UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
For the transition period from __________to________
Commission File Number 1-2256
EXXON MOBIL CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-5409005
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5959 Las Colinas Boulevard, Irving, Texas 75039-2298
(Address of principal executive offices) (Zip Code)
(972) 444-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 2004
Common stock, without par value 6,540,045,610
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Statement of Income
3
Three months ended March 31, 2004 and 2003
Condensed Consolidated Balance Sheet
4
As of March 31, 2004 and December 31, 2003
Condensed Consolidated Statement of Cash Flows
5
Notes to Condensed Consolidated Financial Statements
6-16
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
17-21
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
22
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Legal Proceedings
Changes in Securities and Use of Proceeds
23
Item 6.
Exhibits and Reports on Form 8-K
23-24
Signature
25
Index to Exhibits
26
-2-
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
March 31,
2004
2003
REVENUES AND OTHER INCOME
Sales and other operating revenue (1)
$
66,060
60,188
Income from equity affiliates
1,256
2,283
Other income
286
1,309
Total revenues and other income
67,602
63,780
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases
30,545
28,078
Production and manufacturing expenses
5,523
5,340
Selling, general and administrative expenses
3,242
3,102
Depreciation and depletion
2,373
2,182
Exploration expenses, including dry holes
175
147
Interest expense
48
42
Excise taxes (1)
6,416
5,831
Other taxes and duties
10,164
8,807
Income applicable to minority and preferred interests
154
373
Total costs and other deductions
58,640
53,902
INCOME BEFORE INCOME TAXES
8,962
9,878
Income taxes
3,522
3,388
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE
5,440
6,490
Cumulative effect of accounting change,
net of income tax
0
550
NET INCOME
7,040
NET INCOME PER COMMON SHARE (dollars)
Income before cumulative effect of accounting change
0.83
0.97
0.00
0.08
Net income
1.05
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (dollars)
DIVIDENDS PER COMMON SHARE (dollars)
0.25
0.23
(1) Excise taxes included in sales and other
operating revenue
-3-
CONDENSED CONSOLIDATED BALANCE SHEET
Dec 31,
ASSETS
Current assets
Cash and cash equivalents
15,894
10,626
Notes and accounts receivable - net
24,189
24,309
Inventories
Crude oil, products and merchandise
8,892
7,665
Materials and supplies
1,294
1,292
Prepaid taxes and expenses
2,206
2,068
Total current assets
52,475
45,960
Property, plant and equipment - net
104,784
104,965
Investments and other assets
22,943
23,353
TOTAL ASSETS
180,202
174,278
LIABILITIES
Current liabilities
Notes and loans payable
4,834
4,789
Accounts payable and accrued liabilities
30,356
28,445
Income taxes payable
6,765
5,152
Total current liabilities
41,955
38,386
Long-term debt
5,135
4,756
Deferred income tax liability
19,981
20,118
Other long-term liabilities
21,450
21,103
TOTAL LIABILITIES
88,521
84,363
SHAREHOLDERS' EQUITY
Benefit plan related balances
(594
)
(634
Common stock, without par value:
Authorized:
9,000 million shares
Issued:
8,019 million shares
4,339
4,468
Earnings reinvested
119,754
115,956
Accumulated other nonowner changes in equity
Cumulative foreign exchange translation adjustment
1,169
1,421
Minimum pension liability adjustment
(2,446
Unrealized gains on stock investments
381
511
Common stock held in treasury:
1,479 million shares at March 31, 2004
(30,922
1,451 million shares at December 31, 2003
(29,361
TOTAL SHAREHOLDERS' EQUITY
91,681
89,915
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The number of shares of common stock issued and outstanding at March 31, 2004 and
December 31, 2003 were 6,540,045,610 and 6,568,137,609, respectively.
