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, 2005
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, 2005
Common stock, without par value 6,365,734,547
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Statement of Income
3
Three months ended March 31, 2005 and 2004
Condensed Consolidated Balance Sheet
4
As of March 31, 2005 and December 31, 2004
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
22-23
Unregistered Sales of Equity Securities and Use of Proceeds
23
Item 6.
Exhibits
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,
2005
2004
REVENUES AND OTHER INCOME
Sales and other operating revenue (1) (2)
$
79,475
66,060
Income from equity affiliates
1,556
1,256
Other income
1,020
286
Total revenues and other income
82,051
67,602
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases (2)
39,289
30,545
Production and manufacturing expenses
6,108
5,523
Selling, general and administrative expenses
3,451
3,242
Depreciation and depletion
2,553
2,373
Exploration expenses, including dry holes
173
175
Interest expense
56
48
Excise taxes (1)
7,238
6,416
Other taxes and duties
10,185
10,164
Income applicable to minority and preferred interests
95
154
Total costs and other deductions
69,148
58,640
INCOME BEFORE INCOME TAXES
12,903
8,962
Income taxes
5,043
3,522
NET INCOME
7,860
5,440
NET INCOME PER COMMON SHARE (dollars)
1.23
0.83
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (dollars)
1.22
DIVIDENDS PER COMMON SHARE (dollars)
0.27
0.25
(1) Excise taxes included in sales and other
operating revenue
(2) Amounts included in sales and other operating revenue for
purchases/sales contracts with the same counterparty
(associated costs are included in crude oil and product
purchases). See note 2 on page 6.
7,160
6,064
-3-
CONDENSED CONSOLIDATED BALANCE SHEET
Dec. 31,
ASSETS
Current assets
Cash and cash equivalents
25,165
18,531
Cash and cash equivalents - restricted (note 3)
4,604
Notes and accounts receivable - net
25,489
25,359
Inventories
Crude oil, products and merchandise
9,124
8,136
Materials and supplies
1,338
1,351
Prepaid taxes and expenses
2,870
2,396
Total current assets
68,590
60,377
Property, plant and equipment - net
107,415
108,639
Investments and other assets
25,247
26,240
TOTAL ASSETS
201,252
195,256
LIABILITIES
Current liabilities
Notes and loans payable
3,309
3,280
Accounts payable and accrued liabilities
35,489
31,763
Income taxes payable
8,959
7,938
Total current liabilities
47,757
42,981
Long-term debt
5,015
5,013
Deferred income tax liability
20,731
21,092
Other long-term liabilities
24,051
24,414
TOTAL LIABILITIES
97,554
93,500
Commitments and contingencies (note 3)
SHAREHOLDERS' EQUITY
Benefit plan related balances
(942
)
(1,014
Common stock, without par value:
Authorized:
9,000 million shares
Issued:
8,019 million shares
5,070
5,067
Earnings reinvested
140,522
134,390
Accumulated other nonowner changes in equity
Cumulative foreign exchange translation adjustment
2,699
3,598
Minimum pension liability adjustment
(2,499
Unrealized gains on stock investments
0
428
Common stock held in treasury:
1,654 million shares at March 31, 2005
(41,152
1,618 million shares at December 31, 2004
(38,214
TOTAL SHAREHOLDERS' EQUITY
103,698
101,756
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The number of shares of common stock issued and outstanding at March 31, 2005 and
December 31, 2004 were 6,365,734,547 and 6,401,244,728, respectively.
