What changed in this filing

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Item 1. Financial Statements

2022-07-29 compared with 2022-04-29 · 223 added, 78 removed, 584 unchanged (34% of the section changed)

3 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2022 2021 2022 2021

Revenues and Other Income

13 unchanged sentences

Interest and debt expense 133 143 268 289

Foreign currency transaction gains ( 2 ) —

Foreign currency transaction (gains) losses 21 ( 9 ) 19 ( 9 )

Total Costs and Expenses 45,203 27,449 81,097 50,147

14 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2022 2021 2022 2021

Net Income (Loss) $ 3,182 374 3,839 ( 265 )

1 unchanged sentence

Defined benefit plans

Net actuarial gain (loss) arising during the period ( 13 ) 210 ( 13 ) 210

Amortization of net actuarial loss, prior service credit and settlements 40 47 51 69

17 unchanged sentences

Cash and cash equivalents $ 2,809 3,147

Accounts and notes receivable (net of allowances of $ 44 million in 2022 and 2021)

Accounts and notes receivable (net of allowances of $ 62 million in 2022 and $ 44 million in 2021)

Accounts and notes receivable—related parties 2,634 1,332

39 unchanged sentences

Millions of Dollars

Three Months Ended

Six Months Ended June 30

Cash Flows From Operating Activities

8 unchanged sentences

Unrealized investment loss 390 —

Other 120 258

Working capital adjustments

10 unchanged sentences

Advances/loans—related parties ( 75 ) ( 245 )

Collection of advances/loans—related parties 101 —

Other ( 49 ) ( 45 )

4 unchanged sentences

Issuance of common stock 67 24

Repurchase of common stock ( 66 ) —

Dividends paid on common stock ( 871 ) ( 788 )

Distributions to noncontrolling interests ( 101 ) ( 158 )

Repurchase of noncontrolling interests — ( 24 )

Other ( 37 ) ( 27 )

7 unchanged sentences

Millions of Dollars

Three Months Ended March 31

Three Months Ended June 30

Attributable to Phillips 66

1 unchanged sentence

Other Comprehensive Loss Noncontrolling Interests Total

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

March 31, 2022 $ 7 19,667 ( 13,736 ) 16,391 ( 514 ) 306 22,121

Net income — — — 3,167 — 15 3,182

2 unchanged sentences

— — — ( 467 ) — — ( 467 )

Repurchase of common stock — — ( 66 ) — — — ( 66 )

Benefit plan activity — 82 — ( 4 ) — — 78

1 unchanged sentence

Acquisition of noncontrolling interest in Phillips 66 Partners LP — ( 32 ) — — — — ( 32 )

June 30, 2022 $ 7 19,717 ( 13,802 ) 19,087 ( 733 ) 297 24,573

March 31, 2021 $ 6 20,420 ( 17,116 ) 15,449 ( 780 ) 2,478 20,457

Net income — — — 296 — 78 374

Other comprehensive income — — — — 231 — 231

Dividends paid on common stock ($ 0.90 per share)

— — — ( 394 ) — — ( 394 )

Benefit plan activity — 43 — ( 4 ) — — 39

Distributions to noncontrolling interests — — — — — ( 82 ) ( 82 )

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

June 30, 2021 $ 6 20,463 ( 17,116 ) 15,345 ( 549 ) 2,453 20,602

Three Months Ended June 30

Common Stock Issued Treasury Stock

March 31, 2022 651,046,617 169,946,591

Repurchase of common stock — 700,145

Shares issued—share-based compensation 651,216 —

June 30, 2022 651,697,833 170,646,736

March 31, 2021 649,638,881 211,771,827

Shares issued—share-based compensation 122,354 —

June 30, 2021 649,761,235 211,771,827

See Notes to Consolidated Financial Statements.

Consolidated Statement of Changes in Equity Phillips 66

Millions of Dollars

Six Months Ended June 30

Attributable to Phillips 66

Par Value Capital in Excess of Par Treasury Stock Retained Earnings Accum.

