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, 1998
---------------------------------------------
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 258,384,526 shares of common stock, $1.25 par value,
outstanding at July 31, 1998.
<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
---------------------------------
1998 1997 1998 1997
---------------------------------
Revenues
Sales and other operating revenues $2,964 3,709 6,057 7,653
Equity in earnings of affiliated
companies 24 35 50 65
Other revenues 12 19 147 39
- ---------------------------------------------------------------------
Total Revenues 3,000 3,763 6,254 7,757
- ---------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 1,617 2,228 3,315 4,683
Production and operating expenses 517 538 1,072 1,052
Exploration expenses 49 75 99 115
Selling, general and
administrative expenses 139 135 283 296
Depreciation, depletion and
amortization 252 189 483 372
Taxes other than income taxes 60 62 125 136
Interest expense 34 49 80 103
Preferred dividend requirements
of subsidiary and capital trusts 13 21 26 41
- ---------------------------------------------------------------------
Total Costs and Expenses 2,681 3,297 5,483 6,798
- ---------------------------------------------------------------------
Income before income taxes and
Kenai LNG tax settlement 319 466 771 959
Kenai LNG tax settlement - 76 - 76
- ---------------------------------------------------------------------
Income before income taxes 319 542 771 1,035
Provision for income taxes 161 235 370 501
- ---------------------------------------------------------------------
Net Income $ 158 307 401 534
=====================================================================
Net Income Per Share of Common
Stock
Basic $ .61 1.17 1.54 2.03
Diluted .60 1.15 1.52 2.01
- ---------------------------------------------------------------------
Dividends Paid $ .34 .34 .68 .66
- ---------------------------------------------------------------------
Average Common Shares Outstanding
(in thousands)
Basic 260,383 263,343 261,314 263,437
Diluted 262,715 265,363 263,507 265,568
- ---------------------------------------------------------------------
See Notes to Financial Statements.
1
<PAGE>
- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
Millions of Dollars
-----------------------
June 30 December 31
1998 1997*
-----------------------
Assets
Cash and cash equivalents $ 130 163
Accounts and notes receivable (less
allowances: 1998 -- $18; 1997 -- $19) 1,427 1,717
Inventories 611 500
Deferred income taxes 129 168
Prepaid expenses and other current assets 131 100
- -----------------------------------------------------------------
Total Current Assets 2,428 2,648
Investments and long-term receivables 984 964
Properties, plants and equipment (net) 10,309 10,022
Deferred income taxes 88 82
Deferred charges 144 144
- -----------------------------------------------------------------
Total $13,953 13,860
=================================================================
Liabilities
Accounts payable $ 1,475 1,546
Notes payable and long-term debt due
within one year 106 234
Accrued income and other taxes 333 365
Other accruals 279 300
- -----------------------------------------------------------------
Total Current Liabilities 2,193 2,445
Long-term debt 3,024 2,775
Accrued dismantlement, removal and
environmental costs 720 713
Deferred income taxes 1,351 1,257
Employee benefit obligations 462 436
Other liabilities and deferred credits 712 770
- -----------------------------------------------------------------
Total Liabilities 8,462 8,396
- -----------------------------------------------------------------
Company-Obligated Mandatorily
Redeemable Preferred Securities
of Phillips Capital Trusts I and II 650 650
- -----------------------------------------------------------------
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 2,049 2,031
Treasury stock (at cost:
1998 -- 18,132,203 shares;
1997 -- 14,000,882 shares) (948) (752)
Compensation and Benefits Trust (CBT)
(at cost: 1998 -- 29,125,863 shares;
1997 -- 29,200,000 shares) (987) (989)
Foreign currency translation adjustments (23) (8)
Unearned employee compensation -- Long-
Term Stock Savings Plan (LTSSP) (323) (342)
Retained earnings 4,690 4,491
- -----------------------------------------------------------------
Total Common Stockholders' Equity 4,841 4,814
- -----------------------------------------------------------------
Total $13,953 13,860
=================================================================
See Notes to Financial Statements.
*Reclassified to conform to current presentation.
2
<PAGE>
- -----------------------------------------------------------------
Consolidated Statement of Phillips Petroleum Company
Cash Flows
Millions of Dollars
-------------------
Six Months Ended
June 30
-------------------
1998 1997
-------------------
Cash Flows from Operating Activities
Net income $ 401 534
Adjustments to reconcile net income to net
cash provided by operating activities
Non-working capital adjustments
Depreciation, depletion and
amortization 483 372
Dry hole costs and leasehold
impairment 25 48
Deferred taxes 108 153
Tax settlement receivable - (102)
J-Block settlement - 161
Other 12 63
Working capital adjustments
Increase in aggregate balance of
accounts receivable sold 200 -
Decrease in other accounts
and notes receivable 85 199
Increase in inventories (112) (54)
Increase in prepaid expenses
and other current assets (20) (6)
Decrease in accounts payable (76) (264)
Increase (decrease) in taxes
and other accruals 3 (11)
- -----------------------------------------------------------------
Net Cash Provided by Operating Activities 1,109 1,093
- -----------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures and investments,
including dry hole costs (842) (772)
Proceeds from asset dispositions 24 17
Long-term advances to affiliates and
other investments (8) (12)
- -----------------------------------------------------------------
Net Cash Used for Investing Activities (826) (767)
- -----------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 416 3
Repayment of debt (302) (263)
Purchase of company common stock (215) (20)
Issuance of company common stock 10 6
Issuance of company-obligated mandatorily
redeemable preferred securities - 350
Dividends paid on common stock (178) (174)
Other (47) (69)
- -----------------------------------------------------------------
Net Cash Used for Financing Activities (316) (167)
- -----------------------------------------------------------------
Increase (Decrease) in Cash and
Cash Equivalents (33) 159
Balance at beginning of period 163 615
- -----------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 130 774
=================================================================
See Notes to Financial Statements.
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 Changes
Comprehensive Income
Effective January 1, 1998, the company adopted Financial
Accounting Standards Board (FASB) Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 establishes new rules
for the reporting and display of comprehensive income and its
components. Comprehensive income is net income, plus certain
other items that are recorded directly to stockholders' equity.
The only such item currently applicable to Phillips is foreign
currency translation adjustments.
Total comprehensive income for the second quarter and the first
six months of 1998 was $143 million and $386 million,
respectively, compared with $294 million and $495 million for
each of the same periods a year ago. The adoption of this
Statement had no impact on the company's net income, cash flow or
common stockholders' equity.
Segments
The company adopted FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," effective
January 1, 1998. The adoption of this Statement did not result
in a change in the composition of the company's operating
segments, or in the previously reported net income for each
segment.
Full interim disclosures are not required by Statement No. 131
until the first quarter of 1999.
4
<PAGE>
Note 3 -- Inventories
Inventories consisted of the following:
Millions of Dollars
-----------------------
June 30 December 31
1998 1997
-----------------------
Crude oil and petroleum products $225 156
Chemical products 288 254
Materials, supplies and other 98 90
- -----------------------------------------------------------------
$611 500
=================================================================
Note 4 -- Properties, Plants and Equipment
Properties, plants and equipment (net) included the following:
Millions of Dollars
-----------------------
June 30 December 31
1998 1997
-----------------------
Properties, plants and equipment
(at cost) $22,074 21,426
Less accumulated depreciation,
depletion and amortization 11,765 11,404
- -----------------------------------------------------------------
$10,309 10,022
=================================================================
Note 5 -- Impairments
During second quarter 1998, the company recorded impairments
totaling $20 million after-tax. In E&P, less than anticipated
drilling and production results and downward reserve revisions on
certain properties in the Gulf of Mexico resulted in impairments
totaling $15 million after-tax. The fair market value of these
properties was determined using the present value of expected
future cash flows, resulting in before-tax charges totaling
$23 million to depreciation, depletion and amortization expense.
