Phillips Petroleum is an integrated oil and gas company with headquarters in Bartlesville, Oklahoma, where it was founded in 1917. The company engages in petroleum exploration and production worldwide. In addition, it engages in natural gas gathering and processing, as well as petroleum refining and marketing primarily in the United States. The company has three operating groups: Exploration and Production, Gas and Gas Liquids, and Downstream Operations, which encompasses Petroleum Products and Chemicals.

In the mid-1980s, Phillips engaged in a major restructuring following two failed takeover attempts, one led by T. Boone Pickins and the other by Carl Icahn. The restructuring resulted in a $4.5 billion plan to exchange a package of cash and debt securities for roughly half the company's shares and to sell $2.0 billion worth of assets. Phillips' long-term debt increased from $3.4 billion in late 1984 to a peak of $8.6 billion in April 1985.

During 1992, Phillips was able to strengthen its financial structure dramatically. Its subsidiary Phillips Gas Company completed an offering of $345 million of Series A 9.32% cumulative preferred stock. As a result of this action and prior years' debt reductions, the company lowered its long-term debt-to-capital ratio over the past 5 years from 75 percent to 55 percent. In addition, the firm refinanced over a billion dollars of its debt at reduced rates. A company spokesman said, "Our debt-to-capital ratio is still on the high side, and we'll keep working to bring it down. But the cost of debt is manageable, and we're beyond the point where debt overshadows everything else we do."

Highlights of Phillips' financial condition from 1986 to 1992 are found in the accompanying table:

These data reflect the company's financial restructuring following the downsizing and reorganization of Phillips' operations began in the mid-1980s.

Phillips' managers are currently developing its financial plans for the next 5 years and want to develop a forecast of its financing requirements. As a first approximation, 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 particular interest is whether Phillips will be able to further reduce its reliance on debt financing. You may assume that Phillips' projected sales (in millions) for 1993 through 1997 are as follows: $13,000; $13,300; $14,200; ; $14,400 and $15,300

a. 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.

c. 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 balances, project Phillips' 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 continue to pay its dividends of $1.12 per share in each of the next 5 years. The number of shares outstanding at the end of 1992 is 259,615, 385 shares

a. Project net income for 1993 to 1997 using the percent of sales method based on an average of this ratio for 1986 to 1992.

The projected net income for 1993 is ____ million (Round to the nearest integer.)

The projected net income for 1994 is ____ million (Round to the nearest integer.)

The projected net income for 1995 is ____ million (Round to the nearest integer.)

The projected net income for 1996 is ____ million (Round to the nearest integer.)

The projected net income for 1997 is ____ million (Round to the nearest integer.)

b. Project total assets and current liabilities for 1993 to 1997 using the percent of sales method and your sales projections from part

The projected total assets for 1993 are ____ million (Round to the nearest integer.)

The projected total assets for 1994 are ____ million (Round to the nearest integer.)

The projected total assets for 1995 are ____ million (Round to the nearest integer.)

The projected total assets for 1996 are ____ million (Round to the nearest integer.)

The projected total assets for 1997 are ____ million (Round to the nearest integer.)

The projected current liabilities for 1993 are ____ million (Round to the nearest integer.)

The projected current liabilities for 1994 are ____ million (Round to the nearest integer.)

The projected current liabilities for 1995 are ____ million (Round to the nearest integer.)

The projected current liabilities for 1996 are ____ million (Round to the nearest integer.)

The projected current liabilities for 1997 are ____ million (Round to the nearest integer.)

c. 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 balances, project Phillips' 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 continue to pay its dividends of $1.12 per share in each of the next 5 years.)

The projected discretionary financing needed for 1993 is ____ million (Round to the nearest integer.)

The projected discretionary financing needed for 1994 is ____ million (Round to the nearest integer.)

The projected discretionary financing needed for 1995 is ____ million (Round to the nearest integer.)

The projected discretionary financing needed for 1996 is ____ million (Round to the nearest integer.)

The projected discretionary financing needed for 1997 is ____ million (Round to the nearest integer.)

- Data table (Click on the following icon in order to copy its contents into a spreadsheet.) 1990 1991 1992 $13,975 541 $13,259 98 $12,140 270 2.18 0.38 1.04 Summary Financial Information for Phillips Petroleum Corporation: 1986 to 1992 (in Millions of Dollars Except for per Share Figures) 1986 1987 1988 1989 Sales $10,018 $10,917 $11,490 $12,492 Net income 228 35 650 219 EPS 0.89 0.06 2.72 0.90 Current assets 2,802 2,855 3,062 2,876 Total assets 12,403 12,111 11,968 11,256 Current liabilities 2,234 2,402 2,468 2,706 Long-term debt 8,175 7,887 7,387 6,418 Total liabilities 10,409 10,289 9,855 9,124 Preferred stock 270 205 0 0 Common equity 1,724 1,617 2,113 2,132 Dividends per share 2.02 1.73 1.34 0.00 Source: Phillips annual reports for 1986 to 1992. 3,322 12,130 2,910 6,505 9,411 0 2,719 2,459 11,473 2,503 6,113 8,716 2,349 11,468 2,517 5,894 8,411 359 2,698 1.12 0 2,757 1.12 1.03