Other Comprehensive Loss Noncontrolling Interests Total

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

Net income — — — 3,749 — 90 3,839

Other comprehensive loss — — — — ( 288 ) — ( 288 )

Dividends paid on common stock ($ 1.89 per share)

— — — ( 871 ) — — ( 871 )

Repurchase of common stock — — ( 66 ) — — — ( 66 )

Benefit plan activity — 114 — ( 7 ) — — 107

Distributions to noncontrolling interests — — — — — ( 101 ) ( 101 )

Acquisition of noncontrolling interest in Phillips 66 Partners LP — ( 901 ) 3,380 — — ( 2,163 ) 316

June 30, 2022 $ 7 19,717 ( 13,802 ) 19,087 ( 733 ) 297 24,573

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

Net income (loss) — — — ( 358 ) — 93 ( 265 )

4 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 158 ) ( 158 )

March 31, 2021 $ 6 20,420 ( 17,116 ) 15,449 ( 780 ) 2,478 20,457

Three Months Ended March 31

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

June 30, 2021 $ 6 20,463 ( 17,116 ) 15,345 ( 549 ) 2,453 20,602

Six Months Ended June 30

Common Stock Issued Treasury Stock

December 31, 2021 650,026,318 211,771,827

Repurchase of common stock — 700,145

Shares issued—share-based compensation 1,671,515 —

Shares issued—acquisition of noncontrolling interest in Phillips 66 Partners LP — ( 41,825,236 )

March 31, 2022 651,046,617 169,946,591

June 30, 2022 651,697,833 170,646,736

December 31, 2020 648,643,223 211,771,827

Shares issued—share-based compensation 1,118,012 —

March 31, 2021 649,638,881 211,771,827

June 30, 2021 649,761,235 211,771,827

See Notes to Consolidated Financial Statements.

5 unchanged sentences

Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2021 Annual Report on Form 10-K.

The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results expected for the full year.

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners LP (Phillips 66 Partners).

The results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results expected for the full year.

On March 9, 2022, we completed the merger between us and Phillips 66 Partners LP (Phillips 66 Partners).

See Note 18—Phillips 66 Partners LP, for additional information on the merger transaction.

4 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2022 2021 2022 2021

Product Line and Services

3 unchanged sentences

Services and other *

119 ( 21 ) ( 69 ) 300

Consolidated sales and other operating revenues

11 unchanged sentences

Contract-Related Assets and Liabilities

At March 31, 2022, and December 31, 2021, receivables from contracts with customers were $ 8,604 million and $ 6,140 million, respectively.

At June 30, 2022, and December 31, 2021, receivables from contracts with customers were $ 11,043 million and $ 6,140 million, respectively.

Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.

1 unchanged sentence

An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years.

At March 31, 2022, and December 31, 2021, our asset balances related to such payments were $ 471 million and $ 466 million, respectively.

At June 30, 2022, and December 31, 2021, our asset balances related to such payments were $ 480 million and $ 466 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery.

At March 31, 2022, and December 31, 2021, contract liabilities were not material.

At June 30, 2022, and December 31, 2021, contract liabilities were not material.

Remaining Performance Obligations

2 unchanged sentences

We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing.

At March 31, 2022, the remaining performance obligations related to these minimum volume commitment contracts were immaterial.

At June 30, 2022, the remaining performance obligations related to these minimum volume commitment contracts were immaterial.

Note 3— Credit Losses

9 unchanged sentences

In addition, when events and circumstances arise that may affect certain counterparties’ abilities to fulfill their obligations, such as Coronavirus Disease 2019 (COVID-19), we enhance our credit monitoring, and we may seek collateral to support some transactions or require prepayments from higher-risk counterparties.

At March 31, 2022, and December 31, 2021, we reported $ 10,455 million and $ 7,470 million of accounts and notes receivable, respectively, net of allowances of $ 44 million for both periods.

Based on an aging analysis at March 31, 2022, more than 95 % of our accounts receivable were outstanding less than 60 days.

