SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Fiscal year ended December 31, 1996 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
KERR-MCGEE CENTER, OKLAHOMA CITY, OKLAHOMA 73125
(Address of principal executive offices)
Registrant's telephone number, including area code: (405)270-1313
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock $1 Par Value New York Stock Exchange
8-1/2% Sinking Fund Debentures,
Due June 1, 2006 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $3 billion as of February 28, 1997.
The number of shares of common stock outstanding as of February 28, 1997, was
48,094,495.
DOCUMENTS INCORPORATED BY REFERENCE
Specified sections of the Kerr-McGee Corporation 1996 Annual Report to
Stockholders, as described herein, are incorporated by reference in Parts I and
II of this Form 10-K. The definitive Proxy Statement for the 1997 Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1996, is incorporated by reference in Part
III of this Form 10-K.
<PAGE>
KERR-McGEE CORPORATION
PART I
Items 1. and 2. Business and Properties
GENERAL DEVELOPMENT OF BUSINESS
Kerr-McGee Corporation, an energy and chemical company, had its
beginning in 1929 with the formation of Anderson & Kerr Drilling Company. The
company was incorporated in Delaware in 1932. With oil and gas exploration and
production as its base, the company has expanded into chemical manufacturing and
coal and mineral mining. Kerr-McGee owns a large inventory of natural resources
that includes oil, gas, and coal reserves and chemical and mineral deposits.
Effective December 31, 1996, the company merged its North American
onshore exploration and production operations into Devon Energy Corporation
(Devon), a publicly traded oil and gas exploration and production company. The
company received 9,954,000 shares of Devon common stock, representing an
ownership interest in Devon of approximately 31%.
INDUSTRY SEGMENTS
For information as to business segments of the company, reference is
made to Note 24 to the Consolidated Financial Statements in the 1996 Annual
Report to Stockholders, which note is incorporated by reference in Item 8.
EXPLORATION AND PRODUCTION
The Exploration and Production Division manages Kerr-McGee's oil and gas
operations worldwide. This division acquires leases and concessions and explores
for, develops, produces, and markets crude oil and natural gas.
The areas of Kerr-McGee's offshore oil and gas exploration and
production activities are the Gulf of Mexico, North Sea, and China. Onshore
exploration and production operations are in Indonesia, Thailand, and, prior to
December 31, 1996, Canada and the United States. In early 1997, a concession was
signed with the Republic of Yemen.
Kerr-McGee's 1996 oil production of 69,000 barrels per day is about
equal to the 1995 production level. Kerr-McGee's average oil price rose 20% to
$19.16 per barrel in 1996, compared with 1995.
- ------------
Except as indicated under Items 1 through 3, 5 through 8, and 10 through
14, no other information appearing in either the company's 1996 Annual Report to
Stockholders or its 1997 Proxy Statement is deemed to be filed as part of this
annual report on Form 10-K.
<PAGE>
Natural gas sales averaged 281 million cubic feet per day in 1996, down
slightly from 1995. The average natural gas price rose 39% from 1995 prices to
$2.12 per thousand cubic feet for 1996.
The level of 1996 oil and gas production was about the equal to 1995
levels, even though divestitures of marginal and nonstrategic properties reduced
oil and gas production from the prior year by more than 6%. This reduction was
more than offset by new production from offshore China and the Gulf of Mexico.
Kerr-McGee's operations are expected to average approximately 63,000 barrels of
oil and 200 million cubic feet of gas per day in 1997. These reduced levels
result from the merger of the North American onshore properties into Devon. If
31% of Devon's production, representing Kerr-McGee's equity interest in Devon,
is combined with the company's 1997 estimates, production levels are expected to
be approximately the same as in 1996.
Results of Operations, Sales Prices, Production Costs, Costs Incurred, and
Capitalized Costs
Reference is made to Notes 25, 26, and 27 to the Consolidated Financial
Statements in the 1996 Annual Report to Stockholders, which notes are
incorporated by reference in Item 8. These notes contain information on the
results of operations from crude oil and natural gas activities, average sales
prices per unit of crude oil and natural gas, production costs per barrel of oil
equivalent (BOE), and costs incurred in crude oil and natural gas activities for
each of the past three years and capitalized costs of crude oil and natural gas
activities at December 31, 1996 and 1995.
Reserves
Kerr-McGee's estimated proved crude oil, condensate, and natural gas
reserves at December 31, 1996, and the changes in net quantities of such
reserves for the three years then ended are shown in Note 28 to the Consolidated
Financial Statements of the 1996 Annual Report to Stockholders, which note is
incorporated by reference in Item 8.
From time to time reports are filed with the United States Department of
Energy relating to the company's reserves. The reserves reported in the Notes to
Financial Statements are consistent with other filings pertaining to proved net
reserves. Minor differences in gas volumes occur due to different pressure bases
being required in the reports. However, the difference in estimates does not
exceed 5% of the total estimated reserves.
Undeveloped Acreage
As of December 31, 1996, the company had interests in undeveloped oil
and gas leases in the Gulf of Mexico, the United Kingdom sector of the North
Sea, offshore China, and onshore in other international areas as follows:
Gross Net
Location Acreage Acreage
Domestic(1) 380,688 264,628
---------- ----------
North Sea 1,041,240 428,675
---------- ----------
China 1,886,641 925,447
---------- ----------
Other international -
Indonesia 1,380,028 414,008
Thailand 1,464,834 512,692
---------- ----------
2,844,862 926,700
---------- ----------
Total Undeveloped Acreage 6,153,431 2,545,450
========== ==========
(1)Located in the Gulf of Mexico except for 3,043 gross or 433 net acres located
onshore that are held for sale.
Until December 31, 1996, the company held certain North American onshore
properties that were merged into Devon. These totaled 178,619 gross or 106,719
net undeveloped acres in the United States and 115,025 gross or 74,164 net
undeveloped acres in Canada and are not included in the previous table.
Developed Acreage
At December 31, 1996, the company had interests in developed oil and gas
acreage in the Gulf of Mexico, the United Kingdom sector of the North Sea, and
offshore China as follows:
Gross Net
Location Acreage Acreage
Domestic(1) 401,628 209,467
North Sea 199,898 33,022
China 78,332 19,191
Indonesia 345,007 103,502
--------- -------
Total Developed Acreage 1,024,865 365,182
========= =======
(1)Located in the Gulf of Mexico except for 45,184 gross or 26,399 net acres
located onshore that are held for sale.
<PAGE>
Until December 31, 1996, the company held certain North American onshore
properties that were merged into Devon. These totaled 667,099 gross or 283,182
net developed acres in the United States and 186,479 gross or 75,195 net
developed acres in Canada and are not included in the previous table.
Net Exploratory and Development Wells
Domestic and international exploratory and development wells drilled
during the three years ended December 31, 1996, are as follows. Included are
wells drilled on properties that were merged into Devon at year-end 1996.
1996 1995 1994
---------------------------------
Exploratory Wells - Net(1)
Domestic
Productive 4.91 2.00 7.53
Dry holes .83 6.51 5.26
------- ------- -------
5.74 8.51 12.79
------- ------- -----
North Sea
Productive - - .35
Dry holes 2.19 .77 .62
------- ------- -------
2.19 77 .97
------- ------- -------
China
Dry holes - .45 -
------- ------- -------
Canada
Productive - 1.71 1.73
Dry holes .50 1.43 1.31
------- ------- -------
.50 3.14 3.04
------- ------- -------
Other international
Dry holes - - 1.28
------- ------- -------
Total 8.43 12.87 18.08
======= ===== =====
Development Wells - Net(1)
Domestic
Productive 17.26 30.23 17.26
Dry holes 1.00 2.28 1.36
------- ------- -------
18.26 32.51 18.62
------- ----- -----
North Sea
Productive 1.09 1.26 1.62
Dry holes - - .25
------- ------- -------
1.09 1.26 1.87
------- ------- -------
China
Productive 1.72 2.45 -
------- ------- -------
Canada
Productive 1.26 6.92 3.39
Dry holes .04 .67 3.02
------- ------- -------
1.30 7.59 6.41
------- ------- -------
Total 22.37 43.81 26.90
===== ===== =====
(1)Net Wells - The total of the company's fractional working interests in "gross
wells" expressed as the equivalent number of full-interest wells.
<PAGE>
Gross and Net Wells
The number of productive oil and gas wells in which the company has an
interest at December 31, 1996, is shown in the following table. These wells
include 403 gross or 155.06 net wells associated with improved recovery projects
and 154 gross or 82.47 net wells that have multiple completions but are included
as single wells. Of the net wells below, 93% are domestic, 5% are in the North
Sea, and 2% are in China. Of the domestic wells, approximately 41% are in
Federal waters, 32% in state waters, and 27% are onshore held for sale.
Gross Net
Location Wells Wells
Crude Oil
Domestic 418 149.15
North Sea 75 10.28
China 17 4.17
--------- -------
510 163.60
--------- ------
Natural Gas
Domestic 150 69.91
North Sea 26 1.99
--------- -------
176 71.90
--------- -------
Total Wells 686 235.50
========= ======
Due to the year-end 1996 merger of North American onshore properties
into Devon and the divestiture of nonstrategic and marginal properties, the
number of productive oil and gas wells in which the company has an interest
declined significantly from year-end 1995. Merged into Devon at December 31,
1996, was the company's interest in the following onshore wells, which are not
included in the preceding table.
Gross Net
Location Wells Wells
Crude Oil
Domestic 7,447 330.63
Canada 436 87.63
--------- -------
7,883 418.26
--------- ------
Natural Gas
Domestic 2,025 389.08
Canada 154 51.38
--------- -------
2,179 440.46
--------- ------
Total Wells 10,062 858.72
====== ======
<PAGE>
Crude Oil and Natural Gas Sales
The following table summarizes the sales of the company's crude oil and
natural gas production for the three years ended December 31, 1996:
(In millions) 1996 1995 1994
------ ------ ------
Crude oil and condensate - barrels
Domestic 11.2 10.6 9.3
North Sea 11.2 13.6 12.4
China 1.3 - -
Canada 1.2 1.7 1.7
Other international - - 1.0
------ ------ ------
24.9 25.9 24.4
====== ====== ======
Crude oil and condensate
Domestic $216.4 $165.7 $136.3
North Sea 213.1 221.9 187.2
China 25.0 - -
Canada 21.8 26.4 23.2
Other international - - 14.4
------ ------ ------
$476.3 $414.0 $361.1
====== ====== ======
Natural gas - MCF
Domestic 83.5 82.2 76.8
North Sea 10.2 7.4 4.1
Canada 9.3 16.5 18.1
------ ------ ------
103.0 106.1 99.0
====== ====== ======
Natural gas
Domestic $180.5 $127.8 $140.4
North Sea 26.8 19.8 8.6
Canada 10.6 14.1 24.9
------ ------ ------
$217.9 $161.7 $173.9
====== ====== ======
Sales of Production
All of the company's crude oil is sold at market prices. Gas production
is sold primarily to the company's marketing affiliates and ultimately resold to
utilities and industrial customers under short-term contracts at market prices.
Although sold at market prices, the marketing of domestic natural gas is focused
on long-term relationships with selected industrial customers and local
distribution companies.
Improved Recovery
The company continues to initiate and/or participate in improved
recovery projects where geological, engineering, and economic conditions are
favorable. As of December 31, 1996, the company was participating in 13 active
improved recovery projects located principally in the United Kingdom sector of
the North Sea. Most of the company's operations outside North America
incorporate water injection. Pressure-maintenance operations began at or near
the time of initial production from these fields.
Wells in Process of Drilling
At year-end 1996, the company had wells classified as temporarily
suspended or in the process of drilling as follows:
Gross Net
Wells Wells
Domestic 19 10.98
North Sea 9 1.31
China 4 1.19
Indonesia 8 2.66
-- -----
Total Wells 40 16.14
== =====
Exploration and Development Activities
North Sea Area
The North Sea continues to be an important area of overseas activity. At
year-end 1996, the company had interests ranging from 3.6% to 60% in 47 blocks
covering 428,675 net undeveloped acres in the North Sea area. Kerr-McGee
operates 27 of these blocks. The North Sea portfolio includes prospective
exploration blocks and exploitation opportunities on producing properties.
In 1996, the North Sea accounted for 45% of Kerr-McGee's liquids
production, primarily from the Gryphon, Scott, and Ivanhoe/Rob Roy fields and
the Brae area. Deliveries of North Sea natural gas averaged 31 million cubic
feet per day in 1996, primarily from the Brae area and Scott field.
A summary of the company's key developments in the North Sea is as
follows:
Janice field (KM 50.9%), Block 30/17a: Development planning is under way
for this block operated by Kerr-McGee. Interest in the block was acquired
through lease purchase and by drilling two successful appraisal wells. The first
well tested at a combined rate of 33,000 barrels of oil per day in December
1995, and the other well at 11,000 barrels per day in April 1996. Production is
estimated to begin in mid-1998.
Gryphon field (KM 25%), Block 9/18b: Production averaged 34,900 barrels
of oil per day in 1996. Performance of the field's innovative floating
production, storage, and offloading vessel (FPSO) has exceeded expectations
since first oil in October 1993. The company believes that the vessel's
availability of approximately 99% was among the highest of any facility in the
U.K. North Sea during 1996. Kerr-McGee operates this field, the first in the
North Sea to use a permanently moored FPSO and to be developed totally with
horizontal production wells.
Scott field (5.2%), Blocks 15/21a and 15/22: Production averaged 147,000
barrels of oil per day in 1996.
Brae area, blocks 16/3a, 16/7a (both KM 8%), and 16/3b (KM 5%):
Approximately 13% of Kerr-McGee's 1996 net oil production flowed from five
fields in the Brae area. A sixth field, West Brae on Block 16/7a, is being
developed jointly with the Sedgwick field on an adjacent block. First production
is expected in late 1997. Kerr-McGee's share of production from the joint
development is 5.4%.
China and Other International
During 1996, Kerr-McGee added four new blocks to the undeveloped
leasehold inventory in the Far East. These include one block in China's Bohai
Bay, one block in the South China Sea, and two blocks onshore Thailand.
At December 31, 1996, Kerr-McGee's assets in China and Southeast Asia
include the Liuhua field development in the South China Sea, four operated
exploration blocks in China's Bohai Bay, one operated exploration block in the
South China Sea, two onshore blocks in Thailand, and the onshore Jabung Block in
Indonesia.
A summary of the company's key developments in the Far East is as
follows:
Liuhua 11-1 field (KM 24.5%), South China Sea: Production began in March
1996 and reached nearly 50,000 barrels of oil per day at year-end. Located in
1,000 feet of water 130 miles southeast of Hong Kong, the field was developed
entirely with horizontal wells.
Bohai Bay Block 04/36 (KM 45%): The first discovery in Bohai Bay tested
at a combined flow rate of almost 7,000 barrels of oil per day in 1996. An
appraisal well was spudded in January 1997, and additional drilling is planned
during the year on adjacent acreage, where Kerr-McGee holds interests ranging
from 45% to 57%.
Jabung Block (KM 30%), Indonesia: The North Geragai field, discovered in
1995, is expected to come on stream in mid-1997. Kerr-McGee has participated in
two other discoveries - Northeast Betara and Makmur - on this 1.7 million-acre
block on the island of Sumatra. A 1996 appraisal well on the Betara prospect
tested gas at a rate of 12 million cubic feet per day. Makmur tested at combined
flow rates of nearly 4,000 barrels of oil per day in 1996. Additional drilling
is planned in 1997.
Gulf of Mexico
The Gulf of Mexico contributed 34% of Kerr-McGee's oil production and
55% of natural gas production during 1996. Kerr-McGee had an inventory of
264,195 net undeveloped acres in the Gulf of Mexico at year-end 1996. The
company continues an aggressive lease acquisition and exploration program in the
Gulf of Mexico. The company also continues to exploit producing properties,
using 3-D seismic surveys to accelerate development and production while
reducing risk. Proven new technology such as horizontal drilling and fracture
stimulation is also used to increase production.
Recent development activity includes projects in the Viosca Knoll, South
Timbalier, Ewing Bank, and Ship Shoal areas.
Pompano Field (KM 25%), Viosca Knoll 989 area: This deepwater project is
exceeding expectations. The second development phase started in May 1996, and
total daily production at year-end was 52,000 barrels of oil and 59 million
cubic feet of gas. Development drilling and better-than-anticipated reservoir
performance in 1996 increased reserves by 46 million BOE.
Drilling will continue in 1997.
South Timbalier 265 area (KM 100%): Production began in July 1996 from
the South Timbalier 265 field and peaked at 132 million cubic feet of gas and
7,700 barrels of oil per day in August 1996. Drilling on additional prospects in
this area is planned in 1997.
Ewing Bank 910 (KM 40%): A discovery well was drilled in August 1996,
and two appraisal wells are planned in 1997.
Ship Shoal area: Five successful wells were drilled during 1996 on
blocks 218, 232, 238, and 239, where Kerr-McGee has existing production and
interests ranging from 46% to 90%. By using state-of-the-art technology and a
fast-track approach to development, the wells were brought on stream within the
same year. Their combined production was nearly 45 million cubic feet of gas and
4,000 barrels of oil per day at year-end. These blocks are an example of
Kerr-McGee's ongoing effort to increase production through exploitation of
producing fields.
<PAGE>
CHEMICALS
Kerr-McGee Chemical Corporation produces and markets inorganic
industrial and specialty chemicals, forest products, and heavy minerals. Many of
these products are processed using proprietary technology developed by the
company.
Industrial chemicals include titanium dioxide pigment, synthetic rutile,
manganese products, sodium chlorate, and ammonium perchlorate. Specialty
chemicals are boron trichloride and elemental boron. Forest product operations
treat railroad crossties and other hardwood products and provide other
wood-treating services. Heavy minerals produced are ilmenite, rutile, zircon,
and leucoxene.
Pigment
The company's synthetic rutile plant at Mobile, Alabama, has a
production capacity of 162,000 tons per year. This product serves as feedstock
for the company's titanium dioxide pigment plant at Hamilton, Mississippi, which
has a production capacity of 130,000 tons per year. An expansion is expected to
be completed in the summer of 1997 and will increase the Hamilton plant's
production capacity to 160,000 tons.
KMCC Western Australia Pty. Ltd., a wholly owned subsidiary of
Kerr-McGee Chemical Corporation, owns a 50% interest in a joint venture that
operates the world's first integrated titanium dioxide operation. The operation
consists of a heavy-minerals mine and mill and facilities for the production of
synthetic rutile and titanium dioxide pigment, located on three sites within 120
miles of Perth.
Heavy minerals are mined from a lease that contains 10,350 acres. The
property's remaining reserves consist of 161 million tons of sand, which contain
3.4% heavy minerals. The valuable heavy minerals contained within this 5.5
million ton heavy-mineral deposit are composed of 4.3% rutile, 60.9% ilmenite,
3.5% leucoxene, and 11.2% zircon, with the remaining 20.1% of minerals presently
having no value. Additional drilling is required to determine the actual
quantities and grade of heavy minerals contained in a second 2,540-acre property
and the extent to which it may be feasible to mine this deposit. The company
holds a 50% interest in both properties.
The heavy minerals are processed at the separation mill, which has a
capacity of 559,000 tons per year. The recovered ilmenite is processed into
synthetic rutile at a facility adjoining the separation mill. The synthetic
rutile facility has a capacity of 200,000 tons per year. Production from the
synthetic rutile plant serves as feedstock for the pigment plants in Australia
and Saudi Arabia. The production capacity of the pigment plant in Australia was
increased in 1996 from 73,000 tons per year to 88,000 tons per year.
The company owns a 25% interest in the pigment plant in Yanbu, Saudi
Arabia. The plant has a capacity of 72,000 tons per year.
Electrolytic Products
The company's major electrolytic products are manganese dioxide and
sodium chlorate.
An expansion of the sodium chlorate plant at the Hamilton, Mississippi,
complex was completed in late 1996, increasing production capacity by 12% to
138,000 tons per year. Also at Hamilton is a manganese metal plant that has
capacity of 12,000 tons per year.
Facilities at Henderson, Nevada, include electrolytic cells and
processing equipment for the manufacture of manganese dioxide, a plant for the
manufacture of ammonium perchlorate, and a specialty boron products plant. An
expansion of the manganese dioxide plant, completed in late 1996, increased
capacity by 15% to 28,500 tons per year. Production capacity for ammonium
perchlorate is 20,000 tons per year. Ammonium perchlorate blending and storage
facilities are located 25 miles north of the Henderson plant. Production
capacities for elemental boron and boron trichlorate are 80,000 pounds and
750,000 pounds per year, respectively.
Forest Products
The company's principal forest product is treated railroad crossties.
Other products include crossing materials, bridge timbers, and utility poles.
The company operates six wood-preserving plants located along major railroads in
the United States. Five of the plants are east of the Rocky Mountains. A seventh
plant in Pennsylvania was placed on standby status at year-end due to weak
demand in the market area served by the plant.
Marketing
Titanium dioxide pigment is the world's preferred white opacifier and is
used primarily in paint, plastics, and paper. The company's plant in Hamilton,
Mississippi, one of the industry's lower-cost producers, primarily serves the
Americas. Most of the pigment production from the company's 50% joint venture in
Western Australia is sold in the Far East and Australia. The production from the
company's plant (25% interest) in Saudi Arabia is sold primarily to customers
located in the Middle East and Europe. A marketing subsidiary sells all of the
pigment production from the Western Australia joint venture and approximately
40% of the total production from the Saudi Arabia plant. This accounts for
approximately 6% of global pigment market share. World demand is expected to
increase by an average of 3% to 4% per year over the next several years.
Manganese dioxide is a major component of alkaline batteries. The
company's share of the North American manganese dioxide market is approximately
one-third. Demand is projected to grow 5% to 8% annually through the year 2000.
The demand is driven by the need for alkaline batteries for portable electronic
devices.
Sodium chlorate is used in the environmentally preferred chlorine dioxide
process for bleaching pulp. U.S. demand for sodium chlorate is expected to
increase approximately 5% per year in the near term as the pulp and paper
industry continues conversion to the chlorine dioxide process. The company has a
10% share of the U.S. market, and its plant in Mississippi is a low-cost
producer.
Manganese metal is used in aluminum, specialty, and stainless steel
alloys. The largest use of manganese metal is for alloying aluminum can sheet.
The company has a 50% share of the U.S.
aluminum industry manganese requirements.