-4-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Cumulative effect of accounting change, net of tax
(550
Changes in operational working capital, excluding cash and debt
1,928
Ruhrgas transaction
(2,240
All other items - net
(48
Net cash provided by operating activities
10,138
8,646
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(2,810
(2,938
Sales of subsidiaries, investments, and property, plant and equipment
454
1,333
Other investing activities - net
775
870
Net cash used in investing activities
(1,581
(735
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt
367
Reductions in long-term debt
(7
(212
Additions/(reductions) in short-term debt - net
(40
Cash dividends to ExxonMobil shareholders
(1,642
(1,541
Cash dividends to minority interests
(72
(61
Changes in minority interests and sales/(purchases)
of affiliate stock
(31
(45
Net ExxonMobil shares acquired
(1,745
(1,110
Net cash used in financing activities
(3,170
(2,944
Effects of exchange rate changes on cash
(119
132
Increase/(decrease) in cash and cash equivalents
5,268
5,099
Cash and cash equivalents at beginning of period
7,229
CASH AND CASH EQUIVALENTS AT END OF PERIOD
12,328
SUPPLEMENTAL DISCLOSURES
Income taxes paid
1,502
1,168
Cash interest paid
73
92
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis Of Financial Statement Preparation
These unaudited condensed consolidated financial statements should be read in the context of the consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the corporation's 2003 Annual Report on Form 10-K. In the opinion of the corporation, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The corporation's exploration and production activities are accounted for under the "successful efforts" method.
2.
Accounting Change
As of January 1, 2003, the corporation adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 143 (FAS 143), “Accounting for Asset Retirement Obligations.” The cumulative adjustment for the change in accounting principle reported in the first quarter of 2003 was after-tax income of $550 million (net of $442 million of income tax effects, including ExxonMobil’s share of related equity company income taxes of $51 million), or $0.08 per common share.
3.
Accounting for Variable Interest Entities
In December 2003, the Financial Accounting Standards Board issued a revised Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” replacing the original interpretation issued in January 2003.
The corporation identified three operating entities in which the corporation has variable interests primarily through lease commitments and certain guarantees extended by the corporation. While implementation was not required until March 31, 2004, the corporation chose to adopt FIN 46 in the fourth quarter 2003 by consolidating these entities, which were previously accounted for under the equity method. There was no effect on net income, because the corporation was already recording its share of net income of these entities. The impact to the balance sheet was to increase both assets and liabilities by about $500 million. However, there was no change to the calculation of return on average capital employed, because the corporation already includes its share of equity company debt in the determination of average capital employed.
4.
Litigation and Other Contingencies
Litigation
A variety of claims have been made against ExxonMobil and certain of its consolidated subsidiaries in a number of pending lawsuits and tax disputes. The corporation accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. The corporation does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. ExxonMobil will continue to defend itself vigorously in these matters. Based on a consideration of all relevant facts and circumstances, the corporation does not believe the ultimate outcome of any currently pending lawsuit against ExxonMobil will have a materially adverse effect upon the corporation’s operations or financial condition.
-6-
A number of lawsuits, including class actions, were brought in various courts against Exxon Mobil Corporation and certain of its subsidiaries relating to the accidental release of crude oil from the tanker Exxon Valdez in 1989. The vast majority of the compensatory claims have been resolved. All of the punitive damage claims were consolidated in the civil trial that began in May 1994.
In that trial, on September 24, 1996, the United States District Court for the District of Alaska entered a judgment in the amount of $5 billion in punitive damages to a class composed of all persons and entities who asserted claims for punitive damages from the corporation as a result of the Exxon Valdez grounding. ExxonMobil appealed the judgment. On November 7, 2001, the United States Court of Appeals for the Ninth Circuit vacated the punitive damage award as being excessive under the Constitution and remanded the case to the District Court for it to determine the amount of the punitive damage award consistent with the Ninth Circuit’s holding. The Ninth Circuit upheld the compensatory damage award which has been paid. On December 6, 2002, the District Court reduced the punitive damage award from $5 billion to $4 billion. Both the plaintiffs and ExxonMobil appealed that decision to the Ninth Circuit. The Ninth Circuit panel vacated the District Court’s $4 billion punitive damage award without argument and sent the case back for the District Court to reconsider in light of the recent U.S. Supreme Court decision in Campbell v. State Farm. On January 28, 2004, the District Court reinstated the punitive damage award at $4.5 billion plus interest. ExxonMobil and the plaintiffs have appealed the decision to the Ninth Circuit. The corporation has posted a $5.4 billion letter of credit.
On January 29, 1997, a settlement agreement was concluded resolving all remaining matters between the corporation and various insurers arising from the Valdez accident. Under terms of this settlement, ExxonMobil received $480 million. Final income statement recognition of this settlement continues to be deferred in view of uncertainty regarding the ultimate cost to the corporation of the Valdez accident.
Management believes that the likelihood of the jury verdict being upheld is remote. While it is reasonably possible that a liability may have been incurred arising from the Exxon Valdez grounding, it is not possible to predict the ultimate outcome or to reasonably estimate any such potential liability.
