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, 2003
Commission File Number 1-16619
Kerr-McGee Corporation Savings Investment 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)
KERR-McGEE CORPORATION SAVINGS INVESTMENT PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
DECEMBER 31, 2003 AND 2002
Report of Independent Registered Public Accounting Firm
Financial Statements
Statement of Net Assets Available for Benefits as of December 31, 2003 and 2002
Statement of Changes in Net Assets Available for Benefits for the year ended
December 31, 2003
Notes to Financial Statements as of December 31, 2003 and 2002
Supplemental Schedules
Schedule H, Line 4i -Schedule of Assets (Held at End of Year)
Schedule H, Line 4j -Schedule of Reportable Transactions
All other schedules required by the Employee Retirement Income Security Act of
1974 and the regulations promulgated by the Department of Labor have been
omitted since they are inapplicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Kerr-McGee Corporation Benefits Committee
Kerr-McGee Corporation Savings Investment Plan
We have audited the accompanying statement of net assets available for
benefits of Kerr-McGee Corporation Savings Investment Plan (the Plan) as of
December 31, 2003 and 2002, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2003. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 benefits of the Plan at
December 31, 2003 and 2002, and the changes in its net assets available for
benefits for the year ended December 31, 2003, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental schedules
of assets (held at end of year) as of December 31, 2003, and reportable
transactions for the year then ended, are presented for the purposes of
additional analysis and are not a required part of the 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. These supplemental schedules are the responsibility of the
Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in our audit of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
May 28, 2004
KERR-McGEE CORPORATION SAVINGS INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
(Thousands of dollars)
December 31,
-------------------------
2003 2002
-------- --------
ASSETS:
Investments $290,246 $245,200
Other assets 79 415
-------- --------
NET ASSETS AVAILABLE FOR BENEFITS $290,325 $245,615
======== ========
The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION SAVINGS INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(Thousands of dollars)
Year Ended
December 31, 2003
-----------------
Additions:
Additions to net assets attributed to:
Investment income:
Dividends $ 6,372
Interest 358
Net appreciation in fair value of investments 41,183
--------
47,913
Employee contributions 18,224
Transfer from ESOP 4,434
--------
Total additions 70,571
--------
Deductions:
Deductions from net assets attributed to:
Distributions to terminating and withdrawing participants 25,861
--------
Total deductions 25,861
--------
Net increase 44,710
Net assets available for benefits:
Beginning of year 245,615
--------
End of year $290,325
========
The accompanying notes are an integral part of this statement.
KERR-McGEE CORPORATION SAVINGS INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(1) DESCRIPTION OF THE PLAN
General -
The Kerr-McGee Corporation Savings Investment Plan (the Plan) is a defined
contribution plan in which eligible employees of Kerr-McGee Corporation and
its affiliated companies (collectively referred to as the Company) may
participate. Employees are allowed to participate in the Plan from their
initial date of employment.
The Plan allows participants to defer taxable earnings through contributions
to the Plan as provided for under Section 401(k) of the Internal Revenue
Code (the Code), and to borrow from their accounts within 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.
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 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.
Effective January 1, 1990, all employer matching contributions are made to
the Kerr-McGee Corporation Employee Stock Ownership Plan (ESOP), which was
established in September 1989. All matching contributions are invested in
Kerr-McGee Corporation common stock. The ESOP is not part of the Plan;
therefore, the employer contributions to the ESOP and the ESOP assets and
earnings are not included in the accompanying Plan financial statements.
Prior to January 1, 1990, employer matching contributions were made into the
Plan and invested in Kerr-McGee Corporation common stock. The 2003 activity
related to these nonparticipant-directed contributions is shown in Note 4.
Effective January 1, 2000, eligible participants in the ESOP have an annual
option to diversify up to 25% of their year-end Kerr-McGee stock balance in
the ESOP into investment options available in the Plan. This option must be
exercised by March 31 of each year. The amount diversified during 2003 is
shown as Transfer from ESOP on the Statement of Changes in Net Assets
Available for Benefits.
The participants' contributions to the Plan and earnings thereon are fully
vested at all times. Each participant's account is credited with the
participant's contributions and an allocation of Plan earnings. With the
exception of the nonparticipant-directed portion of the Kerr-McGee Stock
Fund, participants designate how their balances are invested in any one or
more of several investment options.