Ammonium perchlorate is used as an oxidizer for solid rocket fuel,
primarily in the U.S. space and defense programs. Demand has declined in recent
years due to a reduction in requirements by the U.S. military. The company is
one of two domestic producers of the product.
Kerr-McGee is the world's largest producer of elemental boron, which is
used primarily in automobile airbags. Kerr-McGee is the largest producer of
boron trichloride, which is used to produce boron filament for sports equipment
and composites for high-performance aircraft.
The company's share of the U.S. railroad crosstie market is in excess of
40%. Domestic crosstie demand is expected to remain relatively flat at about 13
million to 15 million ties per year.
For information regarding heavy-mineral reserves, production, and
average market prices for each of the years 1992 through 1996, reference is made
to Note 30 in the Consolidated Financial Statements of the 1996 Annual Report to
Stockholders, which note is incorporated by reference in Item 8.
COAL
The company's coal operations are conducted by Kerr-McGee Coal
Corporation, which produces coal from Jacobs Ranch Mine, a surface mine in the
Wyoming Powder River Basin, and Galatia Mine, an underground mine in the
Illinois Basin. The company sold Pioneer Fuel Corporation, a combined surface
and underground operation in West Virginia, in February 1996 and has agreements
to sell the Clovis Point Mine, a Wyoming surface mining operation. Closing of
the Clovis sales is contingent on approval by the Bureau of Land Management
(BLM). Neither transaction resulted nor will result in a material gain or loss
to the company. Most 1996 sales were to electric utilities under long-term sales
contracts. The company also made spot sales to domestic and foreign customers.
Reserves and Production
The company owns or leases producing coal reserves in Wyoming and
Illinois. As of December 31, 1996, the company's coal reserves were as follows
(in millions of tons):
In-Place Recoverable
Demonstrated Demonstrated Classifi- Mining
State/Mining Unit Tons Tons cation Method
Wyoming -
Jacobs Ranch Mine 272 245 Steam Surface
Clovis Point Mine 326 293 Steam Surface
Illinois -
Galatia Mine - Met./ Under-
Harrisburg No. 5 92 59 Steam ground
Under-
Herrin No. 6 327 213 Steam ground
----- ---
1,017 810
===== ===
Of the Wyoming reserves, 91% are held under Federal leases, and the
remaining 9% are leased from the State of Wyoming. The Illinois coal reserves
are owned by Kerr-McGee or held under leases with private parties.
Production from Kerr-McGee mines for 1996 and 1995 was as follows:
(In millions of tons) 1996 1995
---- ----
Jacobs Ranch Mine 24.5 24.6
Galatia Mine 6.6 5.5
Clovis Point Mine .2 .4
West Virginia operations - .6
----- ------
Total Production 31.3 31.1
==== ====
For information regarding coal reserves, production, and average market
prices for each of the years 1992 through 1996, reference is made to Note 30 to
the Consolidated Financial Statements in the 1996 Annual Report to Stockholders,
which note is incorporated by reference in Item 8.
Jacobs Ranch Mine
Jacobs Ranch Mine is located 50 miles southeast of Gillette, Wyoming, in
the South Powder River Basin. The coal lease area contains 7,514 acres of land,
of which 2,992 acres are underlain by 245 million recoverable tons of coal. The
company also owns or controls the surface rights to 1,684 acres of a buffer
zone, or overstrip area. The mine permit was renewed in August 1994 for a
five-year period and expanded to incorporate additional leased acreage and the
buffer zone. In February 1995, the BLM approved the consolidation of three
Federal coal leases into one logical mining unit to allow use of the most
effective mining sequence for the combined leases. The terms of the Jacobs Ranch
Mine leases are scheduled for adjustment by the BLM in years 2000, 2005, and
2012.
The annual production capacity of Jacobs Ranch Mine is currently 25
million tons of low-sulfur coal. Further increase in capacity requires the
expansion of the Jacobs Ranch Mine preparation plant, which is currently under
way and expected to be completed in late 1997. The expansion will allow annual
production at Jacobs Ranch to increase to 39 million tons. Actual production
levels will increase as the market dictates.
Shipments began in 1978 and, through December 1996, totaled more than
264 million tons. All deliveries were made via the Burlington Northern or Union
Pacific railroads. Jacobs Ranch Mine coal meets Phase II emission requirements
of the Clean Air Act Amendments of 1990 and is sold primarily under long-term
contracts for ultimate use by electric utilities. Jacobs Ranch Mine is presently
the fourth-largest coal producer in the United States. Productivity continues to
increase through the use of larger, more efficient equipment and more productive
mining operations.
Clovis Point Mine
Clovis Point Mine is located eight miles east of Gillette, Wyoming. In
1988, the company consolidated its Wyoming mining operations at Jacobs Ranch
Mine and ceased shipments from Clovis Point Mine. The facility was reopened in
1994 and met the due- diligence production requirements of the lease by August
1996. The mine was then returned to standby status. The mine permit has been
renewed until 1999.
The Clovis Point mining area consists of 3,143 acres leased from the
Federal government and 640 acres leased from the State of Wyoming. The company
either owns or has surface-owner consent to mine 71% of the Federal lease permit
area. The remaining 29% is positioned so that it would be mined near the end of
the mine life; however, before mining, surface-owner consent must be obtained
and the mine permit amended. The terms of one of the two Federal leases at
Clovis Point Mine were adjusted by the BLM in 1990, and the terms of the other
Federal lease were renewed and extended without change in 1995. The terms of the
state lease, which contains the mine pit, were renewed for an additional 10-year
period in 1993. The three Clovis Point leases are held in a logical mining unit.
Galatia Mine
The Galatia Mine is located in southern Illinois near the town of
Galatia in Saline County. It produces coal from the Harrisburg No. 5 seam, which
can be used as either a semi-soft coking coal or a high-Btu, relatively
low-sulfur steam coal. Its use as a steam coal allows utilities to comply with
Phase I of the Clean Air Act Amendments of 1990 without installing flue gas
desulfurization units or blending with other coals.
Shipments from the mine began in January 1984 and totaled more than 42
million tons through December 1996. Shipments are primarily by rail, although
the mine loadout is capable of loading trucks, and weighing facilities are
on-site. The Illinois Central Railroad is the originating carrier for rail
shipments.
Within the mine area, Kerr-McGee controls approximately 33,400 acres
through leases and mineral ownership. This includes control of the Herrin No. 6
seam, which was mined at Galatia until July 1994. Its higher sulfur content and
resultant decrease in demand by the utilities, because of the emission
requirements of the Clean Air Act Amendments of 1990, led to the cessation of
mining in the No. 6 seam and transfer of the mining equipment to the
lower-sulfur/higher-value Harrisburg No. 5 seam.
Mining capacity at Galatia Mine has increased from 4.2 million tons in
1993 to the current capacity of 6.6 million tons of high-Btu, relatively
low-sulfur coal. This increase was accomplished with the introduction of the
second longwall mining system in the No. 5 seam, completion of the 1994 coal
processing plant expansion, and the 1996 installation of an underground
coal-storage bunker.
Marketing
Bituminous and sub-bituminous steam coals are sold under long-term
contracts and spot purchase agreements to utilities in 17 states, primarily in
the central and southeastern United States. Export sales of steam coal produced
from the Galatia Mine were made to utilities in Germany in 1996. While coal
sales include sales of coal produced by third parties, the company is not
dependent on this purchased coal to meet its contract obligations.
Coal markets continue to experience competitive pricing. Kerr-McGee's
existing long-term contracts continue to provide stable earnings under these
competitive conditions and are the basis for the expansion of business with key
domestic electric utilities.
The company is well positioned with lower-sulfur reserves to compete in
domestic markets governed by the Clean Air Amendments of 1990. Uncommitted
reserves and existing production capacity should permit the company to
participate in the expected growth in domestic demand for lower-sulfur coal as
well as expand its export sales.
OTHER
Research and Development
The company's Technical Center, located in Oklahoma City, performs research
and development in support of its existing businesses and in the pursuit of new
products and processes. These programs continue to concentrate on improvements
to chemical plant processes and products.
Employees
On December 31, 1996, the company had 3,851 employees, none of which
were represented by a collective bargaining agreement.
Competitive Conditions
In the petroleum industry, competition exists from the initial process
of bidding for leases to the sale of crude oil and natural gas. Competitive
factors include finding and developing petroleum hydrocarbons, transporting raw
materials, and developing successful marketing strategies. The volatility of
crude oil and natural gas prices during the past several years has placed
increased emphasis on all competitive aspects of the petroleum industry.
The company is one of seven chloride-process producers of titanium
dioxide pigment in the world. The chloride process results in significantly less
waste than the more costly sulfate process. Pigment customers worldwide
increasingly prefer the chloride product due to environmental restrictions. The
demand for pigment is expected to increase by an average of 3% to 4% per year
through the end of the century. Manganese dioxide is in a near-balanced
supply/demand position. Excess worldwide capacity currently exists for titanium
dioxide pigment, sodium chlorate, ammonium perchlorate, boron specialty
products, manganese metal, and railroad crossties.
Most of the company's coal customers are domestic electric utilities, an
extremely competitive market. Cost efficiencies, transportation strategies, and
product quality, such as Btu and sulfur content, are key competitive factors in
the coal industry.
It is not possible to predict the effect of future competition on
Kerr-McGee's operating and financial results.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL RESERVES
General
The company is subject to extensive regulation by Federal, state, local,
and foreign governments. The production and sale of crude oil and natural gas in
the United States are subject to regulation by Federal and state authorities,
particularly with respect to allowable rates of production, offshore production,
and environmental matters. Stringent environmental protection laws and
regulations apply to almost all of the company's operations. In addition, there
are special taxes that apply to the oil, gas, and coal mining industries.
Environmental Matters
Federal, state, and local laws and regulations relating to environmental
protection affect almost all company plants and facilities. During 1996, direct
capital and operating expenditures related to environmental protection and
cleanup of existing sites totaled $34 million. Additional expenditures totaling
$56 million were charged to environmental reserves. While it is extremely
difficult to estimate the total direct and indirect costs to the company of
government environmental regulations, it is presently estimated that the direct
capital and operating expenditures and expenditures charged to reserves will be
approximately $110 million in each of the years 1997 and 1998. Some expenditures
to reduce the occurrence of releases to the environment may result in increased
efficiency; however, most of these expenditures produce no significant increase
in production capacity, efficiency, or revenue. Operation of pollution-control
equipment installed for these purposes usually entails additional expense.
Moreover, there are costs associated with staff and management time that cannot
be calculated or estimated with any assurance of accuracy.
Based on present information, the company believes that it has accrued
and is accruing reasonable reserves for expenditures that may have to be paid in
the future for environmental matters. Because of continually changing laws and
regulations, the nature of the company's businesses, and pending proceedings, it
is not possible to reliably estimate the amount or timing of all future
expenditures relating to environmental matters. The company provides for costs
related to environmental contingencies when a loss is probable and the amount is
reasonably estimable. Although management believes adequate reserves have been
provided for all known environmental contingencies, it is possible, due to the
above noted uncertainties, 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
environmental contingencies, to the extent not previously provided for, should
not have a material adverse effect on the company's financial position.
Also see "Item 3. Legal Proceedings," which follows.
Item 3. Legal Proceedings
The company continues its efforts to decommission a facility located in
West Chicago, Illinois, which processed thorium ores and was closed in 1973. For
a discussion of contingencies, including a detailed discussion of the West
Chicago matter, reference is made to the Environmental Matters section of
Management's Discussion and Analysis and Note 10 to the Consolidated Financial
Statements in the 1996 Annual Report to Stockholders, which discussion and note
are incorporated by reference in Item 7 and Item 8, respectively.
Item 4. Submission of Matters to a Vote of Security Holders
None submitted during the fourth quarter of 1996.
<PAGE>
Executive Officers of the Registrant
<TABLE>
The following is a list of executive officers, their ages, and their
positions and offices as of January 1, 1997:
<CAPTION>
Name Age Office
<S> <C> <C>
Frank A. McPherson 63 Chairman of the Board and Chief Executive Officer from
1983 until retirement in February 1997.
Luke R. Corbett 49 Chairman of the Board and Chief Executive Officer since
February 1997. President of Kerr-McGee Coal Corporation
since 1995. President of Kerr-McGee China Petroleum Ltd.
since 1994. President of Kerr-McGee Canada Ltd. since
1989. President of Kerr-McGee Oil (U.K.) PLC since 1987.
President and Chief Operating Officer from 1995 until
February 1997. Group Vice President from 1992 until
1995. Senior Vice President from 1991 until 1992.
Tom J. McDaniel 58 Vice Chairman of the Board since February 1997. Senior
Vice President from 1986 until February 1997. Corporate
Secretary from 1989 until February 1997.
John C. Linehan 57 Executive Vice President since February 1997. Chief
Financial Officer since 1987. Senior Vice President from
1987 until February 1997.
Kenneth W. Crouch 53 Senior Vice President since September 1996. Senior Vice
President, Exploration, Explo-ration and Production
Division since Sep-tember 1996. Senior Vice President,
North America and International Exploration, Exploration
and Production Division from July 1996 until September,
1996. Vice President, Gulf of Mexico and International
Exploration, Exploration and Production Division from 1995
until July 1996. Vice President and Managing Director of
Exploration for North Sea Operations, Exploration and
Production Division from 1993 until 1995. Vice President
of Geophysics, Exploration and Production Division from
1989 until 1992.
William D. Hake 47 Senior Vice President since September 1996. Vice President
of Operations for Kerr-McGee Coal Corporation from 1991
until September 1996.
George R. Hennigan 61 Senior Vice President since 1991. President of Kerr-McGee
Chemical Corporation since 1991.
Russell G. Horner, Jr. 57 Senior Vice President and Corporate Secretary since
February 1997. General Counsel since 1986. Vice
President from 1986 until February 1997.
Robert C. Scharp 49 Senior Vice President since 1991. Senior Vice President,
Production, Exploration and Production Division since
1995. President of Kerr-McGee Coal Corporation from 1991
until 1995.
Michael G. Webb 49 Senior Vice President since 1993. Senior Vice President,
Exploration, Exploration and Production Division from 1992
until September 1996. Vice President, Exploration from
1992 to 1993. Vice President, North American Onshore
Exploration from 1991 until 1992.
Julius C. Hilburn 46 Vice President, Human Resources since Sep-tember 1996.
Manager, Benefits Administration from 1992 until September
1996. Manager, Corporate Recruiting from 1990 until 1992.
Deborah A. Kitchens 40 Vice President and Controller since September 1996.
Controller, Exploration and Production Division from 1992
until September 1996. Director of Internal Auditing from
1987 until 1992.
J. Michael Rauh 47 Treasurer since September 1996. Vice Presi-dent since
1987. Controller from 1987 until September 1996.
Donald F. Schiesz 59 Vice President, Safety and Environment since 1994. Senior
Vice President of Kerr-McGee Chemical Corporation from
1991 until 1994.
Jean B. Wallace 42 Vice President, General Administration since September
1996. Vice President, Human Resources from 1989 until
September 1996.
</TABLE>
There is no family relationship between any of the executive officers.
<PAGE>
FORWARD-LOOKING INFORMATION
This report contains forward-looking statements and assumptions
concerning Kerr-McGee's future results and prospects. These statements are based
on current expectations and are subject to certain events and risks that may be
beyond the company's control. In addition, the company may from time to time
make oral forward-looking statements. In connection with the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, the company
is hereby identifying important factors that could cause actual results to
differ materially from those contained in any forward-looking statement made by
or on behalf of the company. Any such statement is qualified by reference to the
following cautionary statements.
Such events and risks include the success of the oil and gas exploration
program, ultimate volume of recoverable oil and gas reserves, success of
cost-control efforts, general economic conditions, timely development and market
acceptance of customer products for which Kerr-McGee supplies raw materials, and
other risk factors discussed in this annual report on Form 10-K and the
company's 1996 Annual Report to Stockholders. Actual results and developments
may differ from those expressed or implied in this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information relative to the market in which the company's common stock
is traded, the high and low sales prices of the common stock by quarters for the
past two years, and the approximate number of holders of common stock is
furnished in Note 31 to the Consolidated Financial Statements in the 1996 Annual
Report to Stockholders, which note is incorporated by reference in Item 8.
Quarterly dividends declared totaled $1.64 per share for the year 1996,
$1.55 per share for the year 1995, and $1.52 per share for the year 1994. Cash
dividends have been paid continuously since 1941 and totaled $83 million in
1996, $79 million in 1995, and $78 million in 1994.
Item 6. Selected Financial Data
Information regarding selected financial data required in this item is
presented in the schedule captioned "Six-Year Financial Summary" in the 1996
Annual Report to Stockholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
"Management's Discussion and Analysis" in the 1996 Annual Report to
Stockholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following financial statements and supplementary data included in
the 1996 Annual Report to Stockholders are incorporated herein by reference:
Report of Independent Public Accountants
Consolidated Statement of Income
Consolidated Statement of Retained Earnings
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Financial Statements
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of directors -
For information required under this section, reference is made to the
"Election of Directors" section of the company's proxy statement for
1997 made in connection with its Annual Stockholders' Meeting to be
held on May 13, 1997.
(b) Identification of executive officers -
The information required under this section is set forth in the
caption "Executive Officers of the Registrant" on pages 19 and 20 of
this Form 10-K pursuant to Instruction 3 to Item 401(b) of Regulation
S-K and General Instruction G(3) to Form 10-K.
(c) Compliance with Section 16(a) of the 1934 Act -
For information required under this section, reference is made to the
"Compliance with Section 16(a) of the Securities Exchange Act of
1934" section of the company's proxy statement for 1997 made in
connection with its Annual Stockholders' Meeting to be held on May
13, 1997.
Item 11. Executive Compensation
For information required under this section, reference is made to the
"Executive Compensation and Other Information" section of the company's proxy
statement for 1997 made in connection with its Annual Stockholders' Meeting to
be held on May 13, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information required under this section, reference is made to the
"Security Ownership" portion of the "Election of Directors" section of the
company's proxy statement for 1997 made in connection with its Annual
Stockholders' Meeting to be held on May 13, 1997.
Item 13. Certain Relationships and Related Transactions
For information required under this section, reference is made to the
"Election of Directors" and "Certain Relationships and Related Transactions"
sections of the company's proxy statement for 1997 made in connection with its
Annual Stockholders' Meeting to be held on May 13, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements -
The following consolidated financial statements of Kerr-McGee
Corporation and its subsidiary companies, included in the
company's 1996 Annual Report to Stockholders, are incorporated by
reference in Item 8:
Report of Independent Public Accountants
Consolidated Statement of Income for the Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statement of Retained Earnings for the Years
Ended December 31, 1996, 1995, and 1994
Consolidated Balance Sheet at December 31, 1996 and 1995
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994
Notes to Financial Statements
(a) 2. Financial Statement Schedules -
Report of Independent Public Accountants on Financial
Statement Schedule
Schedule II - Valuation Accounts and Reserves for the Years
Ended December 31, 1996, 1995, and 1994
Schedules I, III, IV, and V are omitted as the subject matter
thereof is either not present or is not present in amounts
sufficient to require submission of the schedules in accordance
with instructions contained in Regulation S-X.
(a) 3. Exhibits -
The following documents are filed under Commission file number
1-3939 as a part of this report.
Exhibit No.
3.1 Restated Certificate of Incorporation of
Kerr-McGee Corporation, filed as Exhibit 3.1
to the report on Form 10-Q for the quarter
ended June 30, 1987, and incorporated herein
by reference.
3.2 Bylaws of Kerr-McGee Corporation, as
amended, filed as Exhibit 3(b) to the report
on Form 10-K for the year ended December 31,
1986, and incorporated herein by reference.
4.1 Amended and Restated Rights Agreement dated
as July 9, 1996, filed as Exhibit 1 to the
report on Form 8-K dated July 9, 1996, and
incorporated herein by reference.
4.2 The company agrees to furnish to the
Securities and Exchange Commission, upon
request, copies of each of the following
instruments defining the rights of the
holders of certain long-term debt of the
company: the Indenture dated as of June 1,
1976, between the company and Citibank,
N.A., as trustee, relating to the company's
8-1/2% Sinking Fund Debentures due June 1,
2006; the Indenture dated as of November 1,
1981, between the company and United States
Trust Company of New York, as trustee,
relating to the company's 7% Debentures due
November 1, 2011; the Note Agreement dated
as of November 29, 1989, among the
Kerr-McGee Corporation Employee Stock
Ownership Plan Trust (the Trust) and several
lenders, providing for a loan guaranteed by
the company of $125 million to the Trust;
the Facilities Agreement dated March 3,
1991, providing for borrowings of up to $65
million through September 3, 1993, by
National Titanium Dioxide Company Limited
(Cristal), a Saudi Arabian limited liability
company (owned 25% by a wholly owned
subsidiary of the company), and several
banks with 25% of the loans guaranteed on a
several basis by a wholly owned subsidiary;
the $325 million Credit Agreement dated as
of December 4, 1996, providing for a five-
year revolving credit facility with a bullet
maturity on the fifth anniversary of the
execution of the Credit Agreement; the
Revolving Credit Agreement dated as of
October 16, 1992, and the first amendment to
the Credit Agreement dated as of December
21, 1994, among Kerr-McGee Corporation,
Kerr-McGee Oil (U.K.) PLC, and several banks
providing for revolving credit of up to $230
million through December 21, 1999; and
the Revolving Credit Agreement dated as of
February 20, 1997, between Kerr-McGee China
Petroleum Ltd., as borrower, and Kerr-McGee
Corporation, as guarantor, and several banks
providing for revolving credit of up to $105
million through March 6, 2000. The total
amount of securities authorized under each
of such instruments does not exceed 10% of
the total assets of the company and its
subsidiaries on a consolidated basis.
4.3 Kerr-McGee Corporation Direct Purchase and
Dividend Reinvestment Plan filed on Form S-3
effective August 19, 1993, Registration No.
33-66112, and incorporated herein by
reference.
10.1* Deferred Compensation Plan for Non-Employee
Directors as amended and restated effective
October 1, 1990, filed as Exhibit 10(1) to
the report filed on Form 10-K for the year
ended December 31, 1990, and incorporated
herein by reference.
10.2* Kerr-McGee Corporation Stock Deferred Com-
pensation Plan for Non-Employee Directors
as amended and restated effective August 1,
1995, filed on Form 10-K for year ended
December 31, 1995, and incorporated herein
by reference.
