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 June 30, 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 June 30, 2005
Common stock, without par value 6,305,131,575
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Statement of Income
3
Three months and six months ended June 30, 2005 and 2004
Condensed Consolidated Balance Sheet
4
As of June 30, 2005 and December 31, 2004
Condensed Consolidated Statement of Cash Flows
5
Six months ended June 30, 2005 and 2004
Notes to Condensed Consolidated Financial Statements
6-17
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
18-24
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
25
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Legal Proceedings
Unregistered Sales of Equity Securities and Use of Proceeds
26
Submission of Matters to a Vote of Security Holders
27-28
Item 6.
Exhibits
28
Signature
29
Index to Exhibits
30
-2-
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
Six Months Ended
June 30,
2005
2004
REVENUES AND OTHER INCOME
Sales and other operating revenue (1) (2)
$
86,622
69,220
166,097
135,280
Income from equity affiliates
1,321
1,012
2,877
2,268
Other income
625
461
1,645
747
Total revenues and other income
88,568
70,693
170,619
138,295
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases (2)
44,700
32,980
83,989
63,525
Production and manufacturing expenses
6,444
5,688
12,552
11,211
Selling, general and administrative expenses
3,508
3,332
6,959
6,574
Depreciation and depletion
2,516
2,350
5,069
4,723
Exploration expenses, including dry holes
214
226
387
401
Interest expense
244
50
300
98
Excise taxes (1)
7,515
6,514
14,753
12,930
Other taxes and duties
10,469
9,931
20,654
20,095
Income applicable to minority and preferred interests
199
142
294
296
Total costs and other deductions
75,809
61,213
144,957
119,853
INCOME BEFORE INCOME TAXES
12,759
9,480
25,662
18,442
Income taxes
5,119
3,690
10,162
7,212
NET INCOME
7,640
5,790
15,500
11,230
NET INCOME PER COMMON SHARE (dollars)
1.21
0.89
2.44
1.72
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (dollars)
1.20
0.88
2.42
1.71
DIVIDENDS PER COMMON SHARE (dollars)
0.29
0.27
0.56
0.52
(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.
7,507
5,969
14,667
12,033
-3-
CONDENSED CONSOLIDATED BALANCE SHEET
Dec. 31,
ASSETS
Current assets
Cash and cash equivalents
25,648
18,531
Cash and cash equivalents - restricted (note 3)
4,604
Notes and accounts receivable - net
25,716
25,359
Inventories
Crude oil, products and merchandise
9,219
8,136
Materials and supplies
1,364
1,351
Prepaid taxes and expenses
3,079
2,396
Total current assets
69,630
60,377
Property, plant and equipment - net
106,215
108,639
Investments and other assets
25,971
26,240
TOTAL ASSETS
201,816
195,256
LIABILITIES
Current liabilities
Notes and loans payable
3,015
3,280
Accounts payable and accrued liabilities
36,185
31,763
Income taxes payable
7,429
7,938
Total current liabilities
46,629
42,981
Long-term debt
6,071
5,013
Deferred income tax liability
20,079
21,092
Other long-term liabilities
24,441
24,414
TOTAL LIABILITIES
97,220
93,500
Commitments and contingencies (note 3)
SHAREHOLDERS' EQUITY
Benefit plan related balances
(803
)
(1,014
Common stock, without par value:
Authorized:
9,000 million shares
Issued:
8,019 million shares
5,100
5,067
Earnings reinvested
146,322
134,390
Accumulated other nonowner changes in equity
Cumulative foreign exchange translation adjustment
1,248
3,598
Minimum pension liability adjustment
(2,499
Unrealized gains on stock investments
0
428
Common stock held in treasury:
1,714 million shares at June 30, 2005
(44,772
1,618 million shares at December 31, 2004
(38,214
TOTAL SHAREHOLDERS' EQUITY
104,596
101,756
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The number of shares of common stock issued and outstanding at June 30, 2005 and
December 31, 2004 were 6,305,131,575 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
2,573
3,023
All other items - net
(1,161
(186
Net cash provided by operating activities
21,981
18,790
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(6,448
(5,742
Sales of subsidiaries, investments, and property, plant and equipment
3,826
1,382
Increase in restricted cash and cash equivalents (note 3)
(4,601
Other investing activities - net
(592
811
Net cash used in investing activities
(3,214
(8,150
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt
1
371
Reductions in long-term debt
(11
(7
Additions/(reductions) in short-term debt - net
(267
(198
Cash dividends to ExxonMobil shareholders
(3,568
(3,405
Cash dividends to minority interests
(138
(100
Changes in minority interests and sales/(purchases)