On December 19, 2000, a jury in the 15th Judicial Circuit Court of Montgomery County, Alabama, returned a verdict against the corporation in a dispute over royalties in the amount of $88 million in compensatory damages and $3.4 billion in punitive damages in the case of Exxon Corporation v. State of Alabama, et al. The verdict was upheld by the trial court on May 4, 2001. On December 20, 2002, the Alabama Supreme Court vacated the $3.5 billion jury verdict. The case was retried and on November 14, 2003, a state district court jury in Montgomery, Alabama returned a verdict against Exxon Mobil Corporation. The verdict included $63.5 million in compensatory damages and $11.8 billion in punitive damages. On March 29, 2004, the district court judge reduced the amount of punitive damages to $3.5 billion. ExxonMobil believes the judgment is not justified by the evidence and that the amount of the award is grossly excessive and unconstitutional. ExxonMobil has appealed the decision. Management believes that the likelihood of the judgment being upheld is remote. While it is reasonably possible that a liability may have been incurred by ExxonMobil from this dispute over royalties, it is not possible to predict the ultimate outcome or to reasonably estimate any such potential liability. On May 4, 2004, the corporation posted a $4.5 billion supersedeas bond as required by Alabama law to stay execution of the judgment pending appeal. The corporation has pledged to the issuer of the bond collateral consisting of cash and short-term, high quality securities with an aggregate value of approximately $4.6 billion. Under the terms of the pledge agreement, the corporation is entitled to receive the income generated from the cash and securities and to make investment decisions, but is restricted from using the pledged cash and securities for any other purpose until such time as the bond is cancelled.
-7-
On May 22, 2001, a state court jury in New Orleans, Louisiana, returned a verdict against the corporation and three other entities in a case brought by a landowner claiming damage to his property. The property had been leased by the landowner to a company that performed pipe cleaning and storage services for customers, including the corporation. The jury awarded the plaintiff $56 million in compensatory damages (90 percent to be paid by the corporation) and $1 billion in punitive damages (all to be paid by the corporation). The damage related to the presence of naturally occurring radioactive material (NORM) on the site resulting from pipe cleaning operations. The award has been upheld at the trial court. ExxonMobil has appealed the judgment to the Louisiana Fourth Circuit Court of Appeals and believes that the judgment should be set aside or substantially reduced on factual and constitutio nal grounds. Management believes that the likelihood of the jury verdict being upheld is remote. While it is reasonably possible that a liability may have been incurred by ExxonMobil from this dispute over property damages, it is not possible to predict the ultimate outcome or to reasonably estimate any such potential liability.
In Allapattah v. Exxon, a jury in the United States District Court for the Southern District of Florida determined in January 2001 that a class of all Exxon dealers between March 1983 and August 1994 had been overcharged between 1.03 and 1.4 cents per gallon for gasoline. Exxon sold a total of 39.8 billion gallons of gasoline to its dealers during this period. The estimated value of the potential claims associated with the 39.8 billion gallons of gasoline is $494 million. Including related interest, the total is approximately $1.3 billion. On June 11, 2003, the Eleventh Circuit Court of Appeals affirmed the judgment and on March 15, 2004, denied a petition for Rehearing En Banc. ExxonMobil will appeal to the U.S. Supreme Court. Pending the appeals process, members of the class may file claims during the period from February 29, 2003 through August 29, 2004. It is not known which or how many dealers may make claims or the extent to which ExxonMobil will have set-offs or defenses to the claims that are filed. As of March 31, 2004 claims on 15.1 billion gallons have been filed for $186 million. Including related interest and not adjusting for potential set-offs or defenses, the total would be approximately $480 million. While it is reasonably possible that a liability may have been incurred by ExxonMobil in this dispute over gasoline pricing, it is not possible to predict the ultimate outcome.
Tax issues for 1980-93 remain pending before the U.S. Tax Court. The ultimate resolution of these issues is not expected to have a materially adverse effect upon the corporation’s operations or financial condition.
Other Contingencies
As of March 31, 2004
Equity Company Obligations
Other
Third Party Obligations
Total
Guarantees of excise taxes and custom duties
under reciprocal arrangements
972
Other guarantees
2,487
414
2,901
1,386
3,873
The corporation and certain of its consolidated subsidiaries were contingently liable at March 31, 2004 for $3,873 million, primarily relating to guarantees for notes, loans and performance under contracts. This included $972 million representing guarantees of non-U.S. excise taxes and customs duties of other companies, entered into as a normal business practice, under reciprocal arrangements. Also included in this amount were guarantees by consolidated affiliates of $2,487 million, representing ExxonMobil’s share of obligations of certain equity companies.
