UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
------ ------
Commission File Number 1-16619
KERR-McGEE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
A Delaware Corporation 73-1612389
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Kerr-McGee Center, Oklahoma City, Oklahoma 73125
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (405) 270-1313
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Number of shares of common stock, $1.00 par value, outstanding as of
October 31, 2001: 100,186,350
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars, except per-share amounts) 2001 2000 2001 2000
------ -------- -------- --------
Sales $883.5 $1,106.1 $2,880.5 $3,003.5
------ -------- -------- --------
Costs and Expenses
Costs and operating expenses 331.8 339.0 936.6 945.0
Selling, general and administrative expenses 60.1 45.6 168.1 151.7
Shipping and handling expenses 31.2 27.4 90.3 74.2
Depreciation and depletion 182.4 171.5 523.3 510.2
Asset impairment 47.3 - 47.3 -
Exploration, including dry holes and
amortization of undeveloped leases 45.6 49.0 139.2 137.9
Taxes, other than income taxes 25.8 31.0 88.9 89.4
Provision for environmental remediation and
restoration of inactive sites, net of reimbursements 78.4 - 82.1 90.0
Purchased in-process research and development - - - 32.5
Interest and debt expense 47.1 49.1 127.5 162.4
------ -------- -------- --------
Total Costs and Expenses 849.7 712.6 2,203.3 2,193.3
------ -------- -------- --------
33.8 393.5 677.2 810.2
Other Income 7.0 11.6 207.6 53.7
------ -------- -------- --------
Income before Income Taxes 40.8 405.1 884.8 863.9
Taxes on Income (14.5) (140.5) (328.5) (304.2)
------ -------- -------- --------
Income before Change in Accounting Principle 26.3 264.6 556.3 559.7
Cumulative Effect of Change in Accounting Principle (net of
benefit for income taxes of $10.8) - - (20.3) -
------ -------- -------- --------
Net Income $ 26.3 $ 264.6 $ 536.0 $ 559.7
====== ======== ======== ========
Net Income per Common Share
Basic -
Income before cumulative effect of change
in accounting principle $ .27 $ 2.81 $ 5.79 $ 6.01
Cumulative effect of change in accounting
principle - - (.21) -
------ -------- -------- --------
Total $ .27 $ 2.81 $ 5.58 $ 6.01
====== ======== ======== ========
Diluted -
Income before cumulative effect of change
in accounting principle $ .27 $ 2.57 $ 5.39 $ 5.62
Cumulative effect of change in accounting
principle - - (.19) -
------ -------- -------- --------
Total $ .27 $ 2.57 $ 5.20 $ 5.62
====== ======== ======== ========
The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, December 31,
(Millions of dollars) 2001 2000
------------- ------------
ASSETS
Current Assets
Cash $ 121.4 $ 144.0
Notes and accounts receivable 623.2 666.8
Inventories 437.5 390.9
Deposits and prepaid expenses 147.3 113.1
--------- ---------
Total Current Assets 1,329.4 1,314.8
--------- ---------
Property, Plant and Equipment 16,065.2 12,770.4
Less reserves for depreciation, depletion and amortization 7,867.3 7,387.0
--------- ---------
8,197.9 5,383.4
--------- ---------
Investments and Other Assets 806.2 967.8
Goodwill 326.6 -
--------- ---------
$10,660.1 $ 7,666.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 13.7 $ 5.8
Accounts payable 876.1 637.7
Long-term debt due within one year 26.4 175.2
Other current liabilities 435.6 530.3
--------- ---------
Total Current Liabilities 1,351.8 1,349.0
--------- ---------
Long-Term Debt 3,970.7 2,243.7
--------- ---------
Deferred Credits and Reserves 2,073.9 1,440.4
--------- ---------
Stockholders' Equity
Common stock, par value $1 - 300,000,000
shares authorized, 100,186,250 shares issued at
9-30-01 and 101,417,309 shares issued at 12-31-00 100.0 101.4
Capital in excess of par value 1,661.2 1,655.4
Preferred stock purchase rights .9 .9
Restricted stock 12.1 5.0
Retained earnings 1,640.5 1,233.0
Accumulated other comprehensive income (loss) (64.3) 113.1
Common shares in treasury, at cost - no shares
at 9-30-01 and 6,932,790 shares at 12-31-00 - (383.4)
Deferred compensation (86.7) (92.5)
--------- ---------
Total Stockholders' Equity 3,263.7 2,632.9
--------- ---------
$10,660.1 $ 7,666.0
========= =========
The "successful efforts" method of accounting for oil and gas exploration and
production activities has been followed in preparing this balance sheet.
The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
(Millions of dollars) 2001 2000
--------- ---------
Operating Activities
- --------------------
Net income $ 536.0 $ 559.7
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization 562.9 548.4
Asset impairment 47.3 -
Dry hole costs 43.6 53.1
Deferred income taxes 147.0 (73.1)
Provision for environmental remediation and
restoration of inactive sites, net of reimbursement 82.1 90.0
Purchased in-process research and development - 32.5
(Gain) loss on sale and retirement of assets (3.6) 4.1
Noncash items affecting net income (151.8) 37.3
Other net cash used in operating activities (49.7) (30.7)
--------- ---------
Net Cash Provided by Operating Activities 1,213.8 1,221.3
--------- ---------
Investing Activities
- --------------------
Capital expenditures (1,349.2) (387.6)
Dry hole expense (43.6) (53.1)
Acquisitions (980.7) (999.4)
Other investing activities (47.4) 7.4
--------- ---------
Net Cash Used in Investing Activities (2,420.9) (1,432.7)
--------- ---------
Financing Activities
- --------------------
Issuance of long-term debt 1,703.0 841.3
Repayment of long-term debt (416.2) (965.5)
Decrease in short-term borrowings (3.3) (4.9)
Issuance of common stock 31.8 374.8
Dividends paid (127.9) (123.6)
--------- ---------
Net Cash Provided by Financing Activities 1,187.4 122.1
--------- ---------
Effects of Exchange Rate Changes on Cash and Cash Equivalents (2.9) (2.5)
--------- ---------
Net Decrease in Cash and Cash Equivalents (22.6) (91.8)
Cash and Cash Equivalents at Beginning of Period 144.0 266.6
--------- ---------
Cash and Cash Equivalents at End of Period $ 121.4 $ 174.8
========= =========
The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
A. The condensed financial statements included herein have been prepared
by the company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the resulting operations for the
indicated periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. Although the company believes that the
disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the company's latest annual report on Form 10-K.
