

Commission file number:			001-35349

Phillips 66

(Exact name of registrant as specified in its charter)



Delaware						45-3779385
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2331 CityWest ~~Blvd~~.Blvd., Houston,, Texas77042

(Address of principal executive offices) (Zip Code)

~~281~~-~~293-6600~~281-293-6600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

PSX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had ~~444,357,576~~436,696,660 shares of common stock, $0.01 par value, outstanding as of ~~September~~June 30, ~~2019.~~2020.

Table of Contents

PHILLIPS 66

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS



Consolidated Statement of ~~Income~~Operations			Phillips 66

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018
Revenues and Other Income
Sales and other operating revenues $ 27,218
29,788
78,168
82,363
Equity in earnings of affiliates 499
779
1,663
1,946
Net gain on dispositions 18
1
19
18
Other income 36
24
97
47
Total Revenues and Other Income 27,771
30,592
79,947
84,374

Costs and Expenses
Purchased crude oil and products 23,806
26,385
69,415
73,270
Operating expenses 1,206
1,206
3,678
3,595
Selling, general and administrative expenses 416
440
1,190
1,258
Depreciation and amortization 336
346
1,001
1,019
Impairments 853
1
856
7
Taxes other than income taxes 105
109
330
328
Accretion on discounted liabilities 6
5
17
17
Interest and debt expense 109
125
343
383
Foreign currency transaction (gains) losses (9 ) —
5
(30 )
Total Costs and Expenses 26,828
28,617
76,835
79,847
Income before income taxes 943
1,975

3,112
4,527
Income tax expense 150
407
545
970
Net Income 793
1,568
2,567
3,557
Less: net income attributable to noncontrolling interests 81
76
227
202
Net Income Attributable to Phillips 66 $ 712
1,492
2,340
3,355

Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars)

Basic $ 1.58
3.20
5.15
7.07
Diluted 1.58
3.18
5.13
7.03

Weighted-Average Common Shares Outstanding (thousands)

Basic 449,005
466,109
453,398
473,760
Diluted 451,001
469,440
455,810
477,220
See Notes to Consolidated Financial Statements.


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019
Revenues and Other Income
Sales and other operating revenues	$	10,913	27,847	31,791	50,950
Equity in earnings of affiliates	157		648	522	1,164
Net gain on dispositions	85		—	86	1
Other income	28		23	28	61
Total Revenues and Other Income	11,183		28,518	32,427	52,176

Costs and Expenses
Purchased crude oil and products	9,608		24,554	28,048	45,609
Operating expenses	1,026		1,165	2,367	2,472
Selling, general and administrative expenses	409		408	728	774
Depreciation and amortization	343		334	685	665
Impairments	—		2	3,006	3
Taxes other than income taxes	114		97	271	225
Accretion on discounted liabilities	5		5	11	11
Interest and debt expense	117		115	228	234
Foreign currency transaction losses	6		9	6	14
Total Costs and Expenses	11,628		26,689	35,350	50,007
Income (loss) before income taxes	(445)		1,829	(2,923)	2,169
Income tax expense (benefit)	(378)		325	(429)	395
Net Income (Loss)	(67)		1,504	(2,494)	1,774
Less: net income attributable to noncontrolling interests	74		80	143	146
Net Income (Loss) Attributable to Phillips 66	$	(141)	1,424	(2,637)	1,628

Net Income (Loss) Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic	$	(0.33)	3.13	(6.00)	3.57
Diluted	(0.33)		3.12	(6.00)	3.55



Weighted-Average Common Shares Outstanding (thousands)
Basic	438,756		453,681	440,050	455,630
Diluted	438,756		455,585	440,050	457,620

See Notes to Consolidated Financial Statements.

Table of Contents



Consolidated Statement of Comprehensive Income (Loss)			Phillips 66

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Net Income $ 793
1,568
2,567
3,557
Other comprehensive income (loss)
Defined benefit plans
Amortization to income of net actuarial loss, prior service credit and settlements 17
68
51
111
Plans sponsored by equity affiliates 2
4
7
13
Income taxes on defined benefit plans (4 ) (18 ) (13 ) (30 )
Defined benefit plans, net of income taxes 15
54
45
94
Foreign currency translation adjustments (119 ) (15 ) (124 ) (125 )
Income taxes on foreign currency translation adjustments 1
1
—
2
Foreign currency translation adjustments, net of income taxes (118 ) (14 ) (124 ) (123 )
Cash flow hedges (2 ) 2
(13 ) 10
Income taxes on hedging activities 1
(1 ) 2
(3 )
Hedging activities, net of income taxes (1 ) 1
(11 ) 7
Other Comprehensive Income (Loss), Net of Income Taxes (104 ) 41
(90 ) (22 )
Comprehensive Income 689
1,609
2,477
3,535
Less: comprehensive income attributable to noncontrolling interests 81
76
227
202
Comprehensive Income Attributable to Phillips 66 $ 608
1,533
2,250
3,333

~~See Notes to Consolidated Financial Statements.~~



~~Consolidated Balance Sheet~~	~~Phillips 66~~

Millions of Dollars
September 30
2019
December 31
2018
Assets
Cash and cash equivalents $ 2,268
3,019
Accounts and notes receivable (net of allowances of $41 million in 2019 and $22 million in 2018) 6,097
5,414
Accounts and notes receivable—related parties 989
759
Inventories 5,521
3,543
Prepaid expenses and other current assets 742
474
Total Current Assets 15,617
13,209
Investments and long-term receivables 14,147
14,421
Net properties, plants and equipment 22,954
22,018
Goodwill 3,270
3,270
Intangibles 872
869
Other assets 1,881
515
Total Assets $ 58,741
54,302

Liabilities
Accounts payable $ 7,738
6,113
Accounts payable—related parties 635
473
Short-term debt 842
67
Accrued income and other taxes 1,128
1,116
Employee benefit obligations 624
724
Other accruals 1,116
442
Total Current Liabilities 12,083
8,935
Long-term debt 11,083
11,093
Asset retirement obligations and accrued environmental costs 617
624
Deferred income taxes 5,503
5,275
Employee benefit obligations 905
867
Other liabilities and deferred credits 1,458
355
Total Liabilities 31,649
27,149

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value)
Issued (2019—647,050,977 shares; 2018—645,691,761 shares)

Par value 6
6
Capital in excess of par 20,253
19,873
Treasury stock (at cost: 2019—202,693,401 shares; 2018—189,526,331 shares) (16,261 ) (15,023 )
Retained earnings 21,730
20,489
Accumulated other comprehensive loss (871 ) (692 )
Total Stockholders’ Equity 24,857
24,653
Noncontrolling interests 2,235
2,500
Total Equity 27,092
27,153
Total Liabilities and Equity $ 58,741
54,302

~~See Notes to Consolidated Financial Statements.~~



~~Consolidated Statement of Cash Flows~~	~~Phillips 66~~

Millions of Dollars
Nine Months Ended
September 30
2019
2018
Cash Flows From Operating Activities
Net income $ 2,567
3,557
Adjustments to reconcile net income to net cash provided by operating
activities

Depreciation and amortization 1,001
1,019
Impairments 856
7
Accretion on discounted liabilities 17
17
Deferred income taxes 115
229
Undistributed equity earnings (25 ) 111
Net gain on dispositions (19 ) (18 )
Other (97 ) 118
Working capital adjustments
Accounts and notes receivable (909 ) (478 )
Inventories (2,004 ) (2,178 )
Prepaid expenses and other current assets (269 ) (509 )
Accounts payable 1,778
1,280
Taxes and other accruals 103
279
Net Cash Provided by Operating Activities 3,114
3,434

Cash Flows From Investing Activities
Capital expenditures and investments (2,595 ) (1,645 )
Proceeds from asset dispositions* 139
39
Advances/loans—related parties (95 ) (1 )
Collection of advances/loans—related parties 95
—
Other 24
67
Net Cash Used in Investing Activities (2,432 ) (1,540 )

Cash Flows From Financing Activities
Issuance of debt 1,758
1,594
Repayment of debt (1,004 ) (374 )
Issuance of common stock 15
39
Repurchase of common stock (1,238 ) (4,148 )
Dividends paid on common stock (1,172 ) (1,069 )
Distributions to noncontrolling interests (176 ) (146 )
Net proceeds from issuance of Phillips 66 Partners LP common units 133
114
Other 282
(79 )
Net Cash Used in Financing Activities (1,402 ) (4,069 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents (31 ) (20 )

Net Change in Cash and Cash Equivalents (751 ) (2,195 )
Cash and cash equivalents at beginning of period 3,019
3,119
Cash and Cash Equivalents at End of Period $ 2,268
924

* Includes return of investments in equity affiliates.


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Net Income (Loss)	$	(67)	1,504	(2,494)	1,774
Other comprehensive income (loss)
Defined benefit plans

Actuarial loss arising during the period	(300)		—	(300)	—
Amortization to income of net actuarial loss, net prior service credit and settlements	55		15	78	34


Plans sponsored by equity affiliates	3		1	5	5
Income taxes on defined benefit plans	59		(4)	54	(9)
Defined benefit plans, net of income taxes	(183)		12	(163)	30
Foreign currency translation adjustments	26		(62)	(196)	(5)
Income taxes on foreign currency translation adjustments	—		(1)	1	(1)
Foreign currency translation adjustments, net of income taxes	26		(63)	(195)	(6)
Cash flow hedges	—		(7)	(9)	(11)

Income taxes on hedging activities	—		—	2	1
Hedging activities, net of income taxes	—		(7)	(7)	(10)
Other Comprehensive Income (Loss), Net of Income Taxes	(157)		(58)	(365)	14
Comprehensive Income (Loss)	(224)		1,446	(2,859)	1,788
Less: comprehensive income attributable to noncontrolling interests	74		80	143	146
Comprehensive Income (Loss) Attributable to Phillips 66	$	(298)	1,366	(3,002)	1,642

See Notes to Consolidated Financial Statements.

Table of Contents



Consolidated Balance Sheet			Phillips 66


	Millions of Dollars
	June 30 2020		December 31 2019
Assets
Cash and cash equivalents	$	1,890	1,614
Accounts and notes receivable (net of allowances of $39 million in 2020 and $41 million in 2019)	3,995		7,376
Accounts and notes receivable—related parties	857		1,134
Inventories	5,136		3,776
Prepaid expenses and other current assets	621		495
Total Current Assets	12,499		14,395
Investments and long-term receivables	13,628		14,571
Net properties, plants and equipment	24,282		23,786
Goodwill	1,425		3,270
Intangibles	874		869
Other assets	1,810		1,829
Total Assets	$	54,518	58,720

Liabilities
Accounts payable	$	4,902	8,043
Accounts payable—related parties	466		532
Short-term debt	1,783		547
Accrued income and other taxes	1,046		979
Employee benefit obligations	395		710
Other accruals	1,431		835
Total Current Liabilities	10,023		11,646
Long-term debt	12,663		11,216
Asset retirement obligations and accrued environmental costs	625		638
Deferred income taxes	5,471		5,553
Employee benefit obligations	1,360		1,044
Other liabilities and deferred credits	1,081		1,454
Total Liabilities	31,223		31,551

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2020—648,468,487 shares; 2019—647,416,633 shares)
Par value	6		6
Capital in excess of par	20,342		20,301
Treasury stock (at cost: 2020—211,771,827 shares; 2019—206,390,806 shares)	(17,116)		(16,673)
Retained earnings	18,631		22,064
Accumulated other comprehensive loss	(1,148)		(788)
Total Stockholders’ Equity	20,715		24,910
Noncontrolling interests	2,580		2,259
Total Equity	23,295		27,169
Total Liabilities and Equity	$	54,518	58,720

See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Cash Flows			Phillips 66


	Millions of Dollars
	Six Months Ended June 30
	2020		2019
Cash Flows From Operating Activities
Net income (loss)	$	(2,494)	1,774
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	685		665
Impairments	3,006		3
Accretion on discounted liabilities	11		11
Deferred income taxes	(21)		253
Undistributed equity earnings	298		(44)
Net gain on dispositions	(86)		(1)


Other	7		(59)
Working capital adjustments
Accounts and notes receivable	3,814		(534)
Inventories	(1,416)		(1,549)
Prepaid expenses and other current assets	(126)		(182)
Accounts payable	(3,121)		1,368
Taxes and other accruals	424		(253)


Net Cash Provided by Operating Activities	981		1,452

Cash Flows From Investing Activities
Capital expenditures and investments	(1,862)		(1,728)
Return of investments in equity affiliates	88		35
Proceeds from asset dispositions	1		83
Advances/loans—related parties	(231)		(95)
Collection of advances/loans—related parties	44		95

Other	(64)		24


Net Cash Used in Investing Activities	(2,024)		(1,586)

Cash Flows From Financing Activities
Issuance of debt	3,230		860
Repayment of debt	(541)		(597)
Issuance of common stock	6		9
Repurchase of common stock	(443)		(799)
Dividends paid on common stock	(789)		(770)
Distributions to noncontrolling interests	(127)		(117)
Net proceeds from issuance of Phillips 66 Partners LP common units	2		42
Other	(15)		301


Net Cash Provided by (Used in) Financing Activities	1,323		(1,071)

Effect of Exchange Rate Changes on Cash and Cash Equivalents	(4)		5

Net Change in Cash and Cash Equivalents	276		(1,200)
Cash and cash equivalents at beginning of period	1,614		3,019
Cash and Cash Equivalents at End of Period	$	1,890	1,819

See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Changes in Equity			Phillips 66


	Millions of Dollars
	Three Months Ended June 30
	Attributable to Phillips 66
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Retained Earnings	Accum. Other Comprehensive Loss	Noncontrolling Interests	Total

March 31, 2020	$	6	20,305	(17,116)	19,168	(991)	2,267	23,639
Net income (loss)	—		—	—	(141)	—	74	(67)
Other comprehensive loss	—		—	—	—	(157)	—	(157)
Dividends paid on common stock ($0.90 per share)	—		—	—	(393)	—	—	(393)

Benefit plan activity	—		37	—	(3)	—	—	34
Transfer of equity interest	—		—	—	—	—	305	305

Distributions to noncontrolling interests	—		—	—	—	—	(66)	(66)

June 30, 2020	$	6	20,342	(17,116)	18,631	(1,148)	2,580	23,295



March 31, 2019	$	6	19,879	(15,367)	20,408	(709)	2,528	26,745

Net income	—		—	—	1,424	—	80	1,504
Other comprehensive loss	—		—	—	—	(58)	—	(58)
Dividends paid on common stock ($0.90 per share)	—		—	—	(406)	—	—	(406)
Repurchase of common stock	—		—	(455)	—	—	—	(455)
Benefit plan activity	—		30	—	(3)	—	—	27
Issuance of Phillips 66 Partners LP common units	—		3	—	—	—	7	10
Distributions to noncontrolling interests	—		—	—	—	—	(61)	(61)
June 30, 2019	$	6	19,912	(15,822)	21,423	(767)	2,554	27,306


	Shares in Thousands
	Three Months Ended June 30
	Common Stock Issued	Treasury Stock

March 31, 2020	648,447	211,772
Repurchase of common stock	—	—
Shares issued—share-based compensation	21	—
June 30, 2020	648,468	211,772

March 31, 2019	646,716	193,165
Repurchase of common stock	—	5,122
Shares issued—share-based compensation	112	—
June 30, 2019	646,828	198,287










See Notes to Consolidated Financial Statements.

Millions of Dollars
Three Months Ended September 30
Attributable to Phillips 66
Common Stock
Par
Value
Capital in Excess of Par
Treasury Stock
Retained
Earnings
Accum. Other
Comprehensive Loss
Noncontrolling
Interests
Total

June 30, 2019 $ 6
19,912
(15,822 ) 21,423
(767 ) 2,554
27,306
Net income —
—
—
712
—
81
793
Other comprehensive loss —
—
—
—
(104 ) —
(104 )
Dividends paid on common stock ($0.90 per share) —
—
—
(402 ) —
—
(402 )
Repurchase of common stock —
—
(439 ) —
—
—
(439 )
Benefit plan activity —
22
—
(3 ) —
—
19
Issuance of Phillips 66 Partners LP common units —
44
—
—
—
32
76
Impacts from Phillips 66 Partners GP/IDR restructuring transaction —
275
—
—
—
(373 ) (98 )
Distributions to noncontrolling interests —
—
—
—
—
(59 ) (59 )
September 30, 2019 $ 6
20,253
(16,261 ) 21,730
(871 ) 2,235
27,092

June 30, 2018 $ 6
19,831
(14,121 ) 17,500
(680 ) 2,424
24,960
Net income —
—
—
1,492
—
76
1,568
Other comprehensive income —
—
—
—
41
—
41
Dividends paid on common stock ($0.80 per share) —
—
—
(370 ) —
—
(370 )
Repurchase of common stock —
—
(405 ) —
—
—
(405 )
Benefit plan activity —
13
—
(4 ) —
—
9
Issuance of Phillips 66 Partners LP common units —
16
—
—
—
26
42
Distributions to noncontrolling interests —
—
—
—
—
(50 ) (50 )
September 30, 2018 $ 6
19,860
(14,526 ) 18,618
(639 ) 2,476
25,795

Shares in Thousands
Three Months Ended September 30
Common Stock Issued
Treasury Stock

June 30, 2019 646,828
198,287
Repurchase of common stock —
4,406
Shares issued—share-based compensation 223
—
September 30, 2019 647,051
202,693

June 30, 2018 645,215
180,952
Repurchase of common stock —
3,501
Shares issued—share-based compensation 364
—
September 30, 2018 645,579
184,453
See Notes to Consolidated Financial Statements.

Millions of Dollars
Nine Months Ended September 30
Attributable to Phillips 66
Common Stock

Par
Value

Capital in Excess of Par
Treasury Stock
Retained
Earnings

Accum. Other
Comprehensive Loss

Noncontrolling
Interests

Total

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 —
—
—
2,340
—
227
2,567
Other comprehensive loss —
—
—
—
(90 ) —
(90 )
Dividends paid on common stock ($2.60 per share) —
—
—
(1,172 ) —
—
(1,172 )
Repurchase of common stock —
—
(1,238 ) —
—
—
(1,238 )
Benefit plan activity —
56
—
(8 ) —
—
48
Issuance of Phillips 66 Partners LP common units —
49
—
—
—
58
107
Impacts from Phillips 66 Partners GP/IDR restructuring transaction —
275
—
—
—
(373 ) (98 )
Distributions to noncontrolling interests —
—
—
—
—
(176 ) (176 )
September 30, 2019 $ 6
20,253
(16,261 ) 21,730
(871 ) 2,235
27,092

December 31, 2017 $ 6
19,768
(10,378 ) 16,306
(617 ) 2,343
27,428
Cumulative effect of accounting changes —
—
—
36
—
13
49
Net income —
—
—
3,355
—
202
3,557
Other comprehensive loss —
—
—
—
(22 ) —
(22 )
Dividends paid on common stock ($2.30 per share) —
—
—
(1,069 ) —
—
(1,069 )
Repurchase of common stock —
—
(4,148 ) —
—
—
(4,148 )
Benefit plan activity —
54
—
(10 ) —
—
44
Issuance of Phillips 66 Partners LP common units —
38
—
—
—
64
102
Distributions to noncontrolling interests —
—
—
—
—
(146 ) (146 )
September 30, 2018 $ 6
19,860
(14,526 ) 18,618
(639 ) 2,476
25,795

Shares in Thousands
Nine Months Ended September 30
Common Stock Issued
Treasury Stock

December 31, 2018 645,692
189,526
Repurchase of common stock —
13,167
Shares issued—share-based compensation 1,359
—
September 30, 2019 647,051
202,693

December 31, 2017 643,835
141,565
Repurchase of common stock —
42,888
Shares issued—share-based compensation 1,744
—
September 30, 2018 645,579
184,453
See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Changes in Equity			Phillips 66


	Millions of Dollars
	Six Months Ended June 30, 2020
	Attributable to Phillips 66
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Retained Earnings	Accum. Other Comprehensive Loss	Noncontrolling Interests	Total

December 31, 2019	$	6	20,301	(16,673)	22,064	(788)	2,259	27,169
Net income (loss)	—		—	—	(2,637)	—	143	(2,494)
Other comprehensive loss	—		—	—	—	(365)	—	(365)
Dividends paid on common stock ($1.80 per share)	—		—	—	(789)	—	—	(789)
Repurchase of common stock	—		—	(443)	—	—	—	(443)
Benefit plan activity	—		41	—	(5)	—	—	36
Transfer of equity interest	—		—	—	—	—	305	305
Distributions to noncontrolling interests	—		—	—	—	—	(127)	(127)
Other	—		—	—	(2)	5	—	3
June 30, 2020	$	6	20,342	(17,116)	18,631	(1,148)	2,580	23,295

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	—		—	—	1,628	—	146	1,774
Other comprehensive income	—		—	—	—	14	—	14
Dividends paid on common stock ($1.70 per share)	—		—	—	(770)	—	—	(770)
Repurchase of common stock	—		—	(799)	—	—	—	(799)
Benefit plan activity	—		34	—	(5)	—	—	29
Issuance of Phillips 66 Partners LP common units	—		5	—	—	—	26	31
Distributions to noncontrolling interests	—		—	—	—	—	(117)	(117)
June 30, 2019	$	6	19,912	(15,822)	21,423	(767)	2,554	27,306


	Shares in Thousands
	Six Months Ended June 30
	Common Stock Issued	Treasury Stock

December 31, 2019	647,417	206,391
Repurchase of common stock	—	5,381
Shares issued—share-based compensation	1,051	—
June 30, 2020	648,468	211,772

December 31, 2018	645,692	189,526
Repurchase of common stock	—	8,761
Shares issued—share-based compensation	1,136	—
June 30, 2019	646,828	198,287
See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements			Phillips 66

Note 1—Interim Financial Information

The unaudited interim financial information presented in the financial statements included in this report is prepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of the consolidated financial position of Phillips 66 and its results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our ~~2018~~2019 Annual Report on Form 10-K. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, are not necessarily indicative of the results expected for the full year. ~~Certain prior period financial information has been recast to reflect the current year’s presentation.~~

Note 2—~~Changes in Accounting Principles~~

Effective January 1, 2019, we elected to adopt Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU permits the deferred income tax effects stranded in accumulated other comprehensive income (AOCI) resulting from the U.S. Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017 to be reclassified to retained earnings. As of January 1, 2019, we recorded a cumulative effect adjustment to our opening consolidated balance sheet to reclassify an aggregate income tax benefit of $89 million, primarily related to our pension plans, from accumulated other comprehensive loss to retained earnings.

Effective January 1, 2019, we early adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and off-balance sheet credit exposures. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. We recorded a noncash cumulative effect adjustment to retained earnings of $9 million, net of $3 million of income taxes, on our opening consolidated balance sheet as of January 1, 2019. See Note 4—Credit Losses, for more information on our presentation of credit losses.

