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 September 30, 1999
--------------------------------------------
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
----------------------------------------------------
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 253,283,646 shares of common stock, $1.25 par value,
outstanding at October 31, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
- ---------------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Millions of Dollars
---------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
---------------------------------
1999 1998* 1999 1998*
---------------------------------
Revenues
Sales and other operating revenues $3,739 2,890 9,332 8,947
Equity in earnings of affiliated
companies 16 12 64 62
Other revenues 14 11 143 158
- ---------------------------------------------------------------------
Total Revenues 3,769 2,913 9,539 9,167
- ---------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 2,266 1,700 5,504 5,015
Production and operating expenses 508 521 1,521 1,567
Exploration expenses 52 45 161 144
Selling, general and
administrative expenses 150 147 499 456
Depreciation, depletion and
amortization 229 233 671 686
Property impairments 13 37 64 67
Taxes other than income taxes 53 52 172 177
Interest expense 70 56 210 136
Preferred dividend requirements
of capital trusts 14 14 40 40
- ---------------------------------------------------------------------
Total Costs and Expenses 3,355 2,805 8,842 8,288
- ---------------------------------------------------------------------
Income before income taxes 414 108 697 879
Provision for income taxes 193 62 338 432
- ---------------------------------------------------------------------
Net Income $ 221 46 359 447
=====================================================================
Net Income Per Share of Common
Stock
Basic $ .87 .18 1.42 1.72
Diluted .87 .18 1.41 1.71
- ---------------------------------------------------------------------
Dividends Paid $ .34 .34 1.02 1.02
- ---------------------------------------------------------------------
Average Common Shares Outstanding
(in thousands)
Basic 253,306 256,779 252,669 259,786
Diluted 255,445 258,659 254,340 261,858
- ---------------------------------------------------------------------
See Notes to Financial Statements.
*Reclassified to conform to current presentation.
1
<PAGE>
- -------------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
Millions of Dollars
-------------------------
September 30 December 31
1999 1998
-------------------------
Assets
Cash and cash equivalents $ 180 97
Accounts and notes receivable (less
allowances: 1999--$19; 1998--$13) 1,748 1,282
Inventories 575 540
Deferred income taxes 173 217
Prepaid expenses and other current assets 103 213
- -------------------------------------------------------------------
Total Current Assets 2,779 2,349
Investments and long-term receivables 1,059 1,015
Properties, plants and equipment (net) 11,101 10,585
Deferred income taxes 80 100
Deferred charges 172 167
- -------------------------------------------------------------------
Total $15,191 14,216
===================================================================
Liabilities
Accounts payable $ 1,697 1,340
Notes payable and long-term debt due
within one year 46 167
Accrued income and other taxes 381 182
Other accruals 466 443
- -------------------------------------------------------------------
Total Current Liabilities 2,590 2,132
Long-term debt 4,443 4,106
Accrued dismantlement, removal and
environmental costs 676 729
Deferred income taxes 1,448 1,317
Employee benefit obligations 429 424
Other liabilities and deferred credits 570 639
- -------------------------------------------------------------------
Total Liabilities 10,156 9,347
- -------------------------------------------------------------------
Company-Obligated Mandatorily
Redeemable Preferred Securities
of Phillips 66 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 2,089 2,055
Treasury stock (at cost:
1999--24,346,524 shares;
1998--25,259,040 shares) (1,214) (1,259)
Compensation and Benefits Trust (CBT)
(at cost: 1999--28,647,987 shares;
1998--29,125,863 shares) (971) (987)
Accumulated other comprehensive income
Foreign currency translation adjustments (25) (22)
Unrealized gain on available-for-sale
securities 9 9
Unearned employee compensation--Long-
Term Stock Savings Plan (LTSSP) (289) (303)
Retained earnings 4,403 4,343
- -------------------------------------------------------------------
Total Common Stockholders' Equity 4,385 4,219
- -------------------------------------------------------------------
Total $15,191 14,216
===================================================================
See Notes to Financial Statements.
2
<PAGE>
- -----------------------------------------------------------------
Consolidated Statement of Phillips Petroleum Company
Cash Flows
Millions of Dollars
-------------------
Nine Months Ended
September 30
-------------------
1999 1998*
-------------------
Cash Flows from Operating Activities
Net income $ 359 447
Adjustments to reconcile net income to net
cash provided by operating activities
Non-working capital adjustments
Depreciation, depletion and
amortization 671 686
Property impairments 64 67
Dry hole costs and leasehold
impairment 67 29
Deferred taxes 114 139
Other (137) (58)
Working capital adjustments
Increase in aggregate balance of
accounts receivable sold 18 200
Decrease (increase) in other
accounts and notes receivable (486) 161
Increase in inventories (41) (97)
Decrease (increase) in prepaid
expenses and other current assets 132 (20)
Increase (decrease) in accounts payable 355 (10)
Increase in taxes and other accruals 279 132
- -----------------------------------------------------------------
Net Cash Provided by Operating Activities 1,395 1,676
- -----------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures and investments,
including dry hole costs (1,351) (1,574)
Proceeds from asset dispositions 175 36
Long-term advances to affiliates and
other investments (6) (11)
- -----------------------------------------------------------------
Net Cash Used for Investing Activities (1,182) (1,549)
- -----------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 528 712
Repayment of debt (338) (124)
Purchase of company common stock (13) (417)
Issuance of company common stock 22 11
Dividends paid on common stock (258) (266)
Other (71) (79)
- -----------------------------------------------------------------
Net Cash Used for Financing Activities (130) (163)
- -----------------------------------------------------------------
Net Change in Cash and Cash Equivalents 83 (36)
Cash and cash equivalents at beginning of
period 97 163
- -----------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 180 127
=================================================================
See Notes to Financial Statements.
*Reclassified to conform to current presentation.
3
<PAGE>
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1--Interim Financial Information
The financial information for the interim periods presented in
the financial statements included in this report is unaudited and
includes all known accruals and adjustments which Phillips
Petroleum Company (hereinafter referred to as "Phillips" or the
"company") considers necessary for a fair presentation of the
consolidated financial position of the company and its results of
operations and cash flows for such periods. All such adjustments
are of a normal and recurring nature.
Note 2--Inventories
Inventories consisted of the following:
Millions of Dollars
-------------------------
September 30 December 31
1999 1998
-------------------------
Crude oil and petroleum products $216 177
Chemical products 269 264
Materials, supplies and other 90 99
- -----------------------------------------------------------------
$575 540
=================================================================
Note 3--Properties, Plants and Equipment
Properties, plants and equipment (net) included the following:
Millions of Dollars
-------------------------
September 30 December 31
1999 1998
-------------------------
Properties, plants and equipment
(at cost) $22,765 22,868
Less accumulated depreciation,
depletion and amortization 11,664 12,283
- -----------------------------------------------------------------
$11,101 10,585
=================================================================
4
<PAGE>
Note 4--Impairments
Property impairments totaling $13 million before-tax, $10 million
after-tax, were recorded in the E&P segment in the third quarter
of 1999, primarily related to the Renee field in the U.K. North
Sea. The Renee field impairment was triggered by an unsuccessful
development dry hole completed in the third quarter.
Property impairments totaling $64 million before-tax, $30 million
after-tax, were booked in the E&P segment in the nine-month
period ending September 30, 1999. In addition to the Renee
field, impairments were taken on the Agate field in the Gulf of
Mexico and several outlying fields in the greater Ekofisk area of
the Norwegian North Sea. The North Sea impairments were the
result of upward revisions of decommissioning costs, while the
Agate impairment was caused by a mechanical downhole well
failure.
Note 5--Debt
In March 1999, the company issued $300 million of 6 3/8% Notes
due 2009, and $200 million of 7% Debentures due 2029, in the
public market.
At September 30, 1999, there was no revolving debt outstanding
under the company's $1.5 billion revolving credit facility, but
$594 million of commercial paper was outstanding, which is
supported 100 percent by the credit facility. The company's
wholly owned subsidiary, Phillips Petroleum Company Norway, has
$600 million available under two revolving credit facilities. At
September 30, 1999, $330 million was outstanding under the
facilities.
Note 6--Income Taxes
The company's effective tax rates for the third quarter and first
nine months of 1999 were 47 and 48 percent, respectively, compared
with 57 and 49 percent for each of the same periods a year ago.
The third-quarter rate for 1998 was higher due to a larger
proportion of income in higher-tax-rate jurisdictions.
5
<PAGE>
Note 7--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 it is remote that future costs related to
known contingent liability exposures will exceed current accruals
by an amount that would have a material adverse impact on the
company's financial statements.
As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change include contingent
liabilities recorded for environmental remediation, tax and legal
matters. Estimated future environmental remediation costs are
subject to change due to such factors as the unknown magnitude of
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.
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, most of which can be
recovered through reductions of future charges for the shipping
or processing of petroleum liquids, natural gas and refined
products.
6
<PAGE>
Note 8--Preferred Share Purchase Rights
On July 2, 1999, the company's Board of Directors declared a
dividend distribution of one preferred share purchase right for
each outstanding share of Phillips' common stock. The dividend
distribution was made August 1, 1999, payable to stockholders of
record on that date. These rights replace the rights issued
under the company's shareholder rights plan that expired July 31,
1999. The new rights, which expire July 31, 2009, will be
exercisable only if a person or group acquires 15 percent or more
of the company's common stock or announces a tender offer that
would result in ownership of 15 percent or more of the common
stock. Each right will entitle stockholders to buy one one-
hundredth of a share of preferred stock at an exercise price of
$180. In addition, the rights enable holders to either acquire
additional shares of Phillips common stock or purchase the stock
of an acquiring company at a discount, depending on specific
circumstances. The rights may be redeemed by the company in
whole, but not in part, for one cent per right.
Note 9--Non-Mineral Operating Leases
The company and its co-venturer in the Kenai liquefied natural
gas plant lease two tankers that are used to transport liquefied
natural gas from Kenai, Alaska, to Japan. In June 1999, a
purchase option held by the company and its co-venturer was
allowed to become a binding commitment. The purchase date for
the first tanker is June 2000, and December 2000 for the second.
In the event that the company and its co-venturer do not modify
the existing lease arrangements or enter into new lease
arrangements, the purchase option would be exercised and
Phillips' 70 percent interest in the aggregate purchase price for
both tankers would be approximately $240 million.
7
<PAGE>
Note 10--Supplemental Cash Flow Information
Non-cash investing and financing activities and cash payments for
the nine-month periods ended September 30 were as follows:
Millions of Dollars
-------------------
1999 1998
-------------------
Non-Cash Investing and Financing Activities
Company stock issued under compensation
and benefit plans $24 7
Change in market value of investments 5 12
Deferred payment obligation to purchase
property, plant and equipment 26 8
Investment in joint venture in exchange
for non-cash assets 8 5
Investment in equity affiliate through
direct guarantee of debt - 13
- -----------------------------------------------------------------
Cash payments
Interest
Debt $212 125
Taxes and other 6 6
- -----------------------------------------------------------------
$218 131
=================================================================
Income taxes $ 60 287
- -----------------------------------------------------------------
Note 11--Environmental Cost Recovery
During the first nine 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.
8
<PAGE>
Note 12--Foreign Currency
The following table summarizes the foreign currency transaction
gains (losses) included in the company's reported net income:
Millions of Dollars
---------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
After-Tax
E&P $ 2 (5) 3 (12)
RM&T 1 - - -
Chemicals - 1 (1) -
Corporate and Other 16 7 (6) 10
- -----------------------------------------------------------------
Total $19 3 (4) (2)
=================================================================
Before-Tax
E&P $ 7 8 (8) (8)
RM&T - - - -
Chemicals 1 1 (1) -
Corporate and Other 16 7 (7) 11
- -----------------------------------------------------------------
Total $24 16 (16) 3
=================================================================
Note 13--Comprehensive Income
Phillips' comprehensive income for the three- and nine-month
periods ended September 30, was as follows:
Millions of Dollars
-------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
------------- -------------
1999 1998 1999 1998
------------- -------------
Net income $221 46 359 447
After-tax changes in:
Foreign currency translation
adjustments 20 13 (3) (2)
Net unrealized gain (loss)
on available-for-sale
securities (2) 8 - 8
- -----------------------------------------------------------------
Comprehensive income $239 67 356 453
=================================================================
9
<PAGE>
Note 14--Segment Disclosures
The company has organized its reporting structure based on the
grouping of similar products and services, resulting in four
operating segments:
(1) Exploration and Production (E&P)--Explores for and produces
crude oil, natural gas and natural gas liquids on a
worldwide basis.
