UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to _______________
Commission File Number 1-8590
MURPHY OIL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0361522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Peach Street
P. O. Box 7000, El Dorado, Arkansas 71731-7000
(Address of principal executive offices) (Zip Code)
(870) 862-6411
(Registrant's telephone number, including area code)
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.
X Yes __ No
---
Number of shares of Common Stock, $1.00 par value, outstanding at June 30, 2001,
was 45,300,630.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MURPHY OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
June 30, December 31,
2001 2000
------------------ --------------------
ASSETS
Current Assets
Cash and cash equivalents $ 205,967 132,701
Accounts receivable, less allowance for doubtful accounts of $9,409 in
2001 and $10,208 in 2000 403,361 469,616
Inventories
Crude oil and blend stocks 60,827 47,875
Finished products 93,600 68,464
Materials and supplies 49,434 48,416
Prepaid expenses 29,391 23,949
Deferred income taxes 21,708 25,916
--------- ---------
Total current assets 864,288 816,937
Property, plant and equipment, at cost less accumulated depreciation and
amortization of $3,170,374 in 2001 and $3,144,369 in 2000 2,333,173 2,184,719
Goodwill, net 46,291 48,396
Deferred charges and other assets 90,107 84,301
--------- ---------
Total assets $ 3,333,859 3,134,353
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 41,911 37,242
Accounts payable and accrued liabilities 560,805 639,642
Income taxes 85,413 68,343
--------- ---------
Total current liabilities 688,129 745,227
Notes payable 382,485 398,375
Nonrecourse debt of a subsidiary 120,690 126,384
Deferred income taxes 271,624 229,968
Reserve for dismantlement costs 157,714 160,049
Reserve for major repairs 37,637 34,302
Deferred credits and other liabilities 183,582 180,488
Stockholders' equity
Cumulative Preferred Stock, par $100, authorized 400,000
shares, none issued - -
Common stock, par $1.00, authorized 200,000,000 shares at
June 30, 2001 and 80,000,000 shares at December 31, 2000,
issued 48,775,314 shares 48,775 48,775
Capital in excess of par value 525,976 514,474
Retained earnings 1,060,058 833,490
Accumulated other comprehensive loss (50,093) (38,266)
Unamortized restricted stock awards (1,894) (1,410)
Treasury stock, 3,474,684 shares of Common Stock at June 30, 2001,
3,729,769 shares at December 31, 2000, at cost (90,824) (97,503)
--------- ---------
Total stockholders' equity 1,491,998 1,259,560
--------- ---------
Total liabilities and stockholders' equity $ 3,333,859 3,134,353
========= =========
See Notes to Consolidated Financial Statements, page 5.
The Exhibit Index is on page 18.
1
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Thousands of dollars, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000* 2001 2000*
---------- ---------- ---------- ----------
REVENUES
Crude oil and natural gas sales $ 232,952 159,564 470,151 312,572
Petroleum product sales 778,071 684,081 1,450,302 1,253,512
Crude oil trading sales 157,866 231,062 396,326 508,488
Other operating revenues 128,145 17,692 165,950 37,132
Interest and other nonoperating revenues 3,345 4,357 7,035 5,566
---------- ---------- ---------- ----------
Total revenues 1,300,379 1,096,756 2,489,764 2,117,270
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Crude oil, products and related operating expenses 922,413 884,378 1,835,624 1,705,992
Exploration expenses, including undeveloped lease
amortization 41,589 20,860 79,550 68,718
Selling and general expenses 24,983 20,781 46,029 38,641
Depreciation, depletion and amortization 58,256 47,561 112,488 103,133
Amortization of goodwill 785 - 1,573 -
Interest expense 9,702 6,779 19,446 13,572
Interest capitalized (4,333) (3,541) (7,919) (6,739)
---------- ---------- ---------- ----------
Total costs and expenses 1,053,395 976,818 2,086,791 1,923,317
---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of accounting change 246,984 119,938 402,973 193,953
Income tax expense 84,416 46,893 142,569 71,765
---------- ---------- ---------- ----------
Income before cumulative effect of accounting
change 162,568 73,045 260,404 122,188
Cumulative effect of accounting change,
net of tax (Note B) - - - (8,733)
---------- ---------- ---------- ----------
NET INCOME $ 162,568 73,045 260,404 113,455
========== ========== ========== ==========
INCOME PER COMMON SHARE - BASIC
Before cumulative effect of accounting change $ 3.60 1.62 5.77 2.71
Cumulative effect of accounting change - - - (.19)
---------- ---------- ---------- ----------
NET INCOME - BASIC $ 3.60 1.62 5.77 2.52
========== ========== ========== ==========
INCOME PER COMMON SHARE - DILUTED
Before cumulative effect of accounting change $ 3.56 1.61 5.72 2.70
Cumulative effect of accounting change - - - (.19)
---------- ---------- ---------- ----------
NET INCOME - DILUTED $ 3.56 1.61 5.72 2.51
========== ========== ========== ==========
Average Common shares outstanding - basic 45,206,604 45,021,888 45,139,453 45,015,956
Average Common shares outstanding - diluted 45,644,457 45,255,936 45,490,094 45,203,079
*Restated to conform to 2001 presentation.
See Notes to Consolidated Financial Statements, page 5.
2
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(Thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2001 2000* 2001 2000*
-------- ------- ------- -------
Net income $162,568 73,045 260,404 113,455
Other comprehensive income (loss), net of tax
Cash flow hedges
Net derivative gains 1,454 - 2,053 -
Reclassification adjustments (232) - 1,346 -
-------- ------- ------- -------
Total cash flow hedges 1,222 - 3,399 -
Net gain (loss) from foreign currency translation 29,571 (23,571) (21,868) (28,217)
-------- ------- ------- -------
Other comprehensive income (loss) before
cumulative effect of accounting change 30,793 (23,571) (18,469) (28,217)
Cumulative effect of accounting change (Note B) - - 6,642 -
-------- ------- ------- -------
Other comprehensive income (loss) 30,793 (23,571) (11,827) (28,217)
-------- ------- ------- -------
COMPREHENSIVE INCOME $193,361 49,474 248,577 85,238
======== ======= ======= =======
*Restated to conform to 2001 presentation.
See Notes to Consolidated Financial Statements, page 5.
3
Murphy Oil Corporation and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Thousands of dollars)
Six Months Ended
June 30,
---------------------------------
2001 2000*
--------- ---------
OPERATING ACTIVITIES
Income before cumulative effect of accounting change $ 260,404 122,188
Adjustments to reconcile above income to net cash provided by operating activities
Depreciation, depletion and amortization 112,488 103,133
Provisions for major repairs 11,051 11,442
Expenditures for major repairs (9,861) (6,358)
Dry holes 46,572 38,605
Amortization of undeveloped leases 10,852 6,232
Amortization of goodwill 1,573 -
Deferred and noncurrent income tax charges 41,491 14,739
Pretax gains from disposition of assets (95,246) (2,872)
Cumulative effect of accounting change on working capital - (11,170)
Net (increase) decrease in operating working capital other than cash and
cash equivalents (35,852) 45,560
Other operating activities - net 8,447 9,958
--------- ---------
Net cash provided by operating activities 351,919 331,457
--------- ---------
INVESTING ACTIVITIES
Property additions and dry holes (393,823) (240,484)
Proceeds from sale of property, plant and equipment 159,079 8,047
Other investing activities - net (258) (67)
--------- ---------
Net cash required by investing activities (235,002) (232,504)
--------- ---------
FINANCING ACTIVITIES
Increase (decrease) in notes payable (9,714) 9,429
Decrease in nonrecourse debt of a subsidiary (7,201) (5,307)
Cash dividend paid (33,835) (31,509)
Proceeds from exercise of stock options and employee stock
purchase plan 14,333 322
Other financing activities - net (2,000) -
--------- ---------
Net cash required by financing activities (38,417) (27,065)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (5,234) (3,508)
--------- ---------
Net increase in cash and cash equivalents 73,266 68,380
Cash and cash equivalents at January 1 132,701 34,132
--------- ---------
Cash and cash equivalents at June 30 $ 205,967 102,512
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Cash income taxes paid $ 79,828 7,140
Interest paid, net of amounts capitalized 7,908 6,052
*Reclassified to conform to 2001 presentation.
See Notes to Consolidated Financial Statements, page 5.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These notes are an integral part of the financial statements of Murphy Oil
Corporation and Consolidated Subsidiaries (Murphy/the Company) on pages 1
through 4 of this Form 10-Q report.
Note A - Interim Financial Statements
The consolidated financial statements of the Company presented herein have not
been audited by independent auditors, except for the Consolidated Balance Sheet
at December 31, 2000. In the opinion of Murphy's management, the unaudited
financial statements presented herein include all accruals necessary to present
fairly the Company's financial position at June 30, 2001, and the results of its
operations and cash flows for the three-month and six-month periods ended June
30, 2001 and 2000, in conformity with accounting principles generally accepted
in the United States.
Financial statements and notes to consolidated financial statements included in
this Form 10-Q report should be read in conjunction with the Company's 2000 Form
10-K report, as certain notes and other pertinent information have been
abbreviated or omitted in this report. Financial results for the six months
ended June 30, 2001 are not necessarily indicative of future results.
Note B - New Accounting Principles
Effective January 1, 2001, Murphy adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by Statement of Financial Accounting Standards No. 138
(SFAS Nos. 133/138). Under SFAS Nos. 133/138, Murphy records the fair values of
its derivative instruments as either assets or liabilities. All such
instruments have been designated as hedges of forecasted cash flow exposures.
Changes in the fair value of a qualifying cash flow hedging derivative are
deferred and recorded as a component of Accumulated Other Comprehensive Income
(AOCI) in the Consolidated Balance Sheet until the forecasted transaction
occurs, at which time the derivative's fair value will be recognized in
earnings. Ineffective portions of a hedging derivative's change in fair value
are recognized currently in earnings. Adoption of SFAS Nos. 133/138 resulted in
a transition adjustment gain to AOCI of $6.6 million, net of $2.8 million in
income taxes for the cumulative effect on prior years; there was no cumulative
effect on earnings. Excluding the transition adjustment, the effect of this
accounting change increased AOCI for the six months ended June 30, 2001 by $3.4
million, net of $2.7 million in income taxes, and decreased net income for the
same period by $.2 million, net of $.1 million in taxes, but did not affect
income per diluted share. For the six months ended June 30, 2001, losses of
$1.3 million, net of $1.2 million in taxes, associated with the transition
adjustment were reclassified from AOCI to earnings.
