UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
----------------------------------
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) Indentification No.)
Phillips Building, Bartlesville, Oklahoma 74004
(Address of principal executive offices) (Zip Code)
918-661-6600
(Registrant's telephone number, including area code)
---------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
The registrant had 254,764,934 shares of common stock, $1.25 par
value, outstanding at July 31, 2000.
PART I. FINANCIAL INFORMATION
- ---------------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Millions of Dollars
---------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
---------------------------------
2000 1999 2000 1999
---------------------------------
Revenues
Sales and other operating revenues $5,331 3,172 10,066 5,593
Equity in earnings of affiliated
companies 86 27 107 48
Other revenues 17 32 29 129
- ---------------------------------------------------------------------
Total Revenues 5,434 3,231 10,202 5,770
- ---------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 3,184 1,891 6,267 3,238
Production and operating expenses 569 498 1,088 998
Exploration expenses 73 62 124 109
Selling, general and
administrative expenses 178 164 363 324
Depreciation, depletion and
amortization 298 222 532 442
Property impairments - 51 - 51
Taxes other than income taxes 111 58 173 119
Interest expense 99 73 160 140
Foreign currency transaction losses 21 15 39 40
Preferred dividend requirements
of capital trusts 13 13 26 26
- ---------------------------------------------------------------------
Total Costs and Expenses 4,546 3,047 8,772 5,487
- ---------------------------------------------------------------------
Income before income taxes 888 184 1,430 283
Provision for income taxes 446 116 738 145
- ---------------------------------------------------------------------
Net Income $ 442 68 692 138
=====================================================================
Net Income Per Share of Common
Stock
Basic $ 1.74 .27 2.73 .55
Diluted 1.73 .27 2.71 .54
- ---------------------------------------------------------------------
Dividends Paid $ .34 .34 .68 .68
- ---------------------------------------------------------------------
Average Common Shares Outstanding
(in thousands)
Basic 253,986 252,581 253,852 252,346
Diluted 255,974 254,640 255,077 253,830
- ---------------------------------------------------------------------
See Notes to Financial Statements.
1
- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
Millions of Dollars
-----------------------
June 30 December 31
2000 1999
-----------------------
Assets
Cash and cash equivalents $ 235 138
Accounts and notes receivable (less
allowances: 2000--$21; 1999--$19) 1,847 1,808
Inventories 752 515
Deferred income taxes 123 143
Prepaid expenses and other current assets 234 169
- -----------------------------------------------------------------
Total Current Assets 3,191 2,773
Investments and long-term receivables 1,237 1,103
Properties, plants and equipment (net) 15,648 11,086
Deferred income taxes 75 83
Deferred charges 113 156
- -----------------------------------------------------------------
Total $20,264 15,201
=================================================================
Liabilities
Accounts payable $ 1,847 1,668
Notes payable and long-term debt due
within one year 808 31
Accrued income and other taxes 766 409
Other accruals 371 412
- -----------------------------------------------------------------
Total Current Liabilities 3,792 2,520
Long-term debt 7,319 4,271
Accrued dismantlement, removal and
environmental costs 657 684
Deferred income taxes 1,549 1,480
Employee benefit obligations 507 483
Other liabilities and deferred credits 709 564
- -----------------------------------------------------------------
Total Liabilities 14,533 10,002
- -----------------------------------------------------------------
Company-Obligated Mandatorily
Redeemable Preferred Securities
of Phillips 66 Capital Trusts I and II 650 650
- -----------------------------------------------------------------
Common Stockholders' Equity
Common stock--500,000,000 shares
authorized at $1.25 par value
Issued (306,380,511 shares)
Par value 383 383
Capital in excess of par 2,122 2,098
Treasury stock (at cost:
2000--23,850,237 shares;
1999--24,409,545 shares) (1,190) (1,217)
Compensation and Benefits Trust (CBT)
(at cost: 2000--27,880,382 shares;
1999--28,358,258 shares) (944) (961)
Accumulated other comprehensive income
Foreign currency translation adjustments (79) (38)
Unrealized gains on securities 7 7
Unearned employee compensation--Long-
Term Stock Savings Plan (LTSSP) (276) (286)
Retained earnings 5,058 4,563
- -----------------------------------------------------------------
Total Common Stockholders' Equity 5,081 4,549
- -----------------------------------------------------------------
Total $20,264 15,201
=================================================================
See Notes to Financial Statements.
2
- -----------------------------------------------------------------
Consolidated Statement of Phillips Petroleum Company
Cash Flows
Millions of Dollars
-------------------
Six Months Ended
June 30
-------------------
2000 1999
-------------------
Cash Flows from Operating Activities
Net income $ 692 138
Adjustments to reconcile net income to net
cash provided by operating activities
Non-working capital adjustments
Depreciation, depletion and
amortization 532 442
Property impairments - 51
Dry hole costs and leasehold
impairment 46 54
Deferred taxes 94 9
Other 28 (1)
Working capital adjustments, net of
acquisition and disposition of
businesses
Increase in aggregate balance of
accounts receivable sold 118 18
Increase in other accounts and
notes receivable (109) (261)
Increase in inventories (83) (16)
Decrease (increase) in prepaid
expenses and other current assets (30) 95
Increase (decrease) in accounts
payable (8) 23
Increase in taxes and other accruals 306 136
- -----------------------------------------------------------------
Net Cash Provided by Operating Activities 1,586 688
- -----------------------------------------------------------------
Cash Flows from Investing Activities
Acquisition of ARCO's Alaskan businesses (5,583) -
Capital expenditures and investments,
including dry hole costs (717) (985)
Proceeds from contribution of gas gathering,
processing and marketing assets to joint
venture 1,220 -
Proceeds from asset dispositions 39 132
Long-term advances to affiliates and
other investments (42) (6)
- -----------------------------------------------------------------
Net Cash Used for Investing Activities (5,083) (859)
- -----------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 4,070 547
Repayment of debt (258) (117)
Purchase of company common stock - (13)
Issuance of company common stock 12 18
Dividends paid on common stock (173) (172)
Other (57) (42)
- -----------------------------------------------------------------
Net Cash Provided by Financing Activities 3,594 221
- -----------------------------------------------------------------
Net Change in Cash and Cash Equivalents 97 50
Cash and cash equivalents at beginning of
period 138 97
- -----------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 235 147
=================================================================
See Notes to Financial Statements.
3
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1--Interim Financial Information
The financial information for the interim periods presented in
the financial statements included in this report is unaudited and
includes all known accruals and adjustments which Phillips
Petroleum Company (hereinafter referred to as "Phillips" or the
"company") considers necessary for a fair presentation of the
consolidated financial position of the company and its results of
operations and cash flows for such periods. All such adjustments
are of a normal and recurring nature.
Note 2--Inventories
Inventories consisted of the following:
Millions of Dollars
-----------------------
June 30 December 31
2000 1999
-----------------------
Crude oil and petroleum products $299 145
Chemical products 306 285
Materials, supplies and other 147 85
- -----------------------------------------------------------------
$752 515
=================================================================
Note 3--Properties, Plants and Equipment
Properties, plants and equipment included the following:
Millions of Dollars
-----------------------
June 30 December 31
2000 1999
-----------------------
Properties, plants and equipment
(at cost) $26,144 22,728
Less accumulated depreciation,
depletion and amortization 10,496 11,642
- -----------------------------------------------------------------
$15,648 11,086
=================================================================
Net properties, plants and equipment increased approximately
$4.6 billion during the first six months of 2000, primarily due
to the April 26 acquisition of Atlantic Richfield Company's
(ARCO) Alaskan businesses. See Note 14--Alaska Acquisition. The
increase resulting from this acquisition was partially offset
4
by the company's contribution of its gas gathering, processing
and marketing assets to the Duke Energy Field Services, LLC
(DEFS) joint venture on March 31, 2000. See Note 13--Duke Energy
Field Services, LLC.
Note 4--Debt
In May 2000, Phillips issued $1.15 billion of 8.5% Notes due
2005, and $1.35 billion of 8.75% Notes due 2010, in the public
market.
Effective April 26, 2000, Phillips entered into a new
$6.5 billion revolving credit facility, which is a 364-day
facility with terms similar to the company's existing
$1.5 billion revolving credit facility that expires in May 2002.
The company's commercial paper program is supported by both
revolving credit facilities in an amount equal to 100 percent of
the commercial paper outstanding. The commitments under the new
facility are automatically reduced by the amount of the cash
distributions received upon formation of the company's gas
gathering, processing and marketing, and chemicals joint ventures
and any long-term debt issuances. In early April, Phillips
received $1.22 billion upon the formation of DEFS, and in early
July received $835 million upon the formation of Chevron Phillips
Chemical Company LLC (CPC). As a result of receiving the
proceeds from the joint ventures and issuing the $2.5 billion of
notes, the commitments under the new revolving credit facility
have been reduced to $1.9 billion, leaving total remaining
commitments of $3.4 billion under the two agreements.
At June 30, 2000, Phillips had $1.9 billion of commercial paper
outstanding and $50 million outstanding under its $1.5 billion
revolving credit facility. Also on that date, the company's
wholly owned subsidiary, Phillips Petroleum Company Norway, had
$70 million outstanding under one of its two $300 million
revolving credit facilities. These two credit facilities expire
in November 2001, and June 2004.
