What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-18 compared with 2021-02-24 · 286 added, 318 removed, 1597 unchanged (27% of the section changed)

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Report of Management

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements of Phillips 66:

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Notes to Consolidated Financial Statements

Supplementary Information

Selected Quarterly Financial Data (Unaudited)

Index to Financial Statements

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Index to Financial Statements

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit and finance committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of Equity Method Investment Impairment

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The carrying value of each equity method investment is evaluated for impairment when indicators of a loss in value below the carrying value exist, including a lack of sustained earnings or a deterioration of market conditions, among others.

When there are indicators of impairment, the Company estimates the fair value of the equity method investment.

Fair value is determined using various methods including the present value of expected cash flows using weighted average cost of capital (“discount rate”) and other assumptions.

When the estimated fair value is lower than carrying value, the Company considers whether that impairment is other-than-temporary.

Auditing the Company’s impairment assessments was complex and judgmental due to the estimation required in determining whether an investment had an indicator of impairment, the determination of fair value of the investment if an impairment was indicated, and to the extent that the estimated fair value is lower than carrying value, whether that impairment was other-than-temporary.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s equity method impairment review process, including controls over the identification of factors that may indicate an equity method investment is impaired, and as necessary, the subsequent determination of fair value and assessment of whether indicated impairments are other-than-temporary.

In order to test whether an impairment was indicated, we tested the Company’s evaluation of quoted market prices, if available, and the investments’ earnings history and sustainability under current and expected market conditions.

When impairment indicators were present, we performed audit procedures that included, among others, assessing the methodologies used by management to determine fair value, testing the significant assumptions, including projected revenues, operating expenses and discount rate, and the underlying data used by the Company in its analyses.

For example, we compared the estimated cash flows used within the assessment to current operating results and future expected economic trends.

We also performed sensitivity analyses of significant assumptions to evaluate the impact of changes in significant assumptions to management’s fair value estimate and recalculated management’s estimate.

Lastly, we evaluated management’s determination as to whether an indicated impairment was other than temporary, considering factors such as the duration and magnitude of the decline in value.

Index to Financial Statements

Assessment of Goodwill Impairment

Description of the Matter

As discussed in Note 9 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate the asset might be impaired.

During the first quarter of 2020, due to the impacts of the COVID-19 pandemic, the Company identified a triggering event and performed an interim quantitative goodwill impairment test for all its reporting units.

The fair value of the reporting units was determined using various methods including quoted market prices, the present value of expected cash flows using weighted average cost of capital (“discount rate”) and other assumptions, as well as market multiples based on comparable entities applied to forecasted earnings.

As a result of the Company’s test, it was determined that the refining reporting unit goodwill was fully impaired and an impairment charge of $1.8 billion was recorded.

Auditing management’s goodwill impairment tests was complex and highly judgmental due to the significant estimation required to determine the fair value of the Company’s reporting units.

In particular, the fair value estimates were sensitive to significant assumptions, including projected gross margins, operating expenses, capital expenditures and discount rate which are affected by expectations about future market, industry and economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment process, including controls over management’s review of the significant assumptions described above.

To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing the valuation methodologies and testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company in its analyses.

We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Company’s business environment would affect the significant assumptions.

For example, we compared the significant assumptions used in the expected cash flows to recent operating results and expected economic trends.

We performed sensitivity analyses of certain significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions.

We also involved our internal valuation specialists to assist in our evaluation of the significant assumptions and methodologies used by the Company in developing the fair value estimates.

In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.

Index to Financial Statements

Impairment of Certain Long-Lived Assets

Description of the Matter

As discussed in Note 9 to the consolidated financial statements, in connection with the Company’s announcement to reconfigure the San Francisco Refinery to produce renewable fuels, the Company assessed the recoverability of the San Francisco Refinery asset group and concluded that the carrying value of the asset group was not recoverable.

The Company determined the fair value of these assets, utilizing a combination of replacement cost estimates and comparable market transactions, and recorded a $1.0 billion impairment charge.

Auditing management’s impairment measurement was complex and judgmental due to the significant estimation required in determining the fair value of the asset group.

In particular, judgment is required in order to assess significant assumptions including replacement cost as adjusted for physical deterioration and economic obsolescence, as well as the determination of comparable market transactions.

Auditing the Company’s impairment assessments of whether an impairment indicator for its equity method investments exists was complex and judgmental due to the estimation required in determining whether an investment had an indicator of impairment.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s long-lived asset impairment process, including controls over management’s review of the significant assumptions described above.

To test the estimated fair value of the Company’s San Francisco Refinery asset group, we performed audit procedures that included, among others, assessing the appropriateness of the valuation methodologies utilized and testing the key assumptions discussed above and the underlying data used by the Company in its analysis.

We compared the significant assumptions used by management to industry data, economic trends, and comparable market information.

We also involved our internal valuation specialists to assist in our evaluation of the significant assumptions and methodologies used by the Company in developing the fair value estimates.

In order to test whether an impairment was indicated, we tested the Company’s qualitative evaluation of the presence, or lack of, impairment indicators for its equity method investments.

This included, but was not limited to, an evaluation of the investments’ earnings history and sustainability under current and expected market conditions.

We exercised professional judgment based on our knowledge of the industry and the investee’s business to assess the appropriateness of the management’s qualitative evaluation.

For example, we performed inquiries of management, considered historical operating results of the investments being analyzed, their projected recovery periods, and current and expected market conditions affecting their results.

We performed an independent assessment using both internally and externally available information, such as public share prices (where available), throughputs, refining margins as well as future price and demand forecasts.

In addition to that, we evaluated management's ability to accurately forecast future operating income by comparing actual results to management's historical forecasts.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2011.

Houston, Texas

February 18, 2022

We have served as the Company’s auditor since 2011.

Index to Financial Statements

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Interest and debt expense 581 499 458

Foreign currency transaction (gains) losses 12 5 ( 31 )

Foreign currency transaction losses 1 12 5

Total Costs and Expenses 113,112 70,458 105,381

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Defined benefit plans

Net actuarial loss arising during the period ( 261 ) ( 156 ) ( 16 )

Net actuarial gain (loss) arising during the period 320 ( 261 ) ( 156 )

Prior service credit arising during the period — — 2

Amortization of net actuarial loss, prior service credit and settlements 122 144 63

Curtailment gain — — 5

Plans sponsored by equity affiliates 96 ( 77 ) ( 21 )

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Hedging activities, net of income taxes 3 ( 4 ) ( 11 )

Other Comprehensive Loss, Net of Income Taxes ( 6 ) ( 7 ) ( 75 )

Other Comprehensive Income (Loss), Net of Income Taxes 344 ( 6 ) ( 7 )

Comprehensive Income (Loss) 1,938 ( 3,720 ) 3,370

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Treasury stock (at cost:

2020— 211,771,827 shares;

2019— 206,390,806 shares)

2021 and 2020— 211,771,827 shares)

( 17,116 ) ( 17,116 )

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Net gain on dispositions ( 7 ) ( 108 ) ( 20 )

Unrealized investment gain ( 365 ) — —

Other ( 51 ) 130 16

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Prepaid expenses and other current assets ( 339 ) 92 ( 14 )

92 ( 14 ) ( 113 )

Accounts payable 2,925 ( 2,887 ) 1,941

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Distributions to noncontrolling interests ( 324 ) ( 289 ) ( 241 )

Repurchase of noncontrolling interests ( 24 ) — —

Net proceeds from issuance of Phillips 66 Partners LP common and preferred units — 2 173

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Cumulative effect of accounting changes — — — 81 ( 89 ) ( 1 ) ( 9 )

— — — 36 — 13 49

Net income — — — 3,076 — 301 3,377

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Issuance of Phillips 66 Partners LP common units — 68 — — — 73 141

Distributions to noncontrolling interests

— — — — — ( 207 ) ( 207 )

December 31, 2018 6 19,873 ( 15,023 ) 20,489 ( 692 ) 2,500 27,153

Cumulative effect of accounting changes

— — — 81 ( 89 ) ( 1 ) ( 9 )

Net income — — — 3,076 — 301 3,377

Other comprehensive loss — — — — ( 7 ) — ( 7 )

Dividends paid on common stock — — — ( 1,570 ) — — ( 1,570 )

Repurchase of common stock — — ( 1,650 ) — — — ( 1,650 )

Benefit plan activity — 85 — ( 12 ) — — 73

Issuance of Phillips 66 Partners LP common units

— 68 — — — 73 141

Impacts from Phillips 66 Partners LP GP/IDR restructuring transaction — 275 — — — ( 373 ) ( 98 )

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December 31, 2020 6 20,383 ( 17,116 ) 16,500 ( 789 ) 2,539 21,523

Net income — — — 1,317 — 277 1,594

Other comprehensive income — — — — 344 — 344

Dividends paid on common stock — — — ( 1,585 ) — — ( 1,585 )

Benefit plan activity 1 121 — ( 14 ) — — 108

Distributions to noncontrolling interests — — — — — ( 324 ) ( 324 )

Repurchase of noncontrolling interests — — — ( 2 ) — ( 21 ) ( 23 )

December 31, 2021 $ 7 20,504 ( 17,116 ) 16,216 ( 445 ) 2,471 21,637

Index to Financial Statements

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Actual results could differ from these estimates.

Foreign Currency Translation

Foreign Currency

Adjustments resulting from the process of translating financial statements with foreign functional currencies into U.S.

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If the fair value of the reporting unit is less than the book value, an impairment is recognized for the amount by which the book value exceeds the reporting unit’s fair value.

A goodwill loss cannot exceed the total amount of goodwill allocated to that reporting unit.

A goodwill impairment cannot exceed the total amount of goodwill allocated to that reporting unit.

For purposes of assessing goodwill for impairment, we have two reporting units with goodwill balances at the 2021 testing date:

Transportation and Marketing and Specialties.

Transportation and Marketing and Specialties (M&S).