B. In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). The statement as amended requires recording all
derivative instruments as assets or liabilities, measured at fair value.
Kerr-McGee adopted this standard on January 1, 2001, by recording the
fair value of all the foreign currency forward purchase and sales
contracts, and by separating and recording the fair value of the options
associated with the company's debt exchangeable for stock of Devon
Energy Corporation (Devon) presently owned by the company. In adopting
the standard, the company recognized an expense of $20.3 million in the
2001 first quarter as a cumulative effect of the accounting change.
Also, in accordance with FAS 133, the company chose to reclassify 85% of
the Devon shares owned to "trading" from the "available for sale"
category of investments. On January 1, 2001, the company recognized
after-tax income totaling $117.9 million for the unrealized appreciation
on the Devon shares reclassified to trading. The portion of the stock
investment now classified as "trading" is marked-to-market through
income each month.
From time to time, the company enters into forward contracts to buy and
sell foreign currencies. Certain of these contracts (purchases of
Australian dollars and British pound sterling) have been designated and
have qualified as cash flow hedges of the company's anticipated future
cash flow needs for a portion of its capital expenditures and operating
costs. These forward contracts generally have durations of less than
three years. The resulting changes in fair value of these contracts are
recorded in accumulated other comprehensive income. The amounts in
accumulated other comprehensive income, $21.4 million loss at September
30, 2001, will be recognized in earnings in the periods during which the
hedged forecasted transactions affect earnings (i.e., when the hedged
transaction is paid in the case of a hedge of operating costs and when
the hedged assets are depreciated in the case of a hedge of capital
expenditures). In the third quarter and the first nine months of 2001,
the company reclassified $2.4 million and $7 million, respectively, of
losses on forward contracts from accumulated other comprehensive income
to operating expenses in the income statement. Of the existing net
losses at September 30, 2001, approximately $12 million will be
reclassified into earnings during the next 12 months, assuming no
further changes in fair value of the contracts. No hedges were
discontinued during the third quarter or the first nine months of 2001,
and no ineffectiveness was recognized.
The company has entered into other forward contracts to sell foreign
currencies, which will be collected as a result of pigment sales
denominated in foreign currencies, primarily European currencies. These
contracts have not been designated as hedges even though they do protect
the company from changes in foreign currency rate changes. Almost all of
the pigment receivables have been sold in an asset securitization
program at their equivalent U.S. dollar value at the date the
receivables were sold. However, the company retains the risk of foreign
currency rate changes between the date of sale and collection of the
receivables.
As discussed in Note J., the company purchased 100% of the outstanding
shares of common stock of HS Resources effective August 1, 2001. HS
Resources and its trading subsidiary had a number of derivative
contracts for purchases and sales of oil and gas as well as basis
differences, and energy related contracts. All of these contracts are
being treated by Kerr-McGee as speculative and are recorded at their
fair value on the balance sheet and marked-to-market through income each
month. Kerr-McGee has not generally entered into derivative contracts
for commodities, and therefore plans to simply let the contracts run
until maturity, unless closed earlier. In addition, the former HS
Resources trading company had taken positions in certain commodity
trading contracts that have now been closed with offsetting positions.
The only risk that remains is the credit risk associated with the other
parties to the contracts; however, the company believes that risk is
minimal due to the credit worthiness of the other companies.
C. In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (FAS) No. 141, "Business
Combinations," and FAS 142, "Goodwill and Other Intangible Assets." FAS
141 requires all business combinations initiated after June 30, 2001, to
be accounted for under the purchase method. The company was required to
adopt FAS 141 for its business combination of HS Resources. The company
also will be required to adopt FAS 142 at the beginning of 2002 for all
goodwill and other intangible assets recognized in the company's
statement of financial position as of January 1, 2002. This statement
changes the accounting for goodwill and intangible assets that have
indefinite useful lives from an amortization method to an impairment
approach. The nonamortization provisions of this standard are
immediately applicable for any goodwill acquired after June 30, 2001.
During 2002, the company will perform the first required impairment
tests of goodwill and indefinite lived intangible assets. The company
does not believe that the adoption of these statements will have a
material effect on its financial position, results of operations or cash
flows.
In June 2001, the Financial Accounting Standards Board also issued FAS
143, "Accounting for Asset Retirement Obligations." FAS 143 requires
asset retirement costs to be capitalized as part of the cost of the
related tangible long-lived asset and subsequently allocated to expense
using a systematic and rational method over the useful life of the
asset. The company will adopt the statement effective no later than
January 1, 2003, as required. The transition adjustment resulting from
the adoption of FAS 143 will be reported as a cumulative effect of a
change in accounting principle. At this time, the company cannot
reasonably estimate the effect of the adoption of this statement on its
financial position, results of operations or cash flows.
In August 2001, the Financial Accounting Standards Board issued FAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." FAS
144 supersedes FAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the portion of
the Accounting Principle Board Opinion No. 30 that deals with disposal
of a business segment. The new standard resolves significant
implementation issues related to FAS 121, establishes a single
accounting model for long-lived assets to be disposed of by sale and is
effective for fiscal years beginning after December 15, 2001. At this
time, the company cannot estimate the effect of this statement on its
financial position, results of operations or cash flows.
D. Net cash provided by operating activities reflects cash payments for
income taxes and interest as follows:
Nine Months Ended
September 30,
(Millions of dollars) 2001 2000
------ ------
Income tax payments $344.3 $203.0
Less refunds received (19.0) (33.9)
------ ------
Net income tax payments $325.3 $169.1
====== ======
Interest payments $130.2 $138.0
====== ======
E. During the third quarter of 2001 and 2000, comprehensive income was
$30.6 million and $248.7 million, respectively. For the nine months
ended September 30, 2001 and 2000, comprehensive income was $476.5
million and $603.5 million, respectively.
