Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PHILLIPS 66

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Management	68
Reports of Independent Registered Public Accounting Firm	69
Consolidated Financial Statements of Phillips 66:
Consolidated Statement of Income for the years ended December 31, 2015, 2014 and 2013	71
Consolidated Statement of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013	72
Consolidated Balance Sheet at December 31, 2015 and 2014	73
Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014 and 2013	74
Consolidated Statement of Changes in Equity for the years ended December 31, 2015, 2014 and 2013	75
Notes to Consolidated Financial Statements	77
Supplementary Information
Selected Quarterly Financial Data (Unaudited)	132

Index to Financial Statements

Report of Management

Management prepared, and is responsible for, the consolidated financial statements and the other information appearing in this annual report. The consolidated financial statements present fairly the company’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. In preparing its consolidated financial statements, the company includes amounts that are based on estimates and judgments management believes are reasonable under the circumstances. The company’s financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm appointed by the Audit and Finance Committee of the Board of Directors. Management has made available to Ernst & Young LLP all of the company’s financial records and related data, as well as the minutes of stockholders’ and directors’ meetings.

Assessment of Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Phillips 66’s internal control system was designed to provide reasonable assurance to the company’s management and directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2015. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this assessment, management concluded the company’s internal control over financial reporting was effective as of December 31, 2015.

Ernst & Young LLP has issued an audit report on the company’s internal control over financial reporting as of December 31, 2015, and their report is included herein.

/s/ Greg C. Garland		/s/ Kevin J. Mitchell
Greg C. Garland		Kevin J. Mitchell
Chairman and		Executive Vice President, Finance and
Chief Executive Officer		Chief Financial Officer
February 19, 2016

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Phillips 66

We have audited the accompanying consolidated balance sheet of Phillips 66 as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule included in Item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Phillips 66 at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Phillips 66’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Houston, Texas

February 19, 2016

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Phillips 66

We have audited Phillips 66’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Phillips 66’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included under the heading “Assessment of Internal Control Over Financial Reporting” in the accompanying “Report of Management.” Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Phillips 66 maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2015 consolidated financial statements of Phillips 66 and our report dated February 19, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Houston, Texas

February 19, 2016

Index to Financial Statements

Consolidated Statement of Income	Phillips 66

	Millions of Dollars
Years Ended December 31	2015				2014			2013
Revenues and Other Income
Sales and other operating revenues*	$	98,975			161,212			171,596
Equity in earnings of affiliates	1,573				2,466			3,073
Net gain on dispositions	283				295			55
Other income	118				120			85
Total Revenues and Other Income	100,949				164,093			174,809
Costs and Expenses
Purchased crude oil and products	73,399				135,748			148,245
Operating expenses	4,294				4,435			4,206
Selling, general and administrative expenses	1,670				1,663			1,478
Depreciation and amortization	1,078				995			947
Impairments	7				150			29
Taxes other than income taxes*	14,077				15,040			14,119
Accretion on discounted liabilities	21				24			24
Interest and debt expense	310				267			275
Foreign currency transaction (gains) losses	49				26			(40	)
Total Costs and Expenses	94,905				158,348			169,283
Income from continuing operations before income taxes	6,044				5,745			5,526
Provision for income taxes	1,764				1,654			1,844
Income from Continuing Operations	4,280				4,091			3,682
Income from discontinued operations**	—				706			61
Net income	4,280				4,797			3,743
Less: net income attributable to noncontrolling interests	53				35			17
Net Income Attributable to Phillips 66	$	4,227			4,762			3,726
Amounts Attributable to Phillips 66 Common Stockholders:
Income from continuing operations	$	4,227			4,056			3,665
Income from discontinued operations	—				706			61
Net Income Attributable to Phillips 66	$	4,227			4,762			3,726
Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic
Continuing operations	$	7.78			7.15			5.97
Discontinued operations	—				1.25			0.10
Net Income Attributable to Phillips 66 Per Share of Common Stock	$	7.78			8.40			6.07
Diluted
Continuing operations	$	7.73			7.10			5.92
Discontinued operations	—				1.23			0.10
Net Income Attributable to Phillips 66 Per Share of Common Stock	$	7.73			8.33			6.02
Dividends Paid Per Share of Common Stock (dollars)	$	2.1800			1.8900			1.3275
Average Common Shares Outstanding (in thousands)
Basic	542,355				565,902			612,918
Diluted	546,977				571,504			618,989
*Includes excise taxes on petroleum product sales:	$	13,780			14,698			13,866
**Net of provision for income taxes on discontinued operations:	$	—			5			34
See Notes to Consolidated Financial Statements.

Index to Financial Statements

Consolidated Statement of Comprehensive Income	Phillips 66
	Millions of Dollars
Years Ended December 31	2015				2014			2013
Net Income	$	4,280			4,797			3,743
Other comprehensive income (loss)
Defined benefit plans
Actuarial gain/loss:
Actuarial gain (loss) arising during the period	(138		)		(451	)		401
Amortization to net income of net actuarial loss and settlements	174				56			96
Plans sponsored by equity affiliates	11				(66	)		88
Income taxes on defined benefit plans	(13		)		169			(211	)
Defined benefit plans, net of tax	34				(292	)		374
Foreign currency translation adjustments	(163		)		(294	)		(21	)
Income taxes on foreign currency translation adjustments	7				18			(2	)
Foreign currency translation adjustments, net of tax	(156		)		(276	)		(23	)
Hedging activities by equity affiliates	—				—			1
Income taxes on hedging activities by equity affiliates	—				—			(1	)
Hedging activities by equity affiliates, net of tax	—				—			—
Other Comprehensive Income (Loss), Net of Tax	(122		)		(568	)		351
Comprehensive Income	4,158				4,229			4,094
Less: comprehensive income attributable to noncontrolling interests	53				35			17
Comprehensive Income Attributable to Phillips 66	$	4,105			4,194			4,077
See Notes to Consolidated Financial Statements.

Index to Financial Statements

Consolidated Balance Sheet	Phillips 66
	Millions of Dollars
At December 31	2015				2014
Assets
Cash and cash equivalents	$	3,074			5,207
Accounts and notes receivable (net of allowances of $55 million in 2015 and $71 million in 2014)	4,411				6,306
Accounts and notes receivable—related parties	762				949
Inventories	3,477				3,397
Prepaid expenses and other current assets*	532				833
Total Current Assets	12,256				16,692
Investments and long-term receivables	12,143				10,189
Net properties, plants and equipment	19,721				17,346
Goodwill	3,275				3,274
Intangibles	906				900
Other assets*	279				291
Total Assets	$	48,580			48,692
Liabilities
Accounts payable	$	5,155			7,488
Accounts payable—related parties	500				576
Short-term debt	44				842
Accrued income and other taxes	878				878
Employee benefit obligations	576				462
Other accruals	378				848
Total Current Liabilities	7,531				11,094
Long-term debt*	8,843				7,793
Asset retirement obligations and accrued environmental costs	665				683
Deferred income taxes	6,041				5,491
Employee benefit obligations	1,285				1,305
Other liabilities and deferred credits	277				289
Total Liabilities	24,642				26,655
Equity
Common stock (2,500,000,000 shares authorized at $.01 par value) Issued (2015—639,336,287 shares; 2014—637,031,760 shares)
Par value	6				6
Capital in excess of par	19,145				19,040
Treasury stock (at cost: 2015—109,925,907 shares; 2014—90,649,984 shares)	(7,746		)		(6,234	)
Retained earnings	12,348				9,309
Accumulated other comprehensive loss	(653		)		(531	)
Total Stockholders’ Equity	23,100				21,590
Noncontrolling interests	838				447
Total Equity	23,938				22,037
Total Liabilities and Equity	$	48,580			48,692
*Prior period amounts have been retrospectively adjusted for Accounting Standards Update No. 2015-03.
See Notes to Consolidated Financial Statements.

Index to Financial Statements

Consolidated Statement of Cash Flows	Phillips 66
	Millions of Dollars
Years Ended December 31	2015				2014			2013
Cash Flows From Operating Activities
Net income	$	4,280			4,797			3,743
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	1,078				995			947
Impairments	7				150			29
Accretion on discounted liabilities	21				24			24
Deferred taxes	529				(488	)		594
Undistributed equity earnings	185				197			(354	)
Net gain on dispositions	(283		)		(295	)		(55	)
Income from discontinued operations	—				(706	)		(61	)
Other	117				(127	)		195
Working capital adjustments
Decrease (increase) in accounts and notes receivable	2,129				2,226			481
Decrease (increase) in inventories	(144		)		(85	)		38
Decrease (increase) in prepaid expenses and other current assets	324				(316	)		20
Increase (decrease) in accounts payable	(2,300		)		(3,323	)		360
Increase (decrease) in taxes and other accruals	(230		)		478			(19	)
Net cash provided by continuing operating activities	5,713				3,527			5,942
Net cash provided by discontinued operations	—				2			85
Net Cash Provided by Operating Activities	5,713				3,529			6,027
Cash Flows From Investing Activities
Capital expenditures and investments	(5,764		)		(3,773	)		(1,779	)
Proceeds from asset dispositions*	70				1,244			1,214
Advances/loans—related parties	(50		)		(3	)		(65	)
Collection of advances/loans—related parties	50				—			165
Other	(44		)		238			48
Net cash used in continuing investing activities	(5,738		)		(2,294	)		(417	)
Net cash used in discontinued operations	—				(2	)		(27	)
Net Cash Used in Investing Activities	(5,738		)		(2,296	)		(444	)
Cash Flows From Financing Activities
Issuance of debt	1,169				2,487			—
Repayment of debt	(926		)		(49	)		(1,020	)
Issuance of common stock	(19		)		1			6
Repurchase of common stock	(1,512		)		(2,282	)		(2,246	)
Share exchange—PSPI transaction	—				(450	)		—
Dividends paid on common stock	(1,172		)		(1,062	)		(807	)
Distributions to noncontrolling interests	(46		)		(30	)		(10	)
Net proceeds from issuance of Phillips 66 Partners LP common units	384				—			404
Other	5				23			(6	)
Net cash used in continuing financing activities	(2,117		)		(1,362	)		(3,679	)
Net cash used in discontinued operations	—				—			—
Net Cash Used in Financing Activities	(2,117		)		(1,362	)		(3,679	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	9				(64	)		22
Net Change in Cash and Cash Equivalents	(2,133		)		(193	)		1,926
Cash and cash equivalents at beginning of year	5,207				5,400			3,474
Cash and Cash Equivalents at End of Year	$	3,074			5,207			5,400
* Includes return of investments in equity affiliates and working capital true-ups on dispositions.
See Notes to Consolidated Financial Statements.

Index to Financial Statements

Consolidated Statement of Changes in Equity												Phillips 66
	Millions of Dollars
	Attributable to Phillips 66
	Common Stock
	Par Value			Capital in Excess of Par		Treasury Stock		Retained Earnings		Accum. Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
December 31, 2012	$	6		18,726		(356	)	2,713		(314	)	31		20,806
Net income	—			—		—		3,726		—		17		3,743
Other comprehensive income	—			—		—		—		351		—		351
Cash dividends paid on common stock	—			—		—		(807	)	—		—		(807	)
Repurchase of common stock	—			—		(2,246	)	—		—		—		(2,246	)
Benefit plan activity	—			164		—		(10	)	—		—		154
Issuance of Phillips 66 Partners LP common units	—			—		—		—		—		404		404
Distributions to noncontrolling interests and other	—			(3	)	—		—		—		(10	)	(13	)
December 31, 2013	6			18,887		(2,602	)	5,622		37		442		22,392
Net income	—			—		—		4,762		—		35		4,797
Other comprehensive loss	—			—		—		—		(568	)	—		(568	)
Cash dividends paid on common stock	—			—		—		(1,062	)	—		—		(1,062	)
Repurchase of common stock	—			—		(2,282	)	—		—		—		(2,282	)
Share exchange—PSPI transaction	—			—		(1,350	)	—		—		—		(1,350	)
Benefit plan activity	—			153		—		(13	)	—		—		140
Distributions to noncontrolling interests and other	—			—		—		—		—		(30	)	(30	)
December 31, 2014	6			19,040		(6,234	)	9,309		(531	)	447		22,037
Net income	—			—		—		4,227		—		53		4,280
Other comprehensive loss	—			—		—		—		(122	)	—		(122	)
Cash dividends paid on common stock	—			—		—		(1,172	)	—		—		(1,172	)
Repurchase of common stock	—			—		(1,512	)	—		—		—		(1,512	)
Benefit plan activity	—			105		—		(16	)	—		—		89
Issuance of Phillips 66 Partners LP common units	—			—		—		—		—		384		384
Distributions to noncontrolling interests and other	—			—		—		—		—		(46	)	(46	)
December 31, 2015	$	6		19,145		(7,746	)	12,348		(653	)	838		23,938

Index to Financial Statements

			Shares in Thousands
			Common Stock Issued		Treasury Stock
December 31, 2012			631,150		7,604
Repurchase of common stock			—		36,502
Shares issued—share-based compensation			3,136		—
December 31, 2013			634,286		44,106
Repurchase of common stock			—		29,121
Share exchange—PSPI transaction			—		17,423
Shares issued—share-based compensation			2,746		—
December 31, 2014			637,032		90,650
Repurchase of common stock			—		19,276
Shares issued—share-based compensation			2,304		—
December 31, 2015			639,336		109,926
See Notes to Consolidated Financial Statements.

Index to Financial Statements

Notes to Consolidated Financial Statements	Phillips 66

Note 1—Summary of Significant Accounting Policies

▪

Consolidation Principles and Investments—Our consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities where we are the primary beneficiary. The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies. When we do not have the ability to exert significant influence, the investment is either classified as available-for-sale if fair value is readily determinable, or the cost method is used if fair value is not readily determinable. Undivided interests in pipelines, natural gas plants and terminals are consolidated on a proportionate basis. Other securities and investments are generally carried at cost.

▪	Recasted Financial Information—Certain prior period financial information has been recasted to reflect the current year’s presentation.

▪	Foreign Currency Translation—Adjustments resulting from the process of translating foreign functional currency financial statements into U.S. dollars are included in accumulated other comprehensive income in stockholders’ equity.

Foreign currency transaction gains and losses result from remeasuring monetary assets and liabilities denominated in a foreign currency into the functional currency of our subsidiary holding the asset or liability; we include these transaction gains and losses in current earnings. Most of our foreign operations use their local currency as the functional currency.

▪	Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Actual results could differ from these estimates.

▪	Revenue Recognition—Revenues associated with sales of crude oil, natural gas liquids (NGL), petroleum and chemical products, and other items are recognized when title passes to the customer, which is when the risk of ownership passes to the purchaser and physical delivery of goods occurs, either immediately or within a fixed delivery schedule that is reasonable and customary in the industry.

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

▪	Cash Equivalents—Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and will mature within 90 days or less from the date of acquisition. We carry these at cost plus accrued interest, which approximates fair value.

▪	Shipping and Handling Costs—We record shipping and handling costs in purchased crude oil and products. Freight costs billed to customers are recorded as a component of revenue.

▪

Inventories—We have several valuation methods for our various types of inventories and consistently use the following methods for each type of inventory. Crude oil and petroleum products inventories are valued at the lower of cost or market in the aggregate, primarily on the last-in, first-out (LIFO) basis. Any necessary lower-of-cost-or-market write-downs at year end are recorded as permanent adjustments to the LIFO cost basis. LIFO is used to better match current inventory costs with current revenues and to meet tax-conformity requirements. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location, but not unusual or nonrecurring costs or research and development costs. Materials and supplies inventories are valued using the weighted-average-cost method.

