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 March 31, 2002
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)
Delaware 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 March 31,
2002: 100,261,259.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
(Millions of dollars, except per-share amounts) 2002 2001
------ --------
Sales $809.4 $1,053.8
------ --------
Costs and Expenses
Costs and operating expenses 360.4 306.4
Selling, general and administrative expenses 57.1 49.5
Shipping and handling expenses 29.3 30.0
Depreciation and depletion 205.1 163.4
Asset impairment - 13.2
Exploration, including dry holes and
amortization of undeveloped leases 31.9 49.8
Taxes, other than income taxes 26.4 32.9
Provision for environmental remediation and restoration,
net of reimbursements 2.4 3.7
Interest and debt expense 70.7 44.6
------ --------
Total Costs and Expenses 783.3 693.5
------ --------
26.1 360.3
Other Income (Expense) (23.8) 201.4
------ --------
Income before Income Taxes 2.3 561.7
Taxes on Income (1.4) (208.7)
------ --------
Income from Continuing Operations .9 353.0
Income from Discontinued Operations (net of income taxes
of $1.3 and $1.1 in 2002 and 2001, respectively) 4.6 2.0
Cumulative Effect of Change in Accounting Principle
(net of benefit for income taxes of $10.8) - (20.3)
------ --------
Net Income $ 5.5 $ 334.7
====== ========
Net Income per Common Share
Basic -
Continuing operations $ .01 $ 3.73
Discontinued operations .04 .02
Cumulative effect of change in accounting principle - (.21)
------ --------
Total $ .05 $ 3.54
====== ========
Diluted -
Continuing operations $ .01 $ 3.38
Discontinued operations .04 .02
Cumulative effect of change in accounting principle - (.19)
------ --------
Total $ .05 $ 3.21
====== ========
Dividends Declared per Common Share $ .45 $ .45
====== ========
The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
(Millions of dollars) 2002 2001
--------- ------------
ASSETS
Current Assets
Cash $ 128.3 $ 91.3
Accounts receivable 546.7 477.6
Inventories 439.7 437.7
Deposits, prepaid expenses and other assets 116.5 351.1
--------- ---------
Total Current Assets 1,231.2 1,357.7
--------- ---------
Property, Plant and Equipment 16,530.5 16,249.4
Less reserves for depreciation, depletion and amortization 8,239.2 8,055.0
--------- ---------
8,291.3 8,194.4
--------- ---------
Investments and Other Assets 890.1 786.2
Goodwill 355.6 355.6
Discontinued Operations Held for Sale 269.5 257.2
--------- ---------
Total Assets $11,037.7 $10,951.1
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 641.8 $ 653.3
Short-term borrowings 8.4 8.4
Long-term debt due within one year 7.5 26.4
Other current liabilities 486.7 483.5
--------- ---------
Total Current Liabilities 1,144.4 1,171.6
--------- ---------
Long-Term Debt 4,722.9 4,539.4
--------- ---------
Deferred Income Taxes 1,249.5 1,272.7
Other Deferred Credits and Reserves 844.5 793.3
--------- ---------
2,094.0 2,066.0
--------- ---------
Stockholders' Equity
Common stock, par value $1 - 300,000,000 shares
authorized, 100,269,442 shares issued at 3-31-02
and 100,186,350 shares issued at 12-31-01 100.3 100.2
Capital in excess of par value 1,681.0 1,676.6
Preferred stock purchase rights 1.0 1.0
Retained earnings 1,503.1 1,542.6
Accumulated other comprehensive loss (129.5) (64.2)
Common shares in treasury, at cost - 8,183 shares
at 3-31-02 and 1,020 at 12-31-01 (.5) (.1)
Deferred compensation (79.0) (82.0)
--------- ---------
Total Stockholders' Equity 3,076.4 3,174.1
--------- ---------
Total Liabilities and Stockholders' Equity $11,037.7 $10,951.1
========= =========
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)
Three Months Ended
March 31,
(Millions of dollars) 2002 2001
--------- --------
Operating Activities
- --------------------
Net income $ 5.5 $ 334.7
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization 221.9 177.8
Asset impairment - 13.2
Dry hole costs 2.7 20.3
Deferred income taxes (27.8) 47.0
Provision for environmental remediation and
restoration, net of reimbursement 2.4 3.7
Loss (gain) on sale and retirement of assets 2.4 (1.1)
Noncash items affecting net income 31.6 (162.1)
Other net cash provided by operating activities 34.8 109.5
--------- -------
Net Cash Provided by Operating Activities 273.5 543.0
--------- -------
Investing Activities
- --------------------
Capital expenditures (344.2) (371.8)
Dry hole expense (2.7) (20.3)
Acquisitions - (23.8)
Other investing activities (8.5) (5.7)
--------- -------
Net Cash Used in Investing Activities (355.4) (421.6)
--------- -------
Financing Activities
- --------------------
Issuance of long-term debt 1,209.3 81.0
Repayment of long-term debt (1,047.9) (80.2)
Increase in short-term borrowings - 1.8
Issuance of common stock 1.6 11.1
Dividends paid (45.1) (42.5)
--------- -------
Net Cash Provided by (Used in) Financing Activities 117.9 (28.8)
--------- -------
Effects of Exchange Rate Changes on Cash and Cash Equivalents 1.0 (.7)
--------- -------
Net Increase in Cash and Cash Equivalents 37.0 91.9
Cash and Cash Equivalents at Beginning of Period 91.3 144.0
--------- -------
Cash and Cash Equivalents at End of Period $ 128.3 $ 235.9
========= =======
The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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 accounting
principles generally accepted in the United States 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.
