FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-720
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PHILLIPS PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0400345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PHILLIPS BUILDING, BARTLESVILLE, OKLAHOMA 74004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918-661-6600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1.25 Par Value New York, Pacific and
Toronto Stock Exchanges
Preferred Share Purchase Rights
Expiring July 31, 1999 New York Stock Exchange
6.65% Notes Due March 1, 2003 New York Stock Exchange
7.20% Notes Due November 1, 2023 New York Stock Exchange
7.92% Notes Due April 15, 2023 New York Stock Exchange
8.49% Notes Due January 1, 2023 New York Stock Exchange
8.86% Notes Due May 15, 2022 New York Stock Exchange
9% Notes Due 2001 New York Stock Exchange
9.18% Notes Due September 15, 2021 New York Stock Exchange
9 3/8% Notes Due 2011 New York Stock Exchange
9 1/2% Notes Due 1997 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The registrant had 261,663,753 shares of Common Stock, $1.25 Par Value,
outstanding at February 28, 1995. The aggregate market value of voting stock
held by non-affiliates of the registrant was $8,710,521,893 as of February 28,
1995. The registrant, solely for the purpose of this required presentation,
has deemed its Board of Directors to be affiliates, and deducted from its
outstanding shares in determining the aggregate market value, their beneficial
stockholdings of 674,333 shares.
Documents incorporated by reference:
Proxy Statement for the Annual Meeting of Stockholders
on May 8, 1995 (Part III)
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TABLE OF CONTENTS
PART I
Item Page
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1. and 2. Business and Properties........................... 1
Corporate Structure and Current Developments.... 1
Segment and Geographic Information.............. 2
Exploration and Production (E&P).............. 2
Gas Gathering, Processing and Marketing (GPM). 9
Refining, Marketing and Transportation (RM&T). 10
Chemicals..................................... 13
Other......................................... 16
Competition..................................... 17
General......................................... 18
3. Legal Proceedings................................. 19
4. Submission of Matters to a Vote of
Security Holders................................ 19
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Executive Officers of the Registrant.............. 20
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters..................... 22
6. Selected Financial Data........................... 23
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... 24
8. Financial Statements and Supplementary Data....... 52
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 105
PART III
10. Directors and Executive Officers of the
Registrant...................................... 106
11. Executive Compensation............................ 106
12. Security Ownership of Certain Beneficial
Owners and Management........................... 106
13. Certain Relationships and Related Transactions.... 106
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................... 107
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PART I
(Unless otherwise indicated, "the company" and "Phillips" are
used in this report to refer to the business of Phillips
Petroleum Company and its consolidated subsidiaries.)
Items 1 and 2. BUSINESS AND PROPERTIES
CORPORATE STRUCTURE AND CURRENT DEVELOPMENTS
Phillips Petroleum Company was incorporated in the state of
Delaware on June 13, 1917. The company is headquartered where it
was founded in Bartlesville, Oklahoma. Phillips is engaged in
petroleum exploration and production on a worldwide basis,
natural gas gathering, processing and marketing, and petroleum
refining and marketing, primarily in the United States. The
company also produces and distributes chemicals in the United
States and overseas. The company has four business segments--
Exploration and Production (E&P), Gas Gathering, Processing and
Marketing (GPM), Refining, Marketing and Transportation (RM&T)
and Chemicals. Support staffs provide technical, professional
and other services to the business segments. At December 31,
1994, Phillips employed 18,400 people, 5 percent less than the
previous year.
On November 9, 1994, the Norwegian Parliament approved the
agreement reached in June 1994 between Phillips Petroleum Company
Norway, as operator for the Phillips Norway Group, and the
Norwegian Ministry of Industry and Energy regarding the
redevelopment of Ekofisk. The plan, named Ekofisk II, will allow
for the long-term recovery of Ekofisk field reserves.
Completion of the Judy platform in the J-Block area of the U.K.
North Sea is anticipated in 1995, with production start-up
scheduled for early 1996. In the South China Sea, the first of
two production platforms was set in 1994, and production began in
November. Peak production is expected in 1996.
The company and its co-venturers continued to conduct exploratory
and appraisal drilling and evaluate subsalt prospects in the Gulf
of Mexico. In the Cook Inlet of Alaska, potential development of
the Sunfish prospect remains under study.
The company's GPM operations continued to focus on strategic
expansion and growth of raw gas throughput and natural gas
liquids (NGL) production. An acquisition late in the year added
an NGL plant and 765 miles of gathering pipelines.
The company's domestic crude oil refineries exhibited sustained
operating consistency in 1994, running at 99 percent of restated
rated crude oil capacity. In addition, cost control measures and
new management techniques resulted in reduced operating costs.
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A stronger economy and industry supply-side disruptions resulted
in sharply increased demand in the company's chemicals business,
leading to higher production and sales volumes across most key
product lines. Expansion projects in several product lines
continued in 1994.
SEGMENT AND GEOGRAPHIC INFORMATION
Segment information concerning sales and other operating
revenues, earnings, total assets and additional information for
certain operations of the company in Note 17--Segment and
Geographic Information in the Notes to Financial Statements on
pages 82 through 85 is incorporated herein by reference.
Products which contributed more than 10 percent of consolidated
sales and other operating revenues follow:
1994 1993 1992
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Crude Oil
United States 17% 19 20
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Foreign 6 5 5
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Automotive Gasoline
United States 22 23 23
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Natural Gas
United States 11 11 9
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Foreign 3 3 4
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E&P
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The company's E&P segment explores for and produces crude oil,
natural gas and natural gas liquids on a worldwide basis and
produces coal in the United States. Producing areas include the
United States (which includes the Gulf of Mexico), the Norwegian
and U.K. sectors of the North Sea, Canada, Nigeria and offshore
China.
The information listed below appears in the oil and gas
operations disclosures on pages 86 through 103 and is
incorporated herein by reference.
o Proved worldwide crude oil, natural gas, and natural gas
liquids reserves.
o Net production of crude oil, natural gas liquids and
natural gas.
o Average sales prices of crude oil, natural gas
liquids and natural gas.
o Average production costs per equivalent barrel of oil.
o Developed and undeveloped acreage at year-end 1994.
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o Net wells completed, and wells in progress and
productive wells at year-end 1994.
In 1994, Phillips' net worldwide crude oil production averaged
206,000 barrels per day, compared with 203,000 barrels per day in
1993. In 1994, 90,000 barrels per day of worldwide crude oil
production was from the United States, down from 93,000 barrels
per day in 1993. The lower U.S. production was due to asset
sales and normal declines from mature fields, partly offset by
increased production in the Gulf of Mexico from the company's
Ship Shoal blocks 149/130. Foreign crude oil production was up
5 percent in 1994, due primarily to increased production from
Norway. Approximately half of the crude oil production increase
for E&P's Norway operations was from the Embla field, which
started production in mid-year 1993, and approximately half was
due to increased water injection rates, horizontal drilling, and
well recompletions in the Ekofisk and Eldfisk fields.
Net E&P production satisfied 58 percent of Phillips' crude oil
requirements in 1994, which consisted primarily of refinery crude
oil runs (317,000 barrels per day) and contractual supply
obligations (40,000 barrels per day). The deficiency between the
company's requirements and production was covered mainly by crude
oil purchases in the United States, from Saudi Arabia, and, to a
lesser extent, from Kuwait, Mexico and Venezuela. The ratio of
net crude oil production to requirements for 1995 is estimated at
59 percent, based on production forecasts of 219,000 barrels per
day and crude oil requirements of 370,000 barrels per day. As in
1994, purchases in the United States, from Saudi Arabia, and, to
a lesser degree, from Kuwait, Mexico and Venezuela are expected
to be the major sources for covering the shortage.
E&P's worldwide production of natural gas liquids averaged
14,000 barrels per day in 1994, up slightly from 1993. U.S.
production accounted for 5,000 barrels per day, while foreign
production added 9,000 barrels per day. The U.S. produced
liquids are generally used as feedstocks for the company's
refining and chemicals operations.
The company's worldwide production of natural gas averaged
1,414 million cubic feet per day in 1994, up 4 percent from 1993.
U.S. natural gas production was up 6 percent in 1994, to
1,035 million cubic feet per day. Higher production from the San
Juan Basin, New Mexico, and the South Marsh Island field, Gulf of
Mexico, contributed to the increased production. Foreign natural
gas production was down marginally in 1994, to 379 million cubic
feet per day. Loss of production due to asset sales was offset
by production from the Ann field in the U.K. North Sea.
Phillips' worldwide annual average crude oil sales price declined
7 percent in 1994, to $14.73 per barrel. Both U.S. and foreign
average prices were lower. E&P's average annual natural gas
sales prices were also lower, with average worldwide prices down
9 percent as a result of lower prices in both the United States
and abroad.
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The company's finding and development costs in 1994 were
$2.88 per barrel-of-oil-equivalent (BOE), with a five-year
average of $3.14 per BOE.
At December 31, 1994, Phillips held 22.8 million net developed
and undeveloped acres, a 23 percent decrease from year-end 1993's
29.5 million acres. The decrease in net acres is primarily
attributable to the release of acreage in Papua New Guinea,
Paraguay and Bolivia, partly offset by new acreage offshore
China. The company holds acreage in 15 nations, and produces in
six.
E&P - UNITED STATES
In September 1993, Phillips and its co-venturers announced an oil
discovery on the subsalt Mahogany prospect (Ship Shoal blocks
349/359) in the Gulf of Mexico, 80 miles offshore Louisiana. An
appraisal well, the Mahogany #2, was drilled during 1994. The
well tested at approximately 4,400 barrels of oil per day, along
with 5.3 million cubic feet per day of natural gas. Additional
appraisal drilling is under way. If continued appraisal drilling
is successful, production could begin in late 1996 or early 1997.
Phillips holds a 37.5 working interest in the Mahogany prospect.
Subsalt refers to hydrocarbon-bearing rock formations lying
beneath layers of salt. Phillips applied a new seismic data
interpretation method in 1993--three-dimensional (3-D) seismic
post-stack depth migration--that allows the study and meaningful
interpretation of subsalt formations. In 1994, the company
continued to improve this technology and added pre-stack
capabilities.
During the year, the company completed an exploratory well in
another subsalt prospect, the Teak prospect, located 50 miles
northeast of Mahogany in South Timbalier blocks 259, 260 and 283.
Further evaluation is under way on this prospect. The company
holds a 50 percent working interest in the Teak prospect.
Early in 1994, Phillips and co-venturers acquired interests in
nine additional subsalt blocks in the Gulf of Mexico, allowing
the company to continue to focus its exploration drilling on
subsalt prospects. Phillips also purchased a 37.5 percent
interest in the Alexandrite prospect, adjacent to the Mahogany
discovery. Approximately half of the company's North America
capital spending program for exploration is budgeted for subsalt
drilling.
Production is scheduled to begin in early 1995 from the Seastar
natural gas field, in the Garden Banks area of the Gulf of
Mexico, offshore Louisiana. A development plan using subsea well
completions is being implemented in this 100 percent owned field.
The company expects initial natural gas production to be
50 million cubic feet per day.
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Phillips continues to assess the reserves potential, development
costs and commercial potential of the Sunfish prospect, located
in the Cook Inlet of Alaska. Although the company's co-venturer
in the prospect announced that its analysis of well and seismic
data indicated that the prospect was not commercial on a stand-
alone basis, Phillips is proceeding with its current assessment
based on the assumption that development would occur from its
existing 100 percent owned Tyonek gas production platform.
Discussions are under way with the co-venturer concerning its
future intentions with respect to Sunfish, including possible
joint exploration and production activity from the Tyonek
platform, or the acquisition of the co-venturer's lease position
by Phillips. The assessments of the reserves and commercial
potential need to be completed, and the discussions with the
co-venturer need to be resolved, before any additional
exploration drilling can proceed.
Liquefied natural gas (LNG) sales from the company's Kenai,
Alaska, plant were up 12 percent in 1994, compared with 1993.
Through refrigeration and pressure techniques, the company
liquefies natural gas produced from the Cook Inlet field, and
transports the liquefied gas to Japan utilizing two LNG tankers.
The increased sales in 1994 are attributable to optimization of
the plant and the utilization of two new, larger capacity LNG
tankers that completed their first full year of service in 1994.
In early 1995, Phillips and a partner announced their intention
to form a jointly controlled partnership to transport crude oil
through pipelines from the Houston Gulf Coast area to refineries
and other markets in Texas and Oklahoma. The company and the co-
venturer will contribute assets to the partnership. Phillips
will contribute its Seagas natural gas pipeline to the
partnership, along with its Freeport II Dock facility and a
portion of its Jones Creek Tank Farm. A prerequisite for the
pipeline contribution will be the receipt of regulatory approval
to abandon gas service in the Seagas pipeline. This regulatory
approval is expected to be received in late 1995 or early 1996,
at which time the responsibility for this operation will be
transferred to the company's RM&T segment.
Net production from the company's three jointly owned coal mines
reached 3.26 million tons in 1994. The mines are located in
Louisiana, Texas and Wyoming. Phillips has a 50 percent interest
in each of these mines, and is pursuing the development of
additional mines.
E&P - NORWAY
On November 9, 1994, the Norwegian Parliament approved the
agreement reached in June 1994 between Phillips Petroleum Company
Norway, as operator for the Phillips Norway Group, and the
Norwegian Ministry of Industry and Energy regarding the
redevelopment of the Ekofisk field production facility in the
5
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Norwegian North Sea. The plan projects significantly reduced
operating costs and will allow long-term recovery of Ekofisk
field reserves.
Additional information included in Management's Discussion and
Analysis on pages 42 and 43 concerning the Ekofisk redevelopment
is incorporated herein by reference.
E&P - UNITED KINGDOM
The Judy platform, in the J-Block area of the U.K. North Sea, is
expected to be installed in mid-1995. Production from the
J-Block development, which includes the Joanne field, is expected
to start in early 1996. The Joanne field will be developed using
subsea well completions, tied to the Judy platform. The Judy
platform will have capacity to provide processing for nearby
developments. Phillips' interest in the Judy and Joanne fields
is 36.5 percent.
The Maria well discovered oil in early 1994, six miles south of
the company's Maureen platform, about 160 miles offshore Scotland
in the U.K. North Sea. The well tested at rates of up to
7,700 barrels of oil per day and over 16 million cubic feet of
natural gas per day. A 3-D seismic survey was undertaken to
further evaluate the discovery and other prospects nearby.
Phillips holds a 33.8 percent interest.
Subsea well completions are planned for discovery wells in the
Dawn and Alison fields. Production is expected in late 1995 from
both fields. The Dawn well is estimated to produce at a net rate
of 6 million cubic feet per day, while the Alison well is
projected to produce at a net rate of 11 million cubic feet per
day. Phillips holds a 19 percent interest in the Dawn field and
a 42 percent interest in Alison.
The company has an 11.5 percent interest in the Armada project,
scheduled to begin production in 1997. Net production is
expected to be 2,300 barrels per day of liquids and 40 million
cubic feet of natural gas per day.
Late in 1994, Phillips increased its equity interest in the
Britannia field from 2 percent to 5 percent. Production is
expected in 1998, with the company's share estimated at
37 million cubic feet per day of natural gas and 3,500 barrels
per day of liquids.
6
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E&P - OTHER
In the South China Sea, 80 miles southeast of Hong Kong, the
first of two platforms in the Xijiang fields was completed and
set during the year, and initial production began in November.
Additional production is scheduled to begin in late 1995, after
completion of the second platform which is currently under
construction. Peak net production from both platforms is
expected to reach 12,000 barrels of oil per day in 1996.
In the first quarter of 1994, the company and its co-venturer
announced that geophysical agreements had been signed with the
China National Offshore Oil Corporation for exploration of two
blocks in the East China Sea, 120 miles southeast of Shanghai.
The agreements are for two years and consist of reprocessing
existing seismic data and acquiring new seismic data. Late in
the year, Phillips received approval to explore the 2.3 million
acre Bozhong block in the Gulf of Bohai.
In Nigeria, the company's interest in 24 fields yielded net
average oil production of 22,800 barrels per day in 1994, up
slightly from 1993. A new natural gas liquids extraction plant
was completed during the year, resulting in a change in
classification of 32 billion cubic feet of natural gas reserves
and 21 million barrels of natural gas liquids reserves from
proved undeveloped to proved developed.
Phillips, as operator, announced a gas and condensate discovery
in early 1995 in the Zone of Cooperation, an offshore area
jointly administered by Australia and Indonesia. The well flowed
at a combined rate of 90 million cubic feet of natural gas per
day, and 5,300 barrels of condensate per day. Future plans for
the discovery have not yet been finalized, pending the
interpretation of the drilling and test results. Phillips holds
a 37.5 percent interest.
A natural gas discovery in the British Columbia foothills,
Canada, began production in 1994, with net natural gas production
of 11 million cubic feet per day. Three additional wells in the
foothills region are scheduled to begin production in 1995 to
1997, which is expected to increase net production of natural gas
by 23 million cubic feet per day.
The 1995 exploratory budget includes funds for exploratory
drilling in the United States, Norway, the United Kingdom,
Nigeria, Tunisia, Papua New Guinea, Algeria, Cameroon and the
Timor Sea Zone of Cooperation.
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E&P - RESERVES
In 1994, on a BOE basis, Phillips replaced 149 percent of the
reserves it produced during the year. The total includes
replacement of 315 percent of foreign production and 39 percent
of U.S. production. U.S. reserves decreased 6 percent while
foreign reserves increased 17 percent. Total worldwide proved
reserves on a BOE basis were 2.1 billion barrels at year-end.
Crude oil reserves increased 4 percent, natural gas liquids
reserves increased slightly, and natural gas reserves increased
5 percent. Natural gas comprises 50 percent of proved
hydrocarbon reserves and 63 percent of U.S. reserves. Ninety-
four percent of Phillips' proved reserves base is located in
North America and the North Sea. From 1990 through 1994,
Phillips' five-year-average BOE production replacement equaled
127 percent.
Estimates of proved reserves are based upon reservoir
information, technology and economics available at the time the
estimates are made. Adjustments are made to reflect changes in
economic conditions, results of drilling and production and the
technical reevaluation of reservoirs.
The company has not filed any figures with any other federal
authority or agency with respect to its estimated total proved
reserves at December 31, 1994. No difference exists between the
company's estimated total proved reserves for year-end 1993 and
year-end 1992, which are shown in this filing, and estimates of
these reserves shown in a filing with another federal agency in
1994.
DELIVERY COMMITMENTS
Phillips has a commitment to deliver a fixed and determinable
quantity of liquefied natural gas in the future to two utility
customers in Japan. The company is obligated over the next three
years to supply a total of 140.6 billion cubic feet of liquefied
natural gas. Production from one field in Alaska, with estimated
proved reserves greater than the company's obligation and with an
estimated production level sufficient to meet the required
delivery amount, will be used to fulfill the obligation.
The company sells gas in the U.S. from its producing operations
under a variety of contractual arrangements. Most contracts
generally commit the company to sell quantities based on
production from specified properties, but certain gas sales
contracts specify delivery of fixed and determinable quantities.
The quantities of natural gas the company is obligated to deliver
in the U.S. in the future, under existing contracts, are not
significant in relation to the quantities available from
production of the company's proved developed U.S. natural gas
reserves.
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GPM
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GPM processes both natural gas purchased from others and natural
gas produced from the company's E&P reserves. The natural gas
liquids--ethane, propane, butanes and pentanes--are extracted and
sold primarily to the company's RM&T and Chemicals operations,
where they are used as feedstock or processed and sold to outside
customers. The residue gas is sold to others or used as fuel in
company operations. GPM wholly owns 18 natural gas liquids
extraction plants, and controls or has an interest in 3 more.
The plants are located in Texas (13), Oklahoma (4), and New
Mexico (4). In addition, GPM controls gas gathering systems with
approximately 22,000 miles of gathering pipe, with some 16,200
active meter connections to producing wells.
GPM continued to emphasize focused growth and rationalization of
assets in 1994. In the fourth quarter, GPM acquired a company
that owned a plant and related supply-backed gathering system in
New Mexico. Along with the addition of the Linam Ranch plant,
this acquisition added 765 miles of gathering pipelines, provided
opportunities for integration with existing gathering systems and
yielded other processing efficiencies. One of these efficiencies
was the ability to shut down the Lee plant in Lea County, New
Mexico, as the gas formerly going to Lee was rerouted to the
Linam Ranch plant. Also, planning commenced in 1994 to convert
the Linam Ranch plant from an oil absorption plant to a cryogenic
plant to improve operational efficiencies.
In November 1994, GPM Gas Corporation signed definitive
agreements to acquire gathering systems located in the Texas and
Oklahoma panhandles. These acquisitions, which are subject to
Federal Energy Regulatory Commission approval and Hart Scott
Rodino review, would add more than 4,000 miles of gathering pipe
and 33 compressor stations. Finalization of the approval and
review processes is not expected until early 1996.
Work began during the year to reroute gas processed at the Gray
plant in Gray County, Texas, to the newer, more efficient Rock
Creek plant, which is located about 20 miles away. This will
allow the Gray plant to be shut down.
Modernization in 1994 at the Goldsmith plant in Ector County,
Texas, will yield an approximate 33 percent increase in natural
gas processing capacity. Two modern, turbine-powered compressors
will replace 29 older, piston-engine models. Also planned in the
modernization project is a new central control room. At GPM's
Eunice plant in Lea County, New Mexico, similar modernization is
under way.
In December 1993, GPM sold a portion of its gas gathering assets
in the West Texas region of the Permian Basin to GPM Gas
Gathering L.L.C. (GGG). GPM owns a 50 percent equity interest in
GGG. GPM operates the gathering assets sold to GGG, and retains
priority access to this gas gathering capacity through a long-
term contract.
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GPM's raw gas throughput averaged 1.5 billion cubic feet per day
in 1994, reflecting the acquisitions and expansions discussed
above. Raw gas throughput purchased from Phillips represented
approximately 13 percent of the 1994 total.
GPM continued to be a significant U.S. producer of natural gas
liquids. GPM's net natural gas liquids production was as
follows:
Thousands of Barrels Daily
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1994 1993 1992
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From Phillips E&P leasehold gas 21 22 23
From gas purchased outside 130 124 122
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151 146 145
=================================================================
Residue gas sales were 949 million cubic feet per day in 1994,
compared with 867 million cubic feet per day in 1993. Residue
gas sales made directly to end-users, such as utilities or local
gas distribution companies, were approximately 69 percent of
total sales during 1994, compared with 73 percent in 1993.
The company's average sales price for unfractionated natural gas
liquids decreased to $9.77 per barrel, down 9 percent from 1993.
During 1994, average residue gas prices decreased to $1.79 per
thousand cubic feet, from $2.03 in 1993.
At year-end 1994, gross raw natural gas supplies available for
processing through GPM-operated plants were estimated at
5.8 trillion cubic feet, versus 5.5 trillion cubic feet at
year-end 1993. At year-end 1994 and 1993, respectively, these
supplies included about 655 million and 617 million barrels of
natural gas liquids, assuming full ethane extraction.
RM&T
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REFINING
The company currently owns and operates three refineries in the
United States having an aggregate rated capacity of 320,000
barrels per day of crude oil and has part-ownership of a refinery
in Teesside, England. The U.S. refineries are located at Borger
and Sweeny, Texas, and Woods Cross, Utah. Incremental
debottlenecking changes over the past several years were tested
and validated during 1994. As a result, the company revised its
total U.S. crude oil refining rated capacity from 305,000 to
320,000 barrels of oil per day, effective January 1, 1994. Even
with the higher rated capacity, the company's refineries ran at
99 percent of capacity in 1994, up from 91 percent in 1993 and
87 percent in 1992, and higher than the 1994 industry average of
93 percent. The cost per barrel of crude oil delivered to the
U.S. refineries was 5 percent lower than in 1993, reflecting
lower crude prices in 1994.
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High-sulfur crude accounted for 67 percent of the crude processed
during 1994, up from 64 percent in 1993. Approximately
36 percent of the crude oil processed by Phillips' refineries in
1994 came from the United States, with the remainder provided
primarily by purchases from the Middle East, Mexico and
Venezuela.
Refinery feedstocks in 1994 consisted of 34 percent domestic
crude oil, 60 percent imported crude oil and 6 percent
miscellaneous hydrocarbons.
Output from refining operations--automotive gasoline,
distillates, aviation fuels, chemical feedstocks and other
products--averaged 364,000 barrels per day, up from 320,000
barrels per day in 1993.
The Borger and Sweeny refineries continued to implement two key
safety efforts in 1994. One is Process Safety Management, a
program aimed at improving safety at major manufacturing
facilities. The other is an employee-driven safety process that
is based on peer review and positive reinforcement. At the Woods
Cross refinery, Process Safety Management is being implemented
and the employee-driven safety process will begin later in 1995.
The Sweeny and Woods Cross refinery operations were reorganized
in 1994, adopting a new team management structure. Borger began
the change to team management in 1993. The team approach reduces
organizational layers and eliminates traditional divisions
between operating and maintenance personnel. Employees work
together in teams with responsibility for operating, inspecting,
and maintaining major processing units. Other teams manage key
business functions. This new management approach contributed to
lower operating costs in 1994.
The company's U.S. refineries continued to focus on cost control
during 1994. As a result, controllable costs were down 5 percent
in 1994, even with a higher utilization rate compared with a year
ago.
Plans are under way to improve automation at the domestic
refineries. These plans include the use of centralized control
rooms and advanced process controls to improve safety, operating
efficiency and product yields. In 1994, the company began a
modernization of the Borger refinery which will continue over the
next several years. The first step will be the completion of a
new, centralized control room in 1995. This facility will
include advanced process-control equipment, and will eventually
control all manufacturing processes at the Borger refinery. At
the Sweeny complex, a similar modernization project has been
approved for development, and at the Woods Cross refinery,
process control upgrades will continue in 1995.
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Phillips entered into an agreement with a subsidiary of Dallas-
based Central and South West Corporation (CSW) in 1994 to pursue
the development of a cogeneration plant. The plant will produce
electricity from natural gas powered turbines. The waste heat
exhausted from the turbines will produce steam, supplying the
Sweeny complex's needs, and offering cost benefits for both
Phillips and CSW. Plant construction will begin in 1996, with
completion expected in 1997. The Borger refinery is in the
initial planning stage for a rate-based cogeneration project with
Southwestern Public Service Company, a public utility in the
Texas panhandle.
MARKETING
In the United States, the company markets refined products in 26
states under the Phillips 66 trademark. Market concentration is
highest in the Midwest. Gasoline and other products are
distributed in the United States through approximately 8,500
service stations, bulk distributing plants, airport dealers and
marinas. Of these, Phillips owns 269 service stations and leases
an additional 35 more. The company plans to increase the number
of company-operated retail stations over the next several years.
Excluding spot sales, RM&T gasoline sales volumes in the United
States were up 5 percent during the year. Company-operated
outlets generated 16 percent of these sales, although they
accounted for only 4 percent of Phillips 66 branded stations.
Total distillates sales volumes in RM&T increased 22 percent in
1994.
In total, RM&T petroleum product sales in the United States
during 1994, from both Phillips' refinery output and purchased
products, averaged 493,000 barrels per day, compared with 456,000
barrels per day in 1993.
Effective January 1, 1995, the Clean Air Act of 1990 required
cleaner-burning, oxygenated gasoline in nine cities. The company
sells reformulated gasoline in three of these markets--Chicago,
Houston and Milwaukee. The company also sells gasoline in
Dallas, which voluntarily adopted the requirement. The company
has contracted to purchase all of the reformulated gasoline that
Phillips needs to supply these markets, but produces reformulated
gasoline at the Sweeny refinery when market conditions make this
a more profitable alternative.
The company continues to market its UltraClean propane, an
alternate fuel for fleet vehicles, in Colorado, Missouri and
Wyoming. Another alternate fuel, compressed natural gas, is sold
at two Phillips service stations in Oklahoma. Although
alternative fuels account for only a small part of Phillips' RM&T
business, the company considers that the experience gained by
participating in the alternative fuels market will be beneficial
as this market grows.
12
<PAGE>
TRANSPORTATION
Phillips' RM&T and Chemicals segments own or have an interest in
6,900 miles of common carrier crude oil and products pipeline
systems, of which 6,000 miles are company-operated. The largest
segment of the total system consists of 2,000 miles of products
line extending from the Texas Panhandle to East Chicago, Indiana.
The pipeline mileage above excludes the company's 1.36 percent
interest in the 800 mile Trans-Alaska Pipeline System, which is a
part of E&P operations.
In addition to the two leased LNG tankers discussed in the
Exploration and Production section, the company has a U.S.-flag
tanker of 37,000 tons under charter. Phillips also owns or
leases barges, tank cars, hopper cars, corporate aircraft and
trucks.
Regulations under the Oil Pollution Act of 1990 (OPA 90) require
all vessel owners carrying certain substances, including crude
oil, to have a certificate of financial responsibility (COFR)
issued by the U.S. Coast Guard on board the vessel. A vessel is
not permitted to enter U.S. waters without a COFR. The company
currently relies on waterborne foreign crude oil as feedstock for
about 60 percent of its U.S. refining capacity. This oil is
transported by vessels owned by third parties and chartered by
the company. Phillips anticipates no effect on its chartering
program as a result of shipowners complying with OPA 90.
When the Seagas natural gas pipeline is converted into a crude
oil transportation pipeline, as discussed in the E&P segment, it
will become the responsibility of the RM&T segment.
Through membership and participation in the Marine Preservation
Association, Phillips has the ability to call upon the assistance
of the Marine Spill Response Corporation in the event of a major
oil spill at any of the domestic offshore oil production or
marine related transportation facilities operated by the company,
except the company's portion of the Trans-Alaska Pipeline, which
is covered by the Alyeska Pipeline Service Company.
Chemicals
- ---------
The Chemicals segment is divided into three vertically integrated
operations:
1) Natural gas liquids (NGL). Processed (fractionated) natural
gas liquids are sold to third parties or used as feedstocks
by the company at its refineries or for producing chemicals.
Processing facilities are located at the Sweeny complex, the
Borger refinery in Texas and at a plant in Conway, Kansas.
13
<PAGE>
2) Intermediate chemical products. Primary products in this
operation include olefins (ethylene and propylene) and
aromatics (paraxylene and cyclohexane). Major production
facilities are located at the Sweeny complex, the Borger
refinery and in Puerto Rico.
3) Plastics products. Primary products in this operation
include polyethylene, polypropylene and K-Resin. Major
production facilities are located at the Houston Chemical
Complex, near Houston, Texas, and the Borger refinery. In
addition, the company owns an equity interest in a
polyethylene plant in Singapore and a polypropylene plant at
the Houston Chemical Complex.
NGL
The NGL business operated at 91 percent of rated capacity for the
year, compared with 87 percent in 1993 and 81 percent in 1992.
Total NGL processing capacity is 227,000 barrels per day. The
higher capacity utilization in 1994 resulted in higher sales
volumes of liquefied petroleum gas.
INTERMEDIATE CHEMICALS
As a result of an improved economy and industry supply-side
disruptions, demand for the company's olefins increased sharply
during 1994. This led to higher sales volumes for ethylene and
propylene chemicals products.
Ethylene is the primary feedstock for polyethylene and other
plastics and petrochemicals. Work has begun to restart a
400 million pound ethylene unit at the Sweeny complex that has
been out of service for several years. Completion is scheduled
for 1996.
Phillips has a 50 percent interest in the Sweeny Olefins Limited
Partnership (SOLP), where debottlenecking of an ethylene unit
will increase capacity by 400 million pounds in 1996. After the
SOLP debottlenecking, total capacity at the Sweeny complex would
be 4.4 billion pounds, with Phillips' share at 3.5 billion
pounds. Subject to the terms of various contracts, SOLP is
contractually obligated to deliver approximately 1.26 billion
pounds of ethylene annually until the year 2000.
The Sweeny complex's annual propylene capacity is 1.1 billion
pounds. Propylene is used as a feedstock for polypropylene, a
plastic used to manufacture a variety of products. As with
ethylene, higher demand resulted in higher sales volumes in 1994.
14
<PAGE>
At the company's Puerto Rico petrochemical facility, a paraxylene
expansion begun during 1994 will increase paraxylene annual
production capacity from 525 million pounds to 818 million pounds
by late 1995. An additional expansion that could bring
paraxylene capacity to 1.1 billion pounds in 1997 is now under
study. The installation of the Aromax catalytic reforming
technology will broaden the range of hydrocarbon feedstocks that
can be used at the facility. Completion of this projects is
expected in the second quarter of 1995.
PLASTICS
Production of polyethylene, including Phillips' share in equity
companies, reached 1.9 billion pounds in 1994, the highest level
ever. A strong economy pushed demand higher, but higher ethylene
feedstock prices resulted in continued pressure on margins.
At the Houston Chemical Complex, capacity to produce an
additional 400 million pounds of polyethylene annually is being
added through debottlenecking. This will increase annual
production capacity by 22 percent, from the current level of
1.8 billion pounds to 2.2 billion pounds by project completion in
1997. Production of polyethylene will not be affected during
debottlenecking, as work will occur during normally scheduled
maintenance procedures.
Phillips is increasing its participation in the plastics markets
of Asia by expanding its Singapore polyethylene facility. As
part of the financing for the expansion, Phillips' interest in
the facility was lowered from 85.7 percent to 50 percent. The
expansion will more than double the facility's annual linear
polyethylene capacity to more than 800 million pounds.
Completion of the project is expected in 1997.
In late 1994, Phillips and Shanghai Petrochemical Company Limited
signed a letter of intent to study the feasibility of entering
into a joint venture to build and operate a linear polyethylene
plant near Shanghai with an annual capacity of 220 million
pounds.
In August 1994, Phillips contributed its polypropylene assets to
Phillips Sumika Polypropylene Company (PSPC), a partnership
formed in 1992 between Phillips and Sumika Polymers America
Corporation (Sumika). Sumika will fund the construction of a new
PSPC polypropylene facility at the Houston Chemical Complex.
Construction began during the fourth quarter of 1994, and is
scheduled to be completed in the first half of 1996. The new
facility's annual polypropylene capacity will be approximately
270 million pounds, bringing PSPC's total annual production
capacity to 750 million pounds.
15
<PAGE>
Sales volumes of K-Resin, a clear plastic used in food and
medical packaging, were higher in 1994. K-Resin is produced at
the Houston Chemical Complex, where a capacity expansion started
during the year. After completion, expected in 1996, the project
will increase K-Resin annual capacity by 8 percent.
The company's plastic pipe business, Driscopipe, and its
engineering plastic, Ryton, had higher sales volumes in 1994. At
the company's plastic recycling business in Tulsa, Oklahoma,
capacity was increased from 18 million pounds annually, to
40 million pounds.
Other
- -----
During 1994, Phillips combined its research and development and
information technology organizations. The new Corporate
Technology organization provides a more flexible, cost-effective
support team for the operating segments. Examples of Corporate
Technology support in 1994 included:
Upstream (E&P and GPM)
- Development of a new 3-D seismic technique, called 3-D
pre-stack depth migration, to provide better images of
geological structures below salt layers.
- Development of software that provides a common computing
environment for engineers and geoscientists.
- Development of a new software package that provides a more
accurate picture of reservoir characteristics.
- Extended reservoir characterization technology.
Downstream (RM&T and Chemicals)
- Development of computer models that help maximize
production of high-value products at the U.S. refineries.
- Development of a way to triple, over conventional
techniques, the production of 1-hexene, a valuable co-
monomer used in plastics manufacturing.
- Development of a new catalyst that offers potential for
increased polyethylene production.
At the end of 1994, Phillips held a total of 5,083 active patents
in 65 countries worldwide, including 2,692 active U.S. patents.
During 1994, the company received 150 patents in the United
States, and 260 foreign patents. The profitability of any
business segment is not dependent upon any single patent,
trademark, license, franchise or concession.
The company's products and processes were licensed in 32
countries at year-end 1994, resulting in licensing revenue of
$86 million. Polypropylene-related licenses contributed over
two-thirds of the total, with polyethylene-related licenses
contributing 17 percent.
16
<PAGE>
COMPETITION
All phases of the businesses in which Phillips is engaged are
highly competitive. Phillips competes at various levels with
both petroleum and non-petroleum companies in providing energy
and other products to the consumer. Several of the company's
competitors are larger and have substantially greater resources.
While Phillips is one of approximately 20 large integrated oil
companies, and generally ranks in the middle of the group, each
of the segments in which Phillips operates is highly competitive
and characterized by a great number of competitors. No single
competitor, or small group of competitors, dominates any of
Phillips' operating segments.
Upstream, the company competes with numerous other companies in
the industry to locate and obtain new sources of supply and to
produce oil and gas in a cost-effective and efficient manner.
The principal methods of competition include geological,
geophysical and engineering research and technology, experience
and expertise, and economic analysis in connection with property
acquisitions.
Downstream, competitive methods consist of product improvement
and new product development through research and technology, and
efficient manufacturing and distribution systems. In the
marketing phase of the business, competitive factors include
product quality and reliability, price, advertising and sales
promotion, and development of customer loyalty to Phillips'
products.
Because Phillips is a significant U.S. producer of natural gas
liquids, the company has wide access to relatively low-cost
feedstocks, which are upgraded into chemicals and plastics. The
company's well-integrated structure--with businesses ranging from
feedstocks to plastic pipe--helps ensure markets for certain
products. A substantial percentage of Phillips' olefins, for
example, is typically used as a raw material in plastics
manufactured by the company.
Phillips' Corporate Technology organization is focused on
providing technical support to the company's operating segments.
