Filed by Conoco Inc.
Pursuant to Rule 425 under the
Securities Act of 1933
Subject Company: Conoco Inc.
Commission File No.: 001-14521
Subject Company: Phillips
Petroleum Company
Commission File No.: 001-00720
Set forth below is the transcript of the Afternoon with Archie teleconference
held on December 13, 2001 regarding various issues, including the proposed
Conoco/Phillips merger.
* * *
The following text contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. These statements are based on management's current expectations
and beliefs and are subject to a number of factors and uncertainties that
could cause actual results to differ materially from those described in the
forward-looking statements. The forward-looking statements contained in the
following text include statements about future financial and operating results
and the proposed Conoco/Phillips merger. These statements are not guarantees
of future performance, involve certain risks, uncertainties, and assumptions
that are difficult to predict, and are based upon assumptions as to future
events that may not prove accurate. Therefore, actual outcomes and results may
differ materially from what is expressed herein.
In any forward-looking statement in which Conoco expresses an expectation
or belief as to future results, such expectation or belief is expressed in
good faith and believed to have a reasonable basis, but there can be no
assurance that the statement or expectation or belief will result or be
achieved or accomplished. The following factors, among others, could cause
actual results to differ materially from those described in the
forward-looking statements: the risk that Conoco's and Phillips' businesses
will not be integrated successfully; costs related to the proposed merger;
failure of the Conoco or Phillips stockholders to approve the proposed merger;
and other economic, business, competitive and/or regulatory factors affecting
Conoco's and Phillips' businesses generally as set forth in Conoco's and
Phillips' filings with the SEC, including their Annual Reports on Form 10-K
for the fiscal year ended 2000, especially in the Management's Discussion and
Analysis section, their most recent Quarterly Reports on Form 10-Q and their
Current Reports on Form 8-K. Conoco is under no obligation to (and expressly
disclaims any such obligation to) update or alter its forward-looking
statements whether as a result of new information, future events or otherwise.
In connection with the proposed Conoco/Phillips merger, Conoco, Phillips
and CorvettePorsche Corp. (which will be renamed ConocoPhillips in connection
with the proposed merger) will file a joint proxy statement/prospectus with
the Securities and Exchange Commission (the "SEC"). INVESTORS AND SECURITY
HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE
PROPOSED MERGER WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT
INFORMATION. Investors and security holders may obtain a free copy of the
joint proxy statement/prospectus (when it is available) and other documents
filed by Conoco with the SEC at the SEC's web site at www.sec.gov. The joint
proxy statement/prospectus (when it is available) and these other documents
may also be obtained for free from Conoco by calling Conoco at 281-293-6800,
and through Conoco's web site at www.conoco.com.
Conoco and its executive officers and certain other members of management
and employees may be soliciting proxies from its stockholders in favor of the
proposed merger. Information regarding the persons who may, under the rules of
the SEC, be considered to be participants in the solicitation of Conoco's
stockholders in connection with the proposed Conoco/Phillips merger is set
forth in Conoco's proxy statement for a special meeting of stockholders, dated
August 8, 2001 and filed with the SEC on August 3, 2001. Additional
information will be set forth in the joint proxy statement/prospectus when it
is filed with the SEC.
* * *
Rachel: Good afternoon ladies and gentlemen and thank you for standing
by. Welcome to the Afternoon with Archie conference call. At
this time our participants are in a listen-only mode. Following
the formal presentation, instructions will be given for the
question and answer session. If anyone needs assistance at any
time during the conference, please press the star followed by
the zero for an operator. As a reminder, this conference is
being recorded today, Thursday, December 13, 2001. I would now
like to turn the conference over to Mr. Tom Henkel, Vice
President of Investor Relations for Conoco. Please go ahead,
sir.
Thomas Henkel: Thank you Rachel and thanks everybody for joining us in this
next in the continuing series of conversations with our
Chairman and CEO, Afternoons with Archie. This call will last
about 30 minutes. I know Archie's prepared a couple of minutes
of interesting opening comments about a number of topics
including the Conoco/Phillips merger and after that he'll
take, he'll take your questions. So without further ado,
Archie.