Effective January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842),” using the modified retrospective transition method. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated income statement.

We elected the package of practical expedients that allowed us to carry forward our determination of whether an arrangement contained a lease and lease classification, as well as our accounting for initial direct costs for existing contracts. We recorded a noncash cumulative effect adjustment to our opening consolidated balance sheet as of January 1, 2019, to record an aggregate operating lease ROU asset and corresponding lease liability of $1,415 million and immaterial adjustments to retained earnings and noncontrolling interests. See Note 14—Leases, for the new lease disclosures required by this ASU.

~~Note 3—~~Sales and Other Operating Revenues

Disaggregated Revenues

The following tables present our disaggregated sales and other operating revenues:

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018
Product Line and Services
Refined petroleum products $ 22,373
23,184
64,088
64,975
Crude oil resales 3,511
4,747
10,162
12,316
Natural gas liquids (NGL) 1,025
1,782
3,508
4,751
Services and other*
309
75
410
321
Consolidated sales and other operating revenues $ 27,218
29,788

78,168
82,363

Geographic Location**
United States $ 21,160
23,068
60,602
64,481
United Kingdom 2,375
3,085
7,318
7,623
Germany 1,025
1,135
3,074
3,174
Other foreign countries 2,658
2,500
7,174
7,085
Consolidated sales and other operating revenues $ 27,218
29,788

78,168
82,363
* Includes derivatives-related activities. See Note 12—Derivatives and Financial Instruments, for additional information.
** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019
Product Line and Services
Refined petroleum products	$	8,701	22,922	24,858	41,715
Crude oil resales	1,490		3,613	4,367	6,651
Natural gas liquids (NGL)	700		1,179	1,679	2,483
Services and other*	22		133	887	101
Consolidated sales and other operating revenues	$	10,913	27,847	31,791	50,950

Geographic Location**
United States	$	8,377	21,867	24,087	39,442
United Kingdom	972		2,512	3,281	4,943
Germany	613		1,092	1,471	2,049
Other foreign countries	951		2,376	2,952	4,516
Consolidated sales and other operating revenues	$	10,913	27,847	31,791	50,950
* Includes derivatives-related activities. See Note 12—Derivatives and Financial Instruments, for additional information.
** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.

Contract-Related Assets and Liabilities

At ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, receivables from contracts with customers were ~~$5,585~~$3,237 million and ~~$4,993~~$6,902 million, respectively. Significant ~~non-customer~~noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.

Our contract-related assets also include payments we make to our marketing customers related to incentive programs. 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 ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, our asset balances related to such payments were ~~$311~~$376 million and ~~$248~~$336 million, respectively.

Our ~~contract-related~~contract liabilities represent advances ~~received~~ from our customers prior to product or service delivery. At ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, contract liabilities were ~~$218 million and $99 million, respectively.~~0t material.

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Remaining Performance Obligations

Most of our contracts with customers are spot contracts or term contracts with only variable consideration. We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less, or because the variable consideration has been allocated entirely to an unsatisfied performance obligation. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing, ~~most of~~ which mostly expire by 2021. At ~~September~~June 30, ~~2019,~~2020, the remaining performance obligations related to these minimum volume commitment contracts were ~~not~~0t material.

Note 4—3—Credit Losses

We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil and NGL. We assess each counterparty’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the counterparty’s established credit rating or our assessment of the counterparty’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risk, and business strategy in our evaluation. A credit limit is established for each counterparty based on the outcome of this review. We may require collateralized asset support or a prepayment to mitigate credit risk.

We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account ~~reconciliation,~~reconciliations, dispute resolution and payment ~~confirmation.~~confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

The negative economic impacts associated with Coronavirus Disease 2019 (COVID-19) increase the probability that certain of our counterparties may not be able to completely fulfill their obligations in a timely manner. In response, we have enhanced our credit monitoring, sought collateral to support some transactions, and required prepayments from higher-risk counterparties.

At ~~September~~June 30, 2020, and December 31, 2019, we reported ~~$7,086~~$4,852 million and $8,510 million of accounts and notes receivable, net of allowances of $39 million and $41 ~~million. Changes in the allowance were not material for the three and nine months ended September 30, 2019.~~million, respectively. Based on an aging analysis at ~~September~~June 30, ~~2019,~~2020, more than 99% of our accounts receivable were outstanding less than 60 ~~days, with the remainder outstanding less than 90~~ days.

We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt ~~residual value guarantees of leased assets~~ and standby letters of credit. See Note 10—Guarantees, and Note 11—Contingencies and Commitments, for more information on these off-balance sheet exposures.

~~Note 5—Inventories~~

Note 4—Inventories

Inventories consisted of the following:

Millions of Dollars
September 30
2019
December 31
2018

Crude oil and petroleum products $ 5,208
3,238
Materials and supplies 313
305
$ 5,521
3,543


	Millions of Dollars
	June 30 2020		December 31 2019

Crude oil and petroleum products	$	4,806	3,452
Materials and supplies	330		324
	$	5,136	3,776

Inventories valued on the last-in, first-out (LIFO) basis totaled ~~$5,103~~$4,701 million and ~~$3,123~~$3,331 million at ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately ~~$4.4~~$1.4 billion and ~~$2.9~~$4.3 billion at ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively.

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Note 6—5—Investments, Loans and Long-Term Receivables

Equity Investments

~~Summarized 100% financial information for Chevron Phillips Chemical Company LLC (CPChem)~~ ~~was as follows:~~

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Revenues $ 2,369
3,195
7,209
8,773
Income before income taxes 475
552
1,522
1,819
Net income 456
531
1,464
1,766

DCP Midstream, LLC (DCP Midstream)

The fair value of our investment in DCP Midstream depends on the market value of DCP ~~Midstream’s general partner interest in DCP~~ Midstream, LP (DCP Partners) ~~and the~~common units. The market value of DCP ~~Partners’~~Partners common ~~units. At June 30, 2019, we estimated~~units declined by approximately 85% in the first quarter of 2020. As a result, at March 31, 2020, the fair value of our investment in DCP Midstream was ~~below our~~significantly lower than its book value. We concluded the difference between its fair value and book value ~~but~~was not temporary primarily due to its magnitude. Accordingly, we ~~believed the condition was temporary. The fair value~~recorded a $1.2 billion before-tax impairment of our investment in ~~DCP Midstream further deteriorated in~~ the third quarter as the market value of DCP Midstream’s general partner interest in DCP Partners and the market value of DCP Partners’ common units declined further. We concluded the decline in fair value was no longer temporary due to the duration and magnitude of the decline. Accordingly, we recorded an $853 million impairment in the thirdfirst quarter of ~~2019. The impairment~~2020. This charge is included in the “Impairments” line item on our consolidated statement of ~~income and results in~~operations for the six months ended June 30, 2020. The impairment increased the basis difference for our investment in DCP Midstream ~~having a book~~to $1.8 billion at March 31, 2020, which indicated the carrying value of ~~$1,358~~our investment was lower than our share of DCP Midstream’s recorded net assets at March 31, 2020. The 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 properties, plants and equipment (PP&E) at March 31, 2020. Equity earnings for the three and six months ended June 30, 2020, were increased by approximately $20 million ~~at September 30, 2019.~~and $30 million, respectively, due to the amortization of the basis difference. See Note 13—Fair Value Measurements, for additional information on the techniques used to determine the fair value of our investment in DCP Midstream. At June 30, 2020, our investment in DCP Midstream had a book value of $254 million.

~~Dakota Access,~~Gray Oak Pipeline, LLC ~~(Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)~~

In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. The net proceeds from the issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and ETCO. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners LP (Phillips 66 Partners) ~~and its co-venturers~~has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. Excluding a co-venturer’s 35% interest in ~~Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with~~ the notes offering. Under the CECU, if Dakota Access receives an unfavorable court ruling related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million.consolidated holding company, Phillips 66 ~~Partners’ share~~Partners has an effective ownership interest of ~~the maximum potential equity contributions under the CECU is approximately $631 million.~~

42.25% in Gray Oak Pipeline, LLC. Gray Oak Pipeline, LLC ~~(Gray Oak)~~

In February 2019, Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary of Phillips 66 Partners, transferred a 10% ownership interest in Gray Oak to a third party that exercised a purchase option, for proceeds of $81 million. This transfer was accounted for as a sale and resulted in a decrease in Holdings LLC’s ownership interest in Gray Oak from 75% to 65% and the recognition of an immaterial gain. The proceeds received from this sale are presented as an investing cash inflow in the “Proceeds from asset dispositions” line on our consolidated statement of cash flows. At September 30, 2019, Phillips 66 Partners’ effective ownership interest in the Gray Oak Pipeline was 42.25%.

In ~~June 2019, Gray Oak entered into~~has a third-party term loan facility with ~~an initial~~a borrowing capacity of ~~$1,230~~$1,379 million, ~~which was increased in~~ ~~July 2019~~ ~~to $1,317 million.~~inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. 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. Under the agreement, Phillips 66 Partners’ maximum potential~~ amount, ~~of future obligations is $556 million,~~ plus any additional accrued interest and associated fees, ~~which would be required~~ if Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At June 30, 2020, the term loan facility iswas fully utilized ~~and~~by Gray Oak ~~defaults on its obligations. At September 30, 2019, Gray Oak had outstanding borrowings of $904 million,~~Pipeline, LLC, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was ~~$382~~$583 million. ~~The net proceeds from the term loan were used by~~

During its development phase, Gray Oak ~~for~~Pipeline, LLC was considered a variable interest entity (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. The Gray Oak Pipeline commenced full operations in the second quarter of 2020 and ceased being a VIE. At June 30, 2020, Phillips 66 Partners’ investment in the Gray Oak Pipeline ~~and repayment of amounts borrowed under~~had a ~~related party loan agreement that Phillips 66 Partners and its co-venturers executed in~~ ~~March 2019~~ ~~and terminated upon the repayment by Gray Oak in~~ ~~June. The total related party loan to and repayment received from Gray Oak was $95 million.~~

~~At September 30, 2019, Phillips 66 Partners’ maximum exposure to loss was $1,130 million, which represented the~~ book value of ~~the investment in Gray Oak of $748 million and the term loan guarantee of $382~~$896 million. See Note ~~21—~~19—Phillips 66 Partners LP, for additional information regarding Phillips 66 Partners’ ownership in ~~Holdings~~Gray Oak Pipeline, LLC.

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Dakota Access, LLC (Dakota Access) and ~~Gray Oak.~~Energy Transfer Crude Oil Company, LLC (ETCO)

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

•$650 million aggregate principal amount of 3.625% Senior Notes due 2022.

•$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024.

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

Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners ~~accounts for~~and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the ~~investment~~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 ~~Gray Oak~~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. 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. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. At June 30, 2020, Phillips 66 Partners’ share of the maximum potential equity contributions under the ~~equity method because it does~~CECU was approximately $631 million.

In March 2020, the 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. On July 6, 2020, the court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil by August 5, 2020, 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. On July 14, 2020, an appeals court granted a temporary stay of the lower court’s order directing the pipeline to be shut down and emptied of crude oil. The appeals court has not yet ruled on the motion for a stay during the appeals process. In addition to the potential obligations under the CECU, 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 asked to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually.

CF United LLC (CF United)

We hold a 50% voting ~~rights over key governance provisions to assert control over Gray Oak. Gray Oak~~interest and a 48% economic interest in CF United, a retail marketing joint venture with operations primarily on the U.S. West Coast. 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 ~~entity (VIE)~~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 June 30, 2020, our maximum exposure to loss was comprised of our $322 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.

Liberty Pipeline LLC (Liberty)

Liberty is a 50 percent-owned joint venture formed to develop and construct the Liberty Pipeline system which, upon completion, 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. ~~Phillips 66 Partners has~~We have determined ~~it is~~we are not the primary beneficiary because itwe and ~~its co-venturers~~our co-venturer jointly direct the activities of ~~Gray~~Liberty that most significantly impact economic performance. On March 2, 2020, Phillips 66 Partners closed a transaction to acquire our 50% interest in Liberty for $75 million. The development and construction of the Liberty Pipeline system have been deferred as a result of the current challenging business environment. At June 30, 2020, our maximum exposure to loss was $251 million, which represented the book value of Phillips 66 Partners’ investment in Liberty of $202 million and our outstanding proportionate vendor guarantees of $49 million.

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Red Oak Pipeline LLC (Red Oak)

We hold a 50% interest in a joint venture formed to develop and construct the Red Oak Pipeline system which, upon completion, will transport crude oil from Cushing, Oklahoma, and the Permian to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston, and Beaumont, Texas. Red Oak 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 Red Oak that most significantly impact ~~Gray Oak’s~~ economic performance. The development and construction of the Red Oak Pipeline system have been deferred as a result of the current challenging business environment. In June 2020, Red Oak fully repaid its outstanding member loan. At June 30, 2020, our maximum exposure to loss was the book value of our investment in Red Oak of $104 million.

OnCue Holdings, LLC (OnCue)

We hold a 50% interest in OnCue, a joint venture that owns and operates retail convenience stores. We fully guaranteed various debt agreements of OnCue and our co-venturer did not participate in the guarantees. This entity is considered a VIE because our debt guarantees resulted in OnCue not being exposed to all potential losses. We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact OnCue’s economic performance. At ~~September~~June 30, ~~2019,~~2020, our maximum exposure to loss was ~~$139~~$155 million, which represented the book value of our investment in OnCue of ~~$76~~$86 million and guaranteed debt obligations of ~~$63~~$69 million.

Note 7—6—Properties, Plants and Equipment

Our gross investment in ~~properties, plants and equipment (PP&E)~~PP&E and the associated accumulated depreciation and amortization (Accum. D&A) balances were as follows:

Millions of Dollars
September 30, 2019 December 31, 2018

Gross
PP&E

Accum.
D&A

Net
PP&E

Gross
PP&E

Accum.
D&A

Net
PP&E

Midstream $ 10,759
2,316
8,443
9,663
2,100
7,563
Chemicals —
—
—
—
—
—
Refining 23,189
10,084
13,105
22,640
9,531
13,109
Marketing and Specialties 1,656
927
729
1,671
926
745
Corporate and Other 1,309
632
677
1,223
622
601
$ 36,913
13,959
22,954
35,197
13,179
22,018


	Millions of Dollars
	June 30, 2020						December 31, 2019
	Gross PP&E		Accum. D&A	Net PP&E	Gross PP&E	Accum. D&A	Net PP&E

Midstream	$	11,931	2,543	9,388	11,221	2,391	8,830
Chemicals	—		—	—	—	—	—
Refining	24,110		10,730	13,380	23,692	10,336	13,356
Marketing and Specialties (M&S)	1,695		945	750	1,847	959	888
Corporate and Other	1,401		637	764	1,311	599	712
	$	39,137	14,855	24,282	38,071	14,285	23,786

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Note ~~8—Earnings Per Share~~7—Goodwill

Our stock price declined significantly in the first quarter of 2020 due to the volatility in global commodity and equity markets related to the COVID-19 pandemic and other factors. We assessed our goodwill for impairment due to the decline in our market capitalization and concluded that the carrying value of our Refining reporting unit at March 31, 2020, was greater than its fair value by an amount in excess of its goodwill balance. Accordingly, we recorded a goodwill impairment charge of $1,845 million in our Refining segment during the first quarter of 2020. This charge is included in the “Impairments” line item on our consolidated statement of operations for the six months ended June 30, 2020. See Note 13—Fair Value Measurements for additional information on the techniques used to determine the fair value of our Refining reporting unit.

The carrying amount of goodwill by segment at June 30, 2020 was:


	Millions of Dollars
	Midstream		Refining	M&S	Total

Balance at January 1, 2020	$	626	1,845	799	3,270
Impairments	—		(1,845)	—	(1,845)
Balance at June 30, 2020	$	626	—	799	1,425

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Note 8—Earnings (Loss) Per Share

The numerator of basic earnings (loss) per share (EPS) is net income (loss) attributable to Phillips 66, ~~reduced by~~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 (losses) 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. Treasury stock is excluded from the denominator in both basic and diluted EPS.


	Three Months Ended June 30								Six Months Ended June 30
	2020				2019			2020		2019
	Basic		Diluted	Basic	Diluted	Basic	Diluted	Basic	Diluted
Amounts Attributed to Phillips 66 Common Stockholders (millions):
Net income (loss) attributable to Phillips 66	$	(141)	(141)	1,424	1,424	(2,637)	(2,637)	1,628	1,628
Income allocated to participating securities	(2)		(2)	(2)	(1)	(4)	(4)	(3)	(2)
Net income (loss) available to common stockholders	$	(143)	(143)	1,422	1,423	(2,641)	(2,641)	1,625	1,626

Weighted-average common shares outstanding (thousands):	436,688		438,756	451,216	453,681	437,851	440,050	453,041	455,630
Effect of share-based compensation	2,068		—	2,465	1,904	2,199	—	2,589	1,990
Weighted-average common shares outstanding—EPS	438,756		438,756	453,681	455,585	440,050	440,050	455,630	457,620

Earnings (Loss) Per Share of Common Stock (dollars)	$	(0.33)	(0.33)	3.13	3.12	(6.00)	(6.00)	3.57	3.55

Three Months Ended
September 30 Nine Months Ended
September 30
2019 2018 2019 2018
Basic
Diluted
Basic
Diluted
Basic
Diluted
Basic
Diluted
Amounts attributed to Phillips 66 Common Stockholders (millions):

Net income attributable to Phillips 66 $ 712
712
1,492
1,492
2,340
2,340
3,355
3,355
Income allocated to participating securities (2 ) (1 ) (1 ) —
(5 ) (1 ) (4 ) —
Net income available to common stockholders $ 710
711

1,491
1,492
2,335
2,339

3,351
3,355

Weighted-average common shares outstanding (thousands):
446,498
449,005
463,002
466,109
450,836
453,398
470,471
473,760
Effect of share-based compensation 2,507
1,996
3,107
3,331
2,562
2,412
3,289
3,460
Weighted-average common shares outstanding—EPS 449,005
451,001
466,109
469,440
453,398
455,810
473,760
477,220

Earnings Per Share of Common Stock (dollars)
$ 1.58
1.58
3.20
3.18
5.15
5.13
7.07
7.03

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Note 9—Debt

~~2019 Activities~~

Debt Issuances ~~and Repayments~~

On ~~September 6, 2019,~~June 10, 2020, Phillips 66 ~~Partners~~ closed ~~on a~~its public offering of ~~$900~~$1 billion aggregate principal amount of senior unsecured notes consisting of:

•$150 million aggregate principal amount of ~~unsecured notes consisting of:~~3.850% Senior Notes due 2025.

•$~~300~~850 million aggregate principal amount of ~~2.450%~~2.150% Senior Notes due ~~December 15, 2024.~~2030.

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

•$~~600~~500 million aggregate principal amount of ~~3.150%~~3.700% Senior Notes due ~~December 15, 2029.~~2023.

•$500 million aggregate principal amount of 3.850% Senior Notes due 2025.

Interest on ~~each series of senior notes~~the Senior Notes due 2023 is payable ~~semi-annually~~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 $650 million in ~~arrears~~aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities. Interest on the Senior Notes due 2025 is payable semiannually on April 9 and October 9 of each year, commencing on October 9, 2020. Interest on the Senior Notes due 2030 is payable semiannually on June 15 and December 15 of each year, commencing on ~~June~~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 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 are being used for general corporate purposes.

On ~~September 13, 2019,~~March 19, 2020, Phillips 66 ~~Partners used~~entered into a ~~portion~~$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 ~~net proceeds~~Facility to ~~repay~~$2 billion, with $1 billion of capacity remaining undrawn at June 30, 2020. In June 2020, the ~~$400 million outstanding principal balance~~Facility was amended to extend the commitment period to September 19, 2020. 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 ~~its term loans due March 2020, and on October 15, 2019,~~Phillips 66’s senior unsecured long-term debt. Phillips 66 ~~Partners used a portion~~is using the proceeds from the debt issuance for general corporate purposes.

At June 30, 2020, borrowings of ~~the net proceeds to repay~~$215 million were outstanding and $3 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility.

Debt Repayments

In April 2020, Phillips 66 repaid the $300 million outstanding principal balance of its ~~2.646% Senior Notes~~floating-rate notes due ~~February 2020.~~

~~Credit Agreement Amendment and Restatement~~

On July 30, 2019, we amended and restated our revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement,April 2020 and the ~~overall capacity remains at $5 billion with an option to increase the overall capacity to $6 billion, subject to certain conditions.~~

On July 30, 2019, Phillips 66 Partners amended and restated its revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $750 million with an option to increase the overall capacity to $1 billion, subject to certain conditions.

Phillips 66’s revolving credit facility had 0 outstanding balance at September 30, 2019, and December 31, 2018. Phillips 66 Partners’ revolving credit facility had 0 amount directly drawn at September 30, 2019, compared with borrowings of $125 million at December 31, 2018.

~~2018 Activities~~

~~Debt Issuances and Repayments~~

~~On March 1, 2018, Phillips 66 closed on a public offering of $1,500 million aggregate principal amount of unsecured notes consisting of:~~

$500 million of floating-rate Senior Notes due February 2021. Interest on these notes is equal to the three-month London Interbank Offered Rate (LIBOR) plus 0.60% per annum and is payable quarterly in arrears on February 26, May 26, August 26 and November 26, beginning on May 29, 2018.

~~$800 million of 3.900% Senior Notes due March 2028. Interest on these notes is payable semiannually on March 15 and September 15 of each year, beginning on September 15, 2018.~~

~~An additional~~ $200 million outstanding principal balance of ~~our 4.875% Senior Notes due November 2044. Interest on these notes is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2018.~~

These notes are guaranteed by Phillips 66 Company, a wholly owned subsidiary. Phillips 66 used the net proceeds from the issuance of these notes and cash on hand to repay commercial paper borrowings during the three months ended March 31, 2018, and for general corporate purposes. The commercial paper borrowings during the three months ended March 31, 2018, were primarily used to fund a Stock Purchase and Sale Agreement (Purchase Agreement). See Note 17—Treasury Stock, for additional information.

~~In June 2018, Phillips 66 repaid $250 million of the $450 million outstanding under~~ its ~~three-year~~ term loan facility due April 2020.

Also in April 2020, Phillips 66 Partners repaid the $25 million outstanding principal balance of its tax-exempt bonds due April 2020.

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Note 10—Guarantees

At ~~September~~June 30, ~~2019,~~2020, 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. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantees and expect future performance to be either immaterial or have only a remote chance of occurrence.

~~Guarantees of Joint Venture Obligations~~

In ~~June 2019, Phillips 66 Partners issued a guarantee for 42.25% of Gray Oak’s third-party term loan facility. See Note 6—Investments, Loans and Long-Term Receivables, for additional information.~~

In addition, at September 30, 2019, we had other guarantees outstanding for our portion of certain joint venture debt obligations, which have remaining terms of up to six years. The maximum potential amount of future payments to third parties under these guarantees was approximately $135 million. Payment would be required if a joint venture defaults on its obligations.