Index to Financial Statements

▪

Fair Value Measurements—We categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting significant modifications to observable related market data or our assumptions about pricing by market participants.

▪	Derivative Instruments—Derivative instruments are recorded on the balance sheet at fair value. We have elected to net derivative assets and liabilities with the same counterparty on the balance sheet if the right of offset exists and certain other criteria are met. We also net collateral payables or receivables against derivative assets and derivative liabilities, respectively.

Recognition and classification of the gain or loss that results from recording and adjusting a derivative to fair value depends on the purpose for issuing or holding the derivative. Gains and losses from derivatives not designated as cash-flow hedges are recognized immediately in earnings. For derivative instruments that are designated and qualify as a fair value hedge, the gains or losses from adjusting the derivative to its fair value will be immediately recognized in earnings and, to the extent the hedge is effective, offset the concurrent recognition of changes in the fair value of the hedged item. Gains or losses from derivative instruments that are designated and qualify as a cash flow hedge or hedge of a net investment in a foreign entity are recognized in other comprehensive income and appear on the balance sheet in accumulated other comprehensive income until the hedged transaction is recognized in earnings; however, to the extent the change in the value of the derivative exceeds the change in the anticipated cash flows of the hedged transaction, the excess gains or losses will be recognized immediately in earnings.

▪	Capitalized Interest—Interest from external borrowings is capitalized on major projects with an expected construction period of one year or longer. Capitalized interest is added to the cost of the underlying asset’s properties, plants and equipment and is amortized over the useful life of the asset.

▪

Intangible Assets Other Than Goodwill—Intangible assets with finite useful lives are amortized by the straight-line method over their useful lives. Intangible assets with indefinite useful lives are not amortized but are tested at least annually for impairment. Each reporting period, we evaluate the remaining useful lives of intangible assets not being amortized to determine whether events and circumstances continue to support indefinite useful lives. These indefinite-lived intangibles are considered impaired if the fair value of the intangible asset is lower than net book value. The fair value of intangible assets is determined based on quoted market prices in active markets, if available. If quoted market prices are not available, the fair value of intangible assets is determined based upon the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants, or upon estimated replacement cost, if expected future cash flows from the intangible asset are not determinable.

▪

Goodwill—Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination. It is not amortized but is tested annually for impairment and when events or changes in circumstance indicate that the fair value of a reporting unit with goodwill has been reduced below carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book value, including goodwill, the implied fair value of goodwill is calculated. The excess, if any, of the book value over the implied fair value of the goodwill is charged to net income. For purposes of testing goodwill for impairment, we have three reporting units with goodwill balances: Transportation, Refining and Marketing and Specialties (M&S).

▪	Depreciation and Amortization—Depreciation and amortization of properties, plants and equipment are determined by either the individual-unit-straight-line method or the group-straight-line method (for those individual units that are highly integrated with other units).

▪	Impairment of Properties, Plants and Equipment—Properties, plants and equipment (PP&E) used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in the future cash flows expected to be generated by an asset group. If indicators of

Index to Financial Statements

potential impairment exist, an undiscounted cash flow test is performed. If the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset group, including applicable liabilities, the carrying value of the PP&E included in the asset group is written down to estimated fair value through additional amortization or depreciation provisions and reported in the “Impairment” line of our consolidated statement of income in the period in which the determination of the impairment is made. Individual assets are grouped for impairment purposes at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets (for example, at a refinery complex level). Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined using one or more of the following methods: the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants; a market multiple of earnings for similar assets; or historical market transactions of similar assets, adjusted using principal market participant assumptions when necessary. Long-lived assets held for sale are accounted for at the lower of amortized cost or fair value, less cost to sell, with fair value determined using a binding negotiated price, if available, or present value of expected future cash flows as previously described.

The expected future cash flows used for impairment reviews and related fair value calculations are based on estimated future volumes, prices, costs, margins and capital project decisions, considering all available evidence at the date of review.

▪

Impairment of Investments in Nonconsolidated Entities—Investments in nonconsolidated entities are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred. When indicators exist, the fair value is estimated and compared to the investment carrying value. If any impairment is judgmentally determined to be other than temporary, the carrying value of the investment is written down to fair value. The fair value of the impaired investment is based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and a market analysis of comparable assets, if appropriate.

▪	Maintenance and Repairs—Costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Major refinery maintenance turnarounds are expensed as incurred.

▪

Property Dispositions—When complete units of depreciable property are sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected in the “Net gain on dispositions” line of our consolidated statement of income. When less than complete units of depreciable property are disposed of or retired, the difference between asset cost and salvage value is charged or credited to accumulated depreciation.

▪

Asset Retirement Obligations and Environmental Costs—The fair value of legal obligations to retire and remove long-lived assets are recorded in the period in which the obligation is incurred. When the liability is initially recorded, we capitalize this cost by increasing the carrying amount of the related PP&E. Over time, the liability is increased for the change in its present value, and the capitalized cost in PP&E is depreciated over the useful life of the related asset. Our estimate may change after initial recognition in which case we record an adjustment to the liability and PP&E.

Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures relating to an existing condition caused by past operations, and those having no future economic benefit, are expensed. Liabilities for environmental expenditures are recorded on an undiscounted basis (unless acquired in a purchase business combination) when environmental assessments or cleanups are probable and the costs can be reasonably estimated. Recoveries of environmental remediation costs from other parties, such as state reimbursement funds, are recorded as assets when their receipt is probable and estimable.

▪

Guarantees—The fair value of a guarantee is determined and recorded as a liability at the time the guarantee is given. The initial liability is subsequently reduced as we are released from exposure under the guarantee. We amortize the guarantee liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of guarantee. In cases where the guarantee term is indefinite, we reverse the liability when we have information indicating the liability is essentially relieved or amortize it over an appropriate time period as the fair value of our guarantee exposure declines over time. We amortize the guarantee liability to the

Index to Financial Statements

related income statement line item based on the nature of the guarantee. When it becomes probable we will have to perform on a guarantee, we accrue a separate liability if it is reasonably estimable, based on the facts and circumstances at that time. We reverse the fair value liability only when there is no further exposure under the guarantee.

▪

Stock-Based Compensation—We recognize stock-based compensation expense over the shorter of: (1) the service period (i.e., the time required to earn the award); or (2) the period beginning at the start of the service period and ending when an employee first becomes eligible for retirement, but not less than six months, which is the minimum time required for an award not to be subject to forfeiture. We have elected to recognize expense on a straight-line basis over the service period for the entire award, whether the award was granted with ratable or cliff vesting.

▪

Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Interest related to unrecognized tax benefits is reflected in interest expense, and penalties in operating expenses.

▪	Taxes Collected from Customers and Remitted to Governmental Authorities—Excise taxes are reported gross within sales and other operating revenues and taxes other than income taxes, while other sales and value-added taxes are recorded net in taxes other than income taxes.

▪	Treasury Stock—We record treasury stock purchases at cost, which includes incremental direct transaction costs. Amounts are recorded as reductions in stockholders’ equity in the consolidated balance sheet.

Note 2—Changes in Accounting Principles

Effective December 1, 2015, we early adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs” and ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-15 states that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing these costs when they relate to a line-of-credit arrangement. Upon adoption, we reclassified $54 million and $49 million as a reduction of debt on our 2015 and 2014 consolidated balance sheets, respectively.

Note 3—Variable Interest Entities (VIEs)

In 2013, we formed Phillips 66 Partners LP, a master limited partnership, to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other transportation and midstream assets. We consolidate Phillips 66 Partners as we determined that Phillips 66 Partners is a VIE and 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 of Phillips 66 Partners that most significantly impact its economic performance. See Note 27—Phillips 66 Partners LP, for additional information.

We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. Information on our significant non-consolidated VIEs follows.

Merey Sweeny, L.P. (MSLP) is a limited partnership that owns a delayed coker and related facilities at the Sweeny Refinery. As discussed more fully in Note 7—Investments, Loans and Long-Term Receivables, in August 2009, a call right was exercised to acquire the 50 percent ownership interest in MSLP of the co-venturer, Petróleos de Venezuela S.A.

Index to Financial Statements

(PDVSA). That exercise was challenged, and the dispute has been arbitrated. In April 2014, the arbitral tribunal upheld the exercise of the call right and the acquisition of the 50 percent ownership interest. In July 2014, PDVSA filed a petition to vacate the tribunal’s award and in September 2015, the petition was denied. In January 2016, PDVSA filed an appeal with the appellate court seeking to reverse this ruling. Until all legal challenges are resolved, we will continue to use the equity method of accounting for MSLP, and the VIE analysis below is based on the ownership and governance structure in place prior to the exercise of the call right. MSLP is a VIE because, in securing lender consents in connection with our separation from ConocoPhillips in 2012 (the Separation), we provided a 100 percent debt guarantee to the lender of MSLP’s 8.85% senior notes (MSLP Senior Notes). PDVSA did not participate in the debt guarantee. In our VIE assessment, this disproportionate debt guarantee, plus other liquidity support provided jointly by us and PDVSA independently of equity ownership, results in MSLP not being exposed to all potential losses. We have determined we are not the primary beneficiary while our call exercise award is subject to being vacated, because under the partnership agreement, the co-venturers jointly direct the activities of MSLP that most significantly impact economic performance. At December 31, 2015, our maximum exposure to loss was the outstanding principal balance of the MSLP Senior Notes of $157 million and our investment in MSLP of $158 million.

We have a 50 percent ownership interest with a 50 percent governance interest in Excel Paralubes (Excel). In securing lender consents in connection with the Separation, ConocoPhillips provided a 50 percent debt guarantee to the lender of Excel’s 7.43% senior secured bonds (Excel Senior Bonds). We provided a full indemnity to ConocoPhillips for this debt guarantee. Our co-venturer did not participate in the debt guarantee. In November 2015, Excel repaid this debt and our guarantee was relieved. Also, liquidity support up to $60 million is provided jointly by us and our co-venturer independently of equity ownership. In our assessment, Excel is a VIE as this liquidity support results in Excel not being exposed to all potential losses. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Excel that most significantly impact economic performance. We use the equity method of accounting for this investment. At December 31, 2015, our maximum exposure to loss was half of the $60 million liquidity support, or $30 million, and our investment in Excel of $148 million.

Note 4—Inventories

Inventories at December 31 consisted of the following:

	Millions of Dollars
	2015				2014
Crude oil and petroleum products	$	3,214			3,141
Materials and supplies	263				256
	$	3,477			3,397

Inventories valued on the LIFO basis totaled $3,085 million and $3,004 million at December 31, 2015 and 2014, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $1,300 million and $3,000 million at December 31, 2015 and 2014, respectively.

During each of the three years ended December 31, 2015, certain reductions in inventory caused liquidations of LIFO inventory values. These liquidations decreased net income by approximately $37 million and $8 million in 2015 and 2014, respectively, and increased net income by approximately $109 million in 2013.

Index to Financial Statements

Note 5—Business Combinations

We completed the following acquisitions in 2014:

•	In August 2014, we acquired a 7.1 million-barrel-storage-capacity crude oil and petroleum products terminal located near Beaumont, Texas, to promote growth plans in our Midstream segment.

•	In July 2014, we acquired Spectrum Corporation, a private label and specialty lubricants business headquartered in Memphis, Tennessee. The acquisition supports our plans to selectively grow stable-return businesses in our M&S segment.

•	In March 2014, we acquired our co-venturer’s interest in an entity that operates a power and steam generation plant located in Texas that is included in our M&S segment. This acquisition provided us with full operational control over a key facility supplying utilities and other services to one of our refineries.

We funded each of these acquisitions with cash on hand. Total cash consideration paid in 2014 was $741 million, net of cash acquired. Cash consideration paid for acquisitions is included in the “Capital expenditures and investments” line of our consolidated statement of cash flows. In the aggregate, as of December 31, 2014, we provisionally recorded $471 million of PP&E, $232 million of goodwill, $196 million of intangible assets, $70 million of net working capital and $109 million of long-term liabilities. Our acquisition accounting for these transactions is final and there were no material adjustments to the provisional amounts recorded in the twelve-month period ended December 31, 2015.

Note 6—Assets Held for Sale or Sold

In December 2014, we completed the sale of our ownership interests in the Malaysia Refining Company Sdn. Bdh. (MRC), which was included in our Refining segment. At the time of the disposition, the total carrying value of our investment in MRC was $334 million, including $76 million of allocated goodwill and currency translation adjustments. A before-tax gain of $145 million was recognized from this disposition.

In July 2014, we entered into an agreement to sell the Bantry Bay terminal in Ireland, which was included in our Refining segment. Accordingly, the net assets of the terminal were classified as held for sale, which resulted in a before-tax impairment of $12 million from the reduction of the carrying value of the long-lived assets to estimated fair value less costs to sell. As of December 31, 2014, long-lived assets of $77 million were recorded in the “Prepaid expenses and other current assets” line of our consolidated balance sheet. In addition, an immaterial amount of long-term liabilities was recorded in the “Other accruals” line of our consolidated balance sheet. In February 2015, we completed the sale of the terminal. At the time of the disposition, the terminal had a net carrying value of $68 million, which primarily related to net PP&E. An immaterial gain was recognized on this disposition.

In February 2014, we exchanged the stock of Phillips Specialty Products Inc. (PSPI), a flow improver business, which was included in our M&S segment, for shares of Phillips 66 common stock owned by another party. The PSPI share exchange resulted in the receipt of approximately 17.4 million shares of Phillips 66 common stock, which are held as treasury shares, and the recognition of a before-tax gain of $696 million. At the time of the disposition, PSPI had a net carrying value of $685 million, which primarily included $481 million of cash and cash equivalents, $60 million of net PP&E and $117 million of allocated goodwill. Cash and cash equivalents of $450 million included in PSPI’s net carrying value is reflected as a financing cash outflow in the “Share exchange—PSPI transaction” line of our consolidated statement of cash flows. Revenues, income before tax and net income from discontinued operations, excluding the recognized before-tax gain of $696 million at closing, were not material for the years ended December 31, 2014 and 2013.

In July 2013, we completed the sale of the Immingham Combined Heat and Power Plant (ICHP), which was included in our M&S segment. A gain on this disposal was deferred at the time of the sale due to an indemnity provided to the buyer. We recognized the deferred gain into earnings as our exposure under the indemnity declined, beginning in the third quarter of 2014 and ending in the second quarter of 2015 when the indemnity expired. We recognized $242 million and $126 million of the deferred gain during the years ended December 31, 2015 and 2014, respectively.

Index to Financial Statements

In May 2013, we sold our E-Gas™ Technology business which was included in our M&S segment. A $48 million before-tax gain was recognized during 2013 from this disposition.

Note 7—Investments, Loans and Long-Term Receivables

Components of investments, loans and long-term receivables at December 31 were:

	Millions of Dollars
	2015				2014
Equity investments	$	11,977			10,035
Long-term receivables	84				76
Other investments	82				78
	$	12,143			10,189

Equity Investments

Affiliated companies in which we had a significant equity investment at December 31, 2015, included:

•	WRB Refining LP—50 percent owned business venture with Cenovus Energy Inc. (Cenovus)—owns the Wood River and Borger refineries.

•	DCP Midstream, LLC (DCP Midstream)—50 percent owned joint venture with Spectra Energy Corp—owns and operates gas plants, gathering systems, storage facilities and fractionation plants.

•	Chevron Phillips Chemical Company LLC (CPChem)—50 percent owned joint venture with Chevron U.S.A. Inc., an indirect wholly-owned subsidiary of Chevron Corporation—manufactures and markets petrochemicals and plastics.