-4-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Changes in operational working capital, excluding cash and debt
3,549
All other items - net
(994
(48
Net cash provided by operating activities
12,968
10,138
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(2,713
(2,810
Sales of subsidiaries, investments, and property, plant and equipment
1,797
454
Other investing activities - net
(170
775
Net cash used in investing activities
(1,086
(1,581
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt
367
Reductions in long-term debt
(6
(7
Additions/(reductions) in short-term debt - net
15
(40
Cash dividends to ExxonMobil shareholders
(1,728
(1,642
Cash dividends to minority interests
(94
(72
Changes in minority interests and sales/(purchases)
of affiliate stock
(103
(31
Net ExxonMobil shares acquired
(3,087
(1,745
Net cash used in financing activities
(5,003
(3,170
Effects of exchange rate changes on cash
(245
(119
Increase/(decrease) in cash and cash equivalents
6,634
5,268
Cash and cash equivalents at beginning of period
10,626
CASH AND CASH EQUIVALENTS AT END OF PERIOD
15,894
SUPPLEMENTAL DISCLOSURES
Income taxes paid
3,820
1,502
Cash interest paid
66
73
-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 2004 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 for Purchases and Sales of Inventory with the Same Counterparty
At its November 2004 meeting, the Emerging Issues Task Force (EITF) began discussion of Issue No. 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty". This issue addresses the question of when it is appropriate to measure purchases and sales of inventory at fair value and record them in cost of sales and revenues and when they should be recorded as exchanges measured at the book value of the item sold. The EITF did not reach consensus on this issue, but requested the FASB staff to further explore the alternative views. The issue is expected to be addressed at a future EITF meeting.
ExxonMobil records certain crude oil, natural gas, petroleum product and chemical purchases and sales of inventory entered into contemporaneously with the same counterparty as cost of sales and revenues, measured at fair value as agreed upon by a willing buyer and a willing seller. These transactions occur under contractual arrangements that establish the agreement terms either jointly, in a single contract, or separately, in individual contracts. This accounting treatment is consistent with long-term, predominant industry practice based on the Corporation's knowledge of the industry (although the Corporation understands that some companies in the oil and gas industry may be accounting for these transactions differently as nonmonetary exchanges). Should the EITF reach a consensus on the issue requiring these transactions to be recorded as exchanges measured at book value, the Corporation's accounts "Sales and other operating revenue" and "Crude oil and product purchases" on the Consolidated Statement of Income would be lower by associated amounts with no impact on net income. All operating segments would be impacted by this change, but the largest effects are in the Downstream.
In its 2004 Form 10-K, the Corporation disclosed that it would provide estimates of these amounts in the second quarter of 2005 at the completion of a special effort to accumulate the information. This special effort was needed because heretofore it has never been necessary to identify these monetary transactions separately from other monetary purchases and monetary sales. This effort has been completed and the purchase/sale amounts included in revenue for 2004, 2003 and 2002 are shown below along with total "Sales and other operating revenue" to provide context.
2003
2002
Sales and other operating revenue
291,252
237,054
200,949
Amounts included in sales and other operating
revenue for purchases/sales contracts
with the same counterparty (1)
25,289
20,936
18,150
Percent of sales and other operating revenue
9%
(1) Associated costs are in "Crude oil and product purchases"
The Corporation's net income would not be impacted if the EITF reached a consensus on use of an alternative accounting approach and the Corporation was required to reduce "Sales and other operating revenues" and "Crude oil and product purchases" by the above amounts.
-6-
3.
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.
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 Nin th 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 judgment 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.
-7-
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, that any punitive damage award is not justified by either the facts or the law, 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. This collateral is reported as restricted cash and cash equivalents on the Condensed Consolidated Balance Sheet. Under the terms of the pledge agreement, the Corporation is entitled to receive the income generated from t he 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 the bond is canceled.
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 was upheld at the trial court. ExxonMobil appealed the judgment to the Louisiana Fourth Circuit Court of Appeals, which reduced the punitive damage award to $112 million. The Corporation plans to appeal this decision as it continues to believe that t he judgment should be substantially reduced on legal and constitutional grounds. 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. On October 12, 2004, the U.S. Supreme Court granted review of an issue raised by ExxonMobil as to whether the class in the District Court judgment should include members that individually do not satisfy the $50,000 minimum amount-in-controve rsy requirement in federal court. Members of the class had until December 1, 2004 to file claims. Claims representing over 90 percent of the gallons have been filed. In light of the Supreme Court’s decision to grant review of only part of ExxonMobil’s appeal, ExxonMobil took an after-tax charge of $550 million in the third quarter of 2004 reflecting the estimated liability, including interest and after considering potential set-offs and defenses, for the claims in excess of $50,000.