On August 1, 2001, the company completed the acquisition of all the
outstanding shares of common stock of HS Resources, Inc., an independent
oil and gas exploration and production company. To accomplish the
acquisition, the company organized and formed a new holding company,
Kerr-McGee Holdco, which later changed its name to Kerr-McGee
Corporation. All the outstanding shares of the former Kerr-McGee
Corporation were cancelled, and the same number of shares was issued by
the new holding company. The former Kerr-McGee Corporation was renamed
Kerr-McGee Operating Corporation and is now a wholly owned subsidiary of
the holding company, along with Kerr-McGee Rocky Mountain Corporation
(formerly HS Resources).
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 a net 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.
In March 2002, the company hedged a portion of its production for the
period April through December 2002 to increase the predictability of its
cash flows and support additional capital projects. The hedges cover
approximately 44% of the expected remaining 2002 oil production and
approximately 38% of expected remaining 2002 domestic gas production.
These positions have been designated and qualify as cash flow hedges of
a portion of 2002 production.
The production hedging transactions are in the form of fixed price
swaps. The hedges cover 30,000 barrels of oil per day of domestic oil
production at an average price of $24.09 per barrel and 60,000 barrels
of oil per day of North Sea oil production at an average price of $23.17
per barrel. The company also entered into price swaps covering 250,000
MMBtu per day of domestic natural gas production at an average price of
$3.10 per MMBtu. The price swaps will be settled using the closing
prices on the New York Mercantile Exchange (NYMEX) for domestic light
sweet crude and natural gas, and the International Petroleum Exchange
(IPE) for Brent crude.
The following table sets forth the company's outstanding oil and natural
gas hedge contracts executed in 2002 and their fair value at March 31,
2002.
Domestic Natural Gas
North Sea Oil Hedging Domestic Oil Hedging Hedging
(Millions of -------------------------- ------------------------- -------------------------
dollars) Notional Liability Notional Liability Notional Liability
Volumes Fair Volumes Fair Volumes Fair
2002 (Bbls) Value (Bbls) Value (MMBtu) Value
------------- ---------- --------- --------- --------- ---------- ---------
April 1,800,000 $ (5.0) 900,000 $ (2.0) 7,500,000 $ (2.8)
May 1,860,000 (5.1) 930,000 (2.1) 7,750,000 (1.4)
June 1,800,000 (4.3) 900,000 (2.1) 7,500,000 (1.6)
July 1,860,000 (4.0) 930,000 (2.1) 7,750,000 (1.9)
August 1,860,000 (3.7) 930,000 (1.9) 7,750,000 (2.2)
September 1,800,000 (3.2) 900,000 (1.6) 7,500,000 (2.2)
October 1,860,000 (3.0) 930,000 (1.5) 7,750,000 (2.3)
November 1,800,000 (2.6) 900,000 (1.2) 7,500,000 (4.1)
December 1,860,000 (2.4) 930,000 (1.1) 7,750,000 (6.0)
---------- -------- --------- --------- ---------- --------
Total 16,500,000 $(33.3) 8,250,000 $(15.6) 68,750,000 $(24.5)
========== ======== ========= ========= ========== ========
The resulting changes in fair value of these contracts are recorded in
accumulated other comprehensive loss. The amounts in accumulated other
comprehensive loss, $73.3 million loss at March 31, 2002, will be
recognized in earnings when the contracts are settled under the terms of
the swap agreements. The company expects to reclassify all of the
existing net losses at March 31, 2002, into earnings during the next 12
months, assuming no further changes in fair market value of the
contracts. A total of $.1 million loss was recognized in the 2002 first
quarter related to hedge ineffectiveness.
