SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 1, 2001
--------------------------------------------------
(Date of Report - Date of earliest event reported)
KERR-McGEE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-16619 73-1612389
------------------------ ------------------------ -------------------
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
Kerr-McGee Center
Oklahoma City, Oklahoma 73125
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(405) 270-1313
-------------------------------
(Registrant's telephone number)
Item 7. Financial Statements and Exhibits
(a) Financial statements and business acquired
On May 14, 2001, Kerr-McGee Corporation entered into a definitive
agreement to acquire HS Resources, Inc. ("HSR") for $1.7 billion in
cash and stock. The merger was approved at a special meeting of the
HSR shareholders on August 1, 2001 and HSR common stock ceased trading
on the New York Stock Exchange at close of market on that day. As a
result of the merger, HSR is a wholly-owned subsidiary of Kerr-McGee
Corporation. On August 23, 2001, HSR was remamed Kerr-McGee Rocky
Mountain Corporation. The following financial information presents
HSR's financial position as of June 30, 2001 and December 31, 2000
and results of operations for the first six months and second quarter
2001 compared with the same periods in 2000.
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(Thousands of dollars) 2001 2000
----------- ------------
Assets
------
Current Assets
Cash and cash equivalents $ 2,718 $ 1,790
Margin deposits 1,601 1,889
Accounts receivable
Oil and gas sales 16,233 20,328
Trading and transportation 32,389 63,760
Trade 16,317 12,714
Ad valorem and production taxes 2,608 2,562
Other 2,443 2,097
Lease and well equipment inventory,
at cost 1,509 904
Fair value of derivative asset from
hedging activities 8,623 -
Fair value of derivative asset from
non hedging activities 28,369 23,189
Deferred taxes 9,876 -
Prepaid expenses and other 3,501 1,260
Imbalance receivable - 942
---------- ----------
Total current assets 126,187 131,435
---------- ----------
Oil and Gas Properties, at cost, using
the successful efforts method
Undeveloped acreage 99,910 90,231
Costs subject to depreciation,
depletion and amortization 1,074,698 997,466
Less accumulated depreciation,
depletion and amortization (316,648) (284,737)
---------- ----------
Net oil and gas properties 857,960 802,960
---------- ----------
Gas gathering and transportation facilities,
at cost, net of accumulated depreciation
of $6,489 and $4,897 at June 30, 2001 and
December 31, 2000, respectively 69,046 57,929
---------- ----------
Other Assets
Deferred charges and other, net 6,096 7,697
Fair value of derivative asset from
hedging activities 3,560 -
Fair value of derivative asset from
non hedging activities 13,498 2,763
Office and transportation equipment
and other property, net of
accumulated depreciation of $6,513
and $6,396 at June 30, 2001 and
December 31, 2000, respectively 4,202 2,873
Goodwill, net of accumulated
amortization of $1,800 and
$1,620 at June 30, 2001 and
December 31, 2000, respectively 1,800 1,980
---------- ----------
Total other assets 29,156 15,313
---------- ----------
Total Assets $1,082,349 $1,007,637
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
Accounts payable
Trade $ 46,920 $ 39,681
Revenue 32,638 32,277
Gas purchases 14,119 35,035
Accrued expenses
Ad valorem and production taxes 18,064 12,119
Interest 4,500 4,802
Other 8,660 8,945
Imbalance payable 1,093 -
Income taxes payable 6,238 -
Fair value of derivative liability
from hedging activities 33,726 -
Fair value of derivative liability
from non hedging activities 22,901 16,307
Payable to KMI 13,151 24,419
---------- ----------
Total current liabilities 202,010 173,585
---------- ----------
Accrued Ad Valorem Taxes and Other 24,546 27,056
Fair value of derivative liability
from hedging activities 13,356 -
Fair value of derivative liability
from non hedging activities 8,313 338
Long-Term Bank Debt 236,000 189,000
9-7/8% Senior Subordinated Notes, due
2003, net of unamortized discount
of $171 at December 31, 2000 - 74,829
9-1/4% Series A Subordinated Notes,
due 2006, net of unamortized
discount of $418 and $456 at
June 30, 2001 and December 31,
2000, respectively 149,582 149,544
9-1/4% Series B Subordinated Notes,
due 2006, net of unamortized
discount of $2,855 and $3,121 at
June 30, 2001 and December 31,
2000, respectively 82,145 81,879
Deferred Income Taxes 107,013 89,824
Stockholders' Equity
Preferred stock - -
Common stock, $.001 per share par
value, 50,000 shares authorized; 20,133
and 19,920 shares issued and outstanding
at June 30, 2001 and December 31, 2000,
respectively 20 20
Additional paid-in capital 208,726 201,850
Other comprehensive loss (Note 3) (23,520) -
Retained earnings 102,328 46,323
Notes receivable from officers for
exercise of stock options (Note 5) (1,393) (2,476)
Deferred compensation (5,205) (3,459)
Treasury stock, at cost, 1,839 and
1,841 shares at June 30, 2001 and
December 31, 2000, respectively (21,572) (20,676)
---------- ----------
Total stockholders' equity 259,384 221,582
---------- ----------
Total Liabilities and
Stockholders' Equity $1,082,349 $1,007,637
========== ==========
The accompanying notes are an integral part of this statement.
