SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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):
February 4, 2000
PHILLIPS PETROLEUM COMPANY
(Exact name of registrant as specified in charter)
Delaware 1-720 73-0400345
(State or other (Commission File No.) (IRS Employer
jurisdiction of 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
------------------
<PAGE>
ITEM 5. OTHER EVENTS.
Phillips Petroleum Company, a Delaware corporation ("Phillips"), and
Chevron Corporation, a Delaware corporation ("Chevron"), entered into a Letter
of Intent and Exclusivity Agreement, dated as of February 4, 2000 (the "Letter
of Intent and Exclusivity Agreement"), relating to the formation of a joint
venture combining their chemicals businesses, other than the additives business
being retained by Chevron.
The press release issued by Phillips in connection with the
execution of the Letter of Intent and Exclusivity Agreement is attached hereto
as Exhibit 99.1 and is incorporated herein by reference.
Phillips and Chevron held investor and analyst meetings on February
7, and February 8, 2000, relating to the execution of the Letter of Intent and
Exclusivity Agreement. Certain presentation materials used at the meetings are
attached hereto as Exhibit 99.2 and are hereby incorporated herein by reference.
<PAGE>
ITEM 7. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
99.1 Press Release, dated February 7, 2000.
99.2 Presentation Materials used at investor and analyst
meetings on February 7, and February 8, 2000.
<PAGE>
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
Date: February 10, 2000 By: /s/ Rand C. Berney
------------------------------
Name: Rand C. Berney
Title: Vice President and Controller
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
99.1 Press Release, dated February 7, 2000.
99.2 Presentation Materials used at investor and analyst
meetings on February 7, and February 8, 2000.
[PHILLIPS PETROLEUM COMPANY LETTERHEAD]
PHILLIPS AND CHEVRON TO FORM JOINT VENTURE
CREATING WORLD-CLASS CHEMICAL COMPANY
BARTLESVILLE, Okla., Feb. 7, 2000 --- Phillips Petroleum Company [NYSE: P] and
Chevron Corp. [NYSE: CHV] today announced the signing of a letter of intent and
exclusivity agreement to form a 50/50 joint venture combining their worldwide
chemicals businesses.
Headquartered in Houston, the joint-venture company will have assets of more
than $6 billion and will be one of the world's top producers of olefins,
polyolefins, aromatics and styrenics. The transaction is expected to close by
mid-year, subject to final approval of the companies' boards, signing of
definitive agreements and regulatory review.
Under terms of the agreement, the joint-venture company will arrange
$1.6 billion of debt financing and will make one-time cash distributions of
$800 million to each parent at or shortly after closing. Phillips will use the
proceeds to reduce debt or for other general corporate purposes. The transaction
will be accretive to the net incomes and net cash flows of both Phillips and
Chevron after implementation.
As a result of this transaction and the previously announced gas processing and
marketing joint venture with Duke Energy, Phillips expects its net
debt-to-capital ratio to decline from 45 percent to approximately 31 percent. In
addition, had these ventures been in place for the year 1999, Phillips' ROCE
would have increased about 2 percentage points. Based on First Call analysts'
consensus earnings estimates, Phillips projects that these transactions will be
accretive to earnings by 4 percent in 2000 and by 12 percent in 2001.
"Phillips and Chevron are strong companies with excellent chemicals assets and a
shared vision of growth for their chemicals businesses," said Jim Mulva,
Phillips' chairman, president and chief executive officer (CEO). "This joint
venture creates one of the world's leading chemicals producers, with a global
market presence, excellent growth prospects and a strong financial position.
-more-
<PAGE>
Phillips and Chevron to Form Joint Venture
Creating World-Class Chemical Company
Page 2
"This transaction fulfills our plan to position our chemicals business into a
strategic joint venture in 2000 and is another major step in our previously
announced strategic plan," Mulva added. "Our 50 percent interest in this new
company will enable us to maintain the benefits of integration and position our
chemicals business for growth as part of a larger, self-funding entity that will
provide greater value for our shareholders. I want to emphasize that we are not
exiting our chemicals business."