10.3* Description of the company's Annual
Incentive Compensation Plan, filed on Form
10-K for year ended December 31, 1995, and
incorporated herein by reference.
10.4* The Long Term Incentive Program as amended
and restated effective May 9, 1995, filed as
Exhibit 4.2 on Form 10-Q for the quarter
ended March 31, 1995, and incorporated
herein by reference.
10.5* Benefits Restoration Plan as amended and
restated effective September 13, 1989, filed
as Exhibit 10(6) to the report on Form 10-K
for the year ended December 31, 1992, and
incorporated herein by reference.
10.6* Kerr-McGee Corporation Executive Deferred
Compensation Plan as amended and restated
effective January 1, 1996, filed as Exhibit
10.6 to the report on Form 10-K for the year
ended December 31, 1995, and incorporated
herein by reference.
10.7* Kerr-McGee Corporation Supplemental Execu-
tive Retirement Plan as amended and restated
effective May 3, 1994, filed as Exhibit 10.8
on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.
10.8* Amended and restated Agreement, restated
as of December 31, 1992, between the company
and Frank A. McPherson filed as Exhibit
10(9) on Form 10-K for the year ended
December 31, 1992, and incorporated herein
by reference.
10.9* Amended and restated Agreement, restated as
of December 31, 1992, between the company
and John C. Linehan filed as Exhibit 10(10)
on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference.
10.10* Amended and restated Agreement, restated as
of December 31, 1992, between the company
and Luke R. Corbett filed as Exhibit 10(11)
on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference.
10.11* Amended and restated Agreement, restated as
of December 31, 1992, between the company
and Tom J. McDaniel filed as Exhibit 10.13
on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.
10.12* Agreement as of October 1, 1991, between the
company and Robert C. Scharp.
10.13* Consulting agreement, as of February 1,
1997, between the company and Frank A.
McPherson.
10.14* Form of agreement, amended and restated as
of December 31, 1992, between the company
and certain executive officers not named in
the Summary Compensation Table contained in
the company's definitive Proxy Statement for
the 1997 Annual Meeting of Stockholders,
filed as Exhibit 10(14) on Form 10-K for the
year ended December 31, 1992, and
incorporated herein by reference.
12 Computations of ratio of earnings to fixed
charges.
13 1996 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule (electronic filing
only).
*These exhibits relate to the compensation plans and arrangements of the
company.
(b) Reports on Form 8-K -
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 1996.
<PAGE>
Report of Independent Public Accountants On Financial
Statement Schedule
To Kerr-McGee Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Kerr-McGee
Corporation's 1996 Annual Report to Stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 17, 1997. Our
report on the consolidated financial statements includes an explanatory
paragraph with respect to 1995 changes in accounting for the impairment of
long-lived assets and long-lived assets to be disposed of, as discussed in Note
11 to the financial statements. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The Schedule of Valuation Accounts
and Reserves is the responsibility of the company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
(ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 17, 1997
<PAGE>
<TABLE>
SCHEDULE II
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
VALUATION ACCOUNTS AND RESERVES
<CAPTION>
Additions
Balance at Charged to Charged to Deductions Balance at
Beginning Profit and Other from End of
(In millions of dollars) of Year Loss Accounts Reserves Year
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
a. Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $14 $ 1 $ - $ 2 $ 13
Warehouse inventory obsolescence 3 - - - 3
--- ---- ---- ---- ----
$17 $ 1 $ - $ 2 $ 16
=== ==== ==== ==== ====
b. Not deducted from asset accounts
Environmental $230 $ 55 $ 4 (A) $ 54 $235
Postretirement benefits 112 11 - 6 117
Oil and gas site dismantlement and coal
site reclamation and restoration 103 14 - 7 110
Surface mine stripping cost 16 35 - 36 15
Pension benefits 11 - (4)(A) - 7
Other 6 2 - 1 7
--- ---- ---- ---- ----
$478 $117 $ - $104 $491
==== ==== ==== ==== ====
Year Ended December 31, 1995
a. Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $11 $ 3 $ 1 $ 1 $ 14
Warehouse inventory obsolescence 2 1 - - 3
--- ---- ---- ---- ----
$13 $ 4 $ 1 $ 1 $ 17
=== ==== ==== ==== ====
b. Not deducted from asset accounts
Environmental $166 $121 $ 4 (A) $ 61 $230
Postretirement benefits 108 12 (1)(A) 7 112
Oil and gas site dismantlement and coal
site reclamation and restoration 94 12 - 3 103
Surface mine stripping cost 12 37 - 33 16
Pension benefits 9 4 - 2 11
Other 8 1 (2)(A) 1 6
--- ---- ---- ---- ----
$397 $187 $ 1 $107 $478
==== ==== ==== ==== ====
Year Ended December 31, 1994
a. Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $ 5 $ 9 $ - $ 3 $ 11
Warehouse inventory obsolescence 1 1 - - 2
--- ---- ---- ---- ----
$ 6 $ 10 $ - $ 3 $ 13
=== ==== ==== ==== ====
b. Not deducted from asset accounts
Environmental $255 $ 21 $(50)(A) $ 60 $166
Postretirement benefits 103 11 - 6 108
Oil and gas site dismantlement and coal
site reclamation and restoration 81 13 3 (B) 3 94
Surface mine stripping cost 14 30 - 32 12
Pension benefits - 4 6 (C) 1 9
Other 7 2 - 1 8
--- ---- ---- ---- ----
$460 $ 81 $(41) $103 $397
==== ==== ==== ==== ====
(A) Transfer (to) from current liabilities.
(B) Obligation assumed in connection with property acquisitions.
(C) Additional minimum liability offset by an intangible asset in deferred
charges.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: Luke R. Corbett*
Luke R. Corbett,
Chairman of the Board and
Chief Executive Officer
March 27, 1997 By: (John C. Linehan)
Date John C. Linehan,
Executive Vice President and
Chief Financial Officer
By: (Deborah A. Kitchens)
Deborah A. Kitchens,
Vice President and Controller
and Chief Accounting Officer
* By his signature set forth below, John C. Linehan has signed this Annual
Report on Form 10-K as attorney-in-fact for the officer noted above,
pursuant to power of attorney filed with the Securities and Exchange
Commission.
By: (John C. Linehan)
John C. Linehan
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated.
By: Paul M. Anderson*
Paul M. Anderson, Director
By: Bennett E. Bidwell*
Bennett E. Bidwell, Director
By: E. H. Clark, Jr.*
E. H. Clark, Jr., Director
By: Luke R. Corbett*
Luke R. Corbett, Director
By: Martin C. Jischke*
Martin C. Jischke, Director
By: Robert S. Kerr, Jr.*
Robert S. Kerr, Jr., Director
March 27, 1997 By: Tom J. McDaniel*
Date Tom J. McDaniel, Director
By: William C. Morris*
William C. Morris, Director
By: John J. Murphy*
John J. Murphy, Director
By: John J. Nevin*
John J. Nevin, Director
By: Richard M. Rompala*
Richard M. Rompala, Director
By: Farah M. Walters*
Farah M. Walters, Director
*By his signature set forth below, John C. Linehan has signed this
Annual Report on Form 10-K as attorney-in-fact for the directors noted
above, pursuant to power of attorney filed with the Securities and
Exchange Commission.
By: (John C. Linehan)
John C. Linehan
AGREEMENT
Agreement made as of October 1, 1991 between KERR-McGEE CORPORATION, a
Delaware corporation having its executive offices at Oklahoma City, Oklahoma
(the "Company"), and ROBERT C. SCHARP residing at Edmond, Oklahoma (the
"Executive"). Unless otherwise indicated, terms used herein and defined in
Schedule A hereto shall have the meanings assigned to them in said Schedule.
WHEREAS, the Executive is currently employed by the Company and/or its
Subsidiaries; and
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce the continued attention and dedication of certain
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a Change of Control of the Company;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the Company and the Executive agree as follows:
1. OPERATION OF AGREEMENT
This Agreement shall become effective immediately upon the occurrence of
a Change of Control, provided that the Executive is employed by the Company
immediately prior to such Change of Control. Once it be comes effective, this
Agreement shall not terminate until the third anniversary of the Change of
Control. Notwithstanding the termination of this Agreement, the Company shall
remain liable for any rights or payments arising prior to such termination to
which the Executive is entitled under this Agreement.
2. SERVICE AFTER CHANGE OF CONTROL
Following a Change of Control, the Company will not terminate the
Executive's employment with the Company except on account of Cause prior to the
third anniversary of the Change of Control. Upon any termination of employment
of the Executive, other than for Cause or upon death, a Notice of Termination
shall be provided by the party causing such termination of employment.
3. BENEFITS UPON CHANGE OF CONTROL
(a) Stock Plans. Notwithstanding the terms and conditions of any benefit
plan or compensation program of the Company or any Subsidiary that employs the
Executive including but not limited to any purchase plan, stock grant plan,
stock option plan, employee stock ownership plan or similar plan or program
(excluding any plan qualified under Section 401(a) of the Code), the Company
shall, upon the occurrence of the Change of Control which cause this Agreement
to become effective (i) accelerate, vest and make immediately exercisable in
full (to the extent not already provided for under the terms of such applicable
plans or programs) all unexercisable installments of all options to acquire
securities of the Company and any accompanying stock appreciation rights, of
which the Executive is the Beneficial Owner on the date of such Change of
Control and (ii) waive any applicable restrictions including resale restrictions
or rights of repurchase, relating to or imposed on securities granted by the
Company to the Executive pursuant to such plans or programs which securities the
Executive is the Beneficial Owner of on the date of such Change of Control.
(b) Pension Plan. Following a Change of Control, the Executive may elect
early retirement under a retirement plan available to salaried employees or
employees generally of the Company or any Subsidiary that employs the Executive
upon giving the Company (or a Subsidiary employing the Executive) two days'
written notice.
(c) Benefits Restoration Plan. To the extent that the Executive is or
becomes a participant in the Benefits Restoration Plan, the Company shall amend
or have amended the Benefits Restoration Plan, which amendment shall thereafter
remain in effect, to provide in the event of an Executive's Termination for the
benefits specified in Section 4(b) hereof.
(d) Death of an Executive. In the event of the Executive's death prior
to Termination, but while employed by the Company or any Subsidiary, as the case
may be, his spouse or personal representative, if such spouse shall have died,
shall be entitled to receive his salary at the rate then in effect through the
date of his death, plus one additional pay period, as provided under the
Company's pay policy, as well as any amounts previously earned and not paid for
the periods of service prior to his date of death.
4. PAYMENTS AND BENEFITS UPON TERMINATION
The Executive shall be entitled to the following payments and benefits
following Termination:
(a) Termination Payment. In recognition of past services to the Company
by the Executive and in consideration for the undertaking by the Executive to
provide services to the Company, pursuant to Paragraph 2 hereof, the Company
shall make a lump sum payment in cash to the Executive as severance pay on the
fifth day following the Date of Termination equal to three times the Executive's
annual base salary (including for these purposes any amounts previously deferred
under any qualified or nonqualified deferred compensation plan, program or
arrangement (in effect immediately prior to the date that either a Change of
Control shall occur or such Date of Termination, whichever salary is higher.
Notwithstanding the foregoing, if all or any portion of the payments or
benefits provided under this Section 4(a), either alone or together with other
payments and benefits which the Executive receives or is then entitled to
receive from the Company or any Subsidiary, would constitute a Parachute
Payment, then the payments and benefits provided to the Executive under this
Section 4(a) shall be reduced but only to the extent necessary to ensure that no
portion thereof shall be subject to the excise tax imposed by Section 4999 of
the Code; but only if, by reason of such reduction, the Executive's Net After
Tax Benefit shall exceed the Net After Tax Benefit if such reduction were not
made. The foregoing calculations (and any calculations required under the
definition of Net After Tax Benefit) shall be made, at the Company's expense, by
the Company and the Executive. If no agreement on the calculations is reached
within five days of the Date of Termination, then the Executive and the Company
will agree to the selection of an accounting firm to make the calculations. If
no agreement can be reached regarding the selection of an accounting firm, the
Company shall select a "big eight" accounting firm which has no current or
recent business relationship with the Company or with the Person or Group
responsible for the Change of Control. The determination of any such firm
selected will be conclusive and binding on all parties.
(b) Benefits Restoration Plan. The Executive shall be entitled to
additional years of credit for purposes of calculating the years of service and
age of such Executive under the terms of the Benefits Restoration Plan equal to
the lesser of (i) five years or (ii) the number of years necessary to bring the
Executive to age 65 under the terms of the Benefits Restoration Plan, and the
Executive shall have a nonforfeitable right to any and all benefits credited to
such Executive under the Benefits Restoration Plan.
(c) Death of the Executive. In the event of the Executive's death
subsequent to Termination, all payments and benefits required by this Agreement
shall be paid to the Executive's designated beneficiary or beneficiaries or, if
he has not designated a beneficiary or beneficiaries, to his estate.
5. CONFIDENTIALITY
The Executive agrees to hold in confidence any and all confidential
information known to him concerning the Company and its Subsidiaries and their
respective businesses so long as such information is not otherwise publicly
disclosed.
<PAGE>
6. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Oklahoma City,
Oklahoma, or, at the option of the Executive, in the county where the Executive
resides, in accordance with the Rules of the American Arbitration Association
then in effect; provided, however, that if the Executive institutes an action
relating to this Agreement the Executive may, at his option, bring such action
in an Oklahoma court of competent jurisdiction. Judgment may be entered on the
arbitrator's award in any such court having jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall not adversely affect, limit
or terminate any other agreement or arrangement between the Executive and the
Company presently in effect or hereafter entered into, including any employee
benefit plan under which the Executive is entitled to benefits.
8. MISCELLANEOUS
(a) No Mitigation. All payments and benefits to which the Executive is
entitled under this Agreement shall be made and provided without offset,
deduction or mitigation on account of income the Executive could or may receive
from other employment or otherwise.
(b) Legal Expenses. The Company shall pay all costs and expenses,
including reasonable attorneys' fees and disbursements, of the Executive, at
least monthly, in connection with any litigation, arbitration or similar
proceeding, whether or not instituted by the Company or the Executive, with
respect to the interpretation or enforcement of any provision of this Agreement.
(c) Notices. Any notices required under the terms of this Agreement
shall be effective when mailed, postage prepaid, by certified mail and addressed
to, in the case of the Company:
R. G. Horner, Jr.
Vice President and General Counsel
Kerr-McGee Corporation
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
and to, in the case of the Executive:
Robert C. Scharp
Senior Vice President
Kerr-McGee Corporation
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
Either party may designate a different address by giving written notice
of change of address in the manner provided above.
(d) Waiver. No waiver or modification in whole or in part of this
Agreement, or any term or condition hereof, shall be effective against any party
unless in writing and duly signed by the party sought to be bound. Any waiver of
any breach of any provision hereof or any right or power by any party on one
occasion shall not be construed as a waiver of, or a bar to, the exercise of
such right or power on any other occasion or as a waiver of any subsequent
breach.
(e) Binding Effect; Successors. Subject to the provisions hereof,
nothing in the Agreement shall prevent the consolidation of the Company with, or
its merger into, any other corporation or the sale by the Company of all or
substantially all of its properties and assets, or the assignment of this
Agreement by the Company in connection with any of the foregoing actions. This
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Company and the Executive and their respective heirs, legal representatives,
successors and assigns. If the Company shall be merged into or consolidated with
another entity, the provisions of this Agreement shall be binding upon and inure
to the benefit of the entity surviving such merger or resulting from such
consolidation. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had take place.
The provisions of this Paragraph 8(e) shall continue to apply to each subsequent
employer of the Executive hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such subsequent employer.
(f) Separability. Any provision of this Agreement which is held to be
unenforceable or invalid in any respect in any jurisdiction shall be ineffective
in such jurisdiction to the extent that is unenforceable or invalid without
affecting the remaining provisions hereof, which shall continue in full force
and effect. The enforceability or invalidity of a provision of this Agreement in
one jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
(g) Controlling Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma applicable to contracts made
and to be performed therein.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the day and year first above written.
KERR-McGEE CORPORATION
(F. A. McPherson)
F. A. McPherson
Chairman of the Board and
Chief Executive Officer
(Robert C. Scharp)
Robert C. Scharp
<PAGE>
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules
and Regulations promulgated under the Securities Exchange Act of 1934, as
amended.
"Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 of
the General Rules and Regulations promulgated under the Securities Exchange Act
of 1934, as amended.
"Benefits Restoration Plan" means the Company's Benefits Restoration
Plan, effective January 1, 1985, as amended.
"Cause" means willful and gross misconduct on the part of the Executive
that has a materially adverse effect on the Company and its Subsidiaries, taken
as a whole, or the conviction of the Executive of a felony under United Stated
federal, state or local criminal law, as determined in good faith by the written
resolution duly adopted by the affirmative vote of not less than two-thirds of
all of the directors who are not employees, officers, or otherwise Affiliates of
the Company.
"Change of Control" means any one of the following: (a) a change in any
two year period in a majority of the members of the Board of Directors of the
Company resulting from the election of directors who were not directors at the
beginning of such period (other than the election of directors to fill vacancies
created by death or Disability, or the election of a director to replace a
director who by virtue of his age is not eligible for election under the by-laws
of the Company as in effect on the date of this Agreement); (b) any Person or
Group together with its Affiliates, becomes the Beneficial Owner, directly or
indirectly, of 25% or more of the Company's then outstanding Common Stock or 25%
or more of the voting power of the Company's then outstanding Common Stock or
25% or more of the voting power of the Company's then outstanding securities,
entitled to vote generally for the election of the Company's directors; (c) the
approval by the Company's stockholders of (i) the merger or consolidation of the
Company with any other corporation (other than a merger or consolidation of the
Company and a wholly-owned Subsidiary in which the holders of the Company's
Common Stock immediately prior to such merger or consolidation have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger or consolidation, (ii) the sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all, of the assets of the Company; or (d) a majority of the
members of the Board of Directors in office immediately prior to a proposed
transaction determined by written resolution that such proposed transaction, if
taken, will be deemed a Change of Control and such proposed transaction is
affected.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" means if the Executive's employment is terminated
during the term of this Agreement, the date on which a Notice of Termination is
given; provided, however, that if within thirty days after any Notice of
Termination is given to the Executive, the Executive notifies the Company or the
Subsidiary that employs the Executive that a dispute exists concerning the
termination, the Date of Termination shall be the date the dispute is finally
determined, whether by mutual agreement by the parties or upon final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
"Disability" means that (i) a person has been totally incapacitated by
bodily injury or physical or mental disease so as to be prevented thereby from
engaging in a comparable occupation or employment for remuneration or profit,
(ii) such person will be subject to such total incapacity for a period of at
least eighteen consecutive months and (iii) such person is disabled for purposes
of any and all of the plans or programs of the Company or any Subsidiary that
employs the Executive under which benefits, compensation or awards are
contingent upon a finding of disability. The determination with respect to
whether the Executive is suffering from a Disability will be determined by a
mutually acceptable physician or, if there is no physician mutually acceptable
to the Company and the Executive, by a physician selected by the Dean of the
University of Oklahoma Medical School.
"Good Reason" means (a) without the Executive's express written consent,
(i) the assignment to the Executive of any duties, or any limitation of the
Executive's responsibilities, inconsistent with the Executive's positions,
duties, responsibilities and status with the Company or any Subsidiary that
employs the Executive immediately prior to the date of the Change of Control, or
(ii) any removal of the Executive from or any failure to re-elect the Executive
to, any of the Executive's positions with the Company or any Subsidiary that
employs the Executive immediately prior to the Change of Control, except in
connection with the involuntary termination of the Executive's employment by the
Company for Cause or as a result of the Executive's death or Disability; (b) any
failure by the Company to pay, or any reduction by the Company of, the
Executive's base annual salary or bonus compensation in effect immediately prior
to the Change of Control; (c) any failure by the Company or any Subsidiary that
employs the Executive to (i) continue to provide the Executive with the
opportunity to participate, on terms no less favorable than those in effect
immediately prior to the Change of Control, in any benefit plans and
compensation programs in which the Executive was participating immediately prior
to the Change of Control, or their equivalent, including, but not limited to,
participation in pension, profit-sharing, stock grants, stock option, savings,
employee stock ownership, incentive compensation, group insurance plans or
similar plans or programs, or (ii) provide the Executive with all other fringe
benefits (or their equivalent) including paid vacation, from time to time in
effect for the benefit of any executive, management or administrative group
which customarily includes a person holding the employment position with the
Company or its Subsidiaries then held by the Executive; (d) without the
Executive's express written consent, the relocation of the Company's
headquarters or of the principal place of the Executive's employment to a
location that is more than 35 miles further from the Executive's principal
residence than such principal place of employment immediately prior to the
Change of Control; (e) any change in the sick leave policy for salaried
employees or employees generally of the Company or any Subsidiary that employs
the Executive which has an adverse effect on the Executive's rights and benefits
pursuant to such policy; (f) any reduction to the extent applicable in benefits
offered under an income protection insurance plan for salaried employees or
employees generally of the Company or any Subsidiary that employs the Executive;
(g) any change in the pay policy for salaried employees or employees generally
of the Company or any Subsidiary that employs the Executive which has an adverse
effect on the Executive's rights and benefits pursuant to such policy; (h) with
respect to a Subsidiary that employs the Executive, the sale by the Company of
25% or more of such Subsidiary's common stock or 25% or more of the Subsidiary's
then outstanding securities entitled to vote generally for the election of the
Subsidiary's directors, or the sale by the Company of all or substantially all
of the assets of such Subsidiary; (i) the breach of any provision of this
Agreement by the Company or (j) the failure of any successor company to the
Company to expressly assume this Agreement.
"Group" has the meaning set forth in Rule 13d-5 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Net After Tax Benefit" means the sum of (i) the total amounts payable
to the Executive under Section 4(a) of this Agreement, plus (ii) all other
payments and benefits which the Executive receives or is then entitled to
receive from the Company or any Subsidiary that would constitute a Parachute
Payment, less (iii) the amount of federal income taxes payable with respect to
the foregoing calculated at the maximum marginal income tax rate for each year
in which the foregoing shall be paid to the Executive (based upon the rate in
effect for such year as set forth in the Code at the time of termination of his
employment), less (iv) the amount of excise taxes imposed with respect to the
payments and benefits described in (i) and (ii) above by Section 4999 of the
Code.