(2) Gas Gathering, Processing and Marketing (GPM)--Gathers and
processes both natural gas produced by others and natural
gas produced from the company's own reserves, primarily in
Oklahoma, Texas and New Mexico.
(3) Refining, Marketing and Transportation (RM&T)--Refines,
markets and transports crude oil and petroleum products,
primarily in the United States. This segment also
fractionates and markets natural gas liquids.
(4) Chemicals--Manufactures and markets petrochemicals and
plastics on a worldwide basis.
Corporate and Other includes general corporate overhead; all
interest revenue and expense, including preferred dividend
requirements of capital trusts; certain eliminations; and various
other corporate activities, such as the company's captive
insurance subsidiary and tax items not directly attributable to
the operating segments.
10
<PAGE>
The company evaluates performance and allocates resources based
on net income, among other items. Intersegment sales are
recorded at market value. There have been no material changes in
the basis of segmentation or in the basis of measurement of
segment net income since the 1998 annual report.
Analysis of Results by Operating Segment
Millions of Dollars
-------------------------------
Operating Segments
-------------------------------
E&P GPM RM&T Chemicals
Three Months Ended September 30, 1999 -------------------------------
Sales and Other Operating Revenues
External customers $ 772 254 2,081 632
Intersegment 141 219 145 46
- -----------------------------------------------------------------------
Segment sales $ 913 473 2,226 678
=======================================================================
Net income $ 152 39 47 50
=======================================================================
Three Months Ended September 30, 1998
Sales and Other Operating Revenues
External customers $ 618 182 1,533 556
Intersegment 87 124 91 30
- -----------------------------------------------------------------------
Segment sales $ 705 306 1,624 586
=======================================================================
Net income $ 22 13 53 24
=======================================================================
Nine Months Ended September 30, 1999
Sales and Other Operating Revenues
External customers $2,011 603 5,004 1,713
Intersegment 333 486 337 107
- -----------------------------------------------------------------------
Segment sales $2,344 1,089 5,341 1,820
=======================================================================
Net income $ 318 63 72 120
=======================================================================
Total Assets
At September 30, 1999 $6,655 1,140 3,368 2,870
- -----------------------------------------------------------------------
At December 31, 1998 $6,173 1,080 2,910 2,790
- -----------------------------------------------------------------------
Nine Months Ended September 30, 1998
Sales and Other Operating Revenues
External customers $2,080 582 4,512 1,771
Intersegment 313 424 282 103
- -----------------------------------------------------------------------
Segment sales $2,393 1,006 4,794 1,874
=======================================================================
Net income $ 188 44 159 142
=======================================================================
Millions of Dollars
---------------------------
Corporate
and Other Consolidated
Three Months Ended September 30, 1999 ---------------------------
Sales and Other Operating Revenues
External customers $ - 3,739
Intersegment (eliminations) (551) -
- -------------------------------------------------------------------
Segment sales $ (551) 3,739
===================================================================
Net income (loss) $ (67) 221
===================================================================
Three Months Ended September 30, 1998
Sales and Other Operating Revenues
External customers $ 1 2,890
Intersegment (eliminations) (332) -
- -------------------------------------------------------------------
Segment sales $ (331) 2,890
===================================================================
Net income (loss) $ (66) 46
===================================================================
Nine Months Ended September 30, 1999
Sales and Other Operating Revenues
External customers $ 1 9,332
Intersegment (eliminations) (1,263) -
- -------------------------------------------------------------------
Segment sales $(1,262) 9,332
===================================================================
Net income (loss) $ (214) 359
===================================================================
Total Assets
At September 30, 1999 $ 1,158 15,191
- -------------------------------------------------------------------
At December 31, 1998 $ 1,263 14,216
- -------------------------------------------------------------------
Nine Months Ended September 30, 1998
Sales and Other Operating Revenues
External customers $ 2 8,947
Intersegment (eliminations) (1,122) -
- -------------------------------------------------------------------
Segment sales $(1,120) 8,947
===================================================================
Net income (loss) $ (86) 447
===================================================================
11
<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 "intends," "believes," "expects,"
"plans," "scheduled," "anticipates," "estimates," 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 46.
RESULTS OF OPERATIONS
Unless otherwise noted, discussion of results for the three- and
nine-month periods ending September 30, 1999, are based on a
comparison with the corresponding periods in 1998.
Consolidated Results
A summary of the company's net income by business segment
follows:
Millions of Dollars
--------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Exploration and Production
(E&P) $152 22 318 188
Gas Gathering, Processing
and Marketing (GPM) 39 13 63 44
Refining, Marketing and
Transportation (RM&T) 47 53 72 159
Chemicals 50 24 120 142
Corporate and Other (67) (66) (214) (86)
- -----------------------------------------------------------------
Net income $221 46 359 447
=================================================================
12
<PAGE>
Net income is affected by transactions, defined by Management and
termed "special items," which are not representative of the
company's ongoing operations. These transactions can obscure the
underlying operating results for a period and affect
comparability of operating results between periods. The
following table summarizes the gains/(losses), on an after-tax
basis, from special items included in the company's reported net
income:
Millions of Dollars
--------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Property impairments* $(10) (26) (30) (46)
Work force reduction
charges - 1 (7) 1
Net gain on asset sales 4 - 53 3
Pending claims and
settlements - (2) 38 98
Deferred tax adjustments 8 - (11) -
Other items (2) 4 (17) 4
- -----------------------------------------------------------------
Total special items** $ - (23) 26 60
=================================================================
*See Note 4 to the financial statements for additional
information.
**1998 periods restated to exclude foreign currency transaction
gains and losses.
Excluding the special items listed above, the company's net
operating income by business segment was:
Millions of Dollars
--------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998* 1999 1998*
------------------ -----------------
E&P $158 47 312 214
GPM 39 11 64 42
RM&T 47 53 78 156
Chemicals 42 22 101 145
Corporate and Other (65) (64) (222) (170)
- -----------------------------------------------------------------
Net operating income $221 69 333 387
=================================================================
*Restated to include foreign currency transaction gains and
losses.
Phillips' net income in the third quarter of 1999 was
$221 million, compared with net income of $46 million in the
third quarter of 1998. The impact of special items on net income
in the third quarter of 1999 was zero, while special items
reduced net income $23 million in the third quarter of the prior
year. After excluding special items, net operating income in the
third quarter of 1999 was also $221 million, compared with
$69 million in the third quarter of 1998.
13
<PAGE>
The increase in net operating income for the third quarter of
1999 was primarily the result of sharply higher crude oil and
natural gas liquids sales prices in Phillips' upstream segments.
Natural gas sales prices and crude oil production were higher as
well. Downstream, RM&T results in the third quarter were lower
than a year ago, mainly because of lower marketing margins, while
Chemicals results improved relative to the third quarter last
year on higher ethylene margins.
Phillips' net income for the first nine months of 1999 was
$359 million, a 20 percent decline from the corresponding period
in 1998. Special items benefited nine-month net income by
$26 million in 1999 and $60 million in 1998. After excluding
special items, net operating income was 14 percent lower in the
1999 nine-month period. Upstream results in the nine-month
period of 1999 were higher than the corresponding period in 1998,
primarily due to higher crude oil and natural gas liquids sales
prices. Downstream results were lower in the first nine months,
reflecting lower margins across most product lines. Corporate and
Other incurred higher expenses in the nine-month period of 1999,
primarily because of increased interest expense.
14
<PAGE>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
Phillips at a Glance ------------------ -----------------
U.S. crude oil
production (MBD) 46 59 52 62
Worldwide crude oil
production (MBD) 223 195 229 229
U.S. natural gas
production (MMCFD) 948 985 962 981
Worldwide natural gas
production (MMCFD) 1,361 1,370 1,394 1,476
Worldwide natural gas
liquids production (MBD) 171 169 164 174
Liquefied natural gas
sales (MMCFD) 130 145 126 130
Refinery utilization
rate (%) 100 94 98 94
U.S. automotive gasoline
sales (MBD)* 309 344 307 323
U.S. distillates
sales (MBD)* 132 150 134 136
Worldwide petroleum
products sales (MBD)* 685 709 675 678
Natural gas liquids
processed (MBD) 210 177 214 211
Ethylene
production (MMlbs)** 839 656 2,407 2,314
Polyethylene
production (MMlbs)** 632 563 1,952 1,713
Polypropylene
production (MMlbs)** 97 112 346 344
Paraxylene
production (MMlbs) 184 178 418 560
- -----------------------------------------------------------------
*Includes certain sales by the Chemicals segment.
**Includes Phillips' share of equity affiliates' production.
Income Statement Analysis
Sales and other operating revenues increased 29 percent in the
third quarter of 1999 and 4 percent in the nine-month period.
The primary reasons for the increase in both periods were higher
petroleum products and crude oil revenues, mainly due to higher
sales prices. Higher natural gas prices also benefited the third
quarter of 1999. These same factors also accounted for the
33 percent and 10 percent increase in purchase costs for the
third quarter and first nine months of 1999, respectively.
15
<PAGE>
Equity in earnings of affiliated companies increased 33 percent
in the third quarter of 1999 and 3 percent in the nine-month
period. The increase in the third quarter was primarily the
result of improved earnings from Phillips' olefins and polyolefins
equity affiliates. For the nine-month period of 1999, higher
equity earnings from pipeline investments were mostly offset by
lower olefins/polyolefins equity earnings. Other revenues
increased 27 percent in the third quarter of 1999, reflecting
higher net gains on asset sales. Other revenues decreased
9 percent in the first nine months of 1999, primarily because the
1998 period included 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. The decrease was mitigated by net gains on asset sales
recorded in the first nine months of 1999.
Controllable costs are primarily production and operating
expenses, and selling, general and administrative expenses,
adjusted to exclude special items and foreign currency
transaction gains and losses. Controllable costs declined
slightly in the third quarter of 1999 and 4 percent in the nine-
month period, reflecting cost reduction efforts across all
business lines, as well as the impact of property dispositions.
Special items excluded from controllable costs mainly included
severance charges and contingency-related items. Before-tax
foreign currency transaction gains/(losses) excluded from
controllable costs were $24 million and $16 million in the third
quarters of 1999 and 1998, respectively, and $(16) million and
$3 million in the nine-month periods of 1999 and 1998,
respectively.
Exploration expenses increased 16 percent in the third quarter of
1999 and 12 percent in the nine-month period. The increase in
both periods was primarily attributable to higher dry hole
expenses. The impact of higher dry hole expenses was partially
offset in the nine-month period by lower geological and
geophysical expenses.
Depreciation, depletion and amortization (DD&A) was slightly
lower in both the third quarter and first nine months of 1999.
In both periods, U.S. E&P DD&A was lower, mainly due to decreased
production volumes and reduced DD&A rates caused by property
impairments in the second half of 1998. This was partially
offset by higher DD&A from the company's U.K. E&P operations,
where several new fields have come on stream.
16
<PAGE>
Property impairments of $13 million and $64 million were recorded
in the third quarter and first nine months of 1999, respectively,
compared with $37 million and $67 million in the corresponding
1998 periods. Impairments in all periods were primarily for E&P
properties in the Gulf of Mexico and the North Sea. See Note 4
to the financial statements for additional information on
property impairments.
Taxes other than income taxes increased slightly in the third
quarter of 1999 and decreased 3 percent in the nine-month period.
Emission taxes in Norway have been lower in 1999, due to lower
fuel consumption resulting from the increased efficiencies of the
new Ekofisk II turbines. In addition, the tax rate was lower in
the third quarter of 1999 than in the prior year third quarter.
Production taxes have been higher in 1999 because of higher crude
oil prices.
Interest expense increased 25 percent in the third quarter of
1999 and 54 percent in the first nine months, primarily
reflecting higher average debt levels compared with the
corresponding periods in 1998. In addition, the nine-month
period of 1998 included reversals of the interest expense
component of certain contingency accruals. Preferred dividend
requirements were unchanged from the prior year.