"Our two petrochemicals operations are a great fit," said Dave O'Reilly,
chairman and CEO of Chevron Corp. "This combination will draw complementary
products and technology along with outstanding employees from both organizations
to create a formidable company, able to compete with the best in this expanding
industry."
The joint-venture company will be one of the top five worldwide olefins and
polyolefins producers, with annual gross ethylene capacity of 8.2 billion pounds
and annual gross polyethylene capacity of 5.5 billion pounds. In addition, the
company will have annual capacities of 7.4 billion pounds of aromatics,
1.6 billion pounds of alpha olefins, 1.7 billion pounds of styrene monomer, more
than 1.2 billion pounds of styrenic polymers and more than 400 million pounds of
specialty chemicals. The pro forma revenues for the combined businesses for
1999, before the effects of synergies, were nearly $6 billion.
The companies expect to realize annual synergies of at least $150 million
through the combination by tapping efficiencies in purchasing and logistics,
enhancing feedstock flexibility, optimizing production scheduling, improving
organizational efficiency and reducing staffing. The joint-venture company's
management compensation will be tied to achievement of these synergies. It is
expected that approximately 600 of the 6,000 combined chemicals positions of the
two companies will be eliminated. Research and development activities are
expected to continue at existing locations.
The companies have named Jim Gallogly, currently Phillips' senior vice president
of chemicals, as president and CEO of the new company, and Kent Potter,
currently vice president of finance for Chevron Overseas Petroleum Inc., as
chief financial officer (CFO). Phillips will appoint senior management for
olefins/polyolefins and strategic planning, while senior management for
aromatics and styrenics/specialty chemicals will be appointed by Chevron.
"This new joint-venture company will have the people, assets and technology to
create one of the premier chemicals companies of the world," said Gallogly. "I'm
excited about the opportunities this will provide for the future growth of our
new business, and our customers and employees."
The joint-venture company, to be named later, will be governed by a six-member
board of directors consisting of two Phillips-appointed directors, two
Chevron-appointed directors and the joint-venture company's CEO and CFO, who
will be non-voting members.
-more-
<PAGE>
Phillips and Chevron to Form Joint Venture
Creating World-Class Chemical Company
Page 3
Phillips has appointed Jim Mulva, Phillips' chairman, president and CEO, and
Bill Parker, Phillips' executive vice president of downstream, to the
joint-venture company's board. Chevron-appointed board members are Darry
Callahan, president of Chevron Chemical Co., and Marty Klitten, Chevron Corp.
CFO.
The joint venture will not include Chevron's Oronite additives business, which
holds a global leadership position in the development, manufacture and marketing
of fuel and lubricant additives. Although it is an important part of Chevron's
chemicals operations, the additives business did not provide strong synergies
with Phillips' operations.
Goldman Sachs & Co. is acting as financial advisor to Phillips in this
transaction, while Lehman Brothers Inc. is acting as financial advisor to
Chevron.
Phillips Petroleum is an integrated petroleum company engaged in oil and gas
exploration and production worldwide; gas gathering, processing and marketing in
the United States; refining, marketing and transportation operations primarily
in the United States; chemicals and plastics manufacturing and sales around the
globe; and technology development. Founded in Bartlesville, Okla., in 1917, the
company had 15,900 employees and $15 billion of assets at the end of 1999, and
$14 billion of revenues for the year.
Chevron Corp., headquartered in San Francisco, is a leading energy and chemical
company, operating in about 90 countries through 500 subsidiaries, partnerships,
affiliates, and other entities. Chevron, which employs 31,000 people worldwide,
has about $40 billion in assets. Total revenue in 1999 was $36.6 billion.
Chevron Chemical Co. produces commodity petrochemicals, plastics and additives
in plants in nine U.S. states and in Brazil, France, Japan, Mexico, Saudi Arabia
and Singapore.