The company has certain investments that are considered to be 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 at September
30, 2001, or December 31, 2000. At September 30, 2001, and December 31,
2000, available-for-sale securities for which fair value can be
determined are as follows:
September 30, 2001 December 31, 2000
------------------------------- --------------------------------
Gross Gross
Unrealized Unrealized
Fair Holding Fair Holding
(Millions of dollars) Value Cost Gain Value Cost Gain (Loss)
----- ----- ---------- ------ ---- ----------
Equity securities $52.2 $31.9 $20.3 $606.9 $208.8 $398.1
Exchangeable debt (1) 514.3 330.3 (184.0)
U.S. government obligations -
Maturing within one year .8 .8 - 1.9 1.9 -
Maturing between one year
and four years 3.7 3.7 - 4.3 4.3 -
----- ------
Total $20.3 $214.1
===== ======
(1) With the adoption of FAS 133, the exchangeable debt and its embedded
option features were separated. The debt is now recorded in the
Consolidated Balance Sheet at face value less unamortized discount, and
the options associated with the exchangeable features of the debt have
been recorded separately as derivatives at fair value (see Note B).
F. Investments in equity affiliates totaled $63.3 million at September
30, 2001, and $40.5 million at December 31, 2000. Equity income related
to the investments is included in Other Income in the Consolidated
Statement of Income and was a loss of $2.6 million for the three months
ended September 30, 2001, compared with income of $6.3 million for the
same 2000 period. For the first nine months of 2001, the equity loss
totaled $3.6 million, compared with income of $19.8 million for the same
2000 period.
G. The following tables set forth the computation of basic and diluted
earnings per share (EPS) for the three-month and nine-month periods
ended September 30, 2001 and 2000.
For the Three Months Ended September 30,
------------------------------------------------------------------------
2001 2000
--------------------------------- ---------------------------------
(In millions, except Per-Share Per-Share
per-share amounts) Income Shares Income Income Shares Income
------ ------ --------- ------ ------ ---------
Basic EPS $26.3 98.5 $.27 $264.6 94.3 $2.81
==== =====
Effect of Dilutive Securities:
5 1/4% convertible debentures - - 5.3 9.8
7 1/2% convertible debentures - - 2.2 1.7
Stock options - - - .2
----- ---- ------ -----
Diluted EPS $26.3 98.5 $.27 $272.1 106.0 $2.57
===== ==== ==== ====== ===== =====
For the Nine Months Ended September 30,
------------------------------------------------------------------------
2001 2000
--------------------------------- ---------------------------------
(In millions, except Per-Share Per-Share
per-share amounts) Income Shares Income Income Shares Income
------ ------ --------- ------ ------ ---------
Basic EPS $536.0 96.1 $5.58 $559.7 93.1 $6.01
===== =====
Effect of Dilutive Securities:
5 1/4% convertible debentures 16.0 9.8 13.6 8.3
7 1/2% convertible debentures - - 6.8 1.7
Stock options - .2 - .2
------ ----- ------ --------
Diluted EPS $552.0 106.1 $5.20 $580.1 103.3 $5.62
====== ===== ===== ====== ======== ========
H. In December 2000, the company began an accounts receivable
monetization for its pigment business through the sale of selected
accounts receivable with a three-year, credit-insurance-backed asset
securitization program. The company retained servicing responsibilities
and subordinated interests and will receive a servicing fee of 1.07% of
the receivables sold for the period of time outstanding, generally 60 to
120 days. No recourse obligations were recorded since the company has
very limited obligations for any recourse actions on the sold
receivables. The collection of the receivables is insured, and only
receivables that qualify for credit insurance can be sold. A portion of
the insurance is reinsured by the company's captive insurance company;
however, the company believes that the risk of insurance loss is very
low since its bad-debt experience has historically been insignificant.
The company received preference stock in the special-purpose entity
equal to 3.5% of the receivables sold. The preference stock is
essentially a retained deposit to provide further credit enhancements,
if needed, but otherwise recoverable by the company at the end of the
program.
During the 2001 third quarter, the company sold $152.6 million of its
pigment receivables, resulting in pretax losses of $2.3 million. For the
first nine months of 2001, the company sold $460.5 million of
receivables, resulting in pretax losses of $6.9 million. The losses were
equal to the difference in the book value of the receivables sold and
the total of cash and the fair value of the deposit retained by the
special-purpose entity. At September 30, 2001, the outstanding balance
on receivables sold totaled $106.2 million.
I. Production from the Hutton Field in the North Sea was suspended in
May 2001 due to concerns about the oil export pipeline's integrity.
During the 2001 third quarter, it was determined that due to the amount
of corrosion present in the pipeline, replacement of the pipeline would
be required to allow production to resume. After careful study, the
company, as operator, and the other partners decided not to replace the
pipeline due to the small amount of remaining field reserves and plan to
decommission the field. The Hutton Field was deemed to be impaired
because recovery of the net book value from future cash flows could no
longer be expected.
An impairment loss of $43.7 million was determined based on the
difference between the carrying value of the assets and the present
value of the field's discounted future cash flows, net of expected
proceeds from the sale of the Hutton Tension Leg Platform (TLP). The
Hutton TLP is a production, drilling and accommodation facility located
at the Hutton Field.
J. On August 1, 2001, the company completed the acquisition of all of
the outstanding shares of common stock of HS Resources, Inc., an
independent oil and gas exploration and production company with active
projects in the Denver-Julesburg Basin, Gulf Coast, Mid-Continent and
Northern Rocky Mountain regions. The acquisition added approximately 250
million cubic feet equivalent of daily gas production and 1.3 trillion
cubic feet equivalent of proved gas reserves, primarily in the Denver,
Colorado, area one of the fastest-growing markets in the United States.
The addition of these primarily natural gas reserves provides the
company a more balanced portfolio of products, geographic diversity and
production mix. In addition, the acquisition provides low
risk-exploitation drilling opportunities from identified projects based
on HS Resources' seismic inventory. The acquisition price totaled $1.8
billion in cash, company stock and assumption of debt. The company
reflected the assets and liabilities acquired at fair value in its
balance sheet effective August 1, 2001, and the results of operations of
HS Resources in the company's income statement beginning August 1, 2001.