of affiliate stock
(193
(83
Net ExxonMobil shares acquired
(6,696
(3,475
Net cash used in financing activities
(10,872
(6,897
Effects of exchange rate changes on cash
(778
(192
Increase/(decrease) in cash and cash equivalents
7,117
3,551
Cash and cash equivalents at beginning of period
10,626
CASH AND CASH EQUIVALENTS AT END OF PERIOD
14,177
SUPPLEMENTAL DISCLOSURES
Income taxes paid
10,867
5,031
Cash interest paid
138
131
-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
The Emerging Issues Task Force (EITF) continued discussion of Issue No. 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty" at its March and June 2005 meetings. 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 tentatively concluded that purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another should be combined and recorded as exchanges measured at the book value of the item sold. The EITF has exposed this tentative conclusion for public comment and will discuss it further at a future 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 standing industry practice (although the Corporation understands that some companies in the oil and gas industry may be accounting for these transactions as nonmonetary exchanges). Should the EITF reach a consensus that requires these transactions to be recorded as exchanges measured at book value, the Corporation's accounts "Sales and other operating revenue" and &quo t;Crude oil and product purchases" on the Consolidated Statement of Income would be reduced 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.
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"
-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.
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
-7-
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 val ue 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 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 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. On June 15, 2005, the Corporation appealed this decision to the Louisiana Supre me Court as it continues to believe that the 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. 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. By a 5-to-4 decision in June 2005, the Supreme Court granted the District Court the right to hear the claims of class members that did not satisfy the $50,000 minimum amount-in-controversy requirement. Exxon Mobil Corporation took an after-tax charge of $200 million in the second quarter of 2005.
-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. On July 22, 2005, SABIC appealed 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 appeal.
Tax issues for 1986 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 June 30, 2005
Equity
Other
Company
Third Party
Obligations
Total
Guarantees of excise taxes and custom duties
under reciprocal arrangements
1,053
Other guarantees
2,532
315
2,847
1,368
3,900
The Corporation and certain of its consolidated subsidiaries were contingently liable at June 30, 2005 for $3,900 million, primarily relating to guarantees for notes, loans and performance under contracts. This included $1,053 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 $2,532 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 June 30, 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
Net Income
Changes in other nonowner changes in equity
Foreign exchange translation adjustment
(1,451
(486
(2,350
(738
Unrealized gains/(losses) on stock investments
(47
(177
Reclassification adjustment for gain on sale of
stock investment included in net income
(428
Total nonowner changes in shareholders' equity
6,189
5,257
12,722
10,315
5.
Earnings Per Share
Net income (millions of dollars)
Weighted average number of common shares
outstanding (millions of shares)
6,310
6,506
6,337
6,526
Net income per common share (dollars)
- ASSUMING DILUTION
Effect of employee stock-based awards
60
41
57
37
outstanding - assuming dilution
6,370
6,547
6,394
6,563
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
91
78
173
154
Interest cost
168
153
319
304
Expected return on plan assets
(175
(155
(330
(307
Amortization of actuarial loss/(gain)
and prior service cost
74
72
143
Net pension enhancement and
curtailment/settlement expense
34
44
64
88
Net benefit cost
192
368
382
Annuity Benefits - Non-U.S.
102
85
195
171
213
196
426
395
(212
(167
(414
(336
107
181
13
17
211
215
421
Other Postretirement Benefits
18
76
81
150
(10
(19
(18
51
52
100
135
139
265
222
-11-
7.
Disclosures about Segments and Related Information
EARNINGS AFTER INCOME TAX
Upstream
United States
1,389
1,237
2,742
2,391
Non-U.S.
