8-K/A 1 body.txt FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) August 30, 2002 ConocoPhillips (Exact name of registrant as specified in its charter) Delaware 000-49987 01-0562944 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 600 North Dairy Ashford Road, Houston, Texas 77079 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 281-293-1000 Portions Amended As set forth below, the registrant hereby amends its Current Report on Form 8-K filed on August 30, 2002. Item 5. Other Events. Item 5 is amended by adding the following: In connection with the mergers of Conoco and Phillips with wholly owned subsidiaries of ConocoPhillips, and to simplify the companies' credit structure, ConocoPhillips and Conoco have fully and unconditionally guaranteed the payment obligations of Phillips with respect to its publicly held debt securities, and ConocoPhillips and Phillips have fully and unconditionally guaranteed the payment obligations of Conoco and Conoco Funding Company, Conoco's wholly owned finance subsidiary, with respect to the publicly held debt securities of Conoco and the publicly held debt securities of Conoco Funding Company fully and unconditionally guaranteed by Conoco. Item 7. Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired. The audited consolidated financial statements of Conoco Inc. as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, found on pages 72 through 121 of Conoco Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission on March 15, 2002, are incorporated herein by reference. The unaudited consolidated financial statements of Conoco Inc. for the quarter ended June 30, 2002, included in Conoco Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 9, 2002, are incorporated herein by reference. (b) Pro Forma Financial Information. Basis of Presentation The following unaudited pro forma condensed combined financial statements have been prepared to illustrate the estimated effect of the merger between Phillips Petroleum Company (Phillips) and Conoco Inc. (Conoco). The merger has been accounted for using purchase accounting. Although the 1 business combination of Phillips and Conoco was a merger of equals, generally accepted accounting principles require that one of the two companies in the transaction be designated as the acquiror for accounting purposes. Phillips has been designated as the acquiror based on the fact that its common stockholders initially held more than 50 percent of the ConocoPhillips common stock after the merger. The unaudited pro forma condensed combined balance sheet gives effect to the merger as if it had occurred on June 30, 2002. The unaudited pro forma combined statements of income for the year ended December 31, 2001, and the six-month period ended June 30, 2002, were prepared assuming the merger occurred January 1, 2001. However, during the year ended December 31, 2001, Phillips and Conoco entered into other significant transactions that are not reflected in the companies' historical income statements for the full year ended December 31, 2001. Therefore, Phillips' historical income statement for the year ended December 31, 2001, has been adjusted on a pro forma basis to reflect Phillips' acquisition of Tosco Corporation on September 14, 2001 (as reported in Phillips' Current Report on Form 8-K filed on September 28, 2001, as amended on October 31, 2001, and November 13, 2001), as if it had occurred on January 1, 2001; and Conoco's historical income statement for the year ended December 31, 2001, has been adjusted on a pro forma basis to reflect Conoco's acquisition of Gulf Canada Resources Limited on July 16, 2001 (as reported in Conoco's Current Report on Form 8-K filed on July 31, 2001, as amended on September 10, 2001), as if it had occurred on January 1, 2001. For an analysis of these pro forma adjustments, see the Supplemental Schedules on pages 12 though 16. For more detail, see the Form 8-K filings referenced above. This pro forma financial information is not intended to reflect results from operations or the financial position which would have actually resulted had the merger been effective on the dates indicated. Moreover, this pro forma information is not intended to be indicative of the results of operations or financial position which may be achieved by ConocoPhillips in the future. 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 materially differ from this pro forma financial information. 2 The unaudited pro forma condensed combined financial statements contain pro forma adjustments for the disposition of assets required by order of the U.S. Federal Trade Commission. They do not contain all pro forma adjustments for restructuring charges that will be required to fully integrate and operate the combined organization more efficiently, or anticipated synergies resulting from the merger. The preliminary purchase price allocation is subject to revision as more detailed analysis is completed and additional information on the fair value of Conoco's assets and liabilities becomes available. Final purchase accounting adjustments may therefore differ from the pro forma adjustments presented here. 3 ------------------------------------------------------------------------------------------------- Unaudited Pro Forma ConocoPhillips Combined Statement of Income