The purchase price was allocated to specific assets and liabilities
based on their estimated fair value at the date of acquisition. The
allocations include $318 million recorded as goodwill. The cash portion
of the acquisition totaled $963 million, including direct expenses, and
was initially financed through borrowings obtained under a newly
executed revolving credit facility, which is discussed in the Financial
Condition section of this Form 10-Q. A total of 5,057,273 shares of
Kerr-McGee common stock were issued in connection with the acquisition.
The shares were valued at $70.33 per share, the average price two days
before and after the purchase was announced.
The following unaudited pro forma condensed income statement information
has been prepared to give effect to the HS Resources acquisition as if
it had occurred at the beginning of the periods presented, including
purchase accounting adjustments.
Pro Forma Results
----------------------------------------------------------
Three Months Ended Nine Months Ended
(Millions of dollars, September 30, September 30,
except per-share ----------------------- -------------------------
amounts) 2001 2000 2001 2000
------ -------- -------- --------
Sales $908.5 $1,183.8 $3,112.3 $3,224.4
Income from Continuing
Operations $22.5 $260.0 $569.8 $539.2
Net Income $22.5 $260.0 $548.5 $539.2
Earnings per Share -
Basic $.22 $2.62 $5.42 $5.49
Diluted $.22 $2.41 $5.08 $5.17
K. To accomplish the acquisition of HS Resources, the company
reorganized and formed a new holding company, Kerr-McGee Holdco, which
later changed its name to Kerr-McGee Corporation. The former Kerr-McGee
Corporation was renamed Kerr-McGee Operating Corporation and is now a
wholly owned subsidiary of the holding company.
In August 2001, the new holding company, Kerr-McGee Corporation, filed a
shelf registration statement with the Securities and Exchange Commission
for $2 billion of debt and other securities. On October 3, 2001,
Kerr-McGee Corporation issued $1.5 billion of long-term notes in a
public offering. The notes are general, unsecured obligations of the
company and rank on parity with all of the company's other unsecured and
unsubordinated indebtedness. Kerr-McGee Operating Corporation has
guaranteed the notes. Additionally Kerr-McGee Corporation has guaranteed
all indebtedness of its subsidiaries, including the public indebtedness
of HS Resources assumed in the August 1, 2001 purchase. Financial
information for HS Resources for the first and second quarter of 2001 is
contained in the March 31, 2001, Form 10-Q filed by HS Resources and the
Form 8-K/A filed August 29, 2001, by Kerr-McGee Corporation,
respectively, and is incorporated herein by reference. As a result of
these guarantee arrangements, the company is now required to present
condensed consolidating financial information. Since neither the new
holding company nor any guarantee arrangement existed during 2000,
comparative consolidated financial information is not presented.
The following condensed consolidating financial information presents the
balance sheet as of September 30, 2001, and the related statements of
income and cash flows for the third quarter and first nine months of
2001, for (a) Kerr-McGee Corporation, the holding company, (b) the
guarantor subsidiary, and (c) the non-guarantor subsidiaries on a
consolidated basis.
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Balance Sheet
September 30, 2001
Kerr-McGee
Kerr-McGee Operating Non-Guarantor
(Millions of dollars) Corporation Corporation Subsidiaries Eliminations Consolidated
------------ ----------- ------------- ------------ ------------
ASSETS
Current Assets
Cash $ - $ 2.4 $ 119.0 $ - $ 121.4
Intercompany receivables 59.6 (34.7) 1,092.7 (1,117.6) -
Notes and accounts receivable - 1.4 621.8 - 623.2
Inventories - - 437.5 - 437.5
Deposits and prepaid expenses - 6.1 143.0 (1.8) 147.3
-------- -------- --------- ---------- ---------
Total Current Assets 59.6 (24.8) 2,414.0 (1,119.4) 1,329.4
Property, Plant and Equipment, net - 54.3 8,143.7 (.1) 8,197.9
Other Assets - 553.3 333.0 (80.1) 806.2
Goodwill - - 326.6 - 326.6
Investments in and Advances to Subsidiaries 1,669.1 4,834.5 2,381.5 (8,885.1) -
-------- -------- --------- ---------- ---------
Total Assets $1,728.7 $5,417.3 $13,598.8 $(10,084.7) $10,660.1
======== ======== ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ - $ - $ 13.7 $ - $ 13.7
Accounts payable 45.1 14.1 816.9 - 876.1
Intercompany borrowings - 57.6 1,060.1 (1,117.7) -
Long-term debt due within one year - 23.2 3.2 - 26.4
Other current liabilities 14.9 (269.9) 692.4 (1.8) 435.6
-------- -------- --------- ---------- ---------
Total Current Liabilities 60.0 (175.0) 2,586.3 (1,119.5) 1,351.8
Long-Term Debt 900.0 1,973.3 1,097.4 - 3,970.7
Deferred Credits and Reserves - 478.4 1,596.3 (.8) 2,073.9
Intercompany Advances - 35.6 955.9 (991.5) -
Stockholders' Equity 768.7 3,105.0 7,362.9 (7,972.9) 3,263.7
-------- -------- --------- ---------- ---------
Total Liabilities and Stockholders' Equity $1,728.7 $5,417.3 $13,598.8 $(10,084.7) $10,660.1
======== ======== ========= ========== =========
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2001
Kerr-McGee
Kerr-McGee Operating Non-Guarantor
(Millions of dollars) Corporation Corporation Subsidiaries Eliminations Consolidated
----------- ----------- ------------- ------------ ------------
Sales $ - $ (2.2) $ 951.1 $ (65.4) $883.5
------- ------- ------- ------- ------
Costs and Expenses
Costs and operating expenses - 1.2 396.2 (65.6) 331.8
Selling, general and administrative - 14.4 45.8 (.1) 60.1
expenses
Shipping and handling expenses - - 31.2 - 31.2
Depreciation and depletion - 2.1 180.3 - 182.4
Asset impairment - - 47.3 - 47.3
Exploration, including dry holes and
amortization of undeveloped leases - - 45.6 - 45.6
Taxes, other than income taxes - .9 24.9 - 25.8
Provision for environmental remediation
and restoration of inactive sites,
net of reimbursements - 78.4 - - 78.4
Interest and debt expenses 6.6 50.0 33.2 (42.7) 47.1
------- ------- ------- ------- ------
Total Costs and Expenses 6.6 147.0 804.5 (108.4) 849.7
------- ------- ------- ------- ------
(6.6) (149.2) 146.6 43.0 33.8
Other Income (Loss) (124.7) (18.1) 49.9 99.9 7.0
------- ------- ------- ------- ------
Income before Income Taxes (131.3) (167.3) 196.5 142.9 40.8
Taxes on Income - 175.2 (189.7) - (14.5)
------- ------- ------- ------- ------
Net Income (Loss) $(131.3) $ 7.9 $ 6.8 $ 142.9 $ 26.3
======= ======= ======= ======= ======
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2001
Kerr-McGee
Kerr-McGee Operating Non-Guarantor