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
(Thousands of dollars, June 30, June 30,
except per share data) 2001 2000 2001 2000
------- ------- -------- --------
Revenues
Oil and gas sales $86,839 $67,566 $191,141 $129,612
Trading and trans-
portation, net 5,888 501 9,089 2,034
Gathering and transmission
system revenues 3,329 3,256 4,795 6,364
Other gas revenues 121 2,396 2,093 4,402
Income (loss) from
interest in gathering
plant (135) 358 (244) 722
Interest income and other 254 992 646 1,253
------- ------- -------- --------
Total revenues 96,296 75,069 207,520 144,387
------- ------- -------- --------
Expenses
Production taxes 6,601 5,775 14,207 11,243
Lease operating 8,465 8,039 16,574 15,063
Gas transportation costs 5,579 3,977 10,107 7,884
Gathering and
transmission system
operating expenses 1,588 1,364 3,232 2,579
Depreciation, depletion
and amortization 17,074 15,166 33,490 30,021
Exploratory and
abandonment 3,549 3,860 6,689 6,528
Geological and geophysical 3,310 3,661 6,930 7,211
Loss (gain) on sale of oil
and gas properties (12) 61 (12) 161
General and administrative 2,850 2,030 4,343 4,056
Interest, net of amounts
capitalized 10,226 12,692 21,341 24,854
------- ------- -------- --------
Total expenses 59,230 56,625 116,901 109,600
------- ------- -------- --------
Income before provision
for income taxes 37,066 18,444 90,619 34,787
Provision for income taxes -
current 4,562 - 11,791 -
Provision for income taxes -
deferred 8,382 7,027 21,771 13,254
------- ------- -------- --------
Net income before
extraordinary item 24,122 11,417 57,057 21,533
Loss on early extinguishment
of debt, net of tax
(Note 7) (1,052) - (1,052) -
------- ------- -------- --------
Net income $23,070 $11,417 $ 56,005 $ 21,533
======= ======= ======== ========
Net income per share before
extraordinary item - basic $ 1.32 $ .62 $ 3.13 $ 1.16
Extraordinary item (.06) - (.06) -
------- ------- -------- --------
Net income per share - basic $ 1.26 $ .62 $ 3.07 $ 1.16
======= ======= ======== ========
Net income per share before
extraordinary item -
diluted $ 1.25 $ .60 $ 2.98 $ 1.12
Extraordinary item (.05) - (.05) -
------- ------- -------- --------
Net income per share -
diluted $ 1.20 $ .60 $ 2.93 $ 1.12
======= ======= ======== ========
Weighted average number of
common shares outstanding 18,279 18,471 18,238 18,642
======= ======= ======== ========
Weighted average number of
common shares outstanding
assuming dilution 19,231 19,186 19,126 19,173
======= ======= ======== ========
The accompanying notes are an integral part of this statement.
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Notes
Common Stock Additional Other Retained Receivable Treasury Stock
---------------- Paid-In Comprehensive Earnings from Deferred ----------------
(Thousands) Shares Amount Capital Income (Loss) (Deficit) Officers Compensation Shares Amount
------ ------ ---------- -------------- ---------- ---------- ------------ ------ --------
Balance, December 31, 1999 19,528 $20 $191,406 $ - $(14,302) $(2,386) $(1,981) (731) $ (7,750)
Purchase of treasury
stock - - 746 - - - - (1,172) (13,598)
Transfer of treasury
stock to 401(k) Plan - - 385 - - - - 62 672
Issuance of restricted
stock 26 - 524 - - - (524) - -
Amortization of deferred
compensation - - - - - - 1,507 - -
Issuance of performance
shares 100 - 2,519 - - - (2,519) - -
Restricted stock and
performance shares
forfeited (9) - (58) - - - 58 - -
Exercise of warrants
and options 275 - 6,328 - - (1,601) - - -
Interest on notes
receivable - - - - - (113) - - -
Payment of officer notes
and interest - - - - - 1,624 - - -
Net income - - - - 60,625 - - - -
------ --- -------- -------- -------- ------- ------- ----- --------
Balance, December 31, 2000 19,920 20 201,850 - 46,323 (2,476) (3,459) (1,841) (20,676)
Cumulative effect of
change in accounting
principle - - - (86,700) - - - - -
Other comprehensive
income - - - 63,180 - - - - -
Purchase of treasury
stock - - - - - - - (31) (1,266)
Transfer of treasury
stock to 401(k) Plan - - 950 - - - - 33 370
Issuance of restricted
stock 9 - 354 - - - (354) - -
Amortization of deferred
compensation - - - - - - 1,135 - -
Issuance of performance
shares 60 - 2,527 - - - (2,527) - -
Exercise of options 144 - 3,045 - - - - - -
Interest on notes
receivable - - - - - (83) - - -
Payment of officer notes
and interest - - - - - 1,166 - - -
Net income - - - - 56,005 - - - -
------ --- -------- --------- -------- ------- ------- ----- --------
Balance, June 30, 2001 20,133 $20 $208,726 $(23,520) $102,328 $(1,393) $(5,205) (1,839) $(21,572)
====== === ======== ========= ======== ======= ======= ===== ========
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
June 30,
(Thousands of dollars) 2001 2000
--------- -------
Cash Flows from Operating Activities
------------------------------------
Net income $56,005 $21,533
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation, depletion and
amortization 33,490 30,021
Depreciation expense offset
against income 819 635
Write off of deferred charges
and prepayment premiums 1,710 -
Impairment and (gain) loss on
sales of oil and gas
properties (12) 161
Amortization of deferred
charges, debt issue costs
and deferred compensation 2,525 2,117