On termination of service, including terminations due to death, disability,
or retirement, a participant or participant's beneficiary may elect to
receive an amount equal to the value of the participant's account. The
normal form of such distribution is a single lump sum payment; however,
certain eligible members may elect to have an annuity purchased from an
insurance company in lieu of a lump sum payment. 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 following is a description of the investment options available under the
Plan at December 31, 2003:
Kerr-McGee Stock Fund - common stock of the Company.
Fidelity Growth Company Fund - invests in common stock of companies
believed to have above-average growth potential.
Fidelity Balanced Fund - normally invests 60% of its assets in stocks
and 40% of its assets in bonds.
Fidelity Diversified International Fund - invests primarily in foreign
securities.
Fidelity Dividend Growth Fund - invests at least 80% of its total
assets in companies believed to have the potential for dividend growth.
Fidelity Mid-Cap Stock Fund - invests at least 80% of its assets in
common stocks of companies with medium market capitalizations.
Managed Income Portfolio II - invests in investment contracts issued by
insurance companies and other financial institutions.
Spartan U.S. Equity Index Fund - invests at least 80% of its assets in
common stocks included in the S&P 500.
Pimco Total Return Fund - invests in all types of bonds.
Baron Growth Fund - invests primarily in small-cap companies with
market values between $100 million and $1.5 billion.
Oakmark Select Fund - invests primarily in common stocks of U.S.
companies.
Columbia Small-Cap Fund - invests primarily in common stock of small
companies believed to be undervalued (previously called the Liberty
Small-Cap Fund).
Aim Basic Value Fund - invests 65% of assets in securities of U.S.
issuers with market capitalization of greater than $500 million and 35%
of assets in U.S. issuers with market capitalization of less than $500
million.
Royce Low-Priced Stock Fund - invests in both small- and micro-cap
companies that are trading for less than $20 per share.
SMART and CAPITAL Savings Programs -
All participants participate in the Plan under the SMART and CAPITAL Savings
Programs. Participants may direct their savings, up to a maximum of 15% of
compensation, to be invested in 1% increments among one or more of the funds
provided for under the Plan. An unlimited number of transfers are allowed
between funds.
Contributions to the SMART Savings Program are from a participant's
compensation, before income taxes. The participant's income taxes on the
pre-tax contributions are deferred until the contributions are distributed
after termination, at the time of hardship withdrawal, or under minimum
distribution rules at age 70 1/2. The annual SMART Savings Program
contribution limitation is subject to annual adjustments for inflation and
was $12,000 for 2003 in accordance with the Internal Revenue Code (the
Code). Under the Code, participants aged 50 and over may make additional
catch-up contributions up to a maximum of $2,000 in 2003. Participant
contributions in excess of amounts allowable under the Code are considered
to be contributions to the CAPITAL Savings Program.
Contributions to the CAPITAL Savings Program are from a participant's
compensation, after income taxes. If a participant has authorized less than
15% of their compensation to be contributed to the SMART Savings Program,
they may contribute the remaining whole percentages up to 15% to the CAPITAL
Savings Program. Participant contributions may be invested in the same
proportions and the same funds as outlined above for the SMART Savings
Program. The maximum contributions allowed to each program may be limited
for highly compensated employees, depending upon the balance of
contributions at all levels.
Participants may borrow from the Plan against their contributions to the
SMART and CAPITAL Savings Programs and against their interest in Company
matching contributions held in the Plan. New loans to participants bear
interest at a fixed rate equal to the U.S. prime rate (as published in The
Wall Street Journal), plus 1.0%. Such interest is credited to the
participant's accounts in the Plan when repaid. The average interest rate
for new loans, which is adjusted quarterly, was 5.19% for 2003. The minimum
loan amount, determined periodically by the Committee, is currently $1,000.
The maximum amount of all loans to a participant under the Plan and any
other plans of any employer may not exceed the lesser of (a) $50,000,
reduced by an amount equal to the difference between (i) the participant's
highest loan balance under the Plan during the one-year period ending on the
day before the date on which such loan is made and (ii) the outstanding loan
balance of the participant under the Plan on the date on which such loan was
made or (b) one-half the current value of the participant's interest in
their accounts. Loans must be repaid within five years from the initial date
of the loan, with certain special provisions available for military
reservists called to active duty. In the event of a participant's
termination of employment and subsequent default on the loan, any
outstanding balance will be considered a distribution and will be taxable to
the participant as prescribed by the Code.
(2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared
under the accrual method of accounting in accordance with U.S. generally
accepted accounting principles.
Use of Estimates - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles 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 Risk - The Plan provides for investments in various investment
securities, which in general, are exposed to various risks, such as interest
rate, credit and overall market volatility risks. Further, due to the level
of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially effect the
amounts reported in the statements of net assets available for benefits.