3,519
2,609
7,220
5,468
Downstream
999
907
1,644
1,299
1,022
600
1,830
1,212
Chemical
343
148
835
266
471
459
1,411
905
All other
(103
(170
(182
(311
Corporate total
SALES AND OTHER OPERATING REVENUE (1) (2)
1,707
1,395
3,243
2,881
5,509
3,722
10,481
8,417
22,429
17,925
41,742
33,757
49,455
39,654
94,944
77,839
2,938
2,588
6,093
4,825
4,582
3,928
9,588
7,544
2
8
6
(1) Includes excise taxes
(2) Includes amounts in sales and other operating
revenue for purchases/sales contracts with
the same counterparty
INTERSEGMENT REVENUE
1,667
1,631
3,474
3,131
6,710
5,075
13,050
9,557
2,418
2,040
4,498
3,638
9,784
7,208
18,511
13,786
1,672
1,220
3,077
2,236
1,403
1,025
2,692
1,989
79
144
167
-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 June 30, 2005) of Exxon Capital Corporation and the deferred interest debentures due 2012 ($1,320 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 June 30, 2005
Revenues and other income
Sales and other operating revenue,
including excise taxes
3,815
-
82,807
7,025
1,316
(7,025
179
446
Intercompany revenue
7,923
11
65,620
(73,567
18,942
150,189
(80,592
Costs and other deductions
Crude oil and product purchases
7,553
106,948
(69,801
Production and manufacturing
expenses
6,146
(1,347
Selling, general and administrative
641
2,988
(122
336
2,179
Exploration expenses, including dry
holes
49
165
681
39
1,820
(2,299
Excise taxes
10,466
Income applicable to minority and
preferred interests
10,907
138,426
(73,569
Income before income taxes
8,035
(21
11,763
(7,023
(9
4,731
(12
7,032
-13-
Condensed consolidated statement of income for three months ended June 30, 2004
3,308
65,912
5,094
(5,095
90
5,921
7
45,275
(51,208
14,413
112,570
(56,303
5,443
75,899
(48,362
1,661
5,352
(1,326
487
2,922
(79
360
1,988
55
172
33
1,285
(1,444
9,928
8,181
104,201
(51,211
6,232
(1
(28
8,369
(5,092
442
3,260
(17
5,109
Condensed consolidated statement of income for six months ended June 30, 2005
7,795
158,302
14,075
2,872
(14,078
309
1,336
14,780
22
23
124,960
(139,785
36,959
31
287,470
(153,863
14,131
202,569
(132,711
3,277
11,908
(2,634
1,198
5,988
(228
667
4,400
77
310
1,088
3,373
(4,246
20,646
20,446
264,241
(139,819
16,513
23,229
(14,044
1,013
9,164
14,065
-14-
Condensed consolidated statement of income for six months ended June 30, 2004
6,331
128,949
10,151
2,270
(10,161
594
10,916
14
9
87,814
(98,753
27,551
219,627
(108,914
10,304
146,532
(93,311
3,252
10,454
(2,496
959
5,744
(131
713
4,007
101
333
67
2,511
(2,822
20,089
15,668
68
202,863
(98,760
11,883
(51
16,764
(10,154
653
6,581
(30
10,183
-15-
Condensed consolidated balance sheet as of June 30, 2005
9,853
15,795
Cash and cash equivalents - restricted
3,244
22,472
9,247
10,583
1,044
15
2,020
20,081
49,534
15,631
93
90,491
150,070
514
395,539
(520,152
Intercompany receivables
9,001
1,043
1,590
348,592
(360,226
Total assets
194,783
1,136
2,119
884,156
(880,378
Notes and loan payables
10
2,982
3,125
33,051
7,424
3,148
43,457
261
160
4,255
Deferred income tax liabilities
2,733
17,053
5,629
27
18,785
Intercompany payables
78,416
110
281,318
Total liabilities
90,187
338
2,053
364,868
(328
94,820
(94,505
Other shareholders' equity
(41,726
785
394
424,468
(425,647
Total shareholders' equity
798
66
519,288
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
2,317
19,117
41,256
15,601
95
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
94
488,977
-16-
Condensed consolidated statement of cash flows for six months ended June 30, 2005
Cash provided by/(used in) operating
activities
768
24
16
21,798
(625
Cash flows from investing activities
Additions to property, plant and
equipment
(645
(5,803
Sales of long-term assets
62
3,764
Increase in restricted cash and cash
equivalents
Net intercompany investing
9,854
47
(9,841
(64
All other investing, net
Net cash provided by/(used in)
investing activities
9,271
(12,472
