Phillips 66 PSX

In late 2017, as part of Phillips 66 Company’s evaluation of various opportunities in the renewable fuels business, Phillips 66 Company engaged with Propel Fuels, Inc. (Propel Fuels), a California company that distributes E85 and other alternative fuels through fueling kiosks. Ultimately, the parties were not able to reach an agreement agreement, and negotiations were terminated in August 2018. On February 17, 2022, Propel Fuels filed a lawsuit in the Superior Court of California, County of Alameda (the Propel Court), alleging that Phillips 66 Company misappropriated trade secrets related to Propel Fuels’ renewable fuels business during and after due diligence. On October 16, 2024, a jury returned a verdict against Phillips 66 Company for $604.9 million in compensatory damages and issued a willfulness finding. In 2025, Based on the Propel Court is expected to rule on motions anticipated to be filed by willfulness finding, Propel Fuels seeking exemplary damages and attorneys’ fees. Propel Fuels has asked the Propel Court to grant treble damages award $1.2 billion in exemplary damages, and Phillips 66 Company has filed a brief in opposition to that request. Also A hearing on exemplary damages was held on March 4, 2025, and the Propel Court awarded Propel Fuels $195 million in exemplary damages on July 30, 2025. On August 5, 2025, the Propel Court entered a final judgment against Phillips 66 Company in the amount of $833 million. The judgment includes the $604.9 million jury verdict, $195 million of exemplary damages, and $33.3 million of pre-judgment interest at 7%. Post-judgment interest of 10% is expected to rule on accruing from the date of the final judgment. On August 25, 2025, Phillips 66 Company filed three post-trial motions requesting that the Propel Court render judgment in favor of Phillips 66 Company, grant a new trial, and/or reduce the damages award. On October 20, 2025, the Propel Court denied Phillips 66 Company’s motions. On November 14, 2025, Phillips 66 Company filed its Notice of Appeal, which has been assigned to Division Two of the First District Court of Appeal. Separately, on October 24, 2025, Propel Fuels filed additional motions for a judgment in with the Propel Court seeking attorney’s fees and costs. Phillips 66 Company filed its favor as a matter of law, or in opposition to that request on January 13, 2026, and once the alternative to reduce record on this issue is complete, the jury’s verdict or to grant a new trial. Propel Court will rule on these motions. Phillips 66 Company denies any wrongdoing and intends to vigorously defend its position. As a result of the August 2025 final judgment and the October 2024 jury verdict, the Company has we recorded an accrual of $262 million and $604.9 million of expense for the years ended December 31, 2025 and 2024, respectively, which is are included in within the “Selling, general and administrative expenses” line on our consolidated statement of income for the year ended December 31, 2024, and is reported in the M&S segment. In addition, the accrued amount is Therefore, our recorded accruals totaling $867 million and $604.9 million as of December 31, 2025 and 2024, respectively, are reflected as “Other liabilities and deferred credits” on our consolidated balance sheet as of December 31, 2024. sheet. However, it is reasonably possible that the estimate of the loss could change based on the progression of the case, including the appeals process. Because of the uncertainties associated with ongoing litigation, we are unable to estimate the range of reasonably possible loss that may be attributable to exemplary damages, if any, in excess of the amount accrued. If information were to become available that would allow us to reasonably estimate a range of potential exposure in an amount higher or lower than the amount already accrued, we would adjust our accrued liabilities accordingly. While Phillips 66 Company believes the jury verdict is not legally or factually supported and intends to pursue post-judgment remedies and file an appeal, supported, there can be no assurances that such defense efforts will be successful. To Until the extent Phillips 66 Company is required final resolution of this matter, we may be exposed to pay exemplary damages, it losses in excess of the amount recorded, and such amounts may have a material adverse effect on our financial position and results of operations. position.

As described further in the “Legal Proceedings” section of Note 17—Contingencies 18—Contingencies and Commitments, in the Notes to Consolidated Financial Statements, on February 17, 2022, Propel Fuels, Inc. (Propel Fuels) filed a lawsuit in the Superior Court of California, County of Alameda (the Propel Court), alleging that Phillips 66 Company misappropriated trade secrets related to Propel Fuels’ renewable fuels business. business during and after due diligence. On October 16, 2024, a jury returned a verdict against Phillips 66 Company for $604.9 million in compensatory damages and issued a willfulness finding. In 2025, Based on the Propel Court is expected to rule on motions anticipated to be filed by willfulness finding, Propel Fuels seeking exemplary damages and attorneys’ fees. Propel Fuels has asked the Propel Court to grant treble damages award $1.2 billion in exemplary damages, and Phillips 66 Company has filed a brief in opposition to that request. Also A hearing on exemplary damages was held on March 4, 2025, and the Propel Court awarded Propel Fuels $195 million in exemplary damages on July 30, 2025. On August 5, 2025, the Propel Court entered a final judgment against Phillips 66 Company in the amount of $833 million. The judgment includes the $604.9 million jury verdict, $195 million of exemplary damages, and $33.3 million of pre-judgment interest at 7%. Post-judgment interest of 10% is expected to rule on accruing from the date of the final judgment. On August 25, 2025, Phillips 66 Company filed three post-trial motions requesting that the Propel Court render judgment in favor of Phillips 66 Company, grant a new trial, and/or reduce the damages award. On October 20, 2025, the Propel Court denied Phillips 66 Company’s motions. On November 14, 2025, Phillips 66 Company filed its Notice of Appeal, which has been assigned to Division Two of the First District Court of Appeal. Separately, on October 24, 2025, Propel Fuels filed additional motions for a judgment in with the Propel Court seeking attorney’s fees and costs. Phillips 66 Company filed its favor as a matter of law, or in opposition to that request on January 13, 2026, and once the alternative to reduce record on this issue is complete, the jury’s verdict or to grant a new trial. Propel Court will rule on these motions. Phillips 66 Company denies any wrongdoing and intends to vigorously defend its position. While Phillips 66 Company believes the jury verdict is not legally or factually supported and intends to pursue post-judgment remedies and file an appeal, supported, there can be no assurances that such defense efforts will be successful. To Until the extent Phillips 66 Company is required final resolution of this matter, we may be exposed to pay exemplary damages, it losses in excess of the amount recorded, and such amounts may have a material adverse effect on our financial position and results of operations. position.

The regulatory framework regarding renewable feedstocks and fuels is constantly evolving. Changes to laws, regulations, policies or standards regarding renewable fuels or the feedstocks used to produce our renewable fuels, elimination or reduction of incentives, as well as the cost of conforming with such updated laws, regulations, policies or standards could negatively impact the results of operations of our Renewable Fuels segment. For example, our Renewable Fuels segment processes renewable feedstocks such as used cooking oil, vegetable oils, and other low-carbon intensity waste oils and byproducts to produce renewable fuels. If certain types of renewable feedstocks are excluded from generating credits, our financial condition and results of operations may be impacted.

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 ten months for shared-based payment awards granted beginning in 2023 and not less than six months for share-based payment awards granted prior to 2023 as those are that is the minimum periods period of time required for awards not to be subject to forfeiture. Our equity-classified 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 (at age 55 with 5 years of service). We have elected to recognize expense on a straight-line basis over the service period for the entire award, irrespective of whether the award was granted with ratable or cliff vesting, and have elected to recognize forfeitures of awards when they occur.