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 loss. The $13.4 million loss
in accumulated other comprehensive loss at March 31, 2002, will be
recognized in earnings in the periods during which the hedged forecasted
transactions affect earnings (i.e., when the forward contracts close 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
first quarter of 2002, the company reclassified $2 million of losses on
forward contracts from accumulated other comprehensive loss to operating
expenses in the income statement. Of the existing net losses at March
31, 2002, approximately $6.9 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 first quarter, and
since forward exchange rates are used to measure the derivative values
and the forward contracts have not been closed early, 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 the company's 2001 Form 10-K, the company is also party
to other commodity contracts that have not been accounted for as hedges
and are recorded at their fair market value on the balance sheet and
marked-to-market through income each month. The net fair market value of
these commodity-related derivatives was $10.2 million asset at March 31,
2002. The net loss associated with these derivatives totaled $24.9
million in the first quarter of 2002.
In connection with the issuance of $350 million of 5.375% notes due
April 15, 2005, the company entered into an interest rate swap agreement
in April 2002. The terms of the agreement effectively change the
interest the company will pay on the debt until maturity from the fixed
rate to a variable rate of LIBOR plus 87.5 basis points.
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 adopted FAS 141
for its acquisition of HS Resources. The company adopted FAS 142 on
January 1, 2002, for all goodwill and other intangible assets. 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
were immediately applicable for any goodwill acquired after June 30,
2001. The company is required to complete the first step of the
transitional impairment test for goodwill within six months of adoption
of FAS 142 and to complete the final step of the transitional impairment
test by the end of the calendar year. The company anticipates the
results of this assessment will not have a material effect on its
financial position, results of operations or cash flows.
The acquired intangible assets and goodwill of the company as of March
31, 2002, were as follows:
Gross
Carrying Accumulated
(Millions of dollars) Amount Amortization
-------- ------------
Amortized intangible assets:
Proprietary seismic library (10-year life) $ 2.0 $ .1
Customer list (5-year life) 1.0 -
Patents (life of patent) .1 -
------ ----
Total $ 3.1 $ .1
====== ====
Carrying
Amount
--------
Unamortized intangible assets:
Intellectual properties associated
with pigment manufacturing processes $52.1
Goodwill $355.6
Amortization of purchased intangibles for each of the next five years is
estimated to be $.4 million.
There was no change in the carrying value of goodwill during the quarter
ended in March 31, 2002. Of the goodwill recorded on the balance sheet
of the company at March 31, 2002, $348 million relates to the
exploration and production segment, and $7.6 million relates to the
chemical pigment segment.
The following table presents net income for each period exclusive of
amortization expense recognized in such periods related to intangibles
and goodwill, which are no longer amortized.
Three Months Ended
March 31,
(In millions, except per-share amounts) 2002 2001
---- ------
Reported net income $5.5 $334.7
Add back intangible amortization,
net of tax - .6
---- ------
Adjusted net income $5.5 $335.3
==== ======
Diluted earnings per share for the first quarter of 2001 would have been
one cent per share higher or $3.22 if the new standard had been applied
in 2001.
D. In August 2001, the Financial Accounting Standards Board issued FAS
144, "Accounting for 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 Principles Board Opinion No. 30 that deals with the
disposal of a business segment. The company adopted the statement on
January 1, 2002.
During the first quarter of 2002, the company approved a plan to dispose
of its exploration and production operations in Kazakhstan and of its
interest in the Bayu-Undan project in the East Timor Sea. The results of
these operations have been reported separately as discontinued
operations in the company's Consolidated Statement of Income for both
2002 and 2001. Additionally, the net assets of discontinued operations
have been reclassified to one line on the Consolidated Balance Sheet. On
May 3, 2002, the company completed the sale of its interest in the
Bayu-Undan project for $132 million in cash. The sale is expected to
result in an after-tax gain of approximately $20 million and will be
reported in the second quarter of 2002. The net proceeds to be received
by the company will be used to reduce outstanding debt.
Revenues applicable to the discontinued operations totaled $4.3 million
and $3.7 million for the three months ended March 31, 2002 and 2001,
respectively. Assets held for sale in the Consolidated Balance Sheet at
March 31, 2002, include accounts receivable and other current assets of
$9.6 million; net property, plant and equipment of $143.2 million; and
investments and other assets of $116.7 million related to these
discontinued operations.
E. Net cash provided by operating activities reflects cash payments for
income taxes and interest as follows:
Three Months Ended
March 31,
(Millions of dollars) 2002 2001
------- -----
Income tax payments $ 12.2 $84.3
Less refunds received (159.8) (5.7)
------- -----
Net income tax payments(refunds) $(147.6) $78.6
======= =====
Interest payments $ 86.0 $34.3
======= =====
F. The first-quarter 2002 comprehensive loss was $59.7 million, compared
with comprehensive income of $279.2 million in the prior-year first
quarter and comprehensive loss of $49.5 million for the fourth quarter
of 2001.