At June 30, 2022, and December 31, 2021, we reported $ 13,393 million and $ 7,470 million of accounts and notes receivable, respectively, net of allowances of $ 62 million and $ 44 million, respectively.

Based on an aging analysis at June 30, 2022, 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.

7 unchanged sentences

$ 4,580 3,394

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 3,923 million and $ 2,792 million at March 31, 2022, and December 31, 2021, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 9.4 billion and $ 5.7 billion at March 31, 2022, and December 31, 2021, respectively.

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 4,005 million and $ 2,792 million at June 30, 2022, and December 31, 2021, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 10.5 billion and $ 5.7 billion at June 30, 2022, and December 31, 2021, respectively.

Certain planned reductions in inventory that are not expected to be replaced by the end of the year cause liquidations of LIFO inventory values.

LIFO inventory liquidations increased our net income by $ 40 million in the three months ended March 31, 2022 and increased our net loss by $ 28 million in the three months ended March 31, 2021.

LIFO inventory liquidations increased our net income by $ 3 million and $ 43 million in the three and six months ended June 30, 2022, respectively.

LIFO inventory liquidations decreased our net income by $ 54 million in the second quarter of 2021, and increased our net loss by $ 82 million in the first six months of 2021.

Note 5— Investments, Loans and Long-Term Receivables

12 unchanged sentences

Completion of the EIS was expected in the fall of 2022, but now may be delayed as the USACE engages with the Standing Rock Sioux Tribe on their reasons for withdrawing as a cooperating agency with respect to preparation of the EIS.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access with an aggregate principal outstanding of $ 2.5 billion at March 31, 2022.

In addition, Phillips 66 Partners, now a wholly owned subsidiary of Phillips 66, 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 above-mentioned ongoing litigation.

At March 31, 2022, our share of the maximum potential equity contributions under the CECU was approximately $ 631 million.

If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we could be required to support our 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 March 31, 2022.

At March 31, 2022, the aggregate book value of our investments in Dakota Access and ETCO was $ 725 million.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access in March 2019.

On April 1, 2022, Dakota Access’ wholly owned subsidiary repaid $ 650 million aggregate principal amount of its outstanding senior notes upon maturity.

We funded our 25 % share, or $ 163 million, with a capital contribution of $ 89 million in March 2022 and $ 74 million of distributions we elected not to receive from Dakota Access in the first quarter of 2022.

As a result of the debt repayment, on April 1, 2022, our share of the maximum potential equity contributions under the CECU decreased to approximately $ 467 million, and our share of scheduled interest payments on the notes that we could be required to support decreased to approximately $ 20 million annually.

At June 30, 2022, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $ 1.85 billion.

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

At June 30, 2022, our 25 % share of the maximum potential equity contributions under the CECU was approximately $ 467 million.

If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we could be required to support our 25 % share of the ongoing expenses, including scheduled interest payments on the notes of approximately $ 20 million annually, in addition to the potential obligations under the CECU at June 30, 2022.

At June 30, 2022, the aggregate book value of our investments in Dakota Access and ETCO was $ 704 million.

CF United LLC (CF United)

4 unchanged sentences

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 March 31, 2022, our maximum exposure to loss was comprised of our $ 278 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 June 30, 2022, our maximum exposure to loss was comprised of our $ 280 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.

OnCue Holdings, LLC (OnCue)

3 unchanged sentences

We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact economic performance.

At March 31, 2022, our maximum exposure to loss was $ 188 million, which represented the book value of our investment in OnCue of $ 120 million and guaranteed debt obligations of $ 68 million.

At June 30, 2022, our maximum exposure to loss was $ 201 million, which represented the book value of our investment in OnCue of $ 129 million and guaranteed debt obligations of $ 72 million.

Liberty Pipeline LLC (Liberty)

In the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project, which resulted in a $ 198 million before-tax impairment in our Midstream segment.

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

The impairment is included in the “Impairments” line item on our consolidated statement of operations for the six months ended June 30, 2021.