17
<PAGE>
Segment Results
E&P
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Millions of Dollars
--------------------------------------
Operating Income
Reported net income $152 22 318 188
Less special items* (6) (25) 6 (26)
- -----------------------------------------------------------------
Net operating income* $158 47 312 214
=================================================================
*1998 amounts restated to exclude foreign currency transaction
gains and losses from special items and include them in net
operating income.
Dollars Per Unit
--------------------------------------
Average Sales Prices
Crude oil (per barrel)
United States $18.42 10.70 13.87 11.20
Foreign 20.81 12.22 15.97 13.14
Worldwide 20.32 11.81 15.50 12.64
Natural gas--lease (per
thousand cubic feet)
United States 2.33 1.75 1.95 1.90
Foreign 2.21 2.39 2.31 2.48
Worldwide 2.28 1.99 2.09 2.15
- -----------------------------------------------------------------
Millions of Dollars
--------------------------------------
Worldwide Exploration
Expenses
Geological, geophysical
and lease rentals $39 41 94 115
Leasehold impairment 5 4 18 16
Dry holes 8 - 49 13
- -----------------------------------------------------------------
$52 45 161 144
=================================================================
Thousands of Barrels Daily
--------------------------------------
Operating Statistics
Crude oil produced
United States 46 59 52 62
Norway 95 76 97 103
United Kingdom 37 20 34 23
Nigeria 19 19 20 20
China 6 13 10 14
Australia 6 - 5 -
Canada 7 7 7 7
Denmark 5 - 3 -
Venezuela 2 1 1 -
- -----------------------------------------------------------------
223 195 229 229
=================================================================
Natural gas liquids produced
United States 2 3 2 3
Norway 4 3 4 6
Other areas 5 5 5 5
- -----------------------------------------------------------------
11 11 11 14
=================================================================
18
<PAGE>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Millions of Cubic Feet Daily
--------------------------------------
Natural gas produced*
United States 948 985 962 981
Norway 113 132 125 216
United Kingdom 201 158 215 185
Canada 90 95 89 94
Nigeria 9 - 3 -
- -----------------------------------------------------------------
1,361 1,370 1,394 1,476
=================================================================
*Represents quantities available for sale. Excludes gas
equivalent of natural gas liquids shown above.
Liquefied natural gas
sales 130 145 126 130
- -----------------------------------------------------------------
E&P's net operating income in the third quarter of 1999 was over
three times higher than the third quarter of 1998, and the nine-
month period of 1999 was 46 percent higher than the same period
of the prior year. Both periods reflected dramatically improved
crude oil prices. Results for the third quarter of 1999 also
benefited from higher natural gas prices and higher crude oil
production.
Phillips' average worldwide crude oil sales price increased to
$20.32 per barrel in the third quarter of 1999, compared with
$11.81 per barrel in the third quarter of 1998, and $15.09 per
barrel in the second quarter of 1999. Industry crude oil prices
rose in response to the late-March 1999 agreement by major
exporting countries to reduce output, and reported continuing
adherence to agreed production levels.
19
<PAGE>
U.S. E&P
- --------
Millions of Dollars
--------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Operating Income
Reported net income $94 38 246 147
Less special items 4 2 47 1
- -----------------------------------------------------------------
Net operating income $90 36 199 146
=================================================================
Net operating income in the company's U.S. E&P operations
increased 150 percent in the third quarter of 1999 and 36 percent
in the nine-month period. The improvement in the third quarter
of 1999 is attributable to higher crude oil and natural gas sales
prices, as well as lower depreciation, depletion and amortization
charges (DD&A) and lower lifting costs. Higher crude oil and
natural gas prices, lower DD&A, and lower lifting costs were the
primary factors behind the improved results in the first nine
months of 1999. These items were partially offset by lower crude
oil and natural gas production volumes.
U.S. crude oil production continued to trend downward in the
third quarter of 1999, averaging 22 percent less than the third
quarter of 1998, and 12 percent lower than the second quarter of
1999. These reductions reflect the impact of normal field
declines and property dispositions in late 1998 and the first
half of 1999, primarily in Texas, central Oklahoma and the Gulf
of Mexico. U.S. natural gas production decreased 4 percent in
the third quarter of 1999, compared with the third quarter a year
ago, as field declines and property dispositions were partially
offset by increased production in the San Juan Basin.
Special items in the third quarter of 1999 represented net gains
on asset sales. The nine-month 1999 period also included
additional gains on asset sales, partially offset by property
impairments. Special items in the third quarter of 1998
primarily consisted of a gain from the sale of the company's right
to an interest in a power plant being constructed in Mississippi.
The nine-month period of 1998 also included a reversal of a
previously accrued contingency, which was mostly offset by
impairments taken on two producing properties in the Gulf of
Mexico.
20
<PAGE>
Foreign E&P
- -----------
Millions of Dollars
--------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Operating Income
Reported net income (loss) $ 58 (16) 72 41
Less special items* (10) (27) (41) (27)
- -----------------------------------------------------------------
Net operating income* $ 68 11 113 68
=================================================================
*1998 amounts restated to exclude foreign currency transaction
gains and losses from special items and include them in net
operating income.
Net operating income in the company's foreign E&P operations in
the third quarter of 1999 increased more than six times the 1998
third quarter amount, and was 66 percent higher in the nine-month
period. Both periods benefited from much improved crude oil
sales prices as well as higher production volumes. The third
quarter and nine-month period of 1999 included after-tax foreign
currency transaction gains of $2 million and $3 million,
respectively, while the corresponding periods in 1998 incurred
foreign currency losses of $5 million and $12 million. Partially
offsetting these positive items in 1999 were higher exploration
expenses, higher DD&A charges and higher lifting costs.
Foreign crude oil production increased 30 percent in the third
quarter of 1999, compared with the third quarter of the prior
year, while natural gas production increased 7 percent. These
improvements reflect new crude oil production from Australia and
Denmark, as well as new oil and gas production from the
Britannia, Janice and Renee/Rubie fields in the U.K. North Sea.
Crude oil production also benefited from higher output in Norway
due to downtime in the third quarter of 1998 as a result of the
tie-in of Ekofisk II and the problems encountered following
conversion.
In August of this year, the company completed a 12-day scheduled
maintenance shutdown at Ekofisk II to eliminate production
bottlenecks in the gas processing facilities. The Ekofisk field
was also shut down on October 22, 1999, due to a small gas leak
in a gas cooler. Gas coolers have a large number of small pipes
through which gas is circulated and cooled by sea water.
Production resumed on October 28, after a six-day shutdown.
In the South China Sea, a scheduled two-month maintenance
shutdown for the Xijiang production platform and floating
production storage and offloading vessel was successfully
completed, and production resumed on October 12, 1999.
21
<PAGE>
Special items in the third quarter of 1999 consisted primarily of
a property impairment of the Renee field in the U.K. North Sea,
following the drilling of an unsuccessful development well.
Special items in the nine-month period of 1999 also included
charges to increase the decommissioning accruals for certain
North Sea fields, as well as deferred tax asset adjustments.
Special items in the third quarter and first nine months of 1998
primarily consisted of impairments of three fields in the U.K.
North Sea totaling $26 million after-tax.
GPM
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Millions of Dollars
--------------------------------------
Operating Income
Reported net income $39 13 63 44
Less special items - 2 (1) 2
- -----------------------------------------------------------------
Net operating income $39 11 64 42
=================================================================
Dollars Per Unit
--------------------------------------
Average Sales Prices
U.S. residue gas (per
thousand cubic feet) $ 2.51 1.90 2.08 2.02
U.S. natural gas liquids
(per barrel--
unfractionated) 14.95 8.36 11.45 9.30
- -----------------------------------------------------------------
Millions of Cubic Feet Daily
--------------------------------------
Operating Statistics
Natural gas purchases
Outside Phillips 1,351 1,281 1,274 1,318
Phillips 144 152 146 154
- -----------------------------------------------------------------
1,495 1,433 1,420 1,472
=================================================================
Raw gas throughput 1,786 1,829 1,746 1,879
- -----------------------------------------------------------------
Residue gas sales
Outside Phillips 962 930 926 951
Phillips 32 47 41 54
- -----------------------------------------------------------------
994 977 967 1,005
=================================================================
Thousands of Barrels Daily
--------------------------------------
Natural gas liquids net
production
From Phillips E&P
leasehold gas 15 15 15 15
From gas purchased
outside Phillips 145 143 138 145
- -----------------------------------------------------------------
160 158 153 160
=================================================================
22
<PAGE>
GPM's net operating income increased 255 percent in the third
quarter of 1999, and 52 percent in the nine-month period. The
improvement in both periods was primarily attributable to a
79 percent increase in natural gas liquids sales prices in the
third quarter of 1999, compared with the third quarter of 1998.
Natural gas liquids prices have benefited from the increase in
crude oil prices, as well as from an increase in the demand for
ethane, a feedstock for ethylene. Also contributing to the
improved results in both periods was higher miscellaneous
revenues--mainly from low-grade crude oil, for which prices have
increased as crude oil prices increased. Low-grade crude oil
separates from the raw natural gas stream as the gas is gathered
through pipelines. The nine-month period of 1999 also benefited
from lower operating expenses.
Both residue gas sales volumes and natural gas liquids production
were higher in the third quarter of 1999 than in the third quarter
last year or the second quarter of this year, reflecting improved
operating consistency and the impact of acquisitions. In
addition, natural gas liquids production benefited from increased
ethane extraction.
Special items in the nine-month 1999 period and the 1998 periods
consisted of work force reduction charges.
23
<PAGE>
RM&T
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Millions of Dollars
--------------------------------------
Operating Income
Reported net income $47 53 72 159
Less special items - - (6) 3
- -----------------------------------------------------------------
Net operating income $47 53 78 156
=================================================================
Dollars Per Gallon
--------------------------------------
Average Sales Prices
Automotive gasoline
Wholesale $.69 .49 .57 .51
Retail .82 .66 .71 .67
Distillates .60 .41 .48 .44
- -----------------------------------------------------------------
Thousands of Barrels Daily
--------------------------------------
Operating Statistics
U.S. refinery crude oil
Capacity 355 355 355 355
Crude runs 355 335 348 334
Capacity utilization
(percent) 100% 94 98 94
Natural gas liquids
fractionation
Capacity 252 252 252 252
Processed 210 177 214 211
Capacity utilization
(percent) 83% 70 85 84
Refinery and natural gas
liquids production 596 540 594 571
- -----------------------------------------------------------------
Petroleum products outside
sales
United States
Automotive gasoline
Wholesale 241 258 240 240
Retail 37 37 36 37
Spot 16 37 18 34
Aviation fuels 42 33 35 32
Distillates
Wholesale and
retail 101 120 106 106
Spot 30 30 28 30
Natural gas liquids
(fractionated) 130 129 125 124
Other products 40 26 38 28
- -----------------------------------------------------------------
637 670 626 631
Foreign 32 27 36 35
- -----------------------------------------------------------------
669 697 662 666
=================================================================
24
<PAGE>
RM&T's net operating income decreased 11 percent in the third
quarter of 1999 and 50 percent in the first nine months. The
decrease in the third quarter was primarily due to lower
wholesale and retail gasoline margins. Earnings from the
refining business in the third quarter of 1999 were about the
same as the third quarter of the prior year, while earnings were
improved in the natural gas liquids fractionation business.
In the first nine months of 1999, refining and marketing product
margins were lower than a year ago, as crude oil feedstock costs
increased 24 percent relative to the first nine months of 1998,
while gasoline and distillates prices increased only 12 percent
and 9 percent, respectively.
The company continued to operate its crude oil refineries at peak
performance in the third quarter of 1999. Crude oil throughput
for Phillips' three U.S. refineries averaged 355,000 barrels per
day, which was 100 percent of rated capacity, and the highest
quarterly throughput rate in the company's history.
Special items in the nine-month period of 1999 primarily
consisted of work force reduction charges and contingency
accruals. Special items in the first nine months of 1998
consisted of gains from the sales of certain non-strategic retail
service stations.
25
<PAGE>
Chemicals
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Millions of Dollars
--------------------------------------
Operating Income
Reported net income $50 24 120 142
Less special items* 8 2 19 (3)
- -----------------------------------------------------------------
Net operating income* $42 22 101 145
=================================================================
*1998 amounts restated to exclude foreign currency transaction
gains and losses from special items and include them in net
operating income.