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 March 31,
2002, or December 31, 2001. At March 31, 2002 and December 31, 2001,
available-for-sale securities for which fair value can be determined
were as follows:
March 31, 2002 December 31, 2001
-------------------------- ------------------------------
Gross Gross
Unrealized Unrealized
Fair Holding Fair Holding
(Millions of dollars) Value Cost Gain Value Cost Loss
----- ---- ---------- ----- ---- ----------
Equity Securities $73.3 $31.9 $13.4(1) $58.7 $31.9 $(1.2)(1)
U.S. government obligations -
Maturing within one year 2.4 2.4 - 2.9 2.9 -
Maturing between one year 1.6 1.6 - 1.7 1.7 -
and four years
-----
Total $13.4 $(1.2)
===== =====
(1) These amounts include $28 million of gross unrealized hedging losses
on 15% of the exchangeable debt at the time of adoption of FAS 133.
G. Investments in equity affiliates totaled $100 million at March 31,
2002, and $101 million at December 31, 2001. Equity income (loss)
related to the investments is included in Other Income in the
Consolidated Statement of Income and totaled $(11.1) million and $1.6
million for the three months ended March 31, 2002 and 2001,
respectively.
H. The following table sets forth the computation of basic and diluted
earnings per share (EPS) from continuing operations for the three-month
period ended March 31, 2002 and 2001.
For the Three Months Ended March 31,
---------------------------------------------------------------------------------
2002 2001
------------------------------------ ------------------------------------
Income Income
from from
(In millions, except Continuing Per-Share Continuing Per-Share
per-share amounts) Operations Shares Income Operations Shares Income
---------- ------ --------- ---------- ------ ---------
Basic EPS $.9 100.2 $.01 $353.0 94.7 $3.73
==== =====
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 - .3
--- ----- ------ -----
Diluted EPS $.9 100.4 $.01 $360.5 106.5 $3.38
=== ===== ==== ====== ===== =====
I. 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 also believes that the risk of insurance loss is
very low since its bad debt experience has historically been
insignificant. The company also 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.
The company sold $134.2 million and $152.8 million of its pigment
receivables during the first three months of 2002 and 2001,
respectively. The sale of the receivables resulted in pretax losses of
$1.1 million and $2.6 million during the first quarter of 2002 and 2001,
respectively. 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. The outstanding balance
on receivables sold totaled $98.4 million at March 31, 2002, and $96.1
million at December 31, 2001.
J. On April 17, 2002, The United Kingdom government announced plans to
make certain changes to their existing tax laws. Under one of the
proposals, companies will pay a supplementary corporate tax charge of
10% on profits from their U. K. oil and gas production. This is in
addition to the current 30% corporate tax on these profits. The U. K.
government is also proposing accelerating tax depreciation for capital
investments in U. K. upstream activities. Finally, the U. K. Government,
subject to consultation, intends to abolish North Sea royalty. It is
anticipated that royalty will not be abolished until after 2002. It is
estimated that the effect of the tax change in 2002 will increase the
company's 2002 international provision for deferred income taxes by
approximately $150 million to $160 million.
K. In connection with the acquisition of HS Resources, a holding company
structure was implemented (see Note A. for a discussion of the new
organization).
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 and Kerr-McGee Rocky Mountain Corporation have guaranteed
the notes. Additionally, Kerr-McGee Corporation has guaranteed all
indebtedness of its subsidiaries, including the indebtedness assumed in
the purchase of HS Resources. 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 the first quarter
of 2001, comparative consolidating financial information is not
presented.
The following condensed consolidating financial information presents the
balance sheet as of March 31, 2002, and the related statements of income
and cash flows for the three months ended March 31, 2002, for (a)
Kerr-McGee Corporation, the holding company, (b) the guarantor
subsidiaries, and (c) the non-guarantor subsidiaries on a consolidated
basis.