•	Rockies Express Pipeline LLC (REX)—25 percent owned joint venture with Tallgrass Energy Partners L.P. and Sempra Energy Corp.—owns and operates a natural gas pipeline system from Meeker, Colorado to Clarington, Ohio.

•	DCP Sand Hills Pipeline, LLC (Sand Hills)—33 percent owned joint venture with DCP Midstream—owns and operates NGL pipeline systems from the Permian and Eagle Ford basins to Mont Belvieu, Texas.

•	DCP Southern Hills Pipeline, LLC (Southern Hills)—33 percent owned joint venture with DCP Midstream—owns and operates NGL pipeline systems from the Midcontinent region to Mont Belvieu, Texas.

•

Dakota Access LLC (DAPL)/Energy Transfer Crude Oil Company, LLC (ETCOP)—two 25 percent owned joint ventures with Energy Transfer Equity L.P. and Energy Transfer Partners L.P. (collectively “Energy Transfer”). DAPL is constructing a crude oil pipeline system from the Bakken/Three Forks production area in North Dakota to Patoka, Illinois, and ETCOP is constructing a crude oil pipeline system from Patoka to Nederland, Texas.

Index to Financial Statements

Summarized 100 percent financial information for all equity method investments in affiliated companies, combined, was as follows:

	Millions of Dollars
	2015				2014			2013
Revenues	$	33,126			57,979			59,500
Income before income taxes	3,180				4,791			5,975
Net income	3,158				4,700			5,838
Current assets	6,024				7,402			9,865
Noncurrent assets	46,047				41,271			40,188
Current liabilities	4,130				6,854			7,971
Noncurrent liabilities	11,493				9,736			9,959

Our share of income taxes incurred directly by the equity companies is included in equity in earnings of affiliates, and as such is not included in the provision for income taxes in our consolidated financial statements.

At December 31, 2015, retained earnings included $1,444 million related to the undistributed earnings of affiliated companies. Dividends received from affiliates were $1,769 million, $3,305 million, and $2,752 million in 2015, 2014 and 2013, respectively.

WRB

WRB’s operating assets consist of the Wood River and Borger refineries, located in Roxana, Illinois, and Borger, Texas, respectively, for which we are the operator and managing partner. As a result of our contribution of these two assets to WRB, a basis difference was created because the fair value of the contributed assets recorded by WRB exceeded their historical book value. The difference is primarily amortized and recognized as a benefit evenly over a period of 26 years, which was the estimated remaining useful life of the refineries’ PP&E at the closing date. At December 31, 2015, the book value of our investment in WRB was $1,967 million, and the basis difference was $3,155 million. Equity earnings in 2015, 2014 and 2013 were increased by $218 million, $184 million, and $185 million, respectively, due to amortization of the basis difference. Cenovus was obligated to contribute $7.5 billion, plus accrued interest, to WRB over a 10-year period that began in 2007. In the first quarter of 2014, Cenovus prepaid its remaining balance under this obligation. As a result, WRB declared a special dividend, which was distributed to the co-venturers in March 2014. Of the $1,232 million that we received, $760 million was considered a return on our investment in WRB (an operating cash inflow), and $472 million was considered a return of our investment in WRB (an investing cash inflow). The return of investment portion of the dividend was included in the “Proceeds from asset dispositions” line in our consolidated statement of cash flows.

DCP Midstream

DCP Midstream owns and operates gas plants, gathering systems, storage facilities and fractionation plants. DCP Midstream markets a portion of its NGL to us and CPChem under supply agreements, the primary production commitment of which began a ratable wind-down period in December 2014 and expires in January 2019. This purchase commitment is on an “if-produced, will-purchase” basis. NGL is purchased under this agreement at various published market index prices, less transportation and fractionation fees.

The deferred gain of $156 million related to the sale of our interest in the Seaway Products Pipeline Company, now Southern Hills, to DCP Midstream began amortizing in 2013.

In 2015, we contributed $1,500 million in cash to DCP Midstream as a capital contribution. Our co-venturer contributed its interests in Sand Hills and Southern Hills as a capital contribution. Our ownership percentage in DCP Midstream remained unchanged.

At December 31, 2015, the book value of our investment in DCP Midstream was $2,293 million, and the basis difference was $56 million.

Index to Financial Statements

CPChem

CPChem manufactures and markets petrochemicals and plastics. At December 31, 2015, the book value of our equity method investment in CPChem was $5,177 million. We have multiple supply and purchase agreements in place with CPChem, ranging in initial terms from one to 99 years, with extension options. These agreements cover sales and purchases of refined products, solvents, and petrochemical and NGL feedstocks, as well as fuel oils and gases. Delivery quantities vary by product, and are generally on an “if-produced, will-purchase” basis. All products are purchased and sold under specified pricing formulas based on various published pricing indices.

REX

REX owns a natural gas pipeline that runs from Meeker, Colorado to Clarington, Ohio, which became fully operational in November 2009. Long-term, binding firm commitments have been secured for virtually all of the pipeline’s capacity through 2019. In April 2015, REX repaid $450 million of its debt, reducing its long-term debt to approximately $2.6 billion. REX funded the repayment through member cash contributions. Our 25 percent share was approximately $112 million, which we contributed to REX in April 2015. At December 31, 2015, the book value of our equity method investment in REX was $407 million.

Sand Hills

The Sand Hills pipeline is a fee-based pipeline that transports NGL from the Permian Basin and Eagle Ford Shale to facilities along the Texas Gulf Coast and the Mont Belvieu market hub. This investment was contributed to Phillips 66 Partners LP in March 2015 as discussed further in Note 27—Phillips 66 Partners LP. At December 31, 2015, the book value of our equity investment in Sand Hills was $431 million.

Southern Hills

The Southern Hills pipeline is a fee-based pipeline that transports NGL from the Midcontinent to facilities along the Texas Gulf Coast and the Mont Belvieu market hub. This investment was contributed to Phillips 66 Partners LP in March 2015 as discussed further in Note 27—Phillips 66 Partners LP. At December 31, 2015, the book value of our investment in Southern Hills was $213 million, and the basis difference was $98 million.

DAPL/ETCOP

In 2014, we formed two joint ventures to develop the DAPL and ETCOP pipelines. The DAPL pipeline will connect the Bakken/Three Forks production area in North Dakota to Patoka, Illinois, with the ETCOP pipeline. The ETCOP pipeline will provide crude oil transportation service from Patoka to storage terminals located in Nederland, Texas. The DAPL and ETCOP pipelines are expected to have capacities of 470,000 and 395,000 barrels per day, respectively, and will be interstate Federal Energy Regulatory Commission regulated pipelines. At December 31, 2015, the book values of our investments in DAPL and ETCOP were $317 million and $104 million, respectively.

Other

MSLP owns a delayed coker and related facilities at the Sweeny Refinery. MSLP processes long residue, which is produced from heavy sour crude oil, for a processing fee. Fuel-grade petroleum coke is produced as a by-product and becomes the property of MSLP. Prior to August 28, 2009, MSLP was owned 50/50 by ConocoPhillips and PDVSA. Under the agreements that govern the relationships between the partners, certain defaults by PDVSA with respect to supply of crude oil to the Sweeny Refinery triggered the right to acquire PDVSA’s 50 percent ownership interest in MSLP, which was exercised on August 28, 2009. PDVSA initiated arbitration with the International Chamber of Commerce challenging the exercise of the call right and claiming it was invalid. The arbitral tribunal held hearings on the merits of the dispute in December 2012, and post-hearing briefs were exchanged in March 2013. The arbitral tribunal issued its ruling in April 2014, which upheld the exercise of the call right and the acquisition of the 50 percent ownership interest. In July 2014, PDVSA filed a petition in U.S. district court to vacate the tribunal’s ruling, and in September 2015, the petition was denied. In January 2016, PDVSA filed an appeal in the appellate court to vacate this ruling. Following the Separation, Phillips 66 generally indemnifies ConocoPhillips for liabilities, if any, arising out of the exercise of the call right or otherwise with respect to the joint venture or the refinery. Until all legal challenges are resolved, we will continue to use the equity method of accounting for our investment in MSLP.

Loans and Long-term Receivables

We enter into agreements with other parties to pursue business opportunities. Included in such activity are loans and long-term receivables to certain affiliated and non-affiliated companies. Loans are recorded when cash is transferred or seller financing is provided to the affiliated or non-affiliated company pursuant to a loan agreement. The loan balance

Index to Financial Statements

will increase as interest is earned on the outstanding loan balance and will decrease as interest and principal payments are received. Interest is earned at the loan agreement’s stated interest rate. Loans and long-term receivables are assessed for impairment when events indicate the loan balance may not be fully recovered.

Note 8—Properties, Plants and Equipment

Our investment in PP&E is recorded at cost. Investments in refining manufacturing facilities are generally depreciated on a straight-line basis over a 25-year life, pipeline assets over a 45-year life and terminal assets over a 33-year life. The company’s investment in PP&E, with the associated accumulated depreciation and amortization (Accum. D&A), at December 31 was:

	Millions of Dollars
	2015										2014
	Gross PP&E				Accum. D&A			Net PP&E			Gross PP&E			Accum. D&A			Net PP&E
Midstream	$	6,978			1,293			5,685			4,726			1,185			3,541
Chemicals	—				—			—			—			—			—
Refining	20,850				8,046			12,804			19,951			7,424			12,527
Marketing and Specialties	1,422				746			676			1,490			738			752
Corporate and Other	1,060				504			556			978			452			526
	$	30,310			10,589			19,721			27,145			9,799			17,346

Note 9—Goodwill and Intangibles

Goodwill

The carrying amount of goodwill was as follows:

	Millions of Dollars
	Midstream				Refining			Marketing and Specialties			Total
Balance at January 1, 2014	$	518			1,919			659			3,096
Tax and other adjustments	—				(49	)		52			3
Goodwill assigned to asset acquisitions	105				—			127			232
Goodwill allocated to assets held-for-sale or sold	—				(57	)		—			(57	)
Balance at December 31, 2014	623				1,813			838			3,274
Goodwill assigned to asset acquisitions	—				—			1			1
Balance at December 31, 2015	$	623			1,813			839			3,275

Index to Financial Statements

Intangible Assets

Information relating to the carrying value of intangible assets at December 31 follows:

	Millions of Dollars
	Gross Carrying Amount
	2015				2014
Indefinite-Lived Intangible Assets
Trade names and trademarks	$	503			503
Refinery air and operating permits	266				239
Other	1				14
	$	770			756

At year-end 2015, the net book value of our amortized intangible assets was $136 million, which included accumulated amortization of $135 million, compared with $144 million and $132 million, respectively, at year-end 2014. See Note 5—Business Combinations for more information on intangible assets acquired in business acquisitions. Amortization expense was not material for 2015 and 2014, and is not expected to be material in future years.

Note 10—Impairments

During 2015, 2014 and 2013, we recognized the following before-tax impairment charges:

	Millions of Dollars
	2015				2014			2013
Midstream	$	1			—			1
Refining	3				147			3
Marketing and Specialties	3				3			16
Corporate and Other	—				—			9
	$	7			150			29

2015

During the year ended December 31, 2015, there were no significant impairments.

2014

We recorded a $131 million held-for-use impairment in our Refining segment related to the Whitegate Refinery in Cork, Ireland, due to the current and forecasted negative market conditions in this region.

In addition, we also recorded a $12 million held-for-sale impairment in our Refining segment related to the Bantry Bay terminal. See Note 6—Assets Held for Sale or Sold for additional information.

2013

We recorded impairments of $16 million in our M&S segment, primarily related to PP&E associated with our planned exit from the composite graphite business.

Index to Financial Statements

Note 11—Asset Retirement Obligations and Accrued Environmental Costs

Asset retirement obligations and accrued environmental costs at December 31 were:

	Millions of Dollars
	2015				2014
Asset retirement obligations	$	251			279
Accrued environmental costs	485				496
Total asset retirement obligations and accrued environmental costs	736				775
Asset retirement obligations and accrued environmental costs due within one year*	(71		)		(92	)
Long-term asset retirement obligations and accrued environmental costs	$	665			683

*Classified as a current liability on the consolidated balance sheet, under the caption “Other accruals.”

Asset Retirement Obligations

We have asset removal obligations that we are required to perform under law or contract once an asset is permanently taken out of service. Most of these obligations are not expected to be paid until many years in the future and will be funded from general company resources at the time of removal. Our largest individual obligations involve asbestos abatement at refineries.

During 2015 and 2014, our overall asset retirement obligation changed as follows:

	Millions of Dollars
	2015				2014
Balance at January 1	$	279			309
Accretion of discount	9				11
New obligations	—				2
Changes in estimates of existing obligations	(7		)		(16	)
Spending on existing obligations	(20		)		(17	)
Property dispositions	(2		)		(1	)
Foreign currency translation	(8		)		(9	)
Balance at December 31	$	251			279

Accrued Environmental Costs

Total accrued environmental costs at December 31, 2015 and 2014, were $485 million and $496 million, respectively. The 2015 decrease in total accrued environmental costs is due to payments and settlements exceeding new accruals, accrual adjustments and accretion during the year.

We had accrued environmental costs at December 31, 2015 and 2014, of $270 million and $268 million, respectively, primarily related to cleanup at domestic refineries and underground storage tanks at U.S. service stations; $168 million and $178 million, respectively, associated with nonoperator sites; and $47 million and $50 million, respectively, where the company has been named a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act, or similar state laws. Accrued environmental liabilities are expected to be paid over periods extending up to 30 years. Because a large portion of the accrued environmental costs were acquired in various business combinations, the obligations are recorded at a discount. Expected expenditures for acquired environmental obligations are discounted using a weighted-average 5 percent discount factor, resulting in an accrued balance for acquired environmental liabilities of $246 million at December 31, 2015. The expected future undiscounted payments related to the portion of the accrued environmental costs that have been discounted are: $25 million in 2016, $24 million in 2017, $21 million in 2018, $20 million in 2019, $24 million in 2020, and $200 million for all future years after 2020.

Index to Financial Statements

Note 12—Earnings Per Share

The numerator of basic earnings per share (EPS) is net income attributable to Phillips 66, reduced by 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 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 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.

	2015						2014					2013
	Basic			Diluted			Basic		Diluted			Basic		Diluted
Amounts Attributed to Phillips 66 Common Stockholders (millions):
Income from continuing operations attributable to Phillips 66	$	4,227		4,227			4,056		4,056			3,665		3,665
Income allocated to participating securities	(6		)	—			(7	)	—			(5	)	—
Income from continuing operations available to common stockholders	4,221			4,227			4,049		4,056			3,660		3,665
Discontinued operations	—			—			706		706			61		61
Net income available to common stockholders	$	4,221		4,227			4,755		4,762			3,721		3,726
Weighted-average common shares outstanding (thousands):	537,602			542,355			561,859		565,902			608,983		612,918
Effect of stock-based compensation	4,753			4,622			4,043		5,602			3,935		6,071
Weighted-average common shares outstanding—EPS	542,355			546,977			565,902		571,504			612,918		618,989
Earnings Per Share of Common Stock (dollars):
Income from continuing operations attributable to Phillips 66	$	7.78		7.73			7.15		7.10			5.97		5.92
Discontinued operations	—			—			1.25		1.23			0.10		0.10
Earnings Per Share	$	7.78		7.73			8.40		8.33			6.07		6.02

Index to Financial Statements

Note 13—Debt

Long-term debt at December 31 was:

	Millions of Dollars
	2015				2014
1.95% Senior Notes due 2015	$	—			800
2.95% Senior Notes due 2017	1,500				1,500
4.30% Senior Notes due 2022	2,000				2,000
4.65% Senior Notes due 2034	1,000				1,000
4.875% Senior Notes due 2044	1,500				1,500
5.875% Senior Notes due 2042	1,500				1,500
Phillips 66 Partners 2.646% Senior Notes due 2020	300				—
Phillips 66 Partners 3.605% Senior Notes due 2025	500				—
Phillips 66 Partners 4.680% Senior Notes due 2045	300				—
Industrial Development Bonds due 2018 through 2021 at 0.01% at year-end 2015 and 0.02%-0.05% at year-end 2014	50				50
Sweeny Cogeneration, L.P. notes due 2020 at 7.54%	41				53
Note payable to Merey Sweeny, L.P. due 2020 at 7% (related party)	83				97
Phillips 66 Partners revolving credit facility due 2019 at 1.33% at year-end 2014	—				18
Other	1				1
Debt at face value	8,775				8,519
Capitalized leases	208				210
Net unamortized discounts and debt issuance costs	(96		)		(94	)
Total debt	8,887				8,635
Short-term debt	(44		)		(842	)
Long-term debt	$	8,843			7,793

Maturities of long-term borrowings, inclusive of net unamortized discounts and debt issuance costs, for each of the years from 2016 through 2020 are $44 million, $1,545 million, $51 million, $37 million and $337 million, respectively.