Millions of Pounds
Except as Indicated
--------------------------------------
Operating Statistics
Production*
Ethylene 839 656 2,407 2,314
Polyethylene 632 563 1,952 1,713
Propylene 134 115 390 387
Polypropylene 97 112 346 344
Paraxylene 184 178 418 560
Cyclohexane (millions
of gallons) 56 40 157 138
- -----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.
The Chemicals segment's net operating income increased 91 percent
in the third quarter of 1999, primarily as a result of improved
ethylene margins, as well as higher olefins and polyolefins sales
volumes. These items were partially offset by lower polyethylene
margins. Net operating income decreased 30 percent in the nine-
month period of 1999, reflecting lower polyolefins margins.
The company's olefins and polyolefins facilities operated well in
the third quarter, with ethylene production 28 percent higher
than the corresponding quarter in the prior year and polyethylene
production 12 percent higher. Ethylene production in the third
quarter of 1998 was negatively impacted by a maintenance
turnaround and a temporary shutdown of the company's Sweeny,
Texas, petrochemical facility due to flooding caused by tropical
storms.
The company's K-Resin facility, located at the Houston Chemical
Complex (HCC), was damaged by a flash fire in June. Portions of
the damaged plant have been repaired and re-started. The new
K-Resin expansion is now on line as well. K-Resin production was
12 million pounds in the third quarter of 1999, compared with
50 million pounds in the third quarter of 1998. The company's
polyolefins facilities at HCC were not affected.
26
<PAGE>
Special items in the third quarter of 1999 represented deferred
tax adjustments. In addition, the nine-month period of 1999 also
included favorable contingency settlements. Special items in the
third quarter of 1998 represented a favorable excise tax
settlement. The 1998 nine-month period also included an
impairment taken on a plastics recycling facility that was closed.
Corporate and Other
Millions of Dollars
--------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Operating Results
Reported Corporate and
Other $ (67) (66) (214) (86)
Less special items* (2) (2) 8 84
- -----------------------------------------------------------------
Adjusted Corporate and
Other* $ (65) (64) (222) (170)
=================================================================
*1998 amounts restated to exclude foreign currency transaction
gains and losses from special items and include them in adjusted
corporate and other.
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $ (25) (22) (62) (59)
Net interest (49) (39) (144) (101)
Preferred dividend
requirements (10) (10) (31) (31)
Other 19 7 15 21
- -----------------------------------------------------------------
Adjusted Corporate and
Other $ (65) (64) (222) (170)
=================================================================
Corporate general and administrative expenses increased
$3 million in both the third quarter and first nine months of
1999. The increase in both periods was attributable to higher
benefit-related costs and higher depreciation expense on the
company's new computing systems, partially offset by lower Year-
2000 costs.
Net interest represents interest income and expense, net of
capitalized interest. Net interest costs increased 26 percent in
the third quarter and 43 percent in the first nine months of
1999, primarily as a result of higher average debt balances. The
increase in interest on debt in the third quarter was partially
offset by higher capitalized interest.
27
<PAGE>
Preferred dividend requirements represent dividends on the
preferred securities of the Phillips 66 Capital Trusts I and II.
Other consists primarily of the company's captive insurance
subsidiary, certain foreign currency transaction gains and
losses, and income tax and other items that are not directly
associated with the operating segments on a stand-alone basis.
Other was improved in the third quarter of 1999, relative to a
year ago, primarily due to higher foreign currency gains in the
1999 period, as well as lower income tax-related items. Other
was lower in the nine-month period of 1999, mainly the result of
foreign currency losses in 1999, compared with gains in 1998,
partially offset by lower income tax-related items.
Special items in the third quarter of 1999 consisted of a
contingency item. In addition, the nine-month period included
deferred tax adjustments, insurance claims and a $24 million
favorable resolution of prior years' U.S. income tax issues.
Special items in the third quarter of 1998 primarily consisted of
insurance claims for property damage caused by tropical storms.
The nine-month period of 1998 also included insurance recoveries
related to a comprehensive environmental cost recovery project,
as well as favorable contingency-related settlements or accrual
reversals.
28
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
---------------------------------------
At At At
September 30 December 31 September 30
1999 1998 1998
---------------------------------------
Current ratio 1.1 1.1 1.0
Total debt $4,489 4,273 3,619
Company-obligated
mandatorily redeemable
preferred securities $ 650 650 650
Common stockholders'
equity $4,385 4,219 4,639
Percent of total debt to
capital* 47% 47 41
Percent of floating-rate
debt to total debt 30% 37 25
- -----------------------------------------------------------------
*Capital includes total debt, company-obligated mandatorily
redeemable preferred securities and common stockholders' equity.
The company has agreements with a bank-sponsored entity for the
revolving sale of credit card and trade receivables. During
September 1999, the supporting liquidity facility agreements were
extended until March 2000, the expiration date of the receivables
purchase agreements. At September 30, 1999, $200 million was
outstanding. Since October 6, 1999, the maximum aggregate amount
of receivables that can be sold and outstanding under these
agreements is limited to $182 million.
Cash from operations in the first nine months of 1999 decreased
$281 million from the same period in 1998. However, excluding
the $109 million favorable cash impact of settlements pursuant to
a comprehensive environmental cost recovery project in 1998, cash
from operations decreased $172 million. Contributing to this
decrease was a $54 million reduction in net operating income and
a $182 million decrease in cash provided by the sale of accounts
receivable under the company's receivables monetization program.
This resulted because $200 million of receivables were sold
during the first nine months of 1998, compared with only
$18 million during the same period in 1999. Partially offsetting
these items was a $120 million cash refund from the Internal
Revenue Service (IRS) received in the second quarter of 1999.
This cash refund resulted from agreements reached with the IRS on
the Kenai liquefied natural gas issues in December 1998 and
certain other tax issues in first quarter 1999.
29
<PAGE>
In March 1999, the company issued $300 million of 6 3/8% Notes
due 2009, and $200 million of 7% Debentures due 2029, in the
public market. After the issuance of these securities,
$200 million of securities remained available under the company's
shelf registration previously filed with the U.S. Securities and
Exchange Commission (SEC). During the second quarter of 1999, the
company filed a universal shelf registration statement with the
SEC for an additional $800 million of various types of debt and
equity securities, and securities convertible into either. This
registration statement became effective October 1, 1999.
Securities to be issued under this universal shelf registration
statement can be combined by prospectus with the $200 million of
securities that remained under the earlier shelf registration.
As a result, the company has available, to issue and sell, a
total of $1 billion of the various types of securities offered
under the universal shelf registration statement.
During the first nine months of 1999, cash increased $83 million.
Cash was provided by operating activities, the previously
mentioned issuance of notes and debentures, and asset
dispositions of $175 million. Cash was used to fund the
company's capital expenditures program, pay dividends, and repay
debt. During the nine-month period, cash borrowings exceeded
cash repayments of debt by $190 million.
At September 30, 1999, there was no revolving debt outstanding
under the company's $1.5 billion revolving credit facility, but
$594 million of commercial paper was outstanding, which is
supported 100 percent by the credit facility. The company's
wholly owned subsidiary, Phillips Petroleum Company Norway, has
$600 million available under two revolving credit facilities. At
September 30, 1999, $330 million was outstanding under the
facilities.
During second quarter 1999, Phillips increased the total
available under master leasing arrangements, under which it
leases and supervises construction of retail marketing outlets,
by $25 million, to a total of $125 million. During third quarter
1999, the company entered into a new $100 million master leasing
arrangement, of which $25 million will replace the $25 million
secured in the second quarter. At September 30, 1999,
approximately $111 million had been financed under these
arrangements. In addition, the company had another $45 million
leasing arrangement to provide for the leasing of approximately
600 new covered hopper railcars. At September 30, 1999, about
$39 million had been financed under this arrangement. All the
railcars have been received and on October 18, 1999, the
$45 million railcar lease facility was refinanced under a new
leveraged lease facility.
30
<PAGE>
In late 1998, as part of general cost cutting programs, the
company identified 1,325 positions to be eliminated, primarily in
the company's E&P segment and corporate staffs, which resulted in
a $91 million before-tax charge ($61 million after-tax) in 1998.
In addition, 93 unfilled positions were eliminated during 1998.
The total liability for severance benefits at December 31, 1998,
was $123 million, a portion of which was expected to be
reimbursed by co-venturers under applicable agreements and
therefore that portion was reflected as a receivable. During the
first nine months of 1999, the company identified an additional
150 positions to be eliminated, primarily in the company's GPM,
RM&T and Chemicals segments, which resulted in additional before-
tax severance charges of $11 million ($7 million after-tax).
Also, during the first nine months of 1999, the company paid
severance benefits of $70 million, resulting in a remaining
liability for severance benefits of approximately $64 million at
September 30, 1999. As of that date, 1,098 notices of
termination had been given. The balance, relating primarily to
operations in the North Sea, is expected to be essentially
complete by year-end. Severance benefit payments will continue
through 1999 and into 2000.
The company and its co-venturer in the Kenai liquefied natural
gas plant lease two tankers that are used to transport liquefied
natural gas from Kenai, Alaska, to Japan. In June 1999, a
purchase option held by the company and its co-venturer was
allowed to become a binding commitment. The purchase date for
the first tanker is June 2000, and December 2000 for the second.
In the event that the company and its co-venturer do not modify
the existing lease arrangements or enter into new lease
arrangements, the purchase option would be exercised and
Phillips' 70 percent interest in the aggregate purchase price for
both tankers would be approximately $240 million. Phillips
anticipates entering into a new leasing arrangement for these
tankers prior to the mandatory purchase dates.
During second quarter, Phillips closed the sale of its 50 percent
interest in the Breton Sound field, offshore Louisiana. This
sale resulted in an after-tax financial gain of $17 million. In
August 1999, the company signed a purchase and sale agreement to
sell its interests in 42 leases in 22 Gulf of Mexico fields.
Closing of the transaction occurred in September, and the sale of
various properties where preferential purchase rights were
exercised will occur in the fourth quarter. Phillips has decided
to cancel the planned sales of its other oil and gas interests in
the Gulf of Mexico and South Louisiana. During first quarter,
Phillips closed the sale of its oil and gas interests in central
Oklahoma, which resulted in an after-tax financial gain of
$33 million.
31
<PAGE>
To meet its liquidity requirements, including funding its capital
program, the company will look primarily to existing cash
balances, cash generated from operations, financing and sales of
assets.
Capital Expenditures and Investments
Millions of Dollars
--------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
Estimated ------------------ -----------------
1999 1999 1998 1999 1998
--------- ------------------ -----------------
E&P $1,253 222 573 875 1,114
GPM 110 26 22 90 51
RM&T 352 91 49 279 154
Chemicals 179 18 66 72 188
Corporate
and Other 64 9 22 35 67
- -----------------------------------------------------------------
$1,958 366 732 1,351 1,574
=================================================================
United States $1,020 227 226 720 685
Foreign 938 139 506 631 889
- -----------------------------------------------------------------
$1,958 366 732 1,351 1,574
=================================================================
In the second quarter of 1999, the company increased its 1999
capital budget a second time, raising it to $2 billion from the
original 1999 capital budget of $1.465 billion. Of this $2 billion,
approximately $1.958 billion has been allocated. The E&P capital
spending program received the largest increase--from $800 million
to $1.253 billion. The increase was applied to the acquisition
of an additional interest in the Bayu-Undan unitized gas/gas
condensate field in the Timor Sea's Zone of Cooperation (ZOCA),
the acquisition of interests in exploration and production assets
in North Louisiana, appraisal wells in block 11/05 of China's
Bohai Bay, and the acquisition of a 50 percent working interest
in coalbed methane acreage located in Wyoming's Powder River
Basin.
In April 1999, Phillips acquired The Broken Hill Proprietary
Company Limited's (BHP) 23.4 percent interest in the previously
mentioned Bayu-Undan field in the ZOCA with the acquisition of
BHP's 42.42 percent interest in ZOCA block 91-12 (Undan). Along
with Phillips' 60 percent interest in the adjacent ZOCA block
91-13 (Bayu), the acquisition brought Phillips' total interest in
the unitized Bayu-Undan field to 50.3 percent, and Phillips
became operator of the unitized field. The company also acquired
BHP's interests in three producing oil fields--Elang, Kakatua and
Kakatua North--as well as permits for static gas resources in
other properties in ZOCA and Australian Commonwealth waters.