(Millions of dollars) Corporation Corporation Subsidiaries Eliminations Consolidated
------------ ----------- ------------- ------------ ------------
Sales $ - $ (6.4) $3,160.5 $(273.6) $2,880.5
------- ------- -------- ------- --------
Costs and Expenses
Costs and operating expenses - 3.3 1,207.7 (274.4) 936.6
Selling, general and administrative - 41.8 126.3 - 168.1
expenses
Shipping and handling expenses - - 90.3 90.3
Depreciation and depletion - 6.2 517.1 - 523.3
Asset impairment - - 47.3 - 47.3
Exploration, including dry holes and
amortization of undeveloped leases - .1 139.1 - 139.2
Taxes, other than income taxes - 4.3 84.6 - 88.9
Provision for environmental remediation
and restoration of inactive sites, net of
reimbursements - 82.1 - - 82.1
Interest and debt expenses 6.6 148.9 102.9 (130.9) 127.5
------- ------- --------- ------- --------
Total Costs and Expenses 6.6 286.7 2,315.3 (405.3) 2,203.3
------- ------- --------- ------- --------
(6.6) (293.1) 845.2 131.7 677.2
Other Income (Loss) (124.7) 680.0 141.9 (489.6) 207.6
------- ------- --------- ------- --------
Income before Income Taxes (131.3) 386.9 987.1 (357.9) 884.8
Taxes on Income - 151.1 (479.6) - (328.5)
------- ------- --------- ------- --------
Income before Change in Accounting (131.3) 538.0 507.5 (357.9) 556.3
Principle
Cumulative Effect of Change in Accounting
Principle (net of benefit for income taxes) - (21.0) .7 - (20.3)
------- ------- --------- ------- --------
Net Income (Loss) $(131.3) $ 517.0 $ 508.2 $(357.9) $ 536.0
======= ======= ========= ======= ========
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended September 30, 2001
Kerr-McGee
Kerr-McGee Operating Non-Guarantor
(Millions of dollars) Corporation Corporation Subsidiaries Eliminations Consolidated
----------- ----------- ------------- ------------ ------------
Operating Activities
--------------------
Net income (loss) $(131.3) $ 7.9 $ 6.8 $ 142.9 $ 26.3
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation, depletion and - 2.1 194.3 - 196.4
amortization
Asset impairment - - 47.3 - 47.3
Equity in earnings of subsidiaries 124.7 17.9 - (142.6) -
Dry hole costs - - 12.9 - 12.9
Deferred income taxes - 160.7 (69.9) - 90.8
Provision for environmental
remediation and restoration of
inactive sites, net of reimbursement - 78.4 - - 78.4
Gain on sale and retirement of assets - - (4.6) - (4.6)
Noncash items affecting income - 3.4 (8.9) - (5.5)
Other net cash provided by (used in)
operating activities 6.6 (55.5) (38.3) (.3) (87.5)
------- ------- ------- ------- ---------
Net Cash Provided by Operating
Activities - 214.9 139.6 - 354.5
------- ------- ------- ------- ---------
Investing Activities
--------------------
Capital expenditures - (1.0) (492.9) - (493.9)
Dry hole expense - - (12.9) - (12.9)
Acquisitions (956.9) - - - (956.9)
Other investing activities - - (21.5) - (21.5)
------- ------- ------- ------- ---------
Net Cash Used in Investing
Activities (956.9) (1.0) (527.3) - (1,485.2)
------- ------- ------- ------- ---------
Financing Activities
--------------------
Issuance of long-term debt 900.0 - 383.2 - 1,283.2
Repayment of long-term debt - (176.0) - - (176.0)
Decrease in short-term borrowings - - (4.7) - (4.7)
Increase (decrease) in intercompany
notes and advances 56.9 1.6 (58.5) - -
Issuance of common stock - .1 - - .1
Dividends paid - (42.8) - - (42.8)
------- ------- ------- ------- ---------
Net Cash Provided by Financing
Activities 956.9 (217.1) 320.0 - 1,059.8
------- ------- ------- ------- ---------
Effects of Exchange Rate Changes on Cash
and Cash Equivalents - - (4.3) - (4.3)
------- ------- ------- ------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents - (3.2) (72.0) - (75.2)
Cash and Cash Equivalents at Beginning of
Period - 5.7 191.0 - 196.7
------- ------- ------- ------- ---------
Cash and Cash Equivalents at End of Period $ - $ 2.5 $119.0 $ - $ 121.5
======= ======= ======= ======= =========
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2001
Kerr-McGee
Kerr-McGee Operating Non-Guarantor
(Millions of dollars) Corporation Corporation Subsidiaries Eliminations Consolidated
----------- ----------- ------------- ------------ ------------
Operating Activities
--------------------
Net income (loss) $(131.3) $ 517.0 $ 508.2 $(357.9) $ 536.0
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation, depletion and - 6.2 556.7 - 562.9
amortization
Asset impairment - - 47.3 - 47.3
Equity in earnings of subsidiaries 124.7 (483.3) - 358.6 -
Dry hole costs - - 43.6 - 43.6
Deferred income taxes - 327.1 (180.1) - 147.0
Provision for environmental
remediation and restoration of
inactive sites, net of reimbursement - 82.1 - - 82.1
Gain on sale and retirement of assets - (3.6) - - (3.6)
Noncash items affecting income - (164.5) 12.7 - (151.8)
Other net cash provided by (used in)
operating activities 6.6 (49.9) (5.7) (.7) (49.7)
------- ------- --------- ------- ---------
Net Cash Provided by Operating
Activities - 231.1 982.7 - 1,213.8
------- ------- --------- ------- ---------
Investing Activities
--------------------
Capital expenditures - (7.3) (1,341.9) - (1,349.2)
Dry hole expense - - (43.6) - (43.6)
Acquisitions (956.9) - (23.8) - (980.7)
Other investing activities - 6.0 (53.4) - (47.4)
------- ------- --------- ------- ---------
Net Cash Used in Investing
Activities (956.9) (1.3) (1,462.7) - (2,420.9)
------- ------- --------- ------- ---------
Financing Activities
--------------------
Issuance of long-term debt 900.0 200.0 603.0 - 1,703.0
Repayment of long-term debt - (342.0) (74.2) - (416.2)
Decrease in short-term borrowings - - (3.3) - (3.3)
Increase (decrease) in intercompany
notes and advances 56.9 8.2 (65.1) - -
Issuance of common stock - 31.8 - - 31.8
Dividends paid - (127.9) - - (127.9)
------- ------- --------- ------- ---------
Net Cash Provided by Financing
Activities 956.9 (229.9) 460.4 - 1,187.4
------- ------- --------- ------- ---------
Effects of Exchange Rate Changes on Cash
and Cash Equivalents - - (2.9) - (2.9)
------- ------- --------- ------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents - (.1) (22.5) - (22.6)
Cash and Cash Equivalents at Beginning of
Period - 2.6 141.4 - 144.0
------- ------- --------- ------- ---------
Cash and Cash Equivalents at End of Period $ - $ 2.5 $ 118.9 $ - $ 121.4
======= ======= ========= ======= =========
L. CONTINGENCIES
West Chicago, Illinois
In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation, now
Kerr-McGee Chemical LLC (Chemical), closed the facility in West Chicago,
Illinois, that processed thorium ores. Historical operations had