-8-
Exxon Mobil Corporation and Saudi Basic Industries Corporation (SABIC) have been involved in litigation related to charges by SABIC for license agreements to a joint venture between the companies. On February 22, 2005, the Delaware Supreme Court affirmed a trial court's judgment in the Corporation's favor and denied SABIC's motion for reconsideration. SABIC paid $475 million to the Corporation per the Delaware Supreme Court ruling. The litigation can be appealed by SABIC to the United States Supreme Court. Final income statement recognition of this payment continues to be deferred in view of the uncertainty related to the outcome of the possible additional appeals available to SABIC.
Tax issues for 1983 to 1993 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, 2005
Equity
Other
Company
Third Party
Obligations
Total
Guarantees of excise taxes and custom duties
under reciprocal arrangements
1,076
Other guarantees
2,964
327
3,291
1,403
4,367
The Corporation and certain of its consolidated subsidiaries were contingently liable at March 31, 2005 for $4,367 million, primarily relating to guarantees for notes, loans and performance under contracts. This included $1,076 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 $2,964 million, representing ExxonMobil’s share of obligations of certain equity companies.
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, 2005 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.
-9-
4.
Nonowner Changes in Shareholders' Equity
Changes in other nonowner changes in equity
Foreign exchange translation adjustment
(899
(252
Unrealized gains/(losses) on stock investments
(130
Reclassification adjustment for gain on sale of
stock investment included in net income
(428
Total nonowner changes in shareholders' equity
6,533
5,058
5.
Earnings Per Share
Net Income (millions of dollars)
Weighted average number of common shares
outstanding (millions of shares)
6,365
6,544
Net income per common share (dollars)
- ASSUMING DILUTION
Effect of employee stock-based awards
38
outstanding - assuming dilution
6,421
6,582
Net income per common share
- assuming dilution (dollars)
-10-
6.
Annuity Benefits and Other Postretirement Benefits
Annuity Benefits - U.S.
Components of net benefit cost
Service cost
82
76
Interest cost
151
Expected return on plan assets
(155
(152
Amortization of actuarial loss/(gain)
and prior service cost
68
71
Net pension enhancement and
curtailment/settlement expense
30
44
Net benefit cost
176
190
Annuity Benefits - Non-U.S.
93
86
213
199
(202
(169
106
210
Other Postretirement Benefits
16
9
74
57
(9
49
130
83
The Company does not expect to make a contribution to its U.S. pension plans in 2005. Contributions to the non-U.S. plans are expected to be $1.3 billion in 2005.
-11-
7.
Disclosures about Segments and Related Information
EARNINGS AFTER INCOME TAX
Upstream
United States
1,353
1,154
Non-U.S.
3,701
2,859
Downstream
645
392
808
612
Chemical
492
118
940
446
All other
(79
(141
Corporate total
SALES AND OTHER OPERATING REVENUE (1) (2)
1,536
1,486
4,972
4,695
19,313
15,832
45,489
38,185
3,155
2,237
5,006
3,616
(1) Includes excise taxes
(2) Includes amounts in sales and other operating
revenue for purchases/sales contracts with
the same counterparty
INTERSEGMENT REVENUE
1,807
1,500
6,340
4,482
2,080
1,598
8,727
6,578
1,405
1,016
1,289
964
72
88
-12-
8.
Condensed Consolidating Financial Information Related to Guaranteed Securities Issued by Subsidiaries
Exxon Mobil Corporation has fully and unconditionally guaranteed the 6.125% notes due 2008 ($160 million of long-term debt at March 31, 2005) of Exxon Capital Corporation and the deferred interest debentures due 2012 ($1,285 million long-term) and the debt securities due 2006-2011 ($75 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 Mobil Corporation Parent Guarantor
Exxon Capital Corporation
SeaRiver Maritime Financial Holdings, Inc.
