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): JULY 16, 2001
CONOCO INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-14521 (51-0370352)
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
600 NORTH DAIRY ASHFORD ROAD
HOUSTON, TEXAS 77079
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: 281-293-1000
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
1) The following are filed as Exhibit 99.1 to this Current Report on
Form 8-K/A:
(a) Management's Responsibility for Financial Statements.
(b) Auditor's Report on the consolidated financial statements of Gulf
Canada Resources Limited as at December 31, 2000 and 1999 and for
the three-year period ended December 31, 2000.
(c) Consolidated Statements of Earnings (Loss) and Retained Earnings
(Deficit) of Gulf Canada Resources Limited for the years ended
December 31, 2000, 1999 and 1998;
(d) Consolidated Statements of Cash Flows of Gulf Canada Resources
Limited for the years ended December 31, 2000, 1999 and 1998;
(e) Consolidated Statements of Financial Position of Gulf Canada
Resources Limited as of December 31, 2000 and 1999;
(f) Accompanying Summary of Significant Accounting Policies and Notes
to Consolidated Financial Statements of Gulf Canada Resources
Limited; and
(g) Unaudited Supplemental Information of Gulf Canada Resources
Limited.
2) The following are filed as Exhibit 99.2 to the Current Report on
Form 8-K/A:
(a) Unaudited Consolidated Statements of Earnings and Retained
Earnings (Deficit) of Gulf Canada Resources Limited for the three
months and six months ended June 30, 2001 and 2000;
(b) Unaudited Consolidated Statements of Cash Flows of Gulf Canada
Resources Limited for the three months and six months ended
June 30, 2001 and 2000;
(c) Unaudited Consolidated Statements of Financial Position of Gulf
Canada Resources Limited as of June 30, 2001 and December 31,
2000; and
(d) Accompanying Notes to Unaudited Interim Consolidated Financial
Statements of Gulf Canada Resources Limited.
(b) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements have
been prepared to illustrate the estimated effect of the acquisition of
Gulf Canada Resources Limited (Gulf Canada) on Conoco Inc. (Conoco) under
the purchase method of accounting. The unaudited pro forma condensed
balance sheet assumes that the transaction was consummated on June 30,
2001. The unaudited pro forma condensed statements of income for the year
ended December 31, 2000 and the six months ended June 30, 2001 assume that
the transaction was consummated on January 1, 2000. The unaudited pro
forma condensed statement of income for the year ended December 31, 2000
also gives effect to the acquisition (that closed effective November 6,
2000) of Crestar Energy Inc. (Crestar) by Gulf Canada as if the
acquisition had occurred on January 1, 2000. The unaudited pro forma
condensed financial statements should be read in conjunction with the
historical financial statements of Conoco and Gulf Canada, including the
notes thereto, included elsewhere in this Current Report on Form 8-K/A.
The unaudited pro forma condensed financial statements do not reflect any
anticipated cost savings or any synergies that are anticipated to result
from the Gulf Canada acquisition as there can be no assurance that any
such cost savings or synergies will occur.
These financial statements do not purport to represent what the
results of operations or financial position of Conoco would actually have
been if the acquisition had in fact occurred on such dates or project the
results of operations or financial position of Conoco for any future date
or period. Additionally, the unaudited pro forma condensed statements of
income exclude non-recurring charges made in the third quarter of 2001
resulting from the consummation of the transaction. These unaudited pro
forma condensed financial statements are presented in accordance with
U.S. GAAP under the successful efforts method of accounting for oil and
gas properties.
1
This Current Report on Form 8-K/A includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. You can identify these forward-looking
statements by the words "expects," "intends," "plans," "projects," "believes,"
"estimates" and similar expressions. These statements are not guarantees of
future performance, involve certain risks, uncertainties and assumptions we
cannot predict, and are based upon assumptions as to future events that may not
prove accurate. Among the factors that could cause such differences are:
. changes in crude oil and natural gas prices;
. changes in refining and marketing margins;
. potential failure to achieve, and potential delays in achieving, expected
reserve or production levels from existing and future oil and gas
development projects due to operating hazards, drilling risks and the
inherent uncertainties in interpreting engineering data relating to
underground accumulations of oil and gas;
. unsuccessful exploratory drilling activities;
. failure of new products and services to achieve market acceptance;
. unexpected delays and difficulties in constructing or repairing company
manufacturing and refining facilities;
. unexpected difficulties in manufacturing, transporting or refining
synthetic crude oil;
. general domestic and international economic and political conditions;
. the ability to meet government regulations;
. potential disruption or interruption of our facilities due to accidents or
political events;
. international monetary conditions and exchange controls;
. liabilities for remedial actions under environmental regulations;
. liability resulting from litigation; and
. changes in tax and other laws applicable to our business.
