FORM 10-K/A
Amendment No. 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file number 1-720
-------------------------------------------
Phillips Petroleum Company
(Exact name of registrant as specified in its charter)
Delaware 73-0400345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Phillips Building, Bartlesville, Oklahoma 74004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918-661-6600
- -----------------------------------------------------------------
Filing Additional Exhibits
<PAGE>
Item 14 - Exhibits
- ------------------
The registrant is filing with this Amendment No. 1 Annual Reports
on Form 11-K for the Thrift Plan of Phillips Petroleum Company,
the Long-Term Stock Savings Plan of Phillips Petroleum Company
and the Retirement Savings Plan of Phillips Petroleum Company.
1
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3(i) Restated Certificate of Incorporation, as filed with
the State of Delaware July 17, 1989 (incorporated by
reference to Exhibit 3(i) to Annual Report on
Form 10-K for the year ended December 31, 1995).
(ii) Bylaws of Phillips Petroleum Company, as amended
effective September 14, 1998 (incorporated by
reference to Exhibit 3(ii) to Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 1998).
4(a) Indenture dated as of September 15, 1990, between
Phillips Petroleum Company and U.S. Bank Trust
National Association, formerly First Trust National
Association (formerly Continental Bank, National
Association), relating to the 9 1/2% Notes due 1997
and the 9 3/8% Notes due 2011 (incorporated by
reference to Exhibit 4(a) to Annual Report on
Form 10-K for the year ended December 31, 1996).
(b) Indenture dated as of September 15, 1990, as
supplemented by Supplemental Indenture No. 1 dated
May 23, 1991, between Phillips Petroleum Company and
U.S. Bank Trust National Association, formerly First
Trust National Association (formerly Continental
Bank, National Association), relating to the 9.18%
Notes due September 15, 2021; the 9% Notes due 2001;
the 8.86% Notes due May 15, 2022; the 8.49% Notes due
January 1, 2023; the 7.92% Notes due April 15, 2023;
the 7.20% Notes due November 1, 2023; the 6.65% Notes
due March 1, 2003; the 7.125% Debentures due
March 15, 2028; and the 6.65% Debentures due July 15,
2018 (incorporated by reference to Exhibit 4(b) to
Annual Report on Form 10-K for the year ended
December 31, 1997).
(c) Preferred Share Purchase Rights as described in the
Rights Agreement dated as of July 10, 1989, between
Phillips Petroleum Company and Chemical Bank
(formerly Manufacturers Hanover Trust Company)
(incorporated by reference to Exhibit 4(c) to Annual
Report on Form 10-K for the year ended December 31,
1995).
2
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
4(d) Amendment dated May 16, 1990, to the Rights Agreement
dated July 10, 1989, between Phillips Petroleum
Company and Chemical Bank (formerly Manufacturers
Hanover Trust Company) (incorporated by reference to
Exhibit 4(d) to Annual Report on Form 10-K for the
year ended December 31, 1996).
The company incurred during 1998 certain long-term
debt not registered pursuant to the Securities
Exchange Act of 1934. No instrument with respect to
such debt is being filed since the total amount of
the securities authorized under any such instrument
did not exceed 10 percent of the total assets of the
company on a consolidated basis. The company hereby
agrees to furnish to the U.S. Securities and Exchange
Commission upon its request a copy of such instrument
defining the rights of the holders of such debt.
Material Contracts
10(a) Agreement dated December 23, 1984, among Mesa Partners
and related entities and Phillips Petroleum Company
and the schedules, annexes and exhibit thereto
(incorporated by reference to Exhibit 10(a) to Annual
Report on Form 10-K for the year ended December 31,
1995).
(b) Letter Agreement dated December 23, 1984, among Mesa
Partners and related entities and Phillips Petroleum
Company (incorporated by reference to Exhibit 10(b)
to Annual Report on Form 10-K for the year ended
December 31, 1995).
(c) Trust Agreement dated December 12, 1995, between
Phillips Petroleum Company and Vanguard Fiduciary
Trust Company, as Trustee of the Phillips Petroleum
Company Compensation and Benefits Arrangements Stock
Trust (incorporated by reference to Exhibit 10(c) to
Annual Report on Form 10-K for the year ended
December 31, 1995).
3
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
Management Contracts and Compensatory Plans or Arrangements
10(d) 1986 Stock Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(d) to Annual
Report on Form 10-K for the year ended December 31,
1997).
(e) 1990 Stock Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(e) to Annual
Report on Form 10-K for the year ended December 31,
1997).
(f) Annual Incentive Compensation Plan of Phillips
Petroleum Company (incorporated by reference to
Exhibit 10(f) to Annual Report on Form 10-K for the
year ended December 31, 1997).
(g) Incentive Compensation Plan of Phillips Petroleum
Company (incorporated by reference to Exhibit 10(g)
to Annual Report on Form 10-K for the year ended
December 31, 1994).
(h) Principal Corporate Officers Supplemental Retirement
Plan of Phillips Petroleum Company (incorporated by
reference to Exhibit 10(h) to Annual Report on
Form 10-K for the year ended December 31, 1995).
(i) Phillips Petroleum Company Supplemental Executive
Retirement Plan.*
(j) Key Employee Deferred Compensation Plan of Phillips
Petroleum Company.*
(k) Non-Employee Director Retirement Plan of Phillips
Petroleum Company (incorporated by reference to
Exhibit 10(k) to Annual Report on Form 10-K for the
year ended December 31, 1997).
(l) Omnibus Securities Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(l) to Annual
Report on Form 10-K for the year ended December 31,
1997).
4
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
10(m) Deferred Compensation Plan for Non-Employee Directors
of Phillips Petroleum Company.*
(n) Key Employee Missed Credited Service Retirement Plan of
Phillips Petroleum Company.*
(o) Phillips Petroleum Company Stock Plan for Non-Employee
Directors.*
(p) Key Employee Supplemental Retirement Plan of Phillips
Petroleum Company.*
(q) Defined Contribution Makeup Plan of Phillips Petroleum
Company.*
12 Computation of Ratio of Earnings to Fixed Charges.*
21 List of Subsidiaries of Phillips Petroleum Company.*
23 Consent of Independent Auditors.*
27 Financial Data Schedule.*
99(a) Form 11-K, Annual Report, of the Thrift Plan of
Phillips Petroleum Company for the fiscal year ended
December 31, 1998.
(b) Form 11-K, Annual Report, of the Long-Term Stock
Savings Plan of Phillips Petroleum Company for the
fiscal year ended December 31, 1998.
(c) Form 11-K, Annual Report, of the Retirement Savings
Plan of Phillips Petroleum Company for the fiscal
year ended December 31, 1998.
*Filed with the original Annual Report on Form 10-K for the year
ended December 31, 1998.
5
<PAGE>
Copies of the exhibits listed in this Index to Exhibits are
available upon request for a fee of $3.00 per document. Such
request should be addressed to:
Secretary
Phillips Petroleum Company
1234 Adams Building
Bartlesville, OK 74004
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this amendment 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)
June 24, 1999
7
<PAGE>
Exhibit 99(a)
FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ---------
Commission file number 33-50134
--------------------------------
THRIFT PLAN OF PHILLIPS PETROLEUM COMPANY
(Full title of the Plan)
PHILLIPS PETROLEUM COMPANY
(Name of issuer of securities)
Bartlesville, Oklahoma 74004
(Address of principal executive office) (Zip code)
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
--------------------
Financial statements of the Thrift Plan of Phillips Petroleum
Company, filed as a part of this annual report, are listed in the
accompanying index.
(b) Exhibits
--------
Exhibit 1 Consent of Ernst & Young LLP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Thrift Plan Committee has duly caused this annual
report to be signed on its behalf by the undersigned hereunto
duly authorized.
THRIFT PLAN OF
PHILLIPS PETROLEUM COMPANY
/s/ Rand C. Berney
---------------------------------
Rand C. Berney
Member
Thrift Plan Committee
June 24, 1999
1
<PAGE>
- -----------------------------------------------------------------
Index To Financial Statements Thrift Plan Of Phillips
And Schedules Petroleum Company
Page
Report of Independent Auditors .............................. 3
Financial Statements
Statements of Net Assets Available for Benefits
at December 31, 1998 and 1997
Total Plan ............................................ 5
Fund A (Bond Index Fund) .............................. 7
Funds B and C (Phillips Stock Fund) ................... 9
Fund D (Investment Contracts Fund)--Deposit
Administration Account .............................. 11
Fund E (S&P 500 Fund) ................................. 13
Fund F (Money Market Fund) ............................ 15
Loan Fund ............................................. 17
Temporary Investment Fund ............................. 19
Deferred Settlement Account ........................... 21
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 1998 and 1997
Total Plan ............................................ 6
Fund A (Bond Index Fund) .............................. 8
Funds B and C (Phillips Stock Fund) ................... 10
Fund D (Investment Contracts Fund)--Deposit
Administration Account .............................. 12
Fund E (S&P 500 Fund) ................................. 14
Fund F (Money Market Fund) ............................ 16
Loan Fund ............................................. 18
Temporary Investment Fund ............................. 20
Deferred Settlement Account ........................... 22
Notes to Financial Statements ............................. 23
Supplemental Schedules
Schedule of Assets Held for Investment Purposes
at December 31, 1998, Line 27a .......................... 31
Schedule of Reportable Transactions for the Year
Ended December 31, 1998, Line 27d--Series
of Transactions ......................................... 32
2
<PAGE>
- -----------------------------------------------------------------
Report Of Independent Auditors
The Thrift Plan Committee
Thrift Plan of Phillips Petroleum Company
We have audited the accompanying statements of net assets
available for benefits of the Thrift Plan of Phillips Petroleum
Company (Plan) as of December 31, 1998 and 1997, and the related
statements of changes in net assets available for benefits for
the years then ended, presented on pages 5 and 6. These
financial statements are the responsibility of the Thrift Plan
Committee (Committee). Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by the Committee, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for benefits of the Plan at December 31, 1998 and 1997,
and the changes in its net assets available for benefits for the
years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
accompanying supplemental schedules of assets held for investment
purposes as of December 31, 1998, and reportable transactions for
the year then ended, are presented for purposes of additional
analysis and are not a required part of the financial statements
but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These
supplemental schedules are the responsibility of the Committee.
