SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the Year Ended December 31, 1997
Commission File Number 1-3939
Kerr-McGee Corporation Employee Stock Ownership Plan
(full title of the Plan)
Kerr-McGee Corporation
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
(Name of the issuer of the securities held pursuant to
the Plan and address of its principal executive office)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Kerr-McGee Corporation Benefits Committee:
We have audited the accompanying Statement of Net Assets Available for
Plan Benefits of the KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN (the
Plan) as of December 31, 1997 and 1996, and the related Statement of Changes in
Net Assets Available for Plan Benefits for the year ended December 31, 1997.
These financial statements and the schedules referred to below are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements and the schedules based on our audit.
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 net assets available for plan benefits as
of December 31, 1997 and 1996, and the changes in its net assets available for
plan benefits for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental Schedule of Assets
Held for Investment Purposes as of December 31, 1997, and the supplemental
Schedule of Reportable Transactions for the year ended December 31, 1997, are
presented for purposes of additional analysis and are not a required part of the
basic financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
(ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
June 15, 1998
<PAGE>
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1997
(Thousands of dollars)
<CAPTION>
ASSETS Unallocated Allocated Total
<S> <C> <C> <C>
Common stock of Kerr-McGee Corporation $70,286 $84,051 $154,337
Short-term investments 507 1,138 1,645
------- ------- --------
Total investments 70,793 85,189 155,982
Contributions receivable 950 - 950
Dividends receivable 500 599 1,099
Due from (to) other fund (950) 950 -
Other assets 3 5 8
------- ------- --------
Total assets 71,296 86,743 158,039
------- ------- --------
LIABILITIES
Notes payable 65,900 - 65,900
Interest payable 2,961 - 2,961
------- ------- --------
Total liabilities 68,861 - 68,861
------- ------- --------
Net assets available for plan benefits $ 2,435 $86,743 $ 89,178
======= ======= =======
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1996
(Thousands of dollars)
<CAPTION>
ASSETS Unallocated Allocated Total
<S> <C> <C> <C>
Common stock of Kerr-McGee Corporation $92,909 $89,130 $182,039
Short-term investments 1,383 193 1,576
------- ------- --------
Total investments 94,292 89,323 183,615
Contributions receivable 973 - 973
Dividends receivable 536 503 1,039
Sales of investments pending settlement - 178 178
Due from (to) other fund (973) 973 -
Other assets 6 1 7
------- ------- --------
Total assets 94,834 90,978 185,812
------- ------- --------
LIABILITIES
Notes payable 74,200 - 74,200
Interest payable 3,245 - 3,245
------- ------- --------
Total liabilities 77,445 - 77,445
------- ------- --------
Net assets available for plan benefits $17,389 $90,978 $108,367
======= ======= ========
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the Year Ended December 31, 1997
(Thousands of dollars)
<CAPTION>
Unallocated Allocated Total
<S> <C> <C> <C>
Company contributions $10,223 $ - $10,223
Dividend income 2,075 2,363 4,438
Interest income 33 36 69
Unrealized depreciation of common stock (11,119) (11,944) (23,063)
Gain on sale of common stock - 1,427 1,427
Release of 181,737 shares of common stock
for allocation - 11,480 11,480
------- ------- --------
Total additions 1,212 3,362 4,574
------- ------- --------
Interest expense 6,055 - 6,055
Distributions to participants - 6,228 6,228
Transfers to (from) other fund (1,369) 1,369 -
Release of 181,737 shares of common stock
for allocation 11,480 - 11,480
------- ------- --------
Total deductions 16,166 7,597 23,763
------- ------- --------
Net decrease (14,954) (4,235) (19,189)
Net assets available for plan benefits -
Beginning of year 17,389 90,978 108,367
------- ------- --------
End of year $ 2,435 $86,743 $ 89,178
======= ======= ========
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) PLAN DESCRIPTION AND ACCOUNTING POLICIES
The Kerr-McGee Corporation Employee Stock Ownership Plan (the Plan) was
established in September 1989, as permitted by Internal Revenue Code
Section 4975(e). The Plan, a leveraged employee stock ownership plan,
invests only in the common stock of Kerr-McGee Corporation (the
Company). Effective January 1, 1990, contributions to the Kerr-McGee
Savings Investment Plan (the SIP) by participants are matched by Company
contributions to the Plan. These participant contributions are matched
dollar-for-dollar by the Company, up to 6% of the participants' salaries
as defined under the Plan. Although the Plan and the SIP are separate
plans, matching contributions to the Plan are contingent upon
participants' contributions to the SIP.
