FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
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 1-3939
KERR-McGEE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
A Delaware Corporation 73-0311467
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Kerr-McGee Center, Oklahoma City, Oklahoma 73125
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (405) 270-1313
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of common stock, $1.00 par value, outstanding as of October 31,
1996: 48,510,425
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars, except per-share amounts) 1996 1995 1996 1995
------------------------ ---------------------------
<S> <C> <C> <C> <C>
Sales $ 487.6 $ 444.1 $ 1,412.6 $ 1,338.3
------- -------- --------- ----------
Costs and Expenses
Costs and operating expenses 261.0 252.2 773.0 739.6
Selling, general, and administrative expenses 39.6 19.7 116.2 58.8
Depreciation and depletion 81.2 81.6 214.9 236.2
Asset impairment - 227.4 - 227.4
Exploration, including dry holes and
amortization of undeveloped leases 17.9 31.0 70.0 74.8
Provision for environmental reclamation
and remediation of inactive sites,
net of reimbursements 11.4 27.5 25.6 42.1
Taxes, other than income taxes 17.1 16.0 51.4 49.2
Interest and debt expense 13.6 13.5 38.5 48.4
------- -------- --------- ----------
Total Costs and Expenses 441.8 668.9 1,289.6 1,476.5
------- -------- --------- ----------
45.8 (224.8) 123.0 (138.2)
Other Income 44.6 3.8 110.3 18.3
------- -------- --------- ----------
Income (Loss) from Continuing Operations
before Income Taxes 90.4 (221.0) 233.3 (119.9)
Provision (Benefit) for Income Taxes 28.1 (88.1) 72.4 (59.0)
------- -------- --------- ----------
Income (Loss) from Continuing Operations 62.3 (132.9) 160.9 (60.9)
Income (Loss) from Discontinued Operations (net of benefit
for income taxes of $5.9 and NIL for the three and nine
months ended September 30, 1995, respectively) - (10.2) - .2
------- -------- --------- ----------
Net Income (Loss) $ 62.3 $ (143.1) $ 160.9 $ (60.7)
======= ======== ========= ==========
Net Income (Loss) per Common Share
Continuing operations $ 1.27 $ (2.56) $ 3.22 $ (1.17)
Discontinued operations - (.20) - -
------- -------- --------- ----------
Total $ 1.27 $ (2.76) $ 3.22 $ (1.17)
======= ======== ========= ==========
Cash Dividends Declared per Common Share $ .41 $ .38 $ 1.23 $ 1.14
Average Number of Shares Outstanding
(thousands) 48,901 51,858 49,751 51,783
The accompanying notes are an integral part of this statement.
The 1995 amounts have been restated to conform with the current-year
presentation.
</TABLE>
<PAGE>
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
September 30, December 31,
(Millions of dollars) 1996 1995
----------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 159.9 $ 87.3
Notes and accounts receivable 360.5 333.4
Inventories 216.5 221.0
Deposits and prepaid expenses 90.2 121.9
--------- ---------
Total Current Assets 827.1 763.6
--------- ---------
Property, Plant, and Equipment 5,549.3 5,767.4
Less reserves for depreciation,
depletion, and amortization 3,372.3 3,557.0
--------- ---------
2,177.0 2,210.4
--------- ---------
Investments and Other Assets 182.9 239.0
--------- ---------
$ 3,187.0 $ 3,213.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 124.8 $ 94.0
Accounts payable 245.6 296.6
Current portion of long-term debt - 7.5
Other current liabilities 199.4 176.2
--------- ---------
Total Current Liabilities 569.8 574.3
--------- ---------
Long-Term Debt 625.4 632.2
--------- ---------
Deferred Credits and Reserves 640.6 591.1
--------- ---------
Stockholders' Equity
Common stock, par value $1 - 150,000,000
shares authorized, 53,727,107 shares issued at
9-30-96 and 53,513,888 at 12-31-95 53.7 53.5
Capital in excess of par value 327.8 318.2
Preferred stock purchase rights .5 .5
Retained earnings 1,308.6 1,209.0
Unrealized gain on available-for-sale securities 10.0 25.9
Common shares in treasury, at cost - 5,105,115
shares at 9-30-96 and 2,444,690 at 12-31-95 (273.9) (110.5)
Deferred compensation (75.5) (81.2)
--------- ---------
Total Stockholders' Equity 1,351.2 1,415.4
--------- ---------
$ 3,187.0 $ 3,213.0
========= =========
The "successful efforts" method of accounting for oil and gas exploration and
production activities has been followed in preparing this balance sheet.
