-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HYgYm3q80ib+sJ/20jaGZxF6GKfxndd8lpn+zq918ev4qLzfF9uJ22tpFFGBtxVK uks9Q1sYGbhTrB5E4ul82w== 0000055458-94-000001.txt : 19940331 0000055458-94-000001.hdr.sgml : 19940331 ACCESSION NUMBER: 0000055458-94-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KERR MCGEE CORP CENTRAL INDEX KEY: 0000055458 STANDARD INDUSTRIAL CLASSIFICATION: 2911 IRS NUMBER: 730311467 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-03939 FILM NUMBER: 94519196 BUSINESS ADDRESS: STREET 1: KERR-MCGEE CTR STREET 2: 123 ROBERT S. KERR CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 BUSINESS PHONE: 4052701313 MAIL ADDRESS: STREET 1: P.O. BOX 25861 CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 FORMER COMPANY: FORMER CONFORMED NAME: KERR MCGEE OIL INDUSTRIES INC DATE OF NAME CHANGE: 19671227 10-K 1 FORM 10-K 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, 1993 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. [X] 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 $2.3 billion as of February 28, 1994. The number of shares of common stock outstanding as of February 28, 1994, was 51,656,493. DOCUMENTS INCORPORATED BY REFERENCE Specified sections of the Kerr-McGee Corporation 1993 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 1994 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1993, is incorporated by reference in Part III of this Form 10-K. 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 petroleum refining and marketing, 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. INDUSTRY SEGMENTS For information as to business segments of the company, reference is made to Note 23 to the Consolidated Financial Statements on pages 48 and 49 of the 1993 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, natural gas, and natural gas liquids. The areas of Kerr-McGee's offshore oil and gas exploration and production activities are the Gulf of Mexico, North Sea, Arabian Gulf, South China Sea, Egypt, and Vietnam. Onshore exploration and production operations are in the United States, primarily in Louisiana, Oklahoma, Texas, and Wyoming, Canada, Papua New Guinea, and Indonesia. For 1993, the Exploration and Production Division, including Gas Processing, recorded revenues(1) and operating profit of $564 million and $82 million, respectively, compared with $560 million (1)Includes intercompany sales, primarily crude oil sales, of $195 million in 1993 and $211 million in 1992. ____________ Except as indicated under Items 1 through 3, 5 through 8, and 10 through 14, no other information appearing in either the company's 1993 Annual Report to Stockholders or its 1994 Proxy Statement is deemed to be filed as part of this annual report on Form 10-K. and $91 million, respectively, for 1992. Net operating profit was $52 million for 1993, compared with $53 million for 1992. The decline in 1993 operating profit resulted principally from lower crude oil sales prices, higher exploration costs, and lower natural gas deliveries, partially offset by higher natural gas sales prices and crude oil sales volumes. Total expenditures for property acquisitions, exploration, and development were $360 million for 1993, a 24% increase from $290 million the previous year. The company's average crude oil sales price was $15.64 per barrel for 1993, down 14% from the prior year's price of $18.11. The 1993 average natural gas sales price was $1.92 per thousand cubic feet, up 23% from the prior year's price of $1.56. Kerr-McGee's crude oil and condensate production averaged 53,200 barrels per day for 1993, compared with 50,500 barrels per day for 1992. Deliveries of natural gas averaged 286 million cubic feet of gas per day for 1993, compared with 296 million cubic feet per day for 1992. Kerr-McGee's spot sales of natural gas in 1993 represented approximately 77% of the total natural gas sold, approximately the same as last year. Undeveloped Acreage As of December 31, 1993, the company had interests in undeveloped oil and gas leases in the Gulf of Mexico and 10 states in the United States, onshore Canada, the United Kingdom sector of the North Sea, and other international areas as follows: Gross Net Location Acreage Acreage Domestic - Onshore 373,688 277,016 Offshore 429,859 246,077 803,547 523,093 Canada 262,633 160,951 North Sea 769,214 242,982 Other international - Egypt 869,807 217,452 Indonesia 2,029,722 676,574 Papua New Guinea 1,900,000 632,700 Vietnam 1,140,000 399,000 5,939,529 1,925,726 Total Undeveloped Acreage 7,774,923 2,852,752 The company also owned North American onshore undeveloped oil and gas mineral and royalty interests totaling 860,408 gross or 158,504 net acres. Developed Acreage At December 31, 1993, the company had interests in developed oil and gas leases in the Gulf of Mexico and 22 states in the United States, onshore Canada, the United Kingdom sector of the North Sea, and other international areas as follows: Gross Net Location Acreage Acreage Domestic - Onshore 916,486 384,354 Offshore 367,354 154,451 1,283,840 538,805 Canada 315,333 155,970 North Sea 162,446 21,057 Other international - Abu Dhabi 444,542 24,189 China 78,332 19,191 522,874 43,380 Total Developed Acreage 2,284,493 759,212 In addition to these developed oil and gas leases, the company owned developed oil and gas mineral and royalty interests in North America totaling 609,431 gross or 59,721 net acres. Net Exploratory and Development Wells Domestic and international exploratory and development wells drilled during the three years ended December 31, 1993, are reflected in the following table:
1993 1992 1991 Exploratory Wells - Net(1) Domestic Productive 1.40 .98 1.71 Dry holes 5.30 3.80 3.02 6.70 4.78 4.73 Canada Productive - 1.00 3.60 Dry holes 1.75 1.33 4.50 1.75 2.33 8.10 North Sea Productive .82 .61 .32 Dry holes 2.29 .40 .41 3.11 1.01 .73 Other international Productive - - - Dry holes .75 - 1.25 .75 - 1.25 Total 12.31 8.12 14.81 Development Wells - Net(1) Domestic Productive 33.10 20.38 34.06 Dry holes .83 1.97 1.94 33.93 22.35 36.00 Canada Productive 9.52 6.20 5.40 Dry holes 1.50 1.00 .75 11.02 7.20 6.15 North Sea Productive .91 .19 .24 Dry holes - .08 .35 .91 .27 .59 Other international Productive .37 .49 .49 Dry holes - - - .37 .49 .49 Total 46.23 30.31 43.23 (1)Net wells - The total of the company's fractional working interests in "gross wells" expressed as the equivalent number of full-interest wells.
Gross and Net Wells The company's interest in productive oil and gas wells at December 31, 1993, is shown in the following table. These wells include 8,084 gross or 470.71 net wells associated with secondary-recovery projects and 352 gross or 126.65 net wells that have multiple completions but are included as single wells. Of the net wells below, 85% are domestic, 14% in Canada, and 1% in the North Sea and other international areas. Of the domestic wells, approximately 56% are in Texas, 11% in Oklahoma, 11% in Wyoming, 9% in Louisiana, 9% offshore in Federal waters, and 4% in other areas. Gross Net Location Wells Wells Crude Oil Domestic 10,186 685.79 Canada 946 125.21 North Sea 66 9.12 Other international 52 6.37 11,250 826.49 Natural Gas Domestic 2,199 528.82 Canada 222 81.70 North Sea 17 1.34 2,438 611.86 Total Wells 13,688 1,438.35 Results of Operations and Costs Incurred Reference is made to Notes 24, 25, and 26 to the Consolidated Financial Statements on pages 50, 51, and 52 of the 1993 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 for the past three years, capitalized costs of crude oil and natural gas activities at December 31, 1993 and 1992, and costs incurred in crude oil and natural gas activities for the past three years. Crude Oil and Natural Gas Sales The following table summarizes the sales of the company's crude oil and natural gas production (including intercompany sales) for the three years ended December 31, 1993:
(In millions) 1993 1992 1991 Crude oil and condensate - barrels Domestic 10.1 9.3 8.4 Canada 1.7 1.7 1.7 North Sea 5.8 6.1 6.8 Other international 1.5 1.6 1.5 19.1 18.7 18.4 Crude oil and condensate Domestic $159.6 $169.7 $161.6 Canada 25.3 26.9 28.7 North Sea 92.9 113.6 133.4 Other international 21.7 28.4 25.5 $299.5 $338.6 $349.2 Natural gas - MCF Domestic 85.1 88.2 86.7 Canada 18.4 18.9 14.6 North Sea .9 1.1 1.1 104.4 108.2 102.4 Natural gas Domestic $172.7 $146.9 $129.2 Canada 26.2 19.5 16.7 North Sea 1.2 1.9 1.9 $200.1 $168.3 $147.8
Sales of Production Most of the company's domestic crude oil production is exchanged at market prices for crude oil used in the company's refineries. The company's North Sea crude oil is sold at spot prices or utilized by the company's refining and marketing operations. The company's share of Canadian crude oil is sold in Canada at market prices, while the other international crude oil is sold to the company's refining and marketing operations. Gas production is sold under short-term contracts to utility and industrial markets and under long-term contracts with interstate and intrastate pipeline companies. Average Sales Prices and Production Costs Reference is made to Note 24 to the Consolidated Financial Statements on page 51 of the 1993 Annual Report to Stockholders, which note is incorporated by reference in Item 8, for information regarding average sales prices per unit of crude oil and natural gas and production costs per barrel of oil equivalent for each of the past three years. Secondary Recovery The company continues to initiate and/or participate in secondary-recovery projects where geological, engineering, and economic conditions are favorable. As of December 31, 1993, the company was participating in 86 active secondary-recovery projects worldwide. These projects are located in all of the principal areas of Kerr-McGee's oil and gas production activities. Most of the company's operations outside North America incorporate water injection. Pressure maintenance operations began at the time of initial production from these fields. Wells in Process of Drilling At December 31, 1993, the company had 40 gross or 17.04 net wells classified as temporarily suspended or in the process of drilling. Of these totals, 34 gross or 15.78 net wells were located in the United States, 2 gross or .83 net wells were in Canada, and 4 gross or .43 net wells were in the North Sea. Reserves Kerr-McGee's estimated proved crude oil, condensate, and natural gas reserves at December 31, 1993, and the changes in net quantities of such reserves for the three years then ended are shown in Note 27 to the Consolidated Financial Statements on page 53 of the 1993 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 Consolidated 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. Exploration and Development Activities The company continues to emphasize drilling for natural gas onshore North America and in the Gulf of Mexico to participate in domestic market growth. Kerr-McGee holds an oil and natural gas prospect inventory of approximately 246,000 net undeveloped acres in the gulf. The U.K. sector of the North Sea remains the most important international area for Kerr-McGee, with emphasis on oil and large natural gas reserves. Existing infrastructure and a cooperative regulatory climate enhance the potential value of approximately 243,000 net undeveloped acres. Kerr-McGee has interests averaging 25% in 41 blocks and is the operator on 15 of these. Participation in at least 25 North Sea wells is planned over the next five years. In other international areas, where the potential for sizeable discoveries is greater than in the more mature domestic oil and gas areas, Kerr-McGee holds sizeable working interests in several concessions. The following is a description of certain of the company's exploration and development activities. North Sea Fields in the United Kingdom sector of the North Sea accounted for 31% of the company's total 1993 liquids production, or 16,700 barrels of crude oil and condensate per day. Gryphon field, Block 9/18b (25% interest) -- The field uses the North Seas's first permanently moored floating production, storage, and offloading vessel. This facility was commissioned 10 months after approval of the project by the U.K. government. First oil flowed in October 1993. Kerr-McGee is the operator. Scott field, Blocks 15/21a and 15/22 (5.4%) -- Production began in September 1993 from this field, which is the largest field developed in the North Sea during the last decade. During early 1994, the U.K. government approved development of an extension, South Scott, which will be tied to the existing facility. South Scott is expected to come on stream in mid-1995. East Brae (7.5%) -- This field, the largest of the four producing fields in the Brae area, began production in December 1993. Gulf of Mexico Offshore fields in the Gulf of Mexico were the source of 30% of the company's oil production and nearly half of the natural gas deliveries. Kerr-McGee's daily production for 1993 averaged 16,000 barrels oil and 136 million cubic feet of gas. Ship Shoal Block 315 (75%) -- The field is scheduled to come on stream in 1994, 22 months after discovery. Crude oil and natural gas production will be processed through a facility on the adjoining Ship Shoal Block 300. Ewing Bank Block 989 (75%) -- This 1992 discovery will be developed with two subsea wells tied to an existing platform. Production is expected to start in late 1994. Breton Sound area (50%) -- Three horizontal wells are increasing production in this mature area. The cost of two of the wells was recovered in less than four months, compared with about 15 months for a vertical well in the same area. The third horizontal well came on stream in December 1993. Additional horizontal drilling is planned. Viosca Knoll field 989 (25%) -- Production is scheduled to start in late 1994 from a platform in 1,300 feet of water. U.S. Onshore The company's daily production from U.S. onshore fields averaged 11,700 barrels of oil and 97 million cubic feet of gas in 1993. During 1993, the company emphasized drilling for natural gas while working to produce more oil from mature fields through enhanced and secondary recovery methods. Texas Panhandle area (100%) -- A successful deep-gas well was drilled and tied to an existing pipeline less than six weeks after discovery. Offset drilling is scheduled for 1994. Several high- potential prospects have been identified in the same trend. Sands Dunes Unit (26.7%) -- This miscible gas flood unit in Wyoming's Powder River Basin has been on stream since 1991 and averaged 12,100 barrels of oil per day in 1993. North Buck Draw (34.6%) -- Also in Wyoming, this miscible gas flood unit started production in late 1988, has recovered 50% of the oil in place and continued to produce more than 3,000 barrels of oil per day in 1993. Canada During 1993, daily production of oil and gas from Canadian fields totaled 4,700 barrels and 50 million cubic feet, respectively. The company's focus in Canada continues to be on large natural gas reserves, and Kerr-McGee continues to pursue prospects in west central Alberta and northeastern British Columbia. Boundary Lake South (50%) -- Gas production will commence during the summer of 1994, when plant and gathering lines are complete. Other International Liuhua 11-1 field (24.5%) -- The company will participate in the development of this South China Sea field, which was discovered in 1987. Development drilling should begin in the second half of 1994. Papua New Guinea (33.3%) -- The 1.9 million-acre PPL 163 concession is located onshore near a significant recent oil discovery. An exploratory well was spudded in January 1994. South Con Son Basin (35%) -- Lifting of the U.S. trade embargo on Vietnam opened access to a new area. Kerr-McGee has acquired an interest in this 1.1 million-acre offshore block. Drilling is scheduled to start in the first half of 1994. South Sumatra Basin (33.3%) -- Seismic work is under way on this onshore concession, a 2 million-acre block in Indonesia. Spudding of the first well is planned for late 1994. Egypt (25%) -- A second exploratory well is planned for early 1994 on this 870,000 acre offshore concession. Gas Processing Kerr-McGee's Gas Processing Division operates two gas processing plants and one intrastate gas pipeline in the United States and also has interests in 9 plants that are operated by others. These plants produce natural gas liquids, including ethane, ethylene, propane, propylene, isobutane, normal butane, and natural gasoline. In 1993, Kerr-McGee's interest in the gas processed at these plants averaged 67 million cubic feet per day. The company's total net production of natural gas liquids during 1993 averaged 3,600 barrels per day, compared with 4,200 barrels per day in 1992. The company's share of residue gas sold during 1993 was 18 million cubic feet per day, compared with 23.1 million cubic feet per day in the prior year. REFINING AND MARKETING Kerr-McGee Refining Corporation is engaged in the purchase, gathering, transportation, and refining of crude oil and the transportation, distribution, and wholesale and retail marketing of petroleum products. The company's gasolines, distillates, lubricating oils, and allied products are marketed under the brand names Kerr-McGee, Mystik, and various other trade names, according to the territory where sold. In a highly competitive industry, Kerr-McGee Refining Corporation considers its products to be competitive in quality, service, and price and has been able to compete successfully with other products offered in the markets it serves. Kerr-McGee Corporation is not crude oil self-sufficient and must supplement its production with spot purchases and crude oil purchased under short-term agreements. Also, spot purchases of intermediate feedstocks are made to meet refining requirements. While the company's three refineries all process domestic crude oil, the Corpus Christi, Texas, and Wynnewood, Oklahoma, refineries also process foreign crude oil and other feedstocks. Total runs to stills at the company's three refineries averaged 140,000 barrels per day for 1993. The company's 1993 refined- product sales averaged 239,000 barrels per day. Refining and marketing had an operating loss of $28 million for 1993, compared with an operating loss of $21 million for 1992. Revenues were $2 billion for 1993, compared with $2.2 billion for 1992. The 1993 net operating loss was $19 million, compared with a net operating loss of $13 million for 1992. The operating losses for both years resulted from negative margins due to product prices declining faster than feedstock costs. Reduction of the LIFO inventory carrying value to market also adversely affected 1993 results. Revenues for 1993 were lower than the prior year due to lower sales prices and volumes. Kerr-McGee Corporation continues its efforts to sell, merge, or restructure its refining and marketing operations. Refining The company owns and operates three refineries with total crude oil distillation capacity of 181,000 barrels per day. The following table lists the company's refinery locations, processing capacities, and 1993 utilizations:
Refinery Capacities Crude Oil Downstream Distillation Units Processing Units(1) Barrels Percent Barrels Percent Plant Per Day Utilized Per Day Utilized Corpus Christi, Texas 120,000 76 104,000 88 Wynnewood, Oklahoma 50,000 88 43,000 102 Cotton Valley, Louisiana 11,000 43 7,800 60 181,000 78 154,800 91 (1)Adjusted for normal turnaround.