Lease Residual Value Guarantees

Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million at ~~September~~June 30, ~~2019.~~2020. The operating lease term ends in June 2021 and provides us 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. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future ~~exposures~~payments totaling ~~$344 million~~$351 million. These leases have remaining terms of up to four years.

Guarantees of Joint Venture and Other Obligations

In June 2019, Phillips 66 Partners issued a guarantee through an equity contribution agreement for 42.25% of Gray Oak Pipeline, LLC’s third-party term loan facility. See Note 5—Investments, Loans and Long-Term Receivables, for additional information on Gray Oak Pipeline, LLC.

In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a CECU in conjunction with an unsecured senior notes offering. See Note 5—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.

In addition, at ~~September~~June 30, ~~2019,~~2020, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations, which have remaining terms of up to ~~five~~eight years. The maximum potential amount of future payments to third parties under these guarantees was approximately $155 million. Payment would be required if a joint venture defaults on its obligations.

Indemnifications

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnification. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses and employee claims, as well as real estate indemnity against tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure. At ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, the carrying amount of recorded indemnifications was ~~$159~~$154 million and ~~$171~~$153 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. In cases where the indemnification term is indefinite, we will reverse the liability when we have information to support ~~that~~ the ~~liability was essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines.~~reversal. 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 ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, environmental accruals for known contamination of ~~$110~~$107 million and ~~$101~~$105 million, respectively, were included in the carrying amount of recorded ~~indemnifications.~~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. For additional information about environmental liabilities, see Note 11—Contingencies and Commitments.

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Indemnification and Release Agreement

In 2012, in connection with our separation from ConocoPhillips, we entered into the Indemnification and Release Agreement. This agreement governs the treatment between ConocoPhillips and us of matters relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation arising in connection with the separation. Generally, the agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of ConocoPhillips’ business with ConocoPhillips. The agreement also establishes procedures for handling claims subject to indemnification and related matters.

Note 11—Contingencies and Commitments

A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of ~~income-tax-related~~income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.

Environmental

We are subject to international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using information available at the time. We measure estimates and base contingent liabilities on currently available facts, existing technology and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring contingent environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

Although liability for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies alleged to have liability at a particular site. Due to such joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. 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.

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We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. 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 ~~September~~June 30, ~~2019, and December 31, 2018,~~2020, our total environmental ~~accrual was $447~~accruals were $429 million, ~~for both periods.~~compared with $441 million at December 31, 2019. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.

Other Contingencies

We have contingent liabilities ~~not associated with financing arrangements~~ resulting from throughput agreements with pipeline and processing ~~companies.~~companies not associated with financing arrangements. 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 ~~September~~June 30, ~~2019,~~2020, we had performance obligations secured by letters of credit and bank guarantees of ~~$644~~$461 million related to various purchase and other commitments incident to the ordinary conduct of business.

Note 12—Derivatives and Financial Instruments

Derivative Instruments

We use financial and commodity-based derivative contracts to manage exposures to fluctuations in commodity prices, interest rates and foreign currency exchange rates, or to capture market opportunities. Because we do not apply hedge accounting for commodity derivative contracts, all realized and unrealized gains and losses from commodity derivative contracts are recognized in our consolidated statement of ~~income.~~operations. Gains and losses from derivative contracts held for trading not directly related to our physical business are reported net in the “Other income” line item on our consolidated statement of ~~income.~~operations. Cash flows from all our derivative activity for the periods presented appear in the operating section on our consolidated statement of cash flows.

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. All other derivative instruments are recorded at fair value on our consolidated balance sheet. For further information on the fair value of ~~our~~ derivatives, see Note 13—Fair Value ~~Measurements~~.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. Generally, our policy is to remain exposed to the market prices of commodities; however, we use futures, forwards, swaps and options in various markets to balance physical systems, meet customer needs, manage price exposures on specific transactions, and do a limited amount of trading not directly related to our physical business, all of which may reduce our exposure to fluctuations in market prices. We also use the market knowledge gained from these activities to capture market opportunities such as moving physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades.

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The following table indicates the consolidated balance sheet line items that include the fair values of commodity derivative assets and liabilities. The balances in the following table are presented on a gross basis, before the effects of counterparty and collateral netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our consolidated balance sheet when the legal right of offset exists.

Millions of Dollars
September 30, 2019 December 31, 2018
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
Assets
Liabilities
Assets
Liabilities

Assets
Prepaid expenses and other current assets $ 1,018
(856 ) (5 ) 157
1,257
(1,070 ) (89 ) 98
Other assets 4
(1 ) —
3
2
—
—
2
Liabilities
Other accruals 454
(542 ) 70
(18 ) —
(23 ) —
(23 )
Other liabilities and deferred credits 35
(37 ) —
(2 ) 5
(7 ) —
(2 )
Total $ 1,511
(1,436 ) 65
140
1,264
(1,100 ) (89 ) 75


	Millions of Dollars
	June 30, 2020									December 31, 2019
	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
	Assets		Liabilities						Assets	Liabilities

Assets
Prepaid expenses and other current assets	$	56	(25)	—	31		23	—	—	23
Other assets	—		—	—	—		3	—	—	3
Liabilities
Other accruals	1,216		(1,399)	168	(15)		1,188	(1,281)	80	(13)
Other liabilities and deferred credits	—		(1)	—	(1)		—	(1)	—	(1)
Total	$	1,272	(1,425)	168	15		1,214	(1,282)	80	12

At ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, 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 ~~income,~~operations, were:


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Sales and other operating revenues	$	(180)	17	499	(160)
Other income	6		—	9	13
Purchased crude oil and products	(124)		54	317	(101)
Net gain (loss) from commodity derivative activity	$	(298)	71	825	(248)

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Sales and other operating revenues $ 71
(98 ) (89 ) (227 )
Other income 20
3
33
(17 )
Purchased crude oil and products 60
(138 ) (41 ) (311 )
Net gain (loss) from commodity derivative activity $ 151
(233 ) (97 ) (555 )

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The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts. These financial and physical derivative contracts are primarily used to manage price exposure on our underlying operations. The underlying exposures may be from ~~non-derivative~~nonderivative positions such as inventory volumes. 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 ~~97%~~98% at ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018.~~2019.

Open Position
Long / (Short)
September 30
2019
December 31
2018
Commodity
Crude oil, refined petroleum products and NGL (millions of barrels)
(35 ) (17 )

Open Position
Long / (Short)

June 30
2020

December 31
2019

Commodity

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

(36)

(16)

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~~London Inter-Bank Offered Rate (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 ~~which is included in the “Prepaid expenses and other current assets” and “Other assets” lines on our consolidated balance sheet, totaled $1 million and $15 million~~was immaterial at ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018, respectively.~~

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 three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

We currently estimate that ~~pre-tax gains~~before-tax losses of $1$7 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.

Credit Risk from Derivative Instruments

The credit risk from our derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements, typically on a daily basis, until settled.

Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if our credit ratings fall below investment grade. Cash is the primary collateral in all contracts; 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 ~~September~~June 30, ~~2019,~~2020, and December 31, ~~2018.~~

2019.

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Note 13—Fair Value Measurements

Recurring Fair Value Measurements

We carry certain assets and liabilities at fair value, which we measure at the reporting date using the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price), and disclose the quality of these fair values based on the valuation inputs used in these measurements under the following hierarchy:

•Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.

•Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or liabilities; or (2) other valuation inputs that are directly or indirectly observable.

•Level 3: Fair value measured with unobservable inputs that are significant to the measurement.

We classify the fair value of an asset or liability based on the significance of its observable or unobservable inputs to the measurement. However, the fair value of an asset or liability initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement or corroborating market data becomes available. Conversely, an asset or liability initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable. For the nine months ended September 30, 2019, derivative assets with an aggregate value of $117 million and derivative liabilities with an aggregate value of $82 million were transferred to Level 1 from Level 2, as measured from the beginning of the reporting period. The measurements were reclassified within the fair value hierarchy due to the availability of unadjusted quoted prices from an active market.

We used the following methods and assumptions to estimate the fair value of financial instruments:


•	~~Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.~~


•	~~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. When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or non-exchange

•Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.

•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. 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.

Physical commodity forward purchase and sales contracts and over-the-counter (OTC) financial swaps are generally valued using forward quotes provided by brokers and price index developers, such as Platts and Oil Price Information Service. We corroborate these quotes with market data and classify the resulting fair values as Level 2. When forward market prices are not available, we estimate fair value using the forward price of a similar commodity, adjusted for the difference in quality or location. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, physical commodity purchase and sales contracts and OTC swaps are valued using internally developed methodologies that consider historical relationships among various commodities that result in management’s best estimate of fair value. We classify these contracts as Level 3. Physical and OTC commodity options are valued using industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines whether the options are classified as Level 2 or 3. We use a ~~mid-market~~midmarket pricing convention (the ~~mid-point~~midpoint between bid and ask prices). 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 ~~observed~~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.

•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.

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•	~~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.~~

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. These values are determined by treating each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are shown on a gross basis in the hierarchy sections of these tables, before the effects of counterparty and collateral netting. The following tables also reflect the effect of netting derivative assets and liabilities with the same counterparty for which we have the legal right of offset and collateral netting.

The carrying values and fair values by hierarchy of our financial assets and liabilities, either carried or disclosed at fair value, including any effects of counterparty and collateral netting, were:

Millions of Dollars
September 30, 2019
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
Level 1
Level 2
Level 3
Commodity Derivative Assets
Exchange-cleared instruments $ 788
657
—
1,445
(1,346 ) (5 ) —
94
OTC instruments —
1
—
1
—
—
—
1
Physical forward contracts —
64
1
65
—
—
—
65
Interest rate derivatives —
1
—
1
—
—
—
1
Rabbi trust assets 122
—
—
122
N/A
N/A
—
122
$ 910
723
1
1,634
(1,346 ) (5 ) —
283

Commodity Derivative Liabilities
Exchange-cleared instruments $ 748
669
—
1,417
(1,346 ) (70 ) —
1
OTC instruments —
3
—
3
—
—
—
3
Physical forward contracts —
16
—
16
—
—
—
16
Floating-rate debt —
1,075
—
1,075
N/A
N/A
—
1,075
Fixed-rate debt, excluding capital leases —
12,050
—
12,050
N/A
N/A
(1,377 ) 10,673
$ 748
13,813
—
14,561
(1,346 ) (70 ) (1,377 ) 11,768


	Millions of Dollars
	June 30, 2020
	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
	Level 1		Level 2	Level 3
Commodity Derivative Assets
Exchange-cleared instruments	$	850	392	—	1,242	(1,241)	—	—	1

Physical forward contracts	—		30	—	30	—	—	—	30

Rabbi trust assets	129		—	—	129	N/A	N/A	—	129
	$	979	422	—	1,401	(1,241)	—	—	160

Commodity Derivative Liabilities
Exchange-cleared instruments	$	986	424	—	1,410	(1,241)	(168)	—	1

Physical forward contracts	—		14	1	15	—	—	—	15
Interest rate derivatives	—		7	—	7	—	—	—	7
Floating-rate debt	—		1,787	—	1,787	N/A	N/A	—	1,787
Fixed-rate debt, excluding finance leases	—		14,023	—	14,023	N/A	N/A	(1,643)	12,380
	$	986	16,255	1	17,242	(1,241)	(168)	(1,643)	14,190


	Millions of Dollars
	December 31, 2019
	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
	Level 1		Level 2	Level 3
Commodity Derivative Assets
Exchange-cleared instruments	$	820	368	—	1,188	(1,188)	—	—	—

Physical forward contracts	—		26	—	26	—	—	—	26
Interest rate derivatives	—		1	—	1	—	—	—	1
Rabbi trust assets	127		—	—	127	N/A	N/A	—	127
	$	947	395	—	1,342	(1,188)	—	—	154

Commodity Derivative Liabilities
Exchange-cleared instruments	$	884	385	—	1,269	(1,188)	(80)	—	1
OTC instruments	—		1	—	1	—	—	—	1
Physical forward contracts	—		12	—	12	—	—	—	12

Floating-rate debt	—		1,100	—	1,100	N/A	N/A	—	1,100
Fixed-rate debt, excluding finance leases	—		11,813	—	11,813	N/A	N/A	(1,438)	10,375
	$	884	13,311	—	14,195	(1,188)	(80)	(1,438)	11,489

Table of Contents

Millions of Dollars
December 31, 2018
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
Level 1
Level 2
Level 3

Commodity Derivative Assets
Exchange-cleared instruments $ 674
547
—
1,221
(1,075 ) (89 ) —
57
Physical forward contracts —
39
4
43
—
—
—
43
Interest rate derivatives —
15
—
15
—
—
—
15
Rabbi trust assets 104
—
—
104
N/A
N/A
—
104
$ 778
601
4
1,383
(1,075 ) (89 ) —
219

Commodity Derivative Liabilities
Exchange-cleared instruments $ 605
472
—
1,077
(1,075 ) —
—
2
Physical forward contracts —
20
—
20
—
—
—
20
OTC instruments —
3
—
3
—
—
—
3
Floating-rate debt —
1,200
—
1,200
N/A
N/A
—
1,200
Fixed-rate debt, excluding capital leases —
9,727
—
9,727
N/A
N/A
49
9,776
$ 605
11,422
—
12,027
(1,075 ) —
49
11,001

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” ~~lines~~line items on our consolidated balance sheet. See Note 12—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.

Nonrecurring Fair Value Measurements

The nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment ~~consisted of two valuations:~~

~~The~~at March 31, 2020, was the fair value of our share of DCP Midstream’s limited partner interest in DCP Partners, which was estimated based on an average market ~~price~~prices of DCP ~~Partners’~~Partners common units for a ~~20 day~~15-day trading period encompassing ~~September 30, 2019.~~

The fair value of our share of DCP Midstream’s general partner interest in DCP Partners was estimated using two primary inputs: 1) estimated future cash flows of distributions attributable to the incentive distribution rights (IDRs) from DCP Partners, and 2) a multiple of those cash flows based on internal estimates and observation of IDR conversion transactions by other master limited partnerships.

~~Taken together, we concluded the two valuations above~~March 31, 2020. This valuation resulted in ~~an overall~~a Level 32 nonrecurring fair value measurement. See Note 6—5—Investments, Loans and Long-Term Receivables, for additional information on the impairment.

The carrying value of the Refining reporting unit’s goodwill was remeasured to fair value on a nonrecurring basis in the first quarter of 2020. 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. 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. As a result, the Refining reporting unit recorded a goodwill impairment charge of $1,845 million and reduced its goodwill balance to 0. As part of our impairment analysis, the fair value of all reporting units was reconciled to the company’s market capitalization. See Note 7—Goodwill, for additional information on the goodwill impairment.

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Note 14—~~Leases~~

We lease marine vessels, tugboats, barges, pipelines, storage tanks, railcars, service station sites, office buildings, corporate aircraft, land and other facilities and equipment. In determining whether an agreement contains a lease, we consider our ability to control the asset and whether there are limitations on our control through third-party participation or vendor substitution rights. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices, as well as renewal options and/or options to purchase the leased property. Renewal options have been included only when reasonably certain of exercise. There are no significant restrictions imposed on us in our lease agreements with regards to dividend payments, asset dispositions or borrowing ability. Certain leases have residual value guarantees, which may require additional payments at the end of the lease term if future fair values decline below contractual lease balances.

In our implementation of ASU No. 2016-02, we elected to discount lease obligations using our incremental borrowing rate. Furthermore, we elected to separate costs for lease and service components for contracts involving the following asset types: marine vessels, tugboats, barges and consignment service stations. For these contracts, we allocate the consideration payable between the lease and service components using the relative standalone prices of each component. For contracts involving all other asset types, we elected the practical expedient to account for the lease and service components on a combined basis. Our right-of-way agreements in effect prior to January 1, 2019, were not accounted for as leases as they were not initially determined to be leases at their commencement dates. However, modifications to these agreements or new agreements will be assessed and accounted for accordingly under ASU No. 2016-02. For short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that is reasonably certain to exercise, we elected to not recognize the ROU asset and corresponding lease liability on our consolidated balance sheet.

~~The following table indicates the consolidated balance sheet line items that include the ROU assets and lease liabilities for our finance and operating leases:~~

Millions of Dollars
September 30, 2019

Finance
Leases

Operating
Leases

Right-of-Use Assets
Net properties, plants and equipment $ 177
—
Other assets —
1,338
Total right-of-use assets $ 177
1,338

Lease Liabilities
Short-term debt $ 13
—
Other accruals —
468
Long-term debt 153
—
Other liabilities and deferred credits —
820
Total lease liabilities $ 166
1,288

~~Future minimum lease payments at September 30, 2019, for finance and operating lease liabilities were:~~

Millions of Dollars

Finance
Leases

Operating
Leases

Remainder of 2019 $ 4
126
2020 19
469
2021 18
245
2022 15
157
2023 15
102
Remaining years 135
355
Future minimum lease payments 206
1,454
Amount representing interest or discounts (40 ) (166 )
Total lease liabilities $ 166
1,288

Our finance lease liabilities relate primarily to an oil terminal in the United Kingdom. The lease liability for this finance lease is subject to foreign currency translation adjustments each reporting period.

~~Components of net lease cost for the three and nine months ended September 30, 2019, were:~~

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2019
Finance lease cost
Amortization of right-of-use assets $ 5
15
Interest on lease liabilities 2
5
Total finance lease cost 7
20
Operating lease cost 126
386
Short-term lease cost 29
93
Variable lease cost 6
18
Sublease income (4 ) (14 )
Total net lease cost $ 164
503

~~Cash paid for amounts included in the measurement of our lease liabilities for the nine months ended September 30, 2019, were:~~

Millions of Dollars

Operating cash outflows—finance leases $ 5
Operating cash outflows—operating leases 397
Financing cash outflows—finance leases 18

~~During the nine months ended September 30, 2019, we recorded noncash ROU assets and corresponding operating lease liabilities totaling $259 million related to new and modified lease agreements.~~

~~At September 30, 2019, the weighted-average remaining lease term and discount rate for our lease liabilities were:~~



~~Weighted-average remaining lease term—finance leases (years)~~	~~12.7~~
~~Weighted-average remaining lease term—operating leases (years)~~	~~5.5~~

~~Weighted-average discount rate—finance leases (percent)~~	~~3.7~~	%
~~Weighted-average discount rate—operating leases (percent)~~	~~3.9~~

~~Note 15—~~Pension and Postretirement Plans

The components of net periodic benefit cost for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, were as follows:


	Millions of Dollars
	Pension Benefits								Other Benefits
	2020				2019			2020	2019
	U.S.		Int’l.	U.S.	Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended June 30
Service cost	$	34	7	31	6	2	2
Interest cost	24		5	27	7	1	2
Expected return on plan assets	(42)		(12)	(35)	(12)	—	—
Amortization of prior service credit	—		—	—	—	—	(1)
Recognized net actuarial loss	15		4	13	1	—	—
Settlements	39		—	2	—	—	—
Net periodic benefit cost*	$	70	4	38	2	3	3

Six Months Ended June 30
Service cost	$	67	14	63	12	3	3
Interest cost	49		11	54	13	3	4
Expected return on plan assets	(83)		(25)	(71)	(23)	—	—
Amortization of prior service credit	—		—	—	—	(1)	(1)
Recognized net actuarial loss	29		8	26	3	—	—
Settlements	39		—	6	—	—	—
Net periodic benefit cost*	$	101	8	78	5	5	6
* Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of operations.

Millions of Dollars
Pension Benefits Other Benefits
2019 2018 2019
2018
U.S.
Int’l.
U.S.
Int’l.

Components of Net Periodic Benefit Cost
Three Months Ended September 30
Service cost $ 32
5
34
5
1
2
Interest cost 27
6
26
6
2
1
Expected return on plan assets (36 ) (10 ) (42 ) (11 ) —
—
Amortization of prior service credit —
—
—
—
—
—
Recognized net actuarial loss 14
2
14
5
—
—
Settlements 1
—
49
—
—
—
Net periodic benefit cost* $ 38

3

81

5

3

3

Nine Months Ended September 30
Service cost $ 95
17
102
22
4
5
Interest cost 81
19
78
21
6
5
Expected return on plan assets (107 ) (33 ) (127 ) (35 ) —
—
Amortization of prior service credit —
—
—
(1 ) (1 ) (1 )
Recognized net actuarial loss 40
5
44
15
—
—
Settlements 7
—
54
—
—
—
Net periodic benefit cost* $ 116
8
151
22
9
9
* Included in the “Operating expenses” and “Selling, general and administrative expenses” lines on our consolidated statement of income.

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we contributed ~~$50~~$13 million to our U.S. pension and other postretirement benefit plans and ~~$21~~$13 million to our international pension plans. We currently expect to make additional contributions of approximately $8$24 million to our U.S. pension and other postretirement benefit plans and $7$13 million to our international pension plans during the remainder of ~~2019.~~

2020.

During the six months ended June 30, 2020, we estimated that lump-sum benefit payments will exceed the sum of service and interest costs for the plan year for our U.S. qualified and non-qualified pension plans. As a result, we recognized a portion of prior actuarial losses, or pension settlement expense, of $34 million related to our U.S. qualified pension plan and $5 million related to our U.S. non-qualified pension plan. In conjunction with the recognition of pension settlement expense, the plan assets and projected benefit obligation of our U.S. qualified pension plan were remeasured as of June 30, 2020. At the remeasurement date, the net pension liability increased by $300 million resulting in a corresponding increase to other comprehensive loss. The increase in the net pension liability was primarily due to a decline in the discount rate used to value the projected benefit obligation from 3.3% to 2.7% and a decrease in the fair value of plan assets during the six months ended June 30, 2020.

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Note ~~16—~~15—Accumulated Other Comprehensive Loss

Changes in the balances of each component of accumulated other comprehensive loss were as follows:

Millions of Dollars
Defined Benefit Plans
Foreign Currency Translation
Hedging
Accumulated Other Comprehensive Loss

December 31, 2018 $ (472 ) (228 ) 8
(692 )
Other comprehensive income (loss) before reclassifications 5
(124 ) (6 ) (125 )
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss, prior service credit and settlements 40
—
—
40
Foreign currency translation —
—
—
—
Hedging —
—
(5 ) (5 )
Net current period other comprehensive income (loss) 45
(124 ) (11 ) (90 )
Income taxes reclassified to retained earnings** (93 ) 2
2
(89 )
September 30, 2019 $ (520 ) (350 ) (1 ) (871 )

December 31, 2017 $ (598 ) (26 ) 7
(617 )
Other comprehensive income (loss) before reclassifications 10
(113 ) 9
(94 )
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss, prior service credit and settlements 84
—
—
84
Foreign currency translation —
(10 ) —
(10 )
Hedging —
—
(2 ) (2 )
Net current period other comprehensive income (loss) 94
(123 ) 7
(22 )
September 30, 2018 $ (504 ) (149 ) 14
(639 )
* Included in the computation of net periodic benefit cost. See Note 15—Pension and Postretirement Plans, for additional information.
** As of January 1, 2019, stranded income taxes related to the enactment of the Tax Act in December 2017 were reclassified to retained earnings upon adoption of ASU No. 2018-02. See Note 2—Changes in Accounting Principles, for additional information on our adoption of this ASU.