Surrendered and expired acreage 2,675 3,087
Transfer of treasury stock to
401(k) Plan 1,321 1,057
Deferred income tax provision 21,343 12,925
Decrease (increase) in accounts
and notes receivable 28,998 (30,763)
(Decrease) increase in accounts
payable and accrued expenses (611) 28,506
Other (693) (717)
--------- --------
Net cash provided by
operating activities 147,570 68,562
--------- --------
Cash Flows from Investing Activities
------------------------------------
Exploration, development and
leasehold costs (73,692) (52,908)
Purchase of proved and unproved
properties (15,945) (7,455)
Gas gathering and transmission
facilities additions (12,708) (1,812)
Other property additions (1,943) (231)
Net proceeds from the sale of oil
and gas properties 50 102
Increase in property related
payables (3,618) (3,148)
--------- --------
Net cash used in
investing activities (107,856) (65,452)
--------- --------
Cash Flows from Financing Activities
------------------------------------
Proceeds from bank debt 210,000 102,000
Repayments of bank debt (163,000) (85,000)
Repayment of senior subordinated
notes plus premium (75,938) -
Repayment of KMI debt (11,269) (9,495)
Exercise of options and warrants 1,521 3,394
Purchase of treasury stock (1,266) (8,048)
Payment of officer notes and
interest 1,166 -
--------- --------
Net cash (used in) provided
by financing activities (38,786) 2,851
--------- --------
Net Increase in Cash and Cash
Equivalents 928 5,961
Cash and cash equivalents,
beginning of year 1,790 518
--------- --------
Cash and cash equivalents,
end of period $ 2,718 $ 6,479
========= ========
Supplemental Cash Flow Disclosure
Interest paid, net of capitalized
interest $ 20,281 $ 23,342
Cash paid for income taxes, net of
reimbursements $ 3,026 $ 206
Schedule of noncash investing and
financing activities
Issuance of performance shares
and restricted stock $ 2,882 $ 2,977
Tax benefit on stock option
exercises $ 1,525 $ -
The accompanying notes are an integral part of this statement.
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
On May 14, 2001, HS Resources, Inc. ("HSR") entered into a definitive agreement
to be acquired by Kerr-McGee Corporation for $1.7 billion in cash and stock. The
merger was approved at a special meeting of the HSR shareholders on August 1,
2001. HSR shareholders have the opportunity to elect to receive either cash or
stock, subject to proration so that 70% of the total HSR shares are acquired for
$66 in cash and 30% are acquired in exchange for .9404 shares of Kerr-McGee
Corporation stock. As a result of this merger, HSR became a wholly-owned
subsidiary of Kerr-McGee Corporation.
HSR is a Delaware corporation and was originally organized in January 1987. HSE,
directly or through subsidiaries, acquires, develops, exploits, explores for and
produces oil and gas properties. The primary properties are located in the
Denver-Julesburg ("D-J") Basin, the onshore area of the Texas-Louisiana Gulf
Coast, and to a lesser extent, the Mid-Continent and Northern Rocky Mountains.
Through wholly-owned subsidiaries, HS Gathering L.L.C. and Resource Gathering
Systems, Inc., HSE and third party gas is gathered and transported. Through the
wholly-owned subsidiary, HS Energy Services, Inc. ("HSES"), HSR gas production
and gas owned by third parties is marketed. Additionally, HSES actively trades
both physical and financial positions in the gas commodities market.
The interim financial data presented here is unaudited; however, all
adjustments, which are of a normal and recurring nature, have been made which
are, in the opinion of management, necessary for a fair and consistent statement
of financial position at June 30, 2001, and results of operations and cash flows
for the interim periods presented. Because of various factors, including the
merger with Kerr-McGee Corporation, the results of operations for these periods
are not necessarily indicative of results to be expected for the full year. For
a more complete understanding of HSR operations and financial position, these
statements should be read in conjunction with the HSR audited financial
statements and notes thereto included in the December 31, 2000 Report on Form
10-K filed with the Securities and Exchange Commission on March 2, 2001. Certain
prior year amounts have been reclassified to conform with the current
presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Successful Efforts. HSR utilizes the successful efforts method of accounting for
oil and gas properties. Consequently, leasehold costs are capitalized when
incurred. Unproved properties are assessed periodically within specific
geographic areas, and impairments in value are charged to expense. Exploratory
costs, geological and geophysical expenses and delay rentals are charged to
expense as incurred. Exploratory drilling costs are initially capitalized, but
charged to expense if and when the well is determined to be unsuccessful. Costs
of developmental dry holes and proved leaseholds are amortized on the
unit-of-production method based on proved reserves and calculated on a
field-by-field basis. The depreciation of capitalized drilling costs is also
based on the unit-of-production method using proved developed reserves on a
field-by-field basis.
