FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 333-98681
THRIFT PLAN OF PHILLIPS PETROLEUM COMPANY
(Full title of the Plan)
CONOCOPHILLIPS
(Name of issuer of securities)
600 NORTH DAIRY ASHFORD
HOUSTON, TEXAS 77079
(Address of principal executive office) (Zip code)
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Financial statements of the Thrift Plan of Phillips Petroleum Company, filed as
a part of this annual report, are listed in the accompanying index.
(b) Exhibits
Exhibit 23 Consent of Independent Auditors.
Exhibit 99 Certifications Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
ConocoPhillips Savings Plan Committee has duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
THRIFT PLAN OF
PHILLIPS PETROLEUM COMPANY
/s/ J. W. Sheets
---------------------------------
J. W. Sheets
Plan Financial Administrator
June 25, 2003
1
INDEX TO FINANCIAL STATEMENTS THRIFT PLAN OF PHILLIPS
AND SCHEDULES PETROLEUM COMPANY
Page
Report of Independent Auditors ............................................. 3
Financial Statements
Statement of Net Assets Available for Benefits at December 31, 2002 and
2001 ................................................................... 4
Statement of Changes in Net Assets Available for Benefits for the Year
Ended December 31, 2002 ................................................ 5
Notes to Financial Statements ............................................ 6
Supplemental Schedules*
Schedule of Reportable Transactions for the Year Ended December 31, 2002,
Schedule H, Line 4j .................................................... 13
Schedule of Nonexempt Transactions for the Year Ended December 31, 2002,
Schedule G, Part III .................................................. 14
Exhibit Index ............................................................. 15
--------------------
* Other supplemental schedules required by Section 2520.103-10 of the Department
of Labor Rules and Regulations for Reporting and Disclosure under ERISA have
been omitted because they are not applicable.
2
REPORT OF INDEPENDENT AUDITORS
The ConocoPhillips Savings Plan Committee
Thrift Plan of Phillips Petroleum Company
We have audited the accompanying statements of net assets available for benefits
of the Thrift Plan of Phillips Petroleum Company (Plan) as of December 31, 2002
and 2001, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2002. These financial statements are
the responsibility of the ConocoPhillips Savings Plan Committee (Committee). Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 the Committee, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2002 and 2001, and the changes in its net assets available for
benefits for the year ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of
reportable transactions and nonexempt transactions for the year ended December
31, 2002, are presented for purposes of additional analysis and are not a
required part of the financial statements but are supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. These
supplemental schedules are the responsibility of the Committee. The supplemental
schedules have been subjected to the auditing procedures applied in our audits
of the financial statements and, in our opinion, are fairly stated in all
material respects in relation to the financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
June 25, 2003
3
STATEMENT OF NET ASSETS THRIFT PLAN OF PHILLIPS
AVAILABLE FOR BENEFITS PETROLEUM COMPANY
Thousands of Dollars
-----------------------
At December 31 2002 2001
-----------------------
ASSETS
Investments
ConocoPhillips common stock $ - 666,185
Insurance contracts - 18
Vanguard Total Bond Market Index Fund - 59,737
Vanguard 500 Index Fund - 169,790
Vanguard Prime Money Market Fund - 125,606
Vanguard Balanced Index Fund - 11,670
Vanguard Total International Stock Index Fund - 4,541
Vanguard Extended Market Index Fund - 16,621
Vanguard Asset Allocation Fund - 603
Vanguard Growth Index Fund - 1,677
Vanguard Inflation-Protected Securities Fund - 1,451
Vanguard International Growth Fund - 598
Vanguard LifeStrategy Conservative Growth Fund - 217
Vanguard LifeStrategy Growth Fund - 427
Vanguard LifeStrategy Income Fund - 582
Vanguard LifeStrategy Moderate Growth Fund - 202
Vanguard Mid-Cap Index Fund - 2,465
Vanguard Morgan Growth Fund - 638
Vanguard PRIMECAP Fund - 5,867
Vanguard Small-Cap Growth Index Fund - 525
Vanguard Small-Cap Value Index Fund - 2,019
Vanguard Total Stock Market Index Fund - 1,712
Vanguard Value Index Fund - 1,482
Vanguard Windsor II Fund - 4,184
Loans to Plan participants - 18,316
--------------------------------------------------------------------------------
- 1,097,133
Contributions Receivable - 19
Employee Deposits Receivable - 165
--------------------------------------------------------------------------------
Total Assets - 1,097,317
--------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ - 1,097,317
================================================================================
See Notes to Financial Statements.
