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Mini Case s gathering and pro- This Mini Case is available in MyFinanceLab. Phillips Petroleum is an integrated oil and gas company with headquarters in Bartle...... Oklahoma, where it was founded in 1917. The company engages in petroleum eva tion and production worldwide. In addition, it engages in natural gas gathering cessing, as well as petroleum refining and marketing primarily in the United States company has three operating groups: Exploration and Production, Gas and Gas 1 : and Downstream Operations, which encompasses Petroleum Products and Chemi hillips engaged in a maior restructuring following two failed "Ps. One led by T. B e ing and the other by Carl Ichan. The re- th a $4.5 billion plan to exchange a package of cash and debt se- at the company's shares and to sell 52 billion worth of assets. mm debt increased from 34 billion in late 1984 to a peak of $8.5 billion In the mid-1980s, Phillips engaged takeover attempts, one led by structuring resulted in a $4.5 billion pla curities for roughly half the compan Phillips's long-term debt increased in April 1985. During 1992, Phillips was able to stre Its subsidiary Phillips Gas Company A 9.32% cumulative preferred stoc reductions, the company lowered its ing 5 years from 75 percent to 55 percent dollars of its debt at reduced rates. A compa ratio is still on the high side, and we'll keep debt is manageable, and we're beyon the downsizing and reorganization sary Financial Informatic ps was able to strengthen its financial structure dramatically. "ps Gas Company completed an offering of $3,5 million of Series dve preferred stock. As a result of this action and prior years debt company lowered its long-term debt-to-capital ratio over the preced- percent to 55 percent. In addition, the firm refinanced over a billion of its debt at redused a n yolor i dOur debt-to-capital on the high side, and we'll keep working to bring it down. But the cost of anageable, and we're beyond the point where debt overshadows everything else we do." highlights of Phillips's financial e dition from 1996 to 1992 are found in the ac- panying table. These data reflect the company's financial restructuring following lancial Information for Philips Petroleum Corporation 15R 1992 sizing and reorganization of Phillips's operations begun in the mid-19805. Dollar Exeo for Per Share Figures 1916 1987 1988 1989 1990 S10016.00 $10.917.00 $11 12 13 icone 17500 $13.259. 00 2280 2 21 650.00 219,00 541,00 98.00 270.00 0.89 0.06 272 0 2 .18 0.39 1.04 Diest assets 2802.00 2.855.00 3.052.00 2875.00 2022.00 245900 2.349.00 Ital assets 12.403.00 12.111.00 11.968.00 11.256.00 12,130.00 11.473.00 11.458.00 Content liabilities 2.234.00 240200 2 45800 2706.00 2910.00 2,503.00 2.517.00 Long-term debt 8.175. 7.887. 00 7 38700 6 418.00 5.505.00 5.113.00 1 5 .894.00 Total liabilities 10.409.00 10.289.00 985500 9.12400 9.411.00 8.716.00 8.411.00 Peferred stock 270.00 205.00 0.00 0.00 0.00 0.00 359.00 Connon equity 1,724.00 1,617.00 2.113.00 2132.00 2719.00 2.757.00 2.698.00 Dividends per share 2021731340.00 1. 03 1 .12 1.12 Sara. Based on Philips al reports for 1986 to 1992 Phillips's managers are currently developing its financial plans for 1993 through 1997 and want to develop a forecast of its financing requirements. As a first approxi- mation, they have asked you to develop a model that can be used to make "ballpark" estimates of the firm's financing needs under the proviso that existing relationships found in the firm's financial statements remain the same over the period. Of par- ticular interest is whether Phillips will be able to further reduce its reliance on debt financing. You may assume that Phillips's projected sales for 1993 through 1997 are as follows: $13,000;$13,500: $14,000; $14,500; and $15,500 Project net income for 1993 to 1997 using the percent of sales method based on an average of this ratio for 1986 to 1992. b. Project total assets and current liabilities for 1993 to 1997 using the percent of sales method and your sales projections from part (a). Assuming that common equity increases only as a result of the retention of earnings and holding long-term debt and preferred stock equal to its 1992 bal- grilor ances, project Phillips's discretionary financing needs for 1993 to 1997. (Hint: Assume that total assets and current liabilities vary as a percentage of sales as per your answers to part (b). In addition, assume that Phillips plans to con tinue to pay its dividends of $1.12 per share in each of the next 5 years.) This discussion is based on a story in the New York Times. January 7, 1986 "From SEC Online, 1992 