Debt Issuance

In February 2015, Phillips 66 Partners closed on a public offering of $1.1 billion aggregate principal amount of unsecured senior notes, consisting of:

•	$300 million of 2.646% Senior Notes due 2020.

•	$500 million of 3.605% Senior Notes due 2025.

•	$300 million of 4.680% Senior Notes due 2045.

Phillips 66 Partners utilized a portion of the net proceeds to fund part of the purchase price for its acquisition of our equity interests in Sand Hills, Southern Hills and Explorer Pipeline Company (Explorer). The remaining proceeds were used to repay existing borrowings from a subsidiary of Phillips 66, fund capital expenditures and for general partnership purposes. See Note 27—Phillips 66 Partners LP, for additional information.

Credit Facilities and Commercial Paper

Phillips 66 has a $5 billion revolving credit facility that extends until December 2019. This facility may be used for direct bank borrowings, as support for issuances of letters of credit, or as support for our commercial paper program. The facility is with a broad syndicate of financial institutions and contains covenants that we consider usual and customary for an agreement of this type for comparable commercial borrowers, including a maximum consolidated net debt-to-

Index to Financial Statements

capitalization ratio of 60 percent. The agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; violation of covenants; cross-payment default and cross-acceleration (in each case, to indebtedness in excess of a threshold amount); and a change of control. Borrowings under the facility will incur interest at the London Interbank Offered Rate (LIBOR) plus a margin based on the credit rating of our senior unsecured long-term debt as determined from time to time by Standard & Poor’s Ratings Services and Moody’s Investors Service. The facility also provides for customary fees, including administrative agent fees and commitment fees. As of December 31, 2015, no amount had been directly drawn under this revolving credit agreement, while $51 million in letters of credit had been issued that were supported by it. As a result, we ended 2015 with $4.9 billion of capacity under this facility.

We have a $5 billion commercial paper program for short-term working capital needs. Commercial paper maturities are generally limited to 90 days. As of December 31, 2015, we had no borrowings under our commercial paper program.

Phillips 66 Partners has a $500 million revolving credit facility that extends until November 2019. The Phillips 66 Partners facility is with a broad syndicate of financial institutions. As of December 31, 2015, no amounts were outstanding under this facility.

Note 14—Guarantees

At December 31, 2015, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability, at inception, 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 guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

Guarantees of Joint Venture Debt

In 2012, in connection with the Separation, we issued a guarantee for 100 percent of the MSLP Senior Notes issued in July 1999. At December 31, 2015, the maximum potential amount of future payments to third parties under the guarantee was estimated to be $157 million, which could become payable if MSLP fails to meet its obligations under the senior notes agreement. The MSLP Senior Notes mature in 2019.

Other Guarantees

We have residual value guarantees associated with leases with maximum future potential payments totaling $389 million. We have other guarantees with maximum future potential payment amounts totaling $117 million, which consist primarily of guarantees to fund the short-term cash liquidity deficits of certain joint ventures and guarantees of the lease payment obligations of a joint venture. These guarantees generally extend up to 9 years or life of the venture.

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 qualifying indemnifications. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses, and employee claims; and real estate indemnity against tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues with generally indefinite terms, and the maximum amount of future payments is generally unlimited. The carrying amount recorded for indemnifications at December 31, 2015, was $198 million. 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 the liability is essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines. 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. Included in the recorded carrying amount were $98 million of environmental accruals for known contamination that were primarily included in “Asset retirement obligations and accrued environmental costs” at December 31, 2015. For additional information about environmental liabilities, see Note 15—Contingencies and Commitments.

Index to Financial Statements

Indemnification and Release Agreement

In 2012, we entered into the Indemnification and Release Agreement with ConocoPhillips. 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 15—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 contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain. See Note 21—Income Taxes, for additional information about income-tax-related contingencies.

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 all information available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring 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 of those potentially responsible 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 and some of the indemnifications are subject to dollar and time limits.

Index to Financial Statements

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. 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 purchase 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. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings. See Note 11—Asset Retirement Obligations and Accrued Environmental Costs, for a summary of our accrued environmental liabilities.

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 resulting from throughput agreements with pipeline and processing 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 December 31, 2015, we had performance obligations secured by letters of credit and bank guarantees of $308 million (of which $51 million was issued under the provisions of our revolving credit facility, and the remainder was issued as direct bank letters of credit and bank guarantees) related to various purchase and other commitments incident to the ordinary conduct of business.

Long-Term Throughput Agreements and Take-or-Pay Agreements

We have certain throughput agreements and take-or-pay agreements in support of third-party financing arrangements. The agreements typically provide for crude oil transportation to be used in the ordinary course of our business. The aggregate amounts of estimated payments under these various agreements are $312 million annually for each of the years from 2016 through 2020 and $3,147 million in the aggregate for years 2021 and thereafter. Total payments under the agreements were $328 million in 2015, $331 million in 2014 and $345 million in 2013.

Note 16—Derivatives and Financial Instruments

Derivative Instruments

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

Purchase and sales contracts with fixed minimum notional volumes for commodities that are readily convertible to cash (e.g., crude oil and gasoline) are recorded on the balance sheet as derivatives unless the contracts are eligible for, and we elect, the normal purchases and normal sales exception (i.e., contracts to purchase or sell quantities we expect to use or sell over a reasonable period in the normal course of business). We generally apply this normal purchases and normal sales exception to eligible crude oil, refined product, NGL, natural gas and power commodity purchase and sales contracts; however, we may elect not to apply this exception (e.g., when another derivative instrument will be used to mitigate the risk of the purchase or sales contract but hedge accounting will not be applied, in which case both the purchase or sales contract and the derivative contract mitigating the resulting risk will be recorded on the balance sheet at

Index to Financial Statements

fair value). Our derivative instruments are held at fair value on our consolidated balance sheet. For further information on the fair value of derivatives, see Note 17—Fair Value Measurements.

Commodity Derivative Contracts—We sell into or receive supply from the worldwide crude oil, refined products, natural gas, NGL, 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, immaterial 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.

The following table indicates the balance sheet line items that include the fair values of commodity derivative assets and liabilities presented net (i.e., commodity derivative assets and liabilities with the same counterparty are netted where the right of setoff exists); however, the balances in the following table are presented gross. For information on the impact of counterparty netting and collateral netting, see Note 17—Fair Value Measurements.

	Millions of Dollars
	2015				2014
Assets
Accounts and notes receivable	$	—			(1	)
Prepaid expenses and other current assets	2,607				3,839
Other assets	5				29
Liabilities
Other accruals	2,425				3,472
Other liabilities and deferred credits	5				1

Hedge accounting has not been used for any item in the table.

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

	Millions of Dollars
	2015				2014			2013
Sales and other operating revenues	$	162			658			17
Equity in earnings of affiliates	—				66			(19	)
Other income	58				20			3
Purchased crude oil and products	121				136			95

Hedge accounting has not been used for any item in the table.

Index to Financial Statements

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 positions such as inventory volumes. Financial derivative contracts may also offset physical derivative contracts, such as forward sales contracts. The percentage of our derivative contract volumes expiring within the next 12 months was approximately 99 percent at both December 31, 2015 and 2014.

	Open Position Long / (Short)
	2015			2014
Commodity
Crude oil, refined products and NGL (millions of barrels)	(17	)		(11	)

Credit Risk

Financial instruments potentially exposed to concentrations of credit risk consist primarily of over-the-counter (OTC) derivative contracts and trade receivables.

The credit risk from our OTC 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 until settled; however, we are exposed to the credit risk of those exchange brokers for receivables arising from daily margin cash calls, as well as for cash deposited to meet initial margin requirements.

Our trade receivables result primarily from the sale of products from, or related to, our refinery operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less. We continually monitor this exposure and the creditworthiness of the counterparties and recognize bad debt expense based on historical write-off experience or specific counterparty collectability. Generally, we do not require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments, and master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us or owed to others to be offset against amounts due to us.

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 not material at December 31, 2015 or 2014.

Index to Financial Statements

Note 17—Fair Value Measurements

Fair Values of Financial Instruments

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

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

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

•	Debt: The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated based on quoted market prices.

•	Commodity swaps: Fair value is estimated based on forward market prices and approximates the exit price at period end. 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.

•	Futures: Fair values are based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange, or other traded exchanges.

•	Forward-exchange contracts: Fair value is estimated by comparing the contract rate to the forward rate in effect at the end of the reporting period, which approximates the exit price at that date.

We carry certain assets and liabilities at fair value, which we measure at the reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability), 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 lowest level of input significant to its 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 year ended December 31, 2015, derivative assets with an aggregate value of $502 million and derivative liabilities with an aggregate value of $512 million were transferred into Level 1, 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.

Recurring Fair Value Measurements

Financial assets and liabilities recorded at fair value on a recurring basis consist primarily of investments to support nonqualified deferred compensation plans and derivative instruments. The deferred compensation investments are measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are categorized as Level 1 in the fair value hierarchy. We value our exchange-traded commodity derivatives using closing prices provided by the exchange as of the balance sheet date, and these are also classified 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 quotes, we classify those contracts as Level 2. OTC financial swaps and physical commodity forward purchase and sales contracts are generally valued using 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. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, OTC swaps and physical commodity purchase and sales contracts 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. Financial OTC and physical commodity options are valued using industry-standard models that consider various assumptions, including quoted

Index to Financial Statements

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 pricing convention (the mid-point between bid and ask prices). When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

The following tables display the fair value hierarchy for our material 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 gross (i.e., without the effect of netting where the legal right of setoff exists) in the hierarchy sections of these tables. These tables also show that our Level 3 activity was not material.

We have master netting agreements for all of our exchange-cleared derivative instruments, the majority of our OTC derivative instruments, and certain physical commodity forward contracts (primarily pipeline crude oil deliveries). The following tables show the fair value of these contracts on a net basis in the column “Effect of Counterparty Netting,” which is how these also appear on the consolidated balance sheet.

The carrying values and fair values by hierarchy of our material financial instruments and commodity forward contracts, either carried or disclosed at fair value, including any effects of netting derivative assets with liabilities and netting collateral due to right of setoff or master netting agreements, were:

	Millions of Dollars
	December 31, 2015
	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		Cash Collateral Received or Paid, Not Offset on Balance Sheet
	Level 1				Level 2			Level 3
Commodity Derivative Assets
Exchange-cleared instruments	$	1,851			703			—			2,554		(2,389	)	(100	)	—		65		—
OTC instruments	—				13			—			13		(12	)	—		—		1		—
Physical forward contracts*	3				40			2			45		—		—		—		45		—
Rabbi trust assets	83				—			—			83		N/A		N/A		—		83		N/A
	$	1,937			756			2			2,695		(2,401	)	(100	)	—		194
Commodity Derivative Liabilities
Exchange-cleared instruments	$	1,745			646			—			2,391		(2,389	)	—		—		2		—
OTC instruments	—				17			—			17		(12	)	—		—		5		—
Physical forward contracts*	—				22			—			22		—		—		—		22		—
Floating-rate debt	50				—			—			50		N/A		N/A		—		50		N/A
Fixed-rate debt, excluding capital leases**	—				8,434			—			8,434		N/A		N/A		195		8,629		N/A
	$	1,795			9,119			—			10,914		(2,401	)	—		195		8,708

*Physical forward contracts may have a larger value on the balance sheet than disclosed in the fair value hierarchy when the remaining contract term at the reporting date is greater than 12 months and the short-term portion is an asset while the long-term portion is a liability, or vice versa.

**We carry fixed-rate debt on the balance sheet at amortized cost.

Index to Financial Statements

	Millions of Dollars
	December 31, 2014
	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		Cash Collateral Received or Paid, Not Offset on Balance Sheet
	Level 1				Level 2			Level 3
Commodity Derivative Assets
Exchange-cleared instruments	$	2,058			1,525			—			3,583		(3,255	)	(225	)	—		103		—
OTC instruments	—				24			—			24		(14	)	—		—		10		—
Physical forward contracts*	—				253			7			260		(38	)	—		—		222		—
Rabbi trust assets	76				—			—			76		N/A		N/A		—		76		N/A
	$	2,134			1,802			7			3,943		(3,307	)	(225	)	—		411
Commodity Derivative Liabilities
Exchange-cleared instruments	$	1,833			1,422			—			3,255		(3,255	)	—		—		—		—
OTC instruments	—				29			—			29		(14	)	—		—		15		—
Physical forward contracts*	—				189			—			189		(38	)	—		—		151		—
Floating-rate debt	68				—			—			68		N/A		N/A		—		68		N/A
Fixed-rate debt, excluding capital leases**	—				8,806			—			8,806		N/A		N/A		(400	)	8,406		N/A
	$	1,901			10,446			—			12,347		(3,307	)	—		(400	)	8,640

*Physical forward contracts may have a larger value on the balance sheet than disclosed in the fair value hierarchy when the remaining contract term at the reporting date is greater than 12 months and the short-term portion is an asset while the long-term portion is a liability, or vice versa.

**We carry fixed-rate debt on the balance sheet at amortized cost.

The rabbi trust assets appear on our consolidated balance sheet in the “Investments and long-term receivables” line, while the floating-rate and fixed-rate debt appear in the “Short-term debt” and “Long-term debt” lines. For information regarding where our commodity derivative assets and liabilities appear on the balance sheet, see the first table in Note 16—Derivatives and Financial Instruments.

Nonrecurring Fair Value Remeasurements

During the year ended December 31, 2015, there were no significant nonrecurring fair value remeasurements of assets subsequent to their initial recognition.

The following table shows the values of assets, by major category, measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition during the year ended December 31, 2014:

	Millions of Dollars
					Fair Value Measurements Using
	Fair Value*				Level 1 Inputs			Level 3 Inputs			Before- Tax Loss
Year Ended December 31, 2014
Net properties, plants and equipment (held for use)	$	20			—			20			131
Net properties, plants and equipment (held for sale)	72				72			—			12

*Represents the classification and fair value at the time of the impairment.

During 2014, net PP&E held for use related to our Whitegate Refinery in Ireland included in our Refining segment, with a carrying amount of $151 million, was written down to its fair value of $20 million, resulting in a before-tax loss of $131 million. The fair value was determined based on the highest and best use of these assets to a principal market participant using market transactions of similar assets with adjustments to reflect the condition of the assets. In addition,

Index to Financial Statements

net assets held for sale related to the Bantry Bay terminal in our Refining segment, with a carrying amount of $84 million, primarily consisting of net PP&E, were written down to fair value less costs to sell, resulting in a before-tax loss of $12 million. This impairment was attributed to the long-lived assets in the disposal group. The fair value was determined by a negotiated selling price with a third party. See Note 6—Assets Held for Sale or Sold, for additional information.