2
CONOCO INC.
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
GULF CANADA
CONOCO HISTORICAL* PRO FORMA PRO FORMA
HISTORICAL (U.S. GAAP) CRESTAR (a5) ADJUSTMENTS CONDENSED
------------- -------------- -------------- --------------------- -----------
(IN MILLIONS, EXCEPT PER SHARE)
Revenues
Sales and other operating revenues............. $ 38,737 $ 1,464 $ 473 $ -- $ 40,674
Equity in earnings of affiliates............... 277 (25) -- -- 252
Other income................................... 273 66 -- -- 339
------------- -------------- -------------- --------------- -----------
Total revenues............................... 39,287 1,505 473 -- 41,265
------------- -------------- -------------- --------------- -----------
Costs and expenses
Cost of goods sold............................. 23,921 301 -- -- 24,222
Operating expenses............................. 2,215 329 80 -- 2,624
Selling, general & administrative expenses..... 794 33 22 -- 849
Exploration expenses........................... 279 90 14 (16) (a3) 367
Depreciation, depletion and amortization....... 1,301 269 106 176 (a1) 1,852
Taxes other than on income..................... 6,981 5 -- -- 6,986
Interest and debt expense...................... 338 184 37 217 (a2) 776
Minority interest.............................. -- 23 -- 22 (a6) 45
------------- -------------- -------------- --------------- -----------
Total costs and expenses..................... 35,829 1,234 259 399 37,721
------------- -------------- -------------- --------------- -----------
Income before income taxes...................... 3,458 271 214 (399) 3,544
Provision for income taxes...................... 1,556 200 102 (204) (a4) 1,654
------------- -------------- -------------- --------------- -----------
Net income...................................... $ 1,902 $ 71 $ 112 $ (195) $ 1,890
============= ============== ============== =============== ===========
Earnings per share
Basic.......................................... $ 3.05 $ 3.03
Diluted........................................ $ 3.00 $ 2.99
Weighted-average number of shares
outstanding
Basic.......................................... 624 624
Diluted........................................ 633 633
___________________
* See note 3
See accompanying notes to unaudited pro forma condensed financial statements.
3
CONOCO INC.
PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
GULF CANADA
CONOCO HISTORICAL* PRO FORMA PRO FORMA
HISTORICAL (U.S. GAAP) ADJUSTMENTS CONDENSED
------------- -------------- --------------------- -----------
(IN MILLIONS, EXCEPT PER SHARE)
Revenues
Sales and other operating revenues................. $ 20,795 $ 1,176 $ -- $ 21,971
Equity in earnings of affiliates................... 80 (3) -- 77
Other income....................................... 145 24 -- 169
------------- -------------- --------------- -----------
Total revenues.................................... 21,020 1,197 -- 22,217
------------- -------------- --------------- -----------
Costs and expenses
Cost of goods sold................................. 12,756 243 -- 12,999
Operating expenses................................. 1,314 235 -- 1,549
Selling, general & administrative expenses......... 404 36 -- 440
Exploration expenses............................... 93 57 2 (a3) 152
Depreciation, depletion and amortization........... 691 213 31 (a1) 935
Taxes other than on income......................... 3,374 5 -- 3,379
Interest and debt expense.......................... 142 70 108 (a2) 320
Minority interest.................................. -- 7 11 (a6) 18
------------- -------------- --------------- -----------
Total costs and expenses.......................... 18,774 866 152 19,792
------------- -------------- --------------- -----------
Income before income taxes and accounting change.... 2,246 331 (152) 2,425
Provision for income taxes.......................... 1,078 146 (82) (a4) 1,142
------------- -------------- --------------- -----------
Income before accounting change..................... $ 1,168 $ 185 $ (70) $ 1,283
============= ============== =============== ===========
Earnings per share before accounting change
Basic.............................................. $ 1.87 $ 2.05
Diluted............................................ $ 1.84 $ 2.02
Weighted-average number of shares outstanding
Basic.............................................. 625 625
Diluted............................................ 636 636
_________________
* See note 3
See accompanying notes to unaudited pro forma condensed financial statements.
4
CONOCO INC.