The accompanying notes are an integral part of this statement.
The 1995 amounts have been restated to conform with the current-year
presentation.
</TABLE>
<PAGE>
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
(Millions of dollar) 1996 1995
--------------------------
<S> <C> <C>
Operating Activities
Net income (Loss) $ 160.9 $ (60.7)
Adjustments to reconcile to net cash
provided by operating activities -
Depreciation, depletion, and amortization 222.0 264.2
Deferred income taxes 37.1 (66.0)
Realized gain on available-for-sale securities (22.9) -
Asset impairment - 227.4
Gain on sale of refining and marketing operations - (1.7)
Provision for reclamation and remediation
of inactive sites 34.8 53.6
Noncash items affecting net income (7.7) 25.6
Current tax effect on adjustments 15.5 -
Other net cash provided by (used in) operating activities 43.1 (134.6)
------- --------
Net Cash Provided by Operating Activities 482.8 307.8
------- --------
Investing Activities
Capital expenditures (298.2) (368.9)
Proceeds from the sales of available-for-sale securities 28.5 -
Proceeds from sales of exploration and production assets 26.5 -
Proceeds from sales of refining and marketing assets 12.7 386.1
Decrease in investments 8.4 52.9
Other investing activities 9.1 2.2
------- --------
Net Cash Provided by (Used in) Investing Activities (213.0) 72.3
------- --------
Financing Activities
Increase (decrease) in short-term borrowings 30.8 (219.9)
Issuance of long-term debt 24.2 -
Purchase of treasury stock (163.5) -
Dividends paid (62.7) (59.0)
Repayment of debt (35.8) (90.4)
Other financing activities 9.8 7.9
------- --------
Net Cash Used in Financing Activities (197.2) (361.4)
------- --------
Net Increase in Cash and Cash Equivalents 72.6 18.7
Cash and Cash Equivalents at Beginning of Period 87.3 80.8
------- --------
Cash and Cash Equivalents at End of Period $ 159.9 $ 99.5
======= ========
The accompanying notes are an integral part of this statement.
The 1995 amounts have been restated to conform with the current-year
presentation.
</TABLE>
<PAGE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
A. The condensed financial statements included herein have been prepared by
the company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the resulting operations for the indicated
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Although the company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the company's latest
annual report on Form 10-K.
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," was effective January 1, 1996. This statement prescribes an
alternate method of accounting for stock-based compensation awards under
which the fair value of stock-based compensation awards is recognized as
expense over the vesting period of the award. The company has elected not
to apply this optional accounting treatment.
B. After adding the dilutive effect of the conversion of options to the
weighted average number of shares outstanding, the shares used to compute
net income per common share were 49,128,607 and 52,089,204 for the three
months ended September 30, 1996 and 1995, respectively, and 50,003,527 and
51,947,026 for the nine months ended September 30, 1996 and 1995,
respectively.
C. Net cash provided by operating activities reflects cash payments for income
taxes and interest as follows:
Nine Months Ended
September 30,
(Millions of dollars) 1996 1995
----------------------
Income taxes $22.9 $47.3
Interest 42.2 51.3
D. The company held U.S. government obligations and equity securities
considered to be available for sale at September 30, 1996, and December 31,
1995. These financial instruments are carried in the Consolidated Balance
Sheet at fair value, based on quoted market prices. The company held no
securities classified as held to maturity or trading during the periods
presented. At September 30, 1996, and December 31, 1995, these financial
instruments were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
--------------------------------- ---------------------------------
Fair Gross Unrealized Fair Gross Unrealized
(Millions of dollars) Value Cost Holding Gains Value Cost Holding Gains
----- ------ ----------------- ----- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Equity Securities $19.3 $ 3.2 $16.1 $53.4 $11.6 $41.8
U.S. Government Obligations
Maturing within one year 30.9 30.9 - 9.6 9.6 -
Maturing between one
and four years - - - 17.2 17.1 .1
----- ----- ----- ----- ----- -----
Total $50.2 $34.1 $16.1 $80.2 $38.3 $41.9
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
During 1996, the company sold equity securities considered to be available
for sale. Proceeds from the sale for the first nine months of 1996 totaled
$28.3 million, resulting in a realized gain of $22.9 million before income
taxes. The average cost of the securities was used in computing the
realized gain. During 1996, the company donated 350,000 shares of its
investment in equity securities to the Kerr-McGee Foundation Corporation, a
tax-exempt entity whose purpose is to contribute to not-for-profit
organizations. The fair value of these donated shares totaled $16.4
million, which includes appreciation of $13.4 million before income taxes.