Note 5--Income Taxes
The company's effective tax rates for the second quarter and first
six months of 2000 were 50 and 52 percent, respectively, compared
with 63 and 51 percent for each of the same periods a year ago.
The effective tax rate for the second quarter of 1999 was
negatively impacted by increases in valuation allowances on
certain deferred tax assets. The effective tax rate for the
second quarter of 2000 was positively impacted as a result of the
acquisition of ARCO's Alaskan businesses.
5
Note 6--Contingencies
In the case of all known contingencies, the company accrues an
undiscounted liability when the loss is probable and the amount
is reasonably estimable. These liabilities are not reduced for
potential insurance recoveries. If applicable, undiscounted
receivables are accrued for probable insurance or other third-
party recoveries. Based on currently available information, the
company believes that it is remote that future costs related to
known contingent liability exposures will exceed current accruals
by an amount that would have a material adverse impact on the
company's financial statements.
As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change include contingent
liabilities recorded for environmental remediation, tax and legal
matters. Estimated future environmental remediation costs are
subject to change due to such factors as the unknown magnitude of
clean-up costs, the unknown time and extent of such remedial
actions that may be required, and the determination of the
company's liability in proportion to other responsible parties.
Estimated future costs related to tax and legal matters are
subject to change as events evolve and as additional information
becomes available during the administrative and litigation
process.
Environmental--The company is subject to federal, state and local
environmental laws and regulations. These may result in
obligations to remove or mitigate the effects on the environment
of the placement, storage, disposal or release of certain
chemical, mineral and petroleum substances at various sites. The
company is currently participating in environmental assessments
and clean-up under these laws at federal Superfund and comparable
state sites. In the future, the company may be involved in
additional environmental assessments, clean-ups and proceedings.
Other Legal Proceedings--The company is a party to a number of
other legal proceedings pending in various courts or agencies for
which, in some instances, no provision has been made.
Other Contingencies--The company has contingent liabilities
resulting from throughput agreements with pipeline and processing
companies in which it holds stock interests. Under these
agreements, Phillips may be required to provide any such company
with additional funds through advances, most of which can be
recovered through reductions of future charges for the shipping
or processing of petroleum liquids, natural gas and refined
products.
6
Note 7--Non-Mineral Operating Leases
Phillips and its co-venturer in the Kenai liquefied natural gas
plant lease two tankers that are used to transport liquefied
natural gas from Kenai, Alaska, to Japan. The previous leases on
these two tankers were due to expire in June and December of
2000. In June 2000, the company and its co-venturer closed on
new five-year leasing arrangements for the two tankers.
Phillips' 70 percent share of future minimum lease payments due
under the new lease terms are:
Millions
of Dollars
----------
2000 $ 12
2001 23
2002 22
2003 22
2004 21
2005 10
- -----------------------------------------------------------------
$110
=================================================================
The company's 70 percent share of the guaranteed residual value
of the two tankers is $215 million.
7
Note 8--Supplemental Cash Flow Information
Non-cash investing and financing activities and cash payments for
the six-month periods ended June 30 were as follows:
Millions of Dollars
-------------------
2000 1999
-------------------
Non-Cash Investing and Financing Activities
Investment in equity affiliate through
exchange of non-cash assets and
liabilities* $1,068 -
Investment in property, plant and equipment
of ARCO's Alaskan businesses through the
assumption of net non-cash liabilities of
the acquired businesses 57 -
Investment in equity affiliate through
direct guarantee of debt 13 -
Company stock issued under compensation
and benefit plans 21 24
Change in fair value of securities 9 10
Investment in joint venture in exchange
for non-cash assets - 2
- -----------------------------------------------------------------
Cash payments
Interest
Debt $ 122 127
Taxes and other 13 4
- -----------------------------------------------------------------
$ 135 131
=================================================================
Income taxes $ 263 45
- -----------------------------------------------------------------
*On March 31, 2000, Phillips combined its gas gathering,
processing and marketing assets with the gas processing and
gathering business of Duke Energy Corporation into Duke Energy
Field Services, LLC. See Note 13--Duke Energy Field Services,
LLC.
8
Note 9--Foreign Currency
The following table summarizes the foreign currency transaction
gains (losses) included in the company's reported net income:
Millions of Dollars
---------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
After-Tax
E&P $ (1) - (4) 1
RM&T (1) (1) (1) (1)
Chemicals - - (1) (1)
Corporate and Other (16) (8) (20) (22)
- -----------------------------------------------------------------
Total $(18) (9) (26) (23)
=================================================================
Before-Tax
E&P $ (4) (6) (16) (15)
RM&T (1) - (1) -
Chemicals - - (1) (2)
Corporate and Other (16) (9) (21) (23)
- -----------------------------------------------------------------
Total $(21) (15) (39) (40)
=================================================================
Note 10--Comprehensive Income
Phillips' comprehensive income for the three- and six-month
periods ended June 30, was as follows:
Millions of Dollars
-------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
------------- -------------
2000 1999 2000 1999
------------- -------------
Net income $442 68 692 138
After-tax changes in:
Foreign currency translation
adjustments (21) (11) (41) (23)
Net unrealized gain (loss)
on securities (1) 2 - 2
- -----------------------------------------------------------------
Other comprehensive income $420 59 651 117
=================================================================
9
Note 11--Termination Benefits
The following tables update information provided at year-end 1999
on the company's 1998 and 1999 layoff accruals associated with
pre-existing layoff plans, as well as the number of employees
impacted. The accrued liability includes amounts for which
Phillips expects to be reimbursed by co-venturers under
applicable agreements.
Millions
of Dollars
----------
Severance liability at December 31, 1999 $73
Additional severance accruals 4
Adjustments to severance accruals (2)
Foreign currency translation adjustments (3)
Benefit payments (30)
- -----------------------------------------------------------------
Severance liability at June 30, 2000 $ 42*
=================================================================
*Included $25 million in severance costs under a foreign plan
classified as a long-term liability. These benefits will be
paid out over a 10-year period.
At December 31, 1999, there were 21 staffed positions that had
been identified for termination. By June 30, 2000, all
notifications had been given.
Note 12--Segment Disclosures
The company has organized its reporting structure based on the
grouping of similar products and services, resulting in four
operating segments:
(1) Exploration and Production (E&P)--This segment explores for
and produces crude oil, natural gas and natural gas liquids
on a worldwide basis.
(2) Gas Gathering, Processing and Marketing (GPM)--This segment
gathers and processes both natural gas produced by others
and natural gas produced from Phillips' reserves. On
March 31, 2000, Phillips combined its gas gathering,
processing and marketing assets with the gas gathering and
processing business of Duke Energy Corporation into a new
company, Duke Energy Field Services, LLC (DEFS). Effective
at the close of business on March 31, 2000, Phillips' GPM
segment consisted primarily of its equity investment in
DEFS. See Note 13--Duke Energy Field Services, LLC for
additional information on DEFS.
10
(3) Refining, Marketing and Transportation (RM&T)--This segment
refines, markets and transports crude oil and petroleum
products, primarily in the United States. This segment also
fractionates and markets natural gas liquids.
(4) Chemicals--This segment manufactures and markets
petrochemicals and plastics on a worldwide basis. See
Note 15--Subsequent Event for additional information about
recent developments in Chemicals.
Corporate and Other includes general corporate overhead; all
interest revenue and expense, including preferred dividend
requirements of capital trusts; certain eliminations; and various
other corporate activities, such as the company's captive
insurance subsidiary and tax items not directly attributable to
the operating segments.
The company evaluates performance and allocates resources based
on net income, among other items. Intersegment sales are
recorded at prices that approximate market value. There have
been no material changes in the basis of segmentation or in the
basis of measurement of segment net income since the 1999 annual
report.