The fund information and the Deferred Settlement Account
information presented on pages 7 through 22 listed in the
accompanying index to financial statements and schedules is
presented for purposes of additional analysis rather than to
present the net assets available for benefits and changes in net
3
<PAGE>
assets available for benefits of each fund. The supplemental
schedules, fund information and the Deferred Settlement Account
information have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in
our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
June 24, 1999
4
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Vanguard Total Bond Market
Index Fund $ 82,451 79,254
Phillips Petroleum Company
common stock 745,862 848,348
Insurance contracts 219 23,343
Vanguard 500 Index Fund 211,822 171,680
Vanguard Prime Money Market Fund 171,541 205,229
Loans to Plan participants 25,679 24,605
- -----------------------------------------------------------------
1,237,574 1,352,459
Contributions Receivable 632 522
Employee Deposits Receivable 38 15
Loan Repayments Receivable 64 57
- -----------------------------------------------------------------
Total Assets 1,238,308 1,353,053
- -----------------------------------------------------------------
Net Assets Available for Benefits $1,238,308 1,353,053
=================================================================
See Notes to Financial Statements.
5
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Contributions and Deposits
Company contributions
Matching $ 6,105 5,759
Before-tax deposits 23,978 21,161
Employee deposits 15,221 15,491
- -----------------------------------------------------------------
45,304 42,411
- -----------------------------------------------------------------
Investment Income
Dividends 42,207 41,910
Interest
Participant loans 1,925 1,696
Other 790 6,781
Net appreciation (depreciation)
in fair value of investments (53,244) 118,602
- -----------------------------------------------------------------
(8,322) 168,989
- -----------------------------------------------------------------
Total 36,982 211,400
- -----------------------------------------------------------------
Deductions
Distributions to
Participants or Their
Beneficiaries
Cash 115,992 153,888
Phillips Petroleum Company
common stock 35,693 28,295
Administrative Expense 42 15
- -----------------------------------------------------------------
Total 151,727 182,198
- -----------------------------------------------------------------
Net Increase (Decrease) (114,745) 29,202
Net Assets Available for
Benefits
Beginning of Year 1,353,053 1,323,851
- -----------------------------------------------------------------
End of Year $1,238,308 1,353,053
=================================================================
See Notes to Financial Statements.
6
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
FUND A
(Bond Index Fund)
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Vanguard Total Bond Market
Index Fund $82,451 79,254
Due from Temporary Investment Fund 94 114
- -----------------------------------------------------------------
Total Assets 82,545 79,368
- -----------------------------------------------------------------
Net Assets Available for Benefits $82,545 79,368
=================================================================
Number of Units 8,037,534 7,865,967
Unit Value $10.2700 10.0900
- -----------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
FUND A
(Bond Index Fund)
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Investment Income
Dividends $ 5,316 4,825
Net appreciation in fair value
of investments 1,420 1,875
- -----------------------------------------------------------------
6,736 6,700
Allocation of Deposits and
Earnings from Temporary
Investment Fund 1,272 1,139
- -----------------------------------------------------------------
Total 8,008 7,839
- -----------------------------------------------------------------
Deductions
Cash Distributions to Participants
or Their Beneficiaries 9,765 8,802
Administrative Expense 1 1
- -----------------------------------------------------------------
Total 9,766 8,803
- -----------------------------------------------------------------
Interfund Transfers 4,935 5,379
- -----------------------------------------------------------------
Net Increase 3,177 4,415
Net Assets Available for
Benefits
Beginning of Year 79,368 74,953
- -----------------------------------------------------------------
End of Year $82,545 79,368
=================================================================
See Notes to Financial Statements.
8
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
FUNDS B and C
(Phillips Stock Fund)
Thousands of Dollars
--------------------------
At December 31 1998 1997
--------------------------
Assets
Investments
Phillips Petroleum Company
common stock $745,862 848,348
Vanguard Prime Money Market Fund 372 7,818
- -----------------------------------------------------------------
746,234 856,166
Due from Temporary Investment Fund--
Fund B 2,891 2,812
Contributions Receivable--Fund C 542 508
- -----------------------------------------------------------------
Total Assets 749,667 859,486
- -----------------------------------------------------------------
Net Assets Available for Benefits $749,667 859,486
=================================================================
Net Assets Available for Benefits
Fund B $402,143 448,821
Fund C 347,524 410,665
- -----------------------------------------------------------------
$749,667 859,486
=================================================================
Number of Units
Fund B 4,295,855 4,204,684
Fund C 3,712,398 3,847,221
- -----------------------------------------------------------------
8,008,253 8,051,905
- -----------------------------------------------------------------
Unit Value $93.6118 106.7432
- -----------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
FUNDS B and C
(Phillips Stock Fund)
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Investment Income (Loss)
Dividends
Phillips Petroleum Company
common stock $ 23,402 23,956
Vanguard Prime Money Market Fund 422 234
Net appreciation (depreciation) (98,697) 81,834
- -----------------------------------------------------------------
(74,873) 106,024
Matching Company
Contributions--Fund C 6,105 5,759
Allocation of Deposits and
Earnings from Temporary
Investment Fund--Fund B 29,831 28,370
- -----------------------------------------------------------------
Total (38,937) 140,153
- -----------------------------------------------------------------
Deductions
Distributions to Participants
or Their Beneficiaries
Cash
Fund B 13,696 15,339
Fund C 12,431 13,593
Phillips Petroleum Company
common stock
Fund B 18,711 15,001
Fund C 16,982 13,294
Administrative Expense 27 10
- -----------------------------------------------------------------
Total 61,847 57,237
- -----------------------------------------------------------------
Interfund Transfers (9,035) (25,320)
- -----------------------------------------------------------------
Net Increase (Decrease) (109,819) 57,596
Net Assets Available for
Benefits
Beginning of Year 859,486 801,890
- -----------------------------------------------------------------
End of Year $749,667 859,486
=================================================================
Net Assets Available for Benefits
Fund B $402,143 448,821
Fund C 347,524 410,665
- -----------------------------------------------------------------
$749,667 859,486
=================================================================
See Notes to Financial Statements.
10
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
FUND D DEPOSIT ADMINISTRATION ACCOUNT
(Investment Contracts Fund)
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Insurance contract
Continental Assurance Company,
Group Annuity, Contract GP-12787 $ - 23,005
- -----------------------------------------------------------------
Total Assets - 23,005
- -----------------------------------------------------------------
Net Assets Available for Benefits $ - 23,005
=================================================================
Number of Units - 9,293,620
Unit Value - 2.4754
- -----------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
FUND D DEPOSIT ADMINISTRATION ACCOUNT
(Investment Contracts Fund)
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Investment Income
Interest $ 768 6,748
- -----------------------------------------------------------------
Total 768 6,748
- -----------------------------------------------------------------
Deductions
Cash Distributions to Participants
or Their Beneficiaries 4,154 17,319
- -----------------------------------------------------------------
Total 4,154 17,319
- -----------------------------------------------------------------
Interfund Transfers (19,619) (121,909)
- -----------------------------------------------------------------
Net Decrease (23,005) (132,480)
Net Assets Available for
Benefits
Beginning of Year 23,005 155,485
- -----------------------------------------------------------------
End of Year $ - 23,005
=================================================================
See Notes to Financial Statements.
12
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
FUND E
(S&P 500 Fund)
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Vanguard 500 Index Fund $211,822 171,680
Due From Temporary Investment Fund 481 530
- -----------------------------------------------------------------
Total Assets 212,303 172,210
- -----------------------------------------------------------------
Net Assets Available for Benefits $212,303 172,210
=================================================================
Number of Units 1,863,124 1,911,956
Unit Value $113.95 90.0701
- -----------------------------------------------------------------
See Notes to Financial Statements.
13
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
FUND E
(S&P 500 Fund)
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Investment Income
Dividends $ 3,322 3,450
Net appreciation in fair value
of investments 44,033 34,893
- -----------------------------------------------------------------
47,355 38,343
Allocation of Deposits and
Earnings from Temporary
Investment Fund 6,269 5,206
- -----------------------------------------------------------------
Total 53,624 43,549
- -----------------------------------------------------------------
Deductions
Cash Distributions to Participants
or Their Beneficiaries 20,687 13,460
Administrative Expense 4 1
- -----------------------------------------------------------------
Total 20,691 13,461
- -----------------------------------------------------------------
Interfund Transfers 7,160 27,087
- -----------------------------------------------------------------
Net Increase 40,093 57,175
Net Assets Available for
Benefits
Beginning of Year 172,210 115,035
- ------------------------------------------------------------------
End of Year $212,303 172,210
==================================================================
See Notes to Financial Statements.
14
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
FUND F
(Money Market Fund)
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Vanguard Prime Money Market Fund $167,140 193,114
Due from Temporary Investment Fund 173 212
- -----------------------------------------------------------------
Total Assets 167,313 193,326
- -----------------------------------------------------------------
Net Assets Available for Benefits $167,313 193,326
=================================================================
Number of Units 167,312,987 193,325,684
Unit Value $1.000 1.000
- -----------------------------------------------------------------
See Notes to Financial Statements.
15
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
FUND F
(Money Market Fund)
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Investment Income
Dividends $ 9,533 9,228
Allocation of Deposits and
Earnings from Temporary
Investment Fund 2,039 2,154
- -----------------------------------------------------------------
Total 11,572 11,382
- -----------------------------------------------------------------
Deductions
Cash Distributions to Participants
or Their Beneficiaries 54,571 84,703
Administrative Expense 10 3
- -----------------------------------------------------------------
Total 54,581 84,706
- -----------------------------------------------------------------
Interfund Transfers 16,996 112,209
- -----------------------------------------------------------------
Net Increase (Decrease) (26,013) 38,885
Net Assets Available for
Benefits
Beginning of Year 193,326 154,441
- -----------------------------------------------------------------
End of Year $167,313 193,326
=================================================================
See Notes to Financial Statements.
16
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
LOAN FUND
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Loans to participants $25,679 24,605
Due from Temporary Investment Fund 582 715
- -----------------------------------------------------------------
Total Assets 26,261 25,320
- -----------------------------------------------------------------
Net Assets Available for Benefits $26,261 25,320
=================================================================
See Notes to Financial Statements.
