-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ik/ke+sIgGU5c4CtYMFLRfhZ65ksqOBYkQCYGhFEleeT7zrWukUk4sZbp+ik/Ocz CSi2WM7R7lj8fYCmn7qVwA== 0000078214-99-000013.txt : 19990630 0000078214-99-000013.hdr.sgml : 19990630 ACCESSION NUMBER: 0000078214-99-000013 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHILLIPS PETROLEUM CO CENTRAL INDEX KEY: 0000078214 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 730400345 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-00720 FILM NUMBER: 99654310 BUSINESS ADDRESS: STREET 1: PHILLIPS BUILDING STREET 2: 800 PLAZA OFFICE BUILDING CITY: BARTLESVILLE STATE: OK ZIP: 74004 BUSINESS PHONE: 9186616600 10-K405/A 1 FORM 10-K/A Amendment No. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 ---------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ---------------- Commission file number 1-720 ------------------------------------------- Phillips Petroleum Company (Exact name of registrant as specified in its charter) Delaware 73-0400345 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Phillips Building, Bartlesville, Oklahoma 74004 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 918-661-6600 - ----------------------------------------------------------------- Filing Additional Exhibits Item 14 - Exhibits - ------------------ The registrant is filing with this Amendment No. 1 Annual Reports on Form 11-K for the Thrift Plan of Phillips Petroleum Company, the Long-Term Stock Savings Plan of Phillips Petroleum Company and the Retirement Savings Plan of Phillips Petroleum Company. 1 PHILLIPS PETROLEUM COMPANY INDEX TO EXHIBITS Exhibit Number Description - ------- ----------- 3(i) Restated Certificate of Incorporation, as filed with the State of Delaware July 17, 1989 (incorporated by reference to Exhibit 3(i) to Annual Report on Form 10-K for the year ended December 31, 1995). (ii) Bylaws of Phillips Petroleum Company, as amended effective September 14, 1998 (incorporated by reference to Exhibit 3(ii) to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998). 4(a) Indenture dated as of September 15, 1990, between Phillips Petroleum Company and U.S. Bank Trust National Association, formerly First Trust National Association (formerly Continental Bank, National Association), relating to the 9 1/2% Notes due 1997 and the 9 3/8% Notes due 2011 (incorporated by reference to Exhibit 4(a) to Annual Report on Form 10-K for the year ended December 31, 1996). (b) Indenture dated as of September 15, 1990, as supplemented by Supplemental Indenture No. 1 dated May 23, 1991, between Phillips Petroleum Company and U.S. Bank Trust National Association, formerly First Trust National Association (formerly Continental Bank, National Association), relating to the 9.18% Notes due September 15, 2021; the 9% Notes due 2001; the 8.86% Notes due May 15, 2022; the 8.49% Notes due January 1, 2023; the 7.92% Notes due April 15, 2023; the 7.20% Notes due November 1, 2023; the 6.65% Notes due March 1, 2003; the 7.125% Debentures due March 15, 2028; and the 6.65% Debentures due July 15, 2018 (incorporated by reference to Exhibit 4(b) to Annual Report on Form 10-K for the year ended December 31, 1997). (c) Preferred Share Purchase Rights as described in the Rights Agreement dated as of July 10, 1989, between Phillips Petroleum Company and Chemical Bank (formerly Manufacturers Hanover Trust Company) (incorporated by reference to Exhibit 4(c) to Annual Report on Form 10-K for the year ended December 31, 1995). 2 PHILLIPS PETROLEUM COMPANY INDEX TO EXHIBITS (Continued) Exhibit Number Description - ------- ----------- 4(d) Amendment dated May 16, 1990, to the Rights Agreement dated July 10, 1989, between Phillips Petroleum Company and Chemical Bank (formerly Manufacturers Hanover Trust Company) (incorporated by reference to Exhibit 4(d) to Annual Report on Form 10-K for the year ended December 31, 1996). The company incurred during 1998 certain long-term debt not registered pursuant to the Securities Exchange Act of 1934. No instrument with respect to such debt is being filed since the total amount of the securities authorized under any such instrument did not exceed 10 percent of the total assets of the company on a consolidated basis. The company hereby agrees to furnish to the U.S. Securities and Exchange Commission upon its request a copy of such instrument defining the rights of the holders of such debt. Material Contracts 10(a) Agreement dated December 23, 1984, among Mesa Partners and related entities and Phillips Petroleum Company and the schedules, annexes and exhibit thereto (incorporated by reference to Exhibit 10(a) to Annual Report on Form 10-K for the year ended December 31, 1995). (b) Letter Agreement dated December 23, 1984, among Mesa Partners and related entities and Phillips Petroleum Company (incorporated by reference to Exhibit 10(b) to Annual Report on Form 10-K for the year ended December 31, 1995). (c) Trust Agreement dated December 12, 1995, between Phillips Petroleum Company and Vanguard Fiduciary Trust Company, as Trustee of the Phillips Petroleum Company Compensation and Benefits Arrangements Stock Trust (incorporated by reference to Exhibit 10(c) to Annual Report on Form 10-K for the year ended December 31, 1995). 3 PHILLIPS PETROLEUM COMPANY INDEX TO EXHIBITS (Continued) Exhibit Number Description - ------- ----------- Management Contracts and Compensatory Plans or Arrangements 10(d) 1986 Stock Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(d) to Annual Report on Form 10-K for the year ended December 31, 1997). (e) 1990 Stock Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(e) to Annual Report on Form 10-K for the year ended December 31, 1997). (f) Annual Incentive Compensation Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(f) to Annual Report on Form 10-K for the year ended December 31, 1997). (g) Incentive Compensation Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(g) to Annual Report on Form 10-K for the year ended December 31, 1994). (h) Principal Corporate Officers Supplemental Retirement Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(h) to Annual Report on Form 10-K for the year ended December 31, 1995). (i) Phillips Petroleum Company Supplemental Executive Retirement Plan.* (j) Key Employee Deferred Compensation Plan of Phillips Petroleum Company.* (k) Non-Employee Director Retirement Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(k) to Annual Report on Form 10-K for the year ended December 31, 1997). (l) Omnibus Securities Plan of Phillips Petroleum Company (incorporated by reference to Exhibit 10(l) to Annual Report on Form 10-K for the year ended December 31, 1997). 4 PHILLIPS PETROLEUM COMPANY INDEX TO EXHIBITS (Continued) Exhibit Number Description - ------- ----------- 10(m) Deferred Compensation Plan for Non-Employee Directors of Phillips Petroleum Company.* (n) Key Employee Missed Credited Service Retirement Plan of Phillips Petroleum Company.* (o) Phillips Petroleum Company Stock Plan for Non-Employee Directors.* (p) Key Employee Supplemental Retirement Plan of Phillips Petroleum Company.* (q) Defined Contribution Makeup Plan of Phillips Petroleum Company.* 12 Computation of Ratio of Earnings to Fixed Charges.* 21 List of Subsidiaries of Phillips Petroleum Company.* 23 Consent of Independent Auditors.* 27 Financial Data Schedule.* 99(a) Form 11-K, Annual Report, of the Thrift Plan of Phillips Petroleum Company for the fiscal year ended December 31, 1998. (b) Form 11-K, Annual Report, of the Long-Term Stock Savings Plan of Phillips Petroleum Company for the fiscal year ended December 31, 1998. (c) Form 11-K, Annual Report, of the Retirement Savings Plan of Phillips Petroleum Company for the fiscal year ended December 31, 1998. *Filed with the original Annual Report on Form 10-K for the year ended December 31, 1998. 5 Copies of the exhibits listed in this Index to Exhibits are available upon request for a fee of $3.00 per document. Such request should be addressed to: Secretary Phillips Petroleum Company 1234 Adams Building Bartlesville, OK 74004 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. PHILLIPS PETROLEUM COMPANY /s/ Rand C. Berney ----------------------------- Rand C. Berney Vice President and Controller (Chief Accounting and Duly Authorized Officer) June 24, 1999 7 EX-99 2 Exhibit 99(a) FORM 11-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1998 ------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- --------- Commission file number 33-50134 -------------------------------- THRIFT PLAN OF PHILLIPS PETROLEUM COMPANY (Full title of the Plan) PHILLIPS PETROLEUM COMPANY (Name of issuer of securities) Bartlesville, Oklahoma 74004 (Address of principal executive office) (Zip code) FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements -------------------- Financial statements of the Thrift Plan of Phillips Petroleum Company, filed as a part of this annual report, are listed in the accompanying index. (b) Exhibits -------- Exhibit 1 Consent of Ernst & Young LLP. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Thrift Plan Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. THRIFT PLAN OF PHILLIPS PETROLEUM COMPANY /s/ Rand C. Berney --------------------------------- Rand C. Berney Member Thrift Plan Committee June 24, 1999 1 - ----------------------------------------------------------------- Index To Financial Statements Thrift Plan Of Phillips And Schedules Petroleum Company Page Report of Independent Auditors .............................. 3 Financial Statements Statements of Net Assets Available for Benefits at December 31, 1998 and 1997 Total Plan ............................................ 5 Fund A (Bond Index Fund) .............................. 7 Funds B and C (Phillips Stock Fund) ................... 9 Fund D (Investment Contracts Fund)--Deposit Administration Account .............................. 11 Fund E (S&P 500 Fund) ................................. 13 Fund F (Money Market Fund) ............................ 15 Loan Fund ............................................. 17 Temporary Investment Fund ............................. 19 Deferred Settlement Account ........................... 21 Statements of Changes in Net Assets Available for Benefits for the Years Ended December 31, 1998 and 1997 Total Plan ............................................ 6 Fund A (Bond Index Fund) .............................. 8 Funds B and C (Phillips Stock Fund) ................... 10 Fund D (Investment Contracts Fund)--Deposit Administration Account .............................. 12 Fund E (S&P 500 Fund) ................................. 14 Fund F (Money Market Fund) ............................ 16 Loan Fund ............................................. 18 Temporary Investment Fund ............................. 20 Deferred Settlement Account ........................... 22 Notes to Financial Statements ............................. 23 Supplemental Schedules Schedule of Assets Held for Investment Purposes at December 31, 1998, Line 27a .......................... 31 Schedule of Reportable Transactions for the Year Ended December 31, 1998, Line 27d--Series of Transactions ......................................... 32 2 - ----------------------------------------------------------------- Report Of Independent Auditors The Thrift Plan Committee Thrift Plan of Phillips Petroleum Company We have audited the accompanying statements of net assets available for benefits of the Thrift Plan of Phillips Petroleum Company (Plan) as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended, presented on pages 5 and 6. These financial statements are the responsibility of the Thrift Plan Committee (Committee). Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Committee, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1998 and 1997, and the changes in its net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes as of December 31, 1998, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Committee. The fund information and the Deferred Settlement Account information presented on pages 7 through 22 listed in the accompanying index to financial statements and schedules is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net 3 assets available for benefits of each fund. The supplemental schedules, fund information and the Deferred Settlement Account information have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Ernst & Young LLP ERNST & YOUNG LLP Tulsa, Oklahoma June 24, 1999 4 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Vanguard Total Bond Market Index Fund $ 82,451 79,254 Phillips Petroleum Company common stock 745,862 848,348 Insurance contracts 219 23,343 Vanguard 500 Index Fund 211,822 171,680 Vanguard Prime Money Market Fund 171,541 205,229 Loans to Plan participants 25,679 24,605 - ----------------------------------------------------------------- 1,237,574 1,352,459 Contributions Receivable 632 522 Employee Deposits Receivable 38 15 Loan Repayments Receivable 64 57 - ----------------------------------------------------------------- Total Assets 1,238,308 1,353,053 - ----------------------------------------------------------------- Net Assets Available for Benefits $1,238,308 1,353,053 ================================================================= See Notes to Financial Statements. 5 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Contributions and Deposits Company contributions Matching $ 6,105 5,759 Before-tax deposits 23,978 21,161 Employee deposits 15,221 15,491 - ----------------------------------------------------------------- 45,304 42,411 - ----------------------------------------------------------------- Investment Income Dividends 42,207 41,910 Interest Participant loans 1,925 1,696 Other 790 6,781 Net appreciation (depreciation) in fair value of investments (53,244) 118,602 - ----------------------------------------------------------------- (8,322) 168,989 - ----------------------------------------------------------------- Total 36,982 211,400 - ----------------------------------------------------------------- Deductions Distributions to Participants or Their Beneficiaries Cash 115,992 153,888 Phillips Petroleum Company common stock 35,693 28,295 Administrative Expense 42 15 - ----------------------------------------------------------------- Total 151,727 182,198 - ----------------------------------------------------------------- Net Increase (Decrease) (114,745) 29,202 Net Assets Available for Benefits Beginning of Year 1,353,053 1,323,851 - ----------------------------------------------------------------- End of Year $1,238,308 1,353,053 ================================================================= See Notes to Financial Statements. 6 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company FUND A (Bond Index Fund) Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Vanguard Total Bond Market Index Fund $82,451 79,254 Due from Temporary Investment Fund 94 114 - ----------------------------------------------------------------- Total Assets 82,545 79,368 - ----------------------------------------------------------------- Net Assets Available for Benefits $82,545 79,368 ================================================================= Number of Units 8,037,534 7,865,967 Unit Value $10.2700 10.0900 - ----------------------------------------------------------------- See Notes to Financial Statements. 7 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company FUND A (Bond Index Fund) Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Investment Income Dividends $ 5,316 4,825 Net appreciation in fair value of investments 1,420 1,875 - ----------------------------------------------------------------- 6,736 6,700 Allocation of Deposits and Earnings from Temporary Investment Fund 1,272 1,139 - ----------------------------------------------------------------- Total 8,008 7,839 - ----------------------------------------------------------------- Deductions Cash Distributions to Participants or Their Beneficiaries 9,765 8,802 Administrative Expense 1 1 - ----------------------------------------------------------------- Total 9,766 8,803 - ----------------------------------------------------------------- Interfund Transfers 4,935 5,379 - ----------------------------------------------------------------- Net Increase 3,177 4,415 Net Assets Available for Benefits Beginning of Year 79,368 74,953 - ----------------------------------------------------------------- End of Year $82,545 79,368 ================================================================= See Notes to Financial Statements. 8 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company FUNDS B and C (Phillips Stock Fund) Thousands of Dollars -------------------------- At December 31 1998 1997 -------------------------- Assets Investments Phillips Petroleum Company common stock $745,862 848,348 Vanguard Prime Money Market Fund 372 7,818 - ----------------------------------------------------------------- 746,234 856,166 Due from Temporary Investment Fund-- Fund B 2,891 2,812 Contributions Receivable--Fund C 542 508 - ----------------------------------------------------------------- Total Assets 749,667 859,486 - ----------------------------------------------------------------- Net Assets Available for Benefits $749,667 859,486 ================================================================= Net Assets Available for Benefits Fund B $402,143 448,821 Fund C 347,524 410,665 - ----------------------------------------------------------------- $749,667 859,486 ================================================================= Number of Units Fund B 4,295,855 4,204,684 Fund C 3,712,398 3,847,221 - ----------------------------------------------------------------- 8,008,253 8,051,905 - ----------------------------------------------------------------- Unit Value $93.6118 106.7432 - ----------------------------------------------------------------- See Notes to Financial Statements. 9 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company FUNDS B and C (Phillips Stock Fund) Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Investment Income (Loss) Dividends Phillips Petroleum Company common stock $ 23,402 23,956 Vanguard Prime Money Market Fund 422 234 Net appreciation (depreciation) (98,697) 81,834 - ----------------------------------------------------------------- (74,873) 106,024 Matching Company Contributions--Fund C 6,105 5,759 Allocation of Deposits and Earnings from Temporary Investment Fund--Fund B 29,831 28,370 - ----------------------------------------------------------------- Total (38,937) 140,153 - ----------------------------------------------------------------- Deductions Distributions to Participants or Their Beneficiaries Cash Fund B 13,696 15,339 Fund C 12,431 13,593 Phillips Petroleum Company common stock Fund B 18,711 15,001 Fund C 16,982 13,294 Administrative Expense 27 10 - ----------------------------------------------------------------- Total 61,847 57,237 - ----------------------------------------------------------------- Interfund Transfers (9,035) (25,320) - ----------------------------------------------------------------- Net Increase (Decrease) (109,819) 57,596 Net Assets Available for Benefits Beginning of Year 859,486 801,890 - ----------------------------------------------------------------- End of Year $749,667 859,486 ================================================================= Net Assets Available for Benefits Fund B $402,143 448,821 Fund C 347,524 410,665 - ----------------------------------------------------------------- $749,667 859,486 ================================================================= See Notes to Financial Statements. 10 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company FUND D DEPOSIT ADMINISTRATION ACCOUNT (Investment Contracts Fund) Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Insurance contract Continental Assurance Company, Group Annuity, Contract GP-12787 $ - 23,005 - ----------------------------------------------------------------- Total Assets - 23,005 - ----------------------------------------------------------------- Net Assets Available for Benefits $ - 23,005 ================================================================= Number of Units - 9,293,620 Unit Value - 2.4754 - ----------------------------------------------------------------- See Notes to Financial Statements. 11 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company FUND D DEPOSIT ADMINISTRATION ACCOUNT (Investment Contracts Fund) Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Investment Income Interest $ 768 6,748 - ----------------------------------------------------------------- Total 768 6,748 - ----------------------------------------------------------------- Deductions Cash Distributions to Participants or Their Beneficiaries 4,154 17,319 - ----------------------------------------------------------------- Total 4,154 17,319 - ----------------------------------------------------------------- Interfund Transfers (19,619) (121,909) - ----------------------------------------------------------------- Net Decrease (23,005) (132,480) Net Assets Available for Benefits Beginning of Year 23,005 155,485 - ----------------------------------------------------------------- End of Year $ - 23,005 ================================================================= See Notes to Financial Statements. 12 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company FUND E (S&P 500 Fund) Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Vanguard 500 Index Fund $211,822 171,680 Due From Temporary Investment Fund 481 530 - ----------------------------------------------------------------- Total Assets 212,303 172,210 - ----------------------------------------------------------------- Net Assets Available for Benefits $212,303 172,210 ================================================================= Number of Units 1,863,124 1,911,956 Unit Value $113.95 90.0701 - ----------------------------------------------------------------- See Notes to Financial Statements. 13 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company FUND E (S&P 500 Fund) Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Investment Income Dividends $ 3,322 3,450 Net appreciation in fair value of investments 44,033 34,893 - ----------------------------------------------------------------- 47,355 38,343 Allocation of Deposits and Earnings from Temporary Investment Fund 6,269 5,206 - ----------------------------------------------------------------- Total 53,624 43,549 - ----------------------------------------------------------------- Deductions Cash Distributions to Participants or Their Beneficiaries 20,687 13,460 Administrative Expense 4 1 - ----------------------------------------------------------------- Total 20,691 13,461 - ----------------------------------------------------------------- Interfund Transfers 7,160 27,087 - ----------------------------------------------------------------- Net Increase 40,093 57,175 Net Assets Available for Benefits Beginning of Year 172,210 115,035 - ------------------------------------------------------------------ End of Year $212,303 172,210 ================================================================== See Notes to Financial Statements. 14 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company FUND F (Money Market Fund) Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Vanguard Prime Money Market Fund $167,140 193,114 Due from Temporary Investment Fund 173 212 - ----------------------------------------------------------------- Total Assets 167,313 193,326 - ----------------------------------------------------------------- Net Assets Available for Benefits $167,313 193,326 ================================================================= Number of Units 167,312,987 193,325,684 Unit Value $1.000 1.000 - ----------------------------------------------------------------- See Notes to Financial Statements. 15 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company FUND F (Money Market Fund) Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Investment Income Dividends $ 9,533 9,228 Allocation of Deposits and Earnings from Temporary Investment Fund 2,039 2,154 - ----------------------------------------------------------------- Total 11,572 11,382 - ----------------------------------------------------------------- Deductions Cash Distributions to Participants or Their Beneficiaries 54,571 84,703 Administrative Expense 10 3 - ----------------------------------------------------------------- Total 54,581 84,706 - ----------------------------------------------------------------- Interfund Transfers 16,996 112,209 - ----------------------------------------------------------------- Net Increase (Decrease) (26,013) 38,885 Net Assets Available for Benefits Beginning of Year 193,326 154,441 - ----------------------------------------------------------------- End of Year $167,313 193,326 ================================================================= See Notes to Financial Statements. 