In Chemicals, a facility targeted for closure or sale was written
down to salvage value, resulting in a $7 million charge to
depreciation, depletion and amortization expense ($5 million
after-tax).
Note 6 -- Debt
On July 6, 1998, the company issued $300 million of 6.65%
Debentures due July 15, 2018, in the public market. This is in
addition to the $300 million of 7.125% Debentures due March 15,
2028, issued in first quarter 1998.
5
<PAGE>
At June 30, 1998, no amounts were outstanding under the company's
revolving bank credit facility, but $37 million in commercial
paper and $270 million of the Phillips Petroleum Company Norway
$300 million revolving credit facility were outstanding.
Note 7 -- Kenai LNG Tax Settlement
Final resolution of all outstanding issues for years 1983 through
1986 was achieved in second quarter 1997 with the Internal
Revenue Service (IRS) as a result of the favorable outcome in
1996 of the Kenai LNG tax case related to the company's sales of
liquefied natural gas from Kenai, Alaska. The refunds increased
second quarter 1997 net income by $80 million. 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 8 -- Income Taxes
The company's effective tax rates for the second quarter and the
first six months of 1998 were 50 and 48 percent, respectively,
compared with 43 and 48 percent for each of the same periods a
year ago. Excluding the effect of the favorable resolution of
outstanding issues with the IRS for 1983 through 1986 as
discussed in Note 7, the effective rates for the second quarter
and first six months of 1997 would have been 51 and 53 percent,
respectively. The resulting decrease in the 1998 effective tax
rates was due mainly to a greater proportion of domestic earnings
in the current periods, which are generally taxed at a lower
rate.
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 or other third-
party recoveries. Based on currently available information, the
company believes that the likelihood 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
6
<PAGE>
liabilities recorded for environmental remediation, tax and legal
matters. Estimated future environmental remediation costs are
subject to change due to such factors as the unknown magnitude of
clean-up 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 clean-up under these laws at federal Superfund and comparable
state sites. In the future, the company may be involved in
additional environmental assessments, clean-ups and proceedings.
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 this year as a result of the favorable outcome in
1996 of the Kenai LNG tax case related to the company's sales of
LNG from Kenai, Alaska. A favorable resolution of these issues
would have a positive effect on net income and cash flow of up to
$125 million while an unfavorable one would not impact the
company's net income or cash position. All outstanding issues
with the IRS for years prior to 1987 have been resolved.
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.
7
<PAGE>
Note 10 -- 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
-------------------
1998 1997
-------------------
Cash payments
Interest
Debt $ 98 106
Taxes and other 5 13
- -----------------------------------------------------------------
$103 119
=================================================================
Income taxes $267 376
- -----------------------------------------------------------------
Non-Cash Financing and Investing Activities
Accrued repurchase of company common stock $ 9 -
Stock awards issued under incentive
compensation plans 7 5
Change in market value of investments 9 8
Deferred payment obligation to purchase
property, plant and equipment 8 -
- -----------------------------------------------------------------
Note 11 -- Environmental Cost Recovery
During the first six months of 1998, as part of a comprehensive
environmental cost recovery project, the company entered into
settlement agreements with certain of its historical liability
and pollution insurers in exchange for releases or commutations
of their present and future liabilities to the company under its
historical liability and pollution policies. As a result of
these settlement agreements, the company recorded a before-tax
benefit to earnings of $109 million, $71 million after-tax. At
June 30, 1998, $105 million had been collected.
Note 12 -- Favorable Court Ruling
In May 1998, Phillips received a favorable ruling from the
Alabama Supreme Court, which reversed a 1996 jury award of
$27 million to plaintiffs in Washington County, Alabama. The
plaintiffs, about 50 landowners, had sued Phillips in 1992,
claiming the company had drained oil and gas properties adjacent
to Phillips' Chatom, Alabama, oil and gas unit. A before-tax
contingency accrual of $33 million, including interest, was
reversed in second quarter 1998, favorably impacting earnings.
8
<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, that 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," "may,"
"plan," or "plans," "scheduled," "would," "could," "should,"
"perceives," "anticipate," "estimate," "designed," 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, 1998, are based on a comparison
with the corresponding periods in 1997.
A summary of the company's net income by business segment
follows:
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997* 1998 1997*
------------------ ----------------
Exploration and Production
(E&P) $ 73 124 166 326
Gas Gathering, Processing
and Marketing (GPM) 12 22 31 50
Refining, Marketing and
Transportation (RM&T) 77 62 106 80
Chemicals 43 71 118 134
Corporate and Other (47) 28 (20) (56)
- -----------------------------------------------------------------
Net income $158 307 401 534
=================================================================
*Restated to reflect the transfer of the company's natural gas
liquids fractionation and marketing business from Chemicals to
RM&T.
9
<PAGE>
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
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
Property impairments $(20) (11) (20) (11)
Kenai LNG tax settlement - 80 - 80
Net gain on asset sales 3 7 3 7
Foreign currency gains
(losses) (11) 6 (5) (14)
Pending claims and
settlements 34 16 100 16
Other items - (5) - (5)
- -----------------------------------------------------------------
Total special items $ 6 93 78 73
=================================================================
Excluding the special items listed above, the company's net
operating income by business segment was:
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
E&P $ 76 126 174 328
GPM 12 13 31 41
RM&T 74 63 103 81
Chemicals 49 72 124 135
Corporate and Other (59) (60) (109) (124)
- -----------------------------------------------------------------
Net operating income $152 214 323 461
=================================================================
This quarter's net operating income was adversely affected by two
significant factors: a $5.31 per barrel drop in Phillips'
average worldwide crude oil price and a 45 percent decline in the
company's ethylene margin. However, improved refining margins,
increased production volumes across most major product lines, and
a continued emphasis on cost control helped support the company's
earnings in this difficult business environment.
The decline in net operating income for the six-month period
primarily resulted from lower crude oil and natural gas prices,
as well as lower ethylene margins. Partially offsetting these
factors was an improved performance in RM&T, driven by higher
refinery production volumes.
10
<PAGE>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
Phillips at a Glance 1998 1997 1998 1997
------------------ ----------------
U.S. crude oil
production (MBD) 64 69 64 68
Worldwide crude oil
production (MBD) 245 230 247 222
U.S. natural gas
production (MMCFD) 967 1,019 979 1,053
Worldwide natural gas
production (MMCFD) 1,458 1,403 1,530 1,461
Worldwide natural gas
liquids production (MBD) 179 169 178 165
Liquefied natural gas
sales (MMCFD) 102 101 122 116
Refinery utilization
rate (%) 94 95 94 89
U.S. automotive gasoline
sales (MBD)* 325 356 312 342
U.S. distillates
sales (MBD) 127 125 129 126
Worldwide petroleum
products sales (MBD)* 681 685 669 688
Natural gas liquids
processed (MBD) 229 197 229 203
Ethylene
production (MMlbs)** 825 730 1,658 1,450
Polyethylene
production (MMlbs)** 578 477 1,141 983
Polypropylene
production (MMlbs)** 119 116 232 226
Paraxylene
production (MMlbs) 194 138 382 158
- -----------------------------------------------------------------
*Includes certain sales by the Chemicals segment.
**Includes Phillips' share of equity affiliates' production.
Income Statement Analysis
Sales and other operating revenues decreased over 20 percent in
both the second quarter and first six months of 1998, reflecting
lower sales prices for crude oil and petroleum products. These
same factors also accounted for 27 and 29 percent declines in
purchase costs in the second quarter and six-month period of
1998, respectively. The company is a net purchaser of crude oil
to supply its refineries, and of petroleum products to supply its
wholesale and retail distribution outlets.
