Financial statements of the ConocoPhillips Savings Plan, filed as part of this
annual report, are listed in the accompanying index.
|
|
|
Notes To Financial Statements
|
|
ConocoPhillips Savings Plan
|
Note 1--Plan Description
The following description of the ConocoPhillips Savings Plan (Plan) is as of December 31, 2016, and provides only general information. Participants should
refer to the Plan document for a more complete description of the Plans provisions.
General
The Plan is a defined contribution, 401(k) profit sharing plan, which includes an employee stock ownership plan (ESOP) component. The Vanguard Group, Inc.
serves as record keeper. Vanguard Fiduciary Trust Company (Vanguard) serves as a trustee for the Plan.
The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended (ERISA).
Eligibility
Generally, active employees of ConocoPhillips Company (Company or COP) and its subsidiaries, wholly-owned subsidiaries of ConocoPhillips, on the direct U.S.
dollar payroll are eligible to participate in the Plan.
Contributions
Most U.S. employees are eligible to participate in the Plan. Employees can deposit up to 75 percent of their eligible pay, subject to statutory limits, in the
Plan to a variety of investment funds. Effective January 1, 2016, employees who participate in the Plan and contribute 1 percent of their eligible pay receive a 6 percent company cash match with a potential company discretionary cash
contribution of up to 6 percent. Through 2015, employees who participated in the Plan and contributed 1 percent of their eligible pay received a 9 percent company cash match, subject to certain limitations.
Active employees are eligible to make catch-up contributions to the Plan beginning in the year they attain the age of 50.
Plan assets are invested in a variety of investment funds; however, the DuPont Stock Fund, Chemours Stock Fund, ConocoPhillips Leveraged Stock Fund, Phillips
66 Leveraged Stock Fund, and Phillips 66 Stock Fund are closed to new investment elections. Effective October 31, 2017, the DuPont Stock Fund and the Chemours Stock Fund will be removed as investment options under the Plan. Investments in the
Plan are participant-directed.
Participant Accounts
Each participants account is credited with the active employee contributions, Company contributions, Plan earnings and losses, and charged with an
allocation of investment and administrative expenses, as applicable. Allocations are based on participant earnings or account balances. Recordkeeping expenses are charged directly to each participants account on a quarterly basis. The benefit
to which a participant is entitled is the balance in the participants vested account.
Vesting
Participants are immediately vested in all amounts credited to their accounts in all funds.
6
Voting Rights
As a beneficial owner of ConocoPhillips Stock, Plan participants and beneficiaries are entitled to direct the trustee to vote the ConocoPhillips Stock
attributable to their accounts.
Diversification
Generally, participants may make unlimited exchanges out of any investment fund in any dollar amount, whole percentages, or shares of their account to another
investment fund subject to the exchange rules of the Plan. In addition, using selected investment percentages, a participant may request a reallocation of both the existing account and future contribution allocations or a rebalancing of the
participants existing account.
Share Accounting Method for ConocoPhillips Stock
Any shares purchased or sold for the Plan on any business day are valued at the Participant Transaction Price, as defined by the Plan, which is calculated
using a weighted-average price of the ConocoPhillips Stock traded on that business day and any carryover impact as described in the Plan.
Distributions
Total distributions from
participant accounts can be made upon the occurrence of specified events, including the attainment of the age of 59
1
⁄
2
, death, disability, or termination of
employment. Partial distributions are permitted in cases of specified financial hardship.
Installment Payments
A terminated employee or a beneficiary who is the surviving spouse of a participant is eligible to elect a distribution based on a fixed dollar amount or life
expectancy installment payments.
Dividend Pass Through
A participant can make an election to receive cash dividends from the ConocoPhillips Stock Fund and the ConocoPhillips Leveraged Stock Fund on a portion of
that participants account invested in ConocoPhillips Stock. The distribution of these dividends is made on each dividend payment date.
Forms
of Payment
Generally, distributions from participant accounts invested in ConocoPhillips Stock, Phillips 66 Stock, DuPont Stock, and Chemours
Stock can be made in cash, stock, or a combination of both. Distributions from all other funds in the Plan are made in cash. An election to make an eligible rollover distribution is also available.
Participant Loans
Active employee participants
can request a loan from their account in the Plan. The minimum loan is $1,000. Generally, the maximum loan is the lesser of $50,000 or one-half of the vested value of the participants account. For those eligible for loans, three outstanding
loans are available at any one time, one of which can be a home loan. The maximum term of a home loan is 238 months, and the maximum term of a general purpose loan is 58 months.