resulted in low-level radioactive contamination at the facility and in
the surrounding areas. In 1979, Chemical filed a plan with the Nuclear
Regulatory Commission (NRC) to decommission the facility. In 1990, the
NRC transferred jurisdiction over the facility to the State of Illinois
(the State). Following is the current status of various matters
associated with the closed facility.
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 covering
the terms and conditions for completing the final phase of
decommissioning work. The State has indicated approval of the agreement
and has issued license amendments authorizing much of the work. Chemical
expects most of the work to be completed within the next three years,
leaving principally only groundwater remediation and/or monitoring for
subsequent 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, which cannot exceed $26 million per year. Initially, all
storage fee payments were reimbursed to Chemical as decommissioning
costs were incurred. Chemical was 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.
Vicinity Areas - The U.S. Environmental Protection Agency (EPA) has
listed four areas in the vicinity of the closed West Chicago facility on
the National Priority List promulgated by EPA 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 presently are being
studied to determine the extent of contamination and the nature of any
remedy. These two areas are known as the Sewage Treatment Plant and
Kress Creek. The scope of the required cleanup for these two areas has
not been determined. 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 work required by the two orders. Chemical has completed the required
excavation and restoration work at the park site and will be monitoring
the site pending final EPA approval.
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 U.S. government contracts. Title X was amended in 1998 to
increase the amount authorized for reimbursement to $140 million plus
inflation adjustments. Through September 30, 2001, Chemical has been
reimbursed approximately $146 million under Title X. These
reimbursements are provided by congressional appropriations.
Other Matters
The company and/or its subsidiaries are parties to a number of legal and
administrative proceedings involving environmental and/or other matters
pending in various courts or agencies. These include proceedings
associated with facilities currently or previously owned, operated or
used by the company, its subsidiaries and/or their predecessors, and
include claims for personal injuries and property damages. The company's
current and former operations also involve management of regulated
materials and are subject to various environmental laws and regulations.
These laws and regulations will obligate the company and/or its
subsidiaries to clean up various sites at which petroleum and other
hydrocarbons, chemicals, low-level radioactive substances and/or other
materials have been disposed of or released. Some of these sites have
been designated Superfund sites by EPA pursuant to CERCLA.
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 estimate reliably the amount and timing of all future
expenditures related to environmental and legal matters and other
contingencies because:
* some sites are in the early stages of investigation, and
other sites may be identified in the future;
* cleanup requirements are difficult to predict at sites where
remedial investigations have not been completed or final
decisions have not been made regarding cleanup requirements,
technologies or other factors that bear on cleanup costs;
* environmental laws frequently impose joint and several
liability on all potentially responsible parties, and it can
be difficult to determine the number and financial condition
of other potentially responsible parties and their share of
responsibility for cleanup costs; and
* environmental laws and regulations are continually changing,
and court proceedings are inherently uncertain.
As of September 30, 2001, the company had reserves totaling $227 million
for cleaning up and remediating environmental sites, reflecting the
reasonably estimable costs for addressing these sites. This includes $69
million for the West Chicago sites. Cumulative expenditures at all
environmental sites through September 30, 2001, total $878 million.
Management believes, after consultation with general counsel, that
currently the company has reserved adequately for the reasonably
estimable costs of contingencies. However, additions to the reserves may
be required as additional information is obtained that enables the
company to better estimate its liabilities, including liability at sites
now under review, though the company cannot now reliably estimate the
amount of future additions to the reserves.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Comparison of 2001 Results with 2000 Results
CONSOLIDATED OPERATIONS
Third-quarter 2001 net income totaled $26.3 million, compared with $264.6
million for the same 2000 period. Net income for the first nine months of 2001
totaled $536 million, compared with $559.7 million a year earlier. Third-quarter
2001 operating profit totaled $176.1 million, compared with $458.6 million in
the 2000 third quarter. This decline in operating profit was primarily due to
lower crude oil and natural gas sales prices, lower pigment sales volumes and
prices, lower crude oil sales volumes, higher depreciation and depletion
expense, and higher general and administrative expenses. In addition, the
company recorded a $47.3 million special charge for asset impairment in the 2001
third quarter relating to the shut-in of the North Sea Hutton field. Partially
offsetting the decline in operating profit for the 2001 third quarter were
higher natural gas sales volumes, lower pigment production costs and lower
exploration expenses. Operating profit for the first nine months of 2001 was
$940.5 million, compared with $1.1 billion in the same 2000 period. The decrease
in operating profit for the first nine months of 2001 reflects lower crude oil
sales prices and volumes, the 2001 asset impairment charge, lower pigment sales
prices and volumes, a 2001 special charge for the termination of manganese metal
production at the company's Hamilton, Miss., electrolytic chemical facility,
higher general and administrative expenses, and higher product transportation
costs. Partially offsetting these decreases were higher natural gas sales prices
and volumes, the 2000 write-off of purchased in-process research and development
associated with an acquisition, higher tariff income, and lower pigment
production costs.