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 2001
(UNAUDITED)
GULF CANADA
CONOCO HISTORICAL* PRO FORMA PRO FORMA
HISTORICAL (U.S. GAAP) ADJUSTMENTS CONDENSED
------------- -------------- ------------------------- -----------
(IN MILLIONS)
ASSETS
Current assets
Cash and cash equivalents.......................... $ 593 $ 253 $ -- $ 846
Cash restricted in use............................. -- 51 -- 51
Accounts and notes receivables..................... 1,767 292 -- 2,059
Inventories........................................ 977 29 -- 1,006
Prepaid expenses and other current assets.......... 663 81 77 (b1) 821
------------- -------------- --------------- -----------
Total current assets.............................. 4,000 706 77 4,783
Net property, plant and equipment................... 12,089 4,860 (4,860) (b2)
5,815 (b3) 17,904
Investments in affiliates........................... 1,897 179 (34) (b10) 2,042
Goodwill............................................ -- -- 2,633 (b4) 2,633
Other and intangible assets......................... 639 75 (47) (b5,b6) 667
------------- -------------- --------------- -----------
Total assets........................................ $ 18,625 $ 5,820 $ 3,584 $ 28,029
============= ============== =============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................... $ 1,668 $ 279 $ -- $ 1,947
Short-term borrowings and capital lease
obligations....................................... 63 -- -- 63
Income and other taxes payable..................... 682 1 -- 683
Current portion of long-term debt.................. -- 126 -- 126
Current portion of long-term liabilities........... -- 21 -- 21
Other current liabilities.......................... 1,290 108 110 (b9)
3,850 (b7)
51 (b8) 5,409
------------- -------------- --------------- -----------
Total current liabilities......................... 3,703 535 4,011 8,249
Long-term borrowings and capital lease obligations.. 4,300 1,447 99 (b14)
650 (b7) 6,496
Deferred income taxes............................... 2,089 1,467 509 (b11) 4,065
Other liabilities and deferred credits.............. 1,910 198 (65) (b12) 2,043
------------- -------------- --------------- -----------
Total liabilities................................. 12,002 3,647 5,204 20,853
------------- -------------- --------------- -----------
Minority interest................................... 154 172 381 (b15) 707
Stockholders' equity
Class A common stock, $.01 par value............... 2 -- -- 2
Class B common stock, $.01 par value............... 4 -- -- 4
Gulf Canada's preferred stock...................... -- 381 (381) (b15) --
Common stock....................................... -- 1,994 (1,994) (b13) --
Additional paid-in capital......................... 4,948 9 (9) (b13) 4,948
Retained earnings (deficit)........................ 2,402 (363) 363 (b13) 2,402
Accumulated other comprehensive income (loss)...... (782) (20) 20 (b13) (782)
Treasury stock, at cost............................ (105) -- -- (105)
------------- -------------- --------------- -----------
Total stockholders' equity........................ 6,469 2,001 (2,001) 6,469
------------- -------------- --------------- -----------
Total liabilities and stockholders' equity.......... $ 18,625 $ 5,820 $ 3,584 $ 28,029
============= ============== =============== ===========
_____________________
* See note 3
See accompanying notes to unaudited pro forma condensed financial statements.
5
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
1. BASIS OF PRESENTATION
The unaudited pro forma condensed statements of income of Conoco for the
year ended December 31, 2000, and the six months ended June 30, 2001, and the
unaudited pro forma condensed balance sheet as of June 30, 2001 (collectively
the unaudited pro forma condensed financial statements) have been prepared to
illustrate the estimated effect of the acquisition of Gulf Canada on Conoco
under the purchase method of accounting. The unaudited pro forma condensed
statements of income have been prepared as if the acquisition of Gulf Canada by
Conoco had occurred on January 1, 2000. The unaudited pro forma condensed
statement of income for the year ended December 31, 2000 also gives effect to
the acquisition (that closed effective November 6, 2000) of Crestar by Gulf
Canada as if the acquisition had occurred on January 1, 2000. The unaudited pro
forma condensed balance sheet has been prepared as if the acquisition had
occurred on June 30, 2001. The unaudited pro forma condensed financial
statements should be read in conjunction with the historical financial
statements of Conoco and Gulf Canada, including the notes thereto, included
elsewhere in this Current Report on Form 8-K/A.
