost or destroyed stock certificates and dividend checks
Stockholder Information and Publications
Contact the Office of the Corporate Secretary at (800) STOCK KM (800-786-2556)
for general information and assistance or to request the company's annual report
on Form 10-K and quarterly reports on Form 10-Q, as filed with the Securities
and Exchange Commission, and the company's annual report to stockholders.
Direct Purchase and Dividend Reinvestment Plan
This plan allows stockholders to buy Kerr-McGee common stock directly from the
company and to reinvest quarterly dividends in additional shares. The company
pays all fees and commissions for these services. For a prospectus, please call
(800) 786-2556.
Investor Information
Richard C. Buterbaugh, Vice President, Investor Relations, is available at (405)
270-3561 to answer questions from stockholders, security analysts and other
interested parties.
Transfer Agent and Registrar
UMB Bank, N.A.
Securities Transfer Division
P.O. Box 410064
Kansas City, MO 64141-0064
Toll-free telephone: (877) 860-5820 or (800) 884-4225
Corporate Headquarters
Kerr-McGee Corporation
Kerr-McGee Center
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102
Mailing address:
P.O. Box 25861
Oklahoma City, OK 73125
Telephone: (405) 270-1313
Forward-Looking Information
Statements in this annual report regarding the company's or management's
intentions, beliefs or expectations are forward-looking statements within the
meaning of the Securities Litigation Reform Act. Future results and developments
discussed in these statements may be affected by numerous factors and 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 value 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. Actual results and developments may
differ materially from those expressed or implied in this annual report.
EXHIBIT 21
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
SUBSIDIARIES
State or Country Percent
Name of Subsidiary of Incorporation Owned
- ----------------------------------- ---------------- -------
Kerr-McGee Oil & Gas Corporation Delaware 100%
Kerr-McGee Oil (U.K.)PLC England 100%
Kerr-McGee Resources (U.K.) Limited England 100%
Kerr-McGee North Sea (U.K.) Limited England 100%
Kerr-McGee Chemical LLC Delaware 100%
Kerr-McGee L.P. Corporation Delaware 100%
Kerr-McGee Oil & Gas Onshore LLC Delaware 100%
A number of additional subsidiaries are omitted since, considered in
the aggregate as a single subsidiary, they would not constitute a significant
subsidiary as of December 31, 1999.
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 25, 2000, included in the company's 1999 Annual Report to
Stockholders and incorporated by reference in this Form 10-K and on page 30 of
this Form 10-K, into the company's previously filed Registration Statements on
Form S-8 File Nos. 33-24274, 33-50949, 333-28235 and 333-92865, and the
company's previously filed Registration Statements on Form S-3 File Nos.
33-66112 and 333-94091.
(ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
March 30, 2000
EXHIBIT 23.2
Consent of Independent Public Accountant
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 33-66112 and 333-94091) and Form S-8 (Nos.
33-24274; 33-50949; 333-28235 and 333-92865) of Kerr-McGee Corporation of our
report dated February 26, 1999 appearing in Kerr-McGee Corporation's 1999 Annual
Report to Stockholders and incorporated by reference in this Form 10-K,
relating to the consolidated financial statements of Oryx Energy Company, which
such financial statements are not separately presented therein.
(PRICEWATERHOUSECOOPERS LLP)
PricewaterhouseCoopers LLP
Dallas, Texas
March 30, 2000
EXHIBIT 24
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(WILLIAM E. BRADFORD)
-----------------------------
William E. Bradford, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or
Officer or both, as the case may be, of the Company, does hereby appoint Tom J.
McDaniel and Gregory F. Pilcher, and each of them severally, his true and lawful
attorneys or attorney-in-fact and agents or agent with power to act with or
without the other and with full power of substitution and resubstitution, to
execute for him and in his name, place and stead, in his capacity as a Director
or Officer or both, as the case may be, of the Company, the Form 10-K and any
and all amendments thereto, as said attorneys or each of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed with
the Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(LUKE R. CORBETT)
------------------------------------
Luke R. Corbett
Chief Executive Officer and Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in her capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, her true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for her and
in her name, place and stead, in her capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(SYLVIA A. EARLE)
-------------------------
Sylvia A. Earle, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(DAVID C. GENEVER-WATLING)
----------------------------------
David C. Genever-Watling, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(MARTIN C. JISCHKE)
---------------------------
Martin C. Jischke, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or
Officer or both, as the case may be, of the Company, does hereby appoint Luke R.
Corbett and Gregory F. Pilcher his true and lawful attorney-in-fact and agent
with power to act and with full power of substitution and resubstitution, to
execute for him and in his name, place and stead, in his capacity as a Director
or Officer or both, as the case may be, of the Company, the Form 10-K and any
and all amendments thereto, as said attorneys or each of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed with
the Commission. Said attorneys shall have full power and authority to do and
perform in the name and on behalf of the undersigned, in any and all capacities,
each act whatsoever necessary or desirable to be done in the premises, as fully
and to all intents and purposes as the undersigned might or could do in person,
the undersigned hereby ratifying and approving the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(TOM J. MCDANIEL)
------------------------------
Tom J. McDaniel
Vice Chairman of the Board and
Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(WILLIAM C. MORRIS)
---------------------------
William C. Morris, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(JOHN J. MURPHY)
------------------------
John J. Murphy, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(LEROY C. RICHIE)
-------------------------
Leroy C. Richie, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(MATTHEW R. SIMMONS)
----------------------------
Matthew R. Simmons, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in her capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel Gregory F.
Pilcher, and each of them severally, her true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for her and
in her name, place and stead, in her capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(FARAH M. WALTERS)
--------------------------
Farah M. Walters, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(IAN L. WHITE-THOMSON)
------------------------------
Ian L. White-Thomson, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1999 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as an Officer of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and Gregory F.
Pilcher, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act and with full power of
substitution and resubstitution, to execute for him and in his name, place and
stead, in his capacity as an Officer of the Company, the Form 10-K and any and
all amendments thereto, as said attorneys or each of them shall deem necessary
or appropriate, together with all instruments necessary or incidental in
connection therewith, and to file the same or cause the same to be filed with
the Commission. Each of said attorneys shall have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 27, 2000.
(ROBERT M. WOHLEBER)
-------------------------
Robert M. Wohleber
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1999, 1998, and 1997, and the
Consolidated Statement of Income for the years ended and is qualified in its
entirety by reference to such Form 10-K.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
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0 0 0
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<OTHER-SE> 1399 1253 1465
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<INTEREST-EXPENSE> 190 157 141
<INCOME-PRETAX> 257 (520) 535
<INCOME-TAX> 111 (175) 184
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<DISCONTINUED> 0 277 33
<EXTRAORDINARY> 0 0 0
<CHANGES> (4) 0 0
<NET-INCOME> 142 (68) 382
<EPS-BASIC> 1.64 (.78) 4.40
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