11
Analysis of Results by Operating Segment
Millions of Dollars
--------------------------------
Operating Segments
--------------------------------
E&P GPM RM&T Chemicals
Three Months Ended June 30, 2000 --------------------------------
Sales and Other Operating Revenues
External customers $ 1,762 - 2,721 848
Intersegment 155 - 177 80
- -------------------------------------------------------------------
Segment sales $ 1,917 - 2,898 928
===================================================================
Net income $ 391 29 86 55
===================================================================
Three Months Ended June 30, 1999
Sales and Other Operating Revenues
External customers $ 683 195 1,706 587
Intersegment 109 156 98 35
- -------------------------------------------------------------------
Segment sales $ 792 351 1,804 622
===================================================================
Net income $ 76 18 33 41
===================================================================
Six Months Ended June 30, 2000
Sales and Other Operating Revenues
External customers $ 2,826 255 5,337 1,647
Intersegment 345 287 359 151
- -------------------------------------------------------------------
Segment sales $ 3,171 542 5,696 1,798
===================================================================
Net income $ 632 80 109 81
===================================================================
Total Assets
At June 30, 2000 $12,567 - 3,477 3,210
- -------------------------------------------------------------------
At December 31, 1999 $ 6,593 1,197 3,453 2,955
- -------------------------------------------------------------------
Six Months Ended June 30, 1999
Sales and Other Operating Revenues
External customers $ 1,239 349 2,923 1,081
Intersegment 192 267 192 61
- -------------------------------------------------------------------
Segment sales $ 1,431 616 3,115 1,142
===================================================================
Net income $ 166 24 25 70
===================================================================
Millions of Dollars
--------------------------
Corporate
and Other Consolidated
Three Months Ended June 30, 2000 --------------------------
Sales and Other Operating Revenues
External customers $ - 5,331
Intersegment (eliminations) (412) -
- -----------------------------------------------------------------
Segment sales $ (412) 5,331
=================================================================
Net income (loss) $ (119) 442
=================================================================
Three Months Ended June 30, 1999
Sales and Other Operating Revenues
External customers $ 1 3,172
Intersegment (eliminations) (398) -
- -----------------------------------------------------------------
Segment sales $ (397) 3,172
=================================================================
Net income (loss) $ (100) 68
=================================================================
Six Months Ended June 30, 2000
Sales and Other Operating Revenues
External customers $ 1 10,066
Intersegment (eliminations) (1,142) -
- -----------------------------------------------------------------
Segment sales $(1,141) 10,066
=================================================================
Net income (loss) $ (210) 692
=================================================================
Total Assets
At June 30, 2000 $ 1,010 20,264
- -----------------------------------------------------------------
At December 31, 1999 $ 1,003 15,201
- -----------------------------------------------------------------
Six Months Ended June 30, 1999
Sales and Other Operating Revenues
External customers $ 1 5,593
Intersegment (eliminations) (712) -
- -----------------------------------------------------------------
Segment sales $ (711) 5,593
=================================================================
Net income (loss) $ (147) 138
=================================================================
Note 13--Duke Energy Field Services, LLC
On March 31, 2000, Phillips combined its midstream gas gathering,
processing and marketing assets with the gas gathering and
processing business of Duke Energy Corporation (Duke Energy)
forming a new company, Duke Energy Field Services, LLC (DEFS).
At the close of business on March 31, Phillips began accounting
for its investment in the new company on an equity basis. DEFS
arranged debt financing and on April 3, 2000, made one-time cash
distributions to both Duke Energy and Phillips. Phillips
received $1.22 billion in cash on April 3, 2000. Since the cash
received exceeded the book value of the net assets contributed,
Phillips' net investment in DEFS has a credit balance and is
shown in Other liabilities and deferred credits on the balance
sheet. This resulted in the GPM segment's total assets declining
to zero in the second quarter of 2000. No gain was recognized in
connection with the transaction because of Phillips' long-term
commitment to purchase natural gas liquids from DEFS. Duke
Energy owns 69.7 percent of the new company, and Phillips owns
30.3 percent. Phillips' consolidated results of operations
12
include 100 percent of the activity of its gas gathering,
processing and marketing business through March 31, 2000, and its
30.3 percent share of DEFS' earnings since the date of
combination. Included in the GPM segment's before-tax earnings
in the second quarter of 2000 was $14.7 million representing the
amortization of the basis difference between the book value of
Phillips' contribution to DEFS and its 30.3 percent interest in
the equity of DEFS. This difference is being amortized over
15 years.
During the second quarter of 2000, Phillips purchased
$258 million of natural gas liquids from DEFS and sold DEFS
$51 million of natural gas.
On August 4, 2000, DEFS, Duke Energy, and Phillips agreed to
modify the Limited Liability Company Agreement governing DEFS to
provide for the admission of a class of preferred members in
DEFS. Subsidiaries of Duke Energy and Phillips purchased these
new preferred member interests for $209 million and $91 million,
respectively. The preferred member interests have a 30-year
term, will pay a distribution which yields 9.5 percent annually,
and contain provisions which require their redemption with any
proceeds from an initial public offering (IPO). On May 25, 2000,
DEFS announced that it had postponed its previously proposed IPO
due to volatile market conditions.
Note 14--Alaska Acquisition
On April 26, 2000, Phillips purchased all of Atlantic Richfield
Company's (ARCO) Alaskan businesses, other than three double-
hulled tankers under construction and certain pipeline assets,
which were acquired on August 1, 2000. The acquisition is being
accounted for using the purchase method of accounting. Because
the purchase was retroactive to January 1, 2000, the activity
from that date until April 26, 2000, was reflected as an
adjustment to the purchase price. Results of operations for the
acquired businesses are included in Phillips' income statement
effective from April 26, 2000.
On April 26, at closing, Phillips paid approximately $5.5 billion
in cash. See Note 4--Debt. On August 1, the company paid
approximately $700 million and assumed $265 million of variable-
rate, long-term debt.
Under the terms of the purchase agreement, Phillips could pay up
to $500 million as additional purchase price consideration
through December 31, 2004, based on a formula tied to the price
of West Texas Intermediate crude oil and to the volumes of oil
produced from certain of the assets acquired. The company has
made approximately $138 million of such payments for the crude
13
oil shipments delivered through June 30, 2000. Formula-based
payments for July business are estimated to be $34 million,
leaving an estimated $328 million that may have to be paid. The
final purchase price is also subject to change based on the
results of a post-closing audit.
The allocation of the purchase price to specific assets and
liabilities is preliminary at this time. Based on the
consideration paid to date and a preliminary estimate of the
appraised value of the properties, plants and equipment acquired,
no goodwill has been recorded in the preliminary purchase price
allocation.
The following unaudited pro forma summary presents information as
if the businesses acquired on April 26, 2000, had been acquired
at the beginning of each period presented. The pro forma amounts
include certain adjustments, including recognition of
depreciation, depletion and amortization based on the preliminary
allocated purchase price of the assets acquired; interest on
additional debt incurred; capitalization of interest on major
Alaskan projects under development; and adjustments to conform
ARCO Alaska's accounting policies to Phillips'. The pro forma
amounts do not reflect any benefits from economies which might be
achieved from combining the operations. The pro forma
information does not necessarily reflect the actual results that
would have occurred had the businesses been combined during the
periods presented, nor is it necessarily indicative of future
results of operations of the combined companies:
Millions of Dollars
-------------------
Six Months Ended
June 30
-------------------
2000 1999
-------------------
Total revenues $11,143 6,564
Income before income taxes 1,791 295
Net income 903 152
Net income per share of common stock
Basic $ 3.56 .60
Diluted 3.54 .60
- -----------------------------------------------------------------
Note 15--Subsequent Event
On July 1, 2000, Phillips and Chevron Corporation (Chevron)
combined the two companies' worldwide chemicals businesses,
excluding Chevron's Oronite business, into a new company, Chevron
Phillips Chemical Company LLC (CPC). In addition to contributing
the assets and operations included in the company's Chemicals
segment, Phillips also contributed the natural gas liquids
14
business related to its Sweeny, Texas, Complex. Phillips and
Chevron each own 50 percent of the voting and economic interests
in the new company. On July 1, 2000, Phillips began accounting
for its investment in CPC on an equity basis.
In connection with the combination, CPC borrowed $1.67 billion.
The proceeds of the borrowing were used to make cash
distributions of $835 million each to Phillips and Chevron. Also
in connection with the combination, Phillips made a $70 million
cash advance to CPC. This non-interest-bearing advance is
subject to adjustment if the K-Resin styrene-butadiene copolymer
operations fail to meet or if they exceed certain pre-established
production volume thresholds prior to December 2001. Any portion
of the advance not returned to Phillips or any additional
payments will be treated as part of Phillips' initial capital
contribution.
15
- -----------------------------------------------------------------
Management's Discussion and Phillips Petroleum Company
Analysis of Financial Condition
and Results of Operations
Management's Discussion and Analysis contains forward-looking
statements including, without limitation, statements relating to
the company's plans, strategies, objectives, expectations,
intentions, and resources, that are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform
Act of 1995. The words "intends," "believes," "expects,"
"plans," "scheduled," "anticipates," "estimates," and similar
expressions identify forward-looking statements. The company
does not undertake to update, revise or correct any of the
forward-looking information. Readers are cautioned that such
forward-looking statements should be read in conjunction with the
company's disclosures under the heading: "CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE `SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995" beginning on page 40.
RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three-
and six-month periods ending June 30, 2000, are based on a
comparison with the corresponding periods of 1999.
Consolidated Results
A summary of the company's net income by business segment
follows:
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Exploration and Production
(E&P) $391 76 632 166
Gas Gathering, Processing
and Marketing (GPM) 29 18 80 24
Refining, Marketing and
Transportation (RM&T) 86 33 109 25
Chemicals 55 41 81 70
Corporate and Other (119) (100) (210) (147)
- -----------------------------------------------------------------
Net income $ 442 68 692 138
=================================================================
16
Net income is affected by transactions, defined by Management and
termed "special items," which are not representative of the
company's ongoing operations. These transactions can obscure the
underlying operating results for a period and affect
comparability of operating results between periods. The
following table summarizes the gains/(losses), on an after-tax
basis, from special items included in the company's reported net
income:
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Property impairments $ - (20) - (20)
Work force reduction
charges - (2) (6) (7)
Net gain/(loss) on asset
sales (5) 16 2 49
Pending claims and
settlements 6 (10) (24) 28
Other items 2 (24) 10 (24)
- -----------------------------------------------------------------
Total special items $ 3 (40) (18) 26
=================================================================
Excluding the special items listed above, the company's net
operating income by business segment was:
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
E&P $ 396 99 619 154
GPM 25 18 82 25
RM&T 86 37 113 31
Chemicals 51 37 79 59
Corporate and Other (119) (83) (183) (157)
- -----------------------------------------------------------------
Net operating income $ 439 108 710 112
=================================================================
Phillips' net income in the second quarter of 2000 was
$442 million, compared with net income of $68 million in the
second quarter of 1999. Special items increased net income in
the second quarter of 2000 by $3 million, while they reduced net
income $40 million in the second quarter of the prior year.