32
<PAGE>
Phillips expects to book approximately 80 million barrels of oil,
condensate and natural gas liquids in 1999 as a result of this
acquisition.
Phillips and its co-venturers plan to proceed with development of
the Bayu-Undan field. Under terms of an operating agreement, the
majority of the co-venturers have approved the $1.4 billion gas
recycle development phase of the project. Final approval from
the Joint Authority is expected during fourth quarter. Based on
final governmental sanctioning by year-end, it is anticipated
that this project will begin production by late 2003 or early
2004. The Timor Gap Zone of Cooperation is in transition as a
result of East Timor's recent vote for independence from Indonesia,
and Indonesia's recent vote to proceed with de-annexation.
Phillips plans to monitor the legal, fiscal, and administrative
arrangements under the Timor Gap Treaty associated with East Timor's
independence and proceed with development in a manner warranted
by these arrangements.
During second quarter 1999, the company closed on an exploration
and development agreement with Contour Energy Company (Contour),
formerly Kelley Oil & Gas Corporation, relating to its interests
in the West Bryceland and Sailes fields in North Louisiana.
Under the agreement, Phillips will operate, develop, exploit and
explore the assets. Contour will retain an eight-year volumetric
overriding royalty interest totaling approximately 42 billion
cubic feet of gas. The agreement added approximately 130 billion
cubic feet of gas equivalent to the company's reserves at
closing, with additional reserves expected in future years as the
fields are developed.
In November 1999, production began from the Chinook development,
located 60 miles offshore Louisiana in about 300 feet of water.
Initial gross production rates from the first three wells are
approximately 14,000 barrels of oil per day and 30 million cubic
feet of gas per day. Phillips has a 33 percent interest in
Chinook.
Also in November 1999, Phillips announced it had drilled and
tested a fourth successful well on a large anticline in
block 11/05 of China's Bohai Bay. This follows discovery and
appraisal wells announced in third quarter 1999. This latest
appraisal well was drilled in a previously untested fault block
on the western flank of the field, nearly two miles from the
earlier discovery. The field is estimated to contain more than
400 million barrels of potentially recoverable oil and gas.
Joint commercialization studies with China National Offshore Oil
Corporation (CNOOC) have begun. Phillips now has a 100 percent
undivided working interest in the block, after acquiring Atlantic
Richfield Company's (ARCO) 40 percent interest during the second
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quarter of 1999, but CNOOC has the right to acquire up to a
51 percent interest in any development in the block. Immediate
plans are to drill three additional appraisal wells to delineate
the production area of the southern portion of this feature.
During the third quarter, Phillips acquired a 50 percent interest
in Yates Petroleum Corporation's (Yates) coalbed methane acreage
position in Wyoming's Powder River Basin. The agreement
establishes a joint development partnership between the two
companies covering 340,000 gross acres. There are 90 existing
coalbed methane wells awaiting development. The companies could
drill as many as 2,000 shallow wells during the next 10 to
20 years depending upon the extent and characteristics of the
coalbed methane deposits. Yates will serve as operator for the
project.
The construction of new Ekofisk offshore living quarters has been
delayed indefinitely. Phillips and its co-venturers have
postponed the project as the seabed subsidence rate has dropped
sharply. If the current subsidence rate forecasts prove correct,
the replacement would not be required until 2009. Recent studies
strongly suggest that reservoir repressuring is the cause of the
sharp drop in the subsidence rate. Although reservoir
repressuring was accelerated by the temporary reduction in the
production rate during the conversion to Ekofisk II,
repressuring of the reservoir is a long-term consequence of the
current production and water injection strategy.
The cessation plan for redundant Ekofisk facilities and shut-in
outlying fields was completed and submitted to the Norwegian
government in October 1999. The plan outlines the long-term
cessation plans for 15 structures in the Greater Ekofisk area
that are currently shutdown, or that will be shut down over the
next decade. Under this plan, the platforms will be removed
between 2003 and 2018 at an estimated cost of $1.14 billion. Due
to the tax structure in Norway, it is anticipated that the
Norwegian state will fund more than two-thirds of this cost, with
the remainder funded by Phillips and its co-venturers. The
Norwegian government will review this plan and associated
assessment documents, and formulate its own recommendations. A
final decision is expected in the second half of 2001. Phillips
has a 35.11 percent interest in Ekofisk.
Work is proceeding according to schedule on the Eldfisk water
injection project. This is the largest development project in
E&P's 1999 capital budget and is comprised of a new platform and
pipelines, as well as modifications to existing platforms, in
order to accomplish waterflood, gas injection and gas lift. The
new water-injection platform, controlled from an existing manned
Eldfisk platform, is scheduled to begin water injection during
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the fourth quarter of 1999. Previously, water injection had been
obtained from a leased facility. The remaining modifications to
the existing platforms are expected to be completed in the first
quarter of 2000.
In July 1999, Phillips exchanged its 18 percent interest in the
LL-652 oil field in Lake Maracaibo, Venezuela, for two-thirds of
Atlantic Richfield Company's (ARCO) 30 percent working interest
in the Hamaca heavy oil project. Under the exchange, the LL-652
interest is subject to preferential rights to purchase by the
co-venturers, who continue to evaluate their option to exercise
these rights. The exchange increased Phillips' share in the
Hamaca project from 20 percent to 40 percent. The LL-652 field
interest, which Phillips exchanged with ARCO, is a redevelopment
and secondary recovery project in Lake Maracaibo that was
acquired in the Venezuela third bid round.
On June 30, 1999, Phillips and its co-venturers, including a
subsidiary of Venezuela's state oil company, approved a project
to develop the heavy oil reserves from the Hamaca region in
Venezuela's Orinoco Oil Belt. Construction of an upgrader,
pipelines and associated production facilities is expected to
begin in the second quarter of 2000. During the construction
phase, anticipated gross production is 30,000 barrels per day of
heavy oil. The upgrader is expected to begin producing 26-degree
API gravity oil in 2004 at the rate of 165,000 barrels per day.
Phillips and its co-venturers are discussing whether to transfer
their working interests in the Hamaca project to a newly formed,
jointly owned entity, which would place the project debt in the
financial markets, and for which Phillips would use equity method
accounting. The additional working interest in, and approval of,
the Hamaca Project will result in Phillips' reporting
approximately 700 million additional barrels-of-oil-equivalent in
1999, increasing Phillips' total worldwide reserves by
32 percent, to nearly 3 billion barrels-of-oil-equivalent.
Two other projects were acquired in the Venezuela third bid
round, La Vela and Ambrosio. Phillips holds a 31.5 percent
interest in, and is operator of, the La Vela block offshore
northwest Venezuela where two exploratory wells have been
drilled. The investment in both wells was written off to dry
hole expense in the second quarter. Additional exploration
prospects in the Northern area of the block are being evaluated.
Ambrosio, in which Phillips holds a 90 percent interest, is a
redevelopment project operated by the company in Lake Maracaibo.
Drilling of the first major development well was completed, and
the well is currently producing approximately 1,600 net barrels
of oil per day under choke for further testing. Drilling of the
second major development well is expected to be completed during
fourth quarter 1999.
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In the second quarter of 1999, Phillips signed an exploration and
production sharing agreement with the state of Oman, covering
4.23 million acres in southwest Oman. Phillips has a 100 percent
working interest in the block and plans geological and
geophysical studies in the first exploration phase (three years).
Block 38 is the second concession in Oman for Phillips and is
contiguous to block 36, where Phillips plans to drill a well in
2000.
In late 1998, Phillips acquired a 7.1 percent interest in an
exploration project in the Kazakhstan sector of the Caspian Sea
where drilling on the first well began in August 1999.
GPM's 1999 capital budget was increased from $90 million to
$110 million, due to acquisitions. During the first nine months
of 1999, GPM acquired gathering systems in the Austin Chalk area
of south-central Texas and in Oklahoma, and purchased a
co-venturer's interest in a plant and gathering system in New
Mexico. These acquisitions added about 74 million cubic feet of
gas per day to GPM's total raw gas throughput, in addition to
providing opportunities to improve operating efficiencies.
RM&T continues its retail-marketing rationalization and
expansion, and now plans to have about 350 company-operated
retail outlets in the United States by 2005--a 30 percent
reduction from the previous plan of 500 outlets. During the
first nine months of 1999, RM&T opened 10 new outlets. In
addition, 13 outlets were razed and rebuilt. Since the expansion
program began in 1996, the company has acquired 42 retail
outlets, opened 55 new ones, and razed and rebuilt 37 others.
Both new outlets and those that are razed and rebuilt utilize the
Kicks 66 convenience store design. During the first nine months
of 1999, the company also sold three units, bringing the total to
79 retail units in non-strategic areas sold since the program
began.
Construction of a new 55-mile natural gas liquids pipeline from
Wichita, Kansas, to Conway, Kansas, was completed during the
second quarter. The new pipeline began carrying product in May
1999, and will allow RM&T to better serve its customers by
providing better access to propane and butane bulk storage in the
Midwest. Also, an expansion of the El Paso terminal and pipeline
system was completed during the second quarter and started up in
August 1999. A 25-percent interest in this terminal and system
was purchased from Ultramar Diamond Shamrock during 1998.
Phillips' participation in the expansion increased the company's
interest to 33 percent.
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During second quarter 1999, Phillips and its co-venturer in the
Seaway Pipeline Company (Seaway) announced plans to increase the
capacity of its 30-inch crude oil pipeline by approximately
110,000 barrels per day, with completion expected by
January 2000. Seaway also announced it signed new connection
agreements with Exxon Pipeline Company. These agreements are
expected to permit the delivery of crude oil, originating in the
western Gulf of Mexico, to two Seaway crude oil transportation
systems. Start-up of expanded operations is expected in second
quarter 2000.
Phillips and the Venezuelan state oil company, Petroleos de
Venezuela S.A., each hold a 50 percent interest in a limited
partnership building a 58,000 barrels-per-day delayed coker and
related facilities at Phillips' Sweeny Complex. The total
construction cost of the project, including the coker and related
facilities, is estimated at $538 million. In June 1999, the
limited partnership issued $350 million of 8.85% Bonds due 2019,
the proceeds of which will be used to fund the project.
Remaining expenditures will be funded through bank financing and
equity contributions.
In May 1999, Phillips announced the completion of a 100-million-
pounds-per-year expansion of its K-Resin copolymer plant at the
company's Houston Chemical Complex, increasing capacity to
370 million pounds per year. In June 1999, a spare reactor at
the existing K-Resin plant experienced a flash fire, resulting in
two contractor-employee fatalities. Damage to the K-Resin plant
is currently estimated at $15 million; however, there was no
damage to Phillips' polyethylene or polypropylene facilities. On
August 13, 1999, the company notified its K-Resin customers that
it was declaring force majeure, and would have to delay or cancel
certain existing orders of K-Resin. The K-Resin business
continues to operate under force majeure. It is anticipated that
force majeure will be lifted during the fourth quarter of 1999.
Year 2000 Update
General
Phillips' companywide Year 2000 Project (Project) is
substantially complete. The Project addresses 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 upstream operations, Oracle Corporation (Oracle). The
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new systems, which have made approximately 70 percent of the
company's business computer systems Year 2000 compliant, have
been completed on schedule. Remaining business software programs
were remediated or replaced as a part of the company's Year 2000
Project, and are substantially complete. None of the company's
other information technology (IT) projects have been delayed due
to the implementation of the Year 2000 Project.
"Year 2000 compliant," as used in this discussion, means that a
date-handling problem relating to the Year 2000 date change that
would cause computers, software or other equipment to fail to
correctly perform, process and handle date-related data is not
expected to interfere with normal business operations.
Project
The Project is divided into four major sections--Infrastructure,
Applications Software (Infrastructure and Applications Software
are collectively referred to as "IT Systems"), third-party
suppliers and customers (External Agents), and process control
and instrumentation (PC&I). The four sections are coordinated
companywide by a Program Management Office (PMO), which is
comprised of a cross-functional team and includes a business
continuity/contingency manager. PMO representatives meet
regularly with executive management, and periodically advise the
Audit Committee and the Board of Directors on the status of the
Project.
The company has engaged various third parties to assist in the
completion of certain phases of the Project. The 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.
The inventory, prioritization and assessment phases of each
section of the Project have been completed. The remediation,
testing and business continuity planning phases are substantially
complete. 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 net income
or cash flows. The testing phases of the Project were performed
by the company.