- # # # -
ADDITIONAL INFORMATION ABOUT THE TRANSACTION CAN BE FOUND AT
www.phillips66.com/newsroom/chemicalsummary
-------------------------------------------
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions
Of the Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements about Phillips' and
Chevron's operations and businesses, including the proposed combination of their
chemicals businesses. Where, in any forward-looking statement, either of the
companies expresses an estimate, potential expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed to
have a reasonable basis. However, there can be no assurance that the statement
of expectation or belief will result or be achieved. The actual results may be
affected by a variety of risks, which could cause the stated expectation or
belief to differ materially. Some of the important risk factors, but not
necessarily all such factors, that may cause expectations or results to differ,
particularly as to the cost savings, synergies, financial results, future asset
and other growth and performance measures discussed are: the companies may not
be able to consummate the proposed combination or obtain required regulatory or
third-party consents and approvals; the companies may be subjected to certain
restrictions or required to make dispositions of certain assets; economic
conditions, tariffs, transportation systems, and commodities prices may change
materially; the parties may experience difficulties integrating personnel,
business systems and operations; volume and revenue growth may not occur or may
occur at unanticipated times. Additional information concerning factors that
could cause actual results to differ materially are contained in the companies'
reports filed with the Securities and Exchange Commission ("SEC"), which are
incorporated herein by reference. Copies of the reports are available through
the companies' Web sites at www.phillips66.com and www.chevron.com.
- --------------------------------------------------------------------------------
Phillips Petroleum Company
February, 2000
[Phillips Petroleum Company Logo]
- --------------------------------------------------------------------------------
1
<PAGE>
Phillips Objectives
- --------------------------------------------------------------------------------
* Improve Segment and Parent ROCE
-- Position All Business Lines For Growth
* Maintain Diversification and Strengths of Integration
-- Exposure to Much Larger, More Competitive Asset Base
* Strengthen Balance Sheet / Increase Financial Flexibility
* Maintain Flexibility for Subsequent Transactions
* Provide Shareholder Value
- --------------------------------------------------------------------------------
2
<PAGE>
Positioning Phillips for the Future
- --------------------------------------------------------------------------------
* Focus on E&P
-- Build / Acquire Legacy Assets
-- Focus on Targeted Areas
* GPM / DEFS Joint Venture
* 50/50 Joint Venture Chemicals
* Position RM&T for 50/50 Joint Venture
-- Coker
-- Continuous Catalytic Reformer (CCR)
Maintain Strengths of Integration
- --------------------------------------------------------------------------------
3
<PAGE>
Diversified Asset Base - Emphasis on ROCE
- --------------------------------------------------------------------------------
[Bar chart showing the following information:]
Percent Based on Net Operating Income, 1995-1999 average
E&P 17.0%
GPM 10.0%
RM&T 5.8%
Chemicals 11.5%
- --------------------------------------------------------------------------------
4
<PAGE>
The Phillips Model:
How We Look Today / How We Plan to Look
- --------------------------------------------------------------------------------
[Diagram showing the following information:]
Phillips 1999 Phillips Early 2000s
------------- --------------------
E&P E&P
| JOINT VENTURE | DEFS
RM&T---[Phillips]---GPM Partner Company/RM&T---[Phillips]---GPM/Duke Energy
| |
Chemicals JOINT VENTURE
Chemicals/Chevron Chemicals
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Phillips and Chevron Chemicals
Joint Venture
- --------------------------------------------------------------------------------
6
<PAGE>
Phillips Chemical JV Objectives