Corporate Technology identifies technologies that drive Phillips'
core businesses, enhancing the company's competitive position in
areas ranging from reservoir characterization to improved
plastics manufacturing processes.
17
<PAGE>
GENERAL
Phillips had its safest year ever in 1994. The company's injury
rate fell 17 percent to under 2 injuries per 100 employees.
Chargeable vehicle accidents were the lowest recorded in the
company's history, and property loss due to accidents decreased
as well.
Company-sponsored research and development activities charged
against earnings were $78 million, $93 million and $96 million in
1994, 1993 and 1992, respectively.
The environmental information contained in Management's
Discussion and Analysis on pages 46 and 47 under the caption,
"Environmental" is incorporated herein by reference. It includes
information on expensed environmental costs and capitalized
environmental costs for 1994 and those expected for 1995 and
1996.
International and domestic political developments and government
regulation are prime factors that may materially affect the
company's operations. Such political developments and regulation
may impact price, production, allocation and distribution of raw
materials and products, including their import, export and
ownership; the amount of tax and timing of payment; and
environmental protection. The occurrences and effect of such
events are unpredictable.
18
<PAGE>
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Officer
Name Position Held Age* Since
---- ------------- --- -------
W. W. Allen Chairman of the Board of 58 1988
Directors and Chief
Executive Officer
C. L. Bowerman Executive Vice President 55 1984
Director
R. G. Ceconi Vice President Corporate 52 1991
Engineering
K. L. Hedrick Senior Vice President 42 1994
Refining, Marketing
and Transportation
J. L. Howe Senior Vice President 50 1992
NGL, Chemicals and
Plastics
J. C. Mihm Senior Vice President 52 1988
Corporate Technology
T. C. Morris Senior Vice President, 54 1993
Treasurer and Chief
Financial Officer
J. J. Mulva President and Chief Operating 48 1985
Officer
Director
M. J. Panatier President and Chief Executive 46 1994
Officer of Phillips Gas
Company
William G. Paul Senior Vice President 64 1985
and General Counsel
Barbara J. Price Vice President Health, 50 1992
Environment and Safety
John L. Whitmire Executive Vice President 54 1988
Director
- ------------------------
*On March 1, 1995
There is no family relationship among the officers named above.
Each officer is elected by the Board of Directors at its first
meeting after the Annual Meeting of the Stockholders and
thereafter as appropriate. Each officer holds office from the
date of his election until the first meeting of the directors
20
<PAGE>
held after the next Annual Meeting of the Stockholders or until
his successor is elected. The date of the next annual meeting is
May 8, 1995. All of the executive officers named above have been
employed by the company for more than five years.
21
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Quarterly Common Stock Prices and Cash Dividends Per Share
Stock Price
-------------------
High Low Dividends
------------------- ---------
1994
First $31 1/8 25 1/2 .28
Second 34 1/4 26 .28
Third 35 1/8 30 1/4 .28
Fourth 37 1/4 31 1/2 .28
- -----------------------------------------------------------------
1993
First 29 5/8 24 1/2 .28
Second 32 1/4 27 7/8 .28
Third 34 28 1/8 .28
Fourth 37 3/8 26 7/8 .28
- -----------------------------------------------------------------
Closing Stock Price at December 31, 1994 $32 3/4
Number of Stockholders of Record at January 31, 1995 69,537
- -----------------------------------------------------------------
Phillips' common stock is traded primarily on the New York,
Pacific and Toronto stock exchanges.
22
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Millions of Dollars Except Per Share Amounts
--------------------------------------------
1994 1993 1992 1991 1990
--------------------------------------------
Sales and other
operating revenues $12,211 12,309 11,933 12,604 13,603
Income before
extraordinary items
and cumulative
effect of changes
in accounting
principles 484 245 270 98 541
Net income 484 243 180 258 779
Per common share
Income before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles 1.85 .94 1.04 .38 2.18
Net income 1.85 .93 .69 .99 3.13
Total assets 11,436 11,035 11,468 11,473 12,130
Long-term debt 3,106 3,208 3,718 3,876 3,839
Cash dividends declared
per common share 1.12 1.12 1.12 1.12 1.03
- ------------------------------------------------------------------
See Management's Discussion and Analysis for a discussion of
factors that will enhance an understanding of this data.
23
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
February 15, 1995
Management's Discussion and Analysis is the company's analysis of
its financial performance and of significant trends that may
affect future performance. It should be read in conjunction with
the financial statements and notes, accounting policies, and
supplemental oil and gas disclosures.
RESULTS OF OPERATIONS
A summary of the company's net income, by business segment and
consolidated, follows:
Years Ended December 31 Millions of Dollars
-----------------------
1994 1993* 1992*
-----------------------
Exploration and Production (E&P)
United States $ 257 253 268
Foreign 85 136 109
- -----------------------------------------------------------------
342 389 377
Gas Gathering, Processing and
Marketing (GPM) (1) 42 78
Refining, Marketing and
Transportation (RM&T) 136 65 94
Chemicals 259 91 49
Corporate and Other (252) (342) (328)
- -----------------------------------------------------------------
Income before Extraordinary Items
and Cumulative Effect of Change
in Accounting Principle 484 245 270
Extraordinary Items - (2) (46)
Cumulative Effect of Change in
Accounting Principle - - (44)
- -----------------------------------------------------------------
Net Income $ 484 243 180
=================================================================
*Amounts restated to reflect a realignment of certain operations
from RM&T to Chemicals, and from Corporate and Other to E&P.
24
<PAGE>
Consolidated Results
Consolidated net income for 1994 was $484 million, compared with
$243 million in 1993 and $180 million in 1992. Earnings for the
three years included the following special items, extraordinary
items and accounting change on an after-tax basis:
Millions of Dollars
-----------------------
1994 1993 1992
-----------------------
Net gains on asset sales $ 13 61 25
Gain on subsidiary stock transaction 20 - -
Capital-loss carryforwards 50 27 -
Work force reduction charges (36) (26) (62)
Revisions of prior year tax accruals - - 78
Foreign currency gains (losses) 3 (2) 27
Gas imbalance accrual adjustment - - (19)
Pending claims and settlements 17 (32) -
Incinerator project writedown - (20) -
Other items 10 20 (21)
- -----------------------------------------------------------------
Total special items 77 28 28
- -----------------------------------------------------------------
Extraordinary items--early retirement
of debt - (2) (46)
Cumulative effect of accounting change
FASB Statement No. 109 (income taxes) - - (44)
- -----------------------------------------------------------------
Total $ 77 26 (62)
=================================================================
Excluding the above items, net operating income was $407 million
in 1994, $217 million in 1993 and $242 million in 1992.
Improved operations, lower costs and resurgent chemicals demand
resulted in Phillips' highest net operating income since 1990.
Strong U.S. economic growth in 1994, coupled with economic
recoveries in Europe and Japan, provided the impetus for a
dramatic rise in demand in the commodity chemicals industry.
This increase in demand fueled higher olefins margins and sales
volumes in 1994. As consumer buying increased in the growing
economy, so did demand for the company's plastics products, used
as a feedstock for many products directly tied to consumer buying
habits. As a result, U.S. outside sales volumes of polyethylene
increased 27 percent during the year. With olefins margins up,
and both olefins and plastics sales volumes higher than a year
ago, Chemicals' net operating income almost tripled over the
previous year.
RM&T's refineries exhibited sustained operating consistency in
1994, operating at near crude oil capacity for the year. This
contributed to higher gasoline and distillates sales volumes in
1994. In addition, RM&T's operating costs were reduced from a
year ago, and net operating earnings were up 79 percent over
1993.
25
<PAGE>
The company's E&P and GPM operating results continued to be
hampered by low crude oil, natural gas liquids (NGL) and natural
gas prices. Driven by oversupply, worldwide crude oil prices
began to fall in mid-year 1993, and Phillips' worldwide average
sales price reached a low of $12.43 per barrel in February 1994.
The company's crude oil prices trended upward modestly from that
point, but again fell back in the later part of the year due to
poor refining margins, warmer-than-normal weather, and continued
supply/demand concerns. NGL prices generally tracked crude oil
price movements during the year. Natural gas and residue gas
prices in the United States trended downward for most of the year
as a result of supply side imbalances.
Comparing 1993 with 1992, the company's net operating income
declined as its average worldwide crude oil sales price fell
12 percent in 1993, compared with 1992's average price. NGL
prices followed crude oil prices, with GPM's average 1993
unfractionated NGL price dropping 4 percent, compared with 1992.
Lower crude oil and natural gas production also contributed to
the lower net operating income. These negative factors were
partly offset by higher U.S. natural gas prices in 1993--
19 percent higher than in 1992.
In the company's RM&T operations, an extended fourth quarter 1993
maintenance shutdown at the company's Sweeny, Texas, complex had
a negative impact on income from operations, compared with 1992.
Chemicals' earnings lagged in 1993 and 1992, as industry
oversupply in the polyethylene market kept prices and margins
low. Lower financing costs helped to moderate the decline in
operating income.
Phillips at a Glance
1994 1993 1992
-----------------------
U.S. crude oil production (MBD) 90 93 96
Worldwide crude oil production (MBD) 206 203 209
U.S. natural gas production (MMCFD) 1,035 973 1,018
Worldwide natural gas production (MMCFD) 1,414 1,355 1,429
Worldwide natural gas liquids
production (MBD) 165 159 158
Liquefied natural gas sales (MMCFD) 120 107 100
Refinery utilization rate (%) 99 91 87
U.S. automotive gasoline sales (MBD) 308 305 272
U.S. distillates sales (MBD) 128 105 85
Worldwide petroleum products sales (MBD) 689 659 612
Natural gas liquids processed (MBD) 207 198 183
Ethylene production (MMlbs)* 2,590 2,381 2,408
Polyethylene production (MMlbs)* 1,885 1,786 1,301
- -----------------------------------------------------------------
*Includes equity in affiliates.
26
<PAGE>
Segment Results
E&P
Millions of Dollars
-----------------------
1994 1993* 1992*
-----------------------
Reported net income $342 389 377
Less special items 23 48 17
- -----------------------------------------------------------------
Net operating income $319 341 360
=================================================================
*Amounts restated to reflect a realignment of certain operations
from Corporate and Other to E&P.
Crude oil and natural gas prices remained at low levels in 1994,
with both products' average annual worldwide selling prices
ending at their lowest levels in over four years. These lower
prices were the primary contributors to a 6 percent decline in
E&P's net operating income in 1994. Partially offsetting the low
sales prices were higher natural gas production in the United
States, lower worldwide exploration expenses, and lower lifting
costs in 1994.
In 1993, worldwide E&P net operating income was down slightly
from 1992. Although U.S. natural gas prices were higher, this
did not offset the negative effect of lower worldwide crude oil
sales prices. Sales prices and other statistics were:
1994 1993 1992
----------------------------
Average Sales Prices
Crude oil (per barrel)
United States $13.36 14.20 16.16
Foreign 15.75 17.30 19.51
Worldwide 14.73 15.92 18.01
Natural gas--lease
(per thousand cubic feet)
United States 1.75 1.99 1.67
Foreign 2.31 2.36 2.61
Worldwide 1.92 2.11 1.99
- -----------------------------------------------------------------
Average Production Costs per
Barrel of Oil Equivalent
United States 4.58 4.86 4.78
Foreign 5.36 5.57 6.68
Worldwide 4.90 5.15 5.57
- -----------------------------------------------------------------
Finding and Development Costs per
Barrel of Oil Equivalent
United States 5.75 2.54 2.49
Foreign* 2.10 9.45 2.91
Worldwide* 2.88 3.94 2.74
- -----------------------------------------------------------------
*Years 1993 and 1992 were restated. See natural gas reserves,
page 89.
27
<PAGE>
1994 1993 1992
----------------------------
Millions of Dollars
----------------------------
Worldwide Exploration Expenses
Geological and geophysical $124 127 135
Leasehold impairment 27 24 30
Dry holes 68 98 81
Lease rentals 7 7 6
- -----------------------------------------------------------------
$226 256 252
=================================================================
Thousands of Barrels Daily
----------------------------
Operating Statistics
Crude oil produced
United States 90 93 96
Norway 82 72 71
United Kingdom 5 6 8
Africa 23 24 25
Other areas 6 8 9
- -----------------------------------------------------------------
206 203 209
=================================================================
Natural gas liquids produced
United States 5 5 5
Norway 8 8 8
Other areas 1 - -
- -----------------------------------------------------------------
14 13 13
=================================================================
Millions of Cubic Feet Daily
----------------------------
Natural gas produced
United States (less gas
equivalent of liquids
shown above) 1,035 973 1,018
Norway* 272 272 312
United Kingdom* 58 54 49
Other areas 49 56 50
- -----------------------------------------------------------------
1,414 1,355 1,429
=================================================================
*Dry basis.
Liquefied natural gas sales 120 107 100
- -----------------------------------------------------------------
U.S. E&P
Millions of Dollars
----------------------------
1994 1993* 1992*
----------------------------
Reported net income $257 253 268
Less special items 18 9 (11)
- -----------------------------------------------------------------
Net operating income $239 244 279
=================================================================
*Amounts restated to reflect a realignment of certain operations
from Corporate and Other to E&P.
Net operating income decreased slightly in 1994 as lower
exploration expenses, lower depreciation, depletion and
amortization (DD&A), and higher liquefied natural gas (LNG)
revenues were more than offset by lower crude oil and natural gas
28
<PAGE>
revenues. The company's average U.S. crude oil sales price
trended upward during the first three quarters of 1994, but fell
back in the fourth quarter. Although the company's average
worldwide annual crude oil price in 1994 was the lowest since
1988, the average U.S. annual price was at its lowest since 1979.
Natural gas prices trended downward during 1994, as supplies
continued to outpace demand. Lower exploration expenses
contributed positively to 1994 net operating income, as the
company recorded significant dry hole charges in 1993 related to
exploratory efforts in Alaska. DD&A was lower in 1994 due mainly
to property dispositions. LNG revenues were higher in 1994 on
increased sales volumes from a plant optimization project and the
increased capacity of the new LNG tankers. Higher tax credits
for producing fuel from non-conventional sources also benefited
1994 net operating income.
U.S. crude oil production was lower in 1994 due to asset sales
and normal declines in production from mature fields, partially
offset by increased production in the Gulf of Mexico from the
company's Ship Shoal blocks 149/130. U.S. natural gas production
was up 6 percent from 1993, due to higher production from the San
Juan Basin and South Marsh Island field.
The decrease in net operating income for 1993, compared with
1992, resulted from lower crude oil sales prices and volumes,
lower natural gas production, and higher exploration expenses.
Partially offsetting these negative factors were 19 percent
higher natural gas sales prices.
U.S. crude oil and natural gas production was lower in 1993,
compared with 1992, primarily due to normal declines in
production from mature fields. The decline in crude production
was partly offset by increased production from the Point Arguello
field, offshore California.
Favorable special items in 1994 included net after-tax gains of
$15 million from asset sales along with favorable settlements
related to the company's Alaska operations and a net profits
interest. These positive special items were partially offset by
contingency accruals. Special items in 1993 included a
$5 million after-tax refund of windfall profit taxes. The
$11 million in special items in 1992 included after-tax asset-
sale gains of $19 million, which were more than offset by a
natural gas imbalance accrual adjustment and other charges.
29
<PAGE>
Foreign E&P
Millions of Dollars
----------------------------
1994 1993 1992
----------------------------
Reported net income $85 136 109
Less special items 5 39 28
- -----------------------------------------------------------------
Net operating income $80 97 81
=================================================================
Net operating income fell 18 percent in 1994, driven by lower
crude oil revenues, partially offset by lower lifting costs.
Average annual foreign crude oil sales prices realized by
Phillips ended the year more than $1.50 per barrel lower than a
year ago, a reduction of 9 percent. Also negatively affecting
foreign net operating income were lower crude oil sales volumes
in the United Kingdom, Africa and other areas, due in part to
asset sales. The effect of higher crude oil sales volumes in
Norway partially offset the negative impact of lower volumes in
other foreign areas.
Foreign crude oil production was up 5 percent in 1994, due
primarily to increased production from Norway as a result of
increased water injection rates at the Ekofisk field, horizontal
drilling, well recompletions and reperforations. In addition,
approximately half of Norway's crude oil production increase was
from the Embla field, which started production in mid-year 1993.
New natural gas production from the Ann field in the U.K. North
Sea was offset by loss of production due to asset sales, causing
foreign natural gas production to be down marginally in 1994.
Net operating income increased for 1993, compared with 1992,
because of lower lifting costs and exploration expenses,
partially offset by lower crude oil and natural gas sales prices
and volumes.
Foreign crude oil production was down in 1993, compared with
1992, primarily because of the sale of producing properties, as
well as lower production in the U.K. North Sea. Partially
offsetting the production decline was the 1993 start-up of
Norway's Embla field. Natural gas production was down in 1993,
due mainly to lower demand.
Special items in 1994 consisted primarily of income tax items
related to the company's China and Norway operations. Special
items in 1993 included after-tax asset-sale gains of $26 million,
while special items in 1992 included after-tax foreign currency
gains of $30 million.
30
<PAGE>
GPM
Millions of Dollars
----------------------------
1994 1993 1992
----------------------------
Reported net income (loss) $ (1) 42 78
Less special items (6) - (4)
Less minority interest--preferred
dividend requirements of Phillips
Gas Company (32) (32) (2)
- -----------------------------------------------------------------
Net operating income $ 37 74 84
=================================================================
The company's GPM operations are conducted primarily through GPM
Gas Corporation, a wholly owned subsidiary of Phillips Gas
Company. In December 1992, Phillips Gas Company issued preferred
stock, and the effect of the preferred dividend requirements has
been excluded in determining operating income. Sales prices and
operating statistics were:
1994 1993 1992
----------------------------
Average Sales Prices
U.S. residue gas
(per thousand cubic feet) $1.79 2.03 1.68
U.S. natural gas liquids
(per barrel--unfractionated) 9.77 10.79 11.24
- -----------------------------------------------------------------
Millions of Cubic Feet Daily
----------------------------
Operating Statistics
Natural gas purchases
Outside Phillips 1,164 1,063 1,046
Phillips 206 205 213
- -----------------------------------------------------------------
1,370 1,268 1,259
=================================================================
Raw gas throughput 1,505 1,428 1,429
- -----------------------------------------------------------------
Residue gas sales
Outside Phillips 853 780 757
Phillips 96 87 94
- -----------------------------------------------------------------
949 867 851
=================================================================
Thousands of Barrels Daily
----------------------------
Natural gas liquids net production
From Phillips E&P leasehold gas 21 22 23
From gas purchased outside
Phillips 130 124 122
- -----------------------------------------------------------------
151 146 145
=================================================================
As a result of acquisitions and expansions of existing
facilities, GPM's average annual raw gas throughput volumes
increased 5 percent in 1994. This led to higher residue gas and
NGL sales volumes for the year. However, 9 percent lower NGL
31
<PAGE>
sales prices and 12 percent lower residue gas sales prices led to
a 50 percent decrease in net operating income, compared with
1993. NGL sales prices, which fell steadily throughout 1993,
recovered somewhat in 1994, but still ended the year with an
average annual price lower than a year ago. Residue gas prices
dropped sharply during the summer and into the fall, recovering
slightly during the last part of the year before declining again
in early 1995. Aggressive industry storage early in the year and
increased supplies drove prices down during the summer. GPM's
operating costs were higher in 1994 due to gathering fees the
company paid GPM Gas Gathering L.L.C., a limited liability
company in which GPM Gas Corporation owns a 50 percent interest.
Net operating income decreased in 1993, compared with 1992.
Although revenues were up in 1993, gas purchase costs were up
more, lowering GPM's feedstock margin. The increase in revenues
was due primarily to higher residue gas sales prices, partly
offset by lower NGL prices.
Special items in 1994 were work force reduction charges and in
1992, an asset writedown.
RM&T
Millions of Dollars
----------------------------
1994 1993* 1992*
----------------------------
Reported net income $136 65 94
Less special items (7) (15) 18
- -----------------------------------------------------------------
Net operating income $143 80 76
=================================================================
*Amounts restated to reflect a realignment of certain operations
from RM&T to Chemicals.
Sales prices and operating statistics for RM&T were:
1994 1993 1992
----------------------------
Average Sales Prices (per gallon)
Automotive gasoline $.56 .58 .64
Distillates .51 .56 .59
Propane .35 .38 .33
- -----------------------------------------------------------------
Operating Statistics
Refinery crude oil
capacity utilization 99% 91 87
- -----------------------------------------------------------------
32
<PAGE>
1994 1993 1992
----------------------------
Thousands of Barrels Daily
----------------------------
Crude oil refined 317 278 266
- -----------------------------------------------------------------
Petroleum products outside
sales*
United States
Automotive gasoline 290 278 256
Aviation fuels 32 31 33
Distillates 128 105 85
Propane 25 26 29
Other products 18 16 15
- -----------------------------------------------------------------
493 456 418
Foreign 54 50 46
- -----------------------------------------------------------------
547 506 464
=================================================================
*Amounts for 1993 and 1992 have been restated to reflect that
certain operations previously a part of RM&T are now included in
Chemicals.
Improved refinery operations and higher gasoline margins
contributed to a significant increase in RM&T net operating income
in 1994. The company's refineries showed sustained operating
consistency in 1994, running at a crude oil capacity utilization
rate of 99 percent in 1994, up from 1993's 91 percent.
Incremental debottlenecking changes over the past several years
were tested and validated during 1994. As a result, the company
revised upward its total crude oil refining capacity to 320,000
barrels of oil per day, effective January 1, 1994. The higher
utilization rate led to higher gasoline and distillates sales
volumes for the year. Earnings also benefited from higher
gasoline margins in the company's marketing operations, compared
with 1993. The company's ability to deliver gasoline into the
Midwest during the third quarter, when several Midwestern
refineries were experiencing turnarounds or operating disruptions,
contributed to the higher gasoline margins.
Lower operating expenses at the company's refineries also
contributed to RM&T's improved earnings in 1994. The company's
cost control efforts, team management approach and lower fuel
costs resulted in reductions in operating costs that more than
offset the higher costs associated with running at a higher
utilization rate. As a result, the refineries' overall operating
expenses were down 6 percent after adjusting for special items.
Net operating income increased 5 percent in 1993, compared with
1992. A 5 percent increase in crude oil refinery runs contributed
to an increase in the company's overall refinery capacity
utilization and improved operating income. Feedstock costs in
1993 benefited from lower crude oil prices. Another positive
factor for 1993's net operating income was improved margins for
distillates.
33
<PAGE>
Special items in 1994 included work force reduction charges.
Special items in 1993 included an after-tax charge of $20 million
for the writedown of an incinerator project. Special items in
1992 included a property settlement gain related to a 1991 fire,
which damaged the atmospheric residuum desulfurization unit at the
Sweeny refinery.
Chemicals
Millions of Dollars
----------------------------
1994 1993* 1992*
----------------------------
Reported net income $259 91 49
Less special items 34 13 (2)
- -----------------------------------------------------------------
Net operating income $225 78 51
=================================================================
*Amounts restated to reflect a realignment of certain operations
from RM&T to Chemicals.
Operating statistics for Chemicals were:
1994 1993 1992
----------------------------
Millions of Pounds
Except as Indicated
----------------------------
Operating Statistics
Production*
Ethylene 2,590 2,381 2,408
Polyethylene 1,885 1,786 1,301
Propylene 372 361 388
Polypropylene 433 251 383
Paraxylene 393 521 456
Cyclohexane (millions of gallons) 174 196 165
- -----------------------------------------------------------------
*Includes equity in affiliates.
Thousands of Barrels Daily
----------------------------
U.S. petroleum products
outside sales
Automotive gasoline 18 27 16
Liquefied petroleum gas 84 79 78
Other products 40 47 54
- -----------------------------------------------------------------
142 153 148
=================================================================
Natural gas liquids processing
capacity 227 227 227
- -----------------------------------------------------------------
Natural gas liquids processed 207 198 183
- -----------------------------------------------------------------
Results for 1994 for the company's Chemicals segment reflected
the dramatic rise in demand and improved product margins in the
commodity chemicals industry. Net operating income increased to
$225 million, almost triple 1993's $78 million. The
strengthening economy in 1994 resulted in higher demand for the
company's olefins, particularly ethylene. Ethylene is used as a
feedstock to make plastics, which are subsequently used to
produce both durable and non-durable goods. General economic
movement directly affects ethylene consumption, and the growing
34
<PAGE>
economy in 1994 resulted in higher demand. The industry
experienced significant unscheduled downtime in 1994, which
resulted in tightened supply during the year. As a result of the
combination of higher demand and tighter supply, olefins margins
and sales volumes were much improved from a year ago. The
company's share of earnings from the Sweeny Olefins Limited
Partnership (SOLP) increased from $10 million in 1993 to
$30 million in 1994.
In the company's plastics operations, higher demand in 1994
resulted in higher sales volumes, especially in total U.S.
polyethylene sales volumes, which increased 19 percent, compared
with 1993. Margins, however, remained under pressure due to
rising olefins feedstock costs. Net operating income benefited
$18 million from the sale of a polypropylene license in 1994.
The company's natural gas liquids fractionation business
benefited from higher sales volumes in 1994.
Compared with 1992, 1993 net operating income benefited from an
increase in ethylene margins in the company's olefins operations.
However, results in both 1993 and 1992 were negatively affected
by low margins in the company's polyethylene operations due to
market overcapacity.
Favorable special items in 1994 included an after-tax gain of
$20 million from a subsidiary stock transaction, along with an
income tax item related to the company's Puerto Rico Core
operations and an adjustment to a 1993 pipeline abandonment
accrual. These favorable items were partly offset by work force
reduction charges. Special items in 1993 included net after-tax
asset-sale gains of $33 million from the sale of the assets of
Aztec Catalyst Company and the sale of Phillips Fibers
Corporation. These gains were partly offset by a $12 million
after-tax writedown of assets held for sale, resulting from the
company's decision to exit the catalyst business, and a
$10 million after-tax charge for the abandonment of a pipeline.
Corporate and Other
Millions of Dollars
-----------------------
1994 1993* 1992*
-----------------------
Reported Corporate and Other $(252) (342) (328)
Less special items 33 (18) (1)
- -----------------------------------------------------------------
Adjusted Corporate and Other $(285) (324) (327)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $(116) (153) (147)
Net interest (179) (181) (209)
Other 10 10 29
- -----------------------------------------------------------------
Adjusted Corporate and Other $(285) (324) (327)
=================================================================
*Amounts restated to reflect a realignment of certain operations
from Corporate and Other to E&P.
35
<PAGE>
The company's focus on cost control benefited Corporate general
and administrative expenses in 1994, which declined $37 million--
24 percent--from a year ago. Lower costs in such areas as
travel, advertising, information technology, consulting and
contracting fees confirmed the company's commitment to reducing
expenses. Beginning in 1994, a portion of costs associated with
incentive compensation plans was charged to the operating
segments, which reduced costs retained at Corporate. Corporate
general and administrative expenses increased 4 percent from 1992
to 1993, due primarily to allocating office space to the
operating segments at cost, beginning in 1993.
Net interest represents interest income and expense, net of
capitalized interest. Compared with 1993, net interest declined
slightly in 1994 to $179 million. The effect of higher interest
rates in 1994 and charges for the early termination of various
lines of credit was more than offset by the effect of lower
average debt and lower interest accruals associated with taxes
and other liabilities. Comparing 1993 with 1992, net interest
was lower as the company benefited from refinancing high-interest
rate debt, the general decline in interest rates, and lower
average outstanding debt.
Other, which consists primarily of the company's insurance
operations, along with income tax and other items that are not
directly associated with the operating segments on a stand-alone
basis, was unchanged from 1993 to 1994. The decrease in 1993,
compared with 1992, is due to lower net premiums charged to the
operating segments by the company's captive insurance subsidiary.
Favorable special items in 1994 included an after-tax benefit of
$50 million from a capital-loss carryforward applied against
current year gains from asset sales, along with interest
applicable to various favorable settlements of claims. Partially
offsetting these favorable special items were after-tax work
force reduction charges of $16 million, along with losses from
asset sales. Special items in 1993 included an after-tax benefit
of $27 million from capital-loss carryforwards applied against
the current year capital gains from asset sales, and after-tax
interest income of $9 million from windfall profit tax refunds,
partially offset by after-tax work force reduction charges of
$26 million. In 1992, a $78 million benefit from revisions of
prior year income tax accruals was offset by after-tax work force
reduction charges of $62 million and other minor items.
36
<PAGE>
Income Statement Analysis
Revenues
Total revenues for 1994 were $12.4 billion, compared with
$12.5 billion in 1993 and $12.1 billion in 1992.
Sales and other operating revenues decreased marginally in 1994.
Lower crude oil revenues, due primarily to lower sales prices,
and loss of revenues as a result of asset sales, were offset by
higher revenues from petroleum products, olefins and plastics
products. Petroleum products and plastics revenues increased in
1994 primarily as a result of volume increases, while olefins
revenues benefited from both volume and sales price increases.
The company's share of earnings from SOLP increased $20 million
in 1994, leading to a 27 percent increase in equity in earnings
of affiliated companies. Other revenues decreased in 1994
largely due to lower gains on the sale of assets, compared with
1993.
Sales and other operating revenues were up 3 percent in 1993,
compared with 1992, primarily due to increased overall U.S.
natural gas sales prices and higher petroleum products sales
volumes. Other revenues increased in 1993, compared with 1992,
primarily as a result of asset sales.
Total Costs and Expenses
Purchase costs were down slightly in 1994. The effect of asset
sales was chiefly offset by higher purchases in RM&T and
Chemicals.
After adjusting for special items and the effect of asset sales,
production and operating expenses were down slightly in 1994.
This reduction in expenses was achieved even though the company
experienced higher refinery runs in its RM&T segment and
increased production in its Chemicals segment. Although
production increased, costs were kept low as a result of a
concerted company-wide effort to control costs. In the RM&T
segment, a cost control emphasis and a team management approach
resulted in 6 percent lower operating costs at the refineries.
In Norway, cost control and lower spending on improvements to
existing facilities, in anticipation of the implementation of the
Ekofisk II plan, contributed to reduced costs in 1994. These
items were partly offset by higher costs in 1994 associated with
GPM's expansion strategy.
Exploration expenses were $30 million lower in 1994. The company
recorded significant dry hole expenses in 1993 associated with
exploration activities in Alaska. In 1994, dry hole expenses
were incurred primarily related to exploration in the Gulf of
Mexico, but to a much smaller degree than 1993's Alaska expenses.
37
<PAGE>
Selling, general and administrative expenses (SG&A) were down
20 percent in 1994, 10 percent after adjusting for special items
and the effect of asset sales. Generally lower Corporate related
costs, achieved through focusing on controlling expenses,
contributed to the decline in SG&A. In 1994, SG&A was also
reduced by the reclassification of certain costs to production
and operating expenses.
Depreciation, depletion, amortization and retirements (DD&A)
declined 6 percent for the year. The effect of asset sales and
1993 writedowns was partially offset by higher DD&A from Norway,
due mainly to increased production, and adjustments in U.K.
future dismantlement liability estimates in 1994.
Taxes other than income taxes decreased 4 percent in 1994. The
decrease is attributable to a favorable settlement related to
production taxes in 1994, along with the effect of asset sales.
Interest expense declined 10 percent in 1994, compared with 1993,
due to lower interest associated with taxes and other
liabilities.
Total costs and expenses were up 3 percent from 1992 to 1993.
Purchase costs increased primarily due to higher natural gas
prices and higher crude oil purchase volumes in 1993. SG&A
decreased due to lower work force reduction charges and benefits
realized from cost cutting measures implemented in 1992,
partially offset by the costs of the Performance Incentive
Program implemented in 1993 and accruals for pending claims.
DD&A increased slightly due to the writedown of certain catalyst
business assets and charges associated with abandonment of a
pipeline. Interest expenses were down due to debt refinancings,
lower interest rates on fixed- and variable-rate debt, and lower
average outstanding debt. Expenses in 1993 included a full
year's effect of the preferred dividend requirements of the
Phillips Gas Company preferred stock, issued in December 1992.
Income Taxes
The effective income tax rate was 43 percent in 1994, compared
with 55 percent in 1993 and 47 percent in 1992. The lower
effective tax rate in 1994, compared with 1993, was predominantly
due to the increase in the proportion of domestic income, which
is taxed at lower rates than foreign income, and changes in
deferred tax assets. The 1992 tax provision and rate was low
compared with 1993, primarily due to a $78 million benefit from
revisions of prior year tax accruals.
38
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
Except as Indicated
-----------------------
1994 1993 1992
-----------------------
Current ratio 1.0 1.0 .9
Long-term debt $3,106 3,208 3,718
Preferred stock of subsidiary $ 345 345 345
Stockholders' equity $2,953 2,688 2,698
Percent of long-term debt to capital* 49% 51 55
Percent of floating-rate debt to total
debt 23% 25 54
- -----------------------------------------------------------------
*Capital includes long-term debt, preferred stock of subsidiary
and stockholders' equity.
Net income during 1994 nearly doubled, compared with 1993.
However, cash provided by operating activities in 1994 was
8 percent lower. The following events that occurred during 1994
contributed significantly to this reduction in cash from
operating activities: $16 million in payments for the Performance
Incentive Program introduced in 1993; $142 million in payments
for previously recorded legal and tax contingencies; and
$52 million in domestic pension contributions. Increases in
accounts and notes receivable, resulting from higher sales prices
and volumes in the company's Chemicals segment, also reduced the
cash provided by operating activities during 1994, compared with
1993. During 1994, cash and cash equivalents increased
$74 million.
The company's short-term liquidity position at December 31, 1994,
was stronger than indicated because the current cost of the
company's inventories was approximately $427 million greater than
their last-in, first-out (LIFO) carrying value.
During 1993, Phillips issued $850 million of fixed-rate debt in
the public market, extending debt maturities at low interest
rates and using the proceeds to refinance more costly long-term
debt, to repay borrowings under its revolving bank lines of
credit, and to reduce the percentage of the company's total debt
that would be exposed to interest rate fluctuations. This
reduction of the company's floating rate debt has also enabled
Phillips to reduce the number and amount of its bank credit
lines. In April 1994, the company secured more favorable
commitment fees and interest rates by replacing four of its
outstanding bank credit lines, totaling $1.4 billion, with one
$800 million facility with similar terms and conditions. In
response to upcoming capital demands resulting from an oil and
gas property acquisition, this facility is being amended to allow
Phillips Petroleum Company United Kingdom Limited, a wholly owned
subsidiary, to directly access up to $200 million of this line of
credit.
39
<PAGE>
The company's financial position continues to improve. At
December 31, 1994, Phillips' long-term debt was less than
50 percent of capital for the first time since 1984. No portion
of the previously mentioned $800 million credit facility was
outstanding, nor had the company issued any portion of the
$500 million shelf registration of debt securities that became
effective in January 1994. At December 31, 1994, $48 million
remained available under the company's commercial paper program.
During 1994, the company's Long-Term Stock Savings Plan (LTSSP)
signed a $131 million term loan agreement that was used to
refinance its outstanding notes payable issued in 1988. The
notes were redeemed on May 16, 1994. The new term loan requires
repayment in annual installments through the year 1998, matching
the maturities of the refinanced notes, but at a reduced cost.
The outstanding balance was $105 million at December 31, 1994.
In 1994, the LTSSP also signed an agreement amending a second
term loan under which $397 million is outstanding. The amended
term loan requires repayment in annual installments beginning in
1999 and has the same maturity as the original term loan
agreement entered into in 1990, but provides a lower rate of
interest. The company continues to guarantee payment of the
LTSSP debt.
The company's wholly owned subsidiary, Phillips Petroleum Company
Norway, signed a $500 million revolving credit facility with a
group of international banks in November 1994, replacing a
$300 million line of credit that was due to expire in 1995. No
portion of the new facility was outstanding at December 31, 1994.
Most of the company's foreign operations use the local currency
as the functional currency. The local currency reflects the
expected economic effect of exchange rate fluctuations on cash
flows and equity, since cash flows of the company's foreign
operations are largely denominated in the local currency.
Phillips Petroleum Company and certain of its subsidiaries employ
hedging programs that use financial and commodity-based
derivative contracts to limit the risks inherent in foreign
currency fluctuations and crude oil, natural gas and related
product price changes. Derivatives used in Phillips' hedging
programs relate to an offsetting physical or financial position,
firm commitment or anticipated transaction. In the past the
company has, on occasion, hedged interest rates, and may do so in
the future should certain circumstances or transactions warrant.
In 1994, the net realized and unrealized gains and losses from
derivative contracts used by Phillips were not material.
The company's risk management has been centralized to facilitate
management's involvement in the use and control of derivative
instruments by providing support to management and operating
units in developing, executing, tracking and controlling hedging
programs. All programs are reviewed and approved by management
before implementation.
40
<PAGE>
On September 27, 1994, Phillips completed the sale and leaseback
of a substantial portion of its tank and hopper railcar fleet,
its corporate aircraft, and certain of its airport refueling tank
trucks, resulting in a cash inflow of $111 million. The company
is considering the leasing of additional railcars, valued at
approximately $20 million in 1995.
Phillips anticipates entering into a one-year agreement with a
bank-sponsored entity in the first quarter of 1995 for the
revolving sale of up to $115 million of receivables generated by
credit card sales. The agreement includes four one-year renewal
options. The proceeds from the sale will be used for general
corporate purposes.
During 1994, the company received $250 million from institutional
investors in exchange for a variable interest in the net proceeds
from production of certain coal-seam gas properties.