After excluding special items, net operating income in the second
quarter of 2000 was $439 million, compared with $108 million in
the second quarter of 1999.
17
The increase in net operating income in the second quarter of
2000 was primarily the result of sharply higher earnings in
Phillips' E&P segment. The E&P segment benefited from a
76 percent increase in its average worldwide crude oil price, as
well as an 83 percent increase in crude oil production resulting
primarily from the company's acquisition of Atlantic Richfield
Company's Alaskan businesses, excluding marine tankers under
construction and certain pipeline assets, (ARCO Alaska) in late
April of 2000. (See Note 14--Alaska Acquisition in the Notes to
Financial Statements for further information on the ARCO Alaska
acquisition.) Also contributing to the increase in second
quarter earnings were strong E&P operations in Norway, higher
refinery gasoline and distillates margins in RM&T, and improved
ethylene margins in Chemicals.
Phillips' net income for the first six months of 2000 was
$692 million, a 401 percent increase from the corresponding
period in 1999. Special items reduced six-month net income by
$18 million in 2000, while they benefited the prior year's first
six-month net income by $26 million. After excluding special
items, net operating income was 534 percent higher in the 2000
six-month period.
Income Statement Analysis
Sales and other operating revenues increased 68 percent in the
second quarter of 2000 and 80 percent in the six-month period.
Both periods reflect higher sales prices across all of the
company's major product lines. Of particular significance were
sharply higher petroleum products and crude oil prices. These
same factors also accounted for 68 percent and 94 percent
increases in purchase costs in the second quarter and first six
months of 2000, respectively. Also contributing to the increased
operating revenues was the ARCO Alaska acquisition in late-April
2000.
Equity in earnings of affiliated companies increased 219 percent
in the second quarter of 2000 and 123 percent in the first six
months. Both increases were primarily attributable to the
formation of Duke Energy Field Services, LLC (DEFS) and higher
earnings from the company's investment in Sweeny Olefins Limited
Partnership (SOLP). On March 31, 2000, Phillips and Duke Energy
Corporation contributed their midstream gas gathering, processing
and marketing businesses to DEFS. Phillips received a
30.3 percent interest in DEFS, which is accounted for using the
equity method. Higher ethylene margins improved Phillips' share
of earnings from SOLP.
18
Other revenues decreased 47 percent in the second quarter of 2000
and 78 percent in the six-month period. Both decreases are
primarily attributable to less asset disposition activity, which
resulted in lower net gains on asset sales. In addition, both
2000 periods included less favorable contingency
accruals/settlements.
Controllable costs are primarily production and operating
expenses; and selling, general and administrative expenses.
Controllable costs, adjusted to exclude special items, increased
16 percent in the second quarter of 2000 and 10 percent in the
six-month period. The increase in both periods is primarily
attributable to the ARCO Alaska acquisition, and higher fuel and
utility expenses at the company's downstream manufacturing
facilities. As a result of the DEFS joint venture, beginning in
the second quarter of 2000, Phillips' controllable costs no
longer include expenses associated with its GPM segment.
Phillips uses the equity method of accounting for its investment
in DEFS.
Exploration expenses increased 18 percent and 14 percent in the
second quarter and first six months of 2000, due to higher
geological, geophysical and lease rental expenses.
Depreciation, depletion and amortization (DD&A) increased
34 percent in the second quarter of 2000 and 20 percent in the
six-month period. The increase in both periods is primarily the
result of the ARCO Alaska acquisition. There were no property
impairments in the first six months of 2000. In the second
quarter of 1999, the company recorded impairments on E&P fields
in the North Sea and the Gulf of Mexico.
Taxes other than income taxes were 91 percent higher in the
second quarter of 2000 and 45 percent higher in the six-month
period, with both increases reflecting higher production taxes
associated with the ARCO Alaska acquisition.
Interest expense increased 36 percent in the second quarter of
2000 and 14 percent in the first six months. The increase in
both periods is attributable to higher debt balances as a result
of the ARCO Alaska acquisition, partially offset by higher
capitalized interest.
Foreign currency transaction losses of $21 million and
$39 million were incurred in the second quarter and first six
months of 2000, respectively, compared with losses of $15 million
and $40 million in the corresponding periods of the prior year.
Preferred dividend requirements were unchanged in both the second
quarter and six-month period of 2000 from the previous year.
19
Segment Results
E&P
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $ 391 76 632 166
Less special items (5) (23) 13 12
- -----------------------------------------------------------------
Net operating income $ 396 99 619 154
=================================================================
Dollars Per Unit
-------------------------------------
Average Sales Prices
Crude oil (per barrel)
United States
Alaska $25.89 10.63 25.75 8.20
Lower 48 26.94 14.66 27.35 12.52
Total 26.04 14.10 26.16 11.93
Foreign 27.25 15.35 27.21 13.52
Worldwide 26.59 15.09 26.77 13.15
Natural gas--lease (per
thousand cubic feet)
United States
Alaska 1.44 - 1.44 -
Lower 48 2.99 1.91 2.69 1.76
Total 2.95 1.91 2.68 1.76
Foreign 2.56 2.26 2.46 2.36
Worldwide 2.79 2.04 2.59 1.99
- -----------------------------------------------------------------
Millions of Dollars
-------------------------------------
Worldwide Exploration
Expenses
General administrative;
geological and
geophysical; and lease
rentals $ 40 29 78 55
Leasehold impairment 5 7 10 13
Dry holes 28 26 36 41
- -----------------------------------------------------------------
$ 73 62 124 109
=================================================================
20
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Thousands of Barrels Daily
-------------------------------------
Operating Statistics
Crude oil produced
United States
Alaska 197 7 102 8
Lower 48 35 45 36 47
- -----------------------------------------------------------------
232 52 138 55
Norway 114 92 113 97
United Kingdom 25 36 28 32
Nigeria 19 21 21 22
China 12 10 13 12
Timor Sea 8 8 7 4
Canada 7 8 6 8
Denmark 5 4 5 2
Venezuela 3 1 3 1
- -----------------------------------------------------------------
425 232 334 233
=================================================================
Natural gas liquids produced
United States
Alaska 22 - 11 -
Lower 48 1 2 1 2
- -----------------------------------------------------------------
23 2 12 2
Norway 5 4 5 4
Other areas 3 5 4 5
- -----------------------------------------------------------------
31 11 21 11
=================================================================
Millions of Cubic Feet Daily
-------------------------------------
Natural gas produced*
United States
Alaska 132 113 127 122
Lower 48 766 844 767 848
- -----------------------------------------------------------------
898 957 894 970
Norway 138 114 139 131
United Kingdom 197 188 227 221
Canada 79 83 83 88
Nigeria 25 1 26 1
- -----------------------------------------------------------------
1,337 1,343 1,369 1,411
=================================================================
*Represents quantities available for sale. Excludes gas
equivalent of natural gas liquids shown above.
Liquefied natural gas sales 117 116 117 123
- -----------------------------------------------------------------
Net operating income from Phillips' E&P segment increased
approximately 300 percent in both the second quarter and the six-
month period of 2000. The increase in both periods reflects
higher sales prices for crude oil and natural gas, as well as
21
higher crude oil production as a result of the ARCO Alaska
acquisition and higher output from Norway.
Phillips' average worldwide crude oil price was $26.59 per barrel
in the second quarter of 2000 and $26.77 per barrel in the first
six months, compared with $15.09 per barrel and $13.15 per barrel
in the corresponding periods of 1999. After dropping over $4 per
barrel in the month of April, Phillips' average worldwide crude
oil price trended upward through May and June, ending the month
of June with an average price of $28.47 per barrel. Limited
supply and worldwide demand growth continued to support industry
crude oil prices in the second quarter.
U.S. E&P
- --------
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Operating Income
Reported net income $267 79 388 152
Less special items (5) 8 2 43
- -----------------------------------------------------------------
Net operating income $272 71 386 109
=================================================================
Alaska $168 12 192 21
Lower 48 104 59 194 88
- -----------------------------------------------------------------
$272 71 386 109
=================================================================
Net operating income from the company's U.S. E&P operations
increased 283 percent in the second quarter of 2000 and
254 percent in the six-month period. The increase in both
periods is attributable to the ARCO Alaska acquisition, as well
as higher crude oil, natural gas, and liquefied natural gas
prices.
U.S. crude oil production increased substantially in the second
quarter of 2000 due to the ARCO Alaska acquisition. Lower 48
crude oil production continued to trend downward in the second
quarter, reflecting property dispositions and field declines.
U.S. natural gas production decreased 6 percent in the second
quarter, the result of property dispositions and field declines.