"Note of Termination" means a written notice to the Executive or to the
Company, as the case may be, which shall indicate those specific provisions in
this Agreement relief upon and which sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for the termination of the
Executive's employment constituting a Termination under the provision so
indicated.
"Parachute Payment" means any payment deemed to constitute a "parachute
payment" as defined in Section 280G of the Internal Revenue Code of 1986, as
amended.
"Person" means any individual firm, corporation, group (as such term is
sued in Rule 13d of the General Rules and Regulations promulgated under the
Securities Exchange Act of 1934, as amended) or other entity.
"Subsidiary" with respect to the Company has the meaning set forth in
Rule 12b-2 of the General Rules and Regulations promulgated under the Securities
Exchange Act of 1934, as amended.
"Termination" means following the occurrence of any Change of Control by
the Company (i) the involuntary termination of the employment of the Executive
for any reason other than for Cause, death or Disability, or (ii) the
termination of employment by the Executive for Good Reason; provided, however,
that any retirement under a retirement plan available to salaried employees or
employees generally of the Company or any Subsidiary that employs the Executive
that is coincident with or subsequent to a Termination, will not preclude
payments under this Agreement to which the Executive is entitled in respect of
such Termination.
January 14, 1997
Mr. Frank McPherson
Kerr-McGee Corporation
Oklahoma City, Oklahoma 73102
Dear Mr. McPherson:
Kerr-McGee Corporation (the "Company") has requested, and you have
agreed, to provide consulting services in Oklahoma City following your
retirement as chairman of the company. This letter sets forth our agreement
regarding such services and shall become effective February 1, 1997. Our
agreement shall continue for two years and may be extended, at the option of the
Company, for one additional year.
During the term of this agreement, you will perform such consulting
duties on such matters as are determined by the Chief Executive officer of the
Company (the "CEO"). You will render such services for the CEO at such time or
times as may be mutually convenient to you and the CEO.
The Company will pay you for your services at an annual rate of
$300,000.00 payable in equal monthly installments. You will also be reimbursed
for the expenses you incur performing your duties hereunder, in accordance with
applicable Company policy. During the term of this agreement, the Company, at
its sole cost, shall also provide you with life insurance coverage at least
equal to the coverage currently provided under the Company's group life
insurance plan. The Company will also provide you with such support services as
are reasonably necessary for you to perform such duties.
In the event of a Change of Control of the Company (as defined in that
certain Change of Control Agreement dated December 31, 1992 between you and the
Company), all amounts which are to be paid to you hereunder shall be accelerated
and shall be due and payable upon the date of such Change of Control. The other
terms and provisions of this agreement shall remain in full force unless
otherwise agreed to by you and the Company.
During the term of this agreement, you shall not (without the Company's
prior written consent) become an officer of, director of, consultant to, serve
in any other capacity with, or have any ownership interest in, any business,
whether or not incorporated, which competes in any material respect with any
business of the Company (or its subsidiaries, successors and assigns); provided,
however, nothing herein shall preclude your ownership or acquisition of
securities of any publicly traded company. Also, (without the Company's prior
written consent) you will not disclose or make accessible to any other person or
entity (other than as required by law) any confidential information of the
Company and its subsidiaries.
If the terms set forth above are acceptable, please evidence your
agreement by signing and dating the attached copy of this letter and returning
it to my attention.
Sincerely,
KERR-McGEE CORPORATION
By: (Luke R. Corbett)
Luke R. Corbett
Accepted and agreed
(Frank A. McPherson)
Frank A. McPherson
January 17, 1997
Date
EXHIBIT 12
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
(In millions of dollars) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income (loss) from
continuing operations $220 $(24) $ 69 $ 95 $(12)
Add -
Provision (benefit) for
income taxes 103 (45) 30 54 (23)
Interest expense 52 61 58 45 64
Rental expense representa-
tive of interest factor 5 4 4 4 5
---- ---- ---- ----- ----
Earnings $380 $ (4) $161 $198 $ 34
==== ==== ==== ==== ====
Fixed Charges -
Interest expense $ 52 $ 61 $ 58 $ 45 $ 64
Rental expense representa-
tive of interest factor 5 4 4 4 5
Interest capitalized 9 11 10 20 15
---- ---- ---- ---- ----
Total fixed charges $ 66 $ 76 $ 72 $ 69 $ 84
==== ==== ==== ==== ====
Ratio of earnings to fixed
charges 5.8 -(2) 2.2 2.9 -(2)
==== ==== ==== ===== ====
(1)The computation of the ratio of earnings to fixed charges has been restated
to conform with the current year's presentation.
(2)Earnings were inadequate to cover fixed charges by $80 million and $50
million in 1995 and 1992, respectively.
Management's Discussion and Analysis
Results of Consolidated Operations
The company's 1996 net income was $220 million, or $4.43 per common share,
compared with a net loss in 1995 of $31 million, or $.60 per common share, and
1994 net income of $90 million, or $1.74 per common share. Net income was
reduced by a number of unusual items in 1996 and 1995, which totaled $10 million
and $161 million after income taxes, respectively.
The 1996 unusual items of an operating nature on an after-tax basis were $16
million for noncash impairments of long-lived exploration and production and
chemical assets; $7 million for restructuring charges for relocation of the
exploration and production operations to Houston, Texas, and severance expense
associated with the merger of the North American onshore properties into Devon
Energy Corporation (Devon); and $1 million for other charges, none of which is
individually significant. The 1996 nonoperating unusual items on an after-tax
basis included $44 million for insurance settlements related to environmental
sites; $15 million for gains on sales of available-for-sale equity securities;
and $8 million in gains on sale of marginal and nonstrategic oil and gas
properties. Partially offsetting were after-tax nonoperating charges of $28
million for net environmental provisions related to abandoned sites (principally
for the company's closed facility in West Chicago, Illinois); $19 million for
provisions for settled and pending litigation; and $6 million for other items,
none of which is individually significant.
During 1995, the company adopted the provisions of Statement of Financial
Accounting Standards No. (FAS) 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of"; began a divestiture and
restructuring program for its exploration and production operations; and
provided for additional future remediation costs related to the West Chicago,
Illinois, closed facility. These noncash, unusual items totaled $161 million
after income taxes. The company also completed the sale of substantially all of
its refining and marketing operations in 1995. The sale of the remaining assets
was completed in 1996 with no material gain or loss. As a result, all 1995 and
1994 amounts related to refining and marketing are shown in the Consolidated
Statement of Income as Discontinued Operations.
Excluding unusual items, 1996 income from continuing operations was $230
million, compared with $137 million in 1995, or $4.63 per common share and $2.63
per common share, respectively. The increase was primarily due to oil and gas
exploration and production results that more than doubled those of the prior
year and a 14% increase from coal operations, partially offset by a 26% decline
in earnings from the chemical unit. Income from continuing operations was $69
million, or $1.33 per common share, in 1994. The increase in 1995 income,
compared with 1994, was attributable to higher earnings from all three of the
company's operating units.
Excluding unusual items, operating profit for 1996 was a record $408
million, compared with $298 million in 1995 and $207 million in 1994. The 1996
increase over 1995 is primarily due to significantly higher exploration and
production results. Also contributing to the increase were higher results for
coal, partially offset by lower chemical operating profit. In comparing 1995 to
1994, all three operating units experienced increased operating results.
Consolidated sales from continuing operations were $1.9 billion for 1996,
compared with $1.8 billion for 1995 and $1.6 billion for 1994. The increase in
1996 primarily resulted from higher crude oil and natural gas sales prices and
higher sales of purchased third-party natural gas, partially offset by declines
in titanium dioxide pigment sales prices and lower crude oil sales volumes. The
improvement in 1995 over 1994 was from higher titanium dioxide pigment and crude
oil sales prices and higher crude oil, natural gas, synthetic rutile, and coal
sales volumes, partially offset by lower natural gas and coal sales prices and
lower forest product sales volumes.
Costs and operating expenses increased $63 million in 1996, primarily due to
increased purchases of natural gas for resale and higher feedstock and utility
costs for titanium dioxide pigment. Costs and operating expenses increased $85
million in 1995 compared with 1994, due to higher coal and chemical production
volumes and increased purchases of crude oil and natural gas for resale.
General and administrative expenses were $187 million, $140 million, and
$110 million in 1996, 1995, and 1994, respectively. These amounts include net
provisions for environmental reclamation and remediation of inactive sites of
$43 million, $54 million, and $10 million in 1996, 1995, and 1994, respectively,
which represent additional provisions established for the removal of low-level
radioactive materials from the company's inactive facility in West Chicago,
Illinois, and the reclamation of several other inactive facilities. The 1996
expense includes unusual items consisting primarily of $29 million for settled
and pending litigation; $10 million for the exploration and production
restructuring costs; and $9 million of other items, none of which is
individually significant. The 1996 amount also includes the contribution that
funded Kerr-McGee Foundation Corporation (see Note 13). Excluding environmental
provisions, 1995 general and administrative expense was lower than 1994,
principally due to the effects of corporate restructuring and higher 1994
provisions for bad debts.
Asset impairments totaled $25 million in 1996 and related principally to
certain exploration and production properties in the Gulf of Mexico. This
compares with $227 million in 1995 resulting from the company's adoption of FAS
121 and the oil and gas divestiture program (see Note 11).
Exploration costs for 1996, 1995, and 1994 were $83 million, $92 million,
and $85 million, respectively. The company had lower undeveloped lease
amortization and lower geological and geophysical costs, partially offset by
higher dry hole expense in 1996, compared with 1995. The 1995 increase resulted
principally from higher dry hole and geophysical costs in the Gulf of Mexico and
higher other exploration costs in China and domestic areas.
Interest and debt expense totaled $52 million in 1996, $61 million in 1995,
and $58 million in 1994. The decrease in 1996 expense was due to decreased debt
and lower average interest rates.
Other income for 1996 increased due to several unusual items. The company
settled environmental claims with some insurance carriers and recognized gains
on sales of exploration and production properties and gains on the sales of
available-for-sale securities (see Note 18).
Segment Operations
Operating profit (loss) from each of the company's segments is summarized in
the following table:
(In millions of dollars) 1996 1995 1994
Exploration and production $204 $(97) $ 74
Chemicals 85 122 92
Coal 75 43 45
Other 7 (4) (4)
Total $371 $ 64 $207
Exploration and Production
Exploration and production's 1996 and 1995 operating profit includes several
unusual items. The 1996 unusual items were $22 million for asset impairments and
a $10 million charge for the continued restructuring of the unit, due to both
the December 1996 merger of the North American onshore properties into Devon and
the announced 1997 relocation of the unit to Houston, Texas. The 1995 unusual
items, totaling $210 million, related to FAS 121 asset impairments and
writedowns associated with the divestiture program of nonstrategic and marginal
properties and restructuring charges. Excluding these unusual items, operating
profit was $236 million and $113 million in 1996 and 1995, respectively. The
improvement resulted primarily from increases of 20% and 39% in the company's
average sales prices for crude oil and natural gas, respectively, and a $9
million decrease in exploration expense. The $39 million improvement in 1995
operating profit excluding unusual items, compared with 1994, was due to record
crude oil and natural gas sales volumes and higher crude oil prices, partially
offset by declines in natural gas sales prices and higher exploration costs.
Revenues and crude oil and natural gas volumes and sales prices are
summarized in the following table:
1996 1995 1994
Revenues (millions of dollars) $ 874 $ 690 $ 633
Crude oil and condensate produced
(thousands of barrels per day) 69 70 67
Average price of crude oil sold (per barrel) $19.16 $15.99 $14.81
Natural gas deliveries (MMCF per day) 281 291 271
Average price of natural gas
delivered (per MCF) $2.12 $1.52 $1.76
The company merged its North American onshore exploration and production
assets into Devon effective December 31, 1996. The merged properties represented
22% of the company's 1996 oil and gas production on a barrel-equivalent basis.
The investment in Devon will be accounted for on an equity basis; therefore, the
company's 1997 proprietary crude oil production and natural gas sales volumes
are expected to be lower than in 1996.
Chemicals
Operating profit for chemicals was $85 million in 1996, decreasing from $122
million in 1995 and $92 million in 1994. Included in 1996 operating profit are
unusual charges totaling $5 million for impairments and shutdown costs for a
crosstie treatment facility and the elimination of a product line at a specialty
plant. Revenues for the three years were $692 million, $707 million, and $639
million in 1996, 1995, and 1994, respectively. The 1996 decline in revenues and
operating profit from 1995 was primarily due to lower titanium dioxide pigment
sales prices. Operating profit in 1996 was also adversely affected by higher
feedstock and utility costs for pigment.
The increase in 1995 revenues, compared with 1994, was due to higher
titanium dioxide pigment sales prices and higher synthetic rutile sales volumes,
partially offset by lower forest products sales volumes. The increased pigment
sales price was also the primary reason for the higher 1995 operating profit.
Coal
Coal operating profit was $75 million, $43 million, and $45 million in 1996,
1995, and 1994, respectively, on revenues of $365 million, $353 million, and
$294 million, respectively. Operating profit in 1995 includes a $23 million
charge for FAS 121 asset impairments. Average sales prices, which were higher by
$.12 per ton, and slightly improved sales volumes resulted in increased revenues
and operating profit in 1996, compared with 1995. Operating profit for 1996 was
also positively impacted by lower per-ton production costs at the Galatia Mine.
Excluding the 1995 FAS 121 impairment provision of $23 million, operating
profit would have been $66 million, or $21 million higher than 1994. Revenues
for 1995 were higher due to higher sales volumes, partially offset by lower
sales prices. Per-ton production costs were lower in 1995 than in 1994.
<PAGE>
Financial Condition
(Dollars in millions) 1996 1995 1994
Current ratio 1.7 1.3 1.1
Working capital $ 320 $ 189 $ 52
Total debt 663 735 993
Stockholders' equity $1,367 $1,416 $1,543
Total debt to total capitalization 33% 34% 39%
Cash Flow
Net cash provided by operating activities was $645 million in 1996, compared
with $369 million in 1995 and $356 million in 1994. The increase in 1996 is
primarily attributable to the company's record net income and temporary changes
in working capital and other, which decreased net cash provided by operating
activities by $211 million in 1995. Although a net loss of $31 million was
incurred in 1995, the unusual charges, which totaled $260 million before income
taxes, were all noncash and did not adversely affect net cash provided by
operations. Net cash provided by operating activities in 1995 was essentially
the same as in 1994.
In both 1996 and 1995, the company had several other sources of cash, which
were used primarily to reduce debt and purchase the company's common stock.
During 1996, the company received cash proceeds of $48 million from the
divestiture of nonstrategic, marginal, and other exploration and production
properties; $29 million from the sale of equity securities; $13 million from the
sale of the remaining refining and marketing assets; and $11 million from the
sale of other assets, including the company's West Virginia coal mining
operation. Proceeds from the sale of substantially all of the company's refining
and marketing operations resulted in cash flow of $419 million in 1995.
Total debt declined from $993 million at December 31, 1994, to $663 million
at December 31, 1996. In September 1995, the company's Board of Directors
authorized management to purchase company stock of up to $300 million. Through
December 31, 1996, approximately 4 million shares had been acquired at a cost of
$243 million - $195 million in 1996 and $48 million in 1995. The company expects
to complete the stock purchase program by mid-1997.
On January 14, 1997, the company's Board of Directors approved an increase
in the quarterly dividend payable April 1, 1997, from $.41 per share to $.45 per
share. In 1995, the Board increased the quarterly dividend payable January 2,
1996, from $.38 per share to $.41 per share.
The company merged its North American onshore oil and gas properties into
Devon effective December 31, 1996. In exchange for the properties, the company
received 9,954,000 shares of Devon stock, approximately 31% of the common shares
outstanding. In future years, the company will report its proportionate share of
Devon's earnings as other income and will report dividends from Devon in the
Consolidated Statement of Cash Flows. Liquidity
At December 31, 1996, the company's net working capital position was $320
million, an increase of $131 million from December 31, 1995. The 1996 increase
was the result of the cash inflows discussed previously, which were used
primarily to repay short-term borrowings and also resulted in the higher cash
balance at year-end 1996. The 1995 increase of $137 million over 1994 was the
result of repayments of short-term debt from the sales proceeds from the
discontinued refining and marketing operations. The current ratio at December
31, 1996, was 1.7 to 1, compared with 1.3 to 1 at year-end 1995 and 1.1 to 1 at
year-end 1994.
The percentage of total debt to total capitalization was 33% at December 31,
1996, compared with 34% at December 31, 1995, and 39% at year-end 1994. The
ratio's decline is the direct result of the company's repayment of debt, despite
the partially offsetting effect of the stock purchase program on total
capitalization.
The company has several revolving credit agreements. One provides for
combined borrowings by the company and Kerr-McGee Credit Corporation, a wholly
owned subsidiary, of up to $325 million through December 4, 2001, of which $50
million was outstanding at year-end 1996. Another agreement entered into by the
company and Kerr-McGee Oil (U.K.) PLC, a wholly owned subsidiary, is a revolving
credit agreement with several banks providing for combined borrowings of up to
$230 million through December 21, 1999, none of which was outstanding at
year-end 1996. Both of these agreements require that the principal amounts
outstanding be paid in full on the respective termination dates. Interest is
payable at varying rates.
In February 1995, the company's wholly owned subsidiary, Kerr-McGee China
Petroleum Ltd., entered into a revolving credit agreement with several banks
providing for borrowings of up to $105 million through February 24, 1998, of
which $64 million was outstanding at year-end 1996. Interest is payable at
varying rates.
The company's wholly owned subsidiary, Kerr-McGee Canada Ltd., had revolving
credit agreements with three banks at December 31, 1996. As amended in September
and October 1996, two of the agreements provided for $20 million each in
committed lines of credit; the third agreement made $15 million available, for a
total of $55 million. The company is guarantor for each of the agreements.
Interest is payable at varying rates. At year-end 1996, $10 million was
outstanding under the $20 million agreement, which has a September 25, 1997,
termination date, and $5 million was outstanding under the $20 million
agreement, which has an October 16, 1997, termination date. In January 1997, the
$15 million facility was canceled by the company and the bank. It is the
company's intent to repay the amounts outstanding at December 31, 1996, and to
request cancellation of the two remaining credit facilities, as they are no
longer needed due to the company's merger of its Canadian exploration and
production properties into Devon.
On June 3, 1996, the company and the Kerr-McGee Corporation Employee Stock
Ownership Plan (ESOP) entered into an agreement under which Kerr-McGee, as
sponsor of the ESOP, loaned the ESOP $25 million. The note bears interest at
6.85% and is payable to Kerr-McGee in installments, which began January 2, 1997.
The note will be paid in full on January 2, 2005, which coincides with the
expected allocation of shares held by the ESOP to participants. The ESOP used
the proceeds of the loan from the company to prepay a portion of the 9.47%
Series A notes, which were guaranteed by the company and reflected in the
company's balance sheet as long-term debt. The remaining Series A notes were
paid as scheduled on July 1, 1996. The amount loaned to the ESOP by the company
represents sponsor financing and therefore does not appear in the company's
Consolidated Balance Sheet. The 9.61% Series B notes, totaling $51 million,
remain outstanding and are also scheduled to be paid in full on January 2, 2005.
The first payment of $2 million is due in 1998.
At year-end 1996, the company had available unused lines of credit and
revolving credit facilities of $657 million. Of this amount, $305 million and
$270 million can be used to support the commercial paper borrowings of
Kerr-McGee Credit Corporation and Kerr-McGee Oil (U.K.) PLC, respectively.
The company has financed its capital expenditures through internally
generated funds and various borrowings during the three years ended December 31,
1996. Cash capital expenditures were $392 million in 1996, $484 million in 1995,
and $410 million in 1994, a total of $1.3 billion. During this same period, $1.7
billion of net cash was provided by operating activities, exclusive of working
capital changes, which was approximately $200 million in excess of cash capital
expenditures and dividends paid during the same period.
Management anticipates that 1997 cash capital requirements, currently
estimated to be $445 million excluding acquisitions, and the capital
expenditures programs for the next several years can be provided through
internally generated funds and selective short-term and/or long-term borrowings.
The U.S. dollar is the functional currency for all of the company's
operations. It is the company's intent to hedge a portion of its monetary
assets, liabilities, and commitments denominated in foreign currencies;
therefore, from time to time, the company purchases foreign currency forward
contracts to provide funds for known or anticipated operating and capital
requirements that will be denominated in foreign currencies and to sell funds
received from collections of accounts receivable denominated in foreign
currencies. Additionally, the company periodically uses commodity futures and
options to minimize the price risks associated with producing and selling crude
oil and natural gas (see Note 13). Environmental Matters
The company's operations are subject to various environmental laws and
regulations. Under these laws, the company is subject to possible obligations to
remove or mitigate the effects on the environment of the disposal or release of
certain chemical, petroleum, or low-level radioactive substances at various
sites, including sites that have been designated Superfund sites by the United
States Environmental Protection Agency (EPA) pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as
amended. At December 31, 1996, the company had received notices that it has been
named a potentially responsible party (PRP) with respect to the remediation of
16 existing EPA Superfund sites and may share liability at certain of these
sites. In 1996, the company signed a Consent Decree with respect to a site at
Slidell, Louisiana, which has not yet been finalized. In addition, the company
and/or its subsidiaries have executed consent orders, operate under a license,
or have reached agreements to perform or have performed remediation or remedial
investigations and feasibility studies on sites not included as EPA Superfund
sites.
The company does not consider the number of sites for which it has been
named a PRP to be a relevant measure of liability. Because of continually
changing environmental laws and regulations, the nature of the company's
businesses, the large number of other PRPs, the present state of the law which,
under CERCLA, imposes joint and several liability on all PRPs, and pending legal
proceedings, the company is uncertain as to its involvement in many of the
sites. Therefore, the company is unable to reliably estimate the potential
liability and the timing of future expenditures that may arise from many of
these environmental sites. Reserves have been established for the remediation
and reclamation of active and inactive sites where it is probable that future
costs will be incurred and the liability is estimable. In 1996, $55 million was
added to the reserve for active and inactive sites. At December 31, 1996, the
company's reserve for these sites totaled $296 million. At year-end 1996, the
company also had reserves of $90 million for the future costs for the
abandonment and removal of offshore well and production facilities at the end of
their productive lives and $20 million for the decommissioning and reclamation
of coal mining locations. In the Consolidated Balance Sheet, $345 million of the
total reserves is classified as deferred credits, and the remaining $61 million
is included in current liabilities.