Equity securities are carried in the Consolidated Balance Sheet as
Investments and Other Assets. U.S. government obligations are carried as
Current Assets or Investments and Other Assets, depending upon their
maturity. The change in the equity component for unrealized holding gains
and losses, net of income taxes, for the first nine months of 1996 and 1995
was as follows:
Nine Months Ended
September 30,
(Millions of dollars) 1996 1995
-------------------------------
Balance, January 1 $ 25.9 $ 11.5
Net realized gains (5.6) -
Net unrealized holding gains 4.0 2.3
------- -------
Balance, March 31 24.3 13.8
Net realized gains (4.8) -
Net appreciation of donated securities (.7) -
Net unrealized holding gains 1.2 3.2
------- -------
Balance, June 30 20.0 17.0
Net realized gains (3.8) -
Net appreciation of donated securities (7.6) -
Net unrealized holding gains 1.4 5.1
------- -------
Balance, September 30 $ 10.0 $ 22.1
======= =======
E. The company uses futures and options contracts to hedge the effect of the
price volatility of crude oil and natural gas. Net pre-tax hedging losses
on crude oil and natural gas recognized for the first nine months and third
quarter of 1996 were $30.2 million and $8.2 million, respectively. The
effect of the losses was to reduce the company's average gross margin for
crude oil by $.94 per barrel for the first nine months of 1996 and $.77 per
barrel for the third quarter. The negative impact on the company's average
gross margin for domestic gas was $.22 and $.13 per MCF for the nine months
and the third quarter of 1996, respectively.
F. The company adopted the provisions of the Statement of Financial Accounting
Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," during the third 1995
quarter. In conjunction with the adoption of this statement, the company
now evaluates impairment of its proved oil and gas assets on a
field-by-field basis rather than the previously used area-of-interest
basis. Chemical, coal, and other assets are evaluated on an individual
asset basis or logical groupings of assets.
As a result of this change in accounting principle in the 1995 third
quarter, certain oil and gas fields in the United States and Canada and
certain coal and other assets were deemed to be impaired because the assets
were not expected to recover their entire carrying value through future
cash flows. The write-down totaling $123.6 million and included in the
income statement caption "Asset Impairment," was determined as the
difference between the carrying value and the estimated fair value. The
fair value for these impaired assets was generally determined based on the
estimated present value of future cash flows. The asset impairment by
business segment was $99.6 million for exploration and production, $22.9
million for coal, and $1.1 million for other.
During the 1995 third quarter, the company's exploration and production
operating unit announced a divestiture and restructuring program. Included
in this program were a number of crude oil and natural gas properties that
were considered nonstrategic. The majority of these properties were located
onshore in the United States; however, certain of these properties were
located in the Gulf of Mexico, Canada, and the North Sea. At the time the
properties were determined to be nonstrategic, they comprised approximately
10% of the company's oil and gas reserves and accounted for 10% of the oil
and gas production volumes and 5% of the company's annual cash flow. The
carrying value of these assets totaled $172.2 million prior to the
write-down discussed below.
As a result of the divestiture program, which is expected to be
essentially complete by year-end 1996, these nonstrategic oil and gas
properties were written down to their estimated fair value less the cost to
sell if the carrying value of the property exceeded such fair value net of
the estimated cost of selling the property. The write-down on the
properties totaled $103.8 million and has been included in the income
statement as part of the expense caption "Asset Impairment."
In connection with the divestiture program, the exploration and production
operating unit implemented a restructuring program to reorganize its
administrative and operating functions. In 1995, the company accrued a
total of $6.2 million for future compensation, outplacement, and the cost
of special termination benefits for retiring employees.
In 1996, the company announced the relocation of its exploration and
production operating unit to Houston, Texas. During the third quarter of
1996, $10 million was accrued for the costs associated with this relocation
and restructuring. In addition, the company accrued $4 million for the
anticipated shutdown of a railroad crosstie facility operated by the
chemical business segment.