Investment Valuation and Income Recognition - The Plan's investments are
stated at fair value. Shares of registered investment companies and common
collective trusts are valued at quoted market prices, which represent the
net asset value of shares held by the Plan at year-end. The Company stock is
valued at its quoted market price. Loans to participants are valued at cost
which approximates fair value. 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) LOANS TO PARTICIPANTS
Loan activity during 2003 and 2002 is set forth below:
(Thousands of dollars) 2003 2002
------- -------
Balance at beginning of year $ 6,707 $ 7,148
New loans 3,048 2,506
Principal repayments (2,975) (3,037)
Loans included as distributions
to terminated participants (437) (292)
Transfer from prior trustee - 382
------- -------
Balance at end of year $ 6,343 $ 6,707
======= =======
Interest income applicable to these loans during 2003 was $358,000.
(4) NONPARTICIPANT-DIRECTED INVESTMENTS
The Kerr-McGee Stock Fund is the only fund consisting of both
participant-directed contributions and nonparticipant-directed Company
matching contributions. Information about the net assets and the significant
components of the changes in net assets relating to the
nonparticipant-directed investments, is as follows:
December 31,
------------------------
(Thousands of dollars) 2003 2002
------- -------
Net Assets:
Common stock $10,127 $10,454
======= =======
Year ended
December 31, 2003
-----------------
Changes in Net Assets:
Dividends $ 414
Net appreciation 503
Distributions (1,244)
-------
$ (327)
=======
(5) INVESTMENTS
The following presents investments of the Plan's net assets at December 31,
2003 and 2002.
December 31,
----------------------
(Thousands of dollars) 2003 2002
------- -------
Kerr-McGee Corporation Common Stock -
1,099,106 shares in 2003 and 1,146,575
shares in 2002 $ 51,097(a)(b) $ 50,793(a)(b)
Fidelity Growth Company Fund - 324,179 shares
in 2003 and 305,832 shares in 2002 16,232(b) 10,833
Fidelity Balanced Fund - 1,709,993 shares in
2003 and 1,610,966 shares in 2002 28,642(b) 21,410(b)
Fidelity Diversified International Fund -
608,105 shares in 2003 and 571,602 shares
in 2002 14,668(b) 9,809
Fidelity Dividend Growth Fund - 88,377 shares
in 2003 and 34,372 shares in 2002 2,413 767
Fidelity Mid-Cap Stock Fund - 1,060,114 shares
in 2003 and 1,106,759 shares in 2002 22,867(b) 17,996(b)
Managed Income Portfolio II - 61,397,521
shares in 2003 and 63,798,267 shares
in 2002 61,398(b) 63,798(b)
Spartan U.S. Equity Index Fund - 586,802
shares in 2003 and 516,889 shares in 2002 23,126(b) 16,101(b)
Pimco Total Return - 1,019,349 shares in 2003
and 872,644 shares in 2002 10,917 9,311
Baron Growth Fund - 49,811 shares in 2003
and 22,753 shares in 2002 1,765 612
Oakmark Select Fund - 141,060 shares in 2003
and 111,076 shares in 2002 4,319 2,646
Columbia Small-Cap Fund - 147,395 shares in
2003 and 119,783 shares in 2002 2,520 1,515
AIM Basic Value Fund - 1,397,793 shares in
2003 and 1,443,679 shares in 2002 40,872(b) 31,559(b)
Royce Low-Priced Stock Fund - 219,406 shares
in 2003 and 137,770 shares in 2002 3,067 1,343
Participant Loans 6,343 6,707
-------- -------
Total Investments $290,246 $245,200
======== ========
(a) A portion of this amount is nonparticipant-directed (see Note 4).
(b) Asset represents 5% or more of the Plan's net assets as of the indicated
year end.
During 2003, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated in
value by $41,183,000 as follows:
(Thousands of dollars)
Kerr-McGee Corporation Common stock $ 2,537
Registered Investment Companies and
Common Collective Trusts 38,646
-------
$41,183
=======
(6) TAX STATUS
The Plan obtained its latest determination letter dated September 18, 2003,
in which the Internal Revenue Service stated that the Plan is a qualified
plan under provisions of Section 401(a) and is exempt from Federal Income
taxes under provisions of Section 501(a) of the Code. Subsequent to this
determination by the Internal Revenue Service, the Plan was amended to
incorporate the final IRS regulations governing minimum required
distributions under Internal Revenue Code Section 401 (a) (9). Once
qualified, the Plan is required to operate in conformity with the Code to
maintain its qualification. The Committee believes the Plan is being
operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan, as amended, is qualified and the related
trust is tax exempt.