17
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
LOAN FUND
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Interest--Participant Loans $ 1,925 1,696
- -----------------------------------------------------------------
Deductions
Cash Distributions to Participants
or Their Beneficiaries 547 507
Loan Repayments from Plan
Participants 12,477 10,867
- -----------------------------------------------------------------
Total 13,024 11,374
- -----------------------------------------------------------------
Interfund Transfers 12,040 13,421
- -----------------------------------------------------------------
Net Increase 941 3,743
Net Assets Available for
Benefits
Beginning of Year 25,320 21,577
- -----------------------------------------------------------------
End of Year $26,261 25,320
=================================================================
See Notes to Financial Statements.
18
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
TEMPORARY INVESTMENT FUND
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Vanguard Prime Money Market Fund $4,029 4,297
Contributions Receivable 90 14
Employee Deposits Receivable 38 15
Loan Repayments Receivable 64 57
- -----------------------------------------------------------------
Total Assets 4,221 4,383
- -----------------------------------------------------------------
Liabilities
Due to Fund A 94 114
Due to Fund B 2,891 2,812
Due to Fund E 481 530
Due to Fund F 173 212
Due to Loan Fund 582 715
- -----------------------------------------------------------------
Total Liabilities 4,221 4,383
- -----------------------------------------------------------------
Net Assets Available for Benefits $ - -
=================================================================
See Notes to Financial Statements.
19
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
TEMPORARY INVESTMENT FUND
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Contributions and Deposits
Company contributions--
before-tax deposits $23,978 21,161
Employee deposits 15,221 15,491
Loan repayments from
Plan participants 12,477 10,867
- -----------------------------------------------------------------
51,676 47,519
Investment Income
Dividends 212 217
- -----------------------------------------------------------------
Total 51,888 47,736
- -----------------------------------------------------------------
Deductions
Allocation of Deposits and
Earnings 39,411 36,869
- -----------------------------------------------------------------
Interfund Transfers (12,477) (10,867)
- -----------------------------------------------------------------
Net Increase - -
Net Assets Available for
Benefits
Beginning of Year - -
- -----------------------------------------------------------------
End of Year $ - -
=================================================================
See Notes to Financial Statements.
20
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Thrift Plan Of Phillips
Available For Benefits Petroleum Company
DEFERRED SETTLEMENT ACCOUNT
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Insurance contract $219 338
- -----------------------------------------------------------------
Total Assets 219 338
- -----------------------------------------------------------------
Net Assets Available for Benefits $219 338
=================================================================
See Notes to Financial Statements.
21
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Thrift Plan Of Phillips
Assets Available For Benefits Petroleum Company
DEFERRED SETTLEMENT ACCOUNT
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Investment Income
Interest $ 22 33
- -----------------------------------------------------------------
Total 22 33
- -----------------------------------------------------------------
Deductions
Cash Distributions to Participants
or Their Beneficiaries 141 165
- -----------------------------------------------------------------
Total 141 165
- -----------------------------------------------------------------
Net Decrease (119) (132)
Net Assets Available for
Benefits
Beginning of Year 338 470
- -----------------------------------------------------------------
End of Year $219 338
=================================================================
See Notes to Financial Statements.
22
<PAGE>
- -----------------------------------------------------------------
Notes To Financial Statements Thrift Plan Of Phillips
Petroleum Company
Note 1--Plan Description
The following description of the Thrift Plan of Phillips
Petroleum Company (Plan) is subject to and qualified by the more
complete information appearing in the Plan document.
The Plan is a defined contribution plan available to certain
employees of Phillips Petroleum Company and participating
subsidiaries (Company). Generally, any person on the direct U.S.
dollar payroll of the Company is eligible to participate.
Non-managerial retail outlet marketing employees and certain
other employee classifications are not eligible.
The Company has a trust agreement with Vanguard Fiduciary Trust
Company (Vanguard), P.O. Box 2900, Valley Forge, Pennsylvania,
19482-2900. Under the trust agreement with Vanguard, the assets
of Fund A, also known as the Vanguard Bond Index-Total Bond
Market Portfolio Fund (Bond Index Fund), are invested in the
Vanguard Total Bond Market Index Fund. The assets of Funds B and
C are invested in the Phillips Stock Fund, a single investment
fund consisting of two separate accounts, which is invested only
in the common stock of Phillips Petroleum Company (Phillips) and
holds cash reserves as determined by the Trustee. Assets of the
Fund D Deposit Administration Account, also known as the
Investment Contracts Fund, were invested in contracts guaranteed
by insurance companies as to both principal and interest. The
last Fund D Deposit Administration Account contract expired
June 30, 1998. Although the Company was the contractholder for
the Fund D insurance contracts, Vanguard provided recordkeeping
services for Fund D as part of its recordkeeping services for the
Plan. In addition to the Plan assets held in the trust, there
are Plan funds in the Deferred Settlement Account held by the
Travelers Insurance Company.
Assets of Fund E, also known as the Vanguard Index Trust 500
Portfolio Fund (S&P 500 Fund), are invested in the Vanguard 500
Index Fund. Assets of Fund F, also known as the Vanguard Money
Market Reserves-Prime Portfolio Fund (Money Market Fund), are
invested in the Vanguard Prime Money Market Fund. Assets of the
Temporary Investment Fund are invested in the Vanguard Prime
Money Market Fund.
Effective January 1, 1999, the Plan was amended to add Funds G,
H, and I. Assets of Fund G, also known as the Vanguard Balanced
Index Fund (Balanced Index Fund), are invested in the Vanguard
Balanced Index Fund. Assets of Fund H, also known as the
23
<PAGE>
Vanguard Total International Portfolio Fund (International Fund),
are invested in the Vanguard Total International Stock Index
Fund. Assets of Fund I, also known as the Vanguard Extended
Market Fund, are invested in the Vanguard Extended Market Index
Fund.
Dividends represent earnings from the various Vanguard mutual
funds in which the Plan participates. The dividends reported for
the Phillips Stock Fund include the dividends on Company stock,
as well as earnings on the small amount of cash reserves in the
fund.
Participants may have up to 15 percent of their pay deposited in
the Plan each month. The first 5 percent is designated as
regular deposits with any excess being designated as supplemental
deposits. Deposits may be further designated by a participant as
before-tax or after-tax deposits. Before-tax deposits are made
by the Company on behalf of a participant who has elected the
before-tax feature of the Plan, voluntarily reducing his salary
by a corresponding amount. Total deposit amounts and allocation
of deposits between after-tax and before-tax accounts are subject
to limitations imposed by the Internal Revenue Code.
Participants may change their investment directions and deposit
rates semiannually during designated enrollment periods.
Employee deposits may be suspended in certain circumstances.
The Company contributes an amount equal to 25 percent of an
employee's regular deposits made to the Phillips Stock Fund--
Fund B account and 15 percent of regular deposits made to any
other investment fund. These Company matching contributions are
invested in the Phillips Stock Fund--Fund C account.
Employee deposits, before-tax deposits and loan repayments are
first placed into the Temporary Investment Fund and remain there
until the valuation date on or about the 20th day of the
following month. Employee and before-tax deposits are paid into
the respective investment funds in accordance with the allocation
directions of participants. Loan repayments are transferred to
the Loan Fund and then are generally allocated to Funds A, B, E,
F, G, H or I based on the participant's regular deposits
investment allocation, except that funds borrowed from Fund C are
repaid only to Fund C. Earnings on deposits and loan repayments
held in the Temporary Investment Fund are credited monthly, in
the same manner, to each participant who made deposits or loan
repayments during the month and still maintains an account in the
Plan. The allocation of earnings are made to each Participant in
the proportion to which his deposits or loan repayments bears to
all deposits or loan repayments during the period for which such
interest was earned. Employee deposits and earnings are paid
into Funds A, B, E, F, G, H or I as directed by the participant.
Fund D ceased accepting deposits after June 30, 1993.
24
<PAGE>
The Loan Fund is used to record transactions resulting from loans
made to active employees against their accounts. Except for the
Temporary Investment Fund and the Loan Fund, the interests of
participants in each fund are represented by units allocated to
them.
The Plan provides for daily transfers among funds; however,
generally, plan participants may not direct transfers to or from
Fund C, the Loan Fund, or the Temporary Investment Fund.
Transfers in and out of Fund D were not permitted prior to its
expiration on June 30, 1998. A participant may make unlimited
transfers of any dollar amount, whole percentages, or units to or
from Investment Funds A, E, F, G, H or I on any valuation date.
A participant may direct the transfer of any dollar amount, whole
percentage or number of units to or from his Fund B account in
the Phillips Stock Fund to or from Funds A, E, F, G, H, or I on
any valuation date, but then must wait 10 calendar days to make
another transfer involving Fund B.
In addition to the rights described above permitting the transfer
of amounts from one Investment Fund to another, a participant who
has terminated employment and attained age 55 may, on any
valuation date, direct the transfer of any dollar amount, whole
percentage, or number of units in any Investment Fund (except the
Temporary Investment Fund) to any other Investment Fund (except
to the Temporary Investment Fund or Investment Fund C).
Provided, however, such Participant who transfers from Fund C to
any other Investment Fund may transfer that interest back to
Fund C on any subsequent valuation date, subject to the
10-calendar-day waiting period for transfers.
A participant is vested at all times with respect to his deposits
and his interest in Company contributions. Company contributions
may not be withdrawn until 24 months after they are contributed
unless the participant has been in the Plan for at least five
years or becomes eligible to withdraw, for reasons other than a
specified financial hardship, his interest in his before-tax
account. A participant may not withdraw his interest in his
before-tax account unless he is at least age 59 1/2, experiences
a specified financial hardship, becomes totally and permanently
disabled, or separates from service. Upon the death of a
participant, his beneficiary may withdraw the participant's
entire account balance, including his before-tax account.
Distributions generally occur upon separation from service, but
may be deferred. For a participant who retires or becomes
totally disabled, unless a request for withdrawal is made as of
any earlier date, distribution generally will be deferred to a
date not later than the first valuation date in October of the
year age 69 is attained. If the participant dies, distribution
to a surviving spouse beneficiary will be deferred to the first
valuation date in October in the year in which the participant
25
<PAGE>
would have attained age 69. This deferral is revocable by the
participant or the surviving spouse. Distributions to non-spouse
beneficiaries may be deferred approximately five years.