11
<PAGE>
Equity in earnings of affiliated companies was lower in both the
second quarter and six-month period of 1998, primarily because
lower ethylene margins resulted in a decrease in the earnings of
the 50 percent-owned Sweeny Olefins Limited Partnership. Other
revenues decreased 37 percent in the second quarter of 1998,
mainly due to a decrease in interest income resulting from the
company's lower cash balances in 1998. For the six-month period,
other revenues increased $108 million, primarily due to
recoveries from certain of the company's historical liability and
pollution insurers related to claims made as a part of a
comprehensive environmental cost recovery project, partially
offset by lower interest income.
After adjustment for special items, controllable costs --
primarily production and operating expenses, and selling, general
and administrative expenses -- increased slightly in the second
quarter of 1998 and 3 percent for the six-month period. These
small increases in costs accompany higher production volumes
across most major product lines, reflecting the company's
commitment to control costs while increasing volumes and
pursuing growth opportunities.
Exploration costs declined 35 and 14 percent in the second
quarter and first six months of 1998, respectively. Dry hole
charges were lower in both 1998 periods, partially offset by
increased geological and geophysical exploratory costs.
Depreciation, depletion and amortization increased 33 and
30 percent in the second quarter and six-month period of 1998,
respectively. Both periods reflect the result of full production
from J-Block in the U.K. North Sea, which came on-line in
mid-1997, and the E&P acquisition in the Zama area of Canada,
which was completed in late 1997. In addition, property
impairments were taken on two E&P producing properties in the
Gulf of Mexico in the second quarter of 1998.
Taxes other than income taxes decreased 3 and 8 percent in the
second quarter and first six months of 1998, respectively, as
lower U.S. E&P sales prices and production resulted in a decrease
in production taxes.
Interest expense decreased 31 and 22 percent in the second
quarter and six-month period of 1998, respectively. Both periods
benefited from reversals of the interest portion of previously
accrued contingencies in the second quarter of 1998. Preferred
dividend requirements were lower in both 1998 periods, reflecting
the redemption of Phillips Gas Company's preferred stock in
December 1997.
12
<PAGE>
Segment Results
E&P
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $73 124 166 326
Less special items (3) (2) (8) (2)
- -----------------------------------------------------------------
Net operating income $76 126 174 328
=================================================================
Dollars Per Unit
-------------------------------------
Average Sales Prices
Crude oil (per barrel)
United States $10.68 16.81 11.44 18.35
Foreign 13.07 18.13 13.54 19.50
Worldwide 12.45 17.76 13.01 19.16
Natural gas -- lease (per
thousand cubic feet)
United States 1.96 1.90 1.97 2.26
Foreign 2.46 2.69 2.51 2.69
Worldwide 2.18 2.19 2.22 2.42
- -----------------------------------------------------------------
Millions of Dollars
-------------------------------------
Worldwide Exploration
Expenses
Geological and geophysical $33 32 69 63
Leasehold impairment 7 5 12 11
Dry holes 6 35 13 37
Lease rentals 3 3 5 4
- -----------------------------------------------------------------
$49 75 99 115
=================================================================
Thousands of Barrels Daily
-------------------------------------
Operating Statistics
Crude Oil Produced
United States 64 69 64 68
Norway 119 110 117 103
United Kingdom 21 11 24 9
Nigeria 20 23 21 23
China 13 13 14 15
Canada 8 4 7 4
- -----------------------------------------------------------------
245 230 247 222
=================================================================
Natural Gas Liquids Produced
United States 3 4 3 4
Norway 7 7 8 7
Other areas 5 3 5 2
- -----------------------------------------------------------------
15 14 16 13
=================================================================
13
<PAGE>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
Millions of Cubic Feet Daily
-------------------------------------
Natural Gas Produced
United States (less gas
equivalent of liquids
shown above) 967 1,019 979 1,053
Norway* 249 290 258 285
United Kingdom* 146 51 200 78
Canada 96 43 93 45
- -----------------------------------------------------------------
1,458 1,403 1,530 1,461
=================================================================
*Dry basis.
Liquefied Natural Gas
Sales 102 101 122 116
- -----------------------------------------------------------------
E&P's net operating income decreased substantially in the second
quarter and first six months of 1998, reflecting a continued
weakening of industry crude oil prices in the second quarter.
Industry production continued to outpace a declining rate of
demand growth, which has been slowed by the Asian economic
crisis. Phillips' worldwide average crude oil price in June
declined to $11.51 per barrel, the company's lowest monthly
average since 1986.
Partially offsetting the negative impact of depressed crude oil
prices was increased crude oil and natural gas production in the
U.K. North Sea and Canada, and crude oil production in the
Norwegian North Sea.
14
<PAGE>
U.S. E&P
- --------
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
Operating Income
Reported net income $50 91 109 217
Less special items 2 14 (1) 14
- -----------------------------------------------------------------
Net operating income $48 77 110 203
=================================================================
Net operating income decreased 38 and 46 percent in the company's
U.S. E&P operations for the second quarter and first six months
of 1998, respectively. Lower crude oil sales prices were
primarily responsible, with the company's average U.S. sales
price 36 and 38 percent lower in the second quarter and
year-to-date period, respectively. In addition, crude oil and
natural gas production volumes were lower in both periods of
1998, as were liquefied natural gas sales prices. These negative
factors were partially offset in both periods by lower
exploration expenses.
U.S. crude oil production in the second quarter of 1998 was
7 percent lower than the corresponding quarter in 1997,
reflecting production declines in several areas, including the
Prudhoe Bay, Alaska, and Point Arguello, offshore California,
fields. These production declines were partially offset by
increased production from the Mahogany subsalt field in the Gulf
of Mexico.
U.S. natural gas production declined 5 percent in the second
quarter of 1998, primarily due to lower production of coal-seam
gas and lower production from various fields in the Gulf of
Mexico.
Special items in the second quarter of 1998 included a reversal
of a previously accrued contingency related to producing
properties in Alabama, which was mostly offset by impairments
taken on two producing properties in the Gulf of Mexico. The
June year-to-date period also included a contingency accrual.
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.
15
<PAGE>
Foreign E&P
- -----------
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
Operating Income
Reported net income $23 33 57 109
Less special items (5) (16) (7) (16)
- -----------------------------------------------------------------
Net operating income $28 49 64 125
=================================================================
Net operating income from the company's foreign E&P operations
decreased 43 and 49 percent in the second quarter and first six
months of 1998, respectively. In both periods, lower crude oil
and natural gas sales prices were partially offset by production
increases in the North Sea and Canada. In addition, exploration
expenses were higher in the 1998 year-to-date period.
Foreign crude oil production volumes increased 12 percent in the
second quarter of 1998, compared with the second quarter of 1997,
primarily due to production from J-Block in the U.K. North Sea,
which came on-line in mid-1997, as well as increased production
from the Norwegian North Sea. Foreign natural gas production
increased 28 percent, mainly due to J-Block, as well as the
Armada field in the U.K. North Sea, which came on-line in the
fourth quarter of 1997. Crude oil and natural gas production
volumes were higher in Canada as well, due to the Zama area
acquisition completed in late 1997.
Special items in the second quarter and first six months of 1998
included foreign currency transaction losses. 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.