The crude oil distillation capacity represents throughput capacity of the crude oil stills. The downstream refinery processing capacity recognizes a practical limit on the ability to absorb output of the crude oil distillation facilities. The downstream rating method is in conformance with the American Petroleum Institute's definition for rating refinery capacity. The capacities of the refineries did not change in 1993. The Corpus Christi refinery produces gasoline, kerosene, diesel fuel, heating oil, heavy fuel, jet fuel, and petrochemical feedstocks. Desulfurization/hydrotreating and sulfur-recovery units provide the ability to process higher-sulfur crude and gas oils and improve product yields. During 1993, construction of a 25 million gallon per year cyclohexane unit was completed at Corpus Christi. This unit converts the refinery's benzene production into higher valued cyclohexane, an intermediate feedstock used in nylon manufacturing. Upgrades to both the primary products and the crude oil ship docks enhanced logistical capabilities of the Corpus Christi refinery. The refinery at Wynnewood produces gasoline, solvent, diesel fuel, jet fuel, heavy fuel, light burner fuel, and asphalt. During 1993, the refinery was connected to two major pipelines. These additional pipeline connections facilitate the delivery of crude oil from West Texas and shipment of product from the Wynnewood refinery. The Cotton Valley facility is a specialty-products plant producing a full range of high-quality naphtha solvents, diesel fuel, and jet fuel components. Crude Oil Supply In 1993, approximately 159,000 barrels per day of crude oil and intermediate feedstocks were delivered to the company's refineries. Of the crude oil delivered, 63% was domestic and 37% was foreign. This supply is acquired primarily from the company's crude oil gathering system in Oklahoma and long-standing purchase relationships with both domestic and foreign producers and resellers. The imported crude oil consisted largely of Kerr- McGee's equity production from the North Sea and purchases of additional light sweet crudes from West Africa and South America. About 24% of the 50 million barrels of crude oil processed by the refineries was supplied by Kerr-McGee production operations. The company continues to expand both the Corpus Christi and Wynnewood refineries' crude slates, extending their capability for processing selected domestic sour crude oil. The company operates a crude oil pipeline system in Oklahoma that contains approximately 1,500 miles of gathering and trunk lines. This system is used to gather and deliver domestic crude oil to the Wynnewood refinery. In addition, spot-market and futures-market domestic crude oil is purchased at Cushing, Oklahoma, where the company's crude oil storage capacity is 580,000 barrels. Kerr-McGee Refining also operates a fleet of trucks in Louisiana and Oklahoma to gather and deliver crude oil and transport petroleum products. Marketing and Product Distribution Products from the Wynnewood refinery are sold in the Midwest and Southwest under the Kerr-McGee brand. Gasoline, diesel fuel, and heating oil are marketed through independent jobbers, dealers, and company-operated stations. Kerr-McGee Refining markets to independent distributors and bulk rack accounts in 30 states east of the Rocky Mountains, selling a complete line of petroleum products in unbranded markets. At the retail level, gasoline and other products are marketed through 52 company-operated retail service stations and approximately 1,150 branded stations operated by jobbers and independent dealers. Products are transported for distribution through various common-carrier pipeline systems and by cargo ships and barges. A total of 13 waterway and pipeline terminals were owned and operated by the company at the end of 1993. The company has joint ownership in two additional terminals. The company sells products at approximately 200 additional exchange terminals. Cato Oil and Grease Co., a wholly owned subsidiary of Kerr- McGee Refining, produces and markets automotive, marine, industrial, mining, and agricultural lubricants and specialty petroleum products at plants in Oklahoma City and Atlanta. Most of these products are marketed under the Kerr-McGee and Mystik brand names throughout the United States. Cato also manufactures and packages lubricants and specialty petroleum products under private label for several major-brand marketers and markets bulk lubricants for use by industrial and mining operations. CHEMICALS Kerr-McGee Chemical Corporation produces and markets basic industrial chemicals, 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, sodium chlorate, ammonium perchlorate, manganese products, and vanadium. Specialty chemicals are boron trichloride, boron tribromide, and elemental boron. Forest-product operations produce railroad ties and other hardwood products and provide wood- treating services. Heavy minerals produced are ilmenite, leucoxene, zircon, and rutile. Kerr-McGee Chemical had revenues and operating profit of $556 million and $70 million, respectively, for 1993, compared with $515 million and $79 million, respectively, for 1992. Net operating profit was $44 million for 1993, compared with $50 million the previous year. The increase in 1993 revenues, compared with 1992, was due to higher sales volumes, partially offset by lower sales prices for titanium dioxide pigment and most other products. Operating profit for 1993 was less than 1992 due to higher operating expenses resulting from the increased sales volumes, partially offset by lower per-unit cost of sales for synthetic rutile and most other products. Pigment The company's synthetic rutile plant at Mobile, Alabama, has a production capacity of 155,000 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 120,000 tons per year. 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 project. The project 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 totals 10,350 acres. The property's remaining 270 million tons of sand contain 3% heavy minerals. The heavy minerals contained within this 8 million-ton, heavy-mineral deposit are composed of 3.8% rutile, 61% ilmenite, 6.8% leucoxene, 10.3% zircon, and 18.1% minerals which are not presently produced or are of 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 separation mill has a capacity of 559,000 tons per year. The recovered ilmenite is processed into synthetic rutile at the plant which has production capacity of 176,000 tons per year. Due to weak demand for synthetic rutile, the plant was shut down in September 1993. Operations resumed in March 1994. Production from the synthetic rutile plant serves as feedstock for the domestic and international pigment operations. The related pigment plant has a production capacity of 66,000 tons per year. The company also owns a 25% interest in a pigment plant in Yanbu, Saudi Arabia, which has a capacity of 56,000 tons per year. Electrolytic Products The company's major electrolytic products are manganese dioxide, manganese metal, sodium chlorate, and ammonium perchlorate. The sodium chlorate plant at the company's Hamilton, Mississippi, complex has production capacity of 123,000 tons per year. Also at Hamilton is a manganese metal plant that has a 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. The production capacity at Henderson is 16,000 and 20,000 tons per year for manganese dioxide and ammonium perchlorate, respectively. An expansion of the manganese dioxide plant, currently in the final stage of mechanical completion, is expected to increase capacity by 50% to 24,000 tons per year by mid-1994. Ammonium perchlorate blending and storage facilities are located 25 miles north of the Henderson plant. The company also recovers vanadium pentoxide at a Soda Springs, Idaho, plant from phosphate byproducts of other operations in the area. Annual capacity at the Soda Springs plant is 4.3 million pounds. Forest Products The company's principal forest product is railroad crossties. Other products include crossing materials, bridge timber, and utility poles. The company owns seven wood-preserving plants located along major railroads, six of which are east of the Rocky Mountains. Production of crossties with built-in rail fasteners began in the fourth quarter 1993 at the Madison, Illinois, pilot plant. This innovative RAILFAST (Registered Trademark) system has been patented by Kerr-McGee. Phosphate Deposits During 1993, the company sold its remaining property containing deposits of phosphate rock located in Alachua County, Florida. Marketing With net annual capacity in excess of 165,000 tons, Kerr-McGee ranks seventh among the world's producers of titanium dioxide pigment used primarily in the paint, plastics, and paper industries. Due to an oversupply during 1993, the company's sales price declined 3% in the United States and more than 10% overseas; however, consistent quality helped retain domestic and global market shares of 10% and 5%, respectively. The company entered global pigment production in 1991 with the startup of plants in Western Australia and Saudi Arabia. Primary markets for this production are the Pacific Rim and Europe. During 1993, the company assumed marketing responsibility for pigment from the Saudi Arabian plant in all regions except the Middle East and a part of Africa. Global demand for this white pigment is expected to grow about 3% per year. Manganese dioxide is a major component of alkaline dry-cell batteries. During 1993, Kerr-McGee supplied about 25% of the manganese dioxide used by domestic battery manufacturers. The completion of the expansion of the Henderson plant should make Kerr-McGee the world's third-largest manganese dioxide producer. Growth in U.S. demand is projected at an annual rate of 5% through the end of the century. Manganese metal is used in specialty and stainless steel alloys, and manganese-aluminum briquettes are an alloy that strengthens aluminum beverage cans. Kerr-McGee supplied about 50% of the U.S. aluminum industry's manganese requirements in 1993. There is growth potential in sodium chlorate, which is used to produce chlorine dioxide for an environmentally preferred pulp- bleaching process. Demand for sodium chlorate is expected to continue to grow at an 8% annual rate over the near term as more mills convert to this process. Kerr-McGee has a 7% share of the North American sodium chlorate market. The company's share of the U.S. railroad crosstie market is more than 40%. For information regarding heavy-mineral reserves, production, and average market prices for each of the years 1989 through 1993, reference is made to Note 29 to the Consolidated Financial Statements on page 55 of the 1993 Annual Report to Stockholders, which note is incorporated by reference in Item 8. COAL The company's coal operations are conducted by a subsidiary, Kerr-McGee Coal Corporation, which produces coal from Jacobs Ranch Mine, a surface mine in the Wyoming Powder River Basin; Galatia Mine, an underground mine in the Illinois Basin; and Pioneer Fuel Corporation, a combined surface and underground operation in West Virginia. The majority of shipments in 1993 were to electric utilities under long-term sales contracts. The company also makes spot sales to domestic and foreign customers. The company owns or leases coal reserves in Illinois, West Virginia, and Wyoming. Coal operating profit totaled $80 million and $77 million for 1993 and 1992, respectively, on revenues of $328 million and $307 million, respectively. The 1993 increase in revenues from the prior year was due to higher sales volumes, partially offset by lower sales prices. Operating profit for 1993 improved due to the increased revenues that more than offset higher operating expenses. Operating expenses were higher due to increased production volumes even though the per-unit production costs declined. Net operating profit was $58 million and $53 million for 1993 and 1992, respectively. Coal Shipments Shipments from Kerr-McGee mines for 1993 and 1992 were as follows:
(In millions of tons) 1993 1992 Surface Mine - Powder River Basin, Wyoming 18.4 16.4 Underground Mine - Illinois Basin, Illinois 4.2 3.8 Surface/Underground Mines - West Virginia .8 .5 Total Shipments 23.4 20.7
Reserves As of December 31, 1993, 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 346 311 Steam Surface Clovis Point Mine 326 294 Steam Surface Illinois - Galatia Mine - Met./ Under- Harrisburg No. 5 135 86 Steam ground Under- Herrin No. 6 269 175 Steam ground West Virginia - Under- Pioneer Fuel Met./ ground/ Composite 30 22 Steam Surface 1,106 888
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. West Virginia coal reserves are all held under leases with private parties. The company's mining units are described below. 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 3,832 acres are underlain by 311 million recoverable tons of coal. This includes 1,700 acres underlain by 132 million recoverable tons of coal which were acquired in 1992 with additional acreage leased from the Bureau of Land Management. The company also owns or controls the surface rights to 1,684 acres of a buffer zone, or overstrip area. The mine permit is presently being renewed for a five-year period and expanded to incorporate the additional leased-acreage and the buffer zone. Shipments began in 1978 and, through December 1993, totaled more than 194 million tons. All deliveries were made via the Burlington Northern or Chicago Northwestern railroads. Jacobs Ranch Mine coal is sold primarily under long-term contracts for ultimate use by electric utilities. The terms of the Jacobs Ranch Mine Federal leases were adjusted by the Bureau of Land Management in 1990. 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 remains on 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 Bureau of Land Management in 1990, and the terms of the other Federal lease are due to be reconsidered in 1995. The terms of the state lease, which contains the mine pit, were renewed for an additional 10-year period during 1993. The royalty rate may be adjusted for the last five years of the lease. The three Clovis Point leases are held in a logical mining unit. The provisions of the leases require that an additional 800,000 tons of coal be mined by September 1996. Galatia Mine The Galatia Mine is located near Galatia, Illinois, in Saline County. Within the mine area, Kerr-McGee controls 33,338 acres through leases and mineral ownership. Shipments from Galatia Mine began in 1984 and, through December 1993, totaled more than 26 million tons and were made principally via the Illinois Central Railroad. The mine is a dual-seam mine operating in both the Harrisburg No. 5 and the Herrin No. 6 coal seams. The Harrisburg No. 5 coal is suitable as a semi-soft coking coal or as a high-Btu, relatively low-sulfur steam coal, which will allow utilities to comply with Phase I of the Clean Air Act Amendments of 1990 (Phase I) without installing flue gas desulfurization units. The Herrin No. 6 is a high-Btu, medium-sulfur steam coal. Its sulfur content requires that it be blended or used by plants equipped with flue gas desulfurization units to meet Phase I requirements. Longwall mining has been used in the No. 5 seam since 1992 and in the No. 6 seam since 1989. Longwall mining is a high-recovery, high-productivity, and low operating cost system. It represents a significant improvement over the previously used room-and-pillar continuous miner method. In anticipation of market demand for low-sulfur coal, an expansion was begun in 1992 to extend production in the No. 5 seam through an ancient river channel north of the current mining area. Scheduled for completion in 1994, the project will provide access to lower-sulfur coal reserves. Ventilation and access shafts are complete, as are tunnels through the mile-wide river channel that has displaced the coal. Development of the shaft bottom area and the first longwall panel gate entry is under way. Mining of the No. 6 seam will cease on completion of this longwall panel development, and the longwall equipment will be moved from the No. 6 seam to this low-sulfur reserve. The No. 5 seam will then be a dual-longwall operation. Combined with a plant expansion that is underway and scheduled for completion in 1994, the No. 5 seam will be capable of sustaining production and shipments of six million tons per year of high-Btu, low-sulfur Phase I compliance coal. Pioneer Fuel Corporation Pioneer Fuel Corporation operates both surface and underground mines located near Oceana, West Virginia, in Wyoming County. Within the mine area, the company controls 7,970 acres through leases with private parties. Shipments since acquisition in late 1990 totaled approximately 2 million tons and were made via the Norfolk and Southern Railroad. The mines currently operate in the No. 2 Gas and Hernshaw seams. Both seams are suitable as mid- to high-volatile, low-sulfur coking coal. Current facility capacity is approximately 1 million tons of clean coal per year. Marketing Coal is sold predominantly under long-term contracts, although spot sales were made in 1993 to domestic and foreign customers. During 1993, the company had export sales of metallurgical coal to Japan, France, Italy, Spain, and Sweden and steam coal to Morocco. Domestic deliveries of steam coal will continue, primarily under long-term contracts with electric utilities in Arkansas, Indiana, Louisiana, Missouri, Oklahoma, and Texas. A total of 200 million tons of coal is committed to delivery under long-term contracts expiring between 1996 and 2012. Coal markets continue to experience competitive pricing. Kerr-McGee's existing long-term contracts have provided profitable sales even under these competitive conditions. For a discussion of the effects of a 1993 contract renegotiation, reference is made to the Financial Condition section of Management's Discussion and Analysis beginning on page 27 of the 1993 Annual Report to Stockholders, which discussion is incorporated herein by reference in Item 7. Although domestic markets are affected by the Clean Air Act Amendments of 1990, the company is well positioned with its reserves of low-sulfur coal. Approximately 70% of the company's coal will continue to be considered compliance coal after the year 2000. Uncommitted reserves and existing production capacity should permit the company to expand its export sales and participate in the expected growth in domestic demand for low-sulfur coal. For information regarding coal reserves, production, and average market prices for each of the years 1989 through 1993, reference is made to Note 29 to the Consolidated Financial Statements on page 55 of the 1993 Annual Report to Stockholders, which note is incorporated by reference in Item 8. OTHER Research and Development Research and development in support of the company's existing businesses and in the pursuit of new products and processes is carried out primarily by the Technology and Engineering Division. The Technology and Engineering Division's programs continue to concentrate on improvements to existing chemical plant processes, exploratory research, and support for refining and coal processing. The division includes a Technical Center, located in Oklahoma City, as well as a process engineering department and a technology planning and evaluation group. Research