The unaudited pro forma condensed financial statements do not purport to
represent what the results of operations or financial position of Conoco would
actually have been if the acquisition had in fact occurred on such dates or to
project the results of operations or financial position of Conoco for any future
date or period. Additionally, the unaudited pro forma condensed statements of
income exclude non-recurring charges made in the third quarter of 2001 resulting
from the consummation of the transaction. The pro forma adjustments are based
upon currently available information and contain certain estimates and
assumptions. Management believes the estimates and assumptions provide a
reasonable basis for presenting the significant effects of the acquisition, and
that the pro forma adjustments give appropriate effect to these estimates and
assumptions and are properly applied in the unaudited pro forma condensed
financial statements. The purchase price allocation is subject to changes as
additional information becomes available including the identification and
valuation of intangible assets. Management does not believe the final purchase
price allocation will differ materially from the estimated purchase price
allocation or that any adjustments to identifiable intangible assets would
materially affect related statement of income amortization expense. These
unaudited pro forma condensed financial statements are presented in accordance
with U.S. GAAP under the successful efforts method of accounting for oil and gas
properties.
2. PRO FORMA ADJUSTMENTS
The following is a description of each of the pro forma adjustments.
(a) Unaudited Pro Forma Condensed Statements of Income
1. Incremental depreciation, depletion and amortization expense for
Gulf Canada and Crestar based on the step-up to estimated fair
value of the assets assuming the acquisition occurred on January 1,
2000. Oil and gas properties are depreciated on a unit-of-
production basis using estimated proved reserve quantities
attributable to Gulf Canada.
2. Additional pro forma interest expense related to the borrowing of
$4,500 necessary to fund the Gulf Canada acquisition. This entry
assumes that the borrowing occurred on January 1, 2000. Interest
expense calculations are based on Conoco's $4,500 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. A 1/8th
percent change in the effective interest rate would change interest
expense by $6 for the year ended December 31, 2000 and $3 for the
six months ended June 30, 2001. Conoco intends to refinance the
364-day bridge credit facility of $4,500 in the capital markets
prior to its expiration.
3. Incremental undeveloped leasehold amortization expense based on
the estimated fair value of the undeveloped leaseholds acquired.
During 2000, Gulf Canada recorded an impairment of undeveloped
leaseholds, which has been reflected in the fair value allocated by
Conoco as of June 30, 2001. This resulted in a pro forma adjustment
to decrease amortization expense in the pro forma condensed income
statement for the year ended December 31, 2000.
6
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
4. Income tax benefit related to purchase price adjustments, which 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 U.S.
5. Estimated income effects of the Crestar acquisition by Gulf Canada
for the first ten months of 2000. Gulf Canada purchased Crestar
effective November 6, 2000. The historical consolidated financial
statements of Crestar were prepared under Canadian GAAP and in
Canadian dollars. The Crestar statement of income for the period
ended November 5, 2000 has been converted to U.S. GAAP using the
successful efforts method of accounting for oil and gas properties
and converted to U.S. dollars using the average exchange rate of
approximately .69 for the period ended November 5, 2000.
6. Recognition of Gulf Canada's preferred stock dividend. Gulf Canada
reflected preferred stock in the stockholders' equity section of
the balance sheet. Conoco reflects these shares as a minority
interest as after the acquisition such shares represent preferred
stock of a subsidiary.
(b) Unaudited Pro Forma Condensed Balance Sheet as of June 30, 2001
1. Adjustment primarily reflects an asset as of June 30, 2001
associated with cash collected by Gulf Canada between the July 1,
2001 accounting date of the business combination and the July 16,
2001 effective date for stock options exercised by Gulf Canada
employees. The shares issued upon exercise of these options were
issued and outstanding as of July 16, 2001 and therefore were
shares purchased by Conoco at the acquisition date.
2. Reversal of Gulf Canada's historical property, plant and equipment
balances and the related accumulated depreciation, depletion and
amortization.
3. Estimated fair value of Gulf Canada's property, plant and
equipment. Proved properties were valued at $4,192, unproved
properties at $1,526 and other properties and equipment at $97.
4. Goodwill associated with the acquisition of Gulf Canada pursuant to
the purchase method of accounting. Goodwill will be reviewed for
impairment under the rules of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to be Disposed of," until
adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" on
January 1, 2002.
5. This adjustment primarily relates to the reversal of deferred debt
issuance costs recorded on Gulf Canada's historical financial
statements. Gulf Canada's existing debt is adjusted to fair value.
6. Reflects preliminary assessment of fair value of identifiable
intangible assets of $7.
7. Conoco incurred additional debt to fund the Gulf Canada
acquisition. Conoco executed a $4,500 senior unsecured 364-day
bridge credit facility on June 29, 2001. The total amount of the
facility was drawn on July 16, 2001. The $4,500 debt is reflected
as $650 in long-term debt based on Conoco's five-year committed
credit facility with over two years remaining. The balance of
$3,850 is reflected as short-term debt in other current
liabilities. Conoco intends to refinance the 364-day bridge credit
facility of $4,500 in the capital markets prior to its expiration.