16
<PAGE>
GPM
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $12 22 31 50
Less special items - 9 - 9
- -----------------------------------------------------------------
Net operating income $12 13 31 41
=================================================================
Dollars Per Unit
-------------------------------------
Average Sales Prices
U.S. residue gas (per
thousand cubic feet) $ 2.08 1.95 2.08 2.33
U.S. natural gas liquids
(per barrel --
unfractionated) 9.41 11.48 9.76 12.88
- -----------------------------------------------------------------
Millions of Cubic Feet Daily
-------------------------------------
Operating Statistics
Natural Gas Purchases
Outside Phillips 1,326 1,377 1,337 1,362
Phillips 152 156 154 159
- -----------------------------------------------------------------
1,478 1,533 1,491 1,521
=================================================================
Raw Gas Throughput 1,893 2,000 1,904 2,005
- -----------------------------------------------------------------
Residue Gas Sales
Outside Phillips 943 983 962 993
Phillips 54 51 58 55
- -----------------------------------------------------------------
997 1,034 1,020 1,048
=================================================================
Thousands of Barrels Daily
-------------------------------------
Natural Gas Liquids Net
Production
From Phillips E&P
leasehold gas 15 15 15 15
From gas purchased
outside Phillips 149 140 147 137
- -----------------------------------------------------------------
164 155 162 152
=================================================================
GPM's net operating income decreased 8 and 24 percent in the
second quarter and six-month period of 1998, respectively. In
both periods, lower natural gas liquids (NGL) sales prices were
partially offset by increased sales volumes of NGL. NGL sales
prices generally followed the decline in crude oil prices in the
first six months of 1998, though the percentage decrease was not
as sharp as that experienced by crude oil.
17
<PAGE>
Raw gas throughput volumes declined 5 percent in the second
quarter of 1998, reflecting field production declines in the
Austin Chalk area of south central Texas. However, NGL
production volumes increased, due to improved plant efficiencies
and operating consistency.
Residue gas prices were 7 percent higher in the second quarter of
1998, compared with the same quarter last year. Although industry
gas storage levels remained higher than a year ago, warmer-than-
normal summer weather helped support prices, as natural gas was
used for marginal electricity generation. For the six-month
period, GPM's residue gas prices were 11 percent lower than the
corresponding 1997 period, primarily due to the reduced demand in
the first quarter of 1998 resulting from warmer-than-normal
winter weather.
Special items in the second quarter and six-month period of 1997
consisted of the settlement of a contingency.
18
<PAGE>
RM&T
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997* 1998 1997*
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $77 62 106 80
Less special items 3 (1) 3 (1)
- -----------------------------------------------------------------
Net operating income $74 63 103 81
=================================================================
Dollars per Gallon
-------------------------------------
Average Sales Prices
Automotive gasoline
Wholesale $.54 .66 .53 .68
Retail .68 .82 .67 .83
Distillates .45 .59 .46 .63
- -----------------------------------------------------------------
Thousands of Barrels Daily
-------------------------------------
Operating Statistics
U.S. Refinery Crude Oil
Capacity 355 345 355 345
Crude runs 332 327 333 307
Capacity utilization
(percent) 94% 95 94 89
Natural gas liquids
fractionation
Capacity 252 250 252 250
Processed 229 197 229 203
Capacity utilization
(percent) 91% 79 91 81
- -----------------------------------------------------------------
Petroleum Products Outside
Sales
United States
Automotive gasoline
Wholesale 274 305 263 293
Retail 38 38 38 37
Aviation fuels 33 29 31 27
Distillates 127 125 129 126
Natural gas liquids
(fractionated) 60 68 66 82
Other products 29 12 29 13
- -----------------------------------------------------------------
561 577 556 578
Foreign 45 44 39 44
- -----------------------------------------------------------------
606 621 595 622
=================================================================
*Restated to reflect the transfer of the company's natural gas
liquids fractionation and marketing business from Chemicals to
RM&T.
19
<PAGE>
RM&T's net operating income increased 17 and 27 percent in the
second quarter and first six months of 1998, respectively. In
both periods, the increase in earnings was due to improved
results from the company's U.S. refineries. Although wholesale
gasoline and distillates sales prices were 18 and 24 percent
lower in the second quarter of 1998, respectively, the feedstock
cost of crude oil declined 31 percent, leading to improved
gasoline and distillates margins. Lower feedstock costs also
benefited other refinery products margins as well.
In the six-month period of 1998, the refineries' crude oil
throughput volumes were 8 percent higher, due in part to a
scheduled maintenance turnaround at the company's Sweeny, Texas,
refinery in the first quarter of 1997, as well as a power
interruption there in the second quarter of 1997. This improved
operating consistency in 1998 contributed to higer refining sales
volumes and operating income. This was partially offset by lower
earnings from the wholesale marketing business, which experienced
lower distillates margins and incurred higher costs related to
marketing incentive programs.
Special items in the second quarter and first six months of 1998
consisted of gains from the sales of certain non-strategic retail
service stations. Special items in the second quarter and first
six months of 1997 included certain costs associated with the
Sweeny power outage.
20
<PAGE>
Chemicals
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997* 1998 1997*
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $43 71 118 134
Less special items (6) (1) (6) (1)
- -----------------------------------------------------------------
Net operating income $49 72 124 135
=================================================================
*Restated to reflect the transfer of the company's natural gas
liquids fractionation and marketing business from Chemicals to
RM&T.
Millions of Pounds
Except as Indicated
-------------------------------------
Operating Statistics
Production**
Ethylene 825 730 1,658 1,450
Polyethylene 578 477 1,141 983
Propylene 139 112 272 228
Polypropylene 119 116 232 226
Paraxylene 194 138 382 158
Cyclohexane (millions
of gallons) 50 41 98 74
- -----------------------------------------------------------------
**Includes Phillips' share of equity affiliates' production.
The Chemicals segment's net operating income decreased 32 and
8 percent in the second quarter and first six months of 1998,
respectively. Lower ethylene margins were the primary cause for
the reduced earnings in both periods, lowering results from both
the company's 100 percent-owned units and the company's
50 percent interest in Sweeny Olefins Limited Partnership.
Excess industry capacity and weak global demand, due in part to
the Asian economic crisis, have depressed product margins in the
commodity chemicals industry. Lower polyethylene margins also
negatively impacted both periods, while higher sales volumes of
ethylene and polyethylene served to partially mitigate the effect
of the lower margins.
Shanghai Golden Phillips, a joint venture between Phillips and
Shanghai Petrochemical Company, completed construction of a
polyethylene plant in China. Nominal production from the
220 million-pounds-per-year facility began in the second quarter.
Phillips owns a 40 percent interest.
Special items in the second quarter and first six months of 1998
included foreign currency losses and an impairment taken on a
facility that will be closed. Special items in the second
quarter and first six months of 1997 consisted primarily of work
force reduction charges.
21
<PAGE>
Corporate and Other
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
------------------ ----------------
Operating Results
Reported Corporate and
Other $(47) 28 (20) (56)
Less special items 12 88 89 68
- -----------------------------------------------------------------
Adjusted Corporate and
Other $(59) (60) (109) (124)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $(12) (15) (37) (33)
Net interest (32) (28) (62) (58)
Preferred dividend
requirements (11) (18) (21) (35)
Other (4) 1 11 2
- -----------------------------------------------------------------
Adjusted Corporate and
Other $(59) (60) (109) (124)
=================================================================
Corporate general and administrative expenses were 20 percent
lower in the second quarter of 1998, primarily due to lower
benefit-related costs. In the six-month period of 1998,
corporate general and administrative expenses were up 12 percent,
reflecting higher salaries, benefits and incentive compensation
costs.
Net interest represents interest income and expense, net of
capitalized interest. In both the second quarter and year-
to-date period of 1998, net interest was higher primarily because
of lower interest income -- the result of the company carrying a
smaller cash balance in 1998, compared with 1997.