16 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company LOAN FUND Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Loans to participants $25,679 24,605 Due from Temporary Investment Fund 582 715 - ----------------------------------------------------------------- Total Assets 26,261 25,320 - ----------------------------------------------------------------- Net Assets Available for Benefits $26,261 25,320 ================================================================= See Notes to Financial Statements. 17 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company LOAN FUND Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Interest--Participant Loans $ 1,925 1,696 - ----------------------------------------------------------------- Deductions Cash Distributions to Participants or Their Beneficiaries 547 507 Loan Repayments from Plan Participants 12,477 10,867 - ----------------------------------------------------------------- Total 13,024 11,374 - ----------------------------------------------------------------- Interfund Transfers 12,040 13,421 - ----------------------------------------------------------------- Net Increase 941 3,743 Net Assets Available for Benefits Beginning of Year 25,320 21,577 - ----------------------------------------------------------------- End of Year $26,261 25,320 ================================================================= See Notes to Financial Statements. 18 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company TEMPORARY INVESTMENT FUND Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Vanguard Prime Money Market Fund $4,029 4,297 Contributions Receivable 90 14 Employee Deposits Receivable 38 15 Loan Repayments Receivable 64 57 - ----------------------------------------------------------------- Total Assets 4,221 4,383 - ----------------------------------------------------------------- Liabilities Due to Fund A 94 114 Due to Fund B 2,891 2,812 Due to Fund E 481 530 Due to Fund F 173 212 Due to Loan Fund 582 715 - ----------------------------------------------------------------- Total Liabilities 4,221 4,383 - ----------------------------------------------------------------- Net Assets Available for Benefits $ - - ================================================================= See Notes to Financial Statements. 19 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company TEMPORARY INVESTMENT FUND Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Contributions and Deposits Company contributions-- before-tax deposits $23,978 21,161 Employee deposits 15,221 15,491 Loan repayments from Plan participants 12,477 10,867 - ----------------------------------------------------------------- 51,676 47,519 Investment Income Dividends 212 217 - ----------------------------------------------------------------- Total 51,888 47,736 - ----------------------------------------------------------------- Deductions Allocation of Deposits and Earnings 39,411 36,869 - ----------------------------------------------------------------- Interfund Transfers (12,477) (10,867) - ----------------------------------------------------------------- Net Increase - - Net Assets Available for Benefits Beginning of Year - - - ----------------------------------------------------------------- End of Year $ - - ================================================================= See Notes to Financial Statements. 20 - ----------------------------------------------------------------- Statement Of Net Assets Thrift Plan Of Phillips Available For Benefits Petroleum Company DEFERRED SETTLEMENT ACCOUNT Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Insurance contract $219 338 - ----------------------------------------------------------------- Total Assets 219 338 - ----------------------------------------------------------------- Net Assets Available for Benefits $219 338 ================================================================= See Notes to Financial Statements. 21 - ----------------------------------------------------------------- Statement Of Changes In Net Thrift Plan Of Phillips Assets Available For Benefits Petroleum Company DEFERRED SETTLEMENT ACCOUNT Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Investment Income Interest $ 22 33 - ----------------------------------------------------------------- Total 22 33 - ----------------------------------------------------------------- Deductions Cash Distributions to Participants or Their Beneficiaries 141 165 - ----------------------------------------------------------------- Total 141 165 - ----------------------------------------------------------------- Net Decrease (119) (132) Net Assets Available for Benefits Beginning of Year 338 470 - ----------------------------------------------------------------- End of Year $219 338 ================================================================= See Notes to Financial Statements. 22 - ----------------------------------------------------------------- Notes To Financial Statements Thrift Plan Of Phillips Petroleum Company Note 1--Plan Description The following description of the Thrift Plan of Phillips Petroleum Company (Plan) is subject to and qualified by the more complete information appearing in the Plan document. The Plan is a defined contribution plan available to certain employees of Phillips Petroleum Company and participating subsidiaries (Company). Generally, any person on the direct U.S. dollar payroll of the Company is eligible to participate. Non-managerial retail outlet marketing employees and certain other employee classifications are not eligible. The Company has a trust agreement with Vanguard Fiduciary Trust Company (Vanguard), P.O. Box 2900, Valley Forge, Pennsylvania, 19482-2900. Under the trust agreement with Vanguard, the assets of Fund A, also known as the Vanguard Bond Index-Total Bond Market Portfolio Fund (Bond Index Fund), are invested in the Vanguard Total Bond Market Index Fund. The assets of Funds B and C are invested in the Phillips Stock Fund, a single investment fund consisting of two separate accounts, which is invested only in the common stock of Phillips Petroleum Company (Phillips) and holds cash reserves as determined by the Trustee. Assets of the Fund D Deposit Administration Account, also known as the Investment Contracts Fund, were invested in contracts guaranteed by insurance companies as to both principal and interest. The last Fund D Deposit Administration Account contract expired June 30, 1998. Although the Company was the contractholder for the Fund D insurance contracts, Vanguard provided recordkeeping services for Fund D as part of its recordkeeping services for the Plan. In addition to the Plan assets held in the trust, there are Plan funds in the Deferred Settlement Account held by the Travelers Insurance Company. Assets of Fund E, also known as the Vanguard Index Trust 500 Portfolio Fund (S&P 500 Fund), are invested in the Vanguard 500 Index Fund. Assets of Fund F, also known as the Vanguard Money Market Reserves-Prime Portfolio Fund (Money Market Fund), are invested in the Vanguard Prime Money Market Fund. Assets of the Temporary Investment Fund are invested in the Vanguard Prime Money Market Fund. Effective January 1, 1999, the Plan was amended to add Funds G, H, and I. Assets of Fund G, also known as the Vanguard Balanced Index Fund (Balanced Index Fund), are invested in the Vanguard Balanced Index Fund. Assets of Fund H, also known as the 23 Vanguard Total International Portfolio Fund (International Fund), are invested in the Vanguard Total International Stock Index Fund. Assets of Fund I, also known as the Vanguard Extended Market Fund, are invested in the Vanguard Extended Market Index Fund. Dividends represent earnings from the various Vanguard mutual funds in which the Plan participates. The dividends reported for the Phillips Stock Fund include the dividends on Company stock, as well as earnings on the small amount of cash reserves in the fund. Participants may have up to 15 percent of their pay deposited in the Plan each month. The first 5 percent is designated as regular deposits with any excess being designated as supplemental deposits. Deposits may be further designated by a participant as before-tax or after-tax deposits. Before-tax deposits are made by the Company on behalf of a participant who has elected the before-tax feature of the Plan, voluntarily reducing his salary by a corresponding amount. Total deposit amounts and allocation of deposits between after-tax and before-tax accounts are subject to limitations imposed by the Internal Revenue Code. Participants may change their investment directions and deposit rates semiannually during designated enrollment periods. Employee deposits may be suspended in certain circumstances. The Company contributes an amount equal to 25 percent of an employee's regular deposits made to the Phillips Stock Fund-- Fund B account and 15 percent of regular deposits made to any other investment fund. These Company matching contributions are invested in the Phillips Stock Fund--Fund C account. Employee deposits, before-tax deposits and loan repayments are first placed into the Temporary Investment Fund and remain there until the valuation date on or about the 20th day of the following month. Employee and before-tax deposits are paid into the respective investment funds in accordance with the allocation directions of participants. Loan repayments are transferred to the Loan Fund and then are generally allocated to Funds A, B, E, F, G, H or I based on the participant's regular deposits investment allocation, except that funds borrowed from Fund C are repaid only to Fund C. Earnings on deposits and loan repayments held in the Temporary Investment Fund are credited monthly, in the same manner, to each participant who made deposits or loan repayments during the month and still maintains an account in the Plan. The allocation of earnings are made to each Participant in the proportion to which his deposits or loan repayments bears to all deposits or loan repayments during the period for which such interest was earned. Employee deposits and earnings are paid into Funds A, B, E, F, G, H or I as directed by the participant. Fund D ceased accepting deposits after June 30, 1993. 24 The Loan Fund is used to record transactions resulting from loans made to active employees against their accounts. Except for the Temporary Investment Fund and the Loan Fund, the interests of participants in each fund are represented by units allocated to them. The Plan provides for daily transfers among funds; however, generally, plan participants may not direct transfers to or from Fund C, the Loan Fund, or the Temporary Investment Fund. Transfers in and out of Fund D were not permitted prior to its expiration on June 30, 1998. A participant may make unlimited transfers of any dollar amount, whole percentages, or units to or from Investment Funds A, E, F, G, H or I on any valuation date. A participant may direct the transfer of any dollar amount, whole percentage or number of units to or from his Fund B account in the Phillips Stock Fund to or from Funds A, E, F, G, H, or I on any valuation date, but then must wait 10 calendar days to make another transfer involving Fund B. In addition to the rights described above permitting the transfer of amounts from one Investment Fund to another, a participant who has terminated employment and attained age 55 may, on any valuation date, direct the transfer of any dollar amount, whole percentage, or number of units in any Investment Fund (except the Temporary Investment Fund) to any other Investment Fund (except to the Temporary Investment Fund or Investment Fund C). Provided, however, such Participant who transfers from Fund C to any other Investment Fund may transfer that interest back to Fund C on any subsequent valuation date, subject to the 10-calendar-day waiting period for transfers. A participant is vested at all times with respect to his deposits and his interest in Company contributions. Company contributions may not be withdrawn until 24 months after they are contributed unless the participant has been in the Plan for at least five years or becomes eligible to withdraw, for reasons other than a specified financial