-8-
Additionally, the corporation and its affiliates have numerous long-term sales and purchase commitments in their various business activities, all of which are expected to be fulfilled with no adverse consequences material to the corporation’s operations or financial condition. The corporation's outstanding unconditional purchase obligations at March 31, 2004 were similar to those at the prior year-end period. Unconditional purchase obligations as defined by accounting standards are those long-term commitments that are noncancelable or cancelable only under certain conditions, and that third parties have used to secure financing for the facilities that will provide the contracted goods or services.
The operations and earnings of the corporation and its affiliates throughout the world have been, and may in the future be, affected from time to time in varying degree by political developments and laws and regulations, such as forced divestiture of assets; restrictions on production, imports and exports; price controls; tax increases and retroactive tax claims; expropriation of property; cancellation of contract rights and environmental regulations. Both the likelihood of such occurrences and their overall effect upon the corporation vary greatly from country to country and are not predictable.
5.
Nonowner Changes in Shareholders' Equity
Changes in other nonowner changes in equity
Foreign exchange translation adjustment
(252
472
Unrealized gains/(losses) on stock investments
(130
54
Total nonowner changes in shareholders' equity
5,058
7,566
-9-
6.
Earnings Per Share
Income before cumulative effect of
accounting change (millions of dollars)
Weighted average number of common shares
outstanding (millions of shares)
6,544
6,683
Net income per common share (dollars)
- ASSUMING DILUTION
Effect of employee stock-based awards
38
31
outstanding - assuming dilution
6,582
6,714
Net income per common share
- assuming dilution (dollars)
7.
Investment in oil, gas and mineral leases
ExxonMobil's net investment in oil, gas and mineral leases reported in property, plant and equipment as of March 31, 2004 was $4.5 billion, and as of December 31, 2003 was $4.5 billion.
-10-
8.
Annuity Benefits and Other Postretirement Benefits
Annuity benefits - U.S.
Components of net benefit cost
Service cost
76
69
Interest cost
151
Expected return on plan assets
(152
(107
Amortization of actuarial loss/(gain)
and prior service cost
71
75
Net pension enhancement and
curtailment/settlement expense
44
Net benefit cost
190
239
Annuity benefits - Non-U.S.
86
83
199
195
(169
(139
93
97
2
213
238
Other Postretirement Benefits
9
57
45
24
70
As of year-end 2003, the company expected to make contributions of up to $300 million to U.S. plans, depending on the outcome of legislative proposals before Congress. On April 10, 2004, the President of the United States signed into law H.R. 3108 which establishes a two-year replacement of the benchmark interest rate used to determine the funding of liabilities of private sector pension plans. As a result of that legislation, the Company does not expect to make a contribution to its U.S. pension plans in 2004. The expected contribution of about $450 million to non-U.S. plans is unchanged.
-11-
9.
Disclosures about Segments and Related Information
EARNINGS AFTER INCOME TAX
Upstream
United States
1,154
1,259
Non-U.S.
2,859
4,434
Downstream
392
174
612
549
Chemical
118
16
446
271
All other
(141
337
Corporate total
Included in All Other above
Cumulative effect of accounting change
SALES AND OTHER OPERATING REVENUE (1)
1,486
1,768
4,695
4,073
15,832
14,198
38,185
34,976
2,237
2,029
3,616
3,135
(1) Includes excise taxes
INTERSEGMENT REVENUE
1,500
1,600
4,482
4,265
1,598
1,660
6,578
5,464
1,016
734
964
838
88
77
-12-
10.
Condensed Consolidating Financial Information Related to Guaranteed Securities Issued by Subsidiaries
Exxon Mobil Corporation has fully and unconditionally guaranteed the 6.0% notes due 2005 ($106 million of long-term debt at March 31, 2004) and the 6.125% notes due 2008 ($160 million) of Exxon Capital Corporation and the deferred interest debentures due 2012 ($1,153 million) and the debt securities due 2005-2011 ($85 million long-term and $10 million short-term) of SeaRiver Maritime Financial Holdings, Inc. Exxon Capital Corporation and SeaRiver Maritime Financial Holdings, Inc. are 100 percent owned subsidiaries of Exxon Mobil Corporation.