See Note 12—Fair Value Measurements, for additional information regarding this impairment and the techniques used to determine the fair value of this investment.

5 unchanged sentences

The fair value of our investment is recorded in the “Investments and long-term receivables” line item on our consolidated balance sheet.

The change in the fair value of our investment due to fluctuations in NOVONIX’s stock price, or unrealized investment gains (losses), is recorded in the “Other income (loss)” line item of our consolidated statement of operations, while changes due to foreign currency fluctuations are recorded in the “Foreign currency transaction gains” line item on our consolidated statement of operations.

The fair value of our investment in NOVONIX was $ 362 million at March 31, 2022.

The fair value of our investment in NOVONIX declined by $ 158 million during the three months ended March 31, 2022, reflecting an unrealized investment loss of $ 169 million, partially offset by an unrealized foreign currency gain of $ 11 million.

The change in the fair value of our investment due to fluctuations in NOVONIX’s stock price, or unrealized investment losses, is recorded in the “Other income (loss)” line item of our consolidated statement of operations, while changes due to foreign currency fluctuations are recorded in the “Foreign currency transaction (gains) losses” line item on our consolidated statement of operations.

The fair value of our investment in NOVONIX was $ 122 million at June 30, 2022.

The fair value of our investment in NOVONIX declined by $ 240 million and $ 398 million during the three and six months ended June 30, 2022, respectively, reflecting unrealized investment losses of $ 221 million and $ 390 million and unrealized foreign currency losses of $ 19 million and $ 8 million, respectively.

See Note 12—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.

Related Party Loans

We and our co-venturer provided member loans to WRB Refining LP (WRB).

At March 31, 2022, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 597 million.

We and our co-venturer have provided member loans to WRB Refining LP (WRB).

In April 2022, we and our co-venturer provided additional member loans to WRB;

our 50 % share was $ 75 million.

In June 2022, WRB repaid a portion of the outstanding member loan balance;

our 50 % share was $ 100 million.

At June 30, 2022, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 570 million.

Note 6— Properties, Plants and Equipment

2 unchanged sentences

Millions of Dollars

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Midstream $ 13,367 3,861 9,506 12,524 3,064 9,460

5 unchanged sentences

Note 7— 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 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.

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.

1 unchanged sentence

Three Months Ended

Basic Diluted Basic Diluted

June 30 Six Months Ended

2022 2021 2022 2021

Basic Diluted Basic Diluted Basic Diluted Basic Diluted

Amounts Attributed to Phillips 66 Common Stockholders (millions) :

1 unchanged sentence

Income allocated to participating securities ( 3 ) — ( 3 ) ( 3 ) ( 5 ) — ( 6 ) ( 6 )

Premium paid for the repurchase of noncontrolling interests — — ( 2 ) ( 2 ) — — ( 2 ) ( 2 )

Net income (loss) available to common stockholders $ 3,164 3,167 291 291 3,744 3,749 ( 366 ) ( 366 )

5 unchanged sentences

$ 6.55 6.53 0.66 0.66 8.03 8.00 ( 0.83 ) ( 0.83 )

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners.

On March 9, 2022, we completed the merger between us and Phillips 66 Partners.

The merger resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us in exchange for approximately 42 million shares of Phillips 66 common stock issued from treasury stock.

See Note 18—Phillips 66 Partners LP, for additional information on the merger transaction.

Short-term and long-term debt consisted of the following:

Millions of Dollars

June 30, 2022 December 31, 2021

Phillips 66 Phillips 66 Company Phillips 66 Partners Total Phillips 66 Phillips 66 Partners Total