Other expense for the third quarter of 2001 totaled $135.3 million, compared
with $53.5 million for the 2000 quarter. The increase was primarily due to the
2001 environmental provision, foreign currency transaction losses compared with
2000 income and losses from equity affiliates compared with 2000 income,
partially offset by realized and unrealized gains on derivative contracts that
were part of the HS Resources transaction. Other expense for the first nine
months of 2001 was $55.7 million, compared with $257.1 million expense for the
same 2000 period. The improved results were primarily due to a pretax special
gain of $181.4 million associated with the reclassification of 85% of the
company's investment in Devon common stock to "trading" from "available for
sale" (see Note B), lower net interest expense and costs incurred in 2000 for
certain chemical facility closings and product-line discontinuations, partially
offset by foreign currency transaction losses compared with 2000 gains and
losses from equity affiliates compared with 2000 income.
The income tax provision was $14.5 million for the 2001 third quarter, compared
with $140.5 million for the same 2000 period. The provision for the 2001 third
quarter included a $42.4 million tax benefit related to environmental
provisions, asset impairment and costs associated with employee severance and
merger transition. The income tax provision for the first nine months of 2001
was $328.5 million, compared with $304.2 million for the 2000 period. The
provision for the first nine months of 2001 included $63.5 million of tax
expense related to the reclassification of the Devon stock (see Note B). The
provision for the first nine months of 2000 included a $38.7 million tax benefit
primarily related to environmental provisions and chemical product
discontinuations. Excluding the tax effect on these special items, the decrease
in the provisions for both 2001 periods is due primarily to lower income.
SEGMENT OPERATIONS
Following is a summary of sales and operating profit and a discussion of major
factors influencing the results of each of the company's business segments for
the third quarter and first nine months of 2001, compared with the same periods
last year.
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 2001 2000 2001 2000
------- -------- -------- --------
Sales
Exploration and production $ 601.5 $ 750.9 $2,008.5 $2,061.0
Chemicals - Pigment 234.4 296.2 727.6 773.4
Chemicals - Other 47.5 58.9 144.2 168.8
------- -------- -------- --------
883.4 1,106.0 2,880.3 3,003.2
All other .1 .1 .2 .3
------- -------- -------- --------
Total Sales $ 883.5 $1,106.1 $2,880.5 $3,003.5
======= ======== ======== ========
Operating Profit
Exploration and production $ 169.6 $ 405.6 $ 891.2 $1,022.2
Chemicals - Pigment 3.5 47.3 65.8 85.6
Chemicals - Other 3.0 5.7 (16.5) 13.2
------- -------- -------- --------
Total Operating Profit 176.1 458.6 940.5 1,121.0
Other Expense (135.3) (53.5) (55.7) (257.1)
------- -------- -------- --------
Income before Income Taxes 40.8 405.1 884.8 863.9
Taxes on Income (14.5) (140.5) (328.5) (304.2)
------- -------- -------- --------
Income before Change in
Accounting Principle 26.3 264.6 556.3 559.7
Cumulative Effect of Change in Accounting
Principle, Net of Income Taxes - - (20.3) -
------- -------- -------- --------
Net Income $ 26.3 $ 264.6 $ 536.0 $ 559.7
======= ======== ======== ========
Exploration and Production -
Operating profit for the third quarter of 2001 was $169.6 million, compared with
$405.6 million for the same 2000 period. Operating profit for the first nine
months of 2001 and 2000 was $891.2 million and $1,022.2 million, respectively.
The decrease in operating profit for the 2001 third quarter was primarily due to
the decline in crude oil and natural gas sales prices, lower crude oil sales
volumes, the 2001 special charge for asset impairment, and higher depreciation
and depletion expense, partially offset by higher natural gas sales volumes and
lower exploration expense. The decline in operating profit for the first nine
months of 2001 was primarily due to lower crude oil sales prices and volumes,
the 2001 special charge for asset impairment and higher product transportation
costs, partially offset by the increase in natural gas sales prices and volumes,
lower depreciation and depletion expense, and higher tariff income.
Revenues were $601.5 million and $750.9 million for the three months ended
September 30, 2001 and 2000, respectively, and $2,008.5 million and $2,061
million for the first nine months of 2001 and 2000, respectively. The following
table shows the company's average crude oil and natural gas sales prices and
volumes for both the third quarter and first nine months of 2001 and 2000.
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------ ------ ------ ------
Crude oil and condensate sales
(thousands of bbls/day)
Domestic
Offshore 55.6 57.1 55.8 57.4
Onshore 25.8 16.5 21.4 16.9
North Sea 93.8 111.9 100.9 117.9
Other International 18.5 16.5 17.4 14.5
------ ------ ------ ------
Total 193.7 202.0 195.5 206.7
====== ====== ====== ======
Average crude oil sales price (per barrel)
Domestic
Offshore $22.32 $28.49 $23.39 $26.73
Onshore 23.24 30.39 24.98 28.61
North Sea 24.22 29.73 25.17 27.47
Other International 22.65 27.20 23.05 25.99
Average $23.40 $29.23 $24.45 $27.25
Natural gas sold (MMCF/day)
Domestic
Offshore 273 291 284 294
Onshore 323 173 217 173
North Sea 58 63 63 68
------ ------ ------ ------
Total 654 527 564 535
====== ====== ====== ======
Average natural gas sales price (per MCF)
Domestic
Offshore $2.97 $4.48 $4.95 $3.57
Onshore 2.79 4.46 4.27 3.68
North Sea 1.37 2.09 2.27 2.03
Average $2.74 $4.19 $4.39 $3.41
Chemicals - Pigment
Third-quarter 2001 operating profit was $3.5 million on revenues of $234.4
million, compared with operating profit of $47.3 million on revenues of $296.2
million for the same 2000 period. For the first nine months of 2001 and 2000,
operating profit was $65.8 million and $85.6 million, respectively, on revenues
of $727.6 million and $773.4 million, respectively. Operating profit for both
2001 periods decreased primarily due to lower pigment sales prices and volumes,
partially offset by lower production costs. In addition, the decline in
operating profit for the first nine months of 2001 was partially offset by the
2000 second-quarter write-off of purchased in-process research and development
and transition-related expenses associated with the acquisition of two pigment
plants.