Distributions are based on the valuation of the participant's
interest in the trust fund. Available forms of distribution are:
(a) from Funds A, E, F, G, H, or I in cash;
(b) from Funds B and C in whole shares of common stock
and/or cash;
(c) with respect to a participant who retires under a
Company retirement plan or a beneficiary spouse of a
participant in the event of an active employee
participant's death, in the form of an irrevocable non-
transferable monthly annuity purchased with a specified
dollar amount of the participant's interest in the Plan;
and
(d) with respect to a participant who retired under a
Company retirement plan before July 1, 1992, and who
timely elected a deferred settlement option--monthly,
quarterly or annual payments irrevocably elected from
his interest in Fund D--commencing at retirement with,
at the participant's direction, a designated life-
interest beneficiary to receive any unpaid scheduled
payments following the participant's death.
A participant may elect a direct rollover of the taxable portion
of most distributions to an Individual Retirement Account or
another tax-qualified plan. The taxable portion of any such
distribution that is not rolled over directly will be subject to
20 percent federal withholding.
The Plan is administered by the Thrift Plan Committee, the
members of which are appointed by the Board of Directors of
Phillips Petroleum Company. The Plan Financial Administrator and
Plan Benefits Administrator are the persons who occupy,
respectively, the Phillips Petroleum Company positions of
Treasurer and Compensation and Benefits Manager. Members of the
Committee and the Plan Administrators serve without compensation,
but are reimbursed by the Company for necessary expenditures
incurred in the discharge of their duties.
The Plan pays all reasonable expenses necessary for the operation
of the Plan, unless such expenses are paid by the Company. The
Company pays only the Trustee's record keeping and accounting
fees. The class year contract administration fees of .15 percent
of the funds invested in the insured contracts in Fund D were
paid by the Company through June 30, 1998, when the last contract
expired.
26
<PAGE>
The Company intends to continue the Plan indefinitely, but
reserves the right to amend or terminate it at any time. In the
event of termination of the Plan, participants and beneficiaries
of deceased participants will receive, within a reasonable time,
any funds in their accounts as of the date of the termination.
Note 2--Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates and assumptions.
Note 3--Investments
All securities are valued at their quoted market price or, with
respect to units of participation in commingled funds, redemption
value. Insurance contracts are valued pursuant to their terms;
the value, which approximates fair value, represents fund
deposits plus interest credited, less distributions. Participant
loans are valued at cost, which approximates fair value.
Note 4--Contributions Receivable
Contributions receivable at December 31 included the following:
Thousands of Dollars
--------------------
1998 1997
--------------------
Receivable from the Company for
Matching contributions $542 508
Before-tax deposits 90 14
- -----------------------------------------------------------------
$632 522
=================================================================
Note 5--Insurance Contract
The last Fund D Deposit Administration Account (Investment
Contracts Fund) insurance contract with the Continental
Assurance Company Group, Annuity Contract GP-12787, terminated
June 30, 1998. The balance, totaling approximately $20 million,
was transferred from Fund D to Fund F. The average yield and
crediting interest rate were 7.36 percent and 7.35 percent,
respectively. The crediting interest rate, determined by the
insurance company, was guaranteed over the six-year contract
term.
27
<PAGE>
Note 6--Loan Fund
The Plan allows loans to active employees or parties-in-interest
from their accounts. The minimum loan is $1,000, and generally
the maximum is the lesser of $50,000 or half the participant's
vested account. The loans may extend for up to 60 months
(180 months for a home loan) with a rate of interest equal to the
national prime lending rate, as determined on the last valuation
date of the previous month. No more than one home loan and two
regular loans may be outstanding at any given time.
Loan payments and interest are repaid to the borrowing
participant's accounts through the Loan Fund, which records the
outstanding loans and related transactions. Generally,
repayments are allocated to Funds A, B, E, F, G, H or I based on
a participant's regular deposits investment direction, except
that funds borrowed from Fund C are repaid only to Fund C. For
the periods ended December 31, the total of loans made by fund of
origin, principal and aggregate outstanding loan balances were:
Thousands of Dollars
---------------------------------------------
Fund A B C D E F Total
---------------------------------------------
Period ended
December 31, 1998
- -----------------
Loans Outstanding
at December 31,
1997 $24,605
Participant Loans $435 9,186 198 26 1,306 1,022 12,173
Principal Repaid 119 9,520 217 - 401 295 10,552
Distributions to
Participants 547
- -----------------------------------------------------------------
Loans Outstanding
at December 31,
1998 $25,679
=================================================================
Period ended
December 31, 1997
- -----------------
Loans Outstanding
at December 31,
1996 $21,024
Participant Loans $504 9,816 234 151 1,221 1,333 13,259
Principal Repaid 110 8,277 216 - 367 201 9,171
Distributions to
Participants 507
- -----------------------------------------------------------------
Loans Outstanding
at December 31,
1997 $24,605
=================================================================
28
<PAGE>
Note 7--Allocation of Deposits and Earnings from Temporary
Investment Fund
Allocation of deposits and earnings from the Temporary Investment
Fund to other investment funds represents the allocation of
employee deposits and before-tax contributions made first to the
Temporary Investment Fund, with related earnings thereon. A
breakdown of the allocation for each of the periods follows:
Thousands of Dollars
-----------------------------------------
Fund A Fund B Fund E Fund F Total
-----------------------------------------
December 31, 1998
- -----------------
Employee deposits $ 602 11,078 2,364 1,177 15,221
Before-tax
contributions 665 18,580 3,880 853 23,978
Interest and dividends 5 173 25 9 212
- -----------------------------------------------------------------
$1,272 29,831 6,269 2,039 39,411
=================================================================
December 31, 1997
- -----------------
Employee deposits $ 576 11,401 2,195 1,319 15,491
Before-tax
contributions 558 16,790 2,988 825 21,161
Interest and dividends 5 179 23 10 217
- -----------------------------------------------------------------
$1,139 28,370 5,206 2,154 36,869
=================================================================
Note 8--Transactions with Parties-in-Interest
During 1998 and 1997, the Plan received $23,402,023 and
$23,956,300, respectively, in common stock dividends from the
Company. Fees paid for legal, accounting, and other services
rendered by parties-in-interest were based on customary and
reasonable rates for such services.
Note 9--Tax Status
The Internal Revenue Service (IRS) determined on November 30,
1995, that the Plan, as amended through June 23, 1994, is
qualified under Section 401(a) of the Internal Revenue Code of
1986 and the Trust is exempt from federal income tax under
Section 501(a). Subsequent amendments have been adopted, but are
not expected to affect the qualified status of the Plan. The
Committee is not aware of any activity that would affect the
qualified status of the Plan.
29
<PAGE>
Note 10--Impact of Year 2000 (Unaudited)
Phillips does not expect the Year 2000 issue to have a
significant effect on Plan operations. Phillips' applications
software associated with the Plan is now Year 2000 compliant.
All necessary Year 2000 remediation and testing have been
completed and the Year-2000-compliant version of the software has
been implemented.
The critical suppliers associated with the Plan, in particular
Vanguard, have been assessed with regard to their progress toward
becoming Year 2000-ready. All critical suppliers have been
judged by Phillips to be making adequate progress. Phillips
plans to continue to monitor the critical suppliers through year-
end 1999. Business continuity planning efforts associated with
the Plan have also been completed by Phillips.
However, an unexpected failure to adequately address this issue
could result in an interruption of normal Plan operations and
activities.
30
<PAGE>
- -------------------------------------------------------------------------------
Schedule of Assets Held Thrift Plan Of Phillips
for Investment Purposes Petroleum Company
Line 27a EIN 73-0400345, Plan No. 002
At December 31, 1998
(a)(b) Identity of (c) Description of investment Thousands of Dollars
issue, borrower, including maturity date, ---------------------------
lessor, or similar rate of interest, collateral, (d) Historical (e) Current
party par or maturity value Cost Value
- --------------------- ----------------------------- -------------- -----------
Phillips Petroleum Common Stock, $1.25 par
Company* value, 17,498,235 shares $355,553 745,862
- -------------------------------------------------------------------------------
The Vanguard Group* 1,858,906.744 units, Vanguard
500 Index Fund 142,102 211,822
8,028,359.617 units, Vanguard
Total Bond Market Index Fund 79,028 82,451
171,541,128.94 units, Vanguard
Prime Money Market Fund 171,541 171,541
- -------------------------------------------------------------------------------
392,671 465,814
- -------------------------------------------------------------------------------
Thrift Plan of Loans to Plan participants*
Phillips Petroleum at 7% - 9%
Company* - 25,679
Travelers Insurance Group Annuity Contract GR-1966A,
Company* deferred settlement account 219 219
- -------------------------------------------------------------------------------
$748,443 1,237,574
===============================================================================
*Party-in-interest
31
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Schedule of Reportable Transactions Thrift Plan of Phillips
Line 27d Petroleum Company
Series of Transactions in Excess EIN 73-0400345, Plan 002
of 5 Percent of Net Assets
Year Ended December 31, 1998
Thousands of Dollars
-----------------------------------------------------------------------
(a)(b) Identity (h) Current
of party value of
involved and asset on (i) Net
description of (c) Purchase (d) Selling (g) Cost transaction gain or
asset price Price (f) Expenses of asset date (loss)
- --------------- ------------ ----------- ------------ -------- ----------- -------
<C> <C> <C> <C> <C> <C> <C>
Phillips
Petroleum
Company*
Common Stock $ 72,571 - Net $ - 72,571 -
- 40,738 Net 14,926 40,738 25,812
The Vanguard
Group,*
Vanguard
Prime Money
Market Fund 259,442 - Net - 259,442 -
- 292,777 Net 292,777 292,777 -
The Vanguard
Group,*
Vanguard
500 Index Fund 70,344 - Net - 70,344 -
- 74,231 Net 61,092 74,231 13,139
*Party-in-interest
Column (e) is not applicable.
