UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -------------------
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)
918-661-6600
(Registrant's telephone number, including area code)
---------------
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
----- -----
The registrant had 263,441,992 shares of common stock, $1.25 par value,
outstanding at July 31, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
- ---------------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Millions of Dollars
---------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
---------------------------------
1997 1996 1997 1996
---------------------------------
Revenues
Sales and other operating revenues $3,709 3,937 7,653 7,532
Equity in earnings of affiliated
companies 35 22 65 20
Other revenues 19 16 39 25
- ---------------------------------------------------------------------
Total Revenues 3,763 3,975 7,757 7,577
- ---------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 2,228 2,536 4,683 4,742
Production and operating expenses 538 492 1,052 1,012
Exploration expenses 75 47 115 113
Selling, general and
administrative expenses 135 135 296 261
Depreciation, depletion and
amortization 189 187 372 428
Taxes other than income taxes 62 66 136 132
Interest expense 49 59 103 118
Preferred dividend requirements
of subsidiary and capital trusts 21 10 41 18
- ---------------------------------------------------------------------
Total Costs and Expenses 3,297 3,532 6,798 6,824
- ---------------------------------------------------------------------
Income before income taxes and
Kenai LNG tax settlement 466 443 959 753
Kenai LNG tax settlement 76 - 76 571
- ---------------------------------------------------------------------
Income before income taxes 542 443 1,035 1,324
Provision for income taxes 235 222 501 408
- ---------------------------------------------------------------------
Net Income $ 307 221 534 916
=====================================================================
Net Income Per Share of Common
Stock $ 1.17 .84 2.03 3.49
=====================================================================
Dividends Paid $ .340 .305 .660 .610
Average Common Shares Outstanding
(in thousands) 263,343 262,949 263,437 262,629
- ---------------------------------------------------------------------
See Notes to Financial Statements.
1
<PAGE>
- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
Millions of Dollars
-----------------------
June 30 December 31
1997 1996
-----------------------
Assets
Cash and cash equivalents $ 774 615
Accounts and notes receivable (less
allowances: 1997--$20; 1996--$20) 1,762 1,988
Inventories 521 472
Deferred income taxes 112 117
Prepaid expenses and other current assets 221 114
- -----------------------------------------------------------------
Total Current Assets 3,390 3,306
Investments and long-term receivables 938 912
Properties, plants and equipment (net) 9,279 9,120
Deferred income taxes 77 85
Deferred charges 139 125
- -----------------------------------------------------------------
Total $13,823 13,548
=================================================================
Liabilities
Accounts payable $ 1,500 1,793
Notes payable and long-term debt due
within one year 362 574
Dividends payable 13 -
Accrued income and other taxes 511 483
Other accruals 205 287
- -----------------------------------------------------------------
Total Current Liabilities 2,591 3,137
Long-term debt 2,507 2,555
Accrued dismantlement, removal and
environmental costs 745 783
Deferred income taxes 1,122 1,047
Employee benefit obligations 445 425
Other liabilities and deferred credits 827 700
- -----------------------------------------------------------------
Total Liabilities 8,237 8,647
- -----------------------------------------------------------------
Preferred Stock of Subsidiary and Other
Minority Interests 350 350
- -----------------------------------------------------------------
Company-Obligated Mandatorily
Redeemable Preferred Securities
of Phillips Capital Trusts I and II 650 300
- -----------------------------------------------------------------
Common Stockholders' Equity
Common stock--500,000,000 shares
authorized at $1.25 par value
Issued (306,380,511 shares)
Par value 383 383
Capital in excess of par 2,011 1,999
Treasury stock (at cost:
1997--13,989,571 shares;
1996--13,878,480 shares) (756) (757)
Compensation and Benefits Trust (CBT)
(at cost: 29,200,000 shares) (989) (989)
Foreign currency translation adjustments 15 54
Unearned employee compensation--Long-
Term Stock Savings Plan (LTSSP) (360) (378)
Retained earnings 4,282 3,939
- -----------------------------------------------------------------
Total Common Stockholders' Equity 4,586 4,251
- -----------------------------------------------------------------
Total $13,823 13,548
=================================================================
See Notes to Financial Statements.
2
<PAGE>
- -----------------------------------------------------------------
Consolidated Statement of Phillips Petroleum Company
Cash Flows
Millions of Dollars
-------------------
Six Months Ended
June 30
-------------------
1997 1996*
-------------------
Cash Flows from Operating Activities
Net income $ 534 916
Adjustments to reconcile net income to net
cash provided by operating activities
Non-working capital adjustments
Depreciation, depletion and
amortization 372 428
Dry hole costs and leasehold
impairment 48 51
Deferred taxes 153 78
Tax settlement receivable (102) (167)
J-Block settlement 161 -
Other 63 56
Working capital adjustments
Decrease in aggregate balance of
accounts receivable sold - (200)
Decrease (increase) in other
accounts and notes receivable 199 (101)
Increase in inventories (54) (19)
Decrease (increase) in prepaid
expenses and other current assets (6) 14
Increase (decrease) in accounts payable (264) 15
Decrease in taxes and other accruals (11) (294)
- -----------------------------------------------------------------
Net Cash Provided by Operating Activities 1,093 777
- -----------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures and investments,
including dry hole costs (772) (707)
Proceeds from asset dispositions 17 27
Long-term advances to affiliates and
other investments (12) (44)
- -----------------------------------------------------------------
Net Cash Used for Investing Activities (767) (724)
- -----------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 3 14
Repayment of debt (263) (139)
Purchase of common stock (20) -
Issuance of common stock 6 18
Issuance of company-obligated mandatorily
redeemable preferred securities 350 300
Dividends paid on common stock (174) (160)
Other (69) 70
- -----------------------------------------------------------------
Net Cash Provided by (Used for) Financing
Activities (167) 103
- -----------------------------------------------------------------
Increase in Cash and Cash Equivalents 159 156
Balance at beginning of period 615 67
- -----------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 774 223
=================================================================
See Notes to Financial Statements.
*Reclassified to conform to current presentation.
3
<PAGE>
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1--Interim Financial Information
The financial information for the interim periods presented in
the financial statements included in this report is unaudited and
includes all known accruals and adjustments which Phillips
Petroleum Company (hereinafter referred to as "Phillips" or "the
company") considers necessary for a fair presentation of the
consolidated financial position of the company and its results of
operations and cash flows for such periods. All such adjustments
are of a normal and recurring nature.
Note 2--Accounting Policies for Derivative Instruments
Forward foreign currency contracts designated and effective as
hedges of firm commitments, commodity futures and commodity
option contracts designated and effective as hedges 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 deferred. Forward foreign currency contracts
designated and effective as hedges of existing assets and
liabilities are recorded at market value through monthly
adjustments, with immediate recognition of the resulting gains
and losses. Commodity swaps and forward commodity contracts
designated as hedges are not recorded until the resulting cash
flows are known. The gains and losses from all of these
derivative instruments are recognized during the same period in
which the gains and losses from the underlying exposures being
hedged are recognized, except for gains and losses from hedges of
asset acquisitions which are reported as adjustments to the
carrying value of the assets.
In accordance with company risk-management policies, any
derivative instrument held by the company must relate to an
underlying, offsetting position, probable anticipated transaction
or firm commitment. Additionally, the hedging instrument used
must be expected to be highly effective in achieving market value
changes that offset the opposing market value changes of the
underlying transaction. If an existing derivative position is
terminated prior to expected maturity or re-pricing, any deferred
or resultant gain or loss will continue to be deferred unless the
underlying position has ceased to exist. Deferred gains and
losses, deferred premiums paid for forward exchange contracts,
and deferred premiums paid for commodity option contracts are
reported on the balance sheet with other current assets or other
4
<PAGE>
current accruals. Gains and losses from derivatives designated
as hedges of sales are reported on the statement of income with
sales and other operating revenues, whereas gains and losses from
derivatives designated as hedges of commodity purchases are
reported with purchased crude oil and products or with production
and operating expenses, subject to the effects of any related
inventory costing reflected on the balance sheet. Gains and
losses from hedging feedstock-to-product margins are reported
with purchased crude oil and products. Recognized gains and
losses are reported on the statement of cash flows in a manner
consistent with the underlying position being hedged.
