2018 Annual Report

Non-GAAP Reconciliations

Reconciliation of Earnings to Adjusted Earnings

(Millions of Dollars, Except as Indicated) 2018 2017 2016
Net income attributable to Phillips 66 (earnings) $5,595 $5,106 $1,555
Pre-tax adjustments:
Impairments by equity affiliates 28 64 95
Pending claims and settlements 21 (60) (117)
Certain tax impacts (119) (23) (32)
Pension settlement expense 67 83
Recognition of deferred logistics commitments 30
Equity affiliate ownership restructuring 33
Railcar lease residual value deficiencies and related costs 40
Gain on consolidation of business (423)
Hurricane-related costs 210
Tax impact of adjustments* (1) 47 4
U.S. tax reform 23 (2,735)
Other tax impacts (70) (110)
Noncontrolling interests 6
Adjusted earnings 5,550 2,269 1,498
Earnings per share of common stock (dollars) 11.80 9.85 2.92
Adjusted earnings per share of common stock (dollars)† 11.71 4.38 2.82
* We generally tax effect taxable U.S.-based special items using a combined federal and state statutory income tax rate of approximately 25 percent beginning in 2018, and approximately 38 percent for periods prior to 2018. Taxable special items attributable to foreign locations likewise use a local statutory income tax rate. Nontaxable events reflect zero income tax. These events include, but are not limited to, most goodwill impairments, transactions legislatively exempt from income tax, transactions related to entities for which we have made an assertion that the undistributed earnings are permanently reinvested, or transactions occurring in jurisdictions with a valuation allowance. † Weighted-average diluted shares outstanding and income allocated to participating securities, if applicable, in the adjusted earnings per share calculation are the same as those used in the GAAP diluted earnings per share calculation.

Reconciliation of ROCE to Adjusted ROCE

(Millions of Dollars) Numerator 2018 2017 2016
Net income $5,873 $5,248 $1,644
After-tax interest expense 398 285 220
GAAP ROCE earnings 6,271 5,533 1,864
After-tax special items (51) (2,837) (57)
Adjusted ROCE earnings 6,220 2,696 1,807
(Millions of Dollars) Denominator
GAAP average capital employed*
*Total equity plus total debt
$37,925 $35,700 $33,344
GAAP ROCE (percent) 17% 15% 6%
Adjusted ROCE (percent) 16% 8% 5%

The 2019 adjusted capital budget excludes $303 million of capital expected to be cash funded by noncontrolling interests.