hardship, his interest in his before-tax account. A participant may not withdraw his interest in his before-tax account unless he is at least age 59 1/2, experiences a specified financial hardship, becomes totally and permanently disabled, or separates from service. Upon the death of a participant, his beneficiary may withdraw the participant's entire account balance, including his before-tax account. Distributions generally occur upon separation from service, but may be deferred. For a participant who retires or becomes totally disabled, unless a request for withdrawal is made as of any earlier date, distribution generally will be deferred to a date not later than the first valuation date in October of the year age 69 is attained. If the participant dies, distribution to a surviving spouse beneficiary will be deferred to the first valuation date in October in the year in which the participant 25 would have attained age 69. This deferral is revocable by the participant or the surviving spouse. Distributions to non-spouse beneficiaries may be deferred approximately five years. Distributions are based on the valuation of the participant's interest in the trust fund. Available forms of distribution are: (a) from Funds A, E, F, G, H, or I in cash; (b) from Funds B and C in whole shares of common stock and/or cash; (c) with respect to a participant who retires under a Company retirement plan or a beneficiary spouse of a participant in the event of an active employee participant's death, in the form of an irrevocable non- transferable monthly annuity purchased with a specified dollar amount of the participant's interest in the Plan; and (d) with respect to a participant who retired under a Company retirement plan before July 1, 1992, and who timely elected a deferred settlement option--monthly, quarterly or annual payments irrevocably elected from his interest in Fund D--commencing at retirement with, at the participant's direction, a designated life- interest beneficiary to receive any unpaid scheduled payments following the participant's death. A participant may elect a direct rollover of the taxable portion of most distributions to an Individual Retirement Account or another tax-qualified plan. The taxable portion of any such distribution that is not rolled over directly will be subject to 20 percent federal withholding. The Plan is administered by the Thrift Plan Committee, the members of which are appointed by the Board of Directors of Phillips Petroleum Company. The Plan Financial Administrator and Plan Benefits Administrator are the persons who occupy, respectively, the Phillips Petroleum Company positions of Treasurer and Compensation and Benefits Manager. Members of the Committee and the Plan Administrators serve without compensation, but are reimbursed by the Company for necessary expenditures incurred in the discharge of their duties. The Plan pays all reasonable expenses necessary for the operation of the Plan, unless such expenses are paid by the Company. The Company pays only the Trustee's record keeping and accounting fees. The class year contract administration fees of .15 percent of the funds invested in the insured contracts in Fund D were paid by the Company through June 30, 1998, when the last contract expired. 26 The Company intends to continue the Plan indefinitely, but reserves the right to amend or terminate it at any time. In the event of termination of the Plan, participants and beneficiaries of deceased participants will receive, within a reasonable time, any funds in their accounts as of the date of the termination. Note 2--Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and assumptions. Note 3--Investments All securities are valued at their quoted market price or, with respect to units of participation in commingled funds, redemption value. Insurance contracts are valued pursuant to their terms; the value, which approximates fair value, represents fund deposits plus interest credited, less distributions. Participant loans are valued at cost, which approximates fair value. Note 4--Contributions Receivable Contributions receivable at December 31 included the following: Thousands of Dollars -------------------- 1998 1997 -------------------- Receivable from the Company for Matching contributions $542 508 Before-tax deposits 90 14 - ----------------------------------------------------------------- $632 522 ================================================================= Note 5--Insurance Contract The last Fund D Deposit Administration Account (Investment Contracts Fund) insurance contract with the Continental Assurance Company Group, Annuity Contract GP-12787, terminated June 30, 1998. The balance, totaling approximately $20 million, was transferred from Fund D to Fund F. The average yield and crediting interest rate were 7.36 percent and 7.35 percent, respectively. The crediting interest rate, determined by the insurance company, was guaranteed over the six-year contract term. 27 Note 6--Loan Fund The Plan allows loans to active employees or parties-in-interest from their accounts. The minimum loan is $1,000, and generally the maximum is the lesser of $50,000 or half the participant's vested account. The loans may extend for up to 60 months (180 months for a home loan) with a rate of interest equal to the national prime lending rate, as determined on the last valuation date of the previous month. No more than one home loan and two regular loans may be outstanding at any given time. Loan payments and interest are repaid to the borrowing participant's accounts through the Loan Fund, which records the outstanding loans and related transactions. Generally, repayments are allocated to Funds A, B, E, F, G, H or I based on a participant's regular deposits investment direction, except that funds borrowed from Fund C are repaid only to Fund C. For the periods ended December 31, the total of loans made by fund of origin, principal and aggregate outstanding loan balances were: Thousands of Dollars --------------------------------------------- Fund A B C D E F Total --------------------------------------------- Period ended December 31, 1998 - ----------------- Loans Outstanding at December 31, 1997 $24,605 Participant Loans $435 9,186 198 26 1,306 1,022 12,173 Principal Repaid 119 9,520 217 - 401 295 10,552 Distributions to Participants 547 - ----------------------------------------------------------------- Loans Outstanding at December 31, 1998 $25,679 ================================================================= Period ended December 31, 1997 - ----------------- Loans Outstanding at December 31, 1996 $21,024 Participant Loans $504 9,816 234 151 1,221 1,333 13,259 Principal Repaid 110 8,277 216 - 367 201 9,171 Distributions to Participants 507 - ----------------------------------------------------------------- Loans Outstanding at December 31, 1997 $24,605 ================================================================= 28 Note 7--Allocation of Deposits and Earnings from Temporary Investment Fund Allocation of deposits and earnings from the Temporary Investment Fund to other investment funds represents the allocation of employee deposits and before-tax contributions made first to the Temporary Investment Fund, with related earnings thereon. A breakdown of the allocation for each of the periods follows: Thousands of Dollars ----------------------------------------- Fund A Fund B Fund E Fund F Total ----------------------------------------- December 31, 1998 - ----------------- Employee deposits $ 602 11,078 2,364 1,177 15,221 Before-tax contributions 665 18,580 3,880 853 23,978 Interest and dividends 5 173 25 9 212 - ----------------------------------------------------------------- $1,272 29,831 6,269 2,039 39,411 ================================================================= December 31, 1997 - ----------------- Employee deposits $ 576 11,401 2,195 1,319 15,491 Before-tax contributions 558 16,790 2,988 825 21,161 Interest and dividends 5 179 23 10 217 - ----------------------------------------------------------------- $1,139 28,370 5,206 2,154 36,869 ================================================================= Note 8--Transactions with Parties-in-Interest During 1998 and 1997, the Plan received $23,402,023 and $23,956,300, respectively, in common stock dividends from the Company. Fees paid for legal, accounting, and other services rendered by parties-in-interest were based on customary and reasonable rates for such services. Note 9--Tax Status The Internal Revenue Service (IRS) determined on November 30, 1995, that the Plan, as amended through June 23, 1994, is qualified under Section 401(a) of the Internal Revenue Code of 1986 and the Trust is exempt from federal income tax under Section 501(a). Subsequent amendments have been adopted, but are not expected to affect the qualified status of the Plan. The Committee is not aware of any activity that would affect the qualified status of the Plan. 29 Note 10--Impact of Year 2000 (Unaudited) Phillips does not expect the Year 2000 issue to have a significant effect on Plan operations. Phillips' applications software associated with the Plan is now Year 2000 compliant. All necessary Year 2000 remediation and testing have been completed and the Year-2000-compliant version of the software has been implemented. The critical suppliers associated with the Plan, in particular Vanguard, have been assessed with regard to their progress toward becoming Year 2000-ready. All critical suppliers have been judged by Phillips to be making adequate progress. Phillips plans to continue to monitor the critical suppliers through year- end 1999. Business continuity planning efforts associated with the Plan have also been completed by Phillips. However, an unexpected failure to adequately address this issue could result in an interruption of normal Plan operations and activities. 30 - ------------------------------------------------------------------------------- Schedule of Assets Held Thrift Plan Of Phillips for Investment Purposes Petroleum Company Line 27a EIN 73-0400345, Plan No. 002 At December 31, 1998 (a)(b) Identity of (c) Description of investment Thousands of Dollars issue, borrower, including maturity date, --------------------------- lessor, or similar rate of interest, collateral, (d) Historical (e) Current party par or maturity value Cost Value - --------------------- ----------------------------- -------------- ----------- Phillips Petroleum Common Stock, $1.25 par Company* value, 17,498,235 shares $355,553 745,862 - ------------------------------------------------------------------------------- The Vanguard Group* 1,858,906.744 units, Vanguard 500 Index Fund 142,102 211,822 8,028,359.617 units, Vanguard Total Bond Market Index Fund 79,028 82,451 171,541,128.94 units, Vanguard Prime Money Market Fund 171,541 171,541 - ------------------------------------------------------------------------------- 392,671 465,814 - ------------------------------------------------------------------------------- Thrift Plan of Loans to Plan participants* Phillips Petroleum at 7% - 9% Company* - 25,679 Travelers Insurance Group Annuity Contract GR-1966A, Company* deferred settlement account 219 219 - ------------------------------------------------------------------------------- $748,443 1,237,574 =============================================================================== *Party-in-interest 31
- ---------------------------------------------------------------------------------------- Schedule of Reportable Transactions Thrift Plan of Phillips Line 27d Petroleum Company Series of Transactions in Excess EIN 73-0400345, Plan 002 of 5 Percent of Net Assets Year Ended December 31, 1998 Thousands of Dollars ----------------------------------------------------------------------- (a)(b) Identity (h) Current of party value of involved and asset on (i) Net description of (c) Purchase (d) Selling (g) Cost transaction gain or asset price Price (f) Expenses of asset date (loss) - --------------- ------------ ----------- ------------ -------- ----------- ------- Phillips Petroleum Company* Common Stock $ 72,571 - Net $ - 72,571 - - 40,738 Net 14,926 40,738 25,812 The Vanguard Group,* Vanguard Prime Money Market Fund 259,442 - Net - 259,442 - - 292,777 Net 292,777 292,777 - The Vanguard Group,* Vanguard 500 Index Fund 70,344 - Net - 70,344 - - 74,231 Net 61,092 74,231 13,139 *Party-in-interest Column (e) is not applicable.