Note 3--Inventories
Inventories consisted of the following:
Millions of Dollars
-----------------------
June 30 December 31
1997 1996
-----------------------
Crude oil and petroleum products $190 136
Chemical products 245 255
Materials, supplies and other 86 81
- -----------------------------------------------------------------
$521 472
=================================================================
Note 4--Properties, Plants and Equipment
Properties, plants and equipment (net) included the following:
Millions of Dollars
-----------------------
June 30 December 31
1997 1996
-----------------------
Properties, plants and equipment
(at cost) $20,316 20,103
Less accumulated depreciation,
depletion and amortization 11,037 10,983
- -----------------------------------------------------------------
$ 9,279 9,120
=================================================================
Note 5--Debt
Phillips increased its revolving bank credit facility from
$1.1 billion to $1.5 billion, effective May 14, 1997. Effective
July 1, 1997, the company increased its commercial paper program,
which is supported by the company's revolving credit line equal
to 100 percent of the commercial paper outstanding, from
$250 million to $1.5 billion. At June 30, 1997, no amount was
outstanding under either program.
5
<PAGE>
Effective May 30, 1997, the company amended the LTSSP
$397 million 25-year term bank loan to extend the date that any
participating bank in the syndicate of lenders may cease to
participate from November 30, 2001, to December 5, 2004.
Note 6--Kenai LNG Tax Settlement
On February 26, 1996, the U.S. Tax Court's previous decisions
relating to the company's sales of liquefied natural gas (LNG)
from its Kenai, Alaska, facility to Japan, became final. The Tax
Court's decisions supported the company's position that more than
50 percent of the income for years 1975 through 1978 was from a
foreign source. The favorable resolution of this issue increased
net income for the six-month period ended June 30, 1996, by
$565 million.
Final resolution of all outstanding issues for years 1983 through
1986 was recently achieved with the Internal Revenue Service
(IRS). In June 1997, the IRS notified the company that its
refund claims for these years had been approved for payment. The
refunds, which primarily relate to the company's sales of LNG
from its Kenai, Alaska, facility to Japan, increased second-
quarter 1997 net income by $80 million. Cash refunds of $102 million
were received in August 1997. The company also has a number of issues
outstanding with the IRS related to tax years 1987 through 1992, further
discussed in Note 9--Contingencies.
Note 7--Income Taxes
The company's effective tax rates for the second quarter and the
first six months of 1997 were 43 and 48 percent, respectively,
compared with 50 and 31 percent for each of the same periods a
year ago. Excluding the effect of the favorable resolution of
the Kenai LNG tax litigation and of the outstanding issues with
the IRS for 1983 through 1986 as discussed in Note 6, the
effective tax rates for the second quarter and first six months
of 1997 would have been 51 and 53 percent, respectively,
compared with 50 and 53 percent for the prior year.
Note 8--J-Block Settlement
On June 2, 1997, Phillips Petroleum Company United Kingdom
Limited and its co-venturers, Agip (U.K.) Limited and BG
Exploration and Production Limited reached a settlement with
Enron Europe Limited (Enron) concerning J-Block gas production in
the U.K. sector of the North Sea. Under the terms of the
6
<PAGE>
settlement agreement, Enron made an immediate cash payment of
$440 million to the J-Block owners; the existing take-or-pay
depletion contract was amended to become a firm long-term supply
contract; and the fixed contract price for J-Block gas was
reduced to reflect current market conditions for long-term gas
sales contracts. The total contract gas quantity, however,
remains essentially the same. Phillips' share of the
$440 million cash payment was $161 million. The settlement
concluded all J-Block litigation with Enron. The income
associated with the cash payment will be recognized over the
remaining term of the supply contract.
Note 9--Contingencies
In the case of all known contingencies, the company accrues an
undiscounted liability when the loss is probable and the amount
is reasonably estimable. These liabilities are not reduced for
potential insurance recoveries. If applicable, undiscounted
receivables are accrued for probable 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
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 costs related to tax and legal matters are
subject to change as events evolve and as additional information
becomes available during the administrative and litigation
process.
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.
7
<PAGE>
Tax--The company has a number of issues outstanding with the IRS
related to tax years 1987 through 1992 that are expected to be
resolved in the near term as a result of settlement of the Kenai
LNG tax case. Although it is too early to determine the
financial effects, a favorable outcome would have a positive
effect on net income and cash flow while an unfavorable one would
not impact the company's net income or cash position.
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.
Note 10--Company-Obligated Mandatorily Redeemable Preferred
Securities of Phillips Capital Trusts
On January 17, 1997, Phillips 66 Capital II (Trust II) completed
a $350 million underwritten public offering of 350,000 shares of
8% Capital Securities (Capital Securities). The sole asset of
Trust II is $361 million of the company's 8% Junior Subordinated
Deferrable Interest Debentures due 2037 (Subordinated Debt
Securities) purchased by Trust II on January 17, 1997. The
Subordinated Debt Securities are unsecured obligations of
Phillips, subordinate and junior in right of payment to all
present and future senior indebtedness of Phillips, but equal in
right of payment with Phillips' 8.24% Junior Subordinated
Deferrable Interest Debentures due 2036, issued in 1996. The
Subordinated Debt Securities are due January 15, 2037, and are
redeemable in whole, or in part, at the option of Phillips, on or
after January 15, 2007. When the company redeems the
Subordinated Debt Securities, Trust II is required to apply all
redemption proceeds to the immediate redemption of the Trust's
Capital Securities. Phillips fully and unconditionally
guarantees Trust II's obligations under the securities.
The Capital Securities are accounted for and reported in the
company's financial disclosures in the same manner as the
8.24% Trust Originated Preferred Securities issued by
Phillips Capital Trust I in 1996.
8
<PAGE>
Note 11--Cash Flow Information
Cash payments and non-cash investing and financing activities for
the six-month periods ended June 30 were as follows:
Millions of Dollars
-------------------
1997 1996*
-------------------
Cash payments
Interest
Debt $106 112
Taxes and other 13 7
- -----------------------------------------------------------------
$119 119
=================================================================
Income taxes $376 389
- -----------------------------------------------------------------
Non-Cash Financing Activities
Treasury stock awards issued under
incentive compensation plans $ 5 4
Issuance of promissory note to purchase
service stations - 7
- -----------------------------------------------------------------
*Reclassified to conform to current presentation.
9
<PAGE>
Note 12--Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement No. 128, "Earnings per Share." The overall
objective of Statement No. 128 is to simplify the calculation of
earnings per share (EPS) and achieve comparability with
international accounting standards. FASB Statement No. 128
requires companies to adopt its provisions for fiscal years
ending after December 15, 1997, and requires restatement of all
prior period EPS data presented. Earlier application is not
permitted. Statement No. 128 replaces the presentation of
primary and fully diluted EPS with a presentation of basic and
diluted EPS on the face of the income statement. Basic EPS will
be calculated by dividing income available to common stockholders
by the weighted average common shares outstanding. Fully diluted
EPS will not change significantly but has been renamed diluted
EPS. Income available to common stockholders will be adjusted
for the assumed conversion of all potentially dilutive securities
(options, warrants, and convertible debt). The pro forma EPS
data for the three- and six-month periods ended June 30, 1997 and
1996, follows:
1997 1996
------------------------- -------------------------
Average Average
Common Shares Common Shares
Outstanding Earnings Outstanding Earnings
(in thousands) Per Share (in thousands) Per Share
-------------- --------- -------------- ---------
Three Months
Basic EPS
(same as
reported) 263,343 $1.17 262,949 $ .84
Diluted EPS 265,363 1.15 265,173 .83
- -----------------------------------------------------------------
Six Months
Basic EPS
(same as
reported) 263,437 2.03 262,629 3.49
Diluted EPS 265,568 2.01 264,494 3.46
- -----------------------------------------------------------------
10
<PAGE>
- -----------------------------------------------------------------
Management's Discussion and Phillips Petroleum Company
Analysis of Financial Condition
and Results of Operations
Management's Discussion and Analysis contains forward-looking
statements including, without limitation, statements relating to
the company's plans, strategies, objectives, expectations,
intentions, and adequate resources, and are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The words "forecasts," "intends,"
"possible," "potential," "targeted," "believe," "expect," "plan,"
or "plans," "scheduled," "perceives," "anticipate," "estimate,"
"begin," and similar expressions identify forward-looking
statements. The company does not undertake to update, revise or
correct any of the forward-looking information. Readers are
cautioned that such forward-looking statements should be read in
conjunction with the company's disclosures under the heading:
"CAUTIONARY STATEMENT FOR THE PURPOSES OF THE 'SAFE HARBOR'
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995" beginning on page 36.