Trust Agreements
The trust agreement with
Vanguard provides for the administration of certain assets in the Plan.
Additionally, the Stable Value Fund (SVF) is managed under the Stable Value Fund
Master Trust Agreement. The assets in this fund include stable value investment contracts and short-term investments. The trustee is State Street Bank and Trust Company. Underlying the stable value investment contracts are units of common collective
trust (CCT) funds.
7
Administration
The Plan is administered by the ConocoPhillips Company Benefits Committee (Committee). Members of the Committee are appointed by the Board of Directors of the
Company and serve without compensation, but are reimbursed by the Company for necessary expenditures incurred in the discharge of their duties. Administrative expenses of the Plan are paid from assets of the Plan to the extent allowable by law,
unless paid by the Company.
Note 2--Significant Accounting Policies
Basis of Presentation
The Plans financial
statements are presented on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (GAAP). Distributions to participants or their beneficiaries are recorded when paid.
Notes Receivable From Participants
Notes
receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are
recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2016 or 2015. If a participant ceases to make loan repayments and the Plan administrator deems the
participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
New Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ASU 2015-07,
Disclosures for
Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent),
(ASU 2015-07). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using
the net asset value practical expedient provided by Accounting Standards Codification (ASC) 820,
Fair Value Measurement
. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07
to those investments for which the entity has elected to estimate the fair value using the net asset value practical expedient. ASU 2015-07 is effective for entities (other than public business entities) for fiscal years beginning after
December 15, 2016, with retrospective application to all periods presented. Early application is permitted. We elected to adopt the amendments of this ASU early.
In February 2017, the FASB issued ASU 2017-06,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962),
Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting
. ASU 2017-06 requires for each master trust in which a plan holds an interest, the plans interest in the master trust and any change in those
interests be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits. The amendments in this ASU also remove the requirement to disclose the
percentage interest in the master trust for plans with divided interests and require that all plans disclose the dollar amount of their interest in each of the general types of investments held by the master trust, which supplements the existing
requirement to disclose the master trusts balances in each general type of investments. The amendments in this ASU also require all plans to disclose (1) their master trusts other asset and liability balances and (2) the dollar
amount of the plans interest in each of those balances. This ASU is effective for fiscal years beginning after December 15, 2018, with retrospective application to all periods presented. Early
8
adoption is permitted. While we continue to evaluate the ASU, we do not expect the adoption of the ASU to have a material impact on the Plans financial statements and disclosures.
Use of Estimates
The preparation of financial
statements in conformity with GAAP requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes and supplemental schedule. Actual results could differ from those estimates.
Note 3--Investments
Investment Valuation and
Income Recognition
Investments held by the Plan (except the Stable Value Fund) are stated at fair value less costs to sell, if those costs are
significant. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
Common stock values are based on their quoted market prices. Mutual funds are valued using quoted market prices, which represent the net asset values of
shares held by the Plan at year-end. In 2015, Vanguard Target Retirement Funds, which are mutual funds, were replaced with Vanguard Target Retirement Trusts, which are investments in CCTs. The fair value of each Vanguard Target Retirement Trust
reflects the Trusts proportionate interest in the CCTs (see Note 9). These CCTs are valued at the net asset value (NAV) as determined by the issuer based on the fair value of the underlying investments. The assets in the SVF include investment
contracts and a short-term investment fund (STIF). The SVF invests in fully benefit-responsive investment contracts. These investment contracts are recorded at contract value (see Note 9). Contract value is the relevant measurement attributable to
fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The contract value represents contributions plus earnings,
less participant withdrawals and administrative expenses. The investment contracts are backed by units of CCTs. The STIF is valued at amortized cost, which approximates fair value. (See Note 9 for more detail on the SVF.)
Purchases and sales of investments are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Interest income is recorded on the
accrual basis.
Investment securities are exposed to various risks, including interest rate, market, and credit risks. Due to the level of risk associated
with certain investment securities, it is at least reasonably possible that changes in values of investments will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in
the statements of net assets available for benefits.
Note 4
--Fair Value Measurements
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described
below:
|
|
|
Level 1
|
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets
|
9
|
|
|
|
|
or liabilities in active markets.
|
|
|
Level 2
|
|
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full
term of the financial instrument.
|
|
|
Level 3
|
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement.