All Other Subsidiaries
Consolidating and Eliminating Adjustments
Consolidated
Condensed consolidated statement of income for three months ended March 31, 2005
Revenues and other income
Sales and other operating revenue,
including excise taxes
3,980
-
75,495
7,050
(7,053
890
Intercompany revenue
6,857
11
10
59,340
(66,218
18,017
13
137,281
(73,271
Costs and other deductions
Crude oil and product purchases
95,621
(62,910
Production and manufacturing
expenses
1,633
5,762
(1,287
Selling, general and administrative
557
3,000
(106
331
1
2,221
Exploration expenses, including dry
holes
28
145
407
39
1,553
(1,947
Excise taxes
10,180
Income applicable to minority and
preferred interests
9,539
125,815
(66,250
Income before income taxes
8,478
6
(26
11,466
(7,021
618
2
(10
4,433
(16
7,033
-13-
Condensed consolidated statement of income for three months ended March 31, 2004
3,023
63,037
5,057
7
1,258
(5,066
63
223
4,995
42,539
(47,545
13,138
107,057
(52,611
4,861
70,633
(44,949
1,591
5,102
(1,170
472
2,822
(52
353
2,019
46
129
161
34
1,226
(1,378
10,161
7,487
98,662
(47,549
5,651
(23
8,395
(5,062
211
3,321
(13
5,074
-14-
Condensed consolidated balance sheet as of March 31, 2005
11,033
14,132
Cash and cash equivalents - restricted
3,439
22,050
1,346
9,116
10,462
168
2,695
20,590
47,993
15,525
94
91,796
145,201
508
382,855
(503,317
Intercompany receivables
8,630
1,022
1,582
336,932
(348,166
Total assets
189,946
1,116
2,097
859,576
(851,483
Notes and loan payables
3,299
3,161
32,322
1,274
7,682
4,435
43,303
261
160
1,360
3,234
Deferred income tax liabilities
2,954
267
17,482
5,589
18,446
Intercompany payables
73,009
108
382
274,667
Total liabilities
86,248
321
357,132
(316
88,115
(87,809
Other shareholders' equity
(36,824
785
394
414,329
(415,508
Total shareholders' equity
795
78
502,444
Total liabilities and
shareholders' equity
Condensed consolidated balance sheet as of December 31, 2004
10,055
8,472
3,262
22,097
1,117
8,370
9,487
79
2,317
19,117
41,256
15,601
92,943
139,907
506
375,689
(489,862
9,728
1,090
1,594
322,469
(334,881
184,353
1,189
2,100
832,357
(824,743
3,270
2,934
28,826
1,348
6,589
4,282
38,685
1,324
3,268
3,152
268
17,644
5,461
18,931
69,441
185
403
264,852
82,597
398
2,006
343,380
(300
81,380
(81,086
(32,634
407,597
(408,776
791
488,977
-15-
Condensed consolidated statement of cash flows for three months ended March 31, 2005
Cash provided by/(used in) operating
activities
1,342
11,913
(298
Cash flows from investing activities
Additions to property, plant and
equipment
(278
(2,435
Sales of long-term assets
1,773
Net intercompany investing
4,705
(4,719
(67
All other investing, net
Net cash provided by/(used in)
investing activities
4,451
(5,551
Cash flows from financing activities
Additions/(reductions) in short-term
debt - net
Cash dividends
298
Net ExxonMobil shares sold/(acquired)
Net intercompany financing activity
(76
(20
29
67
All other financing, net
(197
financing activities
(4,815
(457
365
Effects of exchange rate changes
on cash
Increase/(decrease) in cash and cash
equivalents
978
(4
5,660
Condensed consolidated statement of cash flows for three months ended March 31, 2004
655
9,693
(204
(302
(2,508
172
282
3,215
(80
(3
(3,251
119
3,085
(4,702
204
89
(3,387
43
85
4,915
-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
- assuming dilution
Special items included in net income
Non-U.S. Downstream
Gain on sale of Sinopec investment
310
Non-U.S. Chemical
150
REVIEW OF FIRST QUARTER 2005 RESULTS
Exxon Mobil Corporation estimated first quarter 2005 net income of $7,860 million ($1.22 per share) increased $2,420 million from the first quarter of 2004. First quarter 2005 net income included a $460 million positive impact (Downstream - $310 million; Chemical - $150 million) from sale of the Corporation's stake in China Petroleum and Chemical Corporation ("Sinopec").