Special items in the second quarter of 2000 primarily included a
net loss on the disposition of certain of the company's coal and
lignite operations. In the six-month period of 2000, special
items consisted of a net gain on asset dispositions. Special
items in the second quarter of 1999 primarily included net gains
on asset sales and an impairment of the Agate field in the Gulf
22
of Mexico. The six-month 1999 period included $49 million in net
gains on asset sales, partially offset by the Agate property
impairment.
Foreign E&P
- -----------
Millions of Dollars
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Operating Income
Reported net income (loss) $124 (3) 244 14
Less special items - (31) 11 (31)
- -----------------------------------------------------------------
Net operating income $124 28 233 45
=================================================================
Net operating income from the company's foreign E&P operations
increased 343 percent in the second quarter of 2000 and
418 percent in the first six months. The increase in both
periods was primarily due to higher crude oil prices and, to a
lesser extent, higher natural gas prices. After-tax foreign
currency transaction losses of $1 million and $4 million were
included in foreign E&P's net operating income in the second
quarter and first six months of 2000, respectively, compared with
no impact in the second quarter of 1999 and a $1 million gain in
the six-month 1999 period.
Foreign crude oil production increased 7 percent in the second
quarter of 2000, primarily the result of increased production in
the Norwegian sector of the North Sea, partially offset by lower
U.K. North Sea production. Norway production benefited from
improved operating efficiency, as production in the second
quarter of 1999 was negatively impacted by maintenance work and a
poorly performing low-pressure separator. Production in the U.K.
North Sea was down from a year ago due to field declines at
J-Block and operating problems at Janice, as well as the
permanent shut-in of the Maureen field.
Foreign natural gas production increased 14 percent in the second
quarter of 2000, primarily due to increased production in the
North Sea and new natural gas production in Nigeria. Natural gas
production was higher in Norway due to improved operating
efficiencies.
Special items in the first six months of 2000 primarily consisted
of a deferred tax adjustment resulting from a tax law change in
Australia and a net gain on property dispositions. Special items
in the second quarter and first six months of 1999 included
charges to increase the decommissioning accruals for certain
North Sea fields, as well as deferred tax adjustments.
23
GPM
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $ 29 18 80 24
Less special items 4 - (2) (1)
- -----------------------------------------------------------------
Net operating income $ 25 18 82 25
=================================================================
Dollars Per Unit
-------------------------------------
Average Sales Prices
U.S. natural gas liquids
(per barrel--
unfractionated)* $19.74 11.11 n/a 9.54
- -----------------------------------------------------------------
Thousands of Barrels Daily
-------------------------------------
Operating Statistics
Natural gas liquids
production** 122 152 n/a 149
- -----------------------------------------------------------------
*Prices for 1999 represent Phillips' realized prices prior to the
formation of DEFS. The price for 2000 represents pricing
information from April 1, 2000, and is based on index prices
from the Mont Belvieu and Conway market hubs that are weighted
by DEFS' natural gas liquids component and location mix.
**Production volumes for 1999 represent Phillips' production
prior to the formation of DEFS. The volume in 2000 represents
Phillips' 30.3 percent of DEFS' production.
Net operating income from the company's gas gathering, processing
and marketing (GPM) segment increased 39 percent in the second
quarter of 2000 and 228 percent in the six-month period. On
March 31, 2000, Phillips and Duke Energy Corporation contributed
their gas gathering, processing and marketing businesses into
Duke Energy Field Services, LLC (DEFS). Each parent received a
one-time cash distribution from DEFS of $1.22 billion shortly
after the closing of the transaction. Phillips is using equity
method accounting for its 30.3 percent interest in DEFS.
As a result of the DEFS transaction, earnings from Phillips' GPM
segment are not directly comparable between the second quarter
and six-month periods of 2000 and 1999. Some factors affecting
the results of the 2000 and 1999 periods were:
o Net operating income for the first three months of 2000,
compared with the first three months of 1999, increased
714 percent, reflecting a 147 percent increase in natural gas
liquids prices.
24
o Natural gas liquids prices in the second quarter of 2000
continued to be significantly higher than the second quarter of
1999. This is the primary reason for the increase in second
quarter 2000 earnings compared with the second quarter a year
ago.
o DEFS' earnings were reduced by the interest expense incurred
on the approximately $2.8 billion in financing required to
fund the cash distributions to the joint venturers. By
receiving equal cash distributions with Duke Energy
Corporation, Phillips monetized approximately 25 percent of
its GPM investment (absent the equal cash distribution to each
joint venturer, Phillips' share in DEFS would have been
approximately 39 percent based on the relative fair values of
the contributed businesses). Phillips used the $1.22 billion
cash distribution received from DEFS to lower its debt level.
Since interest expense is not allocated to the operating
segments, the benefit of the interest expense reduction is not
reflected in the GPM segment.
Special items in the second quarter of 2000 consisted of special
current and deferred state tax items related to the closing of
the DEFS transaction. In addition, the six-month period of 2000
included work force reduction charges. Special items in the six-
month period of 1999 consisted of work force reduction charges.
25
RM&T
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $ 86 33 109 25
Less special items - (4) (4) (6)
- -----------------------------------------------------------------
Net operating income $ 86 37 113 31
=================================================================
Dollars Per Gallon
-------------------------------------
Average Sales Prices
Automotive gasoline
Wholesale $ .97 .58 .91 .50
Retail 1.12 .72 1.06 .65
Distillates .81 .47 .81 .42
Thousands of Barrels Daily
-------------------------------------
Operating Statistics
U.S. refinery crude oil
Capacity 360 355 360 355
Crude runs 348 352 346 344
Capacity utilization
(percent) 97% 99 96 97
Natural gas liquids
fractionation
Capacity 252 252 252 252
Processed 215 227 214 216
Capacity utilization
(percent) 85% 90 85 86
Refinery and natural gas
liquids production 598 615 593 592
- -----------------------------------------------------------------
Petroleum products outside
sales
United States
Automotive gasoline
Branded 249 239 239 234
Unbranded 37 42 35 41
Spot 23 23 26 19
Aviation fuels 39 36 38 32
Distillates
Wholesale and retail 116 109 112 108
Spot 22 25 25 28
Natural gas liquids
(fractionated) 104 109 123 122
Other products 34 35 35 37
- -----------------------------------------------------------------
624 618 633 621
Foreign 41 39 43 37
- -----------------------------------------------------------------
665 657 676 658
=================================================================
26
RM&T's net operating income increased 132 percent in the second
quarter of 2000 and 265 percent in the six-month period. The
improvement in both periods was mainly the result of higher
refinery gasoline and distillates margins, partially offset by
lower margins on other refinery products and higher controllable
costs. Controllable costs were higher than the corresponding
periods in 1999 due primarily to increased fuel and utility costs
associated with higher natural gas prices.
Phillips' refineries ran at 97 percent of capacity in the second
quarter of 2000, compared with 99 percent in the second quarter
of 1999. Although the Borger refinery ran at record levels of
crude oil throughput in the second quarter of 2000, the Sweeny
refinery was unable to run at full capacity due to an unscheduled
14-day shutdown of one of the refinery units for repairs.
Effective January 1, 2000, Phillips raised its crude oil processing
capacity from 355,000 barrels per day to 360,000 barrels per day
through incremental debottlenecking.
Special items in the six-month period of 2000 consisted of
contingency-related charges. Special items in the second quarter
and six-month period of 1999 consisted of work force reduction
charges and contingency accruals.
27
Chemicals
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Income
Reported net income $ 55 41 81 70
Less special items 4 4 2 11
- -----------------------------------------------------------------
Net operating income $ 51 37 79 59
=================================================================
Millions of Pounds
-------------------------------------
Operating Statistics
Production*
Ethylene 878 866 1,768 1,568
Polyethylene 665 661 1,227 1,320
Propylene 151 133 282 256
Polypropylene 118 123 227 249
Paraxylene 170 127 350 234
- -----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.
Net operating income from the company's Chemicals segment
increased 38 percent in the second quarter of 2000 and 34 percent
in the six-month period. The increase in both periods is
primarily attributable to higher ethylene margins and production
volumes, partially offset by lower earnings from the K-Resin
styrene-butadiene copolymer (K-Resin) business. In addition, the
second quarter of 2000 was negatively impacted by lower
polypropylene licensing income, while the six-month period
benefited from higher propylene, other chemicals, and plastic
pipe margins and volumes.
In late March 2000, the company's K-Resin facilities at the
Houston Chemical Complex (HCC) were damaged by an explosion and
fire. Limited production of K-Resin at HCC could resume in the
first quarter of 2001. However, the estimate of the start-up
time frame is preliminary, and the actual start-up date could be
delayed further based on ongoing investigations and operational
reviews.
Special items in both the second quarter and first six months of
2000 related to the 1999 and 2000 K-Resin accidents. Special
items in the second quarter and six-month period of 1999 included
favorable settlements.
28
Corporate and Other
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
------------------ ----------------
Millions of Dollars
-------------------------------------
Operating Results
Reported Corporate and
Other $(119) (100) (210) (147)
Less special items - (17) (27) 10
- -----------------------------------------------------------------
Adjusted Corporate and
Other $(119) (83) (183) (157)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $ (18) (17) (36) (37)
Net interest (70) (49) (113) (95)
Preferred dividend
requirements (10) (11) (21) (21)
Other (21) (6) (13) (4)
- -----------------------------------------------------------------
Adjusted Corporate and
Other $(119) (83) (183) (157)
=================================================================
Corporate general and administrative expenses increased 6 percent
in the second quarter of 2000, as higher benefit-related costs
were mostly offset by lower depreciation expense retained at
Corporate. Corporate general and administrative expenses
decreased 3 percent in the year-to-date period, reflecting lower
depreciation expense.