The following tables set forth by level, within the fair value hierarchy, the Plans investment assets
at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Dollars
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
Mutual Funds
|
|
$
|
2,513,626
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,513,626
|
|
Common Stock
|
|
|
2,153,760
|
|
|
|
|
|
|
|
|
|
|
|
2,153,760
|
|
|
|
Total in fair value hierarchy
|
|
$
|
4,667,386
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,667,386
|
|
|
|
|
|
|
|
|
Investments measured at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Collective Trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
782,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,449,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Dollars
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
Mutual Funds
|
|
$
|
2,477,319
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,477,319
|
|
Common Stock
|
|
|
2,202,808
|
|
|
|
|
|
|
|
|
|
|
|
2,202,808
|
|
|
|
Total in fair value hierarchy
|
|
$
|
4,680,127
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,680,127
|
|
|
|
|
|
|
|
|
Investments measured at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Collective Trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,375,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* In accordance with FASB ASC Subtopic 820-10, Fair Value Measurement Overall, certain investments that
are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the tables are intended to permit reconciliation of the
fair value hierarchy to the amounts presented in the Statements of Net Assets Available for Benefits.
Common collective trusts are comprised of
Vanguard Target Retirement Trusts.
10
Note 5--Employee Stock Ownership Plan
All ConocoPhillips Stock held by the Plan is considered part of the ESOP. This includes the ConocoPhillips Stock Fund and the ConocoPhillips Leveraged Stock
Fund. The ConocoPhillips Stock Fund contains shares of ConocoPhillips Stock purchased with active employee contributions, Company contributions, dividends reinvested in participant accounts, and shares allocated to participant accounts as a result
of allocations other than those purchased with the proceeds of acquisition loans. The ConocoPhillips Leveraged Stock Fund primarily contains shares of ConocoPhillips Stock that were purchased with the proceeds of acquisition loans and allocated to
participant accounts as a result of allocations. Participants may direct that all of these contributions be exchanged from the ConocoPhillips Stock Fund and the ConocoPhillips Leveraged Stock Fund into other investment funds at any time.
Note 6--Tax Status
The Plan received a determination
letter from the Internal Revenue Service (IRS) dated June 6, 2017, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code) and, therefore, the related trust is exempt from taxation. Subsequent to our
submission to the IRS for the determination letter, the Plan has been amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Committee believes the Plan, as amended, is being operated
in compliance with the applicable requirements of the Code and, therefore, believes the Plan, as amended, is qualified and the related trust is tax exempt.
Accounting principles generally accepted in the United States require plan management to evaluate uncertain tax positions taken by the Plan. The financial
statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Committee has analyzed the tax positions taken by the Plan, and has
concluded that as of December 31, 2016, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing
jurisdictions; however, there are currently no audits for any tax periods in progress.
Note 7--Party-in-Interest Transactions
Certain of the Plans assets are invested in ConocoPhillips Stock. Because ConocoPhillips is the ultimate parent of the Company, transactions involving
ConocoPhillips Stock qualify as party-in-interest transactions. In addition, certain investments of the Plan are in shares of mutual funds and CCTs managed by Vanguard. Because Vanguard is the Plans trustee, these transactions also qualify as
party-in-interest transactions. All of these types of transactions are exempt from the prohibited transaction rules.
Note 8--Plan Termination
In the event of termination of the Plan, participants and beneficiaries of deceased participants would be vested with respect to, and would receive, within a
reasonable time, any funds in the participants accounts as of the date of the termination.
11
Note 9
--
Stable Value Fund and Vanguard Target Retirement Trusts
Stable Value Fund
At December 31, 2016 and
2015, one investment option of the Plan, the SVF, was held in a master trust.
The Plans share of SVF Master Trust net assets was 100% as of
December 31, 2016 and 2015. The SVF consists of a STIF and synthetic investment contracts (SYNs). The STIF seeks to provide safety of principal and daily liquidity by investing in high-quality money market instruments that include, but are not
limited to, certificates of deposit, repurchase agreements, commercial paper, bank notes, time deposits, corporate debt, and U.S. Treasury and agency debt. While the intent of this fund is to allow daily withdrawals on each business day when the
Federal Reserves wire system is open, the trustee of the fund may suspend withdrawal rights at its sole discretion in certain situations such as a breakdown in the means of communication normally employed in determining the value of the
investments of the fund or a state of affairs in which the disposition of the assets of the fund would not be reasonably practicable or would be seriously prejudicial to the fund participants. In a SYN contract structure, the underlying investments
are owned by the SVF Master Trust and held in trust for Plan participants. The underlying investments of the SYNs in the SVF Master Trust consist of CCTs. The SVF Master Trust purchases a wrapper contract from an insurance company or bank to provide
market and cash flow protection to the Plan. The wrapper contract amortizes the realized and unrealized gains and losses on the underlying fixed-income investments, typically over the duration of the investment, through adjustments to the future
interest crediting rate. The issuer of the wrapper contract provides assurance that the adjustments to the interest crediting rate do not result in a future interest crediting rate that is less than zero.