Cash flows from financing activities
Additions/(reductions) in short-term
debt - net
(290
Cash dividends
Net ExxonMobil shares sold/(acquired)
Net intercompany financing activity
(75
(20
All other financing, net
(331
financing activities
(10,241
(1,225
689
Effects of exchange rate changes
on cash
Increase/(decrease) in cash and cash
(202
(4
7,323
Condensed consolidated statement of cash flows for six months ended June 30, 2004
4,184
15,776
(1,182
(571
(5,171
342
1,040
7,595
(38
(6
(7,621
70
2,765
(10,941
1,182
32
38
(70
(183
(6,880
1,112
69
3,482
-17-
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
Second Quarter
First Six Months
Net Income (U.S. GAAP)
Corporate and financing
Special items included in net income
U.S. Downstream
Allapattah lawsuit provision
(200
Non-U.S. Downstream
Gain on sale of Sinopec investment
Non-U.S. Chemical
REVIEW OF SECOND QUARTER AND FIRST SIX MONTHS 2005 RESULTS
Exxon Mobil Corporation estimated record second quarter 2005 net income of $7,640 million ($1.20 per share) increased $1,850 million from the second quarter of 2004. Second quarter 2005 net income included a special charge of $200 million for the Allapattah lawsuit provision.
_____________________________________________
Record net income of $15,500 million ($2.42 per share) for the first half of 2005 increased 38 percent from the first half of 2004. Net income for the first half of 2005 included a $460 million positive impact (Downstream - $310 million; Chemical - $150 million) from the sale of the Corporation's stake in China Petroleum and Chemical Corporation ("Sinopec") and a special charge in the Downstream of $200 million for the Allapattah lawsuit provision.
-18-
Upstream earnings
4,908
3,846
9,962
7,859
Upstream earnings in the second quarter 2005 were $4,908 million, up $1,062 million from 2004 reflecting strong crude and natural gas prices partly offset by lower production.
On an oil-equivalent basis, production decreased by 4.3 percent from the second quarter of 2004. Excluding divestment and entitlement effects, production decreased by 2 percent. Our mature fields continue to perform as expected and for those fields we operate, maintenance has been as anticipated.
Liquids production of 2,466 kbd (thousands of barrels per day) was 115 kbd lower than the second quarter of 2004. Higher production in West Africa was more than offset by mature field decline, maintenance activities, as well as entitlement and divestment impacts.
Second quarter natural gas production decreased to 8,686 mcfd (millions of cubic feet per day), compared with 9,061 mcfd last year. Higher volumes in Qatar were more than offset by mature field decline, maintenance activities, and the impact of divestments.
Earnings from U.S. Upstream operations were $1,389 million, $152 million higher than last year's second quarter. Non-U.S. Upstream earnings of $3,519 million were up $910 million from 2004.
Upstream earnings in the first half of 2005 of $9,962 million increased $2,103 million from 2004 due to higher liquids and natural gas realizations partly offset by lower production.
On an oil-equivalent basis, production decreased by 4.5 percent from the first half of last year. Excluding divestment and entitlement effects, production decreased by 3 percent from the first half of last year. Our mature fields continue to perform as expected and for those fields we operate, maintenance has been as anticipated.
Liquids production of 2,504 kbd decreased by 104 kbd from 2004. Higher production from new fields in West Africa and the North Sea was more than offset by mature field decline, maintenance, as well as the impact of entitlements and divestments.
First half natural gas production of 9,730 mcfd decreased 545 mcfd from 2004. Higher volumes in Qatar were more than offset by mature field decline, maintenance, and the impact of divestments.