In 2000, Murphy adopted the revenue recognition guidance in the Securities and
Exchange Commission's Staff Accounting Bulletin 101. As a result of the change,
Murphy records revenues related to its crude oil as the oil is sold, and carries
its unsold crude oil production in inventory at cost or market, whichever is
lower, rather than at market value as in the past. Consequently, Murphy restated
its 2000 operating results and recorded a transition adjustment charge of $8.7
million, net of income tax benefits of $3.9 million, for the cumulative effect
on prior years. Excluding the transition adjustment, this accounting change
decreased income for the six months ended June 30, 2000 by $9.4 million.
In 2000, the Company also applied the provisions of Emerging Issues Task Force
(EITF) Issue 99-19, "Reporting Revenue Gross as a Principal Versus Net as an
Agent," and Issue 00-10, "Accounting for Shipping and Handling Fees." Prior to
applying EITF 99-19, the Company reported the results of crude oil trading and
certain other downstream activities on a net margin basis in either Other
Operating Revenues or Crude Oil, Products and Related Operating Expenses in its
Statements of Income and in its refining, marketing and transportation segment
disclosures. Under EITF 99-19, the Company began reporting these activities as
gross revenues and cost of sales. Before applying EITF 00-10, the Company
reduced Crude Oil and Natural Gas Sales for certain gathering and pipeline
charges incurred prior to the point of sale. Such costs have now been recorded
as cost of sales rather than as a reduction of revenues. Due to applying these
two accounting principles, the Company's previously reported revenues and cost
of sales for all 2000 periods have been reclassified to reflect the new
presentation.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Note C - Environmental Contingencies
The Company's operations are subject to numerous laws and regulations intended
to protect the environment and/or impose remedial obligations. The Company is
also involved in personal injury and property damage claims, allegedly caused by
exposure to or by the release or disposal of materials manufactured or used in
the Company's operations. The Company operates or has previously operated
certain sites and facilities, including refineries, oil and gas fields, gasoline
stations, and terminals, for which known or potential obligations for
environmental remediation exist.
Under the Company's accounting policies, an environmental liability is recorded
when an obligation is probable and the cost can be reasonably estimated. If
there is a range of reasonably estimated costs, the most likely amount will be
recorded, or if no amount is most likely, the minimum of the range is used.
Recorded liabilities are reviewed quarterly. Actual cash expenditures often
occur one or more years after a liability is recognized.
The Company's reserve for remedial obligations, which is included in "Deferred
Credits and Other Liabilities" in the Consolidated Balance Sheets, contains
certain amounts that are based on anticipated regulatory approval for proposed
remediation of former refinery waste sites. If regulatory authorities require
more costly alternatives than the proposed processes, future expenditures could
exceed the amount reserved by up to an estimated $3 million.
The Company has received notices from the U.S. Environmental Protection Agency
(EPA) that it is currently considered a Potentially Responsible Party (PRP) at
three Superfund sites and has also been assigned responsibility by defendants at
another Superfund site. The potential total cost to all parties to perform
necessary remedial work at these sites may be substantial. Based on currently
available information, the Company has reason to believe that it is a "de
minimus" party as to ultimate responsibility at the four sites. The Company
does not expect that its related remedial costs will be material to its
financial condition or its results of operations, and it has not provided a
reserve for remedial costs on Superfund sites. Additional information may
become known in the future that would alter this assessment, including any
requirement to bear a pro rata share of costs attributable to nonparticipating
PRPs or indications of additional responsibility by the Company.
Lawsuits filed against Murphy by the U.S. Government and the State of Wisconsin
are discussed under the caption "Legal Proceedings" on page 16 of this Form 10-Q
report. The Company does not believe that these or other known environmental
matters will have a material adverse effect on its financial condition. There
is the possibility that expenditures could be required at currently unidentified
sites, and new or revised regulations could require additional expenditures at
known sites. Such expenditures could materially affect the results of
operations in a future period.
Certain environmental expenditures are likely to be recovered by the Company
from other sources, primarily environmental funds maintained by certain states.
Since no assurance can be given that future recoveries from other sources will
occur, the Company has not recognized a benefit for likely recoveries at June
30, 2001.
Note D - Other Contingencies
The Company's operations and earnings have been and may be affected by various
other forms of governmental action both in the United States and throughout the
world. Examples of such governmental action include, but are by no means
limited to: tax increases and retroactive tax claims; import and export
controls; price controls; currency controls; allocation of supplies of crude oil
and petroleum products and other goods; expropriation of property; restrictions
and preferences affecting the issuance of oil and gas or mineral leases;
restrictions on drilling and/or production; laws and regulations intended for
the promotion of safety; governmental support for other forms of energy; and
laws and regulations affecting the Company's relationships with employees,
suppliers, customers, stockholders and others. Because governmental actions are
often motivated by political considerations, may be taken without full
consideration of their consequences, and may be taken in response to actions of
other governments, it is not practical to attempt to predict the likelihood of
such actions, the form the actions may take or the effect such actions may have
on the Company.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Note D - Other Contingencies (Contd.)
The Company and its subsidiaries are engaged in a number of legal proceedings,
all of which the Company considers routine and incidental to its business and
none of which is considered material. In the normal course of its business, the
Company is required under certain contracts with various governmental
authorities and others to provide letters of credit that may be drawn upon if
the Company fails to perform under those contracts. At June 30, 2001 the
Company had contingent liabilities of $38.8 million under certain financial
guarantees and $45.8 million on outstanding letters of credit.
Note E - Earnings per Share
Net income was used as the numerator in computing both basic and diluted income
per Common share for the three-month and six-month periods ended June 30, 2001
and 2000. The following table reconciles the weighted-average shares
outstanding used for these computations.
- -------------------------------------------------------------------------------------------------
Reconciliation of Shares Outstanding Three Months Ended Six Months Ended
June 30, June 30,
- -------------------------------------------------------------------------------------------------
(Weighted-average shares) 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------
Basic method............................... 45,206,604 45,021,888 45,139,453 45,015,956
Dilutive stock options..................... 437,853 234,048 350,641 187,123
- -------------------------------------------------------------------------------------------------
Diluted method 45,644,457 45,255,936 45,490,094 45,203,079
=================================================================================================
The computations of earnings per share in the Consolidated Statements of Income
did not consider outstanding options of 73,500 shares for the three-month period
of 2000, and 147,000 shares for the six-month period of 2000, because the
effects of these options would have improved the Company's earnings per share.
Average exercise prices per share of the options not used were $65.49, and
$62.97, respectively. There were no antidilutive options for the three-month and
six-month periods of 2001.
Note F - Risk Management and Derivative Instruments
. Interest Rate Risks - Murphy has variable-rate debt obligations consisting of
commercial paper issued under nonrecourse guaranteed credit facilities to
finance certain expenditures for the Hibernia oil field. These obligations
expose the Company to the effects of changes in interest rates. To limit its
exposure to interest rate risk on a significant portion of the variable-rate
debt, Murphy has interest rate swap agreements to hedge fluctuations in cash
flows resulting from such risk. Under the interest rate swaps, the Company
pays fixed rates and receives variable rates. The Company has a risk
management control system to monitor interest rate cash flow risk
attributable to the Company's outstanding and forecasted debt obligations as
well as the offsetting interest rate swaps. The control system involves using
analytical techniques, including cash flow sensitivity analysis, to estimate
the impact of interest rate changes on future cash flows.
For the six months ended June 30, 2001, the income effect from cash flow
hedging ineffectiveness was insignificant. The fair value of the effective
portions of the interest rate swaps and changes thereto is deferred in
Accumulated Other Comprehensive Income (AOCI) and is subsequently
reclassified into Interest Expense as a rate adjustment in the periods in
which the hedged interest payments on the variable-rate debt affect earnings.
. Natural Gas Fuel Price Risks - The Company purchases natural gas as fuel at
its Meraux, Louisiana refinery. The cost of natural gas is subject to
commodity price risk. In 1999, as a result of its belief that natural gas
prices would increase dramatically from 1999 levels in the following three to
five years, Murphy reduced the effect of fluctuations in the price of natural
gas used for fuel at Meraux by entering into natural gas swap contracts to
hedge fluctuations in cash flows resulting from such risk.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Note F - Risk Management and Derivative Instruments (Contd.)
Under the natural gas swaps, the Company pays a fixed rate and receives a
floating rate in each month of settlement. Murphy has a risk management
control system to monitor natural gas price risk attributable both to
forecasted natural gas fuel requirements and to Murphy's natural gas swaps.
The control system involves using analytical techniques, including various
correlations of natural gas purchase prices to futures prices, to estimate
the impact of changes in natural gas fuel prices on Murphy's cash flows.
For the six months ended June 30, 2001, the income effect from cash flow
hedging ineffectiveness was insignificant. The fair value of the effective
portions of the natural gas swaps and changes thereto is deferred in AOCI and
is subsequently reclassified into Crude Oil, Products and Related Operating
Expenses in the periods in which the hedged natural gas fuel purchases affect
earnings.
Natural Gas Sales Price Risks - The sales price of natural gas produced by
the Company is subject to commodity price risk. Murphy has minimized the
effect of fluctuations in the selling price of a limited portion of its U.S.
natural gas production through October 2001 by entering into a natural gas
swap contract and natural gas options to hedge cash flow fluctuations
resulting from such risk. Murphy has a risk management control system to
monitor natural gas price risk attributable both to forecasted natural gas
sales prices and to Murphy's hedging instruments. The control system involves
using analytical techniques, including various correlations of natural gas
sales prices to futures prices, to estimate the impact of changes in natural
gas prices on Murphy's cash flows from the sale of natural gas.
The natural gas price risk pertaining to a portion of gas sales from
properties Murphy acquired from Beau Canada Exploration Ltd. in 2000 is
limited by natural gas swap agreements expiring in October 2001 that were
obtained in the acquisition. These agreements hedge fluctuations in cash
flows resulting from such risk. Certain swaps require Murphy to pay a
floating price and receive a fixed price and are partially offset by swaps on
a lesser volume that require Murphy to pay a fixed price and receive a
floating price.
For the six months ended June 30, 2001, Murphy's earnings were not
significantly impacted from cash flow hedging ineffectiveness arising from
the natural gas swaps and options in the United States and western Canada.
The fair values of the effective portions of the natural gas swaps and
options and changes thereto are deferred in AOCI and are subsequently
reclassified into Crude Oil and Natural Gas Sales in the periods in which the
hedged natural gas sales affect earnings.