4.300 % Senior Notes due April 2022

$ — — — — 1,000 — 1,000

3.700 % Senior Notes due April 2023

500 — — 500 500 — 500

0.900 % Senior Notes due February 2024

800 — — 800 800 — 800

2.450 % Senior Notes due December 2024

— 277 23 300 — 300 300

3.605 % Senior Notes due February 2025

— 441 59 500 — 500 500

3.850 % Senior Notes due April 2025

650 — — 650 650 — 650

1.300 % Senior Notes due February 2026

500 — — 500 500 — 500

3.550 % Senior Notes due October 2026

— 458 42 500 — 500 500

3.750 % Senior Notes due March 2028

— 427 73 500 — 500 500

3.900 % Senior Notes due March 2028

800 — — 800 800 — 800

3.150 % Senior Notes due December 2029

— 570 30 600 — 600 600

2.150 % Senior Notes due December 2030

850 — — 850 850 — 850

4.650 % Senior Notes due November 2034

1,000 — — 1,000 1,000 — 1,000

5.875 % Senior Notes due May 2042

1,500 — — 1,500 1,500 — 1,500

4.875 % Senior Notes due November 2044

1,700 — — 1,700 1,700 — 1,700

4.680 % Senior Notes due February 2045

— 442 8 450 — 450 450

4.900 % Senior Notes due October 2046

— 605 20 625 — 625 625

3.300 % Senior Notes due March 2052

1,000 — — 1,000 1,000 — 1,000

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

— — — — — 450 450

Floating Rate Advance Term Loan due December 2034 at 0.831 % and 0.699 % at June 30, 2022 and year-end 2021, respectively—related party

25 — — 25 25 — 25

Other 1 — — 1 1 — 1

Debt at face value 9,326 3,220 255 12,801 10,326 3,925 14,251

Finance leases 256 290

Software obligations 19 16

Net unamortized discounts and debt issuance costs ( 107 ) ( 109 )

Total debt 12,969 14,448

Short-term debt ( 526 ) ( 1,489 )

Long-term debt $ 12,443 12,959

2022 Activities

Debt Repayments

In early April 2022, upon maturity, Phillips 66 repaid its 4.300 % senior notes with an aggregate principal amount of $ 1.0 billion and Phillips 66 Partners repaid its $ 450 million term loan.

Revolving Credit Facilities

On June 23, 2022, we entered into a new $ 5 billion revolving credit facility (the Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a scheduled maturity date of June 22, 2027.

The Facility replaced our previous $ 5 billion revolving credit facility with Phillips 66 as the borrower and Phillips 66 Company as the guarantor.

The Facility contains usual and customary covenants that are similar to the previous revolving credit facility, including a maximum consolidated net debt-to-capitalization ratio of 65 % as of the last day of each fiscal quarter.

We have the option to increase the overall capacity to $ 6 billion, subject to certain conditions.

We also have the option to extend the scheduled maturity of the Facility for up to two additional one-year terms, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment.

Outstanding borrowings under the Facility bear interest at either (a) the Adjusted Term Secured Overnight Financing Rate (as described in the Facility) in effect from time to time plus the applicable margin;

or (b) the reference rate (as described in the Facility) plus the applicable margin.

The Facility also provides for customary fees, including commitment fees.

The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for our senior unsecured long-term debt from time to time.

We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty.

At June 30, 2022, no amount has been drawn under the Facility.

In connection with entering into the Facility, we terminated Phillips 66 Partners’ $ 750 million revolving credit facility.

Debt Exchange

On April 6, 2022, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, announced offers to exchange (the Exchange Offers) all validly tendered notes of seven different series of notes issued by Phillips 66 Partners (collectively, the Old Notes), with an aggregate principal amount of approximately $ 3.5 billion, for notes to be issued by Phillips 66 Company (collectively, the New Notes).

The New Notes will be fully and unconditionally guaranteed by Phillips 66 and will rank equally with Phillips 66 Company’s other unsecured and unsubordinated indebtedness, and the guarantees will rank equally with Phillips 66’s other unsecured and unsubordinated indebtedness.

The Exchange Offers will expire on May 3, 2022, unless such date is extended (the Expiration Date).

Phillips 66 Company currently expects the settlement of the Exchange Offers to occur on May 5, 2022, unless the Expiration Date is extended.

The New Notes will have the same interest rates, interest payment dates and maturity dates as the Old Notes.