8. Additional debt incurred to fund the Gulf Canada acquisition.
9. Reflects an adjustment for certain fixed price physical commodity
contracts to their estimated fair values and the accrual of
acquisition related costs.
10. Adjustment of Gulf Canada's historical investment in affiliates,
primarily Petrovera Resources, to estimated fair values.
7
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
11. Reflects the pro forma deferred income tax effect of the fair value
adjustments related to the merger in accordance with the purchase
method of accounting.
12. Adjustment of Gulf Canada's historical liabilities primarily to
reflect the reversal of abandonment liabilities, which are included
in the fair values of the producing oil and gas properties
acquired.
13. Elimination of Gulf Canada's historical stockholders' equity in
accordance with the purchase method of accounting.
14. Adjust Gulf Canada's existing debt to fair value.
15. Gulf Canada reflected preferred stock in the stockholders' equity
section of the balance sheet. Conoco reflects these shares as a
minority interest as after the acquisition such shares represent
preferred stock of a subsidiary.
(c) Calculation and allocation of the purchase price to the assets acquired
and liabilities assumed based on their relative fair market values
CALCULATION OF THE PURCHASE PRICE FOR ASSETS ACQUIRED
Cash paid for stock purchased................................ $ 4,551
Other purchase price costs (e.g. fees, etc.)................. 20
-------
Total purchase price for common equity..................... 4,571
Plus fair market value of liabilities assumed
Current and other liabilities................................ 632
Debt......................................................... 1,672
Deferred tax................................................. 1,976
Minority interest............................................ 553
-------
Total liabilities and minority interest.................... 4,833
-------
Total purchase price for assets acquired....................... $ 9,404
=======
ALLOCATION OF PURCHASE PRICE FOR ASSETS ACQUIRED
Property, plant and equipment................................ $ 5,815
Goodwill..................................................... 2,633
All other assets, including intangibles...................... 956
-------
Total...........................................................$ 9,404
=======
The purchase price allocation is subject to changes as additional
information becomes available including the identification and
valuation of intangible assets. Management does not believe the final
purchase price allocation will differ materially from the estimated
purchase price allocation or that any adjustments to identifiable
intangible assets would materially affect related statement of income
amortization expense.
8
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
3. GULF CANADA'S PRO FORMA FINANCIAL STATEMENTS
The historical consolidated financial statements of Gulf Canada were prepared
under Canadian GAAP and in Canadian dollars. For these unaudited pro forma
condensed financial statements, the historical financial information of Gulf
Canada has been converted to U.S. GAAP, conformed to Conoco's presentation and
converted to U.S. dollars using the average exchange rates for the six month
period ended June 30, 2001 of .65 and for the year ended December 31, 2000 of
.67. The balance sheet was converted to U.S. dollars using a June 30, 2001
exchange rate of .66.
GULF CANADA RESOURCES LIMITED
PRO FORMA CONDENSED STATEMENT OF INCOME
CONVERSION TO U.S. GAAP AND U.S. DOLLARS
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------------------------
CANADIAN DOLLARS U.S. DOLLARS
------------------------------------------------------------------------------- --------------
GULF CANADA CANADIAN TO CONFORMING GULF CANADA GULF CANADA
HISTORICAL U.S. GAAP PRESENTATION HISTORICAL HISTORICAL
(CANADIAN GAAP) ADJUSTMENTS ADJUSTMENTS (U.S. GAAP) (U.S. GAAP)
---------------- -------------------- ---------------- -------------- -------------
Revenues
Net oil and gas................... $ 1,774 $ 411 (5,7) $ -- $ 2,185 $ 1,464
Equity in earnings of affiliates.. -- (38) (5) -- (38) (25)
Other............................. 24 (20) (5) 95 (10) 99 66
---------------- ------------- ---------------- -------------- ------------
Total revenues................... 1,798 353 95 2,246 1,505
---------------- ------------- ---------------- -------------- ------------
Costs and expenses
Cost of goods sold................ -- 449 (7) -- 449 301
Operating......................... 411 61 (5,7) 19 (9,11) 491 329
Exploration....................... 85 (2) (5) 52 (8) 135 90
General and administrative........ 45 5 (7) -- 50 33
Depreciation, depletion and