4
STATEMENT OF CHANGES IN NET THRIFT PLAN OF PHILLIPS
ASSETS AVAILABLE FOR BENEFITS PETROLEUM COMPANY
Thousands
Year Ended December 31, 2002 of Dollars
----------
ADDITIONS
Contributions and Deposits
Company contributions $ 9,344
(net of forfeitures applied of $3 thousand)
Employee deposits 78,732
Rollovers 21,503
Asset Transfers In 14
------------------------------------------------------------------------------
109,593
------------------------------------------------------------------------------
Investment Income
Interest and dividend income 24,990
Interest from participant loans 1,209
Other Additions 156
------------------------------------------------------------------------------
26,355
------------------------------------------------------------------------------
Total 135,948
------------------------------------------------------------------------------
DEDUCTIONS
Distributions to
participants or their
beneficiaries 112,621
Net depreciation in fair value
of investments 179,337
Asset transfers out 941,249
Other deductions 58
------------------------------------------------------------------------------
Total 1,233,265
------------------------------------------------------------------------------
NET CHANGE (1,097,317)
NET ASSETS AVAILABLE FOR
BENEFITS
Beginning of Year 1,097,317
------------------------------------------------------------------------------
End of Year $ -
==============================================================================
See Notes to Financial Statements.
5
NOTES TO FINANCIAL STATEMENTS THRIFT PLAN OF PHILLIPS
PETROLEUM COMPANY
NOTE 1--PLAN DESCRIPTION
The following describes the Thrift Plan of Phillips Petroleum Company (Plan) at
December 31, 2002, subject to and qualified by the more complete information
appearing in the Plan document as of that date.
At the close of business on December 31,2002, the Plan was merged into the
Long-Term Stock Savings Plan of Phillips Petroleum Company (LTSSP) and the
LTSSP's name was changed to the ConocoPhillips Savings Plan.
The merger of Phillips Petroleum Company and Conoco Inc. to form ConocoPhillips
was finalized on August 30, 2002. Under the terms of the merger agreement, each
outstanding share of Phillips Petroleum Company common stock, including those
held by the Plan, was converted into one share of the new ConocoPhillips common
stock.
The Plan was a defined contribution plan available to certain employees of
ConocoPhillips Company (formerly Phillips Petroleum Company) and participating
subsidiaries (Company). Generally, any person on the direct U.S. dollar payroll
of the Company was eligible to participate. Retail outlet marketing employees
and certain other employee classifications were not eligible.
The chief financial officer of the ConocoPhillips had sole discretion to select
investment funds for inclusion in the Plan provided the Trust fund included, in
addition to the Loan Temporary Investment Fund and the Company Stock Fund, one
of each of the following three types of funds: (1) a money-market mutual fund;
(2) Standard and Poors 500 index mutual fund; and (3) a bond market index mutual
fund. The Company had a trust agreement with Vanguard Fiduciary Trust Company
(Vanguard). Under the trust agreement with Vanguard, Plan participants directed
their deposits to a variety of investment options, including the ConocoPhillips
Stock Fund (formerly the Phillips Stock Fund). Plan Participants were allowed to
change their investment direction and deposit rates monthly. In addition to the
Plan assets held in the trust, there were Plan funds in the Deferred Settlement
Account held by the Travelers Insurance Company.
The ConocoPhillips Stock Fund invested only in the common stock of
ConocoPhillips and held cash reserves as determined by the Trustee. It consisted
of two separate accounts, the Fund B Account and the Fund C Account. The Fund B
Account represented the value of investments from employee deposits contributed
to
6
the ConocoPhillips Stock Fund. The Fund C Account represented Company matching
contributions.
Dividends represented earnings from the various Vanguard mutual funds in which
the Plan participated. For the ConocoPhillips Stock Fund, dividends included not
only dividends on the ConocoPhillips common stock held, but also earnings on the
small amount of cash reserves in the fund.