Earnings from U.S. Upstream operations for the first half of 2005 were $2,742 million, an increase of $351 million. Earnings outside the U.S. were $7,220 million, $1,752 million higher than last year.
-19-
Downstream earnings
2,021
1,507
Downstream earnings in the second quarter 2005 were $2,021 million and included a $200 million charge for the Allapattah lawsuit provision. Second quarter 2005 results benefited from improved refining margins and higher refinery throughput. Petroleum product sales were 8,259 kbd, 236 kbd higher than last year's second quarter.
U.S. Downstream earnings of $999 million increased $292 million from last year's second quarter, before the lawsuit provision. Non-U.S. Downstream earnings were up $422 million at $1,022 million.
Downstream earnings in the first half of 2005 of $3,474 million, including the $200 million lawsuit provision and the $310 million Sinopec gain, compared to $2,511 million in 2004 reflecting stronger worldwide refining margins and higher refinery throughput partly offset by weak marketing margins. Petroleum product sales of 8,244 kbd compared with 8,074 kbd in the first half of 2004.
U.S. Downstream earnings of $1,644 million increased $545 million from 2004, before the lawsuit provision. Non-U.S. Downstream earnings of $1,830 million were $308 million higher than last year, before the Sinopec gain.
Chemical earnings
814
607
2,246
1,171
Chemical earnings in the second quarter 2005 were $814 million, up $207 million from the same quarter a year ago due to improved margins partly offset by lower volumes. Prime product sales of 6,592 kt (thousands of metric tons) were down 338 kt from last year's second quarter.
Chemical earnings in the first half of 2005 of $2,246 million were up $1,075 million from 2004 due to improved margins and the $150 million Sinopec gain partly offset by lower volumes. Prime product sales of 13,530 kt were down 192 kt from 2004.
-20-
All other segments earnings
Corporate and financing expenses in the second quarter of 2005 of $103 million were lower by $67 million mainly due to higher interest income.
Corporate and financing expenses in the first half of 2005 of $182 million decreased by $129 million mainly due to higher interest income.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
4,601
Total cash and cash equivalents (at end of period)
30,252
18,778
Cash provided by operating activities totaled $21,981 million for the first half of 2005, an increase of $3,191 million versus $18,790 million in the same period last year reflecting higher net income. Major sources of funds were net income of $15,500 million and non-cash provisions of $5,069 million for depreciation and depletion. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.
Investing activities for the first half of 2005 used net cash of $3,214 million compared to $8,150 million in the prior year. Spending for additions to property, plant and equipment increased $706 million to $6,448 million. Proceeds from asset divestments of $3,826 million in 2005 increased $2,444 million, including almost $1.4 billion from the sale of the Corporation's interest in Sinopec. As discussed in note 3 to the condensed consolidated financial statements, investing activities in 2004 included a pledge in the second quarter by the Corporation to the issuer of a litigation related appeal bond of collateral consisting of restricted cash and cash equivalents of $4,601 million. Other investing activities reflect net additional investments and advances in 2005 compared to collections of advances in 2004.
Net cash used in financing activities of $10,872 million in the first half of 2005 compared to $6,897 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 $30.3 billion at the end of the second quarter of 2005.
-21-
During the second quarter of 2005, Exxon Mobil Corporation purchased 64 million shares of its common stock for the treasury at a gross cost of $3,713 million. These purchases included $3.5 billion to reduce the number of shares outstanding, a $1.0 billion increase from the $2.5 billion of share reduction purchases in the first quarter. As a consequence of the continued strengthening of our financial position, share purchases to reduce shares outstanding will be increased to $5.0 billion in the third quarter. The balance of the purchases offset shares issued in conjunction with company benefit plans and programs. Shares outstanding were reduced from 6,366 million at the end of the first quarter to 6,305 million at the end of the second quarter. During the first half of 2005, shares outstanding were reduced by 1.5 percent. The Corporation purchased 128 million shares of its common stock for the t reasury at a gross cost of $7,337 million, including $6.0 billion to reduce shares outstanding. 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 $9.1 billion at June 30, 2005 was $0.8 billion higher than year-end 2004. The Corporation's debt to total capital ratio was 7.7 percent at the end of the second quarter of 2005, 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.