Intangible Assets Other Than Goodwill

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Index to Financial Statements

Asset Retirement Obligations and Environmental Costs

The fair values of legal obligations to retire and remove long-lived assets are recorded in the period in which the obligations arise.

When the liabilities are initially recorded, we capitalize these costs by increasing the carrying amount of the related PP&E.

Over time, the liabilities are increased for the change in present value, and the capitalized costs in PP&E are depreciated over the useful life of the related assets.

If our estimate of the liability changes after initial recognition, we record an adjustment to the liabilities and PP&E.

Asset Retirement Obligations

When we have a legal obligation to incur costs to retire an asset, we record a liability in the period in which the obligation was incurred provided that a reasonable estimate of fair value can be made.

If a reasonable estimate of fair value cannot be made at the time the obligation arises, we record the liability when sufficient information is available to estimate its fair value.

When a liability is initially recorded, we capitalize the costs by increasing the carrying amount of the related PP&E.

Over time, the liability is increased for changes in present value, and the capitalized costs in PP&E are depreciated over the useful life of the related assets.

If our estimate of the liability changes after initial recognition, we record an adjustment to the liability and PP&E.

Our practice is to keep our refining and other processing assets in good operating condition through routine repair and maintenance of component parts in the ordinary course of business and by continuing to make improvements based on technological advances.

As a result, we believe that generally these assets have no expected retirement dates for purposes of estimating asset retirement obligations since the dates or ranges of dates upon which we would retire these assets cannot be reasonably estimated at this time.

We will recognize liabilities for these obligations in the period when sufficient information becomes available to estimate a date or range of potential retirement dates.

Environmental Costs

Environmental expenditures are expensed or capitalized, depending upon their future economic benefit.

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Revenues associated with terminaling and storage services are recognized over time as the services are performed based on throughput volume or capacity utilization at contractual rates.

Revenues associated with transactions commonly called buy/sell contracts, in which the purchase and sale of inventory with the same counterparty are entered into in contemplation of one another, are combined and reported in the “Purchased crude oil and products” line item on our consolidated statement of operations (i.e., these transactions are recorded net).

Index to Financial Statements

Taxes Collected from Customers and Remitted to Governmental Authorities

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Note 2— Changes in Accounting Principles

Effective October 1, 2021, we adopted ASU No.

2020-04, “ Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021-01, “Reference Rate Reform (Topic 848):

Scope.” These pronouncements provide temporary optional expedients and exceptions to the current guidance on contracts, hedge relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform.

Amendments in ASU 2021-01 further clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

These pronouncements were effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

The adoption of these pronouncements did not impact our consolidated financial statements.

Effective January 1, 2019, we elected to adopt ASU No.

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At December 31, 2021 and 2020, we reported $ 7,470 million and $ 6,522 million of accounts and notes receivable, net of allowances of $ 44 million and $ 37 million, respectively.

Based on an aging analysis at December 31, 2020, 99 % of our accounts receivable were outstanding less than 60 days.

Based on an aging analysis at December 31, 2021, more than 95 % of our accounts receivable were outstanding less than 60 days.

We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt and standby letters of credit.

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During each of the three years ended December 31, 2021, certain volume reductions in inventory caused liquidations of LIFO inventory values.

For the year ended December 31, 2021, LIFO inventory liquidations decreased net income by $ 101 million.

These liquidations did not have a material impact on our results for the years ended December 31, 2020 and 2019.

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At December 31, 2021 and 2020, the book value of our investment in WRB was $ 1,652 million and $ 1,819 million, respectively.

During 2020, we and our co-venturer provided member loans to WRB.

The outstanding member loan balance at December 31, 2020, was approximately $ 554 million, of which our share was approximately $ 277 million.

Index to Financial Statements

We and our co-venturer provided member loans to WRB.

At December 31, 2021 and 2020, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 595 million and $ 277 million, respectively.

• Gray Oak Pipeline, LLC —Phillips 66 Partners LP (Phillips 66 Partners) has a consolidated holding company that owns 65 % of Gray Oak Pipeline, LLC.

Phillips 66 Partners’ effective ownership interest in Gray Oak Pipeline, LLC is 42.25 %, after considering a co-venturer’s 35 % interest in the consolidated holding company.

The Gray Oak Pipeline transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery.

The pipeline commenced full operations in the second quarter of 2020.

In September 2020, Gray Oak Pipeline, LLC closed its offering of $ 1.4 billion aggregate principal amount of senior unsecured notes with maturities ranging from 2023 to 2027.

These senior notes are not guaranteed by Phillips 66 Partners or any of its co-venturers.

Net proceeds from the offering were used to repay a third-party term loan of $ 1,379 million, and for general company purposes.

Concurrent with the full repayment of the third-party term loan facility, the associated equity contribution agreement was terminated and Phillips 66 Partners no longer has its proportionate exposure under this equity contribution agreement.

During its development phase, Gray Oak Pipeline, LLC was considered a VIE because it did not have sufficient equity at risk to fully fund the construction of all assets required for principal operations.

We determined we were not the primary beneficiary because we and our co-venturers jointly directed the activities of Gray Oak Pipeline, LLC that most significantly impacted economic performance.

Gray Oak Pipeline, LLC ceased being a VIE after the commencement of full operations in the second quarter of 2020.

The Gray Oak Pipeline, which commenced full operations in the second quarter of 2020, transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery.

At December 31, 2021 and 2020, Phillips 66 Partners’ investment in the Gray Oak Pipeline had a book value of $ 812 million and $ 860 million, respectively.

See Note 27—Phillips 66 Partners LP, for additional information regarding Phillips 66 Partners’ ownership in the consolidated holding company and Gray Oak Pipeline, LLC.

Index to Financial Statements

• DCP Sand Hills Pipeline, LLC (Sand Hills) —Phillips 66 Partners’ 33 percent-owned joint venture that owns an NGL pipeline system that extends from the Permian Basin and Eagle Ford to facilities on the Texas Gulf Coast and to the Mont Belvieu, Texas, market hub.

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These two pipeline systems collectively form the Bakken Pipeline system, which is operated by a co-venturer.

In 2020, the trial court presiding over litigation regarding the Dakota Access Pipeline ordered the U.S.

Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) relating to an easement under Lake Oahe in North Dakota and later vacated the easement.

Although the easement has been vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS, which is expected to be completed in the second half of 2022.

In May 2021, the court denied a request for an injunction to shut down the pipeline while the EIS is being prepared and, in June 2021, dismissed the litigation.

It is possible that the litigation could be reopened or new litigation challenging the EIS, once completed, could be filed.

In September 2021, Dakota Access filed a writ of certiorari, requesting the U.S.

Supreme Court to review the lower court’s judgment that ordered the EIS and vacated the easement.

In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $ 2.5 billion aggregate principal amount of senior unsecured notes consisting of:

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• $ 850 million aggregate principal amount of 4.625 % Senior Notes due 2029.

Index to Financial Statements

Dakota Access and ETCO have guaranteed repayment of the notes.

In addition, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering.

Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the ongoing litigation related to an easement granted by the U.S.

Army Corps of Engineers (USACE) to allow the pipeline to be constructed under Lake Oahe in North Dakota.

Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above mentioned ongoing litigation.

Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes.

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At December 31, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $ 631 million.

In March 2020, the trial court presiding over this litigation ordered the USACE to prepare an Environmental Impact Statement (EIS) and requested additional information to enable a decision on whether the Dakota Access Pipeline should be shut down while the EIS is being prepared.

In July 2020, the trial court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil within 30 days and that the pipeline should remain shut down pending the preparation of the EIS by the USACE, which the USACE has indicated is expected to take approximately 13 months.

Dakota Access filed an appeal and a request for a stay of the order, which was granted.

In January 2021, the appellate court affirmed the trial court’s order that:

(1) vacated Dakota Access’s easement under Lake Oahe, and (2) directed the USACE to prepare an EIS.

The appellate court did not affirm the trial court’s order that the Dakota Access Pipeline be shut down and emptied of crude oil.

However, the appellate court acknowledged the precise consequences of the vacated easement remain uncertain.

Since the pipeline is now an encroachment, the USACE could seek a shutdown of the pipeline during the preparation of the EIS.

Alternatively, the trial court could again issue an injunction that the pipeline be shut down, assuming it makes all findings necessary for injunctive relief.

A status hearing is scheduled for April 9, 2021, at which time the parties will discuss the appellate court’s decision and how the USACE plans to proceed given the vacating of the easement.

If the pipeline is required to cease operations pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be required to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $ 25 million annually, in addition to the potential obligations under the CECU.

If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be required to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $ 25 million annually, in addition to the potential obligations under the CECU.

At December 31, 2021 and 2020, the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $ 574 million and $ 577 million, respectively.

Index to Financial Statements

• Rockies Express Pipeline LLC (REX) — 25 percent-owned joint venture that owns a natural gas pipeline system that extends from Wyoming and Colorado to Ohio with a bidirectional section that extends from Ohio to Illinois.

The REX Pipeline system is operated by our co-venturer.

In July 2018, we contributed $ 138 million to REX to cover our 25 % share of a $ 550 million debt repayment.

Our capital contribution was included in the “Capital expenditures and investments” line item on our consolidated statement of cash flows.

We have a basis difference for our investment in REX because the carrying value of our investment is lower than our share of REX’s recorded net assets.

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At December 31, 2021 and 2020, the book value of our investment in REX was $ 510 million and $ 547 million, respectively.

Index to Financial Statements

• CF United LLC (CF United) —In the fourth quarter of 2019, we acquired a 50 % voting interest and a 48 % economic interest in CF United, a retail marketing joint venture with operations primarily on the U.S.

CF United is considered a VIE, because our co-venturer has an option to sell its interest to us based on a fixed multiple.

The put option becomes effective July 1, 2023, and expires on March 31, 2024.

The put option is viewed as a variable interest as the purchase price on the exercise date may not represent the then-current fair value of CF United.

We have determined that we are not the primary beneficiary because we and our co-venturer jointly direct the activities of CF United that most significantly impact economic performance.