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The company estimates that 99.8 percent of scheduled Project
activities were complete at September 30, 1999. The following
table shows the estimated percentage of completed scheduled
activities at September 30, 1999:
Percent
Completed
---------
Sections
SAP/Oracle 100.0%
Infrastructure 99.7
Applications software 99.8
(Third-party remediation 100.0%)
(In-house remediation 99.8%)
(Vendor upgrades/replacements 99.5%)
PC&I 99.5
External agents 99.4
(Tier 1 assessment 100.0%)
(Tier 2 assessment 100.0%)
(Tier 1 contingency planning 100.0%)
(Tier 1 reassessment 100.0%)
(Tier 2 reassessment 100.0%)
(Tier 2 contingency planning 100.0%)
(Third-round Tier 1 reassessment 100.0%)
(Final follow-up --
scheduled for fourth quarter 1999)
Business continuity planning 100.0
Total Year 2000 effort (weighted calculation) 99.8
- ----------------------------------------------------------------
Substantially all scheduled Year 2000 activities for the
Infrastructure, Applications Software and PC&I sections were
completed by September 30, 1999. The remaining activities in
those sections are expected to be completed in the last quarter
of 1999 because of scheduled facility turnarounds and vendor
scheduling. The company will continue to monitor new releases and
updates of vendor-supplied software, and will apply new releases
as necessary for Year 2000 compliance. However, as part of
Phillips' Year 2000 business continuity plans, the company does
not intend to make any material changes to its equipment,
software or hardware during December 1999 to minimize the
likelihood of introducing new Year 2000 issues.
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IT Systems
The Infrastructure section consists of hardware and systems
software other than Applications Software. This section is
substantially complete. The company estimates that approximately
99.7 percent of the planned activities related to the section had
been completed at September 30, 1999. The testing phase was
completed as hardware or system software was remediated, upgraded
or replaced. Contingency planning for this section was completed
in June 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.
This section is substantially complete. The company estimates
that the software conversion portion was 99.9 percent complete at
September 30, 1999. The vendor software replacements and
upgrades were approximately 99.5 percent complete at
September 30, 1999. The company estimates that, overall,
99.8 percent of the planned activities of the Applications
Software section were complete at September 30, 1999. Testing
was conducted as software was repaired or replaced. Contingency
planning for this section began in third quarter 1998 and was
completed in June 1999.
PC&I
The PC&I section of the Project includes the hardware, software
and associated embedded computer chips that are used in the
operation of all facilities operated by the company. This
section is substantially complete. The company estimates that
the repair and testing of PC&I equipment was approximately
99.5 percent complete at September 30, 1999. Contingency
planning for this section began in third quarter 1998 and was
completed by June 30, 1999.
External Agents
The External Agents section includes the process of identifying
and prioritizing critical suppliers, customers and partners, by
direct contact if possible, and communicating with them about
their plans and progress in addressing the Year 2000 problem.
Initial detailed evaluations of approximately 1,700 third parties
have been completed, with an estimated 650 of those classified as
most critical to the company. These evaluations were followed by
the development of preliminary contingency plans where results of
the initial assessment indicated that such plans might be
necessary. Contingency planning for this section was completed
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by June 30, 1999. The company estimates that this section was on
schedule and 99.4 percent of its scheduled activities were
complete at September 30, 1999. The process of evaluating these
external agents began in the third quarter of 1998 and two rounds
of evaluation were completed by June 30, 1999. A third round of
evaluation of the most critical external agents was completed by
September 30, 1999. The company plans to continuously monitor
critical external agents by conducting follow-up reviews of those
critical external agents on a schedule that extends to year-end
1999.
Business Continuity/Contingency Planning
The company has business continuity and disaster recovery plans
in place that cover its worldwide operations. Specific Year 2000
contingency planning is substantially complete for each section
of the Project. In addition, the company has incorporated
specific Year 2000 contingency planning into its existing
business continuity and disaster recovery plans and the planning
process is substantially complete as of September 30, 1999.
Follow-up reviews took place in the third quarter, and will
continue through year-end.
The company currently believes that the most reasonably likely
worst-case scenario is that there will be some Year 2000
disruptions at individual locations that could affect individual
business processes, facilities or third parties for a short time.
The company does not expect such disruptions to be long-term, or
for the disruptions to affect the operations of the company as a
whole. Because of the uncertainty as to the exact nature or
location of potential Year 2000-related problems that might
arise, the business continuity/contingency planning will focus on
development of flexible plans to minimize the scope and duration
of any Year 2000 disruptions that might occur. The company
expects to have personnel and resources available to deal with
any Year 2000 problems that occur. Some of the contingency
actions under consideration include designating emergency
response teams, stockpiling inventories, increasing staffing at
critical times, arranging for alternative suppliers of critical
products and services, and developing manual workarounds.
Costs
The company's latest estimate of total cost of the Year 2000
Project is expected to not exceed $39 million. This estimate
includes Phillips' estimated share of Year 2000 repair and
replacement costs that may be incurred by partnerships and joint
ventures in which the company participates but is not the
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operator, but does not include any estimates of liability for
non-compliance. The costs of implementing the SAP and Oracle
business replacement systems are not included in these cost
estimates. The following table shows the approximate amounts
expended by various sections of the Project through September 30,
1999:
Millions
of Dollars
----------
Sections
IT systems (includes program management costs) $23
PC&I 10
External agents (includes continuity/contingency
planning costs) 3
Third-party-operated facilities 1
- -----------------------------------------------------------------
Total $37
=================================================================
The company estimates that the future cost of completing the
Year 2000 Project is approximately $2 million, most of which will
be for operations for which Phillips is not the operator. 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
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 the completion of the Project as scheduled, the
possibility of significant interruptions of normal operations
should be reduced.
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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 it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
Environmental
Most aspects of the businesses in which the company engages are
subject to various federal, state, local and foreign
environmental laws and regulations. Similar to other companies
in the petroleum and chemical industries, the company incurs
costs for preventive and corrective actions at facilities and
waste disposal sites.
Phillips may be obligated to take remedial action as the result
of the enactment of laws, such as the federal Superfund law, the
issuance of new regulations, or as a result of leaks and spills.
In addition, an obligation may arise when a facility is closed or
sold. Most of the expenditures to fulfill these obligations
relate to facilities and sites where past operations followed
practices and procedures that were considered appropriate under
regulations, if any, existing at the time, but may now require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.
At year-end 1998, Phillips reported 45 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Since then, 16 sites have
been resolved and three new sites were added. Of the 32 sites
remaining, the company believes it has a legal defense or its
records indicate no involvement for six sites. At four sites,
present information indicates that it is probable that the
company's exposure is less than $100,000 per site. At eight
sites, Phillips has had no communication or activity with
government agencies or other PRPs in more than two years. Of the
14 remaining sites, the company has provided for any probable
costs that can be reasonably estimated.
Phillips does not consider the number of sites at which it has
been designated 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
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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 September 30, 1999, $5 million had been accrued for the
company's unresolved PRP sites. In addition, the company has
accrued $57 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 $3 million for
other environmental contingent liabilities, for total
environmental accruals of $65 million.
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.
OUTLOOK
During third quarter, Phillips' Management announced a change in
strategy for the future. In a time of industry megamergers and
intense competition, and in recognition that a $2 billion annual
capital program is not sufficient to adequately fund growth plans
for all four Phillips business lines, Management concluded that a
new plan was needed. The new plan calls for accelerated growth
in E&P--significantly increasing its size through a balanced plan
of exploration, exploitation, redevelopment, new ventures and
acquisitions--with a goal of developing or acquiring legacy
assets in targeted areas. For GPM, a possible sale or joint
venture is planned. Joint venture opportunities will be sought
for Chemicals and RM&T, although an RM&T transaction will most
likely be deferred until major project upgrades have been
completed at the Sweeny refinery. Phillips has no intention of
exiting the Chemicals and RM&T businesses but is seeking a way to
participate differently in larger, more competitive operations.
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A late-March 1999 agreement by major exporting countries to
reduce production volumes, along with reported continuing
adherence to these production levels, has caused industry crude
oil prices to increase to their highest levels since late 1997.
If production restraint continues, markets have the potential to
tighten further. Natural gas liquids' prices should somewhat
follow the crude oil price changes, while natural gas prices will
be influenced by supply deliverability, anticipated normal winter
weather and economic growth. Weather remains the strongest
factor in determining realized gas prices in the near term.
In the United Kingdom, consent to the cessation of production
from the Maureen platform was received from the Department of
Trade and Industry in October 1999. The current financial
provision for decommissioning is expected to be sufficient to
cover the cost of the removal and onshore scrapping of the
platform. As an alternative to scrapping, efforts continue to
find a re-use opportunity for the platform and commercial
discussions are taking place with more than one party.
In the fourth quarter of 1999, Phillips Norway identified
approximately 160 onshore positions to be eliminated before the
end of 1999, primarily in operations support and staff functions.
These reductions are in addition to the previously discussed
reductions resulting from companywide general cost cutting
programs. The company is also studying the feasibility of
consolidating its Scandinavian and European divisions to improve
work efficiencies. This could result in further staff
reductions. The consolidation study is expected to be concluded
by year-end.
In October 1999, Phillips announced plans to build a semi-
commercial facility at its Borger, Texas, refinery to demonstrate
the benefits of its S Zorb sulfur-removal process. This is a new
technology that significantly lowers sulfur content in gasoline
and promotes cleaner air while limiting manufacturing cost
increases. Test results show this technology can make gasoline
that more than meets proposed regulations for reduced sulfur
content and, unlike conventional technologies, has little octane
loss and very low volume loss. Construction of the
6,000 barrels-per-day unit is expected to begin in the first
quarter of 2000, with start-up scheduled early in 2001.
On August 27, 1999, Phillips and its co-venturer signed a
$750 million financing agreement for the construction of a major
petrochemical complex in Qatar. At September 30, 1999,
$45 million had been drawn under this agreement. Site
preparation has begun and construction is expected to begin
during first quarter 2000, with commercial production from the
complex expected in mid-2002. Phillips' ownership share is
49 percent.
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Phillips and Solvay Polymers, Inc. (Solvay), a wholly owned
subsidiary of the Solvay Group of Brussels, Belgium, have agreed
to build and operate a high-density polyethylene plant. Subject
to approval by the companies' boards of directors, a definitive
agreement is expected by year-end. Phillips and Solvay each
would own 50 percent of the 700 million-pounds-per-year facility,
and would each independently market its share of production. The
facility, expected to be operational in 2002, is expected to be
built on one of the two companies' existing U.S. manufacturing
sites. The majority of the ethylene for the facility is expected
to be provided by Phillips from its Sweeny, Texas, Complex.
Phillips operates in three countries where cutbacks in production
were announced in 1998. The Norwegian Ministry of Petroleum and
Energy has increased the production curtailment measures for oil
production on the Norwegian continental shelf, and has extended
the curtailment to year-end 1999. It will amount to a
6.8 percent reduction, based on updated production forecasts
given to the Ministry. The Nigerian government dictated quota
reductions totaling 19.5 percent, effective April 1, 1999, which
are expected to continue throughout 1999. These affect leases
operated on behalf of the company under the joint operating
agreement with Nigerian Agip Oil Company. Venezuela, an OPEC
member, has agreed to cut back oil production, but Phillips and
other third-bid-round-property operators have not been asked to
curtail production. Based on the above, 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 in 1999.
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
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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 implement Management's announced strategy for its
four business segments are subject to: finding a buyer for
GPM or a joint venturer, and joint venturers for Chemicals
and RM&T; the negotiation and execution of satisfactory
agreements; receipt of any approvals that may be required
from state and federal government agencies; approvals by the
boards of directors of the entities involved; the
identification and acquisition by E&P of commercial
quantities of oil, natural gas and/or condensate reserves
through discovery and/or through purchase or joint venture.
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; obtain economical and timely financing;
(2) geological, land, or sea 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 availability
of transportation in the form of pipelines, railcars, trucks
or ships.