Net interest represents interest income and expense, net of
capitalized interest. Net interest costs increased 43 percent in
the second quarter of 2000 and 19 percent in the six-month
period, reflecting higher debt levels due to the ARCO Alaska
acquisition in April 2000. This was partially offset by higher
capitalized interest.
Preferred dividend requirements represent dividends on the
preferred securities of the Phillips 66 Capital Trusts I and II.
The category "Other" consists primarily of the company's captive
insurance subsidiary, certain foreign currency transaction gains
and losses, and income tax and other items that are not directly
associated with the operating segments on a stand-alone basis.
Results from Other were lower in the second quarter primarily
because of higher foreign currency transaction losses, higher
income tax expenses not associated with the operating segments,
29
and costs associated with the ARCO Alaska acquisition. Higher
income taxes and acquisition costs also contributed to the lower
year-to-date results from Other.
Special items in the six-month 2000 period primarily included
costs related to the late-March 2000 K-Resin facility acccident
that was insured by the company's captive insurance subsidiary.
Special items in the second quarter of 1999 included deferred tax
adjustments and costs related to a June 1999 K-Resin facility
accident that was insured by the company's captive insurance
subsidiary. In addition, the six-month period of 1999 also
included a $24 million favorable resolution of prior years' U.S.
income tax issues.
30
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
-------------------------------
At At At
June 30 December 31 June 30
2000 1999 1999
-------------------------------
Current ratio .8 1.1 1.2
Total debt $8,127 4,302 4,704
Company-obligated
mandatorily redeemable
preferred securities $ 650 650 650
Common stockholders'
equity $5,081 4,549 4,223
Percent of total debt to
capital* 59% 45 49
Percent of floating-rate
debt to total debt 31% 27 34
- -----------------------------------------------------------------
*Capital includes total debt, company-obligated mandatorily
redeemable preferred securities and common stockholders' equity.
During the first six months of 2000, cash increased $97 million.
Cash was provided by operating activities and the $1.22 billion
received from Duke Energy Field Services, LLC (DEFS) on April 3,
2000, in connection with Phillips' contribution of its gas
gathering, processing and marketing assets to that joint venture
on March 31, 2000. Funds were also provided by the issuance of
$2.5 billion of notes and $1.5 billion in commercial paper.
Funds were used to acquire Atlantic Richfield Company's (ARCO)
Alaskan businesses, support the company's capital expenditures
program, retire revolving debt, and pay dividends.
Cash from operations in the first six months of 2000 increased
$898 million from the same period in 1999, primarily the result
of a $554 million increase in net income and decreases in non-
cash working capital. The sales of accounts receivable under the
company's receivables monetization program increased cash from
operations by $100 million more than in the same period in 1999.
In April 2000, the company filed a universal shelf registration
statement with the U.S. Securities and Exchange Commission for
$5 billion of various types of debt and equity securities, and
securities convertible into either. The registration statement
became effective April 27, 2000. Securities to be issued under
this universal shelf registration statement can be combined by
prospectus with $1 billion of securities that remained under an
earlier shelf registration statement. As a result, Phillips had
available, to issue and sell, a total of $6 billion of the
31
various types of securities. In late May, the company issued
$1.15 billion of 8.5% Notes due 2005, and $1.35 billion of 8.75%
Notes due 2010, in the public market, leaving $3.5 billion of
securities available under the shelf registration statement.
The company has an agreement with a bank-sponsored entity for the
revolving sale of credit card and trade receivables. This
agreement allows for the sale of receivables of up to
$300 million, all of which was outstanding at June 30, 2000.
Phillips also has $200 million available under three master
leasing arrangements, under which it leases and supervises the
construction of retail marketing outlets. At June 30, 2000,
approximately $119 million had been financed under these
arrangements.
On April 26, 2000, Phillips completed the purchase of all of
ARCO's Alaskan businesses, other than three double-hulled tankers
under construction and certain pipeline assets. Phillips paid
approximately $5.5 billion in cash at that closing. The company
paid approximately $700 million and assumed $265 million of
variable-rate, long-term debt when it purchased the three tankers
under construction and the pipeline assets on August 1, 2000.
On July 1, 2000, Phillips and Chevron Corporation (Chevron)
combined the two companies' worldwide chemicals businesses,
excluding Chevron's Oronite business, in a new company, Chevron
Phillips Chemical Company LLC (CPC). In connection with the
closing of the joint venture, Phillips received $835 million in
cash from CPC, which was used to reduce debt and for other
corporate purposes.
Effective April 26, 2000, Phillips entered into a new
$6.5 billion revolving credit facility, which is a 364-day
facility with terms similar to the company's existing
$1.5 billion revolving credit facility that expires in May 2002.
The company's commercial paper program is supported by both
revolving credit facilities in an amount equal to 100 percent of
the commercial paper outstanding. The commitments under the new
facility were automatically reduced by the amount of the cash
distributions received from the DEFS and CPC joint ventures, and
the issuance of $2.5 billion of notes. The commitments under the
new revolving credit facility are currently $1.9 billion, leaving
total remaining commitments of $3.4 billion under the two
agreements.
32
At June 30, 2000, $50 million was outstanding under the company's
$1.5 billion revolving credit facility, and $1.9 billion of
commercial paper was outstanding. Also at June 30, 2000,
$70 million was outstanding under one of Phillips Petroleum
Company Norway's two revolving credit facilities. These two
$300 million credit facilities expire in November 2001, and June
2004.
On June 30, 2000, the Sweeny Olefins Limited Partnership (SOLP)
made a distribution to its partners that brought the total
distribution to the other unrelated general partner to a target-
specified after-tax internal rate of return on its investment.
The partnership agreement states that once this general partner
achieves the specified internal rate of return, its 49.49 percent
general partnership interest is withdrawn in the subsequent month
with no additional cash distribution required. Also in July,
Phillips purchased, subject to the receipt of necessary approvals
or clearances and the execution of required documentation, the
outside partner's remaining .51 percent limited partnership
interest at a formula-based fair value. Because of the
withdrawal of the other general partner, Chevron Phillips
Chemical Company LLC (the previously mentioned chemicals joint
venture formed on July 1, 2000) now controls SOLP and began
consolidating SOLP in its separate financial statements starting
with July business.
Capital Expenditures and Investments
Millions of Dollars
-------------------------------
Six Months Ended
June 30
Estimated ----------------
2000 2000 1999
--------- ----------------
E&P $1,701 530 653
GPM 120 14 64
RM&T 264 104 188
Chemicals 62 62 54
Corporate and Other 158 7 26
- -----------------------------------------------------------------
$2,305 717 985
=================================================================
United States
Alaska $ 509 120 11
Lower 48 855 277 482
Foreign 941 320 492
- -----------------------------------------------------------------
$2,305 717 985
=================================================================
33
On December 13, 1999, Phillips' Board of Directors (Board)
approved a $1.79 billion capital budget for the year 2000. Since
then, the company's GPM assets and Chemicals assets have been
contributed to joint ventures. The capital programs of these
joint-venture companies are expected to be self-funded, and not
part of Phillips' capital spending program. In March 2000, the
company increased its 2000 capital budget by $515 million to
accommodate the ongoing capital requirements of the Alaskan
businesses acquired from Atlantic Richfield Company (ARCO). The
Board also authorized expenditures up to $7.04 billion for the
ARCO Alaska acquisition. That acquisition authority included the
$500 million contingent payout that is dependent on the price of
West Texas Intermediate crude oil and the volumes produced from
the acquired assets over the five-year period beginning
January 1, 2000. Phillips has made contingency payments totaling
approximately $138 million for crude oil deliveries through
June 30, 2000. Formula-based payments for July business are
estimated to be $34 million, leaving an estimated $328 million
that may have to be paid.
On August 4, 2000, DEFS, Duke Energy Corporation, and Phillips
agreed to modify the Limited Liability Company Agreement
governing DEFS to provide for the admission of a class of
preferred members in DEFS. Subsidiaries of Duke Energy
Corporation and Phillips purchased these new preferred member
interests for $209 million and $91 million, respectively. The
preferred member interests have a 30-year term, will pay a
distribution which yields 9.5 percent annually, and contain
provisions which require their redemption with any proceeds
from an initial public offering (IPO). On May 25, 2000, DEFS
announced that it had postponed its previously proposed IPO
due to volatile market conditions.
On April 13, 2000, Phillips, BP Amoco p.l.c. (BP), ARCO, and
Exxon Mobil Corporation (Exxon Mobil) entered into agreements
to align the ownership and operation of the Prudhoe Bay Unit
in Alaska. These agreements became effective on July 1, 2000,
retroactive to January 1, 2000. The agreements altered the
respective equity interests of Exxon Mobil, BP and Phillips in
the Prudhoe Bay Unit, and provided for BP to become the single
operator. After the re-alignment, Phillips has approximately
36 percent ownership in both the oil rim and gas cap portions of
the Prudhoe Bay Unit. Phillips operates the Kuparuk and Alpine
fields--the other major fields on Alaska's North Slope.