	Millions of Dollars
	Defined Benefit Plans		Foreign Currency Translation	Hedging	Accumulated Other Comprehensive Loss

December 31, 2019	$	(656)	(131)	(1)	(788)
Other comprehensive loss before reclassifications	(223)		(195)	(8)	(426)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss, prior service credit and settlements	60		—	—	60
Foreign currency translation	—		—	—	—
Hedging	—		—	1	1
Net current period other comprehensive loss	(163)		(195)	(7)	(365)
Other	—		5	—	5
June 30, 2020	$	(819)	(321)	(8)	(1,148)

December 31, 2018	$	(472)	(228)	8	(692)
Other comprehensive income (loss) before reclassifications	4		(6)	(7)	(9)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss, prior service credit and settlements	26		—	—	26
Foreign currency translation	—		—	—	—
Hedging	—		—	(3)	(3)
Net current period other comprehensive income (loss)	30		(6)	(10)	14
Income taxes reclassified to retained earnings**	(93)		2	2	(89)
June 30, 2019	$	(535)	(232)	—	(767)
* Included in the computation of net periodic benefit cost. See Note 14—Pension and Postretirement Plans, for additional information.
** As of January 1, 2019, stranded income taxes related to the enactment of the Tax Act in December 2017 were reclassified to retained earnings upon adoption of ASU No. 2018-02.

~~Note 17—Treasury Stock~~

~~In February 2018, we entered into a Purchase Agreement with Berkshire Hathaway Inc. and National Indemnity Company, a wholly owned subsidiary~~

Table of Berkshire Hathaway Inc., 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 in March 2018. This specific share repurchase transaction was separately authorized by our Board of Directors and therefore did not impact previously announced authorizations to repurchase shares of Phillips 66 common stock under our share repurchase programs.Contents

Note ~~18—~~16—Related Party Transactions

Significant transactions with related parties were:


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Operating revenues and other income (a)	$	353	796	887	1,479
Purchases (b)	1,130		3,260	3,256	5,928
Operating expenses and selling, general and administrative expenses (c)	55		8	106	17

(a)We sold NGL, other petrochemical feedstocks and solvents to Chevron Phillips Chemical Company LLC (CPChem), gas oil and hydrogen feedstocks to Excel Paralubes (Excel), and refined petroleum products to several of our equity affiliates in the M&S segment, including OnCue and CF United. We also sold certain feedstocks and intermediate products to WRB Refining LP (WRB) and acted as 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. 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. In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline equity affiliates for transporting crude oil, refined petroleum products and NGL.

(c)We paid consignment fees to CF United, and utility and processing fees to various equity affiliates.

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Operating revenues and other income (a) $ 756
955
2,235
2,717
Purchases (b) 2,842
3,667
8,770
9,534
Operating expenses and selling, general and administrative expenses (c) 8
12
25
44

Table of Contents

~~(a)~~

We sold NGL and other petrochemical feedstocks, along with solvents, to CPChem, gas oil and hydrogen feedstocks to Excel Paralubes (Excel), and refined petroleum products to OnCue. 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. In addition, we charged several of our 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. We also purchased natural gas and NGL from DCP Midstream and CPChem, as well as other feedstocks from various affiliates, for use in our refinery and fractionation processes. In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline affiliates for transporting crude oil, refined petroleum products and NGL.


~~(c)~~	~~We paid utility and processing fees to various affiliates.~~

Note ~~19—~~17—Segment Disclosures and Related Information

During the fourth quarter of 2018, the segment performance measure used by our chief executive officer to assess performance and allocate resources was changed from “net income” to “income before income taxes.” Prior-period segment information has been recast to conform to the current presentation.

Our operating segments are:

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.

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

Provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, 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.


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 13refineries 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. In addition, this segment includes the manufacturing and marketing of specialty products, as well as power generation operations.

Corporate and Other includes general corporate overhead, interest expense, our investment in new technologies, and various other corporate activities. Corporate assets include all cash, cash equivalents and income ~~tax related~~tax-related assets.

Intersegment sales are at prices that we believe approximate market.

Table of Contents

Analysis of Results by Operating Segment

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018
Sales and Other Operating Revenues*
Midstream
Total sales $ 1,602
2,287
5,208
6,234
Intersegment eliminations (482 ) (524 ) (1,526 ) (1,555 )
Total Midstream 1,120
1,763
3,682
4,679
Chemicals 1
1
3
4
Refining
Total sales 19,591
21,949
56,839
61,707
Intersegment eliminations (11,452 ) (12,807 ) (34,008 ) (37,027 )
Total Refining 8,139
9,142
22,831
24,680
Marketing and Specialties
Total sales 18,535
19,332
53,464
54,471
Intersegment eliminations (584 ) (457 ) (1,833 ) (1,492 )
Total Marketing and Specialties 17,951
18,875
51,631
52,979
Corporate and Other 7
7
21
21
Consolidated sales and other operating revenues $ 27,218
29,788
78,168
82,363
* See Note 3—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.

Income (Loss) Before Income Taxes
Midstream $ (460 ) 284
279
802
Chemicals 227
263
729
873
Refining 856
1,232
1,641
2,534
Marketing and Specialties 498
423
1,056
968
Corporate and Other (178 ) (227 ) (593 ) (650 )
Consolidated income before income taxes $ 943
1,975
3,112
4,527


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020		2019
Sales and Other Operating Revenues*
Midstream
Total sales	$	1,100	1,709	2,638		3,606
Intersegment eliminations	(382)		(460)	(877)		(1,044)
Total Midstream	718		1,249	1,761		2,562
Chemicals	1		1	2		2
Refining
Total sales	7,352		20,387	21,133		37,248
Intersegment eliminations	(4,437)		(12,788)	(12,070)		(22,556)
Total Refining	2,915		7,599	9,063		14,692
Marketing and Specialties
Total sales	7,493		19,687	21,742		34,929
Intersegment eliminations	(220)		(696)	(790)		(1,249)
Total Marketing and Specialties	7,273		18,991	20,952		33,680
Corporate and Other	6		7	13		14
Consolidated sales and other operating revenues	$	10,913	27,847	31,791		50,950
* See Note 2—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.

Income (Loss) Before Income Taxes
Midstream	$	324	423	(378)		739
Chemicals	42		275	211		502
Refining	(878)		983	(3,139)		785
Marketing and Specialties	286		353	799		558
Corporate and Other	(219)		(205)	(416)		(415)
Consolidated income (loss) before income taxes	$	(445)	1,829	(2,923)		2,169

Millions of Dollars
September 30
2019
December 31
2018
Total Assets
Midstream $ 15,209
14,329
Chemicals 6,269
6,235
Refining 25,280
23,230
Marketing and Specialties 8,338
6,572
Corporate and Other 3,645
3,936
Consolidated total assets $ 58,741
54,302


	Millions of Dollars
	June 30 2020		December 31 2019
Total Assets
Midstream	$	15,447	15,716
Chemicals	6,148		6,249
Refining	21,981		25,150
Marketing and Specialties	7,246		8,659
Corporate and Other	3,696		2,946
Consolidated total assets	$	54,518	58,720

Table of Contents

Note ~~20—~~18—Income Taxes

Historically, we have calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to income (loss) for the interim period. In the second quarter of 2020, we concluded that we could not calculate a reliable estimate of our annual effective tax rate due to the range of potential impacts the global COVID-19 pandemic may have on our business and results of operations. Accordingly, we computed the effective tax rate for the six-month period ending June 30, 2020, using actual results.

Our effective income tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, was ~~16%~~85% and ~~18%~~15%, respectively, compared with ~~21%~~18% for the corresponding periods of ~~2018.~~2019. The ~~decrease~~increase in our effective tax rate for the three months ended ~~September~~June 30, ~~2019, compared with the three months ended September 30, 2018, was~~2020, is primarily attributable to the ~~impact of our foreign operations.~~ adjustment required in the second quarter for the first-quarter 2020 results to reflect the change in methodology discussed above.The decrease in our effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2019, compared with the nine months ended September 30, 2018, was~~2020, is primarily attributable to anthe impact of the nondeductible goodwill impairment, partially offset by the ability provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to carry back a 2020 net operating loss to a year with a 35% income tax benefit of $45 million recorded in the second quarter in connection with the Internal Revenue Service’s issuance of additional guidance related to the calculation of the one-time deemed repatriation tax on foreign-source earnings that were previously tax deferred,rate, as well as ~~the impact of our~~ foreign ~~operations.~~operations and income attributable to noncontrolling interests.

The effective income tax rate for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019, varies~~2020, varied from the U.S. federal statutory income tax rate of 21%, primarily attributable to the adjustment required in the second quarter for the first-quarter 2020 results to reflect the change in methodology discussed above. The effective income tax rate for the six months ended June 30, 2020, varied from the U.S. federal statutory rate of 21%, primarily due to the impact of ~~our foreign operations and income attributable to noncontrolling interests,~~the nondeductible goodwill impairment, partially offset by ~~state~~the ability provided under the CARES Act to carry back a 2020 net operating loss to a year with a 35% income tax ~~expense. For the nine months ended September 30, 2019, there was an additional reduction~~rate.

An income tax receivable of $557 million is included in the ~~effective~~“Accounts and notes receivable” line item on our consolidated balance sheet as of June 30, 2020, which reflects our estimate of the tax ~~rate related~~benefit that we expect to realize within the ~~aforementioned $45 million income tax benefit.~~next 12 months.

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Note ~~21—~~19—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, ~~processing~~ and storage assets.

We consolidate Phillips 66 Partners because we determined it is a VIE of which we are the primary beneficiary. As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as well as the ability to direct the activities that most significantly impact its economic performance. As a result of this consolidation, the public common and perpetual convertible preferred unitholders’ ownership interests in Phillips 66 Partners are reflected as noncontrolling interests in our financial statements. At ~~September~~June 30, ~~2019,~~2020, we owned 170 million Phillips 66 Partners common units, representing a ~~75%~~74% limited partner interest in Phillips 66 Partners, while the public owned a ~~25%~~26% limited partner interest and 13.8 million perpetual convertible preferred units.

The most significant assets of Phillips 66 Partners that are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66’s general credit, were:

Millions of Dollars
September 30
2019
December 31
2018

Cash and cash equivalents $ 655
1
Equity investments* 2,921
2,448
Net properties, plants and equipment 3,258
3,052
Short-term debt 325
50
Long-term debt 3,490
2,998
* Included in “Investments and long-term receivables” line on the Phillips 66 consolidated balance sheet.


	Millions of Dollars
	June 30 2020		December 31 2019

Cash and cash equivalents	$	7	286
Equity investments*	3,340		2,961
Net properties, plants and equipment	3,500		3,349
Short-term debt	265		25
Long-term debt	3,442		3,491
* Included in the “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.

~~2019 Activities~~

For the ~~three and nine~~six months ended ~~September~~June 30, ~~2019,~~2020, on a settlement-date basis, Phillips 66 Partners generated net proceeds of ~~$91~~$2 million ~~and $133 million, respectively,~~ from common units issued under its continuous offering of common units, or at-the-market (ATM) ~~programs.~~programs, with 0 issuances in the second quarter of 2020. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, Phillips 66 Partners generated net proceeds of ~~$47~~$10 million and ~~$114~~$42 million, respectively, under its ATM programs.

~~Phillips 66 Partners holds an investment in~~Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, ~~through Holdings~~which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire a 35% interest in ~~Holdings LLC.~~the holding company. Because ~~Holdings LLC’s~~the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which iswas considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in ~~Holdings LLC~~the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP. As such, the contributions the third party is making to Holdings LLC to cover its share of previously incurred and future construction costs plus a premium to Phillips 66 Partners are reflected as a long-term obligation in the “Other liabilities and deferred credits” line on our consolidated balance sheet and financing cash inflows in the “Other” line on our consolidated statement of cash flows. After construction of theGAAP at that time. The Gray Oak Pipeline ~~is fully completed, these restrictions expire,~~commenced full operations in the second quarter of 2020, and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale ~~will be recognized~~ under GAAP. ~~Phillips 66 Partners will continue to control and consolidate Holdings LLC after sale recognition, and therefore~~Accordingly, at June 30, 2020, the ~~third party’s~~co-venturer’s 35% interest ~~will be~~in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance ~~sheet at that time. Also at that time,~~sheet. In addition, the premium of $84 million previously paid ~~will be~~by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of ~~income.~~operations for the three and six months ended June 30, 2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the ~~third party~~co-venturer contributed an aggregate of ~~$341~~$61 million ~~into Holdings LLC, which Holdings LLC used~~to the holding company to fund its portion of Gray ~~Oak’s~~Oak Pipeline, LLC’s cash calls. Excluding the co-venturer’s 35% interest in the consolidated holding company, Phillips 66 Partners has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. See Note 6—5—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investment in Gray ~~Oak.~~

~~Restructuring Transaction~~

~~On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the IDRs held by us~~Oak Pipeline, LLC, Dakota Access and convert our 2% economic general partner interest into a non-economic general partner interest in exchange for 101 million Phillips 66 Partners’ common units. As a result of the restructuring transaction, the balance of “Noncontrolling interests” on our consolidated balance sheet decreased $373 million, with a $275 million increase to “Capital in excess of par,” a $91 million increase in “Deferred income taxes”ETCO, and $7 million of transaction costs. No distributions will be made on the general partner interest after August 1, 2019. At September 30, 2019, we owned 170 million Phillips 66 Partners’ common units, representing 75% of Phillips 66 Partners’ outstanding common units.

Liberty.

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Note ~~22—~~20—Condensed Consolidating Financial Information

Phillips 66 has senior notes outstanding, the payment obligations of which are fully and unconditionally guaranteed by Phillips 66 Company, a ~~100% owned~~100 percent-owned subsidiary. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:

•Phillips 66 and Phillips 66 Company (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).

•All other nonguarantor subsidiaries.

•The consolidating adjustments necessary to present Phillips 66’s results on a consolidated basis.

This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.


	Millions of Dollars
	Three Months Ended June 30, 2020
Statement of Operations	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Revenues and Other Income (Loss)
Sales and other operating revenues	$	—	8,236	2,677	—	10,913
Equity in earnings (losses) of affiliates	(86)		230	174	(161)	157
Net gain on dispositions	—		—	85	—	85
Other income	—		19	9	—	28
Intercompany revenues	1		604	1,553	(2,158)	—
Total Revenues and Other Income (Loss)	(85)		9,089	4,498	(2,319)	11,183

Costs and Expenses
Purchased crude oil and products	—		7,990	3,665	(2,047)	9,608
Operating expenses	—		810	248	(32)	1,026
Selling, general and administrative expenses	1		319	92	(3)	409
Depreciation and amortization	—		235	108	—	343

Taxes other than income taxes	—		86	28	—	114
Accretion on discounted liabilities	—		4	1	—	5
Interest and debt expense	92		22	79	(76)	117
Foreign currency transaction losses	—		—	6	—	6
Total Costs and Expenses	93		9,466	4,227	(2,158)	11,628
Income (loss) before income taxes	(178)		(377)	271	(161)	(445)
Income tax benefit	(37)		(291)	(50)	—	(378)
Net Income (Loss)	(141)		(86)	321	(161)	(67)
Less: net income attributable to noncontrolling interests	—		—	74	—	74
Net Income (Loss) Attributable to Phillips 66	$	(141)	(86)	247	(161)	(141)

Comprehensive Income (Loss)	$	(298)	(243)	343	(26)	(224)

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												Millions of Dollars
	Millions of Dollars											Three Months Ended June 30, 2019
	Three Months Ended September 30, 2019
Statement of Income	Phillips 66			Phillips 66 Company	All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Statement of Operations											Statement of Operations	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Revenues and Other Income											Revenues and Other Income
Sales and other operating revenues	$	—		20,947	6,271		—		27,218		Sales and other operating revenues	$	—	21,698	6,149	—	27,847
Equity in earnings of affiliates	781			214	147		(643	)	499		Equity in earnings of affiliates	1,495		1,000	202	(2,049)	648
Net gain on dispositions	—			1	17		—		18

Other income	—			25	11		—		36		Other income	—		22	1	—	23
Intercompany revenues	—			837	3,704		(4,541	)	—		Intercompany revenues	—		722	4,095	(4,817)	—
Total Revenues and Other Income	781			22,024	10,150		(5,184	)	27,771		Total Revenues and Other Income	1,495		23,442	10,447	(6,866)	28,518

Costs and Expenses											Costs and Expenses
Purchased crude oil and products	—			19,383	8,866		(4,443	)	23,806		Purchased crude oil and products	—		20,185	9,082	(4,713)	24,554
Operating expenses	—			959	264		(17	)	1,206		Operating expenses	—		917	271	(23)	1,165
Selling, general and administrative expenses	1			324	94		(3	)	416		Selling, general and administrative expenses	1		319	91	(3)	408
Depreciation and amortization	—			230	106		—		336		Depreciation and amortization	—		229	105	—	334
Impairments	—			—	853		—		853		Impairments	—		1	1	—	2
Taxes other than income taxes	—			77	28		—		105		Taxes other than income taxes	—		70	27	—	97
Accretion on discounted liabilities	—			4	2		—		6		Accretion on discounted liabilities	—		5	1	(1)	5
Interest and debt expense	85			35	67		(78	)	109		Interest and debt expense	89		37	66	(77)	115
Foreign currency transaction gains	—			—	(9	)	—		(9	)
Foreign currency transaction losses											Foreign currency transaction losses	—		—	9	—	9
Total Costs and Expenses	86			21,012	10,271		(4,541	)	26,828		Total Costs and Expenses	90		21,763	9,653	(4,817)	26,689
Income (loss) before income taxes	695			1,012	(121	)	(643	)	943
Income before income taxes											Income before income taxes	1,405		1,679	794	(2,049)	1,829
Income tax expense (benefit)	(17		)	231	(64	)	—		150		Income tax expense (benefit)	(19)		184	160	—	325
Net Income (Loss)	712			781	(57	)	(643	)	793
Net Income											Net Income	1,424		1,495	634	(2,049)	1,504
Less: net income attributable to noncontrolling interests	—			—	81		—		81		Less: net income attributable to noncontrolling interests	—		—	80	—	80
Net Income (Loss) Attributable to Phillips 66	$	712		781	(138	)	(643	)	712
Net Income Attributable to Phillips 66											Net Income Attributable to Phillips 66	$	1,424	1,495	554	(2,049)	1,424

Comprehensive Income (Loss)	$	608		677	(170	)	(426	)	689
Comprehensive Income											Comprehensive Income	$	1,366	1,437	574	(1,931)	1,446

Millions of Dollars
Three Months Ended September 30, 2018
Statement of Income Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Revenues and Other Income
Sales and other operating revenues $ —
22,866
6,922
—
29,788
Equity in earnings of affiliates 1,573
1,160
186
(2,140 ) 779
Net gain on dispositions —
—
1
—
1
Other income —
23
1
—
24
Intercompany revenues —
1,091
4,371
(5,462 ) —
Total Revenues and Other Income 1,573
25,140
11,481
(7,602 ) 30,592

Costs and Expenses
Purchased crude oil and products —
21,656
10,095
(5,366 ) 26,385
Operating expenses —
946
280
(20 ) 1,206
Selling, general and administrative expenses 2
338
103
(3 ) 440
Depreciation and amortization —
232
114
—
346
Impairments —
1
—
—
1
Taxes other than income taxes —
84
25
—
109
Accretion on discounted liabilities —
4
1
—
5
Interest and debt expense 100
36
62
(73 ) 125
Total Costs and Expenses 102
23,297
10,680
(5,462 ) 28,617
Income before income taxes 1,471
1,843
801
(2,140 ) 1,975
Income tax expense (benefit) (21 ) 270
158
—
407
Net Income 1,492
1,573
643
(2,140 ) 1,568
Less: net income attributable to noncontrolling interests —
—
76
—
76
Net Income Attributable to Phillips 66 $ 1,492
1,573
567
(2,140 ) 1,492

Comprehensive Income $ 1,533
1,614
635
(2,173 ) 1,609

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	Millions of Dollars
	Six Months Ended June 30, 2020
Statement of Operations	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Revenues and Other Income (Loss)
Sales and other operating revenues	$	—	23,746	8,045	—	31,791
Equity in earnings (losses) of affiliates	(2,506)		(131)	413	2,746	522
Net gain on dispositions	—		1	85	—	86
Other income	—		17	11	—	28
Intercompany revenues	1		1,534	3,971	(5,506)	—
Total Revenues and Other Income (Loss)	(2,505)		25,167	12,525	(2,760)	32,427

Costs and Expenses
Purchased crude oil and products	—		22,976	10,354	(5,282)	28,048
Operating expenses	—		1,927	502	(62)	2,367
Selling, general and administrative expenses	4		530	199	(5)	728
Depreciation and amortization	—		470	215	—	685
Impairments	—		1,805	1,201	—	3,006
Taxes other than income taxes	—		209	62	—	271
Accretion on discounted liabilities	—		9	2	—	11
Interest and debt expense	170		58	157	(157)	228
Foreign currency transaction losses	—		—	6	—	6
Total Costs and Expenses	174		27,984	12,698	(5,506)	35,350
Loss before income taxes	(2,679)		(2,817)	(173)	2,746	(2,923)
Income tax benefit	(42)		(311)	(76)	—	(429)
Net Loss	(2,637)		(2,506)	(97)	2,746	(2,494)
Less: net income attributable to noncontrolling interests	—		—	143	—	143
Net Loss Attributable to Phillips 66	$	(2,637)	(2,506)	(240)	2,746	(2,637)

Comprehensive Loss	$	(3,002)	(2,871)	(284)	3,298	(2,859)

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	Millions of Dollars
	Six Months Ended June 30, 2019
Statement of Operations	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—	39,113	11,837	—	50,950
Equity in earnings of affiliates	1,776		1,431	367	(2,410)	1,164
Net gain on dispositions	—		—	1	—	1
Other income	—		42	19	—	61
Intercompany revenues	—		1,883	7,310	(9,193)	—
Total Revenues and Other Income	1,776		42,469	19,534	(11,603)	52,176