Phillips has non-contributory defined benefit retirement plans
covering substantially all employees. After a restructuring of
its principal retirement plan in 1986, the company was not
required to fund the plan again until 1993, because of the plan's
successful investment experience. In 1994, Phillips contributed
approximately $23 million for plan year 1993 and $29 million for
plan year 1994. The company anticipates contributing $30 million
to the plan in 1995.
In 1994, as part of the company's continuous improvement efforts,
reductions of approximately 1,200 positions were identified,
which resulted in before-tax charges totaling $59 million.
Payments began in 1994 and will continue through 1995 and into
1996. Since cost control is an important part of continuous
improvement, additional accruals may be necessary as further
areas for improvement are identified and implemented.
Capital Spending
Capital Expenditures and Investments
Millions of Dollars
---------------------------------
Estimated
1995 1994 1993 1992
---------------------------------
E&P $ 859 707 821 585
GPM 165 172 120 73
RM&T 191 100 82 216
Chemicals 160 144 174 269
Corporate and Other 25 31 29 29
- -----------------------------------------------------------------
$1,400 1,154 1,226 1,172
=================================================================
United States $ 825 721 901 844
Foreign 575 433 325 328
- -----------------------------------------------------------------
$1,400 1,154 1,226 1,172
=================================================================
41
<PAGE>
Capital spending in 1994 funded oil and gas asset acquisitions,
including gas gathering assets in New Mexico, leases on subsalt
prospects in the Gulf of Mexico, and an increased interest in the
Britannia field in the U.K. North Sea. Capital expenditures also
supported major capital projects in the Ekofisk, Xijiang, and
U.K. J-Block oil fields. Upstream projects--including E&P and
GPM operations--continue to be the focus of Phillips' capital
program, comprising about 75 percent of the proposed 1995 budget
and 1994 and 1993 actual spending.
Phillips' 1995 capital spending is expected to be approximately
$1.4 billion, tied directly to key business line strategies,
including: meeting safety and environmental needs; continuous
improvement in the operating integrity of Phillips' assets;
growth in oil and gas reserves; growth in GPM's NGL production;
selective growth in chemicals and plastics; and increasing the
profitability of RM&T. The 1995 estimated capital spending
amount includes carryover commitments of $480 million.
E&P
Capital spending for E&P during the three-year period ended
December 31, 1994, supported several major development projects,
including J-Block in the U.K. North Sea, the Embla field and
redevelopment of Ekofisk in Norway, and the Xijiang fields,
offshore China. The 1993 and 1992 expenditures included
$127 million and $54 million, respectively, for the construction
of two liquefied natural gas tankers.
About 50 percent of the 1995 exploratory budget will be for
exploration in North America, half of which will be invested in
subsalt projects in the Gulf of Mexico. Additional capital funds
are being directed to exploratory drilling in Norway, the United
Kingdom, Nigeria, Tunisia, Papua New Guinea, Algeria, Cameroon,
and the Timor Sea Zone of Cooperation, jointly administered by
Australia and Indonesia. Major projects of the 1995 capital
budget include new development in the Britannia and Armada fields
in the United Kingdom, continued development of J-Block and the
Xijiang fields, and the redevelopment of Ekofisk.
On November 9, 1994, the Norwegian Parliament approved the
agreement reached in June 1994 between Phillips Petroleum Company
Norway, as operator for the Phillips Norway Group (PNG), and the
Norwegian Ministry of Industry and Energy (MIE) regarding the
redevelopment of Ekofisk. The plan projects significantly
reduced operating costs and will allow the long-term recovery of
Ekofisk field reserves.
In addition to extending the PNG's production license for the
Ekofisk fields from its previous expiration in 2011 to the year
2028, the agreement also provides for:
42
<PAGE>
o Elimination of the 10 percent royalty charged on oil and
natural gas liquids production when the new process and
transportation platform starts up,
o The Norwegian State's funding of 5 percent of the Ekofisk
redevelopment expenditures in exchange for a 5 percent
direct interest in the production license beginning
January 1, 1999, leaving Phillips with a 35 percent interest
in production after that date,
o Extension of the oil pipeline license held by Norpipe a.s.
from the year 2005 to 2028, subject to a 40 percent
Norwegian State ownership in the oil pipeline commencing in
2005,
o Extension of the gas pipeline license held by Norpipe a.s.
from the year 2007 to the year 2028, subject to a 40 percent
Norwegian State ownership in the gas pipeline commencing in
2007, and
o PNG's and Statoil's ownership of the pipelines to be reduced
from 50 percent each to 30 percent each to accommodate the
40 percent Norwegian State interest.
The Ekofisk redevelopment plan provides for the construction of
two new platforms--a wellhead platform to be completed in 1996,
and a combined processing and transportation platform to be
completed in 1998, linked with the existing Ekofisk Complex.
According to the plan, the Ekofisk, Eldfisk and Embla fields, and
possibly the Tor field, will be connected to the Ekofisk II
facilities. It is anticipated that the remaining fields in the
Ekofisk area will be shut in. The estimated cost of the Ekofisk
redevelopment is approximately $3 billion, with Phillips'
35 percent share of the cost being approximately $1 billion. The
company expects to fund the capital costs associated with the
plan within the context of its overall funding plans. This is
expected to include the utilization of the new Phillips Petroleum
Company Norway $500 million revolving credit line and after-tax
operating cash flows.
GPM
Capital spending for GPM increased significantly again in 1994,
up 43 percent over 1993 and more than double that of 1992 capital
spending, reflecting the company's continued focus on increasing
throughput volumes, processing capacity and NGL production. In
the fourth quarter of 1994, GPM Gas Corporation acquired a
company that owned a plant and related supply-backed gathering
system in New Mexico. This added 765 miles of gathering
pipelines, provided opportunities for integration with existing
gathering systems, and yielded other processing efficiencies.
43
<PAGE>
The 1995 budget provides for the modernization of assets and
continued increases in natural gas liquids and raw gas
throughput. GPM Gas Corporation has entered into an agreement,
expected to be completed in the first half of 1995, to acquire
additional gas gathering and processing assets in New Mexico,
subject to certain regulatory approvals. These assets include
seven gathering systems with more than 375 miles of high pressure
pipeline, a gas treating facility, and a 30 million-cubic-feet-
per-day processing plant.
In November 1994, GPM Gas Corporation signed definitive
agreements to acquire gathering systems located in the Texas and
Oklahoma panhandles, which will add approximately 4,000 miles of
gathering pipelines and 33 compression stations to GPM's
gathering systems. The acquisitions are contingent upon the
approval of the Federal Energy Regulatory Commission and subject
to Hart Scott Rodino review, so are not expected to occur until
early 1996.
RM&T
During the three-year period ended December 31, 1994, RM&T's
capital spending was used to modify equipment at the Borger,
Texas, refinery to produce low-sulfur diesel fuel; to upgrade the
Sweeny and Borger, Texas, refineries to meet new environmental
standards; and to renovate feedstock pipelines and product
terminals. Increasing 91 percent over 1994 spending, the 1995
capital budget supports safety and environmental projects as well
as operating requirements, but focuses on projects to enhance
profitability. This includes advanced process control technology
projects at the Sweeny and Borger refineries, and the
construction of additional retail outlets.
Chemicals
Chemicals' 1994 capital spending targeted technological
improvements in the company's polypropylene and aromatics
business lines. Upon completion early in the second quarter of
1995, projects begun during 1994 at the Puerto Rico Core
petrochemical facility will have increased paraxylene production
from 525 million pounds a year to 675 million pounds a year and
broadened the range of hydrocarbon feedstocks that can be used
through the installation of Aromax catalytic reforming
technology. Capital spending in 1993 and 1992 included
$52 million and $162 million, respectively, for rebuilding the
Houston Chemical Complex (HCC) facilities.
On August 1, 1994, Phillips contributed its polypropylene assets
to Phillips Sumika Polypropylene Company (PSPC), a partnership
formed in 1992 between, and jointly controlled by, Phillips and
Sumika Polymers America Corporation (Sumika). Sumika is funding
the construction of a new PSPC polypropylene facility in
44
<PAGE>
Pasadena, Texas. Construction began during the fourth quarter of
1994 and is scheduled to be completed in the first half of 1996.
The new facility will utilize Sumitomo Chemical Company Ltd.'s
(Sumika's parent company) proprietary gas phase process and be
capable of producing approximately 270 million pounds of
polypropylene a year, bringing the partnership's total production
capability to 750 million pounds annually. Sharing of net cash
flows, and gains and losses is dependent on the relative
contributions of both partners. The company's share of net
income and cash flows from the partnership will decrease as
Sumika funds construction of the new facility, but the company's
share will not fall below 50 percent.
Phillips is increasing its participation in the growing plastics
markets in Asia by expanding its Singapore polyethylene facility.
The expansion is being funded partly by a $93 million project
loan available to the Singapore company and partly by the
Singapore company selling additional equity to other parties.
The sale of additional equity reduced Phillips' equity interest
in the company that owns the polyethylene facility from
85.7 percent to 50 percent. Phillips is proportionally
responsible for 50 percent of cost overruns and repayment of the
project loan until the completion of construction. After
completion of construction, any borrowings under the project loan
become non-recourse to Phillips. This expansion will more than
double the Singapore facility's linear polyethylene capacity to
more than 800 million pounds a year and is expected to be
completed by 1997. The reduction in Phillips' equity interest is
not expected to have a material impact on its operating results
or liquidity.
Almost half of the 1995 Chemicals capital budget is directed
toward enhancing profitability, with projects slated to increase
volumes and improve technology in the aromatics and olefins
business lines. An additional expansion of paraxylene production
at the Puerto Rico Core petrochemical facility will increase
production capacity to 818 million pounds toward the end of 1995.
Funds are also allocated for safety and environmental projects
and other operating requirements.
Contingencies
Legal and Tax Matters
The Internal Revenue Service has appealed to the U.S. Court of
Appeals for the Tenth Circuit, the U.S. Tax Court's rulings
related to the company's sales of liquefied natural gas in Japan.
The Tax Court's rulings supported the company's position that
more than 50 percent of the income at issue was from a foreign
source. Subsequent to February 15, 1995, on March 9, 1995, the
U.S. Tax Court issued a decision favorable to the company that
excess Norwegian tax credits can be applied to U.S. tax on
similar income earned in other countries. The Internal Revenue
45
<PAGE>
Service will have to study this decision and consider its
position, but the company considers it likely that the Internal
Revenue Service will also appeal this decision. In any event,
the decision will not become final and appealable until
disposition of other issues. Though a final, favorable
settlement of the above issues would have a material, positive
effect on Phillips' net income and cash position, it remains too
early to determine the outcome, when the issues will be resolved,
or the final financial effect. An unfavorable result could have
a material impact on cash flows in a particular quarter.
The company continues to defend claims made by plaintiffs
resulting from the October 23, 1989, explosion and fire at
Phillips 66 Company's HCC facilities. All suits involving
fatalities and most of those involving serious physical injury
have been settled. Most of the approximately 25 remaining
claimants seek compensatory and punitive damages, primarily for
alleged psychological injury.
Phillips accrues for contingencies when a loss is probable and
the amounts can be reasonably estimated. Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
Environmental
Most aspects of the businesses in which the company engages are
subject to various federal, state, local and foreign
environmental laws and regulations. Similar to other companies
in the petroleum and chemical industries, the company incurs
costs for preventive and corrective actions at facilities and
waste disposal sites.
Phillips may be obligated to take remedial action as the result
of the enactment of laws, such as the federal Superfund law, the
issuance of new regulations, or as a result of leaks and spills.
In addition, an obligation may arise when a facility is closed or
sold. Most of the expenditures to fulfill these obligations
relate to facilities and sites where past operations followed
practices and procedures that were considered appropriate under
regulations, if any, existing at the time, but may require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.
At year-end 1993, Phillips reported 63 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Since then, 11 of these
sites have been resolved through consent decrees, deposits into
trust funds or otherwise. Four sites were also added during the
year. Of the 56 sites remaining at December 31, 1994, the
company believes it has a legal defense or its records indicate
46
<PAGE>
no involvement for 11 sites. At 12 other sites, present
information indicates that it is probable that the company's
exposure is less than $100,000 per site. At 19 sites, Phillips
has had no communication or activity with government agencies or
other PRPs in more than two years. Of the 14 remaining sites,
the company has provided for any probable costs that can be
reasonably estimated.
Phillips does not consider the number of sites at which it has
been designated a PRP as a relevant measure of liability. Some
companies may be involved in few sites but have much larger
liabilities than companies involved in many more sites. Although
the liability of a PRP is generally joint and several, the
company is usually one of many companies cited as a PRP at these
sites, and has, to date, been successful in sharing cleanup costs
with other financially sound companies. Also, many of these
sites are still under investigation by the Environmental
Protection Agency (EPA) or the state agencies concerned. Prior
to actual cleanup, the PRPs normally assess site conditions,
apportion responsibility and determine the appropriate
remediation. In some instances, Phillips may have no liability
or attain a settlement of liability. Actual cleanup costs
generally occur after the PRPs obtain EPA or equivalent state
agency approval.
At December 31, 1994, accruals of $13 million had been made for
the company's PRP sites. In addition, the company has accrued
$93 million for other planned remediation activities, including
sites where no claims have been asserted, and $9 million for
other environmental litigation, for total environmental accruals
of $115 million. No one site represents more than 10 percent of
the total.
Expensed environmental costs were $252 million in 1994 and are
expected to be approximately the same in 1995 and 1996.
Capitalized environmental costs were $84 million in 1994, and are
expected to be approximately $90 million per year in both 1995
and 1996.
After an investigation and assessment of environmental exposures
for cleanup and other costs, the company makes accruals on an
undiscounted basis for planned remediation activities for sites
where it is probable that future costs will be incurred and these
costs can be reasonably estimated. These accruals have not been
reduced for possible insurance recoveries. Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
47
<PAGE>
Other
Phillips has deferred tax assets for the alternative minimum tax,
certain accrued liabilities, and loss carryforwards. Valuation
allowances have been established for certain foreign and state
net operating loss carryforwards that reduce deferred tax assets
to an amount that will more likely than not be realized.
Uncertainties that may affect the realization of these assets
include the future level of product prices, costs and tax rates.
Based on the company's historical taxable income, management
expects that the net deferred tax assets will be realized as
offsets to reversing deferred tax liabilities and as reductions
in future taxable operating income. The alternative minimum tax
credit can be carried forward indefinitely to reduce the
company's regular tax liability. The utilization of capital-loss
carryforwards and changes in other loss carryforwards resulted in
a net decrease in the valuation allowance of $39 million during
1994.
New Accounting Standards
In October 1994, the FASB issued Statement No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of
Financial Instruments," which specifies disclosure requirements
for derivative financial instruments. Phillips has incorporated
the required disclosures in the notes to the 1994 financial
statements.
In the first quarter of 1995, the FASB is expected to issue a new
accounting standard, "Accounting for the Impairment of Long-Lived
Assets," which will establish the appropriate accounting for the
impairment of long-lived assets, identifiable intangibles, and
goodwill related to those assets. This Standard is expected to
be effective for fiscal years beginning after December 15, 1995.
Based on the accounting guidelines expected in the final Standard
and a preliminary study of the impact of those guidelines on the
company's long-lived assets as of December 31, 1994, the net
income effect of adopting the new Standard is expected to be less
than $50 million.
OUTLOOK
In 1994, Phillips' average annual realized worldwide crude oil
sales price reached its lowest level since 1988, and for the
first time in industry history, more than half of the U.S. oil
consumption was supplied from foreign sources. The sales price
of natural gas trended downward during 1994, with the company
realizing its lowest average annual worldwide sales price since
1989. Phillips expects natural gas prices to continue this trend
into 1995, but expects slightly higher prices for crude oil. It
is expected that increasing interest rates will decelerate the
growth of the economy during 1995.
48
<PAGE>
The Judy platform, in the J-Block area of the U.K. North Sea, is
expected to be completed in mid-1995. Initial production from
the J-Block development, which includes the Joanne field, is
anticipated in early 1996.
Phillips has increased its equity interest in the Britannia
gas/condensate field to approximately 5 percent. Located in the
U.K. sector of the North Sea, the field is estimated to contain
reserves of 2.6 trillion cubic feet of gas and 146 million
barrels of condensate. When production begins, expected by
October 1998, Phillips anticipates its share of first production
to yield 37 million cubic feet of gas per day.
Commissioning of the first production platform in the Xijiang
fields, the Xijiang 24-3, located approximately 80 miles
southeast of Hong Kong in the China Sea, was completed during
1994, and the first wells began producing in November. In
December, Phillips' share of production averaged 4,000 barrels of
oil per day. Work is also under way on a second platform, the
Xijiang 30-2, which will be set eight miles from the Xijiang 24-3
late in 1995. Production is expected to peak at 12,000 net
barrels a day in 1996.
The company expects industry demand for olefins to continue to
outpace supply throughout most of 1995, and expects margins to
remain strong. In response, the company is undertaking
debottlenecking projects and the restart of an ethylene unit
which has been out of service for several years, the combined
results of which should yield Phillips a 600 million-pound annual
increase in ethylene production by late 1996.
Phillips is also using debottlenecking techniques to yield a
400 million-pound increase in polyethylene production at HCC in
Pasadena, Texas. Prompted by increasing demand for polyethylene,
the project is scheduled to begin in March 1995 and be completed
in 1997, bringing the company's total nameplate capacity to 2.2
billion pounds a year. Current production of high-density and
low-density linear polyethylene will not be affected during
debottlenecking, as work on the project will occur during
normally scheduled maintenance procedures. The company is
expecting continued growth in demand for the next few years, but
at a somewhat slower rate than realized over the last five years.
In late 1994, Phillips and Shanghai Petrochemical Company Limited
signed a letter of intent to study the feasibility of entering
into a joint venture to build and operate a 220 million-pound-
per-year linear polyethylene plant near Shanghai that would use
Phillips' proprietary technology. The joint venture would market
polyethylene products in both the domestic Chinese market and
worldwide. If both companies approve formation of the joint
venture after completion of a feasibility study, construction of
the new plant would begin and would take approximately two years
to complete.
49
<PAGE>
Effective January 1, 1995, the Clean Air Act of 1990 required
cleaner-burning, oxygenated gasoline in nine urban areas. The
company sells reformulated gasoline in three of these markets
(Chicago, Houston and Milwaukee) and in Dallas, which voluntarily
adopted the requirement. Phillips has contracted to purchase all
of the reformulated gasoline the company needs to supply these
markets, but produces reformulated gasoline at the company's
Sweeny refinery when market conditions make this a more
profitable option.
Phillips and a partner have announced their intention to form a
partnership, Seaway Pipeline Company, to transport crude oil
through pipelines from the Houston Gulf Coast area to refineries
and other markets in Texas and Oklahoma. The Seaway system will
be a fully integrated crude pipeline system with ultimate
capacity of approximately 800,000 barrels per day, two docks on
the U.S. Gulf Coast, over 7 million barrels of associated tankage
and the ability to deliver and segregate a variety of crudes.
Phillips plans to contribute its natural gas Seagas Pipeline to
the jointly controlled partnership and the partner will
contribute a crude oil pipeline it owns that is already in
service. A prerequisite for the pipeline contributions is the
receipt of regulatory approval by Phillips to abandon gas service
in Seagas Pipeline. This approval is expected to be received in
late 1995 or early 1996 and the system is expected to be fully
operational in 1996.
Effective December 28, 1994, regulations under the Oil Pollution
Act of 1990 (OPA 90) require all vessel owners carrying certain
substances, including crude oil, to have a certificate of
financial responsibility (COFR) issued by the U.S. Coast Guard on
board. A vessel will not be permitted to enter U.S. waters
without a COFR, which serves as evidence of financial
responsibility for all pollution damages within limits set by
applicable law and regulation. Before this regulation took
effect, COFRs were obtained for the tankers used to transport
liquefied natural gas to Japan. Phillips currently relies on
waterborne foreign crude oil as feedstock for approximately
60 percent of its U.S. refining capacity. This oil is
transported by vessels owned by third parties and chartered by
the company. Phillips anticipates no problems for its chartering
program as a result of compliance by shipowners with OPA 90.
Assessment of the company's subsalt prospects in the Gulf of
Mexico, offshore Louisiana, continues. A second test well was
completed on the Mahogany prospect during 1994 and appraisal
drilling continues there. At the Teak prospect, an exploration
well completed in 1994 encountered hydrocarbons, and the prospect
is under evaluation. Further drilling, analysis and evaluation
is needed to determine the potential of the subsalt prospects.
Phillips holds a 37.5 percent working interest in the Mahogany
prospect, and a 50 percent interest in the Teak.
50
<PAGE>
Phillips continues to assess the reserves potential, development
costs, and commercial potential of the Sunfish prospect in the
Cook Inlet of Alaska, assuming development would occur from the
existing Tyonek gas production platform, which is 100 percent
owned by the company. At least one additional exploration well
is considered necessary to confirm the reserves before a decision
can be made on whether or not to proceed with commercial
development. During the third quarter of 1994, the company's co-
venturer in the Sunfish prospect announced that its analysis of
well and seismic data indicated that the prospect was not
commercial on a stand-alone basis and that it would not conduct
further exploration activities on the prospect. The economics of
utilizing an existing platform are different from those involving
a new stand-alone facility. Discussions are under way with the
co-venturer concerning its future intentions with respect to
Sunfish, including possible joint exploration and production
activity from the Tyonek platform, or alternatively, the
acquisition of its lease position by Phillips.
Although the next exploration well is presently included in the
company's capital budget, the assessment of the reserves and
commercial potential needs to be completed and the discussions
with the co-venturer need to be resolved before additional
exploration drilling can proceed. Phillips has demobilized the
drilling rig, originally located on the Tyonek platform, which
was used to drill the Sunfish 2 and 3 wells and conduct workovers
related to the existing gas production. The company will procure
more suitable drilling equipment for any additional exploration
work. At December 31, 1994, Phillips had approximately
$48 million invested in the Sunfish 1, North Foreland 1, and
Sunfish 3 wells.
To meet its liquidity requirements, including funding its capital
program, the company will look primarily to cash generated from
operations and financing. Over the next few years, the company
plans to maintain its long-term debt level around $3.0 billion to
$3.5 billion.
Phillips recognizes that the financial performances of the
businesses in the industries in which the company operates are
subject to significant fluctuations, and are affected by the
uncertainty of oil and natural gas prices. The company plans to
continue to operate as an integrated domestic petroleum company,
focusing on improving its core operations and on the pursuit of
its worldwide exploration and production program.
51
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHILLIPS PETROLEUM COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors..................... 53
Consolidated Statement of Income for the years
ended December 31, 1994, 1993 and 1992........... 54
Consolidated Balance Sheet at December 31, 1994
and 1993......................................... 55
Consolidated Statement of Cash Flows for the years
ended December 31, 1994, 1993 and 1992........... 56
Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1994,
1993 and 1992.................................... 57
Accounting Policies................................ 58
Notes to Financial Statements...................... 61
Supplementary Information
Oil and Gas Operations........................ 86
Selected Quarterly Financial Data............. 104
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation Accounts and Reserves....... 108
All other schedules are omitted because they are either not
required, not significant, not applicable or the information is
shown in another schedule, the financial statements or in the
notes to financial statements.
52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Phillips Petroleum Company
We have audited the accompanying consolidated balance sheets of
Phillips Petroleum Company as of December 31, 1994 and 1993, and
the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1994. Our audits also included
the financial statement schedule listed in the Index in Item 8.
These financial statements and schedule are the responsibility of
the company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Phillips Petroleum Company at December 31,
1994 and 1993, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 1 to the financial statements, effective
January 1, 1992 the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
/s/ ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 15, 1995
53
<PAGE>
- ------------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
---------------------------
1994 1993 1992
---------------------------
Revenues
Sales and other operating revenues $12,211 12,309 11,933
Business interruption insurance - 14 38
Equity in earnings of
affiliated companies 84 66 65
Other revenues 72 156 104
- ------------------------------------------------------------------
Total Revenues 12,367 12,545 12,140
- ------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 7,412 7,527 7,084
Production and operating expenses 2,072 2,193 2,176
Exploration expenses 226 256 252
Selling, general and
administrative expenses 478 597 609
Depreciation, depletion,
amortization and retirements 794 841 820
Taxes other than income taxes 271 283 310
Interest and expense on indebtedness 250 278 376
Preferred dividend requirements of
subsidiary 32 32 2
- ------------------------------------------------------------------
Total Costs and Expenses 11,535 12,007 11,629
- ------------------------------------------------------------------
Income before income taxes, subsidiary
stock transaction, extraordinary
items and cumulative effect of
change in accounting principle 832 538 511
Gain on subsidiary stock transaction 20 - -
- ------------------------------------------------------------------
Income before income taxes, extra-
ordinary items and cumulative effect
of change in accounting principle 852 538 511
Provision for income taxes 368 293 241
- ------------------------------------------------------------------
Income before Extraordinary Items
and Cumulative Effect of Change
in Accounting Principle 484 245 270
Extraordinary items - (2) (46)
Cumulative effect of change in
accounting principle - - (44)
- ------------------------------------------------------------------
Net Income $ 484 243 180
==================================================================
Per Share of Common Stock
Income before extraordinary items
and cumulative effect of change
in accounting principle $ 1.85 .94 1.04
Extraordinary items - (.01) (.18)
Cumulative effect of change in
accounting principle - - (.17)
- ------------------------------------------------------------------
Net Income $ 1.85 .93 .69
==================================================================
Average Common Shares Outstanding
(in thousands) 261,529 261,015 259,979
- ------------------------------------------------------------------
See Accounting Policies and Notes to Financial Statements.
54
<PAGE>
- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
At December 31 Millions of Dollars
-------------------
1994 1993
-------------------
Assets
Cash and cash equivalents $ 193 119
Accounts and notes receivable
(less allowances: 1994--$20; 1993--$14) 1,462 1,398
Inventories 527 538
Deferred income taxes 186 170
Prepaid expenses and other current assets 97 118
- -----------------------------------------------------------------
Total Current Assets 2,465 2,343
Investments and long-term receivables 708 544
Properties, plants and equipment (net) 8,042 7,961
Deferred income taxes 122 98
Deferred charges 99 89
- -----------------------------------------------------------------
Total $11,436 11,035
=================================================================
Liabilities
Accounts payable $ 1,371 1,349
Long-term debt due within one year 18 18
Accrued income and other taxes 847 858
Other accruals 205 196
- -----------------------------------------------------------------
Total Current Liabilities 2,441 2,421
Long-term debt 3,106 3,208
Accrued dismantlement, removal and
environmental costs 564 528
Deferred income taxes 944 901
Employee benefit obligations 421 374
Other liabilities and deferred credits 656 553
- -----------------------------------------------------------------
Total Liabilities 8,132 7,985
- -----------------------------------------------------------------
Preferred Stock of Subsidiary and Other
Minority Interests 351 362
- -----------------------------------------------------------------
Stockholders' Equity
Common stock--500,000,000 shares authorized
at $1.25 par value
Issued (277,180,511 shares)
Par value 346 346
Capital in excess of par 996 977
Treasury stock (at cost: 1994--15,542,074
shares; 1993--15,700,279 shares) (859) (885)
Foreign currency translation adjustments 16 (14)
Unearned employee compensation--Long-Term
Stock Savings Plan (LTSSP) (451) (487)
Retained earnings 2,905 2,751
- -----------------------------------------------------------------
Total Stockholders' Equity 2,953 2,688
- -----------------------------------------------------------------
Total $11,436 11,035
=================================================================
See Accounting Policies and Notes to Financial Statements.
55
<PAGE>
- -----------------------------------------------------------------
Consolidated Statement of Cash Flows Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
-------------------------
1994 1993 1992
-------------------------
Cash Flows from Operating Activities
Net income $ 484 243 180
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion,
amortization and retirements 794 841 820
Dry hole costs and leasehold
impairment 95 122 111
Deferred taxes (40) (48) (302)
Cumulative effect of accounting
change - - 44
Extraordinary items - 2 46
Increase in accounts and notes
receivable (82) (20) (31)
Decrease (increase) in inventories (10) 80 22
Decrease (increase) in prepaid
expenses and other current assets 22 (11) 63
Increase in accounts payable 15 28 82
Decrease in taxes and other accruals (27) (34) (165)
Other (48) 105 38
- -----------------------------------------------------------------
Net Cash Provided by Operating
Activities 1,203 1,308 908
- -----------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures and investments,
including dry hole costs (1,154) (1,226) (1,172)
Proceeds from asset dispositions 266 821 386
Other investments (20) - (5)
- -----------------------------------------------------------------
Net Cash Used for Investing Activities (908) (405) (791)
- -----------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 1,335 2,613 3,603
Repayment of debt (1,447) (3,209) (3,851)
Issuance of company stock 12 19 11
Issuance of preferred stock of
subsidiary - - 333
Purchase of company stock (1) (4) (4)
Dividends paid (293) (292) (291)
Other 173 (42) 99
- -----------------------------------------------------------------
Net Cash Used for Financing Activities (221) (915) (100)
- -----------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 74 (12) 17
Cash and cash equivalents at
beginning of year 119 131 114
- -----------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 193 119 131
=================================================================
See Accounting Policies and Notes to Financial Statements.
56
<PAGE>
- ---------------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Stockholders' Equity
Shares of Common Stock
---------------------------
Held in
Issued Treasury
---------------------------
December 31, 1991 277,180,511 17,399,579
Net income
Cash dividends paid on common stock
Distributed under incentive
compensation plans (451,380)
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation adjustment
Translation adjustments recognized
upon disposal of foreign investments
Issuance costs for preferred
stock of subsidiary
Other 1,297
- ---------------------------------------------------------------------------
December 31, 1992 277,180,511 16,949,496
Net income
Cash dividends paid on common stock
Distributed under incentive
compensation plans (1,249,217)
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation adjustment
Other
- ---------------------------------------------------------------------------
December 31, 1993 277,180,511 15,700,279
Net income
Cash dividends paid on common stock
Distributed under incentive
compensation plans (158,205)
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation adjustment
Other
- ---------------------------------------------------------------------------
December 31, 1994 277,180,511 15,542,074
===========================================================================
- ---------------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Stockholders' Equity
Millions of Dollars
----------------------------------
Common Stock
----------------------------------
Par Capital in Treasury
Value Excess of Par Stock
----------------------------------
December 31, 1991 $346 939 (999)
Net income
Cash dividends paid on common stock
Distributed under incentive
compensation plans 9 39
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation adjustment
Translation adjustments recognized
upon disposal of foreign investments
Issuance costs for preferred
stock of subsidiary
Other 2
- ---------------------------------------------------------------------------
December 31, 1992 346 950 (960)
Net income
Cash dividends paid on common stock
Distributed under incentive
compensation plans 22 75
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation adjustment
Other 5
- ---------------------------------------------------------------------------
December 31, 1993 346 977 (885)
Net income
Cash dividends paid on common stock
Distributed under incentive
compensation plans 15 26
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation adjustment
Other 4
- ---------------------------------------------------------------------------
December 31, 1994 $346 996 (859)
===========================================================================
- ---------------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Stockholders' Equity
Millions of Dollars
-------------------------------------------
Foreign Unearned
Currency Employee
Translation Compensation Retained
Adjustments --LTSSP Earnings
-------------------------------------------
December 31, 1991 7 (560) 3,024
Net income 180
Cash dividends paid on common stock (291)
Distributed under incentive
compensation plans (44)
Recognition of LTSSP unearned
compensation 37
Tax benefit of dividends on
unallocated LTSSP shares 9
Current period translation adjustment 19
Translation adjustments recognized
upon disposal of foreign investments (7)
Issuance costs for preferred
stock of subsidiary (12)
Other
- ---------------------------------------------------------------------------
December 31, 1992 19 (523) 2,866
Net income 243
Cash dividends paid on common stock (292)
Distributed under incentive
compensation plans (74)
Recognition of LTSSP unearned
compensation 36
Tax benefit of dividends on
unallocated LTSSP shares 8
Current period translation adjustment (33)
Other
- ---------------------------------------------------------------------------
December 31, 1993 (14) (487) 2,751
Net income 484
Cash dividends paid on common stock (293)
Distributed under incentive
compensation plans (45)
Recognition of LTSSP unearned
compensation 36
Tax benefit of dividends on
unallocated LTSSP shares 8
Current period translation adjustment 30
Other
- ---------------------------------------------------------------------------
December 31, 1994 16 (451) 2,905
===========================================================================
See Accounting Policies and Notes to Financial Statements.
57
<PAGE>
- -----------------------------------------------------------------
Accounting Policies Phillips Petroleum Company
o Consolidation Principles and Investments--Majority-owned,
controlled subsidiaries are consolidated. Investments in
affiliates in which the company owns 20 percent to 50 percent
of voting control are generally accounted for under the
equity method. Undivided interests in oil and gas joint
ventures are consolidated on a pro rata basis. Other
securities and investments are generally carried at cost.
o Reclassification--Certain amounts in the 1993 and 1992
financial statements have been reclassified to conform with
the 1994 presentation.
o Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosures of contingent assets and
liabilities. Actual results could differ from the estimates
and assumptions used.
o Cash Equivalents--Cash equivalents are highly liquid
short-term investments that are readily convertible to known
amounts of cash and generally have original maturities within
three months from their date of purchase.
o Inventories--Crude oil and petroleum and chemical products
are valued at cost, which is lower than market in the
aggregate, primarily on the last-in, first-out (LIFO) basis.
Materials and supplies are valued at, or below, average cost.
o Derivative Contracts--Forward foreign currency contracts,
commodity option contracts, and futures contracts are
recorded at market value, either through monthly adjustments
for unrealized gains and losses (forwards and options) or
through daily settlements in cash (futures), and the
resulting gains and losses are recognized in the same period
that the gains and losses from the underlying exposures that
are being hedged are recognized. Commodity swap contracts
are not marked to market. Occasionally, the company will use
forward contracts to hedge foreign currency exposures on firm
commitments to purchase or build long-lived assets, in which
case the gain or loss on the forward is deferred and reported
as an adjustment to the carrying value of the long-lived
asset when the firm commitment is paid. Deferred gains and
losses, along with deferred premiums paid for commodity
option contracts, are reported on the balance sheet with
other current assets or other current liabilities.
o Oil and Gas Exploration and Development--Oil and gas
exploration and development costs are accounted for using the
successful efforts method of accounting.
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<PAGE>
Property Acquisition Costs--Oil and gas leasehold acquisition
costs are capitalized. Leasehold impairment is recognized
based on exploratory experience. Upon discovery of
commercial reserves, leasehold costs are transferred to
proved properties.
Exploratory Costs--Geological and geophysical costs and the
costs of carrying and retaining undeveloped properties are
expensed as incurred. Exploratory drilling costs are
capitalized when incurred. If exploratory wells are
determined to be commercially unsuccessful or dry holes,
applicable costs are expensed.
Development Costs--Costs incurred to drill and equip
development wells, including unsuccessful development wells,
are capitalized.
Impairment of Proved Properties--For "ceiling test"
calculations, all proved properties are evaluated in the
aggregate using the estimated undiscounted cash flows of one
worldwide cost center, based on end of period prices and
costs. Additionally, the estimated undiscounted cash flows
of high-cost proved properties, based on expected future
prices and costs, are evaluated prior to start-up of
commercial production and any significant impairment is
recognized currently.
Depletion and Amortization--Leasehold costs of producing
properties are depleted using the unit-of-production method
based on estimated proved oil and gas reserves. Amortization
of intangible development costs is based on the
unit-of-production method using the estimated proved
developed oil and gas reserves.
o Depreciation and Amortization--Depreciation and amortization
of properties, plants and equipment are determined by the
group straight-line method, the individual unit straight-line
method or the unit-of-production method, applying the method
considered most appropriate for each type of property.
o Property Dispositions--When complete units of depreciable
property are retired or sold, the asset cost and related
accumulated depreciation are eliminated with any gain or loss
reflected in income. When less than complete units of
depreciable property are disposed of or retired, the
difference between asset cost and salvage value is charged or
credited to accumulated depreciation.
o Dismantlement, Removal and Environmental Costs--The estimated
undiscounted costs, net of salvage values, of dismantling and
removing major facilities, including necessary site
restoration, are accrued using either the unit-of-production
or the straight-line method.
59
<PAGE>
Environmental expenditures are expensed or capitalized as
appropriate, depending upon their future economic benefit.
Expenditures that relate to an existing condition caused by
past operations, and that do not have future economic
benefit, are expensed. Liabilities for these expenditures
are recorded on an undiscounted basis when environmental
assessments or cleanups are probable and the costs can be
reasonably estimated. These liabilities have not been
reduced for probable recoveries from third parties.
o Foreign Currency Translation--Adjustments resulting from the
process of translating foreign functional currency financial
statements into U.S. dollars are accumulated as a separate
component of stockholders' equity. Foreign currency
transaction gains and losses are included in current
earnings. Most of the company's foreign operations use the
local currency as the functional currency.
o Income Taxes--Deferred income taxes are computed using the
liability method and are provided on all temporary
differences between the financial reporting basis and the tax
basis of the company's assets and liabilities, except for
temporary differences related to investments in certain
foreign subsidiaries and corporate joint ventures that are
essentially permanent in duration. Allowable tax credits are
applied currently as reductions of the provision for income
taxes.
o Income Per Share of Common Stock--Income per share of common
stock is calculated based upon the daily weighted-average
number of common shares outstanding during the year,
including shares held by the company's Long-Term Stock
Savings Plan (LTSSP).