G. CONTINGENCIES
WEST CHICAGO -
In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation
(KMCC), closed an operation in West Chicago, Illinois, that processed
thorium ores. Operations resulted in some low-level radioactive
contamination at the site. In 1979, KMCC filed a plan with the Nuclear
Regulatory Commission to decommission the facility. The State of Illinois
(the State) now has jurisdiction over the site and requires offsite
disposal of contaminated material. The following discusses the current
status of various matters associated with this closed facility.
Decommissioning - In 1994, KMCC, the City of West Chicago, and the State
executed a Settlement Agreement (the Agreement) regarding the
decommissioning of the closed West Chicago facility. Pursuant to the
Agreement, KMCC built or leased appropriate support facilities and began
shipping material from the site to a licensed permanent disposal facility
in Utah during 1994. Although shipments continue, the State has not yet
issued a license amendment that would permit KMCC to complete the
decommissioning work.
Under the Illinois Uranium and Thorium Mill Tailings Control Act (the
Act), KMCC is obligated to pay an annual storage fee of $2 per cubic foot
of byproduct material located at the former facility. Under the Agreement,
the amount of the storage fee paid each year shall not exceed $26 million,
and all amounts paid pursuant to the Act are to be reimbursed to KMCC as
decommissioning expenditures are incurred. As of October 1996, KMCC has
received reimbursement for all amounts paid under the Act to the State and
will continue to seek reimbursement for future amounts paid under the Act
as decommissioning costs are incurred.
The aggregate cost to decommission the former facility is difficult to
estimate because of the many contingencies, including the terms of the
license amendment required to complete the decommissioning process.
Decommissioning costs to KMCC will be reduced by any amounts recovered
pursuant to Title X of the Energy Policy Act of 1992, which was recently
amended to increase the amount authorized to $65 million plus inflation
adjustments. A total of $28 million has been received through the third
quarter of 1996. At September 30, 1996, the remaining reserves provided
for the cost to decommission the site under the plan proposed by KMCC were
$161 million (before any further recovery under the Energy Policy Act of
1992), payable over the time necessary to relocate the materials, which
was estimated at year-end 1995 to take a minimum of four years and is
dependent on receiving the necessary licensing amendment.
Offsite Areas - The U.S. Environmental Protection Agency (EPA) has listed
four areas in the vicinity of the West Chicago facility on the National
Priority List that the EPA promulgates under authority of the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980 and has designated KMCC as a potentially responsible party in these
four areas. The EPA issued unilateral administrative orders for two of
these areas (referred to as the residential area and Reed-Keppler Park),
which require KMCC to conduct removal actions to excavate contaminated
soils and to ship the soils elsewhere for disposal. At September 30, 1996,
the remaining estimated cost to clean up the residential area and
Reed-Keppler Park was $12 million and $11 million, respectively. Without
waiving any of its rights or defenses, KMCC began the cleanup of the
residential area site in May 1995 and expects to begin the cleanup of the
Reed-Keppler Park site later this year.
Judicial Proceedings - Reference is made to the Financial Condition
section of Management's Discussion and Analysis for a discussion of the
settlement of the personal injury lawsuits at West Chicago.
OTHER -
In October 1996, the company agreed to merge its North American onshore
oil and gas exploration and production operations into Devon Energy
Corporation (Devon) in exchange for 9,954,000 shares of newly issued
common stock, or 31% of Devon's total common shares outstanding. The
company has named three additional directors to be appointed to Devon's
current six-member board as of the effective date of the transaction.
Kerr-McGee's representation on Devon's board of directors will be
maintained in proportion to the ownership interest in Devon common stock.
Kerr-McGee will account for the transaction as a nonmonetary exchange of
similar productive assets in accordance with APB No. 29, "Accounting for
Nonmonetary Transactions." Therefore, no gain or loss will be recognized.
The company's interest in Devon will be accounted for by the equity method
under APB No. 18, "The Equity Method of Accounting for Investments in
Common Stock." The merger has been approved by the boards of directors of
both companies. The transaction, which is expected to close and become
effective on December 31, 1996, is subject to approval by the majority of
the holders of Devon common stock at a special stockholders' meeting on
December 6, 1996.