</TABLE>
32
<PAGE>
Exhibit 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8, File No. 33-50134) pertaining to the Thrift
Plan of Phillips Petroleum Company and in the related Prospectus
of our report dated June 24, 1999, with respect to the financial
statements and schedules of the Thrift Plan of Phillips Petroleum
Company included in this Annual Report (Form 11-K) for the year
ended December 31, 1998.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
June 24, 1999
<PAGE>
Exhibit 99(b)
FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ---------
Commission file number 33-50283
--------------------------------
LONG-TERM STOCK SAVINGS PLAN OF
PHILLIPS PETROLEUM COMPANY
(Full title of the Plan)
PHILLIPS PETROLEUM COMPANY
(Name of issuer of securities)
Bartlesville, Oklahoma 74004
(Address of principal executive office) (Zip code)
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
--------------------
Financial statements of the Long-Term Stock Savings Plan of
Phillips Petroleum Company, filed as part of this annual report,
are listed in the accompanying index.
(b) Exhibits
--------
Exhibit 1 Consent of Ernst & Young LLP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Long-Term Stock Savings Plan Committee has duly caused
this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
LONG-TERM STOCK SAVINGS PLAN
OF PHILLIPS PETROLEUM COMPANY
/s/ Rand C. Berney
-----------------------------
Rand C. Berney
Member
Long-Term Stock Savings
Plan Committee
June 24, 1999
1
<PAGE>
- -----------------------------------------------------------------
Index To Financial Statements Long-Term Stock Savings Plan
And Schedules Of Phillips Petroleum Company
Page
Report of Independent Auditors ............................. 3
Financial Statements
Statements of Net Assets Available for Benefits
at December 31, 1998 and 1997
Total Plan ........................................... 5
Fund EP .............................................. 7
Fund K ............................................... 9
Fund L ............................................... 11
Temporary Fund ....................................... 13
Statements of Changes in Net Assets Available for
Benefits for the Years Ended December 31, 1998
and 1997
Total Plan ........................................... 6
Fund EP .............................................. 8
Fund K ............................................... 10
Fund L ............................................... 12
Temporary Fund ....................................... 14
Notes to Financial Statements ............................ 15
Supplemental Schedules
Schedule of Assets Held for Investment Purposes at
December 31, 1998, Line 27a ............................ 20
Schedule of Reportable Transactions for the Year Ended
December 31, 1998, Line 27d ............................ 21
2
<PAGE>
- -----------------------------------------------------------------
Report Of Independent Auditors
The Long-Term Stock Savings Plan Committee
Long-Term Stock Savings Plan of Phillips Petroleum Company
We have audited the accompanying statements of net assets
available for benefits of the Long-Term Stock Savings Plan of
Phillips Petroleum Company (Plan) as of December 31, 1998 and
1997, and the related statements of changes in net assets
available for benefits for the years then ended, presented on
pages 5 and 6. These financial statements are the responsibility
of the Long-Term Stock Savings Plan Committee (Committee). Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by the Committee, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for benefits of the Plan at December 31, 1998 and 1997,
and the changes in its net assets available for benefits for the
years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
accompanying supplemental schedules of assets held for investment
purposes as of December 31, 1998, and reportable transactions for
the year then ended, are presented for purposes of additional
analysis and are not a required part of the financial statements
but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These
supplemental schedules are the responsibility of the Committee.
The fund information presented on pages 7 through 14 listed in
the accompanying index to financial statements and schedules is
presented for purposes of additional analysis rather than to
present the net assets available for benefits and changes in net
3
<PAGE>
assets available for benefits of each fund. The supplemental
schedules and fund information have been subjected to the
auditing procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa Oklahoma
June 24, 1999
4
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Long-Term Stock Savings Plan
Available For Benefits Of Phillips Petroleum Company
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Common stock $1,250,844 1,467,488
Money market fund 6,917 8,767
- -----------------------------------------------------------------
1,257,761 1,476,255
Company Contributions Receivable
Funds for debt service - 467
Before-tax deposits 37 35
Interest Receivable 32 49
- -----------------------------------------------------------------
Total Assets 1,257,830 1,476,806
- -----------------------------------------------------------------
Liabilities
Securities Acquisition Loans 396,850 425,150
Interest Payable 1,516 1,908
Administrative Expenses Payable 127 80
- -----------------------------------------------------------------
Total Liabilities 398,493 427,138
- -----------------------------------------------------------------
Net Assets Available for Benefits $ 859,337 1,049,668
=================================================================
See Notes to Financial Statements.
5
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Long-Term Stock Savings Plan
Assets Available For Benefits Of Phillips Petroleum Company
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Company Contributions
Funds for debt service $ 14,406 18,571
Basic allocation requirements - 138
Before-tax deposits 6,100 5,788
- -----------------------------------------------------------------
20,506 24,497
- -----------------------------------------------------------------
Investment Income
Dividends 40,422 40,927
Interest 405 455
Net appreciation (depreciation)
in fair value of investment (177,041) 132,199
- -----------------------------------------------------------------
(136,214) 173,581
- -----------------------------------------------------------------
Total (115,708) 198,078
- -----------------------------------------------------------------
Deductions
Distributions to Participants
or Their Beneficiaries 50,062 45,784
Interest Expense 24,513 25,978
Administrative Expense 48 22
- -----------------------------------------------------------------
Total 74,623 71,784
- -----------------------------------------------------------------
Net Increase (Decrease) (190,331) 126,294
Net Assets Available for Benefits
Beginning of Year 1,049,668 923,374
- -----------------------------------------------------------------
End of Year $ 859,337 1,049,668
=================================================================
See Notes to Financial Statements.
6
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Long-Term Stock Savings Plan
Available For Benefits Of Phillips Petroleum Company
FUND EP
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Common stock $191,219 227,217
Money market fund 23 421
- -----------------------------------------------------------------
191,242 227,638
Interest Receivable 1 3
- -----------------------------------------------------------------
Total Assets 191,243 227,641
- -----------------------------------------------------------------
Liabilities
Administrative Expenses Payable 127 80
- -----------------------------------------------------------------
Total Liabilities 127 80
- -----------------------------------------------------------------
Net Assets Available for Benefits $191,116 227,561
=================================================================
Number of Units 25,414,972 26,518,656
Unit Value $7.5198 8.5812
- -----------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Long-Term Stock Savings Plan
Assets Available For Benefits Of Phillips Petroleum Company
FUND EP
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Investment Income
Dividends $ 6,199 6,370
Interest 23 28
Net appreciation (depreciation)
in fair value of investment (27,039) 20,394
- -----------------------------------------------------------------
Total (20,817) 26,792
- -----------------------------------------------------------------
Deductions
Distributions to Participants
or Their Beneficiaries 15,580 16,600
Administrative Expense 48 22
- -----------------------------------------------------------------
Total 15,628 16,622
- -----------------------------------------------------------------
Net Increase (Decrease) (36,445) 10,170
Net Assets Available for
Benefits
Beginning of Year 227,561 217,391
- -----------------------------------------------------------------
End of Year $191,116 227,561
=================================================================
See Notes to Financial Statements.
8
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Long-Term Stock Savings Plan
Available For Benefits Of Phillips Petroleum Company
FUND K
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Common stock $71,129 75,736
Money market fund 10 211
- -----------------------------------------------------------------
71,139 75,947
Due from Temporary Fund 664 635
Interest Receivable - 1
- -----------------------------------------------------------------
Total Assets 71,803 76,583
- -----------------------------------------------------------------
Net Assets Available for Benefits $71,803 76,583
=================================================================
Number of Units 39,524,071 36,965,486
Unit Value $1.8167 2.0718
- -----------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Long-Term Stock Savings Plan
Assets Available For Benefits Of Phillips Petroleum Company
FUND K
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Allocation of Deposits and
Earnings from Temporary Fund $ 6,132 5,821
- -----------------------------------------------------------------
Investment Income
Dividends 2,174 2,008
Interest 9 12
Net appreciation (depreciation)
in fair value of investment (9,650) 6,688
- -----------------------------------------------------------------
(7,467) 8,708
- -----------------------------------------------------------------
Total (1,335) 14,529
- -----------------------------------------------------------------
Deductions
Distributions to Participants
or Their Beneficiaries 3,445 3,103
- -----------------------------------------------------------------
Net Increase (Decrease) (4,780) 11,426
Net Assets Available for Benefits
Beginning of Year 76,583 65,157
- -----------------------------------------------------------------
End of Year $71,803 76,583
=================================================================
See Notes to Financial Statements.
10
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Long-Term Stock Savings Plan
Available For Benefits Of Phillips Petroleum Company
FUND L
Thousands of Dollars
------------------------
At December 31 1998 1997
------------------------
Assets
Investments
Common stock $988,496 1,164,535
Money market fund 6,257 7,535
- -----------------------------------------------------------------
994,753 1,172,070
Company Contributions Receivable
Funds for debt service - 467
Interest Receivable 31 45
- -----------------------------------------------------------------
Total Assets* 994,784 1,172,582
- -----------------------------------------------------------------
Liabilities
Securities Acquisition Loans 396,850 425,150
Interest Payable 1,516 1,908
- -----------------------------------------------------------------
Total Liabilities 398,366 427,058
- -----------------------------------------------------------------
Net Assets Available for Benefits $596,418 745,524
=================================================================
Number of Units 217,896,771 196,065,907
Unit Value** $2.4383 2.7818
- -----------------------------------------------------------------
See Notes to Financial Statements.
*The amount of total assets that was not allocated to
participants at December 31, 1998 and 1997, was
$463,487 thousand and $627,164 thousand, respectively.
**Unit value calculated on assets allocated to participants only.
11
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Long-Term Stock Savings Plan
Assets Available For Benefits Of Phillips Petroleum Company
FUND L
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Company Contributions
Funds for debt service $ 14,406 18,571
Basic allocation requirements - 138
- -----------------------------------------------------------------
14,406 18,709
- -----------------------------------------------------------------
Investment Income
Dividends 32,049 32,549
Interest 341 382
Net appreciation (depreciation)
in fair value of investment (140,352) 105,117
- -----------------------------------------------------------------
(107,962) 138,048
- -----------------------------------------------------------------
Total (93,556) 156,757
- -----------------------------------------------------------------
Deductions
Distributions to Participants
or Their Beneficiaries 31,037 26,081
Interest Expense 24,513 25,978
- -----------------------------------------------------------------
Total 55,550 52,059
- -----------------------------------------------------------------
Net Increase (Decrease) (149,106) 104,698
Net Assets Available for
Benefits
Beginning of Year 745,524 640,826
- -----------------------------------------------------------------
End of Year $ 596,418 745,524
=================================================================
See Notes to Financial Statements.