Upstream earnings
5,054
4,013
Upstream earnings were a record $5,054 million, an increase of $1,041 million from first quarter 2004 results reflecting continued strength in crude and natural gas prices.
Liquids production of 2,543 kbd (thousands of barrels per day) was 92 kbd lower than the first quarter of 2004. Higher production from new fields in West Africa and Norway was more than offset by natural field declines in mature areas, planned and unplanned maintenance, entitlement and divestment impacts.
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First quarter natural gas production decreased to 10,753 mcfd (millions of cubic feet per day), compared with 11,488 mcfd last year reflecting natural field decline in mature areas, lower demand in Europe and divestment impacts partly offset by higher volumes in Qatar.
On an oil-equivalent basis, production decreased by 5 percent from the first quarter of 2004. Excluding divestment and entitlement effects, production decreased by 2 percent.
Earnings from U.S. Upstream operations were $1,353 million, $199 million higher than last year's first quarter. Non-U.S. Upstream earnings of $3,701 million were up $842 million from 2004.
Downstream earnings
1,453
1,004
Downstream earnings were $1,453 million, up $449 million from the first quarter of 2004, reflecting improved U.S. refining margins and higher refinery throughput and the $310 million Sinopec gain partly offset by weaker marketing conditions. Petroleum product sales were 8,229 kbd, 103 kbd higher than last year's first quarter.
U.S. Downstream earnings were $645 million, up $253 million mainly due to higher refining margins. Non-U.S. Downstream earnings of $808 million decreased $114 million before the Sinopec gain, due to lower marketing earnings.
Chemical earnings
1,432
564
Chemical earnings were a record $1,432 million, up from the same quarter a year ago due to improved market conditions and the $150 million Sinopec gain. Prime product sales of 6,938 kt (thousands of metric tons) were up 146 kt from last year's first quarter.
All other segments earnings
Corporate and financing expenses of $79 million were lower by $62 million mainly due to higher interest income.
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LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Total cash and cash equivalents (at end of period)
29,769
Cash provided by operating activities totaled $12,968 million for the first three months of 2005 versus $10,138 million in the same period last year. Major sources of funds were net income of $7,860 million and non-cash provisions of $2,553 million for depreciation and depletion. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.
Investing activities for the first three months of 2005 used net cash of $1,086 million compared to $1,581 million in the prior year. Spending for additions to property, plant and equipment of $2,713 million was comparable to the prior year. Proceeds from asset divestments of $1,797 million in 2005 included almost $1.4 billion from the sale of the Corporation's interest in Sinopec.
Net cash used in financing activities of $5,003 million in the first three months of 2005 compared to $3,170 million in the 2004 period reflecting a higher level of purchases of ExxonMobil shares in the current year.
Total cash and cash equivalents, including the $4.6 billion of restricted cash, was $29.8 billion at the end of the first quarter of 2005.
During the first quarter of 2005, the Corporation purchased 64 million shares of its common stock for the treasury at a gross cost of $3,624 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 6,401 million at the end of the fourth quarter of 2004 to 6,366 million at the end of the first quarter. In April, the Corporation increased its rate of share purchases. Purchases to reduce shares outstanding are anticipated to increase from $2.5 billion in the first quarter to approximately $3.5 billion in the second quarter. Purchases may be made in both the open market and through negotiated transactions and may be increased, decreased or discontinued at any time without prior notice.
Total debt of $8.3 billion at March 31, 2005 was comparable to year-end 2004. The Corporation's debt to total capital ratio was 7.2 percent at the end of the first quarter of 2005, also comparable to year-end 2004.
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 3 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.