The Company may direct State Street Bank and Trust Company (the Trustee)
to enter into acquisition loans for the purpose of acquiring Company
stock for the benefit of participants. Pursuant to that authority, the
Trustee and the Company entered into a Stock Purchase Agreement as of
September 12, 1989. Under this agreement, the Plan purchased 2,680,965
shares of the Company's common stock at $46.625 per share on November
29, 1989, the market value on that date. To finance the purchase, the
Plan incurred indebtedness to a group of institutional investors in the
aggregate principal amount of $125,000,000 (see Note 3). The borrowings
are guaranteed by the Company. Effective June 3, 1996, the Plan issued a
$24,500,000 note to the Company and used the funds to prepay a portion
of the Series A notes. The balance of the Series A notes was paid
July 1, 1996.
Company stock acquired with the proceeds of the initial loan is held in
a suspense account. The Company's matching contributions and dividends
paid on the common stock held in the loan suspense account are used to
repay the loan. Stock is released from the loan suspense account as the
principal and interest are paid. The stock is then allocated to
participants' accounts at market value as contributions are made to the
SIP by participants.
Dividends paid on the common stock held in participants' accounts are
also used to repay the loan. Stock with a market value equal to the
amount of the dividend is allocated to the participants' accounts. If
the value of shares of Company stock released from the loan suspense
account is not sufficient to make the required matching and dividend
allocations to participants' accounts, the Company will contribute
additional shares of common stock or cash which may be used to purchase
shares or to make additional payments on the loan. All stock released
from the loan suspense account within the year must be allocated to
participants' accounts by year end. If the number of shares released is
more than the required matching and dividend allocation, the excess will
be allocated to participants.
The Plan provides for vesting of participants on the basis of 20% for
each completed year of vesting service. Vesting service is completed
years of company service reduced in certain limited situations as
defined by the Plan. Company contributions are fully vested in the event
of retirement, death or disability. A participant will receive a
distribution of his vested interest in his account only upon termination
of employment. In the event of death or permanent disability, a
participant is deemed to be fully vested in their share of Company
contributions. No other withdrawals are permitted.
The Plan is administered by the Kerr-McGee Corporation Benefits
Committee, which is appointed by the Board of Directors of the Company.
Accounting and administration for the Plan are provided by the Company
at no cost to the Plan. In addition, all expenses of the Trust are borne
by the Company except for expenses that may be paid from any forfeitures
of ESOP accounts arising under the Plan.
The Plan may be discontinued by the Board of Directors of the Company.
In the event of such discontinuance or other termination of the Plan,
each participant shall be fully vested.
The accompanying financial statements are prepared on the accrual basis
of accounting; however, distributions to participants are recorded at
market value when paid. Investments are accounted for at market value.
Participants are not permitted to make contributions under the terms of
the Plan. The assets and liabilities and changes therein pertaining to
the participants' accounts (allocated) and stock not yet allocated to
participants (unallocated) are presented separately in the accompanying
Statement of Net Assets Available for Plan Benefits as of December 31,
1997 and 1996, and the related Statement of Changes in Net Assets
Available for Plan Benefits for the year ended December 31, 1997.
(2) INVESTMENTS
The Plan's investment in the Company's common stock at December 31, 1997
and 1996, was as follows:
(Dollars in thousands) Unallocated Allocated Total
1997
Number of Shares 1,110,149 1,327,562 2,437,711
Cost $51,762 $61,734 $113,496
Market $70,286 $84,051 $154,337
1996
Number of Shares 1,290,399 1,237,916 2,528,315
Cost $60,166 $57,543 $117,709
Market $92,909 $89,130 $182,039
(3) NOTES PAYABLE
On November 29, 1989, the Plan borrowed $125,000,000 from a group of
institutional investors for the purpose of acquiring the Company's
common stock. This borrowing consisted of Series A notes in the amount
of $74,000,000 and Series B notes in the amount of $51,000,000. The
Company has guaranteed the Plan's indebtedness. In June 1996, the Plan
issued a $24,500,000 note, which bears interest at a fixed rate of
6.85%, to the Company (the Sponsor note) and used the funds to prepay a
portion of the 9.47% fixed-rate Series A notes. The remaining balance of
the Series A notes was paid on July 1, 1996, as scheduled. Scheduled
principal payments on the Sponsor note began in January 1997 and
continue through January 2005. A prepayment of $1,300,000 was made in
December 1996. Principal payments on the 9.61% fixed-rate Series B notes
are scheduled to begin in July 1998 and continue through January 2005.
Debt consisted of the following at year end:
(Thousands of dollars) 1997 1996
------- ------
Sponsor note $14,900 $23,200
Series B notes 51,000 51,000
------- -------
$65,900 $74,200
======= =======
Maturities of debt due after December 31, 1997, are $6,250,000 in 1998,
$9,250,000 in 1999, $10,010,000 in 2000, $12,010,000 in 2001,
$10,500,000 in 2002, and $17,880,000 thereafter.