Costs and Expenses
Purchased crude oil and products	—		37,265	17,336	(8,992)	45,609
Operating expenses	—		1,917	597	(42)	2,472
Selling, general and administrative expenses	4		574	201	(5)	774
Depreciation and amortization	—		456	209	—	665
Impairments	—		1	2	—	3
Taxes other than income taxes	—		165	60	—	225
Accretion on discounted liabilities	—		9	2	—	11
Interest and debt expense	182		73	133	(154)	234
Foreign currency transaction losses	—		—	14	—	14
Total Costs and Expenses	186		40,460	18,554	(9,193)	50,007
Income before income taxes	1,590		2,009	980	(2,410)	2,169
Income tax expense (benefit)	(38)		233	200	—	395
Net Income	1,628		1,776	780	(2,410)	1,774
Less: net income attributable to noncontrolling interests	—		—	146	—	146
Net Income Attributable to Phillips 66	$	1,628	1,776	634	(2,410)	1,628

Comprehensive Income	$	1,642	1,790	785	(2,429)	1,788

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	Millions of Dollars
	June 30, 2020
Balance Sheet	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Assets
Cash and cash equivalents	$	—	661	1,229	—	1,890
Accounts and notes receivable	—		3,661	3,154	(1,963)	4,852
Inventories	—		3,622	1,514	—	5,136
Prepaid expenses and other current assets	1		377	243	—	621
Total Current Assets	1		8,321	6,140	(1,963)	12,499
Investments and long-term receivables	31,289		24,786	10,747	(53,194)	13,628
Net properties, plants and equipment	—		13,725	10,557	—	24,282
Goodwill	—		1,047	378	—	1,425
Intangibles	—		740	134	—	874
Other assets	12		4,195	673	(3,070)	1,810
Total Assets	$	31,302	52,814	28,629	(58,227)	54,518

Liabilities and Equity
Accounts payable	$	—	4,796	2,535	(1,963)	5,368
Short-term debt	1,497		15	271	—	1,783
Accrued income and other taxes	—		439	607	—	1,046
Employee benefit obligations	—		354	41	—	395
Other accruals	76		1,292	417	(354)	1,431
Total Current Liabilities	1,573		6,896	3,871	(2,317)	10,023
Long-term debt	8,938		158	3,567	—	12,663
Asset retirement obligations and accrued environmental costs	—		450	175	—	625
Deferred income taxes	—		3,801	1,673	(3)	5,471
Employee benefit obligations	—		1,142	218	—	1,360
Other liabilities and deferred credits	46		10,806	5,714	(15,485)	1,081
Total Liabilities	10,557		23,253	15,218	(17,805)	31,223
Common stock	3,232		25,873	9,588	(35,461)	3,232
Retained earnings	18,661		4,836	1,700	(6,566)	18,631
Accumulated other comprehensive loss	(1,148)		(1,148)	(457)	1,605	(1,148)
Noncontrolling interests	—		—	2,580	—	2,580
Total Liabilities and Equity	$	31,302	52,814	28,629	(58,227)	54,518

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	Millions of Dollars
	December 31, 2019
Balance Sheet	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Assets
Cash and cash equivalents	$	—	136	1,478	—	1,614
Accounts and notes receivable	86		6,334	4,148	(2,058)	8,510
Inventories	—		2,594	1,182	—	3,776
Prepaid expenses and other current assets	2		362	131	—	495
Total Current Assets	88		9,426	6,939	(2,058)	14,395
Investments and long-term receivables	33,082		25,039	10,989	(54,539)	14,571
Net properties, plants and equipment	—		13,676	10,110	—	23,786
Goodwill	—		2,853	417	—	3,270
Intangibles	—		732	137	—	869
Other assets	14		4,290	714	(3,189)	1,829
Total Assets	$	33,184	56,016	29,306	(59,786)	58,720

Liabilities and Equity
Accounts payable	$	—	7,024	3,609	(2,058)	8,575
Short-term debt	500		16	31	—	547
Accrued income and other taxes	—		386	593	—	979
Employee benefit obligations	—		648	62	—	710
Other accruals	65		850	249	(329)	835
Total Current Liabilities	565		8,924	4,544	(2,387)	11,646
Long-term debt	7,434		155	3,627	—	11,216
Asset retirement obligations and accrued environmental costs	—		460	178	—	638
Deferred income taxes	—		3,727	1,828	(2)	5,553
Employee benefit obligations	—		825	219	—	1,044
Other liabilities and deferred credits	245		8,975	5,465	(13,231)	1,454
Total Liabilities	8,244		23,066	15,861	(15,620)	31,551
Common stock	3,634		25,838	9,516	(35,354)	3,634
Retained earnings	22,094		7,900	1,940	(9,870)	22,064
Accumulated other comprehensive loss	(788)		(788)	(270)	1,058	(788)
Noncontrolling interests	—		—	2,259	—	2,259
Total Liabilities and Equity	$	33,184	56,016	29,306	(59,786)	58,720

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	Millions of Dollars
	Six Months Ended June 30, 2020
Statement of Cash Flows	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Cash Flows From Operating Activities


Net Cash Provided by (Used in) Operating Activities	$	517	(253)	1,273	(556)	981

Cash Flows From Investing Activities
Capital expenditures and investments	—		(554)	(1,350)	42	(1,862)
Return of investments in equity affiliates	—		—	88	—	88
Proceeds from asset dispositions	—		—	1	—	1
Intercompany lending activities	(1,751)		2,123	(372)	—	—
Advances/loans—related parties	—		(210)	(21)	—	(231)
Collection of advances/loans—related parties	—		20	24	—	44

Other	—		(32)	(32)	—	(64)


Net Cash Provided by (Used in) Investing Activities	(1,751)		1,347	(1,662)	42	(2,024)

Cash Flows From Financing Activities
Issuance of debt	3,015		—	215	—	3,230
Repayment of debt	(500)		(13)	(28)	—	(541)
Issuance of common stock	6		—	—	—	6
Repurchase of common stock	(443)		—	—	—	(443)
Dividends paid on common stock	(789)		(556)	—	556	(789)
Distributions to noncontrolling interests	—		—	(127)	—	(127)
Net proceeds from issuance of Phillips 66 Partners LP common units	—		—	2	—	2
Other	(55)		—	82	(42)	(15)


Net Cash Provided by (Used in) Financing Activities	1,234		(569)	144	514	1,323

Effect of Exchange Rate Changes on Cash and Cash Equivalents	—		—	(4)	—	(4)

Net Change in Cash and Cash Equivalents	—		525	(249)	—	276
Cash and cash equivalents at beginning of period	—		136	1,478	—	1,614
Cash and Cash Equivalents at End of Period	$	—	661	1,229	—	1,890

Table of Contents

Millions of Dollars
Nine Months Ended September 30, 2019
Statement of Income Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Revenues and Other Income
Sales and other operating revenues $ —
60,060
18,108
—
78,168
Equity in earnings of affiliates 2,557
1,645
514
(3,053 ) 1,663
Net gain on dispositions —
1
18
—
19
Other income —
67
30
—
97
Intercompany revenues —
2,720
11,014
(13,734 ) —
Total Revenues and Other Income 2,557
64,493
29,684
(16,787 ) 79,947

Costs and Expenses
Purchased crude oil and products —
56,648
26,202
(13,435 ) 69,415
Operating expenses —
2,876
861
(59 ) 3,678
Selling, general and administrative expenses 5
898
295
(8 ) 1,190
Depreciation and amortization —
686
315
—
1,001
Impairments —
1
855
—
856
Taxes other than income taxes —
242
88
—
330
Accretion on discounted liabilities —
13
4
—
17
Interest and debt expense 267
108
200
(232 ) 343
Foreign currency transaction losses —
—
5
—
5
Total Costs and Expenses 272
61,472
28,825
(13,734 ) 76,835
Income before income taxes 2,285
3,021
859
(3,053 ) 3,112
Income tax expense (benefit) (55 ) 464
136
—
545
Net Income 2,340
2,557
723
(3,053 ) 2,567
Less: net income attributable to noncontrolling interests —
—
227
—
227
Net Income Attributable to Phillips 66 $ 2,340
2,557
496
(3,053 ) 2,340

Comprehensive Income $ 2,250
2,467
615
(2,855 ) 2,477


	Millions of Dollars
	Six Months Ended June 30, 2019
Statement of Cash Flows	Phillips 66		Phillips 66 Company	All Other Subsidiaries	Consolidating Adjustments	Total Consolidated
Cash Flows From Operating Activities


Net Cash Provided by (Used in) Operating Activities	$	(130)	621	1,079	(118)	1,452

Cash Flows From Investing Activities
Capital expenditures and investments	—		(485)	(1,243)	—	(1,728)
Return of investments in equity affiliates	—		1	34	—	35
Proceeds from asset dispositions	—		—	83	—	83
Intercompany lending activities	1,730		(1,385)	(345)	—	—
Advances/loans—related parties	—		—	(95)	—	(95)
Collection of advances/loans—related parties	—		—	95	—	95

Other	—		(24)	48	—	24


Net Cash Provided by (Used in) Investing Activities	1,730		(1,893)	(1,423)	—	(1,586)

Cash Flows From Financing Activities
Issuance of debt	—		—	860	—	860
Repayment of debt	—		(9)	(588)	—	(597)
Issuance of common stock	9		—	—	—	9
Repurchase of common stock	(799)		—	—	—	(799)
Dividends paid on common stock	(770)		—	(118)	118	(770)

Distributions to noncontrolling interests	—		—	(117)	—	(117)
Net proceeds from issuance of Phillips 66 Partners LP common units	—		—	42	—	42
Other	(40)		—	341	—	301


Net Cash Provided by (Used in) Financing Activities	(1,600)		(9)	420	118	(1,071)

Effect of Exchange Rate Changes on Cash and Cash Equivalents	—		—	5	—	5

Net Change in Cash and Cash Equivalents	—		(1,281)	81	—	(1,200)
Cash and cash equivalents at beginning of period	—		1,648	1,371	—	3,019
Cash and Cash Equivalents at End of Period	$	—	367	1,452	—	1,819

Millions of Dollars
Nine Months Ended September 30, 2018
Statement of Income Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Revenues and Other Income
Sales and other operating revenues $ —
63,703
18,660
—
82,363
Equity in earnings of affiliates 3,600
2,638
566
(4,858 ) 1,946
Net gain on dispositions —
7
11
—
18
Other income —
25
22
—
47
Intercompany revenues —
2,456
11,386
(13,842 ) —
Total Revenues and Other Income 3,600
68,829
30,645
(18,700 ) 84,374

Costs and Expenses
Purchased crude oil and products —
59,724
27,113
(13,567 ) 73,270
Operating expenses —
2,771
875
(51 ) 3,595
Selling, general and administrative expenses 6
966
294
(8 ) 1,258
Depreciation and amortization —
691
328
—
1,019
Impairments —
2
5
—
7
Taxes other than income taxes —
248
80
—
328
Accretion on discounted liabilities —
13
4
—
17
Interest and debt expense 304
108
187
(216 ) 383
Foreign currency transaction gains —
—
(30 ) —
(30 )
Total Costs and Expenses 310
64,523
28,856
(13,842 ) 79,847
Income before income taxes 3,290
4,306
1,789
(4,858 ) 4,527
Income tax expense (benefit) (65 ) 706
329
—
970
Net Income 3,355
3,600
1,460
(4,858 ) 3,557
Less: net income attributable to noncontrolling interests —
—
202
—
202
Net Income Attributable to Phillips 66 $ 3,355
3,600
1,258
(4,858 ) 3,355

Comprehensive Income $ 3,333
3,578
1,357
(4,733 ) 3,535

Millions of Dollars
September 30, 2019
Balance Sheet Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Assets
Cash and cash equivalents $ —
576
1,692
—
2,268
Accounts and notes receivable —
5,316
4,106
(2,336 ) 7,086
Inventories —
3,673
1,848
—
5,521
Prepaid expenses and other current assets —
525
217
—
742
Total Current Assets —
10,090
7,863
(2,336 ) 15,617
Investments and long-term receivables 33,126
24,034
9,884
(52,897 ) 14,147
Net properties, plants and equipment —
13,350
9,604
—
22,954
Goodwill —
2,853
417
—
3,270
Intangibles —
732
140
—
872
Other assets 12
5,882
729
(4,742 ) 1,881
Total Assets $ 33,138
56,941
28,637
(59,975 ) 58,741

Liabilities and Equity
Accounts payable $ —
6,944
3,765
(2,336 ) 8,373
Short-term debt 500
11
331
—
842
Accrued income and other taxes —
672
456
—
1,128
Employee benefit obligations —
569
55
—
624
Other accruals 133
1,310
262
(589 ) 1,116
Total Current Liabilities 633
9,506
4,869
(2,925 ) 12,083
Long-term debt 7,433
55
3,595
—
11,083
Asset retirement obligations and accrued environmental costs —
453
164
—
617
Deferred income taxes —
3,761
1,743
(1 ) 5,503
Employee benefit obligations —
725
180
—
905
Other liabilities and deferred credits 185
9,448
5,351
(13,526 ) 1,458
Total Liabilities 8,251
23,948
15,902
(16,452 ) 31,649
Common stock 3,998
25,802
9,239
(35,041 ) 3,998
Retained earnings 21,760
8,062
1,662
(9,754 ) 21,730
Accumulated other comprehensive loss (871 ) (871 ) (401 ) 1,272
(871 )
Noncontrolling interests —
—
2,235
—
2,235
Total Liabilities and Equity $ 33,138
56,941
28,637
(59,975 ) 58,741

Millions of Dollars
December 31, 2018
Balance Sheet Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Assets
Cash and cash equivalents $ —
1,648
1,371
—
3,019
Accounts and notes receivable 9
4,255
3,202
(1,293 ) 6,173
Inventories —
2,489
1,054
—
3,543
Prepaid expenses and other current assets 2
373
99
—
474
Total Current Assets 11
8,765
5,726
(1,293 ) 13,209
Investments and long-term receivables 32,712
22,799
9,829
(50,919 ) 14,421
Net properties, plants and equipment —
13,218
8,800
—
22,018
Goodwill —
2,853
417
—
3,270
Intangibles —
726
143
—
869
Other assets 9
335
173
(2 ) 515
Total Assets $ 32,732
48,696
25,088
(52,214 ) 54,302

Liabilities and Equity
Accounts payable $ —
5,415
2,464
(1,293 ) 6,586
Short-term debt —
11
56
—
67
Accrued income and other taxes —
458
658
—
1,116
Employee benefit obligations —
663
61
—
724
Other accruals 66
227
149
—
442
Total Current Liabilities 66
6,774
3,388
(1,293 ) 8,935
Long-term debt 7,928
54
3,111
—
11,093
Asset retirement obligations and accrued environmental costs —
458
166
—
624
Deferred income taxes 1
3,541
1,735
(2 ) 5,275
Employee benefit obligations —
676
191
—
867
Other liabilities and deferred credits 55
4,611
4,287
(8,598 ) 355
Total Liabilities 8,050
16,114
12,878
(9,893 ) 27,149
Common stock 4,856
24,960
8,754
(33,714 ) 4,856
Retained earnings 20,518
8,314
1,249
(9,592 ) 20,489
Accumulated other comprehensive loss (692 ) (692 ) (293 ) 985
(692 )
Noncontrolling interests —
—
2,500
—
2,500
Total Liabilities and Equity $ 32,732
48,696
25,088
(52,214 ) 54,302

Table of Contents

Millions of Dollars
Nine Months Ended September 30, 2019
Statement of Cash Flows Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Cash Flows From Operating Activities
Net Cash Provided by (Used in) Operating Activities $ (143 ) 1,645
1,730
(118 ) 3,114

Cash Flows From Investing Activities
Capital expenditures and investments —
(803 ) (1,792 ) —
(2,595 )
Proceeds from asset dispositions* —
352
137
(350 ) 139
Intercompany lending activities 2,587
(2,245 ) (342 ) —
—
Advances/loans—related parties —
—
(95 ) —
(95 )
Collection of advances/loans—related parties —
—
95
—
95
Other —
(3 ) 27
—
24
Net Cash Provided by (Used in) Investing Activities 2,587
(2,699 ) (1,970 ) (350 ) (2,432 )

Cash Flows From Financing Activities
Issuance of debt —
—
1,758
—
1,758
Repayment of debt —
(14 ) (990 ) —
(1,004 )
Issuance of common stock 15
—
—
—
15
Repurchase of common stock (1,238 ) —
—
—
(1,238 )
Dividends paid on common stock (1,172 ) —
(118 ) 118
(1,172 )
Distributions to noncontrolling interests —
—
(176 ) —
(176 )
Net proceeds from issuance of Phillips 66 Partners LP common units —
—
133
—
133
Other (49 ) (4 ) (15 ) 350
282
Net Cash Provided by (Used in) Financing Activities (2,444 ) (18 ) 592
468
(1,402 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents —
—
(31 ) —
(31 )

Net Change in Cash and Cash Equivalents —
(1,072 ) 321
—
(751 )
Cash and cash equivalents at beginning of period —
1,648
1,371
—
3,019
Cash and Cash Equivalents at End of Period $ —
576
1,692
—
2,268
* Includes return of investments in equity affiliates.

Millions of Dollars
Nine Months Ended September 30, 2018
Statement of Cash Flows Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Cash Flows From Operating Activities
Net Cash Provided by Operating Activities $ 3,094
3,070
1,425
(4,155 ) 3,434

Cash Flows From Investing Activities
Capital expenditures and investments —
(633 ) (1,012 ) —
(1,645 )
Proceeds from asset dispositions* —
328
36
(325 ) 39
Intercompany lending activities 904
(510 ) (394 ) —
—
Advances/loans—related parties —
(1 ) —
—
(1 )
Other —
(6 ) 73
—
67
Net Cash Provided by (Used in) Investing Activities 904
(822 ) (1,297 ) (325 ) (1,540 )

Cash Flows From Financing Activities
Issuance of debt 1,509
—
85
—
1,594
Repayment of debt (250 ) (9 ) (115 ) —
(374 )
Issuance of common stock 39
—
—
—
39
Repurchase of common stock (4,148 ) —
—
—
(4,148 )
Dividends paid on common stock (1,069 ) (3,174 ) (981 ) 4,155
(1,069 )
Distributions to noncontrolling interests —
—
(146 ) —
(146 )
Net proceeds from issuance of Phillips 66 Partners LP common units —
—
114
—
114
Other (79 ) —
(325 ) 325
(79 )
Net Cash Used in Financing Activities (3,998 ) (3,183 ) (1,368 ) 4,480
(4,069 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents —
—
(20 ) —
(20 )

Net Change in Cash and Cash Equivalents —
(935 ) (1,260 ) —
(2,195 )
Cash and cash equivalents at beginning of period —
1,411
1,708
—
3,119
Cash and Cash Equivalents at End of Period $ —
476
448
—
924
* Includes return of investments in equity affiliates.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, “the company,” “we,” “our,” “us” and “Phillips 66” are used in this report to refer to the businesses of Phillips 66 and its consolidated subsidiaries.

Management’s Discussion and Analysis is the company’s analysis of its financial performance, ~~its~~ financial condition, and significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions often identify forward-looking ~~statements.~~statements, but the absence of these words does not mean a statement is not forward-looking. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”

The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to Phillips 66. The terms ~~“pre-tax~~“before-tax income” or ~~“pre-tax~~“before-tax loss” as used in Management’s Discussion and Analysis refer to income (loss) before income taxes.

EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. At ~~September~~June 30, ~~2019,~~2020, we had total assets of ~~$58.7~~$54.5 billion. Our common stock trades on the New York Stock Exchange under the symbol PSX.

Executive Overview

The outbreak of Coronavirus Disease 2019 (COVID-19) and its development into a pandemic continues to result in significant economic disruption globally. Actions taken by governments to prevent the spread of the disease included travel and business restrictions, which resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. The lack of demand for petroleum products has resulted in low crude oil prices and refining margins. Accordingly, crude oil producers have shut in high cost production, and refiners have reduced crude oil processing rates.

The depth and duration of the economic consequences of the COVID-19 pandemic are currently unknown. The near-term outlook for petroleum product demand remains highly uncertain, prices remain volatile, and margins and volumes remain challenged. The adverse effects on our company have significantly impacted our second-quarter earnings and may continue to be significant in the near term.

During the first six months of 2020, we took the following significant steps to enhance our liquidity:

•Secured a $2 billion, 364-day term loan facility, under which we have drawn $1 billion to date.

•Issued $2 billion of senior unsecured notes in three tranches of three-, five-, and ten-year maturities.

•Temporarily suspended our share repurchase programs.

•Reduced our consolidated capital spending plans in 2020 by $700 million.

•Executed a plan to reduce operating and administrative costs by $500 million in 2020.

Table of Contents

In the ~~third~~second quarter of ~~2019,~~2020, we reported ~~earnings~~a loss of ~~$712~~$141 million, ~~and~~ generated cash from operating activities of ~~$1.7 billion.~~$764 million and received approximately $2.0 billion in net proceeds from two public offerings of senior unsecured notes. We used available cash to fund capital expenditures and investments of ~~$867~~$939 million, ~~repurchase $439~~repay $525 million of ~~our common stock~~maturing debt, and pay dividends of ~~$402~~$393 million. We ended the ~~third~~second quarter of ~~2019~~2020 with ~~$2.3~~$1.9 billion of cash and cash equivalents and approximately ~~$5.7~~$6.5 billion of total committed capacity available under our revolving credit ~~facilities.~~facilities and new term loan facility.

Business Environment

The Midstream segment ~~which~~ includes our ~~50% equity investment in DCP Midstream, LLC (DCP Midstream),~~Transportation and Natural Gas Liquids (NGL) businesses. Our Transportation business contains fee-based operations that are not directly exposed to commodity price ~~risk, as well as operations that~~risk. Our NGL business results are ~~directly linked to natural gas liquids (NGL) prices, natural gas prices~~primarily driven by fractionation and ~~crude oil~~terminaling margins, throughput volumes, and impacts from NGL prices. ~~Average natural gas~~The Midstream segment also includes our 50% equity investment in DCP Midstream, LLC (DCP Midstream). Compared with the second quarter of 2019, NGL prices decreased in the ~~third~~second quarter of ~~2019, compared with the third quarter of 2018,~~2020 due to ~~continued supply growth. NGL prices were lower in~~ the ~~third quarter of 2019, compared with~~negative economic impacts caused by the ~~third quarter of 2018, due to higher inventory levels resulting from supply growth.~~COVID-19 pandemic.

The Chemicals segment consists of our 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem). The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors. During the ~~third~~second quarter of ~~2019,~~2020, the benchmark high-density polyethylene chain margin ~~further~~ decreased, compared with the ~~third~~second quarter of ~~2018, due to higher product availability~~2019, driven by the economic impacts of the COVID-19 pandemic and recent capacity ~~additions, the continued trade uncertainty, and a demand slowdown in Asia.~~additions.