At December 31, 2020, our maximum exposure was comprised of our $ 332 million investment in CF United and any potential future loss resulting from the put option, if the purchase price based on a fixed multiple exceeds the then-current fair value of CF United.

At December 31, 2019, the book value of our investment in CF United was $ 265 million.

• DCP Midstream, LLC (DCP Midstream) — 50 percent-owned joint venture that owns and operates NGL and gas pipelines, gas plants, gathering systems, storage facilities and fractionation plants, through its subsidiary DCP Partners.

DCP Midstream markets a portion of its NGL to us and our equity affiliates.

On November 6, 2019, DCP Partners completed a transaction to eliminate all general partner economic interests in DCP Partners and incentive distribution rights (IDRs) in exchange for 65 million newly issued DCP Partners common units.

At the completion of the transaction, DCP Midstream held a noneconomic general partner interest and approximately 118 million common units, representing approximately 57 % of DCP Partners’ outstanding common units.

For the years ended December 31, 2020 and 2019, we recorded a before-tax impairment of $ 1,161 million and $ 853 million, respectively, on our investment in DCP Midstream.

These impairments increased the difference between the carrying value of our investment in DCP Midstream and our share of DCP Midstream’s net assets at March 31, 2020, to $ 1.8 billion.

This basis difference is being amortized and recognized as a benefit to equity earnings over a period of 22 years, which was the estimated remaining useful life of DCP Midstream’s PP&E at March 31, 2020.

Equity earnings for the years ended December 31, 2020 and 2019, were increased by $ 71 million and $ 10 million, respectively, due to the amortization of our basis difference.

At December 31, 2020, the aggregate remaining basis difference for this investment was $ 1.7 billion.

We have a basis difference for our investment in DCP Midstream because the carrying value of our investment is lower than our share of DCP Midstream’s recorded net assets.

This basis difference was the result of impairment charges recorded on our investment in 2020 and 2019.

At December 31, 2021, the aggregate remaining basis difference for this investment was $ 1,646 million.

Equity earnings for the years ended December 31, 2021, 2020 and 2019, were increased by $ 82 million, $ 71 million and $ 10 million, respectively, due to the amortization of our basis difference.

See Note 9—Impairments, and Note 16—Fair Value Measurements for additional information regarding the impairments and the techniques used to determine the fair value of our investment in DCP Midstream.

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James, Louisiana.

A segment of the pipeline from Lake Charles to St.

James, Louisiana, was completed on April 1, 2019.

The Bayou Bridge Pipeline is operated by Phillips 66 Partners’ co-venturer.

At December 31, 2021 and 2020, the book value of Phillips 66 Partners’ investment in Bayou Bridge was $ 277 million and $ 288 million, respectively.

• Liberty Pipeline LLC (Liberty) —Phillips 66 Partners’ 50 percent-owned joint venture that was formed to develop and construct the Liberty Pipeline system.

Upon completion, this pipeline system will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma.

Liberty is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations.

We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Liberty that most significantly impact economic performance.

The development and construction of the Liberty Pipeline system have been deferred as a result of the current challenging business environment.

At December 31, 2020, the book value of Phillips 66 Partners’ investment in Liberty was $ 241 million.

• CF United LLC (CF United) —A retail marketing joint venture with operations primarily on the U.S.

We own a 50 % voting interest and a 48 % economic interest in this joint venture.

CF United is considered a VIE, because our co-venturer has an option to require us to purchase its interest based on a fixed multiple.

The put option becomes effective July 1, 2023, and expires on March 31, 2024.

The put option is viewed as a variable interest as the purchase price on the exercise date may not represent the then-current fair value of CF United.

We have determined that we are not the primary beneficiary because we and our co-venturer jointly direct the activities of CF United that most significantly impact economic performance.

At December 31, 2021, our maximum exposure to loss was comprised of our $ 277 million investment in CF United, and any potential future loss resulting from the put option, should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.

At December 31, 2020, the book value of our investment in CF United was $ 332 million.

• DCP Southern Hills Pipeline, LLC (Southern Hills) —Phillips 66 Partners’ 33 percent-owned joint venture that owns an NGL pipeline system that extends from the Midcontinent region to the Mont Belvieu, Texas, market hub.

The Southern Hills Pipeline system is operated by DCP Partners.

At December 31, 2020 and 2019, the book value of Phillips 66 Partners’ investment in Southern Hills was $ 217 million and $ 215 million, respectively.

At both December 31, 2021 and 2020, the book value of Phillips 66 Partners’ investment in Southern Hills was $ 217 million.

Index to Financial Statements

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At December 31, 2020, the book value of our investment in OnCue was $ 96 million.

• Liberty Pipeline LLC (Liberty) —In the first quarter of 2021, Phillips 66 Partners’ decision to exit the Liberty Pipeline project resulted in a $ 198 million before-tax impairment of its investment in Liberty.

The impairment is included in the “Impairments” line item on our consolidated statement of operations for the year ended December 31, 2021.

In April 2021, Phillips 66 Partners transferred its ownership interest in Liberty to its co-venturer for cash and certain pipeline assets with a value that approximated its book value of $ 46 million at March 31, 2021.

At December 31, 2020, the book value of Phillips 66 Partners’ investment in Liberty was $ 241 million.

See Note 9—Impairments, and Note 16—Fair Value Measurements, for additional information regarding the impairment and the techniques used to determine the fair value of Phillips 66 Partners’ investment in Liberty.

Other Investments

In September 2021, we acquired 78 million ordinary shares in NOVONIX Limited (NOVONIX), representing a 16 % ownership interest, for $ 150 million.

These ordinary shares are traded on the Australian Securities Exchange.

NOVONIX is a Brisbane, Australia-based company that develops technology and supplies materials for lithium-ion batteries.

Since we do not have significant influence over the operating and financial policies of NOVONIX and the shares we own have a readily determinable fair value, our investment is recorded at fair value at the end of each reporting period.

The fair value of our investment is recorded in the “Investments and long-term receivables” line item on our consolidated balance sheet, and the change in the fair value of our investment, or unrealized gain (loss), is recorded in the “Other income” line item on our consolidated statement of operations.

The fair value of our investment in NOVONIX was $ 520 million at December 31, 2021.

The unrealized investment gain, including foreign exchange impacts, was $ 370 million for the year ended December 31, 2021.

See Note 16—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.

Total distributions received from affiliates were $ 3,043 million, $ 1,717 million, and $ 2,055 million for the years ended December 31, 2021, 2020 and 2019, respectively.

11 unchanged sentences

Noncontrolling interests 3,003 2,997 2,145

Index to Financial Statements

Note 7— Properties, Plants and Equipment

6 unchanged sentences

Chemicals — — — — — —

24,647 12,019 12,628 23,692 10,336 13,356

Refining 23,878 12,517 11,361 24,647 12,019 12,628

Marketing and Specialties 1,819 1,035 784 1,815 1,007 808

1 unchanged sentence

$ 39,797 17,362 22,435 40,223 16,507 23,716

See Note 9—Impairments, for information regarding the PP&E impairment of our San Francisco Refinery asset group.

In the fourth quarter of 2021, we announced the shutdown of our Alliance Refinery in connection with plans to convert it to a terminal.

We performed an evaluation of assets associated with our Alliance Refinery, and determined that certain Refining and Midstream PP&E had no further utility to us.

As a result, we retired these PP&E and recorded depreciation and amortization of $ 155 million before-tax, of which $ 85 million was recorded in our Refining segment and $ 70 million was recorded in our Midstream segment.

See Note 9—Impairments, for information regarding PP&E impairments associated with our Alliance Refinery and San Francisco Refinery asset groups.

Index to Financial Statements

3 unchanged sentences

Midstream Refining Marketing and Specialties Total

Balance at January 1, 2019 $ 626 1,805 839 3,270

Adjustments — — — —

Balance at December 31, 2019 $ 626 1,805 839 3,270

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Balance at December 31, 2020 626 — 799 1,425

* Represents accumulated impairment losses at December 31, 2020 .

See Note 9—Impairments, for information regarding the goodwill impairment in the Refining reporting unit.

Goodwill assigned to acquisitions — — 59 59

Balance at December 31, 2021 $ 626 — 858 1,484

*Represents accumulated impairments at December 31, 2021.

In December 2021, we acquired a commercial fleet fueling business on the West Coast in our M&S segment and recognized goodwill of $ 59 million associated with this acquisition.

See Note 9—Impairments, for information regarding the goodwill impairment in the Refining reporting unit during 2020.

Intangible Assets

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For the years ended December 31, 2021, 2020 and 2019, amortization expense was $ 26 million, $ 27 million and $ 17 million, respectively, and is expected to be less than $ 20 million per year in future years.

See Note 9—Impairments, for information regarding the intangible asset impairment of our San Francisco Refinery assets group.

See Note 9—Impairments, for information regarding the impairment of intangible assets related to our San Francisco Refinery.

Index to Financial Statements

4 unchanged sentences

Refining 1,288 2,763 3

Marketing and Specialties 1 — —

Corporate and Other — 25 —

1 unchanged sentence

Equity Investments

In the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project, which had previously been deferred due to the challenging business environment caused by the COVID-19 pandemic.

As a result, Phillips 66 Partners recorded a $ 198 million before-tax impairment to reduce the book value of its investment in Liberty at March 31, 2021, to estimated fair value.

Red Oak Pipeline LLC (Red Oak)

In the third quarter of 2020, the Red Oak Pipeline project was canceled.

As a result, we recorded an $ 84 million before-tax impairment to reduce the carrying value of our investment to our share of the estimated salvage value of the joint venture’s assets at September 30, 2020.

In the fourth quarter of 2020, Phillips 66 Partners assessed for impairment its equity method investments in two crude oil transportation and terminaling joint ventures, and concluded that the carrying values of these investments at December 31, 2020, were greater than their fair values.

Phillips 66 Partners concluded these differences were not temporary, based on its projections of future crude oil production.