Millions of Dollars ------------------------------------------------------------------- Pro Forma ProForma Phillips Conoco Adjustments Purchase Year Ended as as for FTC Asset Accounting Pro Forma December 31, 2001 Adjusted* Adjusted* Dispositions Adjustments ConocoPhillips -------- -------- ------------- ----------- -------------- (a) (b) (c) Revenues Sales and other operating revenues $47,582 39,913 (1,609) (29)(d) 85,857 Equity in earnings of affiliates 41 178 - (20)(e) 199 Other income 103 751 (1) - 853 ------------------------------------------------------------------------------------------------- Total Revenues 47,726 40,842 (1,610) (49) 86,909 ------------------------------------------------------------------------------------------------- Costs and Expenses Purchased crude oil and products 29,976 23,304 (1,261) (13)(d) 52,006 Production and operating expenses 4,292 3,288 (114) (3)(d) 7,463 Selling, general and administrative expenses 1,290 924 (35) - 2,179 Exploration expenses 306 437 - - 743 Depreciation, depletion and amortization 1,586 1,858 (14) (141)(e)(f) 3,289 Property impairments 26 238 - (238)(g) 26 Taxes other than income taxes 5,602 6,988 (7) - 12,583 Accretion on discounted liabilities 23 - - 17 (h) 40 Interest and debt expense 448 574 - (122)(i) 900 Foreign currency transaction losses 11 65 - - 76 Preferred dividend requirements of capital trusts 53 - - - 53 ------------------------------------------------------------------------------------------------- Total Costs and Expenses 43,613 37,676 (1,431) (500) 79,358 ------------------------------------------------------------------------------------------------- Income before income taxes, extraordinary items and cumulative effect of changes in accounting principles 4,113 3,166 (179) 451 7,551 Provision for income taxes 1,986 1,455 (65) 235 (j) 3,611 ------------------------------------------------------------------------------------------------- Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 2,127 1,711 (114) 216 3,940 ================================================================================================= Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles Basic $ 5.59 2.74 5.84 Diluted 5.54 2.69 5.77 ------------------------------------------------------------------------------------------------- Average Common Shares Outstanding (in thousands) Basic 380,315 625,503 674,469 Diluted 383,637 635,094 682,636 ------------------------------------------------------------------------------------------------- See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. *Certain amounts have been reclassified to conform to ConocoPhillips' presentation.
4 ------------------------------------------------------------------------------------------------- Unaudited Pro Forma ConocoPhillips Combined Statement of Income
Millions of Dollars ----------------------------------------------------------------------- Pro Forma ProForma Six Months Ended Adjustments Purchase June 30, 2002 Historical Historical for FTC Asset Accounting Pro Forma Phillips* Conoco* Dispositions Adjustments ConocoPhillips ---------- ---------- ------------- ----------- -------------- (c) Revenues Sales and other operating revenues $20,930 17,556 (640) (14)(d) 37,832 Equity in earnings of affiliates 49 116 - (10)(e) 155 Other income 33 27 - - 60 ------------------------------------------------------------------------------------------------- Total Revenues 21,012 17,699 (640) (24) 38,047 ------------------------------------------------------------------------------------------------- Costs and Expenses Purchased crude oil and products 13,621 10,207 (539) (7)(d) 23,282 Production and operating expenses 1,810 1,475 (63) (9)(d) 3,213 Selling, general and administrative expenses 895 412 (13) - 1,294 Exploration expenses 230 176 - - 406 Depreciation, depletion and amortization 834 932 (7) (124)(e)(f) 1,635 Property impairments 18 - - - 18 Taxes other than income taxes 2,579 3,727 (3) - 6,303 Accretion on discounted liabilities 11 - - 9 (h) 20 Interest and debt expense 213 235 - (50)(i) 398 Foreign currency transaction (gains) losses (5) 20 - - 15 Preferred dividend requirements of capital trusts 24 - - - 24 ------------------------------------------------------------------------------------------------- Total Costs and Expenses 20,230 17,184 (625) (181) 36,608 ------------------------------------------------------------------------------------------------- Income before income taxes, extraordinary items and cumulative effect of change in accounting principle 782 515 (15) 157 1,439 Provision for income taxes 518 301 (6) 82 (j) 895 ------------------------------------------------------------------------------------------------- Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 264 214 (9) 75 544 ================================================================================================= Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles Basic $ .69 .34 .80 Diluted .69 .34 .79 ------------------------------------------------------------------------------------------------- Average Common Shares Outstanding (in thousands) Basic 383,130 627,328 677,284 Diluted 385,927 636,275 684,926 ------------------------------------------------------------------------------------------------- See Notes to Unaudited Pro Forma Financial Statements. *Certain amounts have been reclassified to conform to ConocoPhillips' presentation.