Preferred dividend requirements includes dividends on the
Phillips Gas Company preferred stock and on the preferred
securities of the Phillips 66 Capital Trusts I and II. Preferred
dividend requirements were lower in the second quarter and
six-month period of 1998 due to the redemption of the Phillips
Gas Company preferred stock in late 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.
In the second quarter of 1998, results for Other were lower due
mainly to tax-related items. In the six-month period, the
22
<PAGE>
results from Other increased, as a result of the receipt of
dividends from certain industry insurance companies in which
Phillips has an ownership interest, partially offset by higher
tax-related items.
Special items in the second quarter of 1998 included favorable
contingency-related settlements or accrual reversals, partially
offset by foreign currency losses. The six-month period also
included insurance recoveries related to a comprehensive
environmental cost recovery project. 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 intercompany receivables.
23
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
-----------------------------
At At At
June 30 December 31 June 30
1998 1997 1997
-----------------------------
Current ratio 1.1 1.1 1.3
Total debt $3,130 3,009 2,869
Preferred stock of subsidiary $ - - 345
Company-obligated mandatorily
redeemable preferred securities $ 650 650 650
Common stockholders' equity $4,841 4,814 4,586
Percent of total debt to capital* 36% 36 34
Percent of floating-rate debt
to total debt 23% 30 15
- -----------------------------------------------------------------
*Capital includes total debt, preferred stock of subsidiary,
company-obligated mandatorily redeemable preferred securities
and common stockholders' equity.
Cash from operations for the six-month period ending June 30,
1998, was approximately the same as that for the same period in
1997. However, excluding the $161 million cash impact of the
favorable resolution with Enron Europe Limited in the first half
of 1997 concerning J-Block gas production, cash from operations
increased $177 million. Net operating income decreased
$138 million, or 30 percent, in the first six months of 1998,
compared with the first six months of 1997. However, this
decrease was more than offset by the receipt of $105 million
resulting from settlements pursuant to the comprehensive
environmental cost recovery project, and the sale of $200 million
of receivables under the company's receivables monetization
program.
In March 1998, the company issued $300 million of 7.125%
Debentures due March 15, 2028, in the public market, leaving
$200 million available under the company's 1994 shelf
registration of debt securities. Also, $100 million remained
under the company's 1996 shelf registration for trust preferred
securities and subordinated debt securities. In May 1998,
Phillips filed a universal shelf registration statement with the
U.S. Securities and Exchange Commission for $700 million of
various types of debt and equity securities, and securities
convertible into either. This registration statement became
effective June 5, 1998. Securities to be issued under the
universal shelf registration statement can be combined by
prospectus with the previously mentioned $300 million of
securities remaining under earlier shelf registrations. As a
result, the company could issue and sell a total of $1 billion of
the various types of securities available under the universal
shelf registration statement. On July 6, 1998, the company issued
24
<PAGE>
$300 million of 6.65% Debentures due July 15, 2018, in the public
market, leaving $700 million of securities available.
The company is pursuing its previously announced stock repurchase
program to buy back up to an additional $500 million of its
common stock by year-end 1998. Through August 7, 1998,
approximately $267 million worth of shares had been repurchased.
The company also has a $150 million stock repurchase program
expiring December 31, 1999. Under the two programs, the company
has repurchased approximately $347 million worth of shares.
During the first six months of 1998, cash decreased $33 million.
Cash provided by operating activities, combined with the issuance
of $112 million of revolving debt and the previously
mentioned $300 million of 7.125% debentures, was used to retire
$274 million of revolving debt, pay $28 million to retire the
first of two LTSSP bank loans, fund the company's capital
expenditure program, and purchase $215 million of the company's
common stock under the previously mentioned stock repurchase
programs.
In July 1998, the company entered into a $36 million operating
lease covering four corporate planes. This lease supersedes the
$75 million master leasing arrangement entered into during 1997.
At June 30, 1998, no amounts were outstanding under the company's
revolving bank credit facility of $1.5 billion, but $37 million
in commercial paper and $270 million of the Phillips Petroleum
Company Norway $300 million revolving credit facility were
outstanding.
Capital Expenditures and Investments
Millions of Dollars
----------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
Estimated 1998 1998 1997 1998 1997
-------------- ------------------ ----------------
E&P $1,101 273 251 541 466
GPM 82 16 16 29 59
RM&T 297 42 56 105 105
Chemicals 261 66 52 122 109
Corporate
and Other 101 29 19 45 33
- ------------------------------------------------------------------
$1,842 426 394 842 772
==================================================================
United States $1,056 227 237 459 466
Foreign 786 199 157 383 306
- ------------------------------------------------------------------
$1,842 426 394 842 772
==================================================================
25
<PAGE>
E&P's capital expenditures and investments for the six months
ended June 30, 1998, increased $75 million, 16 percent, over the
same period in 1997. This increase is primarily attributable to
the development of the Zama area in Canada and the Renee, Rubie
and Janice fields in the U.K. North Sea; and development programs
in Venezuela.
The Ekofisk II project to replace the majority of the facilities
in the existing Ekofisk complex was 98.5 percent complete at
June 30, 1998, on time and under budget. The offshore hotel
platform, one of the existing facilities that are to continue in
operation after the start-up of Ekofisk II in 1998, will be
impacted by continuing subsidence in the Ekofisk area. Studies
are in progress to determine what future actions are necessary
with regard to this facility; the cost of which is not expected
to materially impact the financial position of the company.
Also, in the Greater Ekofisk Area of the Norwegian North Sea,
offshore construction activity related to the waterflood project
for the Eldfisk field has commenced. Development drilling is
expected to begin in mid-1999. The platform, scheduled to start
up in early 2000, would be controlled from an existing manned
Eldfisk platform.
In the North Cook Inlet of Alaska, the drilling of a second
development well is under way on the Tyonek project. The results
of this well and additional reservoir analysis will help
determine the commercial potential of the project. Depending
upon the results of the commercial evaluation, some financial
impairment of this asset could be required. The current book
investment is approximately $100 million. Engineering design
continues for a planned crude oil pipeline and production
facilities to be constructed on the existing Tyonek platform,
from which Phillips currently produces gas used as feedstock at
the Kenai liquefied natural gas (LNG) facility. Initial crude
oil production is scheduled for late-1999.
An exploratory appraisal well recently drilled at the Mahogany
field, offshore Louisiana, was successful and has begun
production. An additional development well and recompletions of
existing producing wells are also planned to enhance production
from the field. Phillips is operator and holds a 37.5 percent
working interest in Mahogany. In addition, a sub-sea well
completion and tie-in of the Agate field to the Mahogany
production platform has been completed and is in production.
Initial gross production has been 3,000 barrels of oil per day
and 20 million cubic feet of gas per day. Phillips is operator
and holds a 50 percent working interest in Agate.
GPM's capital expenditures and investments for the six months of
1998 were substantially lower than those of the same period in
1997, primarily because the 1997 period included a major
gathering asset acquisition.
26
<PAGE>
RM&T continued its retail marketing expansion during the first
six months of 1998, with the purchase of 12 retail outlets in the
Dallas, Texas, area, and the opening of six new outlets. Since
the expansion program began, the company has acquired 36 retail
outlets, opened 37 new ones, and razed and rebuilt 17 others.
Both new outlets and those that are razed and rebuilt utilize the
new Kicks 66 convenience store design. Also during the first six
months of 1998, the company sold 33 retail units in non-strategic
areas.
In first quarter 1998, the company purchased interests in an
El Paso, Texas, terminal and pipeline system, which allows Phillips
to transport petroleum products to El Paso, and Tucson and
Phoenix, Arizona.
Construction of a 148-mile pipeline to connect the Seaway
Pipeline system to the company's existing Midwest distribution
system near Wichita, Kansas, was completed in first quarter 1998.