RESULTS OF OPERATIONS
Unless otherwise noted, discussion of results for the three- and
six-month periods ending June 30, 1997, are based on a comparison
with the corresponding periods in 1996.
A summary of the company's net income, by business segment and
consolidated, follows:
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Exploration and Production
(E&P) $124 141 326 228
Gas Gathering, Processing
and Marketing (GPM) 22 28 50 56
Refining, Marketing and
Transportation (RM&T) 58 37 67 44
Chemicals 75 78 147 148
Corporate and Other 28 (63) (56) 440
- -----------------------------------------------------------------
Net Income $307 221 534 916
=================================================================
*Restated to reflect the transfer of the company's wholesale
propane business from RM&T to Chemicals. In addition, certain
costs previously held at Corporate are now aligned with the
operating segments.
11
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Consolidated Results
Net income included the following special items on an after-tax
basis:
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
------------------ ----------------
Property impairments $(11) - (11) (45)
Kenai LNG tax settlement 80 - 80 565
Net gain on asset sales 7 5 7 5
Foreign currency gains
(losses) 6 - (14) -
Pending claims and
settlements 16 (1) 16 (29)
Other items (5) (4) (5) (11)
- -----------------------------------------------------------------
Total special items $ 93 - 73 485
=================================================================
Excluding the special items above, net operating income was
$214 million for the three-month period ended June 30, 1997,
compared with $221 million for the same period last year. For the
six-month period ended June 30, 1997, net operating income was
$461 million, compared with $431 million for the corresponding
six-month period a year ago. The results for the second quarter
marked the sixth consecutive quarter in which net operating income
has exceeded $200 million.
RM&T had an especially strong performance in the second quarter,
with net operating income 55 percent higher than the second
quarter a year ago. Chemicals' net operating income declined
slightly in the quarter, while E&P's and GPM's decreased
11 percent and 50 percent, respectively.
12
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Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
Phillips at a Glance 1997 1996 1997 1996
------------------ ----------------
U.S. crude oil
production (MBD) 69 69 68 71
Worldwide crude oil
production (MBD) 230 216 222 220
U.S. natural gas
production (MMCFD) 1,019 1,106 1,053 1,108
Worldwide natural gas
production (MMCFD) 1,403 1,509 1,461 1,547
Worldwide natural gas
liquids production (MBD) 169 165 165 160
Liquefied natural gas
sales (MMCFD) 101 114 116 122
Refinery utilization
rate (%) 95 92 89 91
U.S. automotive gasoline
sales (MBD) 356 336 342 335
U.S. distillates
sales (MBD) 125 136 127 135
Worldwide petroleum
products sales (MBD) 685 684 688 689
Natural gas liquids
processed (MBD) 197 208 203 202
Ethylene
production (MMlbs)* 730 618 1,450 1,313
Polyethylene
production (MMlbs)* 477 504 983 1,017
Polypropylene
production (MMlbs)* 116 53 226 142
Paraxylene
production (MMlbs) 138 168 158 326
- -----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.
13
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Income Statement Analysis
Sales and other operating revenues declined 6 percent in the
second quarter of 1997 and increased 2 percent in the six-month
period. For the quarter, the decrease was primarily attributable
to lower crude oil sales prices and volumes, along with lower
petroleum products sales prices. In the six-month period, lower
crude oil revenues were more than offset by higher natural gas
prices, higher petroleum products prices and higher revenues from
the company's chemicals and plastics operations.
Equity in earnings of affiliated companies increased 59 percent
in the second quarter and 225 percent in the 1997 six-month
period. Increased equity earnings from the company's interest in
the Sweeny Olefins Limited Partnership, due to higher ethylene
margins and sales volumes, substantially benefited both periods
in 1997. In addition, a first quarter 1996 impairment on equity
companies related to the Point Arguello field affected the
comparison between the six-month periods. Other revenues for
1997 were 19 percent higher in the second quarter and 56 percent
higher in the six-month period. Higher gains on asset sales and
higher interest income favorably impacted both 1997 periods.
Purchase costs were 12 percent lower in the second quarter and
slightly lower for the first six months of 1997. Lower crude oil
purchase prices and volumes primarily contributed to the lower
purchase costs in the 1997 quarter, while lower crude oil
purchases were largely offset by higher purchase costs for
natural gas, petroleum products and chemicals feedstocks in the
six-month period.
Controllable costs, composed primarily of production and
operating expenses and selling, general and administrative
expenses, both adjusted for special items, increased 6 percent and
7 percent in the second quarter and six-month period of 1997,
respectively. In the quarter, expenses were higher primarily due
to increased production costs associated with new volume
expansions in Chemicals, higher expenses associated with the
company's worldwide growth initiatives, higher maintenance
expenses and higher well workover costs. In addition, the year-
to-date period included higher fuel-gas costs at manufacturing
facilities.
Exploration expenses increased 60 percent in the second quarter
of 1997, leading to a small increase in the six-month period.
Higher dry hole charges, mainly related to exploratory activity
in the Gulf of Mexico and the U.K. sector of the North Sea,
resulted in the increased exploration expenses.
14
<PAGE>
After adjusting for special items, depreciation, depletion and
amortization (DD&A) was slightly lower in the second quarter and
six-month period. Special items included a first quarter 1996
impairment of the company's Point Arguello E&P field, offshore
California, a reversal of a contingent liability in the second
quarter of 1997, and an impairment of two E&P fields in the U.K.
North Sea in the second quarter of 1997.
Taxes other than income taxes were 6 percent lower in the second
quarter of 1997, primarily due to lower ad valorem taxes. For
the six-month period, they were 3 percent higher, mainly the
result of higher production taxes.
Interest expense was 17 percent lower in the second quarter of
1997 and 13 percent lower in the six-month period, primarily due
to higher capitalized interest and lower average debt levels in
1997. Preferred dividend requirements more than doubled in both
periods due to the issuance of mandatorily redeemable preferred
securities in May 1996 and January 1997.
Segment Results
E&P
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $124 141 326 228
Less special items (2) - (2) (64)
- -----------------------------------------------------------------
Net operating income $126 141 328 292
=================================================================
*Restated to reflect that certain costs previously held at
Corporate are now aligned with the operating segments.
Dollars Per Unit
-------------------------------------
Average Sales Prices
Crude oil (per barrel)
United States $16.81 18.44 18.35 17.59
Foreign 18.13 19.68 19.50 19.31
Worldwide 17.76 19.27 19.16 18.76
Natural gas--lease (per
thousand cubic feet)
United States 1.90 1.84 2.26 1.92
Foreign 2.68 2.42 2.69 2.46
Worldwide 2.19 2.02 2.42 2.10
- -----------------------------------------------------------------
15
<PAGE>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
------------------ ----------------
Millions of Dollars
-------------------------------------
Worldwide Exploration
Expenses
Geological and geophysical $32 30 63 58
Leasehold impairment 5 7 11 14
Dry holes 35 7 37 37
Lease rentals 3 3 4 4
- -----------------------------------------------------------------
$75 47 115 113
=================================================================
Thousands of Barrels Daily
-------------------------------------
Operating Statistics
Crude Oil Produced
United States 69 69 68 71
Norway 110 102 103 100
United Kingdom 11 5 9 6
Nigeria 23 25 23 25
China 13 10 15 13
Canada 4 5 4 5
- -----------------------------------------------------------------
230 216 222 220
=================================================================
Natural Gas Liquids Produced
United States 4 4 4 4
Norway 7 8 7 8
Other areas 3 3 2 3
- -----------------------------------------------------------------
14 15 13 15
=================================================================
Millions of Cubic Feet Daily
-------------------------------------
Natural Gas Produced
United States (less gas
equivalent of liquids
shown above) 1,019 1,106 1,053 1,108
Norway* 290 291 285 306
United Kingdom* 51 60 78 80
Canada 43 52 45 53
- -----------------------------------------------------------------
1,403 1,509 1,461 1,547
=================================================================
*Dry basis.