and development expenditures totaled $19 million in 1993, $17 million in 1992, and $16 million in 1991. Employees The company had 5,812 employees on December 31, 1993. Approximately 430, or 7%, of these employees were represented by collective bargaining agreements. Kerr-McGee Corporation was a party to four collective bargaining agreements through its refining and marketing operations. Collective bargaining agreements representing approximately 180 employees will expire during 1994. The status of labor relations within the company continues to be stable. No strikes or work stoppages have occurred within the past six years. Competitive Conditions In the petroleum industry, competition exists from the initial process of bidding for leases to the sales of refined products. Competitive factors include finding and developing petroleum hydrocarbons, transporting raw materials, distributing and pricing refined products, and marketing strategies. During the past several years, crude oil and natural gas supplies and refining capacities have exceeded demand. This excess of supply over demand has resulted in lower prices, compared with the prices received prior to 1985. The volatility of crude oil prices during the past few years has placed increased emphasis on all competitive aspects of the petroleum industry. Excess capacity for titanium dioxide pigment and ammonium perchlorate has also reduced prices for these products. The key competitive factor in the industrial and specialty chemicals industry is the application of technology to produce high-quality, value-added proprietary products at the lowest possible cost. Most of the company's coal customers are domestic electric utilities, an extremely competitive market. Cost efficiencies, transportation strategies, and product quality 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 refining and chemical 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 plants and facilities of the company. During 1993, direct capital and operating expenditures related to environmental protection and cleanup of existing sites totaled $39 million. Additional expenditures totaling $30 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 $65 million in 1994. Additional amounts could be charged to environmental reserves in 1994 if regulatory approvals for removal of waste material from the West Chicago site are obtained. Some expenditures to reduce the occurrence of releases to the environment, such as replaced or upgraded underground storage tanks, may result in increased efficiency; however, most of these expenditures do not produce any 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 made in the future for environmental protection. Because of continually changing laws and regulations, the nature of the company's businesses, the large number of other potentially responsible parties, and pending proceedings, it is not possible to estimate the amount or timing of all future expenditures relating to environmental matters. The company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. Although management believes adequate reserves have been provided for all known 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 commitments and 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 On April 2, 1992, the company's subsidiary, Kerr-McGee Coal Corporation, received a Complaint, Compliance Order, and Notice of Opportunity for Hearing from the U.S. Environmental Protection Agency (EPA) for alleged violations at the Jacobs Ranch Mine in northern Wyoming. Included in the EPA order are provisions for fines totaling more than $2.9 million. The company and its subsidiary continue to take all necessary steps to resolve this matter. In 1991, the California Department of Toxic Substance Control (DTSC) issued a Report of Violation outlining certain violations of the California Health and Safety Code alleged to have occurred during operation by a subsidiary of the company of the former Searles Valley chemical facilities. The DTSC and the company's subsidiary are negotiating an agreement to resolve this matter which, if it is adopted in its current form, would result in a settlement of less than $1.5 million. The company continues its efforts to obtain the necessary approvals to decommission a facility located in West Chicago, Illinois, which processed thorium ores and was closed in 1973. Currently, the State of Illinois has jurisdiction of this site and the company has agreed to offsite disposal of the waste material. For a discussion of contingencies, including a detailed discussion of the West Chicago matter, reference is made to the Financial Condition section of Management's Discussion and Analysis and Note 11 to the Consolidated Financial Statements on pages 27 and 39 respectively, of the 1993 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 1993. Executive Officers of the Registrant The following is a list of executive officers, their ages, and their positions and offices as of January 1, 1994: Name Age Office Frank A. McPherson 60 Chairman of the Board and Chief Executive Officer since May 1983. Luke R. Corbett 46 Group Vice President since May 1992. President of Kerr-McGee Canada Ltd. since July 1989. President of Kerr- McGee Oil (U.K.) PLC since August 1987. Senior Vice President from March 1991 until May 1992. Vice President, Oil and Gas Exploration from August 1987 until March 1991. C. C. Stewart, Jr. 50 Group Vice President since May 1992. President of Southwestern Refining Company, Inc. since November 1992. Senior Vice President from March 1991 until May 1992. Vice President, Oil and Gas Operations from February 1990 until March 1991. Senior Vice President, Technical for Hamilton Brothers Oil and Gas Ltd. from July 1988 until January 1990. George R. Hennigan 58 Senior Vice President since October 1991. President of Kerr-McGee Chemical Corporation since October 1991. Executive Vice President, Kerr-McGee Chemical Corporation from October 1984 until October 1991. John C. Linehan 54 Senior Vice President and Chief Financial Officer since October 1987. Tom J. McDaniel 55 Senior Vice President since June 1986 and Secretary since March 1989. L. V. McGuire 51 Senior Vice President since December 1993. Senior Vice President, Production, Exploration and Production Division since May 1992. Vice President and Managing Director, Kerr-McGee Oil (U.K.) PLC since February 1992. Vice President, Production from July 1992 to December 1993. Vice President, Gulf Coast Production Operations, Exploration and Production Division from January 1991 until February 1992. Vice President, Production for Hamilton Brothers Oil and Gas Ltd. from July 1990 until January 1991. Vice President, Operations for Hamilton Brothers Oil and Gas Ltd. from June 1988 until July 1990. Robert C. Scharp 46 Senior Vice President since October 1991. President of Kerr-McGee Coal Corporation since October 1991. Vice President of Operations for Kerr-McGee Coal Corporation from June 1990 until October 1991. General Manager of Galatia Mine for Kerr-McGee Coal Corporation from May 1988 until June 1990. Michael G. Webb 46 Senior Vice President since December 1993. Senior Vice President, Exploration, Exploration and Production Division since May 1992. Vice President, Exploration from July 1992 to December 1993. Vice President, North American Onshore Exploration from May 1991 until May 1992. Exploration Manager, Kerr-McGee Canada Ltd. from November 1988 until May 1991. R. G. Horner, Jr. 54 Vice President and General Counsel since June 1986. J. Michael Rauh 44 Vice President and Controller since October 1987. Kenneth J. Richards 61 Vice President, Technology since May 1986. President, Technology and Engineering Division since September 1984. Thomas B. Stephens 49 Vice President and Treasurer since January 1985. Edwin T. Still 58 Vice President, Environment and Health Management since June 1990. Vice President and Director of Environment and Health Management Division since September 1984. Jean B. Wallace 39 Vice President, Human Resources since November 1989. Director of Human Resources from May 1988 until November 1989. Dale E. Warfield 50 Vice President, Materials Management and Transportation since April 1991. Director of Purchasing and Materials Management from March 1990 until April 1991. Director of Purchasing from July 1985 until March 1990. Ray A. Freels 65 President, Kerr-McGee Refining Corporation since July 1993. Independent consultant from October 1992 until July 1993. Senior Vice President, Kerr-McGee Corporation from January 1986 until he retired in October 1992. President, Kerr-McGee Refining Corporation from December 1985 until October 1992. There is no family relationship between any of the executive officers. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Information relative to the market on 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 30 to the Consolidated Financial Statements on page 56 of the 1993 Annual Report to Stockholders, which note is incorporated by reference in Item 8. Quarterly dividends declared totaled $1.52 per share for each of the years 1993 and 1992 and $1.50 per share for the year 1991. Cash dividends have been paid continuously since 1941 and totaled $73 million in each of the years 1993 and 1992 and $72 million in 1991. Item 6. Selected Financial Data Information regarding selected financial data required in this item is presented in the schedule captioned "Six-Year Financial Summary" on page 57 of the 1993 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" on pages 25 through 29 of the 1993 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 1993 Annual Report to Stockholders are incorporated herein by reference: Annual Report Item Page No. Report of Independent Public Accountants 30 Consolidated Statement of Income 31 Consolidated Statement of Retained Earnings 31 Consolidated Balance Sheet 32 Consolidated Statement of Cash Flows 33 Notes to Financial Statements 34-56 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 1994 made in connection with its Annual Stockholders' Meeting to be held on May 3, 1994. (b) Identification of executive officers - The information required under this section is set forth in the caption "Executive Officers of the Registrant" on pages 24 through 26 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 1994 made in connection with its Annual Stockholders' Meeting to be held on May 3, 1994. Item 11. Executive Compensation For information required under this section, reference is made to the "Executive Compensation" section of the company's proxy statement for 1994 made in connection with its Annual Stockholders' Meeting to be held on May 3, 1994. Item 12. Security Ownership of Certain Beneficial Owners and Management For information required under this section, reference is made to the "Security Ownership" section of the company's proxy statement for 1994 made in connection with its Annual Stockholders' Meeting to be held on May 3, 1994. Item 13. Certain Relationships and Related Transactions For information required under this section, reference is made to the "Election of Directors" section of the company's proxy statement for 1994 made in connection with its Annual Stockholders' Meeting to be held on May 3, 1994. 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 1993 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, 1993, 1992, and 1991 Consolidated Statement of Retained Earnings for the Years Ended December 31, 1993, 1992, and 1991 Consolidated Balance Sheet at December 31, 1993 and 1992 Consolidated Statement of Cash Flows for the Years Ended December 31, 1993, 1992, and 1991 Notes to Financial Statements (a) 2. Financial Statement Schedules - Page Report of Independent Public Accountants on Finan- cial Statement Schedules 34 Schedule V - Property, Plant, and Equipment for the Years Ended December 31, 1993, 1992, and 1991 35 Schedule VI - Reserves for Depreciation, Depletion, and Amortization for the Years Ended December 31, 1993, 1992, and 1991 36 Schedule VIII - Valuation Accounts and Reserves for the Years Ended December 31, 1993, 1992, and 1991 37 Schedule X - Supplementary Income Statement Informa- tion for the Years Ended December 31, 1993, 1992, and 1991 38 Schedules I, II, III, IV, VII, XI, XII, and XIII 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. Schedule IX is omitted as the subject matter thereof is included in Note 10 to the Consolidated Financial Statements on page 38 of the 1993 Annual Report to Stockholders, which note is incorporated by reference in Item 8. (a) 3. Exhibits - 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 of July 11, 1989, filed as Exhibit 1 to the report on Form 8-K dated July 13, 1989, 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 $300 million Credit Agreement dated as of August 15, 1990, providing for a five-year revolving credit facility with a bullet maturity on the fifth anniversary of the execution of the Credit Agreement; 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 the company's subsidiary; and the Revolving Credit Agreement dated as of October 16, 1992, among Kerr-McGee Corporation, Kerr- McGee Oil (U.K.) PLC, and several banks providing for revolving credit of up to $230 million through October 16, 1997. 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. 4.2 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 Compensation Plan for Non-Employee Directors effective October 1, 1988, filed as Exhibit 10(2) to the report filed on Form 10-K for the year ended December 31, 1988, and incorporated herein by reference. 10.3 Description of the company's Annual Incentive Compensation Plan, filed as Exhibit 10(3) to the report filed on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.4 The 1984 Employee Stock Option Plan filed as Exhibit 4.2 to Form S-8 Registration No. 2-90981 and incorporated herein by reference. 10.5 The Long Term Incentive Program effective July 1, 1987, filed as Exhibit 4.1 to Form S-8 Registration No. 33-24274 and incorporated herein by reference. 10.6 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. 10.7 Kerr-McGee Corporation Executive Deferred Compensation Plan effective January 1, 1991, filed as Exhibit 10(7) to the report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.8 Kerr-McGee Corporation Supplemental Executive Retirement Plan effective January 1, 1991, filed as Exhibit 10(8) to the report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.9 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. 10.10 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. 10.11 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. 10.12 Agreement, effective January 2, 1990, between the company and C. C. Stewart, Jr., filed as Exhibit "A" within Exhibit 10(14) to the report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.13 Amended and restated Agreement, restated as of December 31, 1992, between the company and George R. Hennigan. 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 1994 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 1993 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen & Co. 24 Powers of attorney. (b) Reports on Form 8-K - No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1993. Report of Independent Public Accountants On Financial Statement Schedules To Kerr-McGee Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Kerr- McGee Corporation's 1993 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 18, 1994. Our report on the consolidated financial statements includes an explanatory paragraph with respect to changes in accounting for postretirement benefits other than pensions and income taxes in 1992 as discussed in Note 2 to the financial statements. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The financial statement schedules V, VI, VIII, and X are the responsibility of the company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state 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 & Co.) ARTHUR ANDERSEN & CO. Oklahoma City, Oklahoma, February 18, 1994 SCHEDULE V KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES PROPERTY, PLANT, AND EQUIPMENT
Balance at Balance at Beginning of Additions Other End of (In millions of dollars) Year at Cost RetirementsTransfersChanges(A) Year Year Ended December 31, 1993 Exploration and production $3,536 $318 $72 $ 1 - $3,783 Refining and marketing 530 34 3 - - 561 Chemicals 728 39 7 - - 760 Coal 491 28 3 1 - 517 Other 232 6 3 (2) - 231 $5,517 $425 $88 $ - $ - $5,852 Year Ended December 31, 1992 Exploration and production $3,330 $264 $127 $(3) $72 $3,536 Refining and marketing 503 40 16 3 - 530 Chemicals 747 33 52 - - 728 Coal 427 69 7 (2) 4 491 Other 231 9 10 2 - 232 $5,238 $415 $212 $ - $76 $5,517 Year Ended December 31, 1991 Exploration and production $3,039 $318 $ 27 $ - $ - $3,330 Refining and marketing 463 54 4 (10) - 503 Chemicals 665 89 7 - - 747 Coal 408 20 2 1 - 427 Other 194 33 5 9 - 231 Discontinued operations 292 - 292 - - - $5,061 $514 $337 $ - $ - $5,238 (A) Effective January 1, 1992, the differences between the assigned values and the tax bases of assets previously acquired were recognized in connection with the adoption of Statement of Financial Accounting Standards No. 109. The offsetting amounts were to deferred income taxes. Depreciation, Depletion, and Amortization Rates Costs of producing oil and gas wells and a portion of the producing coal and chemical assets are charged to depreciation, depletion, and amortization over their estimated lives using the unit-of-production method. It is not practical to summarize depreciation and amortization rates applicable to other assets for which the straight-line method is used because of the variety of properties and numerous rates used. These rates are reviewed annually and revised as deemed necessary. Reclassification For a discussion of the reclassification of previously presented information, reference is made to Note 2 to the Consolidated Financial Statements beginning on page 35 of the 1993 Annual Report to Stockholders, which note is incorporated by reference in Item 8.
SCHEDULE VI KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES RESERVES FOR DEPRECIATION, DEPLETION, AND AMORTIZATION
Balance at Charged toCharged to Balance at Beginning Profit or Other End of (In millions of dollars) of Year Loss Accounts Retirements Transfers Year Year Ended December 31, 1993 Exploration and production $2,152 $206 $ - $ 65 $ 1 $2,294 Refining and marketing 315 26 - 1 - 340 Chemicals 317 49 (4) 5 - 357 Coal 221 26 4 3 1 249 Other 90 14 - 3 (2) 99 $3,095 321 $ - $ 77 $ - $3,339 Year Ended December 31, 1992 Exploration and production $2,069 $201 $ - $117 $(1) $2,152 Refining and marketing 304 23 - 13 1 315 Chemicals 284 49 (4) 12 - 317 Coal 199 25 3 6 - 221 Other 83 14 - 7 - 90 $2,939 $312 $(1) $155 $ - $3,095 Year Ended December 31, 1991 Exploration and production $1,892 $201 $ - $ 24 $ - $2,069 Refining and marketing 292 18 - 1 (5) 304 Chemicals 245 46 (2) 5 - 284 Coal 171 27 3 2 - 199 Other 69 12 - 3 5 83 Discontinued operations 223 - - 223 - - $2,892 $304 $ 1 $258 $ - $2,939 Reclassification For a discussion of the reclassification of previously presented information, reference is made to Note 2 to the Consolidated Financial Statements beginning on page 35 of the 1993 Annual Report to Stockholders, which note is incorporated by reference in Item 8.