Expenditures for the environmental protection and cleanup of existing sites
for each of the last three years and for the three-year period ended December
31, 1996, are as follows:
(In millions of dollars) 1996 1995 1994 Total
Capital expenditures $15 $ 20 $ 17 $ 52
Recurring expenses 19 23 28 70
Charges to environmental reserves 56 61 60 177
Total $90 $104 $105 $299
<PAGE>
The company has not recorded in the financial statements potential
reimbursements from governmental agencies or other third parties (see Note 10).
The following table reflects the known estimated cost of investigation and/or
remediation that is probable and estimable. The table includes all EPA Superfund
sites where the company has been notified it is a PRP under CERCLA and other
sites where the company believes it has some ongoing financial involvement in
investigation and/or remediation at year-end 1996.
<TABLE>
<CAPTION>
Total Known Total
Estimated Expenditures Total Number
Cost Through 1996 of Identifiable
Location of Site Stage of Investigation/Remediation (In millions of dollars) PRPs
<S> <C> <C> <C> <C>
EPA Superfund sites
Milwaukee, Wis. Executed consent decree to remediate the site of a
former wood-treating facility. Conducting pre-design
studies; installed and operating a free-product
recovery system. $ 19 $ 5 3
West Chicago, Ill.,
outside the facility Began cleanup of a portion of the site in 1995.
Cleanup of an additional area expected to begin
in 1997 (see Note 10). 33 17 1
Slidell, La., Chicago, Ill.,
and 11 sites individually
not material Various stages of investigation/remediation. 30 12 492
82 34 496
Non-EPA Superfund sites under
consent order, license, or
agreement
West Chicago, Ill., facility Agreement executed. Awaiting a license to
complete decommissioning of a former facility.
Shipments to a permanent disposal facility
continue (see Note 10). 319 148
Cleveland/Cushing, Okla. Began cleanup at Cleveland/Cushing in 1996. 48 26
Cimarron, Okla. Remediation essentially complete at Cimarron. 32 31
399 205
Non-EPA Superfund sites
individually not material 156 102
Total for all sites $637 $341
</TABLE>
Although management believes adequate reserves have been provided for
environmental and all other known contingencies, it is possible, due to the
previously noted uncertainties, that additional reserves could be required in
the future that could have a material effect on the 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.
Accounting Matters
In March 1997, the Financial Accounting Standards Board issued FAS No. 128,
"Earnings per Share," which replaces primary earnings per share (EPS) with basic
EPS. Basic EPS includes no dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. The statement is effective for 1998, and the company
believes the effect on its EPS will be immaterial.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities." Effective for 1997, the SOP uses the current guidance in financial
accounting standards as its framework in determining when to recognize an
environmental liability. Based on certain criteria in the remediation process,
it requires that a company accrue the best estimate of costs to be incurred,
including the accrual of costs of compensation and benefits for employees that
are expected to devote time directly to remediation efforts. It also requires
accrual of postremediation monitoring costs that are expected to be incurred
after remediation is complete. The company believes that the SOP will have no
effect on net income or earnings per share.
<PAGE>
Responsibility for Financial Reporting
The company's management is responsible for the integrity and objectivity of
the financial data contained in the financial statements. These financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances and, where necessary, reflect
informed judgments and estimates of the effects of certain events and
transactions based on currently available information at the date the financial
statements were prepared.
The company's management depends on the company's system of internal
accounting controls to assure itself of the reliability of the financial
statements. The internal control system is designed to provide reasonable
assurance, at appropriate cost, that assets are safeguarded and transactions are
executed in accordance with management's authorizations and are recorded
properly to permit the preparation of financial statements in accordance with
generally accepted accounting principles. Periodic reviews are made of internal
controls by the company's staff of internal auditors, and corrective action is
taken if needed.
The Board of Directors reviews and monitors financial statements through its
audit committee, which is composed solely of directors who are not officers or
employees of the company. The audit committee meets with the independent public
accountants, internal auditors, and management to review internal accounting
controls, auditing, and financial reporting matters.
The independent public accountants are engaged to provide an objective and
independent review of the company's financial statements and to express an
opinion thereon. Their audits are conducted in accordance with generally
accepted auditing standards, and their report is included below.
Report of Independent Public Accountants
To the Stockholders and Board of Directors
of Kerr-McGee Corporation:
We have audited the accompanying consolidated balance sheet of Kerr-McGee
Corporation (a Delaware corporation) and subsidiary companies as of December 31,
1996 and 1995, and the related consolidated statements of income, retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kerr-McGee Corporation and
subsidiary companies as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As explained in Note 11 to the financial statements, the company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in
1995.
Oklahoma City, Oklahoma,
February 17, 1997 (ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
<PAGE>
<TABLE>
Consolidated Statement of Income
<CAPTION>
(In millions of dollars, except per-share amounts) 1996 1995 1994
<S> <C> <C> <C>
Sales $1,931 $1,754 $1,566
Costs and Expenses
Costs and operating expenses 1,030 967 882
General and administrative expenses 187 140 110
Depreciation and depletion 297 304 295
Asset impairment 25 227 --
Exploration, including dry holes and amortization of undeveloped leases 83 92 85
Taxes, other than income taxes 66 61 64
Interest and debt expense 52 61 58
Total Costs and Expenses 1,740 1,852 1,494
191 (98) 72
Other Income 132 29 27
Income (Loss) from Continuing Operations before Income Taxes 323 (69) 99
Provision (Benefit) for Income Taxes 103 (45) 30
Income (Loss) from Continuing Operations 220 (24) 69
Income (Loss) from Discontinued Operations, Net of Provision (Benefit)
for Income Taxes of $(4) in 1995 and $13 in 1994 -- (7) 21
Net Income (Loss) $ 220 $ (31) $ 90
Net Income (Loss) per Common Share
Continuing Operations $4.43 $(.47) $ 1.33
Discontinued Operations -- (.13) .41
Total $4.43 $(.60) $ 1.74
</TABLE>
<TABLE>
Consolidated Statement of Retained Earnings
<CAPTION>
(In millions of dollars, except per-share amounts) 1996 1995 1994
<S> <C> <C> <C>
Balance at Beginning of Year $1,209 $1,320 $1,309
Net income (loss) 220 (31) 90
Dividends declared (per common share: $1.64 in 1996,
$1.55 in 1995, and $1.52 in 1994) (81) (80) (79)
Balance at End of Year $1,348 $1,209 $1,320
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheet
<CAPTION>
(In millions of dollars) 1996 1995
<S> <C> <C>
ASSETS
Current Assets
Cash $ 121 $ 87
Accounts receivable, net of allowance for doubtful
accounts of $5 in 1996 and 1995 375 334
Inventories 218 221
Deposits and prepaid expenses 91 122
Total Current Assets 805 764
Investments
Equity affiliates 244 38
Other assets 74 122
Property, Plant, and Equipment - Net 1,948 2,210
Deferred Charges 53 79
Total Assets $3,124 $ 3,213
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 37 $ 94
Accounts payable 262 297
Long-term debt due within one year -- 9
Taxes on income 5 --
Taxes, other than income taxes 26 18
Accrued liabilities 155 157
Total Current Liabilities 485 575
Long-Term Debt 626 632
Deferred Credits and Reserves
Income taxes 131 92
Other 515 498
Total Deferred Credits and Reserves 646 590
Stockholders' Equity
Common stock, par value $1.00 - 150,000,000 shares authorized,
53,862,347 shares issued in 1996, and 53,513,888 shares issued in 1995 54 54
Capital in excess of par value 334 318
Preferred stock purchase rights 1 1
Retained earnings 1,348 1,209
Unrealized gain on available-for-sale securities 12 26
Common stock in treasury, at cost - 5,568,815 shares in 1996 and
2,444,690 shares in 1995 (306) (111)
Deferred compensation (76) (81)
Total Stockholders' Equity 1,367 1,416
Total Liabilities and Stockholders' Equity $3,124 $ 3,213
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 balance sheet.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>
(In millions of dollars) 1996 1995 1994
<S> <C> <C> <C>
Cash Flow from Operating Activities
Net income (loss) $220 $ (31) $ 90
Adjustments to reconcile to net cash provided by operating activities -
Depreciation, depletion, and amortization 307 334 340
Asset impairment 25 227 --
Deferred income taxes 68 (51) 2
Provision for environmental reclamation and remediation of inactive sites 43 54 10
Gain on sale of exploration and production properties (21) -- --
Realized gain on available-for-sale securities (23) -- --
Gain on sale of refining and marketing operations, net of income taxes -- (2) --
Noncash items affecting net income 18 50 57
Retirements and gain on sale of assets (3) (1) (4)
Changes in current assets and liabilities and other, net of effects
of discontinued operations sold -
(Increase) decrease in accounts receivable 48 75 (42)
(Increase) decrease in inventories 1 (1) (52)
(Increase) decrease in deposits and prepaids 59 (50) (1)
Increase (decrease) in accounts payable and accrued liabilities (37) (121) 46
Decrease in taxes payable (22) (56) (23)
Other (38) (58) (67)
Net cash provided by operating activities 645 369 356
Cash Flow from Investing Activities
Capital expenditures (392) (484) (410)
Proceeds from sale of exploration and production properties 48 -- --
Proceeds from sale of refining and marketing operations 13 419 --
Proceeds from sale of other assets 11 17 27
Proceeds from sale of available-for-sale securities 29 -- --
Proceeds from sale of long-term investments 17 61 30
Purchase of long-term investments (6) (8) (76)
Net cash provided by (used in) investing activities (280) 5 (429)
Cash Flow from Financing Activities
Increase (decrease) in short-term borrowings (57) (218) 149
Purchase of treasury stock (195) (45) --
Dividends paid (83) (79) (78)
Repayment of long-term debt (36) (35) (11)
Issuance of long-term debt 24 -- --
Issuance of common stock 16 9 1
Net cash provided by (used in) financing activities (331) (368) 61
Net Increase (Decrease) in Cash and Cash Equivalents 34 6 (12)
Cash and Cash Equivalents at Beginning of Year 87 81 93
Cash and Cash Equivalents at End of Year $121 $87 $ 81
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all subsidiary
companies that are more than 50% owned and the proportionate share of joint
ventures in which Kerr-McGee has an undivided interest. Investments in
affiliated companies that are 20% to 50% owned are carried as Investments -
Equity affiliates in the Consolidated Balance Sheet at cost adjusted for equity
in undistributed earnings. Except for dividends, changes in equity in
undistributed earnings are included in the Consolidated Statement of Income. All
material intercompany transactions have been eliminated. The consolidated
financial statements and certain prior-year financial information contained in
the related notes have been restated to conform to the current-year
presentation.
Foreign Currencies
As the U.S. dollar has been adopted as the functional currency for each of
the company's international operations, foreign currency transaction gains or
losses are recognized in the period incurred. The company recorded net foreign
currency transaction losses of $9 million in 1996. Total foreign currency
transaction gains and losses in 1995 and 1994 were immaterial.
Net Income (Loss) per Common Share
After adding the dilutive effect of the conversion of stock options to the
weighted average number of shares outstanding, the shares used to compute net
income per common share were 49,657,890 in 1996 and 51,739,880 in 1994. The
weighted average number of shares used to compute the 1995 net loss per common
share was 51,669,285.
Cash Equivalents
The company considers all investments purchased with a maturity of three
months or less to be cash equivalents. Cash includes time deposits, certificates
of deposit, and U.S. government securities all totaling $89 million in 1996 and
$48 million in 1995.
Inventories
The costs of the company's product inventories are determined by the
first-in, first-out (FIFO) method. The crude oil and refined products of the
discontinued refining and marketing operations were valued using the last-in,
first-out (LIFO) method until the sale of these inventories during 1995.
Inventory carrying values include material costs, labor, and indirect
manufacturing expenses associated therewith. Materials and supplies are valued
at average cost.
Property, Plant, and Equipment
Oil and Gas - Exploration expenses, including geological and geophysical
costs, rentals, and exploratory dry holes, are charged against income as
incurred. Costs of successful wells and related production equipment and
developmental dry holes are capitalized and amortized by field using the
unit-of-production method as the oil and gas are produced.
Undeveloped acreage costs are capitalized and amortized at rates that
provide full amortization on abandonment of unproductive leases. Costs of
abandoned leases are charged to the accumulated amortization accounts, and costs
of productive leases are transferred to the developed property accounts.
Other - Property, plant, and equipment is stated at cost less reserves for
depreciation, depletion, and amortization. Maintenance and repairs are expensed
as incurred, except that costs of replacements or renewals that improve or
extend the lives of existing properties are capitalized. Costs of nonproducing
mineral acreage surrendered or otherwise disposed of are charged to expense at
the time of disposition.
Depreciation, Depletion, and Amortization - Property, plant, and equipment
is depreciated, depleted, or amortized over its estimated life by application of
the unit-of-production or the straight-line method. In arriving at rates under
the unit-of-production method, the quantities of recoverable oil, gas, and other
minerals are established based on estimates made by the company's geologists and
engineers.
Retirements and Sales - The costs and related depreciation, depletion, and
amortization reserves are removed from the respective accounts upon retirement
or sale of property, plant, and equipment. The resulting gain or loss is
included in other income.
Interest Capitalized - The company capitalizes interest costs on major
projects that require a considerable length of time to complete. Interest
capitalized in 1996, 1995, and 1994 was $9 million, $11 million, and $10
million, respectively.
Impairment of Long-Lived Assets
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 1995 third quarter.
Proved oil and gas properties are reviewed for impairment on a
field-by-field basis when facts and circumstances indicate that their carrying
amount may not be recoverable. In performing this review, future cash flows are
estimated by applying estimated future oil and gas prices to estimated future
production, less estimated future expenditures to develop and produce the
reserves. If the sum of these estimated future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the property, an
impairment loss is recognized for the excess of the carrying amount over the
estimated fair value of the property. Prior to the third quarter of 1995, proved
properties were evaluated on an area-of-interest basis and impaired when
capitalized costs exceeded estimated future revenues, computed by applying
current oil and gas prices to estimated future production, less estimated future
expenditures to develop and produce the reserves.
Chemical, coal, and other assets are reviewed for impairment by asset group
for which the lowest level of independent cash flows can be identified and
impaired in the same manner as proved oil and gas properties. Prior to the third
quarter of 1995, individual properties were written down when impairments were
deemed to have occurred.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences
of differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements.
Site Dismantlement, Reclamation, and Remediation Costs
The company provides for the estimated cost at current prices of final
reclamation and land restoration at coal mining locations and the dismantlement
and removal of oil and gas production and related facilities. Such costs are
being accumulated over the estimated lives of the facilities by the use of the
unit-of-production method. As sites of environmental concern are identified, the
company assesses the existing conditions, claims, and assertions, generally
related to former operations, and records an estimated liability when
environmental assessments and/or remedial efforts are probable and the
associated costs can be reasonably estimated.
Gas-Balancing Arrangements
Gas-balancing arrangements with partners in natural gas wells are accounted
for by the entitlements method. At December 31, 1996 and 1995, both the quantity
and dollar amount of such arrangements recorded in the Consolidated Balance
Sheet were immaterial.
Lease Commitments
The company utilizes various leased properties in its operations,
principally for office space. Net lease rental expense was $14 million for 1996
and $12 million for each of the years 1995 and 1994.
The aggregate minimum annual rentals under noncancelable leases in effect on
December 31, 1996, totaled $31 million, of which $9 million is due in 1997, $8
million in 1998, $6 million in 1999, $5 million in 2000, and $3 million in 2001.
Employee Stock Option Plans
The company accounts for its employee stock option plans using the intrinsic
value method in accordance with Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees."
Futures, Forward, and Option Contracts
To minimize the price risks associated with the production and marketing of
crude oil and natural gas, the company periodically uses commodities futures and
option contracts to hedge a portion of its crude oil and natural gas sales.
These contracts generally mature in one year or less. Since the contracts
qualify as hedges and correlate to price movements of crude oil and natural gas,
any gain or loss from these contracts is explicitly deferred and recognized as
part of the hedged transaction. Prior to the sale of the refining and marketing
operations, the company also hedged a portion of its refined-product sales and
crude oil purchased for the refineries.
The company hedges a portion of its monetary assets, liabilities, and
commitments denominated in foreign currencies. Periodically, the company
purchases foreign currency forward contracts to provide funds for operating and
capital expenditure requirements that will be denominated in foreign currencies
and sells foreign currency forward contracts to convert receivables that will be
paid in foreign currencies to U.S. dollars. Since these contracts qualify as
hedges and correlate to currency movements, any gain or loss resulting from
market changes will be offset by gains or losses on the hedged receivable,
capital item, or operating cost.
In 1996 and 1995, the company also entered into foreign currency forward
contracts to sell various foreign currencies in anticipation of titanium dioxide
pigment sales denominated in foreign currencies. These contracts are
marked-to-market with the resulting gain or loss reflected in income in the
period in which the change occurs. Open contracts at year-end 1996 and 1995
mature within the subsequent 12-month period. Net gains and losses on these
contracts in 1996 and 1995 were immaterial.
Management of price risks must consider market conditions and availability.
As these factors change, the company adjusts its hedging strategy and modifies
its futures, forward, and option contract positions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates as additional
information becomes known.
2. Cash Flow Information
Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows:
(In millions of dollars) 1996 1995 1994
Interest paid $60 $68 $76
Income taxes paid 17 75 42
Effective December 31, 1996, the company merged its North American onshore
exploration and production operations into Devon Energy Corporation (Devon) in
exchange for 9,954,000 shares of Devon common stock (see Note 4). This
transaction is not reflected in the Consolidated Statement of Cash Flows due to
its noncash nature. Other noncash transactions not reflected in the Consolidated
Statement of Cash Flows include capital expenditures for which payment will be
made in the subsequent year totaling $4 million, $24 million, and $20 million at
year-end 1996, 1995, and 1994, respectively; the revaluation of certain
investments to fair value; transactions affecting deferred compensation
associated with the Employee Stock Ownership Plan (ESOP); and certain
transactions affecting the debt related to the ESOP. See Notes 13 and 19.
The effect of foreign currency exchange rate fluctuations on cash and cash
equivalents was immaterial.
3. Inventories
Major categories of inventories at year-end 1996 and 1995 are:
(In millions of dollars) 1996 1995
Chemicals and other products $163 $157
Materials and supplies 49 49
Crude oil 6 15
Total $218 $221
4. Investments - Equity Affiliates
At December 31, 1996 and 1995, investments in equity affiliates are as
follows:
(In millions of dollars) 1996 1995
Devon Energy Corporation $193 $--
Javelina Company 27 21
National Titanium Dioxide Company Limited 12 12
Other 12 5
Total $244 $38
Effective December 31, 1996, the company merged its North American onshore
exploration and production operations into Devon, a publicly traded oil and gas
exploration and production company. The company received 9,954,000 shares of
Devon common stock representing an ownership interest in Devon of approximately
31%. The investment in Devon is recorded at the value of the assets given up in
accordance with APB No. 29, "Accounting for Nonmonetary Transactions." The
market value of the company's investment in Devon was $346 million based on the
closing price of Devon's common stock as reported in The Wall Street Journal for
December 31, 1996.
Javelina Company and National Titanium Dioxide Company Limited represent the
company's investment of 40% and 25%, respectively, in non-exploration and
production joint ventures or partnerships.
Following are financial summaries of the company's equity affiliates.
Financial information related to investments that are shown as Other in the
preceding table have been excluded.
(In millions of dollars) 1996 1995 1994
Results of operations -
Net sales(1) $ 207 $250 $198
Total costs and expenses 183 171 178
Net income 22 66 6
Financial position -
Current assets 153 99 84
Property, plant, and equipment - net 962 286 298
Total assets 1,135 400 403
Current liabilities 130 82 88
Total liabilities 484 232 301
Stockholders' equity 651 168 102
(1) Includes net sales to the company of $44 million, $47 million, and $36
million for 1996, 1995, and 1994, respectively.
5. Investments - Other Assets
Investments in other assets consist of the following at December 31, 1996
and 1995:
(In millions of dollars) 1996 1995
Equity securities $24 $ 55
Net deferred tax asset 23 21
Long-term notes receivable, net of $8 allowance
for doubtful notes 17 21
U.S. government obligations -- 17
Other 10 8
Total $74 $122
6. Property, Plant, and Equipment
<TABLE>
Fixed assets and related reserves by business segment at December 31, 1996
and 1995, are as follows:
<CAPTION>
Reserves for
Depreciation, Depletion,
Gross Property and Amortization Net Property(1)
(In millions of dollars) 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Exploration and production $3,192 $4,162 $2,005 $2,686 $1,187 $1,476
Chemicals 946 835 459 411 487 424
Coal 546 554 327 317 219 237
Other 153 127 98 81 55 46
Discontinued operations -- 89 -- 62 -- 27
Total $4,837 $5,767 $2,889 $3,557 $1,948 $ 2,210
(1) Includes net assets held for sale of $9 million for exploration and
production at December 31, 1996; and $52 million for exploration and production,
$7 million for coal, and $27 million for the discontinued refining and marketing
operations at December 31, 1995.
</TABLE>
7. Deferred Charges
Deferred charges are as follows at year-end 1996 and 1995:
(In millions of dollars) 1996 1995
Pension plan prepayment $33 $28
Preoperating and startup costs 4 4
Intangible assets 3 4
Cost of injected gas -- 29
Other 13 14
Total $53 $ 79
The cost of injected gas was associated with miscible gas-flood projects
located onshore in North America. These properties were merged into an equity
affiliate effective December 31, 1996 (see Note 4).
8. Debt
Lines of Credit and Short-Term Borrowings
At year-end 1996, the company had available unused bank lines of credit and
revolving credit facilities of $657 million. Of this amount, $305 million and
$270 million can be used to support commercial paper borrowing arrangements of
Kerr-McGee Credit Corporation and Kerr-McGee Oil (U.K.) PLC, respectively.
The company has arrangements to maintain compensating balances with certain
banks that provide credit. At year-end 1996, the aggregate amount of such
compensating balances was immaterial, and the company was not legally restricted
from withdrawing all or a portion of such balances at any time during the year.
Short-term borrowings at year-end 1996 consisted of notes payable totaling
$15 million (5.97% average interest rate) and commercial paper totaling $22
million (5.84% average interest rate). Outstanding at year-end 1995 were notes
payable totaling $94 million (6.1% average interest rate).