Our Refining segment results are driven by several factors, including refining margins, ~~cost control,~~ refinery throughput, feedstock costs, product yields, turnaround activity, and ~~turnaround activity.~~other operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of ~~$56.44~~$27.80 per barrel during the ~~third~~second quarter of ~~2019,~~2020, compared with an average of ~~$69.71~~$59.80 per barrel in the ~~third~~second quarter of ~~2018, due to continued growth~~2019, driven by a significant decline in ~~Permian Basin production~~global demand for refined petroleum products in the second quarter of 2020, as a result of the negative global economic impacts of the COVID-19 pandemic. Market crack spreads are used as indicators of refining margins and ~~higher inventories resulting from numerous planned and unplanned refinery outages. Industry crack spread indicators,~~measure the difference between market prices for refined petroleum products and crude ~~oil, are used to estimate refining margins.~~oil. During the ~~third~~second quarter of 2020, the worldwide market crack spreads were significantly lower compared with the second quarter of 2019, mainly driven by a sharp decline in demand for refined petroleum products resulting from the ~~U.S. 3:2:1 crack spread (three barrels of crude oil producing two barrels of gasoline and one barrel of diesel) increased compared with~~significant global economic disruption caused by the third quarter of 2018, following heavy planned and unplanned refinery maintenance across the United States. Northwest Europe crack spreads on average improved compared with the third quarter of 2018, due to higher diesel margins.COVID-19 pandemic.

Results for our Marketing and Specialties (M&S) segment depend largely on marketing fuel ~~margins,~~and lubricant margins, and sales volumes of our refined petroleum and other specialty ~~product margins.~~products. While M&S margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by the trend in spot prices for refined petroleum products. Generally speaking, a downward trend of spot prices has a favorable impact on marketing fuel margins, while an upward trend of spot prices has an unfavorable impact on marketing fuel margins. The significant global disruption caused by COVID-19 also negatively impacted demand for our refined petroleum and specialty products in the second quarter of 2020 compared with the second quarter of 2019.

Table of Contents

RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~,2020, is based on a comparison with the corresponding periods of 2019.

~~2018~~.

~~Basis of Presentation~~

Consolidated Results

A summary of income (loss) before income taxes by business segment with a reconciliation to net income (loss) attributable to Phillips 66 follows:


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Midstream	$	324	423	(378)	739
Chemicals	42		275	211	502
Refining	(878)		983	(3,139)	785
Marketing and Specialties	286		353	799	558
Corporate and Other	(219)		(205)	(416)	(415)
Income (loss) before income taxes	(445)		1,829	(2,923)	2,169
Income tax expense (benefit)	(378)		325	(429)	395
Net income (loss)	(67)		1,504	(2,494)	1,774
Less: net income attributable to noncontrolling interests	74		80	143	146
Net income (loss) attributable to Phillips 66	$	(141)	1,424	(2,637)	1,628

Millions of Dollars
Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Midstream $ (460 ) 284
279
802
Chemicals 227
263
729
873
Refining 856
1,232
1,641
2,534
Marketing and Specialties 498
423
1,056
968
Corporate and Other (178 ) (227 ) (593 ) (650 )
Income before income taxes 943
1,975
3,112
4,527
Income tax expense 150
407
545
970
Net income 793
1,568

2,567
3,557
Less: net income attributable to noncontrolling interests 81
76
227
202
Net income attributable to Phillips 66 $ 712
1,492

2,340
3,355

Our earnings decreased ~~$780~~$1,565 million ~~or 52%,~~ in the ~~third~~second quarter of ~~2019,~~2020, mainly reflecting:

~~Impairments associated with our investment in DCP Midstream.~~

•Lower realized refining ~~margins.~~margins and decreased refinery production.

•Lower equity in earnings of affiliates in our Chemicals, Refining and Midstream segments.

These decreases were partially offset by:

~~Lower~~•An income tax ~~expense.~~benefit recognized in the current quarter, compared with income tax expense recognized in the second quarter of 2019.

~~Improved margins from our NGL assets.~~

~~Higher U.S. margins and volumes from our M&S segment.~~

Our earnings decreased ~~$1,015~~$4,265 million ~~or 30%,~~ in the ~~nine-month~~six-month period of ~~2019,~~2020, mainly reflecting:

~~Lower realized refining margins.~~•A $1,845 million before-tax goodwill impairment in our Refining segment.

~~Impairments associated with~~•A $1,161 million before-tax impairment of our investment in DCP Midstream.

~~Decreased~~•Lower realized refining margins and decreased refinery production.

•Lower equity in earnings ~~from CPChem.~~of affiliates in our Refining and Chemicals segments.

These decreases were partially offset by:

~~Higher margins and volumes from our NGL and transportation assets.~~

~~Lower~~•An income tax ~~expense.~~benefit recognized in the current six-month period, compared with income tax expense recognized in the six-month period of 2019.

~~Higher global margins and volumes from our M&S segment.~~

See the “Segment Results” section for additional information on our segment results.

Table of Contents

Statement of ~~Income~~Operations Analysis

Sales and other operating revenues for the ~~third~~second quarter and ~~nine-month~~six-month period of ~~2019~~2020 decreased 9%61% and 5%38%, respectively, and purchased crude oil and products decreased ~~10%~~61% and 5%39%, respectively. These decreases were mainly ~~driven by~~due to lower prices for refined petroleum products, crude oil, and ~~NGL.~~NGL, as well as lower volumes.

Equity in earnings of affiliates decreased ~~36%~~76% and ~~15%~~55% in the ~~third~~second quarter and ~~nine-month~~six-month period of 2019. The decrease in both periods reflected lower margins at WRB Refining LP (WRB) and CPChem, as well as maintenance activities at Wood River and Borger refineries during the third quarter of 2019. Lower equity earnings in the third quarter of 2019 also reflected asset and goodwill impairments at DCP Midstream and a lower-of-cost-or-market inventory write-down at CPChem. See the “Segment Results” section for additional information.

~~Other income~~ increased $50 million in the nine-month period of 2019. The increase was mainly driven by trading activities not directly related to our physical business. See Note 12—Derivatives and Financial Instruments, for additional information associated with our commodity derivatives.

~~Impairments~~ ~~increased $852 million and~~ ~~$849 million~~ in the third quarter and nine-month period of 2019, respectively. The increase in both periods was mainly driven by an $853 million before-tax impairment associated with our investment in DCP Midstream. See Note 6—Investments, Loans and Long-Term Receivables, and Note 13—Fair Value Measurements, for additional information associated with this impairment.

~~Interest and debt expense~~ decreased 13% and 10% in the third quarter and nine-month period of 2019, respectively. The decrease in both periods was primarily attributable to higher capitalized interest associated with capital projects under development in our Midstream segment.

~~Income tax expense~~ ~~decreased 63% and 44% in the third quarter and nine-month period of 2019,~~2020, respectively. The decrease in both periods was primarily due to lower ~~income before income taxes~~realized refining margins and ~~the impact~~decreased refinery production at WRB Refining LP (WRB) and lower equity earnings from CPChem. See Chemicals segment analysis in “Segment Results” section for additional information on CPChem. The second-quarter decrease was also driven by lower equity earnings from certain of our ~~foreign operations.~~Midstream joint ventures due to lower volumes.

Net gain on dispositions increased $85 million in the second quarter and six-month period of 2020. The increase in both periods was mainly due to a gain of $84 million associated with a co-venturer’s prior-year acquisition of a 35% interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note ~~20—~~19—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information.

Other income decreased $33 million in the six-month period of 2020. The decrease was primarily driven by a decrease in the fair value of deferred compensation investments in the first six months of 2020, compared with an increase in the fair value of deferred compensation investments in the first six months of 2019, as well as a decrease in interest income due to lower interest rates in the first six months of 2020. See Note 13—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the fair value of the deferred compensation investments.

Operating expenses for the second quarter of 2020 decreased 12%, primarily due to lower refinery maintenance activities and decreased utility costs.

Impairments were $3,006 million for the six-month period of 2020, consisting of an impairment of $1,161 million associated with our investment in DCP Midstream, and a $1,845 million goodwill impairment in our Refining segment. See Note 5—Investments, Loans and Long-Term Receivables and Note 7—Goodwill, in the Notes to Consolidated Financial Statements, for additional information associated with these impairments.

We had an income tax benefit of $378 million and $429 million in the second quarter and six-month period of 2020, respectively, compared with income tax expense of $325 million and $395 million, respectively, in the corresponding periods of 2019. See Note 18—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates.

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Segment Results

Midstream


	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

	Millions of Dollars
Income (Loss) Before Income Taxes
Transportation	$	214	245	414	448
NGL and Other	78		143	257	233
DCP Midstream	32		35	(1,049)	58
Total Midstream	$	324	423	(378)	739

Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Millions of Dollars
Income (Loss) Before Income Taxes
Transportation $ 248
209
696
536
NGL and Other 169
46
402
185
DCP Midstream (877 ) 29
(819 ) 81
Total Midstream $ (460 ) 284
279
802


	Thousands of Barrels Daily					Thousands of Barrels Daily
Transportation Volumes					Transportation Volumes
Pipelines*	3,443	3,517	3,346	3,378	Pipelines*	2,840	3,417	3,009	3,297
Terminals	3,381	3,179	3,236	3,021	Terminals	2,883	3,261	3,016	3,163
Operating Statistics					Operating Statistics
NGL fractionated**	203	227	223	213	NGL fractionated**	170	232	184	233
NGL production***	409	426	420	412	NGL production***	374	423	385	425

* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment. ~~Prior-period volumes have been recast to exclude our share of equity volumes from Yellowstone Pipe Line Company and Lake Charles Pipe Line Company.~~

** Excludes DCP Midstream.

*** Includes 100% of DCP Midstream’s volumes.


	Dollars Per Gallon
Weighted-Average NGL Price*

DCP Midstream	$	0.32	0.51	0.36	0.56
* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix.

Dollars Per Gallon
Weighted-Average NGL Price*
DCP Midstream $ 0.44
0.87
0.52
0.78
* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component.

The Midstream segment 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. This segment includes our master limited partnership (MLP), Phillips 66 Partners LP (Phillips 66 Partners), as well as our 50% equity investment in DCP Midstream, which includes the operations of ~~its MLP,~~ DCP Midstream, LP (DCP Partners)., its MLP.

~~Pre-tax income (loss) from the~~The Midstream segment ~~decreased $744~~had before-tax income of $324 million and a before-tax loss of $378 million in the ~~third~~second quarter and six-month period of ~~2019~~2020, respectively, compared with before-tax income of $423 million and ~~$523~~$739 million in the ~~nine-month~~corresponding periods of 2019, respectively. The decrease in before-tax income in the second quarter of 2020 was primarily due to decreased results in our Transportation and NGL and Other businesses. The decreased results in the six-month period of ~~2019.~~2020 were primarily driven by a $1,161 million before-tax impairment of our equity investment in DCP Midstream, slightly offset by improved results from our NGL and Other business.

~~Pre-tax~~Before-tax income from our Transportation business ~~increased $39~~decreased $31 million in the ~~third~~second quarter of ~~2019~~2020 and ~~$160~~$34 million in the ~~nine-month~~six-month period of ~~2019.~~2020. The ~~increased results~~decrease in both periods ~~were mainly~~was primarily attributable to lower pipeline and terminal volumes driven by decreased refinery utilization, lower equity earnings from joint ventures, and higher ~~volumes and pipeline tariffs from our portfolio~~operating costs. These decreases were partially offset by a gain of ~~consolidated and joint venture assets. In addition, the increase~~$84 million associated with a co-venturer’s prior-year acquisition of a 35% interest in the ~~nine-month period~~consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 19—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information. The decrease in the second quarter of ~~2019~~2020 was also ~~reflected~~driven by unfavorable impacts of pipeline loss allowances due to lower ~~maintenance cost.~~commodity prices.

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~~Pre-tax~~Before-tax income from our NGL and Other business ~~increased $123~~decreased $65 million in the ~~third~~second quarter of ~~2019~~2020 and ~~$217~~increased $24 million in the ~~nine-month~~six-month period of ~~2019.~~2020. The ~~increased results~~decrease in ~~both periods were mainly~~the second quarter of 2020 was primarily due to ~~improved~~unfavorable impacts associated with NGL inventory storage management, as well as lower margins and volumes ~~primarily~~ at the Sweeny Hub, ~~and favorable impacts from our trading activities associated with NGL inventory management, as well as~~partially offset by the ~~absence~~startup of a ~~contingency accrual recorded~~new isomerization unit at our Lake Charles Refinery in the ~~third quarter~~second half of ~~2018. In addition, the~~2019. The increase in the ~~nine-month~~six-month period of 2020 was mainly due to the startup of a new isomerization unit at our Lake Charles Refinery in the second half of 2019 ~~also reflected higher equity earnings from certain pipeline affiliates driven~~and favorable inventory impacts, partially offset by ~~increased volumes.~~implementation costs for additional fractionation capacity at the Sweeny Hub.

~~Pre-tax~~The before-tax income (loss) from our investment in DCP Midstream decreased ~~$906~~$3 million in the ~~third~~second quarter of ~~2019~~2020 and ~~$900~~$1,107 million in the ~~nine-month~~six-month period of ~~2019.~~2020. The decrease in ~~both periods~~the six-month period was primarily due to a $1,161 million before-tax impairment of our equity investment in DCP Midstream as described below. Excluding the impairment, equity earnings from DCP Midstream increased $54 million in the six-month period ended June 30, 2020, mainly driven by ~~$900 million~~the recognition of ~~impairments~~a benefit to equity earnings related to ~~our investment in DCP Midstream.~~ the amortization of the basis difference as described below, and lower operating costs.

In September 2019, DCP Partners performed goodwill and other asset impairment assessments based on internal discounted cash flow models that reflect various observable and non-observable factors, such as prices, volumes, expenses and discount rates. As a result of these assessments, DCP Partners recorded goodwill and other asset impairments that reduced our equity earnings by $47 million, included in the “Equity in earnings of affiliates” line on our consolidated statement of income.

The fair value of our investment in DCP Midstream depends on the market value of DCP ~~Midstream’s general partner interest in DCP~~ Partners ~~and the~~common units. The market value of DCP ~~Partners’~~Partners common ~~units. At June 30, 2019, we estimated~~units declined by approximately 85% in the first quarter of 2020. As a result, at March 31, 2020, the fair value of our investment in DCP Midstream was ~~below our~~significantly lower than its book value. We concluded the difference between its fair value and book value ~~but~~was not temporary primarily due to its magnitude. Accordingly, we ~~believed the condition was temporary. The fair value~~recorded a $1,161 million before-tax impairment of our investment in ~~DCP Midstream further deteriorated in~~ the third quarter as the market value of DCP Midstream’s general partner interest in DCP Partners and the market value of DCP Partners’ common units declined further. We concluded the decline in fair value was no longer temporary due to the duration and magnitude of the decline. Accordingly, we recorded an $853 million impairment in the thirdfirst quarter of ~~2019. The impairment~~2020. This charge is included in the “Impairments” line item on our consolidated statement of ~~income and results in~~operations for the six months ended June 30, 2020. The impairment increased the basis difference for our investment in DCP Midstream ~~having a book value of $1,358 million~~to $1.8 billion at ~~September 30, 2019.~~

~~The majority of~~March 31, 2020, which indicated the ~~difference between the book~~carrying value of our investment ~~in DCP Midstream and~~was lower than our ~~50%~~ share of ~~the~~DCP Midstream’s recorded net assets ~~reported by DCP Midstream will be~~at March 31, 2020. The basis difference is being amortized onand recognized as a ~~straight-line basis~~benefit to equity earnings over a ~~22-year~~period of 22 years, which was the estimated remaining useful life ~~as an increase~~of DCP Midstream’s properties, plants and equipment (PP&E) at March 31, 2020. Equity earnings for the three and six months ended June 30, 2020, were increased by approximately $20 million and $30 million, respectively, due to ~~equity earnings.~~the amortization of the basis difference. See ~~Note 6—Investments, Loans and Long-Term Receivables, and~~ Note 13—Fair Value Measurements, for additional information on the techniques used to determine the fair value of our investment in DCP Midstream.

See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.

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Chemicals

Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Millions of Dollars

Income Before Income Taxes $ 227
263
729
873


	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

	Millions of Dollars

Income Before Income Taxes	$	42	275	211	502


	Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins	4,890	4,592	9,490	9,284
Specialties, Aromatics and Styrenics	1,014	969	2,202	2,038
	5,904	5,561	11,692	11,322
* Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.

Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins 4,990
4,883
14,274
14,048
Specialties, Aromatics and Styrenics 1,322
1,385
3,360
3,993
6,312
6,268
17,634
18,041
* Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.


Olefins and Polyolefins Capacity Utilization (percent)	103	%	95	100	97

~~Olefins and Polyolefins Capacity Utilization (percent) 97 % 91 97 94~~

The Chemicals segment consists of our 50% interest in CPChem, which we account for under the equity method. CPChem uses NGL and other feedstocks to produce petrochemicals. These products are then marketed and sold or used as feedstocks to produce plastics and other chemicals. We structure our reporting of CPChem’s operations around two primary business lines: Olefins and Polyolefins (O&P) and Specialties, and Aromatics and Styrenics (SA&S).

~~Pre-tax~~Before-tax income from the Chemicals segment decreased ~~$36~~$233 million in the ~~third~~second quarter of ~~2019~~2020 and ~~$144~~$291 million in the ~~nine-month~~six-month period of ~~2019.~~2020. The decrease in ~~both periods included a~~the second quarter and six-month period of 2020 was mainly driven by lower margins from CPChem’s portfolio of consolidated and joint venture assets, partially offset by higher sales volumes and lower utility costs. In addition, during the first six months of 2020, CPChem recorded lower-of-cost-or-market ~~write-down~~write-downs of ~~LIFO-valued~~ inventories ~~primarily resulting from lower polyethylene prices.~~valued on the last-in, first-out (LIFO) basis and an asset write-off by an international joint venture. Our portion of the ~~write-down~~inventory write-downs and asset write-off reduced our equity earnings from CPChem ~~by $42 million, pre-tax. In addition, the decreased results~~ in the ~~nine-month~~second quarter and six-month period ~~were due to lower margins, partially offset~~of 2020 by ~~higher polyethylene sales volume.~~$47 million and $71 million, respectively.

See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.

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Refining


	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

	Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe	$	(227)	258	(864)	251
Gulf Coast	(365)		222	(1,208)	104
Central Corridor	(104)		520	(331)	597
West Coast	(182)		(17)	(736)	(167)
Worldwide	$	(878)	983	(3,139)	785

Three Months Ended
September 30 Nine Months Ended
September 30
2019
2018
2019
2018

Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ 296
209
547
265
Gulf Coast 184
210
288
576
Central Corridor 408
839
1,005
1,632
West Coast (32 ) (26 ) (199 ) 61
Worldwide $ 856
1,232
1,641
2,534


	Dollars Per Barrel									Dollars Per Barrel
Income (Loss) Before Income Taxes									Income (Loss) Before Income Taxes
Atlantic Basin/Europe	$	5.93		4.62		3.83		2.00	Atlantic Basin/Europe	$	(5.80)	5.04	(10.74)	2.70
Gulf Coast	2.46			3.01		1.32		2.67	Gulf Coast	(5.98)		2.88	(9.66)	0.73
Central Corridor	15.26			31.33		13.07		20.60	Central Corridor	(5.01)		19.81	(7.50)	11.91
West Coast	(0.93		)	(0.74	)	(2.03	)	0.59	West Coast	(7.07)		(0.52)	(13.73)	(2.63)
Worldwide	4.60			6.96		3.07		4.77	Worldwide	(5.99)		5.25	(10.35)	2.25

Realized Refining Margins*									Realized Refining Margins*
Atlantic Basin/Europe	$	11.48		11.48		10.17		9.82	Atlantic Basin/Europe	$	1.53	10.85	1.97	9.47
Gulf Coast	8.34			9.09		7.42		8.64	Gulf Coast	0.36		8.20	3.64	6.93
Central Corridor	15.99			23.61		14.91		19.26	Central Corridor	5.78		17.84	10.03	14.33
West Coast	10.11			9.53		8.84		10.25	West Coast	5.05		9.94	4.92	8.16
Worldwide	11.18			13.36		10.06		11.72	Worldwide	2.60		11.37	4.96	9.46

Table of ~~$554 million at September 30, 2019. The operating lease term ends in~~ ~~June 2021~~ and provides us 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. We also have residual value guarantees associated with railcar and airplane leases with maximum future exposures totaling $344 million at September 30, 2019, which have remaining terms of up to five years.Contents

~~Capital Requirements~~

~~Capital Expenditures and Investments~~

~~For information about our capital expenditures and investments, see the “Capital Spending” section below.~~

~~Debt Financing~~

Our total debt balance at September 30, 2019, and December 31, 2018, was $11,925 million and $11,160 million, respectively. Our total debt-to-capital ratio was 31% and 29% at September 30, 2019, and December 31, 2018, respectively.

~~Dividends~~

On July 10, 2019, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. The dividend was paid on September 3, 2019, to shareholders of record at the close of business on August 20, 2019. On October 4, 2019, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. This dividend is payable on December 2, 2019, to shareholders of record at the close of business on November 18, 2019.

~~Share Repurchase Programs~~

On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of our common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion. The share repurchases are expected to be funded primarily through available cash. The shares will be repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. Since the inception of our share repurchase programs in 2012 through September 30, 2019, we have repurchased 150,270,786 shares at an aggregate cost of $11.6 billion. Shares of stock repurchased are held as treasury shares.

~~Capital Spending~~

Our capital expenditures and investments represent consolidated capital spending. Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of our consolidated capital spending funded by certain Gray Oak joint venture partners.

Millions of Dollars
Nine Months Ended
September 30
2019
2018
Capital Expenditures and Investments
Midstream $ 1,724
978
Chemicals —
—
Refining 645
525
Marketing and Specialties 76
65
Corporate and Other 150
77
Total Capital Expenditures and Investments $ 2,595
1,645
Less: capital spending funded by certain Gray Oak joint venture partners* 422
—
Adjusted Capital Spending $ 2,173
1,645

Selected Equity Affiliates**
DCP Midstream $ 355
342
CPChem 252
284
WRB 135
116
$ 742
742

* Included in the Midstream segment.

** Our share of joint venture’s self-funded capital spending.

~~Midstream~~

During the first nine months of 2019, capital spending in our Midstream segment included continued development of additional Gulf Coast fractionation capacity, construction activities related to increasing storage capacity at our crude oil and refined petroleum products terminal located near Beaumont, Texas, as well as other return, reliability and maintenance projects in our Transportation and NGL businesses. Phillips 66 Partners progressed several major capital projects, including the Gray Oak Pipeline and related ventures, a new ethane pipeline from Clemens Caverns to Gregory, Texas, and capacity expansion on the Sweeny to Pasadena refined petroleum products pipeline. Phillips 66 Partners also completed a new isomerization unit at the Lake Charles Refinery and the eastern leg of its 40% owned Bayou Bridge Pipeline.