Financial Instruments. HSR engages in price and location risk management
activities for both hedging and trading purposes. HSR enters into derivative
instruments for hedging purposes in order to manage exposure to price and
location risks in the marketing of oil and gas production and, in the case of
HSES marketing activities, third party gas. All derivatives are recorded as an
asset or liability and are marked-to-market each reporting period. Gains and
losses on the effective portion of hedging positions designated as cash flow
hedges are deferred in other comprehensive loss and recognized in operations in
the period the underlying physical transactions occur in "oil and gas sales"
(for company-owned production) and "trading and transportation revenues" (for
third party gas). Activities for trading purposes are accounted for using the
marked-to-market method. Under this method, changes in the market value of
outstanding financial instruments are recognized as a gain or loss in the period
of change on a net basis in "trading and transportation revenues." The market
prices used to value these derivatives reflect management's best estimate
considering various factors including closing exchange and over-the-counter
quotations, time value and volatility factors underlying the commitments. The
values of trading derivatives are adjusted to reflect the potential impact of
liquidating the position in an orderly manner over a reasonable period of time
under present market conditions.
NOTE 3. NEW ACCOUNTING STANDARDS
On January 1, 2001, HSR adopted SFAS 133, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS 133 requires that every
derivative instrument be recorded on the balance sheet as an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Prior to January 1, 2001, company personnel completed the process of
identifying all derivative instruments, determining fair market values of
derivatives, designating and documenting hedge relationships, and evaluating the
effectiveness of those hedge relationships.
SFAS 133 requires that as of the date of initial adoption, the difference
between the fair market value of derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported as a
transition adjustment in net income or other comprehensive loss, as appropriate,
as the cumulative effect of a change in accounting principle in accordance with
APB 20, "Accounting Changes."
HSR uses financial derivative instruments to mitigate commodity price risk
related to the purchase or sale of natural gas. Many of these instruments are
designated as hedges of the anticipated purchases or sales of the commodity. HSR
also uses interest rate swaps, which are designated as hedges of the interest
rate on company borrowings. As of June 30, 2001, $80 million of company
borrowings were hedged at a fixed LIBOR rate of 5.86% through December 15, 2006
and $50 million of borrowings were hedged at a fixed LIBOR rate of 5.66% through
March 31, 2004. On January 1, 2001, the fair market values of these derivative
instruments and interest rate swaps were recorded as assets and liabilities on
the balance sheet and in accumulated other comprehensive loss in accordance with
the transition provisions of SFAS 133. Future changes in the fair market values
of these instruments and interest rate swaps, to the extent that the hedges are
effective at mitigating the underlying commodity risk, will be recorded in other
comprehensive loss. At the date the underlying transaction occurs, the amounts
accumulated in other comprehensive loss will be reported in the Consolidated
Statements of Operations. To the extent that the hedges are not effective, the
ineffective portion of the changes in fair market value will be recorded
directly in operations. On August 3, 2001, both interest rate swaps were
terminated for $4.0 million. This amount will be recorded in the third quarter.
For the three months ended June 30, 2001 and 2000, hedging contracts for company
production reduced oil and gas sales by $20.3 million and $13.8 million,
respectively. Hedging contracts for third party gas decreased trading and
transportation revenues by $2.8 million and $0.4 million, for the three months
ended June 30, 2001 and 2000, respectively. For the six months ended June 30,
2001 and 2000, hedging contracts for company production reduced oil and gas
sales by $69.2 million and by $18.5 million, respectively. Hedging contracts for
third party gas increased trading and transportation revenues by $4.4 million
for the six months ended June 30, 2001 and decreased trading and transportation
revenues by $0.3 million for the six months ended June 30, 2000. Based on
current futures market prices, which fluctuate daily, and assuming no further
changes in the contracts, losses would be recorded over the next twelve months
of $10.0 million in oil and gas sales and $14.5 million in trading and
transportation revenues relating to hedging contracts. Changes to these
contracts may occur as a result of the merger with Kerr-McGee Corporation (see
Note 1).
In September 2000, the Emerging Issues Task Force reached consensus on Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF Issue
00-10"). EITF Issue 00-10 requires retroactive restatement of transportation
costs as an expense rather than as a reduction to revenue. HSR implemented EITF
Issue 00-10 in the fourth quarter of 2000 and all prior periods were restated
with offsetting increases in oil and gas sales revenue and gas transportation
costs resulting in no impact to net earnings.
In June 2001, SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill
and Other Intangible Assets" were issued, which require all business
combinations to be accounted for using the purchase method and changes the
treatment of goodwill created in a business combination. The adoption of these
two statements is not expected to have an impact on HSR.