As a result, Phillips 66 Partners recorded before-tax impairments totaling $ 96 million.

DCP Midstream

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We concluded this difference was not temporary primarily due to its magnitude, and we recorded a $ 1,161 million before-tax impairment of our investment in the first quarter of 2020.

Red Oak Pipeline LLC (Red Oak)

In the third quarter of 2020, the Red Oak Pipeline project was canceled.

Phillips 66 Partners concluded these differences were not temporary, based on its projections of future crude oil production.

As a result, Phillips 66 Partners recorded before-tax impairments totaling $ 96 million.

Index to Financial Statements

PP&E and Intangible Assets

Alliance Refinery

In the third quarter of 2021, we identified impairment indicators related to our Alliance Refinery as a result of damages sustained from Hurricane Ida and our reassessment of the role this refinery will play in our refining portfolio.

Accordingly, we assessed the refinery asset group for impairment by performing an analysis that considered several usage scenarios, including selling or converting the asset group to an alternative use.

Based on our analysis, we concluded that the carrying value of the asset group was not recoverable.

As a result, we recorded a $ 1,298 million before-tax impairment to reduce the carrying value of net PP&E in this asset group to its fair value of approximately $ 200 million.

$ 1,288 million of the impairment charge was recorded in our Refining segment and $ 10 million was recorded in our Midstream segment.

In the fourth quarter of 2021, we announced the shutdown of our Alliance Refinery in connection with plans to convert it to a terminal.

See Note 7—Properties, Plants and Equipment, for additional information related to our Alliance Refinery.

San Francisco Refinery

In the third quarter of 2020, we announced a plan to reconfigure our San Francisco Refinery to produce renewable fuels at the Rodeo refining facility in Rodeo, California, starting in early 2024.

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This impairment was primarily related to our Refining segment, with the exception of $ 120 million that was related to PP&E in our Midstream segment.

Index to Financial Statements

Our stock price declined significantly in the first quarter of 2020, mainly due to the disruption in global commodity and equity markets related to the COVID-19 pandemic.

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See Note 16—Fair Value Measurements, for additional information on the determination of fair value used to record these impairments.

The COVID-19 pandemic continues to disrupt economic activities globally.

Reduced demand for petroleum products has resulted in low crude oil prices and refining margins, as well as decreased volumes through refineries and logistics infrastructure.

The depth and duration of the economic consequences of the COVID-19 pandemic remain unknown.

We continuously monitor our asset and investment portfolio for impairments, as well as optimization opportunities, in this challenging business environment.

As such, additional impairments may be required in the future.

During 2021, global refined petroleum product demand steadily recovered due to the easing of COVID-19 pandemic restrictions and the administration of COVID-19 vaccines.

Consequently, sales of refined petroleum products, refining margins and volumes through our refineries and logistics systems have improved.

However, as some uncertainty remains regarding the impact of the COVID-19 pandemic on global economic activities, we continue to monitor our asset and investment portfolio for indicators of impairment.

The consequences of a sustained disruption of economic activities by the pandemic may include additional asset impairments and portfolio rationalization in the future.

Index to Financial Statements

Note 10— Asset Retirement Obligations and Accrued Environmental Costs

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We have asset retirement obligations that we are required to perform under law or contract once an asset is permanently taken out of service.

Most of these obligations are not expected to be paid until many years in the future and are expected to be funded from general company resources at the time of removal.

Our largest individual obligations involve asbestos abatement at refineries.

Our recognized asset retirement obligations primarily involve asbestos abatement at our refineries;

decommissioning, removal or dismantlement of certain assets at refineries that have or will be shut down;

and dismantlement or removal of assets at certain leased international marketing sites.

Most of our asset retirement obligations are not expected to be paid until many years in the future and are expected to be funded from general company resources at the time of removal.

During the years ended December 31, 2021 and 2020, our overall asset retirement obligation changed as follows:

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Balance at December 31 $ 395 309

During the year ended December 31, 2021, our asset retirement balance increased by $ 86 million.

This increase was primarily due to changes in estimates of existing obligations related to the planned shutdown of our Santa Maria Refinery in connection with our Rodeo Renewed project, and asbestos abatement, as well as new obligations related to the decommissioning of certain assets at our Alliance Refinery, which was shut down in the fourth quarter of 2021 in connection with plans to convert it to a terminal.

Index to Financial Statements

Accrued Environmental Costs

For the year ended December 31, 2020, the $ 14 million decrease in total accrued environmental costs was due to payments and settlements during the year, which exceeded new accruals, accrual adjustments and accretion.

Of our total accrued environmental costs at December 31, 2021, $ 260 million was primarily related to cleanup at domestic refineries and underground storage tanks at U.S.

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Note 11— Earnings (Loss) Per Share

The numerator of basic earnings (loss) per share (EPS) is net income (loss) attributable to Phillips 66, adjusted for noncancelable dividends paid on unvested share-based employee awards during the vesting period (participating securities).

The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and fully vested stock and unit awards that have not yet been issued as common stock.

The numerator of diluted EPS is also based on net income (loss) attributable to Phillips 66, which is reduced only by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings (loss) of the periods presented.

The numerator of diluted EPS is also based on net income (loss) attributable to Phillips 66, which is reduced by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings (loss) of the periods presented, and the premium paid for the repurchase of noncontrolling interests.

To the extent unvested stock, unit or option awards and vested unexercised stock options are dilutive, they are included with the weighted-average common shares outstanding in the denominator.

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Income allocated to participating securities ( 9 ) ( 9 ) ( 8 ) ( 8 ) ( 6 ) ( 2 )

Premium paid for the repurchase of noncontrolling

( 2 ) ( 2 ) — — — —

Net income (loss) available to common stockholders $ 1,306 1,306 ( 3,983 ) ( 3,983 ) 3,070 3,074

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4.875 % Senior Notes due November 2044

Floating Rate Notes due April 2020 at 2.751 % at year-end 2019

Term Loan due April 2020 at 2.699 % at year-end 2019

3.300 % Senior Notes due March 2052

Term Loan due November 2023 at 1.397 % at year-end 2020

Floating Rate Senior Notes due February 2021 at 0.833 % and 2.517 % at year-end 2020 and 2019, respectively

Floating Rate Senior Notes due February 2021 at 0.833 % at year-end 2020

Floating Rate Senior Notes due February 2024 at 0.840 % at year-end 2020

Floating Rate Advance Term Loan due December 2034 at 0.699 % and 0.755 % at year-end 2021 and 2020, respectively—related party

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4.900 % Senior Notes due October 2046

Tax-Exempt Bonds due April 2020 and April 2021 at weighted-average rates of 0.360 % and 1.850 % at year-end 2020 and 2019, respectively

Floating Rate Term Loan due April 2022 at 0.978 % at year-end 2021

Tax-Exempt Bonds due April 2021 at weighted-average rate of 0.360 % at year-end 2020

Revolving Credit Facility due January 2021 at weighted-average rate of 1.397 % at year-end 2020

Debt at face value 14,251 15,716

15,716 11,576

Finance leases 290 264

1 unchanged sentence

Net unamortized discounts and debt issuance costs ( 109 ) ( 106 )

( 106 ) ( 100 )

15,893 11,763

Total debt 14,448 15,893

Short-term debt ( 1,489 ) ( 987 )

( 987 ) ( 547 )

Long-term debt $ 12,959 14,906

$ 14,906 11,216

Index to Financial Statements

Maturities of borrowings outstanding at December 31, 2021, inclusive of net unamortized discounts and debt issuance costs, for each of the years from 2022 through 2026 are $ 1,489 million, $ 524 million, $ 1,121 million, $ 1,179 million and $ 1,013 million, respectively.

2020 Debt Issuances and Repayments

2021 Activities

In December 2021, Phillips 66 used cash on hand to repay the $ 450 million outstanding principal balance of its Floating Rate Senior Notes due February 2024.

The redemption price of the senior notes was equal to 100 % of the principal amount of the senior notes outstanding, plus accrued and unpaid interest.

In November 2021, Phillips 66 closed its public offering of $ 1 billion aggregate principal amount of 3.300 % senior unsecured notes due 2052.

Interest on the Senior Notes due 2052 is payable semiannually on March 15 and September 15 of each year, commencing on March 15, 2022.

Proceeds received from the public offering were $ 982 million, net of underwriters’ discounts and commissions, as well as debt issuance costs.

In December 2021, Phillips 66 used the proceeds from this offering, together with cash on hand, to repay $ 1 billion in aggregate principal amount of its $ 2 billion 4.300 % Senior Notes due April 2022.

In September 2021, Phillips 66 repaid the $ 500 million of outstanding borrowings under the delayed draw term loan facility due November 2023 described below under “Term Loan Facility.”

In April 2021, Phillips 66 Partners entered into a $ 450 million term loan agreement and borrowed the full amount.

The term loan agreement has a maturity date of April 5, 2022, and the outstanding borrowings can be repaid at any time and from time to time, in whole or in part, without premium or penalty.

Borrowings bear interest at a floating rate based on either a Eurodollar rate or a reference rate, plus a margin of 0.875 %.

Proceeds were primarily used to repay amounts borrowed under Phillips 66 Partners’ $ 750 million revolving credit facility.

In April 2021, Phillips 66 Partners repaid $ 50 million of its tax-exempt bonds upon maturity.

In February 2021, Phillips 66 repaid $ 500 million outstanding principal balance of its floating-rate senior notes upon maturity.

2020 Activities

Senior Unsecured Notes

On November 18, 2020, Phillips 66 closed its public offering of $ 1.75 billion aggregate principal amount of senior unsecured notes consisting of:

In November 2020, Phillips 66 closed its public offering of $ 1.75 billion aggregate principal amount of senior unsecured notes consisting of:

• $ 450 million aggregate principal amount of Floating Rate Senior Notes due 2024 (the Floating Rate Notes).

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• $ 500 million aggregate principal amount of 1.300 % Senior Notes due 2026.

