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 March 31, 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 April
30, 1996: 50,066,693
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
(Millions of dollars,
except per-share amounts) 1996 1995
Sales $ 454.8 $ 452.0
Costs and Expenses
Costs and operating expenses 250.2 246.3
Selling, general, and administrative
expenses 23.2 18.3
Depreciation and depletion 65.6 79.2
Exploration, including dry holes and
amortization of undeveloped leases 22.5 21.2
Provision for environmental reclamation
and remediation of inactive sites 9.2 8.1
Taxes, other than income taxes 17.1 16.0
Interest and debt expense 12.3 18.6
Total Costs and Expenses 400.1 407.7
54.7 44.3
Other Income 15.3 8.2
Income from Continuing Operations
before Income Taxes 70.0 52.5
Provision for Income Taxes 22.1 15.7
Income from Continuing Operations 47.9 36.8
Income from Discontinued Operations (net of
provision for income taxes of $.5 in 1995) - .9
Net Income $47.9 $37.7
Net Income per Common Share
Continuing operations $ .94 $ .71
Discontinued operations - .02
Total $ .94 $ .73
Cash Dividends Declared per Common Share $ .41 $ .38
Average Number of Shares Outstanding
(thousands) 50,562 51,706
The accompanying notes are an integral part of this statement.
The 1995 amounts have been restated to conform with the current year
presentation.
<PAGE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, Dec 31,
(Millions of dollars) 1996 1995
ASSETS
Current Assets
Cash $ 63.5 $ 87.3
Notes and accounts receivable 337.2 333.4
Inventories 227.0 221.0
Deposits and prepaid expenses 95.7 121.9
Total Current Assets 723.4 763.6
Property, Plant, and Equipment 5,770.4 5,767.4
Less reserves for depreciation,
depletion, and amortization 3,566.4 3,557.0
2,204.0 2,210.4
Investments and Other Assets 220.6 239.0
$3,148.0 $3,213.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 59.1 $ 94.0
Accounts payable 240.4 296.6
Current portion of long-term debt 9.1 7.5
Other current liabilities 194.5 176.2
Total Current Liabilities 503.1 574.3
Long-Term Debt 645.0 632.2
Deferred Credits and Reserves 606.5 591.1
Stockholders' Equity
Common stock, par value $1 - 150,000,000
shares authorized, 53,658,142 shares
issued at 3-31-96 and 53,513,888 shares
issued at 12-31-95 53.7 53.5
Capital in excess of par value 324.9 318.2
Preferred stock purchase rights .5 .5
Retained earnings 1,236.0 1,209.0
Unrealized gain on securities
available-for-sale 24.3 25.9
Common shares in treasury, at cost -
3,371,365 shares at 3-31-96
and 2,444,690 at 12-31-95 (168.9) (110.5)
Deferred compensation (77.1) (81.2)
Total Stockholders' Equity 1,393.4 1,415.4
$3,148.0 $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.
<PAGE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
(Millions of dollars) 1996 1995
Operating Activities
Net income $47.9 $37.7
Adjustments to reconcile to net cash
provided by operating activities -
Depreciation, depletion, and amortization 68.1 91.2
Deferred income taxes 15.6 15.6
Realized gain on available-for-sale securities (9.0) -
Provision for reclamation and remediation
of inactive sites 9.2 8.1
Noncash items affecting net income 6.5 8.8
Other net cash provided by operating activitie 11.0 5.9
Net Cash Provided by Operating Activities 149.3 167.3
Investing Activities
Capital expenditures (101.4) (124.2)
Proceeds from the sale of available-for-sale
securities 9.8 -
Decrease in investments 3.7 41.0
Other investing activities 6.0 16.4
Net Cash Used in Investing Activities (81.9) (66.8)
Financing Activities
Decrease in short-term borrowings (34.9) (73.5)
Issuance of long-term debt 16.6 -
Purchase of treasury stock (58.3) -
Dividends paid (21.3) (19.6)
Other financing activities 6.7 .9
Net Cash Used in Financing Activities (91.2) (92.2)
Net Increase (Decrease) in Cash and Cash
Equivalents (23.8) 8.3
Cash and Cash Equivalents at Beginning of Period 87.3 80.8
Cash and Cash Equivalents at End of Period $63.5 $89.1
The accompanying notes are an integral part of this statement.