In June 2019, we formed a 50/50 joint venture, Liberty Pipeline LLC, to construct the Liberty Pipeline, which will provide crude oil transportation from the Rockies and Bakken production areas to Cushing, Oklahoma. We will lead project construction on behalf of the joint venture and will operate the pipeline. The estimated project cost, on a gross basis, is approximately $1.6 billion. In addition, in June 2019, we formed a 50/50 joint venture, Red Oak Pipeline LLC, to construct the Red Oak Pipeline System, which will provide crude oil transportation from Cushing and the Permian Basin to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston and Beaumont. Our co-venturer will lead project construction on behalf of the joint venture and we will operate the pipeline. The estimated project spending, on a gross basis, is approximately $2.5 billion. Initial services for both projects are targeted for the first half of 2021.

During the first nine months of 2019, DCP Midstream had a self-funded capital program. During this period, on a 100% basis, DCP Midstream’s capital expenditures and investments were $710 million. The capital spending was primarily for expansion projects, including construction of the O’Connor 2 plant and investments in the Gulf Coast Express joint venture pipeline, as well as maintenance capital expenditures for existing assets. We expect DCP Midstream to continue self-funding its capital program for the remainder of 2019.

~~Chemicals~~

During the first nine months of 2019, CPChem had a self-funded capital program. During this period, on a 100% basis, CPChem’s capital expenditures and investments were $503 million. The capital spending was primarily for the continued development of its second U.S. Gulf Coast (USGC) Petrochemicals Project and debottlenecking projects on existing assets. In June 2019, CPChem signed an agreement with a co-venturer to jointly pursue the development of a second USGC Petrochemicals Project, and an agreement with a co-venturer to jointly pursue the development of a petrochemical complex in Qatar. We expect CPChem to continue self-funding its capital program for the remainder of 2019.

~~Refining~~

Capital spending for the Refining segment during the first nine months of 2019 was primarily for refinery upgrade projects to increase accessibility of advantaged crudes and improve product yields, improvements to the operating integrity of key processing units and safety-related projects. Our equity affiliates in the Refining segment had self-funded capital programs during the first nine months of 2019 and we expect them to continue self-funding their capital programs for the remainder of 2019.

~~Major construction activities included:~~

~~Installation of facilities to improve product value at the Sweeny Refinery.~~

~~Installation of facilities to produce biofuels at the Humber Refinery.~~

~~A facility installed at the Borger Refinery to increase distillate yields started up in the third quarter of 2019.~~

Marketing and Specialties


	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

	Millions of Dollars
Income Before Income Taxes
Marketing and Other	$	255	294	726	432
Specialties	31		59	73	126
Total Marketing and Specialties	$	286	353	799	558




	Dollars Per Barrel
Income Before Income Taxes
U.S.	$	1.24	1.09	1.53	0.86
International	3.48		4.81	5.25	3.55

Realized Marketing Fuel Margins*
U.S.	$	1.75	1.53	1.92	1.31
International	5.07		6.03	7.04	4.94

* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel.




	Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline	$	1.26	2.32	1.53	2.10
Distillates	1.17		2.20	1.47	2.12
* On third-party branded petroleum product sales, excluding excise taxes.


	Thousands of Barrels Daily


Marketing Petroleum Products Sales Volumes
Gasoline	941	1,240	1,003	1,197
Distillates	847	1,085	942	1,013
Other	15	19	18	18
Total	1,803	2,344	1,963	2,228

The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, such as base oils and lubricants.

Before-tax income from the M&S segment decreased $67 million in the second quarter of 2020 and increased $241 million in the six-month period of 2020. The decrease in the second quarter of 2020 was primarily due to lower sales volumes driven by decreased demand for refined petroleum and specialty products, partially offset by lower selling, general and administrative expenses. The increase in the six-month period of 2020 was primarily attributable to higher realized marketing margins and lower selling, general and administrative expenses, partially offset by lower sales volumes for refined petroleum and specialty products driven by decreased demand.

See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting this quarter’s results.

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Corporate and Other


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019
Loss Before Income Taxes
Net interest expense	$	(114)	(105)	(217)	(213)
Corporate overhead and other	(105)		(100)	(199)	(202)



Total Corporate and Other	$	(219)	(205)	(416)	(415)

Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Corporate overhead and other includes general and administrative expenses, technology costs, environmental costs associated with sites no longer in operation, foreign currency transaction gains and losses, and other costs not directly associated with an operating segment. Net interest expense increased $9 million and $4 million in the second quarter and six-month period of 2020, respectively, primarily due to higher average debt principal balances, reflecting new debt issuances in the first half of 2020, partially offset by higher capitalized interest related to capital projects under development in our Midstream segment. See Note 9—Debt, in the Notes to Consolidated Financial Statements, for additional information on the new debt issuances.

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators


	Millions of Dollars, Except as Indicated
	June 30 2020			December 31 2019

Cash and cash equivalents	$	1,890		1,614
Short-term debt	1,783			547
Total debt	14,446			11,763
Total equity	23,295			27,169
Percent of total debt to capital*	38		%	30
Percent of floating-rate debt to total debt	12		%	9
* Capital includes total debt and total equity.

To meet our short- and long-term liquidity requirements, we seek a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. Additionally, Phillips 66 Partners has the ability to fund its growth activities through debt and equity financings. During the first six months of 2020, we generated $981 million of cash from operations, received approximately $2.0 billion in proceeds from two public offerings of senior unsecured notes, and borrowed $1.0 billion under our new term loan facility. We used available cash primarily for capital expenditures and investments of $1.9 billion, repayment of $525 million of maturing debt, and dividend payments on our common stock of $789 million. During the first quarter of 2020, we spent $443 million on common stock repurchases, before suspending our share repurchase program in March 2020. During the first six months of 2020, cash and cash equivalents increased $276 million to $1.9 billion.

We believe current cash and cash equivalents and cash generated by operations, together with access to external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our funding requirements in the near and long term, including our capital spending, dividend payments, defined benefit plan contributions, and debt repayments.

Significant Sources of Capital

Operating Activities

During the first six months of 2020, cash generated by operating activities was $981 million, compared with $1,452 million for the first six months of 2019. The decrease in the first six months of 2020, compared with the same period in 2019, was primarily due to decreased refinery production and lower refining margins in the first half of 2020 driven by significant global economic disruption caused by the COVID-19 pandemic, as well as reduced cash distributions from our equity affiliates, partially offset by higher realized marketing margins and favorable working capital impacts.

Our short- and long-term operating cash flows are highly dependent upon refining, marketing and chemical margins, as well as NGL prices. Prices and margins in our industry are typically volatile, and are driven by market conditions over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows. The recent decline in demand for refined petroleum products has led to a decrease in refining margins. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect refining, marketing and chemical margins, along with transportation volumes, to remain challenged in the near term, all of which could have an unfavorable impact on our future operating cash flows.

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The level and quality of output from our refineries also impact our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability, and weather conditions can affect output. We actively manage the operations of our refineries, and variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. However, the recent decline in demand for refined petroleum products has led to a reduction of our refinery production; and if the global economic disruption associated with the COVID-19 pandemic sustains, we expect the reduced refinery production to continue in the near term, which could have an unfavorable impact on our future operating cash flows.

Equity Affiliate Operating Distributions

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first six months of 2020, cash from operations included distributions of $820 million from our equity affiliates, compared with $1,120 million during the same period of 2019. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect lower distributions from our equity affiliates.

Phillips 66 Partners LP

Unit Issuances

During the first six months of 2020, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $2 million from common units issued under its active continuous offering of common units, or at-the-market (ATM) program.

Transfer of Equity Interest

Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the second quarter of 2020, and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet. In addition, the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of operations for the three and six months ended June 30, 2020. For the six months ended June 30, 2020, the co-venturer contributed an aggregate of $61 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. Excluding the co-venturer’s 35% interest in the consolidated holding company, Phillips 66 Partners has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. See Note 5—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak Pipeline, LLC.

Credit Facilities and Commercial Paper

At June 30, 2020, borrowings of $215 million were outstanding and $3 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility. At June 30, 2020, no amount had been drawn under Phillips 66’s $5 billion revolving credit facility or uncommitted $5 billion commercial paper program.

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Other Debt Issuances and Financings

On June 10, 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:

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

•$500 million aggregate principal amount of 3.850% Senior Notes due 2025.

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 $650 million in aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities. Interest on the Senior Notes due 2025 is payable semiannually on April 9 and October 9 of each year, commencing on October 9, 2020. Interest on the Senior Notes due 2030 is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2020.

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, with $1 billion of capacity remaining undrawn at June 30, 2020. In June 2020, the Facility was amended to extend the commitment period to September 19, 2020. 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 from the debt issuance for general corporate purposes.

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Off-Balance Sheet Arrangements

Lease Residual Value Guarantees

Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million at June 30, 2020. The operating lease term ends in June 2021 and provides us 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. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $351 million at June 30, 2020, which have remaining terms of up to four years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)

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

•$650 million aggregate principal amount of 3.625% Senior Notes due 2022.

•$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024.

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

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. 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. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. At June 30, 2020, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $631 million.

Gray Oak Pipeline, LLC

Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. 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 defaults on certain of its obligations thereunder. At June 30, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was $583 million.

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Other Guarantees

At June 30, 2020, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations, which have remaining terms of up to eight years. The maximum potential amount of future payments to third parties under these guarantees was approximately $155 million. Payment would be required if a joint venture defaults on its obligations.

See Note 10—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

Capital Requirements

Capital Expenditures and Investments

For information about our capital expenditures and investments, see the “Capital Spending” section below.

Debt Financing

Our total debt balance at June 30, 2020, and December 31, 2019, was $14.4 billion and $11.8 billion, respectively. Our total debt-to-capital ratio was 38% and 30% at June 30, 2020, and December 31, 2019, respectively.

In April 2020, Phillips 66 repaid the $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 the $25 million outstanding principal balance of its tax-exempt bonds due April 2020.

Dividends

On May 6, 2020, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. The dividend was paid on June 1, 2020, to shareholders of record at the close of business on May 18, 2020. On July 8, 2020, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. This dividend is payable on September 1, 2020, to shareholders of record at the close of business on August 18, 2020.

Share Repurchases

Since July 2012, our Board of Directors has, at various times, authorized repurchases of our outstanding common stock under our share repurchase programs, which aggregate to a total of $15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The shares under these authorizations are repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. Since the inception of our share repurchase programs in 2012 through March 17, 2020, we have repurchased 159 million shares at an aggregate cost of $12.5 billion. Shares of stock repurchased are held as treasury shares. We suspended share repurchases in mid-March 2020 to preserve liquidity in response to the economic effects of the COVID-19 pandemic and other factors.

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Capital Spending


	Millions of Dollars
	Six Months Ended June 30
	2020		2019
Capital Expenditures and Investments
Midstream	$	1,238	1,200
Chemicals	—		—
Refining	409		391
Marketing and Specialties	111		42
Corporate and Other	104		95
Total Capital Expenditures and Investments	1,862		1,728
Less: capital spending funded by certain joint venture partners*	61		422
Adjusted Capital Spending	$	1,801	1,306

Selected Equity Affiliates**
DCP Midstream	$	90	278
CPChem	139		175
WRB	71		81
	$	300	534

* Included in the Midstream segment.

** Our share of joint ventures’ self-funded capital spending.

Midstream

During the first six months of 2020, capital spending in our Midstream segment included:

•Continued development of additional Gulf Coast fractionation capacity.

•Cash contributions to our and Phillips 66 Partners’ joint ventures to develop and construct the Liberty and Red Oak pipeline systems.

•Cash contributions to Phillips 66 Partners’ Gray Oak Pipeline and South Texas Gateway Terminal for their development activities.

•Capacity expansion on Phillips 66 Partners’ Sweeny to Pasadena refined petroleum product pipeline.

•Construction activities on Phillips 66 Partners’ new ethane pipeline from Clemens Caverns to petrochemical facilities in Gregory, Texas (C2G Pipeline).

•Construction activities to increase storage capacity at our crude oil and refined petroleum product terminal located near Beaumont, Texas.

•Other reliability, return and maintenance projects.

On March 2, 2020, Phillips 66 Partners closed a transaction to acquire our 50% interest in Liberty Pipeline LLC for $75 million. The development and construction of our Red Oak Pipeline system and Sweeny Frac 4, as well as Phillips 66 Partners’ Liberty Pipeline system projects have been deferred as a result of the current challenging business environment.

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During the first six months of 2020, DCP Midstream’s self-funded capital expenditures and investments were $179 million on a 100% basis. Capital spending during this period was primarily for expansion projects, including the construction of the Latham II offload facilities and the Cheyenne Connector, and investments in the Sand Hills and Southern Hills joint ventures, as well as maintenance capital expenditures for existing assets. In April 2020, DCP Midstream announced capital and cost reduction plans, including a 75% growth capital reduction. We expect that DCP Midstream’s capital program will continue to be self-funded for the remainder of 2020.

Chemicals

During the first six months of 2020, CPChem had a self-funded capital program. During this period, on a 100% basis, CPChem’s capital expenditures and investments were $277 million. The capital spending was primarily for the continued development of its second U.S. Gulf Coast petrochemical project and debottlenecking projects on existing assets. We expect CPChem to continue self-funding its capital program for the remainder of 2020.

Refining

Capital spending for the Refining segment during the first six months of 2020 was primarily for refinery upgrade projects to enhance the yield of high value products, renewable diesel projects, improvements to the operating integrity of key processing units, and safety-related projects. Our equity affiliates in the Refining segment had self-funded capital programs during the first six months of 2020, and we expect them to continue self-funding their capital programs for the remainder of 2020.

Major construction activities included:

•Installation and startup of facilities to improve product value at the Sweeny Refinery.

•Installation of facilities to improve product value at the Ponca City and Bayway refineries.

•Installation of facilities to produce biofuels at the Humber Refinery.

Marketing and Specialties

Capital spending for the M&S segment during the first ~~nine~~six months of ~~2019~~2020 was primarily for an additional investment in the U.S. West Coast retail marketing joint venture, and the acquisition, development and ~~improvement~~enhancement of ~~our international~~ retail sites ~~and safety and reliability projects at our lubricants and power generation facilities.~~in Europe.

Corporate and Other

Capital spending for Corporate and Other during the first ~~nine~~six months of ~~2019~~2020 was primarily for information ~~technology and facilities.~~technology.

~~2019 Budget Update~~

We are forecasting our total 2019 capital spending to range from $3.7 billion to $4.0 billion, including $1.2 billion for Phillips 66 Partners. Excluding $0.4 billion funded by our Gray Oak joint venture partners, we expect our adjusted capital spending to range from $3.3 billion to $3.6 billion. The increase in our expected capital spending reflects higher spending on Midstream growth projects, domestic retail marketing and other planned expenditures across our portfolio.

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Contingencies

A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal, or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of ~~income-tax-related~~income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

Legal and Tax Matters

Our legal and tax matters are handled by our legal and tax organizations. These organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. We employ a litigation management process to manage and monitor the legal ~~proceedings against us.~~proceedings. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. In the case of ~~income-tax-related~~income tax-related contingencies, we monitor tax legislation and court decisions, the status of tax audits and the statute of limitations within which a taxing authority can assert a liability.

Environmental

Like other companies in our industry, we are subject to numerous international, federal, state and local environmental laws and regulations. For a discussion of the most significant of these international and federal environmental laws and regulations, see the “Environmental” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our ~~2018~~2019 Annual Report on Form 10-K.

We occasionally receive requests for information or notices of potential liability from the ~~EPA~~U.S. Environmental Protection Agency (EPA) and state environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain wastes attributable to our past operations. At ~~September 30, 2019, and~~ December 31, ~~2018,~~2019, we reported that we had been notified of potential liability under CERCLA and comparable state laws at 27 sites within the United States. In the second quarter of 2020, we were notified of two Superfund sites that were deemed resolved and closed, accordingly, leaving 25 unresolved sites with potential liability at June 30, 2020.

Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in certain of our operations and products, and there can be no assurance that ~~material~~those costs and liabilities will not be ~~incurred.~~material. However, we currently do not expect any material adverse effect on our results of operations or financial position as a result of compliance with current environmental laws and regulations.

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Climate Change

There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (GHG) emissions reduction, including various regulations proposed or issued by the EPA. These proposed or promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the future. Laws regulating GHG emissions continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws potentially could have a material impact on our results of operations and financial condition as a result of increasing costs of compliance, lengthening project implementation and agency reviews, or reducing demand for certain hydrocarbon products. We continue to monitor legislative and regulatory actions and legal proceedings globally relating to GHG emissions for potential impacts on our operations.

For examples of legislation and regulation or precursors for possible regulation that do or could affect our operations, see the “Climate Change” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our ~~2018~~2019 Annual Report on Form 10-K.

We consider and take into account anticipated future GHG emissions in designing and developing major facilities and projects, and implement energy efficiency initiatives to reduce GHG emissions. Data on our GHG emissions, legal requirements regulating such emissions, and the possible physical effects of climate change on our coastal assets are incorporated into our planning, investment, and risk management decision-making. We are working to continuously improve operational and energy efficiency through resource and energy conservation throughout our operations.

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NON-GAAP RECONCILIATIONS

Refining

Our realized refining margins measure the difference between a)(a) sales and other operating revenues derived from the sale of petroleum products manufactured at our refineries and b)(b) purchase costs of feedstocks, primarily crude oil, used to produce the petroleum products. The realized refining margins are adjusted to include our proportional share of our joint venture refineries’ realized margins, as well as to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized refining margins are converted to a per-barrel basis by dividing them by total refinery processed inputs (primarily crude oil) measured on a barrel basis, including our share of inputs processed by our joint venture refineries. Our realized refining margin per barrel is intended to be comparable with industry refining margins, which are known as “crack spreads.” As discussed in “Business Environment,” industry crack spreads measure the difference between market prices for refined petroleum products and crude oil. We believe realized refining margin per barrel calculated on a similar basis as industry crack spreads provides a useful measure of how well we performed relative to benchmark industry margins.

The GAAP performance measure most directly comparable to realized refining margin per barrel is the Refining segment’s “income (loss) before income taxes per barrel.” Realized refining margin per barrel excludes items that are typically included in a manufacturer’s gross margin, such as depreciation and operating expenses, and other items used to determine income (loss) before income taxes, such as general and administrative expenses. It also includes our proportional share of ~~our~~ joint venture refineries’ realized refining margins and excludes special items. Because realized refining margin per barrel is calculated in this manner, and because realized refining margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income (loss) before income taxes to realized refining margins:

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	Millions of Dollars, Except as Indicated
Realized Refining Margins	Atlantic Basin/ Europe		Gulf Coast	Central Corridor	West Coast	Worldwide

Three Months Ended June 30, 2020
Loss before income taxes	$	(227)	(365)	(104)	(182)	(878)
Plus:

Taxes other than income taxes	15		25	14	22	76
Depreciation, amortization and impairments	49		75	33	63	220
Selling, general and administrative expenses	12		10	7	9	38
Operating expenses	190		277	120	216	803
Equity in (earnings) losses of affiliates	3		(1)	79	—	81
Other segment expense, net	3		—	3	1	7
Proportional share of refining gross margins contributed by equity affiliates	16		—	92	—	108
Special items:


Lower-of-cost-or-market inventory adjustments	—		—	(35)	—	(35)


Realized refining margins	$	61	21	209	129	420

Total processed inputs (thousands of barrels)	39,121		61,032	20,778	25,737	146,668
Adjusted total processed inputs (thousands of barrels)*	39,121		61,032	36,067	25,737	161,957

Loss before income taxes per barrel (dollars per barrel)**	$	(5.80)	(5.98)	(5.01)	(7.07)	(5.99)
Realized refining margins (dollars per barrel)***	1.53		0.36	5.78	5.05	2.60

Three Months Ended June 30, 2019
Income (loss) before income taxes	$	258	222	520	(17)	983
Plus:

Taxes other than income taxes	11		16	10	21	58
Depreciation, amortization and impairments	49		68	34	63	214
Selling, general and administrative expenses	10		8	7	8	33
Operating expenses	201		322	134	249	906
Equity in (earnings) losses of affiliates	3		2	(133)	—	(128)
Other segment (income) expense, net	4		(5)	4	1	4
Proportional share of refining gross margins contributed by equity affiliates	19		—	298	—	317





Realized refining margins	$	555	633	874	325	2,387

Total processed inputs (thousands of barrels)	51,172		77,186	26,244	32,697	187,299
Adjusted total processed inputs (thousands of barrels)*	51,172		77,186	48,932	32,697	209,987

Income (loss) before income taxes per barrel (dollars per barrel)**	$	5.04	2.88	19.81	(0.52)	5.25
Realized refining margins (dollars per barrel)***	10.85		8.20	17.84	9.94	11.37
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** Income (loss) before income taxes divided by total processed inputs.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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	Millions of Dollars, Except as Indicated												Millions of Dollars, Except as Indicated
Realized Refining Margins	Atlantic Basin/ Europe			Gulf Coast		Central Corridor		West Coast		Worldwide		Realized Refining Margins	Atlantic Basin/ Europe		Gulf Coast	Central Corridor	West Coast	Worldwide

Three Months Ended September 30, 2019
Income (loss) before income taxes	$	296		184		408		(32	)	856
Six Months Ended June 30, 2020												Six Months Ended June 30, 2020
Loss before income taxes												Loss before income taxes	$	(864)	(1,208)	(331)	(736)	(3,139)
Plus:												Plus:

Taxes other than income taxes	12			23		10		23		68		Taxes other than income taxes	34		62	31	53	180
Depreciation and amortization	49			66		34		66		215
Depreciation, amortization and impairments												Depreciation, amortization and impairments	541		816	502	427	2,286
Selling, general and administrative expenses	10			7		6		8		31		Selling, general and administrative expenses	25		17	13	19	74
Operating expenses	208			345		125		282		960		Operating expenses	384		769	256	499	1,908
Equity in (earnings) losses of affiliates	3			(1	)	(69	)	—		(67	)	Equity in (earnings) losses of affiliates	5		(2)	130	—	133
Other segment (income) expense, net	(24		)	1		(3	)	1		(25	)
Other segment expense, net												Other segment expense, net	1		1	—	2	4
Proportional share of refining gross margins contributed by equity affiliates	19			—		269		—		288		Proportional share of refining gross margins contributed by equity affiliates	32		—	205	—	237

Realized refining margins	$	573		625		780		348		2,326		Realized refining margins	$	158	455	806	264	1,683

Total processed inputs (thousands of barrels)	49,895			74,936		26,740		34,498		186,069		Total processed inputs (thousands of barrels)	80,456		125,098	44,123	53,614	303,291
Adjusted total processed inputs (thousands of barrels)*	49,895			74,936		48,853		34,498		208,182		Adjusted total processed inputs (thousands of barrels)*	80,456		125,098	80,358	53,614	339,526