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 July 1, 2005 the Corporation announced that its subsidiary, Esso Nederland B.V., completed the restructuring of its interest in the Dutch gas transportation business. This restructuring had in principle been agreed under the terms of a Heads of Agreement signed on November 1, 2004 between Esso Nederland B.V., Shell Nederland B.V. and the State of the Netherlands. Following the successful completion of various regulatory reviews and detailed agreements, Esso Nederland B.V. and Shell Nederland B.V. formally transferred their ownership share of 25 percent each in Gasunie's gas transportation business to the State of the Netherlands. At the same time the State of the Netherlands paid an agreed net compensation in the amount of 2.77 billion Euros to Nederlandse Aardolie Maatschappij B. V., the Dutch oil and gas producing company jointly owned by ExxonMobil and Shell. ExxonMobil's positive after-tax earnings impact for this t ransaction of approximately $1.6 billion will be reported in third quarter 2005 results.
-22-
TAXES
Taxes
All other taxes and duties
11,212
10,542
22,156
21,395
23,846
20,746
47,071
41,537
Effective income tax rate
41.4
%
40.5
41.3
41.1
Income, excise and all other taxes for the second quarter of 2005 of $23,846 million were up $3,100 million compared to 2004. In the second quarter of 2005 income tax expense was $5,119 million and the effective income tax rate was 41.4 percent, compared to $3,690 million and 40.5 percent, respectively, in the prior year period. Excise and all other taxes and duties were higher reflecting higher prices and foreign exchange effects.
Income, excise and all other taxes for the first half of 2005 of $47,071 million were up $5,534 million compared to the prior year. First half 2005 income tax expense was $10,162 million and the effective income tax rate was 41.3 percent, compared to $7,212 million and 41.1 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)
3,678
2,840
6,490
5,544
649
624
1,101
1,134
175
323
280
35
40
4,537
3,617
7,954
7,018
ExxonMobil continued its active investment program in the second quarter, spending $4,537 million on capital and exploration projects, compared with $3,617 million last year, with continued strong levels of Upstream spending. Our disciplined project management systems remain a competitive advantage. ExxonMobil-operated projects that are key to future volume growth continue to be on budget and on or ahead of schedule.
Capital and exploration expenditures in the first half of 2005 of $7,954 million were up $936 million compared with last year.
The Corporation expects the level of capital and exploration spending to be about $17 billion in 2005.
-23-
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 requisite service 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 awards granted or modified after that date and for awards granted prior to that date that have not vested. In 2003, the Corporation adopted a policy of expensing all share-based payments that is consistent with the provisions of FAS 123R. All prior year outstanding stock option awards have vested.
The cumulative compensation expense associated with stock grants made in 2002, 2003 and 2004 has been recognized in the income statement using the "nominal vesting period approach." The full cost of awards given to employees who have retired before the end of the vesting period has been expensed. The use of a "non-substantive vesting period approach" reflecting amortization based on the retirement eligibility age, would not be significantly different from the nominal vesting period approach. The non-substantive vesting period approach will be applicable to grants made after the adoption of FAS 123R on January 1, 2006.
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 the application of FSP FAS 19-1 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.
-24-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the six months ended June 30, 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 June 30, 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
An Administrative Complaint captioned "In the Matter of ExxonMobil Production Company" was filed by the Environmental Protection Agency ("EPA") on April 27, 2005. The EPA alleges violations of the Clean Water Act at the Hawkins Field (in Wood County, Texas) related to 13 spills of produced water into potential waters of the United States, occurring from June 2000 to August 2004. The government is seeking a penalty of up to $157,500 and appropriate injunctive relief.
Regarding a previously reported matter, Mobil Oil Australia Pty Ltd ("MOA") and the EPA executed a settlement agreement effective May 18, 2005, relating to a November 2003 notice of violation ("NOV") alleging that MOA transferred for distribution on the U.S. territory of American Samoa 23 barge loads of gasoline that did not contain additives required by the Clean Air Act. These allegations were based on self-disclosure by MOA. The NOV also alleged that the 23 barge loads were not accompanied by complete product transfer documents. MOA took corrective action. Under the terms of the settlement agreement, MOA will pay a civil penalty in the amount of $69,000, and will undertake a supplemental environmental project in the amount of $160,454, which consists of the purchase of respiratory equipment for the hospital in Pago Pago, American Samoa.
