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, 1999
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)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Kerr-McGee Corporation Benefits Committee:
We have audited the accompanying statement of net assets available for
benefits of the KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN (the Plan)
as of December 31, 1999 and 1998, and the related statement of changes in net
assets available for benefits for the year ended December 31, 1999. 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 schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 benefits as of
December 31, 1999 and 1998, and the changes in the net assets available for
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
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, 1999, and the supplemental
schedule of reportable transactions for the year ended December 31, 1999, 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 23, 2000
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1999
(Thousands of dollars)
<CAPTION>
ASSETS Unallocated Allocated Total
------ ----------- --------- --------
<S> <C> <C> <C>
Common stock of Kerr-McGee Corporation $ 85,590 $89,149 $174,739
Short-term investments 331 1,399 1,730
-------- ------- --------
Total investments 85,921 90,548 176,469
Contributions receivable 3,155 - 3,155
Dividends receivable 621 594 1,215
Due from (to) other fund (3,155) 3,155 -
Other assets 1 6 7
-------- ------- --------
Total assets 86,543 94,303 180,846
-------- ------- --------
LIABILITIES
-----------
Notes payable 132,017 - 132,017
Interest payable 2,179 - 2,179
-------- ------- --------
Total liabilities 134,196 - 134,196
-------- ------- --------
Net assets available for benefits $(47,653) $94,303 $ 46,650
======== ======= ========
The accompanying notes are an integral part of this statement
</TABLE>
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1998
(Thousands of dollars)
<CAPTION>
ASSETS Unallocated Allocated Total
------ ----------- --------- -----
<S> <C> <C> <C>
Common stock of Kerr-McGee Corporation $ 35,719 $44,007 $79,726
Short-term investments 424 1,405 1,829
-------- ------- -------
Total investments 36,143 45,412 81,555
Contributions receivable 1,752 - 1,752
Dividends receivable 420 553 973
Due from (to) other fund (1,752) 1,752 -
Other assets 2 7 9
-------- ------- -------
Total assets 36,565 47,724 84,289
-------- ------- -------
LIABILITIES
-----------
Notes payable 57,650 - 57,650
Interest payable 2,658 - 2,658
-------- ------- -------
Total liabilities 60,308 - 60,308
-------- ------- -------
Net assets available for benefits $(23,743) $47,724 $23,981
======== ======= =======
The accompanying notes are an integral part of this statement
</TABLE>
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Year Ended December 31, 1999
(Thousands of dollars)
<CAPTION>
Unallocated Allocated Total
----------- --------- -------
<S> <C> <C> <C>
Company contributions $13,837 $ - $13,837
Dividend income 1,389 2,288 3,677
Interest income 9 58 67
Release of 212,601 shares of common
stock for allocation 10,155 10,155
Appreciation of common stock 18,064 38,084 56,148
-------- ------- -------
Total additions 33,299 50,585 83,884
-------- ------- -------
Interest expense 4,579 - 4,579
Distributions to participants - 9,877 9,877
Transfers to (from) other fund (2,287) 2,287 -
Release of 212,601 shares of common
stock for allocation 10,155 - 10,155
Transfer from affiliated plan 44,762 (8,158) 36,604
-------- ------- -------
Total deductions 57,209 4,006 61,215
-------- ------- -------
Net increase (decrease) (23,910) 46,579 22,669
Net assets available for benefits -
Beginning of year (23,743) 47,724 23,981
-------- ------- -------
End of year $(47,653) $94,303 $46,650
======== ======= =======
The accompanying notes are an integral part of this statement
</TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) PLAN DESCRIPTION
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). The Plan covers all employees of the Company and its
subsidiaries who make salary deferrals to the Kerr-McGee Savings
Investment Plan (the SIP). Effective January 1, 1990, participant
contributions to the SIP 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. Participants are not permitted to make
contributions under the terms of the Plan.
Due to the merger of Kerr-McGee Corporation and Oryx Energy Company,
the Oryx Capital Accumulation Plan (CAP plan) was merged into the Plan
and the SIP during 1999. Net liabilities merged into the Plan totaled
$36,604,000. Net assets merged into the SIP totaled $132,264,000.
Future benefits of the CAP plan will be paid from the Plan and 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 4).
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 the company matches
contributions 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 100% for
employer contributions made after 1998 and on the basis of 20% for each
completed year of vesting service for contributions made prior to 1999.
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.
When certain terminations of participation in the Plan occur, the
nonvested portion of the participant's account, as defined by the Plan,
represents a forfeiture. However, if the participant is re-employed and
fulfills certain requirements, as defined in the Plan, the
participant's account will be reinstated. Forfeitures may be used to
reduce employer matching contributions for the plan year, to pay
administrative expenses relating to the Plan, or to restore amounts
previously forfeited by participants who have been re-employed.
Forfeitures used during the year and unused forfeitures at year-end
1999 and 1998 were not significant.
Distributions to participants are paid in a single sum consisting of
shares of stock or cash, at the election of the participant.
Distributions are recorded at the approximate market value as of the
date of distribution. Terminating participants with more than $5,000 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.
The Plan is administered by the Kerr-McGee Corporation Benefits
Committee (the 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. During
1999, the Company paid $78,000 of administrative and trust expenses on
behalf of the Plan.
The Company intends to continue the Plan indefinitely, but reserves the
right to alter, amend, modify, revoke or terminate the Plan at any time
upon the direction of the Company's Board of Directors. If the Plan is
terminated for any reason, the interest of all participants will be
fully vested, and the Committee will direct that the participants'
account balances be distributed as soon as practical. The Company has
no continuing liability under the Plan after the final disposition of
the assets of the Plan.