5 -------------------------------------------------------------------------------------------------- Unaudited Pro Forma Condensed ConocoPhillips Combined Balance Sheet
Millions of Dollars ----------------------------------------------------------------------- Pro Forma ProForma Adjustments Purchase At June 30, 2002 Historical Historical for FTC Asset Accounting Pro Forma Phillips* Conoco* Dispositions Adjustments ConocoPhillips ---------- ---------- ------------- ----------- -------------- (c) Assets Cash and cash equivalents $ 145 313 - - 458 Accounts and notes receivable 1,939 1,736 (51) - 3,624 Inventories 2,580 1,152 (62) 437 (e) 4,107 Prepaid expenses and other current assets 395 860 - - 1,255 -------------------------------------------------------------------------------------------------- Total Current Assets 5,059 4,061 (113) 437 9,444 Investments and long-term receivables 3,530 2,345 (1) 504 (e) 6,378 Net properties, plants and equipment 24,399 19,790 (301) (905)(e) 42,983 Goodwill 2,360 3,084 - 7,909 (e) 13,353 Intangibles 1,270 75 - 720 (e) 2,065 Other assets 205 399 (5) - 599 -------------------------------------------------------------------------------------------------- Total $36,823 29,754 (420) 8,665 74,822 ================================================================================================== Liabilities Accounts payable $ 3,214 2,238 (23) - 5,429 Notes payable and long-term debt due within one year 1,059 1,782 - - 2,841 Accrued income and other taxes 1,004 430 (5) - 1,429 Deferred income taxes - 230 (7) - 223 Other accruals 628 1,818 (3) 250 (k) 2,693 -------------------------------------------------------------------------------------------------- Total Current Liabilities 5,905 6,498 (38) 250 12,615 Long-term debt 8,576 8,240 - 363 (i) 17,179 Accrued dismantlement, removal and environmental costs 1,263 641 - (344)(f)(h) 1,560 Deferred income taxes 4,205 4,676 (47) (568)(e) 8,266 Employee benefit obligations 967 679 - 688 (l) 2,334 Other liabilities and deferred credits 1,101 1,032 (7) 36 (d)(m) 2,162 -------------------------------------------------------------------------------------------------- Total Liabilities 22,017 21,766 (92) 425 44,116 -------------------------------------------------------------------------------------------------- Company-Obligated Mandatorily Redeemable Preferred Securities and Other Minority Interests 350 843 - - 1,193 -------------------------------------------------------------------------------------------------- Total Common Stockholders' Equity 14,456 7,145 (328) 8,240(n)(o) 29,513 -------------------------------------------------------------------------------------------------- Total $36,823 29,754 (420) 8,665 74,822 ================================================================================================== See Notes to Unaudited Pro Forma Financial Statements. *Certain amounts have been reclassified to conform to ConocoPhillips' presentation.
6 ----------------------------------------------------------------- Notes to Unaudited Pro Forma ConocoPhillips Financial Statements (a) The Phillips historical income statement information for the year ended December 31, 2001, has been adjusted on a pro forma basis to reflect the acquisition of Tosco Corporation on September 14, 2001, as if it had occurred on January 1, 2001. The significant pro forma adjustments that were made for the acquisition of Tosco were: o Estimated income statement impact resulting from the purchase price allocation to the Tosco assets and liabilities acquired--for example, changes in depreciation due to the step-up of the properties, plants and equipment to fair value; o The conforming of Tosco's accounting policies to those of Phillips; and o An increase in average common shares outstanding for stock and stock options issued in the acquisition. For additional information on this transaction, see the Unaudited Supplemental Pro Forma Combined Statement of Income--Phillips as Adjusted on pages 12 and 13. (b) The Conoco historical income statement information for the year ended December 31, 2001, has been adjusted on a pro forma basis to reflect the acquisition of Gulf Canada Resources Limited on July 16, 2001, as if it had occurred on January 1, 2001. The significant pro forma adjustments that were made for the acquisition of Gulf Canada were: o Estimated income statement impact resulting from the purchase price allocation to the Gulf Canada assets and liabilities acquired--for example, increased depreciation due to the step-up of the properties, plants and equipment to fair value; o The conforming of Gulf Canada's accounting policies to those of Conoco, including the conversion from Canadian GAAP to United States GAAP and Canadian dollars to U.S. dollars; and o An increase in interest expense due to the debt incurred to fund the acquisition. For additional information on this transaction, see the Unaudited Supplemental Pro Forma Combined Statement of Income--Conoco as Adjusted on pages 14 through 16. 