. Crude Oil Purchase Price Risks - Each month, the Company purchases crude oil
as the primary feedstock for its U.S. refineries. Prior to April 2000, the
Company was a party to crude oil swap agreements that limited the exposure of
its U.S. refineries to the risks of fluctuations in cash flows resulting from
changes in the prices of crude oil purchased in 2001 and 2002. Under each
swap, Murphy would have paid a fixed crude oil price and would have received
a floating price during the agreement's contractual maturity period. In April
2000, the Company settled certain of the swaps for cash and entered into
offsetting contracts for the remaining swap agreements, locking in a future
net cash settlement gain. The fair values of these settlement gains and
changes thereto are deferred in AOCI and are subsequently reclassified as a
reduction of Crude Oil, Products and Related Operating Expenses in the
periods in which the hedged crude oil purchases affect earnings.
The Company expects to transfer approximately $5 million in after-tax gains
from AOCI into earnings during the next 12 months as the forecasted
transactions actually occur. All forecasted transactions currently being
hedged are expected to occur by December 2004.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
Note G - Accumulated Other Comprehensive Loss
Net gains (losses) in Accumulated Other Comprehensive Loss on the Consolidated
Balance Sheets at June 30, 2001 and December 31, 2000 were as follows.
- -----------------------------------------------------------------------------------------
(Millions of dollars) June 30, December 31,
2001 2000
- -----------------------------------------------------------------------------------------
Foreign currency translation................................ $ (60.1) (38.3)
Cash flow hedging........................................... 10.0 -
- -----------------------------------------------------------------------------------------
Accumulated other comprehensive loss $ (50.1) (38.3)
=========================================================================================
Note H - Business Segments
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000*
Total Assets ----------------------------- ----------------------------
at June 30, External Interseg. Income External Interseg. Income
(Millions of dollars) 2001 Revenues Revenues (Loss) Revenues Revenues (Loss)
- ------------------------------------------------------------------------------------------------------------------
Exploration and production**
United States........................ $ 500.7 53.2 13.7 24.6 46.0 17.6 19.9
Canada............................... 1,242.6 119.3 9.1 23.8 57.4 23.4 22.7
United Kingdom....................... 217.6 51.2 - 21.4 41.1 - 15.8
Ecuador.............................. 68.8 10.2 - 4.3 13.1 - 7.0
Other................................ 21.1 .4 - (13.5) .6 - (9.3)
- ------------------------------------------------------------------------------------------------------------------
Total 2,050.8 234.3 22.8 60.6 158.2 41.0 56.1
- ------------------------------------------------------------------------------------------------------------------
Refining, marketing and
transportation
United States........................ 803.4 838.7 - 34.3 682.4 .1 14.5
United Kingdom....................... 191.8 83.7 - 2.0 114.6 - 5.7
Canada............................... - 140.4 .1 68.4 137.2 .2 2.3
- ------------------------------------------------------------------------------------------------------------------
Total 995.2 1,062.8 .1 104.7 934.2 .3 22.5
- ------------------------------------------------------------------------------------------------------------------
Total operating segments........... 3,046.0 1,297.1 22.9 165.3 1,092.4 41.3 78.6
Corporate and other................... 287.9 3.3 - (2.7) 4.4 - (5.5)
- ------------------------------------------------------------------------------------------------------------------
Total consolidated $3,333.9 1,300.4 22.9 162.6 1,096.8 41.3 73.1
==================================================================================================================
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000*
------------------------------ ----------------------------
External Interseg. Income External Interseg. Income
(Millions of dollars) Revenues Revenues (Loss) Revenues Revenues (Loss)
- -------------------------------------------------------------------------------------------------------------------
Exploration and production**
United States........................ $ 132.6 30.9 55.7 84.0 36.1 13.8
Canada............................... 219.0 30.0 51.9 114.6 53.2 50.4
United Kingdom....................... 101.5 - 41.5 87.7 11.6 39.0
Ecuador.............................. 20.3 - 8.1 25.6 - 14.7
Other................................ .9 - (16.0) 1.3 - (10.8)
- ------------------------------------------------------------------------------------------------------------------
Total 474.3 60.9 141.2 313.2 100.9 107.1
- ------------------------------------------------------------------------------------------------------------------
Refining, marketing and
transportation
United States........................ 1,544.9 - 49.3 1,285.7 .8 12.9
United Kingdom....................... 162.2 - 3.8 236.5 - 10.6
Canada............................... 301.4 .2 71.2 276.3 .3 3.8
- ------------------------------------------------------------------------------------------------------------------
Total 2,008.5 .2 124.3 1,798.5 1.1 27.3
- ------------------------------------------------------------------------------------------------------------------
Total operating segments........... 2,482.8 61.1 265.5 2,111.7 102.0 134.4
Corporate and other................... 7.0 - (5.1) 5.6 - (12.2)
- ------------------------------------------------------------------------------------------------------------------
Total.............................. 2,489.8 61.1 260.4 2,117.3 - 122.2
Cumulative effect of accounting
change.............................. - - - - - (8.7)
- ------------------------------------------------------------------------------------------------------------------
Total consolidated $2,489.8 61.1 260.4 2,117.3 102.0 113.5
==================================================================================================================
*Restated to conform to 2001 presentation.
**Additional details about results of operations are presented in the tables on
page 15.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Income before a special item in the second quarter of 2001 totaled $95 million,
$2.08 a diluted share, compared to earnings of $71.6 million, $1.58 a diluted
share, in the second quarter a year ago. Net income for the second quarter of
2001 totaled $162.6 million, $3.56 a diluted share, and included a gain on sale
of Canadian pipeline assets of $67.6 million, $1.48 a diluted share. Net income
in the second quarter of 2000 totaled $73.1 million, $1.61 a diluted share, and
included a gain on sale of assets of $1.5 million, $.03 a diluted share.
The improvement in second quarter 2001 earnings is the result of higher North
American natural gas prices, record Canadian natural gas sales volumes, higher
oil sales volumes and healthier U.S. downstream margins, which more than offset
lower oil prices and higher exploration expenses. The average sales price for
natural gas increased by 30% in North America, while the Company's average
worldwide crude oil price declined 11% from the prior year. The Company's
natural gas sales in Canada set a record due to production from new fields in
western Canada. Record quarterly earnings from U.S. refining and marketing
operations made a significant contribution to Murphy's results.
Murphy's exploration and production operations earned $60.6 million in the
second quarter of 2001 compared to $56.1 million in the same quarter of 2000.
Exploration and production operations in the United States earned $24.6 million
compared to $19.9 million in the second quarter of 2000. Operations in Canada
earned $23.8 million compared to $22.7 million a year ago, and U.K. operations
earned $21.4 million compared to $15.8 million. Operations in Ecuador earned
$4.3 million in the second quarter of 2001 compared to $7 million a year ago.
Other international operations reported a loss of $13.5 million compared to a
$9.3 million loss a year earlier. The Company's worldwide crude oil and
condensate sales prices averaged $22.97 a barrel in the current quarter compared
to $25.75 a year ago. Crude oil and condensate sales prices averaged $25.52 a
barrel in the United States, down 11%, and $25.91 in the United Kingdom, down
8%. In Canada, sales prices averaged $24.52 a barrel for light oil, down 6%
from last year; $10.86 for heavy oil, down 44%; $26.76 for production from the
offshore Hibernia field, down 6%; and $27.55 for synthetic oil, down 2%. The
average crude oil sales price in Ecuador was $18.63 a barrel, down 14%. Total
crude oil and gas liquids production averaged 64,913 barrels a day compared to
66,131 in the second quarter of 2000. Production increased 1,403 barrels a day
or 48% for Canadian light oil, and 1,203 or 12% for Canadian heavy oil. In other
areas, production decreased 1,660 barrels a day or 8% in the United Kingdom, 748
or 11% in the United States, 648 or 7% at Hibernia, 581 or 10% for crude oil in
Ecuador and 187 or 2% for synthetic oil in Canada. In the current quarter,
natural gas sales prices averaged $4.89 a thousand cubic feet (MCF) in the
United States, up 39%; $3.89 in Canada, up 34%; and $2.26 in the United Kingdom,
up 33%. Total natural gas sales averaged 284 million cubic feet a day in the
current quarter compared to 230 million a year ago. Sales of natural gas in the
United States averaged 119 million cubic feet a day, down from 151 million in
the second quarter of 2000 as a result of a decrease in production from mature
fields in the Gulf of Mexico. Canadian natural gas sales averaged 152 million
cubic feet a day in the current quarter, an increase of 118%, due to production
from new fields in Western Canada, and U.K. sales were 12 million, up 32%.
Exploration expenses totaled $41.6 million compared to $20.8 million in 2000.
Exploration expenses in the second quarter 2001 include approximately $17
million in dry hole expense related to an unsuccessful well in the Laurentian
Channel offshore eastern Canada. The tables on page 15 provide additional
details of the results of exploration and production operations for the second
quarter of each year.
Earnings from Murphy's downstream operations before special items for the three
months ended June 30, 2001 were $37.1 million, up from $22.5 million in 2000.
Refining, marketing and transportation operations in the United States reported
earnings of $34.3 million compared to $14.5 million a year ago. Operations in
the United Kingdom earned $2 million compared to $5.7 million in the second
quarter of 2000. Earnings from purchasing, transporting and reselling crude oil
in Canada were $.8 million in the 2001 quarter compared to $2.3 million in last
year's second quarter. Other operating revenues for the 2001 period increased
due to the Company completing its sale of Canadian downstream assets in May 2001
and increases in merchandise sales through its Murphy USA service stations in
Wal-Mart parking lots. Refinery crude runs worldwide for the quarter were
165,247 barrels a day compared to 173,168 in the second quarter of 2000.
Worldwide refined product sales were a record at 192,167 barrels a day compared
to 180,733 a year ago.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (Contd.)
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
(Contd.)
Corporate functions, which include interest income and expense and corporate
overhead not allocated to operating functions, reflected a loss of $2.7 million
in the current quarter compared to a $7 million loss before a special item in
the second quarter of 2000.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
For the first six months of 2001, income excluding the special item totaled
$192.8 million, $4.24 a diluted share, compared to $120.7 million, $2.67 a
share, a year ago. Net income for the current six-month period was $260.4
million, $5.72 a diluted share, and included an after-tax benefit of $67.6
million, $1.48 a diluted share, from the gain on sale of the Company's pipeline
assets in Canada. The same period a year ago had net income of $113.5 million,
$2.51 a share.