47
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o The ability to meet liquidity requirements, including the
funding of the company's capital program from borrowings,
asset sales and operations, is subject to the negotiation
and execution of certain project financings and other
financing documents; the identification of buyers and the
negotiation and execution of instruments of sale; and
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 risks posed by the inability of computer systems,
possibly including Phillips' and those of Phillips'
customers, suppliers and partners, to recognize the change
of the date to the Year 2000 could adversely affect the
company's business in a number of significant ways. The
company relies on information technology supplied by third
parties, and customers, suppliers and partners are also
dependent upon their own internally developed information
technology and third-party systems. Year 2000 problems
affecting either the company's systems or those of its
customers, suppliers and partners could materially adversely
affect the company's business. While the company has
evaluated its information technology, consulted with its
customers, suppliers and partners to ascertain their Year
2000 status, and developed extensive contingency and
business continuity plans, it is not possible to guarantee
that Phillips' systems will be Year 2000 compliant or that
the systems of strategic customers, suppliers and partners
will be Year 2000 compliant. 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.
48
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PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
On June 21, 1999, W. W. Allen announced his plans to retire as
Chief Executive Officer of the company, effective June 30, 1999.
J. J. Mulva was elected Vice Chairman and Chief Executive
Officer, effective July 1, 1999. Mr. Allen retired as an
employee and as Chairman of the company on October 13, 1999, at
which time, Mr. Mulva became Chairman of the Board and Chief
Executive Officer.
Effective at the close of business September 13, 1999,
C. L. Bowerman resigned as Executive Vice President of the
company and as a member of Phillips' Board of Directors.
Effective December 1, 1999, he will retire. Mr. Bowerman has not
been replaced.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
3(ii) Bylaws of Phillips Petroleum Company, as amended effective
September 13, 1999.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
Reports on Form 8-K
- -------------------
During the three months ended September 30, 1999, the company
filed one report on Form 8-K. The Form 8-K was filed July 12,
1999. An Item 5 was reported, disclosing the company's adoption
of a new preferred share purchase rights plan to replace,
effective as of August 1, 1999, the company's existing preferred
share purchase rights plan, which expired at the close of
business on July 31, 1999.
49
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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)
November 11, 1999
50
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Exhibit 3(ii)
BYLAWS
PHILLIPS PETROLEUM COMPANY
(INCORPORATED UNDER THE LAWS OF DELAWARE)
SEPTEMBER 13, 1999
<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
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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
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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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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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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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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 nine
nor more than twenty-one members, with the exact number to be
fixed from time to time by resolution of the Board. A majority
of the total number of directors elected shall be persons who are
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<PAGE>
independent outside directors, as defined in this Section. The
persons receiving votes of a majority of the stock represented at
the meeting shall be directors for the ensuing year or until
their successors shall be elected.
As used in these Bylaws, the term "independent outside
directors" means any person who, on the date of his election,
(i) is not an officer or employee of this company; (ii) is not an
officer or employee of, or does not own directly or indirectly in
excess of 1% of the shares of, a corporation (A) which has
received payments from this company for property or services in
excess of 1% of its gross receipts during any one of the four
calendar years immediately preceding such date, as determined by
its financial statement for the year in question, or (B) which is
proposed to receive during the following year such payments in
excess of 1% of its gross receipts as determined by its financial
statement for the immediately preceding year; (iii) is not a
member, officer, or employee of any business or professional
organization (other than a corporation) which (A) has received
payments from this company for property or services in excess of
$500,000 during any one of the four calendar years immediately
preceding such date, or (B) is proposed to receive such payments
in excess of $500,000 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
$50,000 (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 $50,000 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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<PAGE>
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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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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(b) The Compensation Committee shall consider and make
recommendations to the Board of Directors with respect
to (i) any proposals for the application of new
benefits and incentive compensation plans or programs
to officers who are also directors, and (ii) the
application to such officers of amendments to any then
existing such plans or programs which would
significantly increase the compensation of such
officers; and
(c) The Compensation Committee shall perform such other
duties as may, from time to time, be delegated to the
Compensation Committee under any compensation or
benefit plans.
ARTICLE VII. SECTION 3. MEETINGS:
The Compensation Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as shall be
considered by the Compensation Committee to be necessary or
desirable; provided, that two members of the Compensation
Committee shall constitute a quorum for the transaction of
business and the affirmative vote of a majority of the whole
Compensation Committee shall be required to constitute action by
the Compensation Committee.
ARTICLE VII. SECTION 4. STAFF:
The Compensation Committee shall be assisted by appropriate
corporate staffs, and in addition, the Compensation Committee may
obtain assistance from such other persons, who need not be
employees of the company, or organizations as it may deem
advisable, with the expenses incurred thereby to be borne by the
company.
ARTICLE VIII
PUBLIC POLICY COMMITTEE
ARTICLE VIII. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint a Public Policy Committee of
at least three members, consisting entirely of independent
outside directors of the Board, as defined in Section 6, Article
II of these Bylaws, and shall designate its chairman. From time
to time the Board may designate one or more directors as
alternate members of the Public Policy Committee, provided that
those members and alternates from time to time
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serving as the Public Policy Committee shall at all times consist
entirely of independent outside directors.
ARTICLE VIII. SECTION 2. POWERS:
The Public Policy Committee shall have the following powers
and duties:
(a) The Public Policy Committee shall act in an advisory
capacity to the Board of Directors and the management
of the company in response to current and emerging
public policy issues and in development and review of
policies and budgets in respect of contributions,
including but not limited to contributions to
organizations whose primary purpose is charitable,
civic, cultural or educational;
(b) The Public Policy Committee shall identify, evaluate
and monitor the social, political, environmental,
occupational safety and health trends, issues and
concerns, domestic and foreign, which affect or could
affect the company's business activities and
performance;
(c) The Public Policy Committee shall review information
from company management and approve recommendations to
assist in the formulation and adoption of policies,
programs and practices concerning the matters set forth
in subparagraph (b) above, including but not limited to
ecological and environmental protection, employee
safety, ethical business conduct, consumer affairs,
alcohol and drug abuse, equal opportunity matters and
government relations;
(d) The Public Policy Committee shall exercise the powers
with respect to political activities conferred upon it
by the provisions of Article XI of these Bylaws; and
(e) The Public Policy Committee shall monitor and evaluate
on an ongoing basis the company's compliance with the
policies, programs and practices established under the
Public Policy Committee's oversight.
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ARTICLE VIII. SECTION 3. MEETINGS:
The Public Policy Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as shall be
considered by the Public Policy Committee to be necessary or
desirable; provided that three members or a majority of the
Public Policy Committee, whichever is greater, shall constitute a
quorum for the transaction of business and the affirmative vote
of a majority of the whole Public Policy Committee shall be
required to constitute action by the Public Policy Committee.
ARTICLE VIII. SECTION 4. STAFF:
The Public Policy Committee shall be assisted by
appropriate corporate staffs, and in addition, the Public Policy
Committee may obtain assistance from such other persons, who need
not be employees of the company, or organizations as it may deem
advisable, with the expenses incurred thereby to be borne by the
company.
ARTICLE IX
OFFICERS
ARTICLE IX. SECTION 1.
DESIGNATION:
The officers of the Company shall consist of a Chairman of
the Board of Directors and a President, each of whom shall be a
director, one or more Executive Vice Presidents, one or more Vice
Presidents, a Secretary, a Treasurer, and a Controller, who need
not be but may be directors, and such other officers, including a
Vice Chairman of the Board of Directors who shall be a director,
as may be elected or appointed by the Board of Directors. Except
for the offices of Chairman of the Board of Directors, Vice
Chairman, President, and Executive Vice President, any two
offices may be held by the same person.
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ARTICLE IX. SECTION 2.
ELECTION: TERM OF OFFICE:
The officers of the company shall be elected by the Board of
Directors at its first meeting after the annual meeting of the
stockholders and thereafter as appropriate. Each officer shall
hold office from the date of his election until the first meeting
of the directors held after the next annual meeting of the
stockholders, or until his successor is elected.
ARTICLE IX. SECTION 3.
REMOVAL FROM OFFICE:
FAILURE TO PERFORM DUTIES:
Any officer of the company may be removed with or without
cause by the Board of Directors. If any officer shall be unable
or refuse or fail to perform any of the duties of his office, the
officer of the company which has been designated the chief
executive officer pursuant to Section 5 of this Article may
designate any other person or persons to perform such duties
until such time as the Board may act with respect thereto.
ARTICLE IX. SECTION 4.
CHAIRMAN OF THE BOARD OF DIRECTORS:
VICE CHAIRMAN: PRESIDENT:
The Chairman of the Board of Directors shall preside at all
meetings of the Board of Directors and of the stockholders. In
the absence of the Chairman, the Vice Chairman, and in the
absence of both the Chairman and the Vice Chairman, the President
shall preside at all such meetings. The Chairman, Vice Chairman,
or the President is empowered to sign any contract, deed,
certificate, or other instrument or document authorized by the
Board or the Executive Committee, or required by law to be signed
by such officer or officers.
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ARTICLE IX. SECTION 5.
CHIEF EXECUTIVE OFFICER:
The Chairman of the Board of Directors shall be the chief
executive officer of the company. The Chairman of the Board of
Directors may designate the Vice Chairman or the President to act
as chief executive officer during the Chairman's absence. The
chief executive officer of the company shall have general and
active supervision over the business, affairs and operations of
the company and over its several officers, agents and employees,
subject, however, to the control of the Board and the Executive
Committee. The chief executive officer shall see that all orders
and resolutions of the Board and the Executive Committee are
carried into effect, and, in general, shall perform all duties
incident to the position of chief executive officer and such
other duties as may from time to time be assigned by the Board or
the Executive Committee. The chief executive officer may
delegate and assign to other officers, employees and agents of
the company or to committees appointed by him such duties as the
chief executive officer considers proper and not inconsistent
with these Bylaws or any delegations and assignments made by the
Board or the Executive Committee.
ARTICLE IX. SECTION 6.
EXECUTIVE VICE PRESIDENTS:
VICE PRESIDENTS:
The Executive Vice Presidents and the Vice Presidents shall
have such authority and shall perform such duties as may be
delegated to them pursuant to these Bylaws. The power of the
Executive Vice Presidents and the Vice Presidents to sign on
behalf of the company any contract, deed, certificate, or other
instrument or document authorized by the Board of Directors or
the Executive Committee shall be coordinate with like powers of
the Chairman of the Board of Directors, the Vice Chairman, and
the President and shall have the same effect as if signed by the
Chairman or the President.
ARTICLE IX. SECTION 7. SECRETARY:
The Secretary shall attend to the giving of all notices of
all meetings of the Board of Directors and stockholders, shall
attend all such meetings and shall record the minutes of such
meetings in books provided for that purpose. He shall be the
custodian of all papers brought before the Board for action or
ordered on file. He shall have the custody of the corporate
seal, and shall, as necessary or appropriate, affix and attest
the same on all documents authorized by the Board or the
Executive Committee. He shall make or cause to be made the
necessary or appropriate determinations as to the owners of stock
pursuant to the establishment of a record date, as provided in
Section 3, Article X of these
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<PAGE>
Bylaws, and shall prepare or cause to be prepared the required or
appropriate stockholder lists or records reflecting these
determinations. Such list shall be certified by the Secretary or
other person in charge of the stock ledger of the company.
The Secretary shall have such other authority and duties as
may be assigned to him in accordance with these Bylaws.
The Board may appoint one or more Assistant Secretaries who
shall assist the Secretary in the performance of his duties and
shall perform all the duties of the Secretary in his absence.
ARTICLE IX. SECTION 8. TREASURER:
The Treasurer shall keep full and accurate accounts of all
receipts and disbursements. With the approval of the Board of
Directors he shall deposit all moneys and other valuable effects
in the name and to the credit of the company in such depositories
as he may select and, under direction of the Board, he shall
disburse the same. He shall have authority to receive and give
receipts for all moneys due and payable to the company from any
source whatsoever and to give full discharge for the same, and to
endorse for deposit on behalf of the company all checks, drafts,
notes, warrants, orders and other papers requiring endorsement.
He may be required to give a bond in any amount satisfactory to
the Board for the faithful performance of the duties of his
office and for the restoration to the company in case of his
death, resignation or removal from office, of all books, papers,
vouchers, money or other property of whatever kind in his
possession, belonging to the company.
The Treasurer shall have such other authority and duties as
may be assigned to him in accordance with these Bylaws.
The Board may appoint one or more Assistant Treasurers who
shall assist the Treasurer in the performance of his duties and
shall perform all the duties of the Treasurer in his absence.