Reference is made to the Financial Condition section of Management's
Discussion and Analysis for a discussion of the company's settlement with
certain of its insurance carriers of the pending claims for environmental
coverage.
SUMMARY -
The plants and facilities of the company and its subsidiaries are subject
to various environmental laws and regulations. The company or its
subsidiaries have been notified that they may be responsible in varying
degrees for a portion of the costs to clean up certain waste disposal
sites and former plant sites. At September 30, 1996, the remaining
reserves provided for the cost to investigate and/or remediate all
presently identified sites of former or current operations, including $184
million for the former facility and offsite areas in West Chicago, were
$299 million. Expenditures from inception through September 30, 1996,
totaled $319 million.
In addition to the environmental issues previously discussed, the company
or its subsidiaries are also a party to a number of other legal
proceedings pending in various courts or agencies in which the company or
a subsidiary appears as plaintiff or defendant. Because of continually
changing laws and regulations, the nature of the company's businesses, and
pending legal proceedings, it is not possible to reliably estimate the
amount or timing of all future expenditures relating to environmental and
other contingencies. The company provides for costs related to
contingencies when a loss is probable and the amount is reasonably
estimable. Although management believes, after consultation with general
counsel, that adequate reserves have been provided for all known
contingencies, the ultimate cost will depend on the outcomes of the
above-noted uncertainties. Therefore, it is possible that additional
reserves could be required in the future that could have a material effect
on results of operations in a particular quarter or annual period.
However, the ultimate resolution of these commitments and contingencies,
to the extent not previously provided for, should not have a material
adverse effect on the company's financial position.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Comparison of 1996 Results with 1995 Results
CONSOLIDATED OPERATIONS
Third-quarter 1996 net income totaled $62.3 million, compared with a 1995
third-quarter net loss of $143.1 million. Excluding unusual items, income from
continuing operations was $57.7 million in the 1996 third quarter, compared with
$28.1 million in the same 1995 period. For the first nine months of 1996, net
income was $160.9 million, compared with a net loss of $60.7 million in the same
1995 period. Excluding unusual items and discontinued operations, income from
continuing operations for the first nine months of 1996 totaled $152 million,
compared with $100.1 million in 1995.
Unusual items were of both an operating and nonoperating nature. Unusual items
affecting operating profit for both the 1996 third-quarter and nine-month
periods were $10 million for the relocation of the exploration and production
unit to Houston and $4 million for the anticipated shutdown of a railroad
crosstie treatment facility. The unusual items affecting operating profit in the
third quarter and the first nine months of 1995 included $227.4 million for
asset impairment related to the adoption of FAS No. 121 and divestiture of
certain oil and natural gas properties and $6.2 million for restructuring costs
resulting from the divestiture program. See Note F to the Consolidated Financial
Statements for a discussion of the items above. Unusual items benefiting
nonoperating income in the 1996 third quarter were insurance settlements of
$26.5 million and gains on sales of equity securities of $6 million, partially
offset by environmental provisions (net of reimbursements) totaling $11.4
million. Unusual items benefiting nonoperating expense the first nine months of
1996 included insurance settlements of $65.3 million and gains on sales of
equity securities of $22.9 million, partially offset by provisions for settled
and pending litigation of $28.9 million, environmental provisions (net of
reimbursements) totaling $25.8 million, and other provisions of $5.8 million.
The unusual items affecting nonoperating expense in the third quarter and the
first nine months of 1995 totaling $26.5 million related primarily to
environmental provisions.
Operating profit in the 1996 third quarter was $89 million, compared with an
operating loss of $173.8 million in the same 1995 quarter. After adjusting the
third quarters of both years for unusual items, operating profit in the 1996
period was $103 million, up from $59.8 million in 1995. The improved results for
the quarter were due to higher crude oil and natural gas sales prices and
volumes, lower exploration expense, lower per-unit coal production costs, and
higher pigment sales volumes. Partially offsetting were lower pigment and coal
sales prices and higher feedstock and energy costs for the chemical pigment
operations.
Operating profit the first nine months of 1996 was $257 million, compared with
an operating loss of $16.6 million for the same 1995 period. Excluding unusual
items, operating profit for the first nine months of 1996 was $271 million,
compared with $217 million for the same 1995 period. The improved results were
due to higher crude oil and natural gas sales prices, lower exploration and
production operating expense, lower depreciation and depletion, lower per-unit
coal production costs and higher coal sales volumes, partially offset by lower
crude oil and natural gas sales volumes, higher feedstock and energy costs for
chemical pigment operations, lower pigment sales prices and volumes, and lower
coal sales prices.