Liquefied Natural Gas
Sales 101 114 116 122
- -----------------------------------------------------------------
E&P's net operating income decreased 11 percent in the second
quarter of 1997, primarily due to higher worldwide exploration
expenses. In the six-month period, net operating income
increased 12 percent, mainly as a result of higher natural gas
and crude oil sales prices, partially offset by lower natural gas
production.
16
<PAGE>
Phillips' worldwide crude oil sales price averaged $17.76 per
barrel in the second quarter of 1997, 14 percent lower than the
first quarter of 1997, and 23 percent lower than the fourth
quarter of 1996. Industry crude prices have softened throughout
1997, with price increases being short-lived and supported by
supply uncertainties, rather than increased demand. After the
resolution of each supply uncertainty, industry prices generally
settled lower.
U.S. E&P
- --------
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Operating Income
Reported net income $ 91 101 217 138
Less special items 14 - 14 (64)
- -----------------------------------------------------------------
Net operating income $ 77 101 203 202
=================================================================
*Restated to reflect that certain costs previously held at
Corporate are now aligned with the operating segments.
Net operating income decreased 24 percent in the company's U.S.
E&P operations for the second quarter of 1997, primarily as a
result of higher exploration expenses, lower crude oil sales
prices and lower lease gas production. Exploration expenses were
higher mainly due to dry hole charges related to exploration
activities in the Gulf of Mexico. For the six-month period,
higher crude oil and natural gas sales prices were mostly offset
by lower crude oil and gas production, lower miscellaneous
revenues, and higher lifting costs and production taxes.
U.S. crude oil production averaged 69,000 barrels per day in the
second quarter, the same as the second quarter of 1996, but
3 percent higher than the first quarter of 1997. This marked the
first time since the second quarter of 1994 that U.S. crude oil
production increased between quarters. Comparing the second
quarter of 1997 with the second quarter of 1996, new production
from the Mahogany subsalt field in the Gulf of Mexico was offset
by production declines at Point Arguello, offshore California;
Prudhoe Bay, Alaska; and South Marsh Island Blocks 146/147 in the
Gulf of Mexico.
U.S. natural gas production was 8 percent lower in the second
quarter of 1997, primarily due to lower production from the
Seastar field (Garden Banks Blocks 70/71) in the Gulf of Mexico,
normal field declines and asset dispositions. A well in the
Seastar field was shut-in during the quarter while awaiting a
well workover.
17
<PAGE>
Special items in the second quarter and first six months of 1997
consisted of a net after-tax gain on asset sales of $7 million
and a reversal of a contingent liability of $7 million after-tax.
Special items in the first six months of 1996 included an
after-tax charge of $45 million for the impairment of the Point
Arguello field and associated assets. Also included in special
items in the first six months of 1996 were various contingency
accruals, the most significant of which relates to an unfavorable
court judgment regarding producing properties in Alabama.
Foreign E&P
- -----------
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Operating Income
Reported net income $ 33 40 109 90
Less special items (16) - (16) -
- -----------------------------------------------------------------
Net operating income $ 49 40 125 90
=================================================================
*Restated to reflect that certain costs, previously held at
Corporate are now aligned with the operating segments.
Net operating income from the company's foreign E&P operations
increased 23 and 39 percent in the second quarter and six-month
period of 1997, respectively. Both periods benefited from higher
natural gas sales prices, crude oil production volumes and lower
DD&A charges. Higher exploration expenses, primarily dry hole
charges related to exploration activities in the U.K. North Sea,
negatively impacted second quarter 1997 results.
Foreign crude oil production increased 10 percent in the second
quarter, as a result of higher production in the Norwegian and
U.K. sectors of the North Sea, and offshore China. Foreign
natural gas production declined 5 percent in the second quarter
as production was lower in all producing countries.
Special items in the second quarter and first six-months of 1997
consisted of a property impairment of two U.K. North Sea fields
totaling $11 million, after-tax, as well as foreign currency
losses.
18
<PAGE>
GPM
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $22 28 50 56
Less special items 9 2 9 2
- -----------------------------------------------------------------
Net operating income $13 26 41 54
=================================================================
*Restated to reflect that certain costs, previously held at
Corporate are now aligned with the operating segments.
Dollars Per Unit
-------------------------------------
Average Sales Prices
U.S. residue gas (per
thousand cubic feet) $ 1.95 2.16 2.33 2.06
U.S. natural gas liquids
(per barrel--
unfractionated) 11.48 12.39 12.88 12.34
- -----------------------------------------------------------------
Millions of Cubic Feet Daily
-------------------------------------
Operating Statistics
Natural Gas Purchases
Outside Phillips 1,377 1,409 1,362 1,358
Phillips 156 175 159 179
- -----------------------------------------------------------------
1,533 1,584 1,521 1,537
=================================================================
Raw Gas Throughput 2,000 1,938 2,005 1,915
- -----------------------------------------------------------------
Residue Gas Sales
Outside Phillips 983 996 993 997
Phillips 51 84 55 83
- -----------------------------------------------------------------
1,034 1,080 1,048 1,080
=================================================================
Thousands of Barrels Daily
-------------------------------------
Natural Gas Liquids Net
Production
From Phillips E&P
leasehold gas 15 17 15 17
From gas purchased
outside Phillips 140 133 137 128
- -----------------------------------------------------------------
155 150 152 145
=================================================================
GPM's net operating income declined 50 percent in the second
quarter of 1997, and 24 percent for the six-month period. Net
operating income declined in the quarter due to lower margins as
a result of lower natural gas liquids (NGL) and residue gas sales
prices. For the year-to-date period, net operating income
decreased due to lower margins and increased operating and
depreciation expenses.
19
<PAGE>
NGL sales prices stabilized in the second quarter of 1997, after
declining during the first quarter of 1997 from a sharp run-up in
prices during the last four months of 1996. NGL sales volumes
increased in the quarter as a result of an acquisition made in
early 1997 and higher NGL extractions and operating consistency
at the Linam Ranch plant in New Mexico.
After reaching a 1997 low in March, residue gas sales prices
increased during the second quarter, to approximately the same
level as a year ago. Residue sales volumes were lower, primarily
from field declines in the Austin Chalk area of south central
Texas.
Special items in the second quarter and six-month period of 1997
consisted of the settlement of a contingency. Special items in
the second quarter of 1996 represented a gain on the sale of an
NGL plant and gathering system.
20
<PAGE>
RM&T
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $58 37 67 44
Less special items (1) (1) (1) (1)
- -----------------------------------------------------------------
Net operating income $59 38 68 45
=================================================================
Dollars Per Unit
-------------------------------------
Average Sales Prices
(per gallon)
Automotive gasoline--
wholesale $.66 .70 .68 .65
Automotive gasoline--retail .82 .86 .83 .81
Distillates .59 .63 .63 .60
- -----------------------------------------------------------------
Thousands of Barrels Daily
-------------------------------------
Operating Statistics
U.S. Refinery Crude Oil
Capacity 345 345 345 345
Crude runs 327 318 307 315
Capacity utilization
(percent) 95% 92 89 91
- -----------------------------------------------------------------
Petroleum Products Outside
Sales
United States
Automotive gasoline--
wholesale 305 289 293 288
Automotive gasoline--
retail 38 38 37 36
Aviation fuels 29 25 27 24
Distillates 125 136 127 135
Other products 12 17 12 16
- -----------------------------------------------------------------
509 505 496 499
Foreign 44 48 43 47
- -----------------------------------------------------------------
553 553 539 546
=================================================================
*Restated to reflect the transfer of the company's wholesale
propane business from RM&T to Chemicals. In addition, certain
costs previously held at Corporate are now aligned with the
operating segments.