7 (c) On August 30, 2002, the U.S. Federal Trade Commission (FTC) accepted for public comment an Agreement Containing Consent Orders (Consent Agreement) that permitted Conoco and Phillips to close the merger. This Consent Agreement included a proposed Decision and Order that required, among other things, the divestiture of specified Conoco and Phillips assets. These assets include: o Phillips' Woods Cross business unit, which includes the Woods Cross, Utah, refinery and associated Phillips motor fuel marketing operations (both retail and wholesale) in Utah, Idaho, Wyoming, and Montana, as well as Phillips' 50 percent interests in two refined products terminals in Boise and Burley, Idaho; o Conoco's Commerce City, Colorado, refinery; o Phillips' Colorado motor fuel marketing operations (both retail and wholesale); o Phillips' refined products terminal in Spokane, Washington; o Phillips' propane terminal assets at Jefferson City, Missouri, and East St. Louis, Illinois, which include the propane portions of these terminals and the customer relationships and contracts for the supply of propane therefrom; o Certain of Conoco's midstream natural gas gathering and processing assets in southeast New Mexico; and o Certain of Conoco's midstream natural gas gathering assets in West Texas. No pro forma adjustments have been made to reflect any anticipated gain or loss from the disposition of these assets, as the method of disposition and sales proceeds are not known, but any such effect is not expected to be material with respect to financial position or liquidity in any given period. Additionally, no pro forma adjustments have been made to reflect any earnings benefit from the reinvestment of any proceeds which might be recovered, or reduction of debt which may arise as a consequence of the asset dispositions required under the consent agreement. (d) Primarily reflects the elimination of a deferred credit arising from a prior year settlement for future price modifications to a U.K. long-term natural gas sales contract, as well as the revaluation of certain other long- term contracts to their fair value. 8 (e) The following is a preliminary estimate of the purchase price for Conoco on a purchase accounting basis: Number of shares of ConocoPhillips common stock issued to holders of Conoco common stock in the exchange ............ 294.15 million Multiplied by Phillips' average stock price two days before and two days after the date the merger was announced........ x $53.15 -------- $15,634 million Fair value of Conoco stock options exchanged for 23.3 million ConocoPhillips stock options............................ 384 million Estimated transaction-related costs........ 50 million ------- Purchase price............................. $16,068 million ======= The pro forma income statement adjustments reflect the estimated effects of depreciating and amortizing these purchase accounting adjusted balances in properties, plants and equipment; equity method investments; and identifiable intangible assets with definite lives, over their estimated useful lives. The preliminary assessment of fair values results in $11 billion of goodwill (which, when added to Phillips' historical goodwill of $2.4 billion, equals ConocoPhillips' pro forma goodwill of $13.4 billion) and $652 million of intangible assets with indefinite lives, both of which will be subject to periodic impairment testing. In determining the fair values for purposes of allocating the purchase price, an outside appraisal firm was engaged to estimate the fair values of Conoco's properties, plants and equipment; investments in certain affiliates accounted for under the equity method of accounting; and intangible assets. The appraisal firm used a variety of methods to estimate these fair values, including comparable market data, asset replacement costs, royalty relief, and the net present value of expected cash flows, discounted at rates varying from 8 percent to 16 percent. Included in goodwill is $4.3 billion that offsets net deferred tax liabilities arising from differences between the allocated financial bases and historical tax bases of the Conoco net assets. Due to the non-taxable nature of this transaction, Conoco's tax basis in its assets carries over to ConocoPhillips. 9 (f) Under Phillips' accounting policy and current prevalent industry practice for the acquisition of oil and gas businesses, ConocoPhillips will not record an initial liability for the estimated costs of removing Conoco's properties, plants and equipment at the end of their useful lives. Instead, currently estimated total undiscounted removal costs of $691 million will be accrued as an additional component of future depreciation, building the liability for removal over the remaining useful lives of the properties, plants and equipment on a unit-of-production basis. (g) Reverses property impairments recorded by Conoco, as the assets would have been adjusted to fair value as part of the purchase price allocation. (h) Includes the impact of conforming accounting policies and discounting Conoco's environmental liabilities and recording the corresponding accretion over time. (i) Reflects the restatement of Conoco's fixed-rate debt to fair value and the corresponding reduction in interest expense as the resulting premium is amortized. Also reflects the capitalization of interest based on the estimated fair value of Conoco's qualifying assets of $1.7 billion using a weighted-average interest rate of 6.2 