Additionally, SFAS No. 143 "Accounting for Asset Retirement Obligations" was
issued. This standard requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred. When
the liability is initially recorded, the entity capitalizes the cost by
increasing the carrying amount of the related long-lived asset. The asset is
then depreciated over its estimated useful life. The present value of the
inherent obligation is adjusted each reporting period. The impact of adopting
this statement on January 1, 2003 has not yet been determined by HSR.
NOTE 4. ISSUANCE OF PERFORMANCE SHARES
The 2000 Performance and Equity Incentive Plan (the "Plan") allows for the
issuance of performance shares to employees, officers and directors. Accelerated
vesting of such shares is dependent on our attainment of defined performance
goals. These shares have a base vesting schedule over nine years with
accelerated vesting of up to one-fourth of the shares in each of the first four
years if the performance goals are achieved, and accelerated vesting upon a
change of control. In the first quarter of 2001, HSR issued 60,000 performance
shares under the Plan and recorded deferred compensation of approximately $2.5
million. On August 1, 2001 as a result of the merger with Kerr-McGee
Corporation, the vesting of all performance shares was accelerated (see Note 1).
NOTE 5. RELATED PARTY TRANSACTIONS
In December 2000, full recourse notes in the amount of $1.6 million were issued
to HSR by certain of HSR officers in connection with the exercise of stock
options. The notes and accrued interest are due and payable on or before
December 31, 2001. The interest rate on these notes is at a fixed rate of 9.5%.
In the first quarter of 2001 one of the notes and associated accrued interest
was repaid. The remaining notes and accrued interest were repaid on August 2,
2001 in connection with the merger with Kerr-McGee Corporation.
NOTE 6. TERMINATION OF SECTION 29 TAX CREDIT AGREEMENTS
Effective April 1, 2001, HSR terminated its Section 29 tax credit agreements
with two unaffiliated third parties. Under the agreements, the company exercised
its option to repurchase all of the oil and gas interests previously assigned to
the third parties for $15.9 million at closing plus quarterly payments through
December 31, 2002 in the amount of $0.8385 of each dollar of tax credits
available under Section 29 of the Internal Revenue Code. HSR currently
anticipates being able to utilize these tax credits against current income tax
obligations, and therefore, anticipate retaining a cash flow benefit of
approximately $0.16 for each dollar of tax credits available to us under Section
29.
NOTE 7. EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT
On June 1, 2001, the company's $75 million 9 7/8% senior subordinated notes due
in 2003 were redeemed. The company recorded as an extraordinary item a premium
of $937,500 as well as $772,954 of previously incurred issuance costs and
discounts associated with the notes. These amounts have been reflected as an
extraordinary loss (net of related tax benefits of $658,525) on the consolidated
statement of operations.
Note 8. BUSINESS SEGMENT INFORMATION
HSE is an independent energy company engaged in the following activities:
* acquisition, development, exploitation, exploration and production of oil
and gas.
* transportation, marketing and trading of oil and gas and oil and gas
financial positions.
Three Months Ended Six Months Ended
June 30, June 30,
(Thousands of dollars) 2001 2000 2001 2000
-------- -------- -------- --------
Operating Revenues:
Oil and gas sales
D-J Basin $ 74,857 $ 55,568 $162,292 $110,592
Oil and gas sales
Gulf Coast 11,718 14,313 29,875 23,290
Oil and gas sales
Mid-Continent and other 385 81 1,067 132
Gas gathering and trans-
portation facilities 3,194 3,614 4,551 7,086
Trading and transportation
net 7,933 1,301 13,415 3,502
Intersegment eliminations,
net (2,045) (800) (4,326) (1,469)
-------- -------- -------- --------
$ 96,042 $ 74,077 $206,874 $143,133
======== ======== ======== ========
Operating Income (Loss):
D-J Basin $ 42,767 $ 25,807 $ 97,894 $ 52,312
Gulf Coast 2,928 5,490 11,149 8,063
Mid-Continent and other (2,626) (1,309) (2,464) (3,314)
Gas gathering and trans-
portation facilities 530 780 (1,046) 1,417
Trading and transportation 7,789 1,192 13,139 3,285
Intersegment eliminations (2,045) (800) (4,326) (1,469)
-------- -------- -------- --------
Operating Income 49,343 31,160 114,346 60,294
Other income and expense (12,277) (12,716) (23,727) (25,507)
-------- -------- -------- --------
Income before income taxes $ 37,066 $ 18,444 $ 90,619 $ 34,787
======== ======== ======== ========
Identifiable Assets (net)
(at June 30):
Oil and gas properties
D-J Basin $789,310 $745,841 $789,310 $745,841
Oil and gas properties
Gulf Coast 55,814 39,779 55,814 39,779
Oil and gas properties
Mid-Continent and other 13,942 8,211 13,942 8,211
Gas gathering and trans-
portation facilities 69,046 53,086 69,046 53,086
Trading and transportation 2,679 2,256 2,679 2,256
Corporate 2,217 1,861 2,217 1,861
-------- -------- -------- --------
$933,008 $851,034 $933,008 $851,034
======== ======== ======== ========
Depreciation, Depletion and
Amortization Expense:
Oil and gas properties
D-J Basin $ 12,914 $ 12,938 $ 25,625 $ 25,820
Oil and gas properties
Gulf Coast 3,415 1,640 6,396 3,001
Oil and gas properties
Mid-Continent and other 72 23 140 43
Gas gathering and trans-
portation facilities 324 266 625 542
Trading and transportation 144 109 276 217
Corporate 205 190 428 398
-------- -------- -------- --------
$ 17,074 $ 15,166 $ 33,490 $ 30,021
======== ======== ======== ========
Capital Expenditures and
Acquisitions:
Oil and gas properties
D-J Basin $ 43,644 $ 23,308 $ 65,543 $ 43,041
Oil and gas properties
Gulf Coast 11,094 6,240 22,703 15,115
Oil and gas properties
Mid-Continent and other 2,079 820 1,749 2,249
Gas gathering and trans-
portation facilities 9,276 1,561 12,708 1,812
Trading and transportation 101 9 894 13
Corporate 36 114 691 176
-------- -------- -------- --------
$ 66,230 $ 32,052 $104,288 $ 62,406
======== ======== ======== ========
Item 7. Financial Statements and Exhibits
(b) Pro forma financial information
The following unaudited pro forma financial statements give
effect to the merger between Kerr-McGee Corporation and HS
Resources, Inc. and present the combined company's financial
position as of June 30, 2001 and results of operations for the first
six months of 2001 and twelve months ended December 31, 2000. These
pro forma statements update those presented in Kerr-McGee's
Registration Statement on Form S-4 filed on June 28, 2001 (File No.