32 Exhibit 1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8, File No. 33-50134) pertaining to the Thrift Plan of Phillips Petroleum Company and in the related Prospectus of our report dated June 24, 1999, with respect to the financial statements and schedules of the Thrift Plan of Phillips Petroleum Company included in this Annual Report (Form 11-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP ERNST & YOUNG LLP Tulsa, Oklahoma June 24, 1999 EX-99 3 Exhibit 99(b) FORM 11-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1998 ------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- --------- Commission file number 33-50283 -------------------------------- LONG-TERM STOCK SAVINGS PLAN OF PHILLIPS PETROLEUM COMPANY (Full title of the Plan) PHILLIPS PETROLEUM COMPANY (Name of issuer of securities) Bartlesville, Oklahoma 74004 (Address of principal executive office) (Zip code) FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements -------------------- Financial statements of the Long-Term Stock Savings Plan of Phillips Petroleum Company, filed as part of this annual report, are listed in the accompanying index. (b) Exhibits -------- Exhibit 1 Consent of Ernst & Young LLP. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Long-Term Stock Savings Plan Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. LONG-TERM STOCK SAVINGS PLAN OF PHILLIPS PETROLEUM COMPANY /s/ Rand C. Berney ----------------------------- Rand C. Berney Member Long-Term Stock Savings Plan Committee June 24, 1999 1 - ----------------------------------------------------------------- Index To Financial Statements Long-Term Stock Savings Plan And Schedules Of Phillips Petroleum Company Page Report of Independent Auditors ............................. 3 Financial Statements Statements of Net Assets Available for Benefits at December 31, 1998 and 1997 Total Plan ........................................... 5 Fund EP .............................................. 7 Fund K ............................................... 9 Fund L ............................................... 11 Temporary Fund ....................................... 13 Statements of Changes in Net Assets Available for Benefits for the Years Ended December 31, 1998 and 1997 Total Plan ........................................... 6 Fund EP .............................................. 8 Fund K ............................................... 10 Fund L ............................................... 12 Temporary Fund ....................................... 14 Notes to Financial Statements ............................ 15 Supplemental Schedules Schedule of Assets Held for Investment Purposes at December 31, 1998, Line 27a ............................ 20 Schedule of Reportable Transactions for the Year Ended December 31, 1998, Line 27d ............................ 21 2 - ----------------------------------------------------------------- Report Of Independent Auditors The Long-Term Stock Savings Plan Committee Long-Term Stock Savings Plan of Phillips Petroleum Company We have audited the accompanying statements of net assets available for benefits of the Long-Term Stock Savings Plan of Phillips Petroleum Company (Plan) as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended, presented on pages 5 and 6. These financial statements are the responsibility of the Long-Term Stock Savings Plan Committee (Committee). Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Committee, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1998 and 1997, and the changes in its net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes as of December 31, 1998, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Committee. The fund information presented on pages 7 through 14 listed in the accompanying index to financial statements and schedules is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net 3 assets available for benefits of each fund. The supplemental schedules and fund information have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Ernst & Young LLP ERNST & YOUNG LLP Tulsa Oklahoma June 24, 1999 4 - ----------------------------------------------------------------- Statement Of Net Assets Long-Term Stock Savings Plan Available For Benefits Of Phillips Petroleum Company Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Common stock $1,250,844 1,467,488 Money market fund 6,917 8,767 - ----------------------------------------------------------------- 1,257,761 1,476,255 Company Contributions Receivable Funds for debt service - 467 Before-tax deposits 37 35 Interest Receivable 32 49 - ----------------------------------------------------------------- Total Assets 1,257,830 1,476,806 - ----------------------------------------------------------------- Liabilities Securities Acquisition Loans 396,850 425,150 Interest Payable 1,516 1,908 Administrative Expenses Payable 127 80 - ----------------------------------------------------------------- Total Liabilities 398,493 427,138 - ----------------------------------------------------------------- Net Assets Available for Benefits $ 859,337 1,049,668 ================================================================= See Notes to Financial Statements. 5 - ----------------------------------------------------------------- Statement Of Changes In Net Long-Term Stock Savings Plan Assets Available For Benefits Of Phillips Petroleum Company Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Company Contributions Funds for debt service $ 14,406 18,571 Basic allocation requirements - 138 Before-tax deposits 6,100 5,788 - ----------------------------------------------------------------- 20,506 24,497 - ----------------------------------------------------------------- Investment Income Dividends 40,422 40,927 Interest 405 455 Net appreciation (depreciation) in fair value of investment (177,041) 132,199 - ----------------------------------------------------------------- (136,214) 173,581 - ----------------------------------------------------------------- Total (115,708) 198,078 - ----------------------------------------------------------------- Deductions Distributions to Participants or Their Beneficiaries 50,062 45,784 Interest Expense 24,513 25,978 Administrative Expense 48 22 - ----------------------------------------------------------------- Total 74,623 71,784 - ----------------------------------------------------------------- Net Increase (Decrease) (190,331) 126,294 Net Assets Available for Benefits Beginning of Year 1,049,668 923,374 - ----------------------------------------------------------------- End of Year $ 859,337 1,049,668 ================================================================= See Notes to Financial Statements. 6 - ----------------------------------------------------------------- Statement Of Net Assets Long-Term Stock Savings Plan Available For Benefits Of Phillips Petroleum Company FUND EP Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Common stock $191,219 227,217 Money market fund 23 421 - ----------------------------------------------------------------- 191,242 227,638 Interest Receivable 1 3 - ----------------------------------------------------------------- Total Assets 191,243 227,641 - ----------------------------------------------------------------- Liabilities Administrative Expenses Payable 127 80 - ----------------------------------------------------------------- Total Liabilities 127 80 - ----------------------------------------------------------------- Net Assets Available for Benefits $191,116 227,561 ================================================================= Number of Units 25,414,972 26,518,656 Unit Value $7.5198 8.5812 - ----------------------------------------------------------------- See Notes to Financial Statements. 7 - ----------------------------------------------------------------- Statement Of Changes In Net Long-Term Stock Savings Plan Assets Available For Benefits Of Phillips Petroleum Company FUND EP Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Investment Income Dividends $ 6,199 6,370 Interest 23 28 Net appreciation (depreciation) in fair value of investment (27,039) 20,394 - ----------------------------------------------------------------- Total (20,817) 26,792 - ----------------------------------------------------------------- Deductions Distributions to Participants or Their Beneficiaries 15,580 16,600 Administrative Expense 48 22 - ----------------------------------------------------------------- Total 15,628 16,622 - ----------------------------------------------------------------- Net Increase (Decrease) (36,445) 10,170 Net Assets Available for Benefits Beginning of Year 227,561 217,391 - ----------------------------------------------------------------- End of Year $191,116 227,561 ================================================================= See Notes to Financial Statements. 8 - ----------------------------------------------------------------- Statement Of Net Assets Long-Term Stock Savings Plan Available For Benefits Of Phillips Petroleum Company FUND K Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Common stock $71,129 75,736 Money market fund 10 211 - ----------------------------------------------------------------- 71,139 75,947 Due from Temporary Fund 664 635 Interest Receivable - 1 - ----------------------------------------------------------------- Total Assets 71,803 76,583 - ----------------------------------------------------------------- Net Assets Available for Benefits $71,803 76,583 ================================================================= Number of Units 39,524,071 36,965,486 Unit Value $1.8167 2.0718 - ----------------------------------------------------------------- See Notes to Financial Statements. 9 - ----------------------------------------------------------------- Statement Of Changes In Net Long-Term Stock Savings Plan Assets Available For Benefits Of Phillips Petroleum Company FUND K Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Allocation of Deposits and Earnings from Temporary Fund $ 6,132 5,821 - ----------------------------------------------------------------- Investment Income Dividends 2,174 2,008 Interest 9 12 Net appreciation (depreciation) in fair value of investment (9,650) 6,688 - ----------------------------------------------------------------- (7,467) 8,708 - ----------------------------------------------------------------- Total (1,335) 14,529 - ----------------------------------------------------------------- Deductions Distributions to Participants or Their Beneficiaries 3,445 3,103 - ----------------------------------------------------------------- Net Increase (Decrease) (4,780) 11,426 Net Assets Available for Benefits Beginning of Year 76,583 65,157 - ----------------------------------------------------------------- End of Year $71,803 76,583 ================================================================= See Notes to Financial Statements. 10 - ----------------------------------------------------------------- Statement Of Net Assets Long-Term Stock Savings Plan Available For Benefits Of Phillips Petroleum Company FUND L Thousands of Dollars ------------------------ At December 31 1998 1997 ------------------------ Assets Investments Common stock $988,496 1,164,535 Money market fund 6,257 7,535 - ----------------------------------------------------------------- 994,753 1,172,070 Company Contributions Receivable Funds for debt service - 467 Interest Receivable 31 45 - ----------------------------------------------------------------- Total Assets* 994,784 1,172,582 - ----------------------------------------------------------------- Liabilities Securities Acquisition Loans 396,850 425,150 Interest Payable 1,516 1,908 - ----------------------------------------------------------------- Total Liabilities 398,366 427,058 - ----------------------------------------------------------------- Net Assets Available for Benefits $596,418 745,524 ================================================================= Number of Units 217,896,771 196,065,907 Unit Value** $2.4383 2.7818 - ----------------------------------------------------------------- See Notes to Financial Statements. *The amount of total assets that was not allocated to participants at December 31, 1998 and 1997, was $463,487 thousand and $627,164 thousand, respectively. **Unit value calculated on assets allocated to participants only. 11 - ----------------------------------------------------------------- Statement Of Changes In Net Long-Term Stock Savings Plan Assets Available For Benefits Of Phillips Petroleum Company FUND L Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Company Contributions Funds for debt service $ 14,406 18,571 Basic allocation requirements - 138 - ----------------------------------------------------------------- 14,406 18,709 - ----------------------------------------------------------------- Investment Income Dividends 32,049 32,549 Interest 341 382 Net appreciation (depreciation) in fair value of investment (140,352) 105,117 - ----------------------------------------------------------------- (107,962) 138,048 - ----------------------------------------------------------------- Total (93,556) 156,757 - ----------------------------------------------------------------- Deductions Distributions to Participants or Their Beneficiaries 31,037 26,081 Interest Expense 24,513 25,978 - ----------------------------------------------------------------- Total 55,550 52,059 - ----------------------------------------------------------------- Net Increase (Decrease) (149,106) 104,698 Net Assets Available for Benefits Beginning of Year 745,524 640,826 - ----------------------------------------------------------------- End of Year $ 596,418 745,524 ================================================================= See Notes to Financial Statements. 