The Floating Rate Notes will bear interest at a floating rate, reset quarterly, equal to the three-month London Interbank Offered Rate (LIBOR) plus 0.62 % per year, subject to adjustment.

The Floating Rate Notes bear interest at a floating rate, reset quarterly, equal to the three-month LIBOR plus 0.62 % per year, subject to adjustment.

Interest on the Senior Notes due 2024 and 2026 is payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2021.

Proceeds received from the public offering of senior unsecured notes on November 18, 2020, were $ 1.74 billion, net of underwriters’ discounts and commissions, as well as debt issuance costs.

On November 19, 2020, a portion of these proceeds were used to repay $ 500 million of outstanding borrowings under the term loan facility that Phillips 66 entered into in March 2020 (see the “Term Loan Facility” section below for a full description of the term loan facility).

In addition, a portion of the proceeds will be used to repay the $ 500 million aggregate principal amount of our outstanding Floating Rate Senior Notes due February 2021.

Proceeds received from the public offering of senior unsecured notes in November 2020 were $ 1.74 billion, net of underwriters’ discounts and commissions, as well as debt issuance costs.

On November 19, 2020, a portion of these proceeds was used to repay $ 500 million of outstanding borrowings under the term loan facility that Phillips 66 entered into in March 2020 (see the “Term Loan Facility” section below for a full description of the term loan facility).

In addition, a portion of the proceeds was used to repay the $ 500 million aggregate principal amount of our outstanding Floating Rate Senior Notes due February 2021.

The remainder of the proceeds are being used for general corporate purposes.

On June 10, 2020, Phillips 66 closed its public offering of $ 1 billion aggregate principal amount of senior unsecured notes consisting of:

Index to Financial Statements

In June 2020, Phillips 66 closed its public offering of $ 1 billion aggregate principal amount of senior unsecured notes consisting of:

• $ 150 million aggregate principal amount of 3.850 % Senior Notes due 2025.

• $ 850 million aggregate principal amount of 2.150 % Senior Notes due 2030.

On April 9, 2020, Phillips 66 closed its public offering of $ 1 billion aggregate principal amount of senior unsecured notes consisting of:

In April 2020, Phillips 66 closed its public offering of $ 1 billion aggregate principal amount of senior unsecured notes consisting of:

• $ 500 million aggregate principal amount of 3.700 % Senior Notes due 2023.

1 unchanged sentence

Interest on the Senior Notes due 2023 is payable semiannually on April 6 and October 6 of each year, commencing on October 6, 2020.

The Senior Notes due 2025 issued on June 10, 2020, constitute a further issuance of the Senior Notes due 2025 originally issued on April 9, 2020.

The Senior Notes due 2025 issued in June 2020 constitute a further issuance of the Senior Notes due 2025 originally issued in April 2020.

The $ 650 million in aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities.

1 unchanged sentence

Interest on the Senior Notes due 2030 is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2020.

Proceeds received from the public offerings of senior unsecured notes on June 10, 2020, and April 9, 2020, were $ 1,008 million and $ 993 million, respectively, net of underwriters’ discounts or premiums and commissions, as well as debt issuance costs.

These proceeds are being used for general corporate purposes.

Index to Financial Statements

Proceeds received from the public offerings of senior unsecured notes in June and April of 2020 were $ 1,008 million exclusive of accrued interest received, and $ 993 million, respectively, net of underwriters’ discounts or premiums and commissions, as well as debt issuance costs.

These proceeds were used for general corporate purposes.

Term Loan Facility

On March 19, 2020, Phillips 66 entered into a $ 1 billion 364 -day delayed draw term loan agreement (the Facility) and borrowed $ 1 billion under the Facility shortly thereafter.

On April 6, 2020, Phillips 66 increased the size of the Facility to $ 2 billion, and in June 2020, the Facility was amended to extend the commitment period to September 19, 2020.

We did not draw additional amounts under the Facility before the end of the commitment period or further extend the commitment period.

In November 2020, we repaid $ 500 million of borrowings outstanding under the Facility, and the Facility was amended to extend the maturity date of the remaining $ 500 million outstanding borrowings from March 18, 2021, to November 20, 2023.

Borrowings under the Facility bear interest at a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by the credit rating of Phillips 66’s senior unsecured long-term debt.

Phillips 66 is using the proceeds for general corporate purposes.

In March 2020, Phillips 66 entered into a $ 1 billion 364 -day delayed draw term loan agreement (the Facility) and borrowed $ 1 billion under the Facility shortly thereafter.

In November 2020, we repaid $ 500 million of borrowings outstanding under the Facility, and the Facility was amended to extend the maturity date of the remaining $ 500 million to November 2023.

Borrowings under the Facility bear interest at a floating rate based on either a Eurodollar rate or a reference rate, plus a margin determined by the credit rating of Phillips 66’s senior unsecured long-term debt.

Other Debt Repayments

In April 2020, Phillips 66 repaid $ 300 million outstanding principal balance of its floating-rate notes due April 2020 and $ 200 million outstanding principal balance under the term loan facility due April 2020.

Also in April 2020, Phillips 66 Partners repaid a $ 25 million tranche of its tax-exempt bonds due April 2020.

2019 Debt Issuances and Repayments

On October 15, 2019, Phillips 66 Partners repaid the aggregate $ 300 million outstanding principal balance of its 2.646 % Senior Notes due February 2020.

On September 13, 2019, Phillips 66 Partners repaid the aggregate $ 400 million outstanding principal balance of the senior unsecured term loan facility that was drawn during the first half of 2019.

On September 6, 2019, Phillips 66 Partners closed on a public offering of $ 900 million aggregate principal amount of unsecured notes consisting of:

• $ 300 million aggregate principal amount of 2.450 % Senior Notes due December 15, 2024.

• $ 600 million aggregate principal amount of 3.150 % Senior Notes due December 15, 2029.

Interest on each series of senior notes is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020.

Net proceeds from the Senior Notes offering were used for the September 13, 2019 and October 15, 2019 debt repayments noted above and general business purposes.

On March 22, 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of $ 400 million due March 20, 2020.

Phillips 66 Partners borrowed an aggregate amount of $ 400 million under the facility during the first half of 2019, which was repaid in full in September 2019.

Index to Financial Statements

In April 2020, Phillips 66 repaid $ 300 million outstanding principal balance of its floating-rate notes due April 2020 and the $ 200 million outstanding principal balance of its term loan facility due April 2020.

Also in April 2020, Phillips 66 Partners repaid $ 25 million of its tax-exempt bonds upon maturity.

Revolving Credit Facilities and Commercial Paper

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At December 31, 2021 and 2020, no amount had been drawn under the facility.

Index to Financial Statements

Phillips 66 also has a $ 5 billion uncommitted commercial paper program for short-term working capital needs that is supported by our revolving credit facility.

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Borrowings under the facility may be short-term or long-term in duration, and Phillips 66 Partners may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty.

At December 31, 2020, borrowings of $ 415 million were outstanding under this facility, compared with no borrowings outstanding at December 31, 2019.

At December 31, 2021, no borrowings were outstanding under this facility, compared with borrowings of $ 415 million at December 31, 2020.

At both December 31, 2021 and 2020, $ 1 million in letters of credit had been issued that were supported by this facility.

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Lease Residual Value Guarantees

In September 2020, we amended the operating lease agreement for our headquarters facility in Houston, Texas, and extended the lease term from June 2021 to September 2025.

Under this agreement, we have the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale.

Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at December 31, 2021.

We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $ 381 million.

These operating leases have remaining terms of up to nine years .

Guarantees of Joint Venture and Other Obligations

We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposures totaling $ 221 million.

These leases have remaining terms of up to ten years .

Guarantees of Joint Venture Obligations

In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a CECU in conjunction with a senior unsecured notes offering.

See Note 6—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.

Gray Oak Pipeline, LLC had a third-party term loan facility with a borrowing capacity of $ 1,379 million, inclusive of accrued interest.

Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, if Gray Oak Pipeline, LLC defaulted on certain of its obligations thereunder.

In September 2020, concurrent with the full repayment of a third-party term loan facility by Gray Oak Pipeline, LLC, the associated guarantee issued by Phillips 66 Partners through an equity contribution agreement was terminated.

See Note 6—Investments, Loans and Long-Term Receivables, for additional information on Gray Oak Pipeline, LLC.

At December 31, 2020, we also had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations, which have remaining terms of up to seven years .

The maximum potential amount of future payments to third parties under these guarantees was approximately $ 191 million.

At December 31, 2021, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to four years .

The maximum potential future exposures under these guarantees were approximately $ 146 million.

Payment would be required if a joint venture defaults on its obligations.

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For additional information about environmental liabilities, see Note 10—Asset Retirement Obligations and Accrued Environmental Costs and Note 14—Contingencies and Commitments.

Index to Financial Statements

Indemnification and Release Agreement

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The agreement also establishes procedures for handling claims subject to indemnification and related matters.

Index to Financial Statements

Note 14— Contingencies and Commitments

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If applicable, we accrue receivables for probable insurance or other third-party recoveries.

In the case of income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

In the case of income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is uncertain.

See Note 21—Income Taxes, for additional information about income-tax-related contingencies.

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Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, although some of the indemnifications are subject to dollar and time limits.

Index to Financial Statements

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites.

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See Note 10—Asset Retirement Obligations and Accrued Environmental Costs, for a summary of our accrued environmental liabilities.

Index to Financial Statements

Legal Proceedings

19 unchanged sentences

Purchase and sales contracts with firm minimum notional volumes for commodities that are readily convertible to cash are recorded on our consolidated balance sheet as derivatives unless the contracts are eligible for, and we elect, the normal purchases and normal sales exception, whereby the contracts are recorded on an accrual basis.

We generally apply the normal purchases and normal sales exception to eligible crude oil, refined petroleum product, NGL, natural gas and power commodity contracts to purchase or sell quantities we expect to use or sell in the normal course of business.

We generally apply the normal purchases and normal sales exception to eligible crude oil, refined petroleum product, NGL, natural gas, renewable feedstock, and power commodity contracts to purchase or sell quantities we expect to use or sell in the normal course of business.