percent. (j) Reflects the estimated federal and state income tax effects of the pro forma adjustments to Conoco's pretax income using a blended statutory rate of 52 percent. (k) Includes an accrued liability of $250 million for the estimated costs, as a result of the merger, to terminate or relocate Conoco employees and to exit certain Conoco activities. Similar costs for Phillips employees and activities, which will also be incurred as a result of the merger, are not included in this amount and will be accrued separately and reported as an expense in the third-quarter 2002 financial results of ConocoPhillips. (l) Reflects the adjustment to increase Conoco's pension and other post-retirement benefit obligations to the estimated difference between projected benefit obligations and plan assets. (m) Reflects the impact of adjusting to the fair value of certain long-term liabilities and deferred credits. 10 (n) Included in the preliminary assessment of the fair value of Conoco was an estimated $246 million for the value of in- process research and development projects. Under generally accepted accounting principles, this value would be charged against earnings immediately after consummation of the merger. Due to the non-recurring nature of this one-time charge, the pro forma statements do not include this charge. The after-tax effect of the charge is reflected in the pro forma balance sheet as a reduction in common stockholders' equity. (o) Reflects the exchange of outstanding Conoco common stock, the issuance of 294.15 million shares of ConocoPhillips common stock, and the effect of ConocoPhillips' stock options issued in the exchange to Conoco stock option holders. 11 Supplemental Schedules ----------------------------------------------------------------------- Unaudited Supplemental Pro Forma Phillips as Adjusted Combined Statement of Income Millions of Dollars ------------------------------ Phillips Phillips as Historical* Tosco* Adjusted Year Ended December 31, 2001 ---------- ----- -------- Revenues Sales and other operating revenues $ 26,729 20,853 47,582 Equity in earnings of affiliates 41 - 41 Other income 98 5(A) 103 ----------------------------------------------------------------------- Total Revenues 26,868 20,858 47,726 ----------------------------------------------------------------------- Costs and Expenses Purchased crude oil and products 14,535 15,441 29,976 Production and operating expenses 2,688 1,604(B) 4,292 Selling, general and administrative expenses 946 344 1,290 Exploration expenses 306 - 306 Depreciation, depletion and amortization 1,391 195(B) 1,586 Property impairments 26 - 26 Taxes other than income taxes 3,258 2,344 5,602 Accretion on discounted liabilities 14 9(C) 23 Interest and debt expense 338 110(D) 448 Foreign currency transaction losses 11 - 11 Preferred dividend requirements of capital trusts 53 -(E) 53 ----------------------------------------------------------------------- Total Costs and Expenses 23,566 20,047 43,613 ----------------------------------------------------------------------- Income before income taxes, extraordinary items and cumulative effect of changes in accounting principles 3,302 811 4,113 Provision for income taxes 1,659 327(F) 1,986 ----------------------------------------------------------------------- Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 1,643 484 2,127 ======================================================================= Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles Basic $ 5.61 5.59 Diluted 5.57 5.54 ----------------------------------------------------------------------- Average Common Shares Outstanding (in thousands) Basic 292,964 380,315 Diluted 295,016 383,637 ----------------------------------------------------------------------- See Notes to Phillips as Adjusted Unaudited Supplemental Pro Forma Combined Financial Statements. *Certain amounts have been reclassified to conform to ConocoPhillips' presentation. 12 ------------------------------------------------------------------ Notes to Unaudited Supplemental Phillips as Adjusted Pro Forma Combined Statement of Income For the Year Ended December 31, 2001 The Phillips income statement for the year ended December 31, 2001, has been adjusted on a pro forma basis to reflect the acquisition of Tosco on September 14, 2001, as if it was consummated January 1, 2001. The Tosco information is presented on a pro forma basis and has been adjusted as described below. Footnotes referenced from the statement follow: (A) Includes $28 million for the reversal of a deferred gain on Tosco's balance sheet that was not subject to any future performance requirement, along with the related amortization of the deferred gain. (B) Includes adjustments related to the purchase price allocation, such as changes to depreciation resulting from asset re- valuations, as well as adjustments to conform Tosco's accounting policies to those of Phillips. (C) Reflects the impact of adjusting and discounting Tosco's environmental liabilities and recording the corresponding accretion over time. (D) Reflects the restatement of Tosco debt to fair value and the corresponding $14 million reduction in interest expense as the resulting premium is amortized. (E) Reflects the February 2001 conversion of Tosco's company- obligated, mandatorily redeemable, convertible preferred securities into 9.1 million shares of Tosco common stock. (F) Includes the estimated federal and state income tax effects of the pro forma adjustments to Tosco's pretax income using a blended statutory rate of 40 percent. 