In addition, holders that validly tender before the end of the early participation period on April 19, 2022 (the Early Participation Date), will receive New Notes with an aggregate principal amount equivalent to the Old Notes, while holders that validly tender after the Early Participation Date, but before the Expiration Date, will receive New Notes with an aggregate principal amount that is 3 % less than the Old Notes.

Through the end of the early participation period on April 19, 2022, Old Notes with an aggregate principal amount of approximately $ 3.2 billion had been validly tendered for exchange.

On May 5, 2022, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, completed offers to exchange (the Exchange Offers) all validly tendered notes of seven different series of notes issued by Phillips 66 Partners (collectively, the Old Notes), with an aggregate principal amount of approximately $ 3.5 billion, for notes issued by Phillips 66 Company (collectively, the New Notes).

The New Notes are fully and unconditionally guaranteed by Phillips 66 and rank equally with Phillips 66 Company’s other unsecured and unsubordinated indebtedness, and the guarantees rank equally with Phillips 66’s other unsecured and unsubordinated indebtedness.

Old Notes with an aggregate principal amount of approximately $ 3.2 billion were tendered in the Exchange Offers.

The New Notes have the same interest rates, interest payment dates and maturity dates as the Old Notes.

Holders that validly tendered before the end of the early participation period on April 19, 2022 (the Early Participation Date), received New Notes with an aggregate principal amount equivalent to the Old Notes, while holders that validly tendered after the Early Participation Date, but before the Expiration Date, received New Notes with an aggregate principal amount 3 % less than the Old Notes.

Substantially all of the Old Notes exchanged were tendered during the Early Participation Period.

Debt Repayments

In April 2022, upon maturity, Phillips 66 repaid its 4.300 % senior notes with an aggregate principal amount of $ 1.0 billion and Phillips 66 Partners repaid its $ 450 million term loan.

2021 Activities

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

The term loan agreement was repaid upon maturity in April 2022 without premium or penalty.

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.

Note 9— Guarantees

At March 31, 2022, we were liable for certain contingent obligations under various contractual arrangements as described below.

At June 30, 2022, we were liable for certain contingent obligations under various contractual arrangements as described below.

We recognize a liability for the fair value of our obligation as a guarantor for newly issued or modified guarantees.

3 unchanged sentences

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 March 31, 2022.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at June 30, 2022.

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

3 unchanged sentences

See Note 5—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.

At March 31, 2022, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to four years .

At June 30, 2022, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to three years .

The maximum potential future exposures under these guarantees were approximately $ 86 million.

5 unchanged sentences

The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure.

At March 31, 2022, and December 31, 2021, the carrying amount of recorded indemnifications was $ 146 million and $ 144 million, respectively.

At June 30, 2022, and December 31, 2021, the carrying amount of recorded indemnifications was $ 142 million and $ 144 million, respectively.

We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity.

1 unchanged sentence

Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments.

At March 31, 2022, and December 31, 2021, environmental accruals for known contamination of $ 109 million and $ 106 million, respectively, were included in the carrying amount of the recorded indemnifications noted above.

At June 30, 2022, and December 31, 2021, environmental accruals for known contamination of $ 105 million and $ 106 million, respectively, were included in the carrying amount of the recorded indemnifications noted above.

These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet.

36 unchanged sentences

After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated.

At March 31, 2022, and December 31, 2021, our total environmental accruals were $ 436 million.

At June 30, 2022, our total environmental accruals were $ 430 million, compared with $ 436 million at December 31, 2021.

We expect to incur a substantial amount of these expenditures within the next 30 years.

8 unchanged sentences

Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.

At March 31, 2022, we had performance obligations secured by letters of credit and bank guarantees of $ 1,546 million related to various purchase and other commitments incident to the ordinary conduct of business.

At June 30, 2022, we had performance obligations secured by letters of credit and bank guarantees of $ 2,374 million related to various purchase and other commitments incident to the ordinary conduct of business.