Note 18—Equity

Preferred Stock

We have 500 million shares of preferred stock authorized, with a par value of $0.01 per share. No shares of preferred stock were outstanding as of December 31, 2015 or 2014.

Treasury Stock

On October 9, 2015, our Board of Directors increased our current share repurchase authorization by $2 billion resulting in a total authorization of $4 billion. Since July 2012, our Board of Directors has authorized repurchases of our outstanding common stock totaling up to $9 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 the company’s 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. Since the inception of our share repurchases in 2012, through December 31, 2015, we have repurchased a total of 92,503,292 shares at a cost of $6.4 billion. Shares of stock repurchased are held as treasury shares.

Common Stock Dividends

On February 3, 2016, our Board of Directors declared a quarterly cash dividend of $0.56 per common share, payable March 1, 2016, to holders of record at the close of business on February 16, 2016.

Index to Financial Statements

Note 19—Leases

We lease ocean transport vessels, tugboats, barges, pipelines, railcars, service station sites, computers, office buildings, corporate aircraft, land and other facilities and equipment. 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. There are no significant restrictions imposed on us by the leasing agreements with regard to dividends, asset dispositions or borrowing ability. Our capital lease obligations relate primarily to the lease of an oil terminal in the United Kingdom. The lease obligation is subject to foreign currency translation adjustments each reporting period. The total net PP&E recorded for capital leases was $231 million and $203 million at December 31, 2015 and 2014, respectively.

Future minimum lease payments as of December 31, 2015, for operating and capital lease obligations were:

	Millions of Dollars
	Capital Lease Obligations				Operating Lease Obligations
2016	$	24			510
2017	25				418
2018	19				308
2019	18				234
2020	14				171
Remaining years	169				368
Total	269				2,009
Less: income from subleases	—				99
Net minimum lease payments	$	269			1,910
Less: amount representing interest	61
Capital lease obligations	$	208

Operating lease rental expense for the years ended December 31 was:

	Millions of Dollars
	2015				2014			2013
Minimum rentals	$	641			570			572
Contingent rentals	6				8			7
Less: sublease rental income	136				135			133
	$	511			443			446

Index to Financial Statements

Note 20—Employee Benefit Plans

Pension and Postretirement Plans

The following table provides a reconciliation of the projected benefit obligations and plan assets for our pension plans and accumulated benefit obligations for our other postretirement benefit plans:

	Millions of Dollars
	Pension Benefits													Other Benefits
	2015							2014						2015			2014
	U.S.				Int’l.			U.S.			Int’l.
Change in Benefit Obligation
Benefit obligation at January 1	$	2,895			941			2,473			840			203			189
Service cost	124				38			121			38			7			7
Interest cost	109				28			108			35			7			8
Plan participant contributions	—				3			—			4			1			1
Actuarial loss (gain)	(25		)		(10	)		409			116			13			4
Benefits paid	(312		)		(20	)		(216	)		(18	)		(12	)		(6	)
Foreign currency exchange rate change	—				(68	)		—			(74	)		—			—
Benefit obligation at December 31*	$	2,791			912			2,895			941			219			203
*Accumulated benefit obligation portion of above at December 31:	$	2,485			712			2,553			729
Change in Fair Value of Plan Assets
Fair value of plan assets at January 1	$	2,124			724			2,008			645			—			—
Actual return on plan assets	(10		)		18			168			89			—			—
Company contributions	221				63			164			60			11			5
Plan participant contributions	—				3			—			4			1			1
Benefits paid	(312		)		(20	)		(216	)		(18	)		(12	)		(6	)
Foreign currency exchange rate change	—				(46	)		—			(56	)		—			—
Fair value of plan assets at December 31	$	2,023			742			2,124			724			—			—
Funded Status at December 31	$	(768	)		(170	)		(771	)		(217	)		(219	)		(203	)

Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at December 31, 2015 and 2014, include:

	Millions of Dollars
	Pension Benefits													Other Benefits
	2015							2014						2015			2014
	U.S.				Int’l.			U.S.			Int’l.
Amounts Recognized in the Consolidated Balance Sheet at December 31
Noncurrent assets	$	—			20			—			13			—			—
Current liabilities	(10		)		—			(8	)		—			(10	)		(6	)
Noncurrent liabilities	(758		)		(190	)		(763	)		(230	)		(209	)		(197	)
Total recognized	$	(768	)		(170	)		(771	)		(217	)		(219	)		(203	)

Index to Financial Statements

Included in accumulated other comprehensive income at December 31 were the following before-tax amounts that had not been recognized in net periodic benefit cost:

	Millions of Dollars
	Pension Benefits													Other Benefits
	2015							2014						2015			2014
	U.S.				Int’l.			U.S.			Int’l.
Unrecognized net actuarial loss (gain)	$	710			143			741			165			2			(13	)
Unrecognized prior service cost (credit)	6				(7	)		9			(9	)		(10	)		(12	)

	Millions of Dollars
	Pension Benefits													Other Benefits
	2015							2014						2015			2014
	U.S.				Int’l.			U.S.			Int’l.
Sources of Change in Other Comprehensive Income
Net gain (loss) arising during the period	$	(124	)		7			(382	)		(57	)		(14	)		(3	)
Amortization of (gain) loss and settlements included in income	155				15			40			12			(1	)		(2	)
Net change during the period	$	31			22			(342	)		(45	)		(15	)		(5	)
Prior service cost arising during the period	$	—			—			—			—			—			—
Amortization of prior service cost (credit) included in income	3				(1	)		3			(2	)		(2	)		(1	)
Net change during the period	$	3			(1	)		3			(2	)		(2	)		(1	)

For our tax-qualified pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets were $3,005 million, $2,676 million, and $2,183 million, respectively, at December 31, 2015, and $3,189 million, $2,815 million, and $2,295 million, respectively, at December 31, 2014. For our unfunded nonqualified key employee supplemental pension plans, the projected benefit obligation and the accumulated benefit obligation were $137 million and $112 million, respectively, at December 31, 2015, and $107 million and $83 million, respectively, at December 31, 2014.

Index to Financial Statements

The allocated benefit cost from Shared Plans, as well as the components of net periodic benefit cost associated with plans sponsored by us, for 2015, 2014 and 2013 is shown in the table below:

	Millions of Dollars
	Pension Benefits																			Other Benefits
	2015							2014						2013						2015			2014			2013
	U.S.				Int’l.			U.S.			Int’l.			U.S.			Int’l.
Components of Net Periodic Benefit Cost
Service cost	$	124			38			121			38			125			36			7			7			8
Interest cost	109				28			108			35			91			31			7			8			7
Expected return on plan assets	(138		)		(37	)		(142	)		(37	)		(120	)		(29	)		—			—			—
Amortization of prior service cost (credit)	3				(1	)		3			(2	)		3			(1	)		(2	)		(1	)		(2	)
Recognized net actuarial loss (gain)	75				15			40			12			84			16			(1	)		(2	)		—
Settlements	80				—			—			—			—			—			—			—			—
Total net periodic benefit cost	$	253			43			130			46			183			53			11			12			13

In determining net periodic benefit cost, we amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. For net actuarial gains and losses, we amortize 10 percent of the unamortized balance each year. The amount subject to amortization is determined on a plan-by-plan basis. Amounts included in accumulated other comprehensive income at December 31, 2015, that are expected to be amortized into net periodic benefit cost during 2016 are provided below:

	Millions of Dollars
	Pension Benefits							Other Benefits
	U.S.				Int’l.
Unrecognized net actuarial loss	$	72			14			—
Unrecognized prior service cost (credit)	3				(1	)		(1	)

Index to Financial Statements

The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs for years ended December 31:

	Pension Benefits									Other Benefits
	2015					2014				2015		2014
	U.S.			Int’l.		U.S.		Int’l.
Assumptions Used to Determine Benefit Obligations:
Discount rate	4.35	%		3.35		3.90		3.10		4.00		3.70
Rate of compensation increase	4.00			3.65		4.00		3.20		—		—
Assumptions Used to Determine Net Periodic Benefit Cost:
Discount rate	3.90	%		3.10		4.55		4.30		3.70		4.40
Expected return on plan assets	7.00			5.15		7.00		5.50		—		—
Rate of compensation increase	4.00			3.20		4.00		3.90		—		—

For both U.S. and international pension plans, the overall expected long-term rate of return is developed from the expected future return of each asset class, weighted by the expected allocation of pension assets to that asset class. We rely on a variety of independent market forecasts in developing the expected rate of return for each class of assets.

Our other postretirement benefit plans for health insurance are contributory. Effective December 31, 2012, we terminated the subsidy for retiree medical. Since January 1, 2013, eligible employees have been able to utilize notional amounts credited to an account during their period of service with the company to pay all, or a portion, of their cost to participate in postretirement health insurance through the company. In general, employees hired after December 31, 2012, will not receive credits to an account, but will have unsubsidized access to health insurance through the plan. The cost of health insurance will be adjusted annually by the company’s actuary to reflect actual experience and expected health care cost trends. The measurement of the accumulated benefit obligation assumes a health care cost trend rate of 6.75 percent in 2016 that declines to 5.00 percent by 2023. A 1 percentage-point change in the assumed health care cost trend rate would be immaterial to Phillips 66.

Plan Assets

The investment strategy for managing pension plan assets is to seek a reasonable rate of return relative to an appropriate level of risk and provide adequate liquidity for benefit payments and portfolio management. We follow a policy of broadly diversifying pension plan assets across asset classes, investment managers, and individual holdings. As a result, our plan assets have no significant concentrations of credit risk. Asset classes that are considered appropriate include equities, fixed income, cash, real estate and insurance contracts. Plan fiduciaries may consider and add other asset classes to the investment program from time to time. The target allocations for plan assets are approximately 62 percent equity securities, 37 percent debt securities and 1 percent in all other types of investments. Generally, the investments in the plans are publicly traded, therefore minimizing the liquidity risk in the portfolio.

The following is a description of the valuation methodologies used for the pension plan assets.

•	Fair values of equity securities and government debt securities categorized in Level 1 are based on quoted market prices.

•	Fair values of corporate debt securities categorized in Level 2 are estimated using recently executed transactions and market price quotations. If there have been no market transactions in a particular fixed income security, its fair market value is calculated by pricing models that benchmark the security against other securities with actual market prices.

Index to Financial Statements

•	Fair values of mutual funds are valued based on quoted market prices, which represent the net asset value of shares held.

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

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

•	Fair values of real estate investments are valued using real estate valuation techniques and other methods that include reference to third-party sources and sales comparables where available.

•	Fair values of investments in common/collective trusts are valued at net asset value (NAV) as determined by the issuer of each fund. Certain investments that are measured at fair value using the NAV value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair values of our pension plan assets at December 31, by asset class, were as follows:

	Millions of Dollars
	U.S.													International
	Level 1				Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
2015
Equity Securities
U.S.	$	322			—			—			322			136			—			—			136
International	125				—			—			125			99			—			—			99
Mutual funds	—				—			—			—			—			—			—			—
Debt Securities
Government	—				—			—			—			144			—			—			144
Corporate	—				—			—			—			—			—			—			—
Mutual funds	41				—			—			41			—			—			—			—
Cash and cash equivalents	22				—			—			22			3			—			—			3
Insurance contracts	—				—			—			—			—			—			13			13
Real estate	—				—			—			—			—			—			6			6
Subtotal	510				—			—			510			382			—			19			401
Common/collective trusts measured at NAV:
Equity securities											855												168
Debt securities											658												171
Other receivables											—												2
Total	$	510			—			—			2,023			382			—			19			742

Index to Financial Statements

	Millions of Dollars
	U.S.													International
	Level 1				Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
2014
Equity Securities
U.S.	$	288			—			—			288			161			—			—			161
International	163				—			—			163			113			—			—			113
Mutual funds	—				—			—			—			5			—			—			5
Debt Securities
Government	—				32			—			32			141			—			—			141
Corporate	—				51			—			51			—			—			—			—
Mutual funds	—				—			—			—			2			—			—			2
Cash and cash equivalents	20				—			—			20			10			—			—			10
Insurance contracts	—				—			—			—			—			—			14			14
Real estate	—				—			—			—			—			—			7			7
Subtotal	471				83			—			554			432			—			21			453
Common/collective trusts measured at NAV:
Equity securities											920												110
Debt securities											648												161
Other receivables											2												—
Total	$	471			83			—			2,124			432			—			21			724

As reflected in the table above, Level 3 activity was not material.

Our funding policy for U.S. plans is to contribute at least the minimum required by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986, as amended. Contributions to international plans are subject to local laws and tax regulations. Actual contribution amounts are dependent upon plan asset returns, changes in pension obligations, regulatory environments, and other economic factors. In 2016, we expect to contribute approximately $50 million to our U.S. pension plans and other postretirement benefit plans and $50 million to our international pension plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by us in the years indicated:

	Millions of Dollars
	Pension Benefits							Other Benefits
	U.S.				Int’l.
2016	$	270			20			25
2017	261				22			27
2018	259				21			26
2019	267				24			25
2020	292				24			25
2021-2024	1,333				144			104

Index to Financial Statements

Defined Contribution Plans

Most U.S. employees are eligible to participate in the Phillips 66 Savings Plan (Savings Plan). Employees can contribute up to 75 percent of their eligible pay, subject to certain statutory limits, in the thrift feature of the Savings Plan to a choice of investment funds. Phillips 66 provides a company match of participant thrift contributions up to 5 percent of eligible pay. In addition, participants who contribute at least 1 percent to the Savings Plan are eligible for “Success Share,” a semi-annual discretionary company contribution to the Savings Plan that can range from 0 to 6 percent of eligible pay, with a target of 2 percent. The total expense related to participants in the Savings Plan was $134 million, $112 million and $111 million in 2015, 2014 and 2013, respectively.

Share-Based Compensation Plans

In accordance with the Employee Matters Agreement related to the Separation, compensation awards based on ConocoPhillips stock and granted before April 30, 2012 (the Separation Date) were converted to compensation awards based on both ConocoPhillips and Phillips 66 stock if, on the Separation Date, the awards were: (1) options outstanding and exercisable; or (2) restricted stock or restricted stock units (RSUs) awarded for completed performance periods under the ConocoPhillips Performance Share Program. Phillips 66 restricted stock, RSUs, and options issued in this conversion became subject to the “Omnibus Stock and Performance Incentive Plan of Phillips 66” (the 2012 Plan) on the Separation Date, whether held by grantees working for the company or grantees that remained employees of ConocoPhillips. Some of these awards based on Phillips 66 stock and held by employees of ConocoPhillips are still outstanding and appear in the activity tables for the Stock Option and the Performance Share Programs presented later in this footnote.

In May 2013, shareholders approved the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the P66 Omnibus Plan). Subsequent to this approval, all new share-based awards are granted under the P66 Omnibus Plan, which

authorizes the Human Resources and Compensation Committee of our Board of Directors (the Committee) to grant stock options, stock appreciation rights, stock awards (including restricted stock and RSU awards), cash awards, and performance awards to our employees, non-employee directors, and other plan participants. The number of shares that may be issued under the P66 Omnibus Plan to settle share-based awards may not exceed 45 million.

Our share-based compensation programs generally provide accelerated vesting (i.e., a waiver of the remaining period of service required to earn an award) for awards held by employees at the time they become eligible for retirement. We recognize share-based compensation expense over the shorter of: (1) the service period (i.e., the stated period of time required to earn the award); or (2) the period beginning at the start of the service period and ending when an employee first becomes eligible for retirement, but not less than six months as this is the minimum period of time required for an award not to be subject to forfeiture.