amortization..................... 579 (126) (3,5) (52) (8) 401 269
Taxes other than income........... -- -- 7 (9) 7 5
Net (gain) loss on asset disposals
and provision for other losses... (86) (9) (1,5) 95 (10) -- --
Pension settlement and
restructuring charges............ 4 22 (2) (26) (11) -- --
Finance charges, net.............. 277 (3) (5) -- 274 184
Income tax expense (recovery)..... 300 (1) (4) -- 299 200
Minority interest................. 35 -- -- 35 23
---------------- ------------- ---------------- -------------- ------------
Total costs and expenses......... 1,650 396 95 2,141 1,434
---------------- ------------- ---------------- -------------- ------------
Earnings (loss) for the year....... $ 148 $ (43) $ -- $ 105 $ 71
================ ============= ================ ============== ============
9
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
GULF CANADA RESOURCES LIMITED
PRO FORMA CONDENSED STATEMENT OF INCOME
CONVERSION TO U.S. GAAP AND U.S. DOLLARS
SIX MONTHS ENDED JUNE 30, 2001
-----------------------------------------------------------------------------------------------
CANADIAN DOLLARS U.S. DOLLARS
------------------------------------------------------------------------------- --------------
GULF CANADA CANADIAN TO CONFORMING GULF CANADA GULF CANADA
HISTORICAL U.S. GAAP PRESENTATION HISTORICAL HISTORICAL
(CANADIAN GAAP) ADJUSTMENTS ADJUSTMENTS (U.S. GAAP) (U.S. GAAP)
---------------- -------------------- ---------------- -------------- -------------
Revenues
Net oil and gas................... $ 1,406 $ 403 (5,7) $ -- $ 1,809 $ 1,176
Equity in earnings of affiliates.. -- (4) (5) -- (4) (3)
Other............................. 1 -- 36 (10) 37 24
---------------- ------------- ---------------- -------------- ------------
Total revenues.................. 1,407 399 36 1,842 1,197
---------------- ------------- ---------------- -------------- ------------
Costs and expenses
Cost of goods sold................ -- 374 (7) -- 374 243
Operating......................... 308 56 (5,7) (3) (9,11) 361 235
Exploration....................... 80 (2) (5) 10 (8) 88 57
General and administrative........ 51 5 (7) -- 56 36
Depreciation, depletion and
amortization..................... 372 (34) (3,5) (10) (8) 328 213
Taxes other than on income........ -- -- 7 (9) 7 5
Net (gain) loss on asset disposals
and provision for other
losses........................... -- (36) (1,6) 36 (10) -- --
Restructuring charges............. 4 -- (4) (11) -- --
Finance charges, net.............. 110 (2) (5) -- 108 70
Income tax expense................ 212 13 (4) -- 225 146
Minority interest................. 11 -- -- 11 7
---------------- ------------- ---------------- -------------- ------------
Total costs and expenses.......... 1,148 374 36 1,558 1,012
---------------- ------------- ---------------- -------------- ------------
Earnings........................... $ 259 $ 25 $ -- $ 284 $ 185
================ ============= ================ ============== ============
10
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
GULF CANADA RESOURCES LIMITED
PRO FORMA CONDENSED BALANCE SHEET
CONVERSION TO U.S. GAAP AND U.S. DOLLARS
JUNE 30, 2001
-------------------------------------------------------------------------------
CANADIAN DOLLARS U.S. DOLLARS
-------------------------------------------------------------- --------------
GULF CANADA CANADIAN TO GULF CANADA GULF CANADA
HISTORICAL U.S. GAAP HISTORICAL HISTORICAL
(CANADIAN GAAP) ADJUSTMENTS (U.S. GAAP) (U.S. GAAP)
--------------- -------------------------- -------------- -------------
ASSETS
Current Assets
Cash and short-term investments................ $ 386 $ (2) (5) $ 384 $ 253
Cash restricted in use......................... 78 (1) (5) 77 51
Accounts receivable............................ 487 (44) (5) 443 292
Other.......................................... 142 25 (5,6) 167 110
--------------- --------------- -------------- -------------
Total current assets.......................... 1,093 (22) 1,071 706
Net property, plant and equipment*.............. 7,773 (409) (3,5) 7,364 4,860
Investments in affiliates....................... -- 271 (5) 271 179
Investments, deferred charges and other assets.. 194 (81) (1) 113 75
--------------- --------------- -------------- -------------
Total assets.................................... $ 9,060 $ (241) $ 8,819 $ 5,820
=============== =============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................... $ 474 $ (52) (5) $ 422 $ 279
Income and other taxes payable................. -- 1 1 1
Current portion of long-term debt.............. 191 -- 191 126
Current portion of long-term liabilities....... 32 -- 32 21
Other.......................................... 115 48 (6) 163 108
--------------- --------------- -------------- -------------
