.Analysis of Income Taxes
Difficulty: Advanced
Income Tax Accounting Policy
Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial reporting basis and the tax basis of ConocoPhillips' assets and liabilities, except for deferred taxes on income and temporary differences related to the cumulative translation adjustment considered to be permanently reinvested in certain foreign subsidiaries and foreign corporate joint ventures. Allowable tax credits are applied currently as reductions of the provision for income taxes. Interest related to unrecognized tax benefits is reflected in interest and debt expense, and penalties related to unrecognized tax benefits are reflected in production and operating expenses.
Source: ConocoPhillips, Annual Report
Income Tax Expense (Benefit)
ConocoPhillips, income tax expense (benefit), continuing operations
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Federal | |||||
| | Foreign | |||||
| | State and local | |||||
| | Current | |||||
| | Federal | |||||
| | Foreign | |||||
| | State and local | |||||
| | Deferred | |||||
| | Income tax provision (benefit) |
Source: Based on data from ConocoPhillips Annual Reports
| Item | Description | The company |
|---|---|---|
| Current | The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. | ConocoPhillips's current increased from 2015 to 2016 and from 2016 to 2017. |
| Deferred | The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. | ConocoPhillips's deferred increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Income tax provision (benefit) | The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. | ConocoPhillips's income tax provision (benefit) increased from 2015 to 2016 and from 2016 to 2017. |
Effective Income Tax Rate (EITR)
ConocoPhillips, effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Federal statutory income tax rate | % | % | % | % | % |
| | Non-U.S. effective tax rates | % | % | % | % | % |
| | Impact of U.S. tax legislation | % | % | % | % | % |
| | Canada disposition | % | % | % | % | % |
| | Recovery of outside basis | % | % | % | % | % |
| | Adjustment to tax reserves | % | % | % | % | % |
| | APLNG impairment | % | % | % | % | % |
| | State income tax | % | % | % | % | % |
| | Enhanced oil recovery credit | % | % | % | % | % |
| | U.K. rate change | % | % | % | % | % |
| | Canada rate change | % | % | % | % | % |
| | U.S. fair value election | % | % | % | % | % |
| | Capital loss benefit | % | % | % | % | % |
| | Federal manufacturing deduction | % | % | % | % | % |
| | Other | % | % | % | % | % |
| | Effective income tax rate | % | % | % | % | % |
Source: Based on data from ConocoPhillips Annual Reports
| Item | Description | The company |
|---|---|---|
| Effective income tax rate | A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. | ConocoPhillips's effective income tax rate declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Components of Deferred Tax Assets and Liabilities
ConocoPhillips, components of deferred tax assets and liabilities
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Benefit plan accruals | |||||
| | Asset retirement obligations and accrued environmental costs | |||||
| | Investments in joint ventures | |||||
| | Deferred state income tax | |||||
| | Other financial accruals and deferrals | |||||
| | Loss and credit carryforwards | |||||
| | Other | |||||
| | Deferred tax assets | |||||
| | Valuation allowance | |||||
| | Net deferred tax assets | |||||
| | PP&E and intangibles | |||||
| | Investment in joint ventures | |||||
| | Inventory | |||||
| | Deferred state income tax | |||||
| | Partnership income deferral | |||||
| | Other | |||||
| | Deferred tax liabilities | |||||
| | Net deferred tax assets (liabilities) |
Source: Based on data from ConocoPhillips Annual Reports
| Item | Description | The company |
|---|---|---|
| Deferred tax assets | The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. | ConocoPhillips's deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Net deferred tax assets | The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. | ConocoPhillips's net deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Net deferred tax assets (liabilities) | For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. | ConocoPhillips's net deferred tax assets (liabilities) increased from 2015 to 2016 and from 2016 to 2017. |
Deferred Tax Assets and Liabilities, Classification
ConocoPhillips, deferred tax assets and liabilities, classification
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Current deferred tax assets | |||||
| | Long-term deferred tax assets | |||||
| | Current deferred tax liabilities | |||||
| | Long-term deferred tax liabilities |
Source: Based on data from ConocoPhillips Annual Reports
| Item | Description | The company |
|---|---|---|
| Current deferred tax assets | The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset. | |
| Long-term deferred tax assets | The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. | ConocoPhillips's long-term deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Current deferred tax liabilities | Represents the current portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A current taxable temporary difference is a difference between the tax basis and the carrying amount of a current asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. | |
| Long-term deferred tax liabilities | Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. | ConocoPhillips's long-term deferred tax liabilities declined from 2015 to 2016 and from 2016 to 2017. |
Analyst Adjustments: Removal of Deferred Taxes
ConocoPhillips, adjustments to financial data
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Adjustment to Current Assets | ||||||
| | Current assets (as reported) | |||||
| | Less: Current deferred tax assets, net | |||||
| | Current assets (adjusted) | |||||