Third-quarter 1996 nonoperating income was $1.4 million, compared with expense
of $47.2 million for the 1995 quarter. For the first nine months of 1996,
nonoperating expense was $23.7 million, compared with $103.3 million in 1995.
Excluding the unusual items discussed above, third-quarter 1996 nonoperating
expense was $19.7 million, compared with $20.6 million in the same 1995 period.
Nonoperating expense excluding unusual items for the first nine months of 1996
was $51.4 million, down from $76.7 million in 1995, due primarily to lower
environmental provisions and higher gains on sales of assets. Included in
nonoperating expense is net interest expense.
The provision for income taxes was $28.1 million and $72.4 million for the third
quarter and first nine months of 1996, respectively, compared with income tax
benefits of $88.1 million and $59 million for the respective 1995 periods. The
1995 amounts include tax benefits resulting from the asset impairment.
SEGMENT OPERATIONS
Following is a summary of sales and operating profit and a discussion of major
factors influencing the results of each of the company's business segments for
the third quarter and first nine months of 1996, compared with the same periods
last year.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 1996 1995(1) 1996 1995(1)
----------------------- ----------------------
<S> <C> <C> <C> <C>
Sales
Exploration and production(2) $ 217.0 $ 176.4 $ 612.4 $ 518.3
Chemicals 171.7 169.0 520.1 546.5
Coal 98.8 96.1 279.8 270.7
Other .1 2.6 .3 2.8
------- --------- --------- ---------
Total Sales $ 487.6 $ 444.1 $ 1,412.6 $ 1,338.3
======= ========= ========= =========
Operating Profit (Loss)
Exploration and production $ 50.9 $ (199.3) $ 121.6 $ (140.0)
Chemicals 15.5 29.1 72.2 94.1
Coal 21.9 (3.1) 58.1 29.9
Other .7 (.5) 5.1 (.6)
------- --------- --------- ---------
Total Operating Profit (Loss) 89.0 (173.8) 257.0 (16.6)
Nonoperating Income (Expense) 1.4 (47.2) (23.7) (103.3)
------- --------- --------- ---------
Income (Loss) from Continuing Operations
before Income Taxes 90.4 (221.0) 233.3 (119.9)
Provision (Benefit) for Income Taxes 28.1 (88.1) 72.4 (59.0)
------- --------- --------- ---------
Income (Loss) from Continuing Operations 62.3 (132.9) 160.9 (60.9)
Discontinued Operations, Net of Tax - (10.2) - .2
------- --------- --------- ---------
Net Income (Loss) $ 62.3 $ (143.1) $ 160.9 $ (60.7)
======= ========= ========= =========
(1)The 1995 amounts have been restated to conform with the current-year
presentation.
(2)Includes sales of primarily crude oil to discontinued operations in the
amounts of $25.8 and $112.1 million for the three and nine months ended
September 30, 1995, respectively.
</TABLE>
<PAGE>
Exploration and Production -
Exploration and production had an operating profit of $50.9 million for the
third quarter 1996, compared with an operating loss of $199.3 million for the
same 1995 quarter. For the first nine months of 1996, operating profit totaled
$121.6 million, compared with an operating loss of $140 million last year.
Operating profit was adversely affected by unusual items of $10 million for
relocation costs in the 1996 periods and $209.6 million for the adoption of FAS
No. 121 and the write-downs and restructuring costs associated with the
divestiture of certain oil and natural gas properties in the 1995 periods (see
Note F). In addition to the impact of the unusual charges, 1996 third-quarter
operating profit improved over the same 1995 period due to higher crude oil and
natural gas sales prices, lower exploration expense and higher crude oil and
natural gas sales volumes. Operating profit for the first nine months of 1996
increased due to higher crude oil and natural gas sales prices, lower
depreciation and depletion, and lower operating expense, partially offset by
lower crude oil and natural gas sales volumes.
