UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
JULY 1, 2000
PHILLIPS PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-720 73-0400345
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
Phillips Building, Bartlesville, Oklahoma 74004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
918-661-6600
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 1, 2000, Phillips Petroleum Company, a Delaware corporation
(Phillips), Chevron Corporation, a Delaware corporation (Chevron), and
Chevron Phillips Chemical Company LLC, a Delaware limited liability company
(CPC) consummated the combination of certain of Phillips' and Chevron's
chemicals businesses in CPC. Phillips and Chevron, directly or through direct or
indirect wholly owned subsidiaries, each own 50 percent of the voting and
economic interests in CPC.
In connection with the combination, CPC borrowed $1.67 billion. The proceeds of
the borrowing were used to make cash distributions of $835 million each to both
Phillips and Chevron. Also in connection with the combination, Phillips made a
$70 million cash advance to CPC. This non-interest-bearing advance is subject to
adjustment depending upon the production volume thresholds achieved by the
K-Resin styrene-butadiene copolymer (K-Resin) operations. The net amount of
the advance will be treated as part of Phillips' initial capital contribution.
The Amended and Restated Limited Liability Company Agreement of Chevron
Phillips Chemical Company LLC, dated as of July 1, 2000, by and between
Phillips, Chevron, Chevron U.S.A. Inc., Chevron Overseas Petroleum Inc.,
Chevron Pipe Line Company, Drilling Specialties Co., WesTTex 66 Pipeline Co.,
and Phillips Petroleum International Corporation, is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information.
Basis of Presentation
The following unaudited pro forma financial statements have been prepared
from the historical financial statements of Phillips, adjusted to reflect
the contribution to, and participation in, CPC. For presentation purposes,
the transaction has been reflected in two parts--Phillips' disposition of
its Chemicals business and simultaneous acquisition of a 50 percent equity
interest in CPC.
The unaudited pro forma income statements were prepared assuming the
combination occurred January 1, 1999, while the unaudited pro forma
balance sheet was prepared as if the combination occurred March 31, 2000.
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Phillips' historical consolidated income statements for the year ended
December 31, 1999, and the three months ended March 31, 2000, have been
adjusted on a pro forma basis to reflect:
o The March 31, 2000, disposition of Phillips' gas gathering, processing
and marketing business and its acquisition of 30.3 percent of Duke
Energy Field Services LLC. The unaudited pro forma impact of this
transaction on the year ended December 31, 1999, was reported in
Phillips' Current Report on Form 8-K filed on April 13, 2000. The
impact on the three months ended March 31, 2000, was reported in
Phillips' Current Report on Form 8-K filed on May 18, 2000.
o The acquisition of all of Atlantic Richfield Company's Alaskan
businesses (ARCO Alaska). On April 26, 2000, Phillips completed
the purchase of all of ARCO's Alaskan oil and gas properties and
those related to marine assets that were operating at that time.
Phillips expects to complete the balance of the acquisition in the
third quarter of 2000. The unaudited pro forma impact of the total
acquisition on the year ended December 31, 1999, and the three
months ended March 31, 2000, was reported in Phillips' Current
Report on Form 8-K filed on May 18, 2000.
Phillips' historical consolidated balance sheet at March 31, 2000, was
adjusted on a pro forma basis to reflect the total ARCO Alaska
acquisition, as reported in Phillips' Current Report on Form 8-K filed on
May 18, 2000.
This pro forma financial information is not intended to reflect results
from operations or the financial position which would have actually
resulted had the combination been effected on the dates indicated.
Moreover, this pro forma information is not intended to be indicative of
results of operations or financial position which may be obtained in the
future.
This pro forma financial information should be read in conjunction with
the historical financial statements included in Phillips' Annual Report on
Form 10-K for the year ended December 31, 1999, as amended, and its
Quarterly Report on Form 10-Q for the three months ended March 31, 2000.
The pro forma adjustments use estimates and assumptions based on currently
available information. Management believes that the estimates and
assumptions are reasonable, and that the significant effects of the
transactions are properly reflected. However, actual results may differ
from the estimates and assumptions used.
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This pro forma financial information does not include anticipated
synergies from operating efficiencies which Phillips expects to result
from the formation of CPC, nor does it include any anticipated benefit
from Phillips' receipt of $835 million in cash upon the closing of the
transaction. Management estimates that if debt bearing an estimated
interest rate of 7 percent had been paid off on January 1, 1999, using the
$835 million cash receipt, it would have increased 1999 pro forma net
income by approximately $44 million and first quarter 2000 pro forma net
income by approximately $11 million.