SCHEDULE VIII KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES VALUATION ACCOUNTS AND RESERVES
Additions Balance at Charged toCharged to DeductionsBalance at Beginning Profit and Other from End of (In millions of dollars) of Year Loss Accounts Reserves Year Year Ended December 31, 1993 a. Deducted from asset accounts Allowance for doubtful notes and accounts receivable $ 3 $ 2 $ - $ - $ 5 b. Not deducted from asset accounts Environmental and reclamation $294 $ 4 $(1)(A) $28 $269 Postretirement Benefits 99 11 - 7 103 Oil and gas site dismantlement 58 11 2 (B) 4 67 Surface mine stripping cost 15 27 - 28 14 Petroleum product pricing 2 - - 2 - Other 8 1 (1) 1 7 $476 $54 $ - $70 $460 Year Ended December 31, 1992 a. Deducted from asset accounts Allowance for doubtful notes and accounts receivable $ 4 $ 2 $ - $ 3 $ 3 b. Not deducted from asset accounts Environmental and reclamation $113 $207(C) $(1)(A) $25 $294 Postretirement Benefits - 112(D) (6)(A) 7 99 Oil and gas site dismantlement 52 10 - 4 58 Surface mine stripping cost 19 23 - 27 15 Petroleum product pricing 2 - - - 2 Other 9 - - 1 8 $195 $352 $(7) $64 $476 Year Ended December 31, 1991 a. Deducted from asset accounts Allowance for doubtful notes and accounts receivable $ 6 $ 2 $(1)(E) $ 3 $ 4 b. Not deducted from asset accounts Environmental and reclamation $121 $ 15 $(3)(A) $20 $113 Oil and gas site dismantlement 46 10 - 4 52 Surface mine stripping cost 23 22 - 26 19 Petroleum product pricing 5 - - 3 2 Other 8 2 1 2 9 $203 $ 49 $(2) $55 $195 (A) Transfer (to) from current. (B) Obligation assumed in connection with property acquisition. (C) Includes $205 million provision for reclamation and remediation of inactive sites. (D) Includes $101 million recognized for the accumulated postretirement benefit obligation at January 1, 1992, in connection with the adoption of Statement of Financial Accounting Standards No. 106. (E) Recovery of receivables applicable to discontinued operations sold in 1989 previously reserved.
SCHEDULE X KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31, (In millions of dollars) 1993 1992 1991 Charges to costs and expenses - Maintenance and repairs $135 $139 $128 Royalties 40 45 46
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 March 28, 1994 By: (Frank A. McPherson) Date Frank A. McPherson, Chairman of the Board and Chief Executive Officer March 28, 1994 By: (John C. Linehan) Date John C. Linehan, Senior Vice President and Chief Financial Officer March 28, 1994 By: (J. Michael Rauh) Date J. Michael Rauh, Vice President and Controller and Chief Accounting Officer 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: Bennett E. Bidwell* Bennett E. Bidwell, Director By: E. H. Clark, Jr.* E. H. Clark, Jr., Director By: Richard D. Harrison* Richard D. Harrison, Director By: Martin C. Jischke* Martin C. Jischke, Director March 28, 1994 By: Robert S. Kerr, Jr.* Date Robert S. Kerr, Jr., Director By: Frank A. McPherson* Frank A. McPherson, 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: 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 Exhibit Index The following exhibits are filed with this document: Exhibit 10.13 Exhibit 12 Exhibit 21 Exhibit 23 Exhibit 24 EX-10 2 EX10.13 - EMPLOYEMENT AGREEMENT AGREEMENT AMENDED AND RESTATED AGREEMENT, restated as of December 31, 1992 (the "Agreement") between KERR-McGEE CORPORATION, a Delaware corporation having its executive offices at Oklahoma City, Oklahoma (the "Company"), and George R. Hennigan, residing in XXXXXX, Oklahoma (the "Executive"). Unless otherwise indicated, terms used herein are defined in Schedule A. WHEREAS, the Executive is currently employed by the Company and/or its Subsidiaries pursuant to an amended and restated agreement, restated as of February 1, 1988 (the "Existing Agreement"); and WHEREAS, the Executive and the Company's Board of Directors believe that such Existing Agreement, which is a three-year self-renewing employment agreement, should be amended and restated as of December 31, 1992; and WHEREAS, the Company's Board of Directors has determined that it wishes to continue the employment of the Executive and that it is appropriate to reinforce the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a Change of Control of the Company; and WHEREAS, the Company and the Executive now wish to amend and restate the Existing Agreement. NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the Company and the Executive agree as follows: 1. Employment: The Company agrees to continue to employ the Executive and he agrees to continue to serve the Company and its Subsidiaries, upon the terms and conditions stated herein, for the term of employment commencing on the date hereof and ending on January 31, 1996, unless prior to a Change of Control such employment is involuntarily terminated hereunder for Reason or as a result of the Executive's death or disability. The Company further agrees that if a Change of Control occurs either before, on or after January 31, 1996, and the Executive is employed by the Company immediately prior to such Change of Control, the Company will not, prior to the third anniversary of the Change of Control, terminate the Executive's employment with the Company except for Cause or as a result of the Executive's death or Disability. Following a Change of Control any involuntary termination of the Executive's employment hereunder for any reason other than death shall be communicated by a Notice of Termination. The Executive will be employed in an executive capacity and will perform the duties of President of Kerr-McGee Chemical Corporation and Senior Vice President of Kerr-McGee Corporation or such other duties as may be assigned to him from time to time by the Company. The Executive shall devote substantially all of his business time, attention, skill and efforts to the business of the Company and its Subsidiaries while employed hereunder and shall perform the duties of his position and any other duties assigned to him by the Company to the best of his ability. 2. Compensation: As compensation for his services, the Company agrees to pay the Executive, so long as he shall be employed hereunder, a salary determined from time to time by the Company, but at a rate not less than $200,000 per annum, payable either biweekly or in equal semimonthly installments on the fifteenth and last day of the month, provided that if at any time while the Executive is employed hereunder he should receive an increase in the annual base salary being paid him by the Company, the above specified minimum salary rate shall thereupon increase by a corresponding amount. The Executive shall also be eligible for participation in any employee benefit plans and compensation programs available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive. 3. Noncompetition: The Executive agrees that at any time while employed hereunder he will not engage in any activity competitive with any business carried on by the Company or its Subsidiaries and Affiliates, without obtaining the specific prior written consent of the Company. He, however, shall be free without the consent of the Company to purchase stocks or other securities of any corporation listed on a national securities exchange or included in a published "over the counter" list. 4. Compensation During Illness: If while employed hereunder the Executive shall become unable to perform his duties hereunder due to illness or other incapacity, compensation during such period shall be provided in accordance with the sick leave policy for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive, or if applicable, under an income protection insurance plan for salaried employees and employees generally of the Company or any Subsidiary that employs the Executive. Subject to the other terms of this Agreement, no other compensation shall be provided during the period of such illness or incapacity. 5. Death: In the event of the Executive's death while employed hereunder, 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. 6. Successors: Nothing in this 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 or assets, or the assignment by the Company of this Agreement in connection with any of the above mentioned actions; provided that the Company will require any successor (whether direct or indirect, by merger, consolidation or otherwise) to all or substantially all of the properties 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 has taken place. This Agreement shall not be assignable by the Executive or by the Company or its successors except as provided herein. 7. Retirement: Notwithstanding the Executive's agreement herein to serve for the term of his employment under this Agreement, the Executive may retire under a retirement plan available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive when entitled to do so, except that he may elect early retirement under any such plan only upon giving the Company (or a Subsidiary employing the Executive) six months' written notice; and upon his retirement his term of employment hereunder shall terminate. Notwithstanding the foregoing, following a Change of Control, (i) 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 and (ii) any retirement under such plan that is coincident with or subsequent to an involuntary termination of the Executive's employment for any reason other than Cause, death or Disability will not preclude payments under this Agreement to which the Executive is entitled in respect of such termination. 8. Acceleration and Vesting of Stock Plans, Stock Options and SAR's Following a Change of Control: In the event a Change of Control of the Company shall have occurred while the Executive is employed hereunder, then, 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 bonus plan, stock incentive 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 agrees (i) to 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, which are Beneficially Owned by the Executive on the date of such Change of Control, and (ii) to 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 are Beneficially Owned by the Executive on such date. 9. Mitigation: If at any time the Executive's employment hereunder shall be terminated for any reason, then 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; provided, however, that if the Executive is involuntarily terminated for any reason other than Reason prior to a Change of Control, then, until the term of this Agreement ends, the amount payable under this Agreement shall be reduced by any compensation actually received by the Executive from comparable employment (as to position, compensation and responsibility) with any person or entity that is engaged in a business that is competitive with the Company or its Subsidiaries and Affiliates. 10. Legal Expenses: The Company shall pay (at least monthly) all costs and expenses, including reasonable attorneys' fees and disbursements, which the Executive may incur in connection with any litigation, arbitration or similar proceeding, whether instituted by the Company or the Executive, with respect to the interpretation or enforcement of any provision under this Agreement. 11. Accommodations and Travel Expenses: The Company agrees that while the Executive is employed hereunder he shall be furnished office space and accommodations suitable to the character of his position and adequate for the performance of his duties. Reasonable traveling expenses incurred by him in traveling on business of the Company and its Subsidiaries will be reimbursed in accordance with the established traveling expense policy of the Company or any Subsidiary that employs the Executive. 12. Notices: Any notices required under the terms of this Agreement shall be effective when mailed, postage prepaid, by certified mail, addressed: If to Kerr-McGee: R. G. Horner, Jr. Vice President and General Counsel Kerr-McGee Corporation Kerr-McGee Center Oklahoma City, Oklahoma 73102 If to the Executive: George R. Henningan XXXXXXXXXXX XXXXXXXXXXXXXXXX XXXXX 13. Entire Agreement: This Agreement comprises the entire agreement between the Company and its Subsidiaries and the Executive and shall supersede any and all previous contracts, agreements or understandings between the Company and its Subsidiaries and the Executive with respect to the subject matter hereof. This Agreement may not be modified except by written agreement between the parties. Any inconsistency between Sections 8, 9, 10, 13, 14, 15 and 16 of this Agreement and any other provisions of this Agreement shall be resolved in favor of such Sections. 14. 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. 15. 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 it 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. 16. Section and Other Headings: The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement on the 31st day of March, 1993. KERR-McGEE CORPORATION By (F.A. McPherson) F.A. McPherson (George R. Hennigan) Chairman of the Board and George R. Hennigan Chief Executive Officer Schedule A 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. "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 States federal, state or local criminal law, as determined in good faith by a written resolution duly adopted by the affirmative vote of not less than 2/3 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 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 (iii) the liquidation or dissolution 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 effected. "Code" means the Internal Revenue Code of 1986, as amended. "Date of Termination" means (i) if the Executive's employment is terminated under this Agreement due to Disability, thirty days after Notice of Termination is given to the Executive (provided the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty-day period) or (ii) if the Executive's employment is involuntarily terminated under this Agreement for any other reason, 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. "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. "Notice of Termination" means a written notice which shall indicate those specific provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. "Person" means any individual, firm, corporation, group (as such term is used in Rule 13d of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended) or other entity. "Reason" means (a) action by the Executive involving willful malfeasance, (b) failure to act by the Executive involving material nonfeasance having a material adverse effect on the Company or the Subsidiary that employs the Executive, (c) the Executive being convicted of a felony under United States federal, state, or local criminal law, or (d) the material breach of any provision of this Agreement by the Executive. "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. EX-12 3 EXHIBIT 12 - RATIO OF FIXED CHARGES EXHIBIT 12 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions of dollars) 1993 1992 1991 1990 1989 Income (loss) from continuing operations $77 $(26) $102 $113 $134 Add - Provision (benefit) for income taxes 41 (38) 64 43 81 Interest expense 47 66 78 86 72 Rental expense representa- tive of interest factor 5 6 6 6 6 Earnings (loss) $170 $ 8 $250 $248 $293 Fixed Charges - Interest expense $ 47 $ 66 $ 78 $ 86 $ 72 Rental expense representa- tive of interest factor 5 6 6 6 6 Interest capitalized 20 15 16 19 12 Total fixed charges $ 72 $ 87 $100 $111 $ 90 Ratio of earnings to fixed charges 2.4 -(1) 2.5 2.2 3.3 (1)Earnings in 1992 were inadequate to cover fixed charges by $79 million.
EX-13 4 EXHIBIT 13 - PORTIONS OF A/R INCORP. BY REF. Kerr-McGee Corporation Financial Review Contents Management's Discussion and Analysis 25 Results of Consolidated Operations 25 Segment Operations 26 Financial Condition 27 Responsibility for Financial Reporting 30 Report of Independent Public Accountants 30 Consolidated Statement of Income 31 Consolidated Statement of Retained Earnings 31 Consolidated Balance Sheet 32 Consolidated Statement of Cash Flows 33 Notes to Financial Statements 34 Six-Year Financial Summary 57 Management's Discussion and Analysis Results of Consolidated Operations The company's net income for 1993 was $77 million, or $1.57 per common share, compared with a 1992 net loss of $101 million, or $2.08 per common share, and 1991 net income of $102 million, or $2.10 per common share. The 1992 loss included after-tax charges for the cumulative effect on prior years of changes in accounting principles of $70 million, or $1.45 per common share (see Note 2), and for the early extinguishment of the 9-3/4% debt of $5 million, or $.10 per common share (see Note 10). Excluding these charges, the net loss was $26 million, or $.53 per common share. The 1992 net loss also included a provision for environmental reclamation and remediation of inactive plant sites in the amount of $205 million, or $130 million after income tax benefits (see Note 11). Operating profit for 1993 was $199 million, compared with $229 million and $267 million for 1992 and 1991, respectively. The $30 million decrease in 1993 operating profit, compared with 1992, resulted from lower operating profit from all segments except coal, which increased slightly. The $38 million decline in 1992 operating profit from 1991 was due to lower results from refining and marketing and chemical operations, which more than offset the increased operating profit from exploration and production operations. Coal operating profit did not change from 1991 to 1992. Consolidated sales totaled $3.3 billion for 1993, compared with $3.4 billion for 1992 and $3.3 billion for 1991. Revenues in 1993 were slightly lower than 1992 as higher crude oil and coal sales volumes and higher natural gas sales prices were more than offset by lower sales prices for crude oil, coal, and most chemical and refined products. Costs and operating expenses decreased $90 million in 1993 due to lower crude oil and feedstock costs for refining and marketing operations, partially offset by higher costs resulting from increased sales volumes of coal and certain chemical products. The $170 million increase in 1992 costs and operating expenses compared with 1991 was due to higher product costs incurred by refining and marketing and chemical operations. 25 Selling, general, and administrative expenses for 1993 were $16 million lower than 1992 due to lower costs resulting from the company's streamlining program and lower costs associated with assets sold in prior years. In 1992, the $16 million decrease in selling, general, and administrative expenses from 1991 was due primarily to lower costs associated with the company's streamlining and incentive compensation programs. Exploration costs for 1993, 1992, and 1991 were $71 million, $55 million, and $81 million, respectively. The 1993 increase resulted primarily from higher costs for dry holes. The decline in 1992 from 1991 resulted principally from lower costs for dry holes. Provisions for environmental reclamation and remediation of inactive facilities totaled $4 million, $205 million, and $11 million in 1993, 1992, and 1991, respectively. The 1992 amount represented additional provisions established for the removal of low-level radioactive materials from the company's inactive facility in West Chicago, Illinois, and reclamation and remediation of several other inactive facilities. Interest and debt expense for 1993, 1992, and 1991 was $47 million, $66 million, and $78 million, respectively. The decrease over the three-year period resulted primarily from lower average interest rates and lower debt in 1993. Other income totaled $19 million for 1993, a $23 million decrease from 1992. This decrease was primarily due to lower foreign currency translation gains. Other income for 1992 was $18 million lower than 1991 due to lower gains from property sales and lower interest income, partially offset by foreign currency translation gains in 1992, compared with 1991 losses. Segment Operations Operating profit (loss) from each of the company's segments is summarized in the following table:
(In millions of dollars) 1993 1992 1991 Exploration and Production $ 82 $ 91 $ 67 Refining and Marketing (28) (21) 31 Chemicals 70 79 101 Coal 80 77 77 Other (5) 3 (9) Total $199 $229 $267
Exploration and Production Exploration and production operating profit was $82 million for 1993, compared with $91 million for 1992 and $67 million for 1991. The decline in 1993 compared with 1992 resulted from lower crude oil sales prices, higher exploration costs, and lower natural gas deliveries, partially offset by higher natural gas sales prices and higher crude oil sales volumes. The 1992 increase from 1991 was due to lower exploration costs and higher natural gas deliveries and sales prices, partially offset by lower crude oil sales prices. Revenues and crude oil and natural gas volumes and prices are summarized in the following table:
1993 1992 1991 Revenues, including intercompany sales (millions of dollars) $ 564 $ 560 $ 560 Crude oil and condensate produced (thousands of barrels per day) 53.2 50.5 50.4 Average price per barrel of crude oil sold $15.64 $18.11 $19.01 Natural gas deliveries (MMCF per day) 286 296 281 Average price per MCF of natural gas delivered $ 1.92 $ 1.56 $ 1.44
Refining and Marketing Refining and marketing had an operating loss of $28 million for 1993, compared with an operating loss of $21 million for 1992 and operating profit of $31 million for 1991. Revenues were $2 billion, $2.2 billion, and $2.1 billion in 1993, 1992, and 1991, respectively. The 1993 and 1992 operating losses resulted from negative margins due to product prices declining faster than feedstock costs and a reduction in LIFO inventory carrying value in 1993. Revenues for 1993 were lower than the prior year due to lower sales prices and volumes. The 1992 revenue increase was due to higher sales volumes, partially offset by lower sales prices. Chemicals Chemicals operating profit totaled $70 million, $79 million, and $101 million for 1993, 1992, and 1991, respectively, on revenues of $556 million, $515 million, and $454 million, respectively. The increase in 1993 revenues, compared with 1992, was due primarily to higher sales volumes, partially offset by lower sales prices for titanium dioxide pigment and most other products. Operating profit for 1993 was less than 1992 due to higher operating expenses resulting from the increased sales volumes, partially offset by lower per-unit cost of sales for synthetic rutile and most other products. The increase in 1992 revenues, compared with 1991, was due to higher sales volumes for most products and higher sales prices for ammonium perchlorate, partially offset by lower sales prices for most other products. The decrease in 1992 operating profit from the prior year was due to higher per-unit production costs for ammonium perchlorate and the Western Australia operation, partially offset by the increased revenues. 26 Coal Coal operating profit totaled $80 million in 1993 and $77 million in both 1992 and 1991. Revenues were $328 million, $307 million, and $315 million in 1993, 1992, and 1991, respectively. Revenues increased in 1993 due to higher sales volumes, partially offset by lower average sales prices. Operating profit for 1993 improved due to the increased revenues that more than offset higher operating expenses. Operating expenses were higher due to increased production volumes even though the per-unit production costs declined. The 1992 decrease in revenues from the prior year was due to lower sales volumes, partially offset by higher average sales prices. Operating profit for 1992 remained level with 1991 due to lower production costs offset by the decrease in revenues. Financial Condition Cash Flow Net cash provided by operating activities continued to be the primary source of funding for the company's capital expenditures program and dividend payments. For 1993, net cash provided by operating activities totaled $424 million, compared with $277 million and $194 million for 1992 and 1991, respectively. The company's net cash provided by operating activities for 1993 reflects net income of $77 million; depreciation, depletion, and amortization of $321 million; and a net decrease in working capital items, excluding cash and short-term debt. Net cash provided by operating activities for 1992 consisted of the 1992 net loss of $101 million, which included noncash charges for: (1) depreciation, depletion, and amortization of $312 million; (2) an after-tax environmental provision for inactive sites of $130 million; and (3) the cumulative effect of accounting changes of $70 million. These noncash charges were partially offset by changes in working capital items, excluding cash and short-term debt. Net cash provided by operating activities in 1991 was less than the 1992 amount due to the prepayment of future income tax settlements and the payment of income taxes resulting from the 1990 sale of the foreign contract drilling operations. Net cash used by the company in investing activities totaled $396 million, $325 million, and $458 million for 1993, 1992, and 1991, respectively. The major investing activity during each of the three years was for cash capital expenditures, which totaled $451 million in 1993, $373 million in 1992, and $504 million in 1991. Partially offsetting were investing inflows of $35 million in 1992 from a contract settlement and $39 million and $36 million in 1993 and 1991, respectively, from the sale of the contract drilling operations. Financing activities provided net cash totaling $9 million in 1993 and $3 million in 1991 and used net cash of $87 million in 1992. Dividends paid to common stockholders of the company totaled $73 million in both 1993 and 1992 and $72 million in 1991. In 1993, increases in short-term borrowings exceeded long-term debt repayments by $79 million. In 1992, an additional $15 million was used for the net repayment of debt. In addition to common stock dividends paid during 1991, the company purchased $13 million of treasury stock, paid dividends of $82 million to the minority stockholders of foreign subsidiaries, and increased net borrowings by $169 million. Liquidity The net working capital position of the company at year-end 1993 was $79 million, compared with $210 million at the end of 1992. This $131 million decrease resulted primarily from an increase in short- term debt of $129 million. The current ratio was 1.1 to 1 at December 31, 1993, compared with 1.3 to 1 at December 31, 1992, and 1.6 to 1 at December 31, 1991. In September 1993, the company called its $150 million, 7-1/4% convertible subordinated debentures due in 2012 for redemption on October 15, 1993 (see Note 10). The percentage of total debt to total capitalization was 37% at December 31, 1993, compared with 42% and 39% at year-end 1992 and 1991, respectively. The year-end 1993 percentage decreased from the prior year due to the reduction in total debt outstanding of $73 million and the conversion of the convertible debentures. 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 $300 million through August 15, 1995, of which $70 million was outstanding at year-end 1993. 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 October 16, 1997, of which $215 million was outstanding at year-end 1993. 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. During 1993, one of the company's wholly owned subsidiaries, Kerr- McGee Canada Ltd. (KMCL), entered into revolving credit agreements with three banks, each to provide borrowings of up to U.S. $30 million. Interest is payable at varying rates. Prior to the termination dates and in accordance with the terms of the respective agreements, KMCL may request an extension of the commitment period for not more than one year. The company is the 27 guarantor of each of these agreements. At December 31, 1993, amounts outstanding pursuant to the agreements were as follows:
Amount Outstanding Date of Agreement Termination Date (In millions of dollars) September 20, 1993 September 19, 1994 $30 October 4, 1993 October 3, 1994 24 October 20, 1993 October 19, 1994 30
At year-end 1993, the company had available unused lines of credit and revolving credit facilities of $328 million. Of this amount, $270 million and $51 million can be used to support the commercial paper borrowings of Kerr-McGee Credit Corporation and Kerr-McGee Oil (U.K.) PLC, respectively. Capital expenditures for the three years ended December 31, 1993, totaled $1.3 billion and have been financed through internally generated funds and various borrowings. For the three-year period ended December 31, 1993, net cash provided by operating activities, excluding working capital changes, totaled $1.1 billion, slightly less than the total capital expenditures during the same period. Management anticipates that the cash requirements for the 1994 capital expenditures program, currently estimated to be $430 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. It is the company's intent to hedge a large portion of its material monetary assets, liabilities, and commitments denominated in foreign currencies; therefore, from time to time, the company purchases foreign currencies and forward contracts to provide funds for known or anticipated operating requirements that will be denominated in foreign currencies. Outstanding forward contracts are described in Note 1 to the financial statements. Coal markets continue to experience competitive pricing due to excess production capacity. As a result, the scheduled contract price renegotiation with an Illinois coal customer during the 1993 fourth quarter resulted in a commitment for continued deliveries through 1999 but at prices lower than under the previous contract. The negative impact of these lower contract prices on 1994 operating profit is expected to be approximately $25 million. Although domestic markets are affected by the Clean Air Act Amendments of 1990, the company is well positioned with its reserves of low-sulfur coal. Approximately 70% of the company's present reserves will continue to be considered compliance coal after the year 2000. Uncommitted reserves and existing production capacity should permit the company to expand its export sales and participate in the expected growth in domestic demand for low-sulfur coal. Environmental Matters The company's operations are subject to various federal and state 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 (U.S. EPA) pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as amended. The company has received notices that it has been named a potentially responsible party (PRP) with respect to the remediation of 14 existing U.S. EPA Superfund sites and may share liability at certain of these sites. 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 U.S. 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 1993, $8 million was added to the reserve for active and inactive sites. At December 31, 1993, the company's reserve for these sites totaled $278 million. In addition, at year-end 1993, the company had reserves of $67 million for the future costs for the abandonment and removal of offshore well and production facilities at the end of their productive lives and $14 million for the decommissioning and reclamation of coal mining locations. In the Consolidated Balance Sheet, $336 million of these reserves is classified as a deferred credit and the remaining $23 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 ending December 31, 1993, were as follows:
(In millions of dollars) 1993 1992 1991 Total Capital expenditures $13 $16 $16 $ 45 Recurring expenses 26 26 15 67 Charges to environmental reserves 30 26 21 77 Total $69 $68 $52 $189
28 The company has not recorded in the financial statements potential reimbursements from government agencies (see Note 11) or other third parties. The following table reflects the known estimated cost of investigation and/or remediation that is probable and estimable. The table includes all U.S. 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 financial involvement in investigation and/or remediation.
Total Known Total Total Number Estimated Expenditures of Identifiable Location of Site Stage of Investigation/Remediation Cost Through 1993 PRPs (In millions of Dollars) U.S. EPA Superfund sites Milwaukee, Wis. Executed consent decree to remediate the site of a former wood-treating facility. $ 38 $ 3 3 13 sites individually Various stages of investigation. not material 6 2 674 44 5 677 Non-U.S. EPA Superfund sites under consent order, license, or agreement West Chicago, Ill. Pursuing a license to decommission the site of a former facility (see Note 11). 201 51 Cleveland/Cushing, Okla. Agreed to remediation plans for a major portion of these sites. 50 10 Cimarron, Okla. Substantially completed remediation process. 28 25 279 86 Non-U.S. EPA Superfund sites individually not material 120 74 Total for all sites $443 $165
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 November 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 112, "Employers' Accounting for Postemployment Benefits," effective for years beginning after December 15, 1993. This statement requires the accrual of compensation expense for the cost of benefits to be provided to former or inactive employees after employment but before retirement. In May 1993, the FASB issued FAS No. 114, "Accounting by Creditors for Impairment of a Loan." FAS 114, effective for years beginning after December 15, 1994, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral, if the loan is collateral-dependent. Also in May 1993, the FASB issued FAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." FAS 115, effective for years beginning after December 15, 1993, expands the use of fair value accounting for certain investments in debt and equity securities but retains the use of the amortized cost method for investments in debt securities that the company has the positive intent and ability to hold to maturity. The impact of the new accounting requirements on the company's results of operations or financial condition is not expected to be material. 29 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, 1993 and 1992, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1993. 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, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Note 2 to the financial statements, effective January 1, 1992, the company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Prior years' financial statements were not restated. (Arthur Andersen & Co.) ARTHUR ANDERSEN & CO. Oklahoma City, Oklahoma, February 18, 1994 30
Kerr-McGee Corporation Consolidated Statement of Income (In millions of dollars, except per-share amounts) 1993 1992 1991 Sales $3,281 $3,382 $3,274 Costs and Expenses Costs and operating expenses 2,544 2,634 2,464 Selling, general, and administrative expenses 134 150 166 Depreciation and depletion 303 294 285 Exploration, including dry holes and amortization of undeveloped leases 71 55 81 Provision for environmental reclamation and remediation of inactive sites 4 205 11 Taxes, other than income taxes 79 84 83 Interest and debt expense 47 66 78 Total Costs and Expenses 3,182 3,488 3,168 99 (106) 106 Other Income 19 42 60 Income (Loss) before Income Taxes, Extraordinary Charge, and Cumulative Effect on Prior Years of Changes in Accounting Principles 118 (64) 166 Provision (Benefit) for Income Taxes 41 (38) 64 Income (Loss) before Extraordinary Charge and Cumulative Effect on Prior Years of Changes in Accounting Principles 77 (26) 102 Extraordinary Charge, Net of Income Taxes - (5) - Cumulative Effect on Prior Years of Changes in Accounting Principles, Net of Income Taxes - (70) - Net Income (Loss) $ 77 $ (101) $ 102 Net Income (Loss) per Common Share: Income (Loss) before Extraordinary Charge and Cumulative Effect on Prior Years of Changes in Accounting Principles $ 1.57 $ (.53) $ 2.10 Extraordinary Charge - (.10) - Cumulative Effect on Prior Years of Changes in Accounting Principles - (1.45) - Total $ 1.57 $(2.08) $ 2.10
Kerr-McGee Corporation Consolidated Statement of Retained Earnings (In millions of dollars, except per-share amounts) 1993 1992 1991 Balance at Beginning of Year $1,306 $1,480 $1,451 Net income (loss) 77 (101) 102 Dividends (per common share: $1.52 in each of the years 1993 and 1992 and $1.50 in 1991) (74) (73) (73) Balance at End of Year $1,309 $1,306 $1,480 The accompanying notes are an integral part of these statements.
31
Kerr-McGee Corporation Consolidated Balance Sheet (In millions of dollars) 1993 1992 ASSETS Current Assets Cash $ 94 $ 57 Notes and accounts receivable 373 411 Inventories 349 385 Deposits and prepaid expenses 50 64 Total Current Assets 866 917 Investments and Other Assets 101 125 Property, Plant, and Equipment - Net 2,513 2,422 Deferred Charges 67 57 $ 3,547 $ 3,521 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 265 $ 170 Accounts payable 328 360 Long-term debt due within one year 43 9 Taxes on income 1 22 Taxes, other than income taxes 39 37 Accrued liabilities 111 109 Total Current Liabilities 787 707 Long-Term Debt 590 792 Deferred Credits and Reserves Income taxes 172 166 Other 486 506 Total Deferred Credits and Reserves 658 672 Stockholders' Equity Common stock, par value $1.00 - 150,000,000 shares authorized, 53,268,181 shares issued in 1993 and 53,191,644 shares issued in 1992 53 53 Capital in excess of par value 308 283 Preferred stock purchase rights 1 1 Retained earnings 1,309 1,306 Common stock in treasury, at cost - 1,612,688 shares in 1993 and 4,907,969 shares in 1992 (63) (191) Deferred compensation (96) (102) Total Stockholders' Equity 1,512 1,350 $ 3,547 $ 3,521 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.
32
Kerr-McGee Corporation Consolidated Statement of Cash Flows (In millions of dollars) 1993 1992 1991 Operating Activities Net income (loss) $ 77 $ (101) $ 102 Adjustments to reconcile to net cash provided by operating activities - Depreciation, depletion, and amortization 321 312 304 Deferred income taxes 2 (88) 2 Cumulative effect on prior years of changes in accounting principles - 70 - Provision for environmental reclamation and remediation of inactive sites 4 205 11 Noncash items affecting net income 54 47 40 Gain on sales and retirements of assets (9) (2) (27) Changes in current assets and liabilities - (Increase) decrease in accounts receivable 34 (57) 60 (Increase) decrease in inventories 36 (23) (62) (Increase) decrease in deposits and prepaids 7 2 (9) Decrease in accounts payable and accrued liabilities (9) (13) (60) Decrease in taxes payable (21) (18) (107) Other (72) (57) (60) Net cash provided by operating activities 424 277 194 Investing Activities Capital expenditures (451) (373) (504) Proceeds from sale of assets 17 25 32 Proceeds from sale of drilling operations 39 - 36 Proceeds from contract settlement - 35 - Purchase of long-term investments (25) (16) (24) Proceeds from sale of long-term investments 24 4 2 Net cash used in investing activities (396) (325) (458) Financing Activities Increase in short-term borrowings 95 135 35 Proceeds from issuance of long-term debt - 3 138 Repayment of long-term debt (16) (153) (4) Issuance of common stock 3 1 1 Dividends paid (73) (73) (72) Dividends paid to minority stockholders of foreign subsidiaries - - (82) Purchase of treasury stock - - (13) Net cash provided (used) in financing activities 9 (87) 3 Net Increase (Decrease) in Cash and Cash Equivalents 37 (135) (261) Cash and Cash Equivalents at Beginning of Year 57 192 453 Cash and Cash Equivalents at End of Year $ 94 $ 57 $ 192 The accompanying notes are an integral part of this statement.