- --------------------------------------------------------------------------------
* Build World-Class Chemical Company
----------------------------------
-- Complementary Assets
-- Significant Player in Markets
-- Staff with Best of the Best
-- Total Focus on Chemicals Business
* Create Value
------------
-- Strong Synergies
-- Self-sustaining Business --> Target 15% Return Across Cycle
-- Platform for Growth
* Improve Portfolio
-----------------
-- Diversify Product Slate
-- Balance Ethylene Position
- --------------------------------------------------------------------------------
7
<PAGE>
Phillips / Chevron Chemicals JV
- --------------------------------------------------------------------------------
Deal Structure
- --------------
* 50/50 JV Owned by Phillips and Chevron
* $800 MM in Cash to Each Party at or Shortly After Closing
Governance
- ----------
* 6-Member Board of Directors
* CEO Appointed by Phillips and CFO by Chevron
Financial
- ---------
* At Least $150 MM in Recurring Pre-Tax Synergy Savings
* Accretive to Both Parents in the First Year of Operation
* Joint Venture to Have Modest Debt-to-Capitalization Ratio
* No Financial or Tax Gain or Loss
Closing
- -------
* After Regulatory Review and Signing of Definitive Agreements
* Expected by Mid-Year 2000
- --------------------------------------------------------------------------------
8
<PAGE>
Strategic Rationale
- --------------------------------------------------------------------------------
* Creates World-Class Chemical Business with Strong, Compatible Partners
* Excellent Business Fit Along Product and Technology Lines
* Improves Earnings and ROCE for Phillips and Chevron Through Lower Operating
and Capital Costs
* Positions Joint-Venture Company for Profitable Growth
- --------------------------------------------------------------------------------
9
<PAGE>
Joint Venture Structure and Management
- --------------------------------------------------------------------------------
Structure
---------
-------- -------
|Phillips| |Chevron|
-------- -------
^ \ / ^
\ \ 50/50 / /
\ \ / /
$800MM \ \ / / $800MM
\ \ / /
\ \ / /
\ \ / /
\ \ / /
----------------------
| Joint Venture |
| (LLC) |
----------------------
Headquartered in Houston
Management
----------
-----------------------
| Board of Directors |
| Equal Members |
-----------------------
|
|
-----------
| CEO |
| (P) |
-----------
|
---------------------------------------------------------------------
| | | | |
- ---------- ------------ --------------- ------------- --------------
| SVP (C)| | SVP (P) | | SVP (P) | | SVP (C) | | SVP (C) |
| CFO | | Plan & | | Olefins / | | Aromatics | | Styrenics / |
| | | Str Trans| | Polyolefins | | | | Specialty |
- ---------- ------------ --------------- ------------- ---------------
[P] Phillips
[C] Chevron
- --------------------------------------------------------------------------------
10
<PAGE>
Combined US Petrochemical Operations
- --------------------------------------------------------------------------------
[Map showing the following information:]
Chevron HDPE Pipe (7 Locations)
Cedar Bayou, TX
---------------
*Ethylene
*Propylene
*HDPE
*LL/LDPE
*NAO/PAO
*Acetylene Black
Port Arthur, TX
---------------
*Ethylene
*Propylene
*Cumene
*Cyclohexane
*Benzene
*Toluene
Orange, TX
----------
*HDPE
St. James, LA
-------------
*Ethylbenzene
*Styrene
Pascagoula, MS
--------------
*Benzene
*Paraxylene
Marietta, OH
------------
*Polystyrene
Phillips HDPE Pipe (6 Locations)
Sweeny, TX
----------
*Ethylene
*Propylene
Borger, TX
----------
*Specialty Chemicals
*Ryton
Pasadena, TX
------------
*Polyethylene
*Polypropylene
*K-Resin
- --------------------------------------------------------------------------------
11
<PAGE>
Combined International Petrochemical Operations
- --------------------------------------------------------------------------------
[Map showing the following information:]
Chevron
Mexico
------
*Pipe Plant
Saudi Arabia (50% JV)
---------------------
*Benzene
*Cyclohexane
China (2000)
------------
*Polystyrene
Phillips
Puerto Rico
-----------
*Paraxylene
*Cyclohexane
Belgium
-------
*Mercaptans
Qatar 49% JV (2002)
-------------------