Participants could have up to 20 percent of their pay, as defined in the Plan,
deposited in the Plan each month. The first 5 percent was designated as regular
deposits with any excess being designated as supplemental deposits. Deposits
were further designated by a participant as before-tax or after-tax deposits or
a combination of both. Before-tax deposits were made by the Company on behalf of
a participant who had elected the before-tax feature of the Plan, voluntarily
reducing his salary by a corresponding amount. Total deposit amounts and
allocation of deposits between after-tax and before-tax accounts were subject to
limitations imposed by the Internal Revenue Code. Employee deposits were
suspended in certain circumstances.
The Company contributed an amount equal to 25 percent of an employee's regular
deposits to the ConocoPhillips Stock Fund--Fund B Account and an amount equal to
15 percent of regular deposits to any other investment fund. All Company
matching contributions were invested in the ConocoPhillips Stock Fund--Fund C
Account. The Plan required employee deposits, before-tax deposits and Company
contributions to be invested directly into participants' designated investment
funds and the ConocoPhillips Stock Fund as soon as practicable, generally the
night of each payday.
To facilitate participant loan repayments, the Trustee also maintained assets in
a Temporary Investment Fund. These were invested in the Vanguard Prime Money
Market Fund. Loan repayments were first placed in the Temporary Investment Fund
and remained there until the valuation date on, or about, the 18th day of the
following month. Loan repayments were transferred to the Loan Fund and then were
generally allocated to other investments based on the participant's regular
deposits investment allocation, except that funds borrowed from Fund C were
repaid only to Fund C. Earnings on deposits and loan repayments held in the
Temporary Investment Fund were credited monthly, in the same manner, to each
participant who made deposits or loan repayments during the month and still
maintained an account in the Plan. The allocation of earnings were made to each
Participant in the proportion to which his deposits or loan repayments bore to
all deposits or loan repayments during the period for which such interest was
earned. Employee deposits and
7
earnings were paid into other investment funds as directed by the participant.
The Plan provided for daily transfers among funds; however, generally, Plan
participants could not direct transfers to or from the Fund C Account, the Loan
Fund, or the Temporary Investment Fund. A participant could make unlimited
transfers of any dollar amount, whole percentages, or units to, or from,
investment funds other than the Fund B Account, on any valuation date. A
participant could direct the transfer of any dollar amount, whole percentage or
number of units to, or from, his Fund B Account in the ConocoPhillips Stock Fund
to, or from, other investment funds on any valuation date, but then had to wait
10 calendar days to make another transfer involving the Fund B Account.
In addition to the rights described above permitting the transfer of amounts
from one investment fund to another, a participant who had attained age 55
could, on any valuation date, direct the transfer of any dollar amount, whole
percentage, or number of units in any investment fund (except the Temporary
Investment Fund) to any other investment fund (except to the Temporary
Investment Fund or the Fund C Account). Provided, however, such Participant who
transferred from the Fund C Account to any other investment fund could transfer
that interest back to the Fund C Account on any subsequent valuation date,
subject to the 10-calendar-day waiting period for transfers.
The Plan allowed Participants, or former Participants, who received a
distribution of all or a portion of their taxable interest in other qualified
plans, the ability to rollover all or a portion of the taxable distribution
received from the other qualified plan. As a result, during 2002, a total of
$21.5 million of assets was transferred into the Plan due to rollover elections.
A participant was vested at all times with respect to his deposits and his
interest in Company contributions. Company contributions could not be withdrawn
until 24 months after they were contributed unless the participant had been in
the Plan for at least five years or became eligible to withdraw, for reasons
other than a specified financial hardship, his interest in his before-tax
account. A participant could not withdraw his interest in his before-tax account
unless he was at least age 59 1/2, experienced a specified financial hardship,
became totally and permanently disabled, or severed employment. Upon the death
of a participant, his beneficiary could withdraw the participant's entire
account balance, including his before-tax account.