The following condensed consolidating financial information is provided for Exxon Mobil Corporation, as guarantor, and for Exxon Capital Corporation and SeaRiver Maritime Financial Holdings, Inc., as issuers, as an alternative to providing separate financial statements for the issuers. The accounts of Exxon Mobil Corporation, Exxon Capital Corporation and SeaRiver Maritime Financial Holdings, Inc. are presented utilizing the equity method of accounting for investments in subsidiaries.
Exxon
SeaRiver
Mobil
Maritime
Consolidating
Corporation
Financial
and
Parent
Capital
Holdings,
All Other
Eliminating
Guarantor
Inc.
Subsidiaries
Adjustments
Consolidated
Condensed consolidated statement of income for three months ended March 31, 2004
Revenues and other income
Sales and other operating revenue,
including excise taxes
3,023
-
63,037
5,057
7
1,258
(5,066
63
223
Intercompany revenue
4,995
42,539
(47,545
13,138
11
107,057
(52,611
Costs and other deductions
4,861
70,633
(44,949
Production and manufacturing
expenses
1,591
5,102
(1,170
Selling, general and administrative
2,822
(52
353
1
2,019
Exploration expenses, including dry
holes
46
129
161
34
1,226
(1,378
Excise taxes
10,161
Income applicable to minority and
preferred interests
7,487
6
98,662
(47,549
Income before income taxes
5,651
(23
8,395
(5,062
211
(10
3,321
Income before accounting change
(13
5,074
Accounting change
-13-
Condensed consolidated statement of income for three months ended March 31, 2003
3,061
57,127
6,660
2,279
(6,658
112
1,197
4,639
37,361
(42,014
14,472
97,964
(48,672
4,688
63,287
(39,897
1,674
4,630
(965
426
2,676
385
1,795
30
117
1,000
(1,154
8,806
7,365
88,515
(42,016
7,107
(24
9,449
(6,656
617
(9
2,779
(15
6,670
481
(481
7,151
(7,137
-14-
Condensed consolidated balance sheet as of March 31, 2004
6,000
9,894
6,102
18,087
1,177
9,009
10,186
2,111
13,365
39,101
16,304
98
88,382
132,853
513
368,440
(478,863
Intercompany receivables
7,543
1,194
1,543
391,962
(402,242
Total assets
170,065
2,065
887,885
(881,105
Notes and loan payables
1,116
10
3,708
3,399
26,950
1,410
5,354
5,925
8
36,012
261
266
1,238
3,370
Deferred income tax liabilities
3,479
29
295
16,178
4,141
17,305
Intercompany payables
64,578
382
337,087
Total liabilities
78,384
502
1,925
409,952
(254
76,882
(76,633
Other shareholders' equity
(28,073
785
394
401,051
(402,230
Total shareholders' equity
790
140
477,933
Total liabilities and
shareholders' equity
Condensed consolidated balance sheet as of December 31, 2003
5,647
4,979
5,781
18,528
1,027
7,930
8,957
91
1,977
12,546
33,414
16,733
88,133
128,282
506
363,103
(468,538
9,463
1,114
1,540
381,683
(393,800
167,024
1,212
2,047
866,333
(862,338
1,104
3,675
3,538
24,901
1,457
3,695
6,099
32,271
1,206
3,643
296
16,150
3,991
17,096
63,115
106
330,197
77,109
423
1,894
398,737
(241
72,012
(71,775
(26,041
395,584
(396,763
789
153
467,596
-15-
Condensed consolidated statement of cash flows for three months ended March 31, 2004
Cash provided by/(used in) operating
activities
655
9,693
(204
Cash flows from financing activities
Additions to property, plant and
equipment
(302
(2,508
Sales of long-term assets
172
282
Net intercompany investing
3,215
(80
(3
(3,251
119
All other investing, net
Net cash provided by/(used in)
investing activities
3,085
(4,702
Additions/(reductions) in short-term
debt - net
Cash dividends
204
Net ExxonMobil shares sold/(acquired)
Net intercompany financing activity
89
All other financing, net
(103
financing activities
(3,387
43
85
Effects of exchange rate changes
on cash
Increase/(decrease) in cash and cash
equivalents
4,915
Condensed consolidated statement of cash flows for three months ended March 31, 2003
1,163
8,218
(742
(434
(2,504
13
1,320
3,767
28
(3,737
(55
3,346
(4,051
12
(93
(649
742
(21
(106
21
(2,651
(32
(1,058
797
1,858
3,241
-16-
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
First Three Months
Net Income (U.S. GAAP)
Corporate and financing
(213
- assuming dilution
Other special items included in net income
Non-U.S. Upstream
Gain on transfer of Ruhrgas shares
1,700
REVIEW OF FIRST QUARTER 2004 RESULTS
Exxon Mobil Corporation estimated net income of $5,440 million ($0.83 per share) in the first quarter, a decrease of $1,600 million from the first quarter of 2003. First quarter 2003 earnings included a $550 million positive impact from the required adoption of the new accounting standard for asset retirement obligations and a one-time gain of $1,700 million from the transfer of shares in Ruhrgas AG. Revenues and other income for the first quarter of 2004 totaled $67,602 million compared with $63,780 million in 2003.