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UNAUDITED PRO FORMA CONSOLIDATED PHILLIPS PETROLEUM COMPANY
STATEMENT OF INCOME
Millions of Dollars
-----------------------------------------------------
As
Adjusted
Pro Forma Adjustments for
Phillips Increase/(Decrease) Chemicals
Year Ended As ------------------------- Joint
December 31, 1999 Adjusted Disposition Acquisition Venture
-------- ----------- ----------- ---------
(a) (b)
REVENUES
Sales and other
operating revenues $14,637 (2,608) - 12,029
Equity in earnings of
affiliated companies 168 (31) 203(c) 340
Other revenues 219 (23) - 196
--------------------------------------------------------------------------------
Total Revenues 15,024 (2,662) 203 12,565
--------------------------------------------------------------------------------
COSTS AND EXPENSES
Purchased crude oil
and products 7,852 (1,415) - 6,437
Production and
operating expenses 2,215 (593) - 1,622
Exploration expenses 282 - - 282
Selling, general and
administrative expenses 719 (276) - 443
Depreciation, depletion
and amortization 1,279 (103) - 1,176
Property impairments 69 - - 69
Taxes other than
income taxes 452 (37) - 415
Interest expense 618 - - 618
Foreign currency
transaction losses 33 (1) - 32
Preferred dividend
requirements of
capital trusts 53 - - 53
--------------------------------------------------------------------------------
Total Costs and
Expenses 13,572 (2,425) - 11,147
--------------------------------------------------------------------------------
Income before income
taxes 1,452 (237) 203 1,418
Provision for income
taxes 672 (90) 77(c) 659
--------------------------------------------------------------------------------
NET INCOME $ 780 (147) 126(d) 759
================================================================================
NET INCOME PER SHARE
OF COMMON STOCK
Basic $ 3.09 (.58) .49 3.00
Diluted 3.07 (.58) .49 2.98
--------------------------------------------------------------------------------
AVERAGE COMMON SHARES
OUTSTANDING
(in thousands)
Basic 252,827 252,827 252,827 252,827
Diluted 254,433 254,433 254,433 254,433
--------------------------------------------------------------------------------
See Notes to Unaudited Pro Forma Financial Statements.
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UNAUDITED PRO FORMA CONSOLIDATED PHILLIPS PETROLEUM COMPANY
STATEMENT OF INCOME
Millions of Dollars
-----------------------------------------------------
As
Adjusted
Pro Forma Adjustments for
Phillips Increase/(Decrease) Chemicals
Three Months Ended As ------------------------- Joint
March 31, 2000 Adjusted Disposition Acquisition Venture
-------- ----------- ----------- ---------
(a) (b)
REVENUES
Sales and other
operating revenues $5,209 (881) - 4,328
Equity in earnings of
affiliated companies 62 (7) 41(c) 96
Other revenues 15 (1) - 14
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Total Revenues 5,286 (889) 41 4,438
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COSTS AND EXPENSES
Purchased crude oil
and products 3,028 (574) - 2,454
Production and
operating expenses 552 (162) - 390
Exploration expenses 69 - - 69
Selling, general and
administrative expenses 196 (71) - 125
Depreciation, depletion
and amortization 323 (29) - 294
Taxes other than income
taxes 142 (10) - 132
Interest expense 146 - - 146
Foreign currency
transaction losses 18 (1) - 17
Preferred dividend
requirements of
capital trusts 13 - - 13
--------------------------------------------------------------------------------
Total Costs and
Expenses 4,487 (847) - 3,640
--------------------------------------------------------------------------------
Income before income
taxes 799 (42) 41 798
Provision for income
taxes 395 (15) 16(c) 396
--------------------------------------------------------------------------------
NET INCOME $ 404 (27) 25(d) 402
================================================================================
NET INCOME PER SHARE
OF COMMON STOCK
Basic $ 1.59 (.11) .10 1.58
Diluted 1.59 (.11) .10 1.58
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AVERAGE COMMON SHARES
OUTSTANDING
(in thousands)
Basic 253,718 253,718 253,718 253,718
Diluted 254,677 254,677 254,677 254,677
--------------------------------------------------------------------------------
See Notes to Unaudited Pro Forma Financial Statements.