Distributions generally occurred upon severance of employment,
8
but could be deferred. For a participant who retired or became totally disabled,
unless a request for withdrawal was made as of any earlier date, distribution
generally was deferred to a date not later than the first valuation date in
October of the year age 69 was attained. If the participant died, distribution
to a surviving spouse beneficiary was deferred to the first valuation date in
October in the year in which the participant would have attained age 69. This
deferral was revocable by the participant or the surviving spouse. Distributions
to non-spouse beneficiaries could be deferred approximately five years.
Distributions were based on the valuation of the participant's interest in the
trust fund. Available forms of distribution were:
(a) in cash from all investment funds other than the ConocoPhillips
Stock Fund;
(b) in whole shares of common stock and/or cash from the
ConocoPhillips Stock Fund, at the participants' discretion;
(c) with respect to a participant who retired under a Company
retirement plan before July 1, 1992, and who timely elected a
deferred settlement option--monthly, quarterly or annual payments
irrevocably elected from his interest in the Plan--commencing at
retirement with, at the participant's direction, a designated
life- interest beneficiary to receive any unpaid scheduled
payments following the participant's death.
A participant could elect a direct rollover of the taxable portion of most
distributions to an Individual Retirement Account or another tax-qualified plan.
The taxable portion of any such distribution that was not rolled over directly
became subject to 20 percent federal withholding.
The Plan was administered by the Thrift Plan Committee, a Plan Financial
Administrator, and a Plan Benefits Administrator. The members of the Committee
were appointed by the Board of Directors of the Company. The Plan Financial
Administrator and Plan Benefits Administrator were the persons who occupied,
respectively, the ConocoPhillips positions of Treasurer and Compensation and
Benefits Manager. Members of the Committee and the Plan Administrators served
without compensation, but were reimbursed by the Company for necessary
expenditures incurred in the discharge of their duties. The Plan paid all
reasonable expenses necessary for the operation of the Plan, unless such
expenses were paid by the Company.
9
NOTE 2--NON-PARTICIPANT-DIRECTED INVESTMENTS
The ConocoPhillips Stock Fund included non-participant-directed investments
resulting from the Company's matching contributions being invested in the
ConocoPhillips Stock Fund--Fund C Account. Information about the net assets and
the significant components of the changes in net assets, including both
participant and non-participant-directed activity, relating to the
ConocoPhillips Stock Fund follows:
Thousands of Dollars
--------------------
At December 31 2002 2001
--------------------
Net Assets:
ConocoPhillips common stock $ - 666,185
Vanguard Prime Money Market Fund - 1,704
Employee deposits receivable--Fund B - 94
Contributions receivable--Fund C - 19
------------------------------------------------------------------------------
$ - 668,002
==============================================================================
Changes in Net Assets during Year
Ended December 31, 2002:
Matching Company contributions--Fund C $ 9,344
Employee and before-tax deposits 44,525
Employee loan repayments 7,216
Employee loan withdrawals (5,232)
Dividends 15,941
Net depreciation in fair value of
investments (126,573)
Distributions to participants or their
beneficiaries (60,434)
Transfer to participant-directed investments (15,504)
Asset transfers in and rollovers in 213,227
Asset transfers out (749,552)
Other additions (935)
Administrative expense (25)
------------------------------------------------------------------------------
$(668,002)
==============================================================================
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Plan's financial statements are presented on the accrual basis of
accounting. Distributions to participants or their beneficiaries were recorded
when paid.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes
and
10
schedules. Actual results could differ from those estimates and assumptions.
NOTE 4--INVESTMENTS
VALUATION
ConocoPhillips common stock was valued at its quoted market price. Insurance
contracts were valued pursuant to their terms; the value, which approximated
fair value, represented fund deposits plus interest credited, less
distributions. Shares of mutual funds were valued at the net asset value of
shares held by the Plan at year-end. Participant loans were valued at cost,
which approximated fair value.
Investment securities are exposed to various risks, such as interest rate,
market, and credit risk. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in risks
in the near term could materially affect the amounts reported in the Statement
of Net Assets Available for Benefits.
APPRECIATION (DEPRECIATION)
During 2002, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) depreciated in value as
follows:
Thousands
of Dollars
----------
ConocoPhillips common stock $ (127,508)
Vanguard mutual funds (51,829)
------------------------------------------------------------------------------
$ (179,337)
==============================================================================
NOTE 5--CONTRIBUTIONS RECEIVABLE
Contributions receivable at December 31, 2001 included $19,000 receivable from
the Company for 2001 matching contributions.