Note 11— Derivatives and Financial Instruments

16 unchanged sentences

Millions of Dollars

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Commodity Derivatives Effect of Collateral Netting Net Carrying Value Presented on the Balance Sheet Commodity Derivatives Effect of Collateral Netting Net Carrying Value Presented on the Balance Sheet

5 unchanged sentences

Total $ 4,175 ( 4,082 ) 106 199 860 ( 877 ) 49 32

At March 31, 2022, and December 31, 2021, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.

At June 30, 2022, and December 31, 2021, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.

The realized and unrealized gains (losses) incurred from commodity derivatives, and the line items where they appear on our consolidated statement of operations, were:

1 unchanged sentence

Three Months Ended

June 30 Six Months Ended

2022 2021 2022 2021

Sales and other operating revenues $ ( 135 ) ( 193 ) ( 555 ) ( 316 )

6 unchanged sentences

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 more than 95 % at March 31, 2022, and December 31, 2021.

The percentage of our derivative contract volumes expiring within the next 12 months was more than 95 % at June 30, 2022, and December 31, 2021.

Open Position

12 unchanged sentences

however, many contracts also permit us to post letters of credit as collateral.

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at March 31, 2022, and December 31, 2021.

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at June 30, 2022, and December 31, 2021.

Note 12— Fair Value Measurements

12 unchanged sentences

• Accounts and notes receivable —The carrying amount reported on our consolidated balance sheet approximates fair value.

• Derivative instruments —We fair value our exchange-traded contracts based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and classify them as Level 1 in the fair value hierarchy.

• Derivative instruments —The fair value of our exchange-traded contracts is based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and is reported as Level 1 in the fair value hierarchy.

When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or nonexchange quotes, we classify those contracts as Level 2.

9 unchanged sentences

When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

We determine the fair value of our interest rate swaps based on observable market valuations for interest rate swaps that have notional amounts, terms and pay and reset frequencies similar to ours.

We determine the fair value of interest rate swaps based on observable market valuations for interest rate swaps that have notional amounts, terms and pay and reset frequencies similar to ours.

• 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.

8 unchanged sentences

Millions of Dollars

March 31, 2022

June 30, 2022

Fair Value Hierarchy Total Fair Value of Gross Assets & Liabilities Effect of Counterparty Netting Effect of Collateral Netting Difference in Carrying Value and Fair Value Net Carrying Value Presented on the Balance Sheet

2 unchanged sentences

Exchange-cleared instruments $ 2,623 1,457 — 4,080 ( 3,886 ) — — 194

OTC instruments — 1 — 1 — — — 1

Physical forward contracts — 95 — 95 — — — 95

30 unchanged sentences

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 at March 31, 2021.

This nonrecurring measurement was based on the estimated fair value of Phillips 66 Partners’ share of the joint venture’s pipeline assets and net working capital at March 31, 2021.

See Note 5—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.

Note 13— Pension and Postretirement Plans

The components of net periodic benefit cost for the three months ended March 31, 2022 and 2021, were as follows:

The components of net periodic benefit cost for the three and six months ended June 30, 2022 and 2021, were as follows:

Millions of Dollars

2 unchanged sentences

Components of Net Periodic Benefit Cost

Three Months Ended March 31

Three Months Ended June 30

Service cost $ 35 7 37 8 1 2

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Net periodic benefit cost* $ 47 — 59 4 2 2

Six Months Ended June 30

Service cost $ 70 15 74 17 2 3

Interest cost 42 11 40 9 3 2

Expected return on plan assets ( 78 ) ( 31 ) ( 82 ) ( 29 ) — —

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

Recognized net actuarial loss (gain) 12 6 29 12 ( 1 ) ( 1 )

Settlements 25 — 29 — — —

Net periodic benefit cost* $ 71 1 90 9 3 3

* Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of operations.

During the three months ended March 31, 2022, we contributed $ 5 million to our U.S.

During the six months ended June 30, 2022, we contributed $ 91 million to our U.S.

pension and other postretirement benefit plans and $ 12 million to our international pension plans.