Commercial operation began in May 1998 and allows the company to
transport gasoline and distillates from the Gulf Coast to the
growing Midwest market.
In April, the company's Board of Directors approved the
construction of a 36,000 barrels-per-day continuous catalyst
regeneration reformer at the Sweeny, Texas, refinery and
petrochemical complex. The new catalytic reformer is designed to
convert a higher percentage of plant yield to higher-margin
petrochemicals. This project is now scheduled to commence in
early 1999, with completion scheduled for mid-2000.
On August 7, 1998, Phillips announced that commercial production
of metallocene compounds had begun at a new facility at the
Phillips Research Center in Bartlesville, Oklahoma. Metallocene
compounds are used to produce catalysts for the production of
high-, medium- and linear low-density polyethylenes. The plant's
current annual capacity is expected to meet Phillips' and its
licensees' projected yearly demand through at least the year
2000.
New Accounting Standards
In June 1998, the FASB issued Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after
June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance.
The company expects to adopt the new Statement effective
January 1, 2000. The Statement will require the company
to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair
27
<PAGE>
value through income. If a derivative is a hedge, depending on
the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through
earnings, or recognized in other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value will be immediately
recognized in earnings. The company does not anticipate that the
adoption of this Statement will have a significant effect on its
results of operations or financial position.
Year 2000 Update
General
- -------
Phillips' company-wide Year 2000 Project (Project) is proceeding
on schedule. The Project is addressing the issue of computer
programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000. In 1995, in order to
improve access to business information through common, integrated
computing systems across the company, Phillips began a worldwide
business systems replacement project with systems that use
programs primarily from SAP America, Inc. (SAP) and, for certain
E&P operations, Oracle Corporation (Oracle). The new systems,
which are expected to make approximately 70 percent of the
company's business computer systems Year 2000 compliant, are
scheduled for completion by mid-1999. Implementation of the SAP
programs is on schedule and approximately 48 percent complete.
Implementation of the Oracle programs is approximately 55 percent
complete, but behind schedule. The company has developed a
contingency plan to make the programs that are scheduled to be
replaced by the Oracle programs Year 2000 compliant. A decision
to implement the contingency plan is expected to be made by the
end of third quarter 1998. Remaining business software programs
are expected to be made Year 2000 compliant through the Year 2000
Project, including those supplied by vendors, or they will be
retired. None of the company's other information technology (IT)
projects have been delayed due to the implementation of the Year
2000 Project.
Project
- -------
Phillips' Project is divided into four major sections --
Infrastructure, Applications Software (Infrastructure and
Applications Software are sometimes collectively referred to as
"IT Systems"), third-party suppliers and customers (External
Agents), and process control and instrumentation (PC&I). The
company has engaged Ernst & Young LLP (EY) to assist in the
program management of the Project and in the conversion and
testing of certain non-compliant application software code. The
28
<PAGE>
general phases common to all sections are: (1) inventorying Year
2000 items; (2) assigning priorities to identified items;
(3) assessing the Year 2000 compliance of items determined to be
material to the company; (4) repairing or replacing material
items that are determined not to be Year 2000 compliant;
(5) testing material items; and (6) designing and implementing
contingency and business continuation plans for each organization
and company location.
At June 30, 1998, the inventory and priority assessment phases of
each section of the Project had been completed. Material items
are those believed by the company to have a risk involving the
safety of individuals, or that may cause damage to property or
the environment, or affect revenues. The testing phases of the
Project are being performed by the company.
The Infrastructure section consists of hardware and systems
software other than Applications Software. This section is on
schedule, and the company estimates that approximately 50 percent
of the activities related to the section had been completed at
June 30, 1998. The testing phase is ongoing as hardware or
system software is remediated, upgraded or replaced. Contingency
planning for the section is scheduled to commence in third
quarter 1998. All Infrastructure activities are expected to be
completed by January 31, 1999.
The Applications Software section includes both the conversion of
applications software that is not Year 2000 compliant and, where
available from the supplier, the replacement of such software.
The company estimates that the software conversion phase was more
than 60 percent complete at June 30, 1998, and the remaining
conversions are on schedule to be completed by mid-1999. The
testing phase of this section, scheduled for completion by mid-
1999, is ongoing. The vendor software replacements and upgrades
are somewhat behind schedule; however, the company estimates that
replacements and upgrades will be completed on schedule by mid-
1999. The testing phase is conducted as the software is replaced
and is also scheduled to be completed by mid-1999. Contingency
planning for this section is scheduled to begin in third quarter
1998 and be completed by mid-1999.
The External Agents section includes the process of identifying
and prioritizing critical suppliers and customers at the direct
interface level, and communicating with them about their plans
and progress in addressing the Year 2000 problem. Detailed
evaluations of the most critical third parties have been
initiated. These evaluations will be followed by the development
of contingency plans, which are scheduled in the fourth quarter
of 1998, with completion by mid-1999. The company estimates that
this section was on schedule at June 30, 1998. The process of
evaluating these external agents will commence in third quarter
29
<PAGE>
1998 and is scheduled for completion by mid-1999, with follow-up
reviews scheduled through the remainder of 1999.
Plans detailing the tasks and resources required for the PC&I
section are in place. This section includes the hardware,
software and associated embedded computer chips that are used in
the operation of all facilities operated by the company. The
company estimates that 75 percent of the PC&I equipment will be
ready by year-end 1998, with some work to be completed in 1999
because of turnaround schedules. This section is on schedule and
the company believes that the repair and testing of PC&I
equipment is approximately 30 percent complete, with all repair
and testing scheduled to be completed by year-end 1999.
Contingency planning for this section is scheduled to begin in
third quarter 1998 and be completed by year-end 1999.
Costs
- -----
The total cost associated with required modifications to become
Year 2000 compliant is not expected to be material to the
company's financial position. The estimated total cost of the
Year 2000 Project is approximately $58 million. This estimate
does not include Phillips' potential share of Year 2000 costs
that may be incurred by partnerships and joint ventures in which
the company participates but is not the operator. The total
amount expended on the Project through June 30, 1998, was
$20 million, of which approximately $15 million related to the
cost to repair or replace software and related hardware problems,
approximately $4 million related to the cost of replacing non-
compliant PC&I equipment, and approximately $1 million related to
the cost of identifying and communicating with External Agents.
The estimated future cost of completing the Year 2000 Project is
estimated to be approximately $38 million -- $14 million to
repair or replace software and related hardware, $21 million to
repair or replace non-compliant PC&I equipment, and $3 million to
identify and communicate with External Agents. Funds for the
Project are provided from a separate budget of $29 million for
all items other than PC&I and External Agent costs, which are
included in existing operating budgets. The costs of
implementing the SAP and Oracle business replacement systems are
not included in these cost estimates.
Risks
- -----
The failure to correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and
adversely affect the company's results of operations, liquidity
and financial condition. Due to the general uncertainty inherent
in the Year 2000 problem, resulting in part from the uncertainty
of the Year 2000 readiness of third-party suppliers and
30
<PAGE>
customers, the company is unable to determine at this time
whether the consequences of Year 2000 failures will have a
material impact on the company's results of operations, liquidity
or financial condition. The Year 2000 Project is expected to
significantly reduce the company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its material External Agents. The
company believes that, with the implementation of new business
systems and completion of the Project as scheduled, the
possibility of significant interruptions of normal operations
should be reduced.
Readers are cautioned that forward-looking statements contained
in the Year 2000 Update 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.
Contingencies
Legal and Tax Matters
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 the likelihood
is remote that future costs related to known contingent liability
exposures will exceed current accruals by an amount that would
have a material adverse impact on the company's financial
statements.