60
<PAGE>
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1--Extraordinary Items and Accounting Change
During 1993 and 1992, the company incurred before-tax
extraordinary losses of $3 million and $71 million, respectively,
attributed to call premiums paid on the early retirement of debt.
The after-tax losses were $2 million and $46 million, $.01 and
$.18 per share, respectively, for 1993 and 1992.
Effective January 1, 1992, the company adopted FASB Statement
No. 109, "Accounting for Income Taxes." The cumulative effect of
adopting Statement No. 109 as of January 1, 1992, decreased 1992
net income by $44 million, $.17 per share.
Note 2--Inventories
Inventories at December 31 were:
Millions of Dollars
-------------------
1994 1993
-------------------
Crude oil and petroleum products $228 183
Chemical products 204 252
Materials, supplies and other 95 103
- -----------------------------------------------------------------
$527 538
=================================================================
Inventories valued on a LIFO basis totaled $366 million and
$362 million at December 31, 1994 and 1993, respectively, and
would have been approximately $427 million and $360 million
higher, respectively, had they been valued using the first-in,
first-out (FIFO) method.
Note 3--Investments and Long-Term Receivables
Components of investments and long-term receivables at
December 31 were:
Millions of Dollars
-------------------
1994 1993
-------------------
Investments in and advances to affiliated
companies $573 403
Long-term receivables 90 117
Other investments 45 24
- -----------------------------------------------------------------
$708 544
=================================================================
61
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Equity Investments
Phillips owns investments in chemicals, oil and gas
transportation, coal mining, and other industries. Summarized
financial information for all entities accounted for using the
equity method, follows:
Millions of Dollars
--------------------------
1994 1993 1992
--------------------------
Revenues $2,603 2,280 2,294
Income before income taxes 579 586 578
Net income 360 353 387
Current assets 689 534 534
Other assets 2,994 2,639 2,371
Current liabilities 622 461 481
Other liabilities 1,439 1,480 1,365
- -----------------------------------------------------------------
At December 31, 1994, retained earnings included $57 million
related to the undistributed earnings of these affiliated
companies, and distributions received from them were
$103 million, $88 million and $79 million in 1994, 1993 and 1992,
respectively. Additional information regarding certain of these
affiliated companies is discussed below.
Phillips Sumika Polypropylene Company (PSPC)
On August 1, 1994, Phillips contributed its polypropylene assets
to PSPC, a partnership formed in 1992 between, and jointly
controlled by, Phillips and Sumika Polymers America Corporation
(Sumika). No financial gain or loss was recognized on the
contribution. Sharing of net cash flows and gains and losses
each period is dependent on the relative contributions of both
partners. At December 31, 1994, Phillips' net investment in PSPC
was $110 million, and the company's share of net income was
93.4 percent. The company's share of net income and cash flows
from the partnership will decrease as Sumika contributes
additional funds for construction of a new PSPC polypropylene
facility in Pasadena, Texas, but Phillips' share will not fall
below 50 percent. Revenues and cash flows generated by these
transferred assets through July 31, 1994, were consolidated into
the company's financial statements. In 1994, PSPC purchased
$32 million in feedstocks from Phillips.
Phillips Petroleum Singapore Chemicals (Private) Limited (PPSC)
In the first quarter of 1994, PPSC, an affiliate that owns and
operates a polyethylene plant in Singapore, completed the sale of
117,857,144 shares of common stock for $85 million in notes
receivable, which will be collected as needed for plant
construction, scheduled for 1995 through 1997. Phillips is
62
<PAGE>
proportionally responsible for 50 percent of any cost overruns
and repayment of a $93 million project loan until the completion
of construction. After completion of construction, any
borrowings under the project loan become non-recourse to
Phillips. This sale reduced the company's interest in PPSC from
85.7 percent to 50 percent, and resulted in a $20 million gain.
For tax purposes, this is an equity transaction and therefore not
taxable. Since the sale, PPSC has been accounted for using the
equity method. This deconsolidation did not have a material
effect upon the company's financial position. At December 31,
1994, the company's net investment in PPSC was $78 million.
Sweeny Olefins Limited Partnership (SOLP)
At December 31, 1994, the company's 50 percent interest in SOLP,
which owns and operates a 1.5 billion-pound-per-year ethylene
plant located adjacent to the company's Sweeny, Texas, refinery,
was carried at a net investment of $65 million. During
construction of this facility, the company made advances to the
partnership under a subordinated loan agreement (SLA) to fund
certain costs related to completing the project. In 1993 and
1992, the company was required to make advances of $1 million and
$19 million, respectively. No advances were required during
1994.
During the fourth quarter of 1992, the company sold participating
interests in the SLA to a syndicate of banks for $211 million
under a participation agreement. The sale of this receivable is
subject to recourse, in that the company has a contingent
obligation to pay the amounts due the participating banks if SOLP
fails to pay. It is not economically practicable to estimate the
fair value of the company's obligations to SOLP or to the
participating banks. The balance of the subordinated loan at
December 31, 1994, was $195 million.
SOLP has agreements with the company under which Phillips will
provide specified quantities of feedstocks, which SOLP is
committed to take, purchase specified quantities of finished
products, and provide plant operating and marketing services. In
1994, 1993 and 1992, respectively, SOLP purchased $186 million,
$205 million and $210 million in feedstocks from Phillips and
sold $91 million, $114 million and $125 million of finished
products to the company. SOLP made payments to Phillips for
plant operating and marketing services of $20 million,
$20 million and $19 million in 1994, 1993 and 1992, respectively.
Receivables from and payables to SOLP were $20 million and
$9 million at December 31, 1994, and $17 million and $11 million
at December 31, 1993, respectively.
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<PAGE>
GPM Gas Gathering L.L.C. (GGG)
During 1993, Phillips' GPM operating subsidiary, GPM Gas
Corporation, and a group of institutional investors formed GGG, a
limited liability company in which GPM Gas Corporation owns a
50 percent equity interest. GPM Gas Corporation sold a portion
of its gas gathering assets in the West Texas region of the
Permian Basin to GGG for $138 million. GGG provides gas
gathering services to the company under a long-term contract.
Because of GPM Gas Corporation's continuing involvement in the
business of GGG, a $22 million gain from the sale of the assets
has been deferred and will be recognized over the remaining life
of the gathering facilities. At December 31, 1994, the net
investment in GGG was $6 million. Gathering fees paid to GGG
during 1994 were approximately $60 million.
Note 4--Properties, Plants and Equipment
The company's investment in properties, plants and equipment
(PP&E), with accumulated depreciation, depletion and amortization
(DD&A), at December 31 was:
Millions of Dollars
---------------------------------------------
1994 1993*
---------------------- ---------------------
Gross Net Gross Net
PP&E DD&A PP&E PP&E DD&A PP&E
---------------------- ---------------------
E&P $ 9,819 6,155 3,664 9,417 6,047 3,370
GPM 1,614 942 672 1,463 884 579
RM&T 3,333 1,448 1,885 3,175 1,282 1,893
Chemicals 2,535 1,100 1,435 2,943 1,255 1,688
Corporate and Other 992 606 386 1,040 609 431
- ------------------------------------------------------------------
$18,293 10,251 8,042 18,038 10,077 7,961
==================================================================
*Restated for segment realignment. See Note 17.
Note 5--Accrued Dismantlement, Removal and Environmental Costs
At December 31, 1994 and 1993, the company had accrued
$449 million and $414 million, respectively, of dismantlement and
removal costs, primarily related to worldwide offshore production
facilities and to production facilities at Prudhoe Bay. Total
probable dismantlement and removal costs estimated at
December 31, 1994, were $854 million. These costs are accrued
primarily on the unit-of-production method.
Phillips had accrued environmental costs, primarily related to
cleanup of ponds and pits at domestic refineries and underground
storage tanks at U.S. service stations, and other various costs,
of $62 million and $72 million at December 31, 1994 and 1993,
respectively. Phillips had also accrued $31 million and
$16 million of environmental costs associated with discontinued
or sold operations at December 31, 1994 and 1993, respectively.
64
<PAGE>
Also, $13 million was included at December 31, 1994 and 1993, for
sites where the company has been named a Potentially Responsible
Party. At the same dates, $9 million and $13 million,
respectively, had been accrued for other environmental
litigation. At December 31, 1994 and 1993, total environmental
accruals were $115 million and $114 million, respectively.
Note 6--Debt
Long-term debt due after one year at December 31 was:
Millions of Dollars
---------------------
1994 1993
---------------------
9 1/2% Notes Due 1997 $ 299 299
9 3/8% Notes Due 20ll 349 349
9.18% Notes Due September 15, 2021 300 300
9% Notes Due 2001 250 250
8.86% Notes Due May 15, 2022 250 250
8.49% Notes Due January 1, 2023 250 250
7.92% Notes Due April 15, 2023 250 250
7.20% Notes Due November 1, 2023 250 250
6.65% Notes Due March 1, 2003 100 100
5 5/8% Marine Terminal Revenue Bonds,
Series 1977 Due 2007 20 20
Revolving debt due to banks and others
through 1997 at 3 3/8% - 6 1/2% 202 278
Guarantees of LTSSP bank loans payable
at 2 31/32% - 6 3/8% 485 510
Medium-term notes due various years 100 100
Other obligations 1 2
- -----------------------------------------------------------------
$3,106 3,208
=================================================================
Maturities of long-term debt in 1995 through 1999 are:
$18 million (included in current liabilities), $28 million,
$547 million, $32 million and $111 million, respectively.
During 1994, the company's LTSSP signed a $131 million term loan
agreement that was used to refinance its outstanding notes
payable issued in 1988. The notes were redeemed on May 16, 1994.
The new term loan requires repayment in annual installments
through the year 1998, matching the maturities of the refinanced
notes, but at a reduced cost. The outstanding balance was $105
million at December 31, 1994. Also in 1994, the company's LTSSP
signed an agreement amending a second term loan under which
$397 million is outstanding. The amended 15-year term loan
requires repayment in annual installments beginning in 1999 and
has the same maturity as the original term loan agreement entered
into in 1990, but provides a lower rate of interest. The company
continues to guarantee payment of the LTSSP debt.
65
<PAGE>
Under the LTSSP $397 million 15-year term bank loan, any
participating bank in the syndicate of lenders may cease to
participate on November 30, 2001, by giving not less than
180 days' prior notice to the LTSSP and the company. The company
does not anticipate a cessation of participation by the lenders,
and plans to commence scheduled repayments beginning in 1999.
Each bank participating in the LTSSP loan has the optional right,
if the current directors or their approved successors cease to be
a majority of the Board, and upon not less than 90 days' notice,
to cease to participate in the loan. Under the above conditions,
such banks' rights and obligations under the loan agreement must
be purchased by the company if not transferred to a bank of the
company's choice. (See Note 13 for additional discussion of the
LTSSP.)
As part of its revolving debt, the company has a $250 million
commercial paper program supported by a direct-pay irrevocable
bank letter of credit with a scheduled expiration date of
September 1997. At December 31, 1994 and 1993, respectively,
$202 million and $120 million of commercial paper had been
issued. The revolving debt, including the commercial paper, has
been classified as non-current based on the company's ability and
intent to refinance it on a long-term basis. The bank providing
the irrevocable letter of credit for the commercial paper program
has the optional right, if the company's current directors or
their approved successors cease to be a majority of the Board,
and upon not less than 90 days' notice, to terminate its
obligation under the agreements pertaining to the letters of
credit.
During the second quarter of 1994, the company secured more
favorable commitment fees and interest rates by replacing four of
its bank credit facilities, totaling $1.4 billion, with one
facility of $800 million. The terms of the new facility are
similar to the terms of the credit facilities terminated. In
November 1994, the company's wholly owned subsidiary, Phillips
Petroleum Company Norway, signed a $500 million revolving credit
facility with a group of international banks, replacing a
$300 million line of credit that was due to expire in 1995. At
December 31, 1994, all of the $1.3 billion provided by these two
credit facilities was available to be drawn.
Depending on the credit facility, borrowings may bear interest at
a margin above rates offered by certain designated banks in the
London interbank market or at margins above certificate of
deposit or prime rates offered by certain designated banks in the
United States. Most margins are adjusted upward at certain
intervals throughout the terms of the agreements. In addition,
the agreements call for commitment fees on available, but unused,
amounts. Included in the agreements for these credit facilities
are optional early termination rights for changes in control
substantially similar to those applicable to the commercial paper
program.
66
<PAGE>
Note 7--Business Interruption Insurance
The company recognized income from business interruption
insurance in 1993 and 1992 related to an April 1991 fire at its
Sweeny, Texas, refinery.
Note 8--Contingent Liabilities
Environmental--The company is subject to federal, state and local
environmental laws and regulations. These may result in
obligations to remove or mitigate the effects on the environment
of the placement, storage, disposal or release of certain
chemical, mineral and petroleum substances at various sites. The
company is currently participating in environmental assessments
and cleanup under these laws at federal Superfund and comparable
state sites. In the future, the company may be involved in
additional environmental assessments, cleanups and proceedings.
HCC Litigation--The company continues to defend claims resulting
from the October 23, 1989, explosion and fire at Phillips 66
Company's Houston Chemical Complex (HCC). All suits involving
fatalities and most of those involving serious physical injury
have been settled. Most of the approximately 25 remaining
claimants seek compensatory and punitive damages, primarily for
alleged psychological injury. As of March 31, 1994, all insured
claims had been paid by the insurers.
Other Legal Proceedings--The company is a party to a number of
other legal proceedings pending in various courts or agencies for
which, in some instances, no provision has been made.
Other Contingencies--The company has contingent liabilities
resulting from throughput agreements with pipeline and processing
companies in which it holds stock interests. Under these
agreements, Phillips may be required to provide any such company
with additional funds through advances against future charges for
the shipping or processing of petroleum liquids, natural gas and
refined products.
In the case of all known contingencies, the company accrues a
charge for a loss when it is probable and the amount is
reasonably estimable. These accruals are not discounted for
delays in future payment and are not reduced for potential
insurance recoveries. Based on currently available information,
the company believes that it is remote that future costs related
to known contingent liability exposures will exceed current
accruals by an amount that would have a material adverse impact
on the company's financial statements.
As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change include contingent
67
<PAGE>
liabilities recorded for environmental remediation, tax and legal
matters. Estimated future environmental remediation costs are
subject to change due to such factors as the unknown magnitude of
cleanup costs, the unknown time and extent of such remedial
actions that may be required, and the determination of the
company's liability in proportion to other responsible parties.
Estimated future tax and legal costs are subject to change as
events evolve and as additional information becomes available
during the administrative and litigation process.
Note 9--Financial Instruments and Derivative Contracts
Derivative Instruments and Other Contracts Held for Purposes
Other Than Trading
The company and certain of its subsidiaries use financial and
commodity-based derivative contracts to hedge exposures to
currency fluctuations and crude oil, natural gas and related
product price changes. For every derivative contract used, there
is an offsetting physical or financial position, firm commitment
or anticipated transaction. In 1994, the net realized and
unrealized gains and losses from derivative contracts used by
Phillips were not material to the company's financial statements.
Derivatives used included forward exchange agreements, swaps,
options, and futures. The company uses forward exchange
agreements to hedge exposures to exchange rate fluctuations
associated with certain assets and obligations. The hedges used
in 1994 and 1993 relate primarily to intercompany financings
denominated in pounds sterling and receivables from gas sales
denominated in German marks. Futures, options, and swaps are
used in the company's commodity hedging program to limit the risk
of inventory value erosion, lock in feedstock-to-product margins
at acceptable levels, and control risk created by special pricing
requests from customers.
In the case of certain anticipated transactions, expected product
sales are hedged up to six months into the future. The volume of
anticipated sales hedged, and the realized and unrealized gains
and losses from those hedges, were not material to the company's
financial statements in 1994.
The notional amounts in the following table represent only the
amounts hedged, not the net market exposure, which is
significantly less. Any gains or losses from these positions will
offset gains or losses on the underlying exposures. Outstanding
derivative contracts in U.S. dollars at December 31, 1994, were:
68
<PAGE>
Millions
of Dollars
----------
Currency hedging--forward exchange contracts $347
- -----------------------------------------------------------------
Commodity hedging
Futures 6
Swaps 1
Options 1
- -----------------------------------------------------------------
Total commodity hedges 8
- -----------------------------------------------------------------
$355
=================================================================
Credit Risk
The company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash
equivalents, trade receivables and over-the-counter derivative
contracts. The company's cash equivalents are placed in high-
quality time deposits with major international banks and
financial institutions, limiting its exposure to concentrations
of credit risk. The company's trade receivables result primarily
from its petroleum and chemicals operations and reflect a broad
customer base, both nationally and internationally. The company
also routinely assesses the financial strength of its customers.
The credit risk from the company's over-the-counter derivative
contracts, such as forwards and swaps, derives from the
counterparty to the transaction, typically a major bank or
financial institution. Phillips does not anticipate non-
performance by any of these counterparties, none of whom does
sufficient volume with the company to create a significant
concentration of credit risk. Futures contracts have a
negligible credit risk because they are traded on the New York
Mercantile Exchange (NYMEX) or International Petroleum Exchange
of London Limited (IPE).
Fair Values of Financial Instruments
The following methods and assumptions were used by the company in
estimating the fair value of its financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet approximates fair value.
Long-term debt: The carrying amount of the company's floating-
rate debt approximates fair value. The fair value of the fixed-
rate debt is estimated based on quoted market prices.
Forward exchange contracts and swaps: Fair value is estimated
based on quoted market prices of comparable contracts, and
approximates the net gains and losses which would have been
realized if the contracts had been closed out on December 31,
1994.
69
<PAGE>
Commodity futures: Fair value is based on quoted market prices
obtained from NYMEX and IPE.
Options: Fair value is based on quoted market prices.
Certain company financial instruments at December 31 were:
Millions of Dollars
------------------------------
Carrying Amount Fair Value
--------------- -------------
1994 1993 1994 1993
--------------- -------------
Long-term debt, including current
maturities $3,124 3,226 3,050 3,480
Forward exchange contracts 1 - 1 -
Futures* - - - -
Swaps* - - - -
Options* - - - -
- -----------------------------------------------------------------
*Amounts were less than $1 million.
Note 10--Preferred Stock of Subsidiary
In December 1992, the company's subsidiary, Phillips Gas Company
(PGC), completed a $345 million public offering of 13,800,000
shares of a new Series A 9.32% Cumulative Preferred Stock. The
shares are redeemable in whole, or in part, at the option of PGC,
on or after December 14, 1997, at a redemption price of $25 per
share, plus accrued and unpaid dividends.
In connection with the offering, the company made a commitment to
make equity infusions in the future, if necessary, to keep the
consolidated tangible net worth of PGC at or above specified
levels. Phillips also committed to make a liquidity facility
available in an amount sufficient to enable PGC to meet its
payment obligations, including those with respect to dividends on
the Series A Preferred Stock. It has not been necessary for
Phillips to make equity infusions, nor has PGC utilized the
liquidity facility.
Note 11--Preferred Share Purchase Rights
The company has outstanding one Preferred Share Purchase Right
(Right) for each outstanding share of the company's common stock.
The Rights enable holders to either acquire additional shares of
Phillips common stock or purchase the stock of an acquiring
company at a discount, depending on specific circumstances. The
Rights, which expire July 31, 1999, will be exercisable only if a
person or group acquires 20 percent or more of the company's
common stock or announces a tender offer that would result in
ownership of 20 percent or more of the common stock. The Rights
may be redeemed by the company in whole, but not in part, for one
cent per Right.
70
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Note 12--Non-Mineral Operating Leases
The company leases ocean transport vessels, tank and hopper
railcars, corporate aircraft, service stations, computers, office
buildings and other facilities and equipment. At December 31,
1994, future minimum payments due under non-cancelable operating
leases were:
Millions
of Dollars
----------
1995 $ 87
1996 83
1997 64
1998 38
1999 20
Remaining years 197
- -----------------------------------------------------------------
$489
=================================================================
In September 1994, the company completed the sale and leaseback
of a substantial portion of its tank and hopper railcar fleet,
its corporate aircraft and certain of its airport refueling tank
trucks, resulting in cash inflow of $111 million. The lease
agreements grouped the equipment into the broad types of assets
described above, with four different tranches of lease terms.
The lease terms extend up to 19 years, and future minimum rental
payments on these leases are included in the table above. At the
expiration of the lease terms, the company has the option to
renew the leases or purchase the equipment, but has no contingent
liabilities for guaranteed residual values.
In 1993, the company and a co-venturer agreed to sell and lease
back two tankers that were under construction for use in the
transport of liquefied natural gas from Kenai, Alaska, to Japan.
Construction on both tankers was completed in 1993, and the
tankers were placed in service. The company received
$278 million for its 70 percent share of the tankers. The leases
have five-year terms. Future minimum rental payments on these
leases are included in the table above. The rental payments may
vary, depending on movements in certain interest rate indicators.
The leases do not contain a renewal option, but do contain a
fixed price purchase option. Also, the company and its co-
venturer have provided a limited guarantee of the residual values
of the tankers at the end of the leases' terms. The company's
70 percent share of the guaranteed residual values totals
$213 million.
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Operating lease rental expense for years ended December 31
was:
Millions of Dollars
------------------------
1994 1993* 1992*
------------------------
Total rentals $102 97 119
Less sublease rentals 6 6 5
- -----------------------------------------------------------------
$ 96 91 114
=================================================================
*Restated.
Note 13--Employee Benefit Plans
Defined Benefit Plans
The company has defined benefit retirement plans covering
substantially all employees. The plans are generally non-
contributory, with benefit formulas based on employee earnings
and credited service. The company's funding policy for U.S.
plans is to contribute at least the minimum required by the
Employee Retirement Income Security Act of 1974. Contributions
to foreign plans are dependent upon local laws and tax
regulations. The company also sponsors non-qualified
supplementary retirement plans for senior management and non-
employee directors.
Net pension cost was:
Millions of Dollars
---------------------------------------
U.S. Plans Foreign Plans
------------------ ------------------
1994 1993 1992 1994 1993* 1992*
------------------ ------------------
Service cost $ 30 32 29 14 12 12
Interest cost 43 42 38 15 16 17
Return on assets
Actual 2 4 1 (2) (41) (14)
Deferred gains
(losses) (30) (36) (36) (14) 24 (4)
Amortization of
Net asset (7) (7) (7) - - -
Net losses 12 8 3 1 - 1
Prior service cost 2 2 1 - 1 1
- -----------------------------------------------------------------
Net pension cost $ 52 45 29 14 12 13
=================================================================
*Restated to reflect the company's gross pension cost before
recovery from co-venturers.
In determining net pension cost, Phillips has elected to amortize
net gains and losses on a straight-line basis over 10 years.
The company's domestic plans generally have an accumulated
benefit obligation in excess of plan assets. For the foreign
plans, however, the value of plan assets is generally larger than
the accumulated benefit obligation. Assets include a
participating annuity contract, commingled funds, real estate,
72
<PAGE>
stocks, bonds and insurance contracts. A foreign plan also holds
employee home mortgage loans. A table showing the funded status
of the plans and a reconciliation with accrued pension cost and
deferred gain on reversion at December 31 follows:
Millions of Dollars
------------------------------
U.S. Plans Foreign Plans
-------------- -------------
1994 1993 1994 1993*
-------------- -------------
Plan assets at fair value $ 261 243 246 212
- -----------------------------------------------------------------
Actuarial present value of
benefit obligations
Vested benefits 306 311 161 162
Non-vested benefits 18 22 - 1
- -----------------------------------------------------------------
Accumulated benefit obligation 324 333 161 163
Effect of projected future
salary increases 179 211 69 55
- -----------------------------------------------------------------
Projected benefit obligation 503 544 230 218
- -----------------------------------------------------------------
Excess asset (obligation) (242) (301) 16 (6)
Unrecognized net asset (41) (48) (1) (2)
Unrecognized net (gains) losses 51 127 (9) 13
Unrecognized prior service cost 38 26 9 9
- -----------------------------------------------------------------
Prepaid (accrued) pension cost
and deferred gain on reversion $(194) (196) 15 14
=================================================================
*Restated to reflect the company's gross interest in the plans'
funded status before recovery from co-venturers.
Assumptions--Weighted Average
at December 31
Rate of compensation increase 4.25% 4.25 4.20 3.70
Discount rate 8.75 7.25 7.70 6.70
Long-term rate of return on
assets 11.25 12.00 8.50 7.40
- -----------------------------------------------------------------
Other Postretirement Plans
Company plans provide certain health care and life insurance
benefits for substantially all retired U.S. employees. The
health care plan is contributory, while the life insurance plan
is non-contributory. Retirees covered by the health care plan
essentially pay their own way, except those persons who retired
prior to March 1986 and early retirees not yet eligible for
Medicare. The company's policy is to fund the health care plan
in amounts sufficient to cover current claims. The life
insurance plan is funded based on actuarial determinations.
73
<PAGE>
Net postretirement benefit cost was:
Millions of Dollars
----------------------------------
Health Life
---------------- ----------------
1994 1993 1992 1994 1993 1992
---------------- ----------------
Service cost $ 2 2 2 1 1 1
Interest cost 8 9 9 4 4 4
Return on assets
Actual - - - (2) (2) (2)
Deferred losses - - - (1) (1) (1)
Amortization of net losses - 2 3 - 1 1
- -----------------------------------------------------------------
Net postretirement benefit
cost $10 13 14 2 3 3
=================================================================
In determining net postretirement benefit cost, the company has
elected to amortize net gains and losses on a straight-line basis
over 10 years.
The following table shows the funded status of the plans and a
reconciliation with accrued postretirement benefit cost at
December 31.
Millions of Dollars
-----------------------------
Health Life
------------- -------------
1994 1993 1994 1993
------------- -------------
Accumulated postretirement
benefit obligation (APBO)
Retirees $ 53 56 35 38
Fully eligible active
participants 11 12 3 5
Other active participants 10 34 2 9
- -----------------------------------------------------------------
74 102 40 52
Plan assets at fair value, held
under a reserve deposit contract - - 35 36
- -----------------------------------------------------------------
APBO in excess of plan assets (74) (102) (5) (16)
Unrecognized net (gains) losses (2) 8 (2) 6
Unrecognized prior service cost (21) - (4) -
- -----------------------------------------------------------------
Accrued postretirement benefit
cost $(97) (94) (11) (10)
=================================================================
Financial Assumptions
Discount rate 8.75% 7.25 8.75 7.25
Long-term rate of return on assets
(non-taxable) - - 7.00 7.00
Rate of compensation increase - - 4.25 4.25
- -----------------------------------------------------------------
At the end of 1994, certain changes were made to the company's
postretirement benefit plans. To be eligible for retiree coverage
in the medical and life insurance plans, employees must now have
10 years of service after age 45, except for those employees who
had already attained age 45 by the end of 1994. Formerly, all
retirees, regardless of service, were eligible for coverage.
74
<PAGE>
Also, beginning in 2005, company contributions to retiree medical
coverage will be capped at the amount contributed in the 2004 plan
year. These plan changes resulted in a curtailment gain of
$1 million, which was recognized in 1994, and unrecognized
negative prior service cost of $25 million which will be
recognized over future periods.
At December 31, 1994, the health care cost trend rate is assumed
to decrease gradually from 8 percent in 1995 to 5 percent in 2003
and 2004. No increases in medical costs are assumed for years
beginning in 2005 due to the plan amendments described above. The
same health care cost trend rate was used at December 31, 1993,
except that costs were assumed to increase by 5 percent each year
after 2004. Increasing the assumed health care cost trend rate by
one percentage point in each year would increase the APBO at
December 31, 1994 and 1993, by $4 million and $11 million,
respectively, and the aggregate of the service and interest cost
components by $1 million for both 1994 and 1993.
Termination Benefits and Plan Curtailments
The company recorded charges of $59 million, $40 million and
$93 million for severance benefits in connection with work force
reductions in 1994, 1993 and 1992, respectively, which included
charges of $1 million, $3 million and $6 million, representing the
curtailment effect and special termination benefits for
postretirement medical and life benefits in 1994, 1993 and 1992,
respectively, as well as special pension termination benefit costs
of $7 million and $6 million in 1994 and 1993, respectively. In
1992, special termination benefit costs of $18 million were offset
by a curtailment gain of $19 million.
Defined Contribution Plans
Most employees may elect to participate in the company-sponsored
Thrift Plan by contributing a portion of their earnings to any of
several investment funds. A percentage of the employee
contribution is matched by the company. Company contributions
charged to expense were $6 million each in 1994, 1993 and 1992.
The company LTSSP is a leveraged employee stock ownership plan.
Most employees may elect to participate in the LTSSP by
contributing 1 percent of their earnings and receiving an
allocation of shares of common stock proportionate to their
contributions. In 1990 and 1988, the LTSSP borrowed funds that
were used to purchase previously unissued shares of company common
stock. Since the company guarantees the LTSSP's borrowings, the
unpaid balance is reported as a liability of the company and
unearned compensation is shown as a reduction of stockholders'
equity. Dividends on all shares are charged against retained
earnings. The debt is serviced by the LTSSP from company
contributions and dividends received on certain shares of common
75
<PAGE>
stock held by the plan. The number of shares released for
allocation to participant accounts is based on the terms of the
plan and is determined by debt service payments on LTSSP
borrowings.
The company recognizes interest expense as incurred and
compensation expense based on the cost of shares released, using
the shares-allocated method. The company recognized total LTSSP
expense of $23 million, $18 million and $26 million in 1994, 1993
and 1992, respectively. This included compensation expense of
$22 million, $17 million and $25 million in 1994, 1993 and 1992,
respectively. Company contributions to the LTSSP in 1994, 1993
and 1992 were $12 million, $7 million and $15 million,
respectively. Dividends used to service debt were $37 million,
$39 million and $36 million in 1994, 1993 and 1992, respectively.
These dividends reduce the amount of expense recognized each
period. Interest incurred on the LTSSP debt in 1994, 1993 and
1992 was $24 million, $20 million and $25 million, respectively.
The LTSSP shares as of December 31, 1994, were:
Unallocated shares 18,273,724
Allocated shares 14,681,101
- -----------------------------------------------------------------
Total LTSSP shares 32,954,825
=================================================================
Incentive Compensation Plans
The company has an Annual Incentive Compensation Plan to provide
awards to key employees, and a Performance Incentive Program,
which began in 1993, that provides most non-executive employees
with additional compensation if key safety, operating and
financial objectives are met. In anticipation of awards under
both of these plans and the Omnibus Securities Plan, provisions of
$45 million, $36 million and $7 million were charged against
earnings in 1994, 1993 and 1992, respectively.
Under the Omnibus Securities Plan (the Plan) approved by
shareholders, stock options and stock awards for key employees are
authorized for up to eight-tenths of 1 percent (.8 percent) of the
total issued and outstanding shares as of December 31 of the year
preceding the awards. Any shares not issued in the current year
are available for future grant. The Plan could result in an
8.3 percent dilution of stockholders' interest if all available
shares are awarded over the 10-year life of the Plan. The Plan
also provides for non-stock-based awards.
Stock options granted under provisions of the Plan and earlier
plans permit purchase of the company's common stock at exercise
prices equivalent to the average market price of the stock on the
date the options were granted. The options have terms of 10 years
and normally become exercisable in increments up to 25 percent on
each anniversary date following the date of grant. Stock
Appreciation Rights (SARs) may from time to time be affixed to the
76
<PAGE>
options. Options exercised in the form of SARs permit the holder
to receive stock, or a combination of cash and stock, subject to a
declining cap on the exercise price.
A comparative summary of stock options and SARs granted under the
Plan and previous plans follows:
1994 1993 1992
--------------------------------
Shares under option at
January 1 5,614,501 5,170,280 5,924,584
Options granted at
$22.57 to $35.00 per share 1,528,200 1,671,502 195,131
Options exercised at
$12.63 to $27.50 per share (672,509) (1,192,015) (803,899)
Options forfeited (145,156) (35,266) (145,536)
- -----------------------------------------------------------------
Shares under option at
December 31 (at exercise
prices from $12.63 to
$35.00 per share) 6,325,036 5,614,501 5,170,280
=================================================================
Options exercisable at
December 31 (at exercise
prices from $12.63 to
$35.00 per share) 3,330,508 2,939,548 3,134,622
- -----------------------------------------------------------------
Shares available for grant
at January 1* 2,311,292 2,081,851 6,526,208
- -----------------------------------------------------------------
Shares available for grant
at December 31 626,210 219,451 6,442,787
- -----------------------------------------------------------------
SARs under option at
January 1 196,616 332,588 645,027
SARs forfeited (100,066) (135,972) (312,439)
- -----------------------------------------------------------------
SARs under option at
December 31 (at exercise
prices from $12.63 to
$17.13 per share) 96,550 196,616 332,588
=================================================================
SARs exercisable at
December 31 (at exercise
prices from $12.63 to
$17.13 per share) 96,550 196,616 332,588
- -----------------------------------------------------------------
*The number of shares available for grant in 1994 and 1993 under
the terms of the Omnibus Securities Plan were determined on an
annual basis. Shares available for grant in 1992 were based on
the total number of shares authorized for the life of the 1990
Stock Plan.
77
<PAGE>
Note 14--Taxes
Taxes charged to income before extraordinary items and cumulative
effect of change in accounting principle were:
Millions of Dollars
-----------------------
1994 1993 1992
-----------------------
Taxes Other Than Income Taxes
Property $ 91 89 98
Production 56 65 66
Payroll 56 58 61
Environmental 57 56 65
Other 11 15 20
- -----------------------------------------------------------------
271 283 310
- -----------------------------------------------------------------
Income Taxes
Federal
Current 74 60 32
Deferred (41) (105) (210)
Foreign
Current 340 312 398
Deferred (14) 26 10
State and local
Current 6 1 46
Deferred 3 (1) (35)
- -----------------------------------------------------------------
368 293 241
- -----------------------------------------------------------------
Total taxes charged to income before
extraordinary items and cumulative
effect of change in accounting
principle $639 576 551
=================================================================
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for tax purposes. Major components of deferred tax liabilities
and assets at December 31 were:
78
<PAGE>
Millions of Dollars
-------------------
1994 1993
-------------------
Deferred Tax Liabilities
Depreciation, depletion and amortization $1,685 1,549
Other 39 24
- -----------------------------------------------------------------
Total deferred tax liabilities 1,724 1,573
- -----------------------------------------------------------------
Deferred Tax Assets
Contingency accruals 144 166
Benefit plan accruals 208 175
Accrued dismantlement, removal and
environmental costs 180 138
Other financial accruals and deferrals 108 96
Alternative minimum tax and other
credit carryforwards 288 253
Loss carryforwards 247 222
Depreciation, depletion and amortization 16 33
Other 29 31
- -----------------------------------------------------------------
Total deferred tax assets 1,220 1,114
Less valuation allowance 142 181
- -----------------------------------------------------------------
Net deferred tax assets 1,078 933
- -----------------------------------------------------------------
Net deferred tax liabilities $ 646 640
=================================================================
Valuation allowances have been established for certain foreign
and state net operating loss carryforwards that reduce deferred
tax assets to an amount that will more likely than not be
realized. Uncertainties that may affect the realization of these
assets include the future level of product prices, costs and tax
rates. Based on the company's historical taxable income,
management expects that the net deferred tax assets will be
realized as offsets to reversing deferred tax liabilities and as
reductions in future taxable operating income. The alternative
minimum tax credit can be carried forward indefinitely to reduce
the company's regular tax liability. The utilization of capital-
loss carryforwards and changes in other loss carryforwards
resulted in a net decrease in the valuation allowance of
$39 million during 1994.
Deferred taxes have not been provided on temporary differences
related to investments in certain foreign subsidiaries and
corporate joint ventures that are essentially permanent in
duration. At December 31, 1994 and 1993, these temporary
differences were $275 million and $240 million, respectively.
Determination of the amount of unrecognized deferred taxes on
these temporary differences is not practicable due to foreign tax
credits and exclusions.
79
<PAGE>
The amounts of U.S. and foreign income before income taxes,
extraordinary items and cumulative effect of change in accounting
principle, with a reconciliation of tax at the federal statutory
rate with the provision for income taxes, were:
Percent of
Millions of Dollars Pretax Income
------------------- --------------------
1994 1993 1992 1994 1993 1992
------------------- --------------------
Income (loss) before
income taxes,
extraordinary items and
cumulative effect of
change in accounting
principle
United States $ 346 (4) (69) 40.6% (.7) (13.5)
Foreign 506 542 580 59.4 100.7 113.5
- ---------------------------------------------------------------------
$ 852 538 511 100.0% 100.0 100.0
=====================================================================
Federal statutory
income tax $ 298 188 174 35.0% 35.0 34.0
Foreign taxes in excess of
federal statutory rate 169 171 193 19.8 31.8 37.9
Revisions of prior year
tax accruals - - (78) - - (15.3)
Credit for producing fuel
from a non-conventional
source (44) (37) (42) (5.2) (6.9) (8.2)
Capital-loss carryforward (50) (27) - (5.8) (5.0) -
Other (5) (2) (6) (.6) (.4) (1.2)
- ---------------------------------------------------------------------
$ 368 293 241 43.2% 54.5 47.2
=====================================================================
Excise taxes accrued on the sale of petroleum products were
$1,121 million, $844 million and $752 million for the years ended
December 31, 1994, 1993 and 1992, respectively. These taxes are
excluded from reported revenues and expenses.