Revenues were $217 million and $176.4 million for the three months ended
September 30, 1996 and 1995, respectively, and $612.4 million and $518.3 million
for the first nine months of 1996 and 1995, respectively. The following table
shows the company's average crude oil and natural gas sales prices and volumes
for both the third quarter and first nine months of 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended Percent
September 30, Increase
1996 1995 (Decrease)
--------------------------------------------
<S> <C> <C> <C>
Crude oil sales (thousands of bbls/day)
United States 34.4 28.5 21
Canada 3.0 4.7 (36)
North Sea 28.7 36.9 (22)
China 4.9 - NM
------- --------
Total 71.0 70.1 1
======= ========
Average crude oil sales price (per barrel)
United States $ 19.82 $ 15.46 28
Canada 17.99 16.08 12
North Sea 19.14 15.89 20
China 18.58 - NM
Average $ 19.38 $ 15.73 23
Natural gas sold (MMCF/day)
United States 258 222 16
Canada 24 44 (45)
North Sea 17 17 -
------- --------
Total 299 283 6
======= ========
Average natural gas sales price (per MCF)
United States $ 1.90 $ 1.49 28
Canada 1.07 .77 39
North Sea 2.60 2.50 4
Average $ 1.87 $ 1.44 30
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Percent
September 30, Increase
1996 1995 (Decrease)
--------------------------------------------
<S> <C> <C> <C>
Crude oil sales (thousands of bbls/day)
United States 29.6 29.2 1
Canada 3.6 4.6 (22)
North Sea 30.5 37.3 (18)
China 3.2 - NM
------- --------
Total 66.9 71.1 (6)
======= ========
Average crude oil sales price (per barrel)
United States $ 18.43 $ 15.76 17
Canada 17.10 15.77 8
North Sea 18.15 16.42 11
China 18.53 - NM
Average $ 18.24 $ 16.10 13
Natural gas sold (MMCF/day)
United States 215 230 (7)
Canada 30 47 (36)
North Sea 26 18 44
------- --------
Total 271 295 (8)
======= ========
Average natural gas sales price (per MCF)
United States $ 1.90 $ 1.48 28
Canada 1.07 .84 27
North Sea 2.45 2.67 (8)
Average $ 1.86 $ 1.45 28
</TABLE>
<PAGE>
Chemicals -
Third-quarter 1996 operating profit totaled $15.5 million on revenues of $171.7
million, compared with operating profit of $29.1 million on revenues of $169
million for the 1995 quarter. For the first nine months of 1996 and 1995,
operating profit was $72.2 million and $94.1 million, on revenues of $520.1
million and $546.5 million, respectively. Revenues for the 1996 third quarter
did not change significantly from the same period last year. Revenues for the
first nine months of 1996 decreased due to lower pigment sales prices and
volumes. Operating profit for both 1996 periods decreased due primarily to
higher feedstock and energy costs for pigment operations and the unusual charge
for the anticipated shutdown of a crosstie-treatment facility. For the first
nine months of 1996, operating profit also declined due to lower revenues.
Coal -
Third-quarter 1996 operating profit was $21.9 million, compared with an
operating loss of $3.1 million for the same 1995 quarter. For the first nine
months of 1996, operating profit was $58.1 million, compared with an operating
profit of $29.9 million last year. The 1995 amounts include a $22.9 million
charge for the adoption of FAS No. 121 (see Note F). Revenues were $98.8 million
and $96.1 million for the third quarter of 1996 and 1995, respectively, and
$279.8 million and $270.7 million for the first nine months of 1996 and 1995,
respectively. Revenues for the first nine months of 1996 increased due to higher
sales volumes, partially offset by lower sales prices. Operating profit in both
1996 periods increased due to lower per-unit production costs and the 1995
unusual charge. For the first nine months of 1996, operating profit also
increased due to higher revenues.
Financial Condition
At September 30, 1996, the company's net working capital position was $257.3
million, compared with $189.3 million at December 31, 1995. The current ratio
was 1.5 to 1 at September 30, 1996, compared with 1.3 to 1 at both December 31,
1995, and September 30, 1995. The company's percentage of total debt to total
capitalization was 36% at September 30, 1996, compared with 35% and 32% at
December 31, 1995 and September 30, 1995, respectively. For the first nine
months of 1996, net cash provided by operating activities was $482.8 million,
compared with $307.8 million for the same 1995 period.
The company had unused lines of credit and revolving credit facilities of $651
million at September 30, 1996. Of this amount, $300 million and $230 million can
be used to support commercial paper borrowings of Kerr-McGee Credit Corporation
and Kerr-McGee Oil (U.K.) PLC, respectively.