Some of our share-based awards vest ratably (i.e., portions of the award vest at different times) while some of our awards cliff vest (i.e., all of the award vests at the same time). The company made a policy election to recognize expense on a straight-line basis over the service period for the entire award, whether the award was granted with ratable or cliff vesting.

Total share-based compensation expense recognized in income and the associated tax benefits for the years ended December 31 were as follows:

	Millions of Dollars
	2015				2014			2013
Share-based compensation expense	$	144			134			132
Tax benefit	(54		)		(50	)		(50	)

Stock Options

Stock options granted under the provisions of the P66 Omnibus Plan and earlier plans permit purchase of our common stock at exercise prices equivalent to the average market price of the stock on the date the options were granted. The options have terms of 10 years and generally vest ratably, with one-third of the options awarded vesting and becoming exercisable on each anniversary date for the three years following the date of grant. Options awarded to employees

Index to Financial Statements

already eligible for retirement vest within six months of the grant date, but those options do not become exercisable until the end of the normal vesting period.

The following summarizes our stock option activity from January 1, 2015, to December 31, 2015:

												Millions of Dollars
	Options			Weighted- Average Exercise Price				Weighted-Average Grant-Date Fair Value				Aggregate Intrinsic Value
Outstanding at January 1, 2015	5,843,555			$	35.26
Granted	675,300			74.14				$	18.84
Forfeited	(15,692	)		73.96
Exercised	(1,071,424	)		28.73								$	60
Expired or canceled	—			—
Outstanding at December 31, 2015	5,431,739			$	41.27
Vested at December 31, 2015	5,137,728			$	39.47							$	218
Exercisable at December 31, 2015	4,222,873			$	32.53							$	208

All option awards presented in this table are for Phillips 66 stock only, including those awards held by ConocoPhillips employees.

The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2015, were 5.60 years and 4.96 years, respectively. During 2015, we received $31 million in cash and realized a tax benefit of $8 million from the exercise of options. At December 31, 2015, the remaining unrecognized compensation expense from unvested options held by employees of Phillips 66 was $3 million, which will be recognized over a weighted-average period of 21 months, the longest period being 25 months. The calculations of realized tax benefit, unamortized expense and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.

During 2014, we granted options with a weighted-average grant-date fair value of $18.95 and employees exercised options with an aggregate intrinsic value of $89 million.

The following table provides the significant assumptions used to calculate the grant date fair market values of options granted over the years shown below, as calculated using the Black-Scholes-Merton option-pricing model:

	2015			2014		2013
Assumptions used
Risk-free interest rate	1.60	%		1.96		1.18
Dividend yield	3.00	%		3.00		2.50
Volatility factor	34.17	%		34.97		35.47
Expected life (years)	6.66			6.23		6.23

Prior to the Separation, we calculated volatility using the most recent ConocoPhillips end-of-week closing stock prices spanning a period equal to the expected life of the options granted. We calculate the volatility of options granted after the Separation using a formula that adjusts the pre-Separation historical volatility of ConocoPhillips by the ratio of Phillips 66 implied market volatility on the grant date divided by the pre-Separation implied market volatility of ConocoPhillips.

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

Index to Financial Statements

Restricted Stock Unit Program

Generally, RSUs are granted annually under the provisions of the P66 Omnibus Plan and cliff vest at the end of three years. Most RSU awards granted prior to the Separation vested ratably over five years, with one-third of the units vesting in 36 months, one-third vesting in 48 months, and the final third vesting 60 months from the date of grant. In addition to the regularly scheduled annual awards, RSUs are also granted ad hoc to attract or retain key personnel, and the terms and conditions under which these RSUs vest vary by award. Upon vesting, RSUs are settled by issuing one share of Phillips 66 common stock per RSU. RSUs awarded to employees already eligible for retirement vest within six months of the grant date, but those units are not issued as shares until the end of the normal vesting period. Until issued as stock, most recipients of RSUs receive a quarterly cash payment of a dividend equivalent, and for this reason the grant date fair value of these units is deemed equal to the average Phillips 66 stock price on the date of grant. The grant date fair market value of RSUs that do not receive a dividend equivalent while unvested is deemed equal to the average Phillips 66 common stock price on the grant date, less the net present value of the dividend equivalents that will not be received.

The following summarizes our RSU activity from January 1, 2015, to December 31, 2015:

								Millions of Dollars
	Stock Units			Weighted-Average Grant-Date Fair Value				Total Fair Value
Outstanding at January 1, 2015	3,646,916			$	46.83
Granted	970,268			74.09
Forfeited	(80,729	)		61.17
Issued	(1,401,840	)		34.99				$	107
Outstanding at December 31, 2015	3,134,615			$	60.19
Not Vested at December 31, 2015	1,874,062			$	60.99

At December 31, 2015, the remaining unrecognized compensation cost from the unvested RSU awards held by employees of Phillips 66 was $46 million, which will be recognized over a weighted-average period of 20 months, the longest period being 35 months. The calculations of unamortized expense and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.

During 2014, we granted RSUs with a weighted-average grant-date fair value of $73.28 and issued shares with an aggregate fair value of $116 million to settle RSUs.

Performance Share Program

Under the P66 Omnibus Plan, we also annually grant to senior management restricted performance share units (PSUs) that vest: (1) with respect to awards for performance periods beginning before 2009, when the employee becomes eligible for retirement by reaching age 55 with five years of service; or (2) with respect to awards for performance periods beginning in 2009, five years after the grant date of the award (although recipients can elect to defer the lapsing of restrictions until retirement after reaching age 55 with five years of service); or (3) with respect to awards for performance periods beginning in 2013 or later, on the grant date.

For PSU awards with performance periods beginning before 2013, we recognize compensation expense beginning on the date of grant and ending on the date the PSUs are scheduled to vest; however, since these awards are authorized three years prior to the grant date, we recognize compensation expense for employees that will become eligible for retirement by or shortly after the grant date over the period beginning on the date of authorization and ending on the date of grant. Since PSU awards with performance periods beginning in 2013 or later vest on the grant date, we recognize compensation expense beginning on the date of authorization and ending on the grant date for all employees participating in the PSU grant.

Index to Financial Statements

We settle PSUs with performance periods that begin before 2013 by issuing one share of Phillips 66 common stock for each PSU. Recipients of these PSUs receive a quarterly cash payment of a dividend equivalent beginning on the grant date and ending on the settlement date.

We settle PSUs with performance periods beginning in 2013 or later by paying cash equal to the fair value of the PSU on the grant date, which is also the date the PSU vests. Since these PSUs vest and settle on the grant date, dividend equivalents are never paid on these awards.

The following summarizes our PSU activity from January 1, 2015, to December 31, 2015:

								Millions of Dollars
	Performance Share Units			Weighted-Average Grant-Date Fair Value				Total Fair Value
Outstanding at January 1, 2015	3,171,860			$	43.96
Granted	838,710			74.14
Forfeited	—			—
Issued	(453,744	)		51.48				$	37
Outstanding at December 31, 2015	3,556,826			$	50.11
Not Vested at December 31, 2015	602,428			$	51.80

All PSU awards presented in this table are for Phillips 66 stock only, including those awards held by ConocoPhillips employees.

At December 31, 2015, the remaining unrecognized compensation cost from unvested PSU awards held by employees of Phillips 66 was $15 million, which will be recognized over a weighted-average period of 36 months, the longest period being 11 years. The calculations of unamortized expense and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.

During 2014, we granted PSUs with a weighted-average grant-date fair value of $72.26 and issued shares with an aggregate fair value of $13 million to settle PSUs.

Index to Financial Statements

Note 21—Income Taxes

Income taxes charged to income were:

	Millions of Dollars
	2015				2014			2013
Income Taxes
Federal
Current	$	1,128			1,661			1,054
Deferred	444				(378	)		526
Foreign
Current	(74		)		22			98
Deferred	42				80			(48	)
State and local
Current	227				274			146
Deferred	(3		)		(5	)		68
	$	1,764			1,654			1,844

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:

	Millions of Dollars
	2015				2014
Deferred Tax Liabilities
Properties, plants and equipment, and intangibles	$	4,361			3,799
Investment in joint ventures	2,292				2,331
Investment in subsidiaries	236				115
Inventory	176				152
Other	24				29
Total deferred tax liabilities	7,089				6,426
Deferred Tax Assets
Benefit plan accruals	751				647
Asset retirement obligations and accrued environmental costs	215				207
Other financial accruals and deferrals	175				131
Loss and credit carryforwards	227				149
Other	1				2
Total deferred tax assets	1,369				1,136
Less: valuation allowance	160				107
Net deferred tax assets	1,209				1,029
Net deferred tax liabilities	$	5,880			5,397

With the exception of certain foreign tax credit and separate company loss carryforwards, tax attributes were not allocated to us from ConocoPhillips. The foreign tax credit carryforwards were fully utilized by the end of 2014. The loss carryforwards, all of which are related to foreign operations, have indefinite carryforward periods.

Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During 2015, valuation allowances increased by a total of $53 million. This increase was primarily related to valuation allowances re-established for deferred tax assets that were reinstated in conjunction with German tax legislation enacted in 2015. The German tax legislation reinstated net operating loss and interest deduction carryforwards

Index to Financial Statements

attributable to pre-Separation tax periods. The deferred tax asset associated with the interest deduction carryforward will not, more likely than not, be realized. Based on our historical taxable income, expectations for the future, and available tax-planning strategies, management expects the remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences of future taxable income.

As of December 31, 2015, we had undistributed earnings related to foreign subsidiaries and foreign corporate joint ventures of approximately $2.8 billion for which deferred income taxes have not been provided. We plan to reinvest these earnings for the foreseeable future. If these amounts were distributed to the United States, we would be subject to additional U.S. income taxes. Determination of the amount of unrecognized deferred income tax liability is not practicable due to the number of unknown variables inherent in the calculation.

As a result of the Separation and pursuant to the Tax Sharing Agreement with ConocoPhillips, the unrecognized tax benefits related to our operations for which ConocoPhillips was the taxpayer remain the responsibility of ConocoPhillips, and we have indemnified ConocoPhillips for such amounts. Those unrecognized tax benefits are reflected in the following table which shows a reconciliation of the beginning and ending unrecognized tax benefits.

	Millions of Dollars
	2015				2014			2013
Balance at January 1	$	142			202			158
Additions based on tax positions related to the current year	—				13			30
Additions for tax positions of prior years	6				14			25
Reductions for tax positions of prior years	(17		)		(68	)		(8	)
Settlements	(49		)		(19	)		(3	)
Lapse of statute	—				—			—
Balance at December 31	$	82			142			202

Included in the balance of unrecognized tax benefits for 2015, 2014 and 2013 were $34 million, $98 million and $161 million, respectively, which, if recognized, would affect our effective tax rate. With respect to various unrecognized tax benefits and the related accrued liability, approximately $20 million may be recognized or paid within the next twelve months due to completion of audits.

At December 31, 2015, 2014 and 2013, accrued liabilities for interest and penalties totaled $19 million, $16 million and $18 million, respectively, net of accrued income taxes. Interest and penalties increased earnings by $3 million in 2015, had no impact on earnings during 2014 and decreased earnings by $3 million in 2013.

We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in significant jurisdictions are generally complete as follows: United Kingdom (2011), Germany (2011) and United States (2008). Certain issues remain in dispute for audited years, and unrecognized tax benefits for years still subject to or currently undergoing an audit are subject to change. As a consequence, the balance in unrecognized tax benefits can be expected to fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared with our total unrecognized tax benefits, the amount of change is not estimable.

Index to Financial Statements

The amounts of U.S. and foreign income (loss) before income taxes, with a reconciliation of tax at the federal statutory rate with the provision for income taxes, were:

	Millions of Dollars										Percent of Pre-tax Income
	2015				2014			2013			2015			2014			2013
Income from continuing operations before income taxes
United States	$	4,983			5,121			5,158			82.4	%		89.1			93.3
Foreign	1,061				624			368			17.6			10.9			6.7
	$	6,044			5,745			5,526			100.0	%		100.0			100.0
Federal statutory income tax	$	2,115			2,011			1,934			35.0	%		35.0			35.0
Goodwill allocated to assets sold	41				18			—			0.7			0.3
Sale of foreign subsidiaries	(125		)		(293	)		—			(2.1	)		(5.1	)
Foreign rate differential	(239		)		(184	)		(198	)		(3.9	)		(3.2	)		(3.6	)
German tax legislation	(103		)		—			—			(1.7	)
Federal manufacturing deduction	(77		)		(81	)		(68	)		(1.3	)		(1.4	)		(1.2	)
State income tax, net of federal benefit	150				180			139			2.5			3.1			2.5
Other	2				3			37						0.1			0.7
	$	1,764			1,654			1,844			29.2	%		28.8			33.4

Included in the line item “Sale of foreign subsidiaries” is a $224 million tax benefit attributable to the realization of excess tax basis during the fourth quarter of 2014 resulting from the sale of MRC and a $72 million benefit realized in 2015 attributable to the nontaxable gain from the sale of ICHP.

Income tax benefits of $34 million, $37 million and $34 million for the years 2015, 2014 and 2013, respectively, are reflected in the “Capital in Excess of Par” column of the consolidated statement of equity.

Index to Financial Statements

Note 22—Accumulated Other Comprehensive Income (Loss)

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

	Millions of Dollars
	Defined Benefit Plans				Foreign Currency Translation			Hedging			Accumulated Other Comprehensive Income (Loss)
December 31, 2012	$	(778	)		466			(2	)		(314	)
Other comprehensive income (loss)	312				(44	)		—			268
Amounts reclassified from accumulated other comprehensive income (loss)*
Foreign currency translation	—				21			—			21
Amortization of defined benefit plan items**
Actuarial losses	62				—			—			62
Net current period other comprehensive income (loss)	374				(23	)		—			351
December 31, 2013	(404		)		443			(2	)		37
Other comprehensive income (loss) before reclassifications	(330		)		(276	)		—			(606	)
Amounts reclassified from accumulated other comprehensive income (loss)*
Amortization of defined benefit plan items**
Actuarial losses	38				—			—			38
Net current period other comprehensive income (loss)	(292		)		(276	)		—			(568	)
December 31, 2014	(696		)		167			(2	)		(531	)
Other comprehensive income (loss) before reclassifications	(78		)		(156	)		—			(234	)
Amounts reclassified from accumulated other comprehensive income (loss)*
Amortization of defined benefit plan items**
Actuarial losses and settlements	112				—			—			112
Net current period other comprehensive income (loss)	34				(156	)		—			(122	)
December 31, 2015	$	(662	)		11			(2	)		(653	)

*See Consolidated Statement of Changes in Equity.

**Included in the computation of net periodic benefit cost. See Note 20—Employee Benefit Plans, for additional information.

Note 23—Cash Flow Information

	Millions of Dollars
	2015				2014			2013
Noncash Investing and Financing Activities
Increase in net PP&E and debt related to capital lease obligation	$	31			33			177
Cash Payments
Interest	$	275			238			259
Income taxes	1,560				2,185			1,021

Index to Financial Statements

PSPI Noncash Stock Exchange

As discussed more fully in Note 6—Assets Held for Sale or Sold, in February 2014, we completed the exchange of our flow improvers business for shares of Phillips 66 common stock owned by the other party to the transaction. The noncash portion of the net assets surrendered by us in the exchange was $204 million, and we received approximately 17.4 million shares of our common stock, with a fair value at the time of the exchange of $1.35 billion.