Year-to-date earnings from exploration and production operations were up $34.1
million over the prior year, mainly due to increases in North American natural
gas sales prices and Canadian natural gas sales volumes, partially offset by
lower volumes for U.S. natural gas sales and higher exploration expenses. The
Company's downstream earnings increased $29.4 million, primarily because of
higher product margins and higher product sales volumes in the United States,
partially offset by lower product margins and lower product sales volumes in the
United Kingdom.
Earnings from exploration and production operations for the six months ended
June 30, 2001 were $141.2 million, up from $107.1 million in 2000. United
States operations earned $55.7 million for the first half of 2001 compared to
$13.8 million in the prior period, and Canadian operations earned $51.9 million
compared to $50.4 million in 2000. Increases from the prior year also occurred
in the United Kingdom, where earnings rose from $39 million in 2000 to $41.5
million in the current year. In Ecuador earnings decreased by $6.6 million to
$8.1 million. Other international operations recorded losses of $16 million in
the first six months of 2001 and $10.8 million in the 2000 period. The
Company's worldwide crude oil and condensate sales prices averaged $22.81 a
barrel in the 2001 period compared to $25.66 a year ago. Crude oil and
condensate sales prices averaged $26.45 a barrel in the United States, down 8%,
and $26.47 in the United Kingdom, down 3%. In Canada, sales prices averaged
$24.75 a barrel for light oil, down 6%; $10.11 for heavy oil, down 48%; $26.84
for Hibernia production, essentially unchanged; and $27.88 for synthetic oil,
down 1%. The average crude oil sales price in Ecuador was $18.18 a barrel, down
15%. Crude oil and gas liquids production for the first half of 2001 averaged
66,973 barrels a day compared to 66,690 during the same period of 2000.
Production of crude oil and gas liquids averaged 12,320 barrels a day for
Canadian heavy oil, up 24%; 4,448 for Canadian light oil, up 47%; and, 9,800 for
Canadian synthetic oil, up 10%. In other areas, crude oil and gas liquids
production averaged 5,770 in the United States, down 19%; 5,639 in Ecuador, down
15%; 8,967 at Hibernia, down 6%; and 20,029 in the United Kingdom, down 7%.
Natural gas sales prices for the first six months of 2001 averaged $6.07 a MCF
in the United States, up 98%; $4.67 in Canada, up 82%; and $2.42 in the United
Kingdom, up 40%. Total natural gas sales averaged 266 million cubic feet a day
in 2001 compared to 230 million in 2000. Sales of natural gas in the United
States averaged 122 million cubic feet a day, down 20%. Average natural gas
sales volumes were 129 million cubic feet a day in Canada, up 107%, and 15
million in the United Kingdom, up 2%. Exploration expenses totaled $79.6
million for the six months ended June 30, 2001, up from $68.7 million a year
ago. The increase in exploration expenses primarily occurred in Canada and
Malaysia, partially offset by lower dry hole expenses in the United States in
the first half of 2001. The tables on page 15 provide additional details of the
results of exploration and production operations for the first half of each
year.
Earnings from the Company's downstream operations before special items for the
six months ended June 30, 2001 were $56.7 million, up from $27.3 million in
2000. Refining, marketing and transportation operations in the United States
reported earnings of $49.3 million in the first six months of 2001 compared to
$12.9 million for the same period last year; the improvement resulted from
higher product margins and higher product sales volumes.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Results of Operations (Contd.)
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
(Contd.)
Operations in the United Kingdom were affected by lower product margins and
lower sales volumes and earned $3.8 million in the first half of 2001 compared
to $10.6 million in the prior year. Earnings from purchasing, transporting and
reselling crude oil in Canada were $3.6 million in the current year compared to
$3.8 million a year ago. Refinery crude runs worldwide were 168,764 barrels a
day compared to 167,566 a year ago. Petroleum product sales were 190,643
barrels a day, up from 173,832 in 2000, with the increase primarily related to
higher U.S. product sales volumes at stations built on Wal-Mart parking lots.
Excluding special items, financial results from corporate functions reflected
losses of $5.1 million in the first half of 2001 and $13.7 million a year ago.
Financial Condition
Net cash provided by operating activities was $351.9 million for the first six
months of 2001 compared to $331.5 million for the same period in 2000. Changes
in operating working capital other than cash and cash equivalents used cash of
$35.9 million in the first six months of 2001, while providing cash of $45.6
million in the 2000 period. Cash from operating activities was reduced by
expenditures for refinery turnarounds and abandonment of oil and gas properties
totaling $9.9 million in the current year and $6.4 million in 2000. Other
predominant uses of cash in each year were for capital expenditures, which
including amounts expensed, are summarized in the following table, and for
dividends, which totaled $33.8 million in 2001 and $31.5 in 2000.
- -------------------------------------------------------------------------
Six Months Ended June 30,
- -------------------------------------------------------------------------
(Millions of dollars) 2001 2000
- -------------------------------------------------------------------------
Capital Expenditures
Exploration and production......................... $344.9 204.2
Refining, marketing and transportation............. 67.0 51.6
Corporate and other................................ 4.1 8.6
- -------------------------------------------------------------------------
Total capital expenditures..................... 416.0 264.4
Geological, geophysical and other exploration
expenses charged to income......................... (22.2) (23.9)
- -------------------------------------------------------------------------
Total property additions and dry hole costs $393.8 240.5
=========================================================================
Working capital at June 30, 2001 was $176.2 million, up $104.5 million from
December 31, 2000. This level of working capital does not fully reflect the
Company's liquidity position, because the lower historical costs assigned to
inventories under LIFO accounting were $120.9 million below current costs at
June 30, 2001.
At June 30, 2001, long-term notes payable of $382.5 million were down $15.9
million from December 31, 2000 due to reclassification to current maturities and
repayments. Long-term nonrecourse debt of a subsidiary was $120.7 million, down
$5.7 million from December 31, 2000 primarily due to repayments. A summary of
capital employed at June 30, 2001 and December 31, 2000 follows.
- ------------------------------------------------------------------------
Capital Employed June 30, 2001 December 31, 2000
- ------------------------------------------------------------------------
(Millions of dollars) Amount % Amount %
- ------------------------------------------------------------------------
Notes payable..................... $ 382.5 19 398.4 22
Nonrecourse debt of a subsidiary.. 120.7 6 126.4 7
Stockholders' equity.............. 1,492.0 75 1,259.6 71
- ------------------------------------------------------------------------
$1,995.2 100 1,784.4 100
========================================================================
12
MANAGEMENT'S DISCUSSION AND ANALYSIS (Contd.)
Accounting Matters
As described in Note B on page 5 of this Form 10-Q report, Murphy adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by Statement of Financial
Accounting Standards No. 138, effective January 1, 2001. In addition, the
Company adopted a change in accounting for unsold crude oil production effective
January 1, 2000, restating operating results for all of 2000, and also has
retroactively applied two consensuses of the Financial Accounting Standard
Board's Emerging Issues Task Force to the Consolidated Statement of Income for
all of 2000.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations be accounted for
under the purchase method of accounting and that certain acquired intangible
assets in a business combination be recognized and reported as assets apart from
goodwill. SFAS No. 142 requires that amortization of goodwill be replaced with
periodic tests of the goodwill's impairment at least annually in accordance with
the provisions of SFAS No. 142 and that intangible assets other than goodwill be
amortized over their useful lives. The Company will adopt SFAS No. 141
immediately and SFAS No. 142 on January 1, 2002.
As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of $44.7 million, which will be subject to the transition provisions
of SFAS No. 142. Amortization expense related to goodwill was $1.6 million for
the six months ended June 30, 2001.
Additionally, in July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the Company to record the fair
value of a liability for an asset retirement obligation in the period in which
it meets the definition of a liability. When the liability is initially
recorded, the Company will increase the carrying amount of the related long-
lived asset by an amount equal to the original liability. The liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon adoption of the
Statement, the Company will recognize transition amounts for existing asset
retirement obligations, asset retirement costs, and accumulated depreciation as
the cumulative effect of a change in accounting principle. Upon settlement of an
asset retirement obligation, any difference between costs incurred and the
recorded liability will be recognized as a gain or loss in the Company's results
of operations. The Company is required to adopt the provisions of SFAS No. 143
effective January 1, 2003.
It is not practicable to reasonably estimate the impact of adopting these
accounting standards on the Company's financial statements at the date of this
report, including whether any transitional goodwill impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
Forward-Looking Statements
This Form 10-Q report contains statements of the Company's expectations,
intentions, plans and beliefs that are forward-looking and are dependent on
certain events, risks and uncertainties that may be outside of the Company's
control. These forward-looking statements are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results and developments could differ materially from those expressed or
implied by such statements due to a number of factors including those described
in the context of such forward-looking statements as well as those contained in
the Company's January 15, 1997 Form 8-K report on file with the U.S. Securities
and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks associated with interest rates, prices of
crude oil, natural gas and petroleum products, and foreign currency exchange
rates. As described in Note F to this Form 10-Q report, Murphy makes limited
use of derivative financial and commodity instruments to manage risks associated
with existing or anticipated transactions.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Contd.)
The Company was a party to interest rate swaps at June 30, 2001 with notional
amounts totaling $100 million that were designed to convert a similar amount of
variable-rate debt to fixed rates. These swaps mature in 2002 and 2004. The
swaps require the Company to pay an average interest rate of 6.46% over their
composite lives, and at June 30, 2001, the interest rate to be received by the
Company averaged 4.32%. The variable interest rate received by the Company
under each swap contract is repriced quarterly. The Company considers these
swaps to be a hedge of its exposure to fluctuations in interest rates. The
estimated fair value of these interest rate swaps was recorded as a liability of
$2.9 million at June 30, 2001.
At June 30, 2001, 20% of the Company's debt had variable interest rates and 11%
was denominated in Canadian dollars. Based on debt outstanding at June 30,
2001, a 10% increase in variable interest rates would have an insignificant
impact on Company's interest expense for the next 12 months after including the
favorable effect resulting from lower net settlement payments under the
aforementioned interest rate swaps. A 10% increase in the exchange rate of the
Canadian dollar versus the U.S. dollar would increase interest expense for the
next 12 months by $.2 million and increase current maturities of long-term debt
by $.8 million for debt denominated in Canadian dollars.