On August 1, 2000, Phillips completed the purchase of all of ARCO's
Alaskan businesses when the company acquired three tankers under
construction and ARCO's Alaskan pipeline assets. The company paid
approximately $700 million and assumed $265 million of variable-
rate, long-term debt on August 1.
34
As a result of its Alaskan acquisition, Phillips expects to add
reserves of approximately 2.2 billion barrels of oil equivalent
in 2000, doubling the company's year-end 1999 reserves. Average
net production from the acquired assets is expected to be
approximately 345,000 barrels of oil equivalent per day in 2000.
Phillips received value for the Alaska production from January 1,
2000, to the date of closing, April 26, 2000, as an adjustment to
the purchase price, so those volumes will not be reflected in the
company's reported production statistics for 2000.
This transaction represents a significant step in the company's
growth strategy for its E&P business, with Phillips' gaining a
substantial ownership position in the two largest fields in North
America--Prudhoe Bay and Kuparuk.
Also in Alaska, development of the Alpine field continues on the
North Slope, about thirty miles west of Kuparuk. The Alpine
production facilities are in the final stages of installation
with initial production expected in September 2000. Net peak
production of 56,000 barrels of oil per day is expected in the
fourth quarter of 2000.
In July, the first phase of a multi-phase development plan for
the company's Peng Lai 19-3 discovery in block 11/05 of China's
Bohai Bay was approved. Phillips has also made two new oil
discoveries on the block, bringing its total discoveries there to
six. The company drilled a third well during the second quarter
that was a dry hole. A fourth exploration well is planned for
later this year. Daily gross production rates for Phase I are
expected to reach 35,000 to 40,000 barrels of oil. First
production from Phase I is scheduled for the first quarter of
2002. In order to fully integrate the knowledge gained from the
reservoir's performance in Phase I, first production from Phase
II is targeted for late 2004 or 2005. Phillips has a 100 percent
interest in the block, but China National Offshore Oil
Corporation has the right to participate in any development in
the block and to acquire a 51 percent interest.
On July 24, 2000, the Offshore Kazakhstan International Operating
Company (OKIOC), announced that the Kashagan E-1 well in the
Caspian Sea was a discovery--the first on the Kazakhstan shelf.
The well tested at a rate of up to 3,700 barrels of oil per day
and 7 million cubic feet of gas per day. A second exploration
well is scheduled to begin drilling in the fourth quarter of
2000. Phillips has a 7.14 percent interest in OKIOC.
In the Norwegian sector of the North Sea, commissioning of the
gas injection and gas lift systems at the Eldfisk development is
now expected to be completed in the third quarter of 2000. The
Eldfisk water injection project is expected to increase recovery
by more than 60 million net barrels of oil equivalent.
35
At the Sweeny refinery, construction continues on the 58,000-
barrel-per-day delayed coker and related facilities. A new
36,000-barrel-per-day continuous catalytic reformer began start-
up the last week of July. On July 24, 2000, selected units of
the refinery began the scheduled shutdown for normal maintenance
and the tie-in of the two units. The coker is scheduled to start
operation in early September. Phillips and the Venezuelan state
oil company, Petroleos de Venezuela S.A., each hold a 50 percent
interest in Merey Sweeny, L.P., the limited partnership that is
building the delayed coker and related facilities. The
continuous catalytic reformer is a wholly owned project of
Phillips.
During the first quarter of 2000, Phillips and BP Amoco, its co-
venturer in the Seaway Pipeline Company (Seaway), completed a
130,000-barrel-per-day capacity expansion of Seaway's 30-inch
crude oil pipeline. This expansion has been placed in service.
On July 21, 2000, Seaway was converted into two separate
companies--Seaway Crude Pipeline Company and Seaway Products
Pipeline Company. BP Amoco sold its 50 percent interest in
Seaway Crude Pipeline Company to Texas Eastern Products Pipeline
Company, LLC (TEPPCO), an indirect wholly owned subsidiary of
DEFS. BP Amoco retains ownership in and operatorship of Seaway
Products Pipeline Company. Phillips retains a 50 percent
ownership in both Seaway Pipeline companies.
On March 27, 2000, an explosion and fire occurred at the K-Resin
styrene-butadiene copolymer plant at the company's Houston
Chemical Complex (HCC). This 370-million-pound-per-year K-Resin
facility has been idle since that time. Limited production of
K-Resin could resume in the first quarter of 2001. However, the
estimate of the start-up time frame is preliminary, and the
actual start-up date could be delayed further based on ongoing
investigations and operational reviews.
Phillips has notified its K-Resin customers that it will continue
the force majeure declared from the June 1999 incident. Current
allocations to customers continue to be supplied from the
company's 60-percent-owned Korean joint venture, K R Copolymer
Co., Ltd. Capacity at this facility is 115 million pounds per
year.
36
Contingencies
Legal and Tax Matters
Phillips accrues for contingencies when a loss is probable and
the amounts can be reasonably estimated. Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
Environmental
Most aspects of the businesses in which the company engages are
subject to various federal, state, local and foreign
environmental laws and regulations. Similar to other companies
in the petroleum and chemical industries, the company incurs
costs for preventive and corrective actions at facilities and
waste disposal sites.
Phillips may be obligated to take remedial action as the result
of the enactment of laws, such as the federal Superfund law, the
issuance of new regulations, or as a result of leaks and spills.
In addition, an obligation may arise when a facility is closed or
sold. Most of the expenditures to fulfill these obligations
relate to facilities and sites where past operations followed
practices and procedures that were considered appropriate under
regulations, if any, existing at the time, but may now require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.
At year-end 1999, Phillips reported 27 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Since then, two sites have
been resolved and two new sites have been added. Of the 27 sites
remaining, the company believes it has a legal defense or its
records indicate no involvement for five sites. At four sites,
present information indicates that it is probable that the
company's exposure is less than $100,000 per site. At five sites,
Phillips has had no communication or activity with government
agencies or other PRPs in more than two years. Of the
13 remaining sites, the company has provided for any probable
costs that can be reasonably estimated.
Phillips does not consider the number of sites at which it has
been designated potentially responsible by state or federal
agencies as a relevant measure of liability. Some companies may
be involved in few sites but have much larger liabilities than
companies involved in many more sites. Although liability of
37
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site. It
has, to date, been successful in sharing clean-up costs with
other financially sound companies. Many of the sites at which
the company is potentially responsible are still under
investigation by the Environmental Protection Agency (EPA) or the
state agencies concerned. Prior to actual clean-up, those
potentially responsible normally assess site conditions,
apportion responsibility and determine the appropriate
remediation. In some instances, Phillips may have no liability
or attain a settlement of liability. Actual clean-up costs
generally occur after the parties obtain EPA or equivalent state
agency approval.
At June 30, 2000, $4 million had been accrued for the company's
unresolved PRP sites. In addition, the company has accrued
$51 million for other planned remediation activities, including
resolved state, PRP, and other federal sites, as well as sites
where no claims have been asserted, and $3 million for other
environmental contingent liabilities, for total environmental
accruals of $58 million. No one site represents more than
15 percent of the total.
After an assessment of environmental exposures for clean-up and
other costs, the company makes accruals on an undiscounted basis
for planned investigation and remediation activities for sites
where it is probable that future costs will be incurred and these
costs can be reasonably estimated. These accruals have not been
reduced for possible insurance recoveries.
OUTLOOK
Phillips operates in three countries where cutbacks in production
were announced in 1998. The Norwegian Ministry of Petroleum and
Energy lifted their production curtailment measures for oil
production on the Norwegian continental shelf during the second
quarter of 2000, and curtailments in the near future are not
expected. The Nigerian government raised their quota, effective
May 1, 2000, reversing all previous quota reductions. This
action affects leases operated on behalf of the company under the
joint operating agreement with Nigerian Agip Oil Company. In
Venezuela, third-bid-round operations have not been asked to
curtail production. Based on the above, the company does not
expect the economic impact of these announced production
curtailments in any of the three countries to have a material
adverse impact on the company's results of operations or
financial position in 2000.
38
On August 3, 2000, Phillips and Chevron announced a new venture
agreement for exploration and development on Alaska's North Slope
with Alberta Energy Company Ltd. (AEC). The two-part exploration
alliance included nearly 150,000 acres on Alaska's North Slope
and the Beaufort Sea. The companies plan to file permits to
drill the exploration prospect in the first quarter of 2001.
Through a farmout agreement in the initial well, AEC will earn a
33.3 percent interest in seven leases containing approximately
28,000 acres offshore Prudhoe Bay in the proposed McCovey Unit.
Phillips and Chevron will each hold a 33.3 percent interest in
the proposed unit. The second part of the alignment agreement
includes approximately 114,000 acres in the Grizzly Gomo Prospect
area, located south of the Kuparuk oil field. Prospective
exploration drilling in the area is planned for the first quarter
of 2002. Through a farmout agreement, AEC will earn a 20 percent
interest in the area, while Phillips and Chevron each hold a
40 percent interest.
In Lake Maracaibo, Venezuela, redevelopment drilling efforts on
the Ambrosio field have been temporarily suspended and the
drilling rig released while the company evaluates response
rates and other information gathered from the initial
redevelopment wells. While production rates have increased as a
result of redevelopment efforts to date, the response rate
overall has not yet achieved the project's original premises.