12
<PAGE>
- -----------------------------------------------------------------
Statement Of Net Assets Long-Term Stock Savings Plan
Available For Benefits Of Phillips Petroleum Company
TEMPORARY FUND
Thousands of Dollars
--------------------
At December 31 1998 1997
--------------------
Assets
Investments
Money market fund $627 600
Company Contributions Receivable
Before-tax deposits 37 35
- -----------------------------------------------------------------
Total Assets 664 635
- -----------------------------------------------------------------
Liabilities
Due to Fund K 664 635
- -----------------------------------------------------------------
Total Liabilities 664 635
- -----------------------------------------------------------------
Net Assets Available for Benefits $ - -
=================================================================
See Notes to Financial Statements.
13
<PAGE>
- -----------------------------------------------------------------
Statement Of Changes In Net Long-Term Stock Savings Plan
Assets Available For Benefits Of Phillips Petroleum Company
TEMPORARY FUND
Thousands of Dollars
------------------------
Years Ended December 31 1998 1997
------------------------
Additions
Company Contributions
Before-tax deposits $6,100 5,788
Investment Income
Interest 32 33
- -----------------------------------------------------------------
Total Additions 6,132 5,821
- -----------------------------------------------------------------
Deductions
Allocation of Deposits and
Earnings to Fund K 6,132 5,821
- -----------------------------------------------------------------
Net Increase - -
Net Assets Available for Benefits
Beginning of Year - -
- -----------------------------------------------------------------
End of Year $ - -
=================================================================
See Notes to Financial Statements.
14
<PAGE>
- -----------------------------------------------------------------
Notes To Financial Statements Long-Term Stock Savings Plan
Of Phillips Petroleum Company
Note 1--Plan Description
The following description of the Long-Term Stock Savings Plan of
Phillips Petroleum Company (Plan) is subject to and qualified by
the more complete information appearing in the Plan document.
The Plan became effective July 1, 1988, and is a defined
contribution stock bonus plan available to certain employees of
Phillips Petroleum Company and participating subsidiaries
(Company). Generally, any person on the U.S. direct dollar
payroll of the Company is eligible to participate, except
non-managerial retail marketing outlet employees and certain
other employee classifications.
Vanguard Fiduciary Trust Company, P.O. Box 2900, Valley Forge,
Pennsylvania 19482-2900, is the Plan Trustee. Plan investments
are held by the Trustee in the Temporary Fund, Fund K (also known
as the Employee Stock Fund), Fund L (also known as the Employer
Stock Fund) and Fund EP (also known as the EP Stock Fund).
Temporary Fund investments consist of specified short-term
securities. Funds K, L and EP are invested primarily in the
common stock of Phillips Petroleum Company (Phillips Stock).
Fund L consists of Phillips Stock, purchased with the proceeds of
the loans described in Note 3 (Leveraged Shares), with certain
Company contributions, or with certain dividends received from
the Company. The Leveraged Shares are allocated to Fund L or
Fund EP accounts of eligible participants in one of three types
of stock allocations: semiannual basic allocations, dividend
replacement allocations and supplemental allocations. A basic
allocation is made as of June 30 and December 31 each year.
Prior to 1999, 716,846 shares of stock were divided among or
"allocated to" the Fund L accounts of eligible participants as of
each June 30 and December 31. After 1998 and through 2005, the
number of shares to be allocated semiannually will be 477,876.
In December 1995, the Company extended the Plan to the year 2015.
Without the extension, allocations of stock to employees would
have been completed in 2005 or before. The new extension will
require additional shares of Phillips Stock to be delivered to
the Plan. After 2005 and through the allocation date following
the date the second loan is repaid, the number of shares to be
allocated semiannually on each basic allocation date will be
3,877 shares for each 100 employees eligible to make deposits as
of the preceding allocation date.
15
<PAGE>
The Plan is eligible to receive shares from the Company's
Compensation and Benefits Trust, which held 29,125,863 shares of
Phillips Stock at December 31, 1998.
A participant's semiannual basic allocation is based on the ratio
of the participant's Fund K before-tax deposits to all eligible
participants' before-tax deposits for the allocation period. If
the Company does not elect to make a special contribution and if
eligible dividends from participants' Fund L or Fund EP accounts
are used to make loan payments, participants will receive a
dividend replacement allocation. The Plan used $20.1 million and
$18.5 million in dividends on allocated shares to make loan
payments and allocated 443,023 shares and 406,950 shares in
dividend replacement allocations to participants' Fund L and
Fund EP accounts in 1998 and 1997, respectively. A supplemental
allocation is made each year end if all shares released for
allocation, based on loan payment provisions, have not been
allocated. A supplemental allocation of 129,559 shares was made
in 1998. No supplemental allocation was required in 1997.
The Company makes contributions to the Plan which, when
aggregated with certain Plan dividends from Fund L, certain
dividends from Fund EP and certain interest earnings from Fund L,
equal the amount necessary to enable the Plan to make its
regularly scheduled payments of principal and interest due on its
loans. The Company may also elect to make contributions to the
Plan, as an alternative to utilizing the dividends from shares in
Fund EP or from Loan 1 (see Note 3) allocated shares in Fund L.
Finally, the Company may make contributions to the Plan in the
amount necessary to bring the number of shares of stock released
for allocation up to the level required to complete the basic
allocation by contributing cash or by contributing Phillips
Stock.
Eligible employees may elect to have their salaries reduced and
before-tax deposits made by the Company on their behalf equal to
1 percent of pay. These deposits are first placed into the
Temporary Fund and remain there until the valuation date on or
about the 20th day of the following month when they are
transferred into the employee's Fund K account. Interest earned
on deposits while in the Temporary Fund is credited monthly to
each participant who still maintains an account in the Plan and
who made deposits during the month. The interest of participants
in each fund is represented by units allocated to them.
Assets of the Employee Stock Ownership Plan of Phillips Petroleum
Company (ESOP) and the Payroll Stock Ownership Plan of Phillips
Petroleum Company (PAYSOP), which were merged into the Plan on
July 1, 1988, are held in Fund EP.
16
<PAGE>
Participants are always vested in their deposits and amounts
credited to their accounts. Total withdrawals from Funds K, L
and EP may be made upon the occurrence of specified events,
including the attainment of age 59 1/2 (after December 31, 1998,
for Funds EP and L) or separation from service. Partial
withdrawals are permitted in cases of specified financial
hardship and certain other cases. For a participant who retires
or becomes totally disabled, unless a request for withdrawal is
made as of any earlier date, distribution generally will be
deferred to a date not later than the first valuation date in
October of the year age 69 is attained. If the participant dies,
distribution to a surviving spouse beneficiary will be deferred
to the first valuation date in October in the year in which the
participant would have attained age 69. This deferral is
revocable by the participant or the surviving spouse.
Distributions to non-spouse beneficiaries may be deferred
approximately five years. A participant may elect a direct
rollover of the taxable portion of most distributions to an
Individual Retirement Account or another tax-qualified plan.
The Plan is administered by the Long-Term Stock Savings Plan
Committee, the members of which are appointed by the Board of
Directors of Phillips Petroleum Company. Members of the
Committee serve without compensation, but are reimbursed by the
Company for necessary expenditures incurred in the discharge of
their duties. Administrative expenses of the Plan are paid by
the Trustee from assets of the Plan to the extent allowable by
law, unless paid by the Company. The Trustee did not make any
cash payments for reimbursement of administrative expenses to
Phillips from Fund EP in 1998 or 1997. However, in January 1999,
reimbursement of administrative expenses for plan years 1996 and
1997 was paid to Phillips from Fund EP totaling $74,061. Plan
administrative expenses of approximately $167,000 and $110,000
were paid by Phillips to the Trustee in 1998 and 1997,
respectively.
Note 2--Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
17
<PAGE>
Note 3--Securities Acquisition Loans
The Plan borrowed $250 million (Loan 1) and $400 million (Loan 2)
in 1988 and 1990, respectively, and purchased 14,336,918 and
14,159,292 shares of common stock from Phillips Petroleum Company
(Phillips), respectively. The shares are held in a Fund L
suspense account until allocated to eligible participants based
on the provisions of the Plan. At December 31, 1998 and 1997,
the market value of unallocated shares was $457 million and
$619 million, respectively.
Loan 1
During 1994, the Plan signed a $131 million term-loan agreement
that was used to refinance the outstanding notes payable issued
in 1988. The notes were redeemed on May 16, 1994. Loan 1 was
fully repaid in June 1998, after the final principal payment of
$28 million was made. Principal payments totaling $26 million
were made on Loan 1 in 1997. Loan 1 provided for variable
interest rates. The weighted-average interest rate for 1998 was
4.8717 percent. At December 31, 1997, the rate was
4.9875 percent.
Loan 2
Loan 2 was amended late in 1995 to extend its term from 15 to
25 years, requiring repayment in annual installments beginning in
2005, through the year 2015.
Any participating bank in the syndicate of lenders may cease to
participate on December 5, 2004, by giving not less than 180 days
prior notice to the Plan and Phillips. Also, each bank
participating in the loan has the optional right, if the current
directors of Phillips or their approved successors cease to be a
majority of the Board of Directors, and upon not less than 90
days notice, to cease to participate in the loan. Under the
above conditions, such banks' rights and obligations under the
loan agreement must be purchased by Phillips if not transferred
to another bank of Phillips' choice.
The outstanding balance of Loan 2 at December 31, 1998, was
$397 million. Loan 2 provides for variable interest rates. The
rates were 5.5 percent and 6.1875 percent at December 31, 1998
and 1997, respectively.
Loan 2 is guaranteed by Phillips. It is being repaid through
contributions made by the Company, dividends on certain allocated
and unallocated shares, and earnings on the short-term investment
of dividends. Loan 2's carrying amount approximates fair value.
18
<PAGE>
Note 4--Investments
Phillips Stock is valued at fair value, using the New York Stock
Exchange closing quoted market price. Money market funds are
valued at cost, which approximates market value.
Note 5--Tax Status
The Internal Revenue Service (IRS) determined on January 16,
1996, that the Plan is qualified under Section 401(a) of the
Internal Revenue Code of 1986 and the Trust is exempt from
federal income tax under Section 501(a). Subsequent amendments
have been adopted, but are not expected to affect the qualified
status of the Plan. The Committee is not aware of any activity
that would affect the qualified status of the Plan.