RM&T's net operating income increased substantially in the second
quarter of 1997, primarily due to improved refinery results.
Although the company's average wholesale gasoline and distillates
sales prices were 6 percent lower in the quarter, crude oil
acquisition costs were 15 percent lower, leading to improved
gasoline and distillates margins. Margins were also higher for
21
<PAGE>
other refinery products. As in the quarter, higher gasoline and
distillates margins resulted in much improved earnings in the
first six months of 1997. For the six months, average gasoline
and distillates sales prices were higher, while crude oil
acquisition costs were slightly lower. Higher controllable costs
at the refineries partly offset the improved margins.
The strong results by RM&T were achieved even though the Sweeny
Complex in Texas experienced an external power outage during the
quarter. Despite the power outage, RM&T's crude oil capacity
utilization was 95 percent in the quarter, 3 percent higher than
the second quarter a year ago.
Special items in the second quarter and first six months of 1997
included certain costs associated with the Sweeny power outage.
Special items in 1996 related to property damage caused by
equipment failure at the Sweeny refinery.
22
<PAGE>
Chemicals
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $ 75 78 147 148
Less special items (1) - (1) (7)
- -----------------------------------------------------------------
Net operating income $ 76 78 148 155
=================================================================
Millions of Pounds
Except as Indicated
-------------------------------------
Operating Statistics
Production**
Ethylene 730 618 1,450 1,313
Polyethylene 477 504 983 1,017
Propylene 112 101 228 213
Polypropylene 116 53 226 142
Paraxylene 138 168 158 326
Cyclohexane (millions
of gallons) 41 42 74 85
- -----------------------------------------------------------------
**Includes Phillips' share of equity affiliates' production.
Thousands of Barrels Daily
-------------------------------------
U.S. Petroleum Products
Outside Sales
Automotive gasoline 13 9 12 11
Liquefied petroleum gas 85 94 101 103
Other products 34 28 36 29
- -----------------------------------------------------------------
132 131 149 143
=================================================================
Natural Gas Liquids
Processing capacity 250 250 250 250
Liquids processed 197 208 203 202
- -----------------------------------------------------------------
*Restated to reflect the transfer of the company's wholesale
propane business from RM&T to Chemicals. In addition, certain
costs previously held at Corporate are now aligned with the
operating segments.
Chemicals' net operating income decreased slightly in both the
second quarter and first six months of 1997. While earnings
benefited from substantially higher ethylene and polyethylene
margins, results were negatively impacted by lower paraxylene
margins, and lower sales volumes at the company's Puerto Rico Core
facilities. Also contributing to lower net operating income were
lower margins in the plastic pipe business, lower polyethylene
sales volumes, and higher costs associated with the company's
worldwide growth activities. The results from Chemicals were
lowered by an external power outage at the Sweeny Complex in Texas
during the quarter.
23
<PAGE>
The company's equity share of polypropylene production was
119 percent higher in the second quarter, reflecting the expanded
capacity attributable to the new, gas-phase polypropylene facility
at the Houston Chemical Complex. Ethylene production was
18 percent higher in the second quarter of 1997, aided by the
completion of the project to restart a 100 percent-owned ethylene
unit that had been idle since 1992. This unit has an annual
capacity of 400 million pounds.
Special items in the second quarter and first six months of 1997
consisted primarily of work force reduction charges. Special
items in the first half of 1996 represented a tax item related to
the company's Puerto Rico Core operations.
Corporate and Other Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996* 1997 1996*
------------------ ----------------
Operating Results
Reported Corporate and
Other $ 28 (63) (56) 440
Less special items 88 (1) 68 555
- -----------------------------------------------------------------
Adjusted Corporate and
Other $(60) (62) (124) (115)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $(15) (17) (33) (33)
Net interest (28) (37) (58) (72)
Preferred dividend
requirements (18) (10) (35) (18)
Other 1 2 2 8
- -----------------------------------------------------------------
Adjusted Corporate and
Other $(60) (62) (124) (115)
=================================================================
*Restated to reflect that certain costs previously held at
Corporate are now aligned with the operating segments.
Corporate general and administrative expenses decreased
12 percent in the second quarter of 1997, primarily due to the
timing of the payment of charitable contributions.
Net interest represents interest income and expense, net of
capitalized interest. Net interest was lower in both the second
quarter and first six months of 1997, due to higher capitalized
interest and lower debt levels in 1997.
24
<PAGE>
Preferred dividend requirements includes dividends on the
Phillips Gas Company preferred stock and on the preferred
securities of the Phillips 66 Capital I (Trust I) and Phillips 66
Capital II (Trust II) trusts. The Trust I securities were issued
in May 1996 and the Trust II securities were issued in January
1997, leading to higher preferred dividend requirements in the
second quarter and first six months of 1997.
Other 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.
Other was adversely impacted by lower premium revenues from
insurance operations.
Special items in the second quarter of 1997 consisted primarily
of an $80 million favorable resolution of U.S. income tax issues
covering the years 1983 through 1986, related primarily to income
from the company's Kenai liquefied natural gas facility. In
addition, the second quarter and year-to-date period included
non-cash foreign currency transaction gains and losses,
respectively, due to the revaluing of an intercompany,
sterling-denominated receivable. Special items in 1996 included
an after-tax gain of $565 million related to the favorable
settlement of the company's Kenai LNG tax case.
25
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
-----------------------------
At At At
June 30 December 31 June 30
1997 1996 1996
-----------------------------
Current ratio 1.3 1.1 1.2
Total debt $2,869 3,129 2,983
Preferred stock of subsidiary $ 345 345 345
Company-obligated mandatorily
redeemable preferred securities $ 650 300 300
Common stockholders' equity $4,586 4,251 3,982
Percent of total debt to capital* 34% 39 39
Percent of floating-rate debt
to total debt 15% 22 19
- -----------------------------------------------------------------
*Capital includes total debt, preferred stock of subsidiary,
company-obligated mandatorily redeemable preferred securities
and common stockholders' equity.
Cash from operations increased $316 million for the six-month
period ended June 30, 1997, compared with the same period in
1996. However, excluding the cash impact of the favorable
resolution of the Kenai LNG tax proceeding in the first six
months of 1996 (refund of $209 million), cash from operations
increased $525 million. Contributing to this increase were a
$30 million increase in net operating income, a $161 million
settlement related to J-Block gas production in the U.K. sector
of the North Sea, and a $200 million decrease in the aggregate
balance of accounts receivable sold in 1996. This resulted from
payments made on a receivable monetization program during the
first six months of 1996, while the program was inactive in the
first six months of 1997.
During first quarter 1997, Phillips 66 Capital II (Trust II)
completed a $350 million underwritten public offering of
8% Capital Securities. The sole asset of Trust II is
$361 million of the company's 8% Junior Subordinated Deferrable
Interest Debentures due 2037. Phillips owns all of the common
stock of the trust, and fully and unconditionally guarantees the
trust's obligation under the securities.
During the first six months of 1997, cash increased $159 million,
primarily due to the previously mentioned $350 million offering
of company-obligated mandatorily redeemable preferred securities,
and the $161 million J-Block settlement. These increases
in cash were primarily offset by the repayment of $223 million of
revolving debt. The increase in cash, combined with decreases in
accounts and notes payable, and long-term debt due within one
26
<PAGE>
year, resulted in an improved current ratio of 1.3 at March 31,
1997, compared with 1.1 and 1.2 at year-end 1996 and the end of
the second quarter 1996, respectively.
On April 14, 1997, Phillips' Board of Directors approved the
company's third dividend rate increase in three years, raising
the quarterly per share dividend to $.34, a 6 percent increase,
effective June 2, 1997. In April, the Board authorized the
expenditure of up to $150 million to repurchase shares of the
company's common stock. Purchasing began in late April.
Phillips increased its revolving bank credit facility from
$1.1 billion to $1.5 billion, effective May 14, 1997. Effective
July 1, 1997, the company increased its commercial paper program,
which is supported by the company's revolving credit line equal
to 100 percent of the commercial paper outstanding, from
$250 million to $1.5 billion. At June 30, 1997, no amount was
outstanding under either program.