80
<PAGE>
Note 15--Cash Flow Information
Millions of Dollars
------------------------
1994 1993 1992
------------------------
Non-Cash Investing and Financing
Activities
Treasury stock awards issued (canceled)
under incentive compensation plans $(15) 7 (4)
Accrued expenditures for two liquefied
natural gas tankers based on
percentage of completion - - 102
Capitalized process license fee payable
in installments from 1993 to 1999 - 16 -
Contribution of non-cash net assets to
equity-method affiliates 109 27 -
- -----------------------------------------------------------------
Cash Payments
Interest
Debt $235 224 380
Taxes and other 48 45 119
- -----------------------------------------------------------------
$283 269 499
=================================================================
Income taxes $451 487 426
- -----------------------------------------------------------------
Note 16--Other Financial Information
Millions of Dollars
Except Per Share Amounts
------------------------
1994 1993 1992
------------------------
Interest
Incurred
Debt $ 237 234 311
Other 28 55 81
- -----------------------------------------------------------------
265 289 392
Capitalized (15) (11) (16)
- -----------------------------------------------------------------
Expensed $ 250 278 376
=================================================================
Maintenance and Repairs--expensed $ 441 481 537
- -----------------------------------------------------------------
Research and Development
Expenditures--expensed $ 78 93 96
- -----------------------------------------------------------------
Foreign Currency Transaction
Gains (Losses)--after-tax $ 3 (2) 27
- -----------------------------------------------------------------
Cash Dividends paid per
common share $1.12 1.12 1.12
- -----------------------------------------------------------------
81
<PAGE>
Note 17--Segment and Geographic Information
The company is primarily involved in four business segments:
1) Exploration and Production (E&P)--explores for and produces
crude oil, natural gas and natural gas liquids on a worldwide
basis; 2) Gas Gathering, Processing and Marketing (GPM)--gathers
and processes both natural gas produced by others and natural gas
produced from the company's own reserves; 3) Refining, Marketing
and Transportation (RM&T)--refines, markets and transports crude
oil and petroleum products; 4) Chemicals--fractionates natural
gas liquids, manufactures and markets a broad range of petroleum-
based chemical products. Corporate and Other includes general
corporate overhead, net interest expense and various other operations.
Sales and other operating revenues to outside customers and sales
within Phillips by business segment and by geographic area are at
market value. Operating profit excludes general corporate
revenue and expense, interest, minority interest, equity in
earnings of affiliates, and income taxes. Income taxes are
allocated based upon each segment's taxable income reduced by
applicable tax credits. Corporate assets include all cash and
cash equivalents.
82
<PAGE>
Analysis of Results by Business Segment
Millions of Dollars
--------------------------------
E&P GPM RM&T
--------------------------------
1994
Sales and Other Operating Revenues
Outside customers $1,787 595 7,029
Sales within Phillips 948 596 366
- -----------------------------------------------------------------------------
Segment sales $2,735 1,191 7,395
=============================================================================
Operating Profit $ 708 45 187
Equity in earnings
of affiliates 36 3 15
Minority interest (2) (32) -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (400) (17) (66)
- -----------------------------------------------------------------------------
Net income (loss) $ 342 (1) 136
=============================================================================
Assets
Identifiable assets $4,378 829 2,704
Investments in and advances
to affiliated companies 252 6 24
- -----------------------------------------------------------------------------
Total assets $4,630 835 2,728
=============================================================================
Depreciation, Depletion,
Amortization and Retirements $ 446 70 128
- -----------------------------------------------------------------------------
Capital Expenditures and Investments $ 707 172 100
- -----------------------------------------------------------------------------
1993**
Sales and Other Operating Revenues
Outside customers $1,741 607 7,032
Sales within Phillips 1,104 639 392
- -----------------------------------------------------------------------------
Segment sales $2,845 1,246 7,424
=============================================================================
Operating Profit $ 785 114 77
Equity in earnings
of affiliates 38 - 15
Minority interest (5) (32) -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (429) (40) (27)
Extraordinary item - - -
- -----------------------------------------------------------------------------
Net income (loss) $ 389 42 65
=============================================================================
Assets
Identifiable assets $4,121 750 2,603
Investments in and advances
to affiliated companies 277 5 26
- -----------------------------------------------------------------------------
Total assets $4,398 755 2,629
=============================================================================
Depreciation, Depletion,
Amortization and Retirements $ 450 73 121
- -----------------------------------------------------------------------------
Capital Expenditures and Investments $ 821 120 82
- -----------------------------------------------------------------------------
Analysis of Results by Business Segment
Millions of Dollars
------------------------------------
Corporate
Chemicals and Other Consolidated*
------------------------------------
1994
Sales and Other Operating Revenues
Outside customers $ 2,793 7 12,211
Sales within Phillips 507 45 -
- -----------------------------------------------------------------------------
Segment sales $ 3,300 52 12,211
=============================================================================
Operating Profit $ 323 (7) 1,256
Equity in earnings
of affiliates 30 - 84
Minority interest - - (34)
Corporate/non-operating items
Interest expense - (250) (250)
Other - (204) (204)
Income taxes (94) 209 (368)
- -----------------------------------------------------------------------------
Net income (loss) $ 259 (252) 484
=============================================================================
Assets
Identifiable assets $ 2,071 881 10,863
Investments in and advances
to affiliated companies 291 - 573
- -----------------------------------------------------------------------------
Total assets $ 2,362 881 11,436
=============================================================================
Depreciation, Depletion,
Amortization and Retirements $ 106 44 794
- -----------------------------------------------------------------------------
Capital Expenditures and Investments $ 144 31 1,154
- -----------------------------------------------------------------------------
1993**
Sales and Other Operating Revenues
Outside customers $ 2,920 9 12,309
Sales within Phillips 421 39 -
- -----------------------------------------------------------------------------
Segment sales $ 3,341 48 12,309
=============================================================================
Operating Profit $ 113 (18) 1,071
Equity in earnings
of affiliates 13 - 66
Minority interest 2 - (35)
Corporate/non-operating items
Interest expense - (278) (278)
Other - (286) (286)
Income taxes (37) 240 (293)
Extraordinary item - (2) (2)
- -----------------------------------------------------------------------------
Net income (loss) $ 91 (344) 243
=============================================================================
Assets
Identifiable assets $ 2,314 844 10,632
Investments in and advances
to affiliated companies 94 1 403
- -----------------------------------------------------------------------------
Total assets $ 2,408 845 11,035
=============================================================================
Depreciation, Depletion,
Amortization and Retirements $ 156 41 841
- -----------------------------------------------------------------------------
Capital Expenditures and Investments $ 174 29 1,226
- -----------------------------------------------------------------------------
See next page for accompanying footnotes.
83
<PAGE>
Millions of Dollars
--------------------------------
E&P GPM RM&T
--------------------------------
1992**
Sales and Other Operating Revenues
Outside customers $1,685 493 6,887
Sales within Phillips 1,220 669 366
- -----------------------------------------------------------------------------
Segment sales $2,905 1,162 7,253
=============================================================================
Operating Profit $ 825 125 122
Equity in earnings of
affiliates 47 - 16
Minority interest (10) (2) -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (485) (45) (44)
Extraordinary item - - -
Cumulative effect of
change in accounting
principle - - -
- -----------------------------------------------------------------------------
Net income (loss) $ 377 78 94
=============================================================================
Assets
Identifiable assets $4,128 727 2,844
Investments in and
advances to affiliated
companies 300 - 30
- -----------------------------------------------------------------------------
Total assets $4,428 727 2,874
=============================================================================
Depreciation, Depletion,
Amortization and Retirements $ 479 78 114
- -----------------------------------------------------------------------------
Capital Expenditures and Investments $ 585 73 216
- -----------------------------------------------------------------------------
Millions of Dollars
------------------------------------
Corporate
Chemicals and Other Consolidated*
------------------------------------
1992**
Sales and Other Operating Revenues
Outside customers $ 2,859 9 11,933
Sales within Phillips 476 64 -
- -----------------------------------------------------------------------------
Segment sales $ 3,335 73 11,933
=============================================================================
Operating Profit $ 49 - 1,121
Equity in earnings of
affiliates 2 - 65
Minority interest 1 2 (9)
Corporate/non-operating items
Interest expense - (376) (376)
Other - (290) (290)
Income taxes (3) 336 (241)
Extraordinary item - (46) (46)
Cumulative effect of
change in accounting
principle - (44) (44)
- -----------------------------------------------------------------------------
Net income (loss) $ 49 (418) 180
=============================================================================
Assets
Identifiable assets $ 2,455 925 11,079
Investments in and
advances to affiliated
companies 56 3 389
- -----------------------------------------------------------------------------
Total assets $ 2,511 928 11,468
=============================================================================
Depreciation, Depletion,
Amortization and Retirements $ 110 39 820
- -----------------------------------------------------------------------------
Capital Expenditures and Investments $ 269 29 1,172
- -----------------------------------------------------------------------------
*After elimination of intersegment transactions.
**Restated to reflect the transfer of the company's natural gas liquids
fractionation business to the Chemicals segment from the RM&T segment.
Also, the company's coal operations are now included in E&P, instead of
Corporate and Other, and the company's Puerto Rico facilities are now
aligned 100 percent with the Chemicals segment, instead of being allocated
between Chemicals and RM&T.
84
<PAGE>
Analysis of Results of Geographic Area
Millions of Dollars
-----------------------------------
United United
States Norway Kingdom Africa
-----------------------------------
1994
Sales and Other Operating Revenues
Outside customers $10,233 426 979 165
Sales within Phillips 141 483 2 47
- -----------------------------------------------------------------------------
Segment sales $10,374 909 981 212
=============================================================================
Operating Profit $ 784 352 16 64
- -----------------------------------------------------------------------------
Equity in Earnings of Affiliates $ 64 14 3 -
- -----------------------------------------------------------------------------
Assets
Identifiable assets $ 7,550 1,244 720 206
Investments in and advances to
affiliated companies 362 102 24 -
- -----------------------------------------------------------------------------
Total assets $ 7,912 1,346 744 206
=============================================================================
1993
Sales and Other Operating Revenues
Outside customers $10,334 466 923 117
Sales within Phillips 120 456 2 143
- -----------------------------------------------------------------------------
Segment sales $10,454 922 925 260
=============================================================================
Operating Profit $ 549 380 19 70
- -----------------------------------------------------------------------------
Equity in Earnings of Affiliates $ 48 15 3 -
- -----------------------------------------------------------------------------
Assets
Identifiable assets $ 7,752 1,162 521 200
Investments in and advances to
affiliated companies 269 105 24 -
- -----------------------------------------------------------------------------
Total assets $ 8,021 1,267 545 200
=============================================================================
1992
Sales and Other Operating Revenues
Outside customers $ 9,885 721 779 58
Sales within Phillips 147 343 2 192
- -----------------------------------------------------------------------------
Segment sales $10,032 1,064 781 250
=============================================================================
Operating Profit $ 558 449 30 89
- -----------------------------------------------------------------------------
Equity in Earnings of Affiliates $ 49 17 4 -
- -----------------------------------------------------------------------------
Assets
Identifiable assets $ 8,141 1,195 358 199
Investments in and advances to
affiliated companies 258 106 22 -
- -----------------------------------------------------------------------------
Total assets $ 8,399 1,301 380 199
=============================================================================
Analysis of Results by Geographic Area
Millions of Dollars
--------------------------------
Other Worldwide
Areas Corporate Consolidated*
---------------------------------
1994
Sales and Other Operating Revenues
Outside customers $ 408 - 12,211
Sales within Phillips 35 - -
- -----------------------------------------------------------------------------
Segment sales $ 443 - 12,211
=============================================================================
Operating Profit $ 40 - 1,256
- -----------------------------------------------------------------------------
Equity in Earnings of Affiliates $ 3 - 84
- -----------------------------------------------------------------------------
Assets
Identifiable assets $ 445 698 10,863
Investments in and advances to
affiliated companies 85 - 573
- -----------------------------------------------------------------------------
Total assets $ 530 698 11,436
=============================================================================
1993
Sales and Other Operating Revenues
Outside customers $ 469 - 12,309
Sales within Phillips 35 - -
- -----------------------------------------------------------------------------
Segment sales $ 504 - 12,309
=============================================================================
Operating Profit $ 53 - 1,071
- -----------------------------------------------------------------------------
Equity in Earnings of Affiliates $ - - 66
- -----------------------------------------------------------------------------
Assets
Identifiable assets $ 455 542 10,632
Investments in and advances to
affiliated companies 5 - 403
- -----------------------------------------------------------------------------
Total assets $ 460 542 11,035
=============================================================================
1992
Sales and Other Operating Revenues
Outside customers $ 490 - 11,933
Sales within Phillips 29 - -
- -----------------------------------------------------------------------------
Segment sales $ 519 - 11,933
=============================================================================
Operating Profit $ (5) - 1,121
- -----------------------------------------------------------------------------
Equity in Earnings of Affiliates $ (5) - 65
- -----------------------------------------------------------------------------
Assets
Identifiable assets $ 498 688 11,079
Investments in and advances to
affiliated companies 2 1 389
- -----------------------------------------------------------------------------
Total assets $ 500 689 11,468
=============================================================================
*After elimination of intergeographic transactions.
Export sales totaled $382 million, $346 million and $333 million for 1994,
1993 and 1992, respectively.
85
<PAGE>
- -----------------------------------------------------------------
Oil and Gas Operations
In accordance with Financial Accounting Standards Board (FASB)
Statement No. 69, "Disclosures about Oil and Gas Producing
Activities," and regulations of the Securities and Exchange
Commission (SEC), the company is making certain disclosures about
its oil and gas exploration and production operations. While
this information was developed with reasonable care and disclosed
in good faith, it is emphasized that some of the data are
necessarily imprecise and represent only approximate amounts
because of the subjective judgments involved in developing such
information. Accordingly, this information may not necessarily
represent the present financial condition of the company or its
expected future results.
Contents--Oil and Gas Operations
- -----------------------------------------------------------------
Proved Reserves Worldwide 87
Results of Operations 93
Statistics 95
Costs Incurred 99
Capitalized Costs 100
Standardized Measure of Discounted Future Net
Cash Flows Relating to Proved Oil and Gas
Reserve Quantities 101
86
<PAGE>
Proved Reserves Worldwide
Crude Oil
Years Ended ---------------------------------------------
December 31 Millions of Barrels
---------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------
Developed and
Undeveloped
End of 1991 829 326 340 11 98 54
Revisions of
previous estimates 32 3 31 - (3) 1
Improved recovery 10 4 5 - 1 -
Purchases of reserves
in place 2 2 - - - -
Extensions and
discoveries 64 19 - 31 13 1
Production (76) (34) (26) (3) (9) (4)
Sales of reserves
in place (5) (5) - - - -
- ------------------------------------------------------------------
End of 1992 856 315 350 39 100 52
Revisions of
previous estimates (19) (16) (7) (1) (1) 6
Improved recovery 58 7 44 - 5 2
Purchases of reserves
in place 7 6 - 1 - -
Extensions and
discoveries 25 19 - - 4 2
Production (73) (34) (26) (2) (9) (2)
Sales of reserves
in place (12) (4) - - (2) (6)
- ------------------------------------------------------------------
End of 1993 842 293 361 37 97 54
Revisions of
previous estimates 68 (1) 74 (5) - -
Improved recovery 17 5 12 - - -
Purchases of reserves
in place 6 2 - 4 - -
Extensions and
discoveries 23 11 - 8 3 1
Production (76) (33) (31) (2) (8) (2)
Sales of reserves
in place (3) (3) - - - -
- ------------------------------------------------------------------
End of 1994 877 274 416 42 92 53
==================================================================
Developed
End of 1991 715 268 310 9 93 35
End of 1992 714 259 326 7 90 32
End of 1993 680 245 314 4 83 34
End of 1994 703 226 350 4 89 34
- ------------------------------------------------------------------
87
<PAGE>
o Proved reserves are those quantities of crude oil, natural
gas and natural gas liquids (NGL) that, upon analysis of
geological and engineering data, appear with reasonable
certainty to be recoverable in the future from known oil and
gas reservoirs under existing economic and operating
conditions. As additional information becomes available or
conditions change, estimates must be revised.
o Developed reserves are those portions of proved reserves that
are recoverable through existing well bores, and production
equipment and facilities.
o Revisions of previous estimates in Norway in 1994 are mainly
due to a license extension and redevelopment plan.
88
<PAGE>
Proved Reserves Worldwide
Natural Gas
Years Ended ----------------------------------------------
December 31 Billions of Cubic Feet
----------------------------------------------
United United Other
Total States Norway* Kingdom Africa Areas
----------------------------------------------
Developed and
Undeveloped
End of 1991 5,639 3,817 1,333 176 32 281
Revisions of
previous estimates 60 (8) 93 7 - (32)
Improved recovery 108 107 - - - 1
Purchases of
reserves in place 20 15 - 5 - -
Extensions and
discoveries 538 228 - 297 - 13
Production (509) (350) (121) (18) - (20)
Sales of reserves
in place (40) (40) - - - -
- ------------------------------------------------------------------
End of 1992 5,816 3,769 1,305 467 32 243
Revisions of
previous estimates 452 579 (122) 2 - (7)
Improved recovery 12 8 4 - - -
Purchases of
reserves in place 27 19 - 7 - 1
Extensions and
discoveries 339 281 - - - 58
Production (493) (345) (107) (20) - (21)
Sales of reserves
in place (84) (35) - - - (49)
- ------------------------------------------------------------------
End of 1993 6,069 4,276 1,080 456 32 225
Revisions of
previous estimates 262 92 172 (8) - 6
Improved recovery 95 5 83 5 - 2
Purchases of
reserves in place 84 5 - 79 - -
Extensions and
discoveries 473 132 - 233 - 108
Production (519) (370) (106) (23) - (20)
Sales of reserves
in place (88) (88) - - - -
- ------------------------------------------------------------------
End of 1994 6,376 4,052 1,229 742 32 321
==================================================================
Developed
End of 1991 4,969 3,366 1,274 115 - 214
End of 1992 4,839 3,279 1,246 108 - 206
End of 1993 5,194 3,827 1,068 148 - 151
End of 1994 5,030 3,694 989 129 32 186
- ------------------------------------------------------------------
*Certain amounts in Norway were restated for production and
revisions of previous estimates for 1992 and 1993.
89
<PAGE>
o Natural gas production may differ from gas production
(delivered for sale) on page 95, primarily because the
quantities above omit the gas equivalent of the liquids,
where applicable, but include gas consumed at the lease.
o Revisions of previous estimates in the United States in 1994
are mainly for the San Juan Basin in New Mexico. Amounts in
Norway are primarily due to a license extension and
redevelopment plan.
o Amounts for improved recovery in Norway in 1994 are mainly
for the Eldfisk and Ekofisk fields.
o Purchases of reserves in place in the United Kingdom in 1994
are for an additional interest in the Britannia field.
o Extensions and discoveries in the United Kingdom in 1994 are
mainly for the Armada, Britannia and Alison fields. Amounts
in Other Areas are in Canada.
o Sales of reserves in place in the United States in 1994 were
mainly from the San Juan Basin in New Mexico.
o Natural gas reserves are computed at 14.65 pounds per square
inch absolute and 60 degrees Fahrenheit.
90
<PAGE>
Proved Reserves Worldwide
Natural Gas Liquids
Years Ended ---------------------------------------------
December 31 Millions of Barrels
---------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------
Developed and
Undeveloped
End of 1991 227 158 46 - 21 2
Revisions of
previous estimates (4) 3 (6) - - (1)
Purchases of reserves
in place 3 3 - - - -
Extensions and
discoveries 10 6 - 3 - 1
Production (19) (16) (3) - - -
Sales of reserves in
place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1992 216 153 37 3 21 2
Revisions of
previous estimates (10) (6) (3) - - (1)
Improved recovery 1 1 - - - -
Purchases of reserves
in place 1 1 - - - -
Extensions and
discoveries 4 4 - - - -
Production (16) (13) (3) - - -
Sales of reserves in
place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1993 195 139 31 3 21 1
Revisions of
previous estimates 8 1 7 - - -
Improved recovery 2 - 2 - - -
Extensions and
discoveries 7 4 - 3 - -
Production (15) (12) (3) - - -
Sales of reserves in
place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1994 196 131 37 6 21 1
==================================================================
Developed
End of 1991 195 150 43 - - 2
End of 1992 181 146 33 - - 2
End of 1993 162 132 29 - - 1
End of 1994 178 125 31 - 21 1
- ------------------------------------------------------------------
91
<PAGE>
o NGL reserves include estimates of NGL to be extracted from
Phillips leasehold gas at gas processing plants and
facilities. Estimates are based at the wellhead and assume
full extraction. NGL extraction is attributable to Phillips'
E&P operations and GPM operations. NGL production above
differs from NGL production per day delivered for sale by E&P
and GPM due to gas consumed at the lease and the difference
between assumed full extraction and the actual amount of
liquids extracted and sold.
92
<PAGE>
RESULTS OF OPERATIONS
Millions of Dollars
----------------------------
United
Total States Norway
----------------------------
1994
Sales $1,166 640 261
Transfers 944 450 478
Other revenues 111 72 29
- --------------------------------------------------------------------------
Total revenues 2,221 1,162 768
Production costs 815 449 269
Exploration expenses 228 106 32
Depreciation, depletion, amortization
and retirements 423 258 103
Other related expenses 61 59 (1)
- --------------------------------------------------------------------------
694 290 365
Provision for income taxes 366 47 280
- --------------------------------------------------------------------------
Results of operations for producing
activities 328 243 85
Other earnings 14 14 -
- --------------------------------------------------------------------------
E&P net income $ 342 257 85
==========================================================================
1993
Sales $1,148 703 261
Transfers 1,065 476 455
Other revenues 139 35 61
- --------------------------------------------------------------------------
Total revenues 2,352 1,214 777
Production costs 831 463 266
Exploration expenses 256 140 16
Depreciation, depletion, amortization
and retirements 424 267 95
Other related expenses 60 47 5
- --------------------------------------------------------------------------
781 297 395
Provision for income taxes 414 66 288
- --------------------------------------------------------------------------
Results of operations for producing
activities 367 231 107
Other earnings 22 22 -
- --------------------------------------------------------------------------
E&P net income $ 389 253 107
==========================================================================
1992
Sales $1,209 658 345
Transfers 1,208 538 502
Other revenues 48 (11) 57
- --------------------------------------------------------------------------
Total revenues 2,465 1,185 904
Production costs 940 475 346
Exploration expenses 250 92 23
Depreciation, depletion, amortization
and retirements 442 292 81
Other related expenses 29 45 (10)
- --------------------------------------------------------------------------
804 281 464
Provision for income taxes 465 51 337
- --------------------------------------------------------------------------
Results of operations for producing
activities 339 230 127
Other earnings 38 38 -
- --------------------------------------------------------------------------
E&P net income $ 377 268 127
==========================================================================
RESULTS OF OPERATIONS
Millions of Dollars
-----------------------------
United Other
Kingdom Africa Areas
-----------------------------
1994
Sales $ 89 124 52
Transfers - 16 -
Other revenues 1 1 8
- --------------------------------------------------------------------------
Total revenues 90 141 60
Production costs 33 38 26
Exploration expenses 25 28 37
Depreciation, depletion, amortization
and retirements 35 10 17
Other related expenses (1) 3 1
- --------------------------------------------------------------------------
(2) 62 (21)
Provision for income taxes (2) 56 (15)
- --------------------------------------------------------------------------
Results of operations for producing
activities - 6 (6)
Other earnings - - -
- --------------------------------------------------------------------------
E&P net income $ - 6 (6)
==========================================================================
1993
Sales $ 88 23 73
Transfers - 134 -
Other revenues 2 (8) 49
- --------------------------------------------------------------------------
Total revenues 90 149 122
Production costs 31 41 30
Exploration expenses 32 21 47
Depreciation, depletion, amortization
and retirements 26 13 23
Other related expenses 1 3 4
- --------------------------------------------------------------------------
- 71 18
Provision for income taxes (19) 68 11
- --------------------------------------------------------------------------
Results of operations for producing
activities 19 3 7
Other earnings - - -
- --------------------------------------------------------------------------
E&P net income $ 19 3 7
==========================================================================
1992
Sales $109 10 87
Transfers - 168 -
Other revenues 1 1 -
- --------------------------------------------------------------------------
Total revenues 110 179 87
Production costs 35 47 37
Exploration expenses 36 42 57
Depreciation, depletion, amortization
and retirements 24 11 34
Other related expenses (7) 1 -
- --------------------------------------------------------------------------
22 78 (41)
Provision for income taxes - 74 3
- --------------------------------------------------------------------------
Results of operations for producing
activities 22 4 (44)
Other earnings - - -
- --------------------------------------------------------------------------
E&P net income $ 22 4 (44)
==========================================================================
93
<PAGE>
o Results of operations for producing activities consist of all
the activities within the E&P organization except for a
liquefied natural gas (LNG) operation, minerals operations, a
gas marketing company, and a U.S. natural gas pipeline
operation, which are included in other earnings. Also
excluded are non-E&P activities, including NGL extraction
facilities in Phillips' GPM organization, as well as
downstream petroleum and chemical activities. In addition,
there is no deduction for general corporate administrative
expenses or interest.
o Transfers are valued at prices that approximate market.
o Other revenues include gains and losses from asset sales,
equity in earnings from certain transportation and processing
operations that directly support the company's producing
operations, some revenue resulting from the purchase and sale
of hydrocarbons and other miscellaneous income.
o Production costs consist of costs incurred to operate and
maintain wells and related equipment and facilities used in
the production of petroleum liquids and natural gas. These
costs also include taxes other than income taxes,
depreciation of support equipment, cost of retirements, and
administrative expenses related to the production activity.
Excluded are depreciation, depletion and amortization of
capitalized acquisition, exploration and development costs.
o Exploration expenses include dry hole, leasehold impairment,
geological and geophysical expenses and the cost of retaining
undeveloped leaseholds. Also included are taxes other than
income taxes, depreciation of support equipment and
administrative expenses related to the exploration activity.
o Depreciation, depletion, amortization and retirements differ
from that shown in Analysis of Results by Business Segment on
pages 83 and 84, as cost of retirements and depreciation of
support equipment are included with production or exploration
expenses, as applicable, in Results of Operations.
o Other related expenses are primarily third party
transportation expense, foreign currency gains and losses and
other miscellaneous expenses.
o The provision for income taxes is computed by adjusting each
country's income before income taxes for permanent
differences related to the oil and gas producing activities
that are reflected in the company's consolidated income tax
expense for the period, multiplying the result by the
country's statutory tax rate and adjusting for applicable tax
credits.
94
<PAGE>
STATISTICS
Net Production 1994 1993 1992
---------------------------
Thousands of Barrels Daily
---------------------------
Crude Oil
United States 90 93 96
Norway 82 72 71
United Kingdom 5 6 8
Africa 23 24 25
Other areas 6 8 9
- -----------------------------------------------------------------
206 203 209
=================================================================
Natural Gas Liquids
United States* 5 5 5
Norway 8 8 8
Other areas 1 - -
- -----------------------------------------------------------------
14 13 13
=================================================================
*Represents amounts extracted attributable to E&P operations.
Additional quantities of NGL are extracted at GPM gas processing
plants (see NGL reserves page 92 for further discussion).
Millions of Cubic Feet Daily
Natural Gas ----------------------------
United States (less gas equivalent
of liquids shown above)* 1,035 973 1,018
Norway (dry basis) 272 272 312
United Kingdom (dry basis) 58 54 49
Other areas 49 56 50
- -----------------------------------------------------------------
1,414 1,355 1,429
=================================================================
*Represents quantities available for sale. Natural gas sold from
the lease to third parties and to the company's GPM organization
is on a wet basis. Quantities of gas from which NGL have been
extracted, attributable to E&P operations, are included on a dry
basis.
Average Sales Prices 1994 1993 1992
----------------------------
Crude Oil--Per Barrel
United States $13.36 14.20 16.16
Norway 15.77 17.33 19.57
United Kingdom 16.06 17.53 19.77
Africa 16.10 17.75 19.94
Other areas 12.92 15.16 17.58
Total Foreign 15.75 17.30 19.51
Worldwide 14.73 15.92 18.01
- -----------------------------------------------------------------
Natural Gas Liquids--Per Barrel
United States 11.60 12.18 12.80
Norway 8.59 8.55 11.13
- -----------------------------------------------------------------
Natural Gas (Lease)--Per Thousand
Cubic Feet
United States 1.75 1.99 1.67
Norway 2.34 2.49 2.75
United Kingdom 2.75 2.44 2.72
Other areas 1.54 1.38 1.27
Total Foreign 2.31 2.36 2.61
Worldwide 1.92 2.11 1.99
- -----------------------------------------------------------------
95
<PAGE>
Statistics
1994 1993 1992
-------------------------
Average Production Costs*--
Per Equivalent Barrel of Oil
United States $4.58 4.86 4.78
Norway 5.46 5.86 7.25
United Kingdom 5.98 5.64 5.73
Africa 4.55 4.62 5.16
Other areas 5.00 4.74 5.58
Worldwide 4.90 5.15 5.57
- -----------------------------------------------------------------
*Production costs consist of costs incurred to operate and
maintain wells and related equipment and facilities used in the
production of petroleum liquids and natural gas. These costs
also include taxes other than income taxes, depreciation of
support equipment, cost of retirements, and administrative
expenses associated with the production activity. Excluded are
depreciation, depletion and amortization of capitalized
acquisition, exploration and development costs.
o Per unit costs in 1994, compared with 1993, were lower in the
United States, Norway and Africa. The United States had
higher production volumes and lower costs, Norway had higher
production volumes, partly offset by higher costs and Africa
had lower costs, partly offset by lower production. Unit
costs were higher in the United Kingdom as higher production
volumes were more than offset by higher costs. The increase
in Other areas was mainly due to lower Canadian production
volumes and the start-up of production in China.
96
<PAGE>
Thousands of Acres
Acreage at December 31, 1994 ------------------
Gross Net
------------------
Developed
United States 1,742 1,251
Norway 45 17
United Kingdom 165 56
Africa 81 16
Other areas 284 96
- -----------------------------------------------------------------
2,317 1,436
=================================================================
Undeveloped
United States 2,990 2,031
Norway 1,291 264
United Kingdom 1,108 450
Africa* 26,710 10,947
Canada 1,487 301
Other areas 11,732 7,356
- -----------------------------------------------------------------
45,318 21,349
=================================================================
*Includes two Somalia concessions where operations have been
suspended by declarations of force majeure totaling 21,865 gross
and 8,135 net acres.
97
<PAGE>
Statistics
Productive Dry
Net Wells Completed* ---------------- ----------------
1994 1993 1992 1994 1993 1992
---------------- ----------------
Exploratory
United States 6 8 7 11 10 7
Norway - ** - ** ** **
United Kingdom 2 - 5 1 1 **
Africa - - ** ** 1 4
Other areas 1 3 - 2 3 7
- ------------------------------------------------------------------
9 11 12 14 15 18
==================================================================
Development
United States 88 115 98 7 10 9
Norway - 1 1 - - -
United Kingdom ** 2 1 - ** -
Africa 1 1 1 - ** -
Other areas 3 23 6 1 1 1
- ------------------------------------------------------------------
92 142 107 8 11 10
==================================================================
*Excludes farmout arrangements.
**Phillips' total proportionate interest was less than one.
Wells at Year-End 1994
Productive**
----------------------------
In Progress* Oil Gas
------------ ------------- ------------
Gross Net Gross Net Gross Net
------------ ------------- ------------
United States 44 18 17,085 4,449 5,387 2,904
Norway - - 135 49 38 10
United Kingdom 20 7 26 8 67 10
Africa 4 1 184 37 10 2
Other areas 10 5 826 322 240 82
- ------------------------------------------------------------------
78 31 18,256 4,865 5,742 3,008
==================================================================
*Includes wells that have been temporarily suspended.
**Includes 1,391 gross and 462 net multiple completion wells.
98
<PAGE>
COSTS INCURRED
Millions of Dollars
--------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
--------------------------------------------------
1994
Acquisition $ 99 48 - 48 - 3
Exploration 202 95 18 25 31 33
Development 515 207 67 166 17 58
- ------------------------------------------------------------------
$816 350 85 239 48 94
==================================================================
1993
Acquisition $ 51 45 - 4 - 2
Exploration 275 158 16 34 22 45
Development 482 213 58 123 38 50
- ------------------------------------------------------------------
$808 416 74 161 60 97
==================================================================
1992
Acquisition $ 16 8 - 6 - 2
Exploration 241 88 27 43 32 51
Development 395 146 122 43 48 36
- ------------------------------------------------------------------
$652 242 149 92 80 89
==================================================================
o Costs incurred include capitalized and expensed items.
o Acquisition costs include the costs of acquiring undeveloped
oil and gas leaseholds. It includes proved properties of
$2 million and $8 million in the United States for 1994 and
1993, respectively, and $48 million and $4 million in the
United Kingdom for 1994 and 1993, respectively.
o Exploration costs include geological and geophysical
expenses, the cost of retaining undeveloped leaseholds, and
exploratory drilling costs.
o Development costs include the cost of drilling and equipping
development wells and building related production facilities
for extracting, treating, gathering and storing petroleum
liquids and natural gas.
99
<PAGE>
CAPITALIZED COSTS
At December 31 Millions of Dollars
----------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
----------------------------------------------
1994
Proved properties $9,314 5,350 2,284 971 384 325
Unproved properties 369 297 - 39 9 24
- ------------------------------------------------------------------
9,683 5,647 2,284 1,010 393 349
Accumulated
depreciation,
depletion and
amortization 6,017 4,001 1,214 485 199 118
- ------------------------------------------------------------------
$3,666 1,646 1,070 525 194 231
==================================================================
1993*
Proved properties $8,814 5,458 2,003 708 364 281
Unproved properties 482 388 13 47 6 28
- ------------------------------------------------------------------
9,296 5,846 2,016 755 370 309
Accumulated
depreciation,
depletion and
amortization 5,915 4,174 1,006 437 188 110
- ------------------------------------------------------------------
$3,381 1,672 1,010 318 182 199
==================================================================
*Restated.
o Capitalized costs include the cost of equipment and
facilities for oil and gas producing activities. These costs
include the activities of Phillips' E&P organization,
excluding the Kenai LNG operation, minerals operations, a gas
marketing company, and a U.S. natural gas pipeline operation.
o Proved properties include capitalized costs for oil and gas
leaseholds holding proved reserves, development wells and
related equipment and facilities (including uncompleted
development well costs) and support equipment.
o Unproved properties include capitalized costs for oil and gas
leaseholds under exploration (even where petroleum liquids
and natural gas were found but not in sufficient quantities
to be considered proved reserves) and uncompleted exploratory
well costs, including exploratory wells under evaluation.
100
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVE QUANTITIES
Amounts are computed using year-end prices and costs (adjusted
only for existing contractual changes), appropriate statutory tax
rates and a prescribed 10 percent discount factor. Continuation
of year-end economic conditions also is assumed. The calculation
is based on estimates of proved reserves, which are revised over
time as new data becomes available. Probable or possible
reserves, which may become proved in the future, are not
considered. The calculation also requires assumptions as to the
timing of future production of proved reserves, and the timing
and amount of future development and production costs.
While due care was taken in its preparation, the company does not
represent that this data is the fair value of the company's oil
and gas properties, or a fair estimate of the present value of
cash flows to be obtained from their development and production.
101
<PAGE>
Discounted Future Net Cash Flows
Millions of Dollars
----------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
----------------------------------------------------
1994
Future cash inflows $25,219 10,532 9,594 2,282 1,634 1,177
Less:
Future production costs 9,079 4,290 3,229 620 436 504
Future development costs 2,694 839 1,126 559 42 128
Future income tax
provisions 6,429 1,319 3,951 233 897 29
- ------------------------------------------------------------------------------
Future net cash flows 7,017 4,084 1,288 870 259 516
10% annual discount 3,204 1,811 628 427 121 217
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 3,813 2,273 660 443 138 299
==============================================================================
1993
Future cash inflows $23,693 11,661 7,940 1,485 1,513 1,094
Less:
Future production costs 9,048 4,713 3,096 345 468 426
Future development costs 2,818 1,008 1,175 457 50 128
Future income tax
provisions 5,025 1,375 2,668 159 763 60
- ------------------------------------------------------------------------------
Future net cash flows 6,802 4,565 1,001 524 232 480
10% annual discount 3,227 2,198 437 257 107 228
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 3,575 2,367 564 267 125 252
==============================================================================
1992
Future cash inflows $27,070 11,845 10,103 1,883 2,022 1,217
Less:
Future production costs 10,288 4,538 4,345 402 519 484
Future development costs 2,317 1,062 350 679 56 170
Future income tax
provisions 6,854 1,469 3,980 223 1,130 52
- ------------------------------------------------------------------------------
Future net cash flows 7,611 4,776 1,428 579 317 511
10% annual discount 3,590 2,243 627 322 147 251
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 4,021 2,533 801 257 170 260
==============================================================================
102
<PAGE>
Sources of Change in Discounted Future Net Cash Flows
Millions of Dollars
---------------------------
1994 1993 1992
---------------------------
Discounted future net cash flows
at the beginning of the year $ 3,575 4,021 3,322
- ------------------------------------------------------------------
Changes during the year
Revenues less production costs
for the year (1,295) (1,382) (1,477)
Net change in prices and
production costs 786 (1,183) 92
Extensions, discoveries and
improved recovery, less
estimated future costs 345 537 511
Development costs for the year 515 482 395
Changes in estimated future
development costs (49) (574) (16)
Purchases of reserves in place,
less estimated future costs 19 44 30
Sales of reserves in place,
less estimated future costs (55) (98) (56)
Revisions of previous quantity
estimates 10 13 190
Accretion of discount 592 722 685
Net change in income taxes (630) 996 346
Other - (3) (1)
- ------------------------------------------------------------------
Total changes 238 (446) 699
- ------------------------------------------------------------------
Discounted future net cash flows
at year-end $ 3,813 3,575 4,021
==================================================================
o The net change in prices and production costs is the
beginning of the year reserve production forecast multiplied
by the net annual change in the per unit sales price and
production cost, discounted at 10 percent.
o Purchases and sales of reserves in place, and extensions,
discoveries and improved recovery are production forecasts of
the applicable reserve quantities for the year multiplied by
the end of the year sales price, less future estimated costs,
discounted at 10 percent.
o The accretion of discount is 10 percent of the prior year's
discounted future cash inflows, less future production and
development costs.
o The net change in income taxes is the annual change in the
discounted future income tax provisions.