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Statement of Income
For the Three Months March 31, 2002
Kerr-McGee Guarantor Non-Guarantor
(Millions of dollars) Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
Sales $ (.1) $76.5 $821.9 $(88.9) $809.4
----------- ------------ ------------- ------------ ------------
Costs and Expenses
Costs and operating expenses - 27.7 421.9 (89.2) 360.4
Selling, general and administrative - 14.0 43.1 - 57.1
expenses
Shipping and handling expenses - 3.0 26.3 - 29.3
Depreciation and depletion - 32.2 172.9 - 205.1
Exploration, including dry holes and
amortization of undeveloped leases - 2.0 29.9 - 31.9
Taxes, other than income taxes .1 6.0 20.3 - 26.4
Provision for environmental remediation
and restoration, net of reimbursements - - 2.4 - 2.4
Interest and debt expenses 27.0 64.6 28.1 (49.0) 70.7
------------ ----------- ------------- ----------- ------------
Total Costs and Expenses 27.1 149.5 744.9 (138.2) 783.3
(27.2) (73.0) 77.0 49.3 26.1
Other Income (Loss) (63.6) 90.5 15.8 (66.5) (23.8)
------------ ----------- ------------- ----------- ------------
Income (Loss) before Income Taxes (90.8) 17.5 92.8 (17.2) 2.3
Taxes on Income 35.1 (6.1) (36.5) 6.1 (1.4)
------------ ----------- ------------- ----------- ------------
Income (Loss) from Continuing Operations (55.7) 11.4 56.3 (11.1) .9
Income from Discontinued Operations,
net of tax - - 4.6 - 4.6
------------ ----------- ------------- ----------- ------------
Net Income (Loss) $(55.7) $11.4 $60.9 $(11.1) $ 5.5
============ =========== ============= =========== ============
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Balance Sheet
March 31, 2002
Kerr-McGee Guarantor Non-Guarantor
(Millions of dollars) Corporation Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------- -------------- ------------ ------------
ASSETS
Current Assets
Cash $ - $ 2.5 $ 125.8 $ - $ 128.3
Intercompany receivables 930.1 112.0 1,145.8 (2,187.9) -
Accounts receivable - 41.5 505.2 - 546.7
Inventories - 7.4 432.3 - 439.7
Deposits, prepaid expenses and other
assets - 37.3 81.0 (1.8) 116.5
-------- -------- --------- ---------- --------
Total Current Assets 930.1 200.7 2,290.1 (2,189.7) 1,231.2
Property, Plant and Equipment, net - 2,048.5 6,242.8 - 8,291.3
Investments and Other Assets 11.7 745.3 213.9 (80.8) 890.1
Goodwill - 348.0 7.6 - 355.6
Discontinued Operations Held for Sale - - 269.5 - 269.5
Investments in and Advances to Subsidiaries 1,253.4 4,389.8 2,220.9 (7,864.1) -
-------- -------- --------- ---------- ---------
Total Assets $2,195.2 $7,732.3 $11,244.8 $(10,134.6) $11,037.7
======== ======== ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 45.1 $ 59.5 $ 537.2 $ - $ 641.8
Short-term borrowings - .2 8.2 - 8.4
Intercompany borrowings - 1,356.2 833.7 (2,189.9) -
Long-term debt due within one year - 7.5 - - 7.5
Other current liabilities 42.8 (204.2) 649.9 (1.8) 486.7
-------- -------- --------- ---------- ---------
Total Current Liabilities 87.9 1,219.2 2,029.0 (2,191.7) 1,144.4
Long-Term Debt 1,497.1 2,016.5 1,209.3 - 4,722.9
Deferred Credits and Reserves - 1,084.3 1,010.0 (.3) 2,094.0
Intercompany Advances - - 873.1 (873.1) -
Stockholders' Equity 610.2 3,412.3 6,123.4 (7,069.5) 3,076.4
-------- -------- --------- ---------- ---------
Total Liabilities and Stockholders'
Equity $2,195.2 $7,732.3 $11,244.8 $(10,134.6) $11,037.7
======== ======== ========= ========== =========
Kerr-McGee Corporation and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2002
Kerr-McGee Guarantor Non-Guarantor
(Millions of dollars) Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
Operating Activities
Net income (loss) $(55.7) $ 11.4 $ 60.9 $(11.1) $ 5.5
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities -
Depreciation, depletion and
amortization - 32.5 189.4 - 221.9
Asset impairment - - - - -
Equity in earnings of subsidiaries 49.4 (60.8) - 11.4 -
Dry hole costs - - 2.7 - 2.7
Deferred income taxes - (.5) (27.3) - (27.8)
Provision for environmental
remediation - - 2.4 - 2.4
and restoration
Loss (gain) on sale and retirement
of assets - (.2) 2.6 - 2.4
Noncash items affecting income .1 11.6 19.9 - 31.6
Other net cash provided by (used in)
operating activities 49.6 44.5 (74.1) 14.8 34.8
------ ------- --------- ------ -------
Net Cash Provided by Operating
Activities 43.4 38.5 176.5 15.1 273.5
------ ------- --------- ------ -------
Investing Activities
Capital expenditures - (39.0) (305.2) - (344.2)
Dry hole expense - - (2.7) - (2.7)
Other investing activities - 1.6 (11.6) 1.5 (8.5)
------ ------- --------- ------ -------
Net Cash Used in Investing
Activities - (37.4) (319.5) 1.5 (355.4)
------ ------- --------- ------ -------
Financing Activities
Issuance of long-term debt - - 1,209.3 - 1,209.3
Repayment of long-term debt - (18.7) (1,029.2) - (1,047.9)
Increase (decrease) in intercompany
notes and advances - 16.6 - (16.6) -
Issuance of common stock 1.7 - (.1) - 1.6
Dividends paid (45.1) - - - (45.1)
------ ------- --------- ------ ---------
Net Cash Provided by (Used in)
Financing Activities (43.4) (2.1) 180.0 (16.6) 117.9
------ ------- --------- ------ ---------
Effects of Exchange Rate Changes on Cash
and Cash Equivalents - - 1.0 - 1.0
------ ------- --------- ------ ---------
Net Increase (Decrease) in Cash and Cash
Equivalents - (1.0) 38.0 - 37.0
Cash and Cash Equivalents at Beginning of
Period - 3.5 87.8 - 91.3
------ ------- --------- ------ ---------
Cash and Cash Equivalents at End of Period $ - $ 2.5 $ 125.8 $ - $ 128.3
====== ======= ========= ====== =========
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 two 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. The EPA issued unilateral administrative
orders for two of the 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. Work at the residential sites is
expected to be completed in 2002.