Effective May 30, 1997, the company amended the LTSSP
$397 million 25-year term bank loan, to extend the date that any
participating bank in the syndicate of lenders may cease to
participate from November 30, 2001, to December 5, 2004.
During third quarter 1997, the company expects to expand its
master leasing arrangement, under which it leases and supervises
the construction of retail outlets, from $50 million to
$100 million. The company has also entered into a master leasing
arrangement for $75 million to upgrade its fleet of four
corporate planes.
In late 1995, Phillips and Shanghai Petrochemical Company Limited
(SPC) formed a joint venture to build and operate a linear
polyethylene plant near Shanghai, China, with an annual capacity
of 220 million pounds. In May 1997, the joint venture signed
loan agreements to partially fund the design and construction of
the plant. Remaining funding was provided by registered capital
previously contributed by Phillips and SPC. Phillips is
guaranteeing the U.S. dollar portion of the loan agreements,
totaling $33.7 million. SPC is guaranteeing the foreign currency
portion of the loans. Phillips has a 40-percent interest in the
joint venture.
27
<PAGE>
Capital Expenditures and Investments
Millions of Dollars
----------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
Estimated 1997 1997 1996 1997 1996
-------------- ------------------ ----------------
E&P $1,001 251 275 466 476
GPM 135 16 16 59 29
RM&T 245 54 39 100 91
Chemicals 310 54 44 114 88
Corporate
and Other 76 19 17 33 23
- ------------------------------------------------------------------
$1,767 394 391 772 707
==================================================================
United States $1,028 237 170 466 344
Foreign 739 157 221 306 363
- ------------------------------------------------------------------
$1,767 394 391 772 707
==================================================================
The company's improved operating results, the settlement of the
J-Block gas production dispute, and the Kenai LNG tax settlement
have enhanced Phillips' financial flexibility. As a result, in
July the company announced a 6 percent increase in its 1997
capital budget, from $1.67 billion to $1.77 billion. The boost
in spending plans is 14 percent above actual 1996 expenditures,
and the capital budget is at its highest level since the mid-1980s.
The E&P capital spending program received the largest increase--
from $905 million to $1 billion. The increase is expected to be
applied to the rights to operate and explore existing fields in
northwest Venezuela, and for development and enhanced oil
recovery projects in Norway and the United Kingdom.
During second quarter 1997, Phillips and its co-venturers
successfully bid on risk service contracts for three production
fields in Venezuela with gross estimated reserves, after
application of enhanced recovery efforts, of 650 million to
900 million barrels of oil. The Ambrosio field, where Phillips has
a 100-percent interest, currently produces 3,300 barrels of oil per
day. The LL-652 field, where Phillips has a 20-percent interest,
currently produces 11,700 barrels per day. The company holds a
50-percent interest in La Vela Costa Afuera, with estimated gross
production of 20,000 to 30,000 barrels of oil per day and up to
75 million cubic feet of gas per day. Production is expected to
commence in 2001.
28
<PAGE>
Phillips has also entered into an agreement with Arco, Texaco and
Corpoven, S.A., a subsidiary of Venezuela's state oil company,
to study the development of extra-heavy oil reserves from the
Hamaca region of the Orinoco Oil Belt in eastern Venezuela. If
development occurs, Corpoven has estimated 2.4 billion barrels of
oil could be recovered, with gross production averaging nearly
200,000 barrels per day by 2006. Phillips' interest in the joint
venture is 20 percent.
In the Norwegian North Sea, construction continues on the new
processing and transportation platform at Ekofisk. This project
(Ekofisk II), which is 86 percent complete, on time and under
budget, replaces the majority of the facilities in the existing
Ekofisk complex. Some of the existing facilities that are to
continue in operation after the start up of Ekofisk II in 1998
will be impacted by the continuing subsidence in the Ekofisk
area, and studies are in progress to determine what future
actions are necessary with regard to these facilities. Future
costs related to subsidence of the existing facilities are not
expected to materially impact the financial results of the
company. Also in the Norwegian North Sea, a waterflood project
at Eldfisk is being planned. Subject to approval by Phillips'
Board of Directors, water injection would begin in January 2000.
Oil and gas production from the Mahogany field offshore Louisiana
was less than originally forecasted for the first half of 1997,
due to delays encountered with well completions, equipment
problems, and higher than expected water production. Gross
production averaged 6,400 barrels of oil per day while gas
volumes averaged 5.9 million cubic feet per day. A fifth
production well is currently being drilled, and Phillips and its
co-venturers continue to evaluate possible causes for the water
production and alternatives to manage it. Phillips is the field
operator with a 37.5 percent interest.
Phillips has assigned its interest in the Lion subsalt
exploration well, which is also offshore Louisiana, to the
operator and other co-venturer, who plan to continue drilling
below the initial target zone. The assignment was effective in
July 1997 and resulted in a $7 million after-tax dry hole charge
in the second quarter.
During second quarter 1997, the company and its co-venturers
announced the development of a satellite oil field in Block 15/11
of the South China Sea. The Xijiang 24-3-A14 well currently is
producing 7,000 gross barrels of oil per day and is expected to
flow more than 10,000 barrels per day at full production. With
completion of the well, Phillips set a world record for extended-
reach drilling and a record for China's longest measured-depth
well. Phillips is the operator of the Xijiang 24-3 field with a
24.5 percent interest.
29
<PAGE>
The company has oil mining leases for production of oil and gas
in Nigeria, which interests are operated on behalf of the company
by Nigerian Agip Oil Company. The initial term of the leases was
through June 13, 1997, and, under the lease terms, the company is
entitled to renewal of the lease upon application, assuming it
has performed its obligations under the leases. The company
believes it has performed its obligations and the operator of the
company's interests has made timely application for renewal on
behalf of the company. While renewal of the leases has not yet
been confirmed by Nigerian authorities, the operator has been
advised by the Nigerian authorities that the renewal application
is being processed and that it should continue operations, and
production has continued unabated after June 13, 1997.
Management expects that production will continue and that
renewals will be confirmed in due course. The company's Nigerian
interests represent approximately 7 percent of its currently
reported total worldwide oil and gas reserves, and production and
sale of these reserves contributed approximately $35 million to
the company's after-tax net income in 1996. The company's net
investment in Nigeria at December 31, 1996, was $178 million.
GPM's capital expenditures and investments for the six months
ended June 30, 1997, increased substantially over the same period
in 1996, primarily due to a purchase of gathering assets from
Amoco Production Company in January 1997. GPM received a
$35 million increase in its 1997 capital budget, primarily for
plant expansions and for projects that will add new raw gas
volumes.
The company continues its planned retail-marketing expansion that
began in 1996. Eighteen new retail outlets were opened in the
first six months of 1997. In addition, eight existing units were
razed and rebuilt. Since the expansion program began, utilizing
both capital funds and a master leasing program, the company has
acquired 24 retail outlets, opened 25 new ones, and razed and
rebuilt 14 others. The new outlets and the existing outlets that
were razed and rebuilt utilize the new Kicks 66 convenience store
design.
The company recently announced plans to complete two major
pipeline projects--one to serve markets in the Midwest and the
other to carry petroleum products to markets not previously served
by the company in the Southwest. In February, Phillips
and its co-venturer announced plans to convert a portion of the
Seaway Pipeline system to refined products service. In
conjunction with this conversion, Phillips plans to construct a
new 150-mile, 18-inch pipeline to connect the Seaway line to the
company's existing Midwest distribution system near Wichita,
Kansas, to transport gasoline and distillates from the Gulf Coast
to the growing Midwest market. Construction is scheduled to be
completed in the first quarter of 1998. Construction is expected
30
<PAGE>
to begin in the fourth quarter of 1997 on another major pipeline
system that would transport petroleum products to markets in El
Paso, Texas, and Tucson and Phoenix, Arizona. This project,
scheduled for completion in early 1999, involves reversing and
converting an existing eight-inch natural gas liquids pipeline
that extends from Borger, Texas, to Gaines County, Texas. In
addition, a new 220-mile, 10-inch pipeline would be constructed
from Gaines County to El Paso, and a new terminal would be built
at El Paso.