ARTICLE IX. SECTION 9. CONTROLLER:
The Controller shall be the officer principally in charge of
the accounts of the company, and shall have such other authority
and duties as may be assigned to him in accordance with these
Bylaws.
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<PAGE>
The Board of Directors may appoint one or more Deputy
Controllers and Assistant Controllers who shall assist in the
performance of all the duties of the Controller in his absence.
ARTICLE IX. SECTION 10. GENERAL:
All other officers of the company shall have such powers and
duties as may be assigned in accordance with these Bylaws.
ARTICLE X
CAPITAL STOCK
ARTICLE X. SECTION 1. CERTIFICATES:
FACSIMILE SIGNATURES: LOST STOCK:
Certificates of stock shall be issued in numerical order,
and every holder of stock in the company shall be entitled to a
certificate or certificates signed by, or in the name of, the
company, by the Chairman of the Board of Directors, the Vice
Chairman, the President, an Executive Vice President, or a Vice
President, or by two or more of them, and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer,
of the company, certifying the number of shares owned by him in
the company. If such certificate is countersigned by a transfer
agent other than the company or its employee, or by a registrar
other than the company or its employee, any other signature on
the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued
by the company with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
The seal of the company, or a facsimile thereof, may, but
shall not be required to be affixed to certificates for shares of
stock.
The name of each person to whom a certificate of stock shall
be issued, together with the number of shares and the date of
issue, shall be entered upon the books of the company.
If any certificate of stock shall be lost, stolen, mutilated
or destroyed, the Board of Directors shall cause a new
certificate of stock to be issued in the place
-27-
<PAGE>
of such certificate and may, in its discretion, require the owner
of the replaced certificate, or his legal representatives, to
give the company a bond, in such form and amount as the Board may
direct, sufficient to indemnify the company and other interested
persons against any loss on account of the issuance or any action
in connection with the issuance of any such new certificate.
ARTICLE X. SECTION 2. TRANSFERS:
PRESERVATION OF CANCELED CERTIFICATES:
FRACTIONAL SHARES: TRANSFER AGENTS:
Transfer of shares of the common stock of the company shall
be made upon its books by the holder thereof, in person or by
attorney duly authorized, upon the surrender of a certificate or
certificates, properly endorsed, for a like number of shares. No
new certificate shall be issued until the former certificate or
certificates for the same number of shares shall have been
surrendered and canceled, except in the case of a certificate
issued in replacement as provided in Section 1 of this Article X.
All certificates surrendered to the company for transfer
shall be canceled and each certificate canceled shall be
preserved for a period of 10 years after cancellation, or for
such shorter or longer period as the Chairman of the Board of
Directors, the Vice Chairman, or the President, with the approval
of the General Counsel of the company, may direct from time to
time.
No certificate for less than one share of the common stock
shall be issued; however, scrip for fractional shares may be
issued on such terms and conditions as the Board of Directors may
prescribe.
The Board of Directors may appoint such stock transfer
agents and assistant transfer agents, and stock registrars, as it
shall deem proper and may require all stock certificates to bear
the signature or facsimile signature of a transfer agent, and of
a registrar, or either of them.
ARTICLE X. SECTION 3.
DATE FOR DETERMINATION OF STOCKHOLDERS:
For the purpose of enabling the company to determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60
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<PAGE>
days prior to any other action. In such case, only such persons
in whose names shares of stock are registered on the books of the
company on the date so fixed shall be considered stockholders for
the purpose or purposes for which such determination was made,
notwithstanding any transfer of any stock on the books of the
company after any such record date.
ARTICLE X. SECTION 4.
ADDITIONAL REGULATIONS:
The Board of Directors may at any time adopt such additional
and further rules and regulations relating to common stock and
stock certificates as it deems appropriate and not inconsistent
with the law or these Bylaws.
ARTICLE XI
POLITICAL ACTIVITIES
ARTICLE XI. SECTION 1.
COMPLIANCE WITH LAWS CONCERNING POLITICAL CONTRIBUTIONS:
Any officer or employee of the company who fails to comply
with all federal, state, and local laws regarding corporate
contributions and expenditures in connection with election of
public officials shall be subject to appropriate disciplinary
action, which may include discharge from employment. The Audit
Committee of the Board of Directors shall be responsible for
monitoring compliance with those laws and shall require written
annual assurances by principal corporate officers of their
compliance with these laws and policies adopted by the Board. In
performing that responsibility, the Committee shall utilize the
services of the company's independent public accountants, its
internal audit staff, and its General Counsel.
ARTICLE XI. SECTION 2.
POLITICAL CONTRIBUTIONS:
Except as otherwise provided in the succeeding paragraph,
the Board of Directors shall have the sole and non-delegable
power and authority to authorize the use of company funds and
facilities to make political contributions and expenditures, if
and to the extent permitted by applicable law, to or in support
of political candidates, political committees (including but not
limited to political committees established by the company
pursuant to Section 4 of this Article XI), and political parties,
in connection with nomination and election of candidates for
state or local office.
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<PAGE>
The Public Policy Committee (subject to any rules or
restrictions which the Board may establish) shall have and may
exercise the power and authority of the Board to authorize such
contributions, expenditures, and use of company funds and
facilities, if and to the extent permitted by applicable law.
The Public Policy Committee may delegate such power and
authority, in whole or in part, to the Vice President with
responsibility for the Company's government relations activities,
subject to such further rules and restrictions as the Committee
may specify. All contributions made pursuant to the authority
granted by this paragraph shall be reported quarterly to the
Board.
ARTICLE XI. SECTION 3.
POLITICAL COMMITTEE AUTHORIZED BY FEDERAL LAW:
The Board of Directors shall have the sole and non-delegable
power and authority to authorize the establishment,
administration, and solicitation of contributions to a separate
segregated fund to be utilized for political purposes by the
company as authorized by Section 441b of Title 2 of the United
States Code. No such separate segregated fund shall be
established or administered by the company, except through a
political committee, organized as provided in Section 432 of
Title 2 of the United States Code, registered as provided in
Section 433 of such Title, and otherwise operated in compliance
with law. Any decision of the Board authorizing the
establishment of a political committee permitted by Section 441b
of Title 2 shall be noted in its minutes. The minutes shall
include an estimate of the annual cost to the company of
establishing, administering, and soliciting for such committee.
Any such committee which is established shall report in writing
to the Board on its activities not later than March 15 of each
year. Such report shall include a summary of any reports filed
with the Federal Election Commission or any other government
agency, together with a statement of the costs incurred by the
company in connection with such a committee during the preceding
year.
ARTICLE XI. SECTION 4.
NONFEDERAL POLITICAL COMMITTEES:
The Board of Directors or the Public Policy Committee or the
Vice President with responsibility for the Company's government
relations activities (subject to any rules and regulations which
the Public Policy Committee may establish), and each of them
shall have the power and authority to authorize the
establishment, administration, and solicitation of contributions
to one or more political committees, and to authorize use of
corporate funds to pay or bear all costs associated with such
establishment, administration, and solicitation, and to authorize
use of such political committees by the company to make political
contributions and expenditures or otherwise support candidates
for state or local office, authorized committees of such
candidates, and other political committees supporting state or
local candidates; provided, however, that the foregoing
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<PAGE>
authorizations may be granted and committees so established may
be so used only if permitted by applicable state law and only to
the extent, if any, permitted by such law. Such political
committees as may be established by the company shall be
registered if required by applicable state law and shall
otherwise be operated in compliance with law. Any decision of
the Board authorizing establishment of such a committee shall be
noted in its minutes. By March 15 following the calendar year in
which such a committee is otherwise established, such
establishment shall be reported to the Board and noted in its
minutes. Any such committee shall report in writing to the Board
on its activities not later than March 15 of each year. Such
report shall include a summary of any reports filed by the
committee with any government agency, together with a statement
of costs incurred by the company in connection with such
committee during the preceding year.
ARTICLE XI. SECTION 5.
OTHER POLITICAL ACTIVITIES:
Nothing contained in these Bylaws shall be deemed to
prohibit any officer or employee from engaging in political
activities in an individual capacity at his own expense or from
making political contributions or expenditures of his personal
funds or from expressing views and taking appropriate action as a
company officer or employee with respect to legislative or
political matters affecting the company and not pertaining to
election of public officials.
ARTICLE XII
MISCELLANEOUS
ARTICLE XII. SECTION 1.
CHECKS, NOTES AND DRAFTS:
All checks, notes, drafts, warrants, or orders for the
payment of money, shall be executed on behalf of the company by
such person or persons, and in such manner by such method as the
Board of Directors may from time to time specify.
ARTICLE XII. SECTION 2. SEAL:
The seal of the company shall be in the form of a circle and
shall bear the name of the company, the name of the state under
the laws of which it is incorporated, and the year of its
incorporation.
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<PAGE>
ARTICLE XII. SECTION 3.
DIVIDENDS AND RESERVES:
The Board of Directors may declare dividends to the full
extent permitted by the law, provided the Board from time to time
may set apart out of any funds available for dividends a reserve
or reserves for any proper purpose and may abolish any such
reserve.
ARTICLE XII. SECTION 4.
WAIVER OF NOTICE:
Whenever notice is required to be given under any provision
of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a written waiver thereof signed by the
person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII. SECTION 5.
CHAIRMAN OF THE BOARD EMERITUS:
The Board of Directors may, from time to time, at its
discretion, create the honorary position of Chairman of the Board
Emeritus, without executive functions, and elect a person to fill
the position so created.
ARTICLE XII. SECTION 6. AMENDMENTS:
Subject to the provisions of the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed
in whole or in part by the stockholders at any annual meeting or
at any special meeting provided that the notice of such special
meeting shall contain a statement of the contemplated alteration,
amendment or repeal. Subject to the laws of the State of
Delaware, the Certificate of Incorporation, and these Bylaws, the
Board of Directors shall have power to make, alter, amend and
repeal these Bylaws in whole or in part, except those Bylaws
adopted by stockholders of the company or those Bylaws as to
which power to make, alter, amend or repeal is reserved to
stockholders of the company.
-32-
<PAGE>
Exhibit 12
PHILLIPS PETROLEUM COMPANY AND CONSOLIDATED SUBSIDIARIES
TOTAL ENTERPRISE
Computation of Ratio of Earnings to Fixed Charges
Millions of Dollars
------------------------
Nine Months Ended
September 30
------------------------
1999 1998
------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes $ 697 879
Distributions less than equity in earnings
of less-than-fifty-percent-owned companies (3) (5)
Fixed charges, excluding capitalized interest* 309 230
- ----------------------------------------------------------------------------
$1,003 1,104
============================================================================
Fixed Charges
Interest and expense on indebtedness,
excluding capitalized interest $ 222 149
Capitalized interest 35 38
Preferred dividend requirements of
capital trusts 40 40
One-third of rental expense, net of
subleasing income, for operating leases 34 29
- ----------------------------------------------------------------------------
$ 331 256
============================================================================
Ratio of Earnings to Fixed Charges 3.0 4.3
- ----------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately
$13 million and $12 million in 1999 and 1998, 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, which was repaid in June 1998.
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 nine months of 1999 and 1998.
<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
September 30, 1999, and the related consolidated statement of income
for the nine months ended September 30, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 180
<SECURITIES> 0
<RECEIVABLES> 1,767
<ALLOWANCES> 19
<INVENTORY> 575
<CURRENT-ASSETS> 2,779
<PP&E> 22,765
<DEPRECIATION> 11,664
<TOTAL-ASSETS> 15,191
<CURRENT-LIABILITIES> 2,590
<BONDS> 4,443
650
0
<COMMON> 287
<OTHER-SE> 4,098
<TOTAL-LIABILITY-AND-EQUITY> 15,191
<SALES> 9,332
<TOTAL-REVENUES> 9,539
<CGS> 7,857<F1>
<TOTAL-COSTS> 8,093<F2>
<OTHER-EXPENSES> 40<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210
<INCOME-PRETAX> 697
<INCOME-TAX> 338
<INCOME-CONTINUING> 359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.41
<FN>
<F1> Purchased crude oil and products + Production and operating expenses +
Exploration expenses + Depreciation, depletion and amortization.
<F2> CGS + Property impairments + Taxes other than income taxes.
<F3> Preferred dividend requirements of capital trusts.
</FN>
</TABLE>