Long-Term Debt
The company's policy is to classify borrowings under revolving credit
facilities and commercial paper of up to $400 million as long-term debt since
the company has the ability under certain revolving credit agreements and the
intent to maintain these obligations for longer than one year.
Long-term debt consists of the following at year-end 1996 and 1995:
<TABLE>
<CAPTION>
(In millions of dollars) 1996 1995
<S> <C> <C>
Debentures -
7% Debentures due November 1, 2011, net of unamortized debt discount of $111 in
1996 and $113 in 1995 (14.25% effective rate) $139 $137
8-1/2% Sinking fund debentures due June 1, 2006 34 45
Commercial paper (5.84% at December 31, 1996) 266 310
Guaranteed debt of Employee Stock Ownership Plan -
9.47% Series A notes due in installments through January 2, 2000 -- 30
9.61% Series B notes due in installments through January 2, 2005 51 51
Notes payable -
Variable interest rate revolving credit agreements with banks (5.84% average
rate at December 31, 1996), $64 due February 24, 1998 and $50 due December 4,
2001 114 66
Other 22 2
626 641
Long-term debt due within one year -- (9)
Total $626 $632
</TABLE>
Maturities of long-term debt due after December 31, 1996, are $65 million in
1998, $43 million in 1999, $10 million in 2000, $314 million in 2001, and $194
million thereafter.
In addition to the debt shown in the preceding table, the company guaranteed
its ratable portion of the debt of unconsolidated equity affiliates totaling $7
million at year-end 1996 and $12 million at year-end 1995. No loss is
anticipated by reason of this guarantee.
Additional information regarding the major changes in debt during the
periods and unused commitments for financing is included in the Financial
Condition discussion in Management's Discussion and Analysis.
9. Other Deferred Credits and Reserves
Other deferred credits and reserves consist of the following at year-end
1996 and 1995:
(In millions of dollars) 1996 1995
Reserves for site dismantlement,
reclamation, and remediation $345 $333
Postretirement benefit obligations 117 112
Other 53 53
Total $515 $498
The company provided for environmental reclamation and remediation of former
plant sites, net of reimbursements received, during each of the years 1996,
1995, and 1994 as follows:
(In millions of dollars) 1996 1995 1994
Provision, net of reimbursements $43 $54 $10
Reimbursements received 10 11 8
The reimbursements were received pursuant to the Energy Policy Act of 1992.
With the exception of $1 million received in 1994, all reimbursements pertain to
the former facility in West Chicago, Illinois (see Note 10). An additional $49
million was provided in 1995 for refining and marketing-related sites and
included in the discontinued operations (see Note 21).
10. Contingencies
West Chicago
In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation (KMCC),
closed the facility located in West Chicago, Illinois, that processed thorium
ores. Operations resulted in some low-level radioactive contamination at the
site, and in 1979, KMCC filed a plan with the Nuclear Regulatory Commission
(NRC) to decommission the facility. The NRC transferred jurisdiction of this
site to the State of Illinois (the State) in 1990. The following discusses the
current status of various matters associated with this closed facility.
Decommissioning - In 1994, KMCC, the City of West Chicago (the City), and
the State reached agreement on Phase I of the decommissioning plan for the
closed West Chicago facility. Pursuant to the Phase I agreement, KMCC began
shipping material from the site to a licensed permanent disposal facility in
Utah during 1994.
In February 1997, KMCC executed an agreement with the City as to the terms
and conditions for completing the final phase of the decommissioning work, the
bulk of which is expected to be completed about four to six years after
receiving the necessary license amendment. The State has indicated approval of
this agreement, and KMCC now expects to receive the license amendment that will
enable KMCC to proceed with the final phase of 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 Phase I 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. KMCC has received reimbursement for all amounts paid
under the Act and will continue to seek reimbursement for future amounts paid
under the Act as decommissioning costs are incurred.
Pursuant to Title X of the Energy Policy Act of 1992 (Title X), the United
States Department of Energy is obligated to reimburse KMCC for certain
decommissioning costs. Title X was amended in 1996 to increase the amount
authorized to $65 million plus inflation adjustments. Through February 1997,
KMCC has been reimbursed approximately $28 million under Title X.
The aggregate cost to decommission the former facility is difficult to
estimate because of the many contingencies and will be reduced by amounts
recovered under Title X. At December 31, 1996, the remaining reserves provided
for the cost to decommission the site total $171 million (before any further
recovery under Title X), payable over the course of the decommissioning work.
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, as amended, 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 ship the soils elsewhere for
disposal. At December 31, 1996, the remaining reserves to clean up the
residential area and Reed-Keppler Park total $16 million. Without waiving any of
its rights or defenses, KMCC began the cleanup of the residential area site in
May 1995 and anticipates completing the cleanup of this site within four years.
KMCC expects to begin the cleanup of the Reed-Keppler Park site in 1997.
Judicial Proceedings - In December 1996, a lawsuit was filed against the
company and its subsidiary, KMCC, in Illinois state court on behalf of a
purported class of present and former West Chicago residents seeking damages for
alleged diminution in property values and the establishment of a medical
monitoring fund to benefit those allegedly exposed to thorium wastes originating
from the former facility. The case recently has been removed to federal court
and is being vigorously defended.
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
year-end 1996, the remaining reserves provided for the cost to investigate
and/or remediate all presently identified sites of former or current operations
total $296 million, which includes $187 million for the former West Chicago
facility, the residential area, and Reed-Keppler Park. Expenditures from
inception through December 31, 1996, totaled $341 million for currently known
sites.
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.
11. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Assets to Be Held and Used
Certain oil and gas fields in North America and certain coal and other
assets have been deemed to be impaired because the assets were not expected to
recover their entire carrying value through future cash flows. The impairment
loss, included in the Consolidated Statement of Income as Asset impairment, was
determined as the difference between the carrying value and the estimated fair
value of the assets. The fair value was generally determined based on the
estimated present value of future cash flows. The impairment losses by segment
for 1996 and 1995 are as follows:
(In millions of dollars) 1996 1995
Exploration and production $22 $ 99
Coal -- 23
Other -- 1
Total $22 $123
Assets to Be Disposed Of
During 1995, the company's exploration and production operating unit
announced a divestiture and restructuring program (see Note 12). The program
included a number of crude oil and natural gas producing properties considered
to be nonstrategic. Most 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. Prior to the recognition of the 1995 impairment loss
discussed in the following paragraph, the carrying value of the divestiture
program properties was $172 million.
As a result of the divestiture program, these nonstrategic oil and gas
properties were reduced in 1995 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 impairment loss on the properties
for which a loss was indicated totaled $104 million and has been included in the
Consolidated Statement of Income as Asset impairment. There have been no
subsequent revisions to the carrying values of these properties.
Net gains recognized on the sales of properties included in the divestiture
program totaled $13 million in 1996. The program is expected to be completed by
mid-1997. At year-end 1996, the remaining assets had a carrying value of $9
million and did not constitute a material portion of the company's oil and gas
reserves. Also, these assets did not have a material effect on oil and gas
production, or cash flows from operations for 1996.
Certain chemical facilities were closed during 1996, which resulted in the
recognition of a $3 million impairment loss. Also held for sale at December 31,
1995, were the net long-term assets totaling $5 million of a wholly owned coal
mining operation in West Virginia. This sale was completed in February 1996. The
gain on the sale was immaterial.
Following are the sales and pretax income (loss) for assets to be disposed
of at December 31, 1996 and 1995, as included in the Consolidated Statement of
Income. The impairment losses are included in the pretax losses.
(In millions of dollars) 1996 1995 1994
Sales -
Exploration and production $42 $ 64 $ 81
Chemicals 6 7 12
Coal -- 18 25
Total $48 $ 89 $118
Income (Loss) -
Exploration and production $ 9 $(108) $ (6)
Chemicals (7) -- 1
Coal -- (7) 1
Total $ 2 $(115) $ (4)
12. Restructuring Charges
Restructuring of the exploration and production operating unit continued
during 1996 with the planned relocation of the unit to Houston, Texas, and the
merger of its North American onshore properties into Devon (see Note 4). This,
in conjunction with the unit's reorganization of its administrative and
operating functions, which began in 1995 (see Note 11), resulted or will result
in approximately 300 employees terminating their employment. Of this number,
approximately 200 and 50 were terminated in 1996 and 1995, respectively, and it
is expected that the additional employees will be terminated in 1997.
During the two-year period ended December 31, 1996, the company accrued a
total of $17 million for future compensation, relocation, lease cancellation,
outplacement, and the cost of special termination benefits for retiring
employees to be paid from retirement plan assets. The $10 million reserve
balance remaining at December 31, 1996, represents primarily relocation, lease
cancellation, and future compensation, which are expected to be paid and charged
to the reserve during 1997 and 1998. The accruals, expenditures, and reserve
balances related to the restructuring of the exploration and production unit are
set forth below:
(In millions of dollars) 1996 1995
Beginning balance $ 5 $--
Accruals 10 7
Retirement benefits to be paid from plan assets (2) (1)
Payments (3) (1)
Ending balance $10 $ 5
The company also implemented a restructuring program in 1994, consisting
principally of a reorganization of corporate support functions, and terminated
237 employees. The company accrued a total of $8 million related to this program
for future compensation, outplacement, and the cost of special termination
benefits for retiring employees to be paid from retirement plan assets. This
amount was paid and charged to the reserve during 1995 and 1994.
13. Financial Instruments and Hedging Activities
Investments in Certain Debt and Equity Securities
The company has investments in equity securities and certain obligations of
the U.S. government that are considered to be available for sale. These
financial instruments are carried in the Consolidated Balance Sheet at fair
value, which is based on quoted market prices. The company held no securities
classified as held to maturity or trading during the two-year period ended
December 31, 1996. At December 31, 1996 and 1995, available-for-sale securities
for which fair values can be estimated are as follows:
<TABLE>
<CAPTION>
1996 1995
Fair Gross Unrealized Fair Gross Unrealized
(In millions of dollars) Value Cost Holding Gains Value Cost Holding Gains
<S> <C> <C> <C> <C> <C> <C>
Equity securities $22 $ 3 $19 $53 $12 $ 41
U.S. government obligations -
Maturing within one year 26 26 -- 10 10 --
Maturing between one year and four years -- -- -- 17 17 --
Total $48 $29 $19 $80 $39 $ 41
</TABLE>
Equity securities are carried in the Consolidated Balance Sheet as
Investments - Other assets. U.S. government obligations are carried as Current
Assets or as Investments - Other assets, depending upon their maturity.
During 1996, the company sold equity securities considered to be available
for sale. Proceeds from the sales totaled $29 million. The average cost of the
securities was used in the determination of the realized gains, which totaled
$23 million before income taxes. Also during 1996, the company donated a portion
of its equity securities to 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 million, which included appreciation
of $13 million before income taxes.
The change in unrealized holding gains, net of income taxes, as shown in
the separate component of stockholders' equity during the three-year period
ended December 31, 1996, is as follows:
(In millions of dollars) 1996 1995 1994
Beginning balance $26 $12 $20
Net unrealized holding gains (losses) 9 14 (8)
Net realized gains (15) -- --
Net appreciation of donated securities (8) -- --
Ending balance $12 $26 $12
Financial Instruments for Other than Trading Purposes
In addition to the investments discussed above, the company holds or issues
financial instruments for other than trading purposes. At December 31, 1996 and
1995, the carrying amount and estimated fair value of such financial instruments
for which fair value can be determined are as follows:
1996 1995
Carrying Fair Carrying Fair
(In millions of dollars) Amount Value Amount Value
Cash and cash
equivalents $121 $121 $ 87 $ 87
Long-term notes
receivable 17 17 21 21
Contracts to sell
foreign currencies 13 33 15 34
Contracts to purchase
foreign currencies -- 29 -- 54
Short-term borrowings 37 37 94 94
Total long-term debt 626 737 641 763
The carrying amount of cash and cash equivalents approximates fair value of
those instruments due to their short maturity. The fair value of notes
receivable is based on discounted cash flows or the fair value of the note's
collateral. The fair value of the company's short-term and long-term debt is
based on the quoted market prices for the same or similar debt issues or on the
current rates offered to the company for debt with the same remaining maturity.
The fair value of foreign currency forward contracts represents the aggregate
replacement cost based on financial institutions' quotes.
Hedging Activities
Most of the company's foreign currency contracts are hedges principally for
chemicals' accounts receivable generated from titanium dioxide pigment sales
denominated in foreign currencies ($68 million in 1996 and $71 million in 1995)
and the operating costs and capital expenditures of international chemical
operations ($28 million in 1996 and $27 million in 1995) and exploration and
production joint-venture operations ($64 million in 1995). The purpose of these
foreign currency hedging activities is to protect the company from the risk that
the eventual U.S. dollar amount from sales to foreign customers and purchases
from foreign suppliers will be adversely affected by foreign currency exchange
rates. The company recognized net foreign currency hedging gains of $3 million
in 1996 and $8 million in 1995; net gains and losses in 1994 were immaterial.
At December 31, 1996, the company had foreign currency contracts maturing
between January and December 1997 to purchase $36 million Australian for $25
million. Additionally, at December 31, 1996, the company had contracts to sell
for $34 million various foreign currencies, principally European currencies,
which mature between January and December 1997. This includes contracts totaling
$14 million for anticipated pigment sales that have been marked-to-market. At
December 31, 1995, the company had foreign currency contracts maturing between
January 1996 and December 1997 to purchase $74 million Australian for $51
million. Additionally, at December 31, 1995, the company had contracts to sell
for $34 million various foreign currencies, principally European currencies,
which matured between January and December 1996. This included contracts
totaling $15 million for anticipated pigment sales that were marked-to-market.
Net unrealized gains on foreign currency contracts totaled $4 million at
year-end 1996, $3 million at year-end 1995, and $9 million at year-end 1994.
The company also periodically uses futures and option contracts to reduce
the effect of the price volatility of crude oil, natural gas, and, prior to the
sale of the refining and marketing operations, refined products. The futures
contracts permit settlement by delivery of commodities.
During 1996, the company sold forward 10 million barrels of crude oil and 37
billion cubic feet of natural gas representing approximately 40% and 36% of its
worldwide crude oil and natural gas production, respectively. Net hedging losses
on crude oil and natural gas recognized in 1996 totaled $37 million. The effect
of the losses was to reduce the company's 1996 average gross margin for crude
oil and natural gas by $1.04 per barrel and $.11 per MCF, respectively. At
year-end 1996, there were no open crude oil or natural gas contracts.
During 1995, the company sold forward 13 million barrels of crude oil and 19
billion cubic feet of natural gas representing approximately 49% and 18% of its
worldwide crude oil and natural gas production, respectively, and 35% of the
refined-product sales of the discontinued refining and marketing operations. Net
recognized hedging gains and losses for 1995 and 1994 were immaterial. At
year-end 1995, open crude oil and natural gas contracts had an aggregate value
of $151 million, and the unrecognized loss on these contracts totaled $14
million.
Contract amounts do not quantify risk or represent assets or liabilities of
the company but are used in the calculation of cash settlements under the
contracts. These financial instruments limit the company's market risks, are
with major financial institutions, expose the company to credit risks, and may
at times be concentrated with certain institutions or groups of institutions.
However, the credit worthiness of these institutions is subject to continuing
review, and full performance is anticipated.
Year-end hedge positions and activities during a particular year are not
necessarily indicative of future activities and results.
14. Income Taxes
The taxation of a company that has operations in several countries involves
many complex variables, such as differing tax structures from country to country
and the effect on U.S. taxation of international earnings. These complexities do
not permit meaningful comparisons between the domestic and international
components of income before income taxes and the provision for income taxes, and
disclosures of these components do not provide reliable indicators of
relationships in future periods. Income (loss) from continuing operations before
income taxes is composed of the following:
(In millions of dollars) 1996 1995 1994
Domestic $216 $(125) $57
International 107 56 42
Total $323 $ (69) $99
Effective January 1, 1995, the income tax rate in Australia increased from
33% to 36%. The deferred income tax balances were adjusted to reflect this
revised rate, which decreased the 1995 international deferred provision for
income taxes by $2 million. The 1996, 1995, and 1994 provision (benefit) for
income taxes on income from continuing operations is summarized below:
(In millions of dollars) 1996 1995 1994
U.S. Federal -
Current $ 37 $ (4) $12
Deferred 25 (63) (2)
62 (67) 10
International -
Current 5 9 16
Deferred 32 9 2
37 18 18
State 4 4 2
Total $103 $(45) $30
The net deferred tax asset shown in the following table represents the net
deferred taxes in certain foreign tax jurisdictions, which is classified as
Investments - Other assets in the Consolidated Balance Sheet. At December 31,
1996, the net deferred tax asset includes the benefit for $101 million in net
operating loss carryforwards that have no expiration dates. Realization is
dependent on generating sufficient taxable income. Although realization is not
assured, the company believes it is more likely than not that all of the net
deferred tax asset will be realized.
At December 31, 1996, the company has additional foreign net operating loss
carryforwards totaling $31 million that also have no expiration dates. These
loss carryforwards offset a portion of the foreign net deferred tax liability.
Deferred tax liabilities (assets) at December 31, 1996 and 1995, are
composed of the following:
(In millions of dollars) 1996 1995
Net deferred tax liability -
Accelerated depreciation $259 $258
Exploration and development 65 69
Undistributed earnings of foreign
subsidiaries 23 29
Postretirement benefits (46) (48)
Dismantlement, reclamation, remediation,
and other reserves (113) (128)
Foreign operating loss carryforward (10) (40)
Other (47) (48)
131 92
Net deferred tax asset -
Accelerated depreciation 16 8
Foreign operating loss carryforward (36) (28)
Other (3) (1)
(23) (21)
Total deferred taxes $108 $71
In the following table, the U.S. Federal income tax rate is reconciled to
the company's effective tax rates for income from continuing operations as
reflected in the Consolidated Statement of Income.
1996 1995 1994
U.S. statutory rate 35.0% (35.0)% 35.0%
Increases (decreases) resulting from -
Statutory depletion in excess
of cost depletion (2.6) (10.4) (4.7)
Taxation of foreign operations .9 (2.0) (.7)
State income taxes .9 (2.2) 2.5
Adjustment of prior years' accruals -- (2.0) --
Federal income tax credits (.2) (4.1) (1.5)
Dividends paid on employee
stock ownership plan -- (2.0) (1.4)
Foreign equity income -- (2.6) --
Contribution of appreciated
equity securities (1.4) -- --
Adjustment of deferred tax balances
due to tax rate changes -- (3.1) --
Other - net (.7) (1.6) 1.2
Total 31.9% (65.0)% 30.4%
The Internal Revenue Service has examined the company's Federal income tax
returns for all years through 1994, and the years have been closed through 1983.
The company believes that it has made adequate provision for income taxes that
may become payable with respect to open tax years.
15. Taxes, Other than Income Taxes
Taxes, other than income taxes, during the years ended December 31, 1996,
1995, and 1994, are composed of the following:
(In millions of dollars) 1996 1995 1994
Production/severance $25 $22 $27
Payroll 15 14 14
Property 10 10 13
Other 16 15 10
Total $66 $61 $64
16. Postretirement Benefits
The company sponsors contributory plans to provide certain health care and
life insurance benefits for retired employees. Substantially all the company's
employees may become eligible for these benefits if they reach retirement age
while working for the company; however, benefits available and costs to
individual employees vary depending on the employee's date of retirement and
date of employment with the company.
At December 31, 1996 and 1995, the actuarial and recorded liabilities for
postretirement benefits, none of which has been funded, are as follows:
1996 1995
(In millions of dollars) Health Life Health Life
Actuarial present value of accumulated
postretirement benefit obligations -
Retirees $(69) $(18) $(75) $(19)
Fully eligible active participants (11) (1) (11) (1)
Other active participants (18) (4) (20) (3)
Total (98) (23) (106) (23)
Unrecognized net (gain) loss -- (4) 12 (3)
Accrued postretirement expense $(98) $(27) $(94) $(26)
<TABLE>
For the years ended December 31, 1996, 1995, and 1994, the components of net
periodic expense for postretirement benefits are as follows:
<CAPTION>
1996 1995 1994
(In millions of dollars) Health Life Health Life Health Life
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during the period $1 $1 $1 $1 $2 $1
Interest cost on accumulated postretirement benefit obligations 8 1 8 1 7 1
Net postretirement expense $9 $2 $9 $2 $9 $2
</TABLE>
The following assumptions are used in estimating the actuarial present value
of the accumulated postretirement benefit obligations and net periodic
postretirement benefit expense:
1996 1995 1994
Future compensation increases 5.0% 5.00% 5.0%
Discount rate 7.5 7.25 8.5
The health care cost trend rate used to determine the year-end 1996
accumulated postretirement benefit obligation was 8.5% in 1997, gradually
declining to 5% in the year 2009 and thereafter.
A 1% increase in the assumed health care cost trend rates for each future
year would increase the accumulated postretirement benefit obligation by $11
million at December 31, 1996. In addition, the aggregate of the service and
interest cost components of net periodic postretirement expense for 1996 would
increase by $1 million.
17. Retirement Plans
Most of the company's employees are covered under noncontributory retirement
plans of the company and certain of its subsidiaries. The benefits of these
plans are based primarily on years of service and employees' remuneration near
retirement. The company's policy is to fund the minimum amounts as permitted by
the Employee Retirement Income Security Act of 1974 (ERISA).