333-61898).
Documents incorporated by reference:
* Kerr-McGee Corporation's Form 10-K for the year ended
December 31, 2000
* Kerr-McGee Corporation's Form 10-Q for the quarter ended
June 30, 2001
* HS Resources' Form 10-K for the year ended December 31, 2000
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give
effect to the merger based on the factors set forth below and after
giving effect to the pro forma adjustments described in the
accompanying notes. The unaudited pro forma financial statements
have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto of
Kerr-McGee and HS Resources, which are incorporated by reference
into this document and the HS Resources June 30, 2001 statements
included herein.
The unaudited pro forma financial statements and related notes
are presented for illustrative purposes only. If the shares of
Kerr-McGee common stock issuable in the merger had been issued in
the past, Kerr-McGee's financial position or results of operations
might have been different from those presented in the unaudited pro
forma financial statements. The unaudited pro forma financial
statements should not be relied upon as an indication of the
financial position or results of operations that Kerr-McGee would
have achieved if this issuance and the merger had occurred at the
dates indicated. You also should not rely on the unaudited pro forma
financial statements as an indication of the future operating
results or financial position that the merged companies will achieve
after the merger.
The unaudited pro forma financial statements were prepared based
on the following:
* Kerr-McGee purchased all the outstanding shares of common stock
of HS Resources and assumed its debt. Kerr-McGee paid an
aggregate of $833 million in cash (at $66 per share) and issued
an aggregate of 5,090,230 shares of Kerr-McGee common stock (at a
fixed exchange ratio of .9404 shares of Kerr-McGee common stock
for each share of HS Resources common stock). The cash was
financed under existing Kerr-McGee debt facilities.
* The unaudited pro forma balance sheet has been prepared as if
the merger occurred on June 30, 2001. The unaudited pro forma
statement of income has been prepared as if the merger occurred
on January 1, 2000.
* The merger was accounted for as a purchase of HS Resources by
Kerr-McGee.
* Kerr-McGee and HS Resources utilize the successful efforts
method of accounting for oil and gas activities.
* In June 2001, the Financial Accounting Standards Board (FASB)
issued Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets," which provided that goodwill acquired in a
business combination occurring after June 30, 2001, should not be
amortized. Instead, the FASB required impairment tests for
goodwill balances (comparison of the fair value of a reporting
unit to its carrying amount). Since the merger of HS Resources
occurred after June 30, 2001, no amortization of goodwill has
been reflected in the pro forma statements.
* Targeted annual selling and general expense savings of $5 to
$10 million have not been reflected as an adjustment to the
historical data. These cost savings are expected to result from
the consolidation of certain offices and the elimination of
duplicate corporate staff and expenses.
No pro forma adjustments have been made with respect to the
following unusual items. These items are reflected in the historical
results of Kerr-McGee and HS Resources, as applicable, and should be
considered when making period-to-period comparisons.
* On January 1, 2001, both Kerr-McGee and HS Resources adopted
Financial Accounting Standard No. 133, as amended (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities."
This standard requires all derivative instruments to be recorded
as assets or liabilities, measured at fair value, and changes in
the derivative's fair value to be recognized currently in
earnings unless specific hedge accounting criteria are met.