33 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 and Other Assets 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. Translation of Foreign Currencies As the U.S. dollar has been adopted as the functional currency for each of the company's international operations, foreign currency translation gains or losses are recognized in the period incurred. Total foreign currency translation gains and losses in 1993 and 1991 were immaterial. The company recorded net foreign currency translation gains of $20 million in 1992. Net Income (Loss) per Common Share After adding the dilutive effect of the restricted stock and the conversion of stock options to the weighted average number of shares outstanding, the shares used to compute net income per common share were 49,281,023 in 1993 and 48,330,405 in 1991. The weighted average number of shares used to compute the 1992 net loss per share was 48,275,913. 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 totaling $39 million in 1993 and $29 million in 1992. Inventories The cost of substantially all crude oil and refined petroleum product inventories is determined by the last-in, first-out (LIFO) method, and the cost of remaining inventories is determined by the first-in, first-out (FIFO) method. 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 on a field-wide basis using the unit-of-production method as the oil or gas is 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 original 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. Individual properties are written down when impairments are deemed to have occurred. 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 - The cost 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 1993, 1992, and 1991 was $20 million, $15 million, and $16 million, respectively. Income Taxes Effective January 1, 1992, 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. Prior to 1992, deferred taxes were provided for all material items of income and expense recognized in different time periods for financial and income tax reporting purposes. See Note 2 for a discussion of the effects of the change in the method of accounting for income taxes. Research and Development Costs Research and development costs are charged against earnings as incurred. Such costs totaled $19 million in 1993, $17 million in 1992, and $16 million in 1991. 34 Site Dismantlement, Reclamation, and Remediation Costs The company provides for the estimated cost at current prices of dismantling and removing 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, 1993 and 1992, neither the quantity nor dollar amount of such arrangements recorded in the Consolidated Balance Sheet was material. Lease Commitments The company utilizes various leased properties in its operations, principally for marketing facilities and buildings. Net lease rental expense was $16 million in 1993 and $19 million in each of the years 1992 and 1991. The aggregate minimum annual rentals under noncancelable leases in effect on December 31, 1993, totaled $31 million, of which $8 million is due in 1994, $6 million in 1995, $14 million in the period 1996 through 1998, and $3 million thereafter. Futures Contracts The company periodically enters into futures contracts for commodities to hedge a portion of its petroleum products inventories and natural gas sales and into forward contracts for foreign currencies to hedge specific foreign currency transactions. The resulting gains or losses are deferred and recognized as part of the transactions hedged. At December 31, 1993, the company had foreign currency contracts maturing between January 1994 and December 1995 to purchase for $209 million various foreign currencies (105 million British pounds sterling and $72 million Australian). The company had contracts to sell for $10 million various currencies, principally European currencies, which mature at various dates during 1994. At year-end 1992, the company had foreign currency contracts maturing between January 1993 and December 1995 to purchase for $243 million various foreign currencies (147 million British pounds sterling and $16 million Australian). The company also had contracts to sell for $7 million various currencies, principally European currencies, maturing at various dates during 1993. Based on financial institutions' quotes, the net aggregate replacement cost of the contracts outstanding at December 31, 1993 and 1992, totaled $192 million and $221 million, respectively. 2. Accounting Changes Effective January 1, 1992, the company adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (see Note 16). This statement requires the accrual method of accounting for postretirement health care and life insurance benefits based on actuarially determined costs to be recognized over the period from the date of hire to the full eligibility date of employees who are expected to qualify for such benefits. The company recognized the full amount of its accumulated postretirement benefit obligation, which represents the present value at January 1, 1992, of the estimated future benefits payable to current retirees and a pro rata portion of estimated benefits payable to active employees after retirement. The pre-tax charge to 1992 earnings was $101 million. After income tax benefits, $64 million, or $1.32 per common share, was reflected in the Consolidated Statement of Income as the cumulative effect on prior years of changes in accounting principles. This change in the accounting method for postretirement health care and life insurance benefits resulted in an after-tax incremental cost for such benefits of $3 million, or $.06 per common share, for the year 1992. Also effective January 1, 1992, the company adopted FAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach in accounting for income taxes (see Note 15). The cumulative effect as of January 1, 1992, of the adoption of the statement resulted in a 1992 charge of $6 million, or $.13 per common share. An additional deferred tax liability of $76 million was recognized for the differences between the assigned values and the tax bases of assets previously acquired. The offset to this additional liability was an increase to property, plant, and equipment. As the result of the change in the method of accounting for income taxes, the 1992 net loss was reduced by $16 million, or $.33 per common share, due to the recognition of income tax benefits for the losses of a foreign subsidiary and foreign currency translation gains recognized on the higher deferred tax balances of the foreign operations. The additional depreciation expense resulting from the addition to property, plant, and equipment noted above was offset by income tax benefits. The company elected not to restate prior years' financial statements. During 1993, the company changed the grouping of its operations for business segment reporting (see Notes 8 and 23). 35 Information related to the operations of a plant that processes off- gases from refineries has been reclassified from the Exploration and Production business segment to the Other segment for all periods presented. This operation is now the major component of the Other segment. Information related to crude oil and natural gas activities also reflects the reclassification, where applicable (see Notes 24 and 25). 3. Cash Flow Information Net cash provided by operating activities reflects cash payments for interest and income taxes as follows:
(In millions of dollars) 1993 1992 1991 Interest paid $69 $74 $107 Income taxes paid 59 52 169
The effect of foreign currency exchange rate fluctuations on cash and cash equivalents was not material. During 1993, approximately $149 million of the company's 7-1/4% convertible debentures due in 2012 was converted into the common stock of the company. The common stock was issued from the company's treasury (see Note 10). During 1992, the company added coal reserves in a $20 million acquisition of additional leased acreage. A portion of the acquisition cost was paid in 1991 and 1993, and the remaining $12 million will be paid over the next three years. Other capital expenditures for which payment will be made in the subsequent year totaled $10 million, $32 million, and $10 million at year-end 1993, 1992, and 1991, respectively. In 1991, the company received cash and a note in exchange for the assets of the domestic drilling operation. The final payment of the note was received in 1993 (see Note 22). The noncash effects of these transactions are not reflected in the Consolidated Statement of Cash Flows. Transactions affecting the debt and deferred compensation associated with the Employee Stock Ownership Plan are noncash transactions and are not reflected in the Consolidated Statement of Cash Flows (see Note 20). 4. Notes and Accounts Receivable The following table summarizes notes and accounts receivable, net of the related allowance for doubtful accounts, at year-end 1993 and 1992:
(In millions of dollars) 1993 1992 Notes receivable $ 5 $ 12 Accounts receivable 373 402 378 414 Allowance for doubtful accounts (5) (3) Total $373 $411
5. Inventories Major categories of inventories at year-end 1993 and 1992 are as follows:
(In millions of dollars) 1993 1992 Crude oil and refined products $144 $180 Chemicals and other products 134 133 Materials and supplies 71 72 Total $349 $385
Substantially all inventories of crude oil and refined petroleum products are valued using the LIFO method. If these inventories had been valued at the lower of cost or market rather than on the LIFO basis at year-end 1992, their value would have been higher by approximately $11 million. At year-end 1993, market prices were lower than LIFO values, and the company recorded a $2 million charge to income to reduce the carrying value of these inventories to market value. During each of the years in the three-year period ended December 31, 1993, certain LIFO inventory quantities were reduced. For 1993, the effect of the reduction was to decrease net income by $5 million. The effect of the reductions was not material in 1992 or 1991. 36 6. Investments and Other Assets Investments and Other Assets consisted of the following at December 31, 1993 and 1992:
(In millions of dollars) 1993 1992 Long-term receivables $ 17 $ 55 Net deferred tax asset(1) 23 20 Investment in and advances to equity affiliates 10 12 U.S. government obligations 26 15 Corporate stocks 14 14 Other 11 9 Total $101 $125 (1)For a discussion of the net deferred tax asset, see Note 15.
7. Deferred Charges The cost of injected gas is deferred until sold at completion of miscible gas flood projects. The deferral of preoperating and startup costs associated with new plants and facilities is generally amortized over the first five years of operations. Deferred charges are as follows at year-end 1993 and 1992:
(In millions of dollars) 1993 1992 Cost of injected gas $31 $24 Preoperating and startup costs 12 15 Other 24 18 Total $67 $57
8. Property, Plant, and Equipment Fixed assets and related reserves by business segment at December 31, 1993 and 1992, are as follows:
Reserves for Depreciation, Depletion, and Gross Property Amortization Net Property (In millions of dollars) 1993 1992 1993 1992 1993 1992 Exploration and production $ 3,783 $ 3,536 $ 2,294 $ 2,152 $ 1,489 $ 1,384 Refining and marketing 561 530 340 315 221 215 Chemicals 760 728 357 317 403 411 Coal 517 491 249 221 268 270 Other 231 232 99 90 132 142 Total $ 5,852 $ 5,517 $ 3,339 $ 3,095 $ 2,513 $ 2,422
9. Lines of Credit At year-end 1993, the company had available unused bank lines of credit and revolving credit facilities of $328 million. Of this amount, $270 million and $51 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 1993, the aggregate amount of such compensating balances was not material, and the company was not legally restricted from withdrawing all or a portion of such balances at any time during the year. 37 10. Debt Short-term borrowings, consisting of notes payable and commercial paper, are summarized below:
1993 1992 1991 Notes Commercial Notes Commercial Notes Commercial (In millions of dollars) Payable Paper Payable Paper Payable Paper Balance outstanding at December 31 $101 $164 $26 $144 $ 2 $33 Average interest rate at year-end 3.76% 3.56% 4.14% 4.24% 4.75% 5.46% Average daily balance outstanding during year $ 38 $225 $12 $ 91 $ 2 $11 Weighted average interest rate for year 3.63% 3.43% 3.88% 4.02% 6.65% 6.16% High balance for year $120 $328 $27 $174 $16 $67
The company's policy is to classify short-term debt (borrowings under revolving credit facilities and commercial paper) of up to $300 million in 1993 and 1992 and $200 million in 1991 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. Therefore, the above information excludes the following, which has been classified as long-term debt:
(In millions of dollars) 1993 1992 1991 Revolving credit facilities $285 $180 $140 Commercial paper 15 120 60 Total $300 $300 $200
The increase in the 1993 and 1992 amounts classified as long-term was principally due to the greater use of short-term borrowings. During 1993, the company called its 7-1/4% convertible debentures due June 15, 2012. Virtually all of the debt was converted into common stock of the company at the conversion price of $45.30 per share. The common stock was issued from the company's treasury. This conversion resulted in no gain or loss (see Notes 3 and 18). During 1992, the company redeemed its 9-3/4% debentures due April 1, 2016. This early retirement resulted in an extraordinary charge of $8 million ($5 million after income taxes). Additional information regarding the major changes in long-term debt during the periods and unused commitments for long-term financing is included in the Financial Condition discussion starting on page 27 in Management's Discussion and Analysis. Maturities of long-term debt due after December 31, 1993, are $43 million in 1994, $78 million in 1995, $9 million in 1996, $245 million in 1997, $17 million in 1998, and $241 million thereafter. Long-term debt consisted of the following at year-end 1993 and 1992:
(In millions of dollars) 1993 1992 Debentures - 7% Debentures due November 1, 2011, net of unamortized debt discount of $116 million in 1993 and $118 million in 1992 (14.25% effective rate) $134 $132 8-1/2% Sinking fund debentures due June 1, 2006 68 79 7-1/4% Convertible subordinated sinking fund debentures due June 15, 2012, and convertible into common stock at $45.30 per share - 150 Commercial Paper (3.56% at December 31, 1993) 15 120 Guaranteed Debt of Employee Stock Ownership Plan - 9.47% Series A notes due in installments through January 2, 2000 44 49 9.61% Series B notes due in installments through January 2, 2005 51 51 Notes Payable - Variable interest rate revolving credit agreements with banks (3.44% average rate at December 31, 1993) $70 million due August 15, 1995; $215 million due October 16, 1997 285 180 Variable interest rate loan with banks (3.78% at December 31, 1993) due January 31, 1994 36 40 633 801 Long-Term Debt Due Within One Year (43) (9) Total $590 $792
In addition to the debt shown above, the company guaranteed its ratable portion of the debt of an unconsolidated affiliate accounted for by the equity method totaling $16 million at both year-end 1993 and 1992. No loss is anticipated by reason of this guarantee. 38 11. Contingencies Since August 1979, when the company filed a plan with the Nuclear Regulatory Commission to decommission a former operation in West Chicago, Illinois, a number of judicial and administrative proceedings have been filed. The operation, which was closed in 1973, processed thorium ores, leaving ore residues, process buildings, and equipment with some low-level radioactivity on site. While a number of these proceedings have been settled or resolved, several proceedings remain pending, and a license to decommission has not been received. Currently, the State of Illinois has jurisdiction of this site and continues to require offsite disposal of the material. In March 1992, the company entered into an agreement with a third party to provide for the disposal of such waste material at a permanent disposal facility in Utah, and the third party received a disposal license from the Nuclear Regulatory Commission in 1993. The agreement covers an estimated 13.5 million cubic feet of thorium mill tailings and other related materials. Removal of the waste material is subject to additional regulatory approvals being obtained. In September 1992, the Governor of Illinois signed the Uranium and Thorium Mill Tailings Control Act, which imposes on the company, beginning January 1, 1994, an annual fee of $2.00 per cubic foot of byproduct material stored at the former West Chicago mill site. The act also provides that the assessed fee may be used as reimbursement for removal expenses. In February 1993, the company filed suit in the Northern District of Illinois challenging this act on federal constitutional grounds and seeking to enjoin state officials from assessing such a fee. This suit is still pending. In early 1994, the company paid an assessed fee of $33 million under protest and filed suit in the Cook County Circuit Court protesting the amount of the fee, which the company believes, if any is due, should be $2 million. The aggregate decommissioning and relocation costs to the company are difficult to estimate because of the many contingencies. These contingencies include the absence of regulatory approval of a relocation plan. It is presently estimated, however, that the total remaining decommissioning costs, including the relocation costs that may be expended pursuant to the agreement referred to above, will approximate $150 million, payable over the time necessary to relocate the materials, presently estimated at between four and seven years. The company has established reserves for offsite disposal of the material. The costs to the company would be reduced to the extent the company is able to obtain reimbursement pursuant to the Energy Policy Act of 1992 (which could be up to $40 million). The company should also be able to recover substantially all the amounts it pays to the State of Illinois pursuant to the Uranium and Thorium Mill Tailings Control Act, previously referred to, as reimbursement of the company's removal costs. Almost all of the company's plants and facilities are subject to various environmental laws and regulations. In addition to the West Chicago site discussed above, the company has been notified that it may be responsible in varying degrees for a portion of the costs to clean up certain waste disposal sites and former plant sites. The total aggregate estimated cost to investigate and/or remediate all presently identified sites of former or current operations is $443 million of which $165 million was spent through December 31, 1993. Reserves for future expenditures totaled $278 million at December 31, 1993. The company is also a party to a number of other legal proceedings pending in various courts or agencies in which it or a subsidiary appears as plaintiff or defendant. Because of continually changing environmental laws and regulations, the nature of the company's businesses, the large number of other potentially responsible parties, and pending legal proceedings, it is not possible to reliably estimate the amount or timing of all future expenditures relating to these 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, it is possible, due to the above-noted uncertainties, 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. 39 12. Other Deferred Credits and Reserves Other deferred credits and reserves consisted of the following at year-end 1993 and 1992:
(In millions of dollars) 1993 1992 Reserve for site dismantlement, reclamation, and remediation $336 $352 Postretirement benefit obligations 103 99 Other 47 55 Total $486 $506
During 1992, the company provided $205 million ($130 million after income tax benefits) for environmental reclamation and remediation of former plant sites, principally for the West Chicago, Illinois, facility decommissioning project and former chemical and refining operations sites. Similar provisions in the amount of $4 million and $11 million were made in 1993 and 1991, respectively. 13. Fair Value of Financial Instruments The carrying amount and estimated fair value of the company's financial instruments, excluding foreign currency contracts discussed in Note 1, at December 31, 1993 and 1992, are as follows:
1993 1992 Carrying Fair Carrying Fair (In millions of dollars) Amount Value Amount Value Cash and short-term investments $ 96 $ 96 $ 66 $ 66 Long-term investments - U.S. government obligations 26 26 15 15 Equity securities and notes receivable 16 46 - - Long-term debt (633) (764) (801) (920)
The carrying amount of cash and other short-term investments approximates fair value of those instruments due to their short maturity. The fair value of U.S. government obligations and equity securities is based on quoted market prices. The fair value of notes receivable is based on discounted cash flows. The fair value of the company's 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. It was not practicable to estimate the fair value of financial instruments totaling $12 million and $64 million at December 31, 1993 and 1992, respectively. These financial instruments include investments in untraded, closely held companies that are carried in the Consolidated Balance Sheet at original cost of $2 million and $14 million at December 31, 1993 and 1992, respectively. It was not practicable to estimate the fair value of long-term notes receivable held in connection with the sales of discontinued operations as the instruments are not marketable. At December 31, 1993, one such note was outstanding in the amount of $10 million (3.8% average 1993 interest rate). This note matures in November 1997. The other note was paid in full in 1993 prior to its scheduled 1997 maturity (see Note 22). At December 31, 1992, these notes were carried at $40 million (3.8% average 1992 interest rate) and $10 million (4.5% average 1992 interest rate). 40 14. Taxes, Other Than Income Taxes Taxes, other than income taxes, for the years ended December 31, 1993, 1992, and 1991, are composed of the following:
(In millions of dollars) 1993 1992 1991 Production/severance $ 28 $ 33 $ 32 Payroll 19 19 20 Property 17 17 15 Other 15 15 16 79 84 83 Motor fuel and other excise taxes(1) 239 219 207 Total $318 $303 $290 (1) These taxes are excluded from both sales and costs.