6 unchanged sentences

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

Other comprehensive income before reclassifications 4 — — 4

Other comprehensive loss before reclassifications ( 5 ) ( 324 ) — ( 329 )

Amounts reclassified from accumulated other

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Net current period other comprehensive income (loss) 36 ( 324 ) — ( 288 )

March 31, 2022 $ ( 385 ) ( 127 ) ( 2 ) ( 514 )

June 30, 2022 $ ( 362 ) ( 369 ) ( 2 ) ( 733 )

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

Other comprehensive income (loss) before reclassifications 5 ( 15 ) — ( 10 )

Other comprehensive income before reclassifications 181 4 1 186

Amounts reclassified from accumulated other comprehensive loss

Defined benefit plans*

Amortization of net actuarial loss and prior service credit 17 — — 17

Amortization of net actuarial loss, prior service credit and settlements 53 — — 53

Foreign currency translation — — — —

Hedging — — 1 1

Net current period other comprehensive income (loss) 22 ( 15 ) 2 9

March 31, 2021 $ ( 787 ) 10 ( 3 ) ( 780 )

Net current period other comprehensive income 234 4 2 240

June 30, 2021 $ ( 575 ) 29 ( 3 ) ( 549 )

* Included in the computation of net periodic benefit cost.

4 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2022 2021 2022 2021

Operating revenues and other income (a) $ 1,975 959 3,315 1,729

1 unchanged sentence

Operating expenses and selling, general and administrative expenses (c)

70 67 140 135

(a) We sold NGL, other petrochemical feedstocks and solvents to Chevron Phillips Chemical Company LLC (CPChem), NGL and certain feedstocks to DCP Midstream, LLC (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.

11 unchanged sentences

The Midstream segment includes our 50 % equity investment in DCP Midstream and our 16 % investment in NOVONIX.

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners.

On March 9, 2022, we completed the merger between us and Phillips 66 Partners.

See Note 18—Phillips 66 Partners LP, for additional information on the merger transaction.

9 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2022 2021 2022 2021

Sales and Other Operating Revenues *

29 unchanged sentences

Note 17— Income Taxes

Our effective income tax rate for the three months ended March 31, 2022, was 21 %, compared with 17 % for the corresponding period of 2021.

The increase in our effective tax rate for the three months ended March 31, 2022, was primarily attributable to the elimination of the favorable noncontrolling interest impact as a result of the completion of the merger between us and Phillips 66 Partners on March 9, 2022.

Our effective income tax rate for the three and six months ended June 30, 2022, was 23 % and 22 %, compared with 14 % and 21 %, respectively, for the corresponding periods of 2021.

The increase in our effective tax rate for the three and six months ended June 30, 2022, was primarily attributable to the impact of foreign operations, the elimination of the favorable noncontrolling interest impact as a result of completing the merger between us and Phillips 66 Partners on March 9, 2022, and the net benefit to the 2021 income tax rate from enacted income tax rate changes.

The effective tax rate for the three and six months ended June 30, 2022, varied from the U.S.

federal statutory income tax rate primarily due to state income taxes, partially offset by the impact of foreign operations.

Note 18— Phillips 66 Partners LP

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners.

On March 9, 2022, we completed the merger between us and Phillips 66 Partners.

3 unchanged sentences

The merger was accounted for as an equity transaction and resulted in decreases to “Treasury stock” of $ 3,380 million, “Noncontrolling interests” of $ 2,163 million, “Capital in excess of par” of $ 901 million, “Deferred income taxes” of $ 323 million, and “Cash and cash equivalents” of $ 2 million, and an increase to “Other accruals” of $ 5 million on our consolidated balance sheet.

Note 19— Restructuring

In April 2022, we announced that we are progressing a multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure.

For the three months ended June 30, 2022, we recorded restructuring costs totaling $ 25 million associated with our business transformation.

These costs are recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of operations and are reported in our Corporate segment.

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-Q

Item 1. Financial Statements