The company's wholly owned subsidiary, Kerr-McGee Canada Ltd., has amended the
revolving credit agreements with three banks that previously provided for lines
of credit of $25 million available under each agreement, or a total of $75
million. Two of the agreements were amended during September to reduce the
committed limit of credit to $20 million and $15 million available under each
agreement, or a total of $60 million available under the three agreements at
September 30, 1996. The third agreement was amended during October to reduce its
committed line of credit to $20 million, or a total of $55 million available
under the three agreements.
Amount Outstanding
Date of Agreement Termination Date (millions of dollars)
September 20, 1993 September 17, 1997 $7.5
October 4, 1993 September 25, 1997 4.5
October 20, 1993 October 16, 1997 5.0
Cash capital expenditures for the first nine months of 1996 totaled $298.2
million, compared with $368.9 million for the same 1995 period. Exploration and
production expenditures, principally in the Gulf of Mexico, North Sea, and
offshore China, were 67% of the 1996 amount. Chemicals expenditures were 25% of
the total. Management anticipates that the cash requirements for the next
several years can be provided through internally generated funds and selective
long- and/or short-term borrowings.
During the third quarter 1996, the company purchased 930,000 shares of its stock
at a cost of $55.6 million. Since initiation of the stock repurchase program in
October 1995 through September 30, 1996, 3.5 million shares were purchased at a
cost of $211.4 million.
The properties to be merged with Devon (see Note G) represent 18% of the
company's beginning 1996 oil and gas reserves, 22% of current oil and gas
production volumes, and less than 10% of the company's annual cash flow from
operations. The company will report its proportionate share of Devon's net
income as nonoperating income and receive cash dividends on the Devon stock,
currently $.12 per share (annually). The current market value of the Devon
common stock to be received by the company is approximately $350 million.
In July 1996, KMCC settled all of the pending personal injury lawsuits related
to the closed facility in West Chicago, Illinois, for $21 million. The
settlement was accrued in the second quarter of 1996. The plaintiffs had sought
compensation for illnesses allegedly caused by exposure to thorium wastes from
the closed facility. The settlements require a cash payment to each individual
plaintiff, of which the majority has been paid during the third quarter.
The company has been litigating claims for environmental coverage against a
number of its insurance carriers. During the 1996 second and third quarters, the
company entered into settlement agreements with certain carriers that totaled
$65.3 million, of which $43.7 million was received in the 1996 third quarter.
Litigation is still pending and negotiations will continue with other insurance
carriers.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The company continues its efforts to obtain the necessary approvals to
decommission a facility located in West Chicago, Illinois, which processed
thorium ores and was closed in 1973. Currently, the State of Illinois has
jurisdiction of this site, and the company has agreed to offsite disposal
of the waste material.
For a discussion of contingencies, including a detailed discussion of the
West Chicago matter, reference is made to Part 1, Item 3, of the company's
Form 10-K for the year ended December 31, 1995. For the report on the
current status of these matters, reference is made to Note G to the
Consolidated Financial Statements of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KERR-McGEE CORPORATION
Date November 14, 1996 By: (Deborah A. Kitchens)
---------------------
Deborah A. Kitchens
Vice President and Controller
and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1996, and the Consolidated Statement
of Income for the period ending September 30, 1996, and is qualified in its
entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 159900
<SECURITIES> 0
<RECEIVABLES> 360500
<ALLOWANCES> 0
<INVENTORY> 216500
<CURRENT-ASSETS> 827100
<PP&E> 5549300
<DEPRECIATION> 3372300
<TOTAL-ASSETS> 3187000
<CURRENT-LIABILITIES> 569800
<BONDS> 0
0
0
<COMMON> 53700
<OTHER-SE> 1297500
<TOTAL-LIABILITY-AND-EQUITY> 3187000
<SALES> 1412600
<TOTAL-REVENUES> 1412600
<CGS> 773000
<TOTAL-COSTS> 1289600
<OTHER-EXPENSES> (110300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38500
<INCOME-PRETAX> 233300
<INCOME-TAX> 72400
<INCOME-CONTINUING> 160900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160900
<EPS-PRIMARY> 3.22
<EPS-DILUTED> 0
</TABLE>