Environmental
Most aspects of the businesses in which the company engages are
subject to various federal, state, local and foreign
environmental laws and regulations. Similar to other companies
in the petroleum and chemical industries, the company incurs
costs for preventive and corrective actions at facilities and
waste disposal sites.
Phillips may be obligated to take remedial action as the result
of the enactment of laws, such as the federal Superfund law, the
issuance of new regulations, or as a result of leaks and spills.
In addition, an obligation may arise when a facility is closed or
sold. Most of the expenditures to fulfill these obligations
relate to facilities and sites where past operations followed
practices and procedures that were considered appropriate under
regulations, if any, existing at the time, but may now require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.
31
<PAGE>
At year-end 1997, Phillips reported 43 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Two sites were added in
second quarter 1998. Of these 45 sites remaining at June 30,
1998, the company believes it has a legal defense or its records
indicate no involvement for 13 sites. At eight sites, present
information indicates that it is probable that the company's
exposure is less than $100,000 per site. At seven other sites,
Phillips has had no communication or activity with government
agencies or other PRPs in more than two years. Of the 17
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 clean-up 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 clean-up, 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 clean-up costs generally occur
after the parties obtain EPA or equivalent state agency approval.
At June 30, 1998, accruals of $6 million had been made for the
company's unresolved PRP sites. In addition, the company has
accrued $65 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 $4 million for
other environmental contingent liabilities, for total
environmental accruals of $75 million. No one site represents
more than 10 percent of the total.
After an assessment of environmental exposures for clean-up 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, although claims for
recovery of remediation costs have been filed with certain of the
company's insurers.
32
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During the first six months of 1998, as part of a comprehensive
environmental cost recovery project, the company entered into
settlement agreements with certain of its historical liability
and pollution insurers in exchange for releases or commutations
of their present and future liabilities to the company under its
historical liability and pollution policies. As a result of
these settlement agreements, the company recorded a before-tax
benefit to earnings of $109 million. At June 30, 1998,
$105 million had been collected. At this time, the company is in
negotiations with several other historical insurers. The
ultimate amount, if any; the terms of the settlements; and the
timing of recoveries from these other insurers remain uncertain.
OUTLOOK
Phillips is participating in several appraisal wells at the
Schrader Bluff and Northwest Eileen fields on the north slope of
Alaska. These are satellite fields to the main Prudhoe Bay and
Kuparuk fields. The results to date at Northwest Eileen have
been successful, and the co-venturers plan to pursue an
aggressive program for additional appraisal and development well
drilling during 1999 and 2000. Phillips has an approximately
25 percent working interest in the Schrader Bluff and a
10 percent working interest in Northwest Eileen, both subject to
redetermination based upon well results.
In Nigeria, the company's oil mining leases for production of oil
and gas have been renewed for 30 years from June 14, 1997. These
interests are operated on behalf of the company under a joint
operating agreement with Nigerian Agip Oil Company (Agip) for the
life of the leases covered and until all joint property has been
disposed of and final settlement made. The initial term of the
leases was through June 13, 1997, but production continued
unabated to renewal.
In July 1998, a Phillips subsidiary was awarded a 34 percent
interest in and operatorship of the Sisimiut exploration license
off the western coast of Greenland. The company plans to
continue reprocessing existing seismic data in order to better
analyze the potential structures. This will be followed by the
acquisition of new seismic data, planned for 1999.
In the United Kingdom, a development well drilled from the
Maureen platform to extend production from the field was a dry
hole. It is now expected that production from Maureen will cease
in 1999 or 2000. Phillips continues its effort to find another
user for the Maureen platform and is also reviewing other refloat
and disposal options. The financial provision for
decommissioning is expected to be sufficient by year-end 1998 for
any option currently being considered.
33
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The Jade field in the U.K. North Sea, discovered in 1996, was
successfully appraised in 1997. Development options are being
evaluated, with production now expected in 2001 with a tie-in to
the J-Block infrastructure. Phillips is the operator with a
32.5 percent interest.
Production of LNG at the Bayu-Undan gas field in the Timor Sea
has been delayed at least two years from 2003 to 2005. The delay
is due to the weak Asian market and disagreements with Phillips'
major co-venturer concerning the potential location of the
proposed LNG plant. Initial production of the field's liquid
reserves is expected in late 2002, and the gas will be
reinjected.
Phillips anticipates that the joint-venture project to develop
extra-heavy oil reserves from the Hamaca region of the Orinoco
Oil Belt in eastern Venezuela, in which it has a 20 percent
interest, will be approved by year-end 1998. Initial production
is expected in 2000; however, full production may be delayed
until 2003 or 2004, but all parties are working to mitigate any
delay and expedite development.
Phillips' alliance with Mobil Corporation to jointly explore
deep-water blocks in the Gulf of Mexico is progressing with
continued acquisition, processing and interpretation of 3-D
seismic. The deep-water drilling program is scheduled to
commence in late-1998 or early-1999. The delivery of the
contracted deepwater drillship has been delayed until the fall of
1999, but slippage in the drilling schedule will be mitigated by
use of other deep-water drilling vessels.
In early April 1998, the company filed suit in the District Court
of Harris County, Texas, against Union Pacific Corporation, Union
Pacific Railroad Company, and Southern Pacific Transportation
Company, alleging that Union Pacific's merger with Southern
Pacific Transportation Company has resulted in Union Pacific's
being unable to provide timely, reasonable or reliable rail
transportation service to Phillips' Houston Chemical Complex and
Sweeny refinery. The defendants removed this case to the United
States District Court for the Southern District of Texas, Houston
Division.
In January 1999, several European countries will begin operating
with a single currency, the Euro, starting the process of
completely replacing their national currencies during the next
three and one-half years. This European Monetary Union will
affect many of the business and financial functions for companies
operating in these countries. The previously mentioned worldwide
business systems replacement project is expected to position the
company for the introduction of the Euro and no significant
adverse economic impact is anticipated.
34
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Ekofisk and outlying fields in the Norwegian North Sea, along
with J-Block in the U.K. North Sea, were shut-in in early August
to accommodate the company's Ekofisk II conversion. Production
from the Ekofisk II Complex and from J-Block are scheduled to
resume by August 21, 1998. The downtime should result in lower
oil, natural gas, and natural gas liquids production in the third
quarter, but no material impact to third quarter net income is
expected.
Phillips operates in three countries where cutbacks in production
have been announced. In conjunction with the OPEC announced
reduction in output, Norway has voluntarily implemented measures
to cut back crude oil production on the Norwegian continental
shelf by 3 percent for the remainder of 1998. The Phillips-
operated Ekofisk area fields in License PL018 will be affected,
but oil production will only be curtailed 3 percent during the
last four months of 1998. The Nigerian government has dictated
quota reductions of 6 percent, effective April 1, 1998, and an
additional 9 percent, effective July 1, 1998, that affect leases
operated on behalf of the company under a joint operating
agreement with Nigerian Agip Oil Company. However, anticipated
1998 annual production from these leases falls within the limits
allowed under the revised production arrangements. Venezuela, an
OPEC member, has also agreed to cut back oil production, but
foreign companies operating there have not been asked to curtail
production. Based on the above information, the company does not
expect the economic impact of these announced production
curtailments in any of the three countries to have a material
adverse impact on the company's results of operations or
financial position.
The current climate of low crude oil prices could have the impact
of shortening the economic limits on field lives, potentially
reducing proved reserve estimates sufficiently to trigger
impairment losses. Phillips constantly monitors its assets for
signs of potential impairment and recognizes impairment losses
whenever the carrying amount of a field exceeds its fair value.
Industry opinions currently are mixed as to whether, or how much,
oil prices will recover in the near-term.