Income (loss) before income taxes per barrel (dollars per barrel)**	$	5.93		2.46		15.26		(0.93	)	4.60
Realized refining margins (dollars per barrel)***	11.48			8.34		15.99		10.11		11.18

Three Months Ended September 30, 2018
Income (loss) before income taxes	$	209		210		839		(26	)	1,232
Plus:
Taxes other than income taxes	13			23		10		26		72
Depreciation and amortization	50			69		34		60		213
Selling, general and administrative expenses	16			13		7		11		47
Operating expenses	217			317		124		264		922
Equity in (earnings) losses of affiliates	2			1		(300	)	—		(297	)
Other segment (income) expense, net	(3		)	1		4		—		2
Proportional share of refining gross margins contributed by equity affiliates	16			—		472		—		488
Special items:
Certain tax impacts	(1		)	—		—		—		(1	)
Realized refining margins	$	519		634		1,190		335		2,678

Total processed inputs (thousands of barrels)	45,233			69,745		26,778		35,132		176,888
Adjusted total processed inputs (thousands of barrels)*	45,233			69,745		50,410		35,132		200,520

Income (loss) before income taxes per barrel (dollars per barrel)**	$	4.62		3.01		31.33		(0.74	)	6.96
Loss before income taxes per barrel (dollars per barrel)**												Loss before income taxes per barrel (dollars per barrel)**	$	(10.74)	(9.66)	(7.50)	(13.73)	(10.35)
Realized refining margins (dollars per barrel)***	11.48			9.09		23.61		9.53		13.36		Realized refining margins (dollars per barrel)***	1.97		3.64	10.03	4.92	4.96
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.	* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.											* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** Income (loss) before income taxes divided by total processed inputs.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding.
** Loss before income taxes divided by total processed inputs.												** Loss before income taxes divided by total processed inputs.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.												*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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	Millions of Dollars, Except as Indicated												Millions of Dollars, Except as Indicated
Realized Refining Margins	Atlantic Basin/ Europe			Gulf Coast		Central Corridor		West Coast		Worldwide		Realized Refining Margins	Atlantic Basin/ Europe		Gulf Coast	Central Corridor	West Coast	Worldwide

Nine Months Ended September 30, 2019
Six Months Ended June 30, 2019												Six Months Ended June 30, 2019
Income (loss) before income taxes	$	547		288		1,005		(199	)	1,641		Income (loss) before income taxes	$	251	104	597	(167)	785
Plus:												Plus:

Taxes other than income taxes	38			62		33		68		201		Taxes other than income taxes	26		39	23	45	133
Depreciation and amortization	148			201		101		191		641
Depreciation, amortization and impairments												Depreciation, amortization and impairments	99		135	67	125	426
Selling, general and administrative expenses	27			13		14		21		75		Selling, general and administrative expenses	17		6	8	13	44
Operating expenses	642			1,051		404		780		2,877		Operating expenses	434		706	279	498	1,917
Equity in (earnings) losses of affiliates	9			1		(286	)	—		(276	)	Equity in (earnings) losses of affiliates	6		2	(217)	—	(209)
Other segment (income) expense, net	(14		)	(3	)	(1	)	4		(14	)	Other segment (income) expense, net	10		(4)	2	3	11
Proportional share of refining gross margins contributed by equity affiliates	55			—		834		—		889		Proportional share of refining gross margins contributed by equity affiliates	36		—	565	—	601
Special items:												Special items:

Pending claims and settlements	—			—		(21	)	—		(21	)	Pending claims and settlements	—		—	(21)	—	(21)

Realized refining margins	$	1,452		1,613		2,083		865		6,013		Realized refining margins	$	879	988	1,303	517	3,687

Total processed inputs (thousands of barrels)	142,749			217,556		76,877		97,898		535,080		Total processed inputs (thousands of barrels)	92,854		142,620	50,137	63,400	349,011
Adjusted total processed inputs (thousands of barrels)*	142,749			217,556		139,681		97,898		597,884		Adjusted total processed inputs (thousands of barrels)*	92,854		142,620	90,828	63,400	389,702

Income (loss) before income taxes per barrel (dollars per barrel)**	$	3.83		1.32		13.07		(2.03	)	3.07		Income (loss) before income taxes per barrel (dollars per barrel)**	$	2.70	0.73	11.91	(2.63)	2.25
Realized refining margins (dollars per barrel)***	10.17			7.42		14.91		8.84		10.06		Realized refining margins (dollars per barrel)***	9.47		6.93	14.33	8.16	9.46
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.	* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.											* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** Income (loss) before income taxes divided by total processed inputs.	** Income (loss) before income taxes divided by total processed inputs.											** Income (loss) before income taxes divided by total processed inputs.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.												*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

Millions of Dollars, Except as Indicated
Realized Refining Margins
Atlantic Basin/
Europe

Gulf
Coast

Central Corridor
West
Coast

Worldwide

Nine Months Ended September 30, 2018
Income before income taxes $ 265
576
1,632
61
2,534
Plus:
Taxes other than income taxes 43
71
31
76
221
Depreciation, amortization and impairments 152
199
101
178
630
Selling, general and administrative expenses 44
36
21
34
135
Operating expenses 727
975
356
722
2,780
Equity in (earnings) losses of affiliates 7
5
(459 ) —
(447 )
Other segment (income) expense, net (10 ) 3
(8 ) (11 ) (26 )
Proportional share of refining gross margins contributed by equity affiliates 73
—
1,051
—
1,124
Special items:
Certain tax impacts (1 ) —
—
—
(1 )
Realized refining margins $ 1,300
1,865
2,725
1,060
6,950

Total processed inputs (thousands of barrels)
132,429
215,827
79,223
103,378
530,857
Adjusted total processed inputs (thousands of barrels)*
132,429
215,827
141,522
103,378
593,156

Income before income taxes per barrel (dollars per barrel)**
$ 2.00
2.67
20.60
0.59
4.77
Realized refining margins (dollars per barrel)***
9.82
8.64
19.26
10.25
11.72
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** Income before income taxes divided by total processed inputs.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding.

Table of Contents

Marketing

Our realized marketing fuel margins measure the difference between a)(a) sales and other operating revenues derived from the sale of fuels in our M&S segment and b)(b) purchase costs of those fuels. The realized marketing fuel margins are adjusted to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized marketing fuel margins are converted to a ~~per barrel~~per-barrel basis by dividing them by sales volumes measured on a barrel basis. We believe realized marketing fuel margin per barrel demonstrates the value uplift our marketing operations provide by optimizing the placement and ultimate sale of our refineries’ fuel production.

Within the M&S segment, the GAAP performance measure most directly comparable to realized marketing fuel margin per barrel is the marketing business’ “income before income taxes per barrel.” Realized marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine income before income taxes, such as general and administrative expenses. Because realized marketing fuel margin per barrel excludes these items, and because realized marketing fuel margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income before income taxes to realized marketing fuel margins:

Table of Contents


	Millions of Dollars, Except as Indicated										Millions of Dollars, Except as Indicated
	Three Months Ended September 30, 2019					Three Months Ended September 30, 2018					Three Months Ended June 30, 2020				Three Months Ended June 30, 2019
	U.S.			International		U.S.		International			U.S.		International	U.S.	International
Realized Marketing Fuel Margins										Realized Marketing Fuel Margins
Income before income taxes	$	312		139		256		122		Income before income taxes	$	179	68	203	129
Plus:										Plus:

Taxes other than income taxes	3			2		3		1		Taxes other than income taxes	2		2	3	1
Depreciation and amortization	2			16		3		17		Depreciation and amortization	3		16	3	16
Selling, general and administrative expenses	184			61		201		66		Selling, general and administrative expenses	151		57	183	61
Equity in earnings of affiliates	(3		)	(27	)	(3	)	(22	)	Equity in earnings of affiliates	(11)		(28)	(3)	(25)
Other operating revenues*	(101		)	(10	)	(104	)	(7	)	Other operating revenues*	(71)		(4)	(103)	(9)
Other segment expense, net	—			1		—		—		Other segment expense, net	—		1	—	1
Special items:
Certain tax impacts	—			—		(44	)	—

Marketing margins	397			182		312		177		Marketing margins	253		112	286	174
Less: margin for non-fuel related sales	—			11		—		10
Realized marketing fuel margins**	$	397		171		312		167
Less: margin for nonfuel related sales										Less: margin for nonfuel related sales	—		13	—	12
Realized marketing fuel margins										Realized marketing fuel margins	$	253	99	286	162

Total fuel sales volumes (thousands of barrels)	188,172			26,796		173,072		25,441		Total fuel sales volumes (thousands of barrels)	144,517		19,583	186,488	26,837

Income before income taxes per barrel (dollars per barrel)	$	1.66		5.19		1.48		4.80		Income before income taxes per barrel (dollars per barrel)	$	1.24	3.48	1.09	4.81
Realized marketing fuel margins (dollars per barrel)***	2.11			6.37		1.80		6.58
* Includes other non-fuel revenues.
** Prior period U.S. realized marketing fuel margins have been revised to exclude the effects of special items on fuel margins.
*** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding.
Realized marketing fuel margins (dollars per barrel)**										Realized marketing fuel margins (dollars per barrel)**	1.75		5.07	1.53	6.03
* Includes other nonfuel revenues.										* Includes other nonfuel revenues.
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.										** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.
											Millions of Dollars, Except as Indicated
											Six Months Ended June 30, 2020				Six Months Ended June 30, 2019
											U.S.		International	U.S.	International
Realized Marketing Fuel Margins										Realized Marketing Fuel Margins
Income before income taxes										Income before income taxes	$	478	239	301	187
Plus:										Plus:

Taxes other than income taxes										Taxes other than income taxes	4		3	5	3
Depreciation and amortization										Depreciation and amortization	6		33	5	32
Selling, general and administrative expenses										Selling, general and administrative expenses	278		120	338	123
Equity in earnings of affiliates										Equity in earnings of affiliates	(11)		(50)	(4)	(47)
Other operating revenues*										Other operating revenues*	(155)		(2)	(185)	(15)
Other segment (income) expense, net										Other segment (income) expense, net	—		1	—	(1)

Marketing margins										Marketing margins	600		344	460	282
Less: margin for nonfuel related sales										Less: margin for nonfuel related sales	—		23	—	22
Realized marketing fuel margins										Realized marketing fuel margins	$	600	321	460	260

Total fuel sales volumes (thousands of barrels)										Total fuel sales volumes (thousands of barrels)	311,695		45,562	350,546	52,633

Income before income taxes per barrel (dollars per barrel)										Income before income taxes per barrel (dollars per barrel)	$	1.53	5.25	0.86	3.55
Realized marketing fuel margins (dollars per barrel)**										Realized marketing fuel margins (dollars per barrel)**	1.92		7.04	1.31	4.94
* Includes other nonfuel revenues.										* Includes other nonfuel revenues.
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.										** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.


			Page
Part I – Financial Information

			~~Page~~
~~Part I – Financial Information~~

Item 1. Financial Statements
Consolidated Statement of ~~Income~~Operations			1
Consolidated Statement of Comprehensive Income (Loss)			2
Consolidated Balance Sheet			3
Consolidated Statement of Cash Flows			4
Consolidated Statement of Changes in Equity			5
Notes to Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3938

Item 3. Quantitative and Qualitative Disclosures About Market Risk			6467

Item 4. Controls and Procedures			6468

Part II – Other Information

Item 1. Legal Proceedings			6569

Item 1A. Risk Factors			6570

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6671

Item 6. Exhibits			6772

Signatures			6873



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Millions of Dollars
	Three Months Ended September 30				Nine Months Ended September 30
	2019			2018	2019	2018
Revenues and Other Income
Sales and other operating revenues	$	27,218		29,788	78,168	82,363
Equity in earnings of affiliates	499			779	1,663	1,946
Net gain on dispositions	18			1	19	18
Other income	36			24	97	47
Total Revenues and Other Income	27,771			30,592	79,947	84,374

Costs and Expenses
Purchased crude oil and products	23,806			26,385	69,415	73,270
Operating expenses	1,206			1,206	3,678	3,595
Selling, general and administrative expenses	416			440	1,190	1,258
Depreciation and amortization	336			346	1,001	1,019
Impairments	853			1	856	7
Taxes other than income taxes	105			109	330	328
Accretion on discounted liabilities	6			5	17	17
Interest and debt expense	109			125	343	383
Foreign currency transaction (gains) losses	(9		)	—	5	(30	)
Total Costs and Expenses	26,828			28,617	76,835	79,847
Income before income taxes	943			1,975	3,112	4,527
Income tax expense	150			407	545	970
Net Income	793			1,568	2,567	3,557
Less: net income attributable to noncontrolling interests	81			76	227	202
Net Income Attributable to Phillips 66	$	712		1,492	2,340	3,355

Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic	$	1.58		3.20	5.15	7.07
Diluted	1.58			3.18	5.13	7.03

Weighted-Average Common Shares Outstanding (thousands)
Basic	449,005			466,109	453,398	473,760
Diluted	451,001			469,440	455,810	477,220
See Notes to Consolidated Financial Statements.



	Millions of Dollars
	September 30 2019			December 31 2018
Assets
Cash and cash equivalents	$	2,268		3,019
Accounts and notes receivable (net of allowances of $41 million in 2019 and $22 million in 2018)	6,097			5,414
Accounts and notes receivable—related parties	989			759
Inventories	5,521			3,543
Prepaid expenses and other current assets	742			474
Total Current Assets	15,617			13,209
Investments and long-term receivables	14,147			14,421
Net properties, plants and equipment	22,954			22,018
Goodwill	3,270			3,270
Intangibles	872			869
Other assets	1,881			515
Total Assets	$	58,741		54,302

Liabilities
Accounts payable	$	7,738		6,113
Accounts payable—related parties	635			473
Short-term debt	842			67
Accrued income and other taxes	1,128			1,116
Employee benefit obligations	624			724
Other accruals	1,116			442
Total Current Liabilities	12,083			8,935
Long-term debt	11,083			11,093
Asset retirement obligations and accrued environmental costs	617			624
Deferred income taxes	5,503			5,275
Employee benefit obligations	905			867
Other liabilities and deferred credits	1,458			355
Total Liabilities	31,649			27,149

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2019—647,050,977 shares; 2018—645,691,761 shares)
Par value	6			6
Capital in excess of par	20,253			19,873
Treasury stock (at cost: 2019—202,693,401 shares; 2018—189,526,331 shares)	(16,261		)	(15,023	)
Retained earnings	21,730			20,489
Accumulated other comprehensive loss	(871		)	(692	)
Total Stockholders’ Equity	24,857			24,653
Noncontrolling interests	2,235			2,500
Total Equity	27,092			27,153
Total Liabilities and Equity	$	58,741		54,302



	Millions of Dollars
	Three Months Ended September 30
	Attributable to Phillips 66
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock		Retained Earnings		Accum. Other Comprehensive Loss		Noncontrolling Interests		Total

June 30, 2019	$	6	19,912	(15,822	)	21,423		(767	)	2,554		27,306
Net income	—		—	—		712		—		81		793
Other comprehensive loss	—		—	—		—		(104	)	—		(104	)
Dividends paid on common stock ($0.90 per share)	—		—	—		(402	)	—		—		(402	)
Repurchase of common stock	—		—	(439	)	—		—		—		(439	)
Benefit plan activity	—		22	—		(3	)	—		—		19
Issuance of Phillips 66 Partners LP common units	—		44	—		—		—		32		76
Impacts from Phillips 66 Partners GP/IDR restructuring transaction	—		275	—		—		—		(373	)	(98	)
Distributions to noncontrolling interests	—		—	—		—		—		(59	)	(59	)
September 30, 2019	$	6	20,253	(16,261	)	21,730		(871	)	2,235		27,092

June 30, 2018	$	6	19,831	(14,121	)	17,500		(680	)	2,424		24,960
Net income	—		—	—		1,492		—		76		1,568
Other comprehensive income	—		—	—		—		41		—		41
Dividends paid on common stock ($0.80 per share)	—		—	—		(370	)	—		—		(370	)
Repurchase of common stock	—		—	(405	)	—		—		—		(405	)
Benefit plan activity	—		13	—		(4	)	—		—		9
Issuance of Phillips 66 Partners LP common units	—		16	—		—		—		26		42
Distributions to noncontrolling interests	—		—	—		—		—		(50	)	(50	)
September 30, 2018	$	6	19,860	(14,526	)	18,618		(639	)	2,476		25,795



	Millions of Dollars
	Nine Months Ended September 30
	Attributable to Phillips 66
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock		Retained Earnings		Accum. Other Comprehensive Loss		Noncontrolling Interests		Total

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	—		—	—		2,340		—		227		2,567
Other comprehensive loss	—		—	—		—		(90	)	—		(90	)
Dividends paid on common stock ($2.60 per share)	—		—	—		(1,172	)	—		—		(1,172	)
Repurchase of common stock	—		—	(1,238	)	—		—		—		(1,238	)
Benefit plan activity	—		56	—		(8	)	—		—		48
Issuance of Phillips 66 Partners LP common units	—		49	—		—		—		58		107
Impacts from Phillips 66 Partners GP/IDR restructuring transaction	—		275	—		—		—		(373	)	(98	)
Distributions to noncontrolling interests	—		—	—		—		—		(176	)	(176	)
September 30, 2019	$	6	20,253	(16,261	)	21,730		(871	)	2,235		27,092

December 31, 2017	$	6	19,768	(10,378	)	16,306		(617	)	2,343		27,428
Cumulative effect of accounting changes	—		—	—		36		—		13		49
Net income	—		—	—		3,355		—		202		3,557
Other comprehensive loss	—		—	—		—		(22	)	—		(22	)
Dividends paid on common stock ($2.30 per share)	—		—	—		(1,069	)	—		—		(1,069	)
Repurchase of common stock	—		—	(4,148	)	—		—		—		(4,148	)
Benefit plan activity	—		54	—		(10	)	—		—		44
Issuance of Phillips 66 Partners LP common units	—		38	—		—		—		64		102
Distributions to noncontrolling interests	—		—	—		—		—		(146	)	(146	)
September 30, 2018	$	6	19,860	(14,526	)	18,618		(639	)	2,476		25,795



	Millions of Dollars
	September 30, 2019
	Finance Leases		Operating Leases
Right-of-Use Assets
Net properties, plants and equipment	$	177	—
Other assets	—		1,338
Total right-of-use assets	$	177	1,338

Lease Liabilities
Short-term debt	$	13	—
Other accruals	—		468
Long-term debt	153		—
Other liabilities and deferred credits	—		820
Total lease liabilities	$	166	1,288



	Millions of Dollars

Operating cash outflows—finance leases	$	5
Operating cash outflows—operating leases	397
Financing cash outflows—finance leases	18



	Millions of Dollars
	Nine Months Ended September 30, 2018
Statement of Income	Phillips 66			Phillips 66 Company	All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—		63,703	18,660		—		82,363
Equity in earnings of affiliates	3,600			2,638	566		(4,858	)	1,946
Net gain on dispositions	—			7	11		—		18
Other income	—			25	22		—		47
Intercompany revenues	—			2,456	11,386		(13,842	)	—
Total Revenues and Other Income	3,600			68,829	30,645		(18,700	)	84,374

Costs and Expenses
Purchased crude oil and products	—			59,724	27,113		(13,567	)	73,270
Operating expenses	—			2,771	875		(51	)	3,595
Selling, general and administrative expenses	6			966	294		(8	)	1,258
Depreciation and amortization	—			691	328		—		1,019
Impairments	—			2	5		—		7
Taxes other than income taxes	—			248	80		—		328
Accretion on discounted liabilities	—			13	4		—		17
Interest and debt expense	304			108	187		(216	)	383
Foreign currency transaction gains	—			—	(30	)	—		(30	)
Total Costs and Expenses	310			64,523	28,856		(13,842	)	79,847
Income before income taxes	3,290			4,306	1,789		(4,858	)	4,527
Income tax expense (benefit)	(65		)	706	329		—		970
Net Income	3,355			3,600	1,460		(4,858	)	3,557
Less: net income attributable to noncontrolling interests	—			—	202		—		202
Net Income Attributable to Phillips 66	$	3,355		3,600	1,258		(4,858	)	3,355

Comprehensive Income	$	3,333		3,578	1,357		(4,733	)	3,535


		Millions of Dollars, Except as Indicated
Expected Maturity Date	Fixed Rate Maturity				Average Interest Rate		Floating Rate Maturity			Average Interest Rate

Remainder of 2020	$	—	—	%		$	—	—	%
2021		—	—				1,000	1.68
2022		—	—				—	—
2023		500	3.70				—	—
2024		—	—				—	—
Remaining years		1,500	2.89				—	—
Total	$	2,000				$	1,000
Fair value	$	2,082				$	1,000


					Millions of Dollars
Period	Total Number of Shares Purchased*	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs**	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1-30, 2020	—	$	—	—	$	2,514
May 1-31, 2020	—	—		—	2,514
June 1-30, 2020	—	—		—	2,514
Total	—	$	—	—
* Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when applicable.
** As of June 30, 2020, our Board of Directors has authorized repurchases of our outstanding common stock under our share repurchase programs totaling $15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The shares under these authorizations are repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and may commence, suspend or discontinue purchases at any time or from time to time without prior notice. Shares of stock repurchased are held as treasury shares. Effective March 18, 2020, share repurchases under our share purchase programs were temporarily suspended.



		Incorporate by Reference
Exhibit Number	Exhibit Description	Form	Exhibit Number	Filing Date	SEC File No.

	As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the company has not filed with this Quarterly Report on Form 10-Q certain instruments defining the rights of holders of long-term debt of the company and its subsidiaries because the total amount of securities authorized thereunder does not exceed 10% of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to furnish a copy of such agreements to the Commission upon request.

10.1	Partnership Interests Restructuring Agreement, dated as of July 24, 2019, by and between Phillips 66 Partners LP and Phillips 66 Partners GP LLC	8-K	10.1	7/26/2019	001-35349

10.2	Amended and Restated Credit Agreement dated as of July 30, 2019, among Phillips 66, Phillips 66 Company, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent	8-K	10.1	8/1/2019	001-35349

31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32*	Certifications pursuant to 18 U.S.C. Section 1350.

101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*	Inline XBRL Schema Document.

101.CAL*	Inline XBRL Calculation Linkbase Document.

101.LAB*	Inline XBRL Labels Linkbase Document.

101.PRE*	Inline XBRL Presentation Linkbase Document.

101.DEF*	Inline XBRL Definition Linkbase Document.

104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.


						PHILLIPS 66

						~~PHILLIPS 66~~

		/s/ Chukwuemeka A. Oyolu
						Chukwuemeka A. Oyolu Vice President and Controller (Chief Accounting and Duly Authorized Officer)