The other two areas (known as the Sewage Treatment Plant and Kress
Creek) currently are being studied to determine the extent of
contamination, and Chemical is in discussions with the relevant
authorities regarding cleanup requirements. Chemical has indicated a
willingness to undertake a cleanup of the final two sites subject to
various conditions, including the continued reimbursement of the
government's share of costs for cleaning up the West Chicago sites. If
these conditions are met, the costs of cleanup for these two sites are
not expected to exceed the additional federal funding, as more fully
discussed below.
Government Reimbursement - Pursuant to Title X of the Energy Policy Act
of 1992 (Title X), the U.S. Department of Energy (DOE) 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 for reimbursement to $140 million
plus inflation adjustments. Through March 31, 2002, Chemical has been
reimbursed approximately $146 million under Title X. These
reimbursements are provided by congressional appropriations.
Historically, congressional authorizations under Title X have lagged
Chemical's cleanup expenditures. At March 31, 2002, the government's
share of costs already incurred by Chemical but not yet reimbursed by
DOE totaled approximately $95 million. In 2001, the United States House
of Representatives passed a bill that would bring the congressional
authorizations current as well as authorize reimbursement for the
government's share of future costs. The bill currently is pending in the
United States Senate.
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. Similar
environmental regulations exist in foreign countries in which the
company and/or its subsidiaries operate. Environmental regulations in
the North Sea are particularly stringent.
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;
* environmental laws and regulations are continually changing, and
court proceedings are inherently uncertain; and
* some legal matters are in the early stages of investigation or
proceeding or their outcomes otherwise may be difficult to
predict, and other legal matters may be identified in the future.
Although management believes that it has established adequate reserves
for cleanup costs and legal matters, due to these uncertainties the
company could be required to record additional reserves in the future.
As of March 31, 2002, the company had reserves totaling $161 million for
cleaning up and remediating environmental sites, reflecting the
reasonably estimable costs for addressing these sites. This includes $44
million for the West Chicago sites. Cumulative expenditures at all
environmental sites through March 31, 2002, total $953 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.
M. Following is a summary of sales and operating profit for each of the
company's business segments for the first quarter 2002 and 2001.
Three Months Ended
March 31,
(Millions of dollars) 2002 2001
------- ---------
Sales
Exploration and production $ 545.5 $ 758.5
Chemicals - Pigment 216.5 248.2
Chemicals - Other 47.4 47.1
------- --------
Total Sales $ 809.4 $1,053.8
======= ========
Operating Profit
Exploration and production $ 124.4 $ 410.8
Chemicals - Pigment (11.5) 36.4
Chemicals - Other 3.6 (23.1)
------- --------
Total Operating Profit 116.5 424.1
Other Income (Expense) (114.2) 137.6
------- --------
Income from Continuing Operations before
Income Taxes 2.3 561.7
Taxes on Income (1.4) (208.7)
-------- --------
Income from Continuing Operations .9 353.0
Discontinued Operations, Net of Income Taxes 4.6 2.0
Cumulative Effect of Change in Accounting
Principle, Net of Income Taxes - (20.3)
------- --------
Net Income $ 5.5 $ 334.7
======= ========
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Comparison of 2002 Results with 2001 Results
CONSOLIDATED OPERATIONS
First-quarter 2002 income from continuing operations totaled $.9 million,
compared with $353 million for the same 2001 period. Net income in the first
quarter of 2002 totaled $5.5 million, compared with $334.7 million for the same
2001 period. First-quarter 2002 operating profit was $116.5 million, compared
with $424.1 million in the same 2001 quarter. The decrease in operating profit
was primarily due to significantly lower crude oil and natural gas sales prices,
higher depreciation expense, lower pigment sales prices and volumes and higher
pigment per-unit production costs, partially offset by higher crude oil and
natural gas volumes and lower exploration expense.