The 1995 amounts have been restated to conform with the current year
presentation.
<PAGE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 50,852,508 and 51,816,492 for
the three months ended March 31, 1996 and 1995, respectively.
C. Net cash provided by operating activities reflects cash payments for
income taxes and interest as follows:
Three Months Ended
March 31,
(Millions of dollars) 1996 1995
Income taxes $ 1.6 $ 3.0
Interest 12.4 15.6
D. The company held U.S. government obligations and equity securities
considered to be available for sale at March 31, 1996 and December 31,
1995. These financial instruments are carried in the Consolidated
Balance Sheet at fair value, which is based on quoted market prices.
The company held no securities classified as held to maturity or
trading during the respective periods. At March 31, 1996 and December
31, 1995, these financial instruments were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
March 31, 1996 December 31, 1995
Fair Gross Unrealized Fair Gross Unrealized
(Millions of dollars) Cost Value Holding Gains Cost Value Holding Gains
Equity Securities $ 9.4 $48.6 $39.2 $11.6 $53.4 $41.8
U.S. Government Obligations
Maturing within one year 26.8 26.8 - 9.6 9.6 -
Maturing between one
and four years 2.0 2.0 - 17.1 17.2 .1
Total $38.2 $77.4 $39.2 $38.3 $80.2 $41.9
</TABLE>
During the first quarter of 1996, the company sold equity securities
considered to be available for sale. Proceeds from the sale totaled
$11.2 million, resulting in a realized gain of $9 million before income
taxes. The average cost of the securities was used in computing the
realized gain.
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 quarter of 1996
and 1995 was as follows:
Three Months Ended
March 31,
(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
E. The net hedging loss recognized during the first quarter 1996 for crude
oil and natural gas totaled $14.9 million.
F. 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
April 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 the Federal Energy Policy Act of 1992 (which could total up
to $42 million, of which $18 million had been received through the
first quarter 1996). At March 31, 1996, the remaining reserves
provided for the cost to decommission the site under the plan proposed
by KMCC were $160 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 a unilateral administrative order for
one of these areas (referred to as the residential area), which
requires KMCC to conduct a removal action to excavate contaminated
soils and to ship the soils elsewhere for disposal. At March 31, 1996,
the remaining estimated cost to clean up the residential area was $16
million. Without waiving any of its rights or defenses, KMCC began the
cleanup of this site in May 1995.
Judicial Proceedings - Personal injury lawsuits have been filed against
KMCC by certain residents of West Chicago seeking compensation for
illnesses allegedly caused by exposure to thorium wastes from the
former West Chicago facility. One case was settled in 1994 with a
payment by KMCC. The remaining cases continue in the judiciary
process. KMCC will continue its defense of these cases and its efforts
to recover insurance proceeds from policies on the former facility.
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 March 31, 1996, the
remaining reserves provided for the cost to investigate and/or
remediate all presently identified sites of former or current
operations, including $176 million for the former facility and offsite
areas in West Chicago, were $298 million. Expenditures through March
31, 1996, totaled $294 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 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
First-quarter 1996 net income totaled $47.9 million, compared with 1995 first
quarter income from continuing operations of $36.8 million. Net income for
the 1995 first quarter was $37.7 million.
Operating profit in the 1996 first quarter increased 5%, compared with the
same 1995 period. Results from exploration and production and coal
operations improved, while chemicals was approximately the same as for the
1995 quarter. The increase in operating profit was due primarily to higher
crude oil and natural gas sales prices, higher pigment sales prices, higher
coal sales volumes, and lower depreciation and depletion expense. Partially
offsetting were lower crude oil, natural gas, and pigment sales volumes.