Archie Dunham: Thank you, Tom. Hopefully it will be interesting but I won't
promise that; but I do appreciate each of you being on-line
today. I think this is a unique way to communicate with our
investors and hopefully if you agree you'll let Tom know and
we'll keep doing it and if you have no value for it we'll stop
doing it. But, it's been a great year for Conoco. Either our
best or our second best year from an earnings perspective in
the history of the company. We've had a fantastic performance
by our downstream organization. I think that most of you know
we earn more during the first three quarters of the year in
downstream than any previous year and the return on capital
employed in downstream continues to be top quartile if not
number one in the world. We entered the third quarter with the
very successful acquisition of Gulf Canada which is the largest
M&A transaction in the history of Canada, six and a half
billion dollars. It really allowed us to significantly increase
our natural gas production, increase our production and our
reserves in North America as well as Southeast Asia, really
positioned us well in Southeast Asia long-term and so we
continue to be extremely pleased with our Gulf Canada
acquisition and as most of you know, that was accretive to
earnings in the third quarter. And then, in October you
approved the collapse of the A and B shares into a single class
of stock. I think the market has received that in a very
positive way and then we found that about a month later, on
November 18th, with the announcement of the merger between
Conoco and Phillips which is the largest merger of equals, I
know in the energy industry, and possibly in corporate
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America. And so it's been a real exciting year, we continue to
be very pleased with the response of the market on our
Conoco/Phillips merger. As you probably know, the Conoco stock
is up about 11% versus our peer companies which is up 2% since
the announcement. And so the initial reaction has been very
positive. We are absolutely convinced that we're creating a
great company, a new international major. It's gonna create,
it's gonna be accretive to both earnings and cash in the first
twelve months of its history. It really allows us to be
significantly larger in Southeast Asia as well as North America
and so we continue to be very, very pleased with the prospects
of this merger. We've announced a seven hundred and fifty
million dollar synergies target, I think that's low. And
hopefully over the next several months, as our integration team
continues to do its work, we'll be able to increase the amount
of synergies. It positions us really well from a balance sheet
perspective, it reduces our debt to capitalization to 33 or 34%
so it puts us in a great position from that respect and we
continue to know and have confidence that it's gonna be an
outstanding merger. And so, kind of with those high points
about what's happening in the last six or nine months, let's
open it up to your questions. As always, you're free to ask
anything that's on your mind. I'll try to be responsive to your
questions, if I don't have a precise answer and it's one that
we can give the information on ... if I can't answer it, I'll
have Tom Henkel get back with you and give you a precise
answer, so who's gonna be first?
Rachel: Thank you sir. Ladies and gentlemen, at this time we will begin
the question and answer session. If you have a question, please
press the star followed by the one on your push button phone.
If you would like to decline from the calling process please
press the star followed by the two. You will hear a three tone
prompt acknowledging your selection and your questions will be
polled in the order received. If you are using speaker
equipment today, you will need to lift the handset before
pressing the numbers. One moment please for the first question.
Mark Gilman, please state your company name followed by your
question.
Mark Gilman: First Albany. Hello Archie.
Archie Dunham: Mark.
Mark Gilman: Archie, I preface this question by suggesting and I'd
assume you'd accept this - that we are in the midst of and
perhaps entering a fairly difficult business environment for
the industry. And at the same time taking recognition of the
fact that the exchange ratio implicit in the Phillips merger is
basically fixed, therefore leaving you in the
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position, you and your shareholders, in the position of
accepting .4677 Phillips shares, however those shares would
happen to be priced given the environment. I'm curious, with
those assumptions, what provisions exist for you to potentially
renegotiate the terms of the merger should you see that to be
necessary or alternately what provisions exist for you to walk
away from it?
Archie Dunham: Well to be quite honest Mark, I can't remember what we finally
ended up with around that particular issue. Obviously we don't
anticipate that occurring but I can see theoretically how it
could occur. I'll let Tom get back with you, I mean we just
need to look at the S-4, it's been filed, but I can't remember
precisely, those things were changing in the last 96 hours as
we were redoing a lot of the provisions of the merger
agreement. So, rather than let me try to remember what we ended
up with, let Tom get back with you and tell you precisely what
we had.
Mark Gilman: Okay, if I could, just one other that's a little bit more
specific and direct. Archie, you suggest a series of
financially oriented objectives and targets, particularly with
respect to balance sheets and divestitures in the wake of the
Gulf Canada acquisition earlier this year. I'm a bit curious in
the context the pendency of the merger. Do you continue to
proceed with these Conoco-oriented balance sheet-oriented
targets or do you reassess them in the context of a pro forma
merged balance sheet from the standpoint of the two companies?
Archie Dunham: We've really done both Mark. We have successfully sold about
700 million dollars of upstream and downstream assets since the
closing of the Gulf Canada acquisition. We originally told you
we were going to dispose of about a billion or a billion and a
half. We have another, I think it's 400 hundred million dollars
planned for early next year. So that will bring in something
slightly above a billion dollars that we currently have in our
EO and capital budget in our plans for next year. But we plan
to stop at that point - you know a billion, billion one,
billion two, rather than proceeding ahead with a billion and a
half by the middle of next year and we've done that precisely
for the reason that you mentioned, that rather than continue to
dispose, especially of any upstream assets, we want to hold up
and look at the total portfolio of both Conoco and Phillips
before we continue to sell assets.
Mark Gilman: Okay, thanks Archie.
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Archie Dunham: But the billion or billion one that we either have sold or will
sell by early next year are those that we feel, without
question, should be shuffled in our portfolio.
Mark Gilman: Thanks a lot.
Archie Dunham: You bet.
Rachel: Paul Cheng, please state your company name followed by your
question.
Paul Cheng: Lehman Brothers. Hi Archie.
Archie Dunham: Hi Paul.