| Adjustment to Total Assets | ||||||
| | Total assets (as reported) | |||||
| | Less: Current deferred tax assets, net | |||||
| | Less: Noncurrent deferred tax assets, net | |||||
| | Total assets (adjusted) | |||||
| Adjustment to Current Liabilities | ||||||
| | Current liabilities (as reported) | |||||
| | Less: Current deferred tax liabilities, net | |||||
| | Current liabilities (adjusted) | |||||
| Adjustment to Total Liabilities | ||||||
| | Total liabilities (as reported) | |||||
| | Less: Current deferred tax liabilities, net | |||||
| | Less: Noncurrent deferred tax liabilities, net | |||||
| | Total liabilities (adjusted) | |||||
| Adjustment to Common Stockholders’ Equity | ||||||
| | Common stockholders’ equity (as reported) | |||||
| | Less: Net deferred tax assets (liabilities) | |||||
| | Common stockholders’ equity (adjusted) | |||||
| Adjustment to Net Income (loss) Attributable To ConocoPhillips | ||||||
| | Net income (loss) attributable to ConocoPhillips (as reported) | |||||
| | Add: Deferred income tax expense (benefit) | |||||
| | Net income (loss) attributable to ConocoPhillips (adjusted) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
ConocoPhillips, adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Current Ratio | ||||||
| | Reported current ratio | |||||
| | Adjusted current ratio | |||||
| Net Profit Margin | ||||||
| | Reported net profit margin | % | % | % | % | % |
| | Adjusted net profit margin | % | % | % | % | % |
| Total Asset Turnover | ||||||
| | Reported total asset turnover | |||||
| | Adjusted total asset turnover | |||||
| Financial Leverage | ||||||
| | Reported financial leverage | |||||
| | Adjusted financial leverage | |||||
| Return on Equity (ROE) | ||||||
| | Reported ROE | % | % | % | % | % |
| | Adjusted ROE | % | % | % | % | % |
| Return on Assets (ROA) | ||||||
| | Reported ROA | % | % | % | % | % |
| | Adjusted ROA | % | % | % | % | % |
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | ConocoPhillips's adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | ConocoPhillips's adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | ConocoPhillips's adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level. |
| Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
ConocoPhillips's adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | ConocoPhillips's adjusted ROE improved from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | ConocoPhillips's adjusted ROA improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Current Ratio
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Current assets (USD $ in millions) | |||||
| | Current liabilities (USD $ in millions) | |||||
| | Current ratio1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted current assets (USD $ in millions) | |||||
| | Adjusted current liabilities (USD $ in millions) | |||||
| | Adjusted current ratio2 | |||||
2017 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= ÷ =
2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | ConocoPhillips's adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Net Profit Margin
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) attributable to ConocoPhillips (USD $ in millions) | |||||
| | Sales and other operating revenues (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) attributable to ConocoPhillips (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income (loss) attributable to ConocoPhillips ÷ Sales and other operating revenues
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to ConocoPhillips ÷ Sales and other operating revenues
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | ConocoPhillips's adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Total Asset Turnover
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Sales and other operating revenues (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | Total asset turnover1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted total asset turnover2 | |||||
2017 Calculations
1 Total asset turnover = Sales and other operating revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Sales and other operating revenues ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | ConocoPhillips's adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level. |
Adjusted Financial Leverage
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total assets (USD $ in millions) | |||||
| | Common stockholders’ equity (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted common stockholders’ equity (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Common stockholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted common stockholders’ equity
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
ConocoPhillips's adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) attributable to ConocoPhillips (USD $ in millions) | |||||
| | Common stockholders’ equity (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) attributable to ConocoPhillips (USD $ in millions) | |||||
| | Adjusted common stockholders’ equity (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income (loss) attributable to ConocoPhillips ÷ Common stockholders’ equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to ConocoPhillips ÷ Adjusted common stockholders’ equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | ConocoPhillips's adjusted ROE improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) attributable to ConocoPhillips (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) attributable to ConocoPhillips (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income (loss) attributable to ConocoPhillips ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to ConocoPhillips ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | ConocoPhillips's adjusted ROA improved from 2015 to 2016 and from 2016 to 2017. |