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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. On November 1, 2004, the Corporation announced that its subsidiary, Esso Nederland B.V., had signed a Heads of Agreement (HOA) with the State of the Netherlands and Shell Nederland B.V. to restructure its interest in the Dutch gas transportation business. The HOA contains the principal terms and conditions under which Esso Nederland B.V. and Shell Nederland B.V. will agree to transfer their ownership share of 25 percent each in Gasunie's gas transportation business to the State of the Netherlands. The Corporation's net compensation is expected to be 1.4 billion Euros. The final transaction remains subject to regulatory reviews. The p arties intend to finalize the restructuring by mid-2005. It is anticipated that this restructuring will have a positive impact on the Corporation's results.
TAXES
Taxes
All other taxes and duties
10,944
10,853
23,225
20,791
Effective income tax rate
41.3
%
41.8
Income, excise and all other taxes for the first quarter of 2005 of $23,225 million were up $2,434 million compared to last year. In the first quarter of 2005 income tax expense was $5,043 million and the effective income tax rate was 41.3 percent, compared to $3,522 million and 41.8 percent, respectively, in the prior year period. During both years, 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.
CAPITAL AND EXPLORATION EXPENDITURES
Capital and exploration expenditures
Upstream (including exploration expenses)
2,812
2,704
452
510
148
132
55
3,417
3,401
ExxonMobil continued its active investment program, spending $3,417 million in the first quarter on capital and exploration projects, compared with $3,401 million last year, reflecting continued strong levels of upstream spending.
The Corporation expects the level of capital and exploration spending to be about $16 billion in 2005.
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RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board (FASB) issued a revised Statement of Financial Accounting Standards No. 123 (FAS 123R), “Share-based Payment.” FAS 123R requires compensation costs related to share-based payments to be recognized in the income statement over the vesting period. The amount of the compensation cost will be measured based on the grant-date fair value of the instrument issued. FAS 123R is effective for the Corporation as of January 1, 2006, for all awards granted or modified after that date and for those awards granted prior to that date that have not vested. The Corporation does not believe that FAS 123R will have an earnings impact because in 2003 the Corporation adopted a policy of expensing all share-based payments that is consistent with the provisions of FAS 123R, and all prior year outstanding awards have vested.
On April 4, 2005, the FASB adopted FASB Staff Position FSP FAS 19-1 that amends Statement of Financial Accounting Standards No. 19 (FAS 19), "Financial Accounting and Reporting by Oil and Gas Producing Companies," to permit the continued capitalization of exploratory well costs beyond one year if (a) the well found a sufficient quantity of reserves to justify its completion as a producing well and (b) the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project. The guidance in the FSP is required to be applied prospectively in the third quarter of 2005.
ExxonMobil continues to carry as an asset the cost of drilling exploratory wells that find sufficient quantities of reserves to justify their completion as producing wells if the required capital expenditure is made and drilling of additional exploratory wells is under way or firmly planned for the near future. Once exploration activities demonstrate that sufficient quantities of commercially producible reserves have been discovered, continued capitalization is dependent on project reviews, which take place at least annually, to ensure that satisfactory progress toward ultimate development of the reserves is being achieved. Exploratory well costs not meeting these criteria are charged to expense. ExxonMobil does not believe that this issue will have a material impact on its financial statements.
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 2004 Form 10-K.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the three months ended March 31, 2005, does not differ materially from that discussed under Item 7A of the registrant's Annual Report on Form 10-K for 2004.
Item 4. Controls and Procedures
As indicated in the certifications in Exhibit 31 of this report, the Corporation's chief executive officer, principal accounting officer and principal financial officer have evaluated the Corporation's disclosure controls and procedures as of March 31, 2005. Based on that evaluation, these officers have concluded that the Corporation's disclosure controls and procedures are effective in ensuring that material information required to be in this quarterly report is made known to them on a timely basis. There were no changes during the Corporation's last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.