The company has a number of issues outstanding with the IRS
related to tax years 1987 through 1992 that are expected to
be resolved this year as a result of the favorable outcome
in 1996 of the Kenai LNG tax case related to the company's
sales of LNG from Kenai, Alaska. A favorable resolution of
these issues would have a positive effect on net income and
cash flow of up to $125 million while an unfavorable one would
not impact the company's net income or cash position. All
outstanding issues with the IRS for years prior to 1987 have
been resolved.
35
<PAGE>
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: (1) the
company's ability to obtain agreements from co-venturers or
partners, and governments; engage drilling, construction and
other contractors; and obtain economical and timely financing;
(2) geology, land or sea, or ocean conditions; (3) world prices
for oil, natural gas and natural gas liquids; and (4) 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
approval from the company's and/or subsidiaries' Boards of
Directors; loan or project financing; the issuance by
foreign, federal, state, and municipal governments, or
agencies thereof, of building, environmental and other
permits; and the availability of specialized contractors and
work force. Production and delivery of the company's
products are subject to worldwide prices and demand for the
products; availability of raw materials; and the
36
<PAGE>
availability of transportation in the form of pipelines,
railcars, trucks or ships.
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,
project cost estimates, 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 U.S. Securities and Exchange Commission,
generally accepted accounting principles and other
applicable requirements.
o The dates on which the company believes the Year 2000
Project will be completed and the SAP and Oracle business
computer systems will be implemented are based on
Management's best estimates, which were derived utilizing
numerous assumptions of future events, including the
continued availability of certain resources, third-party
modification plans and other factors. However, there can be
no guarantee that these estimates will be achieved, or that
there will not be a delay in, or increased costs associated
with, the implementation of the Year 2000 Project. A delay
in the implementation of SAP could also impact the company's
readiness for the introduction of the Euro. Specific
factors that might cause differences between the estimates
and actual results include, but are not limited to, the
availability and cost of personnel trained in these areas,
the ability to locate and correct all relevant computer
code, timely responses to and corrections by third-parties
and suppliers, the ability to implement interfaces between
the new systems and the systems not being replaced, and
similar uncertainties. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of third-parties
and the interconnection of global businesses, the company
cannot ensure its ability to timely and cost-effectively
resolve problems associated with the Year 2000 issue that
may affect its operations and business, or expose it to
third-party liability.
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 11,
1998. A brief description of each proposal and the voting
results follow:
A company proposal to elect twelve directors.
For Against & Withheld
-----------------------------------
W. W. Allen 259,381,726 5,116,364
Norman R. Augustine 259,565,122 4,932,968
George B. Beitzel 258,833,162 5,664,928
David L. Boren 259,268,175 5,229,915
C. L. Bowerman 259,628,271 4,869,819
Robert E. Chappell, Jr. 259,802,906 4,695,184
Lawrence S. Eagleburger 259,187,165 5,310,925
Larry D. Horner 259,609,462 4,888,628
J. J. Mulva 259,244,652 5,253,438
Randall L. Tobias 259,652,236 4,845,854
Victoria J. Tschinkel 259,484,049 5,014,041
Kathryn C. Turner 259,251,605 5,246,485
A company proposal to approve the designation of Ernst &
Young LLP as independent auditors for 1998.
For 258,946,931
Against 4,506,906
Abstentions 1,044,253
Not Voted 26,465,795
All twelve nominated directors were elected, and the independent
public accountants designated by the company were approved.
Item 5. OTHER INFORMATION
At the July 1998 meeting of the company's Board of Directors, the
date of the company's 1999 annual meeting of stockholders was
changed from May 10, 1999, to May 3, 1999. This change will not
impact the date, November 30, 1998, by which stockholder
proposals must be submitted.
38
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
3(ii) Bylaws of Phillips Petroleum Company, as amended effective
July 17, 1998.
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, 1998, the company did not
file any reports on Form 8-K.
39
<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/ Rand C. Berney
-----------------------------
Rand C. Berney
Vice President and Controller
(Chief Accounting and Duly
Authorized Officer)
August 10, 1998
40
<PAGE>
Exhibit 3(ii)
BYLAWS
PHILLIPS PETROLEUM COMPANY
(INCORPORATED UNDER THE LAWS OF DELAWARE)
JULY 17, 1998
<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
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<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
-3-
<PAGE>
independent outside directors, as defined in this Section. The
persons receiving votes of a majority of the stock represented at
the meeting shall be directors for the ensuing year or until
their successors shall be elected.
As used in these Bylaws, the term "independent outside
directors" means any person who, on the date of his election,
(i) is not an officer or employee of this company; (ii) is not an
officer or employee of, or does not own directly or indirectly in
excess of 1% of the shares of, a corporation (A) which has
received payments from this company for property or services in
excess of 1% of its gross receipts during any one of the four
calendar years immediately preceding such date, as determined by
its financial statement for the year in question, or (B) which is
proposed to receive during the following year such payments in
excess of 1% of its gross receipts as determined by its financial
statement for the immediately preceding year; (iii) is not a
member, officer, or employee of any business or professional
organization (other than a corporation) which (A) has received
payments from this company for property or services in excess of
$250,000 during any one of the four calendar years immediately
preceding such date, or (B) is proposed to receive such payments
in excess of $250,000 in the following year; (iv) is not a person
who individually (as a share partner or otherwise) has received
payments, directly or indirectly, from this company in excess of
$25,000 (other than fees as a director) for property or services
sold or provided by him during any one of the four calendar years
immediately preceding such date, and is not proposed to receive
such payments in excess of $25,000 in the following year; and (v)
is not a member of or associate in a law firm which is proposed
to be or in the preceding four calendar years has been engaged by
this company. Notwithstanding the foregoing definition, any
person elected a director at this company's 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
12:30 p.m., or at such time as the Board directs, 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
in the months of January,
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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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<PAGE>
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.
-23-
<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
-25-
<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.
-31-
<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
------------------------
1998 1997
------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes $771 1,035
Distributions less than equity in earnings
of less-than-fifty-percent-owned companies (2) (11)
Fixed charges, excluding capitalized
interest and the portion of the
preferred dividend requirements of a
subsidiary not previously deducted
from income* 143 177
- ----------------------------------------------------------------------------
$912 1,201
============================================================================
Fixed Charges
Interest and expense on indebtedness,
excluding capitalized interest $ 89 112
Capitalized interest 26 21
Preferred dividend requirements of
subsidiary and capital trusts 26 56
One-third of rental expense, net of
subleasing income, for operating leases 20 18
- ----------------------------------------------------------------------------
$161 207
============================================================================
Ratio of Earnings to Fixed Charges 5.7 5.8
- ----------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately
$8 million and $6 million in 1998 and 1997, 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 1998 and 1997.
<PAGE>
<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,
1998, and the related consolidated statement of income for the six months
ended June 30, 1998, 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 1,445
<ALLOWANCES> 18
<INVENTORY> 611
<CURRENT-ASSETS> 2,428
<PP&E> 22,074
<DEPRECIATION> 11,765
<TOTAL-ASSETS> 13,953
<CURRENT-LIABILITIES> 2,193
<BONDS> 3,024
650
0
<COMMON> 497
<OTHER-SE> 4,344
<TOTAL-LIABILITY-AND-EQUITY> 13,953
<SALES> 6,057
<TOTAL-REVENUES> 6,254
<CGS> 4,969<F1>
<TOTAL-COSTS> 5,094<F2>
<OTHER-EXPENSES> 26<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 771
<INCOME-TAX> 370
<INCOME-CONTINUING> 401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 401
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.52
<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 capital trusts.
</FN>
</TABLE>