13 Supplemental Schedules ----------------------------------------------------------------------- Unaudited Supplemental Pro Forma Conoco as Adjusted Combined Statement of Income Millions of Dollars ---------------------------------- Conoco Conoco Gulf Canada as Historical* (U.S. GAAP)* Adjusted Year Ended December 31, 2001 ---------- ----------- -------- Revenues Sales and other operating revenues $38,737 1,176 39,913 Equity in earnings of affiliates 181 (3) 178 Other income 727 24 751 ----------------------------------------------------------------------- Total Revenues 39,645 1,197 40,842 ----------------------------------------------------------------------- Costs and Expenses Purchased crude oil and products 23,043 261(A) 23,304 Production and operating expenses 3,053 235 3,288 Exploration expenses 378 59(B) 437 Selling, general and administrative expenses 888 36 924 Depreciation, depletion and amortization 1,614 244(C) 1,858 Property impairments 238 - 238 Taxes other than income taxes 6,983 5 6,988 Accretion on discounted liabilities - - - Interest and debt expense 396 178(D) 574 Foreign currency transaction losses 65 - 65 Preferred dividend requirements of capital trusts - - - ----------------------------------------------------------------------- Total Costs and Expenses 36,658 1,018 37,676 ----------------------------------------------------------------------- Income before income taxes, extraordinary items and cumulative effect of changes in accounting principles 2,987 179 3,166 Provision for income taxes 1,391 64(E) 1,455 ----------------------------------------------------------------------- Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $1,596 115 1,711 ======================================================================= Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles Basic $ 2.55 2.74 Diluted 2.51 2.69 ----------------------------------------------------------------------- Average Common Shares Outstanding (in thousands) Basic 625,503 625,503 Diluted 635,094 635,094 ----------------------------------------------------------------------- See Notes to Conoco as Adjusted Unaudited Supplemental Pro Forma Combined Financial Statements. *Certain amounts have been reclassified to conform to ConocoPhillips' presentation. 14 ------------------------------------------------------------------ Notes to Supplemental Unaudited Conoco as Adjusted Pro Forma Combined Statement of Income For the Year Ended December 31, 2001 The Conoco income statement for the year ended December 31, 2001, has been adjusted on a pro forma basis to reflect the acquisition of Gulf Canada on July 16, 2001, as if it was consummated January 1, 2001. The Gulf Canada information is presented on a pro forma basis and has been adjusted as described below. Footnotes referenced from the statement follow: (A) Includes $11 million for the recognition of Gulf Canada's preferred stock dividend. Gulf Canada reflected preferred stock in the stockholders' equity section of the balance sheet, while Conoco reflected these shares as a minority interest after the acquisition because such shares represent preferred stock of a subsidiary. (B) Includes $2 million of incremental undeveloped leasehold amortization expense based on the estimated fair value of the undeveloped leaseholds acquired. (C) Includes $31 million of incremental depreciation, depletion and amortization expense for Gulf Canada and Crestar Energy Inc., a company acquired by Gulf Canada on November 6, 2000, based on the step-up to estimated fair value of these assets assuming the acquisition occurred on January 1, 2001. Oil and gas properties were depreciated on a unit-of-production basis using estimated proved reserve quantities attributable to Gulf Canada. (D) Includes $108 million of additional pro forma interest expense related to the borrowing of $4.5 billion to fund the Gulf Canada acquisition. This entry assumes that the borrowing occurred on January 1, 2001. Interest expense calculations are based on Conoco's $4,500 million senior unsecured 364-day bridge credit facility used to fund the acquisition. Interest expense was calculated using an effective interest rate of approximately 4.76 percent. This rate was based on a July 1, 2001, LIBOR three-month rate of approximately 3.83 percent. Conoco refinanced the $4.5 billion, 364-day bridge credit facility in the capital markets in October 2001. 15 (E) Includes an $82 million income tax benefit related to purchase price adjustments, that was calculated using a blended statutory rate of 43 percent for cost and expense items (with the exception of interest expense, which was calculated using a rate of 58 percent reflecting the deductibility of interest expense in both Canada and the United States). 16 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. CONOCOPHILLIPS /s/ Rand C. Berney October 1, 2002 ----------------------------- Rand C. Berney Vice President and Controller 17