During the first quarter, the company completed a paraxylene
capacity increase at its Puerto Rico Core facility, raising
capacity from 675 million to 880 million pounds per year.
Construction of a debottlenecking project at Sweeny Olefins
Limited Partnership's (SOLP) ethylene plant has been completed,
and in April 1997 the lawsuit filed by First Olefins Limited
Partnership (FOLP), one of the general partners in SOLP, against
the company was dismissed. In the lawsuit, filed late in 1995,
FOLP had sought an injunction to halt construction of the
debottlenecking project. Phillips owns a 50-percent interest in
SOLP.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," and
Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information." Both Statements are effective for
fiscal years beginning after December 15, 1997, and are
disclosure-oriented statements. Therefore, neither Statement
will affect the company's reported consolidated net income. The
company has not yet determined whether it will early adopt either
Statement, or the disclosure formats it will adopt in response to
these Statements.
J-Block Update
On June 2, 1997, Phillips Petroleum Company United Kingdom
Limited and its co-venturers, Agip (U.K.) Limited and BG
Exploration and Production Limited reached a settlement with
Enron Europe Limited (Enron) concerning J-Block gas production in
the U.K. sector of the North Sea. Under the terms of the
settlement agreement, Enron made an immediate cash payment of
$440 million to the J-Block owners; the existing take-or-pay
depletion contract was amended to become a firm long-term supply
contract; and the fixed contract price for J-Block gas was
reduced to reflect current market conditions for long-term gas
sales contracts. The total contract gas quantity, however,
remains essentially the same.
31
<PAGE>
The settlement concluded all J-Block litigation with Enron.
Phillips' share of the $440 million cash payment was
$161 million. The income associated with the cash payment will
be recognized over the remaining term of the supply contract.
It is anticipated that for the remainder of 1997 J-Block gross
production will average approximately 270 million cubic feet of
gas per day and 80,000 barrels per day of liquids. Initial gas
sales commenced in June. The settlement provides the J-Block
owners more flexibility to produce gas and liquids from fields in
the surrounding area, using the J-Block facilities' capacity to
handle up to 100,000 barrels of liquids and 450 million cubic
feet of gas per day.
J-Block (blocks 30/7a and 30/12a) is operated by Phillips, which
owns a 36.5 percent interest. Other interests are held by Agip
(U.K.) Limited, 33 percent; and BG Exploration and Production
Limited, 30.5 percent. Phillips also owns 32.5 percent and
35 percent interests in the adjacent Blocks 30/2c and 30/13,
respectively.
Contingencies
Legal and Tax Matters
The company has a number of issues outstanding with the IRS
related to tax years 1987 through 1992 that are expected to be
resolved in the near term as a result of settlement of the Kenai
LNG tax case. Although it is too early to determine the
financial effects, a favorable outcome would have a positive
effect on net income and cash flow while an unfavorable one would
not impact the company's net income or cash position.
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.
32
<PAGE>
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 now require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.
At year-end 1996, Phillips reported 47 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Since then, two sites were
resolved through consent decrees, deposits into trust funds, or
otherwise. One site was added during the six-month period. Of
the 46 sites remaining at June 30, 1997, the company believes it
has a legal defense or its records indicate no involvement for
16 sites. At seven other sites, present information indicates
that it is probable that the company's exposure is less than
$100,000 per site. At seven sites, Phillips has had no
communication or activity with government agencies or other PRPs
in more than two years. Of the 16 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 potentially responsible by state or federal
agencies 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 liability of
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site. It
has, to date, been successful in sharing cleanup costs with other
financially sound companies. Many of the sites at which the
company is potentially responsible are still under investigation
by the Environmental Protection Agency (EPA) or the state
agencies concerned. Prior to actual cleanup, those potentially
responsible 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 parties obtain EPA or equivalent state agency approval.
At June 30, 1997, accruals of $7 million had been made for the
company's unresolved PRP sites. In addition, the company has
accrued $75 million for other planned remediation activities,
including resolved state, PRP, and other federal sites, as well
as sites where no claims have been asserted, and $6 million for
other environmental contingent liabilities, for total
33
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environmental accruals of $88 million. No one site represents
more than 10 percent of the total.
After an assessment of environmental exposures for cleanup and
other costs, the company makes accruals on an undiscounted basis
for planned investigation and 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.
OUTLOOK
Phillips and its co-venturers are studying a plan to develop both
blocks of the Bayu-Undan gas condensate discovery in the Timor
Sea Zone of Cooperation, located between Indonesia and Australia,
as a single field, with BHP Petroleum Pty. Ltd. as unit operator.
The field initially is planned to be developed as a gas-
reinjection project, with liquids production processed on a
floating processing, storage, and offloading facility built from
a modified tanker. The co-venturers plan to start production in
January 2002. A decision is pending on the location and type of
facility to liquefy the natural gas at a later stage in the
project's development.
Phillips and its co-venturers have signed an agreement with the
Republic of South Africa and the South Africa National Oil Co. to
explore 14.5 million acres in the Indian Ocean. The prospecting
sub-lease agreement gives Phillips and its co-venturers the
exclusive rights to explore for oil and gas in Block 17/18 along
the east coast of South Africa. Under the initial four-year
agreement, Phillips plans to gather seismic data and drill at
least one exploratory well. Phillips is the operator of the sub-
lease with a 40-percent interest.
Phillips has drilled the majority of its subsalt portfolio on the
continental shelf in the Gulf of Mexico. Although commercial
success has been limited, the technology has been proven and the
information gained will be extrapolated to the company's next
major exploration program in North America--the drilling of
deep-water blocks in the Gulf of Mexico--and elsewhere. Phillips
has acquired a 33.33 percent interest in 118 offshore deep-water
blocks in the Gulf.
34
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Phillips and Mobil Corporation jointly hold the leases on the 118
deep-water tracts, and plan to drill their first joint deep-water
well in 1998. The co-venturers plan to accelerate deep-water
exploration after taking delivery of a contracted drillship in
late 1998.
Phillips has begun drilling a delineation well on the Tyonek Deep
prospect in Alaska's Cook Inlet, with completion expected by
year-end 1997.
Over the next three years, Phillips is committed to participating
in 10 wells in the Athena prospect off the western coast of
Australia. This includes two wells previously drilled. The
company's interest in the prospect is 50 percent.
In January 1997, the company was awarded a license for oil and
gas exploration and development in deep water offshore western
Greenland. Seismic surveys of the Greenland acreage indicate the
possibility of significant hydrocarbon-bearing formations, and
the company is planning to conduct drilling activities together
with a co-venturer. The first well is planned for 1998.
Phillips has a 38.25 percent interest.
In May 1997, Phillips and Qatar General Petroleum Corporation
(QGPC) signed a Heads of Agreement for a new joint-venture
petrochemical complex to be built in Qatar. The complex would
use Phillips' proprietary polyethylene and hexene-1 manufacturing
and catalyst technology and would feature a 1.1 billion pounds-
per-year ethylene plant. It would also feature manufacturing
facilities capable of producing one billion pounds per year of
polyethylene (high-density and linear low-density), and a
hexene-1 plant with a capacity of 100 million pounds per year.
Construction of the complex is scheduled to begin in 1998, with
initial production in late 2000. The project is subject to
negotiation of definitive agreements and to the approval of the
Boards of Directors of QGPC and Phillips. Phillips would have a
49-percent interest.
At Sweeny, the company is evaluating a joint venture with
Corpoven, a subsidiary of the state oil company of Venezuela, to
install a coker for processing heavier crudes. In addition, the
company plans to install a continuous catalytic reformer to
convert a higher percentage of plant yield to higher-valued
petrochemical feedstock products. This project is now expected
to commence in early 1998, with completion scheduled for 2000.