The first-quarter 2002 other expense totaled $114.2 million, compared with
income of $137.6 million in the same 2001 period. Other income in the 2001 first
quarter included 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). Excluding this item, other
expense totaled $114.2 million in the first quarter of 2002, compared with $43.8
million in the same 2001 quarter. The increase in the 2002 quarter is due
primarily to higher net interest expense resulting from increased debt balances,
higher losses on derivatives marked-to-market through income, and losses from
equity affiliates, compared with income from equity affiliates in the prior-year
quarter. The losses from equity affiliates in the 2002 first quarter are
primarily due to a loss incurred by Avestor Limited Partnership, a development
stage company.
The income tax provision was $1.4 million for the 2002 first quarter, compared
with $208.7 million for the 2001 period. The provision for the first quarter of
2001 included $63.5 million of tax expense related to the reclassification of
the Devon stock. The remainder of the decrease is due primarily to lower income.
SEGMENT OPERATIONS
Exploration and Production -
First-quarter 2002 operating profit was $124.4 million, compared with $410.8
million for the same 2001 quarter. The decrease in operating profit was
primarily due to lower average crude oil and natural gas sales prices and higher
depreciation expense, partially offset by higher crude oil and natural gas sales
volumes and lower exploration costs.
Revenues were $545.5 million and $758.5 million for the three months ended March
2002 and 2001, respectively. The following table shows the company's average
crude oil and natural gas sales prices and volumes for the first quarter of 2002
and 2001.
Three Months Ended
March 31,
2002 2001
------ ------
Crude oil and condensate production
(thousands of bbls/day)
Domestic
Offshore 53.3 56.3
Onshore 29.1 19.7
North Sea 113.6 109.3
Other International 15.4 14.2
------ ------
Total continuing operations 211.4 199.5
Discontinued operations 2.5 2.3
------ ------
Total 213.9 201.8
====== ======
Average crude oil sales price (per barrel)
Domestic
Offshore $18.22 $25.03
Onshore 18.32 27.57
North Sea 19.60 24.91
Other International 17.56 23.53
Average for continuing operations 18.92 25.11
Discontinued operations $17.81 $20.70
Natural gas sold (MMcf/day)
Domestic
Offshore 244 281
Onshore 383 163
North Sea 101 68
------ ------
Total 728 512
====== ======
Average natural gas sales price (per Mcf)
Domestic
Offshore $2.48 $7.07
Onshore 2.48 7.12
North Sea 2.83 3.22
Average $2.53 $6.58
Chemicals - Pigment
Operating loss in the 2002 first quarter was $11.5 million on revenues of $216.5
million, compared with operating profit of $36.4 million on revenues of $248.2
million for the same 2001 period. Revenues for the 2002 first quarter decreased
due to lower sales prices and volumes. First-quarter 2002 operating profit
decreased primarily due to lower revenues and higher per-unit production costs.
Chemicals - Other
Operating profit in the 2002 first quarter was $3.6 million on revenues of $47.4
million, compared with an operating loss of $23.1 million on revenues of $47.1
million for the 2001 period. The 2001 first quarter included a special charge of
$24.9 million for the termination of manganese metal production at the company's
Hamilton, Miss., electrolytic chemical facility. This charge is primarily
related to plant and equipment write-offs and other closing costs, including
severance. Excluding this special charge, the 2001 operating profit totaled $1.8
million. Excluding special items, operating profit for the 2002 first quarter
increased primarily due to improved results from forest products.
Financial Condition
At March 31, 2002, the company's net working capital position was $87.4 million,
compared with $192.2 million at December 31, 2001, and a negative $111.9 million
at March 31, 2001. The current ratio was 1.1 to 1 at March 31, 2002, compared
with 1.2 to 1 at December 31, 2001 and .9 to 1 at March 31, 2001. The negative
working capital at March 31, 2001, was 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 lower borrowing costs.
The company's percentage of net debt (debt less cash) to capitalization was 60%
at March 31, 2002, compared with 59% at December 31, 2001 and 42% at March 31,
2001. The company had unused lines of credit and revolving credit facilities of
$1,256.4 million at March 31, 2002. Of this amount, $870 million can be used to
support commercial paper borrowings of Kerr-McGee Credit LLC and $320 million
can be used to support European commercial paper borrowings of Kerr-McGee (G.B.)
PLC, Kerr-McGee Chemical GmbH, Kerr-McGee Pigments (Holland) B.V. and Kerr-McGee
International ApS.