Item 1. Legal Proceedings
Regarding a previously reported matter, on April 8, 2005, the Department of Justice, on behalf of the Environmental Protection Agency, filed a complaint and a proposed consent decree for the matter of United States of America v. Mobil Exploration and Producing U.S., Inc. ("MEPUS") in the Federal District Court in Salt Lake City, Utah. This was a consolidation of a 1997 and a 1999 notice and finding of violation. The complaint related to allegations that MEPUS's operations of the Aneth Field in Utah had violated the federal Clean Air Act, including violations of a Prevention of Significant Deterioration permit, New Source Performance Standards for Equipment Leaks of VOC from Onshore Natural Gas Processing Plants and the National Emission Standards for Hazardous Air Pollution for asbestos. Under the Consent Decree, MEPUS must pay a civil penalty in the amount of $350,000, plus interest at a rate of 1.29% from August 21, 2003, until date of payment, and undertake a supplemental environmental project in the amount of $99,849. The Consent Decree is subject to a 30-day public comment period following publication in the Federal Register on April 28, 2005.
In another previously reported matter, the Corporation and the State of New York have settled a case captioned "State of New York v. Exxon Corporation, Arrow Petroleum, and Tartan Oil Corp, and 3rd party action Exxon Corporation v. 150 Fulton Realty Corp., Oil City Gas Company, and Martin Meyer". The case related to allegations that petroleum discharged at an Exxon-branded service station in Farmingdale, New York impacted soil and groundwater in the vicinity of a Dart service station located across the street, in violation of New York State Navigation Law. The New York State Department of Environmental Conservation began remediation at the Dart service station in 1988. Prior to commencement of trial, the State amended its complaint to demand penalties in excess of $100 million. In the settlement, ExxonMobil agreed to pay $3.2 million in past and future costs, plus interest, and no penalty.
Also in a previously reported matter, a settlement has been reached in the case captioned "Illinois v. Wolverine Pipeline Company", relating to alleged violations of Illinois water pollution laws by Wolverine Pipeline Company ("Wolverine"). ExxonMobil Oil Corporation
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("EMOC") owns 36.1% of the common stock of Wolverine, and provides certain services on behalf of Wolverine. The incident in question involves a September 1, 2001, alleged product release at Lockport, Illinois. After the incident, Wolverine commenced a voluntary, remedial clean-up of the affected area. On February 17, 2005, the Circuit Court of Will County, Illinois entered into a Consent Order, which reflects the terms of the settlement. Wolverine agreed to the payment of a civil penalty in the amount of $85,000, which has been paid. Wolverine is also obligated to continue certain monitoring and remediation activities.
On March 8, 2005, the Corporation received an Administrative Consent Agreement and Enforcement Order captioned "In the Matter of Exxon Mobil Corporation; Ashburn, Virginia; Underground Oil Storage Tank and Air Activities" from the Maine Department of Environmental Protection ("MDEP"). The MDEP alleges violations at 12 service stations of regulations under the state's Stage II vapor recovery program and underground storage tank program, including those relating to record-keeping, monitoring, equipment, clean-up and testing. The MDEP is seeking a civil penalty in the amount of $292,400 for all violations. Settlement discussions are underway.
On March 31, 2005, the Montana Department of Environmental Quality ("MDEQ") issued an Enforcement Action for Air Quality Violation, alleging that the Corporation's Billings, Montana refinery violated particulate matter emission limits on two days in October 2003 during stack testing (as self-reported) and that the refinery had 198 opacity exceedances between February 2003 and April 2004 related to startups and shutdowns to address malfunctioning cyclones. The initial penalty demand is $266,484. The Corporation has requested a meeting with the MDEQ to discuss the allegations.
Refer to the relevant portions of note 3 on pages 7 through 9 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASE OF EQUITY SECURITIES FOR QUARTER ENDED MARCH 31, 2005
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, 2005
19,453,368
$50.76
February, 2005
18,969,895
$57.37
March, 2005
25,281,531
$61.25
63,704,794
$56.89
(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.
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Item 6. Exhibits
Exhibit
Description
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 Accounting Officer.
32.3
Principal Financial Officer.
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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 5, 2005
By: /s/ Patrick T. Mulva
Name: Patrick T. Mulva
Title: Vice President, Controller and
Principal Accounting Officer
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INDEX TO EXHIBITS
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by
Chief Executive Officer.
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal
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