Mini Case s gathering and pro- This Mini Case is available in MyFinanceLab. Phillips Petroleum is an integrated oil and gas company with headquarters in Bartle...... Oklahoma, where it was founded in 1917. The company engages in petroleum eva tion and production worldwide. In addition, it engages in natural gas gathering cessing, as well as petroleum refining and marketing primarily in the United States company has three operating groups: Exploration and Production, Gas and Gas 1 : and Downstream Operations, which encompasses Petroleum Products and Chemi hillips engaged in a maior restructuring following two failed "Ps. One led by T. B e ing and the other by Carl Ichan. The re- th a $4.5 billion plan to exchange a package of cash and debt se- at the company's shares and to sell 52 billion worth of assets. mm debt increased from 34 billion in late 1984 to a peak of $8.5 billion In the mid-1980s, Phillips engaged takeover attempts, one led by structuring resulted in a $4.5 billion pla curities for roughly half the compan Phillips's long-term debt increased in April 1985. During 1992, Phillips was able to stre Its subsidiary Phillips Gas Company A 9.32% cumulative preferred stoc reductions, the company lowered its ing 5 years from 75 percent to 55 percent dollars of its debt at reduced rates. A compa ratio is still on the high side, and we'll keep debt is manageable, and we're beyon the downsizing and reorganization sary Financial Informatic ps was able to strengthen its financial structure dramatically. "ps Gas Company completed an offering of $3,5 million of Series dve preferred stock. As a result of this action and prior years debt company lowered its long-term debt-to-capital ratio over the preced- percent to 55 percent. In addition, the firm refinanced over a billion of its debt at redused a n yolor i dOur debt-to-capital on the high side, and we'll keep working to bring it down. But the cost of anageable, and we're beyond the point where debt overshadows everything else we do." highlights of Phillips's financial e dition from 1996 to 1992 are found in the ac- panying table. These data reflect the company's financial restructuring following lancial Information for Philips Petroleum Corporation 15R 1992 sizing and reorganization of Phillips's operations begun in the mid-19805. Dollar Exeo for Per Share Figures 1916 1987 1988 1989 1990 S10016.00 $10.917.00 $11 12 13 icone 17500 $13.259. 00 2280 2 21 650.00 219,00 541,00 98.00 270.00 0.89 0.06 272 0 2 .18 0.39 1.04 Diest assets 2802.00 2.855.00 3.052.00 2875.00 2022.00 245900 2.349.00 Ital assets 12.403.00 12.111.00 11.968.00 11.256.00 12,130.00 11.473.00 11.458.00 Content liabilities 2.234.00 240200 2 45800 2706.00 2910.00 2,503.00 2.517.00 Long-term debt 8.175. 7.887. 00 7 38700 6 418.00 5.505.00 5.113.00 1 5 .894.00 Total liabilities 10.409.00 10.289.00 985500 9.12400 9.411.00 8.716.00 8.411.00 Peferred stock 270.00 205.00 0.00 0.00 0.00 0.00 359.00 Connon equity 1,724.00 1,617.00 2.113.00 2132.00 2719.00 2.757.00 2.698.00 Dividends per share 2021731340.00 1. 03 1 .12 1.12 Sara. Based on Philips al reports for 1986 to 1992 Phillips's managers are currently developing its financial plans for 1993 through 1997 and want to develop a forecast of its financing requirements. As a first approxi- mation, they have asked you to develop a model that can be used to make "ballpark" estimates of the firm's financing needs under the proviso that existing relationships found in the firm's financial statements remain the same over the period. Of par- ticular interest is whether Phillips will be able to further reduce its reliance on debt financing. You may assume that Phillips's projected sales for 1993 through 1997 are as follows: $13,000;$13,500: $14,000; $14,500; and $15,500 Project net income for 1993 to 1997 using the percent of sales method based on an average of this ratio for 1986 to 1992. b. Project total assets and current liabilities for 1993 to 1997 using the percent of sales method and your sales projections from part (a). Assuming that common equity increases only as a result of the retention of earnings and holding long-term debt and preferred stock equal to its 1992 bal- grilor ances, project Phillips's discretionary financing needs for 1993 to 1997. (Hint: Assume that total assets and current liabilities vary as a percentage of sales as per your answers to part (b). In addition, assume that Phillips plans to con tinue to pay its dividends of $1.12 per share in each of the next 5 years.) This discussion is based on a story in the New York Times. January 7, 1986 "From SEC Online, 1992

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