Murphy was a party to natural gas price swap agreements at June 30, 2001 for a
total notional volume of 7 million MMBTU that are intended to hedge a portion of
the financial exposure of its Meraux, Louisiana refinery to fluctuations in the
future price of natural gas purchased for fuel. In each month of settlement,
the swaps require Murphy to pay an average natural gas price of $2.61 an MMBTU
and to receive the average NYMEX price for the final three trading days of the
month. At June 30, 2001, the estimated fair value of these agreements was
recorded as an asset of $5.9 million. A 10% increase in the average NYMEX price
of natural gas would have increased this asset by $2.2 million, while a 10%
decrease would have reduced the asset by a similar amount.
At June 30, 2001, Murphy was also a party to certain natural gas swap agreements
for a total notional volume of 20,000 gigajoules (GJ) a day through October 2001
that are intended to hedge a portion of the financial exposure of its Canadian
natural gas production to changes in gas sales prices. In each month, the swaps
require Murphy to pay the AECO "C" index price and to receive an average of
C$2.47 per GJ. The Company also has a natural gas swap agreement for the
purchase of 10,000 GJ per day through October 2001 that requires Murphy to pay
C$5.64 per GJ and to receive based on the AECO "C" index. At June 30, 2001, the
estimated net fair value of these agreements was recorded as a liability of $3.9
million. A 10% increase in the average price of the AECO "C" index would have
increased this liability by $.3 million, while a 10% decrease would have reduced
the liability by a similar amount.
In addition, the Company was a party to a natural gas swap agreement and natural
gas options at June 30, 2001 that are intended to hedge the financial exposure
of a limited portion of its U.S. natural gas production to changes in gas sales
prices through October 2001. The swap is for a notional volume of 10,000 MMBTU
a day and requires Murphy to pay the average NYMEX price for the final trading
day of each month and receive a price of $5.50 an MMBTU. The options are for a
notional volume of 5,000 MMBTU a day and provides that in each month, Murphy
will receive any difference between $4.50 an MMBTU and a lower average NYMEX
price for the last three trading days of the first nearby month futures contract
for the relevant delivery month. At June 30, 2001, the estimated fair value of
these agreements was recorded as an asset of $3.6 million. A 10% increase in
the average NYMEX price of natural gas would have reduced this asset by $.4
million, while a 10% decrease would have increased the asset by a similar
amount.
14
OIL AND GAS OPERATING RESULTS (unaudited)
- ----------------------------------------------------------------------------------------------------------------
Synthetic
United United Oil-
(Millions of dollars) States Canada Kingdom Ecuador Other Canada Total
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2001
Oil and gas sales, other operating revenues...... $ 66.9 105.1 51.2 10.2 .4 23.3 257.1
Production expenses.............................. 12.6 18.2 7.6 4.0 - 13.3 55.7
Depreciation, depletion and amortization......... 10.4 23.7 8.9 1.8 .1 2.1 47.0
Goodwill amortization............................ - .8 - - - - .8
Exploration expenses
Dry holes....................................... .2 19.8 - - 7.6 - 27.6
Geological and geophysical...................... - 1.6 .1 - 3.1 - 4.8
Other........................................... 1.1 .6 .3 - 1.6 - 3.6
- ----------------------------------------------------------------------------------------------------------------
1.3 22.0 .4 - 12.3 - 36.0
Undeveloped lease amortization.................. 2.1 3.5 - - - - 5.6
- ----------------------------------------------------------------------------------------------------------------
Total exploration expenses 3.4 25.5 .4 - 12.3 - 41.6
- ----------------------------------------------------------------------------------------------------------------
Selling and general expenses..................... 2.9 3.0 .6 .1 1.6 - 8.2
Income tax provisions (benefits)................. 13.0 15.0 12.3 - (.1) 3.0 43.2
- ----------------------------------------------------------------------------------------------------------------
Results of operations (excluding
corporate overhead and interest) $ 24.6 18.9 21.4 4.3 (13.5) 4.9 60.6
================================================================================================================
Three Months Ended June 30, 2000*
Oil and gas sales, other operating revenues...... $ 63.6 56.6 41.1 13.1 .6 24.2 199.2
Production expenses.............................. 10.6 12.0 6.2 4.1 - 10.8 43.7
Depreciation, depletion and amortization......... 13.1 12.1 8.3 1.9 - 2.0 37.4
Exploration expenses
Dry holes....................................... 1.3 .4 - - .3 - 2.0
Geological and geophysical...................... 1.7 3.8 .1 - 7.4 - 13.0
Other........................................... .8 .2 .5 - 1.1 - 2.6
- ----------------------------------------------------------------------------------------------------------------
3.8 4.4 .6 - 8.8 - 17.6
Undeveloped lease amortization.................. 1.8 1.4 - - - - 3.2
- ----------------------------------------------------------------------------------------------------------------
Total exploration expenses 5.6 5.8 .6 - 8.8 - 20.8
- ----------------------------------------------------------------------------------------------------------------
Selling and general expenses..................... 3.4 .9 .8 .1 1.0 .1 6.3
Income tax provisions............................ 11.0 10.0 9.4 - .1 4.4 34.9
- ----------------------------------------------------------------------------------------------------------------
Results of operations (excluding
corporate overhead and interest) $ 19.9 15.8 15.8 7.0 (9.3) 6.9 56.1
================================================================================================================
Six Months Ended June 30, 2001
Oil and gas sales, other operating revenues...... $ 163.5 199.5 101.5 20.3 .9 49.5 535.2
Production expenses.............................. 24.8 36.3 14.8 8.4 - 28.5 112.8
Depreciation, depletion and amortization......... 20.7 41.9 18.7 3.6 .3 4.2 89.4
Goodwill amortization............................ - 1.6 - - - - 1.6
Exploration expenses
Dry holes....................................... 15.7 23.2 .1 - 7.6 - 46.6
Geological and geophysical...................... 3.7 9.0 .1 - 3.5 - 16.3
Other........................................... 1.4 1.3 .5 - 2.7 - 5.9
- ----------------------------------------------------------------------------------------------------------------
20.8 33.5 .7 - 13.8 - 68.8
Undeveloped lease amortization.................. 4.1 6.7 - - - - 10.8
- ----------------------------------------------------------------------------------------------------------------
Total exploration expenses 24.9 40.2 .7 - 13.8 - 79.6
- ----------------------------------------------------------------------------------------------------------------
Selling and general expenses..................... 6.7 5.1 1.2 .2 3.0 - 16.2
Income tax provisions (benefits)................. 30.7 32.8 24.6 - (.2) 6.5 94.4
- ----------------------------------------------------------------------------------------------------------------
Results of operations (excluding
corporate overhead and interest) $ 55.7 41.6 41.5 8.1 (16.0) 10.3 141.2
================================================================================================================
Six Months Ended June 30, 2000*
Oil and gas sales, other operating revenues...... $ 120.1 122.2 99.3 25.6 1.3 45.6 414.1
Production expenses.............................. 20.5 24.0 13.8 7.2 - 19.1 84.6
Depreciation, depletion and amortization......... 27.2 27.3 20.8 3.6 .1 3.8 82.8
Exploration expenses
Dry holes....................................... 35.0 3.3 - - .3 - 38.6
Geological and geophysical...................... 5.2 6.4 .2 - 7.7 - 19.5
Other........................................... 1.1 .4 .7 - 2.2 - 4.4
- ----------------------------------------------------------------------------------------------------------------
41.3 10.1 .9 - 10.2 - 62.5
Undeveloped lease amortization.................. 3.6 2.6 - - - - 6.2
- ----------------------------------------------------------------------------------------------------------------
Total exploration expenses 44.9 12.7 .9 - 10.2 - 68.7
- ----------------------------------------------------------------------------------------------------------------
Selling and general expenses..................... 6.4 2.2 1.6 .1 1.6 .1 12.0
Income tax provisions............................ 7.3 19.9 23.2 - .2 8.3 58.9
- ----------------------------------------------------------------------------------------------------------------
Results of operations (excluding
corporate overhead and interest) $ 13.8 36.1 39.0 14.7 (10.8) 14.3 107.1
================================================================================================================
*Restated to conform to 2001 presentation.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2000, the U.S. Government and the State of Wisconsin each filed
a lawsuit against Murphy Oil USA, Inc., a wholly-owned subsidiary of
Murphy Oil Corporation, in the U.S. District Court for the Western
District of Wisconsin. The State case was dismissed by the District
Court. The U.S. lawsuit, arising out of a 1998 compliance inspection,
includes claims for alleged violations of federal and state
environmental laws at the Company's Superior, Wisconsin refinery. The
U.S. lawsuit was divided into liability and damage phases, and on
August 1, 2001, the Court ruled against the Company in the liability
phase of the trial. The damage phase of the trial is scheduled to
commence in October 2001. Although the Company is unable to estimate
the range of any potential loss related to this matter, and while no
assurance can be given, the Company does not believe that the ultimate
resolution of this matter will have a material adverse effect on its
financial condition.
In December 2000, two of the Company's Canadian subsidiaries as
plaintiffs filed an action in the Court of Queen's Bench of Alberta
seeking a constructive trust over oil and gas leasehold rights to Crown
lands in British Columbia. The suit alleges that the defendants
acquired the lands after first inappropriately obtaining confidential
and proprietary data belonging to the Company and its joint venturer.
In January 2001, one of the defendants, representing an undivided 75%
interest in the lands in question, settled its portion of the
litigation by conveying its interest to the Company and its joint
venturer at cost. On February 9, 2001, the remaining defendants,
representing the remaining undivided 25% of the lands in question,
filed a counterclaim against the Company's two Canadian subsidiaries
and one officer individually seeking compensatory damages of C$6.14
billion. The Company believes that the counterclaim is without merit
and that the amount of damages sought is frivolous. While the
litigation is in its preliminary stages and no assurance can be given
about the outcome, the Company does not believe that the ultimate
resolution of this suit will have a material adverse effect on its
financial condition.
Murphy and its subsidiaries are engaged in a number of other legal
proceedings, all of which Murphy considers routine and incidental to
its business and none of which is expected to have a material adverse
effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of security holders on May 9, 2001, the directors
proposed by management were elected with a tabulation of votes to the
nearest share as shown below.