103
<PAGE>
- -------------------------------------------------------------------------------
Selected Quarterly Financial Data
Per Share of
Millions of Dollars Common Stock
----------------------------------------------- ---------------------
Income Before
Income Taxes,
Subsidiary
Stock
Sales Transaction
and Other and Income Before Income Before
Operating Extraordinary Extraordinary Net Extraordinary Net
Revenues Items Items Income Items Income
----------------------------------------------- ---------------------
1994
First $2,884 208 127 127 .49 .49
Second 2,995 161 76 76 .29 .29
Third 3,315 234 119 119 .45 .45
Fourth 3,017 229 162 162 .62 .62
- ------------------------------------------------------------------------------
1993
First $3,029 183 61 61 .23 .23
Second 3,230 224 123 121 .47 .46
Third 3,170 122 41 41 .16 .16
Fourth 2,880 9 20 20 .08 .08
- ------------------------------------------------------------------------------
During the first quarter of 1994, Phillips realized a gain of $20 million,
$.08 per share, from a subsidiary stock transaction. Work force reduction
charges of $5 million, $22 million and $9 million, or $.02, $.08 and $.03 per
share, were incurred during the first, third and fourth quarters of 1994,
respectively. Capital-loss carryforwards and changes in deferred tax assets
added $50 million and $28 million to income, respectively, during the last
quarter of 1994--an increase of $.19 and $.11 per share, respectively. Net
income decreased $2 million, $.01 per share, in the third quarter, but
increased $15 million, $.06 per share, in the fourth quarter due to net gains
and losses on asset dispositions. Net income was also increased in the second
and third quarters by $14 million, $.05 per share, and $7 million, $.03 per
share, due to pending claims, but pending claims decreased income in the
fourth quarter by $7 million, $.03 per share. All of the amounts appearing in
this paragraph are presented on an after-tax basis.
During the first and second quarters of 1993, the company incurred after-tax
charges of $22 million, $.08 per share, and $4 million, $.02 per share,
respectively, for the estimated cost of work force reductions. In the second
quarter of 1993, the company incurred a before-tax extraordinary loss of
$3 million attributed to call premiums paid on the early redemption of debt.
The after-tax loss was $2 million, $.01 per share. During the second and
fourth quarters of 1993, the company incurred after-tax accruals for pending
claims of $13 million, $.05 per share, and $19 million, $.07 per share,
respectively. During the first and fourth quarters of 1993, results included
after-tax net asset-sale gains of $20 million, $.08 per share, and
$39 million, $.15 per share, respectively. In addition, fourth quarter 1993
results included a $24 million, $.09 per share, tax benefit from the
utilization of a capital-loss carryforward and a $12 million, $.05 per share,
after-tax writedown associated with exiting the catalyst business.
104
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
105
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information presented under the heading "Nominees for Election as
Directors" in the company's definitive proxy statement for the
Annual Meeting of Stockholders on May 8, 1995, is incorporated
herein by reference.* Information regarding the executive officers
appears in Part I of this report on pages 20 and 21.
Item 11. EXECUTIVE COMPENSATION
Information presented under the following headings in the company's
definitive proxy statement for the Annual Meeting of Stockholders
on May 8, 1995, is incorporated herein by reference:
Compensation Committee Interlocks and Insider Participation
Executive Compensation
Options/SAR Grants in Last Fiscal Year
Aggregated Option/SAR Exercises in Last Fiscal Year, and Fiscal
Year-end Option/SAR Value
Long-Term Incentive Plan Awards in Last Fiscal Year
Pension Plan Table
Termination of Employment and Change-in-Control Arrangements
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information presented under the headings "Voting Securities and
Principal Holders," "Nominees for Election as Directors," "Security
Ownership of Certain Beneficial Owners," and "Security Ownership of
Management" in the company's definitive proxy statement for the
Annual Meeting of Stockholders on May 8, 1995, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- ---------------------
*Except for information or data specifically incorporated herein by
reference under Items 10 through 13, other information and data
appearing in the company's definitive proxy statement for the
Annual Meeting of Stockholders on May 8, 1995, are not deemed to
be a part of this Annual Report on Form 10-K or deemed to be filed
with the Commission as a part of this report.
106
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements and Financial Statement Schedules
------------------------------------------------------
The financial statements and schedules listed in the
Index to Financial Statements and Financial Statement
Schedules, which appears on page 52, are filed as part
of this annual report.
2. Exhibits
--------
The exhibits listed in the Index to Exhibits, which
appears on pages 109 through 112, are filed as a part of
this annual report.
(b) Reports on Form 8-K
-------------------
During the three months ended December 31, 1994, the
registrant has not filed any reports on Form 8-K.
107
<PAGE>
PHILLIPS PETROLEUM COMPANY
(Consolidated)
SCHEDULE II--VALUATION ACCOUNTS AND RESERVES
Millions of Dollars
-----------------------------------------------------
Additions
Balance ----------------- Balance
at Charged to at
Description January 1 Expense Other Deductions December 31
- ------------------------------------------------------------------------------
(a) (b)
1994
Deducted from asset
accounts:
Allowance for doubtful
accounts and notes
receivable $ 14 11 - 5 (c) 20
Deferred tax asset
valuation allowance 181 (39) (4) (4)(d) 142
- ------------------------------------------------------------------------------
l993
Deducted from asset
accounts:
Allowance for doubtful
accounts and notes
receivable $ 16 4 - 6(c) 14
Deferred tax asset
valuation allowance 219 18 (3) 53(d) 181
- ------------------------------------------------------------------------------
1992
Deducted from asset
accounts:
Allowance for doubtful
accounts and notes
receivable $ 18 8 - 10(c) 16
Deferred tax asset
valuation allowance - 225* (6) - 219
- ------------------------------------------------------------------------------
*Includes a $198 million allowance established as part of the cumulative
effect of a change in accounting principle under the provisions of FASB
Statement No. 109, "Accounting for Income Taxes," adopted by the company
effective January 1, 1992.
(a) Accounts charged to income less reversal of amounts previously charged to
income.
(b) Represents effect of translating foreign financial statements.
(c) Accounts charged off less recoveries of accounts previously charged off.
(d) Adjustment in valuation allowance for net operating losses.
108
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3(i) Restated Certificate of Incorporation, as filed with
the State of Delaware July 17, 1989 (incorporated by
reference to Exhibit 4(a) to Quarterly Report on Form
10-Q for the quarter ended June 30, 1989).
(ii) Bylaws of Phillips Petroleum Company, as amended
effective February 13, 1995.
4(a) Indenture dated as of September 15, 1990, between
Phillips Petroleum Company and Bank of America
Illinois (formerly Continental Bank, National
Association), relating to the 9 1/2% Notes due 1997
and the 9 3/8% Notes due 2011 (incorporated by
reference to Exhibit 4(c) to Annual Report on Form
10-K for the year ended December 31, 1990).
(b) Indenture dated as of September 15, 1990, as
supplemented by Supplemental Indenture No. 1 dated
May 23, 1991, between Phillips Petroleum Company and
Bank of America Illinois (formerly Continental Bank,
National Association), relating to the 9.18% Notes
due September 15, 2021, the 9% Notes due 2001, the
8.86% Notes due May 15, 2022, the 8.49% Notes due
January 1, 2023, the 7.92% Notes due April 15, 2023,
the 7.20% Notes due November 1, 2023 and the 6.65%
Notes due March 1, 2003 (incorporated by reference to
Exhibit 4(d) to Annual Report on Form 10-K for the
year ended December 31, 1991).
(c) Preferred Share Purchase Rights as described in the
Rights Agreement dated as of July 10, 1989, between
Phillips Petroleum Company and Chemical Bank
(formerly Manufacturers Hanover Trust Company)
(incorporated by reference to Exhibit 1 to Current
Report on Form 8-K dated July 10, 1989).
(d) Amendment dated May 16, 1990, to the Rights Agreement
dated July 10, 1989, between Phillips Petroleum
Company and Chemical Bank (formerly Manufacturers
Hanover Trust Company) (incorporated by reference to
Exhibit 1 to Current Report on Form 8-K dated May 16,
1990).
The company incurred during 1994 certain long-term
debt not registered pursuant to the Securities
Exchange Act of 1934. No instrument with respect to
such debt is being filed since the total amount of
the securities authorized under any such instrument
109
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
did not exceed 10 percent of the total assets of the
company on a consolidated basis. The company hereby
agrees to furnish to the Securities and Exchange
Commission upon its request a copy of such instrument
defining the rights of the holders of such debt.
10(a) Agreement dated December 23, 1984, among Mesa Partners
and related entities and Phillips Petroleum Company
and the schedules, annexes and exhibit thereto
(incorporated by reference to Exhibit 10(a) to Annual
Report on Form 10-K for the year ended December 31,
1989).
(b) Letter Agreement dated December 23, 1984, among Mesa
Partners and related entities and Phillips Petroleum
Company (incorporated by reference to Exhibit 10(b)
to Annual Report on Form 10-K for the year ended
December 31, 1989).
(c) Deferred Compensation Plan for Non-Employee Directors
of Phillips Petroleum Company (incorporated by
reference to Exhibit 10(d) to Annual Report on Form
10-K for the year ended December 31, 1990).
(d) 1986 Stock Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(d) to Annual
Report on Form 10-K for the year ended December 31,
1992).
(e) 1990 Stock Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(f) to Annual
Report on Form 10-K for the year ended December 31,
1989).
(f) Annual Incentive Compensation Plan of Phillips
Petroleum Company (incorporated by reference to
Exhibit 10(f) to Annual Report on Form 10-K for the
year ended December 31, 1992).
(g) Incentive Compensation Plan of Phillips Petroleum
Company.
(h) Principal Corporate Officers Supplemental Retirement
Plan of Phillips Petroleum Company (incorporated by
reference to Exhibit 10(h) to Annual Report on Form
10-K for the year ended December 31, 1989).
110
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
10(i) Phillips Petroleum Company Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit
10(i) to Annual Report on Form 10-K for year ended
December 31, 1993).
(j) Key Employee Deferred Compensation Plan of Phillips
Petroleum Company.
(k) Non-Employee Director Retirement Plan of Phillips
Petroleum Company (incorporated by reference to
Exhibit 10(k) to Annual Report on Form 10-K for the
year ended December 31, 1992).
(l) Omnibus Securities Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10 to Quarterly
Report on Form 10-Q for the quarter ended June 30,
1993).
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries of Phillips Petroleum Company.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
99(a) Form 11-K, Annual Report, of the Thrift Plan of
Phillips Petroleum Company for the fiscal year ended
December 31, 1994 (to be filed by amendment pursuant
to Rule 15d-21).
(b) Form 11-K, Annual Report, of the Long-Term Stock
Savings Plan of Phillips Petroleum Company for the
fiscal year ended December 31, 1994 (to be filed by
amendment pursuant to Rule 15d-21).
(c) Form 11-K, Annual Report, of the Retirement Savings
Plan of Phillips Petroleum Company Subsidiaries for
the fiscal year ended December 31, 1994 (to be filed
by amendment pursuant to Rule 15d-21).
111
<PAGE>
Copies of the exhibits listed in this Index to Exhibits are
available upon request for a fee of $3.00 per document. Such
request should be addressed to:
Secretary
Phillips Petroleum Company
1234 Adams Building
Bartlesville, OK 74004
112
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PHILLIPS PETROLEUM COMPANY
March 13, 1995 /s/ W. W. Allen
----------------------------------
W. W. Allen
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on behalf of the registrant by
the following officers in the capacity indicated and by a
majority of directors in response to Instruction D to Form 10-K
on March 13, 1995.
Signature Title
--------- -----
/s/ W. W. Allen
- --------------------------- Chairman of the Board of Directors
W. W. Allen and Chief Executive Officer
(Principal executive officer)
/s/ T. C. Morris
- --------------------------- Senior Vice President, Treasurer
T. C. Morris and Chief Financial Officer
(Principal financial officer)
/s/ L. F. Francis
- --------------------------- Controller and General Tax Officer
L. F. Francis (Principal accounting officer)
/s/ J. J. Mulva
- --------------------------- President and Chief Operating
J. J. Mulva Officer and Director
/s/ C. L. Bowerman
- --------------------------- Executive Vice President
C. L. Bowerman and Director
/s/ J. L. Whitmire
- --------------------------- Executive Vice President
J. L. Whitmire and Director
113
<PAGE>
Signature Title
--------- -----
/s/ Norman R. Augustine
- --------------------------- Director
Norman R. Augustine
/s/ David L. Boren
- --------------------------- Director
David L. Boren
/s/ Robert E. Chappell, Jr.
- --------------------------- Director
Robert E. Chappell, Jr.
/s/ Lawrence S. Eagleburger
- --------------------------- Director
Lawrence S. Eagleburger
/s/ Larry D. Horner
- --------------------------- Director
Larry D. Horner
/s/ Randall L. Tobias
- --------------------------- Director
Randall L. Tobias
/s/ Kathryn C. Turner
- --------------------- Director
Kathryn C. Turner
114
<PAGE>
Exhibit 3 (ii)
BYLAWS
PHILLIPS PETROLEUM COMPANY
(INCORPORATED UNDER THE LAWS OF DELAWARE)
FEBRUARY 13, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
LOCATION OF OFFICES
SECTION 1. LOCATION: . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
STOCKHOLDERS MEETINGS
SECTION 1. ANNUAL MEETING: NOTICE: . . . . . . . . . . . . . . 1
SECTION 2. SPECIAL MEETINGS: NOTICE: . . . . . . . . . . . . . 1
SECTION 3. QUORUM: . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. VOTING RIGHTS: PROXIES:
RECORD DATE: LIST OF STOCKHOLDERS: . . . . . . . . 2
SECTION 5. CHAIRMAN AND SECRETARY OF MEETINGS: . . . . . . . . 3
SECTION 6. ELECTION OF DIRECTORS: . . . . . . . . . . . . . . 3
SECTION 7. INSPECTORS: . . . . . . . . . . . . . . . . . . . . 4
SECTION 8. INDEPENDENT PUBLIC ACCOUNTANTS: . . . . . . . . . . 5
SECTION 9. STOCKHOLDER ACTION: . . . . . . . . . . . . . . . . 5
SECTION 10. NOMINATIONS AND STOCKHOLDER BUSINESS: . . . . . . . 5
-i-
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. POWERS: . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2. FIRST MEETING OF NEWLY ELECTED
BOARD OF DIRECTORS: . . . . . . . . . . . . . . . . 8
SECTION 3. REGULAR MEETINGS: . . . . . . . . . . . . . . . . . 8
SECTION 4. SPECIAL MEETINGS: NOTICE: . . . . . . . . . . . . . 9
SECTION 5. QUORUM AND VOTING: . . . . . . . . . . . . . . . . 9
SECTION 6. VACANCIES: . . . . . . . . . . . . . . . . . . . .10
SECTION 7. COMMITTEES, APPOINTMENT AND
LIMITATION OF POWERS: . . . . . . . . . . . . . . .10
SECTION 8. AUDITING OF ACCOUNTS: . . . . . . . . . . . . . . .11
SECTION 9. CHANGE IN NUMBER OF DIRECTORS: . . . . . . . . . .11
SECTION 10. OTHER INTERESTS OF DIRECTORS: . . . . . . . . . . .11
SECTION 11. SUBMISSION OF ACTS TO STOCKHOLDERS: . . . . . . . .11
SECTION 12. COMPENSATION TO DIRECTORS: . . . . . . . . . . . .12
SECTION 13. ELIGIBILITY OF DIRECTORS: . . . . . . . . . . . . .12
SECTION 14. INDEMNIFICATION: . . . . . . . . . . . . . . . . .12
-ii-
<PAGE>
ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 1. MEMBERS: . . . . . . . . . . . . . . . . . . . . .15
SECTION 2. POWERS: . . . . . . . . . . . . . . . . . . . . . .15
SECTION 3. MEETINGS: . . . . . . . . . . . . . . . . . . . . .15
SECTION 4. QUORUM: . . . . . . . . . . . . . . . . . . . . . .15
SECTION 5. OFFICERS: SUBCOMMITTEES: . . . . . . . . . . . . .16
SECTION 6. VACANCIES: . . . . . . . . . . . . . . . . . . . .16
ARTICLE V
COMMITTEE ON DIRECTORS' AFFAIRS
SECTION 1. MEMBERS: . . . . . . . . . . . . . . . . . . . . .16
SECTION 2. POWERS: . . . . . . . . . . . . . . . . . . . . . .16
SECTION 3. MEETINGS: . . . . . . . . . . . . . . . . . . . . .17
SECTION 4. QUORUM AND VOTING: . . . . . . . . . . . . . . . .17
SECTION 5. FAILURE TO ACT: . . . . . . . . . . . . . . . . . .17
SECTION 6. RIGHTS OF STOCKHOLDERS: . . . . . . . . . . . . . .17
-iii-
<PAGE>
ARTICLE VI
AUDIT COMMITTEE
SECTION 1. MEMBERS: . . . . . . . . . . . . . . . . . . . . .18
SECTION 2. POWERS: . . . . . . . . . . . . . . . . . . . . . .18
SECTION 3. DEFINITION: . . . . . . . . . . . . . . . . . . . .19
SECTION 4. MEETINGS: . . . . . . . . . . . . . . . . . . . . .20
SECTION 5. STAFF: . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE VII
COMPENSATION COMMITTEE
SECTION 1. MEMBERS: . . . . . . . . . . . . . . . . . . . . .20
SECTION 2. POWERS: . . . . . . . . . . . . . . . . . . . . . .20
SECTION 3. MEETINGS: . . . . . . . . . . . . . . . . . . . . .21
SECTION 4. STAFF: . . . . . . . . . . . . . . . . . . . . . .21
ARTICLE VIII
PUBLIC POLICY COMMITTEE
SECTION 1. MEMBERS: . . . . . . . . . . . . . . . . . . . . .21
SECTION 2. POWERS: . . . . . . . . . . . . . . . . . . . . .22
SECTION 3. MEETINGS: . . . . . . . . . . . . . . . . . . . .23
SECTION 4. STAFF: . . . . . . . . . . . . . . . . . . . . . .23
-iv-
<PAGE>
ARTICLE IX
OFFICERS
SECTION 1. DESIGNATION: . . . . . . . . . . . . . . . . . . .23
SECTION 2. ELECTION: TERM OF OFFICE: . . . . . . . . . . . . .24
SECTION 3. REMOVAL FROM OFFICE:
FAILURE TO PERFORM DUTIES: . . . . . . . . . . . .24
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS:
VICE CHAIRMAN: PRESIDENT: . . . . . . . . . . . . .24
SECTION 5. CHIEF EXECUTIVE OFFICER: . . . . . . . . . . . . .25
SECTION 6. EXECUTIVE VICE PRESIDENTS:
VICE PRESIDENTS: . . . . . . . . . . . . . . . . .25
SECTION 7. SECRETARY: . . . . . . . . . . . . . . . . . . . .25
SECTION 8. TREASURER: . . . . . . . . . . . . . . . . . . . .26
SECTION 9. CONTROLLER: . . . . . . . . . . . . . . . . . . . .26
SECTION 10. GENERAL: . . . . . . . . . . . . . . . . . . . . .27
ARTICLE X
CAPITAL STOCK
SECTION 1. CERTIFICATES: FACSIMILE SIGNATURES:
LOST STOCK: . . . . . . . . . . . . . . . . . . . .27
SECTION 2. TRANSFERS: PRESERVATION OF
CANCELED CERTIFICATES: FRACTIONAL SHARES:
TRANSFER AGENTS: . . . . . . . . . . . . . . . . .28
SECTION 3. DATE FOR DETERMINATION
OF STOCKHOLDERS: . . . . . . . . . . . . . . . . .28
SECTION 4. ADDITIONAL REGULATIONS: . . . . . . . . . . . . . .29
-v-
<PAGE>
ARTICLE XI
POLITICAL ACTIVITIES
SECTION 1. COMPLIANCE WITH LAWS CONCERNING
POLITICAL CONTRIBUTIONS: . . . . . . . . . . . . .29
SECTION 2. POLITICAL CONTRIBUTIONS: . . . . . . . . . . . . .29
SECTION 3. POLITICAL COMMITTEE
AUTHORIZED BY FEDERAL LAW: . . . . . . . . . . . .30
SECTION 4. NONFEDERAL POLITICAL COMMITTEES: . . . . . . . . .30
SECTION 5. OTHER POLITICAL ACTIVITIES: . . . . . . . . . . . .31
ARTICLE XII
MISCELLANEOUS
SECTION 1. CHECKS, NOTES AND DRAFTS: . . . . . . . . . . . . .31
SECTION 2. SEAL: . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 3. DIVIDENDS AND RESERVES: . . . . . . . . . . . . . .32
SECTION 4. WAIVER OF NOTICE: . . . . . . . . . . . . . . . . .32
SECTION 5. CHAIRMAN OF THE BOARD EMERITUS: . . . . . . . . . .32
SECTION 6. AMENDMENTS: . . . . . . . . . . . . . . . . . . . .32
-vi-
<PAGE>
BYLAWS
OF
PHILLIPS PETROLEUM COMPANY
ARTICLE I
LOCATION OF OFFICES
ARTICLE I. SECTION 1. LOCATION:
The statutory registered office shall be in Dover, Delaware,
and the principal operating offices shall be in Bartlesville,
Oklahoma. The company may also have offices or agencies in New
York, New York, and in such other places as the Board of
Directors or the Executive Committee may designate.
ARTICLE II
STOCKHOLDERS MEETINGS
ARTICLE II. SECTION 1.
ANNUAL MEETING: NOTICE:
An annual meeting of the stockholders of the company for the
election of directors and the transaction of such other business
as may properly come before the meeting shall be held, at such
place, on such date and at such time, as shall be determined by
the Board. Notice of the place, date and time of the meeting
shall be given by mailing at least 10 days, but not more than 60
days, previous to such meeting, postage prepaid, a copy of such
notice addressed to each stockholder at his post office address
as recorded on the books of the company. The Board of Directors
may postpone or reschedule any previously scheduled annual
meeting.
ARTICLE II. SECTION 2.
SPECIAL MEETINGS: NOTICE:
Special meetings of the stockholders, other than those
required by statute, may be called at any time by the Chairman of
the Board of Directors, the Vice Chairman, or the President, or
by the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors. Notice of every
special
<PAGE>
meeting, stating the time, place and purpose, shall be given by
mailing, postage prepaid, at least 10 but not more than 60 days
before each such meeting, a copy of such notice addressed to each
stockholder of the company at his post office address as recorded
on the books of the company. The Board of Directors may
postpone, reschedule or cancel any previously scheduled special
meeting.
Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting
pursuant to the company's notice of meeting.
ARTICLE II. SECTION 3. QUORUM:
At any meeting of the stockholders the holders of a majority
of the issued and outstanding shares of the common stock, present
in person or by proxy, shall constitute a quorum for all purposes
unless otherwise provided by law.
If the holders of the amount of stock necessary to
constitute a quorum shall fail to attend in person or by proxy at
the time and place fixed for an annual or special meeting, the
person serving as chairman of the meeting may adjourn the
meeting, without notice other than by announcement of the time
and place at the meeting; provided, however, that if the
adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given in conformity with the
notice requirements for the meeting being adjourned. At any such
adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at
the original meeting.
ARTICLE II. SECTION 4.
VOTING RIGHTS: PROXIES:
RECORD DATE: LIST OF STOCKHOLDERS:
At each stockholders meeting every stockholder shall be
entitled to vote in person or by proxy appointed in accordance
with Delaware law.
The votes for directors shall be by ballot.
All questions shall be determined by a majority vote of the
stock represented at the meeting, unless a different vote is
required by law or by the Certificate of Incorporation of the
company.
For a period of at least 10 days prior to each meeting of
the stockholders, and during such meeting, there shall be
maintained a complete list, in alphabetical order, of all of the
stockholders entitled to vote at such meeting,
-2-
<PAGE>
indicating the address of and number of shares held by each,
which list shall be certified by the person in charge of the
stock ledger of the company. Only the persons in whose names
shares of stock are registered on the books of the company on the
record date for such meeting shall be entitled to vote.
Subsequent to the record date for any meeting, and prior to
such meeting, any proxy may submit his power of attorney to the
Secretary for examination. The certificate of the Secretary as
to the regularity of such power of attorney, and as to the number
of shares held by the stockholder who executed such power of
attorney, shall be received as prima facie evidence of the number
of shares represented by the holder of such power of attorney for
the purpose of establishing the presence of a quorum at such
meeting and of organizing the same, and for all other purposes.
ARTICLE II. SECTION 5.
CHAIRMAN AND SECRETARY OF MEETINGS:
The Chairman of the Board of Directors, and in his absence,
the Vice Chairman, and in the absence of both the Chairman and
the Vice Chairman, the President, shall act as chairman of and
preside at all meetings of stockholders. The Board of Directors
may appoint any stockholder to act as chairman of any such
meeting in the absence of the Chairman of the Board of Directors,
the Vice Chairman and the President. The chairman of any meeting
of stockholders shall determine the order of business and the
procedure at the meeting, including the determination of the date
and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at such meeting and
such other regulation of the manner of voting and the conduct of
discussion as he determines to be reasonably in order. The
chairman may adjourn any meeting of stockholders, whether
pursuant to Section 3 of this Article II or otherwise, and notice
of such adjournment need be given only if required by law.
The Secretary shall act at all meetings of the stockholders,
but, in the absence of the Secretary at any such meeting, an
Assistant Secretary of the company shall act in his stead, or the
presiding officer may appoint any other person to act as
secretary of the meeting.
ARTICLE II. SECTION 6.
ELECTION OF DIRECTORS:
The stockholders shall at each annual meeting select by
ballot a Board of Directors consisting of not less than eleven
nor more than twenty-one members, with the exact number to be
fixed from time to time by resolution of the Board. A majority
of the total number of directors elected shall be persons who are
-3-
<PAGE>
independent outside directors, as defined in this Section. The
persons receiving votes of a majority of the stock represented at
the meeting shall be directors for the ensuing year or until
their successors shall be elected.
As used in these Bylaws, the term "independent outside
directors" means any person who, on the date of his election, (i)
is not an officer or employee of this company; (ii) is not an
officer or employee of, or does not own directly or indirectly in
excess of 1% of the shares of, a corporation (A) which has
received payments from this company for property or services in
excess of 1% of its gross receipts during any one of the four
calendar years immediately preceding such date, as determined by
its financial statement for the year in question, or (B) which is
proposed to receive during the following year such payments in
excess of 1% of its gross receipts as determined by its financial
statement for the immediately preceding year; (iii) is not a
member, officer, or employee of any business or professional
organization (other than a corporation) which (A) has received
payments from this company for property or services in excess of
$250,000 during any one of the four calendar years immediately
preceding such date, or (B) is proposed to receive such payments
in excess of $250,000 in the following year; (iv) is not a person
who individually (as a share partner or otherwise) has received
payments, directly or indirectly, from this company in excess of
$25,000 (other than fees as a director) for property or services
sold or provided by him during any one of the four calendar years
immediately preceding such date, and is not proposed to receive
such payments in excess of $25,000 in the following year; and (v)
is not a member of or associate in a law firm which is proposed
to be or in the preceding four calendar years has been engaged by
this company. Notwithstanding the foregoing definition, any
person elected a director at this company's l975 annual meeting
of stockholders, who was not an officer or employee of this
company when so elected and is not such an officer or employee on
the date on which his status is determined, shall be considered
within the definition of "independent outside director." As used
in this Section, the term "this company" means Phillips Petroleum
Company or any company which is controlled directly or indirectly
by it; and the term "officer or employee" shall not include any
director of a corporation who is not otherwise an officer or
employee of such corporation.
ARTICLE II. SECTION 7. INSPECTORS:
The company shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The company may
designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is
able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering
-4-
<PAGE>
upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
ARTICLE II. SECTION 8.
INDEPENDENT PUBLIC ACCOUNTANTS:
Independent public accountants ("accountants") designated by
the Board of Directors require approval by the stockholders. At
each annual meeting a vote of stockholders shall be taken to
ascertain their approval or disapproval of the accountants
designated by the Board as the accountants to audit the books,
records, and accounts of the company for the current fiscal year.
If the accountants designated by the Board are disapproved by the
stockholders, the Board shall determine whether to replace such
accountants for the current fiscal year, but in any case shall
not designate such accountants for the next fiscal year. If the
accountants designated by the Board are approved by the
stockholders, they shall not be discharged or removed by the
Board prior to the beginning of the next fiscal year, except with
the concurrence of the stockholders acting at a special meeting
called for that purpose. The accountants shall have access at
reasonable times to all records, documents, accounts, and
information of the company, and shall be entitled to require from
directors, officers, and employees of the company such
information and explanation as, in their opinion, are necessary
to enable them to make their certification or render their report
or opinion, or to pursue any inquiry which the Audit Committee
has directed them to conduct.
ARTICLE II. SECTION 9.
STOCKHOLDER ACTION:
Any action required or permitted to be taken by the
stockholders of the company must be effected at a duly called
annual or special meeting of such holders and may not be effected
by any consent in writing by such holders.
ARTICLE II. SECTION 10.
NOMINATIONS AND STOCKHOLDER BUSINESS:
Nominations of persons for election to the Board of
Directors of the company and the proposal of business to be
considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the company's notice of meeting,
(b) by or at the direction of the Board of Directors, or (c) by
any stockholder of the company who was a stockholder of record
at the time of giving of notice provided for in this Section, who
is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section.
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For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to this
Section, the stockholder must have given timely notice thereof in
writing to the Secretary of the company, and such business must
be a proper subject for stockholder action under the Delaware
General Corporation Law. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive
offices of the company not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or
delayed by more than 60 days from such anniversary date, notice
by the stockholder to be timely must be so delivered not earlier
than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business
that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination
or proposal is made (i) the name and address of such stockholder,
as they appear on the company's books, and of such beneficial
owner, and (ii) the class and number of shares of the company
which are owned beneficially and of record by such stockholder
and such beneficial owner.
Notwithstanding anything in this Section to the contrary, in
the event that the number of directors to be elected to the Board
of Directors of the company is increased and there is no public
announcement specifying the size of the increased Board of
Directors made by the company at least 70 days prior to the
first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to
the Secretary at the principal executive offices of the company
not later than the close of business on the 10th day following
the day on which such public announcement is first made by the
company.
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Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting
pursuant to the company's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be
elected pursuant to the company's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder
of the company who is a stockholder of record at the time of
giving of notice provided for in this Section, who shall be
entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section. Nominations by
stockholders of persons for election to the Board of Directors
may be made at such a special meeting of stockholders if the
stockholder's notice required by this Section shall be delivered
to the Secretary at the principal executive offices of the
company not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for
election as directors at any meeting of stockholders. Only such
business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the
procedures set forth in this Section. The chairman of the
meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in
this Section and, if any proposed nomination or business is not
in compliance with this Section, to declare that such defective
proposal shall be disregarded.
For purposes of this Section, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or
in a document publicly filed by the company with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act.
Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section. Nothing in
this Section shall be deemed to affect any rights of stockholders
to request inclusion of proposals in the company's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
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ARTICLE III
DIRECTORS
ARTICLE III. SECTION 1. POWERS:
The Board of Directors shall have all the powers of the
company and all the management of its business, except as
otherwise provided by law. It shall appoint and remove all
officers, employees, and agents of the company except as
hereinafter stated, prescribe their duties, fix their
compensation except as hereinafter stated, and require, when
deemed advisable, security for their faithful service. It may
make rules and regulations not inconsistent with law and these
Bylaws for the guidance of the company's officers, employees, and
agents. Each director shall have full access to any and all
company records and shall have the right to interview any company
officer or employee with respect to any aspect of the company's
business. It shall cause a report to be made to the annual
meeting of the stockholders showing the business operations and
financial position of the company. It shall generally possess all
the powers and perform all the duties usually exercised by or
imposed upon boards of directors of similar corporations.
Directors who do not qualify as independent outside directors, as
defined in Section 6, Article II of these Bylaws, shall not vote
on the selection or retention of independent public accountants.
Although resignation, death, or removal of one or more
independent outside directors, as defined in Section 6, Article
II, may result in the Board's being composed of less than the
proportion of independent outside directors required by that
Section, the Board shall nevertheless have the same powers as
otherwise, but shall fill each such vacancy with an independent
outside director within a reasonable period of time.
ARTICLE III. SECTION 2.
FIRST MEETING OF NEWLY ELECTED BOARD OF DIRECTORS:
Immediately after each annual meeting of stockholders, the
newly elected directors shall meet at the place where the annual
meeting of stockholders was held, for the purpose of electing
officers and transacting any other business that shall come
before the meeting.
ARTICLE III. SECTION 3. REGULAR MEETINGS:
Regular meetings of the Board of Directors shall be held at
the offices of the company in Bartlesville, Oklahoma, at 8:30
a.m. on the second Monday of each month unless otherwise
designated by the Board, except (i) the meeting for which
provisions have been made in Section 2 of this Article III shall
count as the regular meeting for the month of May, and (ii) no
regular meeting shall be held
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in the months of March, June, August and November. No notice of
any regular meeting shall be necessary.
Regular meetings may be adjourned to be held at any place
within or without the States of Oklahoma and Delaware at the time
and place specified in the resolution of adjournment. No notice
of any adjourned meeting of any regular meeting shall be
necessary.
ARTICLE III. SECTION 4.
SPECIAL MEETINGS: NOTICE:
Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, the Vice Chairman, the
President, the Secretary, or an Assistant Secretary, and shall be
called by any of said officers upon the request of at least three
directors. Any such meeting shall be held at the time and place,
within or without the States of Oklahoma and Delaware, specified
in the notice thereof. One day's notice of the time and place of
special meetings shall be given to each director by letter or
telegram sent to the residence or usual place of business of such
director.
No notice of any adjourned meeting of any special meeting
shall be necessary.
ARTICLE III. SECTION 5. QUORUM AND VOTING:
A majority of the total number of directors then in office
shall constitute a quorum for the transaction of business, but
less than a quorum may adjourn from time to time and from place
to place. The affirmative votes of a majority of the total
number of directors then in office shall be required to
constitute action by the Board of Directors, unless the vote of a
greater number shall be required by law and except as may be
otherwise provided in the Certificate of Incorporation of the
company; except that (i) only the affirmative votes of a majority
of the total number of independent outside directors then in
office shall be required on the question of the selection or
retention of independent public accountants, and (ii) only the
affirmative votes of a majority of the disinterested directors,
even though the disinterested directors be less than a quorum,
shall be required on any question involving the compensation of
directors other than those who are employees of the company.
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ARTICLE III. SECTION 6. VACANCIES:
A vacancy occurring in the Board of Directors shall be
filled by a person elected by the remaining members of the Board,
though less than a quorum, to serve until the next annual
election by the stockholders.
ARTICLE III. SECTION 7.
COMMITTEES, APPOINTMENT AND LIMITATION OF POWERS:
All committees shall be appointed by the Board of Directors,
except to the extent otherwise authorized by Section 5, Article
IX of these Bylaws, and except further, that the Executive
Committee may appoint subcommittees, as provided in Section 5,
Article IV of these Bylaws. No committee, whether or not
appointed by the Board, shall have authority to:
(a) declare dividends or distributions;
(b) approve or recommend to stockholders action or
proposals required by law to be approved by
stockholders;
(c) designate candidates for the office of director,
for purposes of proxy solicitation or otherwise,
or fill vacancies on the Board or any committee
thereof;
(d) amend the Bylaws;
(e) reduce earned or capital surplus;
(f) authorize or approve the reacquisition of shares
unless pursuant to a general formula or method
specified by the Board; or
(g) authorize or approve the issuance or sale of, or
any contract to issue or sell, shares or designate
the terms of a series of a class of shares,
provided that the Board, having acted regarding
general authorization for the issuance or sale of
shares, or any contract therefor, and, in the case
of a series, the designation thereof, may,
pursuant to a general formula or method specified
by the Board by resolution or by adoption of a
stock option or other plan, authorize a committee
to fix the terms upon which such shares may be
issued or sold, including, without limitation, the
price, the dividend rate, provisions for
redemption, sinking fund,
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conversion, preferential rights, and provisions
for other features of a class of shares, or a such
committee to adopt any final resolution setting
forth all the terms thereof and to authorize the
statement of the terms of a series for filing with
the Secretary of State of Delaware.
Nothing contained in this Section is intended to prohibit a
committee from submitting recommendations to the Board regarding
any matter.
ARTICLE III. SECTION 8.
AUDITING OF ACCOUNTS:
It shall be the duty of the Board of Directors to cause the
books and accounts of the company and vouchers and papers
relating thereto to be audited at least once a year.
ARTICLE III. SECTION 9.