Taxes on any income earned on investment assets attributable to the
participants are deferred until the receipt of a distribution pursuant to
the terms of the Plan. Prior Company contributions and employee
contributions to the SMART Savings Program are also not taxed to the
participants until the receipt of a distribution.
(7) SUBSEQUENT EVENT
On April 7, 2004, the company and Westport Resources Corporation (Westport)
announced that their Boards of Directors had unanimously approved a
strategic merger. In connection with the merger, the Company expects to
issue approximately 49 million shares of common stock to Westport's
stockholders. The transaction is subject to approval by the stockholders of
both companies, as well as customary closing conditions. If approved, the
transaction is expected to be consummated in the second quarter of 2004,
shortly after the companies' respective shareholders meetings, which will be
held on June 25, 2004. The effect of the merger on the Plan and its net
assets, including the effect on the fair value of the Company's common
stock, if any, is not currently known.
KERR-McGEE CORPORATION SAVINGS INVESTMENT PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
(Employer Identification Number 73-1612389)
(Plan Number 007)
DECEMBER 31, 2003
(Thousands of dollars)
(b) (c) (e)
(a)* Identity of issue, borrower, Description of investment including maturity date, (d) Current
lessor or similar party rate of interest, collateral, par or maturity value Cost Value
---- ------------------------------ --------------------------------------------------- ------- --------
* Kerr-McGee Corporation Common Stock - 1,099,106 shares $51,085 $ 51,097
* Fidelity Investments Fidelity Growth Company Fund - 324,179 shares nr 16,232
* Fidelity Investments Fidelity Balanced Fund - 1,709,993 shares nr 28,642
* Fidelity Investments Fidelity Diversified Int'l Fund - 608,105 shares nr 14,668
* Fidelity Investments Fidelity Dividend Growth Fund - 88,377 shares nr 2,413
* Fidelity Investments Fidelity Mid-Cap Stock Fund - 1,060,114 shares nr 22,867
* Fidelity Investments Managed Income Portfolio II - 61,397,521 shares nr 61,398
* Fidelity Investments Spartan U.S. Equity Index Fund - 586,802 shares nr 23,126
Pacific Investment Management
Company Pimco Total Return Fund- 1,019,349 shares nr 10,917
BAMCO, Inc. Baron Growth Fund - 49,811 shares nr 1,765
Harris Associates L.P. Oakmark Select Fund - 141,060 shares nr 4,319
Fleet Investment Advisors Inc. Columbia Small-Cap Fund - 147,395 shares nr 2,520
AIM Advisors, Inc. AIM Basic Value Fund - 1,397,793 shares nr 40,872
Royce & Associates, LLC. Royce Low-Priced Stock Fund - 219,406 shares nr 3,067
* Various Participants Participant loans - interest rates from 5% to 11.5% nr 6,343
--------
$290,246
========
*Party-in-interest
nr - not required for participant-directed investments
KERR-McGEE CORPORATION SAVINGS INVESTMENT PLAN
SCHEDULE H, LINE 4j- SCHEDULE OF REPORTABLE TRANSACTIONS
(Employer Identification Number 73-1612389)
(Plan Number 007)
FOR THE YEAR ENDED DECEMBER 31, 2003
(Thousands of dollars)
(h)
Current
value
(c) (d) (g) of asset on (i)
(a) (b) Purchase Selling Cost of transaction Net gain
Identity of party involved Description of asset price price asset date or (loss)
-------------------------- -------------------- -------- ------- ------- ----------- ---------
Category (iii) - Series of transactions in excess of 5% of the Plan Assets:
---------------------------------------------------------------------------
*Kerr-McGee Corporation Common Stock $9,172 $ - $ 9,172 $ 9,172 $ -
*Kerr-McGee Corporation Common Stock $ - $11,412 $11,729 $11,412 $(317)
There were no category (i), (ii) or (iv) reportable transactions during the year
ended December 31, 2003.
Columns (e) and (f) are not applicable.
*Includes both participant-directed and nonparticipant-directed portions.
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 SAVINGS INVESTMENT PLAN
By (Robert M. Wohleber)
--------------------------------------
Robert M. Wohleber
Chairman of the Kerr-McGee Corporation
Benefits Committee
Date: June 18, 2004