<TABLE>
The funded status of plans with assets in excess of accumulated benefits at
December 31, 1996 and 1995, is as follows:
<CAPTION>
(In millions of dollars) 1996 1995
<S> <C> <C>
Plan assets at fair value $538 $ 492
Actuarial present value of accumulated benefit obligations -
Vested (322) (323)
Nonvested (13) (10)
Total (335) (333)
Plan assets in excess of accumulated benefit obligations $203 $ 159
Plan assets at fair value $538 $ 492
Projected benefit obligations -
Actuarial present value of accumulated benefit obligations (335) (333)
Projected salary increases (46) (48)
Total (381) (381)
Plan assets in excess of projected benefit obligations 157 111
Unrecognized net asset at January 1, 1987 (17) (22)
Unrecognized prior service costs 12 12
Unrecognized net gain (119) (73)
Pension prepayment at end of year $ 33 $ 28
</TABLE>
The net periodic pension credit, excluding charges of $2 million, $1
million, and $2 million in 1996, 1995, and 1994, respectively, related to the
restructuring programs (see Note 12), for each of the three years ended December
31, 1996, 1995, and 1994, is summarized as follows:
(In millions of dollars) 1996 1995 1994
Service cost - benefits earned
during the period $ 9 $ 8 $10
Interest cost on projected
benefit obligations 27 27 24
Return on plan assets (70) (115) (6)
Net amortization and deferral 27 71 (35)
Net pension credit $(7) $ (9) $(7)
The amount of benefits that can be covered by the funded plans is limited by
ERISA and the Internal Revenue Code. Therefore, the company has unfunded
supplemental plans designed to maintain benefits for all employees at the plan
formula level and to provide senior executives with benefits equal to a
specified percentage of their final average compensation. The projected benefit
obligation for these unfunded plans totaled $19 million and $15 million at
December 31, 1996 and 1995, respectively. To reflect the amount by which the
accumulated benefit obligation exceeded the accrued pension expense for these
plans, an additional liability is recorded in the Consolidated Balance Sheet at
both December 31, 1996 and 1995. Offsetting is an intangible asset (see Note 7).
Although not considered plan assets, a grantor trust has been established from
which payments for certain of these supplemental plans are made. The trust
assets totaled $12 million and $6 million at December 31, 1996 and 1995,
respectively. Net periodic pension expense for these plans was $4 million for
each of the years 1996, 1995, and 1994.
The following are the assumptions used in estimating the actuarial present
value of the projected benefit obligation and net periodic pension costs:
1996 1995 1994
Future compensation increases 5.0% 5.00% 5.0%
Discount rate 7.5 7.25 8.5
Long-term rate of return on plan assets 9.0 9.00 9.0
18. Other Income
Other income is as follows during each of the years in the three-year
period ended December 31, 1996:
(In millions of dollars) 1996 1995 1994
Settlements with insurance carriers $67 $-- $ --
Gain on sale of assets 24 2 5
Gain on sale of available-for-sale securities 23 -- --
Interest 9 15 20
Other 9 12 2
Total $132 $29 $ 27
19. Employee Stock Ownership Plan
In 1989, the company's Board of Directors approved a leveraged Employee
Stock Ownership Plan (ESOP) into which is paid the company's matching
contribution for the employees' contributions to the Kerr-McGee Corporation
Savings Investment Plan (SIP). Most of the company's employees are eligible to
participate in both the ESOP and the SIP. Although the ESOP and the SIP are
separate plans, matching contributions to the ESOP are contingent upon
participants' contributions to the SIP.
In 1989, the ESOP borrowed $125 million from a group of lending institutions
and used the proceeds to purchase 2.7 million shares of the company's treasury
stock. The company used the $125 million in proceeds from the sale of the stock
to acquire shares of its common stock on the open market and in privately
negotiated transactions. A portion of the borrowings was replaced in 1996 with
sponsor financing (see the Financial Condition discussion in Management's
Discussion and Analysis). The third-party borrowings are guaranteed by the
company and are reflected in the Consolidated Balance Sheet as Long-Term Debt,
while the sponsor financing does not appear in the company's balance sheet.
Deferred compensation, representing the unallocated ESOP shares discussed in the
following paragraph, is reflected as a reduction of stockholders' equity.
The company stock acquired by the ESOP trust is held in a loan suspense
account. The company's matching contribution and dividends on the shares held by
the ESOP are used to repay the loans, and stock is released from the loan
suspense account as the principal and interest are paid. The stock is then
allocated to participants' accounts at market value as the participants'
contributions are made to the SIP. Deferred compensation reflected in the
company's Consolidated Balance Sheet is reduced as the ESOP loans are repaid.
Long-term debt is also reduced as payments are made on the third-party
financing. Dividends paid on the common stock held in participants' accounts are
also used to repay the loans, and stock with a market value equal to the amount
of dividends is allocated to participants' accounts.
At December 31, 1996 and 1995, the ESOP held shares of stock allocated to
participants' accounts and in the loan suspense account as follows:
(In thousands of shares) 1996 1995
Participants' accounts 1,251 1,151
Loan suspense account 1,290 1,460
The shares allocated to participants at December 31, 1996, include
approximately 14,000 shares released in January 1997. In addition, approximately
19,000 shares released during 1995 were allocated to participants in 1996.
All ESOP shares are considered outstanding for earnings-per-share
calculations. Dividends on ESOP shares are charged to retained earnings.
Compensation expense is recognized using the cash method and is reduced for
dividends paid on the ESOP shares. The company recognized ESOP-related expense
of $12 million, $14 million, and $15 million in 1996, 1995, and 1994,
respectively. These amounts include interest expense incurred on the third-party
ESOP debt of $6 million, $8 million, and $9 million in 1996, 1995, and 1994,
respectively. The company contributed $9 million, $15 million, and $14 million
to the ESOP in 1996, 1995, and 1994, respectively. The cash contributions are
net of $4 million for the dividends paid on the company stock held by the ESOP
in each of the years 1996, 1995, and 1994.
20. Employee Stock Option Plans
The 1987 Long Term Incentive Program authorized the issuance of shares of
the company's common stock through December 31, 2002, in the form of stock
options, restricted stock, or long-term performance awards. The options may be
accompanied by stock appreciation rights. The plan was amended in May 1995 to
restore the number of shares available to be granted to 1,000,000, bringing the
total number of shares authorized to be granted through the plan to 2,740,000.
The company's employee stock options are fixed-price options granted at the
fair market value of the underlying common stock on the date of the grant.
Generally, one-third of each grant vests and becomes exercisable each year over
a three-year period immediately following the grant date and expires 10 years
after the grant date.
The 1984 Employee Stock Option Plan authorized the granting of options over
a 10-year period for up to 1,000,000 shares of common stock and accompanying
stock appreciation rights. The 1984 plan was terminated on May 3, 1988. After
that date, no further options could be granted under this plan, although options
and any accompanying stock appreciation rights outstanding at that time could be
exercised prior to their respective expiration dates.
<TABLE>
Transactions during the past three years under these plans are summarized
below:
<CAPTION>
1987 Incentive Program 1984 Stock Option Plan
Weighted-Average Weighted-Average
Exercise Price Exercise Price
Options per Option Options per Option
<S> <C> <C> <C> <C>
Balance outstanding December 31, 1993 859,622 $44.80 57,500 $28.62
Options granted 380,900 45.66 -- --
Options exercised (21,151) 38.13 (13,000) 27.06
Options surrendered upon exercise
of stock appreciation rights (8,500) 43.68 (11,500) 33.38
Options forfeited (32,468) 48.14 -- --
Balance outstanding December 31, 1994 1,178,403 45.11 33,000 27.58
Options granted 409,000 49.31 -- --
Options exercised (206,821) 43.81 (3,000) 27.06
Options surrendered upon exercise
of stock appreciation rights (6,850) 39.80 (20,000) 27.91
Options forfeited (49,369) 45.87 -- --
Balance outstanding December 31, 1995 1,324,363 46.61 10,000 27.06
Options granted 310,800 63.56 -- --
Options exercised (333,594) 46.40 -- --
Options surrendered upon exercise
of stock appreciation rights (48,634) 43.63 (10,000) 27.06
Options forfeited (6,469) 53.00 -- --
Balance outstanding December 31, 1996 1,246,466 50.98 -- --
Options exercisable -
December 31, 1994 561,534 43.96 33,000 27.58
December 31, 1995 626,759 44.87 10,000 27.06
December 31, 1996 623,461 46.44 -- --
</TABLE>
<TABLE>
Following are the range of exercise prices, the weighted-average remaining
life of all stock options outstanding at December 31, 1996, and the
weighted-average price within each price range of those options outstanding and
those options exercisable at year-end 1996.
<CAPTION>
Options Outstanding at December 31, 1996 Options Exercisable at December 31, 1996
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Prices Remaining Contractual Exercise Price Exercise Price
Options per Option Life (Years) per Option Options per Option
<S> <C> <C> <C> <C> <C> <C>
73,184 $32.38-$39.57 3.6 $36.87 73,184 $36.87
609,996 40.81- 49.25 6.7 45.60 402,554 45.86
264,186 50.56- 54.50 7.9 53.08 138,523 52.08
299,100 62.13- 64.88 9.3 63.53 9,200 63.32
1,246,466 32.38- 64.88 7.4 50.98 623,461 46.44
</TABLE>
FAS No. 123, "Accounting for Stock-Based Compensation," prescribes a
fair-value method of accounting for employee stock options under which
compensation expense is measured based on the estimated fair value of stock
options at the grant date and recognized over the period that the options vest.
The company, however, chooses to account for its stock option plan under the
optional intrinsic value method of APB No. 25, whereby no compensation expense
is recognized for fixed-price stock options. Compensation cost for stock
appreciation rights, which is recognized under both accounting methods, was
immaterial for 1996, 1995, and 1994.
Had compensation expense been determined in accordance with FAS No. 123, the
estimated weighted-average, grant-date fair value would have been $13.17 and
$14.54 per option for those options granted in 1996 and 1995, respectively, and
the resulting compensation expense would have reduced net income and earnings
per share as shown in the following pro forma amounts. These amounts may not be
representative of compensation expense that might be expected to result in
future years using the fair-value method of accounting for employee stock
options, as the number of options granted in a particular year may not be
indicative of the number of options granted in future years, and the fair-value
method of accounting has not been applied to options granted prior to January 1,
1995.
(In millions of dollars, except per-share amounts) 1996 1995
Net Income (Loss) -
As reported $ 220 $ (31)
Pro forma 218 (32)
Earnings (Loss) per Share -
As reported $4.43 $(.60)
Pro forma 4.40 (.62)
The fair value of each option granted in 1996 and 1995 was estimated as of
the grant date using the Black-Scholes option pricing model with the following
weighted-average assumptions.
1996 1995
Expected life (years) 5.8 10.0
Risk-free interest rate 6.1% 7.1%
Expected dividend yield 3.1 3.1
Expected volatility 17.9 19.4
21. Discontinued Operations
During 1995, the company disposed of substantially all of its refining and
marketing operations, which had been conducted by wholly owned subsidiaries,
Kerr-McGee Refining Corporation and Cato Oil and Grease Co. The 1995 gain on the
sale was $2 million, net of $1 million for income taxes. The operating results
of the discontinued refining and marketing operations are reported separately in
the Consolidated Statement of Income. Revenues applicable to the discontinued
operations totaled $1.1 billion in 1995 and $1.9 billion in 1994. All of the
crude oil and refined-product inventories of the discontinued refining and
marketing operations were valued using the LIFO method until sold during 1995.
LIFO reserves of $12 million were reversed at the time of the sale of these
inventories. The remaining net assets of the discontinued operations are not
segregated in the Consolidated Balance Sheet at December 31, 1995, since the
amounts are immaterial. The sales of the remaining assets were completed during
1996, and the resulting gains and losses were immaterial.
22. Stockholders' Equity
<TABLE>
Changes in common stock, capital in excess of par value, and treasury stock
for 1996, 1995, and 1994 are as follows:
<CAPTION>
Common Stock Treasury Stock
Capital in
Shares Par Excess of
(In millions of dollars and thousands of shares) Issued Value Par Value Shares Cost
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 53,268 $53 $308 1,613 $ 63
Exercise of stock options and stock appreciation rights 36 -- 1 -- --
Issuance of shares for achievement awards -- -- -- (3) --
Balance December 31, 1994 53,304 53 309 1,610 63
Exercise of stock options and stock appreciation rights 210 1 9 -- --
Stock purchase program -- -- -- 835 48
Balance December 31, 1995 53,514 54 318 2,445 111
Exercise of stock options and stock appreciation rights 348 -- 16 -- --
Issuance of shares for achievement awards -- -- -- (3) --
Stock purchase program -- -- -- 3,127 195
Balance December 31, 1996 53,862 $54 $334 5,569 $ 306
</TABLE>
The company has 40 million shares of preferred stock without par value
authorized, and none is issued.
During 1995, the Board of Directors authorized management to purchase up to
$300 million of the common stock of the company. Since the inception of the
program, which the company expects to complete by mid-1997, a total of 3,962,000
shares have been acquired at a cost of $243 million.
In 1996, the company's Board of Directors replaced the existing
stockholder-rights plan, which expired in July 1996, with a new rights plan
dated July 9, 1996. Such rights were distributed as a dividend at the rate of
one right for each share of the company's common stock. Generally, the rights
may be redeemed at $.01 per right 10 days after a person or group acquires 15%
or more of the company's common stock. After the rights are no longer
redeemable, each right would then entitle the holder (other than a 15% holder)
to buy the company's common stock having a market value of twice the exercise
price of $215. In the event the company is acquired in a merger or other
business combination transaction, each right would entitle the holder to buy, at
the exercise price of $215, the number of shares of the acquiring company's
common stock having a market value of twice the right's exercise price. The
rights expire in July 2006.
23. Other Financial Information
Condensed financial information relating to the company's previously
unconsolidated, wholly owned finance subsidiary is summarized below:
(In millions of dollars) 1996 1995 1994
Results of operations -
Interest income $25 $25 $20
Net income 6 5 4
1996 1995 1994
Financial position -
Assets $367 $360 $460
Liabilities (258) (257) (362)
Stockholder's equity $109 $103 $ 98
24. Reporting by Business Segments
The company is an international energy and chemical company. The principal
areas of oil and gas exploration and production are the United States, the
United Kingdom sector of the North Sea, China, Southeast Asia, and prior to
December 31, 1996, Canada. The company has domestic coal and chemical operations
and interests in chemical operations in Western Australia and Saudi Arabia.
(In millions of dollars) 1996 1995 1994
Sales -
Exploration and production(1) $ 874 $ 690 $ 633
Chemicals 692 707 639
Coal 365 353 294
Other -- 4 --
Total $1,931 $1,754 $1,566
Operating profit (loss)(2) -
Exploration and production $ 204 $ (97) $ 74
Chemicals 85 122 92
Coal 75 43 45
Other 7 (4) (4)
Total $ 371 $ 64 $ 207
Net operating profit (loss)(2) -
Exploration and production $ 136 $ (56) $ 49
Chemicals 53 81 59
Coal 57 35 34
Other 5 (2) (3)
Total 251 58 139
Net interest expense (30) (29) (25)
Net nonoperating expense(2) (1) (53) (45)
Income (loss) from discontinued operations -- (7) 21
Net income (loss) $ 220 $ (31) $ 90
Sales -
U.S. operations(3) $1,391 $1,237 $1,143
International operations(4):
North Sea - exploration and production 289 272 199
China - exploration and production 25 -- --
Canada - exploration and production 37 42 54
Australia - chemicals 151 158 114
Other 38 45 56
540 517 423
Total $1,931 $1,754 $1,566
Operating profit (loss)(2) -
U.S. operations $ 256 $ (5) $ 148
International operations:
North Sea - exploration and production 93 108 54
China - exploration and production 2 (5) (2)
Canada - exploration and production 7 (54) 8
Australia - chemicals 9 24 7
Other 4 (4) (8)
115 69 59
Total $ 371 $ 64 $ 207
(1) Includes sales to the discontinued refining and marketing operations,
primarily crude oil sales, of $112 million and $151 million in 1995 and
1994, respectively.
(2) Includes unusual items. Refer to Management's Discussion and Analysis.
(3) Includes U.S. crude oil sales to the discontinued refining and marketing
operations of $105 million and $123 million in 1995 and 1994, respectively.
(4) Includes international crude oil sales to the discontinued refining and
marketing operations of $7 million and $28 million in 1995 and 1994,
respectively.
<TABLE>
<CAPTION>
(In millions of dollars) 1996 1995 1994
<S> <C> <C> <C>
Depreciation, depletion, and amortization expense -
Exploration and production $ 218 $ 231 $ 228
Chemicals 55 52 51
Coal 30 29 24
Other 4 6 9
Discontinued operations -- 16 28
Total $ 307 $ 334 $ 340
Cash capital expenditures -
Exploration and production $ 239 $ 371 $ 304
Chemicals 118 69 52
Coal 29 36 33
Other 6 2 3
Discontinued operations -- 6 18
Total 392 484 410
Exploration expenses Petroleum exploration and production:
Dry hole costs 37 34 30
Amortization of undeveloped leases 9 14 17
Other 34 41 35
Total 80 89 82
Minerals and other 3 3 3
Total exploration expenses 83 92 85
Less - Amortization of oil and gas and minerals leases
and other noncash expenses (14) (19) (18)
69 73 67
Total cash capital expenditures and cash exploration expenses $ 461 $ 557 $ 477
Identifiable assets -
Exploration and production $1,667 $1,748 $1,781
Chemicals 886 802 735
Coal 276 327 320
Other 39 36 47
Total 2,868 2,913 2,883
Corporate assets 256 261 234
Discontinued operations -- 39 579
Total $3,124 $3,213 $3,696
Identifiable assets -
U.S. operations $1,684 $1,663 $1,642
International operations:
North Sea - exploration and production 651 669 679
China - exploration and production 180 149 78
Canada - exploration and production -- 124 193
Australia - chemicals 268 260 257
Other 85 48 34
1,184 1,250 1,241
Total $2,868 $2,913 $2,883
</TABLE>
<TABLE>
<CAPTION>
(In millions of dollars) 1996 1995 1994
<S> <C> <C> <C>
Net assets -
U.S. operations $ 582 $ 623 $ 824
International operations:
North Sea - exploration and production 413 409 354
China - exploration and production 109 106 65
Canada - exploration and production -- 44 69
Australia - chemicals 211 199 212
Other 52 35 19
785 793 719
Total $1,367 $1,416 $1,543
</TABLE>
25. Results of Operations from Crude Oil and Natural Gas Activities
The table below presents the company's average per-unit sales price of crude
oil and natural gas and production costs per barrel of oil equivalent for each
of the past three years. Natural gas production has been converted to a barrel
of oil equivalent based on approximate relative heating value (6 MCF equals 1
barrel).
1996 1995 1994
Average sales price -
Crude oil (per barrel)
Domestic $19.36 $15.69 $14.64
North Sea 19.08 16.31 15.15
China 19.53 -- --
Canada 17.69 15.21 13.39
Other international -- -- 14.48
Average 19.16 15.99 14.81
Natural gas (per MCF)
Domestic 2.16 1.56 1.83
North Sea 2.64 2.66 2.11
Canada 1.14 .85 1.37
Average 2.12 1.52 1.76
Production costs -
(Per barrel of oil equivalent)
Domestic 3.73 3.96 4.34
North Sea 4.88 4.44 5.25
China 6.70 -- --
Canada 3.49 2.94 2.75
Other international -- -- 4.91
Average 4.21 4.02 4.47
<TABLE>
The results of operations from crude oil and natural gas activities for the
three years ended December 31, 1996, consist of the following:
<CAPTION>
Gross Revenues Results of
Sales to Sales to Production Other Depreciation Income Tax Operations,
(In millions Unaffiliated Affiliated (Lifting) Related Exploration and Depletion Asset Expenses Producing
(of dollars) Entities Entities Total Costs Costs(1) Expenses(1) Expenses Impairment (Benefits) Activities
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 -
Domestic $397 $ -- $397 $ 93 $21 $26 $127 $ 22 $ 35 $ 73
North Sea 240 -- 240 64 4 36 57 -- 29 50
China 25 -- 25 9 -- 6 8 -- 1 1
Canada 32 -- 32 12 1 3 15 -- -- 1
Other international -- -- -- -- -- 9 -- -- (3) (6)
Total crude oil
and natural gas
activities 694 -- 694 178 26 80 207 22 62 119
Other(2) 180 -- 180 155 1 -- 1 -- 6 17
Total $874 $ -- $874 $333 $27 $80 $208 $ 22 $ 68 $136
1995 -
Domestic $197 $ 97 $294 $ 96 $11 $59 $128 $144 $(58) $(86)
North Sea 235 7 242 65 3 15 66 -- 31 62
Canada 40 -- 40 13 2 6 20 53 (17) (37)
Other international -- -- -- -- -- 9 -- -- (3) (6)
Total crude oil
and natural gas
activities 472 104 576 174 16 89 214 197 (47) (67)
Other(2) 106 8 114 84 4 -- 3 6 6 11
Total $578 $112 $690 $258 $20 $89 $217 $203 $(41) $(56)
1994 -
Domestic $169 $108 $277 $ 96 $ 6 $45 $115 $ -- $ 4 $ 11
North Sea 182 14 196 70 -- 17 61 -- 17 31
Canada 48 -- 48 13 1 6 26 -- 1 1
Other international -- 14 14 5 1 14 5 -- (3) (8)
Total crude oil
and natural gas
activities 399 136 535 184 8 82 207 -- 19 35
Other(2) 83 15 98 73 1 -- 4 -- 6 14
Total $482 $151 $633 $257 $ 9 $82 $211 $ -- $ 25 $49
(1) Includes restructuring charges of $10 million classified as Other Related
Costs in 1996 and $6 million and $1 million classified as Other Related Costs
and Exploration Expenses, respectively, in 1995 (see Note 12).
(2) Includes gas marketing, gas processing plants, pipelines, and other items
that do not fit the definition of crude oil and natural gas activities but have
been included above to reconcile to the segment presentations.
</TABLE>
26. Costs Incurred in Crude Oil and Natural Gas Activities
Total expenditures, both capitalized and expensed, for crude oil and natural
gas property acquisition, exploration, and development activities for the three
years ended December 31, 1996, are reflected in the following table:
Property
Acquisition Exploration Development
(In millions of dollars) Costs(1) Costs(2) Costs(3)
1996 -
Domestic $ 6 $ 53 $ 99
North Sea -- 49 21
China 1 10 25
Canada -- 2 5
Other international -- 10 5
Total $ 7 $124 $ 155
1995 -
Domestic $84 $ 64 $ 128
North Sea 7 28 23
China 1 4 82
Canada 1 5 10
Other international -- 8 --
Total $93 $109 $ 243
1994 -
Domestic $43 $ 67 $ 125
North Sea -- 16 39
China -- 1 56
Canada 1 5 9
Other international 3 12 2
Total $47 $101 $ 231
(1) Includes $29 million and $36 million applicable to purchases of reserves in
place in 1995 and 1994, respectively.
(2) Exploration costs include delay rentals, exploration staff, exploratory dry
holes, dry hole and bottom hole contributions, geological and geophysical
studies, costs of carrying and retaining properties, etc., plus capital
expenditures, such as costs of drilling and equipping successful exploratory
wells, etc.