The re-evaluation currently under way will determine the
company's future strategy on this field redevelopment project.
The Ambrosio field has an investment net book value of
$115 million as of June 30, 2000.
On June 6, 2000, the company announced plans to increase capacity
at it Borger, Texas, refinery through a debottlenecking project
scheduled to begin by the end of 2000. The project is expected
to increase the facility's capacity to process crude oil by
20,000 barrels per day and move the facility toward production of
lower sulfur products in preparation for meeting new sulfur
regulations. Start-up is expected in 2002. The debottlenecking
project complements the S Zorb unit under construction at the
facility that is scheduled to start up in early 2001. Operations
at the facility will be largely unaffected during the
debottlenecking project, with most work occurring during normal
scheduled maintenance periods.
After a year of production cutbacks, major oil-exporting
countries announced increased quotas in the second quarter of
2000 aiming to achieve price stability. Early in the third
quarter, demand growth appeared to have slowed, which would allow
for inventory rebuilding. OPEC has increased production quotas,
and Saudi Arabia has proposed further increases. Price levels in
the third quarter of 2000 will depend on the perceived adequacy
39
of supply to both meet current demand and allow inventories of
natural gas and heating oil to rebuild before the winter heating
season.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Phillips is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 for any forward-looking
statement made by, or on behalf of, the company. The factors
identified in this cautionary statement are important factors
(but not necessarily all important factors) that could cause
actual results to differ materially from those expressed. Where
any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement,
the company believes such assumptions or bases to be reasonable
and makes them in good faith. Assumed facts or bases almost
always vary from actual results, and the differences between
assumed facts or bases and actual results can be material,
depending on the circumstances. Where, in any forward-looking
statement, the company, or its Management, expresses an
expectation or belief as to future results, there can be no
assurance that the statement of expectation or belief will
result, or be achieved or accomplished.
The following are identified as important risk factors that could
cause actual results to differ materially from those expressed in
any forward-looking statement made by, or on behalf of, the
company:
o Plans to implement Management's announced strategy for its
four business segments are subject to: finding a joint
venturer for RM&T; the negotiation and execution of
satisfactory agreements for an RM&T joint venture; receipt
of any approvals that may be required from state and federal
government agencies and third parties; required disposition
of assets, if any, to meet regulatory requirements;
approvals as required by the Boards of Directors of the
entities involved; the successful development of the
company's current projects and the achievement of production
estimates, and cost savings and synergies that are dependent
on the integration of personnel, business systems and
operations; and the successful operation and financing of
its GPM and Chemicals joint ventures.
40
o Plans to drill wells and develop offshore or onshore
exploration and production properties are subject to: the
company's ability to obtain agreements with co-venturers,
partners and governments, including necessary permits; its
ability to engage specialized drilling, construction and
other contractors and equipment; its ability to obtain
economical and timely financing; geological, land, or sea
conditions; world prices for oil, natural gas and natural
gas liquids; adequate and reliable transportation systems,
including the Trans Alaska Pipeline System, the Valdez
Marine Harbor Terminal, and the acquired crude oil tankers
for the hydrocarbons; and foreign and United States laws,
including tax laws.
o Plans for the construction, modernization or debottlenecking
of domestic and foreign refineries and chemical plants,
including the projects at the Sweeny refinery, and the timing
of production from such plants are subject to: approval from
the company's and/or subsidiaries' Boards of Directors;
obtaining loans and/or project financing; the issuance by
foreign, federal, state, and municipal governments, or
agencies thereof, of building, environmental and other
permits; and the availability of specialized contractors,
work force and equipment. Production and delivery of the
company's products are subject to: worldwide prices and
demand for the products; availability of raw materials; and
the availability of transportation in the form of pipelines,
railcars, trucks or ships.
o The ability to meet liquidity requirements, including the
funding of the company's capital program from borrowings,
asset sales, if any, and operations, is subject to: the
negotiation and execution of various bank, project and public
financings and related financing documents, the market for
any such debt, and interest rates on the debt; the
identification of buyers and the negotiation and execution of
instruments of sale for any assets that may be identified for
sale; changes in the commodity prices of the company's basic
products of oil, natural gas and natural gas liquids, over
which Phillips has no control, and to a lesser extent the
commodity prices for chemicals and other products; its
ability to operate its refineries and exploration and
production operations consistently and safely, with no major
disruption in production or transportation of such products;
and the effect of foreign and domestic legislation of
federal, state and municipal governments that have
jurisdiction in regard to taxes, the environment and human
resources.
41
o Estimates of proved reserves, raw natural gas supplies,
project cost estimates, and planned spending for maintenance
and environmental remediation were developed by company
personnel using the latest available information and data,
and recognized techniques of estimating, including those
prescribed by the U.S. Securities and Exchange Commission,
generally accepted accounting principles and other applicable
requirements. Estimates of cost savings, synergies and the
like were developed by the company from current information.
The estimates for reserves, supplies, costs, maintenance,
remediation, savings and synergies can change positively or
negatively as new information and data becomes available.
42
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company held its annual stockholders' meeting on May 8, 2000.
A brief description of each proposal and the voting results
follow:
A company proposal to elect ten directors.
For Against & Withheld
-----------------------------------
Norman R. Augustine 243,753,470 11,860,251
David L. Boren 243,853,317 11,760,404
Robert E. Chappell, Jr. 244,247,150 11,366,571
Robert M. Devlin 244,090,959 11,522,762
Lawrence S. Eagleburger 243,223,103 12,390,618
Larry D. Horner 244,088,193 11,525,528
J. J. Mulva 241,603,529 14,010,192
Randall L. Tobias 244,091,588 11,522,133
Victoria J. Tschinkel 247,570,058 8,043,663
Kathryn C. Turner 243,827,166 11,786,555
A company proposal to approve the designation of Ernst &
Young LLP as independent auditors for 2000.
For 246,799,522
Against 5,994,487
Abstentions 2,819,712
Not Voted 26,530,613
All ten nominated directors were elected, and the independent
public accountants designated by the company were approved.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
10(a) Contribution Agreement, dated as of May 23, 2000, by and
among Phillips Petroleum Company, Chevron Corporation and
Chevron Phillips Chemical Company LLC (incorporated by
reference to Exhibit 2.1 to Current Report on Form 8-K,
filed June 1, 2000).
(b) Amended and Restated Limited Liability Company Agreement
of Chevron Phillips Chemical Company LLC, dated as of
July 1, 2000, by and between Phillips Petroleum Company,
Chevron Corporation, Chevron U.S.A. Inc., Chevron Overseas
Petroleum Inc., Chevron Pipe Line Company, Drilling
Specialties Co., WesTTex 66 Pipeline Co., and Phillips
Petroleum International Corporation (incorporated by
43
reference to Exhibit 99.1 to Current Report on Form 8-K,
filed July 14, 2000).
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
Reports on Form 8-K
- -------------------
During the three months ended June 30, 2000, the company filed
six reports on Form 8-K.
The first report was filed April 13, 2000, to report in Item 2
the March 31, 2000, combination of Duke Energy Corporation's gas
gathering and processing business with Phillips' gas gathering,
processing and marketing segment, forming Duke Energy Field
Services, LLC. The pro forma impact of this transaction on
Phillips' 1999 balance sheet and income statement was reported in
Item 7.
The second report was filed April 18, 2000, to report in Item 5
that the company, Atlantic Richfield Company (ARCO), CH-Twenty,
Inc., a wholly owned subsidiary of ARCO, and BP Amoco p.l.c.,
entered into a Master Purchase and Sale Agreement, dated as of
March 15, 2000, pursuant to which Phillips will purchase all of
ARCO's Alaskan businesses. Audited financial statements of the
businesses being acquired were included in Item 7.
The third report was filed May 8, 2000, to report in Item 5 the
company's March 15, 2000, announcement that it had signed a
definitive agreement to purchase all of ARCO's Alaskan businesses
and to report in Item 7 the pro forma impact of that acquisition
on Phillips' 1999 balance sheet and income statement.
The fourth report was filed May 11, 2000, to report in Item 2
that on April 26, 2000, the company completed the purchase of all
of ARCO's Alaskan oil and gas properties and related operating
marine assets.
The fifth report was filed May 18, 2000, to report in Item 7 the
pro forma impact of the following transactions on Phillips' first
quarter 2000 results of operations and financial position:
o The company's combination on March 31, 2000, of its gas
gathering, processing and marketing business with the gas
gathering and processing business of Duke Energy Corporation
in a new company, Duke Energy Field Services, LLC.
o The company's acquisition of all of ARCO's Alaskan businesses.
44
The sixth report was filed June 1, 2000, to report in Item 5 that
the company, Chevron Corporation, and Chevron Phillips Chemical
Company LLC had entered into a Contribution Agreement, dated
May 23, 2000, pursuant to which Phillips and Chevron would
combine their chemicals businesses, forming Chevron Phillips
Chemical Company LLC.
45
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PHILLIPS PETROLEUM COMPANY
/s/ Rand C. Berney
-----------------------------
Rand C. Berney
Vice President and Controller
(Chief Accounting and Duly
Authorized Officer)
August 10, 2000
46