Paul Cheng: Several quick questions. First, I don't know if it's a good
format to ask, Enron what is your net exposure right now and is
there any provision that we will see in the fourth quarter and
also that the remaining unrealized hedging gain because I
suppose that you guys have been unwinding some of your
position, how big of a position, hedging position has been
unwind? Secondly, on the pending merger with Phillips, does
that mean, you have indicated that the other sales program is
going to be changed somewhat, does that also mean that your
capital spending program for 2002 will have a change compared
to what you have indicated during your analysts' meeting about
a month ago? And then, lastly, is there any comment you can
make related to Gulf Indonesia?
Archie Dunham: Ok, ah, let me kind of do them backwards, Paul. First of all,
our position on Gulf Indonesia is the same. We're focusing now
on integrating the Gulf Canada acquisition in its totality, we
have walls up around Conoco Indonesia and Gulf Indonesia to
make sure that they're managed separately for the benefit of
their respective shareholders, so we have just made no change
there. The second question around capital budget, our capital
budget was approved by our board on Tuesday. It's exactly what
we told you it was going to be at the analysts' meeting, it's
about $2.8 billion so there's no change there versus, even in
anticipation of the merger with Phillips. The first question
you asked about our exposure to Enron, I think we have publicly
said that our exposure is less than or significantly less than
ten million dollars, and so we were very successful in
unwinding a lot of positions very early in the process and our
people did a great job there.
Paul Cheng: If that means that, ah, Archie, sorry to beat a dead horse on
that. Seriously, I think that we've been expecting to see a
substantial hedging benefit in 2002 when you're unwinding those
positions given you being in the money so
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I presume you cannot continue to or then reinitiate the hedging
based on what you had before so the hedging gain will be
realized in the fourth quarter but not in next year? I presume
that will be the case.
Archie Dunham: Well I don't want to talk about next year but clearly we will
have, uh, depending on what happens to the market in the next
two weeks, we anticipate, you know, substantial gains in the
fourth quarter from our hedging operation.
Thomas Henkel: Paul, this is Tom Henkel, just to make sure that you
understood, when Archie said we unwound a lot of our positions
with Enron, that is true, but we, none of the hedging that we
did as part of Gulf Canada was with Enron and none of that has
been unwound, so it's still all in place.
Paul Cheng: Ok, so your hedging is still in place?
Thomas Henkel: Yes.
Archie Dunham: Yes. I'm sorry, I was just really referring to some of the
transactions we had with Enron that had nothing to do with Gulf
Canada.
Paul Cheng: Ok, so all the hedges that you put associated with Gulf Canada
is still in place.
Archie Dunham: Absolutely.
Paul Cheng: Ok, very good, thank you.
Rachel: Our next question comes from Don Niemann, state your company
name followed by your question.
Don Niemann: Institutional Capital. Hi Archie and Tom.
Archie Dunham: Hi Don.
Thomas Henkel: Don, how you doing?
Don Niemann: Is there a date yet set for or an approximate date set for the
shareholders' vote on the Phillips/Conoco merger and when do
you think an announcement of the key managerial positions will
be made?
Archie Dunham: The earliest date, I think, that we can anticipate for the
shareholders' meeting would be the month of February and
obviously that depends on the response we get out of the
regulators in Washington, specifically the SEC. And yes we will
announce the management team in advance of asking the
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shareholders to vote. So, Jim and I are working on that issue
as we speak and we actually were working on it before we
consummated the merger and I feel very optimistic that the
institutions will be pleased with the management team. We've
made a commitment, we're going to pick the best people. It's
not necessarily, you know, a kind of a balance or 50/50 with
respect to management, instead we're going to pick the best
people.
Don Niemann: Well, I would, as a comment, just reiterate that I
think that is obviously the way to go and there are a lot of
good people on both sides of the table here and I think an
important consideration for investors will be in fact
choosing the right people for the right slots.
Archie Dunham: I think we all agree with that Don, on both sides.
Don Niemann: Okay, thanks a lot guys.
Archie Dunham: Thank you, appreciate your support.
Rachel: Ladies and gentlemen, if there are any additional questions,
please press the star followed by the one at this time. As a
reminder, if you are using speaker equipment, you will need to
lift the handset before pressing the numbers. Gentlemen, they
have no further questions at this time, please continue.
Archie Dunham: Okay, in closing, just let me say that we appreciate your
support. Again, we're looking forward to consummating the
merger with Phillips as quickly as possible. Hopefully, we can
get that done in the early part of the second half of next
year. That's certainly going to be our target, we have an
integration team in place, announced and working as we speak
and we're already making tremendous progress; and I'm
optimistic; as I said earlier, that the synergies that we will
achieve will grow even higher than what we announced at the
time of the merger. This continues to be an outstanding
opportunity, I think, for both the Conoco and the Phillips
shareholder. We're going to show the street that a merger of
equals can be successful and Jim and I are looking forward to
that opportunity. So, thank all of you for being on the line
today. I hope you and your families have a joyous holiday
season and we look forward to visiting with you sometime in the
first quarter. So have a great holiday.