During the second quarter, crude oil prices continued the
general softening that began earlier in the year and reached
their lowest level since early 1996. Industry natural gas prices
have also weakened from their seasonal highs and are modestly
below year-ago levels. OPEC froze their quotas at current levels
35
<PAGE>
for the remainder of the year. However, production is nearly two
million barrels per day above quotas and the market remains
modestly oversupplied. Complicating the supply/demand balance is
the timing of the start-up of the delayed second tranche of Iraqi
humanitarian oil exports, which follows the completion of the
first tranche in early June. Global inventories are above
year-ago levels and are expected to remain at this level for the
remainder of the year. Natural gas prices are expected to stay
near current levels throughout the summer, while there is
potential for supply shortfalls due to short-term weather events.
Industry underground storage levels have risen sharply and are
above year-ago levels, but still below 1995 levels. They are
expected to remain above 1996 levels for the remainder of the
year.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Phillips is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 for any forward-looking
statement made by, or on behalf of, the company. The factors
identified in this cautionary statement are important factors
(but not necessarily all important factors) that could cause
actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the company.
Where any such forward-looking statement includes a statement of
the assumptions or bases underlying such forward-looking
statement, the company cautions that, while it believes such
assumptions or bases to be reasonable and makes them in good
faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and
actual results can be material, depending on the circumstances.
Where, in any forward-looking statement, the company, or its
Management, expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will
result, or be achieved or accomplished.
Taking into account the foregoing, the following are identified
as important risk factors that could cause actual results to
differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the company:
o Plans to drill wells and develop offshore or onshore
exploration and production properties are subject to the
company's ability to obtain agreements from co-venturers or
36
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partners, and governments; engage drilling, construction and
other contractors; obtain economical and timely financing;
geology, land or sea, or ocean conditions; world prices for
oil, natural gas and natural gas liquids; and foreign and
United States laws, including tax laws.
o Plans for the construction, modernization or debottlenecking
of domestic and foreign refineries and chemical plants, and
the timing of production from such plants are subject to, in
certain instances, approval from the company's and/or
subsidiaries' Boards of Directors; and in general, to the
issuance by foreign, federal, state, and municipal
governments, or agencies thereof, of building,
environmental and other permits; the availability of
specialized contractors and work force; worldwide prices and
demand for the products; availability of raw materials; and
transportation in the form of pipelines, railcars or trucks;
and, in certain instances, loan or project financing.
o The ability to meet liquidity requirements, including the
funding of the company's capital program from operations, is
subject to changes in the commodity prices of the company's
basic products of oil, natural gas and natural gas liquids,
over which Phillips has no control, and to a lesser extent
the commodity prices for its chemical and other products;
its ability to operate its refineries and chemical plants
consistently; and the effect of foreign and domestic
legislation of federal, state and municipal governments that
have jurisdiction in regard to taxes, the environment and
human resources.
o Estimates of proved reserves, raw natural gas supplies, cost
estimates of the Ekofisk II project, and planned spending
for maintenance and environmental remediation were developed
by company personnel using the latest available information
and data, and recognized techniques of estimating, including
those prescribed by the Securities and Exchange Commission,
generally accepted accounting principles and other
applicable requirements; however, new or revised information
or changes in scope or economics could cause results to
vary, perhaps materially.
37
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company held its annual stockholders' meeting on May 12,
1997. A brief description of each proposal and the voting
results follow:
A company proposal to elect thirteen directors.
For Against & Withheld
-----------------------------------
W. W. Allen 256,886,152 5,714,571
Norman R. Augustine 257,191,428 5,409,295
George B. Beitzel 256,561,335 6,039,388
David L. Boren 256,763,421 5,837,302
C. L. Bowerman 257,006,141 5,594,582
Robert E. Chappell, Jr. 257,281,203 5,319,520
Lawrence S. Eagleburger 254,670,353 7,930,370
James B. Edwards 257,035,321 5,565,402
Larry D. Horner 257,164,909 5,435,814
J. J. Mulva 256,305,507 6,295,216
Randall L. Tobias 257,143,750 5,456,973
Victoria J. Tschinkel 256,838,738 5,761,985
Kathryn C. Turner 256,735,178 5,865,545
A company proposal to approve the designation of Ernst &
Young LLP as independent auditors for 1996.
For 256,696,568
Against 4,806,502
Abstentions 1,097,653
Not Voted 31,032,767
All thirteen directors were elected, and the independent public
accountants proposed by the company were approved.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
3(ii) Bylaws of Phillips Petroleum Company, as amended effective
July 14, 1997.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
Reports on Form 8-K
- -------------------
During the three months ended June 30, 1997, the company did not
file any reports on Form 8-K.
38
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PHILLIPS PETROLEUM COMPANY
/s/ Jacqueline K. Wagner
-----------------------------
Jacqueline K. Wagner
Vice President and Controller
(Chief Accounting and Duly
Authorized Officer)
August 8, 1997
39
<PAGE>
Exhibit 3(ii)
BYLAWS
PHILLIPS PETROLEUM COMPANY
(INCORPORATED UNDER THE LAWS OF DELAWARE)
JULY 14, 1997
<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
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<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
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<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
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<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,
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<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
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<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 1975 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
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<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
provided that any person reaching their 70th birthday during any
calendar year may be elected in such calendar year and continue
to serve out any term for which they are so elected but will not
thereafter be eligible. 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 any Executive Officer (as
the term "Executive Officer" is defined from time to time
under Rule 3b-7 of the Securities Exchange Act of 1934,
as amended) or employee who has an annual salary of $250,000
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
-21-
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
The Board of Directors may appoint one or more Deputy
Controllers and Assistant Controllers who shall assist in the
performance of 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
-27-
<PAGE>
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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<PAGE>
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 Vice President with
responsibility for the Company's government relations activities,
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
Vice President with responsibility for the Company's government
relations activities (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 committees of such
candidates, and other political committees supporting state or
local candidates; provided, however, that the foregoing
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<PAGE>
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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<PAGE>
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.
-32-
<PAGE>
Exhibit 12
PHILLIPS PETROLEUM COMPANY AND CONSOLIDATED SUBSIDIARIES
TOTAL ENTERPRISE
Computation of Ratio of Earnings to Fixed Charges
Millions of Dollars
------------------------
Six Months Ended
June 30
------------------------
1997 1996
------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes $1,035 1,324
Distributions in excess of (less than) equity
in earnings of less-than-fifty-percent-owned
companies (11) 21
Fixed charges, excluding capitalized
interest and the portion of the
preferred dividend requirements of a
subsidiary not previously deducted
from income* 177 167
- ----------------------------------------------------------------------------
$1,201 1,512
============================================================================
Fixed Charges
Interest and expense on indebtedness,
excluding capitalized interest $ 112 128
Capitalized interest 21 15
Preferred dividend requirements of
a subsidiary and a capital trust 56 25
One-third of rental expense, net of
subleasing income, for operating leases 18 18
- ----------------------------------------------------------------------------
$ 207 186
============================================================================
Ratio of Earnings to Fixed Charges 5.8 8.1
- ----------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately
$6 million and $5 million in 1997 and 1996, respectively.
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 in 1994, 1995, and again in 1997. Consolidated interest expense
included a minimal amount of interest related to LTSSP borrowings for the
first six months of 1997 and 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Phillips Petroleum Company as of June 30,
1997, and the related consolidated statement of income for the six-month
period ended June 30, 1997, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 774
<SECURITIES> 0
<RECEIVABLES> 1,782
<ALLOWANCES> 20
<INVENTORY> 521
<CURRENT-ASSETS> 3,390
<PP&E> 20,316
<DEPRECIATION> 11,037
<TOTAL-ASSETS> 13,823
<CURRENT-LIABILITIES> 2,591
<BONDS> 2,507
650
0
<COMMON> 649
<OTHER-SE> 3,937
<TOTAL-LIABILITY-AND-EQUITY> 13,823
<SALES> 7,653
<TOTAL-REVENUES> 7,757
<CGS> 6,222<F1>
<TOTAL-COSTS> 6,358<F2>
<OTHER-EXPENSES> 41<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 1,035
<INCOME-TAX> 501
<INCOME-CONTINUING> 534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
<FN>
<F1> Purchased crude oil and products + Production and operating expenses +
Exploration expenses + Depreciation, depletion and amortization.
<F2> CGS + Taxes other than income taxes.
<F3> Preferred dividend requirements of subsidiary and capital trust.
</FN>
</TABLE>