Note 24—Other Financial Information

	Millions of Dollars
	2015				2014			2013
Interest and Debt Expense
Incurred
Debt	$	389			265			251
Other	27				22			24
	416				287			275
Capitalized	(106		)		(20	)		—
Expensed	$	310			267			275
Other Income
Interest income	$	27			21			20
Other, net*	91				99			65
	$	118			120			85
*Includes derivatives-related activities.
Research and Development Expenditures—expensed	$	65			62			69
Advertising Expenses	$	73			70			68
Foreign Currency Transaction (Gains) Losses—after-tax
Midstream	$	—			—			—
Chemicals	—				—			—
Refining	34				6			(41	)
Marketing and Specialties	4				8			(5	)
Corporate and Other	—				—			2
	$	38			14			(44	)

Index to Financial Statements

Note 25—Related Party Transactions

Significant transactions with related parties were:

	Millions of Dollars
	2015				2014			2013
Operating revenues and other income (a)	$	2,452			6,514			7,907
Purchases (b)	8,142				15,647			18,320
Operating expenses and selling, general and administrative expenses (c)	129				133			109
Net interest expense (d)	6				7			8

In December 2014, we completed the sale of our interest in MRC. Accordingly, sales of crude oil to MRC and purchases of refined products from MRC are only included in the 2014 and 2013 periods in the table above.

(a)

NGL and other petrochemical feedstocks, along with solvents, were sold to CPChem; and gas oil and hydrogen feedstocks were sold to Excel. Certain feedstocks and intermediate products were sold to WRB. We also 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 and MSLP, for the use of common facilities, such as steam generators, waste and water treaters, and warehouse facilities.

(b)

We purchased crude oil and refined products from WRB. We also acted as agent for WRB in distributing asphalt and solvents for a fee. We purchased natural gas and NGL from DCP Midstream and CPChem for use in our refinery processes and other feedstocks from various affiliates. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline equity companies for transporting finished refined products. In addition, we paid a price upgrade to MSLP for heavy crude processing. We purchased base oils and fuel products from Excel for use in our refining and specialty businesses.

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

(d)	We incurred interest expense on a note payable to MSLP. See Note 7—Investments, Loans and Long-Term Receivables and Note 13—Debt, for additional information on loans with affiliated companies.

Index to Financial Statements

Note 26—Segment Disclosures and Related Information

Our operating segments are:

1)

Midstream—Gathers, processes, transports and markets natural gas; and transports, fractionates and markets NGL in the United States. In addition, this segment transports crude oil and other feedstocks to our refineries and other locations, delivers refined and specialty products to market, and provides terminaling and storage services for crude and petroleum products. The Midstream segment includes our master limited partnership, Phillips 66 Partners LP, as well as our 50 percent equity investment in DCP Midstream.

2)	Chemicals—Manufactures and markets petrochemicals and plastics on a worldwide basis. The Chemicals segment consists of our 50 percent equity investment in CPChem.

3)	Refining—Buys, sells and refines crude oil and other feedstocks at 14 refineries, mainly in the United States and Europe.

4)	Marketing and Specialties (M&S)—Purchases for resale and markets refined petroleum products (such as gasolines, distillates and aviation fuels), 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 investments in new technologies and various other corporate activities. Corporate assets include all cash and cash equivalents.

We evaluate performance and allocate resources based on net income attributable to Phillips 66. Intersegment sales are at prices that approximate market.

Index to Financial Statements

Analysis of Results by Operating Segment

	Millions of Dollars
	2015				2014			2013
Sales and Other Operating Revenues
Midstream
Total sales	$	3,676			6,222			6,575
Intersegment eliminations	(1,034		)		(1,104	)		(933	)
Total Midstream	2,642				5,118			5,642
Chemicals	5				7			9
Refining
Total sales	63,470				115,326			124,480
Intersegment eliminations	(40,317		)		(68,263	)		(72,503	)
Total Refining	23,153				47,063			51,977
Marketing and Specialties
Total sales	74,591				110,540			115,405
Intersegment eliminations	(1,446		)		(1,548	)		(1,467	)
Total Marketing and Specialties	73,145				108,992			113,938
Corporate and Other	30				32			30
Consolidated sales and other operating revenues	$	98,975			161,212			171,596
Depreciation, Amortization and Impairments
Midstream	$	128			92			89
Chemicals	—				—			—
Refining	741				850			688
Marketing and Specialties	100				97			119
Corporate and Other	116				106			80
Consolidated depreciation, amortization and impairments	$	1,085			1,145			976

Index to Financial Statements

	Millions of Dollars
	2015				2014			2013
Equity in Earnings of Affiliates
Midstream	$	(268	)		360			436
Chemicals	1,316				1,634			1,362
Refining	325				311			1,107
Marketing and Specialties	207				162			169
Corporate and Other	(7		)		(1	)		(1	)
Consolidated equity in earnings of affiliates	$	1,573			2,466			3,073
Income Taxes from Continuing Operations
Midstream	$	73			310			264
Chemicals	353				495			375
Refining	1,104				696			1,035
Marketing and Specialties	466				440			433
Corporate and Other	(232		)		(287	)		(263	)
Consolidated income taxes from continuing operations	$	1,764			1,654			1,844
Net Income Attributable to Phillips 66
Midstream	$	13			507			469
Chemicals	962				1,137			986
Refining	2,555				1,771			1,747
Marketing and Specialties	1,187				1,034			894
Corporate and Other	(490		)		(393	)		(431	)
Discontinued Operations	—				706			61
Consolidated net income attributable to Phillips 66	$	4,227			4,762			3,726

Index to Financial Statements

	Millions of Dollars
	2015				2014			2013
Investments In and Advances To Affiliates
Midstream	$	4,198			2,461			2,328
Chemicals	5,177				5,183			4,241
Refining	2,262				2,103			4,192
Marketing and Specialties	342				290			318
Corporate and Other	1				1			1
Consolidated investments in and advances to affiliates	$	11,980			10,038			11,080
Total Assets
Midstream	$	11,043			7,295			5,485
Chemicals	5,237				5,209			4,377
Refining	21,993				22,808			26,046
Marketing and Specialties	5,631				7,051			7,331
Corporate and Other*	4,676				6,329			6,319
Discontinued Operations**	—				—			211
Consolidated total assets	$	48,580			48,692			49,769
*Prior period amounts have been retrospectively adjusted for Accounting Standards Update No. 2015-03.
**In December 2013, $117 million of goodwill was allocated to assets held for sale in association with the planned disposition of PSPI.
Capital Expenditures and Investments
Midstream	$	4,457			2,173			597
Chemicals	—				—			—
Refining	1,069				1,038			820
Marketing and Specialties	122				439			226
Corporate and Other	116				123			136
Consolidated capital expenditures and investments	$	5,764			3,773			1,779
Interest Income and Expense
Interest income
Marketing and Specialties	$	2			—			—
Corporate and Other	25				21			20
Consolidated interest income	$	27			21			20
Interest and debt expense
Corporate and Other	$	310			267			275

Sales and Other Operating Revenues by Product Line
Refined products	$	86,249			133,625			140,488
Crude oil resales	8,993				19,832			22,777
NGL	2,998				6,447			7,431
Other	735				1,308			900
Consolidated sales and other operating revenues by product line	$	98,975			161,212			171,596

Index to Financial Statements

Geographic Information

	Millions of Dollars
	Sales and Other Operating Revenues*										Long-Lived Assets**
	2015				2014			2013			2015			2014			2013
United States	$	69,578			110,713			115,378			29,624			25,255			23,641
United Kingdom	12,120				20,131			21,868			1,459			1,469			1,485
Germany	6,584				9,424			9,799			502			534			587
Other foreign countries	10,693				20,944			24,551			116			126			765
Worldwide consolidated	$	98,975			161,212			171,596			31,701			27,384			26,478

*Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.

**Defined as net properties, plants and equipment plus investments in and advances to affiliated companies.

Note 27—Phillips 66 Partners LP

Initial Public Offering

In 2013, we formed Phillips 66 Partners, a master limited partnership, to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other transportation and midstream assets. On July 26, 2013, Phillips 66 Partners completed its initial public offering (IPO) of 18,888,750 common units at a price of $23.00 per unit. Phillips 66 Partners received $404 million in net proceeds from the sale of the units, after deducting underwriting discounts, commissions, structuring fees and offering expenses. Headquartered in Houston, Texas, Phillips 66 Partners’ assets currently consist of crude oil and refined petroleum product pipeline, terminal, and storage systems in the Central and Gulf Coast regions of the United States, as well as two crude oil rail-unloading facilities, all of which are integral to a connected Phillips 66-operated facility.

Current Year Activities

In February 2015, Phillips 66 Partners completed a public offering of 5,250,000 common units representing limited partner interests, at a public offering price of $75.50 per unit. The net proceeds received at closing were $384 million. Additionally, Phillips 66 Partners closed a public offering of $1.1 billion aggregate principal amount of senior notes. For additional information about the senior notes, see Note 13— Debt.

Effective March 2, 2015, we contributed our equity interests in Explorer (19.5 percent), Sand Hills (33.3 percent) and Southern Hills (33.3 percent) to Phillips 66 Partners. Total consideration paid was $1,010 million, which Phillips 66 Partners financed with $880 million in cash, funded by a portion of their proceeds from the public offering of common units and senior notes discussed above, and the issuance to us of 1,587,376 common units and 139,538 general partner units.

Effective December 1, 2015, we contributed to Phillips 66 Partners our 40 percent interest in Bayou Bridge Pipeline, LLC (Bayou Bridge), a joint venture in which Energy Transfer Partners L.P. and Sunoco Logistics Partners L.P. each hold a 30 percent interest, with Sunoco Logistics serving as the operator. Phillips 66 Partners financed the acquisition with a $35 million note payable to us that was immediately paid in full, and the issuance to us of 606,056 common units and 12,369 general partner units valued at $35 million, for an aggregate consideration of $70 million.

Ownership

At December 31, 2015, we owned a 69 percent limited partner interest and a 2 percent general partner interest in Phillips 66 Partners, while the public owned a 29 percent limited partner interest. We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes. The most significant assets of Phillips 66 Partners that are available to settle only its obligations were equity investments of $945 million and net PP&E of $492 million at December 31, 2015. See Note 3—Variable Interest Entities (VIEs) for additional information on why we consolidate the partnership. As a result of this consolidation, the public unitholders’ ownership interest in Phillips 66 Partners is reflected as a noncontrolling interest of $809 million and $415 million in our financial statements as of December 31, 2015, and 2014, respectively. Generally, contributions of assets by us to Phillips 66 Partners will eliminate in consolidation, except

Index to Financial Statements

for third-party debt or equity offerings made by Phillips 66 Partners to finance such transactions. For the first contribution in 2015 together with the public offerings of common units and senior notes discussed above, our consolidated cash increased by $1.5 billion, consolidated debt increased by $1.1 billion and consolidated equity increased by $384 million as a result of the transactions. The Bayou Bridge contribution in 2015 discussed above did not impact our consolidated financial statements.

Recent Transactions

On February 17, 2016, we entered into a contribution agreement with Phillips 66 Partners under which Phillips 66 Partners will acquire a 25 percent interest in our wholly owned subsidiary, Phillips 66 Sweeny Frac LLC, which owns the Sweeny Fractionator One, an NGL fractionator located within our Sweeny Refinery complex in Old Ocean, Texas, and the Clemens Caverns, an NGL salt dome storage facility located near Brazoria, Texas. Total consideration for the transaction is expected to be $236 million, which will consist of Phillips 66 Partners’ issuance of common and general partner units to us, with an aggregate fair value of $24 million, and Phillips 66 Partners’ assumption of $212 million of notes payable to us. The transaction is expected to close in early March 2016.

Note 28—New Accounting Standards

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10),” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision will also affect net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current generally accepted accounting principles, will have to be carried at fair value upon adoption of ASU 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU 2016-01 and assessing the impact, if any, it may have on our financial position and results of operations.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes-Balance Sheet Classification of Deferred Taxes.” The new update will simplify the presentation of deferred income taxes and will require deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The classification shall be made at the tax-paying component level of an entity, after reflecting any offset of deferred tax liabilities, deferred tax assets and any related valuation allowances. Public business entities should apply the guidance in ASU 2015-17 for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application for public entities is permitted. The amendments can be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We are currently evaluating the provisions of ASU 2015-17.

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915).” The new standard removes the definition of a development stage entity from the Master Glossary of Accounting Standard Codification and the related financial reporting requirements specific to development stage entities. This ASU is intended to reduce cost and complexity of financial reporting for entities that have not commenced planned principal operations. For financial reporting requirements other than the VIE guidance in ASC Topic 810, “Consolidation,” ASU 2014-10 was effective for annual and quarterly reporting periods of public entities beginning after December 15, 2014. For the financial reporting requirements related to VIEs in ASC Topic 810, “Consolidation,” ASU 2014-10 is effective for annual and quarterly reporting periods of public entities beginning after December 15, 2015. Early application for public entities is permitted. We are currently evaluating the provisions of ASU 2014-10. Our preliminary assessment indicates that additional disclosures related to VIEs may be required for our joint ventures if the planned principal operations have not commenced.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The new standard converged guidance on recognizing revenues in contracts with customers under accounting principles generally accepted in the United States and International Financial Reporting Standards. This ASU is intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective

Index to Financial Statements

Date.” The amendment in this ASU defers the effective date of ASU 2014-09 for all entities for one year. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. Retrospective or modified retrospective application of the accounting standard is required. We are currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on our financial position and results of operations. As part of our assessment work to-date, we have formed an implementation work team, completed training of the new ASU’s revenue recognition model and begun contract review and documentation.

Note 29—Condensed Consolidating Financial Information

Our $7.5 billion of outstanding Senior Notes were issued by Phillips 66 and are guaranteed by Phillips 66 Company, a 100-percent-owned subsidiary. Phillips 66 Company has fully and unconditionally guaranteed the payment obligations of Phillips 66 with respect to these debt securities. 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.