4,013
5,693
Upstream earnings were $4,013 million compared to $5,693 million in the first quarter 2003 which included a $1,700 million gain from the transfer of shares of Ruhrgas AG. First quarter 2004 results reflected higher production and continued strength in crude and natural gas prices.
-17-
Liquids production of 2,635 kbd (thousands of barrels per day) increased by 5 percent from 2,504 kbd in the first quarter of 2003 and was at its highest level since the fourth quarter of 1988. Higher production from new fields in West Africa and Norway and the absence of the impact of last year's national strike in Venezuela, was partly offset by natural field decline in mature areas.
First quarter natural gas production decreased to 11,467 mcfd (millions of cubic feet per day), compared with 12,046 mcfd last year reflecting lower weather-related demand in Europe and natural field decline in mature areas partly offset by the start-up of an additional LNG train in Qatar.
On an oil-equivalent basis, production was at its highest level since the first quarter of 2001 and increased 1 percent from the first quarter of last year. Plans for long-term capacity increases remain on track as reflected by continued high levels of capital spending.
Earnings from U.S. upstream operations were $1,154 million, down $105 million reflecting lower production from mature areas. Excluding the one-time $1,700 million Ruhrgas gain in 2003, non-U.S. upstream earnings of $2,859 million in 2004 were $125 million higher than last year's first quarter. Non-U.S. earnings increased due to liquids production growth from new projects.
1,004
723
Downstream earnings of $1,004 million were the highest first quarter since 1991 and increased $281 million from the first quarter of 2003, reflecting improved worldwide refining margins partly offset by weaker marketing conditions. Petroleum product sales were 8,082 kbd, 223 kbd higher than last year's first quarter.
U.S. downstream earnings were $392 million, up $218 million mainly due to higher refining margins. Non-U.S. downstream earnings of $612 million were $63 million higher than last year's first quarter.
564
287
Chemical earnings of $564 million were up $277 million from the same quarter a year ago due to stronger worldwide margins and favorable foreign exchange effects. Prime product sales of 6,792 kt (thousands of metric tons) were down 88 kt from last year's record first quarter.
-18-
All other segments
Corporate and financing expenses of $141 million were lower by $72 million mainly due to reduced U.S. pension costs. First quarter 2003 earnings included a $550 million positive impact from the required adoption of the new accounting standard for asset retirement obligations.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Cash and cash equivalents at the end of the period
Cash provided by operating activities totaled $10,138 million for the first three months of 2004 versus $8,646 million in the same period last year which included non-cash income for the site restoration accounting change and the Ruhrgas transaction. Major sources of funds were net income of $5,440 million and non-cash provisions of $2,373 million for depreciation and depletion. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.
In first quarter of 2003, ExxonMobil completed a divestment of interests in shares of Ruhrgas AG, a German gas transmission company. These shares were held in part by BEB Erdgas und Erdoel GmbH (BEB), an investment accounted for by the equity method, and in part by a consolidated affiliate in Germany. In 2002, cash in the amount of $1,466 million was received from BEB and included in cash flows from operating activities. This cash from BEB was a loan and was part of a restructuring that enabled BEB to transfer its holdings in Ruhrgas AG provided regulatory approval was received. No income was recorded in 2002. In the first quarter of 2003, upon receipt of regulatory approvals, the Ruhrgas AG shares held by BEB were transferred, cash was received for the shares held by the consolidated affiliate and a one-time gain of $1,700 million after tax was recognized in net income. The $2,240 million reduction in 2003 cash flow from operat ing activities reflects the pre-tax gains from the transaction. The cash generated from these gains for the BEB portion of the transaction was reported in 2002. For the shares held by the consolidated affiliate, the cash received was reported in cash flows from investing activities in 2003.