(2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared
under the accrual method of accounting in accordance with accounting
principles generally accepted in the United States.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that
affect the reported amounts of net assets available for benefits and
changes therein. Actual results could differ from those estimates.
Investment Valuations and Income Recognition - The Plan's investments
are stated at fair value, and the Company stock is valued at its quoted
market price. Purchases and sales of securities are recorded on a
trade-date basis. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date.
Payment of Benefits - Distributions to terminating and withdrawing
participants are recorded when paid.
(3) INVESTMENTS
The Plan's investment in the Company's common stock at December 31,
1999 and 1998, was as follows:
(Dollars in thousands) Unallocated Allocated Total
----------- --------- ---------
1999
----
Number of Shares 1,380,484 1,306,301 2,686,785
Cost $103,107 $56,590 $159,697
Market $ 85,590 $89,149 $174,739
1998
----
Number of Shares 933,827 1,150,514 2,084,341
Cost $ 43,541 $53,674 $ 97,215
Market $ 35,719 $44,007 $ 79,726
(4) 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 2003. A prepayment of $1,300,000 was made in
December 1996. Principal payments on the 9.61% fixed-rate Series B
notes began in July 1998 and continue through January 2005.
On August 1, 1989, the Oryx CAP Plan borrowed $110 million by privately
placing ESOP notes. As discussed in Note 1, the CAP plan was merged
into the Plan and SIP during 1999. The borrowing consisted of Series A
notes, Series B notes and Series C notes with interest rates ranging
from 8.35% to 8.70%. Scheduled principal payments on the Series A notes
continue through July 2006. Principal payments on the Series B notes
begin in August 2005 and continue through July 2008. Principal payments
on the Series C notes begin in August 2008 and continue through July
2011.
Debt consisted of the following at year end:
(Thousands of dollars) 1999 1998
-------- -------
Sponsor note $ 3,650 $ 8,150
Series B notes 42,750 49,500
Oryx Series A notes 35,584 -
Oryx Series B notes 19,318 -
Oryx Series C notes 30,715 -
-------- -------
$132,017 $57,650
======== =======
Maturities of debt due after December 31, 1999, are $14,267,000 in
2000, $16,750,000 in 2001, $15,762,000 in 2002, $14,722,000 in 2003,
$9,962,000 in 2004 and $60,554,000 thereafter.
(5) TAX STATUS
The Plan is a qualified plan under provisions of Section 401(a) of the
Internal Revenue Code (the Code) and is exempt from Federal income
taxes under provisions of Section 501(a) of the Code. The Plan's latest
determination letter is dated November 5, 1999.
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.
(6) CONTRIBUTIONS
The Company's 1999 contributions to the Plan totaled $13,837,000. In
addition, the Company paid $3,677,000 in dividends on the Company's
stock held in the Plan. Of the total contributions, $7,460,000
represented the Company's matching contributions for employees' savings
in the SIP.
(7) SUBSEQUENT EVENTS
Effective January 1, 2000, all participants in the Plan have an annual
option to diversify up to 25% of their year-end Kerr-McGee stock
balance in the Plan into investment options available in the SIP. This
option must be exercised by March 31 of each year. The amount
diversified will be shown as distributed from the Plan and transferred
to the SIP. Participants who are at least age 55 with 10 years of
participation in the plan may withdraw their 25% instead of
diversifying within the SIP. They have this option for the first six
years after meeting the eligibility requirements.
Employees who are or become participants on or after January 1, 2000,
are 100% vested in all company matching contributions.
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
(Employer Identification Number 73-0311467)
(Plan Number 014)
DECEMBER 31, 1999
(Thousands of dollars)
<CAPTION>
(c) (e)
(b) Description of investment including maturity date, (d) Current
(a)* Identity of issue, borrower, lessor or similar party rate of interest, collateral, par or maturity value Cost Value
---- ---------------------------------------------------- --------------------------------------------------- -------- --------
<S> <C> <C> <C>
* Kerr-McGee Corporation Common stock (2,686,785 shares) $159,697 $174,739
* State Street Bank and Trust Company Short-term investment fund 1,729 1,729
*Party-in-interest
</TABLE>
<TABLE>
KERR-McGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
SCHEDULE H, LINE 4j- SCHEDULE OF REPORTABLE TRANSACTIONS
(Employer Identification Number 73-0311467)
(Plan Number 014)
FOR THE YEAR ENDED DECEMBER 31, 1999
(Thousands of dollars)
<CAPTION>
(h)
(f) Current
Expense value
(c) (d) (e) incurred (g) of asset on (i)
(a) (b) Purchase Selling Lease with Cost of transaction Net gain
Identity of party involved Description of asset price price rental transaction asset date or loss
-------------------------- -------------------- -------- -------- ------ ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State Street Bank Short-Term Investment Fund $6,922 - - - $6,922 $6,922 -
State Street Bank Short-Term Investment Fund - $7,023 - - $7,023 $7,023 -
Kerr-McGee Corporation Common Stock $12,553 - - - $12,553 $12,553 -
Kerr-McGee Corporation Common Stock - $19,555 - - $19,314 $19,555 $241
</TABLE>
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 M. RAUH)
--------------------------------------
John M. Rauh
Chairman of the Kerr-McGee Corporation
Benefits Committee
Date: June 28, 2000