In another previously reported matter, ExxonMobil Oil Corporation ("EMOC") and the New York State Department of Environmental Conservation ("NYSDEC") entered into a Consent Order on May 24, 2005, relating to a 2002 NOV and subsequent Notice of Hearing and Complaint served on EMOC regarding the Port Mobil Terminal in Staten Island, New York. The NYSDEC had alleged violations of regulations under New York's Petroleum Bulk Storage and Chemical Bulk Storage programs, including that certain above-ground storage tanks holding petroleum products were not being managed in accordance with regulatory requirements or were in violation of permit requirements. Under the Consent Order, EMOC has agreed to pay a civil penalty of $200,000 and to demolish a number of out-of-service tanks at the terminal (which was recently sold to a third party).
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.
-25-
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASE OF EQUITY SECURITIES FOR QUARTER ENDED JUNE 30, 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
April, 2005
19,877,817
$59.12
May, 2005
22,204,515
$55.83
June, 2005
22,137,357
$58.62
64,219,689
$57.81
(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. In its most recent earnings release dated July 28, 2005, the Corporation stated its intention to increase share purchases to reduce shares outstanding to $5.0 billion in the third quarter of 2005. 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.
-26-
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders on May 25, 2005, the following proposals were voted upon. Percentages are based on the total of the shares voted for and against.
Concerning Election of Directors
Votes
Nominees
Cast For
Withheld
Michael J. Boskin
5,294,707,411
98.4%
87,389,594
William W. George
5,311,387,763
98.7%
70,709,242
James R. Houghton
5,242,365,199
97.4%
139,731,806
William R. Howell
5,222,248,784
97.0%
159,848,221
Reatha Clark King
5,280,358,183
98.1%
101,738,822
Philip E. Lippincott
5,268,015,088
97.9%
114,081,917
Henry A. McKinnell, Jr.
5,263,071,878
97.8%
119,025,127
Marilyn Carlson Nelson
5,261,380,904
120,716,101
Lee R. Raymond
5,264,329,882
117,767,123
Walter V. Shipley
5,230,711,700
97.2%
151,385,305
Rex W. Tillerson
5,272,674,286
98.0%
109,422,719
Concerning Ratification of Independent Auditors
Votes Cast For:
5,205,377,542
97.7%
Votes Cast Against:
124,766,557
2.3%
Abstentions:
51,952,906
Broker Non-Votes:
Concerning Political Contributions
284,203,497
7.2%
3,683,201,907
92.8%
387,082,906
1,027,608,695
Concerning Board Compensation
228,708,498
5.4%
4,031,335,746
94.6%
94,444,066
Concerning Industry Experience
173,048,031
4.1%
4,078,387,712
95.9%
103,052,567
Concerning Aceh Security Report
294,943,409
7.6%
3,594,963,877
92.4%
464,581,024
-27-
Concerning Amendment of EEO Policy
1,160,578,656
29.5%
2,777,223,013
70.5%
416,686,641
Concerning Biodiversity Impact Report
320,065,371
8.1%
3,614,747,511
91.9%
419,675,428
Concerning Climate Science Report
410,015,322
10.3%
3,582,042,479
89.7%
362,430,509
Concerning Kyoto Compliance Report
1,133,469,349
28.4%
2,851,708,488
71.6%
369,310,473
For additional information, see the registrant's definitive proxy statement dated April 13, 2005 -- from page 6, beginning with "Item 1 - Election of Directors", through page 9; and -- from page 28, beginning with "Item 2 - Ratification of Independent Auditors", through page 41.
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.
-28-
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: August 4, 2005
By: /s/ Patrick T. Mulva
Name: Patrick T. Mulva
Title: Vice President, Controller and
Principal Accounting Officer
-29-
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
-30-