Chemicals - Other
Operating profit in the 2001 third quarter was $3 million on revenues of $47.5
million, compared with operating profit of $5.7 million on revenues of $58.9
million for the 2000 period. Operating loss for the first nine months of 2001
was $16.5 million on revenues of $144.2 million, compared with operating profit
of $13.2 million on revenues of $168.8 million. Impacting the first nine months
of 2001 was a $25.1 million special charge for the termination of manganese
metal production at the Hamilton, Miss., electrolytic facility and $.5 million
relating to an employee severance program. Excluding these special charges,
operating profit for the first nine months of 2001 totaled $9.1 million,
compared with $13.2 million in the same 2000 period. Operating profit for the
first nine months of 2001 declined primarily due to lower results from forest
products operations.
Financial Condition
At September 30, 2001, the company's net working capital position was a negative
$22.4 million, compared with a positive $77.4 million at September 30, 2000, and
a negative $34.2 million at December 31, 2000. The current ratio was 1.0 to 1 at
September 30, 2001, compared with 1.1 to 1 at September 30, 2000, and 1.0 to 1
at December 31, 2000. The negative working capital at September 30, 2001, is not
indicative of a lack of liquidity as the company maintains sufficient current
assets to settle current liabilities when due. Additionally, the company has
significant unused lines of credit and revolving credit facilities, as discussed
below. Current asset balances are minimized as one way to finance capital
expenditures and to lower borrowing costs.
The company's percentage of net debt (debt less cash) to capitalization was 54%
at September 30, 2001, compared with 50% at September 30, 2000, and 46% at
December 31, 2000. The company had unused lines of credit and revolving credit
facilities of $1,254.3 million at September 30, 2001. Of this amount, $820
million can be used to support commercial paper borrowings of Kerr-McGee Credit
LLC, and $337 million can be used to support euro commercial paper borrowings of
Kerr-McGee (G.B.) PLC, Kerr-McGee Chemical GmbH, Kerr-McGee Pigments (Holland)
B.V. and Kerr-McGee International ApS.
On August 1, 2001, the company and Kerr-McGee Credit LLC, a wholly owned
subsidiary, entered into a 364-day revolving credit facility with Chase
Manhattan Bank to provide borrowings up to $900 million at variable rates. A
total of $900 million was outstanding on September 30, 2001, of which $833
million was used to fund the cash portion of the HS Resources acquisition. On
October 17, 2001, the outstanding balance of the revolver was paid and the
facility was terminated.
On October 3, 2001, the company issued three series of notes as follows: $325
million of 5-7/8% notes due September 15, 2006; $675 million of 6-7/8% notes due
September 15, 2011, and $500 million of 7-7/8% notes due September 15, 2031. The
proceeds received by the company were used to repay borrowings incurred to fund
the HS Resources acquisition and various other short-term borrowings.
Capital expenditures for the first nine months of 2001, excluding dry hole costs
and acquisitions, totaled $1,349.2 million, compared with $387.6 million for the
same period last year. Exploration and production expenditures, principally in
the Gulf of Mexico and North Sea, were 91% of the 2001 total. Chemical - pigment
expenditures were 8% of the 2001 total. Chemical - other and corporate incurred
the remaining 1% of the expenditures. Management anticipates that the cash
requirements for the next several years can be provided through internally
generated funds and selective borrowings.
Forward-Looking Information
Statements in this quarterly report regarding the company's or management's
intentions, beliefs, expectations, or that otherwise speak to future events, 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 in this
quarterly report.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -
For a discussion of contingencies, reference is made to Management's
Discussion and Analysis, Item 7, of Form 10-K for the year ended
December 31, 2000, and Contingencies Footnote L., to the Consolidated
Financial Statements of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit No.
-----------
4.1 Indenture dated as of August 1, 2001, between the
company and Citibank, N.A., as trustee, related to the
company's 5-7/8% Notes due September 15, 2006, 6-7/8%
Notes due September 15, 2011, and 7-7/8% Notes due
September 15, 2031, filed as Exhibit 4.1 to Form S-3,
effective August 31, 2001, Registration No. 333-68136,
and incorporated herein by reference.
(b) Reports on Form 8-K -
On August 1, 2001, the company filed a report on Form 8-K
announcing it had completed the merger with HS Resources and that
the company had guaranteed the publicly held debt securities of HS
Resources and Kerr-McGee Operating Corporation.
On August 16, 2001, the company filed a report on Form 8-K
announcing a conference call to discuss its interim third-quarter
2001 results.
On August 29, 2001, the company filed a report on Form 8-K/A to
provide financial information for the second quarter and first six
months of 2001 for HS Resources and to provide the pro forma
statements of the company and HS Resources combined.
On September 20, 2001, the company filed a report on Form 8-K
announcing a conference call to discuss its interim third-quarter
2001 results.
On September 21, 2001, the company filed a report on Form 8-K
announcing its decision to provide for certain special charges in
the 2001 third quarter.
On October 2, 2001, the company filed a report on Form 8-K
announcing the pricing of three series of notes and the execution
of an underwriting agreement and indenture.
On October 3, 2001, the company filed a report on Form 8-K/A
announcing the pricing of three series of notes and the execution
of an underwriting agreement and indenture.
On October 18, 2001, the company filed a report on Form 8-K
announcing a conference call to discuss its third-quarter 2001
results.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KERR-McGEE CORPORATION
Date November 14, 2001 By:(Deborah A. Kitchens)
----------------- ------------------------------
Deborah A. Kitchens
Vice President and Controller
and Chief Accounting Officer