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UNAUDITED PRO FORMA CONSOLIDATED PHILLIPS PETROLEUM COMPANY
CONDENSED BALANCE SHEET
Millions of Dollars
-----------------------------------------------------
As
Adjusted
Pro Forma Adjustments for
Phillips Increase/(Decrease) Chemicals
As ------------------------- Joint
At March 31, 2000 Adjusted Disposition Acquisition Venture
-------- ----------- ----------- ---------
(a) (b)
ASSETS
Cash and cash
equivalents $ 331 - 765(e) 1,096
Accounts and notes
receivable 1,690 (513) - 1,177
Inventories 811 (305) - 506
Deferred income taxes 129 - - 129
Prepaid expenses and
other current assets 188 (20) - 168
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Total Current
Assets 3,149 (838) 765 3,076
Investments and long-
term receivables 1,178 (73) 1,763(e) 2,868
(f)
Properties, plants and
equipment (net) 16,400 (1,888) - 14,512
Deferred income taxes 83 (65) - 18
Deferred charges 108 (4) - 104
--------------------------------------------------------------------------------
Total $20,918 (2,868) 2,528 20,578
================================================================================
LIABILITIES
Accounts payable $1,832 (241) - 1,591
Notes payable and
long-term debt due
within one year 4,013 - - 4,013
Accrued income and
other taxes 662 (18) - 644
Other accruals 320 (26) - 294
--------------------------------------------------------------------------------
Total Current
Liabilities 6,827 (285) - 6,542
Long-term debt 5,413 - - 5,413
Accrued dismantlement,
removal and
environmental costs 661 (3) - 658
Deferred income taxes 1,419 (2) - 1,417
Employee benefit
obligations 524 (6) - 518
Other liabilities
and deferred credits 768 (36) - 732
--------------------------------------------------------------------------------
Total Liabilities 15,612 (332) - 15,280
--------------------------------------------------------------------------------
COMPANY-OBLIGATED
MANDATORILY REDEEMABLE
PREFERRED SECURITIES
OF PHILLIPS 66 CAPITAL
TRUSTS I AND II 650 - - 650
--------------------------------------------------------------------------------
TOTAL COMMON
STOCKHOLDERS' EQUITY 4,656 (2,536) 2,528 4,648
--------------------------------------------------------------------------------
Total $20,918 (2,868) 2,528 20,578
================================================================================
See Notes to Unaudited Pro Forma Financial Statements.
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NOTES TO UNAUDITED PRO FORMA PHILLIPS PETROLEUM COMPANY
FINANCIAL STATEMENTS
(a) Phillips' historical income statements for the year ended December 31,
1999, and the three months ended March 31, 2000, have been adjusted on a
pro forma basis to reflect the disposition of Phillips' gas gathering,
processing and marketing business, and its acquisition of a 30.3 percent
interest in Duke Energy Field Services LLC; and the acquisition of ARCO
Alaska. Phillips' historical balance sheet at March 31, 2000, has been
adjusted for the ARCO Alaska acquisition. See pages 1 and 2 of this
Form 8-K for further information on these adjustments.
(b) Adjustment to remove Phillips' Chemicals business from consolidation.
(c) Adjustment to include $42 million and $205 million in earnings from
Phillips' 50 percent equity interest in CPC for the three months ended
March 31, 2000, and the year ended December 31, 1999, respectively. The
estimate of 1999 and first quarter 2000 earnings for CPC is based upon pro
forma financial results of CPC as if Phillips' and Chevron's chemicals
businesses had been contributed to it on January 1, 1999. Earnings have
been reduced by $1 million and $2 million adjustments for the amortization
of the basis difference between the book value of Phillips' contribution
to CPC and its 50 percent interest in the equity of CPC for the three
months ended March 31, 2000, and the year ended December 31, 1999,
respectively. This difference is expected to be amortized over 20 years.
Income taxes on these adjustments to earnings were calculated at an
estimated rate of 38 percent.
(d) The company estimates that if debt bearing an estimated interest rate of
7 percent had been paid off on January 1, 1999, using the $835 million
cash receipt, it would have increased 1999 pro forma net income by
approximately $44 million and first quarter 2000 pro forma net income by
approximately $11 million. However, that benefit is not reflected as a pro
forma adjustment since it is not directly attributable to the transaction
presented.
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(e) Adjustment to reflect Phillips' receipt of $835 million in cash from CPC
upon the closing of the transaction. In connection with the combination,
Phillips advanced $70 million to CPC. This non-interest-bearing advance is
subject to adjustment depending upon the production volume thresholds
achieved by the K-Resin operations. The net amount of the advance will be
treated as part of Phillips' initial capital contribution.
(f) Adjustment to reflect acquisition of investment in CPC at carryover value
and impacts of cash activity described in note (e).
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(c) Exhibits.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
99.1 Amended and Restated Limited Liability Company Agreement of
Chevron Phillips Chemical Company LLC, dated as of July 1,
2000, by and between Phillips, Chevron, Chevron U.S.A.
Inc., Chevron Overseas Petroleum Inc., Chevron Pipe Line
Company, Drilling Specialties Co., WesTTex 66 Pipeline Co.,
and Phillips Petroleum International Corporation.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHILLIPS PETROLEUM COMPANY
July 14, 2000 /s/ Rand C. Berney
-----------------------------
Rand C. Berney
Vice President and Controller
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
99.1 Amended and Restated Limited Liability Company
Agreement of Chevron Phillips Chemical Company LLC,
dated as of July 1, 2000, by and between Phillips,
Chevron, Chevron U.S.A. Inc., Chevron Overseas
Petroleum Inc., Chevron Pipe Line Company, Drilling
Specialties Co., WesTTex 66 Pipeline Co., and
Phillips Petroleum International Corporation.
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