(4) TAX STATUS
The Plan obtained its latest determination letter dated June 24, 1996,
in which the Internal Revenue Service stated that the Plan qualified
under the applicable provisions of the Internal Revenue Code and the
rules promulgated by the Employee Retirement Income Security Act of 1974
and the trust established under the Plan is exempt from income taxes.
Company contributions and income earned thereon are not taxed until the
receipt of a distribution pursuant to the terms of the Plan. Federal
income taxes applicable to participants or their beneficiaries upon
distribution are prescribed by the Code.
(5) DISTRIBUTIONS TO PARTICIPANTS
Stock distributed to participants is recorded at the approximate market
value as of the date of distribution. Nonvested Company contributions
are forfeited upon termination of employment (unless termination occurs
because of retirement, disability, death or in certain circumstances
when the Company deems the contributions to be fully vested), except
that if the participant is re-employed within a specified period such
amounts are re-allocated to the employee.
Terminating participants with more than $3,500 in the Plan may defer
distribution until age 70 1/2. Investments relating to these
participants remain in the Trust until the terminated participant
requests distribution. Participants who defer distribution continue to
share in earnings and losses of the Plan.
(6) CONTRIBUTIONS
The Company's 1997 contributions to the Plan totaled $10,223,000. In
addition, the Company paid $4,438,000 in dividends on the Company's
stock held in the Plan. Of the total contributions, $9,451,000
represented the Company's matching contributions for employees' savings
in the SIP.
(7) TRUST ASSETS
The information regarding investments of the Plan included in the
accompanying financial statements and schedules was determined from
information prepared and certified by the Trustee.
(8) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
Amounts allocated to participants for withdrawals and distributions that
have been processed prior to December 31, but not yet paid as of that
date are recorded on the Department of Labor's Annual Return/Report of
Employee Benefit Plan (Form 5500) as payables to participants.
The following is a reconciliation of net assets available for plan
benefits as reported in the accompanying financial statements to the net
assets available for plan benefits reported in the Form 5500:
December 31,
(Thousands of dollars) 1997 1996
------- -------
Net assets available for benefits per the
financial statements $89,178 $108,367
Amounts allocated to terminating participants
but not yet paid - (205)
------- --------
Net assets available for benefits per Form 5500 $89,178 $108,162
======= ========
The following is a reconciliation of distributions to terminating
participants during the year ended December 31, 1997, as reported in the
accompanying financial statements to the Form 5500:
For the Year Ended
December 31, 1997
-----------------
Distributions to participants per the
financial statements $6,228
Amounts allocated to terminating participants at
December 31, 1996, and paid in 1997 (205)
------
Distributions to participants per Form 5500 $6,023
======
(9) SUBSEQUENT EVENTS
In June, 1998, the Company sold its Galatia coal mine. The sale of the
Jacobs Ranch mine is expected to be completed early in the third
quarter. The company also intends to dispose of the electrolytic and
forest products operations of its chemicals business. The effect of the
disposals on the net assets of the Plan is not currently known.
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
(Employer Identification Number 73-0311467)
(Plan Number 014)
DECEMBER 31, 1997
(Thousands of dollars)
<CAPTION>
(b) (c) (e)
Identity of issue, borrower, Description of investment including maturity date, (d) Current
(a)* lessor or similar party rate of interest, collateral, par or maturity value Cost Value
---- --------------------------------------- ----------------------------------------------------- -------- --------
<S> <C> <C> <C> <C>
* Kerr-McGee Corporation Common stock (2,437,711 shares) $113,496 $154,337
* State Street Bank and Trust Company Short-term investment fund 1,645 1,645
* Party-in-interest
</TABLE>
<PAGE>
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
(Employer Identification Number 73-0311467)
(Plan Number 014)
FOR THE YEAR ENDED DECEMBER 31, 1997
(Thousands of dollars)
<CAPTION>
(h)
(f) Current (i)
Expense (g) Value Net
No. of (c) (d) (e) incurred Cost of asset on gain
(a) (b) trans- Purchase Selling Lease with of transaction or
Identity of party involved Description of asset actions price price rental transaction asset date loss
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
State Street Bank Short-Term Investment Fund 57 $6,319 - - - $6,319 $6,319 N/A
State Street Bank Short-Term Investment Fund 37 - $6,250 - - $6,250 $6,250 -
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Kerr-McGee Corporation Benefits Committee has duly caused this annual report to
be signed by the undersigned thereunto duly authorized.
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
By (JOHN C. LINEHAN)
John C. Linehan
Chairman of the Kerr-McGee Corporation
Benefits Committee
Date: June 29, 1998
EXHIBIT
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report dated June 15, 1998, included in the Kerr-McGee
Corporation Employee Stock Ownership Plan 1997 annual report in this Form 11-K,
into the Company's previously filed Form S-8 File No. 333-28235.
(ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
June 29, 1998