*Ethylene
*Polyethylene
*Hexene-1
Singapore 50% JV
----------------
*Polyethylene
China 40% JV
------------
*Polyethylene
S. Korea 60% JV
---------------
*K-Resin
- --------------------------------------------------------------------------------
12
<PAGE>
1999 Worldwide Ethylene/Polyethylene Capacity
- --------------------------------------------------------------------------------
[Two bar graphs showing the 1999 Worldwide Ethylene and Polyethylene Capacity of
top 11 companies (including the Joint Venture); Joint Venture shown as 5th in
Ethylene Capacity and 4th in Polyethylene Capacity]
[Banner states that Joint Venture is] Top Five Worldwide
Source: Company estimates
- --------------------------------------------------------------------------------
13
<PAGE>
US Ethylene Balance
- --------------------------------------------------------------------------------
[Bar graph showing the U.S. Ethylene Balance of 11 Chemicals companies; Phillips
shown as the largest seller of Ethylene, Chevron shown as the largest buyer]
[Banner states that]
Phillips is largest seller of ethylene, Chevron is largest buyer
Source: Company estimates for 2001
- --------------------------------------------------------------------------------
14
<PAGE>
Styrene Capacity
- --------------------------------------------------------------------------------
[Two bar graphs showing the Worldwide Styrene Capacity of 11 companies
(including the Joint Venture) and the North America Styrene Capacity of 8
companies (including the Joint Venture); Joint Venture shown as 7th in Worldwide
Styrene Capacity and 2nd in North America Styrene Capacity]
[Banner states that Joint Venture is]
Number 7 Worldwide, Number 2 North America
Source: Company estimates
- --------------------------------------------------------------------------------
15
<PAGE>
Worldwide Paraxylene Capacity
- --------------------------------------------------------------------------------
[Bar graph showing the Worldwide Paraxylene Capacity of 10 companies (including
the Joint Venture); Joint Venture shown as 3rd in Worldwide Paraxylene Capacity]
[Banner states that Joint Venture is] Number 3 Worldwide
Source: Company estimates
- --------------------------------------------------------------------------------
16
<PAGE>
Larger, More Diversified Portfolio
- --------------------------------------------------------------------------------
[Charts showing Chemical Portfolio breakdowns of Phillips products, Chevron
products, and Overlapping Product Lines]
- --------------------------------------------------------------------------------
17
<PAGE>
Value Creation
- --------------------------------------------------------------------------------
Pre-tax synergies by 2001 ($MM/Yr) Synergy categories ($MM/Yr)
- ---------------------------------- ---------------------------
* Support Staff 40 * Personnel Efficiencies
* Polyolefins 35 -- Management
* Olefins 30 & Support Services 60
* Technology 20 -- Business Unit 25
* Styrenics 10 * Process & Product
* Other 15 Optimization 50
----- --- * Other 15
* Total 150 ----- ---
* Total 150
- --------------------------------------------------------------------------------
18
<PAGE>
Combined Capacity & Financial Data
- --------------------------------------------------------------------------------
Product Capacity BLb/Yr 1999 Adjusted Financial Statistics
- ------- --------------- ----------------------------------
* Ethylene 8.2 * Revenues $5.7B
* Polyethylene 5.5 * EBITDA $700MM
* Aromatics 7.4
* Alpha Olefins 1.6 Pro Forma Statistics
* Styrene Monomer 1.7 --------------------
* Styrene Polymers 1.2 * Assets $6.1B
* Specialty Chemicals 0.4 * Debt/Capital 29 %
Investment Grade Credit Rating
- --------------------------------------------------------------------------------
19
<PAGE>
Summary of Joint Venture
- --------------------------------------------------------------------------------
* World Class Chemical Company ($6.1B Assets)
* Strengthened Competitive Position
* Platform for Chemicals Business Growth
* Significantly Improved Financial Results
-- $150MM+ in Pre-tax Synergies
-- Strong Net Income and Net Cash Flow
-- Strong Balance Sheet