Note 6--Impact of Year 2000 (Unaudited)
Phillips does not expect the Year 2000 issue to have a
significant effect on Plan operations. Phillips' applications
software associated with the Plan is now Year 2000 compliant.
All necessary Year 2000 remediation and testing have been
completed and the Year-2000-compliant version of the software has
been implemented.
The critical suppliers associated with the Plan, in particular
Vanguard, have been assessed with regard to their progress toward
becoming Year 2000-ready. All critical suppliers have been
judged by Phillips to be making adequate progress. Phillips
plans to continue to monitor the critical suppliers through year-
end 1999. Business continuity planning efforts associated with
the Plan have also been completed by Phillips.
However, an unexpected failure to adequately address this issue
could result in an interruption of normal Plan operations and
activities.
19
<PAGE>
- -------------------------------------------------------------------------------
Schedule of Assets Held for Long-Term Stock Savings Plan Of
Investment Purposes Phillips Petroleum Company
Line 27a EIN 73-0400345, Plan 022
At December 31, 1998
(a, b) Identity of (c) Description of investment Thousands of Dollars
issue, borrower, including maturity date, ---------------------------
lessor, or similar rate of interest, collateral, (d) Historical (e) Current
party par or maturity value Cost Value
- ------------------ ----------------------------- -------------- -----------
Phillips Petroleum 29,345,313 shares of common
Company* stock, $1.25 par value $686,795 1,250,844
Vanguard Fiduciary 6,917,254 units of
Trust Company* participation in the Vanguard
Prime Money Market Fund,
$1.00 par value 6,917 6,917
- -------------------------------------------------------------------------------
$693,712 1,257,761
===============================================================================
*Party-in-interest
20
<PAGE>
- -----------------------------------------------------------------
Schedule of Reportable Transactions Long-Term Stock Savings Plan
Line 27d of Phillips Petroleum Company
Series of Transactions in Excess EIN 73-0400345, Plan 022
of 5 Percent of Net Assets
Year Ended December 31, 1998
Thousands of Dollars
-----------------------------------------
(a, b) Identity of
party involved and (c) Value of (d) Value (i) Net gain
description of asset purchases* of sales* or (loss)
- -------------------- ------------ --------- ------------
Vanguard Fiduciary
Trust Company,**
Vanguard Prime
Money Market Fund $73,782 75,652 -
- -----------------------------------------------------------------
*This is also the cost of purchases and current value of sales
at time of transaction.
**Party-in-interest
Columns (e), (f), (g) and (h) are not applicable.
21
<PAGE>
Exhibit 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8, File No. 33-50283) pertaining to the Long-
Term Stock Savings Plan of Phillips Petroleum Company and in the
related Prospectus of our report dated June 24, 1999, with
respect to the financial statements and schedules of the
Long-Term Stock Savings Plan of Phillips Petroleum Company
included in this Annual Report (Form 11-K) for the year ended
December 31, 1998.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
June 24, 1999
<PAGE>
Exhibit 99(c)
FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ---------
Commission file number 33-28669
--------------------------------
RETIREMENT SAVINGS PLAN OF
PHILLIPS PETROLEUM COMPANY
(Full title of the Plan)
PHILLIPS PETROLEUM COMPANY
(Name of issuer of securities)
Bartlesville, Oklahoma 74004
(Address of principal executive office) (Zip code)
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
--------------------
Financial statements of the Retirement Savings Plan of Phillips
Petroleum Company, filed as a part of this annual report, are
listed in the accompanying index.
(b) Exhibits
--------
Exhibit 1 Consent of Ernst & Young LLP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Retirement Savings Plan Committee has duly caused this
annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
RETIREMENT SAVINGS PLAN OF
PHILLIPS PETROLEUM COMPANY
/s/ Rand C. Berney
---------------------------------
Rand C. Berney
Member
Retirement Savings Plan Committee
June 24, 1999
1
<PAGE>
- -----------------------------------------------------------------
Index To Financial Statements Retirement Savings Plan Of
And Schedules Phillips Petroleum Company
Page
Report of Independent Auditors ............................. 3
Financial Statements
Statement of Net Assets Available for Benefits
at December 31, 1998 ................................... 5
Statement of Net Assets Available for Benefits
at December 31, 1997 ................................... 6
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 1998 ................... 7
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 1997 ................... 8
Notes to Financial Statements ............................ 9
Supplemental Schedules
Schedule of Assets Held for Investment Purposes at
December 31, 1998, Line 27a ............................ 14
Schedule of Reportable Transactions for the Year Ended
December 31, 1998, Line 27d ............................ 15
2
<PAGE>
- -----------------------------------------------------------------
Report Of Independent Auditors
The Retirement Savings Plan Committee
Retirement Savings Plan of Phillips
Petroleum Company
We have audited the accompanying statements of net assets
available for benefits of the Retirement Savings Plan of Phillips
Petroleum Company (Plan) as of December 31, 1998 and 1997, and
the related statements of changes in net assets available for
benefits for the years then ended. These financial statements
are the responsibility of the Retirement Savings Plan Committee
(Committee). Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by the Committee, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for benefits of the Plan at December 31, 1998 and 1997,
and the changes in its net assets available for benefits for the
years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
accompanying supplemental schedules of assets held for investment
purposes as of December 31, 1998, and reportable transactions for
the year then ended, are presented for purposes of additional
analysis and are not a required part of the financial statements
but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These
supplemental schedules are the responsibility of the Committee.
The fund information in the statements of net assets available
for benefits and the statements of changes in net assets
available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for
3
<PAGE>
benefits and changes in net assets available for benefits of each
fund. The supplemental schedules and fund information have been
subjected to the auditing procedures applied in our audits of the
basic financial statements and, in our opinion, are fairly stated
in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
June 24, 1999
4
<PAGE>
- ---------------------------------------------------------------------
Statement Of Net Assets Retirement Savings Plan Of
Available For Benefits Phillips Petroleum Company
At December 31, 1998
Non-
Participant
Participant Directed Directed
-------------------- -----------
Fixed Fixed
Investment Stock Investment
Total Fund Fund Fund
--------------------------------- -----------
Assets
Investments
Insurance contract $10,374,983 1,216,462 - 9,158,521
Common stock 562,991 - 562,991 -
Money market fund 2,153 - 2,153 -
- ---------------------------------------------------------------------
10,940,127 1,216,462 565,144 9,158,521
Interest Receivable 11 - 11 -
Employer Contributions
Receivable 50,575 - - 50,575
- ---------------------------------------------------------------------
Total Assets 10,990,713 1,216,462 565,155 9,209,096
- ---------------------------------------------------------------------
Net Assets Available
for Benefits $10,990,713 1,216,462 565,155 9,209,096
=====================================================================
Number of Units 121,646 91,797 920,910
Unit Values $10.0000 6.1566 10.0000
- ---------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
- ---------------------------------------------------------------------
Statement Of Net Assets Retirement Savings Plan Of
Available For Benefits Phillips Petroleum Company
At December 31, 1997*
Non-
Participant
Participant Directed Directed
-------------------- -----------
Fixed Fixed
Investment Stock Investment
Total Fund Fund Fund
--------------------------------- -----------
Assets
Investments
Insurance contract $ 9,969,068 1,185,937 - 8,783,131
Common stock 629,402 - 629,402 -
Money market fund 1,614 - 1,614 -
- ---------------------------------------------------------------------
10,600,084 1,185,937 631,016 8,783,131
Interest Receivable 13 - 13
Employer Contributions
Receivable 49,987 - - 49,987
- ---------------------------------------------------------------------
Total Assets 10,650,084 1,185,937 631,029 8,833,118
- ---------------------------------------------------------------------
Net Assets Available
for Benefits $10,650,084 1,185,937 631,029 8,833,118
=====================================================================
Number of Units 263,132 90,539 1,959,866
Unit Values $4.5070 6.9697 4.5070
- ---------------------------------------------------------------------
See Notes to Financial Statements.
*Reclassified to conform to current presentation.
6
<PAGE>
- ---------------------------------------------------------------------
Statement Of Changes In Net Retirement Savings Plan Of
Assets Available For Benefits Phillips Petroleum Company
Year Ended December 31, 1998
Non-
Participant
Participant Directed Directed
-------------------- -----------
Fixed Fixed
Investment Stock Investment
Total Fund Fund Fund
--------------------------------- -----------
Additions
Participating Employer
Contributions $ 345,497 - - 345,497
- ---------------------------------------------------------------------
Investment Income
Interest 634,147 74,219 90 559,838
Dividends 17,715 - 17,715 -
Net depreciation of
common stock (78,095) - (78,095) -
- ---------------------------------------------------------------------
573,767 74,219 (60,290) 559,838
- ---------------------------------------------------------------------
Total 919,264 74,219 (60,290) 905,335
- ---------------------------------------------------------------------
Deductions
Withdrawals and
Distributions 578,635 43,694 5,584 529,357
- ---------------------------------------------------------------------
Net Increase (Decrease) 340,629 30,525 (65,874) 375,978
Net Assets Available
for Benefits
Beginning of Year 10,650,084 1,185,937 631,029 8,833,118
- ---------------------------------------------------------------------
End of Year $10,990,713 1,216,462 565,155 9,209,096
=====================================================================
See Notes to Financial Statements.
7
<PAGE>
- ----------------------------------------------------------------------
Statement Of Changes In Net Retirement Savings Plan Of
Assets Available For Benefits Phillips Petroleum Company
Year Ended December 31, 1997*
Non-
Participant
Participant Directed Directed
-------------------- -----------
Fixed Fixed
Investment Stock Investment
Total Fund Fund Fund
---------------------------------- -----------
Additions
Participating Employer
Contributions $ 390,303 - - 390,303
- ----------------------------------------------------------------------
Investment Income
Interest 623,755 75,468 259 548,028
Dividends 20,747 - 20,747 -
Net appreciation of
common stock 32,832 - 32,832 -
- ----------------------------------------------------------------------
677,334 75,468 53,838 548,028
- ----------------------------------------------------------------------
Total 1,067,637 75,468 53,838 938,331
- ----------------------------------------------------------------------
Deductions
Withdrawals and
Distributions 1,099,496 97,902 227,286 774,308
- ----------------------------------------------------------------------
Net Increase (Decrease) (31,859) (22,434) (173,448) 164,023
Net Assets Available
for Benefits
Beginning of Year 10,681,943 1,208,371 804,477 8,669,095
- ----------------------------------------------------------------------
End of Year $10,650,084 1,185,937 631,029 8,833,118
======================================================================
See Notes to Financial Statements.