All other derivative instruments are recorded at fair value on our consolidated balance sheet.

For further information on the fair value of derivatives, see Note 16—Fair Value Measurements.

Commodity Derivative Contracts —We sell into or receive supply from the worldwide crude oil, refined petroleum product, NGL, natural gas and electric power markets, exposing our revenues, purchases, cost of operating activities and cash flows to fluctuations in the prices for these commodities.

Commodity Derivative Contracts —We sell into or receive supply from the worldwide crude oil, refined petroleum product, NGL, natural gas, renewable feedstock and electric power markets, exposing our revenues, purchases, cost of operating activities and cash flows to fluctuations in the prices for these commodities.

Generally, our policy is to remain exposed to the market prices of commodities;

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Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts.

The percentage of our derivative contract volumes expiring within the next 12 months was at least 98 % at December 31, 2020 and 2019.

The percentage of our derivative contract volumes expiring within the next 12 months was more than 95 % at December 31, 2021 and 2020.

Open Position

Long / (Short)

Crude oil, refined petroleum products and NGL (millions of barrels)

Crude oil, refined petroleum products, NGL and renewable feedstocks (millions of barrels)

( 18 ) ( 13 )

Interest Rate Derivative Contracts —In 2016, we entered into interest rate swaps to hedge the variability of lease payments on our headquarters facility.

These monthly lease payments vary based on monthly changes in the one-month LIBOR and changes, if any, in our credit rating over the five-year term of the lease.

The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $ 650 million and end in April 2021.

We have designated these swaps as cash flow hedges.

The aggregate net fair value of these swaps was immaterial at December 31, 2020 and 2019.

We report the mark-to-market gains or losses on our interest rate swaps designated as highly effective cash flow hedges as a component of other comprehensive income (loss), and reclassify such gains and losses into earnings in the same period during which the hedged transaction affects earnings.

Net realized gains and losses from settlements of the swaps were immaterial for the years ended December 31, 2020 and 2019.

We currently estimate that before-tax losses of $ 3 million will be reclassified from accumulated other comprehensive loss into general and administrative expenses during the next 12 months as the hedged transactions settle;

however, the actual amounts that will be reclassified will vary based on changes in interest rates.

Index to Financial Statements

Credit Risk from Derivative Instruments

Credit Risk from Derivative and Financial Instruments

Financial instruments potentially exposed to concentrations of credit risk consist primarily of trade receivables and derivative contracts.

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• Rabbi trust assets —These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy.

• Investment in NOVONIX —Our investment in NOVONIX is measured at fair value using unadjusted quoted prices available from the Australian Securities Exchange and is therefore categorized as Level 1 in the fair value hierarchy.

Index to Financial Statements

• Debt —The carrying amount of our floating-rate debt approximates fair value.

The fair value of our fixed-rate debt is estimated based on observable market prices.

Index to Financial Statements

The following tables display the fair value hierarchy for our financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis.

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Rabbi trust assets 158 — — 158 N/A N/A — 158

Investment in NOVONIX 520 — — 520 N/A N/A — 520

$ 1,097 441 — 1,538 ( 779 ) — — 759

1 unchanged sentence

Exchange-cleared instruments $ 463 362 — 825 ( 779 ) ( 49 ) — ( 3 )

OTC instruments — 1 — 1 — — — 1

Physical forward contracts — 51 — 51 — — — 51

Interest-rate derivatives — 3 — 3 — — — 3

Floating-rate debt — 475 — 475 N/A N/A — 475

Fixed-rate debt, excluding finance leases — 15,597 — 15,597 N/A N/A ( 1,927 ) 13,670

Fixed-rate debt, excluding finance leases and software obligations — 15,353 — 15,353 N/A N/A ( 1,686 ) 13,667

$ 463 16,242 — 16,705 ( 779 ) ( 49 ) ( 1,686 ) 14,191

6 unchanged sentences

Physical forward contracts — 13 — 13 — — — 13

Interest rate derivatives — 1 — 1 — — — 1

Rabbi trust assets 143 — — 143 N/A N/A — 143

2 unchanged sentences

Exchange-cleared instruments $ 351 364 — 715 ( 669 ) ( 46 ) — —

OTC instruments — 1 — 1 — — — 1

Physical forward contracts — 10 — 10 — — — 10

Interest-rate derivatives — 3 — 3 — — — 3

Floating-rate debt — 1,940 — 1,940 N/A N/A — 1,940

Fixed-rate debt, excluding finance leases

— 11,813 — 11,813 N/A N/A ( 1,438 ) 10,375

Fixed-rate debt, excluding finance leases and software obligations — 15,597 — 15,597 N/A N/A ( 1,927 ) 13,670

$ 351 17,914 — 18,265 ( 669 ) ( 46 ) ( 1,927 ) 15,623

Index to Financial Statements

The rabbi trust assets are recorded in the “Investments and long-term receivables” line item, and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” line items on our consolidated balance sheet.

See Note 15—Derivatives and Financial Instruments, for information regarding where the assets and liabilities related to our commodity and interest rate derivatives are recorded on our consolidated balance sheet.

The rabbi trust assets and investment in NOVONIX are recorded in the “Investments and long-term receivables” line item, and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” line items on our consolidated balance sheet.

See Note 15—Derivatives and Financial Instruments, for information regarding where the assets and liabilities related to our commodity derivatives are recorded on our consolidated balance sheet.

Nonrecurring Fair Value Measurements

Equity Investments

In the first quarter of 2020, the nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment was the fair value of our share of DCP Midstream’s limited partner interest in DCP Partners, which was estimated based on average market prices of DCP Partners common units for a multi-day trading period encompassing March 31, 2020.

This valuation resulted in a Level 2 nonrecurring fair value measurement.

In the first quarter of 2021, Phillips 66 Partners wrote down the book value of its investment in Liberty to estimated fair value using a Level 3 nonrecurring fair value measurement.

This nonrecurring measurement was based on the estimated fair value of Phillip 66 Partners’ share of the joint venture’s pipeline assets and net working capital.

See Note 6—Investments, Loans and Long-Term Receivables, for more information regarding Phillips 66 Partners’ transfer of its ownership in Liberty to its co-venturer in April 2021.

In the fourth quarter of 2020, the nonrecurring fair value measurements used by Phillips 66 Partners to impair its equity method investments in two crude oil transportation and terminaling joint ventures were calculated by weighting the results of different economic scenarios using the income approach.

The income approach uses a discounted cash flow model that requires various observable and nonobservable inputs, including volumes, rates/tariffs, expenses and discount rates.

These valuations resulted in a Level 3 nonrecurring fair value measurement.

DCP Midstream

In the third quarter of 2019, the nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment consisted of:

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Overall, we concluded the third-quarter 2019 valuation resulted in a Level 3 nonrecurring fair value measurement.

The income approach uses a discounted cash flow model that requires various observable and nonobservable inputs, including volumes, rates/tariffs, expenses and discount rates.

These valuations resulted in a Level 3 nonrecurring fair value measurement.

This valuation resulted in a Level 2 nonrecurring fair value measurement.

PP&E and Intangible Assets

Alliance Refinery

In the third quarter of 2021, we remeasured the carrying value of the net PP&E of our Alliance Refinery asset group to fair value.

The fair value of PP&E was determined using a combination of the income, cost and sales comparison approaches.

The income approach used a discounted cash flow model that requires various observable and non-observable inputs, such as commodity prices, margins, operating rates, sales volumes, operating expenses, capital expenditures, terminal-year values and a risk-adjusted discount rate.

The cost approach used assumptions for the current replacement costs of similar plant and equipment assets adjusted for estimated physical deterioration, functional obsolescence and economic obsolescence.

The sales comparison approach used the value of similar properties recently sold or currently offered for sale.

This valuation resulted in a Level 3 nonrecurring fair value measurement.

Index to Financial Statements

San Francisco Refinery

In the third quarter of 2020, we remeasured the carrying value of the net PP&E and intangible assets of our San Francisco Refinery asset group to fair value.

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The fair value of the Refining reporting unit was calculated by weighting the results from the income approach and the market approach.

The income approach uses a discounted cash flow model that requires various observable and nonobservable inputs, such as prices, volumes, expenses, capital expenditures, discount rates and projected long-term growth rates and terminal values.

The market approach uses peer company enterprise values relative to current and future net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA) projections to arrive at an average multiple.

The income approach used a discounted cash flow model that included various observable and nonobservable inputs, such as prices, volumes, expenses, capital expenditures, discount rates and projected long-term growth rates and terminal values.

The market approach used peer company enterprise values relative to current and future net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA) projections to arrive at an average multiple.

This multiple was applied to the reporting unit’s current and projected EBITDA, with consideration for an estimated market participant acquisition premium.

The resulting fair value Level 3 estimate was less than the Refining reporting unit’s carrying value by an amount that exceeded the existing goodwill balance of the reporting unit.

The resulting Level 3 fair value estimate was less than the Refining reporting unit’s carrying value by an amount that exceeded the existing goodwill balance of the reporting unit.

As a result, the Refining reporting unit’s goodwill was impaired to zero .

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We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time.

Since the inception of our share repurchase program in 2012 through December 31, 2020, we have repurchased a total of 159,349,212 shares at an aggregate cost of $ 12.5 billion.

Since the inception of our share repurchase program in 2012 through December 31, 2021, we have repurchased a total of 159,349,212 shares at an aggregate cost of $ 12,486 million.

Shares of stock repurchased are held as treasury shares.

We suspended share repurchases in mid-March 2020 to preserve liquidity in response to the global economic disruption caused by the COVID-19 pandemic.

In February 2018, we entered into a Stock Purchase and Sale Agreement (Purchase Agreement) with Berkshire Hathaway Inc.

and National Indemnity Company, a wholly owned subsidiary of Berkshire Hathaway, to repurchase 35,000,000 shares of Phillips 66 common stock for an aggregate purchase price of $ 3,280 million.