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Financial Impact on
Phillips Petroleum Company
- --------------------------------------------------------------------------------
21
<PAGE>
Chemical JV -- Net Income & Net Cash Flow Impact to Phillips
- --------------------------------------------------------------------------------
[Bar Chart showing the following:]
2000 2001 2002
---- ---- ----
Net cash flow ($MM) 14 73 95
Net income ($MM) 10 51 53
$/Share
Net CFPS Impact 0.06 0.29 0.38
EPS Impact 0.04 0.20 0.21
- --------------------------------------------------------------------------------
22
<PAGE>
Phillips ROCE Comparison
- --------------------------------------------------------------------------------
[Bar Chart showing the following:]
1999 Proforma 2000* 2001*
------------- ---- ----
PPCo Before JV (%) 8.2 10.0 9.4
PPCo after GPM JV (%) 9.0 11.2 10.7
PPCo after GPM & 10.1 12.1 12.1
Chemical JVs (%)
* Based on First Call analysts' consensus earnings estimates
- --------------------------------------------------------------------------------
23
<PAGE>
Balance Sheet Impact to Phillips
- --------------------------------------------------------------------------------
PPCo GPM PPCo Chemical PPCo
12/31/1999 JV After JV Pro Forma
GPM JV 12/31/1999
------------------------------------------------------------
($ MM)
------------------------------------------------------------
Total Assets 15,201 (1,111) 14,090 (1,085) 13,005
Debt 4,302 (1,135) 3,167 (800) 2,367
Common Equity 4,549 4,549 4,549
Debt/Capital Ratio 45.3% 37.9% 31.3%
NOTE: Capital includes common equity, debt and $650MM of preferred shares
- --------------------------------------------------------------------------------
24
<PAGE>
The Phillips Model
- --------------------------------------------------------------------------------
E&P
JOINT VENTURE | DEFS
Partner Company/RM&T---[Phillips]---GPM[30]/Duke Energy[70]
|
JOINT VENTURE
Chemicals/Chevron Chemicals
* Focus on E&P
* Maintain Strengths of Integration
-- 30/70 GPM
-- 50/50 Chemicals
-- 50/50 RM&T
* Improve Cost Structure
* Deliver Shareholder Value
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
[PHILLIPS PETROLEUM COMPANY LOGO]
- --------------------------------------------------------------------------------
26
<PAGE>
Cautionary Statement for the Purposes of the
"Safe Harbor" Provisions
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
These presentation materials contain forward-looking statements about
Phillips' and Chevron's operations and businesses, including the proposed
combination of their chemicals businesses. Where, in any forward-looking
statement, either of the companies expresses an estimate, potential expectation
or belief as to future results, such expectation or belief is expressed in good
faith and believed to have a reasonable basis. However, there can be no
assurance that the statement of expectation or belief will result or be
achieved. The actual results may be affected by a variety of risks, which could
cause the stated expectation or belief to differ materially. Some of the
important risk factors, but not necessarily all such factors, that may cause
expectations or results to differ, particularly as to the cost savings,
synergies, financial results, future asset and other growth and performance
measures discussed are: the companies may not be able to consummate the proposed
combination or obtain required regulatory or third-party consents and approvals;
the companies may be subjected to certain restrictions or required to make
dispositions of certain assets; economic conditions, tariffs, transportation
systems, and commodities prices may change materially; the parties may
experience difficulties integrating personnel, business systems and operations;
volume and revenue growth may not occur or may occur at unanticipated times.
Additional information concerning factors that could cause actual results to
differ materially are contained in the companies' reports filed with the
Securities and Exchange Commission ("SEC"), which are incorporated herein by
reference. Copies of the reports are available through the companies' Web sites
at www.phillips66.com and www.chevron.com.
27