CHANGE IN NUMBER OF DIRECTORS:
The Board of Directors may increase or decrease the number
of directors from time to time without approval of the
stockholders, provided that the proportion of independent outside
directors shall conform to the provisions of Section 6, Article
II of these Bylaws. Where the number of directors is increased,
the Board shall elect a person to fill each vacancy thus created,
to serve until the next annual election by the stockholders.
ARTICLE III. SECTION 10.
OTHER INTERESTS OF DIRECTORS:
No transaction between this company and any director or
officer or any corporation, partnership, association, or other
organization shall be affected by any personal interest in such
transaction of any director of this company except to the extent
provided by law.
ARTICLE III. SECTION 11.
SUBMISSION OF ACTS TO STOCKHOLDERS:
The Board of Directors may submit any transaction for
approval or ratification at any meeting of the stockholders.
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ARTICLE III. SECTION 12.
COMPENSATION TO DIRECTORS:
Directors, other than those who are employees of the
company, shall be compensated for their services as members of
the Board of Directors and of any committee thereof in such
manners and in such amounts as may be fixed from time to time by
the Board. In fixing such compensation, the Board shall take
into account not only the time required for attendance at
meetings of the Board and committees thereof, but also the time
spent in preparation for such meetings. Upon request, the
company shall furnish to any stockholder, without charge, a
statement of the total annual compensation of any director who is
not an employee of the company, showing the method by which such
compensation was computed. In addition to such compensation any
director may be reimbursed by the company for all reasonable
expenses incurred in attending meetings of the Board and its
committees. Subject to the provisions of Section 6, Article II,
nothing herein shall be construed to preclude any director from
serving the company in any other capacity and receiving
compensation therefor.
ARTICLE III. SECTION 13.
ELIGIBILITY OF DIRECTORS:
Any person shall be eligible for election as a director
unless his seventieth birthday will occur or has occurred on or
before the date of his election. Any employee who is also a
director, including the Chairman of the Board of Directors, shall
resign as a director upon his retirement as an employee.
ARTICLE III. SECTION 14.
INDEMNIFICATION:
Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact
that he is or was a director, officer or employee of the company
or is or was serving at the request of the company as a director,
officer employee of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer employee or
in any other capacity while serving as a director, officer
employee, shall be indemnified and held harmless by the company
to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that
such amendment permits the company to provide broader
indemnification rights than such law permitted
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the company to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act of 1974
excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in this
Section with respect to proceedings to enforce rights to
indemnification, the company shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the company.
The right to indemnification conferred in this Section shall
include the right to be paid by the company the expenses incurred
in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires,
an advancement of expenses incurred by an indemnitee in his
capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the company of an
undertaking, by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section
or otherwise. The rights to indemnification and to the
advancement of expenses conferred in this Section shall be
contract rights and such rights shall continue as to an
indemnitee who has ceased to be a director, officer or employee
and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
If a claim under this Section is not paid in full by the
company within 60 days after written claim had been received by
the company, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days,
the indemnitee may at any time thereafter bring suit against the
company to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit
brought by the company to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending
such suit. In (i) any suit brought by the indemnitee to enforce
a right to indemnification hereunder (but not in a suit brought
by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
company to recover an advancement of expenses pursuant to the
terms of an undertaking the company shall be entitled to recover
such expenses upon a final adjudication that, the indemnitee has
not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the
company (including its Board of
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Directors, independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such suit
that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the company (including its
Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in
the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses
hereunder, or by the company to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or
to such advancement of expenses, under this Section or otherwise
shall be on the company.
The rights to indemnification and to the advancement of
expenses conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under
any statute, the company's Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or
otherwise.
The company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of
the company or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss,
whether or not the company would have the power to indemnify such
person against such expense, liability or loss under the Delaware
General Corporation Law.
The company may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and
rights to be paid by the company the expenses incurred in
defending any proceeding in advance of its final disposition, to
any agent of the company or to any agent of another corporation
or of a partnership, joint venture, trust or other enterprise,
including any employee benefit plan, serving as such agent at the
request of the company, to the fullest extent of the provisions
of this Section with respect to the indemnification and
advancement of expenses of directors, officers and employees of
the company.
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ARTICLE IV
EXECUTIVE COMMITTEE
ARTICLE IV. SECTION 1. MEMBERS:
The Board of Directors, by resolution adopted by a majority
of the whole Board, may establish an Executive Committee, the
members of which shall consist of the Chairman of the Board of
Directors, the President and three independent outside directors
of the Board, as defined in Section 6, Article II of these
Bylaws, designated by the Board. In addition, the Board may from
time to time designate one or more other directors to serve as
members of the Committee, provided that a majority of the members
of the Committee shall be independent outside directors.
ARTICLE IV. SECTION 2. POWERS:
Subject to the limitations stated in Sections 1 and 7 of
Article III and Sections 2 and 3 of Article XI of these Bylaws
and to any limitations imposed by law or imposed by the Board of
Directors, the Executive Committee may exercise all the powers of
the Board in the management of specified matters where such
authority is delegated to it by the Board, and also, subject to
the same limitations, when the Board is not in session, the
Committee shall have, and may exercise, all the powers and
authority of the Board in the management and business of the
company (including the power to authorize the seal of the company
to be affixed to all papers which may require it).
ARTICLE IV. SECTION 3. MEETINGS:
The Executive Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as to the Committee
shall seem appropriate and not inconsistent with the law or these
Bylaws. As provided by law, the Committee is authorized to hold
meetings by conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
ARTICLE IV. SECTION 4. QUORUM:
Three members of the Executive Committee shall constitute a
quorum for the transaction of business, but less than a quorum
may adjourn from time to time and from place to place. The vote
of the majority of the members present
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at a meeting at which a quorum is present or of three members
present at such meeting, whichever is greater, shall be required
to constitute action by the Committee, unless the vote of a
greater number shall be required by law.
ARTICLE IV. SECTION 5.
OFFICERS: SUBCOMMITTEES:
The Chairman of the Board, and in his absence the President,
shall preside at the meetings of the Executive Committee but, in
the absence of both the Chairman of the Board and the President,
the majority of the members of the Committee present at a meeting
shall appoint a member to preside at such meeting. The Secretary
of the company shall serve as secretary of the Committee, but in
the absence of the Secretary, the presiding officer at a meeting
shall appoint any other director or officer of the company to act
as secretary of such meeting. The Secretary shall keep the
records of the Committee. The Committee shall also have power to
appoint such subcommittees as it may deem necessary.
ARTICLE IV. SECTION 6. VACANCIES:
Vacancies occurring in the Executive Committee shall be
filled by the Board of Directors.
ARTICLE V
COMMITTEE ON DIRECTORS' AFFAIRS
ARTICLE V. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint a Committee on Directors'
Affairs of the Board containing at least three members and
consisting entirely of independent outside directors of the
Board, as defined in Section 6, Article II of these Bylaws, and
shall designate its chairman. The Board may from time to time
designate one or more independent outside directors as alternate
members of the Committee.
ARTICLE V. SECTION 2. POWERS:
By such date as may be specified by the Board of Directors
each year, the Committee on Directors' Affairs shall recommend
and submit to the Board for its approval a list of persons
proposed for nominations by the Board for election as directors
at the next annual stockholders meeting. If for any reason a
vacancy
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occurs in any slate of persons nominated by the Board for
election as directors, or a vacancy occurs on the Board between
annual meetings, the Committee shall, by the date specified by
the Board, submit to the Board for approval a recommendation of a
person to fill each such vacancy. Except as otherwise provided
in Section 5 of this Article V, only persons recommended by the
Committee shall be eligible for nomination by the Board for
election as directors or to fill a vacancy, but if the Board does
not approve of one or more of the persons recommended by the
Committee, the Committee shall submit a recommendation of other
persons by the date specified by the Board.
ARTICLE V. SECTION 3. MEETINGS:
The Committee on Directors' Affairs shall adopt such rules
and regulations for the calling and holding of its meetings and
for the transaction of business at such meetings as to the
Committee shall seem meet and consistent with law and these
Bylaws.
ARTICLE V. SECTION 4.
QUORUM AND VOTING:
Three members or a majority of the Committee on Directors'
Affairs, whichever is greater, shall constitute a quorum for the
transaction of business, but less than a quorum may adjourn from
time to time and from place to place. The vote of the majority
of the members present at a meeting at which a quorum is present
or of three members present at such meeting, whichever is
greater, shall be required to constitute action by the Committee,
unless the vote of a greater number shall be required by law.
ARTICLE V. SECTION 5.
FAILURE TO ACT:
If for any reason the Committee shall fail or determine not
to make a recommendation of director nominees with respect to any
annual stockholders meeting or with respect to any vacancy on the
Board by the date specified by the Board, the Board shall select
such nominees or fill such vacancy in such manner as it deems
appropriate.
ARTICLE V. SECTION 6.
RIGHTS OF STOCKHOLDERS:
Nothing in this Article V shall affect or restrict the right
of any stockholder to nominate any person for election as a
director where such nomination is
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otherwise authorized by law and made in accordance with Section
10, Article II of these Bylaws.
ARTICLE VI
AUDIT COMMITTEE
ARTICLE VI. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint an Audit Committee of at least
three members, consisting entirely of independent outside
directors of the Board, as defined in Section 6, Article II of
these Bylaws, and shall designate its chairman. From time to
time the Board may designate one or more independent outside
directors as alternate members of the Committee.
ARTICLE VI. SECTION 2. POWERS:
The Audit Committee shall have the following powers and
duties:
(a) The Committee shall recommend annually to the Board of
Directors the independent public accountants to be
engaged to audit the books, records, and accounts of
the company for the ensuing fiscal year. Only
accountants recommended by the Committee and approved
by the Board shall be engaged. In case of a vacancy in
the position of independent public accountants, the
Committee shall recommend and the Board shall approve
the engagement of other independent public accountants
to fill the vacancy until the next annual stockholders
meeting;
(b) The Committee shall arrange the details of the
engagement of the independent public accountants,
including the remuneration to be paid;
(c) The Committee shall review with the company's
independent public accountants, as well as the
company's Controller and other appropriate company
personnel, the following matters: (i) the company's
general policies and procedures with respect to audits
and accounting and financial controls; and (ii) the
general accounting and reporting principles and
practices which should be applied in preparing the
company's financial statements and conducting financial
audits of its affairs;
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(d) The Committee shall meet with the independent public
accountants as required, but at least twice a year, and
shall review with them the company's interim and year-
end financial statements, any certification, report, or
opinion which the independent public accountants
propose to render in connection with such statements,
and any other appropriate matter;
(e) The Committee shall meet with the company's internal
audit staff as required, but at least twice a year, and
shall review with that staff the company's interim and
year-end financial statements, and the extent to which
the company's accounting staff has implemented any
reforms suggested by the independent public accountants
or the Committee;
(f) The Committee shall have power to direct the
independent public accountants and the company's
internal audit staff to inquire into and report to it
on any corporate contract, transaction, or procedure;
the conduct of any corporate office, division, profit
center, subsidiary, or other unit; or any other matter
having to do with the company's business and affairs;
(g) The Committee shall become and remain apprised of those
matters relating to the payment by the company of
finders', promoters' or consultants' commissions or
fees, or any similar commissions or fees, as shall be
necessary to permit the Committee to recommend to the
Board the policies which the Board should adopt and the
action which the Board should take to prevent any use
of company funds or other assets which is unlawful or
contrary to Board policy; and
(h) The Committee shall make such reports and
recommendations to the Board in connection with the
foregoing functions as it shall deem appropriate or as
the Board may request, and shall take such action
thereon as the Board may direct it to take.
ARTICLE VI. SECTION 3. DEFINITION:
The term "independent public accountants" shall include
individuals, companies, or firms serving as the independent
outside auditors or independent outside public accountants for
the company.
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ARTICLE VI. SECTION 4. MEETINGS:
The Committee may adopt such rules and regulations for the
calling and holding of its meetings and for the transaction of
business at such meetings as shall be considered by the Committee
to be necessary or desirable; provided, that two members of the
Committee shall constitute a quorum for the transaction of the
business and the affirmative vote of a majority of the whole
Committee shall be required to constitute action by the
Committee.
ARTICLE VI. SECTION 5. STAFF:
The Committee may select and appoint such full-time or part-
time staff assistants, as the Committee deems necessary or
desirable, who shall perform such duties and responsibilities as
the Committee shall assign. The compensation of its staff shall
be fixed by the Committee in accordance with general company
policy, and any member of its staff may be discharged only by the
Committee.
ARTICLE VII
COMPENSATION COMMITTEE
ARTICLE VII. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint a Compensation Committee of at
least three members, consisting entirely of independent outside
directors of the Board, as defined in Section 6, Article II of
these Bylaws, and shall designate its chairman. From time to
time the Board may designate one or more independent outside
directors as alternate members of the Compensation Committee.
ARTICLE VII. SECTION 2. POWERS:
The Compensation Committee shall have the following powers
and duties:
(a) The Compensation Committee shall review and recommend
to the Board of Directors for its consideration and
determination the salaries of the Chairman of the Board
of Directors and the President, and to determine on its
own initiative the salaries of all other employees who
are members of the Board of Directors or who have
annual salaries of $200,000 or more;
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<PAGE>
(b) The Compensation Committee shall consider and make
recommendations to the Board of Directors with respect
to (i) any proposals for the application of new
benefits and incentive compensation plans or programs
to officers who are also directors, and (ii) the
application to such officers of amendments to any then
existing such plans or programs which would
significantly increase the compensation of such
officers; and
(c) The Compensation Committee shall perform such other
duties as may, from time to time, be delegated to the
Compensation Committee under any compensation or
benefit plans.
ARTICLE VII. SECTION 3. MEETINGS:
The Compensation Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as shall be
considered by the Compensation Committee to be necessary or
desirable; provided, that two members of the Compensation
Committee shall constitute a quorum for the transaction of
business and the affirmative vote of a majority of the whole
Compensation Committee shall be required to constitute action by
the Compensation Committee.
ARTICLE VII. SECTION 4. STAFF:
The Compensation Committee shall be assisted by appropriate
corporate staffs, and in addition, the Compensation Committee may
obtain assistance from such other persons, who need not be
employees of the company, or organizations as it may deem
advisable, with the expenses incurred thereby to be borne by the
company.
ARTICLE VIII
PUBLIC POLICY COMMITTEE
ARTICLE VIII. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint a Public Policy Committee of
at least three members, consisting entirely of independent
outside directors of the Board, as defined in Section 6, Article
II of these Bylaws, and shall designate its chairman. From time
to time the Board may designate one or more directors as
alternate members of the Public Policy Committee, provided that
those members and alternates from time to time
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serving as the Public Policy Committee shall at all times consist
entirely of independent outside directors.
ARTICLE VIII. SECTION 2. POWERS:
The Public Policy Committee shall have the following powers
and duties:
(a) The Public Policy Committee shall act in an advisory
capacity to the Board of Directors and the management
of the company in response to current and emerging
public policy issues and in development and review of
policies and budgets in respect of contributions,
including but not limited to contributions to
organizations whose primary purpose is charitable,
civic, cultural or educational;
(b) The Public Policy Committee shall identify, evaluate
and monitor the social, political, environmental,
occupational safety and health trends, issues and
concerns, domestic and foreign, which affect or could
affect the company's business activities and
performance;
(c) The Public Policy Committee shall review information
from company management and approve recommendations to
assist in the formulation and adoption of policies,
programs and practices concerning the matters set forth
in subparagraph (b) above, including but not limited to
ecological and environmental protection, employee
safety, ethical business conduct, consumer affairs,
alcohol and drug abuse, equal opportunity matters and
government relations;
(d) The Public Policy Committee shall exercise the powers
with respect to political activities conferred upon it
by the provisions of Article XI of these Bylaws; and
(e) The Public Policy Committee shall monitor and evaluate
on an ongoing basis the company's compliance with the
policies, programs and practices established under the
Public Policy Committee's oversight.
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ARTICLE VIII. SECTION 3. MEETINGS:
The Public Policy Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as shall be
considered by the Public Policy Committee to be necessary or
desirable; provided that three members or a majority of the
Public Policy Committee, whichever is greater, shall constitute a
quorum for the transaction of business and the affirmative vote
of a majority of the whole Public Policy Committee shall be
required to constitute action by the Public Policy Committee.
ARTICLE VIII. SECTION 4. STAFF:
The Public Policy Committee shall be assisted by
appropriate corporate staffs, and in addition, the Public Policy
Committee may obtain assistance from such other persons, who need
not be employees of the company, or organizations as it may deem
advisable, with the expenses incurred thereby to be borne by the
company.
ARTICLE IX
OFFICERS
ARTICLE IX. SECTION 1.
DESIGNATION:
The officers of the Company shall consist of a Chairman of
the Board of Directors and a President, each of whom shall be a
director, one or more Executive Vice Presidents, one or more Vice
Presidents, a Secretary, a Treasurer, and a Controller, who need
not be but may be directors, and such other officers, including a
Vice Chairman of the Board of Directors who shall be a director,
as may be elected or appointed by the Board of Directors. Except
for the offices of Chairman of the Board of Directors, Vice
Chairman, President, and Executive Vice President, any two
offices may be held by the same person.
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ARTICLE IX. SECTION 2.
ELECTION: TERM OF OFFICE:
The officers of the company shall be elected by the Board of
Directors at its first meeting after the annual meeting of the
stockholders and thereafter as appropriate. Each officer shall
hold office from the date of his election until the first meeting
of the directors held after the next annual meeting of the
stockholders, or until his successor is elected.
ARTICLE IX. SECTION 3.
REMOVAL FROM OFFICE:
FAILURE TO PERFORM DUTIES:
Any officer of the company may be removed with or without
cause by the Board of Directors. If any officer shall be unable
or refuse or fail to perform any of the duties of his office, the
officer of the company which has been designated the chief
executive officer pursuant to Section 5 of this Article may
designate any other person or persons to perform such duties
until such time as the Board may act with respect thereto.
ARTICLE IX. SECTION 4.
CHAIRMAN OF THE BOARD OF DIRECTORS:
VICE CHAIRMAN: PRESIDENT:
The Chairman of the Board of Directors shall preside at all
meetings of the Board of Directors and of the stockholders. In
the absence of the Chairman, the Vice Chairman, and in the
absence of both the Chairman and the Vice Chairman, the President
shall preside at all such meetings. The Chairman, Vice Chairman,
or the President is empowered to sign any contract, deed,
certificate, or other instrument or document authorized by the
Board or the Executive Committee, or required by law to be signed
by such officer or officers.
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ARTICLE IX. SECTION 5.
CHIEF EXECUTIVE OFFICER:
The Chairman of the Board of Directors shall be the chief
executive officer of the company. The Chairman of the Board of
Directors may designate the Vice Chairman or the President to act
as chief executive officer during the Chairman's absence. The
chief executive officer of the company shall have general and
active supervision over the business, affairs and operations of
the company and over its several officers, agents and employees,
subject, however, to the control of the Board and the Executive
Committee. The chief executive officer shall see that all orders
and resolutions of the Board and the Executive Committee are
carried into effect, and, in general, shall perform all duties
incident to the position of chief executive officer and such
other duties as may from time to time be assigned by the Board or
the Executive Committee. The chief executive officer may
delegate and assign to other officers, employees and agents of
the company or to committees appointed by him such duties as the
chief executive officer considers proper and not inconsistent
with these Bylaws or any delegations and assignments made by the
Board or the Executive Committee.
ARTICLE IX. SECTION 6.
EXECUTIVE VICE PRESIDENTS:
VICE PRESIDENTS:
The Executive Vice Presidents and the Vice Presidents shall
have such authority and shall perform such duties as may be
delegated to them pursuant to these Bylaws. The power of the
Executive Vice Presidents and the Vice Presidents to sign on
behalf of the company any contract, deed, certificate, or other
instrument or document authorized by the Board of Directors or
the Executive Committee shall be coordinate with like powers of
the Chairman of the Board of Directors, the Vice Chairman, and
the President and shall have the same effect as if signed by the
Chairman or the President.
ARTICLE IX. SECTION 7. SECRETARY:
The Secretary shall attend to the giving of all notices of
all meetings of the Board of Directors and stockholders, shall
attend all such meetings and shall record the minutes of such
meetings in books provided for that purpose. He shall be the
custodian of all papers brought before the Board for action or
ordered on file. He shall have the custody of the corporate
seal, and shall, as necessary or appropriate, affix and attest
the same on all documents authorized by the Board or the
Executive Committee. He shall make or cause to be made the
necessary or appropriate determinations as to the owners of stock
pursuant to the establishment of a record date, as provided in
Section 3, Article X of these
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Bylaws, and shall prepare or cause to be prepared the required or
appropriate stockholder lists or records reflecting these
determinations. Such list shall be certified by the Secretary or
other person in charge of the stock ledger of the company.
The Secretary shall have such other authority and duties as
may be assigned to him in accordance with these Bylaws.
The Board may appoint one or more Assistant Secretaries who
shall assist the Secretary in the performance of his duties and
shall perform all the duties of the Secretary in his absence.
ARTICLE IX. SECTION 8. TREASURER:
The Treasurer shall keep full and accurate accounts of all
receipts and disbursements. With the approval of the Board of
Directors he shall deposit all moneys and other valuable effects
in the name and to the credit of the company in such depositories
as he may select and, under direction of the Board, he shall
disburse the same. He shall have authority to receive and give
receipts for all moneys due and payable to the company from any
source whatsoever and to give full discharge for the same, and to
endorse for deposit on behalf of the company all checks, drafts,
notes, warrants, orders and other papers requiring endorsement.
He may be required to give a bond in any amount satisfactory to
the Board for the faithful performance of the duties of his
office and for the restoration to the company in case of his
death, resignation or removal from office, of all books, papers,
vouchers, money or other property of whatever kind in his
possession, belonging to the company.
The Treasurer shall have such other authority and duties as
may be assigned to him in accordance with these Bylaws.
The Board may appoint one or more Assistant Treasurers who
shall assist the Treasurer in the performance of his duties and
shall perform all the duties of the Treasurer in his absence.
ARTICLE IX. SECTION 9. CONTROLLER:
The Controller shall be the officer principally in charge of
the accounts of the company, and shall have such other authority
and duties as may be assigned to him in accordance with these
Bylaws.
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The Board of Directors may appoint one or more Deputy
Controllers and Assistant Controllers who shall assist the
perform all the duties of the Controller in his absence.
ARTICLE IX. SECTION 10. GENERAL:
All other officers of the company shall have such powers and
duties as may be assigned in accordance with these Bylaws.
ARTICLE X
CAPITAL STOCK
ARTICLE X. SECTION 1. CERTIFICATES:
FACSIMILE SIGNATURES: LOST STOCK:
Certificates of stock shall be issued in numerical order,
and every holder of stock in the company shall be entitled to a
certificate or certificates signed by, or in the name of, the
company, by the Chairman of the Board of Directors, the Vice
Chairman, the President, an Executive Vice President, or a Vice
President, or by two or more of them, and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer,
of the company, certifying the number of shares owned by him in
the company. If such certificate is countersigned by a transfer
agent other than the company or its employee, or by a registrar
other than the company or its employee, any other signature on
the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued
by the company with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
The seal of the company, or a facsimile thereof, may, but
shall not be required to be affixed to certificates for shares of
stock.
The name of each person to whom a certificate of stock shall
be issued, together with the number of shares and the date of
issue, shall be entered upon the books of the company.
If any certificate of stock shall be lost, stolen, mutilated
or destroyed, the Board of Directors shall cause a new
certificate of stock to be issued in the place
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of such certificate and may, in its discretion, require the owner
of the replaced certificate, or his legal representatives, to
give the company a bond, in such form and amount as the Board may
direct, sufficient to indemnify the company and other interested
persons against any loss on account of the issuance or any action
in connection with the issuance of any such new certificate.
ARTICLE X. SECTION 2. TRANSFERS:
PRESERVATION OF CANCELED CERTIFICATES:
FRACTIONAL SHARES: TRANSFER AGENTS:
Transfer of shares of the common stock of the company shall
be made upon its books by the holder thereof, in person or by
attorney duly authorized, upon the surrender of a certificate or
certificates, properly endorsed, for a like number of shares. No
new certificate shall be issued until the former certificate or
certificates for the same number of shares shall have been
surrendered and canceled, except in the case of a certificate
issued in replacement as provided in Section 1 of this Article X.
All certificates surrendered to the company for transfer
shall be canceled and each certificate canceled shall be
preserved for a period of 10 years after cancellation, or for
such shorter or longer period as the Chairman of the Board of
Directors, the Vice Chairman, or the President, with the approval
of the General Counsel of the company, may direct from time to
time.
No certificate for less than one share of the common stock
shall be issued; however, scrip for fractional shares may be
issued on such terms and conditions as the Board of Directors may
prescribe.
The Board of Directors may appoint such stock transfer
agents and assistant transfer agents, and stock registrars, as it
shall deem proper and may require all stock certificates to bear
the signature or facsimile signature of a transfer agent, and of
a registrar, or either of them.
ARTICLE X. SECTION 3.
DATE FOR DETERMINATION OF STOCKHOLDERS:
For the purpose of enabling the company to determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60
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<PAGE>
days prior to any other action. In such case, only such persons
in whose names shares of stock are registered on the books of the
company on the date so fixed shall be considered stockholders for
the purpose or purposes for which such determination was made,
notwithstanding any transfer of any stock on the books of the
company after any such record date.
ARTICLE X. SECTION 4.
ADDITIONAL REGULATIONS:
The Board of Directors may at any time adopt such additional
and further rules and regulations relating to common stock and
stock certificates as it deems appropriate and not inconsistent
with the law or these Bylaws.
ARTICLE XI
POLITICAL ACTIVITIES
ARTICLE XI. SECTION 1.
COMPLIANCE WITH LAWS CONCERNING POLITICAL CONTRIBUTIONS:
Any officer or employee of the company who fails to comply
with all federal, state, and local laws regarding corporate
contributions and expenditures in connection with election of
public officials shall be subject to appropriate disciplinary
action, which may include discharge from employment. The Audit
Committee of the Board of Directors shall be responsible for
monitoring compliance with those laws and shall require written
annual assurances by principal corporate officers of their
compliance with these laws and policies adopted by the Board. In
performing that responsibility, the Committee shall utilize the
services of the company's independent public accountants, its
internal audit staff, and its General Counsel.
ARTICLE XI. SECTION 2.
POLITICAL CONTRIBUTIONS:
Except as otherwise provided in the succeeding paragraph,
the Board of Directors shall have the sole and non-delegable
power and authority to authorize the use of company funds and
facilities to make political contributions and expenditures, if
and to the extent permitted by applicable law, to or in support
of political candidates, political committees (including but not
limited to political committees established by the company
pursuant to Section 4 of this Article XI), and political parties,
in connection with nomination and election of candidates for
state or local office.
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The Public Policy Committee (subject to any rules or
restrictions which the Board may establish) shall have and may
exercise the power and authority of the Board to authorize such
contributions, expenditures, and use of company funds and
facilities, if and to the extent permitted by applicable law.
The Public Policy Committee may delegate such power and
authority, in whole or in part, to the Senior Vice President
Corporate Relations and Services, subject to such further rules
and restrictions as the Committee may specify. All contributions
made pursuant to the authority granted by this paragraph shall be
reported quarterly to the Board.
ARTICLE XI. SECTION 3.
POLITICAL COMMITTEE AUTHORIZED BY FEDERAL LAW:
The Board of Directors shall have the sole and non-delegable
power and authority to authorize the establishment,
administration, and solicitation of contributions to a separate
segregated fund to be utilized for political purposes by the
company as authorized by Section 441b of Title 2 of the United
States Code. No such separate segregated fund shall be
established or administered by the company, except through a
political committee, organized as provided in Section 432 of
Title 2 of the United States Code, registered as provided in
Section 433 of such Title, and otherwise operated in compliance
with law. Any decision of the Board authorizing the
establishment of a political committee permitted by Section 441b
of Title 2 shall be noted in its minutes. The minutes shall
include an estimate of the annual cost to the company of
establishing, administering, and soliciting for such committee.
Any such committee which is established shall report in writing
to the Board on its activities not later than March 15 of each
year. Such report shall include a summary of any reports filed
with the Federal Election Commission or any other government
agency, together with a statement of the costs incurred by the
company in connection with such a committee during the preceding
year.
ARTICLE XI. SECTION 4.
NONFEDERAL POLITICAL COMMITTEES:
The Board of Directors or the Public Policy Committee or the
Senior Vice President Corporate Relations and Services (subject
to any rules and regulations which the Public Policy Committee
may establish), and each of them shall have the power and
authority to authorize the establishment, administration, and
solicitation of contributions to one or more political
committees, and to authorize use of corporate funds to pay or
bear all costs associated with such establishment,
administration, and solicitation, and to authorize use of such
political committees by the company to make political
contributions and expenditures or otherwise support candidates
for state or local office, authorized
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committees of such candidates, and other political committees
supporting state or local candidates; provided, however, that the
foregoing authorizations may be granted and committees so
established may be so used only if permitted by applicable state
law and only to the extent, if any, permitted by such law. Such
political committees as may be established by the company shall
be registered if required by applicable state law and shall
otherwise be operated in compliance with law. Any decision of
the Board authorizing establishment of such a committee shall be
noted in its minutes. By March 15 following the calendar year in
which such a committee is otherwise established, such
establishment shall be reported to the Board and noted in its
minutes. Any such committee shall report in writing to the Board
on its activities not later than March 15 of each year. Such
report shall include a summary of any reports filed by the
committee with any government agency, together with a statement
of costs incurred by the company in connection with such
committee during the preceding year.
ARTICLE XI. SECTION 5.
OTHER POLITICAL ACTIVITIES:
Nothing contained in these Bylaws shall be deemed to
prohibit any officer or employee from engaging in political
activities in an individual capacity at his own expense or from
making political contributions or expenditures of his personal
funds or from expressing views and taking appropriate action as a
company officer or employee with respect to legislative or
political matters affecting the company and not pertaining to
election of public officials.
ARTICLE XII
MISCELLANEOUS
ARTICLE XII. SECTION 1.
CHECKS, NOTES AND DRAFTS:
All checks, notes, drafts, warrants, or orders for the
payment of money, shall be executed on behalf of the company by
such person or persons, and in such manner by such method as the
Board of Directors may from time to time specify.
ARTICLE XII. SECTION 2. SEAL:
The seal of the company shall be in the form of a circle and
shall bear the name of the company, the name of the state under
the laws of which it is incorporated, and the year of its
incorporation.
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ARTICLE XII. SECTION 3.
DIVIDENDS AND RESERVES:
The Board of Directors may declare dividends to the full
extent permitted by the law, provided the Board from time to time
may set apart out of any funds available for dividends a reserve
or reserves for any proper purpose and may abolish any such
reserve.
ARTICLE XII. SECTION 4.
WAIVER OF NOTICE:
Whenever notice is required to be given under any provision
of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a written waiver thereof signed by the
person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII. SECTION 5.
CHAIRMAN OF THE BOARD EMERITUS:
The Board of Directors may, from time to time, at its
discretion, create the honorary position of Chairman of the Board
Emeritus, without executive functions, and elect a person to fill
the position so created.
ARTICLE XII. SECTION 6. AMENDMENTS:
Subject to the provisions of the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed
in whole or in part by the stockholders at any annual meeting or
at any special meeting provided that the notice of such special
meeting shall contain a statement of the contemplated alteration,
amendment or repeal. Subject to the laws of the State of
Delaware, the Certificate of Incorporation, and these Bylaws, the
Board of Directors shall have power to make, alter, amend and
repeal these Bylaws in whole or in part, except those Bylaws
adopted by stockholders of the company or those Bylaws as to
which power to make, alter, amend or repeal is reserved to
stockholders of the company.
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Exhibit 10(g)
4-26-88
INCENTIVE COMPENSATION PLAN
OF
PHILLIPS PETROLEUM COMPANY
ARTICLE I - PURPOSE
-------------------
The purpose of the Incentive Compensation Plan is to attract and
retain desirable personnel and provide greater incentive to and stimulate
the efforts of key employees of the Company and certain of its subsidiaries
by granting suitable recognition for outstanding individual contributions
to the Company's success.
ARTICLE II - DEFINITIONS
------------------------
The following terms, when used in this Plan, have the following
meanings unless the context clearly indicates otherwise:
1. "Plan" shall mean the Incentive Compensation Plan, the terms and
provisions of which are herein set forth, together with such amendments
thereto as may hereafter from time to time be adopted.
2. "Company" shall mean Phillips Petroleum Company.
3. "Employee" shall mean any person who, on the last day of the
Year for which an allotment is made, was a regular full-time employee of
the Company or of a company more than 95% of whose voting stock is owned
directly or indirectly by the Company.
1
<PAGE>
4. "Shares" or "Shares of Stock" shall mean shares of the Company's
authorized but unissued or previously issued and reacquired common stock,
but shall not refer herein to Restricted Shares or Restricted Shares of
stock.
5. "Restricted Shares" or "Restricted Shares of Stock" shall mean
Shares which may not be sold, assigned, transferred, pledged or otherwise
disposed of, without prior approval of the Board or its designee, during a
period specified by the Board in connection with the allotment of such
Shares hereunder and which are evidenced by a certificate or certificates
upon the face of which such restriction has been appropriately and
conspicuously noted.
6. "Reserve" shall mean the Incentive Compensation Reserve
described in Article IV hereof.
7. "Year" shall mean calendar year.
8. "Board" shall mean the Board of Directors of the Company.
ARTICLE III - ELIGIBILITY
-------------------------
Any regular full-time Employee who is in a managerial, professional or
other key position, including officers or directors who are Employees,
shall be eligible to participate in the Plan.
ARTICLE IV - INCENTIVE COMPENSATION RESERVE
-------------------------------------------
1. For the calendar year 1965 and for each year thereafter, the
Board may cause to be credited to an Incentive Compensation Reserve
("Reserve") up to 3% of the amount by which net income for that year
exceeds 6% of borrowed and invested capital as of the end of the previous
year. In determining the maximum amount creditable to the Reserve for each
year as above provided:
(a) "Net income" shall mean the amount reported as net income for
that year in the consolidated statement of income included in
the
2
<PAGE>
Company's Annual Report to Stockholders plus (i) interest on
long-term debt and (ii) amounts credited to the Reserve during
that year; and
(b) "borrowed and invested capital" shall mean the amount, as
reported in the consolidated financial statements included in
theCompany's Annual Report to Stockholders as of the end of the
previous year, of (i) the total stockholders' equity (including
capital stock, capital in excess of par value, and earnings
employed in the business, less treasury stock) plus (ii)
long-term debt due after one year and (iii) an appropriate
adjustment for any significant change during the current year in
the amounts of items (i) or (ii).
2. No amount may be credited to the Reserve unless and until any
amount previously credited thereto and not allotted by the Board to
participants as hereinafter authorized shall have been restored to net
income.
3. As soon as practicable after the end of each year the Company's
independent public accountants shall determine and report to the Board the
maximum amount creditable to the Reserve for that year under the provisions
of the Plan.
ARTICLE V - ALLOTMENTS FROM RESERVE
-----------------------------------
Subject to the provisions hereof, the Board may make such
allotments from the Reserve to such eligible Employees in such manner and
amount as the Board shall in its sole discretion determine. Total
allotments from the Reserve to all participants in any one year shall not
exceed the amount credited to the Reserve available for that year. Total
allotments in any one year to members of
3
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the Board as a group shall not exceed 20% of the total allotments to all
Employees in that year. The allotment in any one year to an individual
shall not exceed a maximum amount to be determined by the Board by means of
a vote in which at least a majority of the total number of nonemployee
directors then in office vote in favor of the action taken.
ARTICLE VI - FORMS OF ALLOTMENTS
--------------------------------
The Board has sole discretion to approve allotments under this
Plan. From time to time it may delegate through an Administrative
Procedure or otherwise, the right to determine settlement modes chosen from
cash, shares or restricted shares.
ARTICLE VII - SETTLEMENT OF ALLOTMENTS
--------------------------------------
1. Subject to the provisions of Article VIII, allotments shall be
settled,
(a) as to allotments in cash or in Shares, by payment of cash
or delivery of Shares, or both, as the case may be, at or
promptly following the date of allotment; and
(b) as to allotments in Restricted Shares, by the issuance to
and registration in the name of the participant, at or
promptly following the date of allotment, of the entire
number of the Restricted Shares covered by the allotment,
which Restricted Shares, or a portion or portions thereof,
shall not, without the
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prior written consent of the Board or its designee, be
sold, assigned, transferred, pledged or otherwise disposed
of during such period or periods commencing with the date
of allotment as determined by the Board; provided, each
certificate evidencing Restricted Shares shall be accepted
by the participant and placed by him in escrow held by the
Company for the account of the participant during the
period of restriction applicable thereto and, upon the
termination of such period, such certificate shall be
exchanged for a certificate for a corresponding number of
Shares and the latter certificate shall be delivered
forthwith to the participant, such delivery being
considered for the purposes hereof as the settlement of the
allotment or part thereof to which such certificate
relates.
2. Subject to the provisions of Article VIII and to the
restrictions relating to the sale, assignment, transfer, pledge
or other disposition of Restricted Shares, Restricted Shares
held in escrow shall have all the rights and benefits of Shares
and such rights and benefits, including those with respect to
voting, dividends and other distributions, shall be enjoyed by
the participant to whom allotted, as the registered owner, to
the same extent as if such Restricted Shares were not being held
in escrow, including the use of the Restricted Shares in the
exercise of a stock option granted by the
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Company provided, to the extent that any distribution made with
respect to Restricted Shares consists of securities of the
Company, or securities of the Company are received under a stock
option by use of Restricted Shares, such securities shall be
subject to the same restrictions and handled in the same manner
as the Restricted Shares to which such securities are
attributable.