NOTE 6--LOAN FUND
The Plan allowed loans to active employees or parties-in-interest from their
accounts. The minimum loan was $1,000, and generally the maximum was the lesser
of $50,000 or half the participant's vested account. The loans could extend for
up to 60 months (180 months for a home loan) with a rate of interest equal to
the
11
national prime lending rate, as determined on the last valuation date of the
previous month. No more than one home loan and two regular loans could be
outstanding at any given time.
Loan payments and interest were repaid to the borrowing participant's account
through the Loan Temporary Fund, which recorded the outstanding loans and
related transactions. Generally, repayments were allocated to other investment
funds based on a participant's regular deposit investment direction, except that
funds borrowed from Fund C were repaid only to Fund C.
NOTE 7--ASSET TRANSFERS OUT
At the close of business on December 31, 2002, approximately $941 million of
assets were transferred out of the Plan and merged into the ConocoPhillips
Savings Plan.
NOTE 8--TRANSACTIONS WITH PARTIES-IN-INTEREST
Certain investments of the Plan were in shares of mutual funds managed by
Vanguard. Since Vanguard was the Plan's trustee, these transactions qualified as
party-in-interest transactions. In addition, certain Plan investments were in
ConocoPhillips' common stock. These transactions also qualified as
party-in-interest transactions.
During 2002, the Plan received $15,941,000 in common stock dividends from the
Company or, subsequent to the merger described in Note 1, ConocoPhillips. Fees
paid for legal, accounting, and other services rendered by parties-in-interest
were based on customary and reasonable rates for such services.
NOTE 9--TAX STATUS
The Internal Revenue Service (IRS) determined on July 3, 2002, that the Plan was
qualified under Section 401(a) of the Internal Revenue Code of 1986 and the
Trust was exempt from federal income tax under Section 501(a). Subsequent
amendments were adopted, but were not expected to affect the qualified status of
the Plan. The Committee was not aware of any activity that affected the
qualified status of the Plan.
12
SCHEDULE OF REPORTABLE TRANSACTIONS THRIFT PLAN OF PHILLIPS
SCHEDULE H, LINE 4j PETROLEUM COMPANY
SERIES OF TRANSACTIONS IN EXCESS EIN 73-0400345, PLAN 002
OF 5 PERCENT OF NET ASSETS (CATEGORY iii)
Year Ended December 31, 2002
Thousands of Dollars
------------------------------------------------------------------------------
(h) Current
value of
(a)(b) Identity of party asset on (i) Net
involved and (c) Purchase (d) Selling (g) Cost transaction gain or
description of asset Price Price (f) Expenses of asset date (loss)
----------------------------------------------- ----------- ------------ -------- ----------- --------
ConocoPhillips*
Common Stock $121,609 - Net $ - 121,609 -
- 114,476 Net 82,048 114,476 32,428
-----------------------------------------------------------------------------------------------------------------
-------------
*Party-in-interest
Column (e) is not applicable.
There were no category (i), (ii) or (iv) reportable transactions during 2002.
13
SCHEDULE OF NONEXEMPT TRANSACTIONS THRIFT PLAN OF PHILLIPS
SCHEDULE G, PART III PETROLEUM COMPANY
EIN 73-0400345, PLAN 002
Year Ended December 31, 2002
(c)
Description of
(b) transactions, including
(a) Relationship to plan, maturity date, rate of
Identity of employer or other interest, collateral,
party involved party-in-interest par or maturity value
------------------ ---------------------- -----------------------------------
ConocoPhillips Employer/Plan Sponsor On a May 24, 2002, there was a
Company delay in the transfer of employee
deposits to Vanguard, totaling
$241,737.45. The related earnings
of $3,876.51 were deposited into
the Plan in August 2002.
Columns (d) through (j) are not applicable.
14
EXHIBIT INDEX THRIFT PLAN OF PHILLIPS
PETROLEUM COMPANY
Exhibit
Number Description
------ -----------
23 Consent of Independent Auditors.
99 Certifications Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
15