Kerr-McGee hedges certain foreign currency risks (future cash
flows for certain non-U.S. capital expenditures and operating
expenses). Kerr-McGee also has derivative instruments that are not
hedges (options associated with Kerr-McGee debt exchangeable for the
Devon Energy Corporation (Devon) common stock owned by Kerr-McGee
and foreign currency forward sales contracts associated with certain
foreign currency denominated chemical accounts receivable). In
adopting FAS 133, Kerr-McGee recognized an expense of $20 million in
the first quarter of 2001 as a cumulative effect of the accounting
change. This amount is not reflected in the pro forma income
statement. Also in adopting FAS 133, Kerr-McGee chose to reclassify
85% of the Devon shares owned from the "available for sale" category
of investments to "trading" and recognized other income of $181
million ($118 million after tax) on January 1, 2001, for the
unrealized appreciation on the Devon shares reclassified to
"trading". After adoption of FAS 133, the "trading" securities are
marked to market through income each month. A more complete
description of Kerr-McGee's derivatives is contained in Kerr-McGee's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001,
which is incorporated herein by reference.
HS Resources uses derivative instruments to mitigate commodity
price risks related to the purchase or sale of oil and natural gas
and interest rate swaps to hedge the interest rates on certain
borrowings. For the six months of 2001 and the year 2000, sales were
reduced by $65 million and $72 million, respectively, for the
commodity price hedges. The change in the fair value of the interest
rate swaps has been reflected in the fair value of the derivatives
in the historical HS Resources balance sheet, but will not affect
income until the swaps are settled. Additional information
concerning these derivatives is contained in this Form 8-K/A under
Item 7.(a), which contains the HS Resources June 30, 2001, financial
statements, and in the HS Resources Annual Report on Form 10-K for
the year ended December 31, 2000, which is incorporated herein by
reference.
* During the six months ended June 30, 2001, Kerr-McGee
recognized a pre-tax special item of $25 million for the
termination of manganese metal production at the Hamilton,
Mississippi electrolytic chemical facility. This charge primarily
related to plant and equipment write-offs and other closings
costs, including severance.
UNAUDITED PRO FORMA BALANCE SHEET
June 30, 2001
Kerr-McGee HSR Pro Forma Pro Forma
Historical Historical Adjustments Total
---------- ---------- ----------- ---------
(Millions of dollars)
ASSETS
Current assets
Cash $ 197 $ 3 $ - $ 200
Notes and accounts receivable 613 72 - 685
Inventories 434 1 - 435
Deposits, prepaids, and other 114 50 - 164
------- ------ ------ -------
Total current assets 1,358 126 - 1,484
------- ------ ------ -------
Property, Plant and Equipment 13,553 1,261 872 (a) 15,686
Less reserves for depreciation, depletion -
and amortization 7,710 330 (330) (a) 7,710
------- ------ ------ -------
5,843 931 1,202 7,976
------- ------ ------ -------
Goodwill - 2 300 (a) 302
Investments and other assets 940 23 (6) (a) 957
------- ------ ------ -------
Total assets $ 8,141 $1,082 $1,496 $10,719
======= ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilties
Short-term borrowings $ 7 $ - $ - $ 7
Accounts payable 803 94 - 897
Long-term debt due within on year 198 13 - 211
Other current liabilities 486 95 - 581
------- ------ ------ -------
Total current liabilities 1,494 202 - 1,696
------- ------ ------ -------
Long-term debt 2,195 468 969 (a) 3,632
------- ------ ------ -------
Deferred credits and reserves 1,535 153 428 (a) 2,116
------- ------ ------ -------
Stockholders' equity
Common stock 102 - 5 (a) 107
Restricted stock 11 - - 11
Capital in excess of par value 1,682 209 (209) (b) 2,035
353 (a)
Preferred stock rights 1 - - 1
Retained earnings 1,659 102 (102) (b) 1,659
Accumulated other comprehensive income (loss) (68) (23) 23 (b) (68)
Common stock in treasury, at cost (378) (22) 22 (b) (378)
Deferred compensation (92) (7) 7 (b) (92)
------- ------ ------ -------
2,917 259 99 3,275
------- ------ ------ -------
Total liabilities and stockholders' equity $ 8,141 $1,082 $1,496 $10,719
======= ====== ====== =======
See accompanying notes to Unaudited Pro Forma Financial Statements.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
Six Months Ended June 30, 2001 Twelve Months Ended December 31, 2000
---------------------------------------------- ----------------------------------------------
Historical Historical Pro Forma Pro Forma Historical Historical Pro Forma Pro Forma
Kerr-McGee HSR Adjustments Income Kerr-McGee HSR Adjustments Income
---------- ---------- ----------- --------- ---------- ---------- ----------- ---------
(Millions of dollars, except per-share amounts)
Sales $1,997 $207 $ - $2,204 $4,121 $459 $(136) (f) $4,444
------ ---- ---- ------ ------ ---- ----- ------
Costs and Expenses
Costs and operating
expenses 605 20 - 625 1,269 170 (133) (f) 1,306
Selling,general and
administrative expenses 114 4 - 118 298 9 - 307
Shipping and handling
expenses 57 10 - 67 97 16 - 113
Depreciation and depletion 341 34 28 (c) 403 684 60 51 (c) 795
Exploration, including dry
holes and amortizaton of
undeveloped leases 94 14 - 108 170 30 - 200
Taxes, other than income
taxes 63 14 - 77 122 26 - 148
Purchased in-process research
and development - - - - 32 - - 32