First-quarter 1996 net nonoperating expense was $15.3 million, compared with
$28.7 million for the 1995 quarter. The decrease was due primarily to the
realized gains on available-for-sale securities and lower interest expense.
The provision for income taxes was $22.1 million, compared with $15.7 million
for the 1995 first quarter. The increase was due to higher pretax income and
a higher effective tax rate.
<PAGE>
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 first quarter of 1996, compared with the same period last
year.
Three Months Ended
March 31,
(Millions of dollars) 1996 1995(2)
Sales
Exploration and production(1) $189.8 $171.5
Chemicals 175.2 193.8
Coal 89.7 86.7
Other .1 -
Total Sales $454.8 $452.0
Operating Profit (Loss)
Exploration and production $ 34.6 $ 31.9
Chemicals 30.6 31.3
Coal 18.0 17.1
Other 2.1 .9
Total Operating Profit 85.3 81.2
Nonoperating Expense 15.3 28.7
Income from Continuing Operations
before Income Taxes 70.0 52.5
Provision for Income Taxes 22.1 15.7
Income from Continuing Operations 47.9 36.8
Discontinued Operations, Net of Tax - .9
Net Income $ 47.9 $ 37.7
(1)Includes sales of primarily crude oil to discontinued operations in the
amount of $37.6 for the three months ended March 31, 1995.
(2)The 1995 amounts have been restated to conform with the current year
presentation.
Exploration and Production -
Operating profit for the first quarter of 1996 was $34.6 million, compared
with $31.9 million for the same 1995 period. First-quarter 1996 operating
profit was up due primarily to higher crude oil and natural gas sales prices
and lower depreciation and depletion expense, partially offset by lower crude
oil and natural gas sales volumes.
<PAGE>
Revenues were $189.8 million and $171.5 million for the three months ended
March 31, 1996 and 1995, respectively. The following table shows the
company's average crude oil and natural gas sales prices and volumes for the
first quarter of 1996 and 1995.
Three Months Ended Percent
March 31, Increase
1996 1995 (Decrease)
Crude oil sales
(thousands of bbls/day)
United States 27.1 30.0 (10)
Canada 4.2 4.7 (11)
North Sea 32.0 38.7 (17)
Total 63.3 73.4 (14)
Average crude oil sales price
(per barrel)
United States $16.33 $15.68 4
Canada 14.75 14.98 (2)
North Sea 16.67 16.11 3
Average $16.39 $15.86 3
Natural gas sold (MMCF/day)
United States 189 241 (22)
Canada 35 52 (33)
North Sea 35 19 84
Total 259 312 (17)
Average natural gas sales price
(per MCF)
United States $ 1.93 $ 1.41 37
Canada 1.10 .85 29
North Sea 2.48 2.76 (10)
Average $ 1.89 $ 1.40 35
Chemicals -
Chemicals' first-quarter 1996 operating profit was $30.6 million on revenues
of $175.2 million, compared with operating profit of $31.3 million on
revenues of $193.8 million for the same 1995 quarter. Revenues declined
primarily due to lower pigment sales volumes, partially offset by higher
pigment prices. Operating profit declined due to the lower revenues and
higher per-unit production costs.
Coal -
First-quarter 1996 coal operating profit was $18 million on revenues of $89.7
million, compared with operating profit of $17.1 million on revenues of $86.7
million for the same 1995 quarter. The increased revenues resulted from
higher sales volumes and prices. Operating profit increased primarily due to
higher revenues.
Financial Condition
At March 31, 1996, the company's net working capital was $220.3 million,
compared with $189.3 million at December 31, 1995. The current ratio was 1.4
to 1 at March 31, 1996, compared with 1.3 to 1 at December 31, 1995, and 1.2
to 1 at March 31, 1995. The company's percentage of total debt to total
capitalization was 34% at both March 31,1996, and December 31, 1995, compared
with 37% at March 31, 1995.