Pursuant to the Purchase Agreement, the purchase price per share of $ 93.725 was based on the volume-weighted-average price of our common stock on the New York Stock Exchange on February 13, 2018.

The transaction closed in February 2018.

We funded the repurchase with cash of $ 1,880 million and borrowings of $ 1,400 million under our commercial paper program.

These borrowings were subsequently refinanced through a public offering of senior notes.

This specific share repurchase transaction was separately authorized by our Board of Directors and therefore did not impact previously announced authorizations under our share repurchase program.

In 2014, we completed the exchange of our flow improver business for shares of Phillips 66 common stock owned by the other party to the transaction.

We received 17,422,615 shares of our common stock with a fair value at the time of the exchange of $ 1,350 million.

This specific share repurchase transaction was also separately authorized by our Board of Directors and therefore did not impact previously announced authorizations under our share repurchase program.

Our Board of Directors separately authorized two transactions in 2014 and 2018, which resulted in the repurchase of 52,422,615 shares of Phillips 66 common stock with an aggregate value of $ 4,630 million.

Common Stock Dividends

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Total lease liabilities $ 290 1,068

Our finance lease liabilities relate primarily to service station consignment agreements with a marketing joint venture and an oil terminal in the United Kingdom.

The lease liability for the oil terminal finance lease is subject to foreign currency translation adjustments each reporting period.

Our finance lease liabilities relate primarily to service station consignment agreements with a marketing joint venture and a crude oil terminal in the United Kingdom.

The lease liability for the terminal finance lease is subject to foreign currency translation adjustments each reporting period.

Components of net lease cost for the years ended December 31, 2021, 2020 and 2019, were:

Millions of Dollars

2021 2020 2019

Finance lease cost

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Total net lease cost $ 585 683 671

For the year ended December 31, 2018, operating lease rental expense was $ 603 million, including minimum rentals of $ 669 million and contingent rentals of $ 5 million, partially offset by sublease rental income of $ 71 million.

Cash paid for amounts included in the measurement of our lease liabilities for the years ended December 31, 2021, 2020 and 2019, was:

Millions of Dollars

2021 2020 2019

Operating cash outflows—finance leases $ 9 10 6

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Financing cash outflows—finance leases 21 17 21

During the years ended December 31, 2021, 2020 and 2019, we recorded additional noncash ROU assets and corresponding operating lease liabilities totaling $ 260 million, $ 363 million and $ 342 million, respectively, related to new and modified lease agreements.

Index to Financial Statements

During the years ended December 31, 2020 and 2019, we recorded additional noncash ROU assets and corresponding operating lease liabilities totaling $ 363 million and $ 342 million, respectively, related to new and modified lease agreements.

At December 31, 2021 and 2020, the weighted-average remaining lease terms and discount rates for our lease liabilities were:

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Plan participant contributions — 2 — 2 6 6

Plan amendments — — — — — ( 2 )

Net actuarial loss (gain) ( 82 ) ( 37 ) 353 168 ( 13 ) ( 13 )

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101 25 131 16 ( 1 ) —

Prior service credit arising during the period — — — — — 2

Amortization of prior service credit — ( 1 ) — ( 1 ) ( 2 ) ( 2 )

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We rely on a variety of independent market forecasts in developing the expected rate of return for each class of assets.

For the year ended December 31, 2020, actuarial losses resulted in increases in our U.S.

For the year ended December 31, 2021, actuarial gains resulted in decreases in our U.S.

and international pension benefit obligations of $ 82 million and $ 37 million, respectively.

The primary driver for the actuarial gains in 2021 was increases in the discount rates.

For the year ended December 31, 2020, actuarial losses resulted in increases in our U.S.

and international pension benefit obligations of $ 353 million and $ 168 million, respectively.

The primary drivers for the actuarial losses in 2020 and 2019 were decreases in the discount rates and changes to the census data demographics.

The primary drivers for the actuarial losses in 2020 were decreases in the discount rates and changes to the census data demographics.

For the year ended December 31, 2021, the weighted-average actual return on plan assets for our U.S.

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As a result, our plan assets have no significant concentrations of credit risk.

Asset classes that are considered appropriate include equities, fixed income, cash, real estate, infrastructure and insurance contracts.

Asset classes that are considered appropriate include equities, fixed income, cash, real estate and infrastructure investments and insurance contracts.

Plan fiduciaries may consider and add other asset classes to the investment program from time to time.

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If there have been no market transactions in a particular fixed income security, its fair value is calculated by pricing models that benchmark the security against other securities with actual market prices.

• Cash and cash equivalents are valued at cost, which approximates fair value.

• Fair values of cash and cash equivalents approximate their carrying amounts.

• Fair values of insurance contracts are valued at the present value of the future benefit payments owed by the insurance company to the plans’ participants.

• Fair values of investments in common/collective trusts and real estate funds are valued at the net asset value (NAV) as a practical expedient.

• Fair values of investments in common/collective trusts and real estate and infrastructure investments are valued at the net asset value (NAV) as a practical expedient.

The NAV is based on the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets.

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Common/collective trusts measured at NAV

Real estate funds measured at NAV

Real estate and infrastructure investments measured at NAV 318 103

Total $ 832 131 — 2,547 6 — 13 1,280

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Common/collective trusts measured at NAV

Real estate funds measured at NAV

Real estate and infrastructure investments measured at NAV 273 91

Total $ 901 138 — 2,738 3 — 15 1,212

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Employees can contribute up to 75 % of their eligible pay, subject to certain statutory limits, in the Savings Plan to a choice of investment funds.

Phillips 66 provides a company match of participant contributions up to 6 % of eligible pay.

Prior to January 1, 2019, the match was up to 5 % of eligible pay.

In addition, eligible participants receive an additional discretionary Success Share contribution from the company.

The target for the Success Share contribution is 2 % of eligible pay, but the Success Share contribution can range from 0 % to 6 % based on management discretion.

For the three years ended December 31, 2021, Phillips 66 provided a company match of participant contributions up to 6 % of eligible pay, with an additional Success Share contribution ranging from 0 % to 6 % of eligible pay based on management discretion.

For the years ended December 31, 2021, 2020 and 2019, we recorded expense of $ 142 million, $ 145 million and $ 192 million, respectively, related to our contributions to the Savings Plan.

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The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2021, were 5.25 years and 4.91 years, respectively.

During 2020, we received $ 8 million in cash and realized an income tax benefit of less than $ 1 million from the exercise of options.

During 2021, we received $ 26 million in cash and realized an income tax benefit of $ 3 million from the exercise of options.

At December 31, 2021, the remaining unrecognized compensation expense from unvested options was $ 4 million, which will be recognized over a weighted-average period of 21 months, the longest period being 25 months.

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Expected life (years) 6.76 6.96 7.06

We calculate the volatility factor using historical Phillips 66 end-of-week closing stock prices since the Separation Date.

We calculate the volatility factor using historical Phillips 66 end-of-week closing stock prices.

We periodically calculate the average period of time elapsed between grant dates and exercise dates of past grants to estimate the expected life of new option grants.

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During 2020 and 2019, we cash settled PSUs with an aggregate fair value of $ 63 million and $ 25 million, respectively.

Note 21— Income Taxes

During the year ended December 31, 2020, in accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, we recorded a tax benefit reflecting the carryback of a significant portion of our 2020 net operating loss to a year that had a 35% federal statutory income tax rate.

An income tax receivable of $ 1.5 billion is included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of December 31, 2020, which reflects tax refunds we expect to receive within the next 12 months.

During the year ended December 31, 2019, we recorded adjustments to the one-time deemed repatriation tax, which decreased our income tax expense by $ 42 million.

The adjustments were due to the issuance of additional guidance by the U.S.

Internal Revenue Service related to the Tax Act.

During the year ended December 31, 2018, we recorded adjustments to finalize our accounting for the income tax effects of the Tax Act, which increased our income tax expense by $ 36 million.

The adjustments were primarily due to the revision of our estimated revaluation of deferred income tax balances from 35% to 21% in conjunction with the filing of our 2017 income tax return and the issuance of additional guidance by the U.S.

Internal Revenue Service related to the calculation of the one-time deemed repatriation tax.

Index to Financial Statements

Note 21— Income Taxes

Components of income tax expense (benefit) were:

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$ 146 ( 1,250 ) 801

An income tax receivable of $ 1.5 billion was included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of December 31, 2020.

We received a U.S.

federal income tax refund of $ 1.1 billion in the second quarter of 2021.

As of December 31, 2021, the remaining $ 400 million income tax receivable related to 2020 is no longer expected to be received in the next twelve months due to the estimated timing of IRS review procedures and certain elections we made when filing our 2020 income tax return.

During the year ended December 31, 2019, we recorded adjustments to the one-time deemed repatriation tax, which decreased our income tax expense by $ 42 million.

The adjustments were due to the issuance of additional guidance by the U.S.

Internal Revenue Service related to the Tax Act.

Index to Financial Statements

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.

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Other financial accruals and deferrals 82 73

Inventory — 28

Other 262 289

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At December 31, 2021, the loss and credit carryforward deferred tax assets were primarily related to a state tax net operating loss carryforward of $ 83 million;

tax credit, capital loss and net operating loss carryforwards in the United Kingdom of $ 46 million;

a foreign tax credit carryforward in the United States of $ 67 million;

capital loss and net operating loss carryforwards in the United Kingdom of $ 11 million;

and a German interest deduction carryforward of $ 11 million.

State net operating loss carryforwards begin to expire in 2040 or have indefinite lives.

Foreign tax credit carryforwards, which have a full valuation allowance against them, begin to expire in 2029.

The other loss and credit carryforwards, all of which relate to foreign operations, have indefinite lives.

Index to Financial Statements

Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized.

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At December 31, 2021 and 2020, the unrecorded deferred tax liability related to the undistributed earnings of this foreign subsidiary was not material.