Interest and debt expense 80 21 35 (d) 136 208 49 70 (d) 327
------ ---- ---- ------ ------ ---- ----- ------
Total Costs and Expenses 1,354 117 63 1,534 2,880 360 (12) 3,228
------ ---- ---- ------ ------ ---- ----- ------
643 90 (63) 670 1,241 99 (124) 1,216
Other Income 201 - - 201 58 - 3 (f) 61
------ ---- ---- ------ ------ ---- ----- ------
Income from Operations before
Income Taxes 844 90 (63) 871 1,299 99 (121) 1,277
Taxes on Income (314) (33) 23 (e) (324) (457) (38) 44 (e) (451)
------ ---- ---- ------ ------ ---- ------ ------
Income from Continuing Operations $ 530 $ 57 $(40) $ 547 $ 842 $ 61 $ (77) $ 826
====== ==== ==== ====== ====== ==== ====== ======
Income from Continuing Operations
per Share
Basic $ 5.58 $ 3.13 $ 5.47 $ 9.01 $ 3.29 $ 8.38
Diluted $ 5.11 $ 2.98 $ 4.90 $ 8.37 $ 3.18 $ 7.57
HS Resources Pro Forma Equivalent
Earnings per Share $ 4.61 $ 7.12
Average Common Shares
Outstanding (thousands) 94,843 18,238 99,933 93,406 18,420 98,496
Diluted Shares (thousands) 106,623 19,126 111,713 103,987 19,092 109,077
See accompanying notes to Unaudited Pro Forma Finanacial Statements.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Method of Accounting for the Merger
Kerr-McGee accounted for the merger using the purchase method of
accounting for business combinations. Accordingly, HS Resources'
assets acquired and liabilities assumed by Kerr-McGee were revalued
and recorded at their estimated fair values. In the merger, Kerr-McGee
assumed the outstanding debt of HS Resources and converted each share
of HS Resources common stock outstanding to Kerr-McGee common stock or
cash, as provided in the merger agreement. The conversion consisted of
an election to receive cash at $66 per share or an election to receive
Kerr-McGee common stock at a fixed exchange ratio of .9404 of a share
of Kerr-McGee common stock for each share of HS Resources common
stock. The cash consideration is limited to a maximum of $833 million,
and this resulted in Kerr-McGee issuing 5,090,230 shares of its common
stock to HS Resources stockholders.
2. Pro Forma Adjustments Related to the Merger
The unaudited pro forma balance sheet includes the following
adjustments:
(a) This entry adjusts the historical book values of HS
Resources' assets and liabilities to their estimated fair values as of
June 30, 2001. The calculation of the total purchase price and
preliminary allocation to assets and liabilities are shown below:
(Dollars in millions
except share price)
Calculation and preliminary allocation of
purchase price:
Number of shares of common stock to
be issued 5,090,230
Average of Kerr-McGee common stock
price two days before and after
merger announcement $70.33
------
Fair value of common stock to be issued 358
Add: Portion of the purchase price paid
in cash. This amount is added to long-
term debt in the pro forma balance sheet 833
Add: Fair value of HS Resources options,
unvested performance shares and restricted
stock to be settled in cash, net of exercise
proceeds of approximately $25 million.
This amount is added to long-term debt
in the pro forma balance sheet 86
------
1,277
Add: Estimated merger costs, which
includes $15 million of legal, accounting,
and registration costs and $28 million of
severance costs. This amount is added to
long-term debt in the pro forma balance
sheet 43
------
Total purchase price $1,320
======
Allocation of purchase price:
Current assets $ 126
Properties, plant and equipment 2,133
Other assets 17
Goodwill 302
Current liabilities (202)
Long-term debt (475)
Deferred credits (581)
------
$1,320
======
The purchase price allocation is subject to change in:
* The fair value of HS Resources working capital and other assets
and liabilities on the effective date, and
* The actual merger costs incurred.
These tems will not be known until after the effective date of
the merger. Management does not believe the final purchase price
allocation will differ materially from the estimated purchase price
allocation.
(b) These adjustments eliminate HS Resources' historical book
values.
The unaudited pro forma statement of income includes the
following adjustments:
(c) These adjustments increase the depreciation and depletion
expense using the successful efforts method of accounting and is based
on the preliminary allocation of the purchase price.
(d) These adjustments increase interest expense due to the $958
million of additional long-term debt, which results from financing the
cash consideration ($833 million), the fair value of the HS Resources
options and unvested performance shares to be settled in cash net of
the exercise prices of the HS Resources options ($82 million), and the
estimated merger costs ($43 million). These are assumed to be funded
with borrowings from existing credit facilities.
(e) These adjustments record the net tax effect of all pro forma
adjustments at an effective income tax rate of 36.5%.
(f) Amounts represent reclassification of $3 million for interest
income to "Other Income" to be consistent with the Kerr-McGee
classification and $133 million for the cost of trading and
transportation to offset trading and transportation income to be
consistent with the second quarter 2001 historical reclassification by
HS Resources.
SIGNATURES
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 hereunto duly authorized.
KERR-MCGEE CORPORATION
By: (Deborah A. Kitchens)
------------------------------
Deborah A. Kitchens
Vice President and Controller
Dated: August 29, 2001