12 - ----------------------------------------------------------------- Statement Of Net Assets Long-Term Stock Savings Plan Available For Benefits Of Phillips Petroleum Company TEMPORARY FUND Thousands of Dollars -------------------- At December 31 1998 1997 -------------------- Assets Investments Money market fund $627 600 Company Contributions Receivable Before-tax deposits 37 35 - ----------------------------------------------------------------- Total Assets 664 635 - ----------------------------------------------------------------- Liabilities Due to Fund K 664 635 - ----------------------------------------------------------------- Total Liabilities 664 635 - ----------------------------------------------------------------- Net Assets Available for Benefits $ - - ================================================================= See Notes to Financial Statements. 13 - ----------------------------------------------------------------- Statement Of Changes In Net Long-Term Stock Savings Plan Assets Available For Benefits Of Phillips Petroleum Company TEMPORARY FUND Thousands of Dollars ------------------------ Years Ended December 31 1998 1997 ------------------------ Additions Company Contributions Before-tax deposits $6,100 5,788 Investment Income Interest 32 33 - ----------------------------------------------------------------- Total Additions 6,132 5,821 - ----------------------------------------------------------------- Deductions Allocation of Deposits and Earnings to Fund K 6,132 5,821 - ----------------------------------------------------------------- Net Increase - - Net Assets Available for Benefits Beginning of Year - - - ----------------------------------------------------------------- End of Year $ - - ================================================================= See Notes to Financial Statements. 14 - ----------------------------------------------------------------- Notes To Financial Statements Long-Term Stock Savings Plan Of Phillips Petroleum Company Note 1--Plan Description The following description of the Long-Term Stock Savings Plan of Phillips Petroleum Company (Plan) is subject to and qualified by the more complete information appearing in the Plan document. The Plan became effective July 1, 1988, and is a defined contribution stock bonus plan available to certain employees of Phillips Petroleum Company and participating subsidiaries (Company). Generally, any person on the U.S. direct dollar payroll of the Company is eligible to participate, except non-managerial retail marketing outlet employees and certain other employee classifications. Vanguard Fiduciary Trust Company, P.O. Box 2900, Valley Forge, Pennsylvania 19482-2900, is the Plan Trustee. Plan investments are held by the Trustee in the Temporary Fund, Fund K (also known as the Employee Stock Fund), Fund L (also known as the Employer Stock Fund) and Fund EP (also known as the EP Stock Fund). Temporary Fund investments consist of specified short-term securities. Funds K, L and EP are invested primarily in the common stock of Phillips Petroleum Company (Phillips Stock). Fund L consists of Phillips Stock, purchased with the proceeds of the loans described in Note 3 (Leveraged Shares), with certain Company contributions, or with certain dividends received from the Company. The Leveraged Shares are allocated to Fund L or Fund EP accounts of eligible participants in one of three types of stock allocations: semiannual basic allocations, dividend replacement allocations and supplemental allocations. A basic allocation is made as of June 30 and December 31 each year. Prior to 1999, 716,846 shares of stock were divided among or "allocated to" the Fund L accounts of eligible participants as of each June 30 and December 31. After 1998 and through 2005, the number of shares to be allocated semiannually will be 477,876. In December 1995, the Company extended the Plan to the year 2015. Without the extension, allocations of stock to employees would have been completed in 2005 or before. The new extension will require additional shares of Phillips Stock to be delivered to the Plan. After 2005 and through the allocation date following the date the second loan is repaid, the number of shares to be allocated semiannually on each basic allocation date will be 3,877 shares for each 100 employees eligible to make deposits as of the preceding allocation date. 15 The Plan is eligible to receive shares from the Company's Compensation and Benefits Trust, which held 29,125,863 shares of Phillips Stock at December 31, 1998. A participant's semiannual basic allocation is based on the ratio of the participant's Fund K before-tax deposits to all eligible participants' before-tax deposits for the allocation period. If the Company does not elect to make a special contribution and if eligible dividends from participants' Fund L or Fund EP accounts are used to make loan payments, participants will receive a dividend replacement allocation. The Plan used $20.1 million and $18.5 million in dividends on allocated shares to make loan payments and allocated 443,023 shares and 406,950 shares in dividend replacement allocations to participants' Fund L and Fund EP accounts in 1998 and 1997, respectively. A supplemental allocation is made each year end if all shares released for allocation, based on loan payment provisions, have not been allocated. A supplemental allocation of 129,559 shares was made in 1998. No supplemental allocation was required in 1997. The Company makes contributions to the Plan which, when aggregated with certain Plan dividends from Fund L, certain dividends from Fund EP and certain interest earnings from Fund L, equal the amount necessary to enable the Plan to make its regularly scheduled payments of principal and interest due on its loans. The Company may also elect to make contributions to the Plan, as an alternative to utilizing the dividends from shares in Fund EP or from Loan 1 (see Note 3) allocated shares in Fund L. Finally, the Company may make contributions to the Plan in the amount necessary to bring the number of shares of stock released for allocation up to the level required to complete the basic allocation by contributing cash or by contributing Phillips Stock. Eligible employees may elect to have their salaries reduced and before-tax deposits made by the Company on their behalf equal to 1 percent of pay. These deposits are first placed into the Temporary Fund and remain there until the valuation date on or about the 20th day of the following month when they are transferred into the employee's Fund K account. Interest earned on deposits while in the Temporary Fund is credited monthly to each participant who still maintains an account in the Plan and who made deposits during the month. The interest of participants in each fund is represented by units allocated to them. Assets of the Employee Stock Ownership Plan of Phillips Petroleum Company (ESOP) and the Payroll Stock Ownership Plan of Phillips Petroleum Company (PAYSOP), which were merged into the Plan on July 1, 1988, are held in Fund EP. 16 Participants are always vested in their deposits and amounts credited to their accounts. Total withdrawals from Funds K, L and EP may be made upon the occurrence of specified events, including the attainment of age 59 1/2 (after December 31, 1998, for Funds EP and L) or separation from service. Partial withdrawals are permitted in cases of specified financial hardship and certain other cases. For a participant who retires or becomes totally disabled, unless a request for withdrawal is made as of any earlier date, distribution generally will be deferred to a date not later than the first valuation date in October of the year age 69 is attained. If the participant dies, distribution to a surviving spouse beneficiary will be deferred to the first valuation date in October in the year in which the participant would have attained age 69. This deferral is revocable by the participant or the surviving spouse. Distributions to non-spouse beneficiaries may be deferred approximately five years. A participant may elect a direct rollover of the taxable portion of most distributions to an Individual Retirement Account or another tax-qualified plan. The Plan is administered by the Long-Term Stock Savings Plan Committee, the members of which are appointed by the Board of Directors of Phillips Petroleum Company. Members of the Committee serve without compensation, but are reimbursed by the Company for necessary expenditures incurred in the discharge of their duties. Administrative expenses of the Plan are paid by the Trustee from assets of the Plan to the extent allowable by law, unless paid by the Company. The Trustee did not make any cash payments for reimbursement of administrative expenses to Phillips from Fund EP in 1998 or 1997. However, in January 1999, reimbursement of administrative expenses for plan years 1996 and 1997 was paid to Phillips from Fund EP totaling $74,061. Plan administrative expenses of approximately $167,000 and $110,000 were paid by Phillips to the Trustee in 1998 and 1997, respectively. Note 2--Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 17 Note 3--Securities Acquisition Loans The Plan borrowed $250 million (Loan 1) and $400 million (Loan 2) in 1988 and 1990, respectively, and purchased 14,336,918 and 14,159,292 shares of common stock from Phillips Petroleum Company (Phillips), respectively. The shares are held in a Fund L suspense account until allocated to eligible participants based on the provisions of the Plan. At December 31, 1998 and 1997, the market value of unallocated shares was $457 million and $619 million, respectively. Loan 1 During 1994, the Plan signed a $131 million term-loan agreement that was used to refinance the outstanding notes payable issued in 1988. The notes were redeemed on May 16, 1994. Loan 1 was fully repaid in June 1998, after the final principal payment of $28 million was made. Principal payments totaling $26 million were made on Loan 1 in 1997. Loan 1 provided for variable interest rates. The weighted-average interest rate for 1998 was 4.8717 percent. At December 31, 1997, the rate was 4.9875 percent. Loan 2 Loan 2 was amended late in 1995 to extend its term from 15 to 25 years, requiring repayment in annual installments beginning in 2005, through the year 2015. Any participating bank in the syndicate of lenders may cease to participate on December 5, 2004, by giving not less than 180 days prior notice to the Plan and Phillips. Also, each bank participating in the loan has the optional right, if the current directors of Phillips or their approved successors cease to be a majority of the Board of Directors, and upon not less than 90 days notice, to cease to participate in the loan. Under the above conditions, such banks' rights and obligations under the loan agreement must be purchased by Phillips if not transferred to another bank of Phillips' choice. The outstanding balance of Loan 2 at December 31, 1998, was $397 million. Loan 2 provides for variable interest rates. The rates were 5.5 percent and 6.1875 percent at December 31, 1998 and 1997, respectively. Loan 2 is guaranteed by Phillips. It is being repaid through contributions made by the Company, dividends on certain allocated and unallocated shares, and earnings on the short-term investment of dividends. Loan 2's carrying amount approximates fair value. 