For the first three months of 1996, net cash provided by operating activities
was $149.3 million, compared with $167.3 million for the same 1995 period.
The decrease was principally due to lower depreciation, depletion, and
amortization.
The company had unused lines of credit and revolving credit facilities of
$676.4 million at March 31, 1996. Of this amount, $330 million and $230
million can be used to support commercial paper borrowings of Kerr-McGee
Credit Corporation and Kerr-McGee (U.K.) PLC, respectively.
First-quarter 1996 cash capital expenditures totaled $101.4 million, compared
with $124.2 million for the same period last year. Exploration and
production expenditures, principally in the Gulf of Mexico, North Sea, and
offshore China, were 76% of the 1996 amount. Chemicals expenditures were 17%
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 first quarter 1996, the company purchased 929,500 shares of its
stock at a cost of $58.5 million. Through March 31, 1996, 1.8 million shares
were purchased at a cost of $106.4 million since initiation of the stock
repurchase program in October 1995.
The company has been litigating claims for environmental coverage against a
number of its insurance carriers and has recently settled some of these
claims. As a result, during the second half of 1996 the company anticipates
receiving approximately $40 million ($25 million after tax). Litigation is
still pending and negotiations will continue with the other insurance
carriers.
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 I, 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 F to the Consolidated Financial Statements of this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 1996 annual meeting of stockholders was held on May 14, 1996.
(b) The following matters were voted upon at the annual meeting:
(1) Following are the directors elected at the 1996 annual
meeting and the tabulation of votes related to each
nominee.
Votes
Affirmative Withheld
Paul M. Anderson 44,021,092 573,892
Bennett E. Bidwell 44,406,289 188,695
Earnest H. Clark, Jr. 44,381,638 213,346
Luke R. Corbett 44,417,594 177,390
Martin C. Jischke 44,410,765 184,219
Robert S. Kerr, Jr. 44,414,043 180,941
Frank A. McPherson 44,409,124 185,860
William C. Morris 44,443,630 151,354
John J. Murphy 44,413,367 181,617
John J. Nevin 44,403,944 191,040
Richard M. Rompala 44,023,216 571,768
Farah M. Walters 44,408,041 186,943
(2) The stockholders ratified the appointment of Arthur
Andersen LLP as independent public accountants for 1996.
Affirmative votes were 44,432,470; negative votes were
83,509; and abstentions were 79,005.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
None
(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 May 15, 1996 By: (John M. Rauh)
John M. Rauh
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 March 31, 1996 and December 31, 1995, and the
Consolidated Statement of Income for the periods ending March 31, 1996 and
1995 and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995 DEC-31-1995
<CASH> 63500 0 87300
<SECURITIES> 0 0 0
<RECEIVABLES> 377200 0 333400
<ALLOWANCES> 0 0 0
<INVENTORY> 227000 0 221000
<CURRENT-ASSETS> 723400 0 763600
<PP&E> 5770400 0 5767400
<DEPRECIATION> 3566400 0 3557000
<TOTAL-ASSETS> 3148000 0 3213000
<CURRENT-LIABILITIES> 503100 0 574300
<BONDS> 0 0 0
<COMMON> 53700 0 53500
0 0 0
0 0 0
<OTHER-SE> 1339700 0 1361900
<TOTAL-LIABILITY-AND-EQUITY> 1393400 0 1415400
<SALES> 454800 452000 0
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<CGS> 250200 246300 0
<TOTAL-COSTS> 400100 407700 0
<OTHER-EXPENSES> (15300) (8200) 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 12300 18600 0
<INCOME-PRETAX> 70000 52500 0
<INCOME-TAX> 22100 15700 0
<INCOME-CONTINUING> 47900 36800 0
<DISCONTINUED> 0 900 0
<EXTRAORDINARY> 0 0 0
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<NET-INCOME> 47900 37700 0
<EPS-PRIMARY> .94 .73 0
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