For Withheld
---------- --------
B. R. R. Butler 41,034,282 301,264
George S. Dembroski 40,582,388 753,158
Claiborne P. Deming 40,942,105 393,441
H. Rodes Hart 40,959,448 376,098
Robert A. Hermes 41,040,376 295,170
Michael W. Murphy 40,612,519 723,027
R. Madison Murphy 40,787,831 547,715
William C. Nolan Jr. 40,385,758 949,788
William L. Rosoff 40,942,312 393,234
David J. H. Smith 41,042,376 293,170
Caroline G. Theus 40,383,994 951,552
The security holders approved an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of Common
Stock from 80,000,000 to 200,000,000 by a vote of 30,766,031 shares in
favor, 10,539,742 shares against and 29,773 shares not voted (see
exhibit No. 3.1 for amended Certificate of Incorporation). In addition,
the earlier appointment by the Board of Directors of KPMG LLP as
independent auditors for 2001 was approved, with 41,201,767 shares
voted in favor, 120,077 shares voted in opposition and 13,702 shares
not voted.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibit Index on page 18 of this Form 10-Q report lists the
exhibits that are hereby filed or incorporated by reference.
(b) No reports on Form 8-K were filed for the quarter ended June 30,
2001.
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 thereunto duly authorized.
MURPHY OIL CORPORATION
(Registrant)
By /s/ JOHN W. ECKART
-----------------------------------
John W. Eckart, Controller
(Chief Accounting Officer and Duly
Authorized Officer)
August 10, 2001
(Date)
17
EXHIBIT INDEX
Exhibit
No. Incorporated by Reference to
- ------- --------------------------------------------
3.1 Certificate of Incorporation of Murphy Oil Corporation as amended, Exhibit 3.1 filed herewith
effective May 17, 2001
3.2 By-Laws of Murphy Oil Corporation as amended, effective February 7, 2001 Exhibit 3.2 of Murphy's Form 10-K report
for the year ended December 31, 2000
4 Instruments Defining the Rights of Security Holders. Murphy is party to
several long-term debt instruments in addition to the ones in Exhibits 4.1
and 4.2, none of which authorizes securities exceeding 10% of the total
consolidated assets of Murphy and its subsidiaries. Pursuant to Regulation
S-K, item 601(b), paragraph 4(iii)(A), Murphy agrees to furnish a copy of
each such instrument to the Securities and Exchange Commission upon
request.
4.1 Credit Agreement among Murphy Oil Corporation and certain subsidiaries and Exhibit 4.1 of Murphy's Form 10-K report
the Chase Manhattan Bank et al as of November 13, 1997 for the year ended December 31, 1997
4.2 Form of Indenture and Form of Supplemental Indenture between Murphy Oil Exhibits 4.1 and 4.2 of Murphy's Form 8-K
Corporation and SunTrust Bank, Nashville, N.A., as Trustee report filed April 29, 1999 under the
Securities Exchange Act of 1934
4.3 Rights Agreement dated as of December 6, 1989 between Murphy Oil Exhibit 4.3 of Murphy's Form 10-K report
Corporation and Harris Trust Company of New York, as Rights Agent for the year ended December 31, 1999
4.4 Amendment No. 1 dated as of April 6, 1998 to Rights Agreement dated as of Exhibit 3 of Murphy's Form 8-A/A,
December 6, 1989 between Murphy Oil Corporation and Harris Trust Company of Amendment No. 1, filed April 14, 1998
New York, as Rights Agent under the Securities Exchange Act of 1934
4.5 Amendment No. 2 dated as of April 15, 1999 to Rights Agreement dated as of Exhibit 4 of Murphy's Form 8-A/A,
December 6, 1989 between Murphy Oil Corporation and Harris Trust Company of Amendment No. 2, filed April 19, 1999
New York, as Rights Agent under the Securities Exchange Act of 1934
10.1 1992 Stock Incentive Plan as amended May 14, 1997 Exhibit 10.2 of Murphy's Form 10-Q report
for the quarterly period ended June 30,
1997
10.2 Employee Stock Purchase Plan as amended May 10, 2000 Exhibit 99.01 of Murphy's Form S-8
registration statement filed August 4,
2000 under the Securities Act of 1933
Exhibits other than those listed above have been omitted since they are either
not required or not applicable.
18
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MURPHY OIL CORPORATION
(As of May 17, 2001)
CERTIFICATE OF INCORPORATION
OF
MURPHY OIL CORPORATION
AS AMENDED
MURPHY OIL CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: The name of the corporation shall be MURPHY OIL CORPORATION
(hereinafter called the "Company").
SECOND: The registered office of the Company in the State of Delaware is to
be located in the City of Wilmington, County of New Castle. The name of its
registered agent is The Corporation Trust Company, whose address is No. 100 West
Tenth Street, Wilmington, Delaware 19899.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock of all classes which the Company
shall have authority to issue is 200,400,000 shares, of which 400,000 shall be
of the par value of $100 each, designated as "Cumulative Preferred Stock"
(hereinafter in this Article Fourth called "Preferred Stock"), and 200,000,000
shall be of the par value of $1.00 each, designated as "Common Stock".
No stockholder of the Company shall by reason of his holding shares of any
class have any pre-emptive or preferential right to purchase or subscribe to any
shares of any class of the Company, now or hereafter to be authorized, or any
notes, debentures, bonds, or other securities convertible into or carrying
options or warrants to purchase shares of any class, now or hereafter to be
authorized, whether or not the issuance of any such shares, or such notes,
debentures, bonds or other securities, would adversely affect the dividend or
voting rights of such stockholder, other than such rights, if any, as the board
of directors, in its discretion from time to time may grant, and at such prices
as the board of directors in its discretion may fix; and the board of directors
may issue shares of any class of the Company, or any notes, debentures, bonds,
or other securities convertible into or carrying options or warrants to purchase
shares of any class, without offering any such shares of any class, either in
whole or in part, to the existing stockholders of any class.
The following are the terms and provisions of each class of stock which the
Company shall have authority to issue:
SECTION I
Cumulative Preferred Stock
(1) The Preferred Stock may be issued, from time to time, in one or more
series, the shares of each series to have such designations, preferences, and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such series, adopted
by the board of directors as hereinafter provided.
(2) Authority is hereby expressly vested in and granted to the board of
directors of the Company, subject to the provisions of this Article Fourth, to
authorize the issue of one or more series of Preferred Stock and with respect
to each such series to fix, by resolution or resolutions providing for the
issue of such series, the following:
(a) the maximum number of shares to constitute such series and
the distinctive designation thereof;
(b) the annual dividend rate on the shares of such series and
the date or dates from which dividends shall be accumulated as herein
provided;
(c) the premium, if any, over and above the par value thereof
and any accumulated dividends thereon which the holders of such
shares of such series shall be entitled to receive upon the
redemption thereof, which premium may vary at different redemption
dates and may also be different with respect to shares redeemed
through the operation of any purchase, retirement or sinking fund
than with respect to shares otherwise redeemed;
(d) the premium, if any, over and above the par value thereof
and any accumulated dividends thereon which the holders of such
shares of such series shall be entitled to receive upon the voluntary
liquidation, dissolution or winding up of the Company;
(e) whether or not the shares of such series shall be subject
to the operation of a purchase, retirement or sinking fund and, if
so, the extent to and manner in which such purchase, retirement or
sinking fund shall be applied to the purchase or redemption of the
shares of such series for retirement or for other corporate purposes
and the terms and provisions relative to the operation of the said
fund or funds;
(f) whether or not the shares of such series shall be
convertible into or exchangeable for shares of stock of any other
class or classes, or of any other series of the same class, and if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same;
(g) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding, upon the payment of
dividends or making of other distributions, and upon the purchase,
redemption or other acquisition by the Company, or any subsidiary, of
the Preferred Stock, the Common Stock, or any other class or classes
of stock of the Company ranking on a parity with or junior to the
shares of such series either as to dividends or upon liquidation;
(h) the conditions or restrictions, if any, upon the creation
of indebtedness of the Company or of any subsidiary, or upon the
issue of any additional stock (including additional shares of such
series or of any other series or of any other class) ranking on a
parity with or prior to the shares of such series either as to
dividends or upon liquidation; and
(i) any other preferences and relative, participating, optional
or other special rights, or qualifications, limitations or
restrictions thereof, as shall not be inconsistent with this Article
Fourth.
(3) All shares of any one series of Preferred Stock shall be identical
with each other in all respects, except that shares of any one series issued
at different times may differ as to the dates from which dividends thereon
shall be cumulative; and all series shall rank equally and be identical in all
respects, except as permitted by the foregoing provisions of Paragraph (2) of
this Section I of this Article Fourth.
(4) Before any dividends (other than dividends payable in Common Stock)
on any class or classes of stock of the Company ranking junior to the
Preferred Stock as to dividends shall be declared or paid or set apart for
payment, the holders of shares of Preferred Stock of each series shall be
entitled to receive cash dividends, when and as declared by the board of
directors, at the annual rate, and no more, fixed in the resolution or
resolutions adopted by the board of directors providing for the issue of such
series, payable quarterly in each year on such dates as may be fixed in such
resolution or resolutions, to holders of record on such respective dates, not
exceeding 50 days preceding such dividend payment dates, as may be determined
by the board of directors in advance of the payment of each particular
dividend; provided, however, that the resolution or resolutions providing for
the issue of each series of Preferred Stock shall fix the same dates in each
year for the payment of quarterly dividends as are fixed for the payment of
quarterly dividends in the resolution or resolutions providing for the issue
of all other series of Preferred Stock at the time outstanding. With respect
to each series of Preferred Stock such dividends shall be cumulative from the
date or dates fixed in the resolution or resolutions providing for the issue
of such series, which dates shall in no instance be more than 90 days before
or after the date of the issuance of the particular shares of such series then
to be issued. No dividends shall be declared on any series of Preferred Stock
in respect of any quarter-yearly dividend period unless there shall likewise
be or have been declared on all shares of Preferred Stock of each other series
at the time outstanding like dividends ratably in proportion to the respective
annual dividend rates fixed therefor as hereinbefore provided.
(5) In the event of any liquidation, dissolution or winding up of the
Company, before any payment or distribution of the assets of the Company
(whether capital or surplus) shall be made to or set apart for the holders of
any class or classes of stock of the Company ranking junior to the Preferred
Stock upon liquidation, the holders of shares of Preferred Stock shall be
entitled to receive payment at the rate of $100 per share, plus an amount
equal to all dividends (whether or not earned or declared) accumulated to the
date of final distribution to such holders, and, in addition thereto, if such
liquidation, dissolution or winding up be voluntary, the amount of the
premium, if any, payable upon such liquidation, dissolution or winding up as
fixed for the shares of the respective series; but
such holders shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of shares of
Preferred Stock shall be insufficient to pay in full the preferential amount
aforesaid, then such assets, or the proceeds thereof, shall be distributed
among such holders ratably in accordance with the respective amounts which
would be payable on such shares if all amounts payable thereon were paid in
full. For the purpose of this Paragraph (5), the voluntary sale, conveyance,
lease, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Company shall be deemed a voluntary liquidation, dissolution or winding up of
the Company, but a consolidation or merger of the Company with one or more
other corporations (whether or not the Company is the corporation surviving
such consolidation or merger) shall not be deemed to be liquidation,
dissolution or winding up, voluntary or involuntary.