(3) Development costs include costs incurred to obtain access to proved reserves
(surveying, clearing ground, building roads, etc.), to drill and equip
development wells, and to acquire, construct, and install production facilities
and improved recovery systems. Development costs also include costs of
developmental dry holes.
27. Capitalized Costs of Crude Oil and Natural Gas Activities
Capitalized costs of crude oil and natural gas activities and the related
reserves for depreciation, depletion, and amortization at the end of 1996 and
1995 are set forth in the table below. Not included in the amounts shown is $209
million that represents the company's proportional interest in an equity
affiliate's net capitalized cost at December 31, 1996 (see Note 4).
(In millions of dollars) 1996 1995
Capitalized costs -
Proved properties $3,054 $3,921
Unproved properties 104 173
Other 34 68
3,192 4,162
Reserves for depreciation, depletion,
and amortization -
Proved properties 1,953 2,574
Unproved properties 29 62
Other 23 50
2,005 2,686
Net capitalized costs $1,187 $1,476
28. Crude Oil, Condensate, and Natural Gas Net Reserves (Unaudited)
The estimates of proved reserves have been prepared by the company's
geologists and engineers. Such estimates include reserves on certain properties
that are partially undeveloped and reserves that may be obtained in the future
by improved recovery operations now in operation or for which successful testing
has been demonstrated. The company has no proved reserves attributable to
long-term supply agreements with governments or consolidated subsidiaries in
which there are significant minority interests. At December 31, 1996, the
company merged its North American onshore properties into an equity affiliate
(see Note 4).
<TABLE>
The following table summarizes the changes in the estimated quantities of
the company's crude oil and condensate and natural gas reserves for the three
years ended December 31, 1996.
<CAPTION>
Crude Oil and Condensate Natural Gas
(In millions of barrels) (In billions of cubic feet)
North North
Domestic Sea China Canada Other Total Domestic Sea Canada Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves -
Balance December 31, 1993 76 81 26 13 3 199 413 184 111 -- 708
Revisions of previous estimates 5 6 -- 2 -- 13 36 19 (17) -- 38
Purchases of reserves in place 1 -- -- -- -- 1 16 -- 1 -- 17
Sales of reserves in place (1) -- -- -- (2) (3) (1) -- (1) -- (2)
Extensions, discoveries, and
other additions 6 -- -- -- -- 6 181 -- 6 -- 187
Production (10) (12) -- (2) (1) (25) (77) (4) (18) -- (99)
Balance December 31, 1994 77 75 26 13 -- 191 568 199 82 -- 849
Revisions of previous estimates 2 1 4 1 -- 8 (6) -- 3 -- (3)
Purchases of reserves in place 1 -- -- -- -- 1 45 -- -- -- 45
Sales of reserves in place (5) -- -- -- -- (5) (31) -- (1) -- (32)
Extensions, discoveries, and
other additions 1 -- -- -- -- 1 25 -- 1 -- 26
Production (10) (14) -- (2) -- (26) (82) (8) (16) -- (106)
Balance December 31, 1995(1) 66 62 30 12 -- 170 519 191 69 -- 779
Revisions of previous estimates 12 (1) -- (1) -- 10 (1) (10) (1) -- (12)
Purchases of reserves in place -- -- -- -- -- -- 1 -- -- -- 1
Sales of reserves in place (10) -- -- (1) -- (11) (28) -- (18) -- (46)
Reserves merged into
equity affiliate (16) -- -- (9) -- (25) (122) -- (41) -- (163)
Extensions, discoveries, and
other additions 3 39 -- -- 7 49 27 2 -- 39 68
Production (11) (11) (2) (1) -- (25) (84) (11) (9) -- (104)
Balance December 31, 1996(1) 44 89 28 -- 7 168 312 172 -- 39 523
Proportional interest in
equity affiliate's reserves
December 31, 1996 22 -- -- 3 -- 25 172 -- 13 -- 185
Proved developed reserves -
December 31, 1993 45 40 -- 13 3 101 347 113 107 -- 567
December 31, 1994 45 49 -- 12 -- 106 346 134 79 -- 559
December 31, 1995(1) 45 50 -- 12 -- 107 329 156 65 -- 550
December 31, 1996(1) 26 45 20 -- -- 91 183 161 -- -- 344
Proportional interest in
equity affiliate's reserves
December 31, 1996 20 -- -- 3 -- 23 164 -- 13 -- 177
(1) Includes 1 million barrels of oil and 3 billion cubic feet of natural gas
held for sale at December 31, 1996, and 12 million barrels of oil and 57 billion
cubic feet of natural gas held for sale at December 31, 1995 (see Note 11).
</TABLE>
<TABLE>
The following presents the company's barrel of oil equivalent proved
developed and undeveloped reserves based on approximate relative heating value
(6 MCF equals 1 barrel).
<CAPTION>
North
(In millions of equivalent barrels) Domestic Sea China Canada Other Total
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 144 112 26 32 3 317
December 31, 1994 172 107 26 27 -- 332
December 31, 1995(1) 152 94 30 24 -- 300
December 31, 1996(1) 96 118 28 -- 14 256
Proportional interest in
equity affiliate's reserves
December 31, 1996 51 -- -- 5 -- 56
(1) Includes 2 million barrels of oil equivalent and 21 million barrels of oil
equivalent held for sale at December 31, 1996 and 1995, respectively (see Note
11).
</TABLE>
29. Standardized Measure of and Reconciliation of Changes in Discounted Future
Net Cash Flows (Unaudited)
The standardized measure of future net cash flows presented in the following
table was computed using year-end prices and costs and a 10% discount factor.
The future income tax expense was computed by applying the appropriate year-end
statutory rates, with consideration of future tax rates already legislated, to
the future pre-tax net cash flows less the tax basis of the properties involved.
However, the company cautions that actual future net cash flows may vary
considerably from these estimates. Although the company's estimates of total
reserves, development costs, and production rates were based upon the best
information available, the development and production of the oil and gas
reserves may not occur in the periods assumed. Actual prices realized and costs
incurred may vary significantly from those used. Therefore, such estimated
future net cash flow computations should not be considered to represent the
company's estimate of the expected revenues or the current value of existing
proved reserves.
<TABLE>
<CAPTION>
Standardized Proportional
Future Measure of Interest in Equity
Future Development Future 10% Discounted Affiliate's
Cash and Production Income Future Net Annual Future Net Standardized
(In millions of dollars) Inflows Costs Taxes Cash Flows Discount Cash Flows(1) Measure
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -
Domestic $2,217 $ 435 $ 552 $1,230 $411 $ 819 $336
North Sea 2,610 841 638 1,131 382 749 --
China 658 248 95 315 91 224 --
Canada -- -- -- -- -- -- 28
Other international 246 147 38 61 26 35 --
Total $5,731 $1,671 $1,323 $2,737 $910 $1,827 $364
1995 -
Domestic $2,320 $ 910 $ 350 $1,060 $339 $ 721 $ --
North Sea 1,494 418 328 748 254 494 --
China 551 179 96 276 81 195 --
Canada 295 94 61 140 54 86 --
Other international 2 -- 1 1 -- 1 --
Total $4,662 $1,601 $ 836 $2,225 $728 $1,497 $ --
1994 -
Domestic $2,124 $1,013 $ 257 $ 854 $312 $ 542 $ --
North Sea 1,679 596 280 803 237 566 --
China 418 193 52 173 77 96 --
Canada 297 79 65 153 63 90 --
Other international 3 -- 1 2 1 1 --
Total $4,521 $1,881 $ 655 $1,985 $690 $1,295 $ --
(1) Includes $(8) million in 1996 and $51 million in 1995 from properties held
for sale (see Note 11).
</TABLE>
<TABLE>
The changes in the standardized measure of future net cash flows are
presented below for each of the past three years:
<CAPTION>
(In millions of dollars) 1996 1995 1994
<S> <C> <C> <C>
Net change in sales, transfer prices, and production costs $ 847 $ 451 $ 250
Changes in estimated future development costs 45 (165) (52)
Sales and transfers less production costs (516) (402) (351)
Purchases of reserves in place 1 62 20
Changes due to extensions, discoveries, etc. 474 58 97
Changes due to revisions in quantity estimates 116 17 171
Changes due to sales of reserves in place (139) (86) (17)
Changes due to reserves merged into equity affiliate (511) -- --
Current period development costs 155 243 231
Accretion of discount 199 167 120
Changes in income taxes (289) (124) (135)
Timing and other (52) (19) (1)
Net change 330 202 333
Total at beginning of year 1,497 1,295 962
Total at end of year $1,827 $1,497 $1,295
</TABLE>
30. Supplementary Mineral Ore Reserve and Price Data (Unaudited)
The following table presents selected statistics related to the company's
mineral operations. Mineral reserves presented in the following table represent
those estimated quantities of proved and probable ore that, under presently
anticipated conditions, may be profitably recovered and processed for the
extraction of their mineral content. Future production of these resources is
dependent on many factors, including market conditions and governmental
regulations.
<TABLE>
<CAPTION>
(In thousands of tons) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Proved and probable (demonstrated) reserves, December 31 -
Coal 810,400 833,700 864,200 887,900 906,400
Heavy minerals 5,500(1) 5,700 6,000 8,000 8,600
Production -
Coal 31,300 31,100 25,600 23,300 20,800
Heavy minerals 149 238 268 263 262
Average market price (per ton) -
Coal $ 10.48 $ 10.12 $10.73 $13.78 $14.57
Heavy minerals 142.60 104.40 85.43 69.47 77.99
(1) Represents 161 million tons of sand containing 3.4% heavy minerals in
Western Australia. The percentages of valuable heavy minerals within the
heavy-mineral concentrate are 4.3% rutile, 60.9% ilmenite, 3.5% leucoxene,
and 11.2% zircon.
</TABLE>
31. Quarterly Financial Information (Unaudited)
<TABLE>
A summary of quarterly consolidated results for 1996 and 1995 is presented
below.
<CAPTION>
Income (Loss)
per Common Share
Operating Income (Loss) Net
(In millions of dollars, Profit from Continuing Income Continuing
except per-share amounts) Sales (Loss) Operations (Loss) Operations Net Income
<S> <C> <C> <C> <C> <C> <C>
1996 Quarter Ended -
March 31 $ 455 $ 85 $ 48 $ 48 $ .94 $ .94
June 30 470 83 51 51 1.01 1.01
September 30 488 89 62 62 1.27 1.27
December 31 518 114 59 59 1.21 1.21
Total(1) $1,931 $371 $220 $220 $4.43 $4.43
1995 Quarter Ended -
March 31 $ 452 $ 81 $ 37 $38 $ .71 $ .73
June 30 442 76 35 45 .68 .86
September 30 444 (174) (133) (143) (2.56) (2.76)
December 31 416 81 37 29 .70 .57
Total(1) $1,754 $ 64 $(24) $(31) $(.47) $(.60)
(1) Includes unusual items. Refer to Management's Discussion and Analysis.
</TABLE>
The company's common stock is listed for trading on the New York Stock
Exchange and was held by approximately 11,500 stockholders of record at year-end
1996. The ranges of sales prices and dividends declared during the last two
years are as follows:
Market Prices
Dividends
1996 1995 per Share
High Low High Low 1996 1995
Quarter Ended -
March 31 65 3/4 59 3/8 51 44 $.41 $.38
June 30 67 3/8 56 5/8 56 1/4 49 1/8 .41 .38
September 30 63 3/8 55 3/4 59 7/8 53 1/8 .41 .38
December 31 74 1/8 60 5/8 64 52 3/4 .41 .41
<TABLE>
Six-Year Financial Summary
<CAPTION>
(In millions of dollars, except per-share amounts) 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Summary of Net Income (Loss)
Sales $1,931 $1,754 $1,566 $1,445 $1,379 $1,325
Operating costs and expenses 1,688 1,791 1,436 1,267 1,397 1,165
Interest and debt expense 52 61 58 45 64 77
Total costs and expenses 1,740 1,852 1,494 1,312 1,461 1,242
191 (98) 72 133 (82) 83
Other income 132 29 27 16 47 55
Provision (benefit) for income taxes 103 (45) 30 54 (23) 53
Income (loss) from continuing operations
before extraordinary charge and cumulative
effect of accounting changes 220 (24) 69 95 (12) 85
Income (loss) from discontinued operations -- (7) 21 (18) (14) 17
Extraordinary charge -- -- -- -- (5) --
Cumulative effect of accounting changes -- -- -- -- (70) --
Net income (loss) $ 220 $ (31) $ 90 $ 77 $ (101) $ 102
Common Stock Information, per Share
Net income (loss) per common share
Continuing operations $ 4.43 $ (.47) $ 1.33 $ 1.93 $ (.25) $ 1.75
Discontinued operations -- (.13) .41 (.36) (.28) .35
Extraordinary charge -- -- -- -- (.10) --
Cumulative effect of accounting changes -- -- -- -- (1.45) --
Total $ 4.43 $ (.60) $ 1.74 $ 1.57 $(2.08) $ 2.10
Dividends declared 1.64 1.55 1.52 1.52 1.52 1.50
Stockholders' equity 28.10 27.52 29.82 29.24 27.93 31.43
Market high for the year 74.13 64.00 51.00 56.00 46.38 46.88
Market low for the year 55.75 44.00 40.00 41.75 35.63 35.13
Market price at year-end $72.00 $63.50 $46.25 $45.25 $45.00 $38.63
Shares outstanding at year-end (thousands) 48,294 51,069 51,694 51,655 48,284 48,229
Balance Sheet Information
Working capital $ 320 $ 189 $ 52 $ 102 $ 204 $ 346
Property, plant, and equipment - net 1,948 2,210 2,489 2,446 2,351 2,224
Total assets 3,124 3,213 3,696 3,506 3,482 3,362
Long-term debt 626 632 673 590 756 886
Total debt 663 735 993 859 930 935
Stockholders' equity 1,367 1,416 1,543 1,512 1,350 1,516
Cash Flow Information
Net cash provided by operating activities 645 369 356 427 275 193
Cash capital expenditures 392 484 410 449 372 491
Dividends paid 83 79 78 73 73 72
Purchase of treasury stock $ 195 $ 45 $ -- $ -- $ -- $ 13
Ratios and Percentage
Current ratio 1.7 1.3 1.1 1.1 1.3 1.6
Average price/earnings ratio 14.7 NM 26.1 31.1 NM 19.5
Total debt to total capitalization 33% 34% 39% 36% 41% 38%
Employees
Total wages and benefits $ 289 $ 314 $ 319 $ 319 $ 326 $ 323
Number of employees at year-end 3,851 3,976 5,524 5,812 5,866 6,072
</TABLE>
<TABLE>
Six-Year Operating Summary
<CAPTION>
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production
Net production of crude oil and condensate
(thousands of barrels per day)
Domestic 30.6 28.9 25.5 27.8 25.5 23.0
North Sea 30.9 36.7 34.3 16.7 16.0 18.6
China 3.7 -- -- -- -- --
Canada 3.4 4.8 4.7 4.7 4.5 4.6
Other international -- -- 2.8 4.0 4.5 4.2
Total 68.6 70.4 67.3 53.2 50.5 50.4
Average price of crude oil sold (per barrel)
Domestic $19.36 $15.69 $14.64 $15.76 $18.17 $19.24
North Sea 19.08 16.31 15.15 15.90 18.71 19.64
China 19.53 -- -- -- -- --
Canada 17.69 15.21 13.39 14.65 16.24 17.36
Other international -- -- 14.48 14.97 17.44 16.71
Average $19.16 $15.99 $14.81 $15.64 $18.11 $19.01
Natural gas deliveries (MMCF per day) 281 291 271 286 296 281
Average price of natural gas delivered (per MCF) $ 2.12 $ 1.52 $ 1.76 $ 1.92 $ 1.56 $ 1.44
Net exploratory wells drilled
Productive 4.91 3.71 9.61 2.22 2.59 5.63
Dry 3.52 9.16 8.47 10.09 5.53 9.18
Total 8.43 12.87 18.08 12.31 8.12 14.81
Net development wells drilled
Productive 21.33 40.86 22.27 43.90 27.26 40.19
Dry 1.04 2.95 4.63 2.33 3.05 3.04
Total 22.37 43.81 26.90 46.23 30.31 43.23
Undeveloped net acreage (thousands)
Domestic 265 472 499 523 620 690
North Sea 428 358 363 243 184 188
China 925 341 282 -- -- --
Canada -- 115 154 161 184 209
Other international 927 1,309 1,309 1,926 217 4,092
Total 2,545 2,595 2,607 2,853 1,205 5,179
Developed net acreage (thousands)
Domestic 209 537 542 539 549 591
North Sea 33 22 21 21 18 17
China 19 19 19 19 -- --
Canada -- 159 165 156 163 202
Other international 104 -- -- 24 24 24
Total 365 737 747 759 754 834
Estimated proved reserves
(millions of equivalent barrels) 256 300 332 317 302 301
Chemicals
Industrial and specialty chemical sales
(thousands of tons) 446 445 381 331 314 263
Coal
Sales (millions of tons) 35.3 34.5 27.5 23.5 20.8 21.9
Recoverable reserves (millions of tons) 810 834 864 888 906 775
</TABLE>
EXHIBIT 21
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
SUBSIDIARIES
State or Country Percent
Name of Subsidiary of Incorporation Owned
Kerr-McGee Chemical Corporation Delaware 100%
Kerr-McGee China Petroleum Ltd. Bahamas 100%
Kerr-McGee Coal Corporation Delaware 100%
Kerr-McGee Credit Corporation Delaware 100%
Kerr-McGee Oil (U.K.) PLC England 100%
A number of additional subsidiaries are omitted since, considered in the
aggregate as a single subsidiary, they would not constitute a significant
subsidiary as of December 31, 1996.
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 17, 1997, included in the company's 1996 Annual Report to
Stockholders and incorporated by reference in this Form 10-K and on page 28 of
this Form 10-K, into the company's previously filed Registration Statements on
Form S-8 File Nos. 33-18268, 33-24274, and 33-50949, and the company's
previously filed Registration Statements on Form S-3 File Nos. 2-78952, 33-5473,
and 33-66112.
(ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
March 27, 1997
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Bennett E. Bidwell)
Bennett E. Bidwell, Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as an Officer of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as an Officer of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Deborah A. Kitchens)
Deborah A. Kitchens, Vice
President, Controller and
Chief Accounting Officer
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Earnest H. Clark, Jr.)
Earnest H. Clark, Jr., Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in her capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, her true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for her and
in her name, place and stead, in her capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Farah M. Walters)
Farah M. Walters, Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as an Officer of the
Company, does hereby appoint Luke R. Corbett and Tom J. McDaniel, and each of
them severally, his true and lawful attorneys or attorney-in-fact and agents or
agent with power to act and with full power of substitution and resubstitution,
to execute for him and in his name, place and stead, in his capacity as an
Officer of the Company, the Form 10-K and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(John C. Linehan)
John C. Linehan, Executive Vice
President and Chief Financial
Officer
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(John J. Murphy)
John J. Murphy, Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(John J. Nevin)
John J. Nevin, Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or Officer
or both, as the case may be, of the Company, does hereby appoint Tom J. McDaniel
and John C. Linehan, and each of them severally, his true and lawful attorneys
or attorney-in-fact and agents or agent with power to act with or without the
other and with full power of substitution and resubstitution, to execute for him
and in his name, place and stead, in his capacity as a Director or Officer or
both, as the case may be, of the Company, the Form 10-K and any and all
amendments thereto, as said attorneys or each of them shall deem necessary or
appropriate, together with all instruments necessary or incidental in connection
therewith, and to file the same or cause the same to be filed with the
Commission. Each of said attorneys shall have full power and authority to do and
perform in the name and on behalf of the undersigned, in any and all capacities,
each act whatsoever necessary or desirable to be done in the premises, as fully
and to all intents and purposes as the undersigned might or could do in person,
the undersigned hereby ratifying and approving the acts of said attorney or
attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Luke R. Corbett)
Luke R. Corbett, Chairman of the
Board, Chief Executive Officer and
Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Martin C. Jischke)
Martin C. Jischke, Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Robert S. Kerr, Jr.)
Robert S. Kerr, Jr., Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Paul M. Anderson)
Paul M. Anderson, Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th day
of March, 1997.
(Richard M. Rompala)
Richard M. Rompala, Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or Officer
or both, as the case may be, of the Company, does hereby appoint Luke R. Corbett
and John C. Linehan his true and lawful attorney-in-fact and agent with power to
act and with full power of substitution and resubstitution, to execute for him
and in his name, place and stead, in his capacity as a Director or Officer or
both, as the case may be, of the Company, the Form 10-K and any and all
amendments thereto, as said attorneys or each of them shall deem necessary or
appropriate, together with all instruments necessary or incidental in connection
therewith, and to file the same or cause the same to be filed with the
Commission. Said attorneys shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all capacities, each
act whatsoever necessary or desirable to be done in the premises, as fully and
to all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(Tom J. McDaniel)
Tom J. McDaniel, Vice Chairman of
Board and Director
<PAGE>
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1996 ("Form 10K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11th day of March, 1997.
(William C. Morris)
William C. Morris, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1996, and the Consolidated Statement
of Income for the year then ended and is qualified in its entirety by reference
to such Form 10-K.
</LEGEND>
<RESTATED>
<CIK> 0000055458
<NAME> KERR-MCGEE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<CASH> 121 87 81
<SECURITIES> 0 0 0
<RECEIVABLES> 380 339 417
<ALLOWANCES> 5 5 3
<INVENTORY> 218 221 398
<CURRENT-ASSETS> 805 764 952
<PP&E> 4837 5767 5929
<DEPRECIATION> 2889 3557 3440
<TOTAL-ASSETS> 3124 3213 3696
<CURRENT-LIABILITIES> 485 575 900
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 54 54 53
<OTHER-SE> 1313 1362 1490
<TOTAL-LIABILITY-AND-EQUITY> 3124 3213 3696
<SALES> 1931 1754 1566
<TOTAL-REVENUES> 1931 1754 1566
<CGS> 1030 967 882
<TOTAL-COSTS> 1740 1852 1494
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 52 61 58
<INCOME-PRETAX> 323 (69) 99
<INCOME-TAX> 103 (45) 27
<INCOME-CONTINUING> 220 (24) 69
<DISCONTINUED> 0 (7) 21
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 220 (31) 90
<EPS-PRIMARY> 4.43 (.60) 1.74
<EPS-DILUTED> 0 0 0
</TABLE>