*Reclassified to conform to current presentation.
8
<PAGE>
- -----------------------------------------------------------------
Notes To Financial Statements Retirement Savings Plan Of
Phillips Petroleum Company
Note 1--Plan Description
The following description of the Retirement Savings Plan of
Phillips Petroleum Company (Plan) is subject to and qualified by
the more complete information appearing in the Plan document.
The Plan was known as the Retirement Savings Plan of Phillips
Petroleum Company Subsidiaries until December 7, 1994.
The Plan is a defined contribution plan sponsored by Phillips
Petroleum Company (Phillips or the Company) for any domestic
subsidiary or division that the Company approves for
participation in the Plan and that has adopted and become a party
to the Plan for the current participation of their active
employees (Participating Employer). For the years ending
December 31, 1998 and 1997, Phillips Driscopipe (with respect to
hourly employees only), a division of the Company, was the only
Participating Employer.
Other subsidiaries or divisions having present or former
employees holding interests in the Plan are Catalyst Resources,
Inc. (sold March 30, 1994), Drilling Specialties Company,
Phillips Coal Company, and Phillips Uranium Corporation (now
liquidated).
Generally, an employee of a Participating Employer becomes a
participant after completing a six-month period of service of
500 or more hours. Participation in the Plan by each eligible
employee is mandatory. Each month the Participating Employer or
the Company contributes an amount equal to 5 percent of each
participant's regular monthly earnings. A participant can make
after-tax deposits, in whole percentages, ranging from 1 to
10 percent of his regular monthly earnings. Participants can
elect to change their deposit rates once each six months.
Effective January 1, 1996, the hourly employees of Phillips
Driscopipe were no longer permitted to make deposits under this
Plan. However, the Participating Employer or the Company
continues to make contributions to this Plan on their behalf.
Plan assets consist of the Stock Fund, the Fixed Investment Fund
and the Temporary Investment Fund. Investments for each fund
are: Stock Fund (common stock of the Company); Fixed Investment
Fund (an insurance contract with Travelers Insurance Company
(Travelers) under which Travelers guarantees repayment of the
principal paid to it and a minimum effective rate of interest
thereon); and Temporary Investment Fund (specified short-term
9
<PAGE>
securities). WestStar Bank, Bartlesville, Oklahoma, served as
Trustee for all plan assets prior to the close of business on
February 28, 1996, when the Trustee was changed to Vanguard
Fiduciary Trust Company (Vanguard), P.O. Box 2900, Valley Forge,
Pennsylvania 19482-2900. Effective with the change in Trustee,
the Company became contractholder of the insurance contract with
Travelers for the Fixed Fund. This change in contractholder does
not affect participant benefits. The interests of participants
in each fund are represented by units allocated to them. Unit
values reflected in the accompanying statements are based on
aggregate fund values and aggregate units.
Participant deposits are placed first in the Temporary Investment
Fund and remain there until the valuation date on or about the
20th day of the following month. Deposits and earnings thereon
are then paid into the Stock Fund or the Fixed Investment Fund as
directed by the participant. No investment directions may be
made with respect to Participating Employer contributions, all of
which are invested only in the Fixed Investment Fund. The Plan
allows limited transfers between the Stock Fund and the Fixed
Investment Fund.
A participant's interest in his own deposits is vested at all
times, and his interest in Participating Employer contributions
becomes fully vested on the earliest of the following dates:
(a) upon attainment of age 65 or upon normal retirement; (b) upon
completing five years of vesting service; (c) upon death;
(d) upon becoming totally and permanently disabled; (e) upon
being laid off for lack of work; (f) upon termination or partial
termination of the Plan or discontinuance of Participating
Employer contributions; or (g) upon certain other events.
Partial vesting in Participating Employer contributions takes
place in one year increments, with complete vesting after five
years of vesting service. A participant who has made deposits
may withdraw any amount attributable to those deposits.
Withdrawals of deposits may be made only once each six months.
Suspensions of employee deposits for three and six months apply
for partial and complete withdrawals, respectively.
A participant's interest in the contributions of a Participating
Employer becomes available for distribution upon specified
events, including separation from service or retirement.
Termination of employment will result in forfeiture of
Participating Employer contributions if a participant's interest
attributable to those Participating Employer contributions is not
vested. Forfeitures are used to reduce employer contributions.
A participant who retires generally may postpone distribution
until no later than the first valuation date in October of the
year age 69 is attained.
10
<PAGE>
Distributions from the Fixed Investment Fund are made in cash
while those from the Stock Fund are in whole shares of the
Company's common stock, plus cash for fractional shares, unless
the participant directs that the distribution be wholly or
partially in cash. Distribution in the form of an annuity is
also available, as set forth in the Plan.
In the event of termination of the Plan, participants and
beneficiaries of deceased participants will be vested with
respect to, and will receive, within a reasonable time, any funds
in their accounts as of the date of the termination.
The Plan is administered by the Retirement Savings Plan
Committee, a Plan Financial Administrator and a Plan Benefits
Administrator. The members of the Committee are appointed by the
Board of Directors of the Company. The Committee has power to
interpret the Plan and the Plan Benefits Administrator has the
authority to determine eligibility for benefits. The Plan
Financial Administrator has the responsibility to manage and
control the assets of the Plan in accordance with the terms of
the Plan. Brokerage fees, commissions, stock transfer taxes and
other charges and expenses incurred in connection with the
purchase or sale of securities are paid by the Plan. The cost of
administering the Plan is paid by the Company.
Note 2--Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates and assumptions.
Note 3--Investments
Common stock of the Company is valued at the closing quoted
market price on the valuation date. The value of the insurance
contract is recorded at contract value, which approximates fair
value, and represents contributions, plus interest credited, less
distributions. The money market fund is valued at the current
redemption price determined by the Trustee.
11
<PAGE>
Note 4--Tax Status
The Internal Revenue Service (IRS) determined on December 26,
1995, that the Plan is qualified under Section 401(a) of the
Internal Revenue Code of 1986 and the Trust is exempt from
federal income tax under Section 501(a). Subsequent amendments
have been adopted, but are not expected to affect the qualified
status of the Plan. The Committee is not aware of any activity
that would affect the qualified status of the Plan.
Note 5--Insurance Contract
The average yield and crediting interest rate of the Fixed Fund
insurance contract was 6.40 percent and 6.50 percent in 1998 and
1997, respectively. The crediting interest rate, determined by
Travelers, is reset annually, with the new rate going into effect
on January 1 of each year. There is no contractually guaranteed
minimum interest rate and the contract with Travelers does not
provide a basis for determining the crediting interest rate.
Note 6--Employer Contributions
Participating employer contributions are presented in the
Statement of Changes in Net Assets Available for Benefits net of
forfeitures of $74,818 and $14,600 in 1998 and 1997,
respectively.
Note 7--Fixed Fund Unit Values
When the plan recordkeeping function was transferred from
Travelers to Vanguard in early 1998, the initial value of each
unit in the Fixed Fund was set at $10. Company contributions and
interest earnings result in an increase in the total number of
units outstanding, resulting in a constant unit value of $10.
Had a $10 unit value been applied to the Fixed Fund's net assets
available for benefits at December 31, 1997, there would have
been 1,001,906 units outstanding.
Note 8--Impact of Year 2000 (Unaudited)
Phillips does not expect the Year 2000 issue to have a
significant effect on Plan operations. Phillips' applications
software associated with the Plan is now Year 2000 compliant.
All necessary Year 2000 remediation and testing have been
completed and the Year-2000-compliant version of the software has
been implemented.
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The critical suppliers associated with the Plan, in particular
Vanguard, have been assessed with regard to their progress toward
becoming Year 2000-ready. All critical suppliers have been
judged by Phillips to be making adequate progress. Phillips
plans to continue to monitor the critical suppliers through year-
end 1999. Business continuity planning efforts associated with
the Plan have also been completed by Phillips.
However, an unexpected failure to adequately address this issue
could result in an interruption of normal Plan operations and
activities.
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Schedule of Assets Held Retirement Savings Plan of
For Investment Purposes Phillips Petroleum Company
Line 27a EIN 73-0400345, Plan 010
At December 31, 1998
(a, b) Identity of (c) Description of investment
issue, borrower, including maturity date,
lessor, or similar rate of interest, collateral, (d) Historical (e) Current
party par or maturity value Cost Value
- -------------------- ------------------------------ -------------- -----------
<C> <C> <C> <C>
The Travelers Group Annuity Contract
Insurance Company* GR-10462, deposit
administration fund $10,374,983 10,374,983
Phillips Petroleum 13,208 shares of common stock,
Company* $1.25 par value 230,055 562,991
Vanguard Fiduciary 2,153 units of participation
Trust Company* in the Vanguard Prime Money
Market Fund, $1.00 par value 2,153 2,153
- ------------------------------------------------------------------------------------
$10,607,191 10,940,127
====================================================================================
*Party-in-interest
</TABLE>
14
<PAGE>
- -----------------------------------------------------------------
Schedule of Reportable Transactions Retirement Savings Plan of
Line 27d Phillips Petroleum Company
Series of Transactions in Excess EIN 73-0400345, Plan 010
of 5 Percent of Net Assets
Year Ended December 31, 1998
(a, b) Identity of
party involved and (c) Value of (d) Value (i) Net gain
description of asset purchases* of sales* or (loss)
- ----------------------- ------------ --------- ------------
The Travelers Insurance
Company** $978,966 573,051 -
- -----------------------------------------------------------------
*This is also the cost of purchases and current value of sales
at time of transaction.
**Party-in-interest
Columns (e), (f), (g) and (h) are not applicable.
15
<PAGE>
Exhibit 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8, File No. 33-28669) pertaining to the
Retirement Savings Plan of Phillips Petroleum Company and in the
related Prospectus of our report dated June 24, 1999, with
respect to the financial statements and schedules of the
Retirement Savings Plan of Phillips Petroleum Company included in
this Annual Report (Form 11-K) for the year ended December 31,
1998.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
June 24, 1999
<PAGE>