The company increased its shelf registration with the Securities and Exchange
Commission in February 2002 to offer up to $2 billion of debt securities,
preferred stock, common stock or warrants. In April 2002, the company issued
$350 million of 5.375% notes due April 15, 2005. The proceeds received by the
company were used to repay various short-term borrowings.
Operating activities provided net cash of $273.5 million in the 2002 first
quarter. The cash provided by operating activities and net additional borrowings
of $161.4 million in the first quarter were sufficient to pay the company's
capital expenditures of $344.2 million and dividends of $45.1 million.
Capital expenditures for the first three months of 2002, excluding dry hole
costs and acquisitions, totaled $344.2 million, compared with $371.8 million for
the same period last year. Exploration and production expenditures, principally
in the Gulf of Mexico and North Sea, were 92% of the 2002 total. Chemical -
pigment expenditures were 6% of the 2002 total. Chemical - other and corporate
incurred the remaining 2% of the expenditures. Management anticipates that the
cash requirements for the next several years can be provided through internally
generated funds and selective borrowings.
Quantitative and Qualitative Disclosures About Commodity Market Risk
In March 2002, the company hedged a portion of its oil and natural gas
production for the period April through December 2002 to increase the
predictability of its cash flows and support additional capital projects. The
company hedged a total of 16.5 million barrels of North Sea crude oil
production, 8.3 million barrels of domestic crude oil production and 68.8
million MMBtu of domestic natural gas production. The fair value of the hedge
contracts outstanding at March 31, 2002, was a liability of $33.3 million for
North Sea crude oil, $15.6 million for domestic crude oil and $24.5 million for
domestic natural gas.
Forward-Looking Information
Statements in this quarterly report regarding the company's or management's
intentions, beliefs or expectations, or that otherwise speak to future events,
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. 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.
The forest products business of the company's wholly owned subsidiary
Kerr-McGee Chemical LLC (Chemical) treats railroad ties with wood
preservatives. Chemical currently operates wood treatment plants in six
states and formerly operated wood-treatment plants in other states. Wood
preservatives and other substances used in the wood-treatment process
are or may be present at some of these sites and require cleanup. Costs
associated with the cleanup activities are accrued when losses are
probable and costs are reasonably estimable. See the Environmental
Matters section of Management's Discussion and Analysis in the Company's
2001 Annual Report on Form 10-K, which is incorporated herein by
reference. See also Note L. to the Consolidated Financial Statements in
this quarterly report, which also is incorporated by reference.
In addition, the United States Environmental Protection Agency (EPA) has
notified Chemical that it is a potentially responsible party at a former
wood treatment site in New Jersey that has been listed by EPA as a
Superfund site. EPA has alleged the site was once owned and operated by
a predecessor of Chemical. Although EPA has not selected a final remedy,
EPA has preliminarily estimated that cleanup costs may approximate $120
million or more. Chemical is evaluating possible defenses to any claim
by EPA for response costs. The company has not provided a reserve for
the site as it is not possible to reliably estimate whatever liability
Chemical may have for the cleanup because of uncertainties regarding
Chemical's connection to the site and EPA's selection of a remedy.
The company also is involved in litigation in connection with current
and former forest products operations. See Item 3 of the company's 2001
Annual Report on Form 10-K, which is incorporated herein by reference,
for additional information on this and other contingencies.
In light of the inherent uncertainties associated with remediation
activities and court proceedings, there is no assurance that the company
will not incur liability with respect to these matters. Although the
liability that may result from these matters cannot be reasonably
estimated, they are not expected to have a material adverse effect on
the company.
Item 2. Exhibits and Reports on Form 8-K.
(a) Exhibits -
Exhibit No
----------
4.1 The company agrees to furnish the Securities and
Exchange Commission, upon request, a copy of the
Prospectus Supplement to Prospectus dated February 12,
2002, relating to the $350 million of 5.375% notes due
April 15, 2005. The total amount of securities
authorized under the instrument does not exceed 10% of
the total assets of the company and its subsidiaries
on a consolidated basis.
(b) Reports on Form 8-K -
On January 18, 2002, the company filed a report on Form 8-K
announcing a conference call to discuss its fourth-quarter 2001
financial and operating results.
On March 15, 2002, the company filed a report on Form 8-K
announcing the Board of Directors' decision to no longer engage
Arthur Andersen LLP as the company's independent public accountants
and appoint Ernst & Young LLP as the company's new independent
public accountants.
On March 25, 2002, the company filed a report on Form 8-K
announcing a conference call to discuss its interim first-quarter
2002 financial and operating activities.
On April 19, 2002, the company filed a report on Form 8-K
announcing a conference call to discuss its first-quarter 2002
financial and operating 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 May 13, 2002 By: (John M. Rauh)
------------ -------------------------------
John M. Rauh
Vice President and Controller
and Chief Accounting Officer