Total current liabilities..................... 812 (3) 809 535
Long-term debt.................................. 2,193 -- 2,193 1,447
Other long-term liabilities..................... 313 (13) (2,5,6) 300 198
Future income taxes............................. 2,292 (66) (4,5) 2,226 1,467
Minority interest............................... 260 -- 260 172
--------------- --------------- -------------- -------------
Total liabilities............................. 5,870 (82) 5,788 3,819
--------------- --------------- -------------- -------------
Shareholders' equity
Senior preference shares....................... 577 -- 577 381
Ordinary shares................................ 3,021 -- 3,021 1,994
Contributed surplus............................ 14 -- 14 9
Retained earnings (deficit).................... (391) (159) (1,2,3,6) (550) (363)
Foreign currency translation adjustment........ (31) -- (31) (20)
--------------- --------------- -------------- -------------
Total shareholders' equity.................... 3,190 (159) 3,031 2,001
--------------- --------------- -------------- -------------
Total liabilities and shareholders' equity...... $ 9,060 $ (241) $ 8,819 $ 5,820
=============== =============== ============== =============
* The June 30, 2001 balance sheet of Gulf Canada included a separate line,
"Unallocated cost related to Crestar acquisition," of $450. For purposes of
these financial statements, this amount has been grouped with net property,
plant and equipment.
11
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
The following adjustments are necessary to restate Gulf Canada's historical
financial statements from Canadian GAAP to U.S. GAAP and conform Gulf Canada's
presentation to Conoco's presentation.
Canadian GAAP to U.S. GAAP adjustments in Canadian dollars
1. Under U.S. GAAP, unrealized gains or losses arising on translation of
long-term liabilities in foreign funds would be included in earnings in
the period in which they arise. The capitalized balance on Gulf Canada's
balance sheet of such losses was $75 at June 30, 2001 and $60 at
December 31, 2000.
2. Additional pension and post-retirement expenses of $22 for the year
ended December 31, 2000 and an additional liability of $10 at December
31, 2000 and June 30, 2001, recognized under U.S. GAAP.
3. U.S. GAAP requires that impaired assets (Petrovera Resources) be written
down to their fair value, rather than undiscounted future cash flows
from use. Accordingly, Gulf Canada would have recognized additional
impairment losses of $46 in 2000 and $123 in 1998, which in turn lowers
depreciation expense by $8 in 2001 and $14 in 2000.
4. The related tax impacts of all U.S. GAAP adjustments.
5. Gulf Canada accounts for certain companies with less than 100 percent
ownership using proportionate consolidation, whereas under U.S. GAAP,
these companies would be accounted for under the equity method of
accounting. There is no profit and loss impact to these line item
reclassifications.
6. Under U.S. GAAP, Gulf Canada would have been required to adopt SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," effective January 1, 2001. Gulf Canada has not
designated any of the derivatives it held at January 1, 2001 as hedges
under the provisions of these standards. The adoption of these standards
would have resulted in a pre-tax gain of $51 for the period ended
June 30, 2001 (exclusive of the cumulative effect adjustment) and the
recognition of $3 in assets and $62 in liabilities as of June 30, 2001.
7. Gulf Canada reported revenues net of purchase costs, transportation
costs and marketing fees. This entry is made to reflect revenues gross
and to reflect purchase costs, transportation costs and marketing fees
in the individual line items of cost of goods sold, operating expenses
and general and administrative expenses, respectively. There is no
profit and loss impact to these line item reclassifications.
Conforming adjustments to reclassify certain amounts in Gulf Canada's historical
financial statements to conform to Conoco's presentation
8. Gulf Canada reflected undeveloped leasehold amortization as
depreciation, depletion and amortization expense whereas Conoco reflects
undeveloped leasehold amortization as exploration expense, which is
consistent with U.S. oil and gas industry practices.
9. Gulf Canada reflected property taxes as other operating expenses whereas
Conoco reflects property taxes as taxes other than income taxes.
10. Gulf Canada reflected net (gain) loss on asset disposals and provision
for other losses in a cost and expense caption. Conoco would reflect
this activity in other revenues.
11. Conoco reflects pension settlements in operating costs whereas Gulf
Canada reported these costs separately.