Investing activities used net cash of $1,581 million compared to $735 million in the prior year. Spending for additions to property, plant and equipment was $2,810 million. Proceeds from asset divestments were lower reflecting the absence of the proceeds from the Ruhrgas transaction.
-19-
Net cash used in financing activities was $3,170 million in the first three months of 2004 versus $2,944 million in the same period last year reflecting increased purchases of ExxonMobil shares in the current year.
During the first quarter of 2004, The corporation purchased 47 million shares of its common stock for the treasury at a gross cost of $1,953 million. These purchases were to offset shares issued in conjunction with company benefit plans and programs and to reduce the number of shares outstanding. Shares outstanding were reduced from 6,568 million at the end of the fourth quarter of 2003 to 6,540 million at the end of the first quarter. Purchases may be made in both the open market and through negotiated transactions. Purchases may be increased, decreased or discontinued at any time without prior notice.
Total debt of $10.0 billion at March 31, 2004 was $0.4 billion higher than at year-end 2003. The corporation's debt to total capital ratio was 9.5 percent at the end of the first quarter of 2004, compared to 9.3 percent at year-end 2003.
Although the corporation issues long-term debt from time to time and maintains a revolving commercial paper program, internally generated funds cover the majority of its financial requirements.
Litigation and other contingencies are discussed in note 4 to the unaudited condensed consolidated financial statements. There are no events or uncertainties known to management beyond those already included in reported financial information that would indicate a material change in future operating results or future financial condition.
The corporation, as part of its ongoing asset management program, continues to evaluate its mix of assets for potential upgrade. Because of the ongoing nature of this program, dispositions will continue to be made from time to time which will result in either gains or losses.
TAXES
Taxes
All other taxes and duties
10,853
9,465
20,791
18,684
Effective income tax rate
41.8
%
36.4
Income, excise and all other taxes for the first three months of 2004 of $20,791 million were up $2,107 million compared to last year. First three months of 2004 income tax expense was $3,522 million and the effective income tax rate was 41.8 percent, compared to $3,388 million and 36.4 percent, respectively, in the prior year period. The effective income tax rate in the first three months of 2004 was similar to the prior year, excluding the income tax effects of the gain on the Ruhrgas share transfer. During both periods, the corporation continued to benefit from the favorable resolution of tax related issues. Excise and all other taxes and duties were higher reflecting higher prices and foreign exchange effects.
-20-
CAPITAL AND EXPLORATION EXPENDITURES
Capital and exploration expenditures
Upstream (including exploration expenses)
2,704
2,784
510
581
121
55
3,401
3,496
In the first quarter, ExxonMobil continued its active investment program, spending $3,401 million on capital and exploration projects, compared with $3,496 million last year, reflecting continued strong levels of upstream spending.
In 2003, the corporation invested over $15 billion in capital projects and exploration activities and expects to stay at that level for the next couple of years. ExxonMobil is pursuing all attractive opportunities with the same disciplined investment approach that has delivered results in the past.
FORWARD-LOOKING STATEMENTS
Statements in this discussion relating to future plans, projections, events, or conditions are forward-looking statements. Actual results, including production growth and capital spending, could differ materially due to changes in long-term oil or gas prices or other changes in market conditions affecting the oil and gas industry; political events or disturbances; reservoir performance; changes in OPEC quotas; timely completion of development projects; changes in technical or operating conditions; and other factors including those discussed herein and under the heading "Factors Affecting Future Results" in Item 1 of ExxonMobil's 2003 Form 10-K.
-21-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the three months ended March 31, 2004, does not differ materially from that discussed under Item 7A of the registrant's Annual Report on Form 10-K for 2003.
Item 4. Controls and Procedures
As indicated in the certifications in Exhibit 31 of this report, the corporation's principal executive officer, principal accounting officer and principal financial officer have evaluated the corporation's disclosure controls and procedures as of March 31, 2004. Based on that evaluation, these officers have concluded that the corporation's disclosure controls and procedures are effective for the purpose of ensuring that material information required to be in this quarterly report is made known to them by others on a timely basis. There have not been changes in the corporation's internal control over financial reporting that occurred during the corporation's last fiscal quarter that have materially affected, or are reasonably likely to materially affect the corporation's internal control over financial reporting.