As a result of the separation and pursuant to the Tax Sharing Agreement with ConocoPhillips, the unrecognized income tax benefits related to our operations for the periods for which ConocoPhillips was the taxpayer remain the responsibility of ConocoPhillips, and we have indemnified ConocoPhillips for such amounts.

Index to Financial Statements

We file tax returns in the U.S.

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Millions of Dollars Percentage of

Income Before Income Taxes

Income (Loss) Before Income Taxes

2021 2020 2019 2021 2020 2019

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Federal statutory income tax $ 365 ( 1,043 ) 877 21.0 % 21.0 21.0

State income tax, net of federal benefit

( 139 ) 92 155 2.8 2.2 2.1

State income tax, net of federal income tax benefit ( 65 ) ( 139 ) 93 ( 3.7 ) 2.8 2.2

Net operating loss carryback — ( 398 ) — — 8.0 —

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Noncontrolling interests ( 57 ) ( 54 ) ( 61 ) ( 3.3 ) 1.1 ( 1.5 )

Foreign rate differential ( 11 ) ( 31 ) ( 3 ) 0.2 ( 0.7 ) —

Tax Cuts and Jobs Act — ( 42 ) 36 — ( 1.0 ) 0.5

Non-taxable equity earnings ( 53 ) ( 18 ) ( 32 ) ( 3.0 ) 0.4 ( 0.7 )

Tax law changes ( 26 ) — ( 43 ) ( 1.5 ) — ( 1.0 )

Other* ( 18 ) 15 ( 33 ) ( 1.1 ) ( 0.3 ) ( 0.8 )

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* Other includes individually immaterial items but is primarily attributable to foreign operations and change in valuation allowance.

An income tax benefit of $ 1 million for the year ended December 31, 2020, and income tax expense of $ 123 million and $ 13 million for the years ended December 31, 2019 and 2018, respectively, is reflected in the “Capital in Excess of Par” column on our consolidated statement of changes in equity.

For the year ended December 31, 2021, state income tax, net of federal income tax benefit, includes a $ 58 million benefit, primarily to reflect the impact of updated apportionment factors.

There is no income tax reflected for the year ended December 31, 2021, in “Capital in Excess of Par” in the consolidated statement of changes in equity.

An income tax benefit of $ 1 million for the year ended December 31, 2020, and income tax expense of $ 123 million for the year ended December 31, 2019, is reflected in “Capital in Excess of Par.”

Index to Financial Statements

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Net current period other comprehensive income (loss) ( 91 ) 95 ( 11 ) ( 7 )

Income taxes reclassified to retained earnings** ( 93 ) 2 2 ( 89 )

December 31, 2019 ( 656 ) ( 131 ) ( 1 ) ( 788 )

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Net current period other comprehensive income (loss) ( 153 ) 151 ( 4 ) ( 6 )

Income taxes reclassified to retained earnings** ( 93 ) 2 2 ( 89 )

Other — 5 — 5

December 31, 2020 ( 809 ) 25 ( 5 ) ( 789 )

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Net current period other comprehensive income (loss) 411 ( 70 ) 3 344

Other — 5 — 5

December 31, 2021 $ ( 398 ) ( 45 ) ( 2 ) ( 445 )

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2021 2020 2019

Cash Payments

Cash Payments (Receipts)

Interest $ 549 478 426

Income taxes* ( 1,065 ) 103 955

* 2021 reflects a net cash refund position.

Cash payments for income taxes were $ 110 million in 2021.

Note 24— Other Financial Information

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Interest income $ 11 14 43

Unrealized investment gain—NOVONIX 365 — —

Other, net* 78 52 76

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Corporate and Other 2 8 5

$ 12 5 ( 31 )

Index to Financial Statements

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Operating expenses and selling, general and administrative expenses (c) 284 247 96

(a) We sold NGL, other petrochemical feedstocks and solvents to CPChem, NGL and certain feedstocks to DCP Midstream, gas oil and hydrogen feedstocks to Excel Paralubes (Excel), and refined petroleum products to several of our equity affiliates in the Marketing and Specialties segment, including OnCue and CF United.

We also sold certain feedstocks and intermediate products to WRB and acted as agent for WRB in supplying crude oil and other feedstocks for a fee.

We also sold certain feedstocks and intermediate products to WRB and acted as an agent for WRB in supplying crude oil and other feedstocks for a fee.

In addition, we charged several of our equity affiliates, including CPChem, for the use of common facilities, such as steam generators, waste and water treaters and warehouse facilities.

(b) We purchased crude oil, refined petroleum products and NGL from WRB and also acted as agent for WRB in distributing solvents.

(b) We purchased crude oil, refined petroleum products, NGL and solvents from WRB.

We also purchased natural gas and NGL from DCP Midstream and CPChem, as well as other feedstocks from various equity affiliates, for use in our refinery and fractionation processes.

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1) Midstream— Provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, fractionation, processing and marketing services, mainly in the United States.

The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50 % equity investment in DCP Midstream.

The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, our 50 % equity investment in DCP Midstream, and our 16 % investment in NOVONIX.

2) Chemicals— Consists of our 50 % equity investment in CPChem, which manufactures and markets petrochemicals and plastics on a worldwide basis.

3) Refining— Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 13 refineries in the United States and Europe.

4) Marketing and Specialties— Purchases for resale and markets refined petroleum products, mainly in the United States and Europe.

3) Refining— Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 12 refineries in the United States and Europe.

4) Marketing and Specialties— Purchases for resale and markets refined petroleum products and renewable fuels, mainly in the United States and Europe.

In addition, this segment includes the manufacturing and marketing of specialty products.

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* See Note 3—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.

Equity in Earnings (Loss) of Affiliates

Equity in Earnings (Losses) of Affiliates

Midstream $ 877 761 754

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Note 27— Phillips 66 Partners LP

Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded MLP formed in 2013 to own, operate, develop and acquire primarily fee-based midstream assets.

Phillips 66 Partners’ operations currently consist of crude oil, refined petroleum product and NGL transportation, fractionation, processing, terminaling and storage assets.

Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded MLP formed in 2013, which owns and operates primarily fee-based midstream assets.

Phillips 66 Partners’ operations consist of crude oil, refined petroleum product and NGL transportation, fractionation, processing, terminaling and storage assets.

On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the IDRs held by us and convert our 2 % economic general partner interest into a noneconomic general partner interest in exchange for 101 million Phillips 66 Partners common units.

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Beginning in October 2020, holders receive quarterly distributions equal to the greater of $ 0.678375 per unit or the per-unit distribution paid to common unitholders.

In June 2021, Phillips 66 Partners repurchased 368,528 of its outstanding perpetual convertible preferred units for $ 24 million in cash.

Upon the repurchase, these preferred units were canceled and are no longer outstanding.

We consolidate Phillips 66 Partners because we determined it is a VIE of which we are the primary beneficiary.

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2021 December 31

Cash and cash equivalents $ 7 286

Equity investments* $ 2,929 3,244

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The first two programs concluded in June 2018 and December 2019, respectively.

For the years ended December 31, 2020, 2019 and 2018, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $ 2 million, $ 173 million and $ 128 million, respectively, from common units issued under the ATM programs.

Since inception in June 2016 and through December 31, 2020, the ATM programs have generated net proceeds of $ 494 million.

Phillips 66 Partners did no t issue any common units under the ATM program for the year ended December 31, 2021.

For the years ended December 31, 2020 and 2019, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $ 2 million and $ 173 million, respectively, from common units issued under the ATM programs.

Index to Financial Statements

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See Note 6—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak Pipeline, LLC, as well as certain other joint ventures.

Index to Financial Statements

Selected Quarterly Financial Data (Unaudited)

Millions of Dollars Per Share of Common Stock

Sales and Other Operating Revenues Income (Loss) Before Income Taxes Net Income (Loss) Net Income (Loss) Attributable to Phillips 66 Net Income (Loss) Attributable to Phillips 66

Basic Diluted

First $ 20,878 ( 2,478 ) ( 2,427 ) ( 2,496 ) ( 5.66 ) ( 5.66 )

Second 10,913 ( 445 ) ( 67 ) ( 141 ) ( 0.33 ) ( 0.33 )

Third 15,929 ( 1,350 ) ( 726 ) ( 799 ) ( 1.82 ) ( 1.82 )

Fourth 16,409 ( 691 ) ( 494 ) ( 539 ) ( 1.23 ) ( 1.23 )

First $ 23,103 340 270 204 0.44 0.44

Second 27,847 1,829 1,504 1,424 3.13 3.12

Third 27,218 943 793 712 1.58 1.58

Fourth 29,125 1,066 810 736 1.65 1.64

Pending Merger

On October 26, 2021, we entered into a definitive merger agreement with Phillips 66 Partners to acquire all of the limited partner interests in Phillips 66 Partners not already owned by us on the closing date of the transaction.

The agreement provides for an all-stock transaction in which each outstanding Phillips 66 Partners common unitholder would receive 0.50 shares of Phillips 66 common stock for each Phillips 66 Partners common unit.

Phillips 66 Partners’ perpetual convertible preferred units would be converted into common units at a premium to the original issuance price prior to exchange for Phillips 66 common stock.

This merger is expected to close in March 2022, subject to customary closing conditions.

If the merger is successfully completed, based on the closing market prices of Phillips 66 common stock and Phillips 66 Partners common units on December 31, 2021, we would issue approximately 44 million shares of Phillips 66 common stock with a value of approximately $ 3.2 billion to Phillips 66 Partners’ public unitholders following completion of the merger.

The number of shares of common stock we will issue and the value of those shares are subject to change until the merger is closed.

Upon closing, Phillips 66 Partners will become a wholly owned subsidiary of Phillips 66 and will no longer be a publicly traded partnership.

This transaction will be accounted for as an equity transaction and after the closing we will no longer reflect the ownership interest previously held by Phillips 66 Partners’ publicly held common and perpetual convertible preferred unitholders as noncontrolling interests on our consolidated balance sheet nor will we attribute a portion of Phillips 66 Partners’ net income to these former unitholders on our consolidated statement of operations.

Index to Financial Statements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data