18 Note 4--Investments Phillips Stock is valued at fair value, using the New York Stock Exchange closing quoted market price. Money market funds are valued at cost, which approximates market value. Note 5--Tax Status The Internal Revenue Service (IRS) determined on January 16, 1996, that the Plan is qualified under Section 401(a) of the Internal Revenue Code of 1986 and the Trust is exempt from federal income tax under Section 501(a). Subsequent amendments have been adopted, but are not expected to affect the qualified status of the Plan. The Committee is not aware of any activity that would affect the qualified status of the Plan. Note 6--Impact of Year 2000 (Unaudited) Phillips does not expect the Year 2000 issue to have a significant effect on Plan operations. Phillips' applications software associated with the Plan is now Year 2000 compliant. All necessary Year 2000 remediation and testing have been completed and the Year-2000-compliant version of the software has been implemented. The critical suppliers associated with the Plan, in particular Vanguard, have been assessed with regard to their progress toward becoming Year 2000-ready. All critical suppliers have been judged by Phillips to be making adequate progress. Phillips plans to continue to monitor the critical suppliers through year- end 1999. Business continuity planning efforts associated with the Plan have also been completed by Phillips. However, an unexpected failure to adequately address this issue could result in an interruption of normal Plan operations and activities. 19 - ------------------------------------------------------------------------------- Schedule of Assets Held for Long-Term Stock Savings Plan Of Investment Purposes Phillips Petroleum Company Line 27a EIN 73-0400345, Plan 022 At December 31, 1998 (a, b) Identity of (c) Description of investment Thousands of Dollars issue, borrower, including maturity date, --------------------------- lessor, or similar rate of interest, collateral, (d) Historical (e) Current party par or maturity value Cost Value - ------------------ ----------------------------- -------------- ----------- Phillips Petroleum 29,345,313 shares of common Company* stock, $1.25 par value $686,795 1,250,844 Vanguard Fiduciary 6,917,254 units of Trust Company* participation in the Vanguard Prime Money Market Fund, $1.00 par value 6,917 6,917 - ------------------------------------------------------------------------------- $693,712 1,257,761 =============================================================================== *Party-in-interest 20 - ----------------------------------------------------------------- Schedule of Reportable Transactions Long-Term Stock Savings Plan Line 27d of Phillips Petroleum Company Series of Transactions in Excess EIN 73-0400345, Plan 022 of 5 Percent of Net Assets Year Ended December 31, 1998 Thousands of Dollars ----------------------------------------- (a, b) Identity of party involved and (c) Value of (d) Value (i) Net gain description of asset purchases* of sales* or (loss) - -------------------- ------------ --------- ------------ Vanguard Fiduciary Trust Company,** Vanguard Prime Money Market Fund $73,782 75,652 - - ----------------------------------------------------------------- *This is also the cost of purchases and current value of sales at time of transaction. **Party-in-interest Columns (e), (f), (g) and (h) are not applicable. 21 Exhibit 1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8, File No. 33-50283) pertaining to the Long- Term Stock Savings Plan of Phillips Petroleum Company and in the related Prospectus of our report dated June 24, 1999, with respect to the financial statements and schedules of the Long-Term Stock Savings Plan of Phillips Petroleum Company included in this Annual Report (Form 11-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP ERNST & YOUNG LLP Tulsa, Oklahoma June 24, 1999 EX-99 4 Exhibit 99(c) FORM 11-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1998 ------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- --------- Commission file number 33-28669 -------------------------------- RETIREMENT SAVINGS PLAN OF PHILLIPS PETROLEUM COMPANY (Full title of the Plan) PHILLIPS PETROLEUM COMPANY (Name of issuer of securities) Bartlesville, Oklahoma 74004 (Address of principal executive office) (Zip code) FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements -------------------- Financial statements of the Retirement Savings Plan of Phillips Petroleum Company, filed as a part of this annual report, are listed in the accompanying index. (b) Exhibits -------- Exhibit 1 Consent of Ernst & Young LLP. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Retirement Savings Plan Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. RETIREMENT SAVINGS PLAN OF PHILLIPS PETROLEUM COMPANY /s/ Rand C. Berney --------------------------------- Rand C. Berney Member Retirement Savings Plan Committee June 24, 1999 1 - ----------------------------------------------------------------- Index To Financial Statements Retirement Savings Plan Of And Schedules Phillips Petroleum Company Page Report of Independent Auditors ............................. 3 Financial Statements Statement of Net Assets Available for Benefits at December 31, 1998 ................................... 5 Statement of Net Assets Available for Benefits at December 31, 1997 ................................... 6 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1998 ................... 7 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1997 ................... 8 Notes to Financial Statements ............................ 9 Supplemental Schedules Schedule of Assets Held for Investment Purposes at December 31, 1998, Line 27a ............................ 14 Schedule of Reportable Transactions for the Year Ended December 31, 1998, Line 27d ............................ 15 2 - ----------------------------------------------------------------- Report Of Independent Auditors The Retirement Savings Plan Committee Retirement Savings Plan of Phillips Petroleum Company We have audited the accompanying statements of net assets available for benefits of the Retirement Savings Plan of Phillips Petroleum Company (Plan) as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Retirement Savings Plan Committee (Committee). Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Committee, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1998 and 1997, and the changes in its net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes as of December 31, 1998, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Committee. The fund information in the statements of net assets available for benefits and the statements of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for 3 benefits and changes in net assets available for benefits of each fund. The supplemental schedules and fund information have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Ernst & Young LLP ERNST & YOUNG LLP Tulsa, Oklahoma June 24, 1999 4 - --------------------------------------------------------------------- Statement Of Net Assets Retirement Savings Plan Of Available For Benefits Phillips Petroleum Company At December 31, 1998 Non- Participant Participant Directed Directed -------------------- ----------- Fixed Fixed Investment Stock Investment Total Fund Fund Fund --------------------------------- ----------- Assets Investments Insurance contract $10,374,983 1,216,462 - 9,158,521 Common stock 562,991 - 562,991 - Money market fund 2,153 - 2,153 - - --------------------------------------------------------------------- 10,940,127 1,216,462 565,144 9,158,521 Interest Receivable 11 - 11 - Employer Contributions Receivable 50,575 - - 50,575 - --------------------------------------------------------------------- Total Assets 10,990,713 1,216,462 565,155 9,209,096 - --------------------------------------------------------------------- Net Assets Available for Benefits $10,990,713 1,216,462 565,155 9,209,096 ===================================================================== Number of Units 121,646 91,797 920,910 Unit Values $10.0000 6.1566 10.0000 - --------------------------------------------------------------------- See Notes to Financial Statements. 5 - --------------------------------------------------------------------- Statement Of Net Assets Retirement Savings Plan Of Available For Benefits Phillips Petroleum Company At December 31, 1997* Non- Participant Participant Directed Directed -------------------- ----------- Fixed Fixed Investment Stock Investment Total Fund Fund Fund --------------------------------- ----------- Assets Investments Insurance contract $ 9,969,068 1,185,937 - 8,783,131 Common stock 629,402 - 629,402 - Money market fund 1,614 - 1,614 - - --------------------------------------------------------------------- 10,600,084 1,185,937 631,016 8,783,131 Interest Receivable 13 - 13 Employer Contributions Receivable 49,987 - - 49,987 - --------------------------------------------------------------------- Total Assets 10,650,084 1,185,937 631,029 8,833,118 - --------------------------------------------------------------------- Net Assets Available for Benefits $10,650,084 1,185,937 631,029 8,833,118 ===================================================================== Number of Units 263,132 90,539 1,959,866 Unit Values $4.5070 6.9697 4.5070 - --------------------------------------------------------------------- See Notes to Financial Statements. *Reclassified to conform to current presentation. 6 - --------------------------------------------------------------------- Statement Of Changes In Net Retirement Savings Plan Of Assets Available For Benefits Phillips Petroleum Company Year Ended December 31, 1998 Non- Participant Participant Directed Directed -------------------- ----------- Fixed Fixed Investment Stock Investment Total Fund Fund Fund --------------------------------- ----------- Additions Participating Employer Contributions $ 345,497 - - 345,497 - --------------------------------------------------------------------- Investment Income Interest 634,147 74,219 90 559,838 Dividends 17,715 - 17,715 - Net depreciation of common stock (78,095) - (78,095) - - --------------------------------------------------------------------- 573,767 74,219 (60,290) 559,838 - --------------------------------------------------------------------- Total 919,264 74,219 (60,290) 905,335 - --------------------------------------------------------------------- Deductions Withdrawals and Distributions 578,635 43,694 5,584 529,357 - --------------------------------------------------------------------- Net Increase (Decrease) 340,629 30,525 (65,874) 375,978 Net Assets Available for Benefits Beginning of Year 10,650,084 1,185,937 631,029 8,833,118 - --------------------------------------------------------------------- End of Year $10,990,713 1,216,462 565,155 9,209,096 ===================================================================== See Notes to Financial Statements. 7 - ---------------------------------------------------------------------- Statement Of Changes In Net Retirement Savings Plan Of Assets Available For Benefits Phillips Petroleum Company Year Ended December 31, 1997* Non- Participant Participant Directed Directed -------------------- ----------- Fixed Fixed Investment Stock Investment Total Fund Fund Fund ---------------------------------- ----------- Additions Participating Employer Contributions $ 390,303 - - 390,303 - ---------------------------------------------------------------------- Investment Income Interest 623,755 75,468 259 548,028 Dividends 20,747 - 20,747 - Net appreciation of common stock 32,832 - 32,832 - - ---------------------------------------------------------------------- 677,334 75,468 53,838 548,028 - ---------------------------------------------------------------------- Total 1,067,637 75,468 53,838 938,331 - ---------------------------------------------------------------------- Deductions Withdrawals and Distributions 1,099,496 97,902 227,286 774,308 - ---------------------------------------------------------------------- Net Increase (Decrease) (31,859) (22,434) (173,448) 164,023 Net Assets Available for Benefits Beginning of Year 10,681,943 1,208,371 804,477 8,669,095 - ---------------------------------------------------------------------- End of Year $10,650,084 1,185,937 631,029 8,833,118 ====================================================================== See Notes to Financial Statements. *Reclassified to conform to current presentation. 