ARTICLE VIII - FORFEITURES
--------------------------
1. Without prejudice to any other rights of the Company, all
allotments to participants, whether in cash or in Shares, or in Restricted
Shares, shall, prior to settlement, be deemed to be conditional and
contingent and subject to forfeiture at the discretion of the Board if for
any reason other than death, disability or retirement at normal retirement
age, a participant's employment with the Company or a subsidiary of the
Company is terminated.
2. Without prejudice to any other right of the Company, all
allotments made in Restricted Shares and stock derived therefrom, shall be
deemed to be conditional and contingent and subject to forfeiture during
the escrow period upon such terms and conditions as the Board may specify
on or before the allotment date for such Restricted Shares.
3. Any amount forfeited as above provided (in the case of
forfeiture involving Shares or Restricted Shares or stock derived
therefrom, such amount to
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be equal to the amount attributed thereto at time of allotment) shall be
restored to net income of the Company in the year of forfeiture.
ARTICLE IX - DEATH OR INCAPACITY
--------------------------------
In case of death or incapacity of a participant, whether before
or after termination of employment, prior to the time an allotment has been
settled, the amount thereof shall be settled with the participant's legal
representative(s) at the time and in the manner and amount originally
provided or otherwise as determined by the Board in individual cases.
ARTICLE X - ADMINISTRATION
--------------------------
1. The Board shall have the exclusive right to interpret and
construe the Plan and to administer its provisions, and, without limitation
of the generality of the foregoing, shall solely be empowered to
promulgate, amend and rescind rules and regulations for administration of
the Plan, to decide any questions or disputes which may arise under the
Plan and to make all other determinations and to take or cause to be taken
all such other actions as may be necessary or desirable for operation of
the Plan. Subject to the provisions hereof, the selection of eligible
Employees for participation in the Plan and the manner and amount of such
participation in each individual case shall be determined in the sole and
absolute discretion of the Board.
2. The action of the Board pursuant to paragraph 1 of this Article
shall be binding and conclusive on all persons.
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ARTICLE XI - AMENDMENTS AND TERMINATION OF THE PLAN
---------------------------------------------------
Although it is contemplated that the Plan will continue
indefinitely, nevertheless the Board in its discretion may at any time and
from time to time amend the Plan or any provision thereof or may terminate
the Plan, except that:
(i) The Board shall not, without prior approval of the
stockholders of the Company, amend the Plan to increase the
maximum amount which may be credited to the Reserve for any
year, or to increase the maximum amounts which may be
allotted in any year to the members of the Board as a
group, except as may be necessary or permitted so as to
achieve or maintain a favorable tax position for the
Company or participants under the Internal Revenue Code, as
the same may be amended; and
(ii) Neither an allotment made prior to the effective date of
any amendment or termination of the Plan, nor any payment
provided for under the terms of such an allotment, may be
adversely affected by such amendment or termination without
the consent of the participant to whom such allotment was
made.
ARTICLE XII - LEGAL REQUIREMENTS
--------------------------------
The operation of the Plan and all rights and obligations
resulting at any time therefrom shall be subject to compliance with all
state and federal laws and regulations (whether now or hereafter becoming
applicable) at such time or times and in such manner as the Board shall
consider necessary or appropriate.
2DP-1/002
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Exhibit 10(j)
BOARD OF DIRECTORS
APPROVED - SEPTEMBER 12, 1994
KEY EMPLOYEE DEFERRED COMPENSATION PLAN OF
PHILLIPS PETROLEUM COMPANY
PURPOSE
The purpose of the Key Employee Deferred Compensation Plan of Phillips
Petroleum Company (the "Plan") is to attract and retain key employees by
providing them with an opportunity to defer receipt of cash amounts which
otherwise would be paid to them under various compensation programs or plans
by the Company.
SECTION 1. Definitions.
(a) "Award" shall mean the United States cash dollar amount (i)
allotted to an Employee under the terms of an Incentive
Compensation Plan or the Long Term Incentive Compensation Plan, or
(ii) required to be credited to an Employee's Deferred Compensation
Account pursuant to the Incentive Compensation Plan, the Long Term
Incentive Compensation Plan, the Strategic Incentive Plan, the Long
Term Incentive Plan, or any similar plans, or any administrative
procedure adopted pursuant thereto, (iii) credited as a result of a
Participant's deferral of the receipt of the value of the Stock
which would otherwise be delivered to an Employee by the Committee
acting, in its sole discretion, to lapse restrictions on Restricted
Stock previously awarded or which may be awarded to the Participant
pursuant to the Incentive Compensation Plan, the Long Term
Incentive Compensation Plan, the
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Strategic Incentive Plan, the Long Term Incentive Plan, the Omnibus
Securities Plan, or any similar plans, or any administrative
procedure adopted pursuant thereto, (iv) credited resulting from a
lump sum distribution from any of the Company's non-qualified
retirement plans and/or plans which provide for a retirement
supplement, (v) resulting from the forfeiture of Restricted Stock,
required by the Company, of key employees who become employees of
GPM Gas Corporation, (vi) credited as a result of an Employee's
deferral of the receipt of the lump sum cash payment from the
Employee's account in the Defined Contribution Makeup Plan, (vii)
credited as a result of an Employee's voluntary reduction of Salary
or (viii) any other amount determined by the Committee to be an
Award under the Plan. Sections 2 and 3 of this Plan shall not
apply with respect to Awards included under (ii), (v), and (vii)
above and a participant receiving such an Award shall be deemed,
with respect thereto, to have elected a Section 5(b)(i) payment
option - 10 annual installments commencing about one year after
retirement, but subject to revision under the terms of this Plan.
(b) "Board of Directors" shall mean the board of directors of the
Company.
(c) "Chief Executive Officer (CEO)" shall mean the Chief Executive
Officer of the Company.
(d) "Committee" shall mean the Compensation Committee of the Board of
Directors.
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(e) "Company" shall mean Phillips Petroleum Company.
(f) "Deferred Compensation Account" shall mean an account established
and maintained for each Participant in which is recorded the
amounts of Awards deferred by a Participant, the deemed gains,
losses and earnings accrued thereon and payments made therefrom all
in accordance with the terms of the Plan.
(g) "Defined Contribution Makeup Plan" shall mean the Defined Contribu-
tion Makeup Plan of Phillips Petroleum Company or any similar plan
or successor plans.
(h) "Disability" shall mean the inability, in the opinion of the
Company's group life insurance carrier or the Company's Medical
Director, of a Participant, because of an injury or sickness, to
work at a reasonable occupation which is available with the Company
or at any gainful occupation which the Participant is or may become
fitted.
(i) "Employee" shall mean any individual who is a salaried employee of
the Company or of a Participating Subsidiary who is eligible to
receive an Award from an Incentive Compensation Plan or has
Restricted Stock and is not subject to taxation in countries other
than the United States of America either at the time of any
preference election pursuant to Section 3 of the Plan or on the
date that an Award would be deferred and credited to a Deferred
Compensation Account pursuant to Section 4, generally classified as
a U.S. Domestic Employee; provided, however, that the Plan
Administrator may approve
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exceptions to allow individuals generally classified as Expatriates
and Nationals who have Restricted Stock, but who are not subject to
the reporting requirements under Section 16 of the Exchange, to be
regarded as Employees.
(j) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time or any successor statute.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute.
(l) "Incentive Compensation Plan" shall mean the Incentive Compensation
Plan of the Company, or the Annual Incentive Compensation Plan of
Phillips Petroleum Company, or similar plan of a Participating
Subsidiary, or any similar or successor plans, or all, as the
context may require.
(m) "Long-Term Incentive Compensation Plan" shall mean the Long-Term
Incentive Compensation Plan of the Company which was terminated
December 31, 1985.
(n) "Long-Term Incentive Plan" shall mean the Long-Term Incentive Plan,
or similar or successor plan, established under the Omnibus Securi-
ties Plan of Phillips Petroleum Company.
(o) "Participant" shall mean a person for whom a Deferred Compensation
Account is maintained.
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(p) "Participating Subsidiary" shall mean a subsidiary of the Company,
of which the Company beneficially owns, directly or indirectly,
more than 50% of the aggregate voting power of all outstanding
classes and series of stock, where such subsidiary has adopted one
or more plans making participants eligible for participation in
this Plan and one or more Employees of which are Potential
Participants.
(q) "Plan Administrator" shall mean the person designated by the Chief
Executive Officer to carry out ministerial duties related to the
Plan.
(r) "Potential Participant" shall mean a person who has received a
notice specified in Section 2.
(s) "Restricted Stock" shall mean shares of Stock which have certain
restrictions attached to the ownership thereof.
(t) "Retirement Income Plan" shall mean the Retirement Income Plan of
the Company or a similar retirement plan of the Participating
Subsidiary pursuant to the terms of which the Participant retires.
(u) "Settlement Date" shall mean the date on which all acts under the
Incentive Compensation Plan or the Long-Term Incentive Compensation
Plan or actions directed by the Committee, as the case may be, have
been taken which are necessary to make an Award payable to the
Participant.
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<PAGE>
(v) "Salary" shall mean the monthly equivalent rate of pay for an
Employee before adjustments for any before-tax voluntary
reductions.
(w) "Stock" means shares of common stock of the Company, par value
$1.25.
(x) "Strategic Incentive Plan" shall mean the Strategic Incentive Plan
portion of the 1986 Stock Plan of the Company, of the 1990 Stock
Plan of the Company, and of any successor plans of similar nature.
SECTION 2. Notification of Potential Participants.
(a) Incentive Compensation Plan. Each year, during September,
Employees who are eligible to receive an Award in the immediately
following calendar year under the Company's or a Participating
Subsidiary's Incentive Compensation Plan will be notified and given
the opportunity, in a manner prescribed by the Plan Administrator,
to indicate a preference concerning deferral of all or part of such
Award.
(b) Restricted Stock Awards. Each year Employees who are or will
become 55 years of age prior to the end of the calendar year or who
are over 55 years old and have not previously been notified will be
notified and given the opportunity, in a manner prescribed by the
Plan Administrator, to indicate a preference concerning the
deferral of the receipt of the value of all or part of the Stock
which would otherwise be delivered to the Employees in the event
the Committee acting, in its sole discretion, lapses restrictions
on Restricted Stock previously awarded or which may be awarded to
the Employees.
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<PAGE>
(c) Lump Sum Distribution from Non-Qualified Retirement Plans. With
respect to the lump sum distribution permitted from the Company's
non-qualified retirement plans and/or plans which provide for a
retirement supplement, Employees may indicate, in a manner
prescribed by the Plan Administrator, a preference for all or part
of the lump sum distribution, if any, to be considered an Award
under this Plan.
(d) Lump Sum from Defined Contribution Makeup Plan. Employees who will
receive a lump sum cash payment from their account under the
Defined Contribution Makeup Plan, may indicate, in a manner
prescribed by the Plan Administrator, a preference concerning
deferral of all of part of such payment.
(e) Salary Reduction. Annually, Employees on the U.S. dollar payroll
may elect, in a manner prescribed by the Plan Administrator, a
voluntary reduction of Salary for each pay period of the following
calendar year, in which case the Company will credit a like amount
as an Award hereunder, provided that the amount of such reduction
shall be not less than $100 per month nor more than 50% of the
Employee's Salary in effect as of the date of the election.
SECTION 3. Indication of Preference or Election to Defer Award.
(a) Incentive Compensation Plan. If a Potential Participant prefers to
defer under this Plan all or any part of the Award to which a
notice received under Section 2(a) pertains, the Potential
Participant must indicate such preference (i) if the Potential
Participant is subject
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<PAGE>
to Section 16 of the Exchange Act, to the Committee, or (ii) if the
Potential Participant is not subject to Section 16 of the Exchange
Act, to the CEO. The Potential Participant's preference must be
received on or before October 1 of the year in which said Section
2(a) notice was received. Such indication must be in writing
signed by the Potential Participant, and, must state the portion of
the Award the Potential Participant desires to be deferred. If an
indication is not received by October 1, the Potential Participant
will be deemed to have elected to receive any ICP award awarded by
the Committee.
Such indication of preference, if accepted, becomes irrevocable on October 1
of the year in which the indication is submitted to the Committee or CEO.
The Committee or CEO, as applicable, shall consider such indication of
preference as submitted and shall decide whether to accept or reject the
preference expressed on or before December 15 of the year in which the
Potential Participant has submitted the indication of preference to it for
Awards under Section 2(a). The Potential Participant shall be notified in
writing of the decision.
(b) Restricted Stock. If a Potential Participant prefers to defer
under this Plan the value of all or any part of the Restricted
Stock to which a notice received under Section 2(b) pertains, the
Potential Participant must indicate such preference (i) if the
Potential Participant is subject to Section 16 of the Exchange Act,
to the Committee, or (ii) if the Potential Participant is not
subject to Section 16 of the Exchange Act, to the CEO. The
Potential Participant's preference must be received on or before
October 1 of
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<PAGE>
the year in which said Section 2(b) notice was received. Such
indication must be in writing signed by the Potential Participant,
and, must state the portion of the value of the Restricted Stock
the Potential Participant desires to be deferred. If an indication
is not received by October 1, the Potential Participant will be
deemed to have elected to receive any shares for which the
restrictions have been lapsed by the Committee. Such indication of
preference becomes irrevocable on October 1 of the year in which
the indication is submitted to the Committee or CEO. The Committee
or CEO, as applicable, shall consider such indication of preference
as submitted and shall decide whether to accept or reject the
preference expressed. The Potential Participant shall be notified
in writing of the decision. A deferral of the value of the
Restricted Stock will be paid under the terms of Section 5(b)(i)
hereof - 10 annual installments commencing about one year after
retirement, but subject to revision under the terms of this Plan.
(c) Lump Sum Distribution from Non-Qualified Retirement Plans. If a
Potential Participant prefers to defer under this Plan all or part
of the lump sum distribution to which Section 2(c) pertains, the
Potential Participant must indicate such preference (i) if the
Potential Participant is subject to Section 16 of the Exchange Act,
to the Committee or (ii) if the Potential Participant is not
subject to Section 16 of the Exchange Act, to the CEO. The
Potential Participant's preference must be received in the period
beginning 90 days prior to and ending no less than 30 days prior to
the date of commencement of retirement benefits under such plans.
Such
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<PAGE>
indication must be in writing signed by the Potential Participant,
and must state the portion of the lump sum distribution the
Potential Participant desires to be deferred. The Committee or
CEO, as applicable, shall consider such indication of preference as
submitted and shall decide whether to accept or reject the
preference expressed as soon as practicable. Such indication of
preference, if accepted, becomes irrevocable on the date of such
acceptance.
(d) Lump Sum from Defined Contribution Makeup Plan. If a Potential
Participant prefers to defer under this Plan all or part of the
lump sum cash payment to which Section 2(d) pertains, the Potential
Participant must indicate such preference (i) if the Potential
Participant is subject to Section 16 of the Exchange Act, to the
Committee or (ii) if the Potential Participant is not subject to
Section 16 of the Exchange Act, to the CEO. The Potential
Participant's preference must be received in the period beginning
365 days prior to and ending no less than 90 days prior to the
Participant's retirement date except that if a Potential
Participant is notified of layoff during or after the year in which
the Potential Participant reaches age 50 and if there is not at
least 120 days between the date the Potential Participant is
notified of layoff and the Potential Participant's termination
date, the Potential Participant's preference must be received
within 30 days of being notified of layoff. Such indication must
be in writing signed by the Potential Participant, and must state
the portion of the lump sum payment the Potential Participant
desires to be deferred. The Committee or CEO, as applicable, shall
consider such indication of preference as
10
<PAGE>
submitted and shall decide whether to accept or reject the
preference expressed as soon as practicable. Such indication of
preference, if accepted, becomes irrevocable on the date of such
acceptance. A deferral of the lump sum from the Defined
Contribution Makeup Plan will be paid under the terms of Section
5(b)(i) hereof - 10 annual installments commencing about one year
after retirement, but subject to revision under the terms of the
Plan.
(e) Salary Reduction. If a Potential Participant elects to voluntarily
reduce Salary and receive an Award hereunder in lieu thereof, the
Potential Participant's election must be received on or before
November 30 prior to the beginning of the calendar year of the
elected deferral. Such election must be in writing signed by the
Potential Participant, and must state the amount of the salary
reduction the Potential Participant elects. Such election becomes
irrevocable on November 30 prior to the beginning of the calendar
year. An Award in lieu of voluntarily reduced salary will be paid
under the terms of Section 5(b)(i) hereof - 10 annual installments
commencing about one year after retirement, but subject to revision
under the terms of the Plan.
SECTION 4. Deferred Compensation Accounts.
(a) Credit for Deferral. Amounts deferred pursuant to Section 3(a)
will be credited to the Participant's Deferred Compensation Account
as soon as practicable, but not less than 30 days after the
Settlement Date of the Incentive Compensation Plan. Amounts
deferred pursuant
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<PAGE>
to Section 3(b) will be credited at market value of the underlying
Restricted Stock as soon as practicable, but not later than 30 days
after the date as of which the Committee elects to lapse the
restrictions. Amounts deferred pursuant to Section 3(d) and 3(e)
will be credited to the Participant's Deferred Compensation Account
as soon as practicable, but not later than 30 days after the cash
payment would have been made had it not been deferred. Amounts
deferred pursuant to other provisions of this plan shall be
credited as soon as practicable after the date assigned to the
deferral by the Company or by the Committee.
(b) Designation of Investments. The amount in each Participant's
Deferred Compensation Account shall be deemed to have been invested
and reinvested from time to time, in such "eligible securities" as
the Participant shall designate. Prior to or in the absence of a
Participant's designation, the Company shall designate an "eligible
security" in which the Participant's Deferred Compensation Account
shall be deemed to have been invested until designation
instructions are received from the Participant. Eligible
securities are those securities designated by the Treasurer of the
Company. The Treasurer of the Company may include as eligible
securities, stocks listed on a national securities exchange, and
bonds, notes, debentures, corporate or governmental, either listed
on a national securities exchange or for which price quotations are
published in The Wall Street Journal and shares issued by
investment companies commonly known as "mutual funds". The
Participant's Deferred Compensation Account will be adjusted to
reflect the deemed gains, losses and earnings as though
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<PAGE>
the amount deferred was actually invested and reinvested in the
eligible securities for the Participant's Deferred Compensation
Account.
Notwithstanding anything to the contrary in this section 4(b), in
the event the Company actually purchases or sells such securities
in the quantities and at the times the securities are deemed to be
purchased or sold for a Participant's Deferred Compensation
Account, the Account shall be adjusted accordingly to reflect the
price actually paid or received by the Company for such securities
after adjustment for all transaction expenses incurred (including
without limitation brokerage fees and stock transfer taxes).
In the case of any deemed purchase not actually made by the
Company, the Deferred Compensation Account shall be charged with a
dollar amount equal to the quantity and kind of securities deemed
to have been purchased multiplied by the fair market value of such
security on the date of reference and shall be credited with the
quantity and kind of securities so deemed to have been purchased.
In the case of any deemed sale not actually made by the Company,
the account shall be charged with the quantity and kind of
securities deemed to have been sold, and shall be credited with a
dollar amount equal to the quantity and kind of securities deemed
to have been sold multiplied by the fair market value of such
security on the date of reference. As used herein "fair market
value" means in the case of a listed security the closing price on
the date of reference, or if there were no sales on such date, then
the closing price on the nearest
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preceding day on which there were such sales, and in the case of an
unlisted security the mean between the bid and asked prices on the
date of reference, or if no such prices are available for such
date, then the mean between the bid and asked prices to the nearest
preceding day for which such prices are available.
The Treasurer of the Company may also designate a Fund Manager to
provide services which may include recordkeeping, Participant ac-
counting, Participant communication, payment of installments to the
Participant, tax reporting and any other services specified by the
Company in agreement with the Fund Manager.
(c) Payments. A Participant's Deferred Compensation Account shall be
debited with respect to payments made from the account pursuant to
this Plan as of the date such payments are made from the account.
The payment shall be made as soon as practicable, but no later than
30 days, after the installment payment date.
If any person to whom a payment is due hereunder is under legal
disability as determined in the sole discretion of the Plan
Administrator, the Plan Administrator shall have the power to cause
the payment due such person to be made to such person's guardian or
other legal representative for the person's benefit, and such
payment shall constitute a full release and discharge of the
Company, the Plan Administrator and any fiduciary of the Plan.
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<PAGE>
(d) Statements. At least one time per year the Company or the
Company's designee will furnish each Participant a written
statement setting forth the current balance in the Participant's
Deferred Compensation Account, the amounts credited or debited to
such account since the last statement and the payment schedule of
deferred Awards and deemed gains, losses and earnings accrued
thereon as provided by the deferred payment option selected by the
Participant.
SECTION 5. Payments from Deferred Compensation Accounts.
(a) Election of Method of Payment for an Incentive Compensation Plan
Award. At the time a Potential Participant submits an indication
of preference to defer all or any part of an Award under an
Incentive Compensation Plan as provided in Section 3(a) above, the
Potential Participant shall also elect in a manner prescribed by
the Plan Administrator, which of the payment options, provided for
in Paragraph (b) of this Section, shall apply to the deferred
portion of said Award adjusted for any deemed gains, losses and
earnings accrued thereon credited to the Participant's Deferred
Compensation Account under this Plan. Subject to Paragraphs (e),
(g) and (h) of this Section, if the Committee or CEO, as
appropriate, accepts the Potential Participant's indication of
preference, the election of the method of payment of the amount
deferred shall become irrevocable.
(b) Payment Options. A Potential Participant may elect to have the
deferred portion of an Incentive Compensation Plan Award adjusted
for any deemed gains, losses and earnings accrued thereon paid:
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(i) (Post-Retirement) in 10 annual installments, the payment of
the first of such installments to commence on the first day
of the first calendar quarter which is on or after the first
anniversary of the Potential Participant's first day of
retirement under the terms of the Retirement Income Plan, or
(ii) (Pre-Retirement) in annual installments of not less than 5
nor more than 10, in semi-annual installments of not less
than 10 nor more than 20, or in quarterly installments of not
less than 20 nor more than 40. The first of such
installments to commence, as soon as practicable after any
date specified by the Potential Participant, so long as such
date is the first day of a calendar quarter, is on or after
the Settlement Date, is at least one year from the date the
payout option was elected, and is prior to the date the
Potential Participant will attain the Participant's Normal
Retirement Date under the terms of the Retirement Income
Plan.
(c) Election of Method of Payment of the Value of Restricted Stock. As
provided in Section 3(b) above, a deferral of the value of all or
part of the Restricted Stock will be considered payment option
(b)(i) of this Section subject to Paragraphs (e) and (g) of this
Section.
(d) Election of Method of Payment of a Lump Sum Distribution from Non-
Qualified Retirement Plans. At the time a Potential Participant
submits an indication of preference to defer all or part of the
lump sum distribution as provided in Section 3(c) above, the
Potential
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<PAGE>
Participant shall also elect in a manner prescribed by the Plan
Administrator which payment option shall apply to the deferred lump
sum adjusted for any gains, losses and earnings to be accrued
thereon credited to the Participant's Deferred Compensation Account
under this Plan. The payment options are annual installments of
not less than 5 nor more than 10, semi-annual installments of not
less than 10 nor more than 20, or quarterly installments of not
less than 20 nor more than 40. The first installment to commence
as soon as practicable after any date specified by the Potential
Participant, so long as such date is the first day of a calendar
quarter and is at least one year from the date the payout option
was elected. Subject to Paragraph (g) of this Section, if the
Committee or CEO, as appropriate, accepts the Potential
Participant's indication of preference, the election of the method
of payment of the amount deferred shall become irrevocable.
(e) Payment Option Revisions. If a Section 5(b)(i) payment option
applies to any part of the balance of a Participant's Deferred
Compensation Account, the Participant may revise such payment
option as follows:
(i) Prior to Retirement. The Participant at any time during a
period beginning 365 days prior to and ending 90 days prior
to the date the Participant retires under the terms of the
Retirement Income Plan, may, with respect to the total of all
amounts subject to such payment option at the time of the
Participant's retirement, in the manner prescribed by the
Plan Administrator,
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<PAGE>
revise such payment option and elect one of the payment
options specified in (e)(iii) of this Section to apply to
such total amount in place of such payment option.
(ii) Upon Layoff. If a Participant who is eligible to retire
under the terms of the Retirement Income Plan or who is laid
off during or after the year in which the Participant reaches
age 50 is notified of layoff and if there is not at least 120
days between the date the Participant is notified of layoff
and the Participant's termination date, the Participant may,
within 30 days of being notified of layoff, in the manner
prescribed by the Plan Administrator, revise such payment
option and elect one of the payment options specified in
(e)(iii) of this Section to apply to such total amount in
place of the such payment option.
(iii) Payment Options After Revision. If a Participant revises a
Section 5(b)(i) payment option as specified in (c)(i) or
(c)(ii) of this Section, the Participant, subject to the
exception in (e)(iv) of this Section, may select payments in
annual installments of not less than 5 nor more than 10, in
semi-annual installments of not less than 10 nor more than
20, or in quarterly installments of not less than 20 nor more
than 40 with the first installment to commence, as soon as
practicable following any date specified by the Participant
so long as such date is the first day of a calendar quarter,
is on or after the Participant's first day of retirement or
the first
18
<PAGE>
day the Participant is no longer an Employee following
layoff, is at least one year from the date the payment option
was revised and is not more than two calendar quarters after
the Participant's 70th birthday.
(iv) Payment Option After Revision Exception. If a Participant
elected a Section 5(b)(i) payment option for amounts deferred
prior to January 1, 1994, the Participant may select payments
in one lump sum or annual installments of not less than 5 nor
more than 20 in addition to the payment options specified in
(e)(iii) of this Section, provided that the commencement date
specified by the Participant would be permitted under
paragraph (e)(iii) of this Section.
(f) Installment Amount. The amount of each installment shall be deter-
mined by dividing the balance in the Participant's Deferred
Compensation Account as of the date the installment is to be paid,
by the number of installments remaining to be paid (inclusive of
the current installment).
(g) Death of Participant. Upon the death of a Participant, the
Participant's beneficiary or beneficiaries designated in accordance
with Section 6, or in the absence of an effective beneficiary
designation, the spouse, children (natural or adopted), or the
legal representative of the deceased Participant, in that order of
priority, shall receive payments in accordance with the payment
options selected by the Participant, whether death occurred before
or after such payments
19
<PAGE>
have commenced; provided, however, such payments may be made in a
different manner if the beneficiary or beneficiaries entitled to
receive such payments, due to an unanticipated emergency caused by
an event beyond the control of the beneficiary or beneficiaries
that results in financial hardship to the beneficiary or
beneficiaries, so requests and the CEO gives written consent to the
method of payment requested.
(h) Termination of Employment.
In the event a Participant's employment with the Company or a
Participating Subsidiary terminates for any reason other than
death, retirement under the Retirement Income Plan, Disability, or
by layoff during or after the year in which the Participant reaches
age 50, the entire balance of the Participant's Deferred
Compensation Account shall be paid to the Participant in one lump
sum as soon as practicable after the date the Participant
terminates employment, provided however, the Committee, in its sole
discretion, may elect to make such payments in the amounts and on
such schedule as it may determine.
SECTION 6. Designation of Beneficiary
Each Participant shall designate a beneficiary or beneficiaries to
receive the entire balance of the Participant's Deferred Compensation
Account by giving signed written notice of such designation to the Plan
Administrator. The Participant may from time to time change or cancel
any previous beneficiary designation in the same manner. The last
beneficiary
20
<PAGE>
designation received by the Plan Administrator shall be controlling over
any prior designation and over any testamentary or other disposition.
After acceptance by the Plan Administrator of such written designation,
it shall take effect as of the date on which it was signed by the
Participant, whether the Participant is living at the time of such
receipt, but without prejudice to the Company or the CEO on account of
any payment made under this Plan before receipt of such designation.
SECTION 7. Nonassignability
The right of a Participant, or beneficiary, or other person who becomes
entitled to receive payments under this Plan, shall not be assignable or
subject to garnishment, attachment or any other legal process by the
creditors of, or other claimants against, the Participant, beneficiary,
or other such person.
SECTION 8. Administration.
The Chief Executive Officer may adopt such rules, regulations and forms
as deemed desirable for administration of the Plan and shall have the
discretionary authority to allocate responsibilities under the Plan to
such other persons as may be designated, whether or not employee members
of the Board of Directors, including the appointment of a person to be
the Plan Administrator. The decision of the Chief Executive Officer
with respect to any questions arising as to the interpretation of the
Plan shall be final, conclusive and binding; provided, however that all
such decisions, interpretations and actions which affect or have the
potential
21
<PAGE>
to affect the benefits hereunder of any person who is, at the time of
such decision, interpretation or action, subject to the provisions of
Section 16 of the Exchange Act shall be referred by the CEO to the
Committee, which shall in such case have sole power to make such
decision or interpretation or to take or cause to be taken such action.
SECTION 9. Employment not Affected by Plan.
Participation or nonparticipation in this Plan shall neither adversely
affect any person's employment status, or confer any special rights on
any person other than those expressly stated in the Plan. Participation
in the Plan by an Employee of the Company or of a Participating
Subsidiary shall not affect the Company's or the Participating
Subsidiary's right to terminate the Employee's employment or to change
the Employee's compensation or position.
SECTION 10. Determination of Recipients of Awards.
The determination of those persons who are entitled to Awards under the
Incentive Compensation Plan and any other such plans shall be governed
solely by the terms and provisions of the applicable plan, and the
selection of an Employee as a Potential Participant or the acceptance of
an indication of preference to defer an Award hereunder shall not in any
way entitle such Potential Participant to an Award.
22
<PAGE>
SECTION 11. Method of Providing Payments.
(a) Nonsegregation. Amounts deferred pursuant to this Plan and the
crediting of amounts to a Participant's Deferred Compensation
Account shall represent the Company's unfunded and unsecured
promise to pay compensation in the future. With respect to said
amounts, the relationship of the Company and a Participant shall be
that of debtor and general unsecured creditor. While the Company
may make investments for the purpose of measuring and meeting its
obligations under this Plan such investments shall remain the sole
property of the Company subject to claims of its creditors
generally, and shall not be deemed to form or be included in any
part of the Deferred Compensation Account.
(b) Funding. It is the intention of the Company that this Plan shall
be unfunded for federal tax purposes and for purposes of Title I of
ERISA; provided, however, that the Company may establish a grantor
trust to satisfy part or all of its Plan payment obligations so
long as the Plan remains unfunded for federal tax purposes and for
purposes of Title I of ERISA.
SECTION 12. Amendment or Termination of Plan.
The Company reserves the right to amend this Plan from time to time or
to terminate the Plan entirely, provided, however, that no amendment may
affect the balance in a Participant's account on the effective date of
the amendment. No Participant shall participate in a decision to amend
or
23
<PAGE>
terminate this Plan. In the event of termination of the Plan, the Chief
Executive Officer, in his sole discretion, may elect to pay to the
participant in one lump sum as soon as practicable after termination of
the Plan, the balance then in the Participant's account.
SECTION 13. Miscellaneous Provisions.
(a) Except as otherwise provided herein, the Plan shall be binding upon
the Company, its successors and assigns, including but not limited
to any corporation which may acquire all or substantially all of
the Company's assets and business or with or into which the Company
may be consolidated or merged.
(b) This Plan shall be construed, regulated, and administered in accor-
dance with the laws of the State of Oklahoma except to the extent
that said laws have been preempted by the laws of the United
States.
2DP/001
09-08-94
24
<PAGE>
Exhibit 12
PHILLIPS PETROLEUM COMPANY AND CONSOLIDATED SUBSIDIARIES
TOTAL ENTERPRISE
Computation of Ratio of Earnings to Fixed Charges
Millions of Dollars
--------------------------------------
Years Ended December 31
--------------------------------------
1994 1993 1992 1991 1990
--------------------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles $ 852 538 511 451 1,187
Distributions in excess of (less than)
equity in earnings of less-than-
fifty-percent-owned companies 2 9 (3) 1 7
Fixed charges, excluding
capitalized interest and the
portion of the preferred dividend
requirements of a subsidiary not
previously deducted from income* 340 363 442 631 665
- -----------------------------------------------------------------------------
$1,194 910 950 1,083 1,859
=============================================================================
Fixed Charges
Interest and expense on
indebtedness, excluding
capitalized interest $ 266 290 392 460 622
Capitalized interest 15 11 16 37 17
Preferred dividend requirements
of a subsidiary 56 71 3 - -
One-third of rental expense,
net of subleasing income,
for operating leases 32 30 38 34 29
- -----------------------------------------------------------------------------
$ 369 402 449 531 668
=============================================================================
Ratio of Earnings to Fixed Charges 3.2 2.3 2.1 2.0 2.8
- -----------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately
$10 million, $11 million, $10 million, $137 million and $14 million in 1994,
1993, 1992, 1991 and 1990, respectively. For 1991, the amount includes
approximately $120 million of capitalized interest associated with the
writedown of offshore California investments.
Earnings available for fixed charges include, if any, the company's equity in
losses of companies owned less than fifty percent and having debt for which
the company is contingently liable. Fixed charges include the company's
proportionate share, if any, of interest relating to the contingent debt.
In 1990 and 1988, respectively, the company guaranteed a $400 million bank
loan and $250 million of notes payable for the Long-Term Stock Savings Plan
(LTSSP), an employee benefit plan. In 1994, the notes payable were
refinanced with a $131 million term loan, and the $400 million loan was
amended. Consolidated interest expense includes interest attributable to the
LTSSP borrowings of $1 million, $1 million, $1 million, $13 million and
$10 million in 1994, 1993, 1992, 1991 and 1990, respectively.
Exhibit 21
LIST OF SUBSIDIARIES OF PHILLIPS PETROLEUM COMPANY
Listed below are subsidiaries of the registrant at December 31, 1994.
Certain subsidiaries are omitted since such companies considered in the
aggregate do not constitute a significant subsidiary.
State or Jurisdiction
in Which Subsidiary
was Incorporated
Name of Company or Organized
--------------- ---------------------
American Olefins, Inc. Delaware
GPM Gas Corporation Delaware
Phillips Alaska Natural Gas Corporation Delaware
Phillips Coal Company Nevada
Phillips Gas Company Delaware
Phillips Investment Company Nevada
Phillips Natural Gas Company Delaware
Phillips Oil Company (Nigeria) Limited Nigeria
Phillips Petroleum Canada Ltd. Canada
Phillips Petroleum Chemicals Belgium
Phillips Petroleum Company Cote d'Ivoire Delaware
Phillips Petroleum Company Europe-Africa Delaware
Phillips Petroleum Company Ghana Delaware
Phillips Petroleum Company Indonesia Delaware
Phillips Petroleum Company Norway Delaware
Phillips Petroleum Company United Kingdom Limited England
Phillips Petroleum Company Western Hemisphere Delaware
Phillips Petroleum International Corporation Panama
Phillips Petroleum International Corporation Asia Liberia
Phillips Petroleum International Corporation Denmark Caymen Islands
Phillips Petroleum International Investment Company Delaware
Phillips Petroleum Resources, Ltd. Delaware
Phillips Petroleum UK Investment Corporation Delaware
Phillips Pipe Line Company Delaware
Phillips Protein Company Delaware
Phillips Puerto Rico Core Inc. Delaware
Phillips-San Juan Partners, L.P. Delaware
Seagas Pipeline Company Delaware
Sooner Insurance Company Vermont
The Largo Company Delaware
WesTTex 66 Pipeline Company Delaware
Exhibit 23
ERNST & YOUNG LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated
February 15, 1995, with respect to the consolidated financial
statements and schedule of Phillips Petroleum Company included in
this Annual Report (Form 10-K) for the year ended December 31,
1994, in the following registration statements and related
prospectuses.
Phillips Petroleum Company Form S-3 File No. 33-51559
Thrift Plan of Phillips
Petroleum Company Form S-8 File No. 33-50134
Long-Term Stock Savings Plan
of Phillips Petroleum
Company Form S-8 File No. 33-50283
Retirement Savings Plan of
Phillips Petroleum Company
Subsidiaries Form S-8 File No. 33-28669
/s/ ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Phillips Petroleum Company as of December 31,
1994, and the related consolidated statement of income for the year ended
December 31, 1994, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 193
<SECURITIES> 0
<RECEIVABLES> 1,482
<ALLOWANCES> 20
<INVENTORY> 527
<CURRENT-ASSETS> 2,465
<PP&E> 18,293
<DEPRECIATION> 10,251
<TOTAL-ASSETS> 11,436
<CURRENT-LIABILITIES> 2,441
<BONDS> 3,106
<COMMON> 483
0
0
<OTHER-SE> 2,470
<TOTAL-LIABILITY-AND-EQUITY> 11,436
<SALES> 12,211
<TOTAL-REVENUES> 12,367
<CGS> 10,504<F1>
<TOTAL-COSTS> 11,253<F2>
<OTHER-EXPENSES> 12<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> 852
<INCOME-TAX> 368
<INCOME-CONTINUING> 484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 484
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.85
<FN>
<F1>Purchased crude oil and products + Production and operating expenses +
Exploration expenses + Depreciation, depletion, amortization and retirements.
<F2>CGS + Selling, general and administrative expenses + Taxes other than income
taxes.
<F3>Preferred dividend requirements of subsidiary + Gain on subsidiary stock
transaction.
</FN>
</TABLE>