12
PRO FORMA CONDENSED SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)
(DOLLARS IN MILLIONS)
ESTIMATED PROVED RESERVES
The following pro forma estimated reserve quantities, including equity
affiliates, show the effect of the acquisition of Gulf Canada as of December 31,
2000.
DECEMBER 31, 2000
---------------------------------------------------------
GULF
CONOCO CANADA
HISTORICAL HISTORICAL PRO FORMA
--------------- -------------- ----------------
Oil (in millions of barrels) (1)............................... 1,638 267 1,905
Gas (in billion cubic feet).................................... 6,053 2,800 8,853
_____________________
1) Oil reserves comprise oil and condensate and natural gas liquids
expected to be removed from natural gas deliveries.
ESTIMATED STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following pro forma estimated standardized measure of discounted future
net cash flows, including equity affiliates, shows the effect of the acquisition
of Gulf Canada as of December 31, 2000.
DECEMBER 31, 2000
---------------------------------------------------------
GULF
CONOCO CANADA
HISTORICAL HISTORICAL PRO FORMA
--------------- -------------- ----------------
Future cash flows
Revenues...................................................... $ 67,540 $ 17,631 $ 85,171
Production costs.............................................. (11,276) (2,856) (14,132)
Development costs............................................. (3,143) (914) (4,057)
Income tax expense............................................ (20,233) (5,058) (25,291)
--------------- -------------- ----------------
Future net cash flows.......................................... 32,888 8,803 41,691
Discounted to present value at 10% annual rate................. (15,112) (3,998) (19,110)
--------------- -------------- ----------------
Total.......................................................... $ 17,776 $ 4,805 $ 22,581
=============== ============== ================
Minority interest's share of standardized discounted net cash
flow relating to proved reserves.............................. $ -- $ 228 $ 228
=============== ============== ================
INFORMATION ON SYNCRUDE PROJECT NOT INCLUDED ABOVE
In addition to conventional liquids and natural gas proved reserves, Gulf
Canada has a 9.03 percent interest in the Syncrude project in Canada. Conoco
views the reserves associated with this project and their development as an
integral part of total upstream operations. However, U.S. Securities and
Exchange Commission regulations define these reserves as mining related and not
a part of conventional oil and gas reserves. The following is Gulf Canada's
share of reserves and estimated standardized measure of discounted future net
cash flows associated with the Syncrude project at December 31, 2000:
GULF
CANADA
HISTORICAL
--------------
Syncrude proved reserves at December 31, 2000 (in millions of barrels)............... 284
The following estimate of discounted future net cash flows was calculated
using December 31, 2000 unescalated prices and costs and a discount rate of 10
percent.
GULF
CANADA
HISTORICAL
--------------
Syncrude estimate of discounted future net cash flows................................ $ 663
13
(c) EXHIBITS
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
99.1 Audited Annual Financial Statements and Supplemental Information of
Gulf Canada Resources Limited for the year ended December 31, 2000.
99.2 Unaudited Interim Financial Statements of Gulf Canada Resources
Limited for the quarter ended June 30, 2001.
99.3 Conoco Inc.'s Audited 2000 Consolidated Financial Statements.
As required by Rule 3-10 of Regulation S-X, Conoco is re-filing its
December 31, 2000 financial statements to include note 29
(Subsequent Event) to the consolidated financial statements. The
note includes the following sentence: "Conoco intends to file a
registration statement to register debt securities, which would be
issued by Conoco Funding Company, a wholly owned finance subsidiary
organized in June 2001 and fully and unconditionally guaranteed by
the parent company, Conoco."
14
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, thereunto duly authorized.
CONOCO INC.
(Registrant)
By: /s/ W. DAVID WELCH
-------------------------------------------
W. David Welch
(As Duly Authorized Officer and
Principal Accounting Officer)
Date: September 7, 2001
15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
99.1 Audited Annual Financial Statements and Supplemental Information of
Gulf Canada Resources Limited for the year ended December 31, 2000.
99.2 Unaudited Interim Financial Statements of Gulf Canada Resources
Limited for the quarter ended June 30, 2001.
99.3 Conoco Inc.'s Audited 2000 Consolidated Financial Statements.
As required by Rule 3-10 of Regulation S-X, Conoco is re-filing its
December 31, 2000 financial statements to include note 29 (Subsequent
Event) to the consolidated financial statements. The note includes
the following sentence: "Conoco intends to file a registration
statement to register debt securities, which would be issued by
Conoco Funding Company, a wholly owned finance subsidiary organized
in June 2001 and fully and unconditionally guaranteed by the parent
company, Conoco."
16