15. Income Taxes Effective January 1, 1992, the company adopted FAS No. 109, "Accounting for Income Taxes." For a discussion of the effects of this accounting change, see Note 2. 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 indicators of relationships in future periods. Income (loss) before income taxes, extraordinary charge, and cumulative effect on prior years of changes in accounting principles is composed of the following:
(In millions of dollars) 1993 1992 1991 Domestic $120 $(99) $152 International (2) 35 14 Total $118 $(64) $166
During 1993, legislation was enacted that, among other things, increased the U.S. Federal income tax rate by 1% effective January 1, 1993. Separately, income tax rates in Australia were reduced from 39% to 33%. The deferred income tax balances were adjusted to reflect these new rates, which increased the 1993 U.S. Federal deferred provision by $2 million and decreased the international deferred benefit by $3 million. The provision (benefit) for income taxes on income (loss) before extraordinary charge and cumulative effect on prior years of changes in accounting principles for 1993, 1992, and 1991 is summarized below:
(In millions of dollars) 1993 1992 1991 U.S. Federal - Current $12 $ 20 $39 Deferred 15 (67) (3) 27 (47) 36 International - Current 20 23 17 Deferred (13) (14) 5 7 9 22 State 7 - 6 Total $41 $(38) $64
41 The net deferred tax asset in the following table is classified as Investments and Other Assets in the Consolidated Balance Sheet as it represents the net deferred tax asset in a foreign tax jurisdiction. Deferred tax liabilities (assets) at December 31, 1993 and 1992, are composed of the following:
(In millions of dollars) 1993 1992 Net deferred tax liability - Accelerated depreciation $325 $313 Exploration and development 61 59 Undistributed earnings of foreign subsidiaries 28 34 Postretirement benefits (41) (39) Dismantlement, reclamation, remediation, and other reserves (110) (119) Foreign operating loss carryforwards (62) (51) Other (29) (31) 172 166 Net deferred tax asset - Accelerated depreciation 8 9 Other 1 4 Foreign operating loss carryforward (32) (33) (23) (20) Total deferred taxes $149 $146
At year-end 1993, the company had foreign net operating loss carryforwards totaling $286 million that have no expiration dates. Prior to the change in accounting methods, the sources of deferred tax items and the corresponding tax effects during 1991 were as follows:
(In millions of dollars) U.S. Federal - Accelerated depreciation $ 1 Exploration and development 5 Lease abandonment reserves 3 Capitalized interest (1) Dismantlement, reclamation, remediation, and other reserves 12 Sale of domestic drilling operation (23) (3) International - Exploration and development 5 Total $ 2
The Internal Revenue Service has examined the company's Federal income tax returns for all years through 1989, 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. In the following table, the U.S. Federal income tax rate is reconciled to the company's effective tax rates for income before extraordinary charge and cumulative effect on prior years of changes in accounting principles as reflected in the Consolidated Statement of Income.
1993 1992 1991 U.S. statutory rate 35.0% (34.0)% 34.0% Increases (decreases) resulting from - Statutory depletion in excess of cost depletion (4.9) (4.7) (4.2) Foreign income taxes 3.8 2.4 4.8 State income taxes 4.4 (2.7) 2.5 Adjustment of prior years' accruals (6.3) (12.6) - Federal income tax credits (2.1) (4.6) (.4) Adjustment of deferred tax balances due to tax rate changes 4.8 - - Other - net - (3.5) 1.8 Total 34.7% (59.7)% 38.5%
42 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. Effective January 1, 1992, the company adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." See Note 2 for a discussion of the effects of the adoption of this standard. At December 31, 1993 and 1992, the actuarial and recorded liabilities for postretirement benefits, none of which has been funded, are as follows:
1993 1992 (In millions of dollars) Health Life Health Life Actuarial present value of accumulated postretirement benefit obligations - Retirees $(58) $(18) $(55) $(14) Fully eligible active participants (11) (2) (11) (2) Other active participants (19) (3) (20) (3) Total (88) (23) (86) (19) Unrecognized net (gain) loss - 1 1 (1) Accrued postretirement benefit cost $(88) $(22) $(85) $(20)
For the years ended December 31, 1993 and 1992, the components of periodic expense for postretirement benefits were as follows:
1993 1992 (In millions of dollars) Health Life Health Life Service Cost - benefits earned during the period $2 $1 $2 $1 Interest cost on accumulated postretirement benefit obligation 7 1 7 1 Net postretirement benefit cost $9 $2 $9 $2
In prior years, the company recognized as expense the cost of retiree health care benefits as claims were paid, while the cost of providing life insurance benefits was recognized by expensing the annual insurance premiums paid. The amount included in expense for 1991 under the previous accounting method was $5 million. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation at December 31, 1993, was 12% in 1994, gradually declining to 4.5% in the year 2008 and thereafter. The assumed trend rate used in measuring the year-end 1992 obligation was 13% in 1993, gradually declining to 5.5% in the year 2006 and thereafter. The rate of increase in future compensation levels used in measuring the life insurance accumulated postretirement benefit obligation was 5% and 6% at December 31, 1993 and 1992, respectively. The weighted average discount rate used in determining both the health care and life insurance accumulated postretirement benefit obligations was 7.5% at December 31, 1993, and 8.5% at December 31, 1992. A 1% increase in the assumed health care cost trend rates for each future year would increase the accumulated postretirement benefit obligation by $10 million at December 31, 1993, and $18 million at December 31, 1992. Additionally, the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1993 and 1992, would increase by $1 million and $2 million, respectively, as a result of a 1% assumed increase. 43 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. The company also sponsors supplemental retirement plans to provide employees with benefits provided for by the plans but in excess of the limits under the Federal tax law and to provide senior executives with benefits equal to a specified percentage of their final average compensation. The funded status of the plans with assets in excess of accumulated benefits at December 31, 1993 and 1992, is as follows:
(In millions of dollars) 1993 1992 Plan assets at fair value $ 415 $ 368 Actuarial present value of accumulated benefit obligations - Vested (266) (233) Nonvested (21) (9) Total (287) (242) Plan assets in excess of accumulated benefit obligations $ 128 $ 126 Plan assets at fair value $ 415 $ 368 Projected benefit obligations - Actuarial present value of accumulated benefit obligations (287) (242) Projected salary increases (49) (51) Total (336) (293) Plan assets in excess of projected benefit obligations 79 75 Unrecognized net asset at January 1, 1987 (28) (31) Unrecognized prior service costs 27 29 Unrecognized net gain (65) (61) Pension prepayment at end of year $ 13 $ 12
In determining the actuarial present value of the projected benefit obligation at December 31, 1993 and 1992, the rate of increase in future compensation levels was 5% and 6%, respectively, and the discount rate was 7.5% and 8.5%, respectively. The expected long-term rate of return on plan assets was 9% for 1993 and 1992. Net periodic pension costs for each of the three years ended December 31, 1993, 1992, and 1991 are summarized as follows:
(In millions of dollars) 1993 1992 1991 Service cost - benefits earned during the period $10 $ 9 $ 9 Interest cost on projected benefit obligations 24 21 20 Return on plan assets (69) (35) (91) Net amortization and deferral 34 1 62 Net pension cost (credit) $(1) $(4) $ -
44 18. Stockholders' Equity Changes in common stock, capital in excess of par value, and treasury stock for 1993, 1992, and 1991 are as follows:
Common Stock Capital in Treasury Stock (In millions of dollars and Shares Par Excess of thousands of shares) Issued Value Par Value Shares Cost Balance December 31, 1990 53,150 $53 $281 4,696 $182 Exercise of stock options and stock appreciation rights 19 - 1 - - Issuance of restricted stock, net of forfeitures - - - (26) (1) Purchase of shares - - - 270 11 Balance December 31, 1991 53,169 53 282 4,940 192 Exercise of stock options and stock appreciation rights 23 - 1 - - Issuance of restricted stock, net of forfeitures - - - (32) (1) Balance December 31, 1992 53,192 53 283 4,908 191 Exercise of stock options and stock appreciation rights 76 - 2 - - Issuance of restricted stock, net of forfeitures - - - (1) - Issuance of shares upon debt conversion(1) - - 23 (3,294) (128) Balance December 31, 1993 53,268 $53 $308 1,613 $ 63 (1)See Note 10 for a discussion of the debt conversion.
The company has 40 million shares of preferred stock without par value authorized, and none is issued. Treasury stock totaling 1,100 shares, 33,350 shares, and 28,325 shares was issued as restricted stock to certain employees during 1993, 1992, and 1991, respectively. The restrictions on these shares lapse three years from the date of issue. The remaining restrictions on 16,062 shares issued in 1988 lapsed in 1991. In 1986, the company's Board of Directors adopted a stockholder-rights plan, which was subsequently amended and restated as of July 11, 1989. 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 $.05 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 $85. 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 $85, the number of shares of the acquiring company's common stock having a market value of twice the right's exercise price. Unless redeemed earlier, the rights expire in 1996. 45 19. Employee Stock Option Plans As amended in May 1992, the 1987 Long Term Incentive Program authorized the issuance of 1,790,000 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 1984 and the 1978 Employee Stock Option Plans authorized the granting of options over 10-year periods for up to 1,000,000 and 800,000 shares, respectively, of common stock and accompanying stock appreciation rights. The 1984 plan was terminated on May 3, 1988, and the 1978 plan was terminated on May 1, 1984. After those dates, no further options could be granted under either plan, although options and any accompanying stock appreciation rights outstanding at those times can be exercised prior to their respective expiration dates. Transactions during the past three years under these plans are summarized below:
1978 Stock Option Plan 1984 Stock Option Plan 1987 Incentive Program Shares Price per Share Shares Price per Share Shares Price per Share Balance outstanding December 31, 1990 35,900 $27.38-$34.34 131,783 $27.06-$33.38 443,762 $32.38-$50.50 Options granted - - - - - - 136,600 39.56- 45.06 Options exercised - - - - - - (13,397) 32.38- 49.25 Options surrendered upon exercise of stock appreciation rights (10,350) 27.38- 34.34 (24,266) 27.06- 33.38 (3,667) 32.38- 38.06 Options cancelled - - - (517) 27.06 - (33,113) 38.06- 49.25 Balance outstanding December 31, 1991 25,550 27.38- 34.00 107,000 27.06- 33.38 530,185 32.38- 50.50 Options granted - - - - - - 142,550 36.69- 40.81 Options exercised (1,000) 27.38 - (4,750) 33.38 - (8,481) 32.38- 39.56 Options surrendered upon exercise of stock appreciation rights (24,550) 27.38- 34.00 (14,250) 27.06 - (3,001) 32.38 - Options cancelled - - - - - - (17,350) 32.38- 49.25 Balance outstanding December 31, 1992 - 88,000 27.06- 33.38 643,903 32.38- 50.50 Options granted - - - 327,300 43.00- 51.69 Options exercised (6,000) 27.06 - (61,333) 32.38- 49.25 Options surrendered upon exercise of stock appreciation rights (24,500) 27.06- 33.38 (40,733) 32.38- 49.25 Options cancelled - - - (9,515) 39.56- 49.25 Balance outstanding December 31, 1993 57,500 27.06- 33.38 859,622 32.38- 51.69 Options exercisable December 31, 1993 57,500 27.06- 33.38 406,740 32.38- 50.50 Shares available to be granted December 31, 1993 - 615,326
With respect to all options outstanding on December 31, 1993, the average option price was $43.78; expiration dates ranged from March 31, 1994, to October 18, 2003; and the market value of each share subject to options was $45.50, based on the average of the high and low prices as reported in the Wall Street Journal's NYSE Composite Transactions on December 31, 1993. 46 20. 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). Subsequently, the ESOP borrowed $125 million from a group of lending institutions and used the borrowings to purchase 2.7 million shares of the company's treasury stock at $46.63 per share. The company used the $125 million proceeds from the sale of stock to reacquire shares of its common stock on the open market and in privately negotiated transactions. The company has guaranteed the ESOP's borrowings. The borrowings, which are reflected as Long-Term Debt in the Consolidated Balance Sheet, are offset by a like amount of deferred compensation in Stockholders' Equity. As company contributions and dividends on the shares held by the ESOP are used to make principal and interest payments on the loan, shares are allocated to employees' accounts based on their savings contributions to the SIP. Both the long-term debt and the deferred compensation in Stockholders' Equity are reduced in equal amounts as the ESOP loan is repaid. The company recognized ESOP-related expense of $15 million in each of the years 1993 and 1992 and $16 million in 1991. These amounts include interest expense incurred on the ESOP debt of $9 million in 1993, $10 million in 1992, and $10 million in 1991. The company contributed $12 million cash to the ESOP in 1993, $14 million in 1992, and $15 million in 1991. 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 1993, 1992, and 1991. 21. Other Financial Information Condensed financial information relating to the company's previously unconsolidated, wholly owned finance and insurance subsidiaries is summarized below:
(In millions of dollars) 1993 1992 1991 Results of operations - Interest income $ 13 $ 12 $9 Net income 3 3 2 Financial position - Assets $245 $357 Liabilities (151) (266) Stockholder's equity $ 94 $ 91
22. Discontinued Operations During 1990, the company disposed of its contract drilling operations, which had been conducted by the Transworld Drilling companies. The sale of the domestic assets was completed in January 1991, and Kerr-McGee received cash and a $70 million note. The terms of this note were subsequently modified in a late-1991 debt restructuring. During 1993, the note was paid in full prior to its scheduled 1997 maturity. At year-end 1992, the company's investment in the note, classified as Investments and Other Assets in the Consolidated Balance Sheet, was $40 million, which included $1 million of accrued interest income. Additional interest income of $2 million would have been recorded under the original terms of the note in 1992. 47 23. Reporting by Business Segments
(In millions of dollars) 1993 1992 1991 Sales - Exploration and production(1) $ 369 $ 349 $ 360 Refining and marketing 1,992 2,175 2,127 Chemicals 556 515 454 Coal 328 307 315 Other 36 36 18 Total $3,281 $3,382 $3,274 Operating profit (loss) - Exploration and production $ 82 $ 91 $ 67 Refining and marketing (28) (21) 31 Chemicals 70 79 101 Coal 80 77 77 Other (5) 3 (9) Total $ 199 $ 229 $ 267 Net operating profit (loss) - Exploration and production $ 52 $ 53 $ 34 Refining and marketing (19) (13) 20 Chemicals 44 50 64 Coal 58 53 57 Other (3) 3 (4) Total 132 146 171 Net interest expense (27) (34) (36) Net nonoperating expense(2) (28) (138) (33) Extraordinary charge, net of income taxes - (5) - Cumulative effect on prior years of changes in accounting principles, net of income taxes - (70) - Net income (loss) $ 77 $ (101) $ 102 Sales to unaffiliated customers - U.S. operations $3,045 $3,174 $3,076 International operations:(3) Canada - exploration and production 53 48 50 North Sea - exploration and production 81 92 107 Australia - chemicals 100 67 40 Other 2 1 1 236 208 198 Total $3,281 $3,382 $3,274 Operating profit (loss) - U.S. operations $210 $217 $257 International operations: Canada - exploration and production 2 2 3 North Sea - exploration and production 3 6 13 Australia - chemicals (13) (13) (2) Other (3) 17 (4) (11) 12 10 Total $199 $229 $267 (1)Excludes intercompany sales, primarily crude oil sales, of $195 million in 1993, $211 million in 1992, and $200 million in 1991. (2)Includes provision for reclamation and remediation of $130 million in 1992. (3)Excludes international crude oil sales to domestic affiliates of $39 million in 1993, $55 million in 1992, and $56 million in 1991.