Item 1. Legal Proceedings
The New York State Department of Environmental Conservation ("NYSDEC") issued a Notice of Hearing and Complaint on March 24, 2004 alleging that ExxonMobil Oil Corporation in whole or in part is responsible for a discharge of 17 million gallons of petroleum prior to 1978 in connection with past operations at its Brooklyn terminal. The NYSDEC also alleges that the Brooklyn terminal had numerous spills after 1978, in violation of New York navigational law. The NYSDEC is seeking natural resource damages. The complaint does not specify a penalty amount, but it is possible that the penalty sought will exceed $100,000.
The corporation received a communication from the NYSDEC on December 19, 2003, threatening an enforcement action for failure to report spills, willful failure to advise the NYSDEC of the presence of free product on an adjacent site, and other alleged Navigation Law violations at a Mobil-branded service station in Springfield Gardens, New York. The NYSDEC made an initial penalty demand of $400,000 to settle this matter prior to the filing of an enforcement action.
Refer to the relevant portions of note 4 on pages 6 through 8 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
-22-
Item 2. Changes in Securities and Use of Proceeds
ISSUER PURCHASE OF EQUITY SECURITIES FOR QUARTER ENDED MARCH 31, 2004
Total Number of
Maximum Number
Shares Purchased
of Shares that May
Total Number
Average
as Part of Publicly
Yet Be Purchased
of Shares
Price Paid
Announced Plans
Under the Plans or
Period
Purchased
per Share
or Programs
Programs
January, 2004
13,505,355
40.90
February, 2004
13,976,776
41.62
March, 2004
19,609,326
41.78
47,091,457
41.48
(See Note 1)
Note 1 -- On August 1, 2000, the corporation announced its intention to resume purchases of shares of its common stock for the treasury both to offset shares issued in conjunction with company benefit plans and programs and to gradually reduce the number of shares outstanding. The announcement did not specify an amount or expiration date. The corporation has continued to purchase shares since this announcement and to report purchased volumes in its quarterly earnings releases. Purchases may be made in both the open market and through negotiated transactions, and purchases may be increased, decreased or discontinued at any time without prior notice.
Item 6. Exhibits and Reports on Form 8-K
a)
Exhibits
31.1
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Chief
Executive Officer.
31.2
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Principal
Accounting Officer.
31.3
Financial Officer.
32.1
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief
32.2
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal
32.3
-23-
b)
Reports on Form 8-K
On January 13, 2004, the registrant filed a Current Report on Form 8-K furnishing under Item 9, information about a presentation discussing upstream development activities and initiatives.
On January 29, 2004, the registrant filed a Current Report on Form 8-K furnishing under Item 9, and also pursuant to Item 12, its News Release, dated January 29, 2004, announcing fourth quarter results and the information in the related 4Q03 Investor Relations Data Summary.
On January 29, 2004, the registrant filed a Current Report on Form 8-K under Item 5, about a court ruling related to the Exxon Valdez accident.
On February 18, 2004, the registrant filed a Current Report on Form 8-K furnishing under Item 9, and also pursuant to Item 12, its News Release, dated February 18, 2004, announcing 2003 additions to worldwide proved oil and gas reserves and the related reserve replacement percentage.
On February 27, 2004, the registrant filed a Current Report on Form 8-K furnishing under Item 9 information about the election of Rex Tillerson as president and a director of Exxon Mobil Corporation.
On March 17, 2004, the registrant filed a Current Report on Form 8-K furnishing under Item 9, and also pursuant to Item 12, its 2003 Financial and Operating Review.
On March 17, 2004, the registrant filed a Current Report on Form 8-K furnishing under Item 12 a transcript of remarks made and questions answered by senior executives of the registrant at an analysts' meeting held on March 10, 2004.
On March 30, 2004, the registrant filed a Current Report on Form 8-K under Item 5, about a court ruling related to the Mobile Bay royalties dispute in Alabama.
On April 29, 2004, the registrant filed a Current Report on Form 8-K furnishing under Item 9, and also pursuant to Item 12, its News Release, dated April 29, 2004, announcing first quarter results and the information in the related 1Q04 Investor Relations Data Summary.
Reports listed above as “furnished” under Item 9 and Item 12 are not deemed “filed” with the SEC and are not incorporated by reference herein or in any other SEC filings.
-24-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 7, 2004
By: /s/ DONALD D. HUMPHREYS
Name: Donald D. Humphreys
Title: Vice President, Controller and
Principal Accounting Officer
-25-
INDEX TO EXHIBITS
Exhibit
Description
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by
Chief Executive Officer.
Principal Accounting Officer.
Principal Financial Officer.
-26-