The SVF values as of December 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Thousands of Dollars
|
|
December 31
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Short-term investment fund at fair value
|
|
$
|
38,094
|
|
|
|
58,901
|
|
Fully benefit-responsive investment contracts at contract value
|
|
|
1,383,183
|
|
|
|
1,404,258
|
|
|
|
Net assets available for benefits
|
|
$
|
1,421,277
|
|
|
$
|
1,463,159
|
|
|
|
The significant components of the changes in net assets relating to the SVF are as
follows:
|
|
|
|
|
Year Ended December 31, 2016
|
|
Thousands
of Dollars
|
|
Contributions
|
|
$
|
71,576
|
|
Interest income, net
|
|
|
31,994
|
|
Interfund transfers in, net
|
|
|
46,124
|
|
Other Additions
|
|
|
20
|
|
Distributions
|
|
|
(190,457
|
)
|
Participant loans
|
|
|
(1,013
|
)
|
Other deductions
|
|
|
(126
|
)
|
|
|
Net decrease
|
|
|
(
41,882
|
)
|
Beginning of year
|
|
|
1,463,159
|
|
|
|
End of year
|
|
$
|
1,421,277
|
|
|
|
12
Certain events might limit the ability of the Plan to transact at contract value with the contract issuers. These
events include, but are not limited to, termination of the Plan or SVF, a material adverse change to the provisions of the Plan, a decision by the administrators of the Plan to withdraw from or terminate an investment contract without securing a
replacement contract, and in the event of a spin-off or sale of a division if the terms of a successor plan do not meet the investment contract issuers underwriting criteria for issuance of a clone investment contract. However, the Committee
does not anticipate that the events described above are probable of occurring in the foreseeable future.
Examples of events that would permit a contract
issuer to terminate an investment contract upon short notice include the Plans loss of its qualified tax status, uncured material breaches of responsibilities, or material and adverse changes to the provisions of the Plan. If one of these
occurred, the investment contract issuer could terminate the investment contract at fair value. The Committee does not anticipate that any of these events are probable of occurrence.
The following tables set forth by level, within the fair value hierarchy, the SVF Master Trusts investment assets at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Dollars
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
Short-term investment fund
|
|
|
|
|
|
|
38,094
|
|
|
|
|
|
|
|
38,094
|
|
|
|
Total SVF Master Trust investment
assets at fair value
|
|
$
|
|
|
|
$
|
38,094
|
|
|
$
|
|
|
|
$
|
38,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of Dollars
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
Short-term investment fund
|
|
|
|
|
|
|
58,901
|
|
|
|
|
|
|
|
58,901
|
|
|
|
Total SVF Master Trust investment
assets at fair value
|
|
$
|
|
|
|
$
|
58,901
|
|
|
$
|
|
|
|
$
|
58,901
|
|
|
|
13
Vanguard Target Retirement Trusts
The Vanguard Target Retirement Trusts are highly diversified funds whose objective is to offer an appropriate balance of risk and return at every stage of
retirement investing. The year in the trust name refers to the approximate year (the target date) when an investor in the trust would retire and leave the workforce. Each trust automatically rebalances and adjusts its asset mix over time, gradually
shifting to become more conservative as the trust approaches its target retirement date.
The Trustee of the Vanguard Target Retirement Trusts, in its
sole discretion, but upon consultation with the Plan, shall decide whether to honor a redemption request in cash, in kind, or a combination of both. The Trustee will use its best efforts to distribute proceeds to the redeeming Plan as soon as
practicable; provided however, that (i) cash proceeds from the sale of securities liquidated to fund a withdrawal need not be paid until after the actual settlement date or dates of the sale of such securities; and (ii) the Trustee may
suspend redemptions and/or postpone the payment of redemption proceeds at times when the New York Stock Exchange is closed or during other emergency circumstance.
14