48
(In millions of dollars) 1993 1992 1991 Depreciation and depletion expense - Exploration and production $188 $183 $182 Refining and marketing 26 23 18 Chemicals 49 49 46 Coal 26 25 27 Other 14 14 12 Total $303 $294 $285 Capital expenditures - Exploration and production $318 $264 $318 Refining and marketing 34 40 54 Chemicals 39 33 89 Coal 28 69 20 Other 6 9 33 Total capital expenditures 425 415 514 Exploration expenses - Petroleum exploration and production: Dry hole costs 28 5 27 Amortization of undeveloped leases 18 18 19 Other 22 29 30 Total 68 52 76 Minerals and other 3 3 5 Total exploration expenses 71 55 81 Less - Amortization of oil and gas and minerals leases and other noncash expenses (18) (18) (19) 53 37 62 Total capital expenditures and cash exploration expenses $ 478 $ 452 $ 576 Identifiable assets - Exploration and production $1,669 $1,547 $1,409 Refining and marketing 541 595 529 Chemicals 733 753 755 Coal 335 327 282 Other 135 127 143 Total 3,413 3,349 3,118 Corporate assets 134 172 303 Total $3,547 $3,521 $3,421 Identifiable assets - U.S. operations $2,223 $2,256 $2,213 International operations: Canada - exploration and production 206 233 194 North Sea - exploration and production 681 516 417 Australia - chemicals 256 300 246 Other 47 44 48 1,190 1,093 905 Total $3,413 $3,349 $3,118
49 24. Results of Operations from Crude Oil and Natural Gas Activities The results of operations from crude oil and natural gas activities for the three years ended December 31, 1993, consisted of the following:
Gross Revenues Sales to Sales to Production Other Depreciation Unaffiliated Affiliated (Lifting) Related Exploration and Depletion Income Tax (In millions of dollars) Entities Entities Total Costs Costs Expenses Expenses Expenses 1993 - Domestic $203 $129 $332 $105 $ 8 $36 $119 $20 Canada 50 2 52 17 1 8 24 - North Sea 77 17 94 45 - 13 36 - Other international - 22 22 7 - 11 5 5 Total crude oil and natural gas activities 330 170 500 174 9 68 184 25 Gas processing, pipelines and other(1) 39 25 64 43 - - 4 5 Total $369 $195 $564 $217 $ 9 $68 $188 $30 1992 - Domestic $187 $130 $317 $111 8 $28 $109 $19 Canada 44 2 46 17 1 8 20 - North Sea 89 27 116 47 8 14 44 2 Other international - 28 28 8 - 2 7 12 Total crude oil and natural gas activities 320 187 507 183 17 52 180 33 Gas processing, pipelines and other(1) 29 24 53 34 - - 3 5 Total $349 $211 $560 $217 $17 $52 $183 $38 1991 - Domestic $168 $123 $291 $105 10 $34 $104 $13 Canada 44 1 45 17 1 12 16 (1) North Sea 104 31 135 50 6 16 53 4 Other international 1 25 26 8 - 14 6 6 Total crude oil and natural gas activities 317 180 497 180 17 76 179 22 Gas processing, pipelines and other(1) 43 20 63 38 - - 3 11 Total $360 $200 $560 $218 $17 $76 $182 $33 (1)Gas processing plants, pipelines, and other do not fit a strict definition of crude oil and natural gas activities but have been included above to reconcile to the segment presentations.
50 The table below presents the average sales price per unit of crude oil and natural gas produced and the production costs per barrel of oil equivalent during each of the past three years.
1993 1992 1991 Average sales price - Crude oil (per barrel) Domestic $15.76 $18.17 $19.24 Canada 14.65 16.24 17.36 North Sea 15.90 18.71 19.64 Other international 14.97 17.44 16.71 Average 15.64 18.11 19.01 Natural gas (per MCF) Domestic 2.03 1.67 1.49 Canada 1.42 1.03 1.15 North Sea 1.39 1.73 1.72 Average 1.92 1.56 1.44 Production costs - (per barrel of oil equivalent)(1) Domestic 4.32 4.61 4.60 Canada 3.44 3.51 4.18 North Sea 7.24 7.80 7.18 Other international 5.11 4.98 5.39 Average 4.73 5.01 5.09 (1)Natural gas production has been converted to a barrel of oil equivalent based on approximate relative heating value (6 MCF equals 1 barrel).
25. 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 1993 and 1992 are set forth below:
(In millions of dollars) 1993 1992 Capitalized costs - Proved properties $3,680 $3,411 Unproved properties 103 125 3,783 3,536 Reserves for depreciation, depletion, and amortization - Proved properties 2,241 2,097 Unproved properties 53 55 2,294 2,152 Net capitalized costs $1,489 $1,384
51 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, 1993, are reflected in the following table:
Property Acquisition Exploration Development (In millions of dollars) Costs (1) Costs (2) Costs (3) 1993 - Domestic $ 5 $48 $93 Canada - 5 6 North Sea - 16 172 Other international 3 9 3 Total $ 8 $78 $274 1992 - Domestic $ 11 $29 $ 87 Canada 1 6 8 North Sea - 22 123 Other international - 1 2 Total $ 12 $58 $220 1991 - Domestic $122 $29 $ 61 Canada 11 12 11 North Sea - 16 93 Other international - 13 3 Total $133 $70 $168 (1)Includes $8 million and $109 million applicable to purchases of reserves in place in 1992 and 1991, 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.
52 27. 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 secondary recovery operations now in operation or for which successful testing has been demonstrated. The company does not have any proved reserves attributable to long-term supply agreements with governments, consolidated subsidiaries in which there are significant minority interests, or affiliates accounted for by the equity method. 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, 1993:
Crude Oil and Condensate Natural Gas (In millions of barrels) (In billions of cubic fee International International North North Domestic Canada Sea Other Total Domestic Canada Sea Other Total Proved developed and undeveloped reserves - Balance December 31, 1990 51.0 13.7 65.6 6.0 136.3 541.4 120.3 160.0 4.0 825.7 Revisions of previous estimates 4.2 .8 2.2 .2 7.4 9.7 9.4 .7 - 19.8 Purchases of reserves in place 12.0 .3 - - 12.3 32.9 13.1 - - 46.0 Sales of reserves in place (.1) (.3) - - (.4) (.3) (.3) - - (.6) Extensions, discoveries, and other additions 21.7 1.5 - - 23.2 43.6 9.8 - - 53.4 Production (8.4) (1.7) (6.8) (1.5) (18.4) (86.7) (14.6) (1.0) - (102.3) Balance December 31, 1991 80.4 14.3 61.0 4.7 160.4 540.6 137.7 159.7 4.0 842.0 Revisions of previous estimates .5 .9 5.1 1.2 7.7 19.8 3.4 2.6 - 25.8 Purchases of reserves in place 2.1 .1 - - 2.2 1.2 .1 - - 1.3 Sales of reserves in place (.3) (.7) - - (1.0) (5.7) (8.0) - - (13.7) Extensions, discoveries, and other additions 1.2 .6 20.0 - 21.8 17.7 9.6 - - 27.3 Production (9.3) (1.7) (5.9) (1.6) (18.5) (88.2) (18.9) (.9) - (108.0) Balance December 31, 1992 74.6 13.5 80.2 4.3 172.6 485.4 123.9 161.4 4.0 774.7 Revisions of previous estimates 5.2 .7 6.4 .3 12.6 (6.2) (7.2) 16.2 (4.0) (1.2) Purchases of reserves in place .3 - - 26.1 26.4 .2 - - - .2 Sales of reserves in place (.4) (.1) - - (.5) (3.3) (1.7) - - (5.0) Extensions, discoveries, and other additions 5.9 .6 .8 - 7.3 21.7 14.2 8.2 - 44.1 Production (10.1) (1.7) (6.1) (1.5) (19.4) (85.2) (18.4) (.9) - (104.5) Balance December 31, 1993 75.5 13.0 81.3 29.2 199.0 412.6 110.8 184.9 - 708.3 Proved developed reserves - December 31, 1990 39.4 12.3 24.6 5.9 82.2 404.1 114.0 54.0 4.0 576.1 December 31, 1991 42.7 12.8 20.9 4.4 80.8 378.4 131.5 56.9 4.0 570.8 December 31, 1992 40.1 13.4 16.3 3.9 73.7 345.5 120.4 56.8 4.0 526.7 December 31, 1993 44.8 12.9 40.5 2.7 100.9 346.8 107.4 113.2 - 567.4
53 28. 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 as to total reserves, development, 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.
Future Standardized Development 10% Measure of Future and Production Future Future Net Annual Discounted Future (In millions of dollars) Cash Inflows Costs Income Taxes Cash Flows Discount Net Cash Flows 1993 - Domestic $1,822 $ 968 $189 $ 665 $ 251 $ 414 Canada 352 141 58 153 51 102 North Sea 1,542 662 161 719 256 463 Other international 350 288 23 39 56 (17) Total $4,066 $2,059 $431 $1,576 $ 614 $ 962 1992 - Domestic $2,285 $1,038 $323 $ 924 $372 $552 Canada 410 138 83 189 80 109 North Sea 1,854 828 309 717 280 437 Other international 75 46 21 8 2 6 Total $4,624 $2,050 $736 $1,838 $734 $1,104 1991 - Domestic $2,284 $1,140 $286 $ 858 $391 $ 467 Canada 341 148 47 146 59 87 North Sea 1,650 722 281 647 312 335 Other international 74 43 21 10 2 8 Total $4,349 $2,053 $635 $1,661 $764 $ 897
54 The changes in the standardized measure of future net cash flows are presented below for each of the past three years:
(In millions of dollars) 1993 1992 1991 Net change in sales and transfer prices and in production costs $ (433) $ 149 $(1,070) Changes in estimated future development costs (137) (32) (99) Sales and transfers less production costs (326) (324) (317) Purchases of reserves in place (9) 9 83 Changes due to extensions, discoveries, etc. 96 99 23 Changes due to revisions in quantity estimates 86 32 91 Current period development costs 274 220 168 Accretion of discount 150 122 211 Changes in income taxes 156 (71) 396 Timing and other 1 3 18 Net change (142) 207 (496) Total at beginning of year 1,104 897 1,393 Total at end of year $ 962 $1,104 $ 897
29. Supplementary Mineral Ore Reserve and Price Data (Unaudited) The following table represents 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 government regulations.
(In thousands of tons) 1993 1992 1991 1990 1989 Proved and probable (demonstrated) reserves, December 31 - Coal 887,900 906,400 774,900 793,600 785,200 Heavy minerals 8,000(1) 8,600 9,000 9,500 9,600 Production - Coal 23,325 20,756 21,750 19,782 17,525 Heavy minerals 263 262 251 139 - Average market price (per ton) - Coal $13.78 $14.57 $ 14.18 $ 13.52 $13.88 Heavy minerals 69.47 77.99 101.35 101.53 - (1) Represents 270 million tons of sand containing 3.0% heavy minerals in Western Australia. The percentages of valuable heavy minerals within the heavy mineral concentrate are 3.8% rutile, 61.0% ilmenite, 6.8% leucoxene, and 10.3% zircon.
55 30. Quarterly Financial Information (Unaudited) During 1992, the company adopted FAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and FAS 109, "Accounting for Income Taxes" (see Note 2). A summary of quarterly consolidated results for 1993 and 1992 is presented below:
Per Common Share Income (Loss) Income (Loss) Before Extraordinary Before Extraordinary Charge and Cumulative Charge and Cumulative (In millions of Effect on Prior Effect on Prior dollars, except Operating Years of Changes In Net Income Years of Changes in Net Income per-share amounts) Sales Profit Accounting Principles (Loss) Accounting Principles (Loss) 1993 Quarter Ended - March 31 $ 783 $ 55 $ 24 $ 24 $ .50 $ .50 June 30 846 71 34 34 .70 .70 September 30 819 49 19 19 .39 .39 December 31 833 24 - - - - Total $3,281 $199 $ 77 $ 77 $1.57(1) $ 1.57(1) 1992 Quarter Ended - March 31 $ 783 $ 36 $ 13 $ (60) $ .26 $(1.24) June 30 876 83 32 32 .68 .68 September 30 858 55 29 29 .60 .60 December 31 865 55 (100) (102) (2.07) (2.12) Total $3,382 $229 $(26) $(101) $(.53) $(2.08) (1)The 1993 quarterly amounts do not add to the annual per-share amount due to shares issued during the year (see Note 18).
The company's common stock is listed for trading on the New York Stock Exchange and on December 31, 1993, was held by approximately 12,000 shareholders. The ranges of sales prices and dividends declared during the last two years were as follows:
Market Prices Dividends 1993 1992 per Share High Low High Low 1993 1992 Quarter Ended - March 31 49-3/8 41-3/4 40 35-5/8 $.38 $.38 June 30 53-1/4 47-3/4 43-1/4 36-1/2 .38 .38 September 30 56 48 46-3/8 38-5/8 .38 .38 December 31 54 43-5/8 45-1/2 38-3/4 .38 .38
56 Kerr-McGee Corporation Six-Year Financial Summary
(In millions of dollars, except per-share amounts) 1993 1992 1991 1990 1989 1988 Summary of Net Income (Loss) Sales $3,281 $3,382 $3,274 $3,683 $3,000 $2,611 Operating costs and expenses 3,135 3,422 3,090 3,374 2,732 2,404 Interest expense 47 66 78 86 72 65 Total costs and expenses 3,182 3,488 3,168 3,460 2,804 2,469 99 (106) 106 223 196 142 Other income (expense) 19 42 60 (67) 19 25 Provision (benefit) for income taxes 41 (38) 64 43 81 56 Income (loss) from continuing operations before extraordinary charge and cumulative effect on prior years of changes in accounting principles 77 (26) 102 113 134 111 Income (loss) from discontinued operations - - - 37 22 (1) Extraordinary charge - (5) - - - - Cumulative effect on prior years of changes in accounting principles - (70) - - - - Net income (loss) $ 77 $ (101) $ 102 $ 150 $ 156 $ 110 Common Stock Information, per Share Net income (loss) per common share Continuing operations $1.57 $ (.53) $ 2.10 $ 2.26 $ 2.75 $ 2.29 Discontinued operations - - - .75 .45 (.02) Extraordinary charge - (.10) - - - - Cumulative effect on prior years of changes in accounting principles - (1.45) - - - - Total $1.57 $(2.08) $ 2.10 $ 3.01 $ 3.20 $ 2.27 Dividends declared 1.52 1.52 1.50 1.41 1.27 1.10 Stockholders' equity 29.24 27.93 31.43 30.70 29.31 29.37 Market high for the year 56.00 46.38 46.88 53.63 52.00 42.88 Market low for the year 41.75 35.63 35.13 42.38 37.38 32.75 Market price at year-end $45.25 $45.00 $38.63 $44.88 $50.75 $37.88 Shares outstanding at year-end (thousands) 51,655 48,284 48,229 48,453 50,144 48,327 Balance Sheet Information Working capital $ 79 $ 210 $ 343 $ 472 $ 328 $ 230 Property, plant, and equipment, net 2,513 2,422 2,299 2,169 2,373 2,203 Total assets 3,547 3,521 3,421 3,473 3,332 3,123 Long-term debt 590 792 926 805 858 615 Stockholders' equity 1,512 1,350 1,516 1,491 1,476 1,422 Cash Flow Information Net cash provided by operating activities 424 277 194 579 346 397 Capital expenditures 451 373 504 488 365 323 Dividends paid 73 73 72 69 58 53 Sale (purchase) of treasury stock, net $ - $ - $ (13) $ (98) $ 83 $ - Ratios and Percentage Current ratio 1.1 1.3 1.6 1.7 1.6 1.4 Average price/earnings ratio 31.1 NM 19.5 15.9 14.0 16.7 Total debt to total capitalization 37% 42% 39% 34% 37% 33%
57 Kerr-McGee Corporation EX-21 5 EXHIBIT 21 - SUBSIDIARIES EXHIBIT 21 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES SUBSIDIARIES
State or Country Percent Name of Subsidiary of Incorporation Owned Kerr-McGee Canada Ltd. Canada 100% Kerr-McGee Chemical Corporation Delaware 100% Kerr-McGee Coal Corporation Delaware 100% Kerr-McGee Credit Corporation Delaware 100% Kerr-McGee Oil (U.K.) PLC England 100% Kerr-McGee Refining Corporation Delaware 100% Cato Oil and Grease Co. Oklahoma 100%(1) Southwestern Refining Company, Inc. Delaware 100%(1) (1)Owned by Kerr-McGee Refining Corporation
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, 1993. EX-23 6 EXHIBIT 23 - CONSENT OF AA EXHIBIT 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our reports dated February 18, 1994, included on page 30 of the company's 1993 Annual Report to Stockholders and incorporated by reference in this Form 10-K and on page 34 of this Form 10-K, into the company's previously filed Form S-8's numbered 2-85844, 2-61426, 2-90981, 33-18268, and 33-24274, and the company's previously filed Form S-3's numbered 2-78952, 33-5473, 33-35872, and 33-66112. (Arthur Andersen & Co.) ARTHUR ANDERSEN & CO. Oklahoma City, Oklahoma, March 28, 1994 EX-24 7 EXHIBIT 24 - POWERS OF ATTORNEY KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (John J. Murphy) John J. Murphy, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (Bennett E. Bidwell) Bennett E. Bidwell, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (John J. Nevin) John J. Nevin, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 the Company does hereby appoint F. A. McPherson 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 8th day of March , 1994. (Richard D. Harrison) Richard D. Harrison, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (Robert S. Kerr, Jr.) Robert S. Kerr, Jr., Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 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 attorney or any 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. The said attorney 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 8th day of March , 1994. (F. A. McPherson) F. A. McPherson, Chairman of the Board and Chief Executive Officer and Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (William C. Morris) William C. Morris, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (E. H. Clark, Jr.) E. H. Clark, Jr., Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (Martin C. Jischke) Martin C. Jischke KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10K for the year ended December 31, 1993 (the "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 F. A. McPherson 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 8th day of March , 1994. (Farah M. Walters) Farah M. Walters -----END PRIVACY-ENHANCED MESSAGE-----