8 - ----------------------------------------------------------------- Notes To Financial Statements Retirement Savings Plan Of Phillips Petroleum Company Note 1--Plan Description The following description of the Retirement Savings Plan of Phillips Petroleum Company (Plan) is subject to and qualified by the more complete information appearing in the Plan document. The Plan was known as the Retirement Savings Plan of Phillips Petroleum Company Subsidiaries until December 7, 1994. The Plan is a defined contribution plan sponsored by Phillips Petroleum Company (Phillips or the Company) for any domestic subsidiary or division that the Company approves for participation in the Plan and that has adopted and become a party to the Plan for the current participation of their active employees (Participating Employer). For the years ending December 31, 1998 and 1997, Phillips Driscopipe (with respect to hourly employees only), a division of the Company, was the only Participating Employer. Other subsidiaries or divisions having present or former employees holding interests in the Plan are Catalyst Resources, Inc. (sold March 30, 1994), Drilling Specialties Company, Phillips Coal Company, and Phillips Uranium Corporation (now liquidated). Generally, an employee of a Participating Employer becomes a participant after completing a six-month period of service of 500 or more hours. Participation in the Plan by each eligible employee is mandatory. Each month the Participating Employer or the Company contributes an amount equal to 5 percent of each participant's regular monthly earnings. A participant can make after-tax deposits, in whole percentages, ranging from 1 to 10 percent of his regular monthly earnings. Participants can elect to change their deposit rates once each six months. Effective January 1, 1996, the hourly employees of Phillips Driscopipe were no longer permitted to make deposits under this Plan. However, the Participating Employer or the Company continues to make contributions to this Plan on their behalf. Plan assets consist of the Stock Fund, the Fixed Investment Fund and the Temporary Investment Fund. Investments for each fund are: Stock Fund (common stock of the Company); Fixed Investment Fund (an insurance contract with Travelers Insurance Company (Travelers) under which Travelers guarantees repayment of the principal paid to it and a minimum effective rate of interest thereon); and Temporary Investment Fund (specified short-term 9 securities). WestStar Bank, Bartlesville, Oklahoma, served as Trustee for all plan assets prior to the close of business on February 28, 1996, when the Trustee was changed to Vanguard Fiduciary Trust Company (Vanguard), P.O. Box 2900, Valley Forge, Pennsylvania 19482-2900. Effective with the change in Trustee, the Company became contractholder of the insurance contract with Travelers for the Fixed Fund. This change in contractholder does not affect participant benefits. The interests of participants in each fund are represented by units allocated to them. Unit values reflected in the accompanying statements are based on aggregate fund values and aggregate units. Participant deposits are placed first in the Temporary Investment Fund and remain there until the valuation date on or about the 20th day of the following month. Deposits and earnings thereon are then paid into the Stock Fund or the Fixed Investment Fund as directed by the participant. No investment directions may be made with respect to Participating Employer contributions, all of which are invested only in the Fixed Investment Fund. The Plan allows limited transfers between the Stock Fund and the Fixed Investment Fund. A participant's interest in his own deposits is vested at all times, and his interest in Participating Employer contributions becomes fully vested on the earliest of the following dates: (a) upon attainment of age 65 or upon normal retirement; (b) upon completing five years of vesting service; (c) upon death; (d) upon becoming totally and permanently disabled; (e) upon being laid off for lack of work; (f) upon termination or partial termination of the Plan or discontinuance of Participating Employer contributions; or (g) upon certain other events. Partial vesting in Participating Employer contributions takes place in one year increments, with complete vesting after five years of vesting service. A participant who has made deposits may withdraw any amount attributable to those deposits. Withdrawals of deposits may be made only once each six months. Suspensions of employee deposits for three and six months apply for partial and complete withdrawals, respectively. A participant's interest in the contributions of a Participating Employer becomes available for distribution upon specified events, including separation from service or retirement. Termination of employment will result in forfeiture of Participating Employer contributions if a participant's interest attributable to those Participating Employer contributions is not vested. Forfeitures are used to reduce employer contributions. A participant who retires generally may postpone distribution until no later than the first valuation date in October of the year age 69 is attained. 10 Distributions from the Fixed Investment Fund are made in cash while those from the Stock Fund are in whole shares of the Company's common stock, plus cash for fractional shares, unless the participant directs that the distribution be wholly or partially in cash. Distribution in the form of an annuity is also available, as set forth in the Plan. In the event of termination of the Plan, participants and beneficiaries of deceased participants will be vested with respect to, and will receive, within a reasonable time, any funds in their accounts as of the date of the termination. The Plan is administered by the Retirement Savings Plan Committee, a Plan Financial Administrator and a Plan Benefits Administrator. The members of the Committee are appointed by the Board of Directors of the Company. The Committee has power to interpret the Plan and the Plan Benefits Administrator has the authority to determine eligibility for benefits. The Plan Financial Administrator has the responsibility to manage and control the assets of the Plan in accordance with the terms of the Plan. Brokerage fees, commissions, stock transfer taxes and other charges and expenses incurred in connection with the purchase or sale of securities are paid by the Plan. The cost of administering the Plan is paid by the Company. Note 2--Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and assumptions. Note 3--Investments Common stock of the Company is valued at the closing quoted market price on the valuation date. The value of the insurance contract is recorded at contract value, which approximates fair value, and represents contributions, plus interest credited, less distributions. The money market fund is valued at the current redemption price determined by the Trustee. 11 Note 4--Tax Status The Internal Revenue Service (IRS) determined on December 26, 1995, that the Plan is qualified under Section 401(a) of the Internal Revenue Code of 1986 and the Trust is exempt from federal income tax under Section 501(a). Subsequent amendments have been adopted, but are not expected to affect the qualified status of the Plan. The Committee is not aware of any activity that would affect the qualified status of the Plan. Note 5--Insurance Contract The average yield and crediting interest rate of the Fixed Fund insurance contract was 6.40 percent and 6.50 percent in 1998 and 1997, respectively. The crediting interest rate, determined by Travelers, is reset annually, with the new rate going into effect on January 1 of each year. There is no contractually guaranteed minimum interest rate and the contract with Travelers does not provide a basis for determining the crediting interest rate. Note 6--Employer Contributions Participating employer contributions are presented in the Statement of Changes in Net Assets Available for Benefits net of forfeitures of $74,818 and $14,600 in 1998 and 1997, respectively. Note 7--Fixed Fund Unit Values When the plan recordkeeping function was transferred from Travelers to Vanguard in early 1998, the initial value of each unit in the Fixed Fund was set at $10. Company contributions and interest earnings result in an increase in the total number of units outstanding, resulting in a constant unit value of $10. Had a $10 unit value been applied to the Fixed Fund's net assets available for benefits at December 31, 1997, there would have been 1,001,906 units outstanding. Note 8--Impact of Year 2000 (Unaudited) Phillips does not expect the Year 2000 issue to have a significant effect on Plan operations. Phillips' applications software associated with the Plan is now Year 2000 compliant. All necessary Year 2000 remediation and testing have been completed and the Year-2000-compliant version of the software has been implemented. 12 The critical suppliers associated with the Plan, in particular Vanguard, have been assessed with regard to their progress toward becoming Year 2000-ready. All critical suppliers have been judged by Phillips to be making adequate progress. Phillips plans to continue to monitor the critical suppliers through year- end 1999. Business continuity planning efforts associated with the Plan have also been completed by Phillips. However, an unexpected failure to adequately address this issue could result in an interruption of normal Plan operations and activities. 13
- ------------------------------------------------------------------------------------ Schedule of Assets Held Retirement Savings Plan of For Investment Purposes Phillips Petroleum Company Line 27a EIN 73-0400345, Plan 010 At December 31, 1998 (a, b) Identity of (c) Description of investment issue, borrower, including maturity date, lessor, or similar rate of interest, collateral, (d) Historical (e) Current party par or maturity value Cost Value - -------------------- ------------------------------ -------------- ----------- The Travelers Group Annuity Contract Insurance Company* GR-10462, deposit administration fund $10,374,983 10,374,983 Phillips Petroleum 13,208 shares of common stock, Company* $1.25 par value 230,055 562,991 Vanguard Fiduciary 2,153 units of participation Trust Company* in the Vanguard Prime Money Market Fund, $1.00 par value 2,153 2,153 - ------------------------------------------------------------------------------------ $10,607,191 10,940,127 ==================================================================================== *Party-in-interest
14 - ----------------------------------------------------------------- Schedule of Reportable Transactions Retirement Savings Plan of Line 27d Phillips Petroleum Company Series of Transactions in Excess EIN 73-0400345, Plan 010 of 5 Percent of Net Assets Year Ended December 31, 1998 (a, b) Identity of party involved and (c) Value of (d) Value (i) Net gain description of asset purchases* of sales* or (loss) - ----------------------- ------------ --------- ------------ The Travelers Insurance Company** $978,966 573,051 - - ----------------------------------------------------------------- *This is also the cost of purchases and current value of sales at time of transaction. **Party-in-interest Columns (e), (f), (g) and (h) are not applicable. 15 Exhibit 1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8, File No. 33-28669) pertaining to the Retirement Savings Plan of Phillips Petroleum Company and in the related Prospectus of our report dated June 24, 1999, with respect to the financial statements and schedules of the Retirement Savings Plan of Phillips Petroleum Company included in this Annual Report (Form 11-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP ERNST & YOUNG LLP Tulsa, Oklahoma June 24, 1999 -----END PRIVACY-ENHANCED MESSAGE-----