Index to Financial Statements

	Millions of Dollars
	Year Ended December 31, 2015
Statement of Income	Phillips 66			Phillips 66 Company		All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—		68,478		30,497		—		98,975
Equity in earnings (losses) of affiliates	4,470			2,812		(134	)	(5,575	)	1,573
Net gain (loss) on dispositions	—			(115	)	398		—		283
Other income	—			81		37		—		118
Intercompany revenues	—			1,071		9,845		(10,916	)	—
Total Revenues and Other Income	4,470			72,327		40,643		(16,491	)	100,949
Costs and Expenses
Purchased crude oil and products	—			54,925		29,221		(10,747	)	73,399
Operating expenses	4			3,412		917		(39	)	4,294
Selling, general and administrative expenses	5			1,265		416		(16	)	1,670
Depreciation and amortization	—			818		260		—		1,078
Impairments	—			4		3		—		7
Taxes other than income taxes	—			5,505		8,572		—		14,077
Accretion on discounted liabilities	—			16		5		—		21
Interest and debt expense	365			25		34		(114	)	310
Foreign currency transaction losses	—			1		48		—		49
Total Costs and Expenses	374			65,971		39,476		(10,916	)	94,905
Income from continuing operations before income taxes	4,096			6,356		1,167		(5,575	)	6,044
Provision (benefit) for income taxes	(131		)	1,886		9		—		1,764
Income from Continuing Operations	4,227			4,470		1,158		(5,575	)	4,280
Income from discontinued operations	—			—		—		—		—
Net income	4,227			4,470		1,158		(5,575	)	4,280
Less: net income attributable to noncontrolling interests	—			—		53		—		53
Net Income Attributable to Phillips 66	$	4,227		4,470		1,105		(5,575	)	4,227
Comprehensive Income	$	4,105		4,348		1,032		(5,327	)	4,158

Index to Financial Statements

	Millions of Dollars
	Year Ended December 31, 2014
Statement of Income	Phillips 66			Phillips 66 Company		All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—		109,078		52,134		—		161,212
Equity in earnings of affiliates	4,257			3,021		444		(5,256	)	2,466
Net gain (loss) on dispositions	—			(46	)	341		—		295
Other income	—			105		15		—		120
Intercompany revenues	—			2,411		18,772		(21,183	)	—
Total Revenues and Other Income	4,257			114,569		71,706		(26,439	)	164,093
Costs and Expenses
Purchased crude oil and products	—			97,783		58,984		(21,019	)	135,748
Operating expenses	2			3,600		870		(37	)	4,435
Selling, general and administrative expenses	6			1,224		502		(69	)	1,663
Depreciation and amortization	—			761		234		—		995
Impairments	—			3		147		—		150
Taxes other than income taxes	—			5,478		9,563		(1	)	15,040
Accretion on discounted liabilities	—			18		6		—		24
Interest and debt expense	286			18		20		(57	)	267
Foreign currency transaction gains	—			—		26		—		26
Total Costs and Expenses	294			108,885		70,352		(21,183	)	158,348
Income from continuing operations before income taxes	3,963			5,684		1,354		(5,256	)	5,745
Provision (benefit) for income taxes	(103		)	1,427		330		—		1,654
Income from Continuing Operations	4,066			4,257		1,024		(5,256	)	4,091
Income from discontinued operations*	696			—		10		—		706
Net income	4,762			4,257		1,034		(5,256	)	4,797
Less: net income attributable to noncontrolling interests	—			—		35		—		35
Net Income Attributable to Phillips 66	$	4,762		4,257		999		(5,256	)	4,762
Comprehensive Income	$	4,194		3,689		721		(4,375	)	4,229
*Net of provision for income taxes on discontinued operations:	$	—		—		5		—		5

Index to Financial Statements

	Millions of Dollars
	Year Ended December 31, 2013
Statement of Income	Phillips 66			Phillips 66 Company		All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—		113,499		58,097		—		171,596
Equity in earnings of affiliates	3,905			3,363		509		(4,704	)	3,073
Net gain on dispositions	—			49		6		—		55
Other income (loss)	(3		)	53		35		—		85
Intercompany revenues	—			1,796		19,623		(21,419	)	—
Total Revenues and Other Income	3,902			118,760		78,270		(26,123	)	174,809
Costs and Expenses
Purchased crude oil and products	—			102,780		66,746		(21,281	)	148,245
Operating expenses	—			3,442		790		(26	)	4,206
Selling, general and administrative expenses	6			1,025		540		(93	)	1,478
Depreciation and amortization	—			730		217		—		947
Impairments	—			—		29		—		29
Taxes other than income taxes	—			5,147		8,973		(1	)	14,119
Accretion on discounted liabilities	—			19		5		—		24
Interest and debt expense	266			13		14		(18	)	275
Foreign currency transaction gains	—			—		(40	)	—		(40	)
Total Costs and Expenses	272			113,156		77,274		(21,419	)	169,283
Income from continuing operations before income taxes	3,630			5,604		996		(4,704	)	5,526
Provision (benefit) for income taxes	(96		)	1,699		241		—		1,844
Income from Continuing Operations	3,726			3,905		755		(4,704	)	3,682
Income from discontinued operations*	—			—		61		—		61
Net income	3,726			3,905		816		(4,704	)	3,743
Less: net income attributable to noncontrolling interests	—			—		17		—		17
Net Income Attributable to Phillips 66	$	3,726		3,905		799		(4,704	)	3,726
Comprehensive Income	$	4,077		4,256		839		(5,078	)	4,094
*Net of provision for income taxes on discontinued operations:	$	—		—		34		—		34

Index to Financial Statements

	Millions of Dollars
	At December 31, 2015
Balance Sheet	Phillips 66			Phillips 66 Company		All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Assets
Cash and cash equivalents	$	—		575		2,499		—		3,074
Accounts and notes receivable	14			3,643		2,217		(701	)	5,173
Inventories	—			2,171		1,306		—		3,477
Prepaid expenses and other current assets	2			382		148		—		532
Total Current Assets	16			6,771		6,170		(701	)	12,256
Investments and long-term receivables	33,315			24,068		7,395		(52,635	)	12,143
Net properties, plants and equipment	—			12,651		7,070		—		19,721
Goodwill	—			3,040		235		—		3,275
Intangibles	—			726		180		—		906
Other assets	16			154		113		(4	)	279
Total Assets	$	33,347		47,410		21,163		(53,340	)	48,580
Liabilities and Equity
Accounts payable	$	—		4,015		2,341		(701	)	5,655
Short-term debt	—			25		19		—		44
Accrued income and other taxes	—			320		558		—		878
Employee benefit obligations	—			528		48		—		576
Other accruals	59			240		79		—		378
Total Current Liabilities	59			5,128		3,045		(701	)	7,531
Long-term debt	7,413			158		1,272		—		8,843
Asset retirement obligations and accrued environmental costs	—			496		169		—		665
Deferred income taxes	—			4,500		1,545		(4	)	6,041
Employee benefit obligations	—			1,094		191		—		1,285
Other liabilities and deferred credits	2,746			2,765		3,734		(8,968	)	277
Total Liabilities	10,218			14,141		9,956		(9,673	)	24,642
Common stock	11,405			25,404		10,688		(36,092	)	11,405
Retained earnings	12,377			8,518		(200	)	(8,347	)	12,348
Accumulated other comprehensive income (loss)	(653		)	(653	)	(119	)	772		(653	)
Noncontrolling interests	—			—		838		—		838
Total Liabilities and Equity	$	33,347		47,410		21,163		(53,340	)	48,580

Index to Financial Statements

	Millions of Dollars
	At December 31, 2014
Balance Sheet	Phillips 66			Phillips 66 Company		All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Assets
Cash and cash equivalents	$	—		2,045		3,162		—		5,207
Accounts and notes receivable	14			5,069		3,274		(1,102	)	7,255
Inventories	—			2,026		1,371		—		3,397
Prepaid expenses and other current assets*	5			429		399		—		833
Total Current Assets	19			9,569		8,206		(1,102	)	16,692
Investments and long-term receivables	30,141			18,896		4,631		(43,479	)	10,189
Net properties, plants and equipment	—			12,267		5,079		—		17,346
Goodwill	—			3,040		234		—		3,274
Intangibles	—			694		206		—		900
Other assets*	16			159		120		(4	)	291
Total Assets	$	30,176		44,625		18,476		(44,585	)	48,692
Liabilities and Equity
Accounts payable	$	—		5,618		3,548		(1,102	)	8,064
Short-term debt	798			26		18		—		842
Accrued income and other taxes	—			356		522		—		878
Employee benefit obligations	—			409		53		—		462
Other accruals	65			242		541		—		848
Total Current Liabilities	863			6,651		4,682		(1,102	)	11,094
Long-term debt*	7,409			159		225		—		7,793
Asset retirement obligations and accrued environmental costs	—			494		189		—		683
Deferred income taxes	—			4,240		1,255		(4	)	5,491
Employee benefit obligations	—			1,074		231		—		1,305
Other liabilities and deferred credits	285			1,919		2,126		(4,041	)	289
Total Liabilities	8,557			14,537		8,708		(5,147	)	26,655
Common stock	12,812			25,405		8,240		(33,645	)	12,812
Retained earnings	9,338			5,214		1,074		(6,317	)	9,309
Accumulated other comprehensive income (loss)	(531		)	(531	)	7		524		(531	)
Noncontrolling interests	—			—		447		—		447
Total Liabilities and Equity	$	30,176		44,625		18,476		(44,585	)	48,692

*Prior period amounts have been retrospectively adjusted for Accounting Standards Update No. 2015-03.

Index to Financial Statements

	Millions of Dollars
	Year Ended December 31, 2015
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 continuing operating activities	$	1,060		4,879		2,564		(2,790	)	5,713
Net cash provided by discontinued operations	—			—		—		—		—
Net Cash Provided by Operating Activities	1,060			4,879		2,564		(2,790	)	5,713
Cash Flows From Investing Activities
Capital expenditures and investments*	—			(2,815	)	(5,283	)	2,334		(5,764	)
Proceeds from asset dispositions**	—			774		178		(882	)	70
Intercompany lending activities	2,461			(3,153	)	692		—		—
Advances/loans—related parties	—			(50	)	—		—		(50	)
Collection of advances/loans—related parties	—			50		—		—		50
Other	—			6		(50	)	—		(44	)
Net cash provided by (used in) continuing investing activities	2,461			(5,188	)	(4,463	)	1,452		(5,738	)
Net cash provided by (used in) discontinued operations	—			—		—		—		—
Net Cash Provided by (Used in) Investing Activities	2,461			(5,188	)	(4,463	)	1,452		(5,738	)
Cash Flows From Financing Activities
Issuance of debt	—			—		1,169		—		1,169
Repayment of debt	(800		)	(23	)	(103	)	—		(926	)
Issuance of common stock	(19		)	—		—		—		(19	)
Repurchase of common stock	(1,512		)	—		—		—		(1,512	)
Dividends paid on common stock	(1,172		)	(1,172	)	(1,576	)	2,748		(1,172	)
Distributions to controlling interests	—			—		(186	)	186		—
Distributions to noncontrolling interests	—			—		(46	)	—		(46	)
Net proceeds from issuance of Phillips 66 Partners LP common units	—			—		384		—		384
Other*	(18		)	34		1,585		(1,596	)	5
Net cash provided by (used in) continuing financing activities	(3,521		)	(1,161	)	1,227		1,338		(2,117	)
Net cash provided by (used in) discontinued operations	—			—		—		—		—
Net Cash Provided by (Used in) Financing Activities	(3,521		)	(1,161	)	1,227		1,338		(2,117	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	—			—		9		—		9
Net Change in Cash and Cash Equivalents	—			(1,470	)	(663	)	—		(2,133	)
Cash and cash equivalents at beginning of period	—			2,045		3,162		—		5,207
Cash and Cash Equivalents at End of Period	$	—		575		2,499		—		3,074
* Includes intercompany capital contributions.
** Includes return of investments in equity affiliates and working capital true-ups on dispositions.

Index to Financial Statements

	Millions of Dollars
	Year Ended December 31, 2014
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) continuing operating activities	$	(47	)	2,551		1,527		(504	)	3,527
Net cash provided by discontinued operations	—			—		2		—		2
Net Cash Provided by (Used in) Operating Activities	(47		)	2,551		1,529		(504	)	3,529
Cash Flows From Investing Activities
Capital expenditures and investments*	—			(2,230	)	(2,532	)	989		(3,773	)
Proceeds from asset dispositions	—			960		687		(403	)	1,244
Intercompany lending activities**	1,397			(1,402	)	5		—		—
Advances/loans—related parties	—			—		(3	)	—		(3	)
Other	—			(13	)	251		—		238
Net cash provided by (used in) continuing investing activities	1,397			(2,685	)	(1,592	)	586		(2,294	)
Net cash used in discontinued operations	—			—		(2	)	—		(2	)
Net Cash Provided by (Used in) Investing Activities	1,397			(2,685	)	(1,594	)	586		(2,296	)
Cash Flows From Financing Activities
Issuance of debt	2,459			—		28		—		2,487
Repayment of debt	—			(20	)	(29	)	—		(49	)
Issuance of common stock	1			—		—		—		1
Repurchase of common stock	(2,282		)	—		—		—		(2,282	)
Share exchange—PSPI transaction	(450		)	—		—		—		(450	)
Dividends paid on common stock	(1,062		)	—		(443	)	443		(1,062	)
Distributions to controlling interests	—			—		(323	)	323		—
Distributions to noncontrolling interests	—			—		(30	)	—		(30	)
Other*	(16		)	37		850		(848	)	23
Net cash provided by (used in) continuing financing activities	(1,350		)	17		53		(82	)	(1,362	)
Net cash provided by (used in) discontinued operations	—			—		—		—		—
Net Cash Provided by (Used in) Financing Activities	(1,350		)	17		53		(82	)	(1,362	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	—			—		(64	)	—		(64	)
Net Change in Cash and Cash Equivalents	—			(117	)	(76	)	—		(193	)
Cash and cash equivalents at beginning of period	—			2,162		3,238		—		5,400
Cash and Cash Equivalents at End of Period	$	—		2,045		3,162		—		5,207
* Includes intercompany capital contributions.
** Non-cash investing activity: In the fourth quarter of 2014, Phillips 66 Company declared and distributed $6.1 billion of its Phillips 66 intercompany receivables to Phillips 66.

Index to Financial Statements

	Millions of Dollars
	Year Ended December 31, 2013
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 continuing operating activities	$	5		4,972		1,045		(80	)	5,942
Net cash provided by discontinued operations	—			—		85		—		85
Net Cash Provided by Operating Activities	5			4,972		1,130		(80	)	6,027
Cash Flows From Investing Activities
Capital expenditures and investments*	—			(1,108	)	(690	)	19		(1,779	)
Proceeds from asset dispositions	—			63		1,151		—		1,214
Intercompany lending activities	4,055			(4,206	)	151		—		—
Advances/loans—related parties	—			—		(65	)	—		(65	)
Collection of advances/loans—related parties	—			—		165		—		165
Other	—			42		6		—		48
Net cash provided by (used in) continuing investing activities	4,055			(5,209	)	718		19		(417	)
Net cash used in discontinued operations	—			—		(27	)	—		(27	)
Net Cash Provided by (Used in) Investing Activities	4,055			(5,209	)	691		19		(444	)
Cash Flows From Financing Activities
Repayment of debt	(1,000		)	(18	)	(2	)	—		(1,020	)
Issuance of common stock	6			—		—		—		6
Repurchase of common stock	(2,246		)	—		—		—		(2,246	)
Dividends paid on common stock	(807		)	—		(72	)	72		(807	)
Distributions to controlling interests	—			—		(8	)	8		—
Distributions to noncontrolling interests	—			—		(10	)	—		(10	)
Net proceeds from issuance of Phillips 66 Partners LP common units	—			—		404		—		404
Other*	(13		)	7		19		(19	)	(6	)
Net cash provided by (used in) continuing financing activities	(4,060		)	(11	)	331		61		(3,679	)
Net cash provided by (used in) discontinued operations	—			—		—		—		—
Net Cash Provided by (Used in) Financing Activities	(4,060		)	(11	)	331		61		(3,679	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	—			—		22		—		22
Net Change in Cash and Cash Equivalents	—			(248	)	2,174		—		1,926
Cash and cash equivalents at beginning of period	—			2,410		1,064		—		3,474
Cash and Cash Equivalents at End of Period	$	—		2,162		3,238		—		5,400
* Includes intercompany capital contributions.

Index to Financial Statements

Selected Quarterly Financial Data (Unaudited)

	Millions of Dollars										Per Share of Common Stock
	Sales and Other Operating Revenues*			Income From Continuing Operations Before Income Taxes		Net Income		Net Income Attributable to Phillips 66			Net Income Attributable to Phillips 66
		Basic		Diluted
2015
First	$	22,778		1,388		997		987			1.80		1.79
Second	28,512			1,465		1,025		1,012			1.85		1.84
Third	25,792			2,359		1,592		1,578			2.92		2.90
Fourth	21,893			832		666		650			1.21		1.20
2014
First	$	40,283		1,298		1,578		1,572			2.69		2.67
Second	45,549			1,359		872		863			1.52		1.51
Third	40,417			1,727		1,189		1,180			2.11		2.09
Fourth	34,963			1,361		1,158		1,147			2.07		2.05

*Includes excise taxes on petroleum products sales.

Index to Financial Statements