(6) The Company, at the option of the board of directors, may, except as
provided in Paragraph (10) of this Section I of this Article Fourth, redeem at
any time the whole or from time to time any part of the Preferred Stock of any
series at the time outstanding, at the par value thereof, plus in every case
an amount equal to all accumulated dividends with respect to each share so to
be redeemed, and, in addition thereto, the amount of the premium, if any,
payable upon such redemption fixed in the resolution or resolutions providing
for the issue of such series (the total sum so payable on any such redemption
being herein referred to as the "redemption price"). Notice of every such
redemption shall be mailed at least 30 days in advance of the date designated
for such redemption (herein called the "redemption date") to the holders of
record of shares of Preferred Stock so to be redeemed at their respective
addresses as the same shall appear on the books of the Company. In order to
facilitate the redemption of any shares of Preferred Stock that may be chosen
for redemption as provided in this Paragraph (6), the board of directors shall
be authorized to cause the transfer books of the Company to be closed as to
such shares at any time not exceeding 50 days prior to the redemption date. In
case of the redemption of a part only of any series of Preferred Stock at the
time outstanding, the shares of such series so to be redeemed shall be
selected by lot or in such other manner as the board of directors may
determine. The board of directors shall have full power and authority, subject
to the limitations and provisions herein contained, to prescribe the terms and
conditions upon which the Preferred Stock shall be redeemed from time to time.
(7) If said notice of redemption shall have been given as aforesaid and
if, on or before the redemption date, the funds necessary for such redemption
shall have been set aside by the Company, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the shares so
called for redemption; then, from and after the redemption date,
notwithstanding that any certificate for shares of Preferred Stock so called
for redemption shall not have been surrendered for cancellation, the shares
represented thereby shall not be deemed outstanding, the right to receive
dividends thereon shall cease to accrue from and after the redemption date and
all rights of holders of the shares of Preferred Stock so called for
redemption shall forthwith, after the redemption date, cease and terminate,
excepting only the right to receive the redemption price therefor but without
interest. Any moneys so set aside by the Company and
unclaimed at the end of six years from the date fixed for such redemption
shall revert to the general funds of the Company after which reversion the
holders of such shares so called for redemption shall look only to the Company
for payment of the redemption price, and such shares shall still not be deemed
to be outstanding.
(8) If, on or before the redemption date, the Company shall deposit in
trust, with a bank or trust company in the Borough of Manhattan, The City of
New York, having a capital and surplus of at least $5,000,000 the funds
necessary for the redemption of the shares of Preferred Stock so called for
redemption, to be applied to the redemption of such shares, and if on or
before such date the Company shall have given notice of redemption as
aforesaid or made provision satisfactory to such bank or trust company for the
timely giving thereof, then from and after the date of such deposit all shares
of Preferred Stock so called for redemption shall not be deemed to be
outstanding, and all rights of the holders of such shares of Preferred Stock
so called for redemption shall cease and terminate, excepting only the right
to receive the redemption price therefor, but without interest, and the right
to exercise on or before the date fixed for redemption privileges of
conversion or exchange, if any, not theretofore otherwise expiring. Any funds
so deposited, which shall not be required for such redemption because of the
exercise of any such right of conversion or exchange subsequent to the date of
such deposit, shall be returned to the Company. In case the holders of shares
of Preferred Stock which shall have been called for redemption shall not,
within one year after the redemption date, claim the amount deposited with
respect to the redemption thereof, any such bank or trust company shall, upon
demand, pay over to the Company such unclaimed amounts and thereupon such bank
or trust company shall be relieved of all responsibility in respect thereof to
such holder and such holder shall look only to the Company for the payment
thereof. Any interest accrued on funds so deposited shall be paid to the
Company from time to time. Any such unclaimed amounts paid over by any such
bank of trust company to the Company shall, for a period terminating six years
after the date fixed for redemption, be set aside and held by the Company in
the manner and with the same effect as if such unclaimed amounts had been set
aside under the preceding Paragraph (7) of this Section I of this Article
Fourth.
(9) Shares of Preferred Stock which have been retired through the
operation of purchase, retirement or sinking fund, whether by redemption,
purchase or otherwise, shall, upon compliance with any applicable provisions
of the General Corporation Law of the State of Delaware, have the status of
authorized and unissued shares of Preferred Stock, but shall be reissued only
as part of a new series of Preferred Stock to be created by resolution or
resolutions of the board of directors or as part of any other series of
Preferred Stock the terms of which do not prohibit such reissue, and shall not
be reissued as a part of the series of which they were originally a part.
Shares of Preferred Stock which have been redeemed or purchased, otherwise
than through the operation of a purchase, retirement or sinking fund, or
which, if convertible or exchangeable, have been converted into or exchanged
for shares of stock of any other class or classes ranking junior to the
Preferred Stock both as to dividends and upon liquidation, shall, upon
compliance with any applicable provisions of the General Corporation Law of
the State of
Delaware, have the status of authorized and unissued shares of Preferred Stock
and may be reissued as a part of the series of which they were originally a
part (if the terms of such series do not prohibit such reissue) or as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the board of directors or as part of any other series of Preferred Stock the
terms of which do not prohibit such reissue.
(10) If at any time the Company shall have failed to pay dividends in full
on the Preferred Stock, thereafter and until dividends in full, including all
accumulated dividends on the Preferred Stock outstanding, shall have been
declared and set apart for payment or paid, (a) the Company, without the
affirmative vote or consent of the holders of at least 66 2/3% in interest of
the Preferred Stock at the time outstanding, given in person or by proxy,
either in writing or by resolution adopted at a special meeting called for the
purpose, the holders of the Preferred Stock, regardless of series, consenting
or voting (as the case may be) separately as a class, shall not redeem less
than all the Preferred Stock at such time outstanding, and (b) neither the
Company nor any subsidiary shall purchase any Preferred Stock except in
accordance with a purchase offer made in writing or by publication (as
determined by the board of directors) to all holders of Preferred Stock of all
series upon such terms as the board of directors, in their sole discretion
after consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series, shall determine (which
determination shall be final and conclusive) will result in fair and equitable
treatment among the respective series; provided that (i) the Company, to meet
the requirements of any purchase, retirement or sinking fund provisions with
respect to any series, may use shares of such series acquired by it prior to
such failure and then held by it as treasury stock and (ii) nothing shall
prevent the Company from completing the purchase or redemption of shares of
Preferred Stock for which a purchase contract was entered into for any
purchase, retirement or sinking fund purposes, or the notice of redemption of
which was initially published, prior to such default.
(11) So long as any of the Preferred Stock is outstanding, the Company
will not:
(a) Without the affirmative vote or consent of the holders of
at least 66 2/3% of all the Preferred Stock at the time outstanding,
given in person or by proxy, either in writing or by resolution
adopted at a special meeting called for the purpose, the holders of
the Preferred Stock, regardless of series, consenting or voting (as
the case may be) separately as a class (i) create any class or
classes of stock ranking prior to the Preferred Stock, either as
dividends or upon liquidation, or increase the authorized number of
shares of any class or classes of stock ranking prior to the
Preferred Stock either as to dividends or upon liquidation or (ii)
amend, alter or repeal any of the provisions of this Article Fourth
so as adversely to affect the preferences, special rights, or powers
of the Preferred Stock.
(b) Without the affirmative vote or consent of the holders of
at least 66 2/3% of any series of the Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or by
resolution adopted at a special meeting called for the purpose, the
holders of such series of the Preferred Stock consenting or voting
(as the case may be) separately as a class, amend, alter or repeal
any of
the provisions of the resolution or resolutions providing for the
issue of such series so as adversely to affect the preferences,
special rights or powers of the Preferred Stock of such series.
(c) Without the affirmative vote or consent of the holders of
at least a majority of all the Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or by
resolution adopted at a special meeting called for the purpose, the
holders of the Preferred Stock, regardless of series, consenting or
voting (as the case may be) separately as a class (i) increase the
authorized amount of the Preferred Stock, (ii) create any other class
or classes of stock ranking on a parity with the Preferred Stock
either as to dividends or upon liquidation, (iii) merge or
consolidate with any other corporation, other than a wholly owned
subsidiary, or (iv) voluntarily dissolve.
(12) Except as herein or by law expressly provided, the Preferred Stock
shall have no right or power to vote on any question or in any proceeding or
to be represented at or to receive notice of any meeting of stockholders. If,
however, and whenever, at any time or times, dividends payable on the
Preferred Stock shall be in default in an aggregate amount equivalent to not
less than four full quarterly dividends on any series of Preferred Stock at
the time outstanding, the outstanding Preferred Stock shall have the exclusive
right, voting separately as a class, to elect two directors of the Company,
and the remaining directors shall be elected by the other class or classes of
stock entitled to vote therefor. Whenever such right of the holders of the
Preferred Stock shall have vested, such right may be exercised initially
either at a special meeting of such holders of the Preferred Stock called as
provided in Paragraph (13) of this Section I of this Article Fourth, or at any
annual meeting of stockholders held for the purpose of electing directors, and
thereafter at such annual meetings. The right of the holders of the Preferred
Stock, voting separately as a class, to elect members of the board of
directors of the Company as aforesaid shall continue until such time as all
dividends accumulated on the Preferred Stock shall have been paid in full, at
which time the right of the holders of the Preferred Stock to vote and to be
represented at and to receive notice of meetings shall terminate, except as
herein or by law expressly provided, subject to revesting in the event of each
and every subsequent default of the character above mentioned.
(13) At any time when the special voting right shall have vested in the
holders of the Preferred Stock then outstanding as provided in the preceding
Paragraph (12) of this Section I of this Article Fourth, and if such right
shall not already have been initially exercised, a proper officer of the
Company shall, upon the written request of the holders of record of at least
10% in amount of the Preferred Stock then outstanding, regardless of series,
addressed to the secretary of the Company, call a special meeting of the
holders of the Preferred Stock and of any other class or classes of stock
having voting power with respect thereto, for the purpose of electing
directors. Such meeting shall be held at the earliest practicable date upon
the notice required for annual meetings of stockholders at the place for the
holding of annual meetings of stockholders of the Company. If such meeting
shall not be called by the proper officer of the Company within 20 days after
the personal service of such written request upon the secretary of the
Company, or within 20 days after mailing the same within the United States of
America, by registered mail
addressed to the secretary of the Company at its principal office (such
mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of at least 10% in amount of the
Preferred Stock then outstanding, regardless of series, may designate in
writing one of their number to call such meeting at the expense of the
Company, and such meeting may be called by such person so designated upon the
notice required for annual meetings of stockholders and shall be held at the
place for the holding of annual meetings of stockholders of the Company. Any
holder of Preferred Stock so designated shall have access to the stock books
of the Company for the purpose of causing a meeting of stockholders to be
called pursuant to these provisions. Notwithstanding the provisions of this
Paragraph (13), no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next annual
meeting of stockholders.
(14) At any meeting held for the purpose of electing directors at which
the holders of the Preferred Stock shall have the special right, voting
separately as a class, to elect directors as provided in Paragraph (12) of
this Section I of this Article Fourth, the presence, in person or by proxy, of
the holders of 33 1/3% of the Preferred Stock at the time outstanding shall be
required and be sufficient to constitute a quorum of such class for the
election of any director by the holders of the Preferred Stock as a class. At
any such meeting or adjournment thereof, (a) the absence of a quorum of the
Preferred Stock shall not prevent the election of the directors to be elected
by the holders of stock other than the Preferred Stock and the absence of a
quorum of stock other than the Preferred Stock shall not prevent the election
of the directors to be elected by the holders of the Preferred Stock, and (b)
in the absence of such quorum, either of the Preferred Stock or of stock other
than the Preferred Stock, or both, a majority of the holders, present in
person or by proxy, of the class or classes of stock which lack a quorum shall
have power to adjourn the meeting for the election of directors whom they are
entitled to elect, from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
(15) The term of office of all directors in office at any time when voting
power shall, as aforesaid, be vested in the holders of the Preferred Stock
shall terminate upon the election of any new directors at any meeting of
stockholders called for the purpose of electing directors. Upon any
termination of the right of the holders of the Preferred Stock to vote for
directors as herein provided, the term of office of all directors then in
office shall terminate upon the election of new directors at a meeting of the
other class or classes of stock of the Company then entitled to vote for
directors, which meeting may be held at any time after such termination of
voting right in the holders of the Preferred Stock, upon notice as above
provided, and shall be called by the secretary of the Company upon written
request of the holders of record of 10% of the aggregate number of outstanding
shares of such other class or classes of stock then entitled to vote for
directors.
(16) If in any case the amounts payable with respect to any requirements
to retire shares of the Preferred Stock are not paid in full in the case of
all series with respect to which such requirements exist, the number of shares
to be retired in each series shall be in proportion to the respective amounts
which would be payable on account of such requirements if all amounts payable
were met in full.
(17) Whenever, at any time, full cumulative dividends as aforesaid for all
past dividend periods and for the current dividend period shall have been paid
or declared and set apart for payment on the then outstanding Preferred Stock,
and after complying with all the provisions with respect to any purchase,
retirement or sinking fund or funds for any one or more series of Preferred
Stock, the board of directors may, subject to the provisions hereof with
respect to the payment of dividends on any other class or classes of stock,
declare dividends on any such other class or classes of stock ranking junior
to the Preferred Stock as to dividends subject to the respective terms and
provisions, if any, applying thereto, and the Preferred Stock shall not be
entitled to share therein.
Upon any liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the Preferred Stock as provided in
Paragraph (5) of this Section I, of this Article Fourth, but not prior
thereto, any other class or classes of stock ranking junior to the Preferred
Stock upon liquidation shall, subject to the respective terms and provisions,
if any, applying thereto, be entitled to receive any and all assets remaining
to be Paid or distributed, and the Preferred Stock shall not be entitled to
share therein.
(18) For the purposes of this Section I of this Article Fourth or of any
resolution of the board of directors providing for the issue of any series of
Preferred Stock or of any certificate filed with the Secretary of State of
Delaware (unless otherwise provided in any such resolution or certificate):
(a) The amount of dividends "accumulated" on any share of
Preferred Stock of any series as at any quarterly dividend date shall
be deemed to be the amount of any unpaid dividends accumulated
thereon to and including such quarterly dividend date, whether or not
earned or declared, and the amount of dividends "accumulated" on any
share of Preferred Stock of any series as at any date other than a
quarterly dividend date shall be calculated as the amount of any
unpaid dividends accumulated thereon to and including the last
preceding quarterly dividend date, whether or not earned or declared,
plus an amount equivalent to interest on the par value of such shares
at the annual dividend rate fixed for the shares of such series for
the period after such last preceding quarterly dividend date to and
including the date as of which the calculation is made.
(b) Any class or classes of stock of the Company shall be
deemed to rank
(i) prior to the Preferred Stock either as to
dividends or upon liquidation if the holders of such class or
classes shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in preference or priority to the holders
of the Preferred Stock;
(ii) on a parity with the Preferred Stock either as
to dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates, or redemption or liquidation
prices per share thereof be different from those of the
Preferred Stock, if the holders of such class or classes of
stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in proportion to their respective
dividend rates or liquidation prices,
without preference or priority one over the other with respect
to the holders of the Preferred Stock;
(iii) junior to the Preferred Stock either as to
dividends or upon liquidation if the rights of the holders of
such class or classes shall be subject or subordinate to the
rights of the holders of the Preferred Stock in respect of the
receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
(19) So long as any shares of Preferred Stock shall be outstanding, the
Preferred Stock shall be deemed to rank prior to the Common Stock as to
dividends and upon liquidation.
SECTION II
Common Stock
Except as herein or by law expressly provided, each holder of Common Stock
shall have the right, to the exclusion of all other classes of stock, to one
vote for each share of stock standing in the name of such holder on the books
of the Company.
FIFTH: The minimum amount of capital with which the Company will commence
business is $1,000.
SIXTH: The name and place of residence of each of the incorporators is as
follows:
Name Residence
---- ---------
J. A. O'Connor, Jr. 510 East Faulkner Street
El Dorado, Arkansas
Jerry W. Watkins 1007 Brookwood Drive
El Dorado, Arkansas
Wilma B. Meek Calion, Arkansas
SEVENTH: The existence of the Company is to be perpetual.
EIGHTH: The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatsoever.
NINTH: The number of directors of the Company shall be such as from
time to time shall be fixed by, or in the manner provided in, the bylaws, but
shall not be less than three. Election of directors need not be by ballot
unless the bylaws so provide. In furtherance, and not in limitation of the
powers conferred by law, the board of directors is expressly authorized
(a) To make, alter or repeal the bylaws of the Company; to set apart out
of any of the funds of the Company available for dividends a reserve or
reserves for any proper purpose and to abolish any such reserve in the manner
in which it was created; to authorize and
cause to be executed mortgages and liens upon any part of the property of the
Company provided it be less than substantially all; to determine whether any,
and if any, what part, of the annual net profits of the Company or of its net
assets in excess of its capital shall be declared as dividends and paid to the
stockholders, and to direct and determine the use and disposition of any such
annual net profits or net assets in excess of capital.
(b) By resolution passed by a majority of the whole board, to designate
one or more committees, each committee to consist of two or more of the
directors of the Company, which, to the extent provided in the resolution or
in the bylaws of the Company, shall have and may exercise the powers of the
board of directors in the management of the business and affairs of the
Company, and may authorize the seal of the Company to be affixed to all papers
which may require it. Such committee or committees shall have such name or
names as may be stated in the bylaws of the Company or as may be determined
from time to time by resolution adopted by the board of directors.
(c) When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given at a
stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease or exchange all of the property and assets of the
Company, including its good will and its corporate franchises, upon such terms
and conditions and for such consideration, which may be in whole or in part
shares of stock in, and/or other securities of, any other corporation or
corporations, as its board of directors shall deem expedient and for the best
interests of the Company.
(d) To establish bonus, profit sharing, stock option, retirement or other
types of incentive or compensation plans for the employees (including officers
and directors) of the Company and to fix the amount of the annual profits to
be distributed or shared and to determine the persons to participate in any
such plans and the amount of their respective participations.
(e) To determine from time to time whether, and to what extent, and at
what times and places, and under what conditions and regulations, the accounts
and books of the Company (other than the stock ledger) or any of them, shall
be open to the inspection of the stockholders.
TENTH: The stockholders and board of directors shall have power, if the
bylaws so provide, to hold their meetings and to keep the books of the Company
(except such as are required by the law of the State of Delaware to be kept in
Delaware) and documents and papers of the Company outside the State of
Delaware.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
TWELFTH: No contract or other transaction between the Company and any
other corporation and no other act of the Company with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected by the fact that any one or more of the directors of the
Company are pecuniarily or otherwise interested in, or are directors or
officers of, such other corporation. Any director of the Company individually,
or any firm or association of which any director may be a member, may be a
party to, or may be pecuniarily or otherwise interested in, any contract or
transaction of the Company, provided that the fact that he individually or as
a member of such firm or association is such a party or so interested and the
extent of such interest shall be disclosed or shall have been known to a
majority of the whole board of directors present at any meeting of the board
of directors at which action upon such contract or transaction shall be taken;
and any director of the Company who is also a director or officer of such
other corporation or who is such a party or so interested may be counted in
determining the existence of a quorum at any meeting of the board of directors
which shall authorize any such contract or transaction, and may vote thereat
to authorize any such contract or transaction, with like force and effect as
if he were not such director or officer of such other corporation or not so
interested. Any director of the Company may vote upon any contract or other
transaction between the Company and any subsidiary or affiliated corporation
without regard to the fact that he is also a director of such subsidiary or
affiliated corporation.
THIRTEENTH: Each officer, director, or member of any committee designated
by the board of directors shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or reports made
to the Company by any of its officials or by an independent certified public
accountant or by an appraiser selected with reasonable care by the board of
directors or by any such committee or in relying in good faith upon other
records of the Company.
FOURTEENTH: A director of the Company shall not be personally liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, as the same exists or hereafter may
be amended, or (iv) for any transaction from which the director derived an
improper personal benefit. This Article shall not eliminate or limit the
liability of a director for any act or omission occurring prior to the
effective date of the Amendment adding this Article to the Certificate of
Incorporation. Any repeal or modification of this Article by the stockholders
of the Company shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